Southern Pacific Resource Corp.
TSX : STP

Southern Pacific Resource Corp.

November 14, 2014 17:36 ET

Southern Pacific Announces Financial and Operational Results for the Quarter Ended September 30, 2014

CALGARY, ALBERTA--(Marketwired - Nov. 14, 2014) - Southern Pacific Resource Corp. ("Southern Pacific" or the "Company") (TSX:STP) today announced its financial and operational results for the quarter ended September 30, 2014.

HIGHLIGHTS:

  • Total Company production, which includes bitumen production from STP-McKay Phase 1 and heavy oil from STP-Senlac, averaged 3,372 barrels per day ("bbl/day") for the three months ended September 30, 2014; and
  • The Company completed its previously announced workover program at STP-McKay.
(thousands, except per share and per boe amounts) Quarter ended September 30, 2014
Petroleum revenue, net of royalties $27,114
Cash from operating activities before net changes in non-cash working capital(1) 1,031
Per share basic and diluted $0.00
Funds from operations(2) ($12,175)
Per share basic and diluted ($0.03)
Net loss $28,959
Loss per share basic and diluted $0.07
Combined average product prices ($ per boe) $82.27
Operating netback(3) $3,595
Operating netback ($ per boe)(3) $12.02
Weighted average common shares outstanding
Basic and diluted 397,959
Production
Heavy oil (bbl/d) 1,408
Bitumen (bbl/d) (4) 1,964
Total (boe/day) 3,372
(1) Cash from operating activities before net changes in non-cash working capital and decommissioning costs is a non-GAAP measure defined as cash flow from operating activities less changes in non-cash working capital and less decommissioning liabilities settled.
(2) Funds from operations is a non-GAAP measure defined as cash flow from operating activities less changes in non-cash working capital, less decommissioning liabilities settled and less interest paid.
(3) Operating netback is a non-GAAP measure defined as petroleum sales, net of royalties less diluents costs, less operating costs and less transportation costs.
(4) Bitumen produced at oil sands projects is mixed with diluent and sold as "dilbit". Diluent volumes have been deducted in calculating bitumen production.

STP-McKay Thermal Project

The workover program scheduled for September and October at STP-McKay is now completed and all of the steam-assisted gravity drainage (SAGD) well pairs that were reconfigured are back on stream. In total, four well pairs had workovers successfully completed over the last few weeks. Following is a brief description of each of the recently completed well pairs.

  • The 2P2 well pair had inflow control devices ("ICDs") installed into the producer and was put back in production on September 10th. The well pair is continuing to recover workover fluids and is slowly warming up. It is currently producing at about the rate it reached before the workover (about 250 bbl/day), however, there has not been any signs of a steam short circuit to date and it is expected the rate will continue to improve over the next several months as the well pair warms up in the areas that were previously unconformed.
  • The 2P4 well pair had a steam splitter configuration deployed into the injector, with the purpose of isolating a steam short circuit near the heel section of the well pair that had restricted production in the pair since the well started up in December 2012. The pair has been on production since October 6th after a steam circulation period. The pair is now operating in early stages of SAGD chamber development and is testing at rates of about 200 bbl/d. It is expected the pair will continue to ramp up for several months as the steam chamber develops.
  • The 1P6 well pair had ICD's installed into the producer and was placed back in production on October 16th. The ICD configuration was designed to control a steam short circuit near the toe of the well pair, and early indications are that the installation is performing as expected. The heel section of the producer needs to be heated however, so the producer is being periodically flushed with steam assist with warm up. It is expected to take at least a month for the heel section of the well pair to warm up and SAGD production begin to develop.
  • The 1P2 well pair had ICD's installed into the producer and has been placed into steam circulation on October 14th. This well pair had been shut-in for over a year while the Company evaluated options to control a steam short circuit that had developed near the toe of the well pair. The well pair will have to be warmed up for approximately two to four more weeks before it can be placed on SAGD production.

