Sunshine Oilsands Ltd. Announcement of results for the fourth quarter and the year ended December 31, 2013

HONG KONG, March 27, 2014 /PRNewswire/ -- Sunshine Oilsands Ltd. (the "Corporation" or "Sunshine") (HKEX: 2012; TSX: SUO) today announced its financial results for the fourth quarter and year ended December 31, 2013. The Corporation's consolidated financial statements, notes to the consolidated financial statements, Management's Discussion and Analysis and Annual Information Form have been filed on SEDAR (www.sedar.com) and with the SEHK (www.hkexnews.hk) and are available on the Corporation's website (www.sunshineoilsands.com). The Annual Information Form includes the Corporation's reserves and resource data at an effective date of December 31, 2013 as evaluated by GLJ Petroleum Consultants Ltd. and DeGolyer and MacNaughton Canada Limited and prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. Sunshine's annual general meeting of shareholders will be held on June 25, 2014 in Hong Kong. All figures are in Canadian dollars unless otherwise stated.

Message to Shareholders

Sunshine continued to achieve significant milestones in 2013. While our near-term focus is on securing financing to complete our first 10,000 bbl/d commercial SAGD project at West Ells, our ongoing objective is to lay the groundwork for delivering multi-phase expansions of production in our key project areas. 2013 was a year in which high quality construction activities progressed with confirmation that technical planning and execution decisions were managed very well by our experienced field operations and drilling and completions teams. 2013 also saw a strategic joint venture secured for development of our Muskwa and Godin area clastics assets and regulatory approval was obtained for a 10,000 bbl/d SAGD project in our Thickwood area. On the capital raising side, in addition to raising HK$246.3 million (CAD$ 33.3 million) in gross equity proceeds from options exercises and equity placements in 2013, a further HK$308.1 million (CAD$43.7 million) of gross equity proceeds has been closed since January 1, 2014. Our technical execution at West Ells, particularly in sub-surface activities related to pad drilling and completions, is a notable area of achievement in 2013. Although execution quality has been at a very high level, we experienced serious deficiencies in budget estimation and construction change control. We have made changes to ensure that go-forward budget and capital management requirements are addressed in a rigorous manner.

Reserves & Resources

Reserves and resources evaluations, dated December 31, 2013 have been completed by independent evaluators, GLJ Petroleum Consultants (GLJ) and DeGolyer and MacNaughton Canada Limited (DMCL).  The following tables summarize the overall reserves information as well as contingent resource volumes.

Compared to 2012 reserves volumes, there was no major change in the assignment of reserve volumes by the independent reserves evaluators.  Properties with assigned reserves include the West Ells, Thickwood and Legend Lake areas.  The West Ells and Thickwood areas had no exploratory drilling conducted in 2013 and as such, assigned reserves volumes remained virtually unchanged from numbers reported in 2012.  Exploration drilling was conducted in the Legend area early in 2013. Detailed technical data examination resulted in an adjustment in the "possible" reserves category due to identification of a slight thinning of Legend Lake reservoir thickness. 

In connection with PV10% values, assumed price deck reductions to a starting point of WTI US$90 from WTI US$100 resulted in a significant decrease in assigned values in 2013 compared to 2012.

2013 Economic Contingent Resource recognition volumes were affected by price deck reductions in the Harper carbonates, which were considered economic at a 7% discount factor using the 2013 revised prices. The sale of 50% of the Muskwa and Godin area clasics resources through an announced joint venture transaction, along with technical revisions in the Pelican Lake area holdings, accounted for the remaining material adjustments in Contingent Resources estimated in 2013 compared to 2012. As with the reserves values, values assigned to Sunshine's Contingent Resources were reduced due to assumed price deck reductions used in the evaluation reports. The starting point pricing assumption of WTI US$90, down from WTI US$100, resulted in a significant decrease in assigned PV10% values in 2013 compared to 2012.

In connection with pricing assumptions and costs used by the independent evaluators, the following is worth noting: WTI has averaged approximately US$98 year to date, well above the US$90 starting point used in the reserve and resource evaluation reports; the Canadian dollar is at $0.90 US but it is assumed to be a much stronger $0.96 US in the reserve and resource evaluation reports; and potential cost savings from rail transport alternatives are not considered in the reserve and resource evaluation reports. Sunshine is actively investigating the movement of crude by rail to access Maya pricing, which trades at a much lower discount to WTI than WCS pricing. It is our expectation that in connection with marketing arrangements alone, moving production with costs associated with railcar transportation and Maya oil pricing, will result in recognition of significant PV10% value increases.

WCS refers to Western Canadian Select, a heavy blended crude oil composed mostly of bitumens blended with synthetic crudes and diluents sold at Hardisty, Alberta. Maya refers to a benchmark heavy crude blend produced in Mexico with similar properties to WCS, with markets in the Gulf Coast.

Capital Raising Activities

From December 1, 2013 to current date, Sunshine has closed non-brokered private placements for aggregate gross  proceeds totaling HK$489.7 million (approximately CAD$68.7 million, 288,042,193 units at a price of HK$1.70 per unit).  Each unit consisted of one Class "A" common share and one-third of one purchase warrant.  Each of the 96,014,064 issued purchase warrants has an exercise price of HK$1.88 (approximately $0.26) and is exercisable for two years from the date of issuance.  Sunshine granted 115,216,877 fee warrants to certain finders in connection with the above financing.  Each fee warrant is exercisable at HK$1.88 (approximately CAD$0.26) for two years from the date of issuance.  Sunshine also paid HK$10.1 million (approximately CAD$1.4 million) as 3% finder fees.

