UBS Analyst: Nexen Needs to Hit Lower Target

Shares in Nexen Inc. (NXY) were down more than 2% in trading Wednesday as investors react to the company's disappointing outlook for 2008.

On Tuesday night after market close, Nexen announced it plans to spend only C$2.4-million on investment in 2008, representing a 33% decline from its 2007 capital budget of 3.5%. The company also lowered its production guidance to a range of 260,000 to 280,000 barrels of oil equivalent per day after decreasing major development spending in half to C$700-million.

UBS analyst Andrew Potter, who had expected capital expenditures in 2008 to hit C$3.7-billion and production to reach 293,000 boe/d, said Nexen needs to hit its lower target to reclaim eroding investor confidence.

In a note to clients, the analyst said,

We view Nexen's 2008 production outlook revised growth targets for 2008 as a disappointing follow-up to the company's weak performance in 2007.

While we continue to believe that Nexen represents compelling long-term value, we think the stock will remain range bound until the company can demonstrate reasonable growth and execution.

To reflect Nexen's lower guidance, Mr. Potter reduced his 2008 production forecast to 269,000 boe/d and his 2009 forecast from 300,000 boe/d to 277,000 boe/d.

He lowered his price target on Nexen shares as a result, from C$42 to C$38, but left his "buy" rating unchanged.