Nexen Inc. last week secured two joint ventures (JV) in two separate transactions, both with Asian companies, that promise to give the Calgary-based independent a solid footing to expand development in the Gulf of Mexico (GOM) as well as British Columbia (BC).

In the first JV, Nexen made good on a promise to find a JV partner by the end of this year for its extensive shale acreage in northeastern BC after agreeing to sell a 40% stake for C$700 million to a consortium led by Japan’s Inpex Corp. The partnership, in which Nexen would remain the operator, plans to develop about 300,000 net acres of unconventional gas-weighted lands in the Horn River, Cordova and Liard basins. CEO Marvin Romanow early this year said Nexen planned to have a JV in place for the BC lands by the end of 2011.

Also last week, Nexen signed a JV deal with China National Offshore Oil Corp. (CNOOC), China’s largest offshore producer, which includes a working interest (WI) in up to six of Nexen’s prospective deepwater exploration wells.

Speaking of the Inpex deal, Romanow said, “This joint venture represents a significant milestone in the advancement of our shale gas strategy and the premium over our invested cost shows the value we have created in a short time.” The transaction gives Nexen “world-class partners” that have significant upstream and liquefied natural gas (LNG) expertise.

Under the agreement the consortium is to pay Nexen C$350 million in cash up front and to pay the other half as a capital carry. Closing is expected by the end of March, at which time about C$600 million would be paid to Nexen. The transaction would give Nexen 60% interest in the JV lands, with the remaining stake to be owned through Inpex Gas British Columbia Ltd., which was jointly established by Inpex (82%) and JGC Corp. (18%).

Once the JV is closed, the partners plan to begin appraisal and development on the BC acreage, “depending on economic conditions,” Nexen said. Nexen now is drilling an 18-well pad that is scheduled to be completed in late 2012, which would increase gross production volumes to peak rates in 2013 of about 155 MMcf/d . The parties also plan to “investigate the feasibility of a potential downstream project including LNG exports.”

“Our development plan will allow us to unlock the value of our significant shale gas resource in northeast British Columbia,” said Romanow. “On a gross basis, the joint venture lands are estimated to contain 4-15 Tcf of recoverable contingent resource in the Horn River and Cordova basins and a further 5-23 Tcf of prospective resource in the Liard Basin.”

According to Tudor, Pickering, Holt & Co. (TPH), the deal gives a nod to Asia as a continuing buyer of North American gas with “LNG export a key driver.” The TPH team put the transaction’s valuation “slightly below our $7,000/acre average Horn River Basin value” for Apache Corp., EOG Resources, Devon Energy Corp. and Quicksilver Resources Inc., which all are big BC players. Based on TPH calculations, the deal values the Nexen lands at about $5,700/acre and is “probably most positive” for EOG and Quicksilver “as both are likely monetizing all or part of their Canadian gas shales.”

Inpex is conducting 71 oil and gas projects in 26 countries, which makes it Japan’s largest exploration and production (E&P) company, Nexen said. “Inpex is engaged in exploration, development and production activities around the globe with production of over 400,000 boe/d” and it has “the largest oil and gas reserves and production volume of any Japanese E&P company.” Inpex also “brings significant LNG expertise and market access to the partnership.”

Inpex holds stakes in two LNG projects in Indonesia and Australia and it is building a regasification terminal in Japan. Inpex has a 76% working interest and operates the Ichthys LNG project offshore Australia, which is expected to deliver 8.4 million tons per year of LNG once it begins operations. Inpex also holds a 60% working interest and operates the Abadi LNG project offshore eastern Indonesia, which when completed is expected to deliver 2.5 million tons of LNG a year.

“The production volume from these two projects is equivalent to 15% or more of Japan’s current LNG annual import volumes,” said Nexen.

The JV agreement has been approved by the boards of Nexen, Inpex and JGC. Still needed is Canadian regulatory approval and Inpex will require financing approval to complete the transaction, Nexen noted.

Nexen on Wednesday inked another JV deal for some GOM leases. The transaction with China National Offshore Oil Corp. (CNOOC), China’s largest offshore producer, includes a working interest (WI) in up to six of Nexen’s prospective deepwater exploration wells.

Among the prospects to be included in the CNOOC deal are the Kakuna well, now being drilled as well as the Angel Fire well, which is slated to spud in 2012. CNOOC, with 20% WI, would participate in those two wells and the Cypress prospect. It also may participate in three other exploration wells with 10-25% WI. The JV doesn’t include any stake in the Appomattox discovery, in which Nexen holds a 20% stake, or related Norphlet formation prospects.

“We are seeing a gradual return to normal activity in the Gulf and this deal is a reflection of the fact that the basin remains a very exciting one for deepwater exploration prospects,” said Romanow. “Nexen’s strategy in the Gulf of Mexico is to mature prospects at a high working interest, and then utilize joint venture agreements like this one to reduce our interest to our target level of 25-30%, while recognizing the potential of our exploration portfolio.”

Drilling on the Kakuna well in Green Canyon Block 504 is in progress. The Angel Fire well is in Green Canyon Block 327. Nexen currently produces around 20,000 boe/d in the GOM and is one of the largest deepwater leaseholders.

CNOOC also partners with Nexen on the Long Lake project in Alberta’s Athabasca oilsands. In addition, the Chinese producer has stakes in several North American oil and gas prospects, including two unconventional exploration JVs with Chesapeake Energy Corp.

Nexen is forecasting 2012 natural gas and oil production to be 185,000-220,000 boe/d, largely flat compared with this year, but with expanding cash margins. Capital spending worldwide in the coming year is expected to be C$2.7-3.2 billion, with cash flow between C$2.8 billion and C$3.3 billion assuming current prices, or C$5.30-6.30/share. Year-to-date Nexen’s output has been about 206,000 boe.

In total Nexen is planning to drill 28 exploration and appraisal wells in 2012, including six in the GOM, two in Canada’s tight oil fields and six in Poland’s unconventional fields.

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