Page 13 - Sun Resources 2014 Annual Report

Delta Oil Project: (Sun
100%WI) and the Petro-
Hunt AMI (Sun 25%WI)
In August 2011, the Company sought
shareholder approval to embark on a
programme to acquire approximately
10,000 net acres of oil and gas leases,
which became the Delta Oil Project.
By calendar year-end 2012, Sun had
accumulated 11,820 net acres within
its 100% owned and operated Delta
Oil Project.
Sun announced in June 2013 that
the Company had executed a binding
agreement with Petro-Hunt LLC, based
in Dallas, Texas to jointly explore and
develop an Area of Mutual Interest
(AMI) consisting of approximately 7,832
acres in northern Leon County, Texas.
Sun and Petro-Hunt each contributed
oil and gas leases that they own within
the area of the AMI for the purpose of
drilling and exploring for oil and gas
in the so called “Dexter” or Woodbine
“C” or “Lower Woodbine” interval of
the Woodbine Formation. Sun initially
contributed 810 net acres (in which it
had a 100%WI) from its northern Delta
Oil Project acres which lie within the
agreed AMI to the Joint Venture, with
Petro-Hunt contributing 2,430 net
acres of new leases for a combined,
initial net lease position of 3,240 acres.
Petro-Hunt has continued to lease oil
and gas rights in the AMI during the
reporting period. At 30 June 2014, the
current gross amount of acres leased
stands at 3,640 gross acres (910 acres
net to Sun).
This agreement with Petro-Hunt is a
significant first step in the exploration
and development of northern acres
that Sun has in its Delta Oil Project.
The total area of the AMI is 7,832
acres so there is the capacity for the
Joint Venture to expand in size by
way of additional lease acquisitions.
Under the Joint Operating Agreement
(“JOA”), the AMI area shall remain
in force and effect for a period of
three (3) years from the date of the
executed JOA. Petro-Hunt, is one of
the largest privately held oil companies
in the world, and remains active in
the onshore and offshore oil and gas
sectors. During the second Quarter
of 2014, Petro-Hunt, the Operator of
the AMI area in the north of the Delta
Project lease position, advised that
planning for the vertical pilot well was
well advanced with the well to target the
Lower Woodbine (“C” or “Dexter Sand”)
that is producing oil in offset vertical
wells. Petro-Hunt subsequently advised
the Company that its selected drilling
unit had been retained by another
operator such that another drilling unit
needed to be sourced.
The status of the first well in this AMI,
Davis #1, at the end of the reporting
period was “rigging up on location and
preparing to spud”. Subsequent to
the end of the Quarter, the Davis #1
vertical pilot well was spudded on 3
July 2014 and the operator, Petro-Hunt
expected the vertical pilot well to take
approximately seven to ten days to drill
and evaluate. The Davis #1 well drilled
toward the target Lower Woodbine
Formation (referred to as the “C” or
“Dexter” sands by Industry) without
trouble and the well subsequently
reached a total measured depth of
6,515 feet (1,986 metres). The total
gross Lower Woodbine Dexter sand
intersected was 39 feet (12 metres).
Approximately 8-12 feet (<4 meters)
of net sand was interpreted on the
wireline logs of gross Dexter sands
in the Lower Woodbine Formation,
with only minor hydrocarbon shows
recorded. The sands were developed
with a laminated character and were
interpreted to be too thin to warrant
being drilled and completed as a lateral
well at this location. The well has
since been plugged and abandoned.
The data from this vertical well will
be integrated into the regional Lower
Woodbine geological model to
consider alternative locations within
the AMI to test and evaluate the Lower
Woodbine section that is oil productive
in leases immediately west-northwest
of the AMI area.
Sun retains a further 9,803 net acres
elsewhere in the Delta Oil Project that
will be the subject of future activity, by
way of farm-out, joint venture or direct
drilling activity in the coming months.
Approximately 5,500 acres of 100%WI-
owned Delta Project leases are due
to be extended beyond their initial
3-year term during the remainder of the
calendar year 2014. This is estimated
to cost the Company approximately $3
million and funds are not yet available
to be allocated to this effort. The
Board and management will use its
discretion during the course of the year
to determine the merits of renewing
individual leases or investing capital
in acquiring new leases in other
prospective locations.
A number of successful Woodbine
Horizontal wells have been drilled
and completed across the southern
regions of Leon County and these early
wells have generally targeted mainly
the Upper or Middle Woodbine sands
(Woodbine A & B). Conventional gas
and oil production continues from
Woodbine A sands in the Buffalo and
Halliday Fields within Leon County,
as well as from the Sub-Clarksville
sandstone formations. Furthermore,
there remains under-explored potential
within the deeper Buda Formation that
will be the subject of future activities, by
way of farm-out, joint venture or direct
drilling activity in the coming months.
Delta Oil
Southern Oil (SW Leona)
Normangee Oil
Beeler Oil
Beeler Remainder
Centerville AMI
Delta (Petro-Hunt) AMI
Map Project
Figure 3: Sun has a working interest in over ~
16,000 net acres across its 6 Woodbine
Projects.
SUN RESOURCES ANNUAL REPORT 2014  11