(MENAFN- ProactiveInvestors - Australia) Sun Resources (ASX:SUR) has revealed that significant hydrocarbon indications have been observed in the Lower Woodbine target formation.
The company is drilling ahead in the lateral section of the Jack Howe #1H well within Sun's (50% and operator) Normangee Oil Project, located in Texas.
Sun will complete the execution of the drilling program using the Nabors Drilling USA LP Rig #53 over the next 2-3 weeks.
There is the potential the well could deliver substantial oil flow, with the strategic location providing encouragement.
The well bore is now being drilled horizontally at a measured depth of 10,262 feet.
The area is highly prospective with U.S. independent EOG Resources (NYSE:EOG) having drilled 7 lateral wells that have produced at initial rates of between 200 and 600 barrels of oil per day.
EOG is one of the biggest and most successful independent oil companies in the U.S. with a market capitalization over US$50 billion.
EOG proximity to Sun Resources
EOG has successfully drilled and completed 7 'laterals' in the Lower Woodbine target, to the east and west of Sun's Normangee Oil Project, in the same Lower Woodbine target identified in Sun's Jack Howe vertical pilot well.
The most recent EOG lateral completion, Zeus #1H was drilled and successfully completed only 6 kilometres east of Sun's Jack Howe #1H vertical pilot well.
Zeus #1H is currently on flow-back and its results will be reported as soon as they become public records.
Timeline and depth
Sun said that it expects the Jack Howe #1H lateral section to take another 7-10 days to complete in the primary objective Lower Woodbine Formation.
The target formation is the Lower Woodbine which has been intersected at a target depth below 8,100 feet measured vertical depth (2,470 meters) and approximately 6,100 feet of horizontal section is planned to be drilled.
Vertical pilot well bore has been re-entered
Sun said that since the last report by the company, the vertical pilot well bore had been re-entered and cement plugs drilled out.
The lateral section was then drilled in a near-vertical trajectory to the 'kick-off point' where the drilling assembly commenced drilling the bend section of the well.
The bend has been drilled and the Rig is now drilling the horizontal section, at a measured depth of 10,262 feet.
Elevated mudlog gas readings have been recorded while drilling the bend section, in line with Sun's expectations of this section being oil and gas bearing.
Capital raising
Yesterday Sun extended the closing date of its current one for five renounceable rights issue at $0.01 to raise close to $6.1 million, which is underwritten to an amount of $5.25 million.
The closing date for the Offer has been extended by a further 8 business days to 3 October 2014.
The issue is part of a $10 million capital raising which also includes an equity placement to raise about $4 million.
Major shareholder Gina Rinehart's Hancock Prospecting Pty Ltd has already committed to participating in both the placement and the rights issue to maintain its shareholding of about 19.5%.
In addition to Hancock's commitment, the raising is strongly supported by existing shareholders and a number of new domestic and international institutional investors.
Use of Proceeds
Proceeds from the capital raising will be used as follows:
- Drilling of Jack Howe #1H Lateral ($1.2 million net to Sun at 50%WI);
- Hydraulically fracture the Jack Howe #1H well ($2 million);
- Lease bonus payments for new oil and gas mineral leases ($2 million);
- Resolve matters with Amerril Energy LLC in respect of SW Leona Oil Project ($2.3 million); and
- General working capital ($2.5 million).
Analysis
Sun's high-impact, near-term funded drilling is starting to bear fruit, with the company today revealing significant hydrocarbon indications have been observed in the Lower Woodbine target formation.
While it is still early days, the prospectivity of the area is not questioned, with the valuation of Sun highly leveraged to exploration success.
Take for example the US$50 billion capped U.S. independent EOG Resources (NYSE:EOG) which has drilled 7 lateral wells in the area that have produced at initial rates of between 200 and 600 barrels of oil per day.
Gina Rinehart's Hancock Prospecting Pty Ltd is also a big supporter of Sun, with Hancock committed to participating in both the recent placement and the rights issue to maintain its shareholding of about 19.5%.
Sun is raising around $10 million.
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