SEPTEMBER 28, 2010

OIL SANDS / OIL & GAS PRODUCERS Justin Bouchard, P.Eng, CFA
justin.bouchard@ raymondjames.ca 403.509.0523

Christopher Cox (Associate)

Southern Pacific Resources Corp. & North Peace Energy Inc.

STP-TSX | NPE-TSXV

christopher.cox@ raymondjames.ca 403.509.0562

Sector Summary
COMPANY TICKER CUR PRICE Return
105%

RATING Target
$2.50

Southern Pacific Resources

STP-TSX $1 .22

STRONG BUY 1 MARKET PERFORM 3

Announces acquisition of North Peace Energy

Event Yesterday afternoon Southern Pacific announced the planned acquisition of NorthPeaceEnergyInc.(NPETSXV,MARKETPERFORM,Recent:$0.15)for $17.2 mln in Southern Pacific stock (based on STPs September 27th closing price of $1.22 and the expected issuance of 14.1 mln shares). The deal works outto$0.23perNorthPeacesharebasedonyesterdaysclosingprices. Action WearereiteratingourSTRONGBUYratingand$2.50targetpriceonSouthern Pacific; we recommend North Peace shareholders tender their shares; we are maintaining our MARKET PERFORM rating on North Peace and increasing ourtargetpriceto$0.25(from$0.20)toreflecttheannouncedtransactionprice. Analysis Fromonestandpoint,investorsmayquestionwhySouthernPacificwouldbuy these assets particularly given the lacklustre performance of the Red Earth CSS Pilot Project to date. From our perspective, any time a company can acquireresourceorprospectiveresourceatalowcost,itispositiveandwe believethatisexactlywhatSTPhasaccomplishedhere.NorthPeacehadspent $16mlnin200809onits1,000bbl/dRedEarthCSSPilotProject,butbasedon poor operating results in late 2009 and 2010, was unable to raise additional fundsandwasforcedtoinitiateastrategicreviewprocessinFebruary2010 whichultimatelyledtothisproposedtransaction. With the acquisition, Southern Pacificwill add86,400 acres of100% working interest leases in the Peace River oil sands area (as shown in Exhibit 3), 105 million bbls of Best Estimate Contingent Resource, 2.1 billion bbls of discoveredresource(evaluatedbySproule&Associates)anda1,000bbl/dCSS pilotproject.GiventheevaluationbySprouleandthesignificantwellcontrol in the area there are significant bitumen resources on the leases; the big questioniswhetherornotafreshsetofeyescanunlockthepotential. Valuation Our$2.50targetpriceforSTPissetatourRiskAdjustedNetAssetValueof $2.42pershare.

= = =

North Peace Energy

NPE-TSXV $0.1 5

67%

$0.25

Closing prices as of 27-Sep-10 All figures in C$, unless otherwise noted. Sources: Raymond James Ltd.,ThomsonOne, CapIQ

PublishedbyRaymondJamesLtd.,aCanadianinvestmentdealer. PleaseseeendofINsightforimportantdisclosures.www.raymondjames.ca

RJ INsight Page 2 of 5

Attractivetransactionmetrics;dealrepresentsgoodofferforbothparties Underthetermsoftheagreement,SouthernPacificwillissue14.1mlnshares in order to finance the transaction; based on yesterdays closing price, Southern Pacific is acquiring North Peace for ~$17.2 mln; we estimate that North Peace currently has ~$1.5 mln in working capital, implying a net acquisition price of ~$15.7 mln or ~$0.15/bbl (Best Estimate Contingent Resource estimate of 105 mmbbls); however, if we value the pilot project at bookvalue,thelandandtheresourceisessentiallyfree.WhiletheRedEarth CSS Pilot Project has been challenged, we believe this is a compelling acquisition price for Southern Pacific, particularly if they can manage to sort outtheoperationalissues. For Southern Pacific the transaction will provide the company with an inexpensive option on the commercial viability of the Red Earth project. The areahasconsiderablewellcontrolwithenoughbitumenresourceassignedto theleasetojustifyacommercialproject,thusthebigquestionwithregardsto the transaction is whetherSouthern Pacific can turnthe pilot project around. OneofthehypothesesregardingtheoperatingproblemsattheRedEarthCSS PilotProjectispoorsteamconformancegettingsteamtocontactthereservoir overtheentirelengthofthehorizontalwell.TheoperatingteamatSouthern PacifichasdealtwithsteamconformanceissuesatSenlacandhasalsoworked directlyonotherCSSprojectsintheoilsandsandwebelievehastherelevant handsonexperiencetobringanewperspectivetotheoperatingschemeofthe pilot project. In addition, Southern Pacific is in a much stronger financial position which provides more flexibility and time to sort out the operational issues.Fromacorporatelevel,totalrecoverableresourceincreases16%while thecompanyslandbaseincreases55%;Exhibit1belowhighlightsthechanges fromtheproposedtransaction. Exhibit1:ProformaresourceandlandholdingsforSouthernPacific
ProForma RecoverableResource (mmbbls) Land (netacres) 772.2 242,176 Previous 667.2 155,776 %change 16% 55%

Source:SouthernPacificResourcesCorp.,NorthPeaceEnergyInc. For North Peace shareholders the transaction will provide for an attractive return from current levels. The stock was largely in a holding pattern as we believe the company was not in a position to raise further capital. Furthermore, shareholders can participate in any upside from a potential improvement in the Red Earth project from the Southern Pacific shares acquiredviathetransaction.

