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Nexen Seeking Partners in Horn River Basin

Nexen Inc. is looking for joint venture partners to help it develop its shale gas position in northeastern British Columbia, the Calgary company said during a year-end conference call with financial analysts on Thursday.

The oil-focused company more than doubled its position in the Horn River Basin in 2010, bringing its leasehold to more than 300,000 acres, second only to ExxonMobil Corp., and is now looking for partners on a portion of that acreage.

"To this point, we've executed and successfully created significant value that goes beyond the limited reserve base that we recognize here," Nexen CEO Marvin Romanow said. "We're now seeking a joint venture partner to realize on a portion of this value and have engaged Bank of America to help us out in this process."

Romanow said Nexen hopes to have a partnership in place by the second half of the year.

In addition to its lease acquisitions last year, Nexen also began production from the Horn River Basin by bringing an eight-well pad online. Initial production rates on those wells were 8-15 MMcf/d per well, and Nexen is currently producing 40-45MMcf/d from the Horn River Basin. Nexen completed that drilling campaign with 18 fractures per well, spending less than 25 days per well and reporting a 100% success rate.

The company expects to make a 10% return at gas prices between $4 and $4.50/Mcf on the New York Mercantile Exchange.

Nexen is expanding its operations in the Horn River Basin. The company began drilling a nine-well pad in 2010 that it expects to fracture and complete this summer, and is planning an 18-well pad for the second half of the year. Nexen expects production to begin from the nine-well pad in the fourth quarter and from the 18-well pad in late 2012.

Nexen is also appraising almost 175,000 acres it acquired in the Cordova and Liard basins.

The Horn River Basin plays a unique role in the Nexen portfolio, which is 85% oil. The company is aiming to add 70,000 boe/d of production over the next two years from conventional offshore, oilsands and shale gas plays.

"While our portfolio is heavily weighted to oil, and we think that's a great place to be, we do maintain a very positive view of the value presented by our shale gas portfolio," Romanow said.

The Horn River Basin is considered geologically desirable but geographically challenging: a highly permeable and resource-rich area located far from existing infrastructure such as pipelines, processing facilities and road systems (see Shale Daily, Nov. 22, 2010; Nov. 19, 2010).

"In rough terms, we have as much gas there as we have found in all of Alberta," Romanow said, adding that producers should be looking at a 40-year time horizon or longer for developing the amount of gas at Horn River.

Concerned about a saturated North American market and seeing the possibility for oil-index pricing, Nexen is interested in connecting the Horn River Basin to the liquefied natural gas trade, possibility through a future export facility at Kitimat.

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