Nexen Inc. of Calgary plans to double in size in 5 years through aggressive use of the drillbit on a 37-million-acre international land inventory.
CEO and Pres. Charlie Fischer said he would maintain the company's overall profile as an oil company, keeping 80% of production in oil and 20% in natural gas. The Nexen balance in North America is 60% oil and 40% gas.
Oil-based strategy
Nexen, formerly Canadian Occidental Petroleum Ltd., had earlier averaged 265,000 boe/d of production in the second quarter, up 4% from the same period in 2000. Crude oil production averaged 216,000 b/d, and gas production increased 10% to 294 MMcfd. It also had reported record second quarter results, with cash flow of $400 million (Can.) and net income of $160 million.
"We are an oil company, and we are not uncomfortable being an oil company. Internationally, we really target oil because we want to be able to produce a product that's at tidewater that we can move anywhere in the world and can realize hard currency," Fischer said.
"We are not driven by oil vs. gas. We think the commodities are going to trade on a btu-equivalent basis that reflects the energy value."
Fischer said that Nexen's strategy also differs from many of its competitors.
"Our basic strategy is to grow organically. We are very good at the basics. Our 3-year rolling average for finding and development costs is about $5[/boe]. And we've got a very large portfolio that we've built up in the last 5 years of over 37 million acres around the world," he said.
"So our basic growth is organic, and we may supplement that growth with acquisitions. When I look at our competitors, many of them have growth strategies based on acquisitions."
Areas of operation
Nexen considers Yemen, Canada, and the US Gulf of Mexico to be its primary core operating areas. However, it is also pursuing exploration and development programs in Nigeria, Australia, Indonesia, and Colombia. Fischer sees the deepwater gulf, where the company has several exploration successes, as a key area for growth.
"The gulf for us is one of the best basins in the world to be exploring. We think the deepwater [play] is where the shelf was in the mid-1960s in terms of its maturity. There is huge potential sitting right next to the largest energy consumer in the world. It has everything going for it, including good infrastructure and good fiscal terms," he said.
"Our target for the gulf is to go from current production of 30,000 boe/d to 100,000 boe/d. We plan to participate in six to nine deep tests a year. Our success rate is high. We have drilled six deep wells and got three discoveries. We expect growth in our shelf properties of 3-5%/year and sometimes larger. We could triple our production from the gulf in the next 5 years."
Nexen has a 20% interest in the Aspen deepwater discovery on Green Canyon Block 243 in 3,140 ft of water. BP is operator and the discovery is about 5 miles from BP-operated Troika field. Aspen reserves are 150 million boe. Nexen has 14 other blocks in the Green Canyon area. The company plans to drill three to five wells over the next 18 months to delineate the Aspen discovery and test additional prospects in the area.
In June Nexen announced a third discovery at the Durango prospect on Garden Banks Block 667. Reserves are estimated at 120 bcf. An appraisal well was being drilled to probe the northerly downdip of the Gunnison reservoir. The Durango discovery area is part of the larger Gunnison sub-basin that the company estimates has reserves of 150-250 million boe. Engineering design teams are evaluating development options and production facilities for Gunnison with a capacity of 60,000-100,000 boe/d, half of it natural gas.
Fischer is also confident that Yemen will be a major contributor to Nexen's growth. Masila oil field in Yemen has been a mainstay of company production. It is producing 227,700 b/d [118,400 b/d net to Nexen] and is nearing capacity. Water handling and throughput capacity are being expanded to sustain high production rates.
Fischer noted that the company has 23 million acres of unexplored lands outside Masila, and there is significant potential for discoveries.
"We will be evaluating that potential and I'm sure that will lead to other additions in Yemen," he said.
In Colombia, the company is drilling appraisal wells at Guando field, with estimated reserves of several hundred million bbl in the Boqueron Block.
"We expect to file an application for commercial development of Guando this fall and we've captured all of the acreage on this trend. It should come into production in about a year, is only 4,000 ft deep, close to infrastructure, and only 47 miles southwest of Bogotá," Fischer said.
The company is also conducting seismic and exploration tests on a number of other blocks in Colombia.
In Australia, Nexen is producing 12,000 b/d at Buffalo field, which it acquired several years ago. Fischer said Buffalo has a couple of years more of production, but the company will also have a low-cost floating production, storage, and offloading vessel, which then can then be used elsewhere. In addition, he said, Nexen has a number of leases on the northwest coast that are available for evaluation.
Off Nigeria, Nexen has completed a 3D seismic program on its OPL-22 Block, which contains the Ukot discovery. A well is planned for the fourth quarter.
North of Seram Island in eastern Indonesia, Fischer said, the company plans to spud a wildcat in the fourth quarter that, if successful, could lead Nexen into a radically different growth scenario.
Fischer said Canadian holdings also represent a large part of the company's operations and are a major contributor to cash flow. Holdings include heavy oil, shallow gas in Saskatchewan, and a 7.23% interest in the Syncrude oil sands consortium that gives Nexen a 15,200 b/d share.
Fischer said Canadian production is increasing more than 10%/year and there are opportunities to expand base production.
"We are being selective about what we do. We are quite interested in the Liard basin (Northwest Territories) from an exploration point of view. We have a reasonable land position and are expanding," Fischer said.
"We have nothing in the Mackenzie Delta. Technically, it looks interesting, but much of the most-prospective acreage is already held. You are looking at long lead times because there is no infrastructure," he said, "We're hopeful that, by focusing our capital in areas that are closer to infrastructure, we can shorten our cycle times and see our returns enhanced by that."