Friday, September 18, 2009

Mississippi Venturers Join Up

Mainland Resources and American Exploration Corp. have signed a letter of agreement to jointly develop 13,500 acres in western Mississippi that the companies believe is prospective for the Haynesville Shale. Yesterday I noted American Exploration's news that a Schlumberger report showed lots of potential for the acreage.

Mainland contributed 8,500 acres to the venture while American contributed 5,000. Mainland will be the operator and contribute 80% of the initial drilling costs (drilling and completion) for a 51% working interest in the venture. The remaining costs will be split 51% Mainland/49% American. I'm not quite sure how the economics work: American contributes 37% of the land and 20% of the costs for a 49% ownership interest? I've got to get in on a deal like that. I'm guessing that American's land might be better quality acreage, but that is not clear from the release.

That American and Mainland would get together is no surprise. Drilling a complicated horizontal well at the depth required in Mississippi (the shale there is thicker but deeper underground) will require lots of capital and expertise. Also, Mike Newport, CEO of Mainland, is a technical advisor to American Exploration, so I figured it was just a matter of time before they joined forces.

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