February 12, 2009 / 12:20 PM / 9 years ago

UPDATE 2-Charges, low oil prices drag Nexen into the red

* Impairment charge prompts C$0.35 net loss per share

* Will likely spend less than budgeted in 2009

* Shares fall 4 percent (New throughout with CEO comments)

By Jeffrey Jones

CALGARY, Alberta, Feb 12 (Reuters) - Nexen Inc NXY.TO said on Thursday that the plunging price of crude oil and high drilling costs at some properties triggered hefty charges in the fourth quarter, dragging Canada’s No. 4 independent oil explorer to a net loss.

Nexen also said it is unlikely to spend all of the C$2.6 billion ($2.1 billion) it had earmarked for this year’s budget as it seeks to protect returns during the oil industry slump.

“What we’re using our liquidity for today is to protect the option value that we’ve created in many of our areas before moving into large, full-scale project developments,” Chief Executive Marvin Romanow told analysts.

“We won’t do that until we have more confidence in the economy and more confidence in the commodity.”

Meantime, Nexen is banking on a handful of developments that will generate production gains over the next two years: its Ettrick project in the North Sea, Longhorn field in the Gulf of Mexico and the ramp-up of production at the C$6.1 billion Long Lake oil sands venture in Alberta.

It also announced some exploration success in the North Sea on Thursday, which will expand its Golden Eagle field.

Nexen, which has been the subject of takeover rumors in recent months, said it lost a net C$181 million, or 35 Canadian cents a share, in the quarter, compared with a year-earlier profit of C$194 million, or 37 Canadian cents a share.

Results were marred by charges of C$317 million, partly to account for high drilling costs and lower reserve estimates at Ettrick, and because of hurricane damage to a third-party platform in the U.S. Gulf.

In addition, Nexen’s marketing division had a cash flow loss of C$140 million. It is currently exiting its pure trading activities to concentrate on business that supports marketing for its own natural gas production.

The marketing loss was more than four times higher than expected, UBS Securities analyst Andrew Potter wrote in a research note.

Cash flow, a glimpse into an oil company’s ability to fund projects, fell 48 percent to C$559 million, or C$1.08 a share, from C$1.08 billion, or C$2.04 a share.

Revenue was C$1.27 billion, down 20 percent from C$1.60 billion in the fourth quarter of 2007.

Nexen shares fell 70 Canadian cents, or 4 percent, to C$16.74 on the Toronto Stock Exchange, representing a drop of 42 percent in the past year.

Profits in the Canadian oil sector have tumbled as crude prices retreated by more than $100 a barrel from a record high around $147, set last summer, as the world economy sputtered, squelching demand.

In the quarter, oil averaged $59.08 a barrel, down 35 percent from a year earlier. Canadian natural gas rose 9 percent to C$6.37 a gigajoule, but has since weakened.

Nexen’s production after royalties averaged 198,000 barrels of oil equivalent a day, down 7.5 percent from the fourth quarter of 2007.

For 2009, it forecast production after royalties of 225,000-240,000 barrels of oil equivalent a day, which would be about 10 percent above full-year 2008.

$1=$1.25 Canadian Additional reporting by Chakradhar Adusumilli in Bangalore; editing by Rob Wilson

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