Buoyed by high commodity prices, Calgary-based Nexen Inc. will boost 2006 capital spending 4% to a record C$2.9 billion (US$2.5 billion), with more than half of the increase directed toward unconventional natural gas plays, offshore projects and Canada's growing oil sands business.
About 45% of the spending next year is for major development projects, and 10% will focus on early stage development projects, including development of more coalbed methane (CBM) assets in Canada. Nexen also is directing 24% of its spending on existing assets and 21% on exploration opportunities.
The spending increase is expected to lead to production gains, with 2006 output ranging between 165,000-180,000 boe/d after royalties. By 2007, net of royalties, Nexen forecasts that oil and gas output will be 50% higher than in 2006.
"This budget reflects our commitment to building sustainable businesses in Canada, the Gulf of Mexico, North Sea, Yemen and offshore West Africa," said CEO Charlie Fischer. "Almost half our 2006 capital program is focused on major development projects in our key growth areas. To date, we've invested almost C$5 billion in these projects, which come onstream beginning in 2006, generating future reserve additions and significant sustained growth for shareholders for years to come."
Many of Nexen's projects were inventoried when commodity prices were "much lower," said Fischer, and "on a full-cycle basis, they earn their cost of capital at prices significantly below current levels and are expected to generate outstanding returns in the current price environment."
About half of Nexen's 2006 development funding, C$650 million, will be invested in the Long Lake project in the Athabasca oil sands. However, Nexen also is developing the Upper Mannville CBM assets in the Fort Assiniboine area of Alberta. Next year, Nexen will spend about C$150 million to develop 53 net sections using single and multiple-leg horizontal wells and construct gas gathering and processing facilities. CBM production in 2006 is expected to be "modest," but it is forecast to grow substantially beginning in 2007 as the reservoirs are dewatered.
"We are focused primarily on Upper Mannville coals, which have high gas-in-place and large aerial extent," said Fischer. "We currently have almost 600 net sections of CBM lands containing an estimated 3 Tcf of gas-in-place. We are targeting to add approximately 150 MMcf/d of CBM production by 2011, which will generate attractive full-cycle rates of return."
More than one third of Nexen's exploration budget will be spent in the Gulf of Mexico (GOM), where it plans to build on recent successes, including a major discovery at Knotty Head, which it is developing with Anadarko Petroleum Corp. (see NGI, Nov. 22, 2004). Overall, a total of 20 exploration wells are slated to be drilled globally, and eight of those will be exploration wells in three deep-shelf gas prospects and five deepwater projects in the GOM.
Nexen has secured drilling rigs for about 75% of its drilling program in 2006, including the sidetrack well at Knotty Head. "We are reasonably confident that we will be able to secure the remaining rigs required to complete our program," Fischer added.
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