New Turn Takes Company to Gulf

Nexen Petroleum USA

Nexen Petroleum USA took a different road to the Gulf of Mexico.

The firm is a subsidiary of Calgary-based Nexen Inc., which was formerly Canadian Occidental Petroleum. After important successes all over the world, the parent firm started looking at opportunities a little closer to home in the Gulf.

"We have been a shelf player in the Gulf since the late 1980s, but about three years ago the firm evaluated the entire corporation to determine where we wanted to be relative to the exploration and production business," said Doug Otten, president of Nexen Petroleum USA. "The Gulf of Mexico ... came out as one of the prime areas where we felt we wanted to build some core assets.

"We also determined that to give us a shot at some world class discoveries, we not only wanted to maintain a presence on the shelf but we wanted to seriously start moving into the deep water Gulf," he added.

The firm used a global characterization model in its evaluation of potential exploration and production regions, inputting numerous factors and rating the various basins on all those criteria.

"The deepwater Gulf was highly rated based on a large number of those factors," Otten said, including:

  • It's an "attractive fiscal/politcal regime."
  • Substantial royalty relief was available in the deep water.
  • Wells tend to yield high flow rates.
  • The deepwater infrastructure is expanding rapidly.
  • The province is close to oil and gas markets.
  • The high netbacks in the Gulf compare favorably to anywhere in the world.
  • Nexen had an established production position on the shelf from which the firm could springboard into the deep water.

Strategy Time

Nexen's next step was to determine its strategy.

"Our business plan for the deep water first entailed building a foundation of knowledge of the region through a regional geologic review," Otten said. "We began acquiring 2-D and 3-D seismic data to aid in that effort. We hired additional geologic and geophysical staff with experience in the deep water and provided the necessary hardware and software support."

Image Caption

The Gunnison discovery on Garden Banks block 668 in the Gulf of Mexico. Nexen has a 30 percent working interest in the 2000 discovery, operated by Kerr-McGee. The 17,000-foot discovery well in 3150 feet of water encountered about 275 feet of net hydrocarbon pay in the three main zones. Photo courtesy of Nexen.

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Nexen Petroleum USA took a different road to the Gulf of Mexico.

The firm is a subsidiary of Calgary-based Nexen Inc., which was formerly Canadian Occidental Petroleum. After important successes all over the world, the parent firm started looking at opportunities a little closer to home in the Gulf.

"We have been a shelf player in the Gulf since the late 1980s, but about three years ago the firm evaluated the entire corporation to determine where we wanted to be relative to the exploration and production business," said Doug Otten, president of Nexen Petroleum USA. "The Gulf of Mexico ... came out as one of the prime areas where we felt we wanted to build some core assets.

"We also determined that to give us a shot at some world class discoveries, we not only wanted to maintain a presence on the shelf but we wanted to seriously start moving into the deep water Gulf," he added.

The firm used a global characterization model in its evaluation of potential exploration and production regions, inputting numerous factors and rating the various basins on all those criteria.

"The deepwater Gulf was highly rated based on a large number of those factors," Otten said, including:

  • It's an "attractive fiscal/politcal regime."
  • Substantial royalty relief was available in the deep water.
  • Wells tend to yield high flow rates.
  • The deepwater infrastructure is expanding rapidly.
  • The province is close to oil and gas markets.
  • The high netbacks in the Gulf compare favorably to anywhere in the world.
  • Nexen had an established production position on the shelf from which the firm could springboard into the deep water.

Strategy Time

Nexen's next step was to determine its strategy.

"Our business plan for the deep water first entailed building a foundation of knowledge of the region through a regional geologic review," Otten said. "We began acquiring 2-D and 3-D seismic data to aid in that effort. We hired additional geologic and geophysical staff with experience in the deep water and provided the necessary hardware and software support."

Once that review was complete the firm started acquiring acreage -- and today it has interests in 101 blocks in the deepwater Gulf.

"It took about two and a half years to ramp up to where we are today," he said.

The company has developed alliances with experienced operators in the deepwater and has earned its way into several projects as well as acquired leases at area wide sales.

"We are working toward operating our own project in the deepwater Gulf, but we are taking measured steps to achieve that goal," Otten said.

Nexen targeted specific companies that are experienced deepwater players to reduce the operational risk and would be open to allowing Nexen scientists to be involved on the project teams, Otten added.

Currently Nexen is partner with Kerr-McGee, BP, Shell and Unocal in deepwater blocks.

"Our geologic and geophysical staff is very talented, and we definitely think we bring something to the table in these partnerships," he continued. "Plus, it's a great way for our scientists to gain further experience."

Success Stories

Over the past 18 months Nexen has participated in six deepwater wells and tallied three discoveries.

♦   Nexen has a 30 percent working interest in the 2000 Gunnison discovery on Garden Banks block 668 operated by Kerr-McGee. The 17,000-foot discovery well in 3,150 feet of water encountered about 275 feet of net hydrocarbon pay in the three main zones.

Several appraisal wells have been drilled at Gunnison and reserve estimates are 150 to 250 million barrels of oil equivalent. Finding and development costs for Gunnison are estimated at $3 to $5 per barrel.

The field encompasses three blocks, which contain additional exploration targets. In 2000 Nexen captured 50 percent interests in 12 additional blocks in the Gunnison area that feature six exploration prospects.

♦   Last June the partners on Gunnison announced a second discovery in the Gunnison sub-basin. The Durango exploratory well encountered approximately 120 billion cubic feet of gas.

An additional exploratory prospect, Dawson on Garden Banks block 669 to the east of Gunnison, should be drilled by year end.

Otten said Kerr-McGee, Nexen and Cal Dive International are very close to sanctioning a development program for the field and hope to have the field on line by late 2003 to early 2004. Gunnison is not adjacent to existing infrastructure, so it will be a significant capital project with processing facilities in the range of 40,000 barrels of oil and 200 million cubic feet of gas a day.

Spar technology is currently being evaluated to develop the field.

♦   Earlier this year Nexen and operator BP announced a discovery at the Aspen prospect on Green Canyon block 243 in 3,150 feet of water, about five kilometers from the BP operated Troika Field. Estimated reserves for Aspen are 150 million barrels of oil equivalent.

The firms are evaluating fast-track, subsea tieback development plans for the field and if they are successful Aspen could see first production as early as the second half of 2002, Otten said.

The Aspen area could become a significant element in Nexen's deepwater operations. The company has a 20 percent working interest in the discovery as well as interests in 14 exploration blocks in the Aspen vicinity. Nexen was the high bidder and 100 percent interest holder on seven of these blocks, acquired in last March's Central Gulf sale.

The company has identified a number of prospects and expects to drill on the two adjacent blocks in the next year

"Next year we likely will participate in seven deepwater exploration wells," Otten said. "We hope to keep our 50 percent success rate going."

Next year the Gulf of Mexico will garner about 30 percent, or $300 million, of Nexen's total budget.

"We have announced our objective of reaching 100,000 barrels of production per day from the Gulf by 2006," Otten said, "and if we can continue the kind of success we've enjoyed over the last 18 months we should achieve that goal. That would mean tripling our production."

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