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Gold/Mining/Energy : Oil Sands and Related Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Cal Gary who wrote (17513)	8/30/2007 8:42:22 PM
From: gregor_us	Read Replies (2) \| Respond to of 25575

This is Unsurprising Though Very Disappointing News for NXY and OPC. This explains why the price action in NXY has been terrible, lately, on a relative basis. Costs for Long Lake are on the threshold of getting out of hand here, as cost guidance has spiked 26% since the April guidance. (4.6 billion in April vs.5.83 billion now [10% aobve 5.3 billion is tonight's new cost guidance]). That's not good. Of course, NXY remains woefully undervalued, has terrific cash flow from a range of conventional Oil, and I might add has a very crafty hedge-book that favors price floors via options, rather than caps via collars. The market is not going to be happy however. This imo is quite a substantially different cost guidance and start-up guidance updated to just 6 weeks ago. The only silver lining here is that I can buy more. Gregor ______________________________________________ 26 April Guidance: Long Lake Project Update Our Long Lake project achieved a major milestone as we began injecting steam into two of our 10 well pads in April. Over the next several months we will continue to circulate steam into the injection and producing wells to heat up the reservoir and establish communication between the wells. Our plan is to commission a new pad (3 to 12 well pairs per pad) at a rate of one pad per week until all wells are circulating steam. We expect all 81 SAGD well pairs (10 pads) to be circulating steam by the end of the second quarter. Bitumen production is expected to be minimal until the third quarter when we convert the wells to SAGD operation. During the initial ramp up period, we expect steam-to-oil ratios will be high from initial steam circulation and will decline with time as bitumen production ramps up to peak rates over a 12 to 24 month period. Over the project life, we expect our steam-to-oil ratio to average approximately 3.0. Depending on production ramp up and new facility uptime, we expect bitumen production to reach between 35,000 and 45,000 bbls/d (between 17,500 and 22,500 bbls/d net) by the end of 2007. Upgrader module fabrication is now complete, all modules are on site and construction of the upgrader is approximately 85% complete. Peak output of premium synthetic crude oil is expected within 18 months of upgrader start up and we expect to exit 2007 producing between 28,000 and 36,000 bbls/d (between 14,000 and 18,000 bbls/d net) of synthetic crude. Production capacity for the first phase of Long Lake is approximately 60,000 bbls/d (30,000 bbls/d net to Nexen) of premium synthetic crude which we expect to reach by late 2008 or early 2009. The current commodity price environment is fueling the high rate of oil sands activity. This is resulting in unprecedented demand for supplies and services in the Athabasca region, causing inflationary pressure on costs. In addition, skilled labour shortages are affecting productivity. These pressures are impacting our Long Lake project. It has taken additional hours to complete the SAGD central processing facility and system turnover to operations has taken longer than anticipated. On the upgrader, progress and productivity has been less than expected on the sulphur and air separation plants, putting pressure on both cost and schedule. After a review of all trends, the projected cost of Long Lake has increased from $4.6 billion to approximately $5 billion ($2.5 billion net to Nexen). In addition, a contingency reserve of $300 million ($150 million net to Nexen) has been created for cost and productivity pressures over and above current trends. "The cost increase is disappointing," stated Fischer. "However, the real value of the project lies in the production of synthetic crude oil for decades, where we enjoy an estimated $10/bbl operating cost advantage over existing technologies." We are planning to increase synthetic crude oil production to 240,000 bbls/d (120,000 bbls/d net) over the next decade. We plan to sequentially develop our 5.5 billion barrel recoverable resource with additional 60,000 bbls/d (30,000 bbls/d net) phases using the same technology and design as Long Lake. This process significantly reduces our need to purchase natural gas, a key cost driver in competing technologies and results in a significant cost advantage for us. "We are currently investing in Phase 2 development," commented Fischer. "While we are planning on sanctioning this project in 2008, the ultimate timing depends on achieving sufficient production history from Phase 1 and receiving clarity on fiscal and regulatory policies related to oil sands development and climate change." biz.yahoo.com _______________________________________________________ 12 July Guidance: Long Lake Project Update At Long Lake, commissioning of our large steam generator units is underway. While we are experiencing delays in the start up of these units, all 81 SAGD well pairs (10 pads) are expected to be steaming by the end of August. As we circulate steam and heat up the reservoir to establish communication between the wells, we will start to produce bitumen. We expect bitumen production to ramp up to full rates over a 12 to 24 month period. While our initial steam-to-oil ratios will be high as we heat up the reservoir, we expect our steam-to-oil ratio to average approximately 3.0 over the project life. Upgrader construction is approximately 90% complete and projected to start up late this year. Full production of premium synthetic crude oil is expected within 12 to 18 months of upgrader start up. Production capacity for the first phase of Long Lake is approximately 60,000 bbls/d (30,000 bbls/d net to Nexen) of premium synthetic crude. Our cost estimate for Phase 1 ranges from $5.0 to $5.3 billion ($2.5 to $2.65 billion net to Nexen). "Long Lake is progressing well and we are committed to the safe and steady start up of all facilities," stated Fischer. Phase 1 of Long Lake will develop approximately 10% of our 5.5 billion barrel recoverable resource using our patented process which significantly reduces our need to purchase natural gas, a key cost driver in competing technologies. This will result in a significant cost advantage for us. We plan to sequentially develop additional 60,000 bbls/d (30,000 bbls/d net to Nexen) phases using the same technology and design as Long Lake. The timing of Phase 2 sanctioning will depend on accumulating sufficient production history from Phase 1 and receiving additional clarity on fiscal and regulatory policies related to oil sands development and climate change. biz.yahoo.com