Nexen Nods Positive Reservoir Performance at Long Lake

Nexen, Inc. has issued an update on its Canadian Long Lake project and Horn River Basin Shale Gas play.

Long Lake Project Update

Commissioning of the upgrader is approximately 80% complete and we remain on track for start up late in the third quarter.

We continue to inject steam into the reservoir and currently have 35 of 81 well pairs converted to SAGD operation. While the reservoir is performing well, we have been limited at surface by facility start up issues that have restricted our ability to generate our full complement of steam. Reliability of surface facilities has been impacted by third-party power outages, the recalibration of burner tips on the once-through steam generators and downtime associated with the heat exchangers. These issues have all been resolved and steam generation is ramping up to planned rates.

In late June, there was a failure of the main third-party transformer at Kinosis which required us to shutdown our SAGD facilities. As a result, bitumen production and steam circulation was temporarily suspended. Production volumes subsequently ramped back up to pre-shutdown levels but this slowed our near-term bitumen ramp up profile.

At this stage of the ramp up process and considering our past steaming constraints, production is meeting expectations with oil rates increasing and steam-oil-ratios (SOR) decreasing. The well pairs that have been converted to SAGD operation are currently producing, in aggregate, approximately 13,000 bbls/d or 6,500 bbls/d net to us, at a combined SOR of about 3.0. The overall SOR of the well pairs on SAGD together with those still circulating steam is currently ranging between 5.0 and 6.0. This is expected to decrease to our long-term expectation of approximately 3.0 when peak rates are achieved in 2009.

We continue to expect to have sufficient bitumen feedstock to start up the upgrader later this summer. SAGD volumes are expected to continue ramping up through the remainder of 2008 and reach the full design rate of 72,000 bbls/d (36,000 bbls/d net to us) in late 2009.

Excellent progress has been made on upgrader commissioning. Synthetic crude and pentane have been loaded into the OrCrude(TM) unit and testing in this unit is advancing well. Catalyst loading is complete in the hydrocracker and the sulphur recovery units, with these units moving into the final commissioning steps required before start up activities commence. In the gasification unit, automation testing activities are progressing with our licensor, Shell Global Solutions.

As previously announced, a holding tank used to balance liquid oxygen flow between the air separation plant and the gasifier was damaged in the commissioning process. Damage to the tank was limited to the upper section of the tank and we have since replaced this section. Hydrotesting, reinsulation and commissioning of the tank will be completed early in the third quarter. We remain on track to start up the upgrader later this summer. Our start up schedule forecasts production of synthetic crude to ramp up to full rates over a 12 to 18 month period following initial upgrader start up. The upgrader is designed to produce approximately 60,000 bbls/d (30,000 bbls/d net to us) of premium synthetic crude.

"We are very pleased with the reservoir performance at Long Lake," said Fischer. "We expect to see our bitumen production ramp up as the reliability of our surface SAGD facilities improves and are looking forward to start up of the upgrader shortly."

Phase 1 of Long Lake will develop approximately 10% of our oil sands inventory. Work continues on Phase 2 and our goal is to sanction this phase late this year. However, ultimate timing depends on accumulating sufficient operating history from Phase 1 and receiving clarity on proposed regulatory changes such as climate change. Proposed federal climate change regulations indicate a move towards carbon capture and sequestration of greenhouse gas emissions. With the addition of shift reactors to future phases, our unique process allows for the pre-combustion capture of these emissions for future sequestration.

Shale Gas Update

The Horn River basin in northeast British Columbia has the potential to become one of the most significant shale gas plays in North America and the recoverable contingent resource identified on our Dilly Creek lands here could double our total proved reserves. As previously announced, we currently estimate our Dilly Creek lands contain between 3 and 6 trillion cubic feet (0.5 to 1.0 billion barrels of oil equivalent) of recoverable contingent resources. Further appraisal activity is required before these estimates can be finalized and commerciality established. We have increased our holdings to approximately 88,000 acres in the Dilly Creek area with a 100% working interest. This shale gas play has been compared to the Barnett Shale in Texas by other operators in the area as it displays similar rock properties and play characteristics.

Following the success of last winter's drilling program, we have accelerated the drilling of two horizontal wells which will be fraced and tested this summer. This winter, we are planning an 8 to 16 well drilling and completion program. We have secured access to 70 mmcf/d of pipeline and processing capacity for our shale gas production for a five year period with a renewal option.

"We have been able to secure a strong land position in the heart of this exciting play," said Fischer. "The potential resource size here is significant and development of our shale gas acreage will provide us with short cycle-time production growth."