rail cars have been sub-leased on short term agreements.
With the conclusion of our recent fall off tests on our best wells, along with our technical data gathered on the remaining wells, Southern Pacific expects that these original twelve well pairs will have the potential to ramp in aggregate to a rate of approximately 7,000 bbl/d by the first calendar quarter of 2015. If conformance can be accelerated by the use of technology such as ICD’s, the ramp-up timing may be accelerated. Steam generation is expected to be at about 60% of its design capacity, thus leaving the plant underutilized. At this expected production rate and current commodity prices, the project could be generating in excess of $14 million per quarter of net operating income.
The Company has elected to move forward with plans to drill additional SAGD well pairs which are expected to fill up the plant to the nameplate capacity of 12,000 bbl/d for Phase 1. It is anticipated that the most cost effective and efficient method to increase production rates is to proceed with a downspacing SAGD program on the current Pad 102. The existing well pairs on Pad 102 are spaced about 100 metres apart, and it is the Company’s plan to drill six additional well pairs on this pad, effectively reducing spacing to 50 metres. Advantages to downspaced well pairs include low reservoir risk due to the existing delineation and decreased costs as it will not be necessary to construct additional emulsion and steam lines to these well pairs. There is adequate room on the existing pad to accommodate new well pairs, so no additional groundwork is anticipated. A detailed engineering study has been completed which estimates the cost of this program to be approximately $51 million. The Company will be required to file a routine amendment to its current project approval scheme, and approval would be expected to be obtained in three to six months. It is expected then that first steam to these new well pairs would commence in early 2015 with production commencing after a three to four month circulation phase. The well pairs will be drilled and completed in a manner that would incorporate all learnings from the first 12 well pairs and we would expect a more accelerated 12 to 18 month production ramp up on these wells.
The determination that additional capital will be required to fill the STP-McKay project to capacity, coupled with the understanding of the ramp-up rate on the existing 12 well pairs has resulted in the Company’s Board of Directors electing to initiate a process of examining all options available to maximize shareholder value as the Company moves forward.
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 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, workovers and any conformance acceleration techniques such as HPSS or the use of ICDs, and, subject to regulatory approval and commercial factors, the commencement or approval of any SAGD project, the potential results of the strategic alternative review process and enhancement of shareholder value, disclosure intentions with respect to the strategic alternative review process, and general economic outlook.
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, strategic alternatives, conformance acceleration techniques, 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 impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as the factors are interdependent, and the Board’s and management’s future course of action would depend on its assessment of all information at the time.
The reader is cautioned not to place undue reliance on this forward-looking information.