News Releases
Nexen Announces 2009 Budget
CALGARY, ALBERTA--(Dec. 9, 2008) - Nexen Inc.
Highlights:
- Production, net of royalties, to grow approximately 10% compared to 2008 and range from 220,000 to 235,000 boe/d (250,000 to 265,000 boe/d before royalties)
- Expected cash flow of between $2.3 and $2.9 billion assuming WTI averages between US$50/bbl and US$65/bbl
- Oil and gas capital investment plans of $2.6 billion
- Plan to drill eight exploration and six appraisal wells, testing approximately 750 mmboe of unrisked resource potential (240 mmboe, net to us)
In 2009, Nexen plans to invest $2.6 billion in oil and gas projects and grow net production by approximately 10%.
Our Financial Position is Strong
For the past several years, we have invested significant capital in a number of major development projects including Buzzard and Long Lake. The investment in these projects is largely behind us and they will make significant contributions to our cash flow for many years to come. Our Ettrick and Longhorn projects will start up in 2009 and also contribute cash flow. The cash flow from all of these investments allows us to fund our next generation of new growth projects, such as Usan, offshore West Africa and shale gas in the Horn River basin.
For 2008, we expect to generate more than $1 billion of free cash flow. We are using this free cash flow to repurchase shares and build our cash balances. This positions us well as we enter 2009, since we have about $1.8 billion of cash and over $2 billion of undrawn committed credit lines. We have no debt maturities over the next few years and the average term of our public debt is approximately 20 years. Our upcoming capital investment plans position us well to pursue our next generation of growth while preserving our liquidity.
"Our 2009 capital investment program will allow us to meet our commitments, pursue our strategic opportunities and preserve our liquidity," said Marvin Romanow, Nexen's Executive Vice President and CFO, and incoming President and CEO. "We are well positioned to pursue the opportunities in our attractive portfolio without compromising our financial position and we have choices to adjust our capital investment as the economic environment unfolds."
Production-Net Volumes to Grow by Approximately 10%
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2009 Estimated Production
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Before Royalties After Royalties
(mboe/d) (mboe/d)
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UK North Sea 100-115 100-115
Yemen 40-45 23-28
Canadian Conventional 35-40 27-32
Long Lake Bitumen (1) 15-20 13-18
Syncrude 20-25 18-23
US Gulf of Mexico (2) 20-25 17-22
Other International 3-5 2-4
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Total (3) 250-265 220-235
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(1) Long Lake production is reported as bitumen rather than synthetic crude.
(2) US natural gas production is estimated to comprise approximately 60% of
total US equivalent production in 2009.
(3) Includes maintenance downtime at Syncrude in Q2 and at Buzzard in Q3.
In the North Sea, Buzzard continues to exceed expectations and is a significant contributor to our 2009 production. Our estimate for Buzzard includes a month of downtime in the third quarter, which coincides with a six week slowdown of the Forties pipeline, to install the jackets for the fourth platform and complete tie-in operations pending installation of the topsides. This platform will allow us to handle higher levels of hydrogen sulphide and maintain peak production until 2014. At Long Lake, we expect volumes to ramp up to design rates over the next 12 to 18 months. Syncrude will experience downtime in the second quarter as a result of a planned coker turnaround. In the Gulf of Mexico, approximately 20,000 boe/d is still shut in following hurricane damage to third party facilities in the third quarter of 2008. We expect most of our shut in production to be back on-stream in the first half of 2009. This contributes approximately 9,000 boe/d to our annual guidance.
Cash Flow-Driven by Superior Netbacks
Our cash netbacks are among the highest in the industry reflecting the low operating costs and royalties on much of our production. As a result, we are well positioned to handle the recent decline in commodity prices.
Assuming WTI ranges from US$50/bbl to US$65/bbl in 2009, we expect our cash flow to be between $2.3 and $2.9 billion. Our cash flow expectations assume a NYMEX gas price of US$6.50/mmbtu and a US/Cdn exchange rate of US$0.83.
Each US$1.00 increase in benchmark oil prices above US$60/bbl adds about $50 million to our after tax cash flow, whereas a decline in prices below US$60/bbl reduces cash flow by about $40 million. This sensitivity includes the impact of put options purchased on 45,000 bbls/d of our production with an average 2009 strike price of US$60/bbl Brent. A US$0.50 change in natural gas prices impacts our cash flow by about $35 million and a US$0.01 decrease in the exchange rate increases our cash flow by about $35 million.
