Page 8 - Sun Resources Annual Report 2013

MANAGING DIRECTOR’S
OVERVIEW
SUN RESOURCES ANNUAL REPORT 2013 6
Dear Fellow Shareholders,
I am pleased to provide my first report to shareholders
since my appointment as Managing Director of Sun
Resources NL (“Sun” or the “Company”) in March 2013.
Prior to my arrival, Sun had already participated in the
drilling of its first five multi-staged, fracced horizontal wells
in two project areas and all produced oil on flow back.
However, commercially the results were disappointing.
Sun is seeking to demonstrate that ~6,000 feet horizontal
lower Woodbine wells can deliver greater than ~600 boepd
from initial production. The Beeler Oil Project also had
some issues at the hands of the original operator which
resulted in Amerril Energy LLC becoming the operator in
late February 2013.
However, our first five Woodbine wells confirmed the
Upper, Middle and Lower Woodbine as having commercial
oil flow potential, with some encouraging well logs being
noted, particularly in the SW Leona area of the Amerril
Oil project. The results from the wells showed that it is
essential to have the right completion and frac design.
However, this play is in its early stages and so not yet
well understood. In addition, the planning and quality of
the execution of the drilling (including finding the correct
“landing zones”) and completion/fraccing were not
satisfactory because of a number of technical issues.
Sun subsequently researched more suitable well and
completions designs, and to date, a tremendous amount
of progress has been made in this area. This was facilitated
by other Woodbine operators reporting commercial oil
flow rates (over the last half year) from lower Woodbine
wells nearby and sharing some information with Sun.
The “El Halcón” area, which is on trend and to the South
West of our operations, has a number of early Lower
Woodbine wells which had an initial production rate of 400
- 900 Bopd, most encouraging. EOG Resources Inc also
completed some similar laterals adjacent to our acreage
that appear to also have promising results. Further well
results around our acreage should soon confirm more
details on the correct completion and fraccing “formula”,
which should enhance the prospects for Sun achieving
commercial flow rates in its own acreage and getting on
track for further growth.
Sun has also actively attempted to resolve the noted
operational executional issues and is making headway in
this crucial area. We have strengthened our consultant
team in Houston and expect to further strengthen the
position there in the last quarter of 2013. In addition,
after the financial year end, Hancock Prospecting Pty
Ltd (HPPL) became our largest shareholder (18.48%) via
a $13.5 million private placement. This came at a time
when capital markets were extremely difficult to access for
juniors and so this was a good outcome for Sun under the
circumstances. The capital infusion should allow Sun to
achieve commercial oil flows from its impressive acreage
position in the Woodbine Tight Oil Play.
At the Beeler Oil Project, the Ellis #1H well has delivered
the best initial production rate to date from the five wells
and with a modest decline rate has produced a 90-day IP
of 150 bopd. The remaining wells in this initial Woodbine
project (where Sun’s working interest is just 16.67% ) have
had less success for a variety of reasons.
At the Amerril Oil Project (Sun 50% WI), Seale #1H has
provided some hope of achieving commercial oil flow rates,
with a peak daily flow rate of 91 Boepd recorded on 4 June
2013. This despite a broken mill bit remaining in the well
and potentially blocking off two thirds of the well flow. An
attempt to remove the mill bit maybe undertaken later in
2013. The well also used an early frac design, which we
now know can be much approved upon. T. Keeling #1H’s
initial 5 frac stages have also been disappointing to date
and the well is disadvantaged by unfortunately having been
completed above the optimal landing zone, due to hole
stability issues during the drilling. However, it is possible
that the remaining fracs, yet to be completed, will yield
more success in the near future as the optimal frac designs
are becoming better understood.
Sun has just over half of its acres (11,010 gross and net),
with a 100% Working Interest, in the Delta Oil Project
(excluding the Petro Hunt AMI) and has now commenced
looking for suitable farm-in partners. The geology and
prospects for success in this acreage are promising,
although some commercial well results in and around these
would undoubtedly add substantial value to Sun’s acreage.
Our recent efforts will hopefully
translate into improved results from
the next few wells and reveal some
of the tremendous potential latent
across Sun’s team and assets.