Southern Pacific Reports Cash Flow of $16.5 Million for the Quarter Ended March 31, 2012
CALGARY, ALBERTA -- (Marketwire) -- 05/14/12 -- 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, 2012.
2012 FISCAL Q3 HIGHLIGHTS:
-- Achieved funds from operations of $16.5 million for the quarter compared
to $9.3 million in the third quarter of 2011, an increase of 77%. Higher
oil prices and lower operating costs generated the near record cash flow
during the quarter;
-- Averaged overall production from STP-Senlac of 4,154 barrels per day
("bbl/day") for the quarter compared to 3,627 bbl/day in the third
quarter of 2011;
-- Continued strong execution on the construction of STP-McKay Phase 1
Thermal Project ("STP-McKay Phase 1"). The commissioning of the Central
Process Facility ("CFP") commenced today initiating with the cogen and
utilities plants. After permanent power is established, a sequential
startup of the remaining CPF process systems will occur, and first steam
should be delivered to the SAGD well pairs towards the end of June 2012
with oil production commencing three to four months after first steam.
The total capital cost projection remains at $440 million as compared to
the original budget of $450 million; and
-- Announced expansion plans for its STP Phase 1 project by 50%, which
would give the project total plant capacity of 18,000 bbl/day. This will
allow the Company to accelerate its production growth forecast.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months Three months
(thousands, except per share and per boe ended March ended March
amounts) 31, 2012 31, 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum revenue, net of royalties $21,598 $15,665
Funds from operations (1) $16,502 $9,322
Per share basic and diluted $0.05 $0.03
Net income $11,553 $111
Per share basic and diluted $0.03 $0.00
Total assets $919,850 $861,451
Net capital expenditures $78,117 $96,096
Total long-term debt $393,069 $379,327
Average product prices ($ per boe) $64.52 $56.98
Operating netback ($ per boe)(2) $44.41 $35.46
Weighted average common shares outstanding
basic 340,512 337,581
diluted 348,000 337,581
Production
Heavy oil (bbl/day) 4,154 3,627
Natural gas (mcf/day) 13 223
----------------------------------------------------------------------------
Total (boe/day) 4,156 3,664
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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
International Financial Reporting Standards (non-IFRS). See Definitions
below.
(2) Operating netback is a non-IFRS term defined as petroleum and natural
gas sales less royalties and less operating and transportation costs.
Southern Pacific has filed its Condensed Interim Consolidated Financial Statements for the nine months ended March 31, 2012 and related Management Discussion and Analysis on SEDAR at www.sedar.com. Copies are also available on the Company's website at www.shpacific.com.
OUTLOOK
Senlac
The Company completed drilling and tie-in of Phase J at Senlac in December 2011, which consists of three SAGD well pairs. Circulation steam on the first well pair commenced in mid December and first oil was produced from the well pair on December 29, 2011. The second and third well pairs were brought on production in January and March respectively. With these three additional well pairs on stream, Senlac production averaged over 4,154 bbl/day generating near record cash flow of $16.5 million for the quarter. Plans to drill and equip the next phase are now underway, with an expectation to have it ready for operation in the fourth quarter of calendar 2012.
STP-McKay Phase 1 Construction Update
Construction of STP-McKay Phase 1 continues to advance very well. All of the Central Process Facility ("CPF") equipment packages and modules have been delivered to the site. The permanent operating team is now fully staffed with 45 Southern Pacific employees; they are deployed on the project site and preparing for startup and operations. Commissioning of the CPF commenced today, initiating with the cogen and utilities plants. After permanent power is established, a sequential startup of the remaining CPF process systems will occur, and first steam should be delivered to the SAGD well pairs towards the end of June 2012. After first steam, the wellbores will be circulated and warmed with steam for a period of three to four months, after which bitumen production will commence. It is expected to take approximately 12 months for production to ramp up to capacity after steam circulation has been completed.
The project's total projected capital cost estimate remains at $440 million, as compared to the original budget of $450 million. As of March 31, 2012 approximately $400 million of capital has been incurred or committed on the project. As most of the equipment and modules have been included within the incurred amount, the remaining capital estimate is not expected to vary significantly through to the conclusion of the construction and startup. It should also be noted that the cost estimate includes $15 million of scope changes to the original design that were added to further increase the reliability of the overall process. These additions will also be utilized within the Phase 1 Expansion.
