CALGARY, June 27, 2012 /PRNewswire/ - Southern Pacific
Resource Corp. ("Southern Pacific" or the "Company") (TSX: STP)
announced today completion of a long-term arrangement to transport
its bitumen to the U.S. Gulf Coast via the rail network of CN (TSX:
CNR) (NYSE: CNI). Under this arrangement, Southern Pacific expects
to significantly increase its plant gate bitumen netback using rail
transportation that reduces diluent costs, and offers access to
Brent-based pricing as opposed to
selling its bitumen into a pipeline that offers access to West
Texas Intermediate (WTI) based pricing.
This agreement is expected to allow Southern Pacific to generate
attractive returns from Phase 1 of its STP-McKay Thermal Project,
the only new steam assisted gravity drainage ("SAGD") oil sands
project anticipated to start up in 2012. STP-McKay is located
about 45 km (28 miles) northwest of Fort
McMurray, Alta. Phase 1 is designed to recover 12,000 bbl/d
of bitumen.
The completed rail marketing solution includes agreements with
CN, Rick's Trucking, Altex Energy Ltd., Genesis Energy, L.P. (NYSE:
GEL), CIT Group Inc. and Tauber Co. Under this arrangement,
Southern Pacific's bitumen volumes will be trucked approximately 60
km (38 miles) from the STP-McKay plant gate to Lynton, Alta., a CN
rail terminal located immediately south of Fort McMurray. From Lynton, volumes will
be transferred into rail cars and shipped approximately 4,500 km
(2,800 miles) over CN's network and a short-line rail partner to a
terminal in Natchez, Miss.
The bitumen will then be transferred to barges that will deliver
the product as feedstock to refineries on the Gulf Coast.
CN expects to commence shipment of Southern Pacific's bitumen
from Fort McMurray to Natchez, located on the Mississippi River 135
km (85 miles) north of Baton Rouge,
La., starting in the fourth quarter of 2012, with volumes
ramping up to more than 12,000 carloads per year as production
increases.
Rick's Trucking will transport the bitumen from the STP-McKay
plant gate to the CN Lynton terminal. Altex will operate the
Lynton terminal and will install new loading facilities with
dedicated capacity for the exclusive use of Southern Pacific.
Altex will also manage the day-to-day rail car logistics.
Genesis, owner of the terminal in Natchez, will upgrade the terminal to provide
Southern Pacific with dedicated capacity. Genesis can also
provide barge service from Natchez
to the various refineries in the Gulf Coast. Tauber will
provide the marketing services for the product into the Gulf Coast
refineries and assist with the transition as Southern Pacific
assumes this role directly. Southern Pacific has leased
approximately 500 rail cars from CIT, which should accommodate most
of the STP-McKay Phase 1 volumes.
There are a number of significant benefits to this rail-based
solution for Southern Pacific. Diluent cost savings are a key
driver for this arrangement. Diluent savings are achieved on
two fronts. The amount of process diluent required at the
plant site will be significantly lower than what is required to
meet pipeline specifications. By transporting bitumen via CN,
Southern Pacific will only require process diluent to blend with
its bitumen, thus lowering the total diluent requirements by
approximately 33 per cent. Secondly, Southern Pacific has the
opportunity to backhaul lower priced diluent from the Gulf Coast
utilizing its empty return rail cars.
Another important driver for securing this marketing arrangement
is the security of access to the world's largest market for heavy
crude. Given recent regulatory delays around additional
pipeline capacity to accommodate growing bitumen volumes from
Alberta, the Company has now
secured direct and immediate access into the Gulf Coast
market. Because of these access issues, the Gulf Coast market
for heavy crude currently trades at a premium to WTI, whereas
Alberta-based blended bitumen and
diluent ("dilbit") products arriving by pipeline into the
Cushing, Okla., region of the U.S.
are experiencing significant pricing discounts due to capacity
constraints.
The rail and terminal arrangements described above have an
average term of five years, with options for extension and
expansion related to Southern Pacific's STP-McKay Phase 1 Expansion
and Phase 2 plans. Expansion opportunities being discussed
include the construction of a pipeline system to the CN Lynton
terminal or building a rail spur to the STP-McKay plant site.
Either option would remove the trucking component and further
reduce diluent costs. While the Gulf Coast is the initial
target market, the details within the arrangement provide Southern
Pacific with the flexibility to deliver its bitumen to other North
American markets or to export terminals along the west coast.
"This arrangement is significant to Southern Pacific because it
demonstrates that alternatives to conventional pipelines are
available to market bitumen from the Athabasca oil sands," said Southern Pacific's
CEO, Byron Lutes. "This has
implications not only for Southern Pacific shareholders through
higher netbacks, but also for Albertans through increased royalties
and demonstrating another safe and viable alternative for
transporting bitumen."
James Cairns, CN vice-president, Petroleum and Chemicals, said
the agreement with Southern Pacific represents an important
milestone in CN's growing business of shipping crude oil by rail.
In 2012, CN expects to move a total of approximately 25,000
carloads of crude oil, up significantly from approximately 5,000
last year.
"CN offers producers of bitumen and heavy and light crude oil
flexible, scalable and cost-efficient transportation options to
help them enhance plant gate crude pricing netbacks and
significantly extend their market reach and access."
