CALGARY, ALBERTA–(Marketwired – Dec. 11, 2013) – Southern Pacific Resource Corp. (“Southern Pacific” or the “Company”) (TSX:STP) today announces that its Board of Directors has initiated a process to identify, examine and consider strategic and financial alternatives available to the Company with the ultimate view of enhancing shareholder value.
Strategic and financial alternatives may include, but are not limited to, the sale of the Company, merger or other business combination, recapitalization, sale of all or a portion of the Company’s assets, or any combination thereof, and continued execution of its business plan, among all other alternatives. The Board of Directors has established a Special Committee comprised of independent directors to oversee the process and RBC Capital Markets have been retained to assist the Special Committee and the Company with this process.
It is the Company’s current intention not to disclose developments with respect to the strategic review process until the Board of Directors has approved a specific transaction or otherwise determines that disclosure is necessary or appropriate. The Company will provide quarterly financial and material operational updates. The Company cautions that there are no assurances or guarantees that the process will result in a transaction or, if a transaction is undertaken, the terms or timing of such a transaction.
November Operational Update
For the month of November, total Company production, which included bitumen production from STP-McKay and heavy oil from STP-Senlac averaged 4,010 barrels per day (“bbl/d”).
At STP-Senlac, production averaged 2,296 bbl/d for the month of November. All well pairs ran steady for the month including the recently worked over well pair, K3, which had been plugged back due to a liner failure in October. Phase L, which includes three additional well pairs has full regulatory approval, is in the design phase, with plans to spud the first well by the end of calendar Q1 2014.
At STP-McKay, production averaged 1,714 bbl/d for the month of November. Production for November was intentionally cut back as the Company elected to shut-in two of its best conformed well pairs for approximately six days each in order to run a fibre optic temperature measurement string into the producer and conduct temperature fall off tests. These tests were necessary in order to accurately determine the level of wellbore conformance that has been currently attained on both of these well pairs. This data has assisted in determining potential peak rates from the pairs, and determining the best courses of action to accelerate wellbore conformance on these and the remaining well pairs. On these two well pairs, which currently produce at rates in excess of 375 bbl/d each, it was determined the level of conformance ranged between 50% to 62% of the horizontal length. The results demonstrate that conformance has improved significantly over the past year. It also indicates that there is still further conformance required before these wells will reach their peak rates, and the Company believes that with additional time or the implementation of one of the acceleration techniques the Company is evaluating, each of these well pairs has the potential to achieve rates of 700 bbl/d or greater. The decrease in project production for the month of November to conduct these necessary tests was approximately 200 bbl/d and these well pairs have fully resumed their pre-shut in production rates.
Workovers remain ongoing on three of the well pairs as discussed in the previous operations update (November 14, 2013) and are expected to be complete by January 2014. On the first workover (well pair 1P2), a five centimetre liner failure was observed near the toe of the well pair when the tubulars were removed, indicating a steam short circuit had developed between the injector and producer. The well pair has been cleaned and will be left shut-in until the end of December, awaiting the arrival of a new completion string. The service rig is currently on the second workover (well pair 1P4), and has been experiencing some operational and weather related issues, however the workover is expected to be completed prior to December 31, 2013. The purpose of this workover was to place a packer between the heel and toe sections of the wellbore in order to accelerate wellbore conformance down the entire wellbore length. The final workover on 2P4 will involve the setting of an isolation packer to seal the short circuit on this well pair that was developed and patched back in January 2013.
Finally, Jeff Barefoot, Vice President Marketing and Transportation has left to pursue other opportunities effective December 6, 2013. We thank Jeff for his past contributions and wish him well in his new endeavors.
November 2013, marked the end of the first year that meaningful bitumen production has been recovered from the STP-McKay project. Over that year, the longer than expected production ramp-up can be attributed to managing the issue of inadequate wellbore conformance and having to control well pair production rates when a localized section of the well pair develops a steam short circuit. We have gathered a strong understanding of the mechanics of how the short circuits have developed in certain well pairs and have implemented a number of different techniques to improve overall conformance while protecting well pair integrity. These techniques, such as controlling the production rate, High Pressure Steam Stimulation (“HPSS”) and perforating have been completed on various wells and have all had certain levels of success in accelerating conformance. We continue to refine these techniques as we gain more experience in this field. A newer technique to the steam-assisted gravity drainage (“SAGD”) industry is the implementation of inflow control devices (“ICD’s”) which are downhole devices that compartmentalize the producer of the well pair and effectively isolate steam short circuits while allowing the rest of the wellbore to be produced. Southern Pacific has extensively analyzed these tools and plans to implement them into a couple of existing well pairs early in 2014. All of these techniques are and will continue to be evaluated for use at STP-McKay, however, these are all acceleration techniques, and if given appropriate time, the Company expects that well pair conformance will develop on its own.
The other aspects of the project continue to perform well. Our Steam Oil Ratio (“SOR”) for the project sits at 5.3 for November and is averaging about 3.8 on our five most conformed well pairs. Our monthly reservoir water losses are within acceptable limits, averaging 8%, indicating that no significant thief zones currently exist. Our surface facilities continue to run well, and we are producing on-spec dilbit which has been successfully marketed to the U.S. Gulf Coast byrail. Excess