UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): October 29, 2004
NEXEN INC.
(Exact name of registrant as specified in its charter)
CANADA 1-6702 98-6000202
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
801 - 7TH AVENUE S.W.
CALGARY, ALBERTA, CANADA T2P 3P7
(Address of principal executive offices)
Registrant's telephone number, including area code: (403) 699-4000
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
NORTH SEA ACQUISITION
INTRODUCTION
On October 29, 2004 Nexen Inc. ("NEXEN") announced that a
wholly-owned subsidiary of Nexen had entered into an agreement with a
wholly-owned subsidiary of EnCana Corporation ("ENCANA") to acquire EnCana
(U.K.) Limited ("ENCANA UK") for cash consideration of US$2.1 billion, subject
to certain adjustments. EnCana UK holds all of EnCana's North Sea assets, which
are described below. The acquisition is effective as of September 30, 2004 and
is scheduled to close on December 1, 2004.
At the same time Nexen announced that it had arranged
committed bridge financing facilities in an aggregate amount of U.S. $2.0
billion with The Toronto-Dominion Bank. Nexen's current cash on hand and
proceeds available to it from the bridge facilities will together be sufficient
to pay the purchase price and fund future development capital.
STRATEGIC RATIONALE
Nexen's acquisition of EnCana UK establishes Nexen's
operations and opportunities in a stable, low risk, fiscally attractive
jurisdiction and compliments Nexen's world-wide activities.
Nexen believes that the Buzzard field is a world class asset
under development, and the producing fields being acquired will provide
immediate cash flow to assist in financing additional North Sea growth. Nexen
anticipates that EnCana UK's portfolio of exploration and exploitation prospects
provide it with near and longer-term opportunities to expand production.
Upon completion of the acquisition, Nexen will become an
important North Sea participant, with the experience and infrastructure
necessary to compete for future opportunities in the North Sea.
THE ACQUIRED BUSINESS
Through the acquisition, Nexen will acquire EnCana UK's
management, exploration, development and exploitation personnel. This team has
been instrumental in establishing EnCana UK's significant North Sea business
through strategic acquisitions, the discovery and development of the Buzzard
field and other exploitation and exploration activities. Since January 2000,
EnCana UK's North Sea production has increased to approximately 19,000 barrels
of oil equivalent per day (on a six mcf of gas to one barrel of oil basis)
("boe/d"), and it has built a land portfolio of approximately 740,000 net acres.
EnCana UK's staff of approximately 150 employees are located
in Aberdeen, Scotland and Uxbridge, Middlesex.
BUZZARD FIELD
EnCana UK holds a 43.2% interest in the Buzzard field in the
central U.K. North Sea. The field is approximately 100 kilometres north east of
Aberdeen in 100 meters of water. The Buzzard field was discovered in May 2001,
and in November 2003 the U.K. Department of Trade and Industry approved a field
development plan for the Buzzard field.
Nexen believes that the Buzzard field is a world class oil
discovery. The reservoir features excellent rock quality with up to 360 feet of
high porosity, high permeability sands with an oil saturation of up to 94%. The
crude oil is a 32o API light sour crude.
EnCana UK is the operator of the Buzzard field and will
continue to be so after completion of the acquisition by Nexen. EnCana UK is
presently implementing the Buzzard field development plan which includes
construction of three fixed connected production platforms containing wellhead,
production and utility facilities. The production platforms will include
facilities to both produce and process oil and gas, as well as for the injection
of water into the reservoir. Undersea facilities are expected to include 27
production wells, 16 water injection wells and related undersea gathering
systems and pipelines.
The Buzzard field development plan contemplates an estimated
capital expenditure of (pound)1.491 billion, of which approximately (pound)213
million had been expended through September 30, 2004. The remaining estimated
capital cost of (pound)1.3 billion ((pound)560 million net to Nexen) is
scheduled to be expended through the end of the economic field life.
As at September 30, 2004 the Buzzard facilities were
approximately 40% complete. Nexen believes that the project is on time and on
budget and expects production start-up at the Buzzard field to commence by the
end of 2006.
Upon reaching full production, Nexen anticipates that the
Buzzard field will produce 190,000 barrels per day (approximately 80,000 barrels
per day net to Nexen) of light sour crude oil from the Upper Jurassic formation.
Nexen anticipates that production from the Buzzard field will remain at these
levels into 2010, and thereafter will decline through the life of the field.
The Buzzard field participants have entered into agreements
with North Sea infrastructure and pipeline owners that will provide for
transportation of the Buzzard production onshore.
The other participants in the Buzzard field are Petro-Canada,
BG Group and Edinburgh Oil & Gas.
RELATED OPPORTUNITIES
Included in the assets being acquired is an approximate 80%
interest in the Ettrick field located within 20 kilometres of the Buzzard field.
The Ettrick field was discovered in 1981 but has not been developed due to its
distance from production facilities. Nexen believes that the production for the
Ettrick field will be economic once it can be tied-in to the Buzzard production
platform and that production can be brought on stream when there is excess
capacity at the Buzzard platform, which Nexen expects to be available commencing
in 2010.
In addition, EnCana UK holds other prospective acreage near
the Buzzard and Ettrick fields.
SCOTT AND TELFORD FIELDS
EnCana UK holds a 41.0% interest in the Scott field and a
54.3% interest in the Telford field and is the operator of both fields. EnCana
UK acquired its interest in the Scott and Telford fields in a series of
acquisitions from January 2000 through early 2004. The Scott and Telford fields
are located approximately 188 kilometres northeast of Aberdeen, Scotland in 140
meters of water.