About Southern Pacific
Southern Pacific Resource Corp. is engaged in the exploration,
development and production of in-situ thermal heavy oil and bitumen
production in the Athabasca oil
sands of Alberta and in
Senlac, Saskatchewan.
Southern Pacific trades on the TSX under the symbol "STP."
For more information on Southern Pacific, visit the company's
website at www.shpacific.com.
About CN
CN - Canadian National Railway Company and its operating railway
subsidiaries - spans Canada and
mid-America, from the Atlantic and Pacific oceans to the
Gulf of Mexico, serving the ports
of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New
Orleans, and Mobile, Ala.,
and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth,
Minn./Superior, Wis.,
Green Bay, Wis., Minneapolis/St. Paul, Memphis, and Jackson, Miss., with connections to all points
in North America. For more
information on CN, visit the company's website at www.cn.ca.
CN Forward-Looking Statements
Certain information included in this news release constitutes
"forward-looking statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and under Canadian securities laws.
CN cautions that, by their nature, these forward-looking statements
involve risks, uncertainties and assumptions. CN cautions
that its assumptions may not materialize and that current economic
conditions render such assumptions, although reasonable at the time
they were made, subject to greater uncertainty. Such
forward-looking statements are not guarantees of future performance
and involve known and unknown risks, uncertainties and other
factors, which may cause the actual results or performance of CN or
the rail industry to be materially different from the outlook or
any future results or performance implied by such statements.
Important factors that could affect the above forward-looking
statements include, but are not limited to, the effects of general
economic and business conditions, industry competition, inflation,
currency and interest rate fluctuations, changes in fuel prices,
legislative and/or regulatory developments, compliance with
environmental laws and regulations, actions by regulators, various
events which could disrupt operations, including natural events
such as severe weather, droughts, floods and earthquakes, labor
negotiations and disruptions, environmental claims, uncertainties
of investigations, proceedings or other types of claims and
litigation, risks and liabilities arising from derailments, and
other risks detailed from time to time in reports filed by CN with
securities regulators in Canada
and the United States. Reference
should be made to "Management's Discussion and Analysis" in CN's
annual and interim reports, Annual Information Form and Form 40-F
filed with Canadian and U.S. securities regulators, available on
CN's website, for a summary of major risks. CN assumes no
obligation to update or revise forward-looking statements to
reflect future events, changes in circumstances, or changes in
beliefs, unless required by applicable Canadian securities laws. In
the event CN does update any forward-looking statement, no
inference should be made that CN will make additional updates with
respect to that statement, related matters, or any other
forward-looking statement.
Southern Pacific Advisory
This news release contains certain "forward-looking
information" within the meaning of such statements under applicable
securities law including estimates as to: future production,
operations, operating costs, commodity prices, administrative
costs, commodity price risk management activity, acquisitions and
dispositions, capital spending, access to credit facilities, income
and oil taxes, regulatory changes, and other components of cash
flow and earnings anticipated discovery of commercial volumes of
bitumen, the timeline for the achievement of anticipated
exploration, anticipated results from the current drilling program
and, subject to regulatory approval and commercial factors, the
commencement or approval of any SAGD project. Specific risk factors
related to STP-McKay Phase 1 Expansion and STP-McKay Phase 2
include, but are not limited to, the timeline for completion of the
DBM, approval of the application, the expected increase in the P+P
reserves and net present value, development plans and the
anticipated geological characteristics. Risk factors related to
STP-McKay Phase 1 include the expected date of first steam.
Forward-looking information is frequently characterized by
words such as "plan", "expect", "project", "intend", "believe",
"anticipate", "estimate", "may", "will", "potential", "proposed"
and other similar words, or statements that certain events or
conditions "may" or "will" occur. These statements are only
predictions. Forward-looking information is based on the opinions
and estimates of management at the date the statements are made,
and are subject to a variety of risks and uncertainties and other
factors that could cause actual events or results to differ
materially from those projected in the forward-looking statements.
These factors include, but are not limited to the inherent risks
involved in the exploration and development of conventional oil and
gas properties and of oil sands properties, difficulties or delays
in start-up operations, the uncertainties involved in interpreting
drilling results and other geological data, fluctuating oil prices,
the possibility of unanticipated costs and expenses, uncertainties
relating to the availability and costs of financing needed in the
future and other factors including unforeseen delays. As an oil
sands enterprise in the development stage, with some conventional
production Southern Pacific faces risks including those associated
with exploration, development, start-up, approvals and the
continuing ability to access sufficient capital from external
sources if required. Actual timelines associated may vary from
those anticipated in this news release and such variations may be
material. Industry related risks could include, but are not limited
to, operational risks in exploration, development and production,
delays or changes in plans, risks associated to the uncertainty of
reserve estimates, health and safety risks and the uncertainty of
estimates and projections of production, costs and expenses. For a
description of the risks and uncertainties facing Southern Pacific
and its business and affairs, readers should refer to Southern
Pacific's most recent Annual Information Form. Southern Pacific
undertakes no obligation to update forward-looking statements if
circumstances or management's estimates or opinions should change,
unless required by law.
The reader is cautioned not to place undue reliance on this
forward-looking information.
SOURCE CN