Nexen Completes Long Lake Phase I Bitumen Production Field, Plans Further Multibillion Dollar Oil Sands Investments in Alberta

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Researched by Industrial Info Resources (Sugar Land, Texas)-- Nexen Incorporated (NYSE:NXY) (Calgary, Alberta) has completed construction on its Phase I Long Lake bitumen production field about 40 kilometers southeast of Fort McMurray, Alberta. The field construction was completed in the last quarter of 2007 and utilizes steam-assisted gravity-drainage technology to extract bitumen from the oil sands. Nexen is steaming the property before ramping up bitumen production to 72,000 barrels per day (BBL/d), which is expected to occur in mid to late 2008. The bitumen production will be used as a feedstock for the Long Lake Upgrader. The engineering, procurement and construction contract for the bitumen production facilities was carried out by Colt Engineering Corporation (Calgary, Alberta).

The Long Lake Upgrader will be operated by OPTI Canada Incorporated (TSE:OPC) (Calgary, Alberta) and will utilize the 72,000 BBL/d of bitumen to produce 58,500 BBL/d of 39 gravity API synthetic crude oil. The 13,500 BBL/d difference between the bitumen input and crude output will be used for an asphaltene gasification unit to provide synthetic natural gas to the project's steam generation and cogeneration needs. The majority of the upgrader facilities are complete, and the upgrader should enter operation in mid-2008. The combined capital cost of the Phase I bitumen production facilities and upgrader are approximately $5.8 billion to $6.1 billion. The break-even point for this project is approximately $25 per barrel at a WTI price.

The combined bitumen production and upgrading projects are a 50/50 joint venture between Nexen and OPTI Canada. Nexen will operate the field bitumen production, and OPTI Canada will operate the upgrading portion of the Long Lake project. Both Nexen and OPTI are piecing together a 15-year phased expansion plan that could include a five additional phases of bitumen production developments and either one or two additional upgraders. The additional bitumen phases would mirror the Phase I development with each phase targeting a production goal of 72,000 BBL/d of bitumen.

Nexen has already filed its permitting applications for the next two phases, called Long Lake South phases I and II. Colt Engineering has been awarded the engineering contract for Long Lake South Phase I and expects to begin purchasing long-lead equipment in late 2008. Nexen expects to begin construction on Long Lake South Phase I in early 2010 with a completion and in-service date targeted for mid-2012. OPTI would expand the upgrader portion of the project in conjunction with the SAGD expansion schedule. Capital costs for the next round of expansion are estimated at approximately $103,000 per daily barrel of production. Of that estimate, approximately 35%-40% of the capital will be expended on the SAGD bitumen production portion, and the balance will be expended on expanding to upgrader.

After Long Lake South Phase I, Nexen intends to develop Long Lake South Phase II, Leismer Phase I, Leismer Phase II and finally Cottonwood Phase I. All phases of the Nexen/OPTI joint venture should be completed between 2019 and 2023.

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