Arrangements for the transportation and marketing of the bitumen production out of the STP-McKay Thermal Project are currently being finalized. The Company will release more details upon completion of these arrangements.
STP-McKay Phase 1 Expansion
On May 10, 2012, Southern Pacific announced expansion plans for its steam assisted gravity drainage ("SAGD") STP-McKay Thermal Project to a design capacity of 18,000 bbl/day. The expansion is anticipated to significantly reduce future overall capital costs in the entire project and accelerate the Company's production growth forecast. Southern Pacific's internal technical team have identified a unique opportunity to expand the existing STP-McKay Phase 1 central process facilities ("Phase 1 Expansion") by as much as 50% (6,000 bbl/day of bitumen based on a steam-oil ratio ("SOR") of 2.8) at an estimated cost of approximately $25,000 per barrel of designed capacity, or $150 million, including additional well pairs. The expansion plans have been in the engineering design phase for three months and based on analysis over that period, the Company has elected to proceed with expanding STP-McKay Phase 1 prior to the construction of STP-McKay Phase 2.
The expansion takes advantage of excess capacity that was incorporated into the original design and construction of Phase 1. Phase 1 currently has additional water treatment capacity that can be accessed with minimal capital investment, allowing the facility to treat approximately 50,400 bbl/d of water. Additional steam generation will be required to convert an incremental 16,400 bbl/d (50,400 bbl/d total) of treated water to steam. A fourth cogeneration turbine will also be required to supplement the power demand of the expanded facilities. The remainder of the facility expansion will be limited to piping modifications and small equipment additions. The entire expansion will fit comfortably within the existing Phase 1 central process facility site, making this expansion both cost effective and environmentally responsible.
Approval for the Phase 1 Expansion will be incorporated into the STP-McKay Phase 2 approval process. An application for Phase 2 was submitted in November, 2011. Phase 2 is a separate facility, located approximately 5 km east of Phase 1 and on the east side of the McKay River. Southern Pacific plans to provide an update to the application which will include the plans for the 6,000 bbl/d Phase 1 Expansion. Concurrently, the Phase 2 project will have its design capacity reduced from 24,000 bbl/day to 18,000 bbl/day, resulting in the total STP-McKay project area retaining the same overall capacity of 36,000 bbl/day of bitumen. There are a number of advantages to this approach. Phase 2 will be designed using a very similar design to Phase 1. This should reduce the total capital cost for Phase 2, which was originally being designed with two integrated 12,000 bbl/day facility streams. The overall layout of Phase 2 will likely be smaller, further reducing cost and environmental footprint. From a reserves perspective, having additional capacity in Phase 1 will better balance the capacity and reserve distribution between the west and east sides of the McKay River, which will minimize the requirement for future river crossings. Southern Pacific does not expect this revision to significantly delay the application approval process as the changes are minimal from an environmental or regulatory perspective; virtually every modification can be viewed as an improvement to the overall scheme. Southern Pacific has already consulted with the Alberta regulators on the modification, and the appropriate steps are being taken to accommodate the new Phase 1 Expansion plans within the original Phase 2 application. Additionally, the Phase 1 Expansion can be expedited upon approval, with a current estimate of only nine months to construct. This will provide the Company with accelerated cash flow from the 6,000 bbl/day expansion, prior to Phase 2 startup. Assuming regulatory approval occurs in the fourth quarter of 2013, expansion volumes could be realized from Phase 1 before the end of 2014.
The Phase 1 Expansion is significant to STP; it enhances the ability of the Company to grow internally. Expected cash flow using current pricing from STP-Senlac and STP-McKay Phase 1, coupled with STP's existing debt facilities, could fully provide funding necessary for the Phase 1 Expansion. Further along those lines, the Company would expect lower costs of capital funding for the Phase 2 project with the expanded cash flows from the Phase 1 Expansion and lower Phase 2 capital costs.
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.
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.
Definitions
"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-IFRS terms that represent cash generated from operating activities before changes in non-cash working capital and decommissioning 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-IFRS term defined as petroleum and natural gas sales less royalties and less operating and transportation costs.
Contacts:
Southern Pacific Resource Corp.
Byron Lutes
President & CEO
403-269-1529
blutes@shpacific.com
Southern Pacific Resource Corp.
Howard Bolinger
CFO
403-269-2640
hbolinger@shpacific.com
www.shpacific.com