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Hands across the Pacific Canada’s Nexen strikes deals with Asian partners for BC shale gas, deepwater GOM, after disclosing it mulled sale of company Gary Park For Petroleum News
A lifeline from Asia has helped Canadian independent Nexen emerge from a funk that had it contemplating outright sale of the company earlier this year.
A sluggish stock market performance, which has seen company share values plunge by more than 25 percent this year, forced Nexen to explore a full range of options including a takeover.
It considered setting up separate companies for its various components in a “financial re-engineering” to see if there was a way to generate value, Chief Executive Officer Marvin Romanow told an investor day in New York.
But Nexen’s advisers concluded that the company could not fetch a fair price, because of the poor performance at the Long Lake oil sands operation — owned 65 percent by Nexen and 35 percent by China National Offshore Oil Corp., CNOOC.
The company’s current market capitalization is almost C$8.5 billion.
Long Lake fix recommended They recommended fixing the problems at Long Lake, prompting Nexen to announce it will spend C$900 million over the next three years, in addition to the net C$4.5 billion already invested, in hopes of raising output to 60,000 barrels per day from the third quarter average of 29,500 bpd and closer to the 72,000 bpd nameplate capacity.
Although the company remains open to selling non-core assets, Romanow said the “game plan” does not currently involve selling Nexen to prospective Chinese, Russian or Indian buyers as some sources have suggested.
Nexen also took a setback in Yemen when it failed to extend a production sharing agreement with the government of that troubled country.
It first entered Yemen in 1987 and has since produced 1.1 billion barrels of oil in the Masila Block, which peaked at 225,000 bpd in 2003. Nexen’s share this year is expected to be 24,000-28,000 bpd.
Nexen has continued production through the prolonged civil uprising in Yemen and said it is evaluating alternatives to the Masila Block and the future of its operator role in production from another Yemeni block.
Two key deals But Nexen’s outlook brightened in late November through two key deals with Asian companies — one with Japanese oil and gas producer Inpex and one with CNOOC.
It agreed to sell a 40 percent working interest in British Columbia’s Horn River, Cordova and Liard shale gas plays for C$700 million to Inpex, setting the stage for possible LNG exports.
The deal is expected to close in the first quarter of 2012, when C$600 million is due to Nexen, following which the partnership will proceed with appraisal and development of the resource “depending on economic conditions.”
On a gross basis, the joint-venture lands are estimated to hold 4-15 trillion cubic feet of recoverable contingent resource in Horn River and Cordova and 5-23 tcf in Liard.
Nexen is currently drilling an 18-well pad that is designed to raise gross production rates to 155 million cubic feet per day in early 2013. Analysts expect more deals Analysts Randy Ollenberger of BMO Nesbitt Burns and Chris Feltin of Macquarie Capital Markets said they will not be surprised to see more deals with Asian companies in British Columbia, given Japan’s need for alternative energy supplies to its troubled nuclear industry.
Ed Kallio, an analyst with Ziff Energy Group, said the LNG export option is crucial to developing premium outlets for British Columbia shale gas because of competition from across North America for Canada’s traditional markets.
CNOOC, which was shut out of the Gulf of Mexico in 2005 when its US$18.5 billion offer for Unocal was blocked by U.S. lawmakers, has returned to the region as a joint-venture partner with Nexen, which needs help to cover the high costs of exploration.
The Chinese giant will earn minority working interests in up to six deepwater exploration wells. No financial terms were disclosed.
Romanow said Nexen sees a “gradual return to normal activity” in the Gulf following BP’s Deepwater Horizon disaster in 2010.
CNOOC will take 20 percent interests in the Kakuna well — which is now being drilled and is the first well to be drilled since the U.S. lifted the moratorium on Gulf drilling — the Angel Fire well, which is expected to spud in 2012, and the Cypress well.
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