Southern Pacific announced the completion of an independent reserves evaluation for its STP-McKay project. The evaluation by McDaniel & Associates Consultants Ltd. ("McDaniel") marks the first time in the Corporation's oil sands history that Probable ("2P") and Possible ("3P") bitumen reserves have been recognized on Southern Pacific's asset base.
On May 29, 2009, Southern Pacific filed an application for a commercial steam assisted gravity drainage ("SAGD") project on its McKay block. Southern Pacific owns an eighty percent (80%) working interest in the STP-McKay project, which is comprised of 10.5 sections of the Corporation's 269 gross sections of oil sands leases on Alberta's Athabasca fairway. On July 7, 2009 Alberta Environment deemed the STP-McKay project application to be administratively complete. Formal public notification and newspaper advertisement of the application will now commence shortly.
The 3P Exploitable Bitumen In Place recognized in the Report in the STP-McKay project area represents a 50% increase over the previous year's estimate. This increase was largely due to the results of this past winter's successful 21-well delineation program in the project area.
The reserves assigned in the Report generate a project life of 24 years in the 2P case and 37 years in the 3P case. The Report has applied recovery factors averaging 36% for the 2P case and 41% for the 3P case. Southern Pacific believes these recovery factors are conservative, fully attainable and clearly demonstrated by offset analog projects. Additionally, Southern Pacific included in its project application a relatively new but simple technique of "wedge wells" to further enhance project recovery by extracting heated, but unswept, bitumen from between and below the SAGD well pairs. This recovery technique is not widely recognized under COGEH guidelines for reserves assignment and is not likely to be until additional industry examples are developed. Southern Pacific is satisfied with the Report as it recognizes a level of reserves that justifies both technically and economically the STP-McKay project application.
Southern Pacific did not engage McDaniel to update its lands outside of the STP-McKay project because no additional exploration work has been undertaken on these lands since last year's McDaniel report. The Corporation elected to reduce costs by retaining the previous year's estimates of Discovered and Contingent Resources outside the STP-McKay project area.
Now that its first project application has been submitted, Southern Pacific is in the planning stages of next winter's drilling program. The drilling program will include the further delineation of its Discovered and Contingent Resources listed above in order to finalize the Corporation's next bitumen project. In addition to the Corporation's bitumen reserves and resources, Southern Pacific has engaged GLJ Petroleum Consultants to complete an independent review of its conventional oil and gas reserves, which is expected to be completed by the end of July 2009.
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