Nexen Inc.
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Nexen Inc.

October 27, 2011 05:30 ET

Nexen Receives Regulatory Approval for Major UK North Sea Development

Construction to create more than 2,000 jobs

UXBRIDGE, UNITED KINGDOM--(Marketwire - Oct. 27, 2011) - Nexen Petroleum UK Ltd., a subsidiary of Nexen Inc., announced today it has received approval from the UK Department of Energy and Climate Change (DECC) to proceed with the Golden Eagle area development - a GBP 2 billion (C$3.3 billion) investment (GBP 750 million net to Nexen) that is expected to produce an estimated 140 million barrels of oil equivalent (gross) of proved and probable reserves over an 18-year period.

The Golden Eagle development encompasses both the Golden Eagle and Peregrine reservoirs located in central North Sea blocks 20/1N, 20/1 and 14/26a, approximately 43 miles from Aberdeen. The development plan for Golden Eagle incorporates a combined production, utilities and accommodation platform linked to a separate wellhead platform. Plans call for 20 development wells (16 platform-based and four subsea) to be drilled. The development will also include associated in-field and export pipeline infrastructure.

Detailed design engineering has commenced and fabrication is scheduled to start in late 2011. Pipeline and subsea installation is expected to begin in early 2013, to be followed by drilling later that same year. First oil production is forecast for late 2014 and the development is expected to have an initial gross production rate of up to 70,000 barrels of oil equivalent per day (boe/d), about 26,000 boe/d net to Nexen.

"This is a great day for the UK oil and gas industry. Regulatory approval marks a major milestone in the development of Golden Eagle, which is one of the largest oil discoveries in the UK North Sea since our Buzzard discovery," said Phil Oldham, Managing Director of Nexen Petroleum UK Ltd.

During construction, the Golden Eagle development is expected to create employment for more than 2,000 workers. Once operational, the facility is expected to employ more than 400 people and provide thousands of indirect jobs throughout its 18-year production life. More than two-thirds of the contracts for products and services for Golden Eagle are to be sourced in the UK, a total benefit estimated at more than GBP 1.4 billion.

The project's design, construction and operation will reflect the results of a comprehensive environmental impact assessment, which has also been approved by the DECC.

"Continuous improvement in safety and environmental performance has been built into our project planning. Safe, responsible energy development is our priority," said Oldham.

Nexen holds significant acreage adjacent to the Golden Eagle development and continues to explore and appraise the UK North Sea to identify future opportunities and potential synergies with the Golden Eagle infrastructure. This includes participating in an active UK North Sea exploration and appraisal campaign and investing in other development projects in the region.

Nexen is the second largest oil producer in the UK. In 2010, the company's UK-based business produced approximately 110,000 boe/d, primarily from the Buzzard field. The company currently provides employment for about 1,200 full-time and contract staff at its offices in Uxbridge and Aberdeen and at its offshore facilities.

Nexen Petroleum UK Ltd. is the operator of Golden Eagle and holds a 36.54% working interest in the field. The remaining interest is held by Maersk Oil North Sea UK Ltd. (31.56%), Suncor Energy UK Ltd. (26.69%) and Edinburgh Oil and Gas Ltd. (5.21%).

Nexen Petroleum UK Ltd. is a subsidiary of Nexen Inc., a global energy company listed on the Toronto and New York stock exchanges under the symbol NXY. Nexen is focused on three growth strategies: oil sands and shale gas in Western Canada and conventional exploration and development primarily in the UK North Sea, offshore West Africa and deepwater Gulf of Mexico.

Forward-Looking Statements

Certain statements in this release constitute "forward-looking statements" (within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended) or "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements or information (together "forward-looking statements") are generally identifiable by the forward-looking terminology used such as "anticipate", "believe", "intend", "plan", "expect", "estimate", "budget", "outlook", "forecast" or other similar words and include statements relating to or associated with individual wells, regions or projects. Any statements as to possible future crude oil, natural gas or chemicals prices; future production levels; future royalties and tax levels; future capital expenditures, their timing and their allocation to exploration and development activities; future earnings; future asset acquisitions or dispositions; future sources of funding for our capital program; future debt levels; availability of committed credit facilities; possible commerciality of our projects; development plans or capacity expansions; the expectation that we have the ability to substantially grow production at our oil sands facilities through controlled expansions; the expectation of achieving the production design rates from our oil sands facilities; the expectation that our oil sands production facilities continue to develop better and more sustainable practices; the expectation of cheaper and more technologically advanced operations; the expected design size of our operations; the expected timing and associated production impact of facilities turnarounds and maintenance; the expectation that we can continue to operate our offshore exploration, development and production facilities safely and profitably; future ability to execute dispositions of assets or businesses; future sources of liquidity, cash flows and their uses; future drilling of new wells; ultimate recoverability of current and long-term assets; ultimate recoverability of reserves or resources; expected finding and development costs;

