Joining Canada's EnCana Corp. in carefully monitoring capital expenditures (capex) and exploration in the coming year are two more top independents headquartered in Calgary: Nexen Inc. and Petro-Canada Inc., which last week detailed their reduced spending programs.
Nexen is in good shape financially, company officials said last week, mostly because several of its long-term projects have been completed. The new projects, which include the Gulf of Mexico (GOM) Longhorn gas development, will help lift Nexen's output by 10% in 2009 over this year's level to between 220,000 boe/d to 235,000 boe/d. It also is readying funds for its "next generation" of new growth projects, which include the emerging Horn River Basin in British Columbia.
Nexen, one of the few with an upside forecast, is planning capex spending in 2009 of C$2.6 billion, up from the C$2.4 billion it had initially forecast for 2008. Projected cash flow generation is forecast to be more than C$1 billion in 2009, which the company partly plans to use to repurchase shares and build cash balances. As it enters 2009, the independent expects to have around C$1.8 billion in cash and more than C$2 billion of undrawn committed credit lines. There are no debt maturities over the next few years and the average term of its public debt is about 20 years.
"Our upcoming capital investment plans position us well to pursue our next generation of growth while preserving our liquidity," said CFO Marvin Romanow, who will take over as CEO from Charlie Fischer in 2009. The capex program set for the coming year "will allow us to meet our commitments, pursue our strategic opportunities and preserve our liquidity. We are well positioned to pursue the opportunities in our attractive portfolio without compromising our financial position..." Nexen also has "choices to adjust our capital investment as the economic environment unfolds."
For 2009, Nexen has allocated about 27% of its capex to advance the Horn River shale gas play, as well as for exploration and appraisal opportunities in its key regions, which include the GOM and overseas. Thirty-one percent of capex is slated for "major development projects," which are mostly overseas but include around C$75 million for the GOM. First production from Longhorn is expected by mid 2009, ramping up to 200 MMcf/d (50 MMcf/d net). Nexen still has some facility installation to complete.
Around C$880 million will be invested in core assets. Another C$690 million will be set aside for exploration, which includes C$160 million for Horn River and C$190 million for the GOM.
"This program has two components," said Fischer of the exploration program. "First, to advance our Horn River shale gas play and second, to drill up to 14 conventional exploration and appraisal wells in the GOM, North Sea and offshore West Africa."
Nexen has begun fracing Horn River wells completed during the summer drilling program, and in 2009 it plans to drill and test seven wells from a single pad. In the deepwater GOM, an exploration well and two appraisal wells are planned, including an appraisal well at Knotty Head. The other appraisal well is expected to be drilled in the Eastern GOM where Nexen has discoveries at Shiloh and Vicksburg.
"We have an exciting portfolio of opportunities," said Fischer. "The strong cash flow generated by our assets combined with the strength of our balance sheet allows us to pursue high quality opportunities without compromising our financial liquidity. Nevertheless, we are closely monitoring the current economic environment and are ready to adjust our capital program as appropriate."
Petro-Canada cut its planned 2009 capex by C$2.2 billion from spending levels in 2008 and now plans to spend C$4 billion, versus C$6.2 billion this year. Several areas will see reductions, with the biggest in "new growth projects," where spending levels will fall to 49% of capex in 2009 versus 61% in 2008. More of next year's capital spending will be directed toward reserve replacement in core areas.
"Within this program, there is considerable flexibility to reduce and defer spending if commodity prices remain weak for an extended period of time," Petro-Canada stated. "The company intends to monitor commodity and financial markets closely and adjust the program accordingly."
Petro-Canada CEO Ron Brenneman said the company was in an "excellent position because we are financially conservative, we have diverse operations to generate cash and we can pace our growth projects." The company has "set a prudent level of capital spending for next year, given current market conditions. But we'll evaluate the business environment and financial markets as the year progresses and adjust our plans accordingly."
Specifically for its North American gas projects, Petro-Canada has budgeted slightly less for Canada (C$320 million versus C$390 million) and more for the U.S. Rockies, which will see a bump to C$220 million from C$175 million. Drastically cut are funds for exploring on the East Coast of Canada, Alaska and overseas, where the independent plans to spend C$195 million versus C$415 million in 2008.
The spending cuts will lead to upstream production declines, with output in 2009 falling 10% from 2008, averaging 360,000-395,000 boe/d. However, Petro-Canada officials are optimistic that there will be a turnaround by the end of the year, and the exit rate will be "closer to the high end of the range."
Planned capex for North American gas is set at C$580 million in 2009, with C$320 million to replace core reserves, and C$180 million to invest in unconventional growth opportunities in the U.S. Rockies. The company also plans to test some of its frontier exploration prospects by participating in three exploration wells in the Alaska Foothills.
North American gas output is forecast to drop by around 8% to 98,000 boe/d in 2009, compared with estimated production of 106,000 boe/d in 2008 because of declines in conventional production in Western Canada. Partially offsetting the declines would be an increase in U.S. Rockies volumes following an acquisition in Colorado's Denver-Julesburg Basin, Petro-Canada said.
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