* Defers decision on Phase 2 till 2011
* Cuts spending next year by C$100 million
* To raise up to C$1 billion in assets sales
* Shares edge down 2 Canadian cents to C$24.16
By Scott Haggett
CALGARY, Alberta, Dec 9 (Reuters) - Nexen Inc NXY.TO said on Wednesday it will defer a decision on expanding its Long Lake oil sands project until 2011, a year later than expected, as it works the bugs out of the project's initial phase and awaits new rules on greenhouse gas emissions.
The company, which said late on Tuesday that it will cut its capital budget next year to C$2.5 billion ($2.4 billion), down C$100 million from this year -- but grow production by up to 6 percent -- said the decision to proceed with Long Lake's second, 60,000 barrel per day phase, won't come until the middle of 2011.
"We want to see phase one ramp up and get the learnings from that," said Michael Harris, a spokesman for the company. "We also want to get a bit more confidence that there really is an economic recovery going on."
Harris added that Nexen is also awaiting any new costs or rules on greenhouse gas emissions that emerge from the climate change discussions currently being held in Copenhagen.
Long Lake is a thermal oil sands project, where steam is pumped into the ground to liquefy the tarry bitumen so it can flow to the surface and be upgraded into refinery-ready synthetic crude.
Nexen has struggled to boost production at the site south of Fort McMurray, Alberta, since the project opened late in 2008. But the company said it is now producing 17,000 barrels of bitumen a day, up from as much as 15,000 barrels a day in September as it pumps more steam into its oil sands reservoir and expects output to average as much as 28,000 bpd next year.
Analysts, however, are waiting to see if the project can indeed begin edging closer to its 60,000 bpd capacity.
"The good thing is they are putting more steam into the ground, but the jury is still out on what it does for production," said Phil Skolnick, an analyst with Genuity Capital Markets.
Nexen holds a 65 percent stake in Long Lake, with Opti Canada Inc OPC.TO holding the remaining interest. Opti, which launched a strategic review last month that could end with a sale of the company, also said on Tuesday it expects sanctioning of the second phase to be delayed. [nN09125473]
Nexen said it expects 2010 production from its operations in Canada, the Gulf of Mexico, the North Sea and elsewhere to average between 200,000 and 250,000 bpd, after royalties.
It averaged output, after royalties, of 184,00 bpd during the third quarter, but expects additional oil and gas from Long Lake, its shale-gas properties at Horn River in northern British Columbia and its North Sea operations.
The company also said it expects to raise up to C$1 billion from asset sales over the next two years. It said it may divest some of its Western Canadian heavy oil properties, its marketing business, put on the block earlier this year, or its majority stake in Canexus Income Fund CUS_u.TO, a specialty chemical producer.
Nexen share fell 2 Canadian cents to C$24.16 at midday on Wednesday on the Toronto Stock Exchange.
$1=$1.06 Canadian Reporting by Scott Haggett; editing by Rob Wilson