EXHIBIT 23.3
DeGolyer and MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
| December 15, 2010 |
Nexen Inc.
801-7th Avenue S.W.
Calgary, AB
T2P 3P7
Attention: Reserves Review Committee of the Board of Directors of Nexen Inc.
| Re: | DeGolyer and MacNaughton – Report of Third Party for certain Yemen properties with interests owned by Nexen Inc. |
Ladies and Gentlemen:
Pursuant to your request, we have conducted an independent evaluation of Nexen Inc.’s (Nexen) proved and probable oil, condensate, natural gas liquids (NGL), and natural gas reserves, as of December 31, 2009, for certain fields owned by Nexen in Yemen as shown in Table 1A. Nexen has represented that these properties account for 2 percent on an equivalent barrel basis of its proved reserves as of December 31, 2009, and that its reserves estimates have been prepared in accordance with the United States Securities and Exchange Commission (SEC) definitions. We have reviewed information provided to us by Nexen that it represents to be its estimates of the reserves, as of December 31, 2009, for the same properties as those which we evaluated.
Reserves included herein are expressed as reserves as represented by Nexen. Gross reserves are defined as the total estimated petroleum to be produced from these properties after December 31, 2009. Working interest reserves are defined as that portion of the gross reserves attributable to the interests owned by Nexen after deducting all interests owned by others. Net reserves are defined as working interest reserves after deductions for royalties.
Estimates of oil, condensate, and NGL (collectively, Liquids), and natural gas should be regarded only as estimates that may change as further production history and additional
2
DeGolyer and MacNaughton
information become available. Not only are such reserves estimates based on that information which is currently available, but such estimates are also subject to the uncertainties inherent in the application of judgmental factors in interpreting such information.
Data used in this evaluation were obtained from reviews with Nexen personnel, Nexen files, from records on file with the appropriate regulatory agencies, and from public sources. In the preparation of this report we have relied, without independent verification, upon such information furnished by Nexen with respect to property interests, production from such properties, current costs of operation and development, prices for production, agreements relating to current and future operations and sale of production, and various other information and data that were accepted as represented. Furthermore, if in the course of our examination something came to our attention which brought into question the validity or sufficiency of any of such information or data, we did not rely on such information or data until we had satisfactorily resolved o ur questions relating thereto or had independently verified such information or data. A field examination of the properties was not considered necessary for the purposes of this report.
Methodology and Procedures
The process of estimating reserves requires complex judgments and decision-making based on available geological, geophysical, engineering, and economic data. To estimate the economically recoverable oil and natural gas reserves and related future net cash flows, we consider many factors and make assumptions including:
| ● | expected reservoir characteristics based on geological, geophysical, and engineering assessments; |
| ● | future production rates based on historical performance and expected future operating and investment activities; |
| ● | future oil and gas prices and quality differentials; |
| ● | assumed effects of regulation by governmental agencies; and |
| ● | future development and operating costs. |
Our estimate is prepared using standard geological and engineering methods generally accepted by the petroleum industry, and the reserves definitions and standards required by the United States SEC. Generally accepted methods for estimating reserves include volumetric calculations, material balance techniques, production and pressure decline curve analysis, analogy with similar reservoirs, and reservoir simulation. The
3
DeGolyer and MacNaughton
method or combination of methods used is based on our professional judgment and experience.
Discovered oil and natural gas reserves are generally produced only when they are economically recoverable. As such, oil and gas prices and capital and operating costs have an impact on whether reserves will ultimately be produced. As required by United States SEC rules, reserves represent the quantities that are expected to be economically recoverable using existing prices and costs. Estimates may change substantially as additional data from ongoing development activities and production performance becomes available and as economic conditions impacting oil and gas prices and costs change.
The reserves estimates in this report are based upon 2009 first-of-the-month fiscal average pricing using benchmark pricing. Oil price is based upon the Dated Brent crude oil benchmark of U.S.$60.85 per barrel. Specific oil pricing was adjusted for historical quality and transportation cost differentials. The resulting adjusted price is referred to as the “realized price” and is estimated to be U.S.$60.46 per barrel of oil for proved and probable reserves.
Generally, operations are subject to various levels of government controls and regulations. These laws and regulations may include matters relating to land tenure, drilling, production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax, and foreign trade and investment that are subject to change from time to time. Current legislation is generally a matter of public record, and additional legislation or amendments that will affect reserves or when any such proposals, if enacted, might become effective generally cannot be predicted. Changes in government regulations could affect reserves or related economics. In the regions that are currently being evaluated, we believe we have applied existing regulations appropriately.
