) second-quarter 2012 income from continuing operations of 19
Canadian cents (19 US cents per share) missed the Zacks Consensus
Estimate of 39 US cents and decreased from 45 Canadian cents (46 US
cents) in the year-earlier quarter. The decrease in earnings was
mainly due to low oil and gas price realizations in the reported
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However, total revenue jumped 11.5% to C$1,787 million (US$1,769.3
million) from the year-earlier level of C$1,602 million (US$1,654.7
million). The quarter's revenue also surpassed the Zacks Consensus
Estimate of US$1,729 million.
During the second quarter, production before royalties averaged 213
thousand barrels of oil equivalent per day/MBOE/d (207 MBOE/d net
of royalties). Production before royalties increased 4.4% year over
year, and on a net-of-royalty basis, it grew 15%.
The year-over-year increase in production was mainly attributable
to the ramp-up of activity at the Usan project, offshore West
Africa and robust performance by the UK assets, primarily the
Nexen's average oil price realization was $102.21 per barrel in the
second quarter, down 7.3% year over year. Natural gas average price
realization was C$2.58 per thousand cubic feet (Mcf), down 45.7%
year over year.
Nexen spent C$743 million (US$735.6 million) on capital programs
during the quarter. As of June 30, 2012, the company had C$1,255
million (US$1,224.2 million) in cash and C$4,391 million
(US$4,283.4 million) in long-term debt, with a
debt-to-capitalization ratio of 33.2% (up from 33.1% in the
Nexen has maintained its 2012 full-year output (before royalties)
projection of 185−220 MBOE/d, while it has set its production goal
for the third quarter in the range of 160-190 MBOE/d.
Calgary-based Nexen's diversified portfolio of exploration and
production assets includes high-impact exploration prospects in the
U.S. Gulf of Mexico (GoM), 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,
The company has been actively investing in its upstream assets in
recent years, significantly improving its long-term,
production-growth prospect. The company also has an
industry-leading pace of drilling activities at its shale gas
operations in Horn River and enjoys strong interests in joint
However, Nexen has been adversely affected by natural field
declines obstructing development drilling activities, particularly
in the GoM. Recently, the company abandoned drilling operations in
the Kakuna sub-salt exploration well situated on Green Canyon block
504 in the deepwater GoM as it failed to excavate commercial
hydrocarbons from the Kakuna well. The operations cost about $120
million or $80 million after tax to Nexen. As the operator, Nexen
holds a 52.5% interest while
) hold 27.5% and 20%, respectively. Thus, unsuccessful outcome at
any of the prospective exploration wells results in wastage of
important resources - time, labor and funds.
Again, execution problems in the company's line-up of long-cycle
projects persist. Hence, we maintain our long-term Underperform
recommendation. Nexen also holds a Zacks #5 Rank, which is
equivalent to a short-term Strong Sell rating.