expected operating costs, future cost recovery oil revenues from our Yemen operations; the expectation of negotiating of an extension to certain of our production sharing agreements; the expectation of our ability to comply with the new safety and environmental rules enacted in the US at a minimal incremental cost, and of receiving necessary drilling permits for our US offshore operations; future demand for chemicals products; estimates on a per share basis; future foreign currency exchange rates, future expenditures and future allowances relating to environmental matters and our ability to comply therewith; dates by which certain areas will be developed, come on stream or reach expected operating capacity; and changes in any of the foregoing are forward-looking statements. Statements relating to "reserves" or "resources" are forward-looking statements, as they involve the implied assessment, based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future.

All of the forward-looking statements in this release are qualified by the assumptions that are stated or inherent in such forward-looking statements. Although we believe that these assumptions are reasonable, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include the following: that we will conduct our operations and achieve results of operations as anticipated; that our development plans will achieve the expected results; the general continuance of current or, where applicable, assumed industry conditions; the continuation of assumed tax, royalty and regulatory regimes; the accuracy of the estimates of our reserve volumes; commodity price and cost assumptions; the continued availability of adequate cash flow and debt and/or equity financing to fund our capital and operating requirements as needed; and the extent of our liabilities. We believe the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

The forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for oil and gas; our ability to explore, develop, produce, upgrade and transport crude oil and natural gas to markets; ultimate effectiveness of design or design modifications to facilities; the results of exploration and development drilling and related activities; the cumulative impact of oil sands development on the environment; the impact of technology on operations and processes and how new complex technology may not perform as expected; the availability of pipeline and global refining capacity; risks inherent to the operations of any large, complex refinery units, especially the integration between production operations and an upgrader facility; availability of third-party bitumen for use in our oil sands production facilities; labour and material shortages; risks related to accidents, blowouts and spills in connection with our offshore exploration, development and production activities, particularly our deepwater activities; direct and indirect risks related to the imposition of moratoriums, suspensions or cancellations of our offshore exploration, development and production operations, particularly our deepwater activities; the impact of severe weather on our offshore exploration, development and production activities, particularly our deepwater activities; the effectiveness and reliability of our technology in harsh and unpredictable environments; risks related to the actions and financial circumstances of our agents, counterparties, contractors, and joint venture parties; volatility in energy trading markets; foreign currency exchange rates; economic conditions in the countries and regions in which we carry on business; governmental actions including changes to taxes or royalties, changes in environmental and other laws and regulations including without limitation, those related to our offshore exploration, development and production activities; renegotiations of contracts; results of litigation, arbitration or regulatory proceedings; political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict, including conflict between states; and other factors, many of which are beyond our control.

The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are interdependent, and management's future course of action would depend on our assessment of all information at that time. Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the forward-looking statements contained herein, which are made as of the date hereof and, except as required by law, Nexen undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Readers should also refer to the Risk Factors contained in our 2010 Annual Information form, and to the Quantitative Disclosures about Market Risk and our Forward Looking Statements contained in our 2010 Management Discussion and Analysis.

Cautionary Note to US Investors

In this disclosure, we may refer to "recoverable reserves", "recoverable resources", "recoverable contingent resources" and "prospective resources" which are inherently more uncertain than proved reserves or probable reserves. These terms are not used in our filings with the SEC. Our reserves and related performance measures represent our working interest before royalties, unless otherwise indicated. Please refer to our Annual Information Form available under our profile on SEDAR at www.sedar.com for further reserves disclosure.

Cautionary Note to Canadian Investors

Nexen has received an exemption from the securities regulatory authorities in the various provinces of Canada from certain requirements of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") that permits us to disclose reserves estimates and related disclosures that have been prepared in accordance with SEC requirements.

