In 2008, Nexen plans to invest $2.4 billion in value adding projects, grow net production by between 8% and 10% and generate $2.9 billion in cash flow.
2008 Plan Highlights:
• Expected cash flow of $2.9 billion assuming commodity prices of US$70/bbl (WTI) for crude oil and US$6.75/mmbtu for natural gas
• Anticipated free cash flow of $400 million after dividend payments
• Production, net of royalties, expected to grow by between 8% and 10% compared to 2007 and range from 220,000 to 240,000 boe/d (260,000 to 280,000 boe/d before royalties)
• Start up of Long Lake upgrader scheduled for mid 2008
• Ettrick on track for first production mid 2008
• Plan to drill 11 exploration wells, testing approximately 800 mmboe of unrisked resource potential (approximately 300 mmboe net)
For the past several years, Nexen have invested significant capital in a number of major development projects. The Syncrude Stage 3 expansion was completed last year and Buzzard commenced production in early 2007, ramping up to full rates during the year. These projects contributed to the company’s net production growth of approximately 35% in 2007 but was less than the 50% growth forecasted a year ago. The shortfall was the result of ramp-up delays on Nexen’s major projects at Buzzard, Long Lake and coalbed methane (CBM) coupled with disappointing results from development drilling at Aspen. Nexen are now injecting steam at Long Lake and expect bitumen production to begin ramping up in the spring. The upgrader is expected to start up in mid 2008, with production of premium synthetic crude ramping up over a 12 to 18 month period. In addition, first oil from Ettrick is anticipated in mid 2008.
2008 Estimated Production
UK North Sea
Before Royalties (mboe/d): 95-115
After Royalties (mboe/d): 95-115
Yemen
Before Royalties (mboe/d): 50-55
After Royalties (mboe/d): 27-32
Canada (1)
Before Royalties (mboe/d): 45-50
After Royalties (mboe/d): 40-45
US Gulf of Mexico (2)
Before Royalties (mboe/d): 25-30
After Royalties (mboe/d): 20-25
Syncrude
Before Royalties (mboe/d): 25-25
After Royalties (mboe/d): 17-22
Other International
Before Royalties (mboe/d): 6-7
After Royalties (mboe/d): 5-6
Total (3)
Before Royalties (mboe/d): 260-280
After Royalties (mboe/d): 220-240
(1) Production includes bitumen volumes from Long Lake in the Athabasca oil sands. Canadian natural gas production is estimated to comprise approximately 45% of total Canadian equivalent production in 2008.
(2) US natural gas production is estimated to comprise approximately 60% of total US equivalent production in 2008.
(3) Includes maintenance downtime at Buzzard and Syncrude in Q2 and Q3.
In 2008, capital will be allocated as follows:
• 29% on major development projects. This will allow us to bring Long Lake Phase 1 and Ettrick in the North Sea on stream in 2008 as well as progress Longhorn in the Gulf of Mexico and CBM at Fort Assiniboine in Alberta;
• 17% on early-stage development projects expected to contribute production and cash flow growth beyond 2008. These include future phases of oil sands in the Athabasca region, Block OPL-222 offshore West Africa, and our Knotty Head and Golden Eagle discoveries in the Gulf of Mexico and North Sea, respectively;
• 25% on exploration opportunities in our North Sea and Gulf of Mexico growth areas and on shale gas in northeast British Columbia; and
• 25% on our existing producing assets.
Estimated 2008 Capital Investment Profile ($millions)
Major Development: 700 (29%)
Core Asset Development: 600 (25)
Early-Stage Development: 400 (17)
Total Development: 1,700 (71)
Exploration: 600 (25)
Oil and Gas: 2,300 (96)
Other: 100 (4)
Total Capita: 2,400 (100)
Nexen’s 2008 capital investment program is approximately $1.2 billion less than the 2007 program. The decrease reflects reduced investment in a number of their major development projects.
The company expect to generate $2.9 billion of cash flow for 2008 which compares to expected cash flow of approximately $3.4 billion for 2007. The decrease reflects the impact of higher cash taxes, especially in the UK reflecting strong cash flow from Buzzard, combined with the impact of a stronger Canadian dollar.
Major Development
Long Lake - SAGD steaming underway and upgrader start up scheduled for mid 2008
Almost 60% of Nexen’s major development capital in 2008 will be invested at Long Lake in the Athabasca oil sands where the company plan to invest approximately $400 million, including capitalized interest, to bring Phase 1 on stream mid year. Nexen are currently injecting steam into the reservoir through all ten well pads. The company expect bitumen production to begin ramping up in the spring and are on track to have sufficient bitumen production for the start up of the upgrader. The bitumen production capacity of the SAGD facilities is approximately 72,000 bbls/d (36,000 bbls/d net to Nexen).
Ettrick - On track for first production in 2008
The company’s Ettrick development in the North Sea is progressing well towards first oil in mid 2008. This development project comprises three subsea production wells and one water injector tied back to a leased floating production, storage and offloading vessel (FPSO). The FPSO is designed to handle 30,000 bbls/d of oil, 35 mmcf/d of gas and to re-inject 55,000 bbls/d of water. Nexen expect to ramp up to full production of approximately 25,000 boe/d gross by the end of the year. The company’s share of production from this field is expected to average approximately 9,000 boe/d in 2008. Nexen operate Ettrick with an 80% working interest.
