Page 6 - Sun Resources Annual Report 2013

CHAIRMAN’S LETTER
SUN RESOURCES ANNUAL REPORT 2013 4
Dear Fellow Shareholder,
The current financial year has been an eventful year for
Sun, our second year in the Woodbine Tight Oil Play. Last
year the focus was on consolidation and expansion of
Sun’s exploration acres in Leon County and surrounds,
East Texas, followed by the transition to drilling and
fraccing of our first tranche of horizontal wells in the
Woodbine Formations.
Sun’s objective to unlock value in the Woodbine,
particularly in the Lower Woodbine, remains unchanged.
As a result of this focus, Sun has disposed of its interests
in Malta, Australia and Thailand.
East Texas is a rapidly emerging unconventional oil and
gas producing region with multiple oil-bearing targets at
various depths adding to its appeal. The rise in Texas’ oil
production, which is on track to reach 3 million barrels of
oil production per day by end of 2013, is largely driven by
increased output from Eagle Ford Shale Formations and
increasing production from other shale and sandstone
formations elsewhere in Texas. This includes the various
shale and sandstone layers comprising the Woodbine
Formations which we are targeting in and around Leon
County, where Sun has accumulated about 20,065 acres
of highly prospective leases with respect to oil potential.
Halcón Resources Corporation and others have recently
de-risked the Woodbine Oil Play by successfully fraccing
and developing a number of wells, each producing about
1,000 plus barrels of oil per day.
Sun’s $20 million placement in July 2012 was invested
largely in drilling two vertical wells and drilling, fraccing and
development of five horizontal wells in the Woodbine and
adjacent formations. All the horizontal wells produced oil
but at low flow rates. Our immediate challenge is to deliver
higher flow rates by refining our fraccing procedures.
Successful fraccing techniques vary greatly based on a
number of parameters which include site-specific rock and
formation characteristics. Thus programmes that worked
in the Eagle Ford Formations do not necessary work
successfully in Woodbine Formations.
The presence of high volumes of oil in the Woodbine
and other sandstone and shales horizons in our areas of
interest has been established. Likewise, successful fraccing
on neighbouring leases with similar if not almost identical
formations and horizons has resulted in good oil flows. This
information validates our decision to move away from high-
risk exploration for conventional oil and gas to exploring the
lower risk unconventional oil plays of Texas.
For the period to 30 June 2013, Sun and its joint venture
partners continued with clean-up and flow back operations
at its three horizontal Woodbine wells (Ellis #1H, CW Brown
#1H and John Beeler #1H) at the Beeler Oil Project, with oil
production ongoing under the operator, Amerril Energy LLC.
These wells have been fitted with jet pumps and continue
to produce oil. Sun is working with Amerril to deliver
commercial oil from the two horizontal wells Seale #1H and
T. Keeling #1H in the Lower Woodbine in the SW Leona
area of the Amerril Oil Project area.
In June 2013 Sun agreed with Petro-Hunt LLC to jointly
explore and develop an Area of Mutual Interest (AMI) in
northern Leon County. The AMI was formed when Sun
combined 810 acres of the northern part of our Delta Oil
Project area with 2,430 acres owned by Petro-Hunt to give
a total of 3,240 acres. These are now owned by Petro-
Hunt (75%) and Sun (25%). Petro-Hunt has extensive
experience in developing unconventional oil targets in the
region and will be the Operator in proposed exploration.
The aim is to drill the first horizontal well into the Lower
Woodbine interval of the Woodbine Formation in the final
quarter of the 2013.
In August 2013 we welcomed Hancock Prospecting Pty
Ltd (HPPL) as our largest shareholder, after they invested
$13.5 million in return for 450 million new ordinary shares.
This gives HPPL an 18.48% interest in Sun. Together
with our Chinese investor, Amerril Energy, Sun now has
two substantial shareholders who between them have a
30.47% interest in Sun.
I welcome HPPL and thank them for the confidence and
opportunities they have recognised in Sun, and look
forward to a long and rewarding investment relationship.
I also thank Amerril Energy for their continued support,
cooperation and commitment. Similarly, I am also grateful
to Carina Energy LLC for their teamwork and range of
technical and commercial contributions.
To fully develop Sun’s enormous potential and Texan
focus it was necessary to review the skills of the Board
of Directors and as a consequence a number of changes
were initiated. It was considered prudent to engage a
commercially and technically experienced Managing
Director with a proven track record in technical and financial
management in the oil and gas industry, with access to
an established financial network. In March this year we
recruited Dr Govert van Ek as our new Managing Director.
Over the last 12 months, Sun,
its partners and extended
network in Houston have delivered
to shareholders an interest in
over 30,000 gross acres of oil
and gas leases.