Nexen Inc. (NXY) reported first-quarter recurring earnings of 35 Canadian cents (34 US cents) per share, below the Zacks Consensus Estimate of 39 cents but up from last year’s earnings of 26 Canadian cents (21 US cents). Quarterly cash flow from operations was C$1.03 (99 US cents) per share, down approximately 4% year over year.
Operational Performance
During the quarter, production before royalties averaged 252 thousand barrels of oil equivalent per day (MBOE/d), or 221 MBOE/d net of royalties, comprising 81% liquids and 19% natural gas. Production before royalties was flat year-over-year and on a net-of-royalty basis, production decreased 2% year over year.
Nexen’s average oil price realization during the quarter was C$78.00 ($74.95) per barrel, up approximately 55% year-over-year and approximately 2% sequentially. Natural gas average price realization during the quarter was C$5.37 ($5.16) per Mcf, up 5% year over year and 25% sequentially.
Nexen spent C$568 million ($546 million) on capital programs during the quarter. At the end of the quarter, the company had C$2.2 billion ($2.1 billion) in cash and C$7.1 billion ($6.8 billion) in long-term debt, with a debt-to-capitalization ratio of 48.3% (down from 48.7% in the previous quarter).
Outlook
To increase value for its shareholders, Nexen is monetizing non-core assets. Following the sale of part of its marketing business, the company now intends to sell its heavy oil assets.
On the exploration and production (E&P) front, Nexen has been gaining traction at the Long Lake project with first quarter production ramped up significantly. In addition, the company is executing different strategies with notable success. It has made major discoveries in its three key conventional basins – Golden Eagle area in the North Sea, Appomattox in the Eastern Gulf of Mexico and Owowo in offshore West Africa.
However, we are concerned about the cost objectives and prolonged development time associated with these discoveries.
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