Southern Pacific Reports Significant Increase in Year-End Proven Reserves to 120.8 Million Barrels and Contingent Resources to 665.5 Million Barrels
CALGARY, ALBERTA -- (Marketwire) -- 08/02/11 -- Southern Pacific Resource Corp. ('Southern Pacific' or the 'Company') (TSX: STP) is pleased to report a significant increase in the volume and value of its reserves and resources in all categories.
In a report prepared by GLJ Petroleum Consultants ('GLJ'), the Company's independent reserves evaluator, effective June 30, 2011 (the 'GLJ Report'), total Proved ('1P') reserves increased more than 89% from the previous estimate dated October 15, 2010 to 120.8 million barrels of oil equivalent ('MMBOE') and by over 1,670% compared to the reserves report dated June 30, 2010. The increase in year over year reserves is due to the regulatory approval of Southern Pacific's 100% owned and operated STP-McKay Thermal Project, located 45 km northwest of Ft. McMurray, Alberta. The further increase since October 15, 2010 is attributed to additional drilling and production performance at the Company's 100% owned and operated STP-Senlac Thermal Project in southwestern Saskatchewan and also from the past winter's corehole drilling program at STP-McKay.
In conjunction with the Company's increase in 1P reserves, the Total Proven net present value (discounted at 10% and before taxes) has also increased by more than 186% since October 15, 2010 to a total of $726 million. Further additions to Total Proven plus Probable reserves ('2P') were capped by the current approved capacity at STP-McKay, however they still increased by 2% to 181 MMBOE due to increases at STP-Senlac. More significantly, the net present value of the 2P reserves increased by 68% to $1.1 billion. In addition to reserves, Southern Pacific's contingent resource base has also increased at McKay, where the Company completed a 38 corehole program over the past winter. The Best (P50) Estimate of contingent resources for the Company currently sits at 665.5 million barrels of bitumen (MMbbl), an increase of 36% from June 30, 2010.
The following tables summarize the Company's current reserves and contingent resources based on the GLJ Report effective June 30, 2011:
Southern Pacific Working Interest Reserves and NPV10% effective June 30,
2011
Summary at June 30, 2011 and Variance (%) from October 15, 2010
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Before Tax Net Present Value @10%
Net Reserves (MMBOE) ($ million)
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1P % 2P % 3P % 1P % 2P % 3P %
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STP-
Senlac 8.6 24% 13.0 31% 23.8 19% $223.0 56% $ 275.0 38% $ 410.0 23%
STP-
McKay 112.2 98% 168.0 0% 184.8 -1% $503.0 366% $ 834.0 83% $ 980.0 64%
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Total
Company 120.8 89% 181.0 2% 208.6 1% $726.0 186% $1,109.0 68% $1,390.0 49%
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Southern Pacific Working Interest Contingent Resources and NPV10% effective
June 30, 2011
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Net Contingent Resources Before Tax Net Present Value @
(MMBOE) 10% ($ million)
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Low Best High Low Best High
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McKay 80.3 188.8 375.7 $ 457.0 $ 756.0 $ 1,584.0
Red Earth(1) 64.0 105.0 146.0 -$263.0 $ 81.0 $ 327.0
Other Lands(2) 99.7 371.7 793.2 $ 195.0 $ 931.0 $ 2,633.0
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Total Company 244.0 665.5 1,314.9 $ 389.0 $ 1,768.0 $ 4,544.0
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Note 1 - STP-Red Earth Contingent Resources have not been updated. Last report was prepared by Sproule & Associates dated December 31, 2009.
Note 2 - Other Lands include STP's Anzac, Ells, Hangingstone, Kirby and Leismer blocks and were mechanically updated for current pricing and effective date only.
Note 3 - It should be noted that reserves and contingent resources involve different risks associated with achieving commerciality. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. Please refer to the attached reserve and resource definitions and safe-harbour for a discussion of risks. Future net revenues associated with reserves and resources do not necessarily represent fair market value.
GLJ's year-end reserves evaluation includes a complete geological and engineering assessment of the Senlac and McKay properties. Mechanical updates to reflect pricing and timing on contingent resources were also completed by GLJ for all other Company properties with the exception of Red Earth. A June 30, 2011 update was not undertaken on the Company's Red Earth property as further technical data is being gathered in the field and it was felt prudent to have the asset reviewed once this work is completed and analyzed. A further description of the analysis completed on two of the Company's seven properties, Senlac and McKay, is discussed below. Readers should be advised that the estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.
