Mainland Resources, Inc.(fka MNLU)

[Ecomike]

Seems that Southwestern Energy (another mostly NG company) just had its best quarter even with the current low natural gas prices. So much for that recent BS article about fracking, NG...... This should help quell any concerns about the real value of MNLU and AEXP shares.

http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=7735557

To begin, we are excited to report one of the best quarters ever for our Company. We posted outstanding growth in earnings, cash flow and production in the second quarter, despite the low gas prices we have experienced. Our production continues to grow, primarily driven by our Fayetteville Shale operations, however we are also beginning to see the impact of our Marcellus Shale activities on our production where operated production from the Marcellus Shale is over 100 MMcf per day from 17 horizontal wells. Total production growth was 25% during the quarter, fueled by our Fayetteville Shale play which grew by 28% with production of 107 Bcf. We also produced 5.1 Bcf from the Marcellus Shale, 6.3 Bcfe from East Texas and 4.0 Bcf from our Arkoma Basin operations.


Finally, we announced a new potential unconventional horizontal oil play and hope to get two test wells drilled and completed by year-end.


Fayetteville Shale

Now, to talk about each of our operating areas. We placed 149 operated wells on production in the Fayetteville Shale during the first quarter, which resulted in gross operated production reaching approximately 1.8 Bcf per day at July 25.


Our operated horizontal wells had an average completed well cost of $2.8 million per well with an average drilling time of 8.2 days during the second quarter. We also placed 10 wells on production during the quarter that were drilled in 5 days or less. In total, we have drilled 55 wells to date in 5 days or less.


Our average initial producing rates were approximately 3.0 million cubic feet per day, which is down from the first quarter primarily due to slightly shorter laterals, locational differences in the mix of wells and more pad drilling which creates additional well interference and uneven loading of compressors. Our lowest average production this quarter was in April, where we put 55 wells on production at an average initial rate of 2.7 million cubic feet of gas per day. These numbers improved during the quarter and by June our average initial production rate was 3.4 million cubic feet of gas per day.


Marcellus Shale

In Northeast Pennsylvania, we are very encouraged by what we have seen to date. At June 30, we had completed 17 operated Marcellus Shale horizontal wells in our Greenzweig area in Bradford County. Net production from the area was 5.1 Bcf in the second quarter of 2011, compared to 2.8 Bcf in the first quarter and 0.8 Bcf in the fourth quarter of 2010. In May, we initiated compression on 7 wells and this reduced the average line pressure on those wells by 600 to 650 psi. The other 10 wells, however, are currently producing without the benefit of compression into line pressures of over 1,000 psi. Gross operated production from this area is currently approximately 104 MMcf per day.


We continue to place several wells on production from a single pad at the same time and the results continue to be strong. However, one specific well of interest is the Ball Myer 1H well, which we placed on-line in June. This well had a completed lateral of 4,500 feet and was fracture stimulated in 19 stages and is currently producing at a tubing constrained rate of approximately 7.8 MMcf per day at a flowing tubing pressure of 1,400 psi after 33 days of production. Prior to this well, our horizontal wells have had average lateral lengths of approximately 3,900 feet and have averaged 10 stages of completion. Going forward, our future horizontal wells are expected to average 12 to 13 stages per well with estimated completed well costs for those wells of $5.0 to $5.5 million per well.


In August, we will be moving a 2nd rig up to Pennsylvania to begin drilling in our Range Trust area in Susquehanna County. For the remainder of 2011, we expect to drill 3 wells in the Greenzweig area, 9 wells in the Range Trust area, 10 wells in the Price area and 2 wells in Lycoming County. The majority of these wells will be placed on production in 2012.


New Ventures

Switching to New Ventures, in New Brunswick we are on schedule to drill at least one well in the second half of 2012. We have started the acquisition of approximately 410 miles of 2-D data and hope to have that finished in September. We are also in the second phase of geochem acquisition which will provide more information on potential hydrocarbon generation. That work should be completed next month. Early in 2012, we will shoot a tighter grid of 2-D seismic to help give us a better understanding of where to drill our first well.


Outside of New Brunswick, we currently have approximately 835,000 net undeveloped acres in connection with other New Ventures prospects. Of these 835,000 net acres, we have approximately 460,000 net acres where we will begin testing a new unconventional horizontal oil play targeting the Lower Smackover Brown Dense formation. This acreage amount, incidentally, happens to be almost the same number of acres we had when we announced the Fayetteville Shale back in August of 2004.


The Brown Dense is an unconventional oil reservoir found in southern Arkansas and northern Louisiana. It ranges in vertical depths from 8,000 to 11,000 feet, is laterally extensive over a large area and ranges in thickness from 300 to 550 feet. Our investment in undeveloped acreage in the play area to date is approximately $150 million and our leases currently have an 82% average net revenue interest. We will be targeting the more mature, higher gravity oil under our lease area which we believe could be in the 40 to 55 API range, if successful.



The formation is an Upper Jurassic age, kerogen-rich carbonate source rock which covers an area from Texas to Florida. We extensively reviewed the Brown Dense across the region and have indications that the right mix of reservoir depth, thickness, porosity, matrix permeability, sealing formations, thermal maturity and oil characteristics are found in the area of Southern Arkansas and Northern Louisiana. Porosity ranges from 3% to 10% in the area and the anticipated pressure gradient is 0.62 psi/ft, so it is over-pressured. Estimated matrix (unenhanced) permeability based on various methods of measurement ranges from 0.068 millidarcies to 1.17 millidarcies. Both porosity and matrix permeability are comparable to metrics reported in the Eagle Ford play in South Texas.


We have assembled log data on 1,145 wells covering 5 states to evaluate the Brown Dense, have acquired over 6,000 miles of 2-D seismic data and have gathered and analyzed rock data from cores and cuttings from 70 wells that penetrated the Brown Dense. At this point, we currently have more data about the Brown Dense than we had on the Fayetteville Shale when it was announced.



We hope to receive a permit to drill our first well in Columbia County, Arkansas, in August and will spud later in the third quarter. This well is planned to drill to a vertical depth of approximately 8,900 feet and has a planned horizontal lateral length of 3,500 feet. The well will be extensively logged and a full core is planned over the entire Brown Dense interval before the well is completed. The completed well cost of this first well is estimated to be around $10 million, which more than $2 million is science work.


Our second well is planned to spud later this year with a total vertical depth of approximately 10,700 feet and a 6,000-foot horizontal lateral in Claiborne Parish, Louisiana.


We plan to drill up to 10 additional wells in 2012 as we continue to test the concept. This formation has sourced several large conventional oil and gas fields and our hope is to use horizontal drilling technology to unlock at least as much potential. Positive test results could significantly increase our activity in this play over the next several years.


We are also working on other New Ventures ideas and will provide updates on those in the future.


Other Areas

Finally, in East Texas, we sold certain oil and natural gas leases, wells and gathering equipment in Shelby, San Augustine and Sabine Counties for approximately $108 million, before customary purchase price adjustments. This divestiture included only the producing rights to the Haynesville and Middle Bossier Shale intervals in this acreage with net production of approximately 7 MMcf per day as of May 25, 2011 and proved net reserves of approximately 25.1 Bcf at December 31, 2010. We have deposited $85 million of proceeds from this sale to facilitate potential like-kind exchange transactions.