November 16, 2010 / 4:18 PM / in 7 years

UPDATE 3-Nexen says Long Lake output to lag design

* Long Lake to produce 38,000-45,000 bpd in 2011

* No sale of Syncrude stake planned

* Mulling new 80,000 bpd oil sands project

* Seeks partner for shale gas holdings

* Nexen shares fall 3.7 pct

* Shares in Long Lake partner Opti down 14 pct (Updates share movements)

By Scott Haggett

CALGARY, Alberta, Nov 16 (Reuters) - Nexen Inc NXY.TO shares fell nearly 4 percent on Tuesday after it said output at its C$6.1 billion ($6 billion) Long Lake oil sands project will remain below its design rate through 2011 as it continues to work the bugs out of the project.

The company, Canada’s No. 5 independent oil producer, said it expects Long Lake to produce between 38,000 and 45,000 barrels per day of bitumen next year, less than the 72,000 bpd it is designed to produce.

Despite the production issues, Nexen expects Long Lake to soon begin spinning off cash instead of draining the company’s coffers, which the company hopes will help boost its shares.

“For Long Lake, the market wants to see positive cash generation,” Marvin Romanow, Nexen’s chief executive, said at a company investment forum. “We’ve moved to a break-even point today and we are headed in the right direction.”

Still, Nexen expects to end 2011 producing less than the design rate of the facility, forecasting production at the end of next year at between 42,000 and 55,000 bpd.

The company and its partner Opti Canada Inc OPC.TO, which has a 35 percent stake in the oil sands production and upgrading project, have struggled to boost production since it opened more than two years ago.

But the thermal project, where steam is pumped into the ground to liquefy the tarry bitumen, has been plagued by outages at its processing plant and troubles with producing enough steam.

Nexen shares fell 82 Canadian cents, or 3.7 percent, to C$21.55 on Tuesday on the Toronto Stock Exchange, outpacing a 1.8 percent drop in the exchange’s energy index as oil prices sagged.

Opti, which counts Long Lake as nearly its sole asset, fell further. It dropped 12 Canadian cents, or 14 percent, to 74 Canadian cents, on a volume of almost 31 million shares, 24 times the average volume. It was the second-most active stock on the TSX on Tuesday.

Despite its problems with Long Lake, Nexen said it is considering starting another thermal oil sands project, called Kinosis.

The 80,000 bpd project, just south of its Long Lake property, would be developed in two equal stages. Nexen expects to decide whether to go ahead with the development in 2012.

Also on Tuesday, Romanow said Nexen has no plans to sell its 7.2 percent stake in the Syncrude Canada Ltd oil sands project.

“I think long-term ownership is still a very viable option for us,” Romanow said.

Nexen is also looking for a partner to help develop its shale-gas properties in northern British Columbia.

Gary Nieuwenburg, Nexen’s executive vice-president for Canada, said the company has hired investment bankers to drum up a partner for its shale gas holdings, which Nexen said contain around 21 trillion cubic feet of gas.

Nexen would be the latest to team up with an outside company capable of contributing cash to speed development of massive shale gas prospects, following similar moves in northern British Columbia by Encana Corp (ECA.TO) and a host of other deals in U.S. shale-gas regions.

“We’ve started that process,” Nieuwenburg said. “One of the things that would be key to us is a partnership that brings a (liquefied natural gas) opportunity to the table. A player that has LNG expertise.”

Along with its Canadian oil sands and gas operations, Nexen also operates in the North Sea, Gulf of Mexico, Yemen and elsewhere.

$1=$1.02 Canadian Editing by Rob Wilson

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