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Sun Resources Raising $10M To Drill High Impact Texas Oil Well

Sun Resources (ASX:SUR) has received a major vote of confidence in the company's U.S. based assets from institutions and investors, with the company set to raise $10 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%.

Proceeds will be used for the imminent drilling, multi-stage fraccing and subsequent flow testing of the Jack Howe-1H lateral well in Texas, procure further leases in the Southern Woodbine Oil Project and for working capital.

The capital raising consists of an equity placement of 398 million shares priced at $0.01 each to raise about $4 million and a 1 for 5 renounceable rights issue to raise up to circa $6 million that is underwritten to an amount of $5.25 million.

In addition to Hancock's commitment, the raising is strongly supported by existing shareholders and a number of new domestic and international institutional investors.

The capital raising includes one free attaching option exercisable at $0.025 up to three years from date of issue for every two shares subscribed.

"It is extremely encouraging that we continue to share the support of our strong shareholder base and the equity markets in Australia," interim chief executive officer Matthew Battrick said.

"We remain committed to our business plan of maintaining a strategic net acres lease position in the unconventional oil plays of East Texas and funding our material working interest share of operations to potentially deliver reserves and production revenue from the Eaglebine plays we have under lease.

"We thank our largest shareholder, Hancock Prospecting Pty Ltd for its continued support of our plans and we also thank those current and new investors that participated in the Placement.

"We also look to ensure ongoing support from all shareholders with respect to the Rights Issue that will be distributed to shareholders over coming days."

"Finally, we are due to commence horizontal drilling operations at Jack Howe-1H over the coming weeks with a view to completing the drilling and casing operation during September 2014, allowing for fraccing and flow back in October 2014."

Sun is also preparing a capital management plan for ongoing funding of development drilling in its Southern Woodbine leases, with a focus on the equity and debt markets in the U.S.

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).

Jack Howe-1H Lateral

The capital raising will fund drilling, multi-stage fracture stimulation and flow testing of Sun Resources' Jack Howe-1H lateral well in the Normangee Oil Project, which it has a 50% operating interest in.

Sun has already successfully drilled a vertical pilot well to recover conventional core across the primary objective Lower Woodbine Formation and evaluating the underlying Buda Formation

Notably, hydrocarbon indications have been observed in both formations.

Subject to securing a suitable rig, the Jack Howe lateral is expected to be spudded in September with an expected timeframe through to commencement of flow testing of 50 days.

Notably, EOG Resources (NYSE:EOG) - one of the most successful independent oil companies in the U.S. with a US$59 billion market cap - has successfully completed at least 7 horizontal Lower Woodbine oil producing wells in the immediate area in the last 12 - 24 months.

These have delivered initial 30 day production rates of between 200 and 600 barrels of oil per day.

In addition, EOG currently has 4 new wells planned at its Grove location which is 7.5 miles west of Jack Howe and has recently completed its Zeus-1H well that is only 2.8 miles east of Jack Howe.

Sun currently holds approximately 18,000 net acres in the wider Woodbine region; however the approximately 7,000 net acres in the Southern Woodbine area hold significant potential upside for the company in the event Jack Howe is successfully drilled and achieves a commercial flow test result.

In addition to its existing Southern Woodbine acreage, the Company is currently in discussions with a number of land owners to further increase its position, subject to satisfactory completion of due diligence, capital availability and commercial negotiations.

CEO Selection Process

Sun's board has advanced the search process to secure a new chief executive officer.

A number of candidates have been identified and reviewed by the board with a view to selecting a suitable candidate that has substantial North American experience and is likely to be U.S. domiciled.

A further announcement will be made when that process is complete.

Capital Management - Forward Planning

Sun is preparing a capital management plan for ongoing funding of development drilling in its Southern Woodbine leases, with a focus on the equity and debt markets in the U.S.

This will capitalise on the company's core business being in the U.S. where there is an extremely large pool of investment funds available under the right, structured arrangement.

The plan will be implemented progressively through the remainder of 2014 and into 2015 as successful wells are drilled and reserves are booked, with the expectation of utilising Sun's balance sheet more for capital requirements, rather than continuing to issue further equity where possible.

Sun has engaged the services of EAS Advisors LLC in New York City to advise and support this process.

The process is subject to further refinement and commercial negotiation but is expected to be a 'step-wise' one with the first step being a sponsored Level 1 American Depository Receipt program (ADR).

Such a program will allow the ADR to be listed and traded and Sun is currently considering engaging an investment bank to facilitate the process with the primary aim to allow North American investors access to invest in Sun.

Analysis

The strong support for shareholders - including Gina Rinehart's Hancock Prospecting - and new institutional investors in Sun Resources' $10 million capital raising highlights the confidence in both the company and its Lower Woodbine acreage.

This is notable given that its upcoming Jack Howe-1H lateral well is located close to where EOG Resources has drilled a number of successful lateral wells that produced oil at initial 30 day rates of between 200 to 600 barrels per day.

Success at the well will unlock the company's Southern Woodbine area, which covers about 7,000 net acres.

Share price catalysts ahead include:

- Drilling, fraccing and testing of Jack Howe-1H;
- Drilling of 1-2 proposed wells in its new Lower Woodbine leases; and
- Drilling of a well in the Badger Project (Eagle Ford Shale) in the fourth quarter of 2014.

Sun had $2.6 million in cash as at 30 June 2014.

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