Sun River Energy, Inc. announced today that it entered into a Farmout Agreement with Devon Energy Production Company, L.P. pursuant to which Devon has granted the Company the right to drill on lands subject to oil, gas and mineral leases owned by Devon. The Farmout Agreement covers 5,700 gross acres (5,470 net acres) in the prolific Carthage Field located in Panola County, Texas.
According to PRNewswire-FirstCall the terms of the Farmout Agreement call for Sun River to drill a single vertical Test Well to the Haynesville Shale geological formation on a proposed gas unit by gas unit basis. Sun River will be required to drill a Test Well on a different proposed gas unit, approximately every 90 days. Upon completion of each Test Well, Sun River will earn between 75% and 77.5% working interest in all leases within the gas unit being developed. There are no additional drilling commitments once a Test Well has been drilled in a gas unit. Devon will retain a carried working interest on the Test Well drilled in each gas unit. Any additional wells drilled by Sun River after a Test Well in a gas unit will require Devon to participate within that gas unit on a "heads up" basis. The Farmout Agreement required no up-front cash payment by Sun River.
Sun River's wholly owned operating company, Sun River Operating, Inc. (Texas) will be the operator on all wells under the Farmout Agreement.
The geographical area of the farmout is adjacent to and underlies portions of Lake Murvaul in East Texas.
In total there are approximately nine (9) potential gas units with over 89 potential drilling locations on the farmout acreage. The primary geological targets, other than the Haynesville will be the Cotton Valley, Travis Peak and Pettit formations. Recently drilled vertical offsetting wells demonstrate economic ultimate recoveries ("EUR") from 0.9 to 1.3 billion cubic feet equivalent ("BCFE") of natural gas with some vertical wells in the area projected to recover as high as 2.1 BCFE. There can be no assurances, however, that the Company would achieve similar results.
Donal R. Schmidt, Jr., the Company's CEO and President, states:
"We believe the Devon Farmout provides the Company an exciting addition to our East Texas unconventional portfolio. Our senior management and staff have significant experience in the Carthage Field dating back to 2000. This farmout will allow us to grow our production and reserves in a very familiar environment.
We also look forward to working with Devon as a non-operated mineral interest owner. We anticipate successful performance as an operator under this Farmout Agreement will allow us to develop a long term relationship with Devon that will lead to other opportunities of this nature.
Based on current gas prices, one of our stated strategic corporate goals is to create a significant portfolio consisting of unconventional natural gas assets in the East Texas Basin. We believe, this farmout combined with the acquisition of the acreage under our Purchase and Sale Agreement with Katy Resources ETX, LLC, which was announced last week, is a big step in that direction. Upon execution of the Farmout Agreement and assuming closing of the acquisition from Katy Resources, we will have approximately 18,000 gross acres in East Texas. We firmly believe that entry into the East Texas market with gas prices at their current levels makes a lot of sense. Combined with what we believe is very small overall entry costs for these two deals, we are well positioned to quickly become a substantial natural gas player in East Texas. We believe these opportunities allow us to balance our New Mexico assets in Colfax County with developmental type drilling here in Texas."
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