Uncertainties associated with deepwater drilling in the Gulf of Mexico (GoM) persisted following the U.S. government’s six-month moratorium on deepwater drilling. Calgary, Alberta-based Nexen Inc. (NXY) has postponed drilling a deepwater well in the Kakuna prospect of the GoM. Following two successful wells drilled early this year, this was the last well to be drilled.
Besides Nexen, many GoM players have curtailed their drilling plans since the oil spill disaster occurred in April.
The Gulf of Mexico is an important area of exploration for several oil majors. In March, Nexen announced an oil discovery at its Appomattox prospect in the Eastern GoM, where it has a 20% working interest. Royal Dutch Shell (RDS.A) is the operator, with an 80% working interest in this prospect.
Though Nexen has claimed that the moratorium has no immediate effect on its production, the development activity in the GoM is an integral part of the company’s long-term growth trajectory.
Apart from GoM, Nexen’s diversified portfolio of E&P (exploration and production) assets includes high-impact exploration prospects in 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.
Since the Deepwater Horizon explosion in April in the GoM, Nexen shares tumbled approximately 15%. While success on the exploration front may improve sentiment on the stock, we are concerned about the company’s production growth following last month’s divestiture of heavy oil properties.
Read the full analyst report on “NXY”
Read the full analyst report on “RDS.A”
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