Mainland Resources reports that American Exploration Corporation (“American Exploration”) has failed to fund its 20% share of the estimated total well costs of the Burkley-Phillips No. 1 Well on the Company’s Buena Vista Prospect (the “Prospect”) in Jefferson County, Mississippi. As a result, American has forfeited its right to a 29% working interest in the well and in the Prospect in favor of the Company.

Pursuant to a Letter Agreement dated October 1, 2009, the Company and American Exploration agreed to contribute approximately 8,500 net acres and 5,000 net acres, respectively, of contiguous lands for joint development (for a total of approximately 13,500 net acres), with the Company as Operator, in the Buena Vista area of Jefferson County, Mississippi. As previously disclosed in its news release dated March 25, 2010, Mainland has issued an Authorization for Expenditure (AFE) for the Burkley-Phillips No. 1 Well which contemplates drilling to a depth of 22,000 feet or a depth sufficient to evaluate the Haynesville Shale formation. The total completed well cost is estimated at $13,550,000. Under the Letter Agreement between the parties, American Exploration had 30 days to contribute its 20% share of the total completed well cost, or $2,710,000.

The 30-day period expired on Friday, April 23, 2010, thereby causing American Exploration to forfeit a 29% working interest in the well and the Prospect. American Exploration will continue to be entitled to receive a 20% working interest in the well and the Prospect after completion (subject to compliance by American Exploration with all other terms and conditions of the Letter Agreement and the related Joint Operating Agreement).

Mainland was previously paying 72% of the total cost to drill and complete the Burkley- Phillips No. 1 well, for a 45.9% working interest. Due to the fact American Exploration did not make its contribution in response to the cash call, Mainland will now pay 90% of the total cost of the well and Guggenheim Energy Opportunities, LLC (“Guggenheim”) will pay 10%. Accordingly, the respective working interests of the parties after completion are anticipated to be as follows: Mainland - 72%, American Exploration -20%, and Guggenheim - 8%. This working interest breakdown will apply to the remainder of the leasehold and project area.

Tags: Mainland Resources