Nexen Provides Long Lake Oil Sands Project Update, Announces Owowo Discovery, Offshore West Africa and 2010 Budget

Nexen continues to see positive results at Long Lake following the successful completion of the turnaround program in September. As the company moves into 2010, its priorities include the ramp up of Long Lake, sanctioning its discoveries in the North Sea, the continued improvement of its Horn River shale gas returns, the development of its offshore Usan project and ongoing exploration in core areas.

Long Lake Project Update

At Long Lake, Nexen has achieved a number of major milestones over the past year. The gasification process is working as designed, creating a low cost fuel source which reduces the need to purchase natural gas for operations. Once the project is fully ramped up, it generates a significant margin advantage over Nexen’s peers and Nexen can maintain this advantage even at current gas prices.

The upgrader is fully operational. It is approaching design yields and has successfully produced over 1.5 million barrels of the highest quality synthetic crude in North America. Upgrader run times are increasing and in November, improved reliability allowed Nexen to process 95 percent of its bitumen production.

Now that all components of the upgrader are operating as planned, Nexen is focused on maximizing bitumen throughput. This will be achieved by increasing production volumes from Nexen’s reservoir and by purchasing bitumen from third-parties to enhance returns.

The reservoir is responding to consistent steaming. Following a turnaround completed in September, the reliability of Nexen’s water treating systems has improved substantially and currently, steam injection rates are at an all-time high of approximately 100,000 bbls/d. Steam is being injected into over 70 well pairs with 50 on production and the remainder circulating steam in advance of becoming producers. This is the highest number of wells that have received consistent steam to date. Prior to the turnaround, steam limitations only allowed consistent steam injection into approximately 35 well pairs.

Bitumen production levels are responding to the increased steam volumes and gross production is averaging approximately 17,000 bbls/d. As steam circulates in more wells, the all-in steam-to-oil ratio (SOR) will remain high and is currently approximately 6 with about 20 wells receiving steam but not yet producing bitumen.

The SOR of producing wells is approximately 4.5 and trending down. With the ongoing installation of electric submersible pumps (ESPs), there have been improvements in SORs. A long term SOR of 3 over the life of the project is expected.

In addition to the continued installation of ESPs, Nexen’s capital investment program for the coming year includes the drilling of two sustaining well pads in accordance with the full field resource development plan. These pads will be available to come on stream starting in 2012.

"We are still in the SAGD ramp up phase and are pleased with post-turnaround performance," said Marvin Romanow, Nexen's President and Chief Executive Officer. "Steaming reliability has improved and this is leading to higher bitumen production. We are confident that we will ramp up to full rates and demonstrate the significant value this project will deliver to our shareholders."

Owowo Discovery, Offshore West Africa

Earlier this year, Nexen participated in the drilling of an exploration well in the southern portion of Oil Prospecting License (OPL) 223, offshore West Africa, which was successful.

The Owowo South B-1 well was drilled in a water depth of 670 meters and is located 20 kilometres northeast of the Usan field, currently under development. The well reached a total depth of 2,227 meters and discovered several oil bearing reservoirs containing light oil according to logs and other analysis.

Under the production sharing contract governing OPL 223, the Nigerian National Petroleum Corporation (NNPC) is concessionaire of the license, which is operated by Total Exploration & Production Nigeria Ltd. Nexen, has an 18 percent interest in the discovery.

"We continue to have success with our exploration program offshore West Africa," said Romanow. "This discovery makes us more optimistic about our other exploration prospects."

2010 Budget

Nexen’s strategies are focused on oil sands, shale gas and conventional development and exploration in select basins. In 2010, these strategies will be advanced by investing $2.5 billion and growing production after royalties by approximately 4 to 6 percent assuming the midpoint of Nexen’s guidance.

Highlights of Nexen’s 2010 budget are as follows:

- Production after royalties has grown over the last three years at an annual compound rate of over 10 percent with further growth of approximately 4 to 6 percent expected in 2010 assuming the midpoint of Nexen’s guidance. At the high end of the guidance range, volumes would grow over 15 percent

- Capital investment plans of $2.5 billion solidify growth beyond 2010 as Usan, Golden Eagle, Long Lake and Horn River shale gas are developed

- Production volumes expected to range from 200,000 to 250,000 boe/d (230,000 to 280,000 boe/d before royalties)

- Capital program funded with cash flow assuming WTI averages around US$70/bbl; free cash flow of approximately $600 million at current strip prices

- 15 exploration and appraisal wells planned, testing approximately 600 million boes of net unrisked resource potential

Return to January 2010 Western Energy News

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