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Sun Resources Continues To Look Undervalued On 250ft Net Pay

Sun Resources (ASX:SUR) is planning for a multi-stage hydraulic fracturing program to be carried out at its Jack Howe-1H horizontal well in Texas after analysis confirmed that it had intersected 75 metres of net oil pay.

This is an indicator that the well will be capable of commercial production and we expect shares to open higher.

Production casing has been run and cemented successfully along the entire length of lateral section drilled (about 6,100 feet).

Data acquired while drilling along with core and log analysis will now be integrated to build a model for the design of the hydraulic fracture program for the well.

The company is currently targeting commencing the multi-stage fraccing operation in October 2014.

Jack Howe-1H

Analysis of all core data and wireline logs had confirmed that Jack Howe-1H in the Normangee Oil Project (Sun: 50%) had intersected 75 metres (250 feet) of net oil pay.

This is in line with Sun's pre-drill expectations and confirms the potential for Lower Woodbine oil pay across its southern Woodbine leases.

This is as thick as the traditional Eagle Ford Shale in Texas that has been very productive and is expected to be commercial given that the initial flow rates of neighbouring wells of between 200 and 600 barrels of oil per day.

Strong oil and gas shows continued while drilling the horizontal section and the shows strengthened toward the end of the well bore.

This data and analysis will form the basis of an independent reserve and resources report.

Capital Raising

The company is currently raising up to $6 million through a 1 for 5 renounceable rights issue of shares priced at $0.01 that is underwritten to an amount of $5.25 million. This is part of a broader $10 million capital raising program which included an equity placement to raise about $4 million.

The company had previously completed a placement of 398 million shares to raise about $4 million that was 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.

Funds will be used for fraccing and flow testing of Jack Howe-1, secure further leases in the Southern Woodbine Oil Project and for working capital.

Hancock has committed to maintaining its shareholding of about 19.5%.

Analysis

Jack Howe-1H could be a game changer for Sun Resource' given the 75 metres of net oil pay and performance of nearby wells.

EOG Resources' (NYSE:EOG) nearby wells, which produced at initial 30 day rates of between 200 to 600 barrels per day, are located on both sides of Jack Howe-1, providing an encouraging stage for the company to set its expectations for future Jack Howe-1H production.

Taken together, these are indicators that Jack Howe-1H will be a commercial success.

This could lead to a resurgence in the company and points to a potential bright future.

Success will also unlock the oil potential of the company's southern Lower Woodbine acreage.

Share price catalysts include:

- Hydraulic fraccing of Jack Howe-1H in October 2014;
- Flow testing of Jack Howe-1;
- 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.

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