Production Review

Sun Resources noted in its 2010 Annual Report that it was working to add new international exploration ventures beyond SE Asia and in particular in Africa and Europe. The Board has reviewed a large number of opportunities over the ensuing 6-12 months and that review culminated in the announcement of a new exploration deal in onshore Europe. Sun Resources announced on 10 November 2010 that a non-binding Term Sheet with an as yet undisclosed party (due to commercial sensitivities) had been executed for Sun Resources to participate in the drilling of a high impact well onshore North-West Europe which will test a 720 billion cubic feet (bcf)conventional gas exploration target. Sun Resources will fund €1.645m (A$2.3m) of past and future drilling costs to earn a 15% working interest in the farm-in concession. The principle terms of the farm-in are:

• Sun Resources will pay €1.51m (approximately $2.1m) of the dry hole costs based on a €5.33m estimate (A$7.48m);

• Sun Resources will pay 15% of total past auditable costs estimated at up to €900,000 (i.e. Sun Resources will pay approximately €135,000 (A$190,000));

• Sun Resources will execute, subject to due diligence, a Definitive Farm-in Agreement by 30 November 2011, or if a rig contract is to be executed prior to that date, immediately prior to execution of the rig contract.

Sun Resources will then maintain its interest in the project on a heads-up (15%) basis. Drilling is expected to commence late in the second quarter of 2012. The primary play is Triassic sandstone reservoirs charged with gas (and/or oil) from older Permian-Carboniferous shales and coal, which is the principal play in the offshore Southern Gas Basin of the North Sea. Geological modeling, based on 2D seismic and recent interpretation, indicates that gas (with gas liquids) is the most likely hydrocarbon to be found within the prospect, which has a gross target of 720 bcf of gas (Operator’s estimate), with upside in excess of 1 trillion cubic feed (tcf). The prospect lies on trend with oil and gas fields and adjacent to old wells with oil and gas shows, around oil seeps.

In Europe, the gas market is robust due to the lack of alternative supplies, and as a result, the strong gas prices (US$7-9/mcf compared with US$4/mcf in the USA) are expected to continue into the foreseeable future. This significant price advantage is one of the key reasons why Sun Resources has targeted this concession in North-West Europe that is prospective for hosting large gas accumulations. The farm-in concession is also considered to have potential to offer an unconventional gas play within the older Permian-Carboniferous source rocks. Permitting of the well began in early 2011 and at the time of writing, the permitting process is expected to be completed in Q3 2011. It is anticipated the well would be drilled in late Q2 2012, subject to government approvals. The non-binding Term Sheet is subject to the completion of due diligence, the execution of a Definitive Farm-in Agreement, and receipt of relevant statutory approvals and governmental consents.

Negotiations between the Operator and the local government on the approval process of the well were continuing at the end of the reporting period. Further details relating to this farm-in will be announced to the market following the receipt of necessary local government approvals. A further extension to the end of November 2011 has been agreed between Sun Resources and the Operator to allow the Operator time to complete the well approval process with the local authorities. This is an important condition precedent in the executed Term Sheet.

 

 

 

Projects