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Interview

with Nancy Foster, President & General Manager, Nexen Norway

15.04.2009 / Energyboardroom

Before starting up Nexen’s Norwegian operations, you spent approximately a quarter century in Canada – what are some of the differences in operating environments between the two countries?

There are many similarities actually, particularly in terms of views on ethics and integrity. However, I would say that Norway is more transparent, and offers easier access to information. This is based on the idea that competition is desired, and thus access to the best information in necessary to achieve success as an industry. As a newcomer, this attitude has been very helpful, and manifests itself in many facets, from the way the NPD website is designed to how information is published around discoveries, really promoting that every well has an opportunity for success. Norway is also very structured, with licensing rounds very clear about what needs to be done and when.

This seems to be a common thread, with such clarity and openness, in addition to high tax recoveries for exploration and innovation, perhaps compensating for the otherwise high tax burden. Do you think this model is underappreciated as an attractive framework to adopt in other markets?

Certainly a stable legal and fiscal framework is very important, but profit has to be there as well. When looking at certain phases in Norway, the netback is not the most attractive, but over the full cycle Norway is competitive and provides a good model. It’s obviously a good place to do business, because otherwise there wouldn’t be such a large number and variety of players in the country.

On the topic of cycles, Nexen is certainly in a different, and earlier, phase than on the other side of the North Sea, where on the UK side the Buzzard field was the company’s single largest cashflow contributor in 2008. Would you bring us up to speed on Nexen’s operations on this side of the water?

Altogether, Nexen has been awarded equity in 11 licenses. One is non-operated, and we’ve relinquished another on a drill or drop position in February 2009 from the APA 2007. The bulk of Nexen’s licenses are in the Northern North Sea; the company has developed a core area, and will be looking to develop and build from there. Turning to prospects, we have two rig slots for 2010 and are serious about it – Nexen likes to do its homework, and is focused on the licenses we do have while ensuring a large enough inventory for a long-term Norwegian presence. To this end, Nexen participated in the 20th bid round and is eagerly awaiting the results.

Nexen is in a very strong financial position. Are there any particular prospects in mind with the potential opening up of new areas in Lofoten or Vesterålen for instance?

Nexen is very much interested in the frontier areas, although the same can be said for what’s already open, and that’s part of the reason the company came to Norway, for the longer-term opportunity already evident in the APA rounds. Although this latter category is considered mature, it is less mature than the UK North Sea. Even though the finds have been smaller, the success rate has been higher in the last few years, and there’s existing infrastructure to take advantage of. Nexen has found this a good way to enter into the NCS: get a foothold, build a foundation, all the while still targeting the frontier areas. According to the data from the NPD or Konkraft, they should prove to be very lucrative, Nexen sees itself being a player there, and feels confident in being able to succeed.

Coming in a different environment and starting operations from scratch, what have been the most exciting elements as a manager in establishing a new entity in a foreign land?

I’m not a technical person by background, having studied political science and economics in university. However, I’ve been in the oil and gas industry for 28 years, and had always wanted operational experience when this opportunity came up. I was formerly Senior VP of HR and Corporate Services, and while some may regard it as strange to change in quite a different role, I saw it as a unique opportunity in a country where it looked probable I could achieve success. As always, I have the needed technical support. Nexen’s exploration manager, for example, is highly experienced, having performed this role in Colombia, the Gulf of Mexico, and Equatorial Guinea. We have also endeavoured to recruit Norwegians, with an ultimate goal to, as anywhere, make them part of the normal landscape similarly to what happened in the UK – where now there is an important expatriate population but mostly for their own personal developmental purposes.

At first, it’s a challenge to understand the rules and regulations, which at first seems overwhelming, but much information is provided in English, and the OLF is a fantastic source. When companies go through the licensing round, the NPD provides feedback and there’s a session constructively detailing what they liked and what could be improved about every application. It’s amazing, and the overall focus of all the groups is that the petroleum industry continues to thrive. Not that this doesn’t happen in Canada, but I feel it’s far more accessible, and Norwegian authorities were very much welcoming to Nexen as a new company. Even the mayor came to our offices to be part of the opening ceremonies and give a speech. We’ve also drawn on the Canadian embassy, I’ve joined the Canadian-Norwegian business association, and there are two Norwegians on our Board of Directors who are a great source of information and clarification.

In Norway, contract interpretation is more based upon intent, versus a strict letter of the law, and is about the overall good of the petroleum industry, in co-existence with fisheries and environment. It’s quite unique to be always thinking about business in that framework; you’re going to do business, but all the while in an environmentally responsible way – but Nexen has always done business that way, so in that respect it felt like a very normal transition.

Nexen’s former CEO Charlie Fischer is quoted as saying, “We’re happy to look at joint ventures with any good operators (in Norway). We’re looking to build our presence there and if we can do that better by working with others then we’re happy to do that”. What type of opportunities are you looking for in this respect and what does Nexen have to offer?

Nexen is looking for like-minded companies in terms of how they do business, and who want to be here longer term. They also must bring technical strengths to the equation, to ensure that we will mutually challenge and learn from one another. From Nexen’s perspective, companies want to do business with us because we have a solid reputation, we care about safety and the environment, and it’s not just something we say, because you can see it in our statistics. Nexen is also financially capable of doing what we say we’re going to do, with capacity to fulfill all our major programs in 2009 and for quite a period of time after. Nexen is fair and equitable in the way we do business, and has proven success in more difficult environments, both physically and legislatively. For example, Yemen produced its billionth barrel last year in an environment which some would call challenging, and we’ve never lost a day of production. Additionally, Nexen is quite open to doing business with larger companies if that’s what the government and NPD think makes sense for the frontier areas.

What are your biggest priorities going forward as head of the Norwegian business?

Number one is to drill a well safely; you really have to focus on that. Then there are issues surrounding prospect maturation, as Norway has among the strictest work programs Nexen has ever seen, which is fine, understandable, and clear from the outset. Then, it’s just a matter of doing all your homework, maturing prospects to the point that they’re drillable, and getting partner approval. We’re also setting up the management systems that need to be in place – not that differently from the UK – and making sure we educate people about how we do business here. But first and foremost is to drill a well in a safe and environmentally responsible way, and hopefully it’s successful.

What do you hope to achieve over the next five to 10 years at Nexen in Norway?

I certainly hope that within 10 years we’ll have production. If you look at statistics, some would estimate 12-15 years from the point of first license to production, or even up to 18 years in the frontier areas. However, I think there are opportunities to reduce these waits, at least in a higher price environment, with more companies bringing production on-stream quicker. Overall, the goal is to bring Nexen to production, acquire more licenses, and ensure we’ve turned over and done our homework to know much more about the opportunities on the NCS. Although we have some people working here with a long NCS experience, we will continue to build depth of knowledge and expertise, and of course, grow.

What is your final message to OFGJ readers?

Nexen is glad to be here, and there are many opportunities on the NCS beyond what are considered the smaller and medium size reserves, and moving into the frontier area will happen. This will happen gradually and in a structured way, but it’s been a proven formula for the Norwegian government, and Nexen feels there’s stability here and we can and will continue to do business here profitably and in the long term.

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