* Q4 EPS C$0.50 vs est C$0.49
* Q4 prod up 15 pct to 265,000 boe/d, before royalties
* Says making good progress on asset disposition program
* Negotiating with Yemen govt over extending contract (Recasts; adds conference call details, updates share movement)
BANGALORE, Feb 18 (Reuters) - Nexen Inc NXY.TO, Canada's No. 5 independent oil exploration company, returned to profit in the fourth quarter and said it expects to make over C$1 billion over the next two years from the sale of certain non-core assets.
"On the larger North American gas business, we are well into the second round of bidding and we're quite pleased with the response that we have received so far," Nexen Chief Financial Officer Kevin Reinhart said on a conference call.
He also said the company was excited by the interest shown in its heavy oil business by investors.
On Monday, Nomura Holdings Inc (8604.T), Japan's largest brokerage, said it plans to buy the European natural gas and power trading businesses of Nexen, in a deal reportedly worth about $55 million. [ID:nTOE61E00V]
Nexen, which operates about four oil blocks in Yemen, also said that it was talking to the country's government to extend its production agreement.
"We have produced over a billion barrels, we still think there is a reasonable quantity of oil that's left beyond our primary term which ends in 2011," Nexen Chief Executive Marvin Romanow said.
However, Nexen said that the UK's largest oilfield, Buzzard, has reduced output to between 30,000 and 50,000 barrels of oil equivalent per day (boepd) due to a technical problem. That is down from 200,000 boepd in the fourth quarter. [ID:nLDE61H1P0]
The company said net income rose to C$259 million, or 50 Canadian cents per share, from a loss of C$181 million, or 35 Canadian cents, in the fourth quarter of 2008.
Revenue was C$1.56 billion.
According to the average of analysts' estimates compiled by Thomson Reuters I/B/E/S, Nexen had been expected to post a profit of 49 Canadian cents per share.
Nexen's cash flow rose to C$836 million, or C$1.60 per share, from C$559 million, or C$1.08, in the prior-year quarter.
Nexen's production, before royalties, averaged 265,000 boepd, up 15 percent from 230,000 boepd, a year ago.
Nexen shares were up about 1 percent, or 25 Canadian cents, at C$23.36 Thursday afternoon on the Toronto Stock Exchange. (Reporting by Ashutosh Joshi in Bangalore; Editing by Vinu Pilakkott, Anne Pallivathuckal)