Nexen Inc. (NXY), a major Canadian oil and gas company, expedited the start-up of its fourth production platform in the Buzzard oil field in the North Sea. The company intends to commence the platform earlier than expected in an effort to reduce costs and curtail operational interruptions.
 
The progress at readying the fourth platform at Buzzard has been remarkable so far. Nexen expects to begin operations at the platform in October 2010 as against the earlier schedule of early 2011.
 
The start-up procedure will reduce Nexen’s fourth quarter production volumes at Buzzard to 70% to 90% of normal, but will return to full rates before the end of the year. The company reaffirmed its overall annual production target in the range of 230,000 to 280,000 barrels per day before royalties.
 
Despite the recent sale of the company’s Canadian heavy oil assets, its optimism in achieving the production target mainly reflects its increasing output at the Ettrick Field in the North Sea and at the Long Lake oil sands project in Alberta. Moreover, new shale gas assets are scheduled to start producing in the fourth quarter.
 
The company added that on an equivalent basis, it will deliver new production volumes of approximately 70,000 barrels of oil per day over the next 24 months from Long Lake, Usan (field offshore Nigeria ) and shale gas.
 
Nexen has a diversified portfolio of exploration and production assets that comprise high-impact prospects in the U.S. Gulf of Mexico, offshore West Africa (primarily Nigeria ) and the North Sea. This provides the company with a multi-year inventory of development projects and a positive, long-term production-growth profile. Additionally, Nexen’s other pipeline projects, namely, Golden Eagle, Appomattox, Knotty Head, Owowo, shale gas and future oil sands phases are expected to contribute to volumes.
 
However, we remain concerned about the problems on the execution front in the company’s line-up of long-cycle projects. While the recent quarter saw a positive impact from the ramping up of production in the Long Lake oil sands project, we are concerned about the cost associated with it.
 
We have a Zacks Rank of #3 (short-term Hold recommendation) on the shares. We also reiterate our long-term Neutral rating.
 
NEXEN INC (NXY): Free Stock Analysis Report
 
Zacks Investment Research