(Source: MARKETWIRE)
Throughout the third quarter, we made significant progress in
advancing our strategies. We successfully executed the planned
turnaround at Long Lake, announced the largest discovery in the UK
North Sea in the last ten years after Buzzard, and moved our
breakevens down on our Horn River shale gas play. We also started up
Ettrick in the North Sea and added incremental volumes from
successful infill drilling at Telford. Longhorn in the Gulf of Mexico
started up earlier this week. Current production rates are now at an
annual high. A summary of our quarterly results, together with recent
highlights, is as follows:
- Cash flow of $379 million ($0.73/share) and net income of $122
million ($0.23/share)
- Production before royalties of 214,000 boe/d impacted by turnaround
and maintenance activities
- Current production before royalties of 275,000 boe/d and increasing
as Ettrick, Longhorn and Long Lake continue to ramp up
- Successful turnaround at Long Lake; bitumen production ramping up;
upgrader start-up imminent
- Successful Telford step-out well in the North Sea and significant
shale gas progress in the Horn River
- Knotty Head appraisal well currently drilling
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------
(Cdn$ millions) 2009 2008 2009 2008
----------------------------------------------------------------------------
Production (mboe/d)(1)
Before Royalties 214 249 235 257
After Royalties 184 209 206 214
Net Sales 1,097 2,213 3,345 6,154
Cash Flow from Operations(2) 379 1,685 1,379 3,670
Per Common Share ($/share)(2) 0.73 3.20 2.65 6.95
Net Income 122 886 277 1,896
Per Common Share ($/share) 0.23 1.68 0.53 3.59
Capital Investment(3), excluding
Acquisitions 671 763 2,178 2,219
Acquisitions(4) - - 755 2
----------------------------------------------------------------------------
(1) Production includes our share of Syncrude oil sands. US investors should
read the Cautionary Note to US Investors at the end of this release.
(2) For reconciliation of this non-GAAP measure see Cash Flow from
Operations on pg. 9.
(3) Includes geological and geophysical expenditures.
(4) 2009 represents acquisition of additional 15% interest in Long Lake from
Opti Canada Inc.
Financial Results
Quarterly cash flow from operations was $379 million and net income
was $122 million compared to $1.7 billion and $886 million a year
ago. Planned maintenance and turnarounds impacted production volumes
and reduced quarterly cash flow by approximately $120 million. At the
end of the quarter, we were carrying approximately three quarters of
a million barrels of inventory. Cash flow from the sale of this
inventory will be realized in the fourth quarter.
The decrease from last year also reflects the impact of lower
commodity prices and some significant items included in income last
year. In the third quarter, WTI averaged US$68/bbl compared to
US$118/bbl a year ago. Last year, our cash flow included a one-time
income tax recovery and earnings included a recovery of stock-based
compensation following the drop in our share price at the start of
the economic crisis.
Compared to the previous quarter, cash flow from operations was $64
million less. This reflects the impact of maintenance and turnaround
activities and higher estimated cash taxes offset in part by an
improvement in oil prices. The higher taxes reflect the impact of
increasing commodity prices and increasing North Sea production
volumes from the start-up of new projects. With 85% of our production
weighted to oil, we continue to be highly levered to increasing oil
prices.
Quarterly Production-Turnarounds Complete and Current Production at Annual
High
Production before Royalties Production after Royalties
Crude Oil, NGLs and
Natural Gas (mboe/d) Q3 2009 Q2 2009 Q3 2009 Q2 2009
----------------------------------------------------------------------------
North Sea 76 101 76 101
Yemen 49 51 28 29
Canada - Oil & Gas 38 38 34 33
Canada - Bitumen 6 9 6 9
United States 20 22 18 20
Other Countries 2 4 2 3
Syncrude 23 15 20 13
---------------------------------------------------------
Total 214 240 184 208
---------------------------------------------------------
Third quarter production volumes averaged 214,000 boe/d (184,000
boe/d after royalties). Volumes were lower due to turnarounds and
maintenance activities at a number of our fields.
At Buzzard, production was shut-in for four weeks for the
installation of the jacket for the fourth platform. This shutdown was
scheduled to coincide with maintenance to the Forties pipeline. As a
result, Buzzard contributed approximately 60,000 boe/d (138,000 boe/d
gross) to our production volumes compared to 87,500 boe/d in the
second quarter. Buzzard has since returned to full rates and is
currently producing between 200,000 and 220,000 boe/d gross.
At Scott/Telford, we completed a major turnaround which resulted in
the fields being shutdown for approximately five weeks. The fields
are back on-stream and additional production from the recently
announced Telford step-out well has allowed us to almost double our
production from the Scott platform. This well encountered 254 feet of
high quality net oil pay. We still see additional upside at Telford
and expect to conduct follow-up drilling in 2010.