Capital Investment Plans-Continued Investment in our Next Generation of Growth
In 2009, we plan to allocate our oil and gas capital investment as follows:
- 34% on our existing producing assets, including the fourth platform at Buzzard;
- 31% on major development projects. This allows us to progress Usan, offshore West Africa and bring Ettrick in the North Sea and Longhorn in the Gulf of Mexico on stream in 2009;
- 27% on advancing our Horn River shale gas play and on exploration and appraisal opportunities in our key regions-the North Sea, Gulf of Mexico and offshore West Africa; and
- 8% on early stage development projects expected to contribute future production and cash flow growth. These include future phases of oil sands in the Athabasca region.
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Oil and Gas Estimated 2009 Estimated 2008
Capital Investment Profile ($millions) % ($millions) %
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Major Development 780 31 1,350 45
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Core Asset Development 880 34 750 25
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Early Stage Development 210 8 150 5
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Total Development 1,870 73 2,350 78
Exploration and Appraisal 690 27 750 25
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Total Oil and Gas Capital 2,560 100 3,000 100
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Major Development-Progressing Usan
Approximately 31% of our 2009 oil and gas capital investment is focused on advancing significant development projects in a number of key growth areas.
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Major Development Estimated 2009
Capital Investment Profile ($millions)
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Offshore West Africa - Usan 515
North Sea - Ettrick / Blackbird 160
US GOM - Longhorn 75
Other 30
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Major Development 780
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Usan
With the project sanctioned and first production expected in 2012, this development project is progressing well. In 2009, we expect to begin fabrication of the FPSO hull and facilities and initiate development drilling. In addition, we plan to complete detailed engineering and procurement of remaining equipment and materials.
Ettrick/Blackbird
In 2009, we will complete the tie-in of the Ettrick development, with first oil expected in the first quarter. We plan to conduct additional development drilling at Ettrick and move forward with an assessment of development options for our adjacent Blackbird discovery.
Longhorn
First production here is expected in mid 2009, ramping up to 200 mmcf/d (50 mmcf/d net to us). Capital investment includes development drilling and installation of facilities.
"We are excited to be bringing on Ettrick and Longhorn this coming year, while Usan is another legacy asset in the making," commented Romanow.
Core Asset Development-Sustaining Buzzard until 2014
We plan to invest approximately $880 million on our core assets in 2009.
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Core Asset Development Estimated 2009
Capital Investment Profile ($millions)
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North Sea 400
Canada 300
Other 180
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Core Asset Development 880
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North Sea
At Buzzard, construction of a fourth platform will continue throughout the year. This contains production sweetening facilities designed to handle higher levels of hydrogen sulphide. Existing wells and process equipment can maintain current deliverability until the additional facilities are commissioned in 2010. We also plan to drill four production and two injection wells. At Scott/Telford, we plan to invest in facility improvements and ongoing reservoir development.
Canada
In Canada, we have scaled back our investment on mature conventional assets. At Long Lake, we will invest approximately $100 million on phase one activities, primarily on further core hole delineation drilling and the development of Pad 11, which represents the first of our sustaining well pads. At Syncrude, we plan to invest approximately $90 million on the emissions reduction project currently underway and on base plant projects.
Other
In Yemen, we expect to invest $120 million to drill 40 development wells at Masila and on Block 51 in order to maximize the value of these assets over their remaining contract terms. In the Gulf of Mexico, our development program will focus on the deep-water where our drilling and completion activities are expected to add production volumes in 2009 and early 2010.
Early-Stage Development-Continued Commitment to our Oil Sands Leases
In 2009, we plan to invest up to $210 million on early-stage development projects, of which 85% relates to our oil sands leases. These plans allow us to advance detailed engineering on SAGD and upgrader facilities for Phase 2 of Long Lake and conduct core hole drilling to further delineate our leases.
"We are committed to developing our oil sands leases in a measured and responsible manner," said Charlie Fischer, Nexen's President and CEO. "Sanctioning of Phase 2 will depend on numerous factors including the initial performance of Phase 1, receiving regulatory approval for Phase 2 SAGD operations, receiving clarity on proposed climate change regulations, finalizing cost estimates and an improved economic environment."
Exploration and Appraisal-Advancing our Horn River Shale Gas Play
We plan to invest approximately $690 million in our 2009 exploration program. This program has two major components. First, to advance our Horn River shale gas play and second, to drill up to 14 conventional exploration and appraisal wells in the Gulf of Mexico, North Sea and offshore West Africa.
