Nexen Announces Continued Progress on Strategic Initiatives & Solid Second Quarter Results
Performance at Buzzard & Usan Drives Increased Production and Cash Flow
Nexen Inc. (TSX: NXY) (NYSE: NXY) today reported second quarter 2012 operating and financial results and provided an update on strategic priorities.
Production volumes averaged 213,000 barrels of oil equivalent per day (boe/d), a 5% increase from the first quarter. These volumes reflected the ramp-up of our Usan project offshore West Africa and solid performance from our UK assets, in particular the Buzzard platform. Cash flow from operations was up 6% to $707 million ($1.34/share) as we recognized the first cash flow from Usan and continued to benefit from our exposure to Brent-priced oil and strong cash netbacks. Net income decreased 36% from the prior quarter to $109 million ($0.20/share) primarily due to the previously announced unsuccessful Kakuna exploration well in the Gulf of Mexico.
We continue to make good progress on several of our strategic priorities:
•Buzzard operations were very strong; the facility produced 194,000 boe/d (84,000 boe/d net to Nexen) with a production efficiency of 88%, which exceeded our target of 85%.
•Usan continues to ramp-up and is currently producing over 100,000 barrels per day (bbls/d) (20,000 bbls/d net to Nexen) from the initial production wells.
•In the Gulf of Mexico, we continue to be excited by our success at Appomattox. We recently completed a successful appraisal well in the south fault block of the structure and the preliminary indications are that we are near the upper end of our expectations. Next, we plan on drilling a sidetrack to test additional resource potential in the northwest fault block.
•We also continue to progress our exploration program elsewhere, with drilling operations underway on the North Uist well in the UK North Sea and the Owowo West well, offshore West Africa.
•We achieved first production from pad 12 at Long Lake and began steaming pad 13 ahead of expectations; these pads are expected to produce 11,000-17,000 bbls/d of gross bitumen production following an 18 to 24 month ramp-up.
“I’m pleased that we continue to make significant progress against our milestones and that we’ve generated solid financial results over the past few quarters,” said Kevin Reinhart, Nexen’s interim President & CEO. “A renewed focus on operational excellence has allowed us to meet our production guidance again this quarter, and our growth plans are also advancing, with important progress at Long Lake, ongoing success at Appomattox and a couple of exciting exploration wells underway.”
Offshore West Africa – Oil production from Usan started February 24 on block OML-138, offshore Nigeria. Seven wells are now on-stream and since late April, production rates have averaged between 100,000 and 110,000 bbls/d (20,000-22,000 bbls/d net to Nexen). We expect to bring on additional producing wells later this year.
In July, we spudded an exploration well at Owowo West on block OPL-223 and expect to reach target depth there this fall. This well is in close proximity to our oil discovery at Owowo South B.
UK North Sea – Buzzard production efficiency was strong in the second quarter at 88%, calculated using an assumed maximum production rate of 220,000 boe/d. This exceeds our target of 85% efficiency, excluding planned downtime.
We plan to begin the scheduled major vessel inspection and turnaround at Buzzard in the first week of September. Production will be shut-in for several weeks as the work is completed; the facility is expected to return to full rates by mid-October.
We recently drilled a successful appraisal well in the Northern Terrace area of the Buzzard field. We are currently testing our discovery there and plan to sidetrack to assess the resource size.
At Telford, we saw very good rates from the TAC tieback in the second half of the quarter as we worked through minor facility issues encountered during start-up.
The Golden Eagle development continues to progress towards first oil in late 2014. The fabrication of the platform facilities is well underway; construction is on time and on budget.
Drilling is underway on our North Uist exploration prospect, which is located to the west of the Shetland Islands. Results from the BP-operated well are expected in the third quarter.
Gulf of Mexico – Our top priority in the Gulf of Mexico is continuing our exploration and appraisal program in the Norphlet play along with our partner, Shell Gulf of Mexico Inc.
To date, we have booked 65 million barrels of probable reserves in the south fault block of the Appomattox structure and added 50 million barrels of net contingent resource in the northeast fault block. We further delineated the south fault block during the second quarter with an appraisal well that encountered over 400 feet of net true vertical thickness oil pay and confirmed excellent reservoir quality. This well came in at the high end of our expectations and as a result, it could have a positive impact on our probable reserves.
We have five more exploration and appraisal targets in the Norphlet play that we plan to test over the next twelve months, including:
•A sidetrack from the recently completed appraisal well to test incremental resource potential in the northwest fault block of the Appomattox structure.
•An exploration well targeting a structure between Appomattox and our prior discovery at Vicksburg.
•A sidetrack from that well to further appraise the northeast fault block.
•Two nearby exploration wells at Petersburg and Rydberg.
These wells will allow us to progress a development plan for Appomattox and continue to test the potential of the significant acreage position we have accumulated in the area.
We have a 20% interest in Appomattox, a 25% interest in Vicksburg and similar interests in numerous other blocks in the Norphlet play. The remaining interests are held by Shell, who is the operator.
FUll report on: www.nexeninc.com
For media and general inquiries, please contact:
Vice President, Corporate Relations
801 – 7th Ave SW
Calgary, Alberta, Canada T2P 3P7
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