Nexen outlook cloudy
https://www.theglobeandmail.com/report-on-business/nexen-outlook-remains-cloudy-amid-production-problems/article2155706/
Nexen outlook remains cloudy amid production problems
nathan vanderklippe
From Wednesday's Globe and Mail
Published
is unlikely to abate soon, after the company said it could still takeyears to reach planned production at its troubled Long Lake oil sandsproject.
Talks on an extension of that 25-year production sharing agreementwere interrupted earlier this year amid violence in Yemen. They havesince resumed, Mr. Romanow told a Barclays investor conference in NewYork, and the company hopes to have some “clarity” on its situation byyear end.
But, he said, predicting an outcome “is not easy. ... Ishouldn’t eliminate the possibility that we will have continuingdialogue in the country even after our contract expires inmid-December.”
Perhaps a greater concern for Nexen is itscontinued trouble at Long Lake, the $6-billion oil sands project thathas languished far behind expectations. On Tuesday, Mr. Romanow said itwill take “a few years” to see results from a series of new oil sandswells the company intends to drill over the course of 2012 and beyond.It needs additional drilling because earlier wells haven’t performedwell.
“We need more wells and we need more wells in the higher quality resource, which we do have,” Mr. Romanow said.
WhenLong Lake construction started in 2004, the company expectedsubstantial oil production by 2007. Now, four years later, Long Lakecontinues to produce just 27,900 barrels per day – under half what itwas designed for.
“This project has not met our expectations,” Mr. Romanow said. He sought to assure investors that better times are ahead.
LongLake produced positive cash flow in the second quarter of this year,and “we also expect to be potentially cash-flow positive through thewhole year,” he said. That achievement suggests stronger profits arepossible, he explained, since the company is currently paying fulloperating costs, even at 40-per-cent throughput. That means if itsucceeds in producing more barrels of oil, “the incremental barrels herecome with almost no marginal operating cost.”
Long Lake is 65 percent owned by Nexen. The remainder belongs to OPTI Canada Inc., whichagreed in July to be sold to Chinese firm CNOOC Ltd. for $2.1-billion.
Mr.Romanow provided new insight into the impact of the financial troublesat OPTI, which spent well over a year trying to free itself from amountain of debt. That process forced Nexen to “spend an awful lot ofpsychic energy,” as it got “involved directly,” Mr. Romanow said.
“We spent a lot of time on finding a home for OPTI,” he said. “We started travelling to Asia about a year and a half ago.”
OPTI’sproblems “had no impact on what the company was going to do [at LongLake], what its plans were and what the pace of the plans were,” Mr.Romanow said. Nexen did, however, cover the cost of building a$30-million natural gas pipeline.
“In that case, we paid their share and charged them a processing fee for the pipeline,” he said.