Southern Pacific Completes SAGD Drilling at STP-McKay Thermal Project and Reduces Estimate of Total Project Capital Cost

abarrelfullabarrelfull wrote on 01 Sep 2011 08:33
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Southern Pacific Resource Corp. (“Southern Pacific” or the “Company”) (TSX:STP) is pleased to announce the successful completion of its steam-assisted gravity drainage (“SAGD”) drilling program on the STP-McKay Thermal Project.

The STP-McKay Thermal Project has been designed to process 12,000 barrels per day (“bbl/d”) of bitumen and generate 33,600 bbl/d of steam. Southern Pacific has drilled a total of 12 SAGD well pairs that are expected to fill the plant design capacity. Since March 14, 2011, Precision Drilling’s rig 199 has been on site drilling the 24 well bores required to complete the initial 12 SAGD well pairs. The wells were drilled from two pads; the first pad has effective horizontal well lengths averaging 800 metres and the second pad averages 1,100 m. In total, Southern Pacific has successfully completed 23.1 kilometres of horizontal drilling through the bitumen bearing McMurray formation.

All 12 of the SAGD well pairs encountered high quality reservoir throughout and, most notably, the absence of lean zones and shale barriers in any of the well bores. This gives management confidence that the well pairs will perform as expected in the initial design. All horizontal sections were drilled to design length, with none of the well bores departing the edge of the exploitable reservoir. Southern Pacific completed the drilling operations with no re-drills or side tracks, nor with any difficulty running the slotted liners in the horizontal sections. This is a testament to the experienced drilling personnel on site and the sound technical design of the drilling program.

In addition to the SAGD production pairs, Southern Pacific drilled a horizontal observation well into the Wabiskaw formation with 800 m of open-hole liner. The Company drilled this well above a SAGD pair on Pad 101 to evaluate pressure and temperature in the Wabiskaw formation as an indicator of steam/production performance in the underlying McMurray formation. This observation well will also allow Southern Pacific to assess the viability of recovering the significant bitumen deposit from within the Wabiskaw formation using cyclic steam stimulation (“CSS”) and heat conduction from the underlying SAGD process.

The rig has now been released and will be racked on the side of the second well pad until its next assignment. For this drilling project, a total of 99,636 man-hours were logged, equivalent to more than 100 full-time jobs over that period. The next step in preparing these wells for production will be to complete the wells, equip them and tie them in to the central process facility located immediately south of the well pads. This will take place over the next several months, in time for the facility start-up.

STP-McKay Phase 1 Project Update

Southern Pacific is also pleased to report that as of July 31, 2011, the construction costs of the STP-McKay Thermal Project are expected to be below the original budget estimate of $450 million. With approximately $355 million (79%) of capital committed and $237 million (53%) actually incurred to date, the Company is now projecting that the total project capital cost will fall between $415 to $440 million. The cost reduction is primarily due to a successful civil construction program which is nearing completion. This estimate includes about $15 million of unbudgeted scope additions that are expected to enhance the reliability and reduce operating costs of the facility.

These enhancements include additional diluted bitumen (dilbit) storage, a concentrator to increase produced water recycle, the purchase (versus renting) of rig mats for future SAGD drilling, a second free water knockout system, additional truck loading capacity and increasing the cogeneration efficiency.

The main construction operations underway at the plant site include continued pile driving, pouring cement foundations, erecting storage tanks, and constructing the 85 person operations camp. Over 70% of the modules, skids and equipment packages have been released for shop fabrication. Modules have started to arrive on site and are scheduled to continue to arrive over the coming months.

From a timing perspective, the Company expects first steam to the SAGD well pairs will occur on schedule in the second calendar quarter of 2012. Southern Pacific remains well capitalized and expects no financial concerns completing the project, starting it up and adding this production to its existing base.

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