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Press release from Marketwire

Southern Pacific Resource Corp. Announces a Bought Deal Financing of $125 Million Convertible Unsecured Subordinated Debentures and Launches Proposed Debt Financings to Fully Fund STP-McKay

Friday, December 10, 2010

Southern Pacific Resource Corp. Announces a Bought Deal Financing of $125 Million Convertible Unsecured Subordinated Debentures and Launches Proposed Debt Financings to Fully Fund STP-McKay08:27 EST Friday, December 10, 2010CALGARY, ALBERTA--(Marketwire - Dec. 10, 2010) -NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATESSouthern Pacific Resource Corp. (TSX:STP) ("Southern Pacific" or the "Company") is pleased to announce its detailed financing plans for the development of its McKay Phase 1 project ("STP-McKay"). Assuming completion of the transactions described herein and combined with available cash and internally generated cash flow from the Company's Senlac property ("Senlac"), the Company believes it is able to fully fund the development of STP-McKay and to further exploit Senlac. The Company has entered into an agreement with a syndicate of underwriters under which they have agreed to purchase from Southern Pacific and sell to the public (the "Offering") $125 million principal amount of 6.0% convertible unsecured subordinated debentures (the "Debentures"). The syndicate for the Debentures is being co-led by BMO Capital Markets, RBC Capital Markets and Credit Suisse Securities (Canada), Inc. and includes TD Securities Inc. and Raymond James Ltd.The Debentures have a face value of $1,000 per debenture, a coupon of 6.0%, a maturity date of June 30, 2016, and will be convertible into Common Shares at the option of the holder at a conversion price of $2.15 ∩Çáper Common Share. The Debentures will pay interest semi-annually in arrears on June 30 and December 31 of each year, commencing on June 30, 2011. The Debentures will be redeemable in certain circumstances after June 30, 2014.The Debentures will be issued by way of a short form prospectus to be filed in in all provinces, except Quebec (collectively, the "Selling Jurisdictions") and by way of private placement in the United States to Qualified Institutional Buyers pursuant to Rule 144A or in such other manner as to not require registration under the United States Securities Act of 1933, as amended (the "US Securities Act"). Southern Pacific has granted the underwriters an over–allotment option to purchase up to an additional 15% of the principal amount of the Debentures at the same price and upon the same terms and conditions, exercisable in whole or in part for a period of 30 days following closing. If the over-allotment option is fully exercised, the total gross proceeds to Southern Pacific from the sale of Debentures will be approximately $143.75 million. The Offering is subject to certain conditions precedent, including approval of the Toronto Stock Exchange and prior or concurrent closing of the Second Lien Term Loan Facility and a First Lien Revolving Loan Facility, each as defined and described below. Closing is expected to occur on or about January 5, 2011.The Company intends to use the proceeds of the Offering to fund the development of STP-McKay. STP-McKay is a 100% owned and operated steam-assisted gravity drainage ("SAGD") project with a design capacity of 12,000 bbl/d of bitumen treatment and 33,600 bbl/d of steam generation.Proposed Second Lien Term Loan and First Lien Revolving Loan FinancingsSubject to market and other conditions, the Company intends to market to institutional investors a second lien secured term loan facility ("Second Lien Term Loan Facility") to provide borrowings of up to US$275 million. Additionally the Company plans to enter into a separate first lien secured revolving credit facility with a syndicate of financial institutions ("First Lien Revolving Loan Facility"). Credit Suisse Securities (USA) LLC and RBC Capital Markets are expected to be joint lead arrangers and joint bookrunners in structuring and arranging the Second Lien Term Loan Facility, with BMO Capital Markets and TD Securities Inc. also acting as joint bookrunners. The First Lien Revolving Loan Facility is expected to replace the Company's current credit facility. Under the First Lien Revolving Loan Facility, the Corporation is expected to be subject to certain restrictive covenants which will require the Corporation to obtain bank approval before undertaking certain actions. STP-McKay UpdateThe Company expects, based on its own projections and third party assessments, that STP-McKay will cost $408 million or $34,000/bbl (pre-contingency). The Company expects to have sufficient liquidity, based on available cash, the net proceeds of the Offering, successful completion of the proposed Second Lien Term Loan Facility and internally generated cash flow from Senlac, to fund a potential cost of $450 million or approximately $37,500/bbl (assumes approximately 10% or $42 million in contingencies). The Company's own projections, and the third party project cost estimates, recently updated effective November 1, 2010, of $408 million were completed by engineering and construction consulting firms who have successfully worked together to