CALGARY - Nexen Inc. (TSX:NXY), which has for months hinted at a large discovery in the U.K. North Sea, confirmed Thursday its find in the Golden Eagle area is indeed "substantial."
The Calgary-based oil and gas company estimates Golden Eagle contains the equivalent of between 150 million and 275 million barrels of oil, classified as recoverable contingent resource.
"The Golden Eagle area is shaping up to be a significant development for Nexen and after Buzzard, it is the largest oil find in the UK North Sea in the last decade," said Nexen chief executive Marvin Romanow.
Nexen is the operator of the Buzzard platform, 100 kilometres northeast of Aberdeen, Scotland. Buzzard was discovered in 2001 and began producing oil in early 2007. Its gross recoverable reserves are estimated to be more than 550 million barrels of oil equivalent.
"Not only are the economics (of Golden Eagle) attractive at oil prices as low as US$40 per barrel, but with Buzzard at peak rates for the next five years or so, this development allows us to keep growing our presence in the North Sea," Romanow said.
Nexen's Golden Eagle announcement comes a day after British energy giant BP PLC said a find in the Gulf of Mexico could be the among the biggest discoveries in the United States.
BP estimates the Tiber deposit, 400 kilometres south of Houston, contains between four billion and six billion barrels of oil equivalent, which includes natural gas.
The catch is that the oil pool is 10,685 metres under the ocean floor, with more than 1,200 metres of water above it.
With big new discoveries becoming fewer and further between, companies are relying on technology to tap into more difficult or far-flung reserves.
"Don't ever say never, but the easy oil's not there, largely speaking," said Genuity Capital Markets analyst Philip Skolnick.
Nexen didn't provide an estimate on how much of the Golden Eagle discovery is comprised of natural gas and how much of it is crude oil.
Nexen expects to continue appraisal drilling on Golden Eagle in the area for the remainder of the year, but didn't say how much it plans to spend.
"Nexen's exploration momentum is building with these strong results, a potential discovery offshore Nigeria (Owowo) and soon we will see steady results from the Gulf of Mexico," UBS Securities analyst Andrew Potter wrote in a note to clients.
"However, for Nexen to begin outperforming its peers better results are needed from Long Lake (Nexen's biggest oilsands project) - evidence of which is still at least several months away."
Skolnick also said he's keeping a closer eye on Long Lake, which has seen its production ramp-up held back by technical glitches in recent months.
In the grand scheme of things, the Golden Eagle discovery won't make too big of a difference in Nexen's overall proven reserves, where were about one billion barrels at the end of 2008, Skolnick said.
"It's not a major incremental reserve add for them."
Nexen's estimate for Golden Eagle resources is based on data collected from three exploration wells, nine appraisal wells and several tests.
Nexen has a 34 per cent interest in both the Golden Eagle and Hobby discoveries and a 46 per cent interest in the Pink discovery, which are all in the same area.
The company's shares rose $1.01, almost five per cent, to $21.96 in afternoon trading on the Toronto Stock Exchange.