CALGARY, Alberta (Reuters) - Nexen Inc NXY.TO’s quarterly profit rose a disappointing 3.3 percent as its one-time charges and trading losses nearly wiped out the benefits of record oil prices, the Canadian oil company said on Thursday, sending its shares down 11 percent.
Nexen, which is nearing completion of its C$6.1 billion Long Lake oil sands project in northern Alberta, said it planned to boost capital spending by as much as C$800 million over the remainder of the year to add as much as 6,000 barrels of oil equivalent production a day by year end.
Canada’s No. 4 independent oil explorer and producer said its second-quarter oil production was nearly unchanged from the year-earlier quarter, to 254,000 barrels of oil equivalent a day before royalties. That reflected a two-day strike at a Scottish refinery that shut down a pipeline serving its massive Buzzard oil field in the North Sea.
The company also recorded a C$240 million after-tax charge for stock-based compensation, while poor trading results at its marketing arm cut cash flow by C$164 million as bets on natural gas price disparities went awry.
“We were a little surprised,” said Chris Feltin, an analyst at Tristone Capital. “We were caught offside by the larger-than-expected stock compensation charges and the marketing loss,”
Net income rose a scant 3.3 percent to C$380 million, or 70 Canadian cents a share, in the quarter, from C$368 million, or 68 Canadian cents, for the same period last year. Revenue rose 48 percent to C$2.07 billion.
Nexen spokesman Michael Harris said the charge cut earnings by 45 Canadian cents per share.
Without the charge, earnings per share would have come in at C$1.15, below analysts’ average operating profit estimate of C$1.33 a share, according to Reuters Estimates.
The company, which produces oil and gas from holdings in North America, the North Sea, Yemen and elsewhere, benefited from record oil prices, selling its output for an average of C$118 per barrel in the quarter, 63 percent more than in the same period of 2007.
Nexen said it was on track to meet its 2008 production target of between 260,000 barrels and 280,000 barrels a day.
Cash flow, a key indicator of an oil company’s ability to pay for new projects and drilling, was C$946 million, or C$1.78 a share, up 3.6 percent from C$913 million, or C$1.73 a share, last year.
The cash flow was well below the average of C$2.18 a share forecast by analysts, according to Reuters Estimates.
Nexen said higher taxes in Britain and weak U.S. dollar cut quarterly cash flow by more than C$500 million.
Even so, Nexen said it expects its 2008 cash flow to be about C$4 billion, which will help it fund its revised capital investment program of between C$3 billion and C$3.2 billion. It had originally budgeted C$2.4 billion.
The excess cash flow that isn’t being spent on operations will be used “to reduce net debt, repurchase shares and fund additional capital investment,” chief financial officer Marvin Romanow said on a conference call.
The company has asked the Toronto exchange to approve a repurchase program that will allow it to buy back up to 10 percent of its shares.
Last month Nexen was among 35 companies that Iraq’s oil ministry declared qualified to bid for oil-development contracts in the country. But Charlie Fischer, Nexen’s chief executive, said the firm was in no hurry to begin looking at projects in the war-torn country.
“We have a civil war, effectively, going on there,” Fischer said on the conference call. “So short-term access is unlikely. But there is a lot of oil in Iraq and ultimately the issues that we see there today above ground are going to get resolved.”
At Long Lake, Nexen and partner OPTI Canada Inc OPC.TO expect to start up the project’s upgrader later this summer although output won’t reach its 72,000-barrel-per-day design rate until late 2009.
Nexen shares fell C$4.01 or 11 percent, to C$32.95 on the after the release of its results. The shares have dropped 4.5 percent over the past 12 months.
Additional reporting by Scott Anderson; editing by Janet Guttsman