October 28, 2010 / 6:35 PM / 7 years ago

WRAPUP 3-Operational woes hit Canadian oil sands producers

* Nexen, Opti dealt with outages at Long Lake

* Cenovus hampered by pipeline, refinery issues

* Canadian Oil Sands said Syncrude had extended outage

* Nexen, Cenovus shares fall, Cdn Oil Sands up (Adds Canadian Oil Sands results, closes shares)

By Jeffrey Jones

CALGARY, Alberta, Oct 28 (Reuters) - Three of Canada's major oil sands producers, Nexen Inc NXY.TO, Cenovus Energy Inc (CVE.TO) and Canadian Oil Sands Trust COS_u.TO, said on Thursday that operational problems weighed on their quarterly results, sending some of their shares lower.

The issues were both internal and external, and highlighted the complexities of developing Alberta's massive oil sands, the largest crude oil source outside the Middle East.

Nexen, Canada's No. 5 independent explorer, earned C$534 million ($524 million), or C$1.02 a share, up fourfold from a year-earlier C$122 million, or 23 Canadian cents a share.

Profit included a net gain of C$522 million on the sale of Western Canadian heavy oil assets.

Cash flow, an indicator of its ability to fund development, rose 28 percent to C$485 million, or 92 Canadian cents a share, from C$379 million, or 73 Canadian cents.

Nexen, also known for shale gas development as well as offshore operations in the Gulf of Mexico and North Sea, said production for the year is expected to be in its forecast range of 230,000 to 280,000 barrels of oil equivalent.

The company struggled with outages at the processing plant at its Long Lake project, where it pumps steam into the ground to loosen up the bitumen so it can be pumped to the surface.

Steam generation was hampered by outages at its upgrading plant and power interruptions in August and September, which delayed the ramp-up of output by a few months, it said. Gross bitumen production at Long Lake is about 31,500 barrels a day, less than half the capacity.

"We already knew July and August volumes, and we thought September volumes would be a wee bit better. But they were weak as well," FirstEnergy Capital Corp analyst Michael Dunn said.

The company has wrestled with numerous mechanical problems since start-up nearly three years ago, something Chief Executive Marvin Romanow conceded has pressured Nexen's shares.

The equipment is running normally again, but Romanow was hesitant to say if output would climb into the 40,000 to 60,000 bpd range by year-end.

"I think that with the bumps we took last summer, that's going to make that target a bit more challenging," Romanow said. "But, more importantly, I think when we see how our wells are responding when we provide them the constant steam ... we'll get back on the right ramp-up curve."

Nexen has a 65 percent stake in Long Lake. Opti Canada Inc OPC.TO, which has the remaining interest, reported a net loss C$46 million, or 16 Canadian cents a share, compared with a profit of C$12 million, or 4 Canadian cents a share.

Opti shares fell 3 Canadian cents to 72 Canadian cents on the Toronto Stock Exchange. The company has spent the last several months weighing its strategic options.

Nexen fell 27 Canadian cents, or 1.3 percent, to C$21.35.

PIPELINE PROBLEMS

During the quarter, benchmark oil prices averaged $76.25 a barrel, 12 percent higher than a year earlier. However, Canadian producers were hampered by wide discounts on their heavy crude due to the shutdowns of two U.S. pipelines on Enbridge Inc's (ENB.TO) U.S. system.

That was one factor that Cenovus, the second-largest energy independent, cited for lower than expected operating earnings.

Excluding one-time items, the company earned C$159 million, or 21 Canadian cents a share, down 63 percent from C$427 million, or 57 Canadian cents a share. Analysts, on average, had expected the company to earn 28 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Cash flow fell 45 percent to C$509 million, or 68 Canadian cents a share, also due to a decline in gas production and lower cash flow from its U.S. refining joint venture with ConocoPhillips (COP.N).

"Weak natural gas markets, lower realized heavy oil prices due to pipeline outages, as well as disappointing refinery performance led to lower than expected results," CEO Brian Ferguson said.

Still, Cenovus's own operations, including the Foster Creek and Christina Lake oil sands projects, were meeting or exceeding expectations, he said. Net production from the two averaged 58,107 barrels a day, up 25 percent from last year.

Shares in Cenovus, spun off by Encana Corp (ECA.TO) last year, fell 52 Canadian cents, or 1.8 percent, to C$28.57.

SYNCRUDE WOES

Canadian Oil Sands Trust COS_u.TO, the largest owner of the Syncrude Canada oil sands venture, said its third-quarter profit retreated 31 percent as oil production fell and costs climbed.

Canadian Oil Sands earned C$171 million, or 35 Canadian cents a unit, down from a year-earlier C$247 million, or 51 Canadian cents a unit, in the third-quarter of 2009.

The company had been expected to earn 21 Canadian cents a share, the average estimate among analysts polled by Thomson Reuters I/B/E/S.

Cash from operations, from which the trust pays regular distributions to unitholders, rose 55 percent to C$330 million, or 68 Canadian cents a unit. That was up from C$213 million, or 44 Canadian cents a unit, as lower revenues and higher operating costs were more than offset by a reduction in non-cash working capital, the trust said.

It said its results were hindered by lower production at Syncrude, as planned and unplanned maintenance work cut output from the project's upgraders, which convert tarry bitumen stripped from the sands into refinery-ready synthetic crude.

Reporting after markets closed, its units finished up 21 Canadian cents at C$26.69.

In September, the trust cut its target for annual Syncrude production by 4.6 percent to 105 million barrels due to a longer than planned shutdown of one of the coker units at its upgrading plant.

$1=$1.02 Canadian Additional reporting by Scott Haggett; editing by Rob Wilson

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