April 28, 2009 / 11:29 AM / in 9 years

UPDATE 3-Nexen profit falls 79 pct, but beats expectations

* Q1 EPS C$0.26 vs C$1.17 last year

* Production after royalties up 1 pct

* North Sea, shale gas prospects moving ahead (Adds CEO comments)

By Jeffrey Jones

CALGARY, Alberta, April 28 (Reuters) - Nexen Inc NXY.TO said on Tuesday its quarterly profit fell 79 percent as oil prices skidded, but the results from Canada’s No. 4 independent explorer beat expectations due to output and marketing gains.

Nexen also said it was moving ahead to develop its discoveries in the North Sea as well as shale gas prospects in the Horn River area of northeast British Columbia despite the industry downturn.

“They beat the Street volumetrically, they beat the Street financially and they had some pretty decent exploration news,” FirstEnergy Capital Corp analyst Martin Molyneaux said.

Nexen shares were off 8 Canadian cents at C$22.94 on the Toronto Stock Exchange.

The company said it made oil finds at its Hobby prospect in the Golden Eagle area of the North Sea. Reserves there could support installation of a new production platform, it said.

With platforms running at C$1 billion ($820 million) to construct, it shows the potential of the discoveries, which are located near Nexen’s prolific Buzzard field, Molyneaux said.

Output from the North Sea will jump around mid-year, when the company’s Ettrick field is due to start producing. Its floating production vessel has a 30,000 barrel a day capacity.

At Horn River, one of several unconventional natural gas plays that are changing the North American gas supply picture, Nexen expects to produce 20 million to 30 million cubic feet per day from six wells by this autumn, Chief Executive Marvin Romanow told analysts.

One snag in the quarter was the company’s recently started C$6.1 billion Long Lake oil sands project in Alberta, where it pumps steam into the earth to loosen up the tar-like bitumen so it can be pumped to the surface.

There, steam generation has been restricted by Nexen’s ability to handle water, which is slowing the ramp-up of output to its 72,000 barrel a day capacity.

The company said it is implementing several fixes that should mean a quicker climb in output.

With its large portfolio of assets, more than C$2 billion of cash and no debt repayments due for three years, Nexen has been discussed as a potential takeover target.

But, speaking to reporters after the annual meeting, Romanow stressed his company is not for sale, pointing out that Long Lake, and the new finds in the North Sea make it “a very sustainable company.”

In the first quarter, Nexen earned C$135 million, or 26 Canadian cents a share, down from year-earlier C$630 million, or C$1.17 a share.

Nexen was expected to earn 11 Canadian cents a share, according to an average of forecasts from analysts surveyed by Reuters Estimates.

Cash flow, a key indicator of the company’s ability to pay for new projects and drilling, fell 46 percent to C$557 million, or C$1.07 a share, from C$1 billion, or C$1.96 a share. Revenue dropped 44 percent to C$1.05 billion.

The drops were largely due to a 55 percent fall in oil prices to $43.31 a barrel and 49 percent cut in average gas prices to $4.47 per million British thermal units, as demand dwindled with weakening economies.

Nexen’s oil and gas production after royalties was 225,000 barrels of oil equivalent per day, up 1 percent from 222,000.

The company said its marketing division, which it recently restructured to exit speculative trading, generated C$83 million in cash flow. Much of that came from the company using its oil storage positions to take advantage of higher crude prices for future months. ($1=$1.22 Canadian) (Additional reporting by R. Manikandan in Bangalore; editing by Jeffrey Hodgson)

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