Nexen Inc.’s (NXY) second-quarter 2011 income from continuing operations of 47 US cents per share (45 Canadian cents) inched past the Zacks Consensus Estimate of 45 US cents and improved from 41 US cents in the year-earlier quarter.
The outperformance was due mainly to higher price realization, partially offset by output issues in the company’s North Sea and Yemen operations.
Total revenue jumped more than 14% to C$1,602 million (US$1,654.7 million) from the year-earlier level of C$1,401 million (US$1,363.2 million).
Operational Performance
During the quarter, production before royalties averaged 204,000 barrels of oil equivalent per day (MBOE/d), or 180 MBOE/d net of royalties, comprising 79% liquids and 21% natural gas.
Production before royalties fell approximately 18% year over year and, on a net-of-royalty basis, it decreased approximately 17%. Lower production mainly reflects unscheduled maintenance at Buzzard as well as disruptions in a third-party operated natural gas export pipeline. Scheduled downtime at Syncrude also hurt the quarterly volume.
Nexen’s average oil price realization during the quarter was C$110.28 per barrel, up 44.7% year over year. Natural gas average price realization was C$4.75 per Mcf, up 7.5% year over year.
Financials
Nexen spent C$530 million on capital programs during the quarter. As of June 30, 2011, the company had C$1,312 million in cash and C$4,150 million in long-term debt, with a debt-to-capitalization ratio of 33.7% (down from 37.3% in the previous quarter).
Guidance
As a result of production interruptions, Nexen lowered its full-year production (before royalties) target to the range of 210−230 MBOE a day. In its previous forecast, Nexen set its production at the lower end of 230–270 MBOE/d.
Outlook
Calgary-based Nexen’s diversified portfolio of exploration and production (E&P) 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.
The company has been actively investing in its upstream assets in recent years, which has significantly improved its long-term production-growth prospect. In the reported quarter, Nexen’s Long Lake production improved 9% from the year-ago period and generated positive cash flow.
Nexen also expects its Usan project to commence production in the first half of 2012 and highlighted a number of growth prospects. Nexen got drilling permits for Appomattox appraisal well and Kakuna exploration well in the deepwater Gulf of Mexico and started drilling operations in the Kakuna well. The company also has an industry-leading pace of drilling activities at its shale gas operations in Horn River and enjoys strong interest in joint ventures.
However, in the reported quarter, Nexen failed to reap comprehensive financial gains due to an upgrading program at its Buzzard platform in the North Sea, which impeded production. Yemen production was also hit in the reported quarter due to the labor strike in May.
Again, tough competition from peers such as Suncor Energy Inc. (SU), as well as problems of execution in the company’s line-up of long-cycle projects persist. Hence, we prefer to stay on the sidelines and maintain our long-term Neutral recommendation. Nexen also 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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