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Nexen gets nod for more drilling at Long Lake oil sands project

Calgary-based Nexen has received permission to drill three more wells at its Long Lake oil sands project.

Jack Cusano/Reuters/Jack Cusano/Reuters

Nexen Inc. has received regulatory approval to drill more wells at its Long Lake oil sands facility – a project marred by poor production, high costs, and years of delays.

The company's original wells performed poorly because water content in the reservoir was higher than expected, but Nexen has since promised its new wells would be better producers. Long Lake is a steam-assisted gravity drainage and upgrading project, shared with China National Offshore Oil Corp. In a statement Monday, Nexen, which controls 65 per cent of Long Lake and operates the project, said it produced an average of 34,500 barrels of bitumen per day in the first quarter of 2012, an increase of 10 per cent over the prior quarter.

It hopes to drill on its three newly approved areas later this year, with steam injection beginning on two of them in the second half of 2013 and the third beginning in the middle of 2014.

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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 oil sands 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 oil sands operators these days, has instead decided to forego building another upgrader and to 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 oil sands. 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 Mr. Romanow's replacement.

With files from Reuters

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About the Author

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

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