Lauren Krugel, THE CANADIAN PRESS

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CALGARY - A Nexen Inc. (TSX:NXY) executive says 2012 could be a good time to begin construction on the second phase of the company's Long Lake oilsands project, since that is when demand for labour in Alberta is expected to ease.

"We're taking a very measured approach to sanctioning Phase 2. We are starting to see some reduction in costs, but with uncertain financial markets in the current commodity price environment, we think it's wise to be patient in the short-term," Gary Nieuwenburg, the company's executive vice-president for Canada, told investors Thursday.

"We believe we're not currently at the bottom of the cycle with respect to costs and we want to ensure that we bid our costs near the bottom as we can get."

The first phase of Long Lake, a joint venture with Opti Canada Inc. (TSX:OPC), began producing synthetic crude oil in January and is on-track to meet its 60,000 barrel-a-day output target in 2010.

The project's pricetag came in at more than $6 billion, well ahead of the original $3.4-billion estimate first laid out in 2004.

Nexen will be going over the lessons learned from the first phase of Long Lake, and wants 30 to 40 per cent of the engineering work on future phases to be complete before it makes a final go-ahead decision.

"That ensures we get an accurate cost estimate," Nieuwenburg said.

He said the bulk of Nexen's costs in the oilsands come from labour, an expense that tends to creep down more slowly than other inputs.

"Generally what we're looking at is demand for labour coming off some time in 2012 and that's probably a good time to be in the module yards and ramping up," Nieuwenburg said.

Long Lake is a steam-assisted gravity drainage project, in which scorching-hot steam is injected by pipeline into the underground reservoir to liquefy the sticky, tar-like bitumen, thereby making it thin enough to flow to the surface in a second collector pipeline.

Nexen, operator of the Buzzard oil platform in the North Seas off the coast of Scotland, is currently evaluating the size of two new offshore oil discoveries in the North Sea: Hobby and Golden Eagle. Details are expected to be unveiled shortly.

"In the North Sea, we have the freshest asset base of any operator there," Nexen's president and chief executive Marvin Romanow told investors.

"(It's a) 45-year-old basin and we'll have the three newest platforms operating there. We'll have the fourth newest platform operating there when we get Hobby on stream."

Nexen has said its holdings in the Horn River Basin in northeastern B.C. have the potential to double the size of the company, but the company has been waiting for natural gas prices to bounce back before exploiting that resource.

Nexen also has operations in the Gulf of Mexico, Yemen and off the coast of West Africa.

Nexen shares fell 20 cents to close at $24.48 on the Toronto Stock Exchange in trading Thursday of more than 2.4 million shares.