Southern Pacific Resource Corp STPJF

Some rough analysis

[nikehercules]

Gents:

I'm back in the STP saddle after a well deserved break. Glad to see we didn't break through 0.14. Here are my projections - please feel free to poke holes:

2014 Q1 Projections

Senlac

Jan - 2,056 bbls/day
Feb - 1,936 bbls/day
Mar - 1,816 bbls/day

Senlac Average 1,936 bbls/day

McKay

Jan - 2,464 bbls/day
Feb - 2,764 bbls/day
Mar - 3,064 bbls/day

McKay Average 2,764 bbls/day

Projected Corporate Average 4,700bbls/day (Calendar 2014 Q1)

I had modelled 4,285 for 2013 Q4 (4,148 actual)

Recall the operating loss was $1.5 million (Calendar 2013 Q3) on 4,769 bbls/day. I expect the operating loss to remain around $1.5 million for the quarter since we're selling more dilbit and less heavy oil despite high oil prices. Note they will still break the credit facility requirement for an EBITDA of $1.6 million (see Page 5, financial statements). They must have known that even when they inked the amendment chopping $15 million off the LOC.

Breakeven should be in Q2 if nothing falls apart. Looks like STP might even crawl out of this one with just some additional bank financing. At worst it puts them in a stronger position with any partnership opportunity. An outright sale would not be wise given the team has finally figured out how to unlock McKay - sorry Zan 0.75 not likely anytime soon, maybe in 6 months. Bankruptcy at this point would be sheer incompetence.

It's worth a gamble, and certainly more interesting than watching Power Corp. preferred shares. Keep cheering Zan!

Regarding the ICDs. Note that in the Dec 11 release they stated that the two best well pairs were capable of 700 bbls/day or greater. The ICD made that a reality pretty quick on 2P1. Before we get too excited about 1P5 hitting 700 bbls/day as well, I think all we can really expect is a doubling of current Pad 1 rates - 150bbls/day to 300bbls/day. Reading between the lines, the ICD only accelerates conformance. I wonder if they still expect Pad 1 to ultimately produce 2000 bbls/day (333 bbls/day per well) per the Dec 11 release?

Note that CAPEX is limited to $3.1 million in Q1 - so each ICD installation must be around the $1 million mark. Makes sense since in the latest update they "plan to evaluated the performance of the first two ICD instllations for a few months". They don't have a choice.

The stage is set for a dramatic first half of May!

I wasn't able to listen to the con-call (sitting on cabbage beach with one of those coconut drinks). How was the discussion regarding bank relations?

[zanadu123]

Good assessment. Similar to mine, except in my case, Senlac averaged 2100 bbls/ day and McKay was averaging 2900 bbl/ day. Purchasers of STP flocking to buy their assets and the rail cars deal. We should be above 75 cents soon... Cheers!

[monzie]

"I wasn't able to listen to the con-call (sitting on cabbage beach with one of those coconut drinks). How was the discussion regarding bank relations?" To paraphrase Lutes: the negotiating with the banks shows that they have confidence in what we're doing and what can be achieved.   As for the rest of your summation I agree with most of it except that I don't see

[nikehercules]

Thanks Monzie, Greatly appreciate feedback. Hopefully our differences will balance out and STP is near breakeven. It also makes alot of sense to conserve cash and delay drilling Phase L. Why spend $20 million to get  450 bbls/day in 3 months when you can get and additional 300 bbls/day almost immediately with one  $1 million+ ICD? I'm also happy I'm re-entering my position

[poorgrammar]

"The big 6 million share buy probably cleaned out everyone who wanted to sell below 0.18 and promptly ran into the iceburg at 0.185" Well Nike, nameless buyer is accumulating, all major buy order came from a nameless buyer in the past 3 days. This individual or group is now buying down, then they will pull another quickone like friday. Question is are they going to buy it down to 15c

[nikehercules]

Poorgrammar: I don't expect any movement until mid April. As the release said, they will run the wells for a couple of months, then make the best decision given the options they currently have on the table. Zanadu - you correctly read lute's barely hidden fear in the november con call. How was he this time round? If he's calm, there are probably options (unless he's a good poker

[ShatnersRug]

His swagger was evident during the Feb 10th call.