hartley report on sur released 10c b4 drilling

SUN RESOURCES NL
Positive Farmout Prior to High Impact Drilling
Sun Resources NL (Sun, SUR, Company) has announced that it has
executed a binding Term Sheet with unlisted Peak Oil and Gas Ltd (Peak)
allowing Peak to earn up to 20% in its L20/50 block, located onshore
Thailand. Sun will retain a minimum 30% working interest in the permit. Up
to three wells are planned in the near term, with the first firm commitment
well scheduled to commence in the December quarter 2010.
The farmout is structured so that Peak will contribute US$1.3m towards the
cost of the first well to earn 7.5% of the permit. An additional US$2.13m for
12.5% may be contributed by Peak towards an additional two wells subject
to its successful listing on or before the 14th December 2010.
Based on our interpretation of likely well costs (gross US$1.5m-US$2m
each), this is likely to represent a full free carry for Sun.
60 Million Barrel Prize to be Tested
Sun has estimated that the gross unrisked potential to be tested by the three
well program is in the order of 60 million barrels of recoverable oil. On a
success basis, Suns minimum interest of 30% would represent potential of
18 million barrels, which we estimate to have possible value of ~A$300m or
78cps. Using a probability of success factor of 15%, this implies a risked
value for Sun on the permit of 12cps.
L20/50 Highly Prospective
The permit itself is highly prospective, situated on trend and nearby to
Thailands largest onshore field, Sirikit. Sirikit has produced over 150 million
barrels of oil equivalent and is still producing at ~20,000 barrels of oil
equivalent per day. An historic well on the permit encountered oil shows in a
deep section interpreted to be off structure, proving the existence of oil
generation or migration.
Recently acquired 3D seismic has identified multiple play types across the
permit, including fractured volcanics in which Joint Venture partner
Carnarvon Petroleum Ltd has achieved outstanding success in another
basin, onshore Thailand (>60 million barrels of gross 2P reserves booked to
date). Sirikit style sandstone fans are also present and will be tested by the
upcoming program. Several prospects are believed to be of significant size
and we expect that an update on the drilling program may provide further
insight in the near term.
Price Target 10cps Prior to Drilling
We believe that Suns share price will appreciate over the coming weeks as
drilling approaches and more detail on the block is made public. The
prospectivity of the permit has faded in the eyes of the market as delays to
schedule and concerns over funding have overshadowed the potential
upside. Once it is clear that the schedule is firm (a commitment well is
required this year) and the market is reminded of the prospectivity, a rerating
is likely. Since oil shows have been reported previously, we would
expect that at least one of the three wells will also encounter oil, which
would result in substantial liquidity and price appreciation, in our opinion. We
rate Sun Resources NL as a Speculative Buy with a price target of 10cps