In 2001, we formed a 50/50 joint venture with OPTI Canada Inc. (OPTI) to develop the Long Lake property using steam-assisted-gravity-drainage (SAGD) for bitumen production and field upgrading using the proprietary OrCrude™ process. This integrated upgrading strategy enables us to upgrade bitumen into a high-value premium synthetic crude at a significant cost advantage over competing technologies. Learn more about our integrated SAGD and upgrader approach and its advantages.

OrCrude™ is a technology to which OPTI has the exclusive Canadian license. We acquired the exclusive right to use this technology, with OPTI, within approximately 100 miles of Long Lake, and the right to use the technology independently elsewhere in the world. We operate the Long Lake lease and are responsible for constructing, developing and operating the SAGD project. OPTI will design, construct and operate the upgrader. We share equally in all project production and operating and capital costs.

Project Milestones and Costs

• Q2 2003 - commenced steam injection at Long Lake SAGD pilot
• Q3 2003 - received regulatory approval
• Q1 2004 - received board approval and project sanctioning
• Q3 2004 - commenced construction
• April 2007 - began injecting steam
• Q1 2008 - bitumen production ramping up and upgrader construction complete
• Q3 2008 - expect upgrader startup and first production of premium synthetic crude

The Long Lake project continues to progress well. It received regulatory approval in 2003 and Nexen Board approval in 2004. Field construction on the SAGD and upgrader facilities began in 2004.

The SAGD facilities are complete and we continue to inject steam into the reservoir and currently have 45 of 81 well pairs converted to SAGD operation. The reservoir is performing well. Production is meeting expectations with oil rates increasing and steam-oil-ratios (SOR) decreasing. We expect bitumen production to ramp up to full design rates. of approximately 72,000 bbls/d (36,000 bbls/d net to us) late next year or early 2010. We expect production to be maintained over the project's life, estimated at 40 years, by periodically drilling additional SAGD well pairs.

Upgrader construction is complete and commissioning is nearly complete. We expect first synthetic production soon. Our start up schedule forecasts production of synthetic crude to ramp up to full rates over a 12 to 18 month period following initial upgrader start up. The upgrader is designed to produce approximately 60,000 bbls/d (30,000 bbls/d net to us) of premium synthetic crude.

In 2007, we invested $1,025 million at Long Lake Phase 1. The capital cost estimate when our board sanctioned the project in February 2004 was $3.4 billion ($1.7 billion net). In December 2004, we accelerated the drilling of an additional well pad consisting of 13 well-pairs to ensure certainty and reliability of bitumen production at the commencement of upgrader operations at a cost of $98 million ($49 million net). In early 2006, we further modified the project design by adding steam generation capacity and soot handling equipment at a cost of $360 million ($180 million net). These scope changes increased the estimated project cost to $3.8 billion ($1.9 billion net). While construction progress has been significant, high activity in the oil sands is placing ongoing pressure on the costs of labour and services. In addition, labour productivity has been lower than anticipated, requiring a larger workforce to maintain progress. As a result, the projected costs of Long Lake have increased from $3.8 billion to $6.1 billion ($3.05 billion net). Although the cost increase is disappointing, we expect to benefit from a significant operating cost advantage. Combined SAGD, cogeneration and upgrading operating costs are expected to average substantially lower than coking upgrading. We expect ongoing capital to average about $6/bbl. The capital costs of producing and upgrading bitumen using this technology are comparable to those for surface mining and coking upgrading on a barrel-of-daily-production basis.

Additional Resources
Visit the Long Lake website for additional information.