Southern Pacific Resource Corp STPJF

Red Earth --

[ShatnersRug]

From the January 2012 NR:

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Red Earth Update

Southern Pacific continues to explore the potential of its STP-Red Earth Thermal Project in the Peace River oil sands. Testing on the 1,000 bbl/d pilot project occurred over the last half of 2011 on three existing wellbores drilled prior to Southern Pacific taking ownership. Southern Pacific used these existing wellbores to test three different configurations of Cyclic Steam Stimulation (CSS). The purpose of the tests was to gain relatively low-cost knowledge on the reservoir performance under different CSS scenarios. One cycle of steam was injected into all three wellbores and each of the wells was then placed on production. The results were mixed. After running integrity and inspection tests on the wells, Southern Pacific determined that all three wells suffered from poor cement bonds on the intermediate casing strings. It was further determined that the wells were not drilled using industry standard thermal drilling practices. This meant isolation and placement of steam, followed by recovery of production from only the zone of interest (the Bluesky), will be difficult, if not impossible from these wells.

This was the first test on the pilot project since Southern Pacific acquired the asset in late 2010 for $14 million. The above ground facilities ran well. The well that had the best cement integrity generated a cumulative steam oil ratio of 4.4 on its first steam cycle. This is encouraging for a CSS project, especially given the identified cement bond issues. In total, Southern Pacific produced approximately 3,800 bbl of oil from the three wellbores over the 4.5 month period (not all wells were producing over this entire period) which indicates that the bitumen within this project mobilizes readily with steam. Based on the information gathered to date, the Company continues to believe the reservoir has the potential to deliver commercial production rates. Southern Pacific’s technical team is reviewing the results and will be making recommendations to further test the Red Earth project in 2012. This will most likely involve plans to drill new CSS wells utilizing improved thermal drilling practices and continue to use the existing facilities to generate steam and process oil. Independent estimates of 2.1 billion barrels of discovered bitumen resources on the Company’s Red Earth acreage make this a project well worth pursuing.
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Red earth is a decent asset and will be put online one day. Infrastructure already in place.