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Nexen expands growth strategy with new play Add to ...

Nexen Inc. is spreading its tentacles into a new unconventional oil play in Alberta - a move that breaks from its growth strategy but puts the company in the industry's latest hot spot.

The Calgary oil producer is drilling new wells in an area similar to the Bakken zones, which have attracted heavy exploration spending by companies seeking to exploit prolific but hard-to-reach oil reservoirs.

Nexen chief executive officer Marvin Romanow declined to specify the precise location of the company's new exploration project.

Energy companies have been racing to lay claim to new oil and natural gas plays as existing conventional fields in North America dry up. This has created a boom in land prices in British Columbia, Alberta, and Saskatchewan, while revving up exploration and production in areas that were once quiet. Southern Saskatchewan's light oil Bakken play is in full swing, and Alberta's Bakken is now picking up momentum. The Bakken formation also extends into Montana and North Dakota.

Nexen's latest land acquisition "is a play that we're excited about and we'll have some drilling results in the next year," Mr. Romanow said in an interview. "We're still in the [buying land]phase and continually looking to add to our acreage."

New energy plays have emerged and old ones have been revived as energy companies drill horizontal wells and fracture rocks underground, allowing oil and gas trapped in tight spaces to escape. While Alberta's Bakken has been compared to its Saskatchewan kin, it is difficult to gauge how successful that zone will become until drilling results are released.

Mr. Romanow declined to say how much land the Calgary-based company has purchased or how many wells it is drilling, although he described it as a "Bakken-equivalent aged" reservoir.

"Everyone is clamouring over each other trying to get data points," Kristopher Zack, an analyst at Raymond James Ltd., said. "One of the big first steps in any resource play is understanding who and where the players are."

Nexen's growth strategy is focused on three areas: oil sands; conventional oil and gas like its North Sea, West African and Gulf of Mexico properties; and unconventional natural gas, such as its Horn River property. Nexen updated its Long Lake oil sands project last week, highlighting troubles with its bitumen extraction process.

In its fourth-quarter results, Nexen said it hired Bank of America to find a joint venture partner for the Horn River assets. Mr. Romanow said the bank is still pulling together a data room and is not yet speaking with any potential partners. Potential candidates have contacted Nexen's investment bankers, he said.

Natural gas plays in northeast British Columbia and northwest Alberta have attracted billions of dollars in investment and numerous companies are looking for partners to help develop the expensive projects and access the untapped reservoirs. For example, Encana Corp. struck a $5.4-billion joint venture deal with PetroChina International Investment Co. Ltd. last Wednesday on some of its unconventional natural gas assets.

By the end of the year, drilling activity in the Gulf of Mexico could hit levels similar to those seen before BP PLC's massive oil spill last year, Mr. Romanow predicted. Nexen was not drilling when the blowout occurred, and is now wading through the stiffer regulatory process. It purchased more insurance to protect itself in case of an accident similar to BP's, he said.

Nexen made $220-million, or 42 cents a share, in the fourth quarter, down from $537-million, or $1.02, in the same period in 2009.

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