With all of our North Sea fields back online and with growing volumes
from the ramp-up of Ettrick, our UK production volumes are at record
highs. Our presence here is well established and we are the third
largest operator of oil production in the UK.
At Long Lake, we successfully completed the previously announced
turnaround to replace valves, clean-out our hot lime softeners,
isolate our water treatment trains and perform a number of other
planned maintenance activities to improve reliability and
operability. We also completed the installation of electric
submersible pumps (ESPs) in some of our SAGD wells. With the
turnaround complete we have resumed steaming our wells and bitumen
volumes are ramping up. In the Gulf of Mexico, maintenance activities
were completed at third party operated facilities which impacted
production from our Wrigley and Aspen fields. At Syncrude, production
increased in the third quarter following the completion of turnaround
activity throughout the first half of the year.
"We previously announced that our third quarter would be impacted by
planned turnarounds on a number of fields," stated Marvin Romanow,
Nexen's President and Chief Executive Officer. "With the completion
of these activities and the start up of new production, current
production is 275,000 boe/d and growing. With production ramping up
at Ettrick, Longhorn and Long Lake, we expect fourth quarter
production volumes to be strong."
Global Exploration-Excitement Continues to Build
UK North Sea
The Golden Eagle area has emerged as a significant development
opportunity. Our current estimates of contingent recoverable resource
range between 150 and 275 mmboe. We expect development of the area
will be economic with oil prices as low as US$40/bbl and require
standalone facilities due to its size. Project sanction is targeted
for 2010. Appraisal activity continues and we have now drilled 13
wells in the area.
"The Golden Eagle area is the largest discovery in the UK North Sea
in the last 10 years after Buzzard," commented Romanow. "Like
Buzzard, this discovery is a hard to find stratigraphic trap. Our
geological model is working well in this mature basin."
As we move into 2010, we are finalizing exploration plans to drill
the North Uist prospect, west of the Shetland Islands and the Brand
prospect in the Norwegian North Sea. These prospects have target
sizes well above our typical North Sea target size.
Offshore West Africa
Earlier this year we completed drilling an exploration well in the
southern portion of Oil Prospecting License (OPL) 223, offshore West
Africa.
The Owowo South B-1 well was drilled in a water depth of 670 metres
and is located 20 kilometres northeast of the Usan field, currently
under development. We expect to announce drilling results shortly.
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% interest in the well.
"We continue to be excited about our exploration opportunities
offshore West Africa," said Romanow. "This is a very oily part of the
world which improves our chances of success."
Deep-water Gulf of Mexico
In the Gulf of Mexico, the arrival of the Ensco 8501 rig has allowed
us to start drilling our Knotty Head appraisal well. The well spud
earlier this month and we expect results in the second quarter of
2010. A second deep-water drilling rig is expected to arrive in mid
2010. This will allow us to start drilling more of our identified
prospects. In the Eastern Gulf, we recently spud the Appomattox
prospect, which is located six miles west of our Vicksburg discovery.
Drilling results are expected early next year. During the quarter, we
completed drilling the Antietam prospect. The well encountered thick
good quality sand, but was wet. We have a 25% interest in Vicksburg
and a 20% interest in Appomattox and Shiloh, an earlier discovery.
Shell operates all three.
Long Lake-Turnaround Complete and Moving Full Steam Ahead
The turnaround at Long Lake is complete and we have resumed steaming
our wells. Steam production is increasing. Bitumen production is back
up to pre-turnaround rates of 10,000 to 12,000 bbls/d (gross) and
growing. Upgrader start-up is imminent now that we have sufficient
bitumen feedstock.
The turnaround activities focused on replacing valves, cleaning out
the hot lime softeners and isolating the water treatment trains, and
we performed a number of other planned maintenance activities to
improve reliability and operability. These activities were
successfully completed within the period of scheduled downtime. We
also installed ESPs in a number of our SAGD wells. This will allow us
to have better pressure control and ultimately reduce our overall
steam to oil ratio ("SOR").
In addition, we recently completed the steam de-bottleneck project
which will increase our SAGD steam production capacity to over
230,000 bbls/d. Start-up of the de-bottleneck project will proceed as
required to support the SAGD ramp-up. We continue to expect a long
term SOR of 3.0 over the life of the project.
With respect to the Upgrader, we have now operated all units
including the solvent de-asphalter and the thermal cracker. These
units are necessary to achieve our target yield of approximately 80%.
In addition, Syngas is being used in all SAGD operations. This allows
us to decrease operating costs by reducing the requirement for
purchased natural gas.
"Following the addition of steam to our hot lime softeners earlier
this year, the successful execution of our turnaround program a few
weeks ago and the recent completion of our steam de-bottleneck
project, we are in great shape to get back on the ramp-up curve we
saw prior to the start-up of the upgrader," commented Romanow. "While
we expect there will be periods of downtime as bitumen production
ramps up, we anticipate continuing improvements in operational
stability."