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Exploration and Appraisal Estimated 2009
Capital Investment Profile ($millions)
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Horn River Shale Gas 160
Offshore Exploration and Appraisal
North Sea 255
Gulf of Mexico 190
West Africa 25
Other - CBM and Colombia 60
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Exploration and Appraisal 690
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Horn River Shale Gas
In the Horn River basin of northeast British Columbia, we have completed our summer drilling program and have commenced fracing the wells. In 2009, we plan to drill and test seven wells from a single pad to progress our understanding of this play.
North Sea
We plan to drill up to five exploration and four appraisal wells in the North Sea, including two exploration wells and one appraisal well following up our Golden Eagle and Pink discoveries. We also plan to appraise our Blackbird, Bugle and Polecat discoveries and drill our first exploration well in Norway.
Gulf of Mexico
In the deep-water Gulf, we plan to drill an exploration well and two appraisal wells. With the arrival of our contracted deep-water rig late next year, we plan to drill an appraisal well at Knotty Head. The other appraisal well is expected to be drilled in the Eastern Gulf where we have discoveries at Shiloh and Vicksburg. We have contracted a second deep-water drilling rig that is scheduled to arrive in 2010. With the arrival of these two rigs we are in a position to drill our exciting deep-water exploration program.
"We have an exciting portfolio of opportunities," said Fischer. "The strong cash flow generated by our assets combined with the strength of our balance sheet allows us to pursue high quality opportunities without compromising our financial liquidity. Nevertheless, we are closely monitoring the current economic environment and are ready to adjust our capital program as appropriate."
Nexen Inc. is an independent, Canadian-based global energy company, listed on the Toronto and New York stock exchanges under the symbol NXY. We are uniquely positioned for growth in the North Sea, Western Canada (including the Athabasca oil sands of Alberta and unconventional gas resource plays such as coalbed methane and shale gas), deep-water Gulf of Mexico, offshore West Africa and the Middle East. We add value for shareholders through successful full-cycle oil and gas exploration and development and leadership in ethics, integrity, governance and environmental protection.
Conference Call
Charlie Fischer, President and CEO, Marvin Romanow, Executive Vice
President and CFO, and Kevin Reinhart, Senior Vice President - Corporate
Planning and Business Development, will host a conference call to discuss
this capital budget.
Date: December 10, 2008
Time: 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time)
To listen to the conference call, please call one of the following:
416-641-2140 (Toronto)
800-952-4972 (North American toll-free)
800-6578-9898 (Global toll-free)
A replay of the call will be available for two weeks starting at 8:00 a.m. Mountain Time, by calling 416-695-5800 (Toronto) or 800-408-3053 (toll-free) passcode 3277850 followed by the pound sign.
A live and on demand webcast of the conference call will be available at www.nexeninc.com.
Forward-Looking Statements
Certain statements in this report constitute "forward-looking statements" (within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended) or "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements or information ("forward-looking statements") are generally identifiable by the terminology used such as "anticipate", "believe", "intend", "plan", "expect", "estimate", "budget", "outlook", "forecast" or other similar words and include statements relating to or associated with individual wells, regions or projects. Any statements as to possible future crude oil, natural gas or chemicals prices, future production levels, future cost recovery oil revenues from our Yemen operations, future capital expenditures and their allocation to exploration and development activities, future earnings, future asset dispositions, future sources of funding for our capital program, future debt levels, availability of committed credit facilities, possible commerciality, development plans or capacity expansions, future ability to execute dispositions of assets or businesses, future cash flows and their uses, future drilling of new wells, ultimate recoverability of current and long-term assets, ultimate recoverability of reserves or resources, expected finding and development costs, expected operating performance, including expected reliability of operations and expected operating costs, future demand for chemicals products, estimates on a per share basis, sales, future expenditures and future allowances relating to environmental matters and dates by which certain areas will be developed or will come on stream, and changes in any of the foregoing are forward-looking statements. Statements relating to "reserves" or "resources" are forward-looking statements, as they involve the implied assessment, based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future.
The forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for oil and gas and chemicals products; our ability to explore, develop, produce, upgrade and transport crude oil and natural gas to markets; the results of exploration and development drilling and related activities; the risks inherent in operating in harsh climates; the risks inherent in operating significant facilities which process hazardous and potentially explosive materials under high temperature and pressure; volatility in energy trading markets; foreign-currency exchange rates; economic conditions in the countries and regions in which we carry on business including the increasing costs of materials and labour and the ability of suppliers to meet delivery schedules and cost estimates; governmental actions including changes to taxes or royalties, changes in environmental and other laws and regulations; renegotiations of contracts; results of litigation, arbitration or regulatory proceedings; and political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict, including conflict between states. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are interdependent, and management's future course of action would depend on our assessment of all information at that time.
Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the statements contained herein, which are made as of the date hereof and, except as required by law, Nexen undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Readers should also refer to Items 1A and 7A in our 2007 Annual Report on Form 10-K for further discussion of the risk factors.
Cautionary Note to US Investors
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to discuss only proved reserves that are supported by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. In this disclosure, we may refer to "recoverable reserves", "probable reserves", "recoverable resources" and "recoverable contingent resources" which are inherently more uncertain than proved reserves. These terms are not used in our filings with the SEC. Our reserves and related performance measures represent our working interest before royalties, unless otherwise indicated. Please refer to our Annual Report on Form 10-K available from us or the SEC for further reserve disclosure.
In addition, under SEC regulations, the Syncrude oil sands operations are considered mining activities rather than oil and gas activities. Production, reserves and related measures in this release include results from the Company's share of Syncrude. Under SEC regulations, we are required to recognize bitumen reserves rather than the upgraded premium synthetic crude oil we will produce and sell from Long Lake.
Cautionary Note to Canadian Investors
Nexen is required to disclose oil and gas activities under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101). However, the Canadian securities regulatory authorities (CSA) have granted us exemptions from certain provisions of NI 51-101 to permit US style disclosure. These exemptions were sought because we are a US Securities and Exchange Commission (SEC) registrant and our securities regulatory disclosures, including Form 10-K and other related forms, must comply with SEC requirements. Our disclosures may differ from those of Canadian companies who have not received similar exemptions under NI 51-101.
Please read the "Special Note to Canadian Investors" in Item 7A in our 2007 Annual Report on Form 10-K, for a summary of the exemption granted by the CSA and the major differences between SEC requirements and NI 51-101. The summary is not intended to be all-inclusive or to convey specific advice. Reserve estimation is highly technical and requires professional collaboration and judgment.
Because reserves data are based on judgments regarding future events, actual results will vary and the variations may be material. Variations as a result of future events are expected to be consistent with the fact that reserves are categorized according to the probability of their recovery.
Please note that the differences between SEC requirements and NI 51-101 may be material.
Our probable reserves disclosure applies the Society of Petroleum Engineers/World Petroleum Council (SPE/WPC) definition for probable reserves. The Canadian Oil and Gas Evaluation Handbook states there should not be a significant difference in estimated probable reserve quantities using the SPE/WPC definition versus NI 51-101.
In this disclosure, we refer to oil and gas in common units called barrel of oil equivalent (boe). A boe is derived by converting six thousand cubic feet of gas to one barrel of oil (6mcf:1bbl). This conversion may be misleading, particularly if used in isolation, since the 6mcf:1bbl ratio is based on an energy equivalency at the burner tip and does not represent the value equivalency at the well head.
Resources
Nexen's estimates of contingent resources are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook which generally describe contingent resources as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Such contingencies may include, but are not limited to, factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. Specific contingencies precluding these contingent resources being classified as reserves include but are not limited to: future drilling program results, drilling and completions optimization, stakeholder and regulatory approval of future drilling and infrastructure plans, access to required infrastructure, economic fiscal terms, a lower level of delineation, the absence of regulatory approvals, detailed design estimates and near-term development plans, and general uncertainties associated with this early stage of evaluation. The estimated range of contingent resources reflects conservative and optimistic likelihoods of recovery. However, there is no certainty that it will be commercially viable to produce any portion of these contingent resources.
Nexen's estimates of discovered resources (equivalent to discovered petroleum initially-in-place) are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook which generally describe discovered resources as those quantities of petroleum estimated, as of a given date, to be contained in known accumulations prior to production. Discovered resources do not represent recoverable volumes. We disclose additional information regarding resource estimates in accordance with NI 51-101. These disclosures can be found on our website and on SEDAR.
Cautionary statement: In the case of discovered resources or a subcategory of discovered resources other than reserves, there is no certainty that it will be commercially viable to produce any portion of the resources. In the case of undiscovered resources or a subcategory of undiscovered resources, there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
Michael J. Harris, CA
Vice President, Investor Relations
(403) 699-4688
or
Lavonne Zdunich, CA
Analyst, Investor Relations
(403) 699-5821
or
Tim Chatten, P.Eng
Analyst, Investor Relations
(403) 699-4244
or
Nexen Inc.
801 - 7th Ave SW
Calgary, Alberta, Canada T2P 3P7
Website: www.nexeninc.com
