The catastrophic Gulf of Mexico (GoM) oil spill enforced Nexen Inc. (NXY), a major Canadian oil and gas company, to delay the appraisal of the deepwater discovery at its Appomattox prospect in the Eastern GoM for the time being.
However, management said that the six-month drilling ban would not impact the company’s production profile in the near term as it has no immediate development drilling plans. While two appraisal wells have already been drilled at this prospect, Nexen anticipates a delay in three to five appraisal well programs.
Nexen announced an oil discovery at Appomattox in March this year, where it has a 20% working interest. Royal Dutch Shell is the operator, with an 80% working interest in this prospect.
The delay in the appraisal program will free up cash for the company. Nexen continues to look for opportunities elsewhere. Its current production at the Long Lake oil sands project is about 27,000 barrels per day (BPD), up from 25,000 in late April.
Since the last few quarters, production at this project has been beefed up and is targeting a designed rate of 72,000 BPD.
While Nexen experienced solid production growth at the Long Lake oil sands project, we are concerned about the uncertainty associated with its target production and cost objectives.
Though the delay in appraising Appomattox prospect is not a welcome event, Nexen will advance its future growth initiatives with the development of several major identified projects including Long Lake in Canada, Usan in offshore Nigeria, Golden Eagle in the U.K. North Sea and Horn River shale gas in British Columbia.
Read the full analyst report on “NXY”
Zacks Investment Research
