"Our strategy is to grow reserves and production primarily through the drill bit," said Charlie Fischer, Nexen's President and CEO. "The magnitude of this year's development budget reflects the success of our exploration program in the past few years."
In 2002, we will invest $525 million to sustain and grow daily production from our core assets in the Gulf of Mexico, Canada, Yemen and Australia by 6%. Natural gas production is expected to average about 345 million cubic feet per day and oil production about 226,000 barrels per day.
An additional $385 million will be invested in new development projects coming onstream in 2003 and beyond. These projects include the Gunnison and Aspen fields in the deep waters of the Gulf of Mexico, the Guando field in Colombia, the Syncrude expansion, and our Long Lake and Meadow Creek SAGD projects which will provide bitumen feedstock to our proposed Long Lake crude oil upgrader. In total, these projects will access approximately 700 million barrels of developable reserves and should add between 80,000 and 100,000 equivalent barrels of daily production as early as 2006.
"These projects are the key to our medium-term growth," said Fischer. "They are excellent projects and earn excellent returns, even at prices significantly below current levels."
Our 2002 exploration program features 17 high potential exploration wells in the deep waters of the Gulf of Mexico, western Canada, Yemen, Colombia and Nigeria. In total, these wells will test almost 800 million equivalent barrels of unrisked reserve potential.
"Our 2002 exploration program builds on our exploration successes of the past few years," said Fischer. "Several of the prospects we're testing are located on acreage adjacent to our recent discoveries, which reduces the overall risk of our program."
Our core assets are capable of producing steady year-over-year growth and significant free cash flow to finance new opportunities. Assuming oil prices average between US $20 and US $22 per barrel in 2002, we expect cash flow between $1.10 billion ($9.15 per share) and $1.24 billion ($9.66 per share), which will fund the majority of our capital program. For every US $1 change in oil prices, our cashflow impact is $63 million. "We expect commodity prices to strengthen as we move into the second half of 2002," said Fischer. "Even with lower than expected commodity prices in the short term, our growth momentum will not be jeopardized. We understand managing through commodity cycles and have a strong balance sheet designed to carry us through cyclic troughs."
We plan to invest $364 million in the Gulf of Mexico in 2002. This will fund five exploration wells (three deep-water), accelerate the Gunnison and Aspen deep-water development projects and fund significant production growth in 2002. Exploitation activity at Vermilion 76 and Eugene Island 295 is expected to add 4,700 boe of daily production in 2002 and contribute to total production from the Gulf of 38,000 boe per day, a 25% increase over 2001. Both the Vermilion and Eugene Island properties were acquired in late 2001.
Gunnison is scheduled to commence production in late 2003 or early 2004. We expect attractive returns from this project, with full cycle finding and development costs of about US $5 per barrel.
We will invest $454 million in Canada in 2002. Approximately $200 million will be invested in our core assets to increase production to 107,000 boe per day. An additional $210 million will be invested to advance our synthetic crude oil strategy, including $152 million for a Phase 3 expansion at Syncrude and $58 million to initiate our field upgrader project at Long Lake, Alberta. Over the next five years, we expect our daily synthetic crude oil production to grow from the current 17,000 barrels to over 70,000 barrels as we complete the planned expansion of Syncrude and commence production from the field upgrader. The balance of our capital investment in Canada will be primarily focused on natural gas growth initiatives in the Liard basin and the Foothills and on coal bed methane projects in central Alberta.
We will invest $214 million in Yemen in 2002. We will drill one exploration well to test a major structure on Block 59 adjacent to the Yemen/Saudi Arabian border. We will also drill 73 wells on the Masila Block to exploit existing reserves, test deeper horizons and expand a successful waterflood project in the Upper Saar Clastics reservoir. Production from Masila is expected to average 118,400 barrels per day (230,000 bopd gross) in 2002, with operating costs around US $1 per barrel.
We will invest $125 million in other international projects in 2002. These include bringing the Guando field in Colombia into commercial production by year-end and drilling exploratory wells on the Fusa and El Descanso Blocks adjacent to Guando. Offshore Australia, we will increase output from the Buffalo field by drilling up to two development wells that target attic oil reserves. Offshore Nigeria, we will further evaluate the Ukot discovery and surrounding prospects. In Indonesia, we will evaluate the remaining potential of the Offshore Seram Block, following the unsuccessful Kayu Manis-1 exploration well in November 2001.
"Our projects aren't dependent upon high prices to earn attractive returns," commented Fischer. "Many were captured during the last cyclic downturn. Now, they will be being developed during a period of lower activity in the service sector, ensuring low costs".
"Our 2002 capital program is exciting," continued Fischer. "It is designed to maximize shareholder value in the near-term, while building a solid future for Nexen. We are focussed on the basics - growth through the drill bit, prudent financial management and cost control - supplemented by strategic acquisitions as opportunities arise."
Nexen Inc. is an independent, global energy and chemicals company. Core business activities include the exploration, development, production and marketing of crude oil and natural gas in the United States, Yemen, Canada, Nigeria, Australia, Colombia and Indonesia, and the production of sodium chlorate, caustic soda and chlorine in Canada, the United States and Brazil.
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