As a result of this exemption, Nexen's disclosures may differ from other Canadian companies and investors should note the following fundamental differences between reserves estimates and related disclosures prepared in accordance with SEC requirements and those prepared in accordance with NI 51-101:


--  SEC reserves estimates are based upon different reserves definitions and
    are prepared in accordance with generally recognized industry practices
    in the US whereas NI 51-101 reserves are based on definitions and
    standards promulgated by the Canadian Oil and Gas Evaluation Handbook
    ("COGE Handbook") and generally recognized industry practices in Canada;
--  SEC reserves definitions differ from NI 51-101 in areas such as the use
    of reliable technology, areal extent around a drilled location,
    quantities below the lowest known oil and quantities across an undrilled
    fault block;
--  the SEC mandates disclosure of proved reserves and the Standardized
    Measure of Discounted Future Net Cash Flows and Changes Therein
    calculated using the year's monthly average prices and costs held
    constant whereas NI 51-101 requires disclosure of reserves and related
    future net revenues using forecast prices and costs;
--  the SEC mandates disclosure of reserves by geographic area whereas NI
    51-101 requires disclosure of reserves by additional categories and
    product types;
--  the SEC does not require the disclosure of future net revenue of proved
    and proved plus probable reserves using forecast pricing at various
    discount rates;
--  the SEC requires future development costs to be estimated using existing
    conditions held constant, whereas NI 51-101 requires estimation using
    forecast conditions;
--  the SEC does not require the validation of reserves estimates by
    independent qualified reserves evaluators or auditors, whereas, without
    an exemption noted below, NI 51-101 requires issuers to engage such
    evaluators or auditors to evaluate, audit or review reserves and related
    future net revenue attributable to those reserves; and
--  the SEC does not allow proved and probable reserves to be aggregated
    whereas NI 51-101 requires issuers to make such aggregation.

The foregoing is a general description of the principal differences only. The differences between SEC requirements and NI 51-101 may be material for certain properties. Please also note:


--  we use oil equivalents (boe) to express quantities of natural gas and
    crude oil in a common unit. A conversion ratio of 6 mcf of natural gas
    to 1 barrel of oil is used. Boe may be misleading, particularly if used
    in isolation. The conversion ratio is based on an energy equivalency
    conversion method primarily applicable at the burner tip and does not
    represent a value equivalency at the wellhead; and
--  because reserves data are based on judgments regarding future events
    actual results will vary and the variations may be material. Variations
    as a result of future events are expected to be consistent with the fact
    that reserves are categorized according to the probability of their
    recovery.

Nexen has also received an exemption from NI 51-101 that permits us to forego the requirement to have our reserves and related future net revenue attributable to our reserves evaluated, audited or reviewed by an independent qualified reserves evaluator or auditor. Accordingly, our future net revenue and reserves estimates are based on internal evaluations. Due to the extent and expertise of our internal reserves evaluation resources, our staff's familiarity with our properties and the controls applied to the evaluation process, we believe the reliability of our internally generated reserves estimates is not materially less than would be generated by an independent reserves evaluator.

Resources

The resource estimates contained in this news release were announced on September 27, 2010 and were prepared by qualified reserves evaluators. The estimated contingent and prospective resources in this news release reflects all of our low, high and best case of recoverable resources. A "best estimate" is the best estimate of the quantity of resources that will actually be recovered. It is equally likely that the actual quantities recovered will be greater or less than the best estimate. Those resources that fall within the best estimate have a 50% confidence level that the actual quantities recovered will equal or exceed the estimate. The 'low estimate' and 'high estimate' are considered to be conservative and optimistic estimates of resources with 90% and 10% confidence respectively. Nexen's estimates of contingent and prospective resources are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook. Contingent resources are quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Prospective resources are quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

Contingencies on resources may include, but are not limited to, factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. Specific oil sands contingencies precluding these contingent resources being classified as reserves include but are not limited to: project sanction, the cost and effectiveness of steam-assisted gravity drainage application, stakeholder and regulatory approvals, access to required services and infrastructure, oil prices and a demonstration of economic viability. There is no certainty that it will be commercially viable to produce any portion of these contingent oil sands resources.

Specific shale gas contingencies precluding these contingent resources being classified as reserves include but are not limited to: future drilling program and testing results, project sanction, the cost and effectiveness of fracing optimization, stakeholder and regulatory approvals, access to required services and field development infrastructure, gas prices and a demonstration of economic viability. There is no certainty that it will be commercially viable to produce any portion of these contingent shale gas resources. In the case of shale gas prospective resources there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Cautionary statement: In the case of discovered resources or a subcategory of discovered resources other than reserves, there is no certainty that it will be commercially viable to produce any portion of the resources. In the case of undiscovered resources or a subcategory of undiscovered resources, there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Contact Information

  • Media Inquiries:
    Chris Morritt
    Nexen Petroleum UK Ltd.
    01895 555339
    chris_morritt@nexeninc.com

    Investor Inquiries:
    Janet Craig
    Vice President, Investor Relations
    00 1 403 699 4230