Senlac
The Senlac property increased its 1P reserves by 2 MMbbl from last year despite having produced approximately 1.6 MMbbl over the same period. Similarly, the 2P and 3P reserves increased by 2.9 and 3.3 MMbbl respectively. Reserve additions are attributed to performance of the existing SAGD well pairs and further delineation of the field with steam-assisted gravity drainage (SAGD), infill and corehole wells. A reclassification of certain SAGD phases from Possible reserves to Probable reserves and from Probable reserves to Proven reserves has occurred over the past year. Southern Pacific believes reclassification will continue as the certainty of the remaining reserves is increased through continued development of the field. The net present value has also increased significantly since last year's report with current estimated net present value (discounted at 10% and before taxes) of 1P and 2P of $223 and $275 million, respectively. Increases are attributed primarily to increased confidence in maintaining production rates through the facility and higher pricing.
McKay
Southern Pacific's McKay block has experienced significant increases in Total Proven reserves over the past year as a result of the Company's continued investment to increase the certainty of the asset to the 1P required reserve classification criteria (90% or better probability of being recoverable). At June 30, 2010, McKay did not have 1P reserves. Then, on October 15, 2010 after the STP-McKay project had obtained regulatory approval, GLJ reclassified 56.8 MMbbl of 2P reserves to 1P. This occurred in the areas where the corehole drilling density was sufficient to instil the 90% technical confidence level, and coupled with the regulatory approval, allowed for the booking. Now, as of June 30, 2011, an additional 55.4 MMbbl have been reclassified from 2P to 1P within the project area. This is a direct result of the Company's commitment to further corehole drilling this past winter, which allowed additional areas of the project to achieve the confidence level required in order for the reclassification to occur.
The STP-McKay project had no change in its 2P reserves volume from last year. The reason for this is that within the 2P reserves category, the amount of assigned reserves is constrained by the currently designed Phase 1 facility capacities of 12,000 bbl/d of oil treating and 33,600 bbl/d of steam generation. With these constraints, the 2P reserves fill the facility for 50 years, which is the maximum allowable project life under the current reserves classification system. While the volume of the 2P reserves at STP-McKay has not changed since the October 15, 2010 reserves update, the net present value of the 2P reserves has increased significantly by 83%. This is attributed to the fact that 47% of the capital requirements for Phase 1 have already been incurred, resulting in lower future costs as at June 30, 2011. In addition, the value has been enhanced from last year by a higher price deck and by being one year closer to start up of Phase 1, which is expected to commence in the third calendar quarter of 2012. Southern Pacific is planning to submit a Phase 2 expansion application to the Alberta regulators for the STP-McKay project later this fall. The expansion is currently being designed with 24,000 bbl/d of new treating capacity, bringing the total design treating capacity within the project area to 36,000 bbl/d. Upon submission of the Phase 2 expansion application, GLJ is expected to be able to reclassify additional contingent resources within the project area into the 2P category, and also accelerate the existing 2P production forecast. Southern Pacific plans to update its reserves to reflect these changes once the application is filed.
Finally, the amount of contingent resources discovered in the McKay area has increased by 62%. This is again due to the Company's continued delineation of the asset over the past winter. Approximately 48% of the McKay Best (P50) Estimate contingent resource lies within the existing 10.5 section project. As discussed previously, a significant portion of the P50 contingent resources inside the project area are expected to be reclassified to 2P reserves after the Company has submitted its Phase 2 application to the Alberta regulatory bodies this fall. The remaining contingent resources outside the current STP-McKay project area set up additional focus areas for the Company to continue to exploit. The Company holds a total of 59 sections of land in the McKay area, and only 10.5 sections are currently within the approved project area.
The evaluation by GLJ is effective June 30, 2011, which is the Company's fiscal year end. The GLJ Report was prepared in accordance with National Instrument 51-101 using the assumptions and methodology outlined in the Canadian Oil and Gas Evaluation Handbook. The GLJ report will be incorporated into the Company's year-end financial documents and the National Instrument 51-101 filings containing information from the GLJ Report will appear on SEDAR with the filing of the Annual Information Form, which is expected to be filed in late September 2011.
Readers' Advisory
Definitions
'Contingent Resources' means those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.
'High (P10)' means an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10% probability (P10) that the quantities actually recovered will equal or exceed the high estimate.
'Best (P50)' means the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50% probability (P50) that the quantities actually recovered will equal or exceed the best estimate.
'Low (P90)' means a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90% probability (P90) that the quantities actually recovered will equal or exceed the low estimate.
'Probable reserves' means those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable reserves.
'Possible reserves' means those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated Proved plus Probable plus Possible reserves.
'Proved reserves' means those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved reserves.
'Barrel of Oil Equivalent' Where amounts are expressed on a barrel of oil equivalent ('BOE') basis, natural gas volumes have been converted to BOE at a ratio of 6,000 cubic feet of natural gas to one barrel of oil equivalent. This conversion ratio is based upon an energy equivalent conversion method primarily applicable at the burner tip and does not represent value equivalence at the wellhead. BOE figures may be misleading, particularly if used in isolation.
