Nexen Reports 2001 A Record Year
Nexen Inc. announced record operating results for 2001 and the second best annual financial results in the company's history. Solid production growth, positive drilling results and a strong performance from our marketing group mitigated the impact of lower commodity prices and combined to generate near-record cash flow and earnings.
Nexen invested $1.4 billion of capital in 2001, a 47% increase over 2000 levels. "Our strategy is to grow reserves, production and profits through the drill bit," commented Nexen's President and CEO, Charlie Fischer. "This strategy is supported by a strong base of core assets and an outstanding portfolio of growth opportunities."
Nexen's 2001 development expenditures were directed primarily at increasing reserves, production and profitability in our core areas of Canada, Yemen and the shallow waters of the Gulf of Mexico. Production grew significantly during the fourth quarter, averaging 273,000 equivalent barrels per day, 7% higher than the fourth quarter of 2000. In December, production averaged 279,000 equivalent barrels per day, setting the stage for solid growth in 2002.
For the full year, production increased 5% over 2000 levels, averaging 268,000 equivalent barrels per day. Crude oil production grew 4% to 219,000 barrels per day, while natural gas increased 8% to 295 million cubic feet per day.
Nexen's earnings in the fourth quarter totaled $30 million ($0.16 per share), compared to $147 million ($1.15 per share) in 2000. Cash flow from operations was $220 million ($1.66 per share), compared to $439 million ($3.51 per share) in 2000. Both oil and natural gas prices were significantly below those in the fourth quarter of 2000, mitigating the benefits of higher production.
For the full year, net income reached $450 million ($3.40 per share) on revenues of $2.7 billion. This compares to 2000 results of $602 million ($4.52 per share) on revenues of $2.8 billion. Cash flow from operations totaled $1.4 billion ($11.20 per share) compared to $1.6 billion ($12.01 per share) in 2000 and $780 million ($5.19 per share) in 1999.
The average sales price of Nexen's oil and gas production in 2001 was $33.28 per boe and our cash netback after deducting royalties, cash taxes and operating costs, averaged $15.05 per boe. This compares to a sales price of $38.05 per boe and a cash netback of $17.82 per boe in 2000.
Our 2001 exploration program was the largest in the company's history, reflecting the richness of our opportunity portfolio. This program yielded significant new discoveries at Aspen and Durango in the deep waters of the Gulf of Mexico. It also confirmed the commercial development potential of the Gunnison field in the Gulf of Mexico and the Guando field in Colombia.
Ongoing development of our core assets in Canada, the shallow waters of the Gulf of Mexico and Yemen provided the majority of our proved reserve additions in 2001. Proved reserve additions totaled 135 million equivalent barrels and replaced 137% of annual production of 99 million equivalent barrels. Proved and probable reserve additions totaled 211 million equivalent barrels. Our recent discoveries at Gunnison and Aspen in the deep waters of the Gulf of Mexico and at Guando in Colombia provided most of the probable reserve additions.
The cost of finding and developing our reserve additions averaged $9.47 per boe on a proved basis and just over $6 per boe on a proved plus probable basis in 2001. Over the past three years, these costs have averaged just $6.44 per boe on a proved basis and $5 per boe on a proved and probable basis. "Long-term finding and developing costs are a key indicator of future profitability for an oil and gas company and our costs are among the lowest in the industry," said Charlie Fischer. "As we bring our new discoveries into production and probable reserves are converted to proved, we will continue to see attractive finding and development costs."
At year-end, Nexen's proved and probable reserves totaled 1.2 billion equivalent barrels, equal to over 12 years of current annual production.
In 2002, Nexen expects to invest $1.24 billion in oil, gas and chemical projects that target short, medium and long-term growth and financial success. Approximately 80% of this capital will be allocated to development projects, reflecting the success of our exploration program in recent years.
Our core assets are expected to produce steady year-over-year growth and significant free cash flow to finance new opportunities. Production is expected to grow 6% in 2002, averaging 284,000 equivalent barrels per day and cash flow is expected to total between $1.10 billion ($8.52 per share) and $1.24 billion ($9.66 per share) assuming oil prices average between US $20 and US $22 per barrel.
"Our development projects yield attractive returns even at modest commodity prices and our growth momentum will not be jeopardized by the cyclic nature of our industry," said Fischer. "We have a strong balance sheet designed to carry us through cyclic troughs if necessary."
Over the past five years, Nexen has invested significant capital in long lead-time exploration and development projects. A number of these projects have moved to the commercial development phase and will add significant reserves and production over the next five years.
In the Gulf of Mexico, Nexen is proceeding with commercial development of the Gunnison and Durango discoveries located in 3,100 feet of water on Garden Banks Blocks 667, 668 and 669. The development plan includes nine development wells connected to a SPAR floating production facility. Gross recoverable reserves from the two fields are estimated at more than 120 million equivalent barrels and facilities are being designed for daily production of 40,000 barrels of oil and 200 million cubic feet of natural gas commencing in early 2004. Nexen has a 30% working interest in the project.
Nexen's second deep-water Gulf of Mexico project is at Aspen, located in 3,150 feet of water on Green Canyon Block 243. The Aspen development plan anticipates early production from two sub-sea wells connected to an existing production platform commencing in late 2002 or early 2003. Nexen currently estimates gross recoverable reserves associated with this development to be 40 million equivalent barrels on a proved basis and up to 70 million barrels on a total resource basis, with 15% of this volume being gas. Aspen has a resource potential of up to 150 million equivalent barrels that could be established with additional drilling.
In Canada, Nexen owns 7.23% of the Syncrude Joint Venture and is participating in the Phase 3 expansion of Syncrude. This expansion will increase our share of Syncrude's production to over 25,000 barrels per day in 2005. We are also moving ahead with a plan to produce and upgrade bitumen into premium quality, light, sweet crude oil at Long Lake, Alberta using a combination of proprietary and traditional technologies. By significantly reducing fuel costs we will be able to produce and upgrade bitumen at substantially lower costs than competing technology, and significantly enhance the value of our several billion barrel bitumen resource. Following successful field pilots planned for this year, construction of the Long Lake upgrader could commence in 2003 and come on-stream as early as 2006. This project will take Nexen's production of synthetic crude oil to over 70,000 barrels per day.
In Colombia, Nexen together with the operator, Petrobras, plan to submit a Commerciality Application for the Guando field to the state oil company,
Ecopetrol, in the first quarter of 2002. This application demonstrates the field's commercial nature and will outline plans for development of the field, located on the Boqueron Block in central Colombia. Ecopetrol must approve the Commerciality Application and has the right to participate in the project with a 50% working interest, reducing Nexen's interest to 20% from the current 40%.
In 2002, we expect to drill 16 primary recovery development wells, including a waterflood pilot, and to construct production facilities. Under primary recovery, we expect the field to reach peak production rates of 10,000 barrels of oil per day (gross) in 2003. Successful application of the waterflood pilot is expected to enhance oil recovery and play an important role in increasing future oil output.