Nexen Eyes Europe Growth in North Sea JVs, Trading
NEW DELHI, May 23, 2007 (Dow Jones Newswires)
Canadian energy company Nexen Inc. (NXY), operator of the Buzzard oil project, says it believes remaining North Sea oil reserves still present viable exploration opportunities.
Through joint ventures, asset buys and trading, Nexen is committed to a region where declining production and hard-to-extract oil and gas has deterred larger companies from further investment, company President and Chief Executive Charlie Fischer told Dow Jones Newswires in an interview.
"(The North Sea is) mature but there are still opportunities to find reserves...We think the prospectivity is still reasonable," Fischer said, speaking after the company's investor day in London.
This prospectivity is driving Nexen, which has a market capitalization of about $1.6 billion, to open an office in Stavanger, Norway as part of its expansion in the country. This year, Nexen will invest C$30 million to appraise four Norwegian oil and gas blocks.
"We're happy to look a joint ventures with any good operators (in Norway). We're looking to build our presence there and if we can do that better by working with others then we're happy to do that," Fischer said.
Nexen also plans to drill six exploration wells in the U.K. North Sea this year.
Fischer said the appeal of the North Sea region lies in its extensive infrastructure, stable fiscal and political regimes, and buoyant market. But it will be difficult to find oil there, with discoveries likely to be small, around 5 million to 50 million barrels in size, Fischer added.
Nexen will also bolster its European operations through Nexen Marketing, the company's trading arm.
"We're really looking at expanding that business here in Europe. Europe is deregulating...as the markets go from close control to deregulated markets...we think that there are some opportunities for us, and we're building a presence here," in crude oil, natural gas and power, Fischer said.
Nexen currently markets 700,000 barrels of crude oil a day worldwide and 5 billion cubic feet of gas a day in North America.
"We like to build our marketing around our physical positions. We find that gives us more flexibility and a better depth of understanding than being in the markets on a financial basis," Fischer said.
Current production at Nexen's Buzzard oil field, which came onstream in January and is one of the largest North Sea discoveries in the last decade, has reached 180,000 barrels of oil and 20 million cubic feet of gas a day.
"I don't think (the market) fully value Buzzard at this point. I think as Buzzard comes to full rates and stable operations...I think the shareholders will get rewarded," Fischer said. Fischer added the project was on track to meet peak output targets of 200,000 barrels of oil and 60 million cubic feet of gas a day by mid-year.
Buzzard's facilities, however, will need an estimated GBP100,000 to GBP150,000 in modifications due to a higher-than-expected amount of hydrogen sulfide in crude oil pumped from the northeast section of the field. At some parts, the hydrogen sulfide content is over 400 parts per million, while existing facilities were built to handle 44 ppm. But Fischer noted that Buzzard's current facilities could operate for about three years without any changes.
"The costs of the modifications are not going to change the economics of the project," which will likely generate a cash flow of C$1.6 billion when output peaks in mid-year, Fischer said.
Waning production in the North Sea, where older oil fields present more technical challenges, has prompted several major oil companies to divest their stakes in oil projects to smaller companies.
ConocoPhillips (COP) sold its equity interests in the Armada and Everest fields to BG Group PLC (BRG) last year, while Royal Dutch Shell PLC (RDSA) and BP PLC (BP) also sold some of their North Sea holdings. Exxon Mobil Corp. (XOM) is looking to offload 3% of its U.K. and Norwegian North Sea assets.
"We look at all of those assets. For us to be interested we really need to see upside...but where we see opportunities to buy existing assets, where we see potential to add reserves and production through new investment, those are things that interest us," Fischer said.
Nexen shares closed 0.2% lower Monday at $30.80 on the New York Stock Exchange.
Copyright (c) 2007 Dow Jones & Company, Inc.
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