Southern Pacific finshes Strategic Review

On September 25 Southern Pacific released a press release giving their year end results.First they announced that their Strategic Review process was finished and they are not selling the company nor merging with another company.They instead decided to maximize shareholder value and production rates.They obtained a new $150 million lien credit facility to replace their old $100 million revolving line of credit.They also sold off a $19 million non-core asset called the Leismer property.Their proved plus probable reserves barely changed since last year.In addition, STP booked a loss of $424 million with $395 million being a non-cash impairment charge.In other words, they had an operating loss of $29 million.
      Like a startup
  Southern Pacific trades at $.04 to $.06 a share right now.It has a market capitalization of about $20 million.But it is no ordinary penny stock.It has assets of about $650 million.It has two heavy oil plants-one at Fort Mackay,Alberta and one at Senlac, Sakatchewan.It produced 4173 barrels per day in the last quarter which is up 2% from the previous quarter.The production is split almost evenly between the two plants.
 STP produces bitumen at it's Fort Mackay facility, near Fort Mcmurray, Alberta.However it experienced well bore conformance problems.So it had to install interflow control devices(ICDs) to stabilize the flow over the length of the well and reduce the risk of steam short circuits.Production is stabilizing and gradually increasing.More ICDs will be used at Mackay.Also(during the strategic review process)they got approval for downspacing well pairs,that is, putting new wells between existing well pairs.The cost here would be $51 million and money is in place to do it.First steaming of the new wells would be in mid 2015.It seems that STP does not count on significant production increases in the next quarter from Mackay.
     Senlac. Saskatchewan
 Production of heavy oil is about the same as in the previous quarter.But STP has gotten approval to start work on a new well pad;this will be called Phase L.It will have three well pairs in the pad at a cost of $19 million.Money is in place to start construction.They will watch how well the ICDs work in Fort Mackay and see if some or all must be installed at Senlac. STP thinks that production could commence in the next quarter but it will take some time to get to full production.This blog does not expect significant increases in production in the next quarter.
        The rest of 2014 
    Southern Pacific still has negative funds flow. But other higher priced stocks do as well.It is not likely that Southern Pacific will have positive funds flow  in 2014 even with Phase L coming onstream at Senlac.STP expects that it will have 7000 barrels per day from the original 12 well pairs; that does not count production from Phase L.There is no doubt that the Strategic Review process has slowed down their targets but 5000 barrels seems likely by the end of the year .And positive funds flow by the early part of the second half of 2015.If true, then shareholders should see $.20 to $.25 per share by next March.The next quarter will tell us how STP has done with the ICDs at Fort Mackay and whether they will have 4300 to 4400 barrels per day in total production.