Certain properties in which Nexen has an interest are subject to the terms of various profit sharing or joint operating agreements. The terms of these agreements generally allow for working interest participants to be reimbursed for portions of capital costs and operating expenses and to share in the profits. The reimbursements and profit proceeds are converted to a barrel of oil equivalent or standard cubic foot of gas equivalent by dividing by product prices to determine the “entitlement reserves.” These entitlement reserves are equivalent in principle to net reserves and are used to calculate an equivalent net share, termed an “entitlement interest.” In this report, Nexen reserves or interest for certain properties subject to these agreements is the entitlement based on Nexen’s working interest.
4
DeGolyer and MacNaughton
Nexen Estimates
Nexen has represented that its estimated proved and probable reserves attributable to the evaluated properties are based on United States SEC definitions. It represents that its estimates of the reserves attributable to these properties represent 2 percent of its total company proved reserves and less than 1 percent of its total company probable reserves on an equivalent barrel basis and are as follows, expressed in thousands of barrels (Mbbl), millions of cubic feet (MMcf) and thousands of barrels of oil equivalent (Mboe):
Nexen’s estimate of Reserves as of December 31, 2009
Select Fields Evaluated by DeGolyer and MacNaughton
| Yemen Properties | ||||||||||||
| Liquids | Natural Gas | Oil Equivalent | ||||||||||
| Nexen Reserves | (Mbbl) | (MMcf) | (Mboe) | |||||||||
| Working Interest Reserves (before royalties) | ||||||||||||
| Proved | 21,195 | 0 | 21,195 | |||||||||
| Probable | 2,575 | 0 | 2,575 | |||||||||
| Working Interest Reserves (after royalties) | ||||||||||||
| Proved | 13,258 | 0 | 13,258 | |||||||||
| Probable | 1,258 | 0 | 1,258 | |||||||||
| Note: | Gas is converted to oil equivalent using a factor of 6,000 cubic feet of gas per 1 barrel of oil equivalent. |
Reserves Audit Opinion
DeGolyer and MacNaughton has used all data, assumptions, procedures, and methods that it considers necessary to prepare this report.
In our opinion, the information relating to estimated net proved and net probable reserves of oil, condensate, natural gas liquids, and gas contained in this report has been prepared according to the definitions and disclosure guidelines required by the United States SEC within Paragraphs 932-235-50-4, 932-235-50-6, 932-235-50-7, and 932-235-50-9 of the Accounting Standards Update 932-235-50, Extractive Industries – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures (January 2010) of the Financial Accounting Standards Board and Rules 4–10(a) (1)–(32) of Regulation S–X and Rules 302(b), 1201, and 1202(a) (1), (2), (3), (4), (5), (8) of Regulation S–K of the United States Securities and Exchange Commission.
5
DeGolyer and MacNaughton
In comparing the detailed proved and proved-plus-probable reserves estimates prepared by us to those prepared by Nexen, we have found differences, both positive and negative. In our opinion, the proved and proved-plus-probable reserves for the reviewed properties as estimated by Nexen are, in aggregate when compared to our estimates on the basis of equivalent barrels, reasonable because each is within 10 percent of our estimates.
DeGolyer and MacNaughton is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over 70 years. DeGolyer and MacNaughton does not have any financial interest, including stock ownership, in Nexen. Our fees were not contingent on the results of our evaluation. This letter report has been prepared at the request of Nexen.
Submitted, | ||
| /s/ DeGOLYER and MacNAUGHTON | ||
| DeGOLYER and MacNAUGHTON | ||
| Texas Registered Engineering Firm F-716 | ||
| cc: | Mr. Craig Beattie |
| V.P. Technical Assurance | |
| Nexen International Division | |
| Mr. Brad Kopas | |
| Deloitte & Touche LLP |
| /s/Lloyd W. Cade, P.E. | ||
| Lloyd W. Cade, P.E. | ||
[SEAL] | Senior Vice President | |
| DeGolyer and MacNaughton |
DeGolyer and MacNaughton
TABLE 1A
NEXEN FIELDS EVALUATED by DeGOLYER and MacNAUGHTON
as of
DECEMBER 31, 2009
| PROPERTIES | FIELDS | |
| Yemen Masila (Block 14) | Bainoon/Naziah | |
| Camaal | ||
| Dahban | ||
| Dais | ||
| Haru | ||
| Heijah | ||
| Hemiar | ||
| Naar | ||
| North East Camaal | ||
| North Camaal | ||
| North East Sunah | ||
| Qataban | ||
| Raydah | ||
| Ressib | ||
| South Hemiar | ||
| South Ressib | ||
| Sunah | ||
| Tawila | ||
| West Camaal | ||
| West Hemiar |