Nexen Continues Growth
Nexen Inc. reported third quarter production of 265,000 equivalent barrels per day, an increase of 6% from the third quarter of 2000. This volume growth partially mitigated the effects of lower commodity prices and higher exploration expense and contributed to cash flow of $2.69 per share ($343 million) and net income of $0.62 per share ($85 million) for the quarter. By comparison, cash flow for the third quarter of 2000 was $3.33 per share ($415 million) and net income was $1.36 per share ($172 million).
Nexen's core areas continue to deliver production growth. Crude oil production increased 6% since the third quarter of 2000 to 219,000 barrels per day, while natural gas production increased 5% to 277 million cubic feet per day.
Our operations in Yemen continued at full capacity with net production averaging 118,100 barrels (227,000 gross barrels) per day in the third quarter, up 6% from the third quarter of 2000. In Canada, production volumes increased by 5% to 86,500 equivalent barrels per day in the quarter, with equal growth in both gas and oil volumes. In the shallow waters of the Gulf of Mexico, gas volumes increased by 4% to 108 million cubic feet per day, while oil volumes dropped 16% to 9,800 barrels per day. Our recent aquisition of interests in the Vermilion Block 76 Field will add 17 million cubic feet of natural gas and 90 barrels of oil per day to our Gulf production, with the potential to significantly increase production through exploitation efforts.
Nexen's share of production from the Syncrude Joint Venture averaged 15,300 barrels per day, consistent with the third quarter last year, and we expect production to increase in the fourth quarter to 17,500 barrels per day. At our other international operations, infill drilling at Ejulebe, offshore Nigeria increased production by 40% to 6,700 barrels per day and production from the Buffalo field in Australia was on target at 9,700 barrels per day.
"Our core assets are growing as planned and we have numerous development projects in the Gulf of Mexico and around the world to enable steady low-cost growth in the future," said Charlie Fischer, Nexen's President and CEO. "Our organic growth strategy has made us one of the lowest cost producers in North America, so we are well positioned to manage the price volatility we currently face."
Nexen has an aggressive capital program planned for the fourth quarter. This program is expected to increase production to approximately 280,000 equivalent barrels per day by year-end, providing a solid base for further growth in 2002.
"With the production growth we expect in the fourth quarter, we will average 270,000 equivalent barrels of production per day for 2001," said Fischer. "Assuming crude oil prices average US $23.00 per barrel and natural gas prices average US $2.50 per thousand cubic feet during the fourth quarter, we expect annual cashflow of $11.50 per share and strong earnings contribution. Despite the reduction in commodity prices, 2001 will be the second best year in our history."
Following the tragedy of the World Trade Center in New York on September 11th, the attention of the world focussed on the Middle East including Yemen. The President of Yemen has strongly condemned all acts of terrorism and has expressed Yemen's support for the War on Terrorism. "We've operated in Yemen since 1986 without interruption," said Fischer. "This reflects our long and stable relationship with the Government and people of Yemen and the events of September 11th have not changed this relationship."
Appraisal and evaluation of the Gunnison sub-basin in the Garden Banks area of the deep-water Gulf of Mexico is ongoing. We completed drilling the Gunnison No. 4 well on Garden Banks Block 668. This well came in as expected and confirmed the northerly extent of known reservoirs. It was then sidetracked further up the structure so that it can be used as a future producing well. "The Gunnison project is an exciting part of our deep-water Gulf strategy since it will serve as a central processing hub for this core area," said Fischer. "Our Board of Directors, along with those of our partners, are reviewing the development plans and we expect final approval for the project by the end of October."
Nexen has a 30% working interest in the Gunnison and Durango discoveries in partnership with the operator, Kerr-McGee (50% interest) and Cal Dive International (20% interest). Nexen also has 50% interests in 12 other blocks in the Gunnison area. We are currently drilling another exploration well in the Gunnison sub-basin at Dawson on Garden Banks Block 669.
Development plans for our deep-water Aspen discovery are also progressing and we expect production to be on-stream in the second half of 2002. The Aspen discovery was made in April 2001 and is located in 3,150 feet of water on Green Canyon Block 243. Results from the discovery well and two sidetrack appraisal wells support reserve estimates of 150 million equivalent barrels. We plan to move a rig back to Aspen later this year and drill two additional wells, a down-dip sidetrack of the discovery well and a westerly step-out well, to further delineate the extent of the reservoirs. We have a 20% interest in Aspen in partnership with the operator, BP.
In addition to our activities in the Gunnison and Aspen areas, we expect to drill three shallow-water exploratory prospects in the Gulf of Mexico during the fourth quarter.
In Colombia, the Guando discovery on the Boqueron Block is currently producing 1,600 barrels per day from 4 wells using primary recovery techniques. A development plan is being finalized and we expect to file an application by year-end for commercial development of Guando, based on primary development of the field. A waterflood pilot designed to increase crude recovery will be initiated in 2002. Recoverable reserves for Guando are currently estimated at up to 150 million barrels, depending on results of the waterflood. We are continuing our drilling activity on the field and expect additional drilling results by year-end. Nexen has a 40% interest in the Petrobras-operated Boqueron Block, subject to back-in rights (50%) by Ecopetrol, Colombia's national oil company.
Over the next six months, we will drill a number of exciting high-potential exploration prospects around the world. In Yemen, we are continuing our seismic program on five exploration blocks in the northeast corner of the country. A number of prospects have been identified and we plan to drill an exploratory well on Block 59 near the Yemen-Saudi border in early 2002. We are currently constructing a road to the location and expect to have a rig onsite by January 2002.
During the quarter, we drilled an exploratory well on Block 50, approximately 200 kilometres northwest of the Masila Block. The well was dry and was subsequently plugged and abandoned. Additional oil exploration potential exists in the northwest portion of this block.
In Colombia, we have identified drilling locations on the Fusa and El Descanso Blocks. We expect to spud an exploration well on each block in the first quarter of 2002. In Indonesia, we recently commenced drilling on our offshore Seram prospect and expect drilling results before year-end. Offshore Nigeria, we expect to spud the Usan exploration well in December. Usan is located on OPL-222 Block, adjacent to our Ukot discovery.
"Our global exploration program is unfolding as planned," commented Fischer. "We've made three major discoveries in the last year at Gunnison, Aspen and Guando that are rapidly moving towards commercial development. We have also completed significant seismic programs in Yemen, Colombia, Nigeria and Australia and are preparing a number of prospects that were defined by the programs. We expect to maintain an active exploration program in 2002 to ensure a steady stream of value growth in the long-term. However, the size of the program will depend upon commodity prices next year."