A Look at Conventional Oil Drilling; Sun Resources –low CAPEX, high margin developer

  • Nov 13, 2019 AEDT
  • Team Kalkine
A Look at Conventional Oil Drilling; Sun Resources –low CAPEX, high margin developer

When thinking about oil drilling, one imagines drilling of wells with large oil rigs, a procedure that is around since the late 19th century. The oil obtained from the surface, with the natural pressure from the well and pumping/compression operations, refers to conventional oil.

Conventional oil is simply known as the one that can be produced or extracted using the traditional means and methods of drilling. The process of conventional oil drilling entails a well drilling operation, an underground reservoir for production and oil flowing out of the ground, while the unconventional oil drilling process is a long and expensive process, involving advanced production methods.

Four major stages during the production of a conventional oil well are:

  • Exploration – Involves prediction of the location and extent of underground oil reservoirs;
  • Drilling – Entails boring a hole with a drilling rig to bring oil to the surface;
  • Pumping – Involves pump connection for the extraction of the remaining oil;
  • Abandoning – Filling oil with cement to ensure prevention of any hydrocarbons from escaping.

Cheaper than oil produced from unconventional drilling, conventional oil is considered as the most valuable in the international markets, owing to the fact that it needs low processing before the refining process to deliver refined products, reflecting why in this era of advanced technologies, companies like BHP are still focusing on conventional assets.

In today’s article, we are discussing Sun Resources NL (ASX: SUR), which is an ASX-listed company, focused on high-profit margin conventional oil development in the Gulf of Mexico. The company holds 100 per cent working interest in 1,154 acres leased in the Breton Sound Area, inland shallow waters offshore Louisiana, 70 kilometres southeast of New Orleans.

The company’s key oil project in the area is Bowsprit and the lease overlies a field that was first developed by Shell in the 1960s. It is a re?development project with light?sweet oil that is proven, conventional, and of good quality.

Conceptual Field Development Plan

SUR is planning to drill an appraisal well in the first quarter of 2020, targeted towards

  • Vertical pilot to establish the prospective resources are present and moveable;
  • A horizontal section to be drilled and flow tested to prove deliverability of contingent resources;
  • Subject to results of the appraisal well, the company estimates oil production of ~2.5 million barrels and gas production of 3.5 billion standard cubic foot;
  • The production is estimated from five horizontal development wells with a breakeven oil price of ~USD 25?30 per barrel.

Sun Resources has already secured two of the three permits (state permit and federal permit) required to drill the first well at the Bowsprit Oil Project.

  • On 22 October 2019, the company had notified the market regarding securing the state permit from the Office of Coastal Management;
  • On 1 November 2019, SUR announced to have secured the permit from the U.S. Army Corps of Engineers;
  • The remaining permit required is pending and expected within the next one month, as per the 1 November market update.

As the company is in discussions regarding farm-out with numerous interested parties, targeted towards funding the first well drilling operations, it has appointed farm-out agents to aid in the process. The well location has been selected and detailed well design is in progress.

Sun Resources aspires to appraise and develop the Bowsprit project, a low CAPEX, high margin, oil appraisal development project, to production as rapidly as practical, with the cash flow planned to be used for funding further project acquisition in the area.

For more information, Read Overview Of Crude Oil And Conventional Oil-Focused, Sun Resources’ Game Plan

Stock Information - The SUR stock last traded at AUD 0.002 on 11 November 2019, with a market cap of AUD 2.64 million and approx. 1.32 billion outstanding shares.


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