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Southern Pacific Initiates Conversion of SAGD Well Pairs from Warm-Up to Production at STP-McKay

11.10.2012  |  Marketwire

CALGARY, ALBERTA -- (Marketwire) -- 10/11/12 -- Southern Pacific ("STP" or the "Company") (TSX: STP) is pleased to provide an operational update on its STP-McKay and STP-Senlac Thermal Projects in Alberta and Saskatchewan.


STP-McKay Thermal Project


Operations at STP-McKay in the Athabasca oil sands region of Alberta continue to progress as planned. The warm-up phase of the steam-assisted gravity drainage (SAGD) process has been underway at the STP-McKay Thermal Project since the project began steam circulation in July 2012. As expected, the first of the existing 12 well pairs is now in the process of being converted from steam circulation to bitumen production. Over the next several weeks, additional well pairs will be converted to the production phase. Following conversion, the SAGD well pairs will be gradually ramped up in both volume of steam injected and volume of produced fluids recovered to surface. Each well pair is expected to take 12 to 18 months to reach peak rates.


The central process facility continues to run at an impressive pace, delivering steam to the well pairs at a 99% on-time load factor. Bitumen returns during the warm-up phase have been successfully separated from the produced water. The produced water is being cleaned, treated and recycled into steam to feed back into the SAGD well pairs. All processes within the project have been successfully commissioned and the plant is prepared to continue running smoothly through the winter season.


STP-Senlac Thermal Project


At STP-Senlac, located near Unity, Saskatchewan, a drilling rig has moved on site and is expected to spud this weekend on the first of six horizontal wells which will comprise Phase K. Phase K consists of three SAGD well pairs. Production from this pad is expected towards the end of February 2013 after the wells are drilled, completed, equipped and warmed up with steam. Production for August and September has been steady at approximately 3,000 barrels per day and operations have been running smoothly. Production levels are expected to materially increase as Phase K is brought on stream.


Rail Marketing Arrangement


Southern Pacific's rail marketing arrangements continue to progress. The Company announced on June 27, 2012 a unique arrangement to transport its bitumen product from STP-McKay to the U.S. Gulf Coast using rail. This arrangement includes dedicated loading and offloading capacity at two new rail terminals, located in Lynton, Alberta and Natchez, Mississippi. Both terminals, as well as approximately 500 rail cars, are under construction and on or ahead of schedule. Southern Pacific has been working with several U.S. Gulf Coast refineries to arrange the end markets for its production. The Company has also identified sources in the U.S. Gulf Coast from which to purchase diluent that will be used in the STP-McKay plant process. This product will be transported back to STP-McKay utilizing its rail cars on the return trip from the U.S. Gulf Coast. The economics for shipping bitumen via rail continue to be favourable in the current pricing environment, bolstered by the wide Brent/WTI differential, lower Gulf Coast diluent costs, and the requirement for less diluent versus shipping bitumen by pipeline. Volumes of bitumen produced prior to January 1, 2013 will be delivered to intra-Alberta markets.


Since September, Southern Pacific has been transporting approximately one third of its production volumes at STP-Senlac by rail, utilizing a newly constructed rail loading terminal located at Unity. The marketing arrangement guarantees a premium to the current Western Canadian Select (WCS) pricing. The Company is considering moving additional volumes in this manner.


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.

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


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