design and construct three prior SAGD projects; Deer Creek's Joslyn oil sands project and each of Connacher's Great Divide and Algar oil sands projects, which utilize similar facilities and construction techniques. Through September 30, 2010, Southern Pacific has spent approximately $9 million on STP-McKay construction. Total remaining costs are estimated to be $399 million.The design capacity of the project is 12,000 bbl/d of bitumen and 33,600 bbl/d of dry steam generation with an expected project life in excess of 35 years (based on 2P reserves as of October 15, 2010). Once constructed, STP-McKay is expected to produce 10,000 – 11,500 bbl/d of bitumen, on an annual basis, with a steam-oil ratio of between 2.5 – 2.8.About Southern PacificSouthern 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."The Company's two principal assets are STP-McKay, a development oil sands project in Alberta, and Senlac, a heavy oil property located in Saskatchewan. McKay (the "McKay Block") is a 100% owned and operated SAGD project with 59 sections, or 37,760 acres, of oil sands leases located 45 kilometers ("km") northwest of Fort McMurray, Alberta. Of the 59 sections, 10.5 sections have been defined for initial development and have received regulatory approval as a thermal project scheme with a design capacity of 12,000 bbl/d of bitumen treatment and 33,600 bbl/d of steam generation. STP believes it has received all material regulatory approvals in connection with STP-McKay. Senlac is a 100% owned and operated SAGD project with 6,500 bbl/d thermal oil treating capacity and 10,000 bbl/d of steam generation. Senlac has produced an average of over 4,300 bbl/d of heavy oil since it was acquired in November 2009. In the first 11 months that STP has owned Senlac, it has generated approximately $55 million in operating income. Additionally, the SAGD experience and technology in Senlac has been, and is expected to continue to be, of considerable benefit to the optimization of design and operation of the Company's future SAGD projects such as STP-McKay.Southern Pacific is also currently preparing for an expansion project within the existing 10.5 section project area containing STP-McKay. This expansion, Phase 2, is expected to be designed for an additional productive capacity of at least 10,000 bbl/d of bitumen. The application is anticipated to be submitted to the appropriate Alberta regulatory bodies in the summer of 2011. Another potential project has been identified on the southern block of the McKay Block, and is expected to be further delineated and prepared as a new project application in 2012. This press release does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdictions. These securities have not been registered under the US Securities Act or any state securities law, and they may not be sold in the United States unless an exemption from registration is available. This press release does not constitute an offer to sell or a solicitation of an offer to buy securities in the United States.Forward-Looking Information This news release contains certain "forward-looking information" within the meaning of applicable securities law including, but not limited to: the proposed financing plan for Southern Pacific which contemplates the bought deal Offering, marketing of a Second Lien Term Loan Facility and the securing of a C$55 million First Lien Secured Credit Facility, and the proposed use of proceeds in connection therewith. 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 with respect to results of operations, production, future commodity prices and exchange rates, future capital and other expenditures, business prospects and future economic and market conditions as at the date the statements are made. Forward- looking information is 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 securing required regulatory approvals and in the construction, commissioning and start-up operations, the uncertainties involved in interpreting drilling results and other geological data, fluctuating commodity prices, the possibility of unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed for construction of STP-McKay in the future and risks and uncertainties associated with the impact of general economic conditions and other factors including unforeseen delays. As an oil sands enterprise in the early stage of development with heavy crude and 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 as required. There can be no assurance that the Company will be able to complete its debt financing plan on terms and conditions satisfactory to Southern Pacific or at all. Industry related risks could include, but are not limited to, operational risks in exploration, development and production, delays or changes in plans and the timing of capital expenditures, 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. Due to the risks and uncertainties associated with forward-looking information, the reader is cautioned not to place undue reliance on this forward-looking information.FOR FURTHER INFORMATION PLEASE CONTACT: Byron LutesSouthern Pacific Resource Corp.President & CEO403-269-1529blutes@shpacific.comORHoward BolingerSouthern Pacific Resource Corp.CFO403-269-2640hbolinger@shpacific.comwww.shpacific.com