Southern Pacific Resource Corp.

Southern Pacific Resource Corp.

September 21, 2011 17:00 ET

Southern Pacific Reports Cash Flow of $51.9 Million for the Year Ended June 30, 2011

CALGARY, ALBERTA--(Marketwire - Sept. 21, 2011) - Southern Pacific Resource Corp. ("Southern Pacific" or the "Company") (TSX:STP) is pleased to announce its financial and operational results for the year ended June 30, 2011.


  • Averaged overall production of 4,267 bbl/d, an increase of 44% over average production of 2,956 bbl/d in fiscal 2010;
  • Increased funds from operations 45% to $51.9 million compared to $35.8 million in the prior year;
  • Received Order In Council approval from the Government of Alberta for STP-McKay Phase 1 on October 15, 2010, and subsequently received the Energy Resources Conservation Board ("ERCB") scheme approval on October 25, 2010;
  • Increased proved ("1P") reserves by 1,670% to 120.8 million barrels over the prior year due to regulatory approval of the STP-McKay Thermal Project ("STP-McKay") and 2011 winter core hole program;
  • Completed the final financing arrangements for construction of STP-McKay Phase 1, including $172.5 million of unsecured convertible debentures, a US$275.0 million second lien term loan facility and a $30.0 million first lien revolving facility, resulting in full funding for STP-McKay Phase 1;
  • Commenced construction of STP-McKay Phase 1. The Company continues to forecast project completion for calendar first quarter 2012, first steam for calendar second quarter 2012 and first oil in calendar third quarter 2012;
  • Closed the acquisition of North Peace Energy on November 23, 2010. Acquired assets include 135 sections of land in the Peace River oil sands area at a 100% working interest, a 1,000 bbl/day cyclic steam stimulation (CSS) pilot project at Red Earth, and potential for a 10,000 bbl/day thermal project; and
  • Announced and began preparing the application for STP McKay Phase 2, which is expected to add 24,000 bbl/d of bitumen capacity.
($ thousands, except per share and per boe amounts) 2011 2010
Petroleum and natural gas revenue $ 93,727 $ 62,043
Funds from operations (1) $ 51,872 $ 35,773
-Per share basic and fully diluted $ 0.16 $ 0.18
Net income $ 14,280 $ 8,197
-Per share basic and fully diluted $ 0.04 $ 0.04
Total assets $ 871,360 $ 349,197
Working capital $ 259,519 $ 59,929
Capital expenditures $ 263,764 $ 45,842
Total long-term debt $ 374,186 -
Average product prices ($ per boe) $ 60.17 $ 57.50
Operating netback ($ per boe)(2) $ 40.29 $ 38.68
Weighted average common shares outstanding
-basic 331,902 200,385
-diluted 338,834 202,751
Heavy oil (bbl/day) 4,205 2,825
Oil and NGLs (bbl/day) 25 30
Natural gas (mcf/day) 221 607
Total (boe/day) 4,267 2,956
  1. Funds from operations are calculated as cash generated from operations before changes in non-cash working capital and asset retirement expenditures. Funds from operations is a term that is not defined by generally accepted accounting principles (non-GAAP). See Definitions below.
  2. Operating netback is a non-GAAP term defined as petroleum and natural gas sales less royalties and less operating and transportation costs.

Southern Pacific has filed its Annual Consolidated Financial Statements and Management Discussion and Analysis for the year ended June 30, 2011.Southern Pacific has also filed its Form 51-101F1 – Statement of Reserves Data and Other Oil and Gas Information, Form 51-101F2 – Report on Reserves Data by Independent Qualified Reserves Evaluator, and Form 51-101F3 – Report of Management and Directors on Oil and Gas Disclosure, under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The oil and gas information is included in the Annual Information Form filed by Southern Pacific. Such filings can be accessed electronically on SEDAR at Copies are also available on the Company's website at


Southern Pacific remains focused on the construction and operation of Phase 1 of STP-McKay. The 12,000 bbl/d steam-assisted gravity drainage (SAGD) project was approved in the fall of 2010, and construction has been underway since. The Company continues to expect the project to be completed within its budgeted time frame and now expects the total cost to come in below the original $450 million budget. The revised final project cost estimate, including contingency, is between $415 and $440 million, including the addition of $15 million of scope changes that are expected to enhance the reliability of the plant and reduce operating costs. This estimate is $10 to $35 million below the original budget.

The project milestones have been most recently marked by the successful drilling of 12 SAGD well pairs, which were drilled with excellent results. All 12 of the SAGD well pairs encountered high quality reservoir throughout and, most notably, the absence of lean zones and shale barriers in any of the well bores. This gives management confidence that the well pairs will perform as expected in the initial design. All horizontal sections were drilled to design length, with none of the well bores departing the exploitable reservoir. Southern Pacific completed the drilling operations with no re-drills or side tracks, nor with any difficulty running the slotted liners in the horizontal sections.

At the central process facility site, various structures are beginning to elevate above ground level, as the earthworks including site civil preparation and pile driving near completion. The Company recognized significant savings in the plant and pad site civil works, thanks in part to efficient construction management and contractors, and also because competent clay material was found locally from which to construct the sites.

The main construction operations underway at the plant site include continued pile driving, pouring cement foundations, erecting storage tanks and constructing the 85 person operations camp. Over 80% of the modules, skids and equipment packages have been released for shop fabrication. Modules have started to arrive on site and are scheduled to continue to arrive over the coming months.

From a timing perspective, Southern Pacific expects first steam to the SAGD well pairs will occur on schedule in the second quarter of calendar 2012. The Company remains fully funded to complete, start up and add production volumes from the STP-McKay project.

At the STP-Senlac Thermal Project ("STP-Senlac") located near Unity in southwestern Saskatchewan, Southern Pacific remains committed to its development plan, which includes maintaining production levels on an annual basis between 4,000 and 5,000 bbl/d. Over the past quarter, the property achieved an average production rate of 4,829 bbl/d. This increased production level is primarily a result of the recent addition of Phase H, which consists of two SAGD well pairs placed on production in April 2011.

As part of its development strategy, Southern Pacific is now drilling and preparing Phase J for production. Phase J consists of three SAGD well pairs; these well pairs may not all be needed until later in the fiscal year and they will be layered into the facility as capacity permits.

Southern Pacific recently completed a scheduled bi-annual maintenance turnaround at STP-Senlac. The turnaround took only 9 days to complete as compared to a 14 day budget. All the wells are now back on production.

The STP-Red Earth Thermal Project also commenced operations in the fourth quarter. Southern Pacific re-activated this 1,000 bbl/d pilot project this past June. The Company is testing three separate well bores, using cyclic steam stimulation ("CSS") as the technique for recovery. Each well bore has a unique configuration and the Company intends to continue testing the wells through the fall of 2011. Following this initial testing, Southern Pacific will analyze the data and determine the next steps in establishing an overall development plan for this project and future expansion plans.

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."


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) maybe 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 a non-GAAP term defined as petroleum and natural gas sales less royalties and less operating and transportation costs.

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