Southern Pacific Resource Corp.

TSX : STP


Southern Pacific Resource Corp.

January 07, 2013 09:00 ET

Southern Pacific Provides Operational Update

COMPANY'S FIRST BITUMEN BY RAIL FROM STP-McKAY ARRIVES IN U.S.

CALGARY, ALBERTA--(Marketwire - Jan. 7, 2013) - Southern Pacific Resource Corp. (TSX:STP) ("Southern Pacific" or the "Company") is pleased to report increasing production from its STP-McKay Thermal Project in Alberta, the arrival of the first shipment of diluted bitumen from STP-McKay into Mississippi, and new steam assisted gravity drainage ("SAGD") wells being drilled at the STP-Senlac Thermal Project in Saskatchewan.

STP-McKay Thermal Project

Bitumen production at the STP-McKay Thermal Project, located 45 km northwest of Fort McMurray, continues to ramp up. In December 2012, the estimated average bitumen production rate was 1,200 barrels per day (bbl/d), up 22% from the previous month's average rate. As the Company has previously stated, it is expected to take 12 to 18 months from first oil production, which occurred in mid-October 2012, for total rates to approach the 12,000 bbl/d design capacity. The ramp up period is required to condition the wellbores for even temperature conformance and allow adequate time for the development and growth of the SAGD chambers within the oil sands reservoir. The 12 SAGD well pairs that were initially drilled are equipped with comprehensive subsurface measurement of temperature and pressure and have multiple steam delivery and production recovery points within each well. Southern Pacific is being conservative in the initial stages of converting the well pairs from circulation to SAGD, utilizing the downhole technology that was installed to ensure even temperature conformance and chamber development has occurred along the horizontal length of the wells before the wells are converted to steady state SAGD. This approach is designed to ensure the long-term integrity of the wellbores and assist in maximizing the total recovery of bitumen from each well pair over its producing life. To date, seven of the 12 well pairs have been fully converted. The remaining five well pairs are at various stages of circulation and will be converted to full SAGD operation when Southern Pacific's technical staff deem appropriate. Although the process of circulation and conversion takes time, steady progress is occurring and once the conversion to SAGD operation has been completed, the well pairs are operating predictably.

The surface facilities at McKay continue to perform well despite having been exposed to extended periods of bitterly low temperatures. All systems within the facilities continue to run well and there has been no significant downtime since the plant was commissioned this past summer.

Southern Pacific has also commenced an exploration core hole program on its McKay lands. The program will focus on delineating lands to the north of its current project. The program is designed to drill 10 to 13 core holes and is expected to be completed by the middle of March 2013. Depending upon results, the program could add incremental reserves to justify a further expansion or be integrated into the existing expansions, which include the STP-McKay Phase 1 Expansion, which has a design capacity of 6,000 bbl/d, and STP-McKay Phase 2, which has a design capacity of 18,000 bbl/d. These existing expansions are in the application process, with approval anticipated towards the end of 2013.

On December 22, 2012, the first shipment of Southern Pacific's diluted bitumen ("dilbit") left the Lynton rail terminal, located just south of Fort McMurray, and landed in Mississippi on January 6, 2013. This first shipment and future shipments will be offloaded at the Genesis Natchez terminal where Southern Pacific has exclusive terminal capacity. Steady rail shipments of dilbit from STP-McKay have now commenced and are being shipped to Natchez. Southern Pacific plans to build inventory in Natchez for most of January 2013 with sales expected to commence towards the end of the month. The Company has several markets prepared for purchasing its product and expects to receive pricing competitive with other U.S. Gulf Coast heavy oil imports. As a result, Southern Pacific expects to receive a significantly improved net back for its bitumen sales as compared to a sale into local markets based on Western Canadian Select ("WCS") pricing. Southern Pacific has also completed a purchase arrangement to supply its diluent requirements. The diluent will be sourced from the U.S. Gulf Coast and shipped via rail, using Southern Pacific's returning rail cars to the Lynton terminal, where it will be transported by truck to the STP-McKay plant site to be used in the bitumen/water separation process. The Company expects to realize substantial savings from this source of diluent. The first loads are scheduled to arrive at STP-McKay around January 21, 2013.

STP-Senlac Thermal Project

At Senlac near Unity, Saskatchewan, the drilling of Pad K is nearing completion and Southern Pacific is pleased with the results. The first two well pairs (four horizontal wells) have been completed, and the Company is currently drilling the final well pair. The first two well pairs have encountered an average of 500 m of clean sand and the third well pair is expected to obtain similar or better results. All drilling should be completed by the end of January 2013. The first well pair will begin steaming in mid-January, with the remaining well pairs following close behind. A warm up period of six to eight weeks is then required before the wells are placed on production. Phase K is expected to provide a significant increase to base production. Production at Senlac in 2012 averaged approximately 3,500 bbl/d.

Since October 2012, STP has been trucking a portion of its total oil production from STP-Senlac to a nearby rail terminal instead of shipping it down its connected pipeline. In January, Southern Pacific has committed to increase its oil sales by rail at STP-Senlac to 1,500 bbl/d and has implemented new loading facility improvements which make this easier to accomplish operationally. The Company expects to receive a significantly better netback on these rail based volumes, as compared to the balance of production being shipped by pipeline. The Company has added this flexibility to its marketing options, and will be able to direct the Senlac heavy oil product to the most favourable market in the future.

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 trades on the TSX under the symbol "STP."

Advisory

This news release contains certain "forward-looking information" within the meaning of such statements under applicable securities law including estimates as to: future production, operations, operating costs, commodity prices, administrative costs, commodity price risk management activity, acquisitions and dispositions, capital spending, access to credit facilities, 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 and, subject to regulatory approval and commercial factors, the commencement or approval of any SAGD project, including the STP-McKay Phase 1 Expansion and STP-McKay Phase 2.

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 conventional oil and gas properties and of oil sands properties, difficulties or delays in start-up operations, the uncertainties involved in interpreting drilling results and other geological data, fluctuating oil prices, 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, with some 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 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 reader is cautioned not to place undue reliance on this forward-looking information.

Contact Information