Phase 1 of our Long Lake project is designed to produce 72,000 bbls/d
of gross bitumen, upgraded to approximately 60,000 bbls/d (39,000
bbls/d, net to us) of PSCTM. We have a 65% interest in the project
and the joint venture lands. We are the sole operator of the resource
and the upgrader. We expect Long Lake will generate significant value
with 40 years of production at a $10/bbl margin advantage.
UK North Sea-First Oil Produced at Ettrick
Our Ettrick development in the North Sea produced first oil in mid
August and we have tested the floating production, storage and
offloading vessel (FPSO) up to its design rates. Field production
will ramp-up as we commission the gas system. The project is expected
to add approximately 12,000 to 16,000 boe/d to our production volumes
for the remainder of the year. We have a 2008 discovery at Blackbird
which could be a future tie-back to Ettrick. We operate both Ettrick
and Blackbird, with a 79.73% working interest in each.
Gulf of Mexico-Longhorn Now On-Stream
Earlier this week, we started production from Longhorn. The field is
expected to reach peak production of approximately 200 mmcf/d or
33,000 boe/d gross (50 mmcf/d or 8,000 boe/d, net to us) early next
year. We have a 25% non-operated working interest in this project and
ENI is the operator.
Horn River Shale Gas-Breakevens Coming Down
Following the conclusion of our recent three-well drilling and
completion program, we continue to make significant progress on our
substantial Horn River shale gas position in north-east British
Columbia. With five shale gas wells now on-stream, we are producing
approximately 15 mmcf/d with the majority of production coming from
the three new wells. These wells have a higher frac density than our
earlier wells. Our land position here could support 500 to 700 wells.
Substantial cost savings and productivity improvements were realized
with this drilling and completion program. We took advantage of
improved equipment utilization, drilled longer wells, initiated more
fracs per well and maintained an industry-leading frac pace of 26
fracs in 15 days while achieving a 100% success rate on our frac
program. Two of the wells were completed with eight fracs, while the
third well was completed with ten fracs.
"We are making excellent progress in bringing down our Horn River
breakevens by decreasing costs and increasing well productivity, and
there is more upside to come," said Romanow. "We are in the process
of developing an eight-well pad drilling program for this winter.
These wells will be longer than our current wells with eighteen fracs
per well. The following winter we plan to drill an eighteen-well pad
which we expect will drive our breakevens down further."
We have approximately 88,000 acres in the Dilly Creek area of the
Horn River basin with a 100% working interest. We estimate our lands
contain between 3 and 6 trillion cubic feet (0.5 to 1.0 billion
barrels of oil equivalent) of contingent recoverable resource which
could double our existing companywide total proved reserves. Further
appraisal activity is required before these estimates can be
finalized and commerciality established.
Offshore West Africa-Usan Development Continues
Development of the Usan field on block OML 138, offshore Nigeria is
fully underway. The field development plan includes a FPSO vessel
with a storage capacity of two million barrels of oil. Development
drilling is underway and the FPSO hull is under construction. The
Usan field is expected to come on-stream in 2012 and will ramp up to
a peak production rate of 180,000 bbls/d (36,000 bbls/d net to us).
Nexen has a 20% interest in exploration and development on this block
and Total E&P Nigeria Limited is the operator.
Marketing Update
We are making progress on the strategic review of our marketing
business. Data rooms are ready and numerous parties have expressed
interest. Our marketing division continues to contribute to our
quarterly results, generating $30 million of cash flow in the third
quarter.
Quarterly Dividend
The Board of Directors has declared the regular quarterly dividend of
$0.05 per common share payable January 1, 2010, to shareholders of
record on December 10, 2009. Shareholders are advised that the
dividend is an eligible dividend for Canadian Income Tax purposes.
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 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.
Information on our previously announced contingent recoverable shale
gas and Golden Eagle area resource were provided in our press
releases dated April 22, 2008 and September 3, 2009 respectively.
Information with respect to forward-looking statements and cautionary
notes is set out below.
Conference Call
Marvin Romanow, President and CEO, and Kevin Reinhart, Senior
Vice-President and CFO will host a conference call to discuss our
financial and operating results and expectations for the future.
Date: October 28, 2009
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:
416-340-8018 (Toronto)
866-225-0198 (North American toll-free)
800-4222-8835 (Global toll-free)
A replay of the call will be available for two weeks starting at 9:00
a.m. Mountain Time, by calling 416-695-5800 (Toronto) or 800-408-3053
(toll-free) passcode 6827570 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) or "forward-looking
information" (within the meaning of applicable Canadian securities
legislation). Such statements or information (together
"forward-looking statements") are generally identifiable by the
forward-looking 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 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, come on stream,
or reach expected operating capacity 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; ultimate effectiveness of design
modifications to facilities; the results of exploration and
development drilling and related activities; volatility in energy
trading markets; foreign-currency exchange rates; economic conditions
in the countries and regions in which we carry on business;
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.
