U.S. Energy Systems, Inc. Provides Update on Restructuring Plans and Names Joseph P. Reynolds CEO

Business Wire, Oct 2, 2007

NEW YORK -- U.S. Energy Systems, Inc. (NASDAQ: USEY), a "clean and green" energy company, today provided an update on its restructuring plans and announced the appointment of Joseph P. Reynolds as Chief Executive Officer and President of USEY and as Chief Executive Officer of the Company's UK subsidiary (UKES). Mr. Reynolds, who has over 30 years of experience in the energy industry, has held operations and management positions with Occidental Petroleum, Tenneco Gas/El Paso, Enron and Unocal.

Personnel Appointments

During his long and distinguished career in the energy sector, Mr. Reynolds has developed and managed international midstream and downstream oil and gas facilities, as well as LNG, chemical, and power generation projects, including renewable energy projects. He has been responsible for overseeing the development, financing and management of greenfield facilities and acquisitions, and the development of new technology, including heavy oil extraction, shale oil, ethanol and biomass. He holds an MBA from Durham University UK and a BS from the University of Alabama in petroleum/chemical processing. Mr. Reynolds also attended Teesside University (Polytechnic) UK, studying Electrical/Control Engineering. He is a registered professional engineer in Europe, a Chartered Chemical Engineer and a Chartered Scientist in the UK.

The Company also announced senior level management promotions in its U.S. Energy Biogas (USEB) subsidiary. Richard J. Augustine, who has been serving as President of USEB, was appointed the subsidiary's Chief Executive Officer. Mr. Augustine will also retain his position as Vice President at USEY. Steven Laliberty, currently serving as Vice President of Operations for USEB, succeeds Mr. Augustine as President of USEB. With a combined 35 years of experience in the landfill gas sector, Messrs. Augustine and Laliberty have expertise in all aspects of the business, including operations, development and financings, as well as the monetization of tax credits and the sale of carbon credits and renewable energy credits (RECs).

Restructuring Update

The Company noted that these new appointments come as USEY moves on to the next stage in its restructuring process. At UKES Mr. Reynolds succeeds Grant Emms, who has resigned as CEO. Mr. Emms is working with potential investors who are engaged in discussions with the Company regarding a purchase of the Company's UK assets. At USEY Mr. Reynolds succeeds Richard Nevins, who had been serving as interim Chief Executive Officer. Under Mr. Nevins' leadership the Company has been in discussions with its lenders to stabilize its position through restructuring existing indebtedness and accessing restricted cash reserves and cash available from subsidiaries that is currently restricted by the financing arrangements of the subsidiaries.

The Company announced that it has now successfully entered into arrangements with its lenders to fund short-term operating and capital requirements and to defer certain obligations. One of the Company's senior lenders has extended additional credit to USEY to enable the Company to meet certain working capital deficiencies. In addition, the Company's existing lenders have now agreed to allow the Company to draw down funds from restricted reserves to pay for certain operational and capital expenditures approved by the lenders in connection with the UK operations.

The Company's lenders have now made funds available to allow the Company to perform scheduled maintenance at the Knapton power plant and to undertake repairs at one of the UK gas wells. As previously reported, one of the producing wells did not return to production after it was shut down for collection system repairs. As a result of this shortfall in the production of gas, the power plant is producing at approximately 20% below its generating capacity, causing a reduction in revenues of approximately $13,000 per day. A workover of the well is needed to bring the well back into production. As previously disclosed, management estimates that this workover will cost approximately $1,000,000 and take 6 to 8 weeks from commencement to complete. There can be no assurance that the initial workover will be successful. If it is not successful, more expensive procedures may be required to bring the well back to production.

The Company's lenders have also made funds available to allow the Company to continue a 3D seismic study of its UK gas reserve structures. The field work for the seismic study is expected to be completed shortly, and analysis of the field data is expected to be completed by January 2008. When complete, the 3D seismic study will provide the Company's management with additional guidance regarding the optimal location of additional wells needed to monetize the gas identified in the reserve reports, which are expected to be updated before the end of the year.

In addition, the Company's lenders have given USEY relief from capital contribution requirements under the UK financing arrangements. The Company previously reported that it had insufficient funds to make certain required payments that were due beginning in September 2007. Under a recent amendment to the UK financing documents, the Company's lenders have permitted the Company to defer these capital contributions so that they are not due until November 30, 2007. Because the Company continues to be in non-monetary default under the UK financing arrangements however, it is required to pay interest at the default rate under the UK financing arrangements. This results in an additional monthly interest payment equal to approximately $220,000, of which approximately $92,000 is rolled up into principal under the terms of the UK financing documents.