Sun Resources to acquire Texan based oil project in prolific Eagle Ford Shale Oil Fairway

Sun Resources (ASX: SUR) is positioned to acquire a significant oil project in the U.S., with the company's shares currently in a voluntary suspension due to a capital raising plan being undertaken.

The acquisition of the Delta Oil Project - consists of an extensive 10,000 acres of oil and gas leases in the emerging ‘Eaglebine’ oil play within the shallow oil zone of the Eagle Ford Shale trend.

Independent consulting firm Ralph E. Davis has estimated unrisked 10 million barrels of net Prospective Oil Resources in one sand unit of the Delta Oil Project.

Assuming production of the 10 million barrels of Prospective Resources, Ralph E. Davis estimated the NPV of the Delta Oil Project of US$310 million would equate to:

- NPV of US$10,333,333 per well; and
- NPV of US$31 per barrel of oil for 10 million barrels of oil from one 20 feet thick sand unit.
Recent horizontal wells within 35 miles of the Delta Oil Project have obtained initial flow rates of 900 to 1,200 barrels of oil per day from multi-staged fracced laterals of 6,000 to 7,000 feet in sandstone units and operators are reporting Estimated Ultimate Recoveries (EUR) of 300,000 to 600,000 barrels of oil per well.

Sun has entered into a binding Term Sheet with a Houston based private oil and gas company, where Sun will acquire 100% working interests in all of the leases, each with a minimum 75% net revenue interest, a three year lease term and in most instances, also have a 2 year option to extend the lease term.

Highlighting the potential of the project, independent petroleum engineering and geological consulting firm Ralph E. Davis estimates unrisked 10 million barrels of net Prospective Oil Resources in just one sand unit.

The consultants also pointed to the potential upside of a further unrisked 10 to 20 million barrels of Prospective Oil Resources in other sand units in the 450 feet thick prospective sequence.

Low risk acquisition

The acquisition looks to be a relatively low risk acquisition, which has potential for attractive economics.

Matthew Battrick, managing director, commented on the transaction and said, “We are very excited by the potential of the Delta Oil Project to become a significant oil producer, analogous to successful developments along the Eagle Ford Shale oil and gas producing trend in recent years.

"The substantial lease area with 100% working interests we are acquiring is an attractive asset which provides Sun with the potential to attract an experienced horizontal well operator to reduce development risk and in the success case, establish early production.”

The Delta Oil Project also includes 5 secondary oil and gas target horizons, including the deep Bossier sands, where several major gas discoveries have been made in close proximity to the project.

Also - the principal shareholders of the vendor will subscribe for a minimum of $500,000 in Sun pursuant to a capital raising.

Highlighting how quickly Sun is moving the acquisition forward, the company has already completed due diligence on the first 1688 acres at the project.

Capital raising and consideration

Sun shares are currently in a short voluntary suspension pending the finalisation of a funding program.

Sun has already announced that the company is currently undertaking a A$10.8 million capital raising program to fund the Delta Oil Project, and to also finance early exploration activities.

A maximum of around $8 million will be applied to the settlement of the acquisition.

Sun, subject to shareholder and regulatory approval, will issue to the vendor the following securities as consideration for Sun’s purchase of the vendor’s property rights to the Delta Oil Project:

- Up to 58.824 million ordinary shares;
- Up to 50 million options, each having an exercise price of $0.025 and expiry date of 31 March 2014; and
- Up to 320 convertible performance shares.

Recent flow rates near the Delta Oil Project

Further boosting the potential of the acquisition is that nearby operations have experienced some decent flow rates.

Recent horizontal wells within 56 kilometres (35 miles) of the Delta Oil Project have obtained initial flow rates of 900 to 1,200 barrels of oil per day from multi-staged fracced laterals.

These laterals are 2,000 metres to 2,300 metres (6,000 to 7,000 feet) in sandstone units and operators are reporting Estimated Ultimate Recoveries (EUR) of 300,000 to 600,000 barrels of oil per well.

The significance of these results are that they are comparable to wells in the Eagle Ford Shale oil zone in the well-known producing areas.

In addition, the Eaglebine target reservoir depths of 1,700 metres to 2,600 metres (5,000 to 8,000 feet) are shallower than typical Eagle Ford Shale wells resulting in materially lower well costs.

The impact is this should materially improve the net present value (NPV) of individual wells.

Background to the Eaglebine Oil Play

Independent American oil company, Petrohawk Energy Corporation, drilled the first horizontal Eagle Ford Shale (EFS) well in South Texas in 2008.

Since then, hundreds of wells have been successfully drilled and completed across the EFS trend by a growing number of EFS oil and gas producers.

Early development of the EFS was in the gas-condensate zone where tight carbonate layers were targeted by long horizontal wells with multiple intervals (multi-stage) of hydraulically fractured (fracced) zones along the well bore, producing commercial flows of gas and oil/condensate.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/19128/sun-resources-to-acquire-texan-based-oil-project-in-prolific-eagle-ford-shale-oil-fairway-19128.html