Other - Longhorn and CBM
The original discovery well at Longhorn in the Gulf of Mexico was drilled in 2006 with a pre-drill resource estimate of between 60 and 250 bcfe. Earlier this year, Nexen completed drilling an appraisal well which exceeded expectations and encountered approximately 400 feet of net gas pay in multiple sands. Nexen expect to sanction development of the Longhorn discovery in early 2008, with first production in 2009. The Longhorn development comprises subsea tie-backs to an existing platform and the company expect to invest almost $70 million here in 2008. Nexen have a 25% non-operated interest in this development.
Nexen have scaled back capital investment on their CBM projects in 2008 in light of the uncertainty that exists around proposed changes to Alberta's royalty regime but remain optimistic that final royalty regulations will continue to support the economic development of Alberta's unconventional gas resource. In the Fort Assiniboine area, Nexen plan to tie-in 19 wells and drill three new horizontal wells. The company expect CBM production will continue to increase in 2008 as existing wells continue to dewater and the additional wells are tied in.
Core Asset Development
Nexen plan to invest approximately $600 million on their core assets in 2008 with just over half of this amount planned for their North Sea assets. At Buzzard, the company plan to drill five production wells, two sidetracks and one water injector, and plan to commence construction work on a fourth platform which will contain production sweetening facilities designed to handle higher levels of hydrogen sulphide previously identified in the reservoir. Existing equipment and processes on the Buzzard platform can maintain current deliverability until the additional equipment is commissioned in 2010.
Elsewhere in the North Sea, Nexen plan to drill, complete and tie-in two development wells at Scott and Telford.
In the Gulf of Mexico, Nexen’s development program will focus on the deep-water. At Green Canyon 6, the company expect to spud a well and then commence completion operations in the first quarter of 2008. Production from this well is expected to add approximately 5,000 boe/d to the company’s annual volumes. At Gunnison, a subsea development well is planned that will be tied-back through existing flowlines to the Gunnison Spar. On the shelf, a total of nine recompletion projects are planned in the Eugene Island and Vermilion areas.
In Canada, Nexen plan to invest almost $80 million to maximize value from their heavy oil and natural gas assets. At Syncrude, the company plan to invest approximately $45 million in sustaining capital projects.
In Yemen, Nexen expect to drill six development wells and four sidetracks at Masila to manage declines and ensure they recover remaining reserves as economically as possible. On Block 51, the company plan to drill, complete and tie-in five development wells.
Early-Stage Development
In 2008, Nexen plan to invest approximately $400 million in a number of early-stage development projects. In the oil sands, capital investment plans will allow the company to advance detailed engineering on SAGD and upgrader facilities for future phases of Long Lake and drill appraisal wells to further assess their leases.
Offshore West Africa, Nexen plan to invest approximately $165 million primarily to progress the development of their Usan discovery on Block OPL-222. The project will have the ability to process an average of 180,000 bbls/d of oil during the initial production plateau period through a new FPSO which will contain two million barrels of storage capacity. Once the Usan development is formally sanctioned, the major deep-water facilities contracts will be awarded. Nexen have a 20% interest in exploration and development on this block.
Elsewhere, Nexen are assessing development alternatives for their Golden Eagle discovery and for Selkirk in the UK North Sea. The company have a 34% and a 38% operated working interest at Golden Eagle and Selkirk, respectively.
Exploration
Nexen plan to invest approximately $600 million in their 2008 exploration program and expect to drill up to 11 exploration wells in the Gulf of Mexico, the North Sea and Yemen. In total, this will test approximately 800 million boe of unrisked resource potential (approximately 300 million boe net to Nexen).
Estimated 2008 Exploration Capital Investment Profile ($millions)
US Gulf of Mexico: 225
North Sea: 210
Shale Gas: 70
Other: 95
Exploration: 600
In the Gulf of Mexico, Nexen plan to drill three deep-water wells and one shelf gas well. Two of the three deep-water wells will test sub-salt Miocene prospects. At Knotty Head, the company continue to pursue rig availability to allow them to spud an appraisal well in mid 2008 and Nexen have contracted two new deep-water drilling rigs that are scheduled to arrive in mid 2009 and 2010. In addition, Nexen plan to drill an appraisal well at Vicksburg.
Nexen were recently named the high bidder on 30 offshore blocks in the Central Gulf of Mexico Outer Continental Shelf Lease Sale 205. These awards are subject to the approval of the Minerals Management Service section of the US Department of the Interior. Nexen’s current deep-water portfolio totals approximately 230 blocks in the Gulf which contains several exciting sub-salt drill-ready prospects.
In the UK North Sea, Nexen plan to drill six exploration wells in 2008 as well as appraisal wells at Bugle and Kildare. As part of their growth strategy in the North Sea, Nexen have acquired interests in six exploration licenses in Norway and recently opened an office in Stavanger. Nexen are also awaiting results of bids submitted in a recent Norwegian exploration licensing round. In 2008, the company plan to participate in upcoming licensing rounds and invest capital on seismic and geologic studies. Nexen expect to drill our first exploration well in Norway in 2009.
Nexen have secured a material land position of approximately 123,000 acres in northeast British Columbia on an emerging Devonian shale gas play which has the potential to be one of the most significant shale gas plays in Canada. In 2008, the company plan to complete and test the two vertical wells drilled last winter and drill and complete three horizontal wells. In addition, the company plan to drill two vertical wells on a second lease in the area to acquire reservoir information.
Elsewhere, Nexen expect to drill one exploration well on Block 51 in Yemen.