Jim Stott
Special OGJ Online Correspondent
Nexen Inc. of Calgary plans to double in size in 5 years through aggressive use of the drill bit on a 37-million-acre international land inventory.
And President and CEO Charlie Fischer says he will maintain the company's overall profile as an oil company, keeping 80% of production in oil and 20% natural gas. The Nexen balance in North America is 60% oil and 40% gas.
Nexen averaged 265,000 boe/d of production in the second quarter, up 4% from the same period in 2000. Crude production averaged 216,000 b/d and gas production increased 10% to 294 MMcfd.
The company, formerly Canadian Occidental Petroleum Ltd., reported its best second quarter results ever 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 says.
"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 says Nexen's strategy is also different than many of its competitors who have relied heavily on acquisitions for growth.
"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. 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," Fischer says.
"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."
Nexen considers Yemen, Canada, and the US Gulf of Mexico to be its primary core operating areas. But 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 says.
"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% to 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 million to 250 million boe. Engineering design teams are evaluating development options and production facilities for Gunnison with a capacity of between 60,000 and 100,000 boe/d, half of it natural gas.
Fischer is also confident that Yemen will be a major contributor to Nexen's growth. In Yemen, Masila oil field 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 notes 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 says.
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 Bogatá," Fischer says.
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 says Buffalo has a couple of more years of production but the company will also have a low-cost FPSO, which then can then be used elsewhere. And, he says, 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 was planned for the fourth quarter.
North of Seram Island in eastern Indonesia, Fischer says the company plans to spud a wildcat in the fourth quarter that, if successful, could lead Nexen into a radically different growth scenario.
Last but not least, Fischer says Canadian holdings represent a large part of the company's operations and are a major contributor to cash flow. They 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 says 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 says.
"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. 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."