Sun River Energy, Inc., (SNRV.OB) to Acquire Majority Stake in Katy Resources Oil & Gas Property

QualityStocks would like to highlight Sun River Energy (OTCBB: SNRV), a Dallas-based, development-stage oil and gas exploration and production company.

In the company’s news Friday,

Sun River Energy announced it has signed a definitive agreement with Katy Resources ETX LLC, in which Sun River will acquire a majority of Katy’s operated oil and gas properties for $5.0 million in cash and $3.5 million in shares of the company’s common stock, subject to adjustment.

Sun River’s wholly owned subsidiary, Sun River Operating Inc., will assume operations on all acquired properties.

Per the agreement, Sun River will acquire leasehold assets, including three producing gas units and four lease prospects on 1,361 net acres; in addition, there are 7,549 net acres within primary terms on multiple leases.

Sun River CEO and President Donal R. Schmidt, Jr., said the acquisition creates an additional channel of revenue and noted the value of estimated reserves.

“This acquisition allows Sun River to begin generating revenue. It also allows us to add proved producing oil and gas assets at a very attractive discounted price. We estimate the cost of acquiring proved reserves in this transaction at less than $0.70 per million cubic feet (MCF) of natural gas, which we believe is significantly less than the finding and development costs that would be incurred to replace the reserves,” Schmidt stated.

The company said it estimates total proved reserves of 17.0 billion cubic feet equivalent (BCFE) of natural gas under this acquisition; proved developed producing (PDP) reserves of 1.1 BCFE; proved developed non-producing (PDNP) reserves of 3.7 BCFE; and proved undeveloped (PUD) reserves of 12.2 BCFE.

The company estimates net present value of future cash flows, discounted at 10 percent from proved reserves, is to be $25.3 million.

“I anticipate we will immediately complete the existing wells that are not producing in an effort to increase our short-term cash flow. Our team has already evaluated the assets potential and developed a 12 month development drilling plan. As a result, we are prepared to put these assets to work as soon as the acquisition is completed. We believe that our management’s experience and knowledge of the East Texas region makes this promising for Sun River on a long term basis,” Schmidt stated.

The acquisition is subject to customary closing conditions and is expected to close on or before December 31, 2010.

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