Southern Pacific Resource Corp. Completes Arrangements To Transport And Market Bitumen Via CN To The U.S. Gulf Coast

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.

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