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Southern Pacific Resource Corp STPJF

Southern Pacific Resource Corp. is a Canada-based company, which is engaged in the thermal production of heavy oil in Senlac, Saskatchewan on a property known as STP-Senlac, and thermal production of bitumen on a property located in the Athabasca region of Alberta known as STP-McKay, as well as exploration for and development of in-situ oil sands in the Athabasca region of Alberta. Its STP-McKay property consists of oil sands leases totaling approximately 37,760 acres. The Company’s operations also include Anzac, Hangingstone and Ells. The Company’s STP-McKay property is located approximately 45 kilometers northwest Ft. McMurray. The Anzac project covers approximately 117 kilometers of two-dimensional (2D) seismic. The Company owns 80% interest in Hangingstone project. The Ells project covers approximately 164 kilometers of two-dimensional (2D) seismic.


GREY:STPJF - Post by User

Post by scissors14on Dec 03, 2007 10:53pm
457 Views
Post# 13910174

Canaccord's Daily Letter

Canaccord's Daily Letter

Southern Pacific Resource Corp. | Richard Wyman, MBA, 1.403.508.3886

STP : TSX-V : C$1.17 | C$114.2M | Speculative Buy , Target C$3.00 ?

Closing of financing, revised estimates, reduced target price

Event

Research restriction has been lifted upon closing of the recent equity financing. Southern

Pacific raised $63.0 million by issuing 27.3 million common shares at $1.83 per share and

5.9 million flow-through shares at $2.21 per flow-through share. In addition, the company

released first quarter results.

Impact

Mixed. On the positive side, Southern Pacific is now funded to execute an aggressive

drilling and seismic program this winter to further define the bitumen resources on its

acreage and to support a pilot SAGD project. On the negative side, the error of the reserves

evaluator with regard to overstated working interest has hurt the share price.

Action

We maintain our SPECULATIVE BUY recommendation, but have reduced our 12-month

target price to C$3.00 to reflect the impact of equity dilution from the recent financing and

corrected interest in probable and possible reserves at Leismer. Our target price is based

on a risk-adjusted, contingent asset valuation of ultimately achieving 100,000 b/d from

SAGD projects on Southern Pacific’s five areas.

Valuation

Southern Pacific trades at about 41% of the estimated contingent asset value of $2.85,

which is based on conservative commodity price assumptions. Using long-term futures

strip prices of US$84/bbl for West Texas Intermediate crude oil, the estimated contingent

value of Southern Pacific increases to about $6.00 per share.

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