Oil and natural gas producer Nexen Inc. (NXY) reported lower fourth quarter profit on lower gas prices, but the company’s outlook is what many observers are keying in on.
While the company had a smaller production base in 2006 due to asset sales a year earlier, large development projects in the U.K. North Sea (Buzzard) and in Alberta’s oilsands (Long Lake) will be the main drivers going forward, Merrill Lynch analyst John Herrlin said in a research note.
He has a “buy” rating on Nexen shares and a C$76 price target, representing upside of roughly 9% (shares also trade in Canada under the NXY symbol).
Mr. Herrlin expects the company’s output will rise 37% in 2007 due to these projects as well as new development in the Gulf of Mexico, a number he says is at the high end when compared to Nexen’s peers.
“We still view NXY to be an undiscovered value,” Mr. Herrlin said.
National Bank Financial analyst Peter Ogden downgraded his recommendation to “sector outperform” from “outperform” and has a C$74 price target on the stock.
Raymond James analyst Stephen Calderwood lowered his price target on Nexen shares to C$65 from C$68, while maintaining a “market perform”rating, noting that the company’s 2006 year-end reserves came in lower than he had estimated.
Blackmont Capital analyst Menno Hulshof is more optimistic on Nexen with a “buy” recommendation and C$71 price target, as is Tristone Capital’s Tom Ebbern at C$80, who downgraded his rating to “market perform” from “outperform.”
But Andrew Potter at UBS is the most bullish of the bunch at C$84. Mr. Potter left his price target and “buy’ rating unchanged following the results, noting that Nexen’s planned for 2-for-1 stock split in April is a significant development.
He also noted that Nexen could pursue an acquisition of Trident Resources, its partner at the Mannville coalbed methane project. Trident has been unable to fund the current pace of development there, while Nexen has the financial capability to make such a deal if the price is right, Mr. Potter said in a research note.
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