Southern Pacific Resource announced that after a successful winter drilling program and further technical evaluation of its oil sands lands in McKay, Alberta, the estimate of the gross Probable ("2P") recoverable bitumen reserves has increased by 149% to 168.1 million barrels (MMbbl). This equates to a net present value before tax of $368 million (discounted at 10%). Additionally, 116.7 MMbbl of recoverable bitumen has been assigned to the gross Best ("P50") Estimate contingent resources category. These numbers come from report by GLJ Petroleum Consultants of Calgary ("GLJ"), effective March 15, 2010, incorporating the past winter's 21 new coreholes drilled in the McKay area, plus all of the technical data and studies collected and analyzed over the past three winters.
The reserves, resources and values presented in this release represent a 100% working interest. Southern Pacific's interest in these lands is currently 80%. As announced on March 19, 2010, the Company's acquisition of the remaining 20% interest is expected to close on June 1, 2010. This will result in Southern Pacific owning an undivided 100% working interest in its McKay lands.
Additions and Revisions
The reserves report incorporates all of the drilling and technical data recovered from STP's McKay lands up to and including the most recent corehole drilling program completed in March 2010. This past winter's program totaled 21 coreholes, 11 of which were drilled inside the 10.5-section STP-McKay project, and the remaining 10 wells were drilled on the acreage outside the current project area, particularly in the south McKay block. The Company has now drilled a total 52 coreholes within the STP-McKay project area, and 22 coreholes on the remaining McKay lands. These wells, coupled with the drilling results from the past few years on surrounding offset land, have demonstrated a significant exploitable bitumen trend in the McKay area. In addition to the further delineation of the project area, additional contingent resources were identified on the Company's south block from which the Company expects to pursue plans for development.
In addition to recognizing more bitumen in place on the Company lands in McKay, the recovery factors from the McMurray formation have also been increased. This is in recognition of the reservoir quality, offset analog performance and the recognition of infill horizontal wells as a demonstrated technology that has always been in the STP-McKay project development plan and application. On average, an overall recovery factor of 49.1% was assigned to the 2P category and a 60.1% recovery factor to the 3P category. The steam oil ratios for the reserve categories were determined to be 2.9 and 2.7 for the 2P and 3P cases respectively.
The 2P reserves result in a project life of 50 years, the maximum allowable life from which reserves can be booked. A maximum rate of 11,400 bbl/d (12,000 bbl/d with a 95% load factor) would be achievable in the third producing year (2015) and would be expected to be stable for the following 28 years. The best (P50) estimate of contingent resources are quantities of bitumen that are either outside or inside the project area, but cannot be processed through the applied for project permit because of the application constraints (project area and/or throughput). The technical criteria are very similar between 2P reserves and P50 contingent resources, the difference being that contingent resources require a new application, and then an expansion or a new facility. To process the P50 contingent resources at McKay, an additional 10,000 bbl/d capacity must be applied for and constructed, which results in a total 2P reserves plus P50 contingent plant capacity requirement of 22,000 bbl/d.
The probable plus possible reserves (3P) are limited by a 50 year project life utilizing the facility design currently under regulatory review. Similar to the 2P case, the maximum rate of 11,400 bbl/d would be achievable in the third producing year (2015), and would be expected to be stable for the next 35 years. The high (P10) estimate of contingent resources, again, are either outside the project area, or cannot be processed through the applied for facility due to application constraints. The technical criteria are very similar between 3P reserves and P10 contingent resources, the difference being the contingent resources require a new application, and then expansion or a new facility. To process the P10 contingent resources at McKay, a new project must be applied for and constructed, which will result in a total 3P reserves plus P10 contingent resources plant capacity requirement of 40,000 bbl/d.
New Project Planning Commences
Based on the results of Southern Pacific's drilling program and its ongoing technical review, the Company has begun planning for its next SAGD oil sands project on its McKay block. Southern Pacific currently has an application for a 12,000 bbl/d SAGD project (STP-McKay) under regulatory review, with approval expected in the fall of 2010. The next project is being planned to recover the contingent resources on both the north and south blocks of the Company's McKay leases. Initial plans are to size the facilities for approximately 24,000 bbl/d of bitumen production, which may be further divided into two 12,000 bbl/d facilities to take advantage of the repeatable efficiency of projects this size. This new project would make use of existing infrastructure being planned for the STP-McKay project such as road access, pipelines and staff. Southern Pacific is currently preparing to commence environmental work this spring and summer and will begin scouting for adequate surface locations to host facilities and well pads. A program to acquire further the technical data required to finalize a project application will also be planned for next winter.
Evaluation Of Additional Assets
Southern Pacific has engaged GLJ to continue with the evaluation of the Company's other assets. GLJ has already commenced the evaluation of Southern Pacific's SAGD heavy oil project in Senlac, Saskatchewan. The Company's remaining oil sands leases will be evaluated by GLJ for contingent resources shortly thereafter. GLJ has had extensive experience in evaluating SAGD assets, in particular around the Company's McKay lands to the north and south, where a well established exploitable bitumen trend is being delineated by Southern Pacific and other operators. The plan is to complete all of these evaluations before Southern Pacific's fiscal year end of June 30, 2010.
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