July 18, 2008 / 6:21 PM / 9 years ago

Nexen no guide for Canadian oil earnings - analysts

(In U.S. dollars unless noted.)

By Scott Haggett

CALGARY, Alberta, July 18 (Reuters) - Weak second-quarter financial results from Nexen Inc NXY.TO are unlikely to be a harbinger of similarly poor reports from the rest of Canada’s energy sector, analysts said on Friday.

Nexen, Canada’s No. 4 independent oil exploration and production company, reported just a slight uptick in its second-quarter profit on Thursday despite record high oil prices.

The company posted solid earnings from its oil and gas production business and issued a bright forecast for cash flow and output. But a big charge for stock-based compensation and weak results from its marketing business left its results well shy of analysts forecasts.

The timing couldn’t have been worse, coming as oil prices were plunging for a third straight day, and Nexen’s stock skidded 11 percent.

“It was like dynamite meeting fire,” said Chris Feltin, an analyst at Tristone Capital. “You had bad news on a jittery oil-market day.”

Nexen was the first of the Canada’s big oil and gas companies to report its second-quarter results. Its peers -- beginning with No. 3 refiner and producer Husky Energy Inc HSE.TO, which reports on Wednesday -- are unlikely to repeat the weak performance as robust commodity prices buoy results.

Benchmark oil prices averaged more than $123 a barrel in the quarter, 90 percent higher than in the year-before quarter. As well, natural gas prices were half again higher than in the second quarter of 2007, averaging $11.58 per million British thermal units.

“You’re going to see pretty big numbers coming from these guys,” said Martin Molyneaux, an analyst at FirstEnergy Capital. “It’s the first quarter ever with triple-digit oil prices, double-digit natural gas and sky-high heavy oil prices.”

Still, the results could be clouded by one-charges such as Nexen’s C$240-million ($238-million) hit for stock-based compensation costs that came as the company’s shares rose and the value of options given employees had to be revalued.

With their stock prices pushed higher by robust commodity prices, other Canadian oil companies may post similar charges.

“You could look at some of the stronger performers over the second quarter and make an argument that, potentially, the stock-based compensation expense for some of the companies might be larger than the street is expecting,” Feltin said. “That might be one of the only things I can see where we are getting a signal from Nexen’s results.”

Nexen’s quarter was also hurt by a poor performance from its marketing business, a usually reliable performer whose wrong-way bets on natural gas markets cut cash flow by C$164 million in the quarter.

However, few of Nexen’s rivals have marketing operations as substantial as Nexen, analysts say, lowering the risk that bad bets will result in an unexpected profit hit.

“All the companies do marketing but not to the magnitude of Nexen,” Molyneaux said. “These guys market close to half-a-million barrels (of oil) and 3 to 4 billion cubic feet of gas a day.” ($1=$1.01 Canadian) (Editing by Peter Galloway)

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