Tuesday, July 15, 2008

Mainland/Petrohawk Deal

I just want to scream! I've been wanting to pick up some Mainland Resources (MNLU.OB) stock for the past few weeks, but I kept waiting for it to come down. Too late now! Today, Mainland and Petrohawk (HK) announced a joint venture deal for Petrohawk to assist in (and fund) development of Mainland's acreage in the Haynesville Shale. Mainland will retain rights in the shallower formations to drill in the Cotton Valley and Hosston formations.

The JV deal, in which Mainland will transfer 60% of the Haynesville leases to Petrohawk, calls for Petrohawk to the be designated Operator of the development. For the first well drilled in the Haynesville Shale, Petrohawk will fund 100% of the costs. The second well will be funded 80% by Petrohawk and 20% by Mainland, and the third well will be 60/40. Additionally, Petrohawk and Mainland will enter into an arrangement for Petrohawk to gather and market Mainland's production from the shallower leases.

Earlier this year, Mainland, which is a newly formed company, purchased 2,695 acres in the East Holly Field in DeSoto Parish for the purpose of exploring the Cotton Valley formation. As luck would have it, just a few months later, news about the Haynesville Shale broke and Mainland found itself sitting on prime acreage that it acquired for very little cash. The price of Mainland has been rising steadily over the past few months and the news of the Petrohawk deal sent it up more than 12% today. I am guessing that this news makes the stock rather fully priced, but I've been wrong before. In any case, Mainland ($6.55 as of 7/15/08) has done pretty well for a bulletin board stock that was trading at just over $1 in March 2008.

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