Nexen Postpones GOM Drilling Plans Due to Moratorium

OTTAWA (Dow Jones Newswires), June 2, 2010

Nexen said it postponed plans to drill a deepwater exploration well in the Gulf of Mexico because of the U.S. government's six-month moratorium on deepwater drilling there.

Nexen delayed drilling a well in the deepwater Kakuna prospect, spokesman Pierre Alvarez said. It was the last exploration well Nexen had planned to drill in 2010, after completing two other wells earlier this year. Nexen estimates it will have spent $200 million in capital expenditures on drilling programs this year.

Calgary-based Nexen is one of many oil companies seeing its exploration plans in the Gulf of Mexico curtailed because of ongoing spill after the explosion and sinking of the Deepwater Horizon well leased by BP Plc (BP) in April. The U.S. imposed a six-month moratorium on new deepwater drilling last week.

Alvarez said there would be no immediate effect on Nexen's production due to the moratorium, since the company's projects under development in the Gulf are three to four years away from first production.

"We'll see what effect on long-term prospects come out of this, but for now it's a pause - and just a pause," Alvarez said.

About 10% of Nexen's production comes from the Gulf and a review of its operations on the company's website it calls the area "an integral part of our longer-term growth strategy."

The Gulf of Mexico is an important area of exploration for many major oil companies, who are using new seismic technology to search for oil deposits located deeper under the ocean floor than they had previously been able to search. Billions of dollars worth of projects are at risk if drilling is prohibited because of the recent spill.

Earlier this year, Nexen made a major new deepwater find in the Appomattox prospect with its partner in the area, Royal Dutch Shell Plc (RDSA). Nexen has said it and Shell are exploring plans to build a production hub in the area that will encompass to other nearby prospects. Alvarez declined to comment on whether those plans would be affected by the spill, other than to say that Nexen and Shell would be discussing plans over the next few months.

Nexen shares have lost about 18% of their value since the Deepwater Horizon explosion, and the stock has been under-performing its peers due to its exposure to Gulf drilling. In recent trading in New York, Nexen shares rose 1.7% to $22.86.

Copyright (c) 2010 Dow Jones & Company, Inc.