STP

We have some resistance at 1.75,1.9 as well as 2.01. We just need two days of closing above these levels and we'll be charging forth like nothing you have seen before. Nothing goes straight up without any sort of consolidation, strength gathering and what have you.

Nobody that has any type of insights in this play says this isn’t a great opportunity for further valuation improvements going further as far as SP is concerned.

In the mean time let's compare STP with another oil play, PXX.TO that has roughly the same reserves, same number of shares and within a year roughly the same production (note this was BEFORE yesterday’s news regarding McKay 2 as well as Wabiskaw). One difference is that PXX today is debt free but if all goes as planned with McKay phase 1 STP also will be debt free by 2015.

Now compared with STP PXX today has more than four times the valuation. Kinda gives you an idea doesn’t it about where STPs SP is heading. Can't blame Soros and his crew for entering in to this play at this particular moment. Maybe somebody right now is trying to accumulate before the real heavy blast takes us to much higher SP levels. Time sure is starting to run out if you want to accumulate at these levels.

"Soros reports that Quantum held at January 31, 2011, 20,400,000 shares and $25,000,000 aggregate principal amount of 6.00% convertible unsecured subordinated debentures due June 30, 2016 ("Debentures") of the company. The Debentures are convertible in to common shares 465.1163 common shares of the ("Company") shares per $1,000 principal amount of Debentures until June 30th, 2016. The shares and debentures, if converted, held by Quantum represents in aggregate approximately 9.18%of all outstanding shares."
http://www.sedar.com/CheckCode.do;jsessionid=00008HupafOULoEP60UF88AJxka:-1

This as now both macro and geopolitical events support much higher oil prices in the future than anticipated by most analysts. Or anybody here that sincerely believe the situation as it now has developed in the Arab world will be a quick fix?

Brent $/barrel 123,11
WTI $/barrel 109,10

In addition we now also of course have some STP specific events to strengthen our case:

- Senlac Phase H (2 SAGD well pairs) already in place by end of Mars 2011
- an additional 2 SAGD well pairs mid April
- Red Earth, Q2-2011, restart pilot project. Objective is to produce minimum 10.000 bpd.
- updating of the company´s reserves & resources after fiscal year end (June 30)
- McKay Phase 1 12.000 bpd construction updates (Road 80% completed, Plant and Pad site construction 75% completed, 200 person camp installed growing to 300 by mid March, all long lead equipment orders are placed and shop fabrication has begun.)
- McKay Phase 2 24.000 bpd application to be submitted during fall 2011.
- Senlac Phase J during third quarter 2011
- Wabiskaw Pilot project - to start Q4 2011 (Significant potential project)
- McKay phase 1 Production of 12.000 bpd to start Feb/March 2012

So then adding current and future production together we get this summary:

Senlac 4.000 - 5.000 bpd
McKay 1 12.000 bpd
McKay 2 24.000 bpd
Read Earth Pilot Project - to start during Q2 2011 (objective minimum 10.000 bpd)
Wabiskaw Pilot project - to start Q4 2011 (Significant potential project)

We-re now fast approaching a future production opportunity of beyond 50.000 bpd. More than a 10 fold increase vs. current production levels in sight. That´s then the production opportunity level we´re you start getting some real and serious attention from larger players in the market e.ge like neighboring Petro China and the alike

Clearly as STP develops its land the more interest from other players will be visible:

"The deal gives PetroChina 60 percent control of Athabasca Oil Sands Corp.´s Mac Kay and Dover oil sands deposits in Alberta. The yield from the two deposits is likely to be modest when compared with total estimates of about 175 billion barrels of oil held in the sands, the largest after Saudi Arabia.

Industry analysts said China would likely seek to expand its Canadian tar sands portfolio."

http://www.upi.com/Business_News/Security-Industry/2010/01/05/China-buys-into-Canadian-tar-sands-exploitation-project/UPI-22041262732184/#ixzz1DYFkW8BQ

Here is what BMO Capital markets has to say about this play:

"We believe the market is still overestimating the levels of execution risks associated with this story and believe that the company's ability to demonstrate ongoing construction progress at McKay, along with additional exploration and a potential regulatory application at McKay, could act as further catalysts for the shares in 2011."

Page .6 : Solid underlying
“Our valuation includes MacKay leases with phase 1 un risked , but future expansion value risked at 50% chance. We value the undeveloped resources at 0.75/bbl. Adding in Senlac generates a NAV of 3.49.”

From the BMO Capital analysis p5:
"We estimate that the value of Senlac and Mckay phase 1 alone is in the range of $1.80 - 2/share, implying little value is being given to the companys other development opportunities or resource upside."

That is we´re currenly valued at even lower levels than what can be considered relevant when only including McKay 1 and Senlac and that no value what so ever at these levels are assigned to either of Mckay 2 (24.000 bpd), Read Earth (objective minimum 10.000 bpd) as well as Wabiskaw (significant potential project). All of these are projects in the pipe but then we also in addition to these have all the other undeveloped land to be explored as well that at these valuation levels are assigned 0 value.

"Our un risked net asset value estimate is nearly $6/share, which we believe represents the real upside potential of the shares as the company works to "de-risk" the value of its oil sands recourses through development"

Comment - BMO is definitely using a VERY conservative Oil price of $90 in 2015. Remember that this is only 4 years from now. Net asset value should be adjusted accordingly if you believe that oil will be higher than $90 in 4 years.

Expect these above numbers to be upgraded as the new reserves and recourses update will be published in June.

http://research-ca.bmocapitalmarkets.com/documents/40E0D89E-3EE1-4D8F-9747-1D65A6341567.PDF

So bottom line with a severely undervalued play (by any standard), a ten times production increase in sight, with smart money like e.g. Soros buying large chunks in to this case and with reserves and production sites surrounded by large oil plays aggressively expanding their production like e.g. Petro China expanding in the very area you are developing (McKay), and with fantastic opportunities to increase both reserves as well as production within months, you got quite a lot going for you. Don't you agree?

Suthern Pacific Resources homepage
(check out the new corporate presentation)
http://www.shpacific.com/