Southern Pacific Resource Corp STPJF

RE:RE:RE:Why wont the oil flow

[nikehercules]

This information is a year old so take it with a grain of salt:

1) Suncor McKay had similar issues.

2) STP hired Suncor McKay engineers to help with work through their own issues at STP McKay.

With a SP in the low 20s, I don't think we are "boned". Through a combination of half working ICD's and Senlac, STP should get somewhere near breakeven and the SP should appreciate to the 30's and 40's.

What is clear is STP management is still using the "strategic alternatives" cover to muddy the waters. Is there a buyer/JV partner?

I'm 65% sure there is, otherwise STP would have ended the review earlier.

If STP expects further installations over the next three months, the ICD performance on 2P5 is what could be holding up the process.

Sunny Day Scenario: 2P5 is a "bonus" over the previously agreed upon JV/purchase amount. Base price already set, hence the capex freeze.

Partially Cloudy Day Scenario: deal contingent on 2P5 performance. STP receives breakup fee if purchaser/partner is unhappy.

Rainy Day Scenario: Purchaser/Partner is unhappy with 2P1 and 1P5 performance, wants additional confirmation and STP is desperate enough to keep the deal alive that it waives the breakup fee. Purchaser/Partner has learned all it can and simply moves on.

Deal or no deal - STP should be able to get production to near breakeven with or without a partner.

My money is on Brion as the JV partner/purchaser. Brion will be starting up their plant soon, it is right next to STP McKay and incorporating STP's experience would go a long way in de-risking their own startup.

From Deduction's April numbers - the ICD installations haven't broken, although the production rates are not increasing like we all thought they would. They're going up, but subject to Lutes' usual caution.

This is a volatile/high risk stock, and a hell of alot more fun that watching a REIT puke it's dividend out every month.

NH