The STP-McKay field now has six of its well pairs equipped with ICDs. The Company believes three to five additional well pairs may be suitable for an ICD installation at a later date, but will continue to monitor the results of the existing ICD installations before making that decision. Three of the four recent workovers were completed on well pairs which had not produced at meaningful rates prior to the recent workovers. These well pairs should now be able to continue development of a better conformed steam chamber which will allow for rate increases as the chamber evolves. It is expected to take several months before meaningful incremental production from these new workovers is steadily maintained. In the meantime, the Company continues to produce all of its well pairs as effectively as possible. The field estimated production rate for the 14 days of November at STP-McKay is approximately 2,200 bbl/day.

Southern Pacific also has received regulatory approval to downspace the existing McKay well pads with additional SAGD well pairs. As first mentioned in the Company's December 11, 2013 press release, the Company believes additional well pairs will be required in order to fully utilize the available steam capacity at STP-McKay. Southern Pacific believes the most prudent strategy is to add them between the existing well pairs, which were originally spaced 100 m apart, allowing ample room for additional well pairs to be drilled. Southern Pacific filed its application with the Alberta Energy Regulator ("AER") to downspace Pads 101 and 102 in February 2014 and received approval in July 2014. The total Pad 102 downspace project cost is estimated at $51 million. Commencement of this discretionary project is contingent upon the Company obtaining sufficient financing to proceed with this project.

STP-Senlac Thermal Project

Operations continue to run steady at STP-Senlac with the exception of one pump replacement on a Phase K well pair that was successfully replaced in September. The current estimated field production rate at STP-Senlac is between 1,300 and 1,400 bbl/day.

At STP-Senlac, the Company has full regulatory approval to drill the next pad of three well pairs, Phase L, at an estimated remaining cost of $18.8 million. Commencement of this discretionary project is dependent upon the Company obtaining sufficient financing to complete the project.

About Southern Pacific

Southern Pacific Resource Corp. is engaged in the exploration, development and production of in-situ oil sands in Alberta's Athabasca region, and the thermal production of heavy oil in Senlac, Saskatchewan. Southern Pacific trades on the TSX under the symbol "STP."

Visit our website at: www.shpacific.com.

Advisory

This news release contains certain "forward-looking information" within the meaning of such statements under applicable securities law including estimates as to: the new first lien facility, additional ICD installation timing, future production, operations, operating costs, commodity prices, administrative costs, commodity price risk management activity, acquisitions and dispositions, capital spending, access to credit facilities and lending costs, income and oil taxes, regulatory changes, and other components of cash flow and earnings anticipated discovery of commercial volumes of bitumen, the timeline for the achievement of anticipated exploration, anticipated results from the current drilling program, workovers and any conformance acceleration techniques such as the use of ICDs, and, subject to regulatory approval and commercial factors, the commencement or approval of any SAGD project, the potential results of the strategic alternative review process and enhancement of shareholder value, disclosure intentions with respect to the strategic alternative review process, and general economic outlook.

Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. These statements are only predictions. Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include, but are not limited to the inherent risks involved in the exploration and development of oil and gas properties and of oil sands properties, strategic alternatives, conformance acceleration techniques, delays in ramp-up operations, the uncertainties involved in interpreting drilling results and other geological data, fluctuating oil prices and discounts, the possibility of unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed in the future and other factors including unforeseen delays. As an oil sands enterprise in the development stage, Southern Pacific faces risks including those associated with exploration, development, ramp-up, approvals and the continuing ability to access sufficient capital from external sources if required. Actual timelines associated may vary from those anticipated in this news release and such variations may be material. Industry related risks could include, but are not limited to, operational risks in exploration, development and production, delays or changes in plans, risks associated to the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. For a description of the risks and uncertainties facing Southern Pacific and its business and affairs, readers should refer to Southern Pacific's most recent Annual Information Form. Southern Pacific undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change, unless required by law.

The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as the factors are interdependent, and the Board's and management's future course of action would depend on its assessment of all information at the time.

The reader is cautioned not to place undue reliance on this forward-looking information.

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