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Southern Pacific Provides Operational Update

Source: www.gulfoilandgas.com 1/7/2013, Location: North America

Southern Pacific Resource Corp. (“Southern Pacific” or the “Company”) is pleased to report 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 ("SAGD") 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.

The surface facilities at McKay continue to perform well despite having been exposed to extended periods of bitterly low temperatures. All systems within the facilities continue to run well and there has been no significant downtime since the plant was commissioned this past summer. 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.

On December 22, 2012, the first shipment of Southern Pacific’s diluted bitumen (“dilbit”) left the Lynton rail terminal, located just south of Fort McMurray, and landed in Mississippi on January 6, 2013. This first shipment and future shipments will be offloaded at the Genesis Natchez terminal where Southern Pacific has exclusive terminal capacity. Steady rail shipments of dilbit from STP-McKay have now commenced and are being shipped to Natchez.

Southern Pacific plans to build inventory in Natchez for most of January 2013 with sales expected to commence towards the end of the month. The Company has several markets prepared for purchasing its product and expects to receive pricing competitive with other U.S. Gulf Coast heavy oil imports. As a result, Southern Pacific expects to receive a significantly improved net back for its bitumen sales as compared to a sale into local markets based on Western Canadian Select ("WCS") pricing. Southern Pacific has also completed a purchase arrangement to supply its diluent requirements. The diluent will be sourced from the U.S. Gulf Coast and shipped via rail, using Southern Pacific’s returning rail cars to the Lynton terminal, where it will be transported by truck to the STP-McKay plant site to be used in the bitumen/water separation process. The Company expects to realize substantial savings from this source of diluent. The first loads are scheduled to arrive at STP-McKay around January 21, 2013.

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