Southern Pacific announced that the estimate of the total proved plus probable ("2P") recoverable heavy oil reserves within its 100%-owned Senlac Thermal Project in Saskatchewan has increased 14% from the previous estimate to 10.4 million barrels (MMbbl). This equates to a net present value before tax of $193.9 million (discounted at 10% based on April 1, 2010 forecast pricing). Additionally, 20.8 MMbbl of recoverable oil at Senlac has been assigned to the total proved plus probable plus possible ("3P") reserves category, an increase of 33%. The 3P reserves have a corresponding net present value before tax of $334.2 million (discounted at 10% based on April 1, 2010 forecast pricing).
The updated reserves report for Senlac was completed by GLJ Petroleum Consultants of Calgary ("GLJ") effective April 1, 2010. This is the first independent reserves evaluator's report completed on Senlac since Southern Pacific acquired the property on November 3, 2009 for a purchase price of $89.3 million after adjustments. A summary of the previous reserves evaluation effective December 31, 2008 is included in a material change report filed by Southern Pacific on SEDAR on October 9, 2009.
Senlac has produced a total of approximately 2.1 MMbbl of heavy oil between the effective dates of the two reserves reports. Southern Pacific attributes the increase in reserves to better performance from existing wells and the wells drilled subsequent to the December 2008 report.
Senlac Operational Update
The Senlac Thermal Project has delivered significant cash flow since Southern Pacific acquired the property in November 2009. Between the acquisition date and the end of March 2010, cash flow after operating costs, capital and royalties is estimated to have been $26.9 million, an average of $5.4 million per month. Production averaged 4,430 bbl/d over the same period, which exceeds expectations despite lost days of production due to some unusual mechanical and power issues that have since been resolved. The project has averaged 4,600 bbl/d in April.
Since acquiring the Senlac Thermal Project, Southern Pacific has reprocessed and interpreted the 3D seismic data that was included with the acquisition, developed a geologic and reservoir model of the project, and completed a full field development plan.
The next phase of development involves the drilling of two horizontal wedge wells in the Phase G pad. These wells have been licensed, the drilling rig has been contracted and they are expected to spud in early May. Two Steam-Assisted Gravity Drainage (SAGD) well pairs in Phase H are expected to be drilled in the fall of 2010 to complete this year's development activities. The wedge wells and the Phase H SAGD well pairs are the initial phases of Southern Pacific's development plan, which targets to keep the facilities processing between 4,000 and 5,000 bbl/d of heavy oil on an ongoing basis.
Key components of Southern Pacific's success to date are the 19 field staff members at Senlac who joined the Company with the acquisition. They have gone to great lengths to ensure a smooth transition of operations and have embraced and enhanced the Company's corporate culture and knowledge base.
Company Reserves and Contingent Resources
In addition to the Senlac heavy oil project, Southern Pacific has an average 81% working interest in 301 sections of Alberta's oil sands. This total includes a previously announced agreement to purchase the remaining 20% interest in the Company's McKay leases, which is expected to close on June 1, 2010 (see press release dated March 19, 2010).
On March 25, 2010, Southern Pacific announced a significant increase in the value of its oil sands lands in McKay. In a reserves report effective March 15, 2010, GLJ estimated the 2P reserves at McKay to be 168.1 MMbbls, equivalent to a net present value before tax of $368 million (discounted at 10%). This is based on a 100% working interest at McKay. When the value of the reserves at Senlac are combined with the value of the reserves at McKay, the total net present value before tax of Southern Pacific's 2P reserves is estimated to be $562 million (discounted at 10%).
The Senlac and McKay reserves make up approximately 99% of the Company's total 2P reserves and value. The remaining 1% of Southern Pacific's reserves consists of conventional oil and gas assets. These reserves will not be updated until the fiscal year end (June 30, 2010).
In addition to 2P heavy oil and bitumen reserves, Southern Pacific has 116.7 MMbbl of best estimate (P50) contingent bitumen resources identified in the McKay area (see press release dated March 25, 2010). GLJ is now focused on completing an assessment of the prospective and contingent bitumen resources over the Company's remaining lands in the Athabasca oil sands, which will complete the reserves and resource evaluation work required for a comprehensive fiscal year-end report.
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