Southern Pacific Resource Corp.

Southern Pacific Resource Corp.

February 08, 2011 18:19 ET

Southern Pacific Reports Cash Flow of $12.3 Million

CALGARY, ALBERTA--(Marketwire - Feb. 8, 2011) -

Southern Pacific Resource Corp. ("Southern Pacific" or the "Company") (TSX:STP) is pleased to announce its financial and operational results for the quarter ended December 31, 2010.


  • Averaged production of 4,359 barrels of oil equivalent per day ("boe/day"), weighted 99% to oil and natural gas liquids;
  • Generated funds from operations of $12.3 million;
  • Commenced the final financing arrangements for construction of Phase 1 of the STP-McKay Thermal Project ("STP-McKay"), including $172.5 million of unsecured convertible debentures, a US$275.0 million second lien term loan facility and a $30.0 million first lien revolving facility. All financing arrangements closed on January 7, 2011, resulting in full funding for Phase 1 of STP-McKay;
  • Delivered overall operating netbacks of $37.72 per boe;
  • Continued construction on an all-season 29-km road to STP-McKay, with 28 km cleared and 10.5 km fully completed;
  • Commenced civil work on STP-McKay, including construction of camp facilities and placing orders for long lead items;
  • Closed the acquisition of North Peace Energy on November 23, 2010 by the issuance of 14.1 million shares. Acquired assets include 135 sections of land in the Peace River oil sands area at a 100% working interest, a 1,000 bbl/day cyclic steam stimulation pilot project at Red Earth, and potential for a 10,000 bbl/day thermal project;
  • Obtained all necessary approvals to initiate a 30 to 35 core hole drilling program within the STP-McKay application area, which will provide necessary delineation for a Phase 2 expansion application; and
  • Positioned the Company for continued growth through thermal oil production from one project on production, one project under construction, one project in the pilot phase and one project in the process of application preparation.
($ thousands, except per share and per boe amounts)   Three months ended December 31, 2010   Three months ended December 31, 2009  
Petroleum and natural gas revenue   $23,514   $17,561  
Funds from operations (1)   $12,268   $11,386  
  -Per share basic and fully diluted   $0.04   $0.06  
Net income (loss)   $4,417   $7,089  
  -Per share basic and fully diluted   $0.01   $0.04  
Total assets   $411,760   $251,170  
Working capital   $20,836   ($27,409 )
Capital expenditures   $54,854   $1,566  
Average product prices ($ per boe)   $58.63   $57.88  
Operating netback ($ per boe)   $37.72   $42.56  
Weighted average common shares outstanding          
  -basic   328,783   187,190  
  -diluted   336,165   189,400  

  Heavy oil (bbls/day)   4,325   3,173  
  Oil and NGLs (bbls/day)   12   31  
  Natural gas (mcf/day)   134   563  
Total (boe/day)   4,359   3,298  
  1. Funds from operations are calculated as cash generated from operations before changes in non-cash working capital and asset retirement expenditures.

Southern Pacific has filed its Interim Consolidated Financial Statements for the three and six months ended December 31, 2010 and related Management's Discussion and Analysis ("MD&A") on SEDAR at Copies are also available on the Company's website at


Southern Pacific is positioned for continued growth through thermal oil production on a number of fronts. The Company now has one project on production, one project under construction, one project in the pilot phase and one future project in the process of application preparation.

Southern Pacific's STP-Senlac Thermal Project ("STP-Senlac") near Unity, Saskatchewan accounted for 4,325 barrels of heavy oil per day ("bbl/day") of the corporate total of 4,359 boe/day in the second quarter of fiscal 2011. The Company's development strategy is to maintain STP-Senlac's production levels between 4,000 and 5,000 bbl/day annually over the next 10 to 15 years. During the second quarter, the Company placed two infill wells on production and drilled a set of steam-assisted gravity drainage ("SAGD") well pairs, which form Phase H. The Phase H well pairs encountered high quality reservoir with the total contacted net pay per well exceeding the wells that were drilled to the north in Phase G. The three wells in Phase G achieved over 1,400 bbl/day each of peak oil production and have produced over 500 thousand barrels ("Mbbl") apiece since being placed on production in June 2009. Eighteen months after startup all three Phase G wells are still producing at rates greater than 750 bbl/day, with expected ultimate recovery of over 1.2 millon barrels ("MMbbl") per well pair. The two Phase H well pairs are expected to add similar amounts of heavy crude to STP-Senlac by April 2011. Senlac netback prices were affected by an Enbridge downstream pipeline outage which caused heavy oil differentials to increase to about $25/bbl in October and partially through November. There was no curtailment of production and differentials appear to have recovered to the $15/bbl range moving into 2011.

Southern Pacific's Alberta based SAGD project, Phase 1 of STP-McKay, is under construction, with approximately 28 km of the total 29-km access road cleared and 10.5 km fully completed. The Company has also begun the plant site civil work, installed facilities for 196 camp rooms and placed orders for all long lead equipment. In total, approximately $52.0 million of capital has been committed on STP-McKay as of December 31, 2010. The total Phase 1 capital cost of STP-McKay is estimated at $450.0 million, which includes a $42.0 million contingency. All of the funding for Phase 1 is in place. First steam to the Project's SAGD well pairs is expected in the first quarter of 2012, with production ramping up through 2012. The facility is designed to process 12,000 bbl/day of bitumen and generate 33,600 bbl/day of dry steam. STP-McKay has an expected project life in excess of 35 years.

In addition to current and imminent production, Southern Pacific is setting the stage for long-term growth through continued development and exploration of its leases. The Company is in the midst of its winter core hole program, which consists of continued development in the McKay area to collect the technical data required to prepare an application for the next phase of development. Phase 2 of STP-McKay is currently in the preliminary application phase, with environmental studies and consultation underway. Final sizing of Phase 2 will be determined upon completion of the winter core hole program and interpretation of results. Management currently expects Phase 2 will be designed to process between 12,000 to 24,000 bbl/day of bitumen. The application for Phase 2 is expected to be completed and submitted by the end September 2011. 

Southern Pacific has also finalized it preliminary testing program for its newly acquired STP-Red Earth project. Plans are to start up the 1,000 bbl/day pilot project in April 2011 and commence cyclic steam injection on the existing two horizontal wells and one existing vertical well. Different wellbore configurations and injection schemes will be tested on the pilot project, with the intent to obtain as much technical knowledge of the reservoir and recovery methods as possible over the planned five month testing program. At the completion of the pilot testing program, results will be interpreted and a go forward development plan will be prepared.

Southern Pacific is also preparing exploration programs on certain portions of the six prospect areas within the Company's 436 gross sections (279,040 acres) oil sands leases at an average working interest of 87% in Alberta. A significant amount of the Company's lands remain unexplored, and it is intended to develop a more extensive exploration program for next winter.

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."

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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.

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.


"Barrels of oil equivalent" (boe) may be misleading, particularly if used in isolation. A boe conversion of 6 mcf to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

"Funds from operations" and funds from operations per share are non GAAP terms that represent cash generated from operating activities before changes in non-cash working capital and asset retirement expenditures. Southern Pacific considers funds from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future growth through capital investment. Funds from operations may not be comparable with the calculation of similar measures for other companies. Funds from operations per share is calculated using the same share basis which is used in the determination of net income (loss) per share.

"Operating netback" is defined as petroleum and natural gas sales less royalties and less operating and transportation costs.

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