A potential game changer – Nexen pursues a top-­tier shale gas play in northeastern B.C.

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Advancements in technology have enabled the cost-effective recovery of shale gas — a potentially game-changing resource for the world’s energy supply. Shale gas, which is found in abundance throughout many continents, is an affordable, clean-burning fuel.

For Calgary-based Nexen Inc., An upstream oil and gas company that develops energy resources in some of the world’s most significant basins, shale gas is one of three strategic businesses; the others are conventional oil and gas and oil sands. Nexen recognized the potential of shale gas early, and in 2006 began acquiring large blocks of highquality acreage in the horn River basin of northeastern british Columbia — one of the most prospective shale gas fields in North America. In 2010, Nexen purchased more land in the nearby Cordova and Liard basins, bringing the company’s total land position to approximately 300,000 acres.

Third-party evaluators have estimated that Nexen’s Horn River and Cordova Lands hold between four trillion and 15 trillion cubic feet of recoverable contingent resources, while its Liard lands contain an estimated five to 23 trillion cubic feet of prospective resources. Taken together, Nexen’s B.C. Shale gas lands potentially contain enough resource to more than double the company’s proved reserves.

“Shale gas complements Nexen’s oilweighted portfolio and we believe it can be a significant source of growth in the future,” says Ron Bailey, Nexen’s senior vice-president, Natural Gas (Canada) Operational Services & Technology.  “But in an environment of relatively low natural gas prices, shale gas must compete for capital with other opportunities.  For now, we are prudently pursuing our Horn River drilling program, while focusing on cost-reduction, superior execution, environmental stewardship, and research of alternate markets to maximize the value of the resource.”

Nexen continues to achieve industry-leading results in the Horn River Basin, where the company completed a nine-well pad in 2011 and expects to bring its first 18-well pad on stream later this year.  By the end of 2012, production capacity from Nexen’s Dilly Creek facility is expected to reach about 175 million cubic feet per day.

“The Horn River Basin is a top tier shale play and Nexen is at the heart of it,” observes Bailey. “We have excellent land tenure, a very large resource base and a strong team that has extensive experience from working in other shale gas basins.”

nexen2The calibre of Nexen’s resource base and operating expertise were underscored by the joint-venture agreement announced in 2011 with INPEX Corporation of Japan. Under this agreement, INPEX and its partner, JGC, acquired a combined 40 per cent working interest in Nexen’s shale gas holdings in northeast British Columbia. Nexen will remain the operator.

Nexen believes liquefied natural gas (LNG) exports could be an attractive option for maximizing the value of its shale gas resource in the future. The partnership with INPEX and JGC brought with it significant LNG expertise and market access. INPEX owns large LNG projects internationally and the company is currently building a re-gasification terminal in Japan. Nexen, INPEX, and JGC intend to jointly investigate the feasibility of a potential downstream project including LNG exports.

At the same time, Nexen is starting to apply its shale gas expertise in international markets where gas prices are higher. In Poland, Nexen entered a joint venture in 2011 to explore in one of the most significant unconventional resource plays in central Europe. In Colombia, Nexen has begun a drilling program near Bogota, the country’s largest gas market.

Technology has been key to unlocking the worldwide potential of this resource. Shale gas is natural gas that is produced in an “unconventional” way. The gas is tightly locked in very small spaces within the shale rock formation. To access it, Nexen uses advanced technology to horizontally drill and crack (fracture) the gas-bearing zones. The fractures within the shale release the gas, which is then produced in the same way as “conventional” natural gas.

Horizontal drilling technology utilizes a flexible drilling pipe that “bends” into a horizontal position parallel with the resource zone. This process allows multiple wells to be drilled from the same drilling pad, thereby reducing land disturbance. Hydraulic fracturing — sometimes called “fracking” — is the process of using high-pressure fluid to crack the shale rock formation. The fluid Nexen uses when fracking is made up of approximately 99.5 per cent water and sand, with the remainder consisting of chemicals added to enhance the production process.

nexen3Nexen is making impressive strides in demonstrating the cost-effectiveness of shale gas drilling. At Horn River, the company has reduced its cost per frac by about 66 per cent since 2009, while simultaneously improving production rates per frac. Bailey says Nexen recognizes it’s not enough to make shale gas production cost-effective — it must also be done safely, reliably, and with minimal impact on the environment.

“Technology has enabled the responsible development of shale gas,” says Bailey, “but concerns about its impact on the environment have been raised, especially on how production impacts water. We’re responding to those concerns on several fronts and we’re committed to keeping local residents informed on our progress.”

Nexen complies with rigorous B.C. water protection measures. For example, to reduce the risk of water contamination, regulations require significant setbacks for water sources such as lakes, rivers, and aquifiers. Nexen’s shale gas wells have steel casing and cement barriers in place to provide protective, impermeable barriers between gas production, flowback water, and water sources. Nexen also minimizes the risk of surface spills of wastewater by injecting it deep underground where it can be safely stored.

Nexen conducts comprehensive water availability and water quality monitoring near its Dilly Creek operations and shares that data with regulators. The company is also advancing testing of new technology that could enable it to use saline water as an alternative to fresh water in shale gas production.

“We plan to be a responsible energy developer in Northeastern B.C. for many years to come,” observes Bailey. “We want to make sure we get it right from the start when it comes to safely and responsibly unlocking this resource base.”

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