Southern Pacific Resource Corp.

Southern Pacific Resource Corp.

May 09, 2011 07:30 ET

Southern Pacific Reports Financial and Operating Results for the Quarter Ended March 31, 2011

Construction Proceeding as Planned on the Fully Funded STP-McKay Thermal Project

CALGARY, ALBERTA--(Marketwire - May 9, 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 March 31, 2011.


  • STP-McKay Phase 1:
    • Completed construction of a 29-km all weather access road, central process facility and pad site;
    • Began drilling six steam-assisted gravity drainage (SAGD) well pairs on pad 101;
    • Completed the full 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. All financing arrangements closed on January 7, 2011. Project costs spent at March 31, 2011 are approximately $119.7 million with another $142.3 million of project costs fixed. The total capital budget for the project remains unchanged at $450.0 million including a $42 million contingency. The Company is forecasting first steam in the second calendar quarter of 2012, as expected.
  • STP-McKay Phase 2:
    • Successfully completed a 38 corehole delineation program in McKay under budget;
    • Announced Phase 2 expansion plans for STP-McKay, which is expected to add 24,000 bbl/d of bitumen capacity.
  • STP-Senlac:
    • Completed, tied in and steamed two SAGD well pairs at Phase H through the quarter and began producing oil from Phase H on April 7, 2011;
    • Production averaged 3,593 barrels per day (bbl/d) for the quarter and 3,997 bbl/d for the nine month fiscal period ending March 31, 2011. Production increased to 5,078 bbl/d for the month of April with the addition of Phase H; and
  • Generated funds from operations of $9.3 million.
($ thousands, except per share and per boe amounts)Three months ended March
31, 2011
Three months ended March
31, 2010
Petroleum and natural gas revenue18,79123,403
Funds from operations (1)9,32213,001
-Per share basic and fully diluted0.030.06
Net income (loss)(1,417)3,104
-Per share basic and fully diluted(0.00)0.01
Total assets857,919250,459
Working capital344,556(24,548)
Long-term debt374,803-
Capital expenditures94,65211,948
Average product prices ($ per boe)56.9861.66
Operating netback ($ per boe)36.4239.06
Weighted average common shares outstanding

Heavy oil (bbl/d)3,5934,063
Oil and NGLs (bbl/d)3428
Natural gas (mcf/)223756
Total (boe/day)3,6644,217
(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 nine months ended March 31, 2011 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 focused on building STP-McKay Phase 1. The 12,000 bbl/d SAGD project was approved in the fall of 2010, and construction has been underway since. To date, the Company has completed a 29-km all season access road and prepared the site for a central processing facility and the well pads. These items were viewed as having the greatest risk to timing of the project construction. The drilling of 12 SAGD well pairs for STP-McKay Phase 1 is proceeding as scheduled. All long-lead equipment has been ordered and modules are beginning to be constructed in various fabrication shops, located primarily in Alberta. Final assembly of the modules will begin in the summer and fall of 2011.

Southern Pacific also achieved excellent results from its 2010/11 winter corehole program in the McKay area. The Company drilled a total of 38 coreholes, which further delineated the project area and extended the discovered bitumen deposit. Based on these results, and the results from previous coreholes and technical work, the Company is proceeding with a 24,000 bbl/d expansion of STP-McKay Phase 1. STP-McKay Phase 2 will be developed on the eastern side of the existing project area. The expansion will be designed as two 12,000 bbl/d integrated design sub-phases. This is expected to provide the technical and financial flexibility to allow the Company to efficiently deploy capital and operate the projects. Southern Pacific expects to submit the application for approval of the entire 24,000 bbl/d expansion near the end of the third quarter of calendar 2011. Project approval would increase the total design capacity at STP-McKay to 36,000 bbl/d with a project life of more than 20 years based on the discovered bitumen to date.

At STP-Senlac, operations continue to run smoothly. Production for the last quarter averaged 3,593 bbl/d and 3,997 bbl/d through the previous nine months of the current fiscal year. Production has been declining naturally since the most recent SAGD well pairs (Phase G) were placed on production 21 months ago. Southern Pacific drilled Phase H, consisting of two SAGD well pairs, in late 2010, then subsequently completed, tied-in and commenced circulation steaming in February 2011. The Company placed Phase H on production on April 7. Production has since been ramped up to bring the total average production estimate for April to 5,078 bbl/d.

STP-Senlac has generated $82.2 million in net operating income since Southern Pacific purchased the property 17 months ago for $89.6 million. In order to sustain production on an annual basis between 4,000 and 5,000 bbl/d, the Company is preparing to drill the next phase of SAGD well pairs, Phase J. Phase J consists of three SAGD well pairs and will be drilled and readied for operation when capacity becomes available in the plant in 2012.

In June of 2011, Southern Pacific expects to commence startup of its STP-Red Earth pilot project. This 1,000 bbl/d facility is being readied for operation and upon startup will be utilized to test a number of different cyclic steam stimulation ("CSS") production strategies involving the existing horizontal and vertical wellbores already drilled at the plant site. These results will then be utilized in determining the optimal CSS strategy for the potential development of a larger project on this acreage block.

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) of Alberta oil sands leases at an average working interest of 87% in Alberta. These programs are expected to be finalized this summer with implementation to occur in the following winter.


Southern Pacific is pleased to announce that Chad Harris has been promoted to Vice President, Exploration. Mr. Harris has been with Southern Pacific since December 2009 as Manager, Geosciences. He has 12 years of oil and gas experience with both junior and senior independent producers. Mr. Harris spent eight years with Canadian Natural Resources where he worked on various heavy oil and bitumen properties, including the Pelican Lake Wabiskaw medium oil field, the Peace River Bluesky oil sands and the Horizon Project McMurray oil sands mine.

In addition, Southern Pacific has appointed Ross D.S. Douglas to its Board of Directors. Mr. Douglas, P. Eng, ICD.D, is the President and Chief Executive Officer of Mancal Corporation, a private holding company in Calgary. Mr. Douglas is active in a number of industry committees including the Canadian Centre for Energy Information and the Energy Resources Conservation Board ("ERCB") Chairman's Advisory Committee. Mr. Douglas has also served as Chairman and Governor of CAPP, the Energy Utilities Board ("EUB") Chairman's Advisory Committee, the EUB Alternative Dispute Resolution ("ADR") Steering Committee, the Orphan Well Fund Advisory Committee and the Board of the Orphan Well Association, and the Industry/EUB Oil & Gas Liaison Committee. He has served as a member of the Board of Atlantis Resources, Highridge Exploration, Arawak Energy, Deepwell Energy Services Trust, Altius Energy and the Foundation for Energy Education and Research in Calgary. Mr. Douglas is a member of the Institute of Corporate Directors.

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 startup 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, startup, 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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