Nexen gets regulatory OK to expand oilsands extraction capacity at Long Lake

CALGARY – Nexen Inc. says production at its troubled Long Lake oilsands project is improving and regulatory approvals have been secured for expansions to northern Alberta development.

The Calgary-based oil and gas company (TSX:NXY) said Monday that bitumen production from Long Lake’s 11 existing well pads averaged 34,500 barrels per day during the first quarter.

That’s a 10 per cent improvement from the previous quarter, but still a far cry from the 72,000 barrels per day the project is designed to handle.

In addition, Nexen recently began injecting steam into a 12th well-pad – a method to melt the sticky bitumen deep underground, enabling the oil to flow to the surface – and aims to start steaming a 13th around mid-year. Those two pads should gradually add 11,000 to 17,000 barrels per day over an 18- to 24-month period.

Regulators have also given Nexen the go-ahead to build Pads 14 and 15, which are expected to add 4,000 to 7,000 barrels per day of production, as well as a part of a property just south of Long Lake called Kinosis, which should add 15,000 to 25,000 daily barrels.

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Long Lake has been beset by a litany of operational glitches since it started up in late 2008. Part of the problem is that land closest to the upgrader – a costly and complicated facility used to process oilsands bitumen into a type of crude refineries can handle – was developed first, even though the ore there is of poorer quality than areas further away.

Nexen had initially planned to duplicate the first phase of Long Lake in its second phase, but, like many oilsands operators these days, has instead decided to forego building another upgrader and sell its excess raw bitumen into the market instead.

In recent years, refineries in the U.S. Midwest have been reconfigured to handle heavier grades of crude, like that from the oilsands. And as heavy oil imports decrease from countries like Venezuela and Mexico, U.S. Gulf Coast refineries have also been hungry for new sources of heavy, rather than light oil, and have been looking north to fill that need.

Analysts have said the chronic issues at Long Lake were one of the reasons behind the departure of Marvin Romanow as CEO earlier this year. Former chief financial officer Kevin Reinhart is filling in on an interim basis while the board of directors searches for Romanow’s replacement.

Nexen shares gained 17 cents to $18.47 in mid-day Monday trading on the Toronto Stock Exchange.

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