Southern Pacific Resource has signed a definitive agreement with its working interest partner, Bounty Developments, to acquire Bounty's entire 20% working interest in 59 sections of land in the McKay block. As part of the agreement, Southern Pacific will also purchase 20% of Bounty's working interest in 32 sections of land adjacent to and near Southern Pacific's MacKenzie block.
The entire package of reserves, resources and undeveloped land will be purchased for a total of $33.0 million, consisting of 20% equity ($6.6 million) and 80% cash ($26.4 million). The 20% equity will be issued as common shares of the Company at a price equivalent to the applicable 10 day volume weighted average trading price of the shares which equals approximately 6.47 million shares at a price of $1.02 per share. The effective and closing date of the Acquisition is expected to be June 1, 2010. Funding for the cash portion of the Acquisition will be made through Southern Pacific's existing cash flow and debt facility.
The acquisition of Bounty's working interest at McKay results in Southern Pacific having an undivided 100% working interest in all its McKay lands, including the 10.5 sections within the Company's STP-McKay Steam-Assisted Gravity Drainage project. The STP-McKay SAGD project is a 12,000 bbl/d in-situ thermal project that is in the application approval process. Southern Pacific submitted the application to Alberta Environment and the Alberta Energy Resources Conservation Board in May 2009 with approval expected in the second half of 2010. Construction of the project is expected to commence this fall immediately after regulatory approval is obtained. The acquisition of the remaining 20% working interest ensures that the responsibility of funding the STP-McKay project falls entirely within Southern Pacific's control. With strengthening markets and cash flow from Senlac, Southern Pacific remains confident that the funding requirements for STP-McKay will be completed this year.
Within the Acquisition, Southern Pacific also acquired a 20% working interest in 32 sections of land formerly operated by Patch International Ltd., and known as Ells. There are 12 sections of these lands directly adjacent to Southern Pacific's 18-section MacKenzie block (100% working interest). These 12 sections have had coreholes drilled and contingent resource has been assigned by an independent reserves auditor. The acquired lands will allow additional proprietary technical data to be incorporated into the Company's records, and allow for lower cost exploration around its 100% working interest MacKenzie block, which has not yet been explored.
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