Canadian oil and gas company Nexen Inc. (NXY) entered into a strategic agreement with Japanese energy giant INPEX CORPORATION for the development of shale gas fields in northeast British Columbia. Although, as a part of the deal, Nexen will sell 40% working interest in the assets, it will still act as the operator.
The divested stake of the joint venture will be controlled by INPEX Gas British Columbia Ltd. that is jointly established by INPEX (82%) and JGC Corporation (18%). The disposition will fetch Nexen approximately C$700 million or $680 million, of which 50% will be an upfront payment and the remaining will be in capital carry.
The project will witness appraisal and development of acreage spread across Horn River and Cordova – that is jointly estimated to contain 4-5 trillion cubic feet (Tcf) of recoverable contingent resource, and the Liard basins with a potential of about 5-23 Tcf of gas.
Nexen targets to complete the drilling on the 18-well pad in the fourth quarter of 2012, leading to increased gross production volumes of approximately 155 million cubic feet per day in early 2013. Nexen along with its partner also plans to evaluate the opportunity of liquefied natural gas exports facilities.
The deal, expected to be closed in the first quarter of 2012, has been approved by the board of directors of Nexen, INPEX and JGC Corporation. However, the agreement awaits approval by the Canadian authority.
Nexen remains highly optimistic regarding this collaboration and expects to see lucrative results with the upstream activities. The company is confident that the high level of technical expertise and skilled manpower advanced by the partner will enable the parties to achieve operational excellence.
In a separate announcement, Nexen provided production, cash flow and capital investment guidance for 2012. The company guided for a production of 185,000-220,000 barrels of oil equivalent per day (Boe/d) before royalties.
For 2012, Nexen expect to generate cash flow from operations of C$2.8 billion to C$3.3 billion and expend C$2.7 billion to C$3.2 billion on capital programs.
Calgary, Alberta-based Nexen has a diversified portfolio of exploration and production operationsin Canada, the U.S. Gulf of Mexico, North Sea (U.K.), Yemen, Nigeria and other areas. We believe that the company’s multi-year inventory of development projects and endeavors – Telford well, the Blackbird field tie-in and the Rochelle venture – will aid in accomplishing the targeted growth level.
In the current scenario, we expect Nexen to perform in line with the broader market and maintain a long-term Neutral rating. Nexen, which operates with other players such as Suncor Energy Inc. (SU) and EnCana Corporation (ECA), also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