Safe Harbour
Contingent Resources
This press release contains estimates of contingent resources. The definition of contingent resources is set forth above. The contingencies which currently prevent the classification of the resource as a reserve include the phase 2 application at McKay discussed above and factors such as economic, legal, environmental, political, and regulatory matters or a lack of markets.
There are numerous uncertainties inherent in estimating quantities of Contingent Resources and future net revenues to be derived therefrom, including factors beyond the Company's control. The reserves, resources and estimated future net cash flow from the Company's properties have been independently evaluated by GLJ. These evaluations include a number of assumptions relating to factors such as initial production rates, production decline rates, ultimate recovery of reserves and resources, timing and amount of capital expenditures, marketability of production, future prices of blended bitumen, crude oil and natural gas, operating costs, well abandonment and salvage values, royalties and other government levies that may be imposed over the producing life of the reserves and resources. These assumptions were based on prices in use at the date the relevant evaluations were prepared, and many of these assumptions are subject to change and are beyond the Company's control. Actual production and cash flow derived therefrom will vary from these evaluations, and such variations could be material. Estimates with respect to reserves and resources that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and upon analogy to similar types of reserves and resources, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated reserves or resources.
Reserve and resource estimates may require revision based on actual production experience. Such figures have been determined based upon assumed commodity prices and operating costs. Market price fluctuations of crude oil and natural gas prices may render uneconomic the recovery of certain grades of bitumen. The present value of estimated future net revenue referred to herein should not be construed as the fair market value of estimated bitumen, crude oil and natural gas reserves and bitumen resources attributable to the Company's properties. The estimated discounted future revenue from reserves are based upon price and cost estimates which may vary from actual prices and costs and such variance could be material. Actual future net revenue will also be affected by factors such as the amount and timing of actual production, supply and demand for bitumen, crude oil and natural gas, curtailments or increases in consumption by purchasers and changes in governmental regulations or taxation.
References to Contingent Resources do not constitute, and should be distinguished from, references to reserves. Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical, and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable. Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Not all technically feasible development plans will be commercial. The commercial viability of a development project is dependent on the forecast of fiscal conditions over the life of the project. For Contingent Resources the risk component relating to the likelihood that an accumulation will be commercially developed is referred to as the 'chance of development.' Not all exploration projects will result in discoveries. The chance that an exploration project will result in the discovery of petroleum is referred to as the 'chance of discovery.' Thus, for an undiscovered accumulation the chance of commerciality is the product of two risk components - the chance of discovery and the chance of development.
Forward-Looking Information
This news release contains certain 'forward-looking information' within the meaning of applicable securities law including, but not limited to, estimates as to: reserves, resources, recoverability, applying for a phase 2 expansion at STP-McKay, the planned design and anticipated treating capacity, the expectation that certain contingent resources inside the McKay project area would be reclassified to 2P reserves after the Company has submitted its phase 2 application, and the Company's other plans for the McKay area.
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 with respect to results of operations, production, future commodity prices and exchange rates, future capital and other expenditures, business prospects and future economic conditions as at the date the statements are made. Forward-looking information is 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 securing required regulatory approvals and in the construction, commissioning and start-up operations, the uncertainties involved in interpreting drilling results and other geological data, fluctuating commodity prices, the possibility of unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed for construction of STP-McKay in the future and risks and uncertainties associated with the impact of general economic conditions and other factors including unforeseen delays. As an oil sands enterprise in the early stage of development with SAGD heavy crude production and 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 as required. Actual timelines associated with receipt of regulatory approvals, completion of construction and start up of STP-McKay and the drilling and production at Senlac 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 and the timing of capital expenditures, 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.
Due to the risks and uncertainties associated with forward-looking information, the reader is cautioned not to place undue reliance on this forward-looking information.
GLJ Price Forecast Table
Effective July 1, 2011
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WTI @ Cushing Heavy Oil Bitumen Natural Gas
(Wellhead) (Wellhead) (Plant Gate)
US$/bbl Cdn$/bbl $/bbl $/mcf
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2011 Q3/Q4 97.50 64.00 49.82 3.85
2012 100.00 69.08 56.57 4.37
2013 100.00 69.38 58.08 4.82
2014 100.00 69.38 62.73 5.28
2015 100.00 69.38 64.15 5.73
2016 100.00 69.38 64.12 6.19
2017 101.36 70.41 65.07 6.51
2018 103.38 71.94 66.51 6.66
2019 105.45 73.50 67.97 6.81
2020 107.56 75.09 69.47 6.96
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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