Alberta-based Nexen Inc. (NXY) recently completed three well drilling programs in the Dilly Creek area of the Horn River shale gas property. Following the success of its drilling program in the last two winters, the company now has five wells in this area. These wells currently produce 15 million to 20 million cubic feet per day (MMcf/d).

Nexen has been actively increasing its shale gas exposure. In the recent past, the company has accumulated nearly 126,000 net acres of land in an emerging Devonian shale gas play in the Horn River Basin in northeast British Columbia.

The Horn River Basin has the potential to be one of the most significant shale gas plays in North America. Nexen has approximately 88,000 acres in the Dilly Creek area with a 100% working interest. The land position in the area could support up to 500-700 wells. The company estimates its lands to contain between 3 and 6 trillion cubic feet (Tcf) of contingent recoverable resource, which could double its existing total proved reserves.

Nexen is currently developing a winter drilling program in the Horn River property. The company has secured access to 70 MMcf/d of pipeline and processing capacity for its shale gas production for a five-year period with a renewal option.

Apart from shale gas exposure, Nexen has several identified projects such as Ettrick, Longhorn, Usan, Knotty Head and a number of discoveries in the UK North Sea that will generate future growth.

While production is expected to grow in the coming months due to the startup of major projects, this is already discounted in current valuation.

We have a Neutral rating on the stock.

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