Southern Pacific Resource Corp. reported that increasing production from its STP-McKay Thermal Project in Alberta, the arrival of the first
shipment of diluted bitumen from STP-McKay into Mississippi, and new steam assisted gravity drainage wells being drilled at the STP-Senlac Thermal Project in Saskatchewan. STP-McKay Thermal Project: Bitumen production at the STP-McKay Thermal Project, located 45 km northwest of Fort McMurray, continues to ramp up. In December 2012, the estimated average bitumen production rate was 1,200 barrels per day (bbl/d), up
22% from the previous month's average rate. As the Company has previously stated, it is expected to take 12 to 18 months from first oil production, which occurred in mid-October 2012, for total rates to approach the 12,000 bbl/d design capacity. The ramp up period is required to condition the wellbores for even temperature conformance and allow adequate time for the development and growth of the SAGD chambers within the oil sands reservoir. The 12 SAGD well pairs that were initially drilled are equipped with comprehensive subsurface measurement of temperature and pressure and have multiple steam delivery and production recovery points within each well. Southern Pacific is being conservative in the initial stages of converting the well pairs from circulation to SAGD, utilizing the downhole technology that was installed to ensure even temperature conformance and chamber development has occurred along the horizontal length of the wells before the wells are converted to steady state SAGD. This approach is designed to ensure the long-term integrity of the wellbores and assist in maximizing the total recovery of bitumen from each well pair over its producing life. To date, seven of the 12 well pairs have been fully converted. The remaining five well pairs are at various stages of circulation and will be converted to full SAGD operation when Southern Pacific's technical staff deem appropriate. Although the process of circulation and conversion takes time, steady progress is occurring and once the conversion to SAGD operation has been completed, the well pairs are operating predictably. Southern Pacific has also commenced an exploration core hole program on its McKay lands. The program will focus on delineating lands to the north of its current project. The program is designed to drill 10 to 13 core holes and is expected to be completed by the middle of March 2013. Depending upon results, the program could add incremental reserves to justify a further expansion or be integrated into the existing expansions, which include the STP-McKay Phase 1 Expansion, which has a design capacity of 6,000 bbl/d, and STP-McKay Phase 2, which has a design capacity of 18,000 bbl/d. These existing expansions are in the application process, with approval anticipated towards the end of 2013.