West Ells Commercial Project

Construction of Phases 1 and 2 of Sunshine's West Ells SAGD 10,000 barrel per day project continues to be suspended as the Corporation continues with initiatives to secure additional funding. Suspension of construction occurred during the third quarter, effective August 18th, 2013. Sunshine intends to continue to develop the West Ells project in two phases, Phase 1 (5,000 bbls/d) and Phase 2 (5,000 bbls/d), with Phase 1 providing the supporting infrastructure for the Phase 2 major process equipment. To date, Sunshine has completed:

• Phase 1 drilling and completion of eight well pairs;
• Phase 2 drilling of eight well pairs;
• Phase 1 facility construction at 81% complete, with an estimated 4 months to finish;
• Phase 2 facility construction at 22% complete, with an estimated 5 months to finish; 

Capital expenditures consumed our cash resources in 2013 and resulted in the Board of Directors making a decision to put our West Ells project into suspension. The suspension means that until construction activities re-commence, Sunshine has to contend with delays in equipment delivery, extended service costs and comprehensive planning dialogues with services providers. With our focus on achieving high quality completion of construction activities under more disciplined cost estimation and execution protocols, changes have been made to mitigate deficiencies in performance and leadership to ensure that completion financing can be committed with confidence in our cost estimates and in our coordination and management of construction site activities and personnel. It is expected that our West Ells project will proceed to completion with a high degree of focus on cost and quality control. Our current timing estimate, based on 81% completion of Phase 1 facility construction, is that re-commencement of Phase 1 construction can achieve commissioning, start-up and first steam in a four to five month time period. The second well pad would then be commissioned and first steam for Phase 2 could be initiated shortly thereafter.

Our confidence in addressing requirements to complete West Ells has been re-fortified through an extensive re-examination of incurred capital costs for the West Ells Project, Phases 1 and 2 and we are fully engaged in a review and assessment of estimated costs associated with suspending and then restarting engineering, procurement and construction activities. Costs for recommencing and completing construction, commissioning & start up, costs for operations and the date for first steam will be finalized and released when additional funding is secured to support a full West Ells development plan.

Thickwood and Legend Project Areas

The Thickwood and Legend projects are each planned for first phase delivery of 10,000 barrels per day. Regulatory approval for Thickwood was received in the third quarter of 2013 while Legend regulatory approval is expected in the first half of 2014.

Renergy Joint Venture

Sunshine is pleased that the opportunity in its Muskwa and Godin clastics assets has been recognized by Renergy Petroleum (Canada) Co. Ltd. ("Renergy") through a significant agreement to provide both capital and technology through a joint venture structure. Under the terms of the joint venture agreement, Renergy is to operate the assets. In return for a 50% working interest, Renergy has agreed to fund 100% of initial joint operations conducted on the lands up to a maximum of CAD $250 million, which funding shall be deployed at the discretion of Renergy, as operator, until the earlier of the point when (i) the sum contributed equals the commitment cap of CAD $250 million or (ii) average daily production from the lands over any 20 consecutive days period equals or exceeds 5,000 barrels per day. Thereafter, joint venture contributions will be in proportion to the working interest held, unless Sunshine elects to be carried under the terms of the joint venture agreement.

Health, Safety and Community

Everyone associated with our field activities supports and understands the importance of our Health, Safety and Environment practices. Our approach to sustainable resource development works in tandem with our Health, Safety and Environment practices and these practices form the basis for our physical presence in  communities in which we work. It also forms the basis for ensuring that trusted long-term relationships are protected in communities that should expect to receive respect as well as economic and social benefits from our activities. 

With a daily average 400 workers active from January to August 2013, the West Ells project logged over 1 million hours of work, with no lost time injuries in 2013.  This is a standard we want to maintain.

Summary of Financial Figures

For the fourth quarter of 2013, the Corporation had a net loss of $7.5 million compared to $9.2 million for the same period in 2012, representing a net loss per share of $0.00 for both periods. For the year ended December 31, 2013, the Corporation had a net loss of $32.8 million compared to $61.7 million in 2012, representing a net loss per share for each respective year of $0.01 and $0.02.

2014 Outlook

The Corporation's plan for 2014 is to secure financing to re-commence West Ells construction and to ensure continuation of safe, high quality operational performance. We are committed to proceeding based on properly budgeted and monitored protocols and we intend to continue to look for opportunities for joint ventures to reduce our capital commitments and to accelerate activities aimed at increasing production. Once financing is secured, we intend to target achievement of first steam at West Ells later in the year. This will establish our own key marker line for confirming the achievability of increases in value for our shareholders in a deltaic clastics depositional environment.

Acknowledgements

We would like to thank our shareholders, new and old, for their continued support and patience. We would also like to acknowledge and thank our Board of Directors for their unwavering support for taking decisive actions to address challenges we encountered in 2013. We intend to ensure that the loyalty and hard work of our staff, along with the support shown by our vendors and contractors, results in achievement of a significant goal: "getting back to work on West Ells".