Calgary-based oil and gas producer Nexen Inc. (NXY) has abandoned drilling operations in the Kakuna sub-salt exploration well situated on Green Canyon block 504 in the deepwater Gulf of Mexico. The company failed to excavate commercial hydrocarbons from the Kakuna well.
The Kakuna well was drilled by Ensco Plc.’s (ESV) Ensco 8502 semi-submersible to a depth of 30,300 feet. The operations cost about $120 million or $80 million after tax to Nexen.
The prospect was among the first to be drilled in the U.S. Gulf in the post Macondo period. Initially, the exploration had intended to come across potential reserves of about 400 million barrels. Nexen, the operator holds a 52.5% interest while Statoil ASA (STO) and CNOOC Ltd. (CEO) hold 27.5% and 20%, respectively. Statoil farmed in to the Kakuna probe in June 2011.
According to Nexen, Kakuna well is one among the several prospects in which it has a holding in the Gulf region. The other prospects comprise the Miocene play in the central Gulf of Mexico and the Norphlet play adjacent to its Appomattox discoveries.
Per the company’s 2012 exploration program, Nexen plans to explore around 15 offshore exploration and appraisal wells in the UK North Sea, West Africa and the Gulf of Mexico regions. With major discoveries already made in the Appomattox (Gulf of Mexico), Golden Eagle (UK North Sea) and Owowo South B (West Africa) in the past few years, the company remains optimistic about its future.
The current Zacks Consensus Estimates for Nexen are $2.10 and $2.86 per share for fiscal years 2012 and 2013, respectively. The estimates represent year-over-year growth of 43.1% for 2012 and 36.2% for 2013.
Nexen holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the longer term, we maintain our Neutral recommendation.
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