Nexen Inc. Revises Long Lake Reserves Due To Year-End Assumptions
Posted: 09 February 2005
In early December, we reported that following review of our annual report on Form 10-K by the US Securities and Exchange Commission (SEC), we decided to recognize bitumen reserves rather than upgraded synthetic crude oil for our Long Lake Project. Accordingly, we expected to report approximately 246 million barrels of proved bitumen barrels for this project at year-end 2004.
Under SEC regulations, we are required to use year-end pricing to establish the economic viability of reserves. On December 31, 2004 , a combination of wide heavy oil differentials, high natural gas prices, and very high diluent costs resulted in low bitumen netbacks. As a result, under these price assumptions, we wrote off all of our proved reserves for the Long Lake Project at year-end 2004.
"The integrated process we are using at Long Lake to upgrade bitumen into synthetic crude oil virtually eliminates any exposure to the variables that caused us to write-off our proved bitumen reserves at year-end," said Charlie Fischer, Nexen's President and CEO. "In fact, these conditions actually make our process, and the premium synthetic crude we will produce, more valuable."
This change in reserves disclosure does not reflect any change in our plans or the full-cycle economics of the project. The Long Lake Project is proceeding on schedule and on budget. Detailed project engineering is currently approximately 60% complete and we expect to be in a position to begin on-site construction work in the first half of 2005. Procurement of the major equipment is essentially complete. We have procured 75% of our bulk materials and we have signed all of our major contracts. Commercial SAGD drilling is ahead of schedule and under budget. Bitumen production is expected to commence in late-2006 and the upgrader is scheduled to start-up in 2007. Peak production of synthetic crude oil is expected to reach approximately 60,000 bbls/d, with Nexen's share totaling approximately 30,000 bbls/d.
Under NI51-101, the Canadian reserves standards, we would have reported 205 million barrels of proved synthetic reserves at year-end 2004.
Nexen Inc. is an independent, Canadian-based global energy and chemicals company, listed on the Toronto and New York stock exchanges under the symbol NXY. We are uniquely positioned for growth in the North Sea , deep-water Gulf of Mexico , the Athabasca oil sands of Alberta , the Middle East and West Africa . We add value for shareholders through successful full-cycle oil and gas exploration and development, a growing industrial bleaching chemicals business, and leadership in ethics, integrity and environmental protection.
Forward Looking Statements
Certain statements in this report constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "intend", "plan", "expect", "estimate", "budget", "outlook" or other similar words.
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 and chemicals products; the ability to explore, develop, produce and transport crude oil and natural gas to markets; the results of exploration and development drilling and related activities; foreign-currency exchange rates; economic conditions in the countries and regions where Nexen carries on business; actions by governmental authorities including increases in taxes, changes in environmental and other laws and regulations; renegotiations of contracts; and political uncertainty, including actions by insurgent or other armed groups or other conflict. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors, and management's course of action would depend on its assessment of the future considering all information then available. Any statements as to possible commerciality, development plans, capacity expansions, drilling of new wells, ultimate recoverability of reserves, future production rates, cash flows or ability to execute on the disposition of assets or businesses, and changes in any of the foregoing are forward-looking statements.
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. Readers should also refer to Items 7 and 7A in our 2003 Annual Report on Form 10-K for further discussion of the risk factors.
Cautionary Note to U.S. Investors - The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to discuss only proved reserves that are supported by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. In this press release, we may refer to "recoverable reserves", "probable reserves" and "recoverable resources" which are inherently more uncertain than proved 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 Report on Form 10-K available from us or the SEC for further reserve disclosure.
Cautionary Note to Canadian Investors - Nexen is required to disclose oil and gas activities under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101). However, the Canadian securities regulatory authorities (CSA) have granted us exemptions from certain provisions of NI 51-101 to permit US style disclosure. These exemptions were sought because we are a US Securities and Exchange Commission (SEC) Registrant and our securities regulatory disclosures, including Form 10-K and other related forms, must comply with SEC requirements. Our disclosures may differ from those Canadian companies who have not received similar exemptions under NI 51-101.
Our probable reserves disclosure applies the Society of Petroleum Engineers/World Petroleum Council (SPE/WPC) definition for probable reserves. The Canadian Oil and Gas Evaluation Handbook states there should not be a significant difference in estimated probable reserve quantities using the SPE/WPC definition versus NI 51-101.
Please read the "Special Note to Canadian Investors" in Item 7A in our 2003 Annual Report on Form 10-K, for a summary of the exemption granted by the CSA and the major differences between SEC requirements and NI 51-101. The summary is not intended to be all-inclusive nor to convey specific advice. Reserve estimation is highly technical and requires professional collaboration and judgement. The differences between SEC requirements and NI 51-101 may be material.
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