Southern Pacific Resource Corp STPJF

Selling Half Today

[nikehercules]

I've sold off half my position at 0.16 and completely ruined all my profits from the past 3 years.

Analysis:

STP has 1 year to get to breakeven.

Pad 101 is most likely a bust - lest say they average 200 bbls/day each - that's 1200 bbls/day with the 6 wells in 1 year. They've been steaming for a year, they got an average of 100 bbls each, wait another year...maybe 200 bbls? Who knows.

Pad 102 - say 500bbls each wells aggregate - that's 3000 barrels a day in 1 year.

I'm guessing McKay will be at 4200 (1200+3000) bbls/day in a likely scenario a year from now - the STP estimate of 7000 bbls/day may occur that's why I only sold half. However, none of their current bag of tricks to improve conformance has worked materially. Who knows if the ICD's will work? Perforating, HPSS, what's next?

Senlac is likely to drop 50-100 bbls/day for the next six months due to natural decline. Remember - they drill in March, but July is when the oil starts to flow. Let's estimate 2100 bbls/day out of Senlac for the next year - and remember that's higher profit heavy oil in a shaky oil market.

4200 + 2100 = 6300 bbls/day : 300 bbls/day above the conservative 6000 bbls/day breakeven target.

Selling land right now in a rush is a bad idea (ask Renegade Petroleum) and there's very little appetite for new SAGD investment. Getting a partner isn't going to be easy (just talk to Blackpearl). The Chinese have enough trouble with Nexen.

Why would they launch strategic alternatives if they thought they could get to production to breakeven within one year? I believe they run a high risk of running out of cash. The additional line of credit is most likely not available ($120 million) - so they have $50 million to survive.

Questions:

Why would a partner risk capital in the next year to drill additional Pads? Why not go to Blackpearl where there is a functioning pilot? Unless the terms were very sweet (ie shareholders get shafted).

Who is going to extend credit knowing STP has all this debt and shaky production to sustain it? They have the best technical staff...but not the best geology it appears. Partnerships are not going to fix that.

Selling land looks like a likely scenario, and with the buyers smelling blood - who's going to offer a fair price (again - look at Renegade). Also...management has to ask the question - why throw good money at a bad project?

Where are they getting the $51 million for the additional wells? AMEX? That's 10 million below their market cap.

Conclusion

Everyone must make their own decisions - I'm selling half now before another fund wakes up and realizes how bad the situation is and just decides to dump.

Please poke holes in my analysis - I need some of zanadu's optimism.

NikeHercules

Closing thoughts - when I hear the words "enhancing shareholder value" - I get scared.

[nikehercules]

Sorry guys, I'm dumping more at 0.14 I trade on company fundamentals, not technicals. Oversold or not, this thing has a high probability of going to zero. For those who manage to sell my shares above 0.14 - congratulations.

[zanadu123]

So, is it a good bye then from this board?

[nikehercules]

No, I'll still be around to witness the final acts. I will continue to hold 330,000 in my RRSP. That's an account I don't care about. It's a holdover from residency. However, the professional corp is being emptied right now.