) first-quarter 2012 income from continuing operations of 32 US
cents per share (32 Canadian cents) fell shy of the Zacks Consensus
Estimate of 41 US cents and 39 US cents (38 Canadian cents)
in the year-earlier quarter.
Total revenue jumped nearly 5% to C$1,726 million (US$1,722.0
million) from the year-earlier level of C$1,644 million (US$1,666.4
million). The quarter's revenue surpassed the Zacks Consensus
Estimate of US$1,532 million.
During the first quarter, production before royalties averaged
202 thousand barrels of oil equivalent per day (MBOE/d), or 192
MBOE/d net of royalties. Production before royalties fell 13% year
over year, and on a net-of-royalty basis, it decreased nearly
The slight year-over-year decrease in production was mainly due
to the expiry of the Masila contract in Yemen in December 2011.
This was largely compensated by the higher realized oil prices in
the UK and production start-up at Usan.
Nexen's average oil price realization was C$111.62 per barrel in
the first quarter, up 13.5% year over year. Natural gas average
price realization was C$3.13 per Mcf, down 30.6% year over
Nexen spent C$757 million (US$755 million) on capital programs
during the quarter. As of March 31, 2012, the company had C$856
million (US$858 million) in cash and C$4,305 million (US$4,317
million) in long-term debt, with a debt-to-capitalization ratio of
33.1% (down from 34.4% in the previous quarter).
Nexen has maintained its 2012 full-year output (before
royalties) projection of 185−220 MBOE a day, while it has set its
production goal for the second quarter in the range of 190-235
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, 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 interest in joint
In the reported quarter, Nexen along with its partner
Royal Dutch Shell Plc
) encountered additional resources in the Appomattox deepwater
structure in the Gulf of Mexico. The companies were conducting
extensive exploration and appraisal activities on the concession.
Nexen confirmed that the drilling on the northeast fault block of
Appomattox indicated the presence of contingent recoverable
resources of about 215 million barrels of oil equivalent (boe).
We believe that this discovery forms an important milestone in
the Gulf of Mexico operations that is expected to open doors for
further activities by other companies.
Nexen also started its Usan project and produced its first oil
in February 2012. The production has reached 100,000 barrels per
day, in line with its expectations. Nexen got all necessary
approvals to begin development activities and started construction
in the Golden Eagle appraisal well and Rochelle developments in the
UK North Sea. The company has scheduled its production for late
2014 and December 2012, respectively.
However, in the reported quarter, Yemen recorded lower
production because of expiry of the contract for the Masila block
in mid-December 2011.
Again, tough competition from peers such as
Suncor Energy Inc.
) and execution problems 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 (
): Free Stock Analysis Report
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SUNCOR ENERGY (
): Free Stock Analysis Report
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