Nexen Inc. (NXY), one of the top Canadian independent oil explorers, said that its annual production is expected to be at the lower end of its guidance range of 230–270 thousand barrels of oil equivalent a day (MBoe/d) before royalties, reflecting downtime at its Buzzard platform in the North Sea and a labor strike in Yemen.
Production disruption at Nexen’s Buzzard oil field, due to technological problems, has reduced the overall output level by nearly 50%. Again, a labor trouble in Yemen halted production for two days, hurting the company's overall rate of output. However, on May 11, production level at Yemen returned to its full level.
Nexen also stated that it is replacing the cooling equipment on the Buzzard platform by the end of May, which will limit the output level at 80,000 barrels on a daily basis. Following the completion of installation of upgraded coolers and commissioning of the fourth platform, Nexen expects its Buzzard production to go back to its full capacity of over 200 MBoe/d by the end of July 2011.
While updating its operational activities, the company said that in West Africa, Usan field is expected to commence production next year and the associated storage offloading vessel will be onsite for installation this summer.
In the Gulf of Mexico (GoM), an exploration plan to drill up to eight wells on Mississippi Canyon blocks 348, 391 and 392 containing the Appomattox discovery, was approved by the concerned administrative organization. Royal Dutch Shell plc (RDS.A) enjoys the operatorship with Nexen holding 20% working interest in the Appomattox joint venture, which is awaiting a drilling permit to ensue appraisal. The company also plans to drill two more exploration wells in the GoM this year.
Nexen’s diversified portfolio of exploration and production 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.
However, the company’s first-quarter 2011 results remain a drag amid lower North Sea production and limited progress at its Long Lake oil sands project. Although the company’s 2011 production expectation remains at the lower end, it expects to ramp up the level in the second half as Buzzard returns to full rates, Long Lake continues steaming of the reservoir and pad 11 ramps up, nine-well shale gas program comes online, and North Sea tie-backs at Telford and Blackbird are brought on-stream.
Hence, we maintain our long-term Neutral recommendation and the company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
NEXEN INC (NXY): Free Stock Analysis Report
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