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U.S. Energy Systems Highlights Corporate Growth Strategy and UK Unit's Progress in Investor Meetings.

- Provides Upward Revisions to UK Performance Projections -

NEW YORK -- U.S. Energy Systems, Inc.'s (Nasdaq: USEY) value enhancement strategies are underway across the Company, with good progress already evident in USEY's recently-acquired UK natural gas business, Chief Executive Officer Asher Fogel said at a meeting with investors in New York City. USEY owns and operates renewable energy, clean energy and power generation businesses in the U.S. and UK.

Mr. Fogel reviewed USEY's corporate growth strategy, discussed the Company's two operating businesses, and provided new and upwardly revised performance expectations for the Company's UK Energy Systems Ltd. (UKES) subsidiary.

Revised UK Energy Systems Ltd. Performance Projections

Specifically, Mr. Fogel told investors that USEY currently expects UKES's North Yorkshire gas project to generate annual cash flows trending toward the higher end of the range between approximately $14 million and $28.6 million from December 2006 through August 2009. USEY previously projected the North Yorkshire project to contribute average annual cash flows of at least $14 million during the same period. USEY also provided its first revenue projections for the North Yorkshire project, estimated at between approximately $16.6 million and $31.2 million annually during the same time period.

During the three years after August 2009, USEY expects the project to increase its cash flow contribution to at least $37 million annually, compared to USEY's previous projection of average annual cash flow generation for the same period of at least $34 million. USEY expects the project to generate revenues of between approximately $59.2 million and $75.6 million during the three years after August 2009.

Mr. Fogel highlighted the significance to USEY of the expected contributions by the recently-acquired UK business, noting that, by comparison, as of March 31, 2006, the trailing twelve month cash flow generated by the Company's U.S.-based biogas business was $1.7 million.

As discussed further below, Mr. Fogel also told investors that USEY believes that its Newton Prospect, an unexplored UK gas prospect, has the potential to contain between 350 billion cubic feet (bcf) and 1 trillion cubic feet of gas, with production potential of 100 or more million cubic feet per day (mmcfd). By comparison, the proved and probable reserves of USEY's related UK gas properties are estimated at 46 bcf and 16.4 bcf, respectively. The Newton Prospect's proved and probable reserves have not yet been defined.

USEY Corporate Strategy

"We believe that the renewable energy, clean energy and power generation sectors - or 'clean and green' energy - are attractive markets due to a combination of fundamental supply and demand along with public policy-generated incentives," Mr. Fogel said.

He explained that U.S. Energy Systems applies energy industry management expertise in operations, finance and turnarounds to grow the value of 'clean and green' energy businesses. "Our strategy is to identify and acquire high potential clean and green energy businesses whose values are depressed due to financial or operational constraints. Our experienced executive and operating management team works together to develop and execute focused plans for unlocking trapped value and building strong and successful businesses for the benefit of customers, business partners and the Company's shareholders," said Mr. Fogel.

USEY is able to further enhance shareholder value by applying green tax credits and net operating loss carryforwards to maximize after-tax income.

"We are pursuing our strategy in each of our two current operating businesses, UK Energy Systems and U.S. Energy Biogas Corp. Likewise, we are pursuing value enhancement opportunities at the corporate level. In addition, we are continually exploring further acquisition possibilities in clean and green energy, consistent with our value-oriented criteria and strategy," Mr. Fogel said.

"I believe that USEY's combination of strategy, assets and people give us the opportunity to become a $1 billion or larger market cap company in three years," said Mr. Fogel.

Based upon management's initial pro forma financial estimates, filed with the SEC on October 23, 2006, to reflect the effect of the UK transactions as if they had occurred on June 30, 2006, the Company had total assets at that date of approximately $371 million, approximately $4.5 million in unrestricted cash and an approximately additional $100 million in restricted cash. USEY's current market capitalization is approximately $120 million. The Company also has approximately $256 million in long-term debt, and approximately $52 million of net operating loss carryforwards.

UK Energy Systems Discussion

The Company's objective in the UK gas market is to grow production volume. Mr. Fogel said, "We have a highly experienced UK management team executing our UK natural gas exploration and production strategy, and it is meeting or exceeding our project goals."

Mr. Fogel explained that the Company's upwardly revised performance projections were a result of good progress in executing Stage One of its development strategy, focused on bringing its 42MW gas-fired power plant to full capacity, gas field production investments and conducting 3D seismic analysis of the gas properties. Stage One is scheduled to be completed by March 2007. For a detailed overview of USEY's UK natural gas exploration and production strategy, please refer to USEY's press release issued August 10, 2006.

Mr. Fogel stated that the Company's recently acquired UK natural gas properties are distinguished by uniquely combining offshore production potential with an onshore cost structure. Located in the lightly explored Cleveland Basin, the 100,000 acres of gas properties are an onshore extension of the Southern North Sea Gas Basin with geology comparable to less accessible offshore fields. "USEY's UK gas properties promise exciting offshore-sized potential," said Mr. Fogel. "We believe we have a clear, sound and financed growth strategy for increasing production of economical proved and probable reserves, as well as an opportunity to find new reserves in a very large unexplored gas field."

US Energy Biogas Discussion

Mr. Fogel also updated investors on the Company's high growth potential landfill gas business, US Energy Biogas ("USEB"). Based in Avon, Connecticut, USEB is among the largest and most respected developers of landfill gas projects in the U.S. Currently, USEB owns and operates 23 biogas-to-energy projects in 10 states, with 54MWs of generating capacity and 714,000 btu annual gas output.

"Our U.S. landfill gas business currently generates gross profit margins in excess of 50 percent, and our goal is to double USEB's free cash flow over next 4 years. Our USEB leadership team is highly experienced, and together we are finalizing business development plans focused on acquisitions, refinancings, new business initiatives leveraging USEB's capabilities, strategic partnerships, and targeted investments in other renewable technologies," Mr. Fogel said.

Corporate Discussion

Mr. Fogel concluded by adding that management believes there are opportunities to improve the capital structure of USEY and its subsidiaries, in order to decrease its cost of funds and increase available growth capital.

About U.S. Energy Systems, Inc.

U.S. Energy Systems, Inc. is an owner of green power and clean energy and resources. USEY owns and operates energy projects in the United States and United Kingdom that generate electricity, thermal energy and gas production.

Certain matters discussed in this press release are forward-looking statements, and certain important factors may affect the Company's actual results and could cause actual results to differ materially from any forward-looking statements made in this release, or which are otherwise made by or on behalf of the Company. Such factors include, but are not limited to, revisions in the initial estimates in the fair market value of the acquired assets, failure to realize the estimated savings or operating results of the acquisition, and other risks associated with acquisitions generally, changes in market conditions, the inability to commence planned projects in a timely manner, the impact of competition, the ability to complete acquisitions, and access to needed financing or refinancing on acceptable terms, as well as other risks detailed from time to time in U.S. Energy's Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the year ended December 31, 2005 as well as the 10-Q for the period ended June 30, 2006. We do not undertake to update any of the information set forth in this press release.
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Publication:Business Wire
Date:Nov 2, 2006
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