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Transactiondoesnotalterfinancialpositionorcorporatefocus Uponclosing,thetransactionwillbefinancedviasharesandasaresultthere is no change to the companys current financial position, nor the companys financingplansfortheSTPMcKayproject.Thecompanyonlyplanstoinvest ~$2.5mlnoverthenextninemonthsandasthecapitalwillbedivertedfrom planned exploration activities, thus there is no net change to the financing needs of the company, post the expected regulatory approval of the STP McKay project. We do not see any concerns with the company concurrently developing both the STPMcKay project and troubleshooting the Red Earth pilotproject. Revisedfinancialestimates We have revised our cashflow and NAV estimates in response to the North Peace acquisition. Our Southern Pacific NAV estimate remains unchanged at $2.42 per share as we are effectively valuing the assets at their acquisition value.Our2011cashflowestimateshavedecreasedfromourpriorestimateof $0.19to$0.18pershare,simplyduetothedilution.Exhibit2belowhighlights thechangestoourestimates. Exhibit2:RevisedSTPEstimates
2010 New Cashflowpershare $/share NAVpershare $/share $0.14 $2.42 Old $0.15 $2.42 2011 New $0.18 Old $0.19

Source:RaymondJamesLtd.

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Exhibit3:NorthPeaceEnergyassets

NorthPeaceoilsandsassetsinthePeace RiverOilSandsArea100%working interestin86,400acres;105mlnbblBest EstimateContingentResource(Sproule) and2.1blnbblofdiscoveredbitumen resource.Alsoincludestheoperational 1,000bbl/dRedEarthCSSPilotProject.

Source:DivestcoGeomatics,RaymondJamesLtd.

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Risks 1. Onemajorasset risk By going ahead with the development of its STP McKayoilsandsproject,SouthernPacificiscommittingtoamajorinvestment. Should the economics of the project deteriorate for whatever reason, the companysinvestmentthereinmaybeimpairedanditsfuturemaybeatrisk. 2. Limited financial resources Southern Pacific must rely on its ability to borrow funds or sell additional equity to finance its costs of developing the Southern Pacific oil sands project. Southern Pacifics ability to raise funds is subject to capital market risks, such as the availability and cost of capital, as wellasthecompanyscredibility.Iffinancingisunavailable,theprojectmay bedelayed,developmentmaybeindefinitelypostponed,orthefuturevalueof thecompanysinvestmentthereinmaybeimpaired. 3. Operational risks including asset reliability risks at oil sands projects in Northern Alberta and reservoir performance risks for insitu projects in particular. 4.ProjectexecutionrisksSTPMcKayisanoilsandsprojectinearlystagesof development,withinherentriskssuchascostoverrunsduetothechangesin availabilityandcostsofmaterials,equipmentandqualifiedpersonnel. 5. Marketing risks There are various marketing risks related to bitumen, including disruptions in supply and market accessibility; commodity price volatilityandcreditrisk;andvolatilityofdownstreammargins. 6.RegulatoryrisksThefuturedevelopmentofSTPMcKayisdependenton Southern Pacific receiving the necessary regulatory approvals. A failure to obtain these approvals on a timely basis or with acceptable terms and conditions could result in delays, abandonment or restructuring of the STP McKayprojectandincreasedcosts,allofwhichcouldhaveamaterialadverse effectonSouthernPacific. 7. Environmental risks including costs of new equipment and associated constructioncostsformaintainingenvironmentalintegrity. 8. Risks related to commodity prices, exchange rates, interest rates, political factors,governmentregulationandgeneraleconomicconditions. 9. If Southern Pacifics proposed bid for North Peace Energy is unsuccessful and/ordifferentthanourcurrentassumptions,theremaybeadverseimpacts tovaluationandgrowthprospectsforbothcompanies.

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NorthPeaceEnergy SouthernPacificResourcesCorp.

NPE STP

TSXV TSX

1e,6 1a,1b,1e

RJ Disclosures

NORTH PEACE ENERGY | NPE-TSXV

$3.00 2 3 2 3

$2.50 $2.00

$1.50 $1.00

RATING Date Jun-03-08 Jul-02-08 Oct-14-08 Dec-01-08 Mar-02-09 22-Jun-09 Nov-27-09 Jan-06-10 Sep-13-10

& TARGET CHANGES Price Rating $1.68 2 $1.84 2 $0.58 2 $0.50 3 $0.30 3 0.55 2 $0.32 3 $0.29 3 $0.16 3

Target $2.25 $2.25 $1.25 $0.75 $0.50 $0.90 $0.35 $0.30 $0.20

$0.50 $0.00 Oct-08 Oct-09 Aug-07 Aug-08 Aug-09 Dec-07 Oct-07 Dec-08 Dec-09 Jun-08 Jun-09 Apr-10 Feb-08 Feb-09 Aug-10 Feb-10 Apr-08 Apr-09 Jun-10

Close

Target

Rating

1-STRONG BUY 2-OUTPERFORM 3-MARKET PERFORM 4-UNDERPERFORM 0-UNDER REVIEW

SOUTHERN PACIFIC RESOURCES CORP. | STP-TSX

$3.50 1 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Mar-08 May-08 Mar-09 Sep-07 Jan-08 Sep-08 Jan-09 May-09 Sep-09 Jul-08 Jul-09 Jan-10 Jul-10 Mar-10 Nov-07 Nov-08 Nov-09 May-10 Sep-10 2

RATING Date Dec-18-09 Jan-06-10 Mar-29-10 Apr-12-10 Aug-20-10

& TARGET CHANGES Price Rating $0.78 2 $0.94 1 $1.06 1 $1.28 1 $1.03 1

Target $1.35 $2.00 $2.50 $2.25 $2.50

Close

Target

Rating

1-STRONG BUY 2-OUTPERFORM 3-MARKET PERFORM 4-UNDERPERFORM 0-UNDER REVIEW