UBS, Desjardins Lower Nexen EPS, Production Forecasts

May.17.07 | About: CNOOC Limited (CEO)

Analysts came away from a Nexen Inc. (NXY) investors tour in the UK highlighting that a little short term pain could give way to longer-term gains as the Canadian company is set up for a big production lift beyond 2009.

Nexen’s preliminary production guidance for 2008 of 240,000 to 270,000 barrels of oil equivalent daily, however, didn’t quite meet expectations of both UBS Securities and Desjardins Securities.

The big international producer of oil and natural gas delayed volumes coming from its Longhorn development in the United States Gulf from 2008 to 2009 and it lowered its expectation for volumes from the Ettrick development in the UK North Sea.

As a result, Desjardins adjusted its earnings per share and cash flow per share estimates for Nexen in 2008 to C$3.19 from C$3.26 and to C$7.15 from C$7.32, respectively.

UBS lowered its production forecast for 2008 but maintained that Nexen’s 2010 production estimate of 300,000 BOEs a day is in line with expectations, noting as well that Nexen’s long-term projection does not include volumes from major projects such as Knotty Head, a large oil discovery made in late 2005 in the U.S. Gulf.

Desjardins maintained its ‘Top Pick – Average Risk’ rating and C$41.50 target price for Nexen. UBS did not change its ‘Buy 2’ rating nor its C$43.50 target price.

“Nexen remains one of the least expensive North American explorers and producers trading at 4.5X 2008 enterprise value/debt adjusted cash flow versus peer average of approximately 5.6X,” UBS analyst Andrew Potter wrote in a note, adding that as Nexen ramps up production next year at its Long Lake oilsands project, the dealer expects a “re-rating of Nexen to unfold.”