Nexen Misses Badly

Apr.29.11 | About: CNOOC Limited (CEO)

Nexen Inc.’s (NXY) first-quarter 2011 loss from continuing operations were 19 US cents per share, which came nowhere near the Zacks Consensus Estimate of profit 61 US cents as well as the year-earlier profit of 20 US cents.

However, total revenue jumped more than 14% to C$1,644 million (US$1,666.4 million) from the year-earlier level of C$1,438 million (US$1,381.2 million).

Operational Performance

During the quarter, production before royalties averaged 232 thousand barrels of oil equivalent per day (MBOE/d), or 207 MBOE/d net of royalties, comprising 80% liquids and 20% natural gas.

Production before royalties fell approximately 8% year over year and on a net-of-royalty basis, it decreased approximately 6%. Lower production mainly reflects unscheduled maintenance at Buzzard as well as commissioning the fourth platform.

Nexen’s average oil price realization during the quarter was C$98.37 (US$99.71) per barrel, up 26% year over year. Natural gas average price realization during the quarter was C$4.51 (US$4.57) per Mcf, down 16% year over year.


Nexen spent C$499 million (US$505.8 million) on capital programs during the quarter. As of March 31, 2011, the company had C$1,374 million (US$1,392.7 million) in cash and C$4,724 million (US$4,788.2 million) in long-term debt, with a debt-to-capitalization ratio of 37.3% (up from 36.6% in the previous quarter).


Nexen’s diversified portfolio of exploration and production (E&P) assets includes high-impact exploration prospects in the U.S. Gulf of Mexico, offshore West Africa (primarily Nigeria) and the North Sea. This provides the company with a multi-year inventory of development projects and a positive long-term production-growth profile.

The company has been actively investing in its upstream assets in recent years, which has significantly improved its long-term production-growth prospects. In the reported quarter, Nexen approved the Golden Eagle development and highlighted a number of growth prospects, which add up to about 1/3 of current volumes, set to start up in the upcoming years.

However, the company’s first-quarter results remain a drag amid lower North Sea production and limited progress at its Long Lake oil sands project. Nexen continues to struggle at Long Lake, as the quarter’s volumes fell due to maintenance. Notably, the company reaffirmed that its 2011 production will be at the lower end of 230-270 MBOE/d, due to suppressed production at Buzzard in the first quarter and lagging production at Long Lake.

Again, tough competition from peers such as Suncor Energy Inc. (NYSE:SU), as well as problems of execution in the company’s line-up of long-cycle projects persist. Hence, we prefer to stay on the sidelines and maintain our long-term Neutral recommendation. Nexen also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.