CALGARY, Alberta (Reuters) - Fourth-quarter profit at Nexen Inc NXY.TO more than doubled on big jumps in oil output and prices, although a writedown of Gulf of Mexico reserves weighed on results, Canada’s No. 4 independent oil explorer said on Thursday.
Nexen said it was disappointed by development drilling at the Aspen field in the U.S. Gulf, and that its accounting method had forced it to reduce its tally of proved reserves there by 13 million barrels of oil equivalent.
The company has not given up on the play, however, with expected returns on its capital of more than 30 percent.
It is getting a big boost from its 43 percent owned Buzzard oil field in the North Sea and months from starting up the C$6.1 billion ($6.1 billion) Long Lake oil sands project in northern Alberta, in which it has a 50 percent stake.
Nexen Chief Executive Charlie Fischer said the potential of the 200,000-barrel-a-day Buzzard field, which began producing last year, is expanding.
“The reservoir continues to be larger than what we had originally anticipated and drilling results are confirming that, and productivity is causing us to be confident about improved recovery factors,” Fischer told analysts.
The production platform offers little opportunity for boosting output, but there many be opportunities for Nexen to take additional oil from Buzzard at its nearby Ettrick field, expected to start pumping crude later this year, he said.
Fischer said the company may also consider a stand-alone facility for the production.
In the quarter, Nexen earned C$194 million, or 37 Canadian cents a share, up from the year-earlier C$77 million, or 15 Canadian cents a share.
The revisions at Aspen and some Gulf shelf properties prompted a non-cash impairment charge of C$238 million. The firm also recorded a C$31 million stock compensation expense and a C$76 million exploration charge.
Excluding such items, earnings were C$468 million, or 89 Canadian cents a share, lagging an average forecast of analysts polled by Reuters Estimates by 5 Canadian cents a share.
Cash flow, a glimpse into an oil company’s ability to fund development, rose 60 percent to C$1.08 billion, or C$2.04 a share, from C$673 million, or C$1.28 a share.
Full-year earnings were C$1.09 billion, or C$2.06 a share, up 81 percent from C$601 million, or C$1.15 a share.
Shares in Nexen, which has also has operations in Yemen and offshore West Africa, rose 46 Canadian cents to C$29.73 on the Toronto Stock Exchange.
That is down 11 percent from early January, when reports surfaced that some hedge funds were pushing for a breakup of Nexen along geographic lines.
Such talk has since died down, but the company must still demonstrate it has good long-term potential to keep production on the rise, said Chris Feltin, an analyst at Tristone Capital.
“I think it is imperative on Nexen to execute on its conventional assets,” Feltin said. “With Long Lake coming on stream in 2008 the market wants to see some other avenues of growth, both in terms of production and reserves.”
In the fourth quarter, overall production after royalties rose by about a third to 214,000 barrels of oil equivalent a day. Buzzard contributed 75,000 barrels a day of output.
In 2008, the company expects production to range from 220,000 to 240,000 barrels a day.
Nexen’s fourth-quarter average oil price jumped 36 percent to C$82.80 a barrel.
Additional reporting by Jonathan Spicer; Editing by Rob Wilson