The Scott field was discovered in 1987 and commenced
production in 1993. The Telford field was discovered in 1991 and commenced
production in 1996. The Scott and Telford fields are currently producing
approximately 19,000 boe/d net to Nexen. Crude oil produced from both fields is
processed at the Scott production platform, one of the largest in the UK North
Sea, and transported onshore via subsea pipelines.
The other participants in the Scott field are Amerada Hess,
Petro-Canada, Superior Oil, Kerr-McGee and Premier Pict Petroleum, and the other
participants in the Telford field are Amerada Hess, Mobil, Petro-Canada,
Kerr-McGee and Premier Pict Petroleum.
EnCana UK also has various interests in development or
exploitation properties located in the vicinity of the Scott and Telford fields,
and Nexen believes production can be increased through the Scott platform from
these additional drilling and exploitation opportunities.
OTHER ASSETS
At December 31, 2003 EnCana UK had interests in various full
and partial exploration blocks in the UK Central North Sea and held a total land
position of approximately 1.9 million gross acres (approximately 740,000 net
acres). Interests range from 8.2% to 100%.
TRANSPORTATION AND MARKETING
The U.K. North Sea has a well developed subsea transportation
infrastructure which is expected to allow both present and anticipated future
production to be efficiently transported onshore to refineries and gas
processing facilities located in the United Kingdom.
Nexen will market its North Sea production post-closing. Nexen
currently is one of the largest marketers of crude oil and natural gas in
Canada.
SHARE PURCHASE AGREEMENT
On October 28, 2004 Nexen Energy Holdings International
Limited, a wholly-owned subsidiary of Nexen, and EnCana (U.K.) Holdings Limited,
a wholly-owned subsidiary of EnCana, entered into the Share Purchase Agreement
pursuant to which Nexen will acquire EnCana UK for a cash purchase price of US$
2.1 billion, subject to adjustments for certain working capital accounts and
interest. Nexen has provided EnCana with a US$200 million deposit as exclusive
liquidated damages if closing does not occur due to failure by Nexen.
The scheduled closing date is December 1, 2004. The conditions
to the closing of the acquisition are that the transaction be approved by the
U.K. Department of Trade and Industry and that no material adverse change occur
prior to closing relating to significant destruction or damage to the Buzzard
facilities being constructed or the current Scott and Telford production and
subsea infrastructure.
The Share Purchase Agreement contains representations and
warranties, indemnities, restrictions on interim operations and other provisions
customary for transactions of this type in the United Kingdom. A copy of the
Share Purchase Agreement is being filed as Exhibit 2.1 to this report on Form
8-K.
FINANCING OF THE PROPOSED ACQUISITION
On October 28, 2004 Nexen arranged committed bridge financing
facilities with The Toronto-Dominion Bank in the amount of US$1.5 billion to
provide a portion of the purchase price payable for the acquisition and in the
amount of US$0.5 billion to fund the development of the Buzzard field. Nexen has
available to it cash and additional undrawn and committed credit facilities in
amounts sufficient to fund the balance of the purchase price and its development
and operating commitments. Nexen may finance a portion of the purchase price by
borrowing in the debt capital markets. Nexen anticipates that the debt will be
repaid from cash flow and from the proceeds of approximately Cdn. $1.5 billion
from the sale of mature assets.
The new facilities provide for interest rates, availability of
draw-downs, representations and warranties, covenants and other provisions
customary for facilities of this type and magnitude. Amounts borrowed under the
facilities are required to be repaid at various dates.
FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995, Section 21E of the United States Securities
Exchange Act of 1934, as amended, and Section 27A of the United States
Securities Act of 1933, as amended. Such statements are generally identifiable
by the terminology used such as "intend", "plan", "expect", "estimate",
"budget", "outlook" or other similar words.
The forward-looking statements are subject to known and
unknown risks and uncertainties and other factors which may cause actual
results, levels of activity and achievements to differ materially from those
expressed or implied by such statements. Such factors include, among others:
market prices for oil and gas and chemicals products; the ability to explore,
develop, produce and transport crude oil and natural gas to markets; the results
of exploration and development drilling and related activities; foreign-currency
exchange rates; economic conditions in the countries and regions where Nexen
carries on business; actions by governmental authorities including increases in
taxes, changes in environmental and other laws and regulations; renegotiations
of contracts; and political uncertainty, including actions by insurgent or other
armed groups or other conflict. The impact of any one factor on a particular
forward-looking statement is not determinable with certainty as such factors are
interdependent upon other factors, and management's course of action would
depend on its assessment of the future considering all information then
available. Any statements as to possible commerciality, development plans,
capacity expansions, drilling of new wells, ultimate recoverability of reserves,
future production rates, cash flows and changes in any of the foregoing are
forward-looking statements.
Although we believe that the expectations conveyed by the
forward-looking statements are reasonable based on information available to us
on the date such forward-looking statements were made, no assurances can be
given as to future results, levels of activity and achievements. Readers should
also refer to Items 7 and 7A in Nexen's 2003 Annual Report on Form 10-K for a
further discussion of the risk factors.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits:
2.1 Share Purchase Agreement, dated October 28, 2004, by and between EnCana
(U.K.) Holdings Limited and Nexen Energy Holdings International
Limited. The annex to the Share Purchase Agreement has not been filed
herewith. The registrant agrees to furnish a copy of the omitted annex
to the Securities and Exchange Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 8-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: November 3, 2004
NEXEN INC.
By: /s/ Rick Beingessner
----------------------------------
Name: Rick Beingessner
Title: Assistant Secretary
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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2.1 Share Purchase Agreement, dated October 28, 2004, by and between
EnCana (U.K.) Holdings Limited and Nexen Energy Holdings
International Limited. The annex to the Share Purchase Agreement has
not been filed herewith. The registrant agrees to furnish a copy of
the omitted annex to the Securities and Exchange Commission upon
request.