Nexen Inc.’s (NXY) fourth-quarter 2010 earnings from continuing operations were 40 US cents (41 Canadian cents) per share, which missed the Zacks Consensus Estimate of 41 US cents and was below 47 US cents earned in the prior-year quarter.
Quarterly cash flow from operations was US$1.03 (C$1.04) per share, down 35% year over year due to lower production and lower marketing contribution and adjustments to the annual cash tax provision in the U.K. However, it increased sequentially by 13% on strong production volumes and rising oil prices.
Total revenue slipped more than 5% to C$1,555 million (US$1,534.8 million) from the year-earlier level of C$1,643 million (US$1,621.6 million). However, the quarterly figure beat the Zacks Consensus Estimate of US$1,333 million.
Operational Performance
During the quarter, production before royalties averaged 246 thousand barrels of oil equivalent per day (MBOE/d), or 227 MBOE/d net of royalties, comprising 82% liquids and 18% natural gas. Production before royalties decreased approximately 7% year over year and on a net-of-royalty basis, it decreased approximately 3%.
Lower production mainly reflects downtime related to the commissioning of the fourth platform at Buzzard in 2010 as well as divestment of its heavy oil properties. However, this decline was partially offset by increased production at Long Lake.
Nexen’s average oil price realization during the quarter was C$84.47 (US$83.37) per barrel, up more than 10% year over year. Natural gas average price realization during the quarter was C$4.16 (US$4.11) per Mcf, down more than 3% year over year.
Nexen spent C$677 million (US$668.2 million) on capital programs during the quarter. At the end of the quarter, the company had C$1.005 billion (US$991.9 million) in cash and C$5.079 billion (US$5.013 billion) in long-term debt, with a debt-to-capitalization ratio of 36.6% (down from 39.8% in the previous quarter).
Outlook
To increase value for its shareholders, Nexen has monetized its non-core assets, including the sale of its 62.7% interest in Canexus Income Fund, and generated C$1.7 billion of cash proceeds, substantially surpassing its own expectation of generating C$1 billion.
However, tough competitions from peers such as Suncor Energy Inc. (SU), as well as problems of execution in the company’s line-up of long-cycle projects persist. Hence, we prefer to stay on the sidelines and maintain our long-term Neutral recommendation. Nexen also holds a Zacks #3 Rank, which is equivalent to a short-term ‘Hold’ rating.
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