CALGARY, ALBERTA--(Marketwire - March 11, 2013) - Southern Pacific Resource Corp. ("Southern Pacific" or the "Company")(TSX:STP) is pleased to announce that it has executed a one-year oil marketing deal effective April 1, 2013, that will provide U.S. Gulf Coast pricing for its bitumen product that is being shipped under the Company's rail transportation arrangements. This deal with a major U.S. Gulf Coast refiner will have pricing based off the Maya benchmark, a widely traded heavy crude with similar properties to Southern Pacific's diluted bitumen. With this deal now in place, Southern Pacific has successfully secured firm transportation and sales of its product into the U.S. Gulf Coast and has secured a profitable route through a serious shortage of crude oil export transportation capacity out of the province of Alberta. Based on the next 12 months' futures pricing the Company expects to receive significantly enhanced plant gate bitumen netback of approximately $48.00/bbl, which is about $19.00/bbl higher than the forecast intra-Alberta markets currently available.
Southern Pacific is in the process of adding significant production growth throughout fiscal 2013 and 2014. The Company expects to ramp up the STP-McKay Thermal Project Phase 1 volumes through the remainder of this and the next fiscal year, with production expected to reach nominal plant capacity of 12,000 barrels of bitumen per day ("bbl/d") in fiscal 2014. This production base, coupled with the new wells being added at STP-Senlac, Southern Pacific's thermal project in Saskatchewan, should open up new opportunities as the Company utilizes its cash flow to finance continued growth. As production ramps up, Southern Pacific plans to provide monthly operational updates to its shareholders. An updated corporate presentation is also available on Southern Pacific's website: www.shpacific.com.
STP-McKay Thermal Project
Estimated bitumen production at STP-McKay averaged 1,300 bbl/d for the month of February with daily peaks of 1,650 bbl/d and lows of 900 bbl/d. The month-over-month production average was lower by approximately 200 bbl/d, primarily due to operational adjustments that included restricting the producer well rates in order to increase sub-cool in the reservoir and adjusting the reservoir operating pressure. These adjustments are part of the overall reservoir management program and are aimed at optimizing long term rates and recovery, as well as protecting wellbore integrity.
Southern Pacific is pleased with the performance of the four most mature well pairs. Conformance along these wellbores continues to improve and sub-cool levels have stabilized at acceptable levels. These wells accounted for approximately 73% of the total field production in February and provide Management with confidence in the less mature wells to produce similar results as additional conformance is achieved and complete steam assisted gravity drainage ("SAGD") conversions occur.
A well pair that required a liner patch in January has been successfully repaired and placed back on production after a period of circulation reheating. It did not contribute appreciably to February's production and will be producing at a restricted rate until additional wellbore conformance is achieved to avoid a repeat failure.
To date, eight of the 12 well pairs have been converted to SAGD production. Some of these well pairs have been and will continue to be returned to circulation for brief periods in order to further develop steam chamber conformance. The remaining four 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 these four well pairs are taking longer to convert to SAGD than originally modeled, the geologic and reservoir characteristics between all 12 well pairs are of similar quality, as evidenced by extensive corehole delineation, with no appreciable differences between the wells that have converted and those that have not. Thus, with just over four months of production history to date, the Company believes that these four wells are taking longer to convert primarily as a result of the individual well pair configurations. Three of the well pairs that have yet to be converted were drilled with a wider average separation between the injector and producer as compared to some of the more mature well pairs in the project. This was done in order to capture underlying oil which would otherwise have been stranded. During circulation, reservoir heating occurs in a radial manner around each wellbore, and the time required to heat the additional separation distance is taking longer than originally modeled due to subtle reservoir heterogeneities and greater ineffective heat loss within the oil sand deposit. Additionally, the outboard well pairs on the pads are also taking longer to establish well pair communication and conformance potentially due to only receiving heat and pressure support from offset well pairs on one side. It should be noted that improved communication during the month was evident in three of the four wells remaining to be converted. However, additional circulation and other production techniques will still be required in order to continue improving the heating conformance along the wellbore lengths.
The surface facilities at McKay continue to perform well despite having been exposed to extended periods of bitterly low temperatures during this winter. All systems within the facilities continue to run well and there has been no significant downtime since the plant was commissioned this past summer.
The operational outlook for March is to continue developing the steam chambers within the well pairs where existing SAGD production has been established, while maintaining a safe level of reservoir sub-cool in order to protect wellbore integrity. On the circulating wells, periodic tests for improved conformance will be evaluated. As each individual well pair conformance is improved, Southern Pacific's operations team will convert the wells to SAGD and evaluate performance. A single circulation reheat and conversion cycle typically takes approximately three weeks to complete. As part of the STP-McKay ramp up plan some minor well pair maintenance has been scheduled to repair some malfunctioning thermocouples and to open some additional steam injection ports in the injectors. To accommodate the repairs, there will be a few days of downtime in March on up to three of the well pairs.
As the Company has previously stated, it is expected to take up to 18 months from first oil production, which commenced in mid-October 2012, for total rates to approach the 12,000 bbl/d design capacity.
STP-McKay Exploration Program
Southern Pacific has completed an exploration core hole program on its McKay lands. The program focused on delineating lands to the north of the Company's current project and involved the drilling of 10 core holes. The Company is pleased with the results and cost of this program. The overall cost of the project is estimated at $3.7 million, about 20% below its original estimate. The core hole results will be included within the Company's next annual independent reserves review, scheduled to be completed in July 2013.
STP-Senlac Thermal Project
Production at Senlac for the month of February averaged approximately 2,500 bbl/d. This rate has held stable for several months even though no additional well pairs have been brought on stream over that period. The start up of Pad K was initiated in January with circulation steaming in the first well pair, and permanent surface facilities were completed on March 4th. The first of three well pairs was placed on production on March 9th, with the next well pair scheduled for an April start up and the final pair should start in early May. Phase K is expected to provide a significant increase to the Company's base production.
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 and lending costs, 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 oil and gas properties and of oil sands properties, delays in ramp-up operations, the uncertainties involved in interpreting drilling results and other geological data, fluctuating oil prices and discounts, 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, Southern Pacific faces risks including those associated with exploration, development, ramp-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.
"Operating netback" is a non-GAAP measure defined as petroleum and natural gas sales less royalties and less operating and transportation costs.