Page 16 - Sun Resources 2014 Annual Report

Badger Oil Project: Targeting
Eaglebine and Eagle Ford
unconventional plays
(Sun 50%WI)
On 26 May 2014, Sun Resources NL announced that,
pursuant to a binding Letter of Intent Agreement with Ursa
Resources Group II Inc. (“Ursa”), the vendor and Operator,
Sun has purchased a 50% working interest in a gross
10,028 acre package of oil and gas leases (5,014 acres
net to Sun) within the developing Eagle Ford Shale and
its overlying Austin Chalk Formation, located in Bastrop
County, Texas, US (the Badger Oil Project). The remaining
50%WI will be retained by Ursa, the vendor and operator.
The Badger Oil Project area is located in Bastrop County,
toward the north-eastern end of the traditional fairway of
Eagle Ford Shale unconventional oil/gas/condensate play.
However, the project area is also located within the north-
easterly trending Austin Chalk oil play, specifically being only
3 kilometres due north and west of the prolific Giddings
oil Field, with over 1 billion barrels of oil reservoired within
the fractured Austin Chalk. Sun and Ursa are planning the
first horizontal multi-staged fracced well in Q4 2014 to test
the commercial oil potential of the Lower Austin Chalk and
Eagle Ford. The first well in the Badger Oil Project will likely
be a 5,500 feet lateral drilled within prospective section
to produce dominantly oil. The prospects of success are
good given the offset wells on trend in this oil-rich play have
produced initial production rates (IP’s) ranging from 163 –
806 barrels of oil per day (bopd), including operators such
as Anadarko, Buffco, and Sanchez, from reservoir depths as
shallow as 6,000 feet (1,829m). The closest offset well drilled
by Vernado Oil & Gas LLC (8km north) is reported to have
IP’d at a rate of 806 bopd (source: Ursa).
Sun will acquire its lease interests from its existing cash
and will hold a 50%WI in all leases, which hold rights to all
depths and all formations and have ~1.5 years remaining
of initial three-year term. All leases have an additional two-
year extension option and the oil and gas leases deliver
a 75% net royalty interest (NRI) to Sun. Should the initial
well be encouraging then the leases can be developed
with a 64 lateral well programme - already under design.
The acquisition costs approximately US$975 per acre.
Ursa Resources Group II Inc. (“Ursa”) is an exploration and
production company based in Houston, Texas backed by
over US$900 million capital. Ursa is focused on developing
oil rich unconventional plays as well as the acquisition
of conventional oil and gas producing properties. Ursa
already has substantial lease positions in 5 plays across
the US and is an operator with a proven successful track
record.
Figure 4: Badger Oil Project – lease locations (yellow) in relation to offsetting
wells with Austin Chalk oil production (green).
Sun has diversified its land position
while retaining strategic focus on the
‘black oil’ segment of the Eagle Ford and
Eaglebine unconventional oil fairway.
The Principals at Ursa Resources Group II Inc. have also
previously operated properties in a number of onshore,
unconventional basins across the United States, including
the Gulf Coast Texas, the Permian Basin of Texas and
New Mexico, the “Fayetteville Shale Play” in the Arkoma
Basin of Arkansas, as well as in the Williston Basin of
North Dakota and Montana. They have spent many
years determining what makes for successful resource
development in shale gas reservoirs and have completed
extensive field studies of the “Eagle Ford Shale Play,” the
“Bakken Shale Play,” the “Barnett Shale Play”, and the
“Marcellus Shale Play.
REVIEW OF ACTIVITIES
14  SUN RESOURCES ANNUAL REPORT 2014