Mainland Acquires Option on Leases in Northwest Louisiana
Mainland Resources, Inc., entered into an option agreement (the "Option Agreement") with Kingsley Resources, Inc., Nevada corporation ("Kingsley") on February 27, 2008, pursuant to which the Company acquired all the right, title and interest Kingsley holds in and to certain leasehold estate.
These leases refer to approximately 2551 net acres located in De Soto Parish in northwest Louisiana. The leases create a contiguous block of acreage on the southeast flank of the East Holly field.
Based on well bore petrophysical analysis, actual production tests, mud logging records and electric log analysis from wells located in the area of the lease block, Mainland Resources, Inc. expects to target the Hosston and Cotton Valley sandstone and Haynesville shale formations. Historically, recoverable gas volumes range from 2 Bcf to a high of 32 Bcf per section.
Other De Soto Parish area operators include Petrohawk Energy, El Paso Gas, Winchester Petroleum, Chesapeake Energy and Encana. All are actively involved in acquiring new land positions in the area on which to drill.
Petrohawk recently completed a horizontal Cotton Valley well that, according to news releases, is said to have tested 16.0 Mmcf/d. El Paso has recently drilled and completed a vertical Cotton Valley well that, according to news releases, is said to have tested 2.3 Mmcf/d. Chesapeake has only very recently announced its first discoveries in the Haynesville Shale, which it states could produce over 3 Bcf and some analysts suggest may produce 5+ Bcf gas per well.
The Kingsley Leases were the subject of a purchase agreement dated December 11, 2007 and modified February 1, 2008 (collectively, the "Leasehold Purchase Agreement") between Kingsley and Permian Basin Acquisition Fund ("Permian"), pursuant to which Kingsley acquired the sub-surface rights provided for in the Leases.
In accordance with the terms and provisions of the Option Agreement: (i) Kingsley granted to the Company all of its right, title and interest in and to the Leases and the Company assumed all rights, duties and obligations of Kingsley under the Leasehold Purchase Agreement; (ii) the Company agreed to pay to Kingsley $100,000.00, which is payable as a reimbursement of a deposit paid by Kingsley to Permian under the Leasehold Purchase Agreement; and (iii) on or about March 15, 2008 or at the time the Company pays the $100,000.00 to Kingsley under the Option Agreement and such other amounts to Permian as required of Kingsley under the Leasehold Purchase Agreement, the right, title and interest of Permian and Kingsley in the Leases will be transferred and delivered to the Company, subject to residual royalty payment and other rights reserved under the Leasehold Purchase Agreement and the Option Agreement by Permian and Kingsley.
On March 14, 2008, Mainland Resources, Inc. paid the aggregate amount of $587,596.00 to Permian, which did not include the $100,000.00 required to be paid by the Company to Kingsley under the terms of the Option Agreement. Arrangements for payment of the $100,000.00 to Kingsley are pending. In accordance thereof, the right, title and interest of Permian and Kingsley in the Leases was transferred to the Company effective March 14, 2008 by way of assignment.