Nexen begins commissioning SAGD wells at Long Lake
Nexen Inc (C:NXY)
Shares Issued 527,376,968
Last Close 8/30/2007 $28.70
Thursday August 30 2007 - News Release
Mr. Charlie Fischer reports
NEXEN INC. PROVIDES THE FOLLOWING UPDATE ON PHASE 1 OF ITS LONG LAKE DEVELOPMENT PROJECT.
Nexen Inc.'s commissioning and start-up of the SAGD (steam-assisted gravity drainage) plant and wells is under way. The company is currently injecting steam into four of the 10 well pads and expects to be steaming all well pads by the end of September. "Although we are still early in the steaming process, SAGD performance at Long Lake is as expected or slightly better and we expect bitumen production to ramp up to full rates over the next 12 to 24 months," stated Charlie Fischer, Nexen's president and chief executive officer.
Construction of the upgrader continues. The company expects construction of the hydrocracker, the OrCrude unit and all main plant utilities to be completed in the third quarter of 2007. This is in line with previous expectations. Progress on other units of the upgrader, however, has been slower than expected. Completion of the gasifier and the air separation units is expected to extend into the fourth quarter while completion of the sulphur recovery unit is now expected in the first quarter of 2008. This is largely the result of lower-than-expected labour productivity resulting in additional time to complete the units. In addition, the company experienced difficulties securing sufficient labour, particularly pipefitters, to work on the sulphur recovery unit. This work is now substantially complete and labour for all remaining activities is expected to be in sufficient supply.
Commissioning activities have commenced on completed units of the upgrader and these activities will expand as additional units are completed. Utility steam boilers are currently being commissioned with start-up expected during the third quarter of 2007. While full start-up of the upgrader will follow the commissioning phase, this cannot take place until the sulphur recovery unit is complete and ready for operation. As a result, the company now expects start-up activities for the upgrader to commence in the first and second quarters of 2008, with first production of synthetic crude oil late in the second quarter. Nexen anticipates the upgrader will reach its full production capacity about 12 to 18 months after start-up.
As a result of these construction delays and the extended start-up schedule, the capital cost for the project is expected to increase by 10 per cent to 15 per cent over the previous forecast of $5.3-billion ($2.65-billion net to Nexen). The key risks in this cost estimate continue to be the pace of completion of the sulphur recovery unit, access to labour, work force productivity and the pace of commissioning activities.
"While the increase in capital costs is disappointing, project returns from Long Lake at current commodity prices are higher than expected at the time of sanctioning," stated Mr. Fischer. "We expect to produce synthetic crude oil at Long Lake for several decades and benefit from a significant operating cost advantage."
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