Nexen to Start Up Production at Long Lake in September

Nexen Inc. announced that the Long Lake project is proceeding well and the upgrader remains on track for start up and first production of Premium Synthetic Crude this month. Commissioning is over 90% complete and the final major activity, testing of the gasifiers, is underway.

The Company finished repairs on the liquid oxygen storage tank and the air separation plant is producing oxygen and is fully operational. Other units in the upgrader, including the OrCrude unit, hydrocracker, and sulphur recovery unit are operationally ready to start up.

Based on commissioning activities and an evaluation of operational readiness, Nexen has determined that it can start up the upgrader with approximately 23,000 to 25,000 bbls/d of bitumen feedstock. When the Company combines its current SAGD production with externally sourced bitumen, it has sufficient volumes to start up this month. The upgrader is designed to produce approximately 60,000 bbls/d (30,000 bbls/d net to us) of PSC. Nexen expects production of synthetic crude to ramp up to full rates over a 12 to 18 month period following upgrader start up.

With respect to SAGD operations, the reservoir is performing well and the Company's well conversions to production are on track with 40 wells converted to date. However, the production ramp up schedule has been impacted by a number of surface issues. In late-June, an unexpected third-party transformer failure on the main electrical grid caused Nexen to shut down its SAGD facilities and wells for a period of time. In mid-July, transfer pumps failed on a third-party pipeline. As Nexen's storage tanks were full, the Company had to temporarily ramp down production and shut in some wells. In August, a number of valves controlling steam rates and pressure into the well pads failed. Start-up issues are not unusual.  Nexen is solving them and they are not recurring. For example, the Company has mitigated its exposure to third-party power outages. Recently, Nexen was able to successfully isolate and operate our co-gen units during a planned power outage. These units supply power to the site and any excess power generated is sold into the grid.

The start-up issues encountered limited the amount of steam that was able to inject into the reservoir over the last two months and the ability to consistently produce wells to their capability. Steam injection directly impacts bitumen production, therefore each time the steam is interrupted, bitumen production temporarily decreases and takes time to ramp back up. These issues had a significant impact on average monthly production volumes in July and August, however, the reliability of the Company's surface facilities is improving and gross bitumen production volumes have been increasing over the last three months as follows:

  • In June, bitumen production volumes averaged 7,200 bbls/d with demonstrated production performance of over 10,000 bbls/d;
  • In July, bitumen production volumes averaged 8,400 bbls/d with demonstrated production performance of over 13,000 bbls/d; and
  • In August, bitumen production volumes averaged 11,600 bbls/d with demonstrated production performance rates of over 15,000 bbls/d.

Nexen expects bitumen production volumes to continue to increase as the surface issues previously identified are largely behind us and shut-in wells are being brought back on stream.

In light of the surface issues encountered over the last two months, the Company restricted steam injection rates. Because the storage tanks were full and could not ship, Nexen restricted its bitumen production rates more than its steam rates. This, combined with the conversion of new wells to SAGD operation, resulted in average steam-to-oil ratios (SOR) for the wells in SAGD operation to temporarily increase from three to four. This ratio is expected to decrease to the Company's long-term expectation of approximately three as SAGD volumes ramp up to full design rates of 72,000 bbls/d (36,000 bbls/d net to us).

The Long Lake project is being jointly developed by Nexen Inc. and OPTI Canada Inc.