Southern Pacific Resource Corp.

Southern Pacific Resource Corp.

January 07, 2011 09:20 ET

Southern Pacific Completes $172.5 Million Debenture Offering and US$275 Million Term Loan to Fully Fund STP-McKay Thermal Project

Conference call set for January 7

CALGARY, ALBERTA--(Marketwire - Jan. 7, 2011) -


Southern Pacific Resource Corp. ("Southern Pacific" or the "Corporation") (TSX:STP) is pleased to announce that it has completed the financing arrangements for full funding of Phase 1 of its STP-McKay Thermal Project in northeast Alberta.

Southern Pacific has now closed the previously announced offering of $172.5 million principal amount of 6% convertible unsecured subordinated debentures (the "Debentures"), including the full over-allotment of $22.5 million. The syndicate for the Debentures was co-led by BMO Capital Markets, RBC Capital Markets, Credit Suisse Securities (Canada), Inc. and TD Securities Inc. and included Raymond James Ltd. The Debentures will be listed on the TSX under the symbol "STP.DB".

The Corporation has also completed the US$275 million senior secured second lien term loan facility (the "Second Lien Term Loan Facility"). Credit Suisse Securities (USA), LLC and RBC Capital Markets served as joint lead arrangers and joint bookrunners with BMO Capital Markets LLC and TD Securities Inc. also acting as joint bookrunners. The particulars of the Second Lien Term Loan Facility are summarized in the final prospectus dated December 23, 2010 filed on

The gross proceeds from the issuance of the Debentures and the Second Lien Term Loan Facility, which total approximately $447.5 million, together with the $108.4 million of equity raised in May 2010 and the projected earnings before interest, taxes, depreciation and amortization (EBITDA) from Southern Pacific's Senlac Thermal Project, are expected to allow the Corporation to fully fund Phase 1 of the STP-McKay Thermal Project, as well as fund its other capital programs. These include the continued development of the Senlac property, preparation for an application for Phase 2 of the STP-McKay Thermal Project and exploration and development of its other leases.

Phase 1 of the STP-McKay Thermal Project is already under construction, with approximately 28 km of the total 29 km access road cleared and 10.5 km completed. Southern Pacific has also begun the plant site civil work, has installed facilities for 196 camp rooms, and has placed orders for all long-lead equipment. In total, approximately $52 million of capital has been committed on the project as of December 31, 2010. The total Phase 1 capital cost is estimated at $450 million, which includes a $42 million contingency. First steam to the project's SAGD well pairs is expected in the first quarter of 2012, with production ramping up through 2012. The project is designed to process 12,000 bbl/d of bitumen and generate 33,600 bbl/d of dry steam. Phase 1 of the STP-McKay Thermal Project has an expected project life in excess of 35 years with expected annual production rates ranging from 10,000 to 11,500 bbl/d.

Assuming Phase 1 of the STP-McKay Thermal Project is completed as expected, the Corporation will have overfunded its budgeted project costs. Therefore the Corporation has negotiated the option, at its sole discretion and if determined prudent, to prepay up to US$50 million of the Second Lien Term Loan Facility at no penalty once Phase 1 of the STP-McKay Thermal Project is deemed commercial.

In conjunction with the completion of the Second Lien Term Loan Facility, the Corporation has also entered into a first lien senior secured revolving facility (the "First Lien Revolving Loan Facility") of up to $30 million. Southern Pacific has negotiated an accordion into the Second Lien Term Loan Facility which (subject to arranging the required incremental commitments) will allow the First Lien Revolving Loan Facility to be increased up to $80 million after Phase 1 of STP-McKay is deemed commercial. The particulars of the First Lien Term Loan Facility are summarized in the final prospectus of the Corporation dated December 23, 2010 and filed on

Conference Call

Southern Pacific has scheduled a conference call to discuss the debt financing and the STP-McKay Thermal Project. The call is set for 9 a.m. Mountain Time (11 a.m. Eastern Time) on Friday, January 7, 2011. To participate, please call 416-340-8530 or 877-240-9772. A presentation by Byron Lutes, President & CEO, Southern Pacific, will be followed by a question and answer period. If you are unable to participate, a taped broadcast will be available until January 14, 2010. To access the replay, dial 416-695-5800 or 800-408-3053. The pass code is 6414216.

About Southern Pacific

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

This press release does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdictions. These securities have not been registered under the US Securities Act or any state securities law, and they may not be sold in the United States unless an exemption from registration is available. This press release does not constitute an offer to sell or a solicitation of an offer to buy securities in the United States.

Safe Harbour

Forward-Looking Information

This news release contains certain "forward-looking information" within the meaning of applicable securities law including, but not limited to: the proposed use of proceeds in connection with the Offering and Second Lien Term Loan Facility. 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 with respect to results of operations, production, future commodity prices and exchange rates, future capital and other expenditures, business prospects and future economic and market conditions as at the date the statements are made. Forward- looking information is 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 conventional oil and gas properties and of oil sands properties, difficulties or delays in securing required regulatory approvals and in the construction, commissioning and start-up operations, the uncertainties involved in interpreting drilling results and other geological data, fluctuating commodity prices, the possibility of unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed for construction of STP-McKay in the future and risks and uncertainties associated with the impact of general economic conditions and other factors including unforeseen delays. As an oil sands enterprise in the early stage of development with heavy crude and conventional production, Southern Pacific faces risks including those associated with exploration, development, start-up, approvals and the continuing ability to access sufficient capital from external sources as required. Industry related risks could include, but are not limited to, operational risks in exploration, development and production, delays or changes in plans and the timing of capital expenditures, 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. Due to the risks and uncertainties associated with forward-looking information, the reader is cautioned not to place undue reliance on this forward-looking information.

Non-GAAP Measurements

EBITDA is a financial measure that does not have any standardized meaning prescribed by Canadian GAAP and may not be comparable to similar measures calculated by other corporations or entities. EBITDA provides an indication of the results generated by the business prior to how activities are financed, assets are amortized, or how the results are taxed in various jurisdictions. The manner by which EBITDA is calculated herein is consistent with the manner by which this financial measure is calculated in other public disclosures made by the Corporation.

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