Thursday, October 27, 2011

Nexen may make ''orderly exit'' from Yemen if political strife continues (Nexen)

Oct 27, 2011

CALGARY _ Ongoing political strife in Yemen may cause Nexen Inc. to halt its long-running operations in the Middle Eastern country, one of many to be swept by the so-called Arab Spring protests.

Whether the Calgary-based company (TSX:NXY) would be able to meet a year-end deadline to extend a contract with the Yemeni government has been a big question mark for much of the year.

"The political situation is making it difficult to make visible progress on an extension," Kevin Reinhart, Nexen´s chief financial officer, said Thursday.

"While we continue our efforts, we are preparing for an orderly exit if these efforts prove unsuccessful."

Reinhart made his comments on a conference call to discuss the company´s third-quarter financial results that saw net profits cut by nearly two thirds on lower production and falling sales.

The Calgary company reported early Thursday that it earned $200 million or 38 cents a share for the quarter ended Sept. 30.

That was down from $581 million or $1.11 a share a year earlier.

Analysts polled by Thomson Reuters were on average expecting earnings of 31 cents per share.

Company-wide production after royalties ped to 164,000 oil equivalent barrels a day from 180,000. Output was hurt by reduced production from its Buzzard field in the North Sea, planned maintenance and weather-related downtime in the Gulf of Mexico.

Quarterly sales ped to just under $1.4 billion from $1.45 billion.

Nexen also said Thursday that it has received approval from the U.K. Department of Energy and Climate Change to go ahead with plans to develop the Golden Eagle oil deposit in the North Sea.

The C$3.3-billion investment by Nexen and its partners is expected to produce an estimated 140 million barrels of oil equivalent reserves over an 18-year period.

Nexen is the operator of Golden Eagle and holds a 36.54 per cent working interest in the field in the central North Sea.

The remaining interest is held by Maersk Oil North Sea UK Ltd., with 31.56 per cent, Suncor Energy UK Ltd. (TSX:SU), at 26.69 per cent and Edinburgh Oil and Gas, with (5.21 per cent.

During construction, the Golden Eagle development is expected to more than 2,000 jobs as well as 400 permanent jobs when production begins.

"This is a great day for the U.K. oil and gas industry. Regulatory approval marks a major milestone in the development of Golden Eagle, which is one of the largest oil discoveries in the U.K. North Sea since our Buzzard discovery," said Phil Oldham, managing director of Nexen Petroleum UK Ltd.

In its earnings report, Nexen said the company generated cash flow of $516 million in the third quarter, up from $496 million last year.

"While we have made good progress against several key initiatives so far this year, our production has been below our expectations due to the downtime at Buzzard," said Marvin Romanow, president and CEO of Nexen.

"With the work complete and the fourth platform commissioned, we are now able to produce from our full well set at Buzzard."

The Calgary-based company also operates the Long Lake oilsands project, which has been beset by operational glitches since it started up in late 2008.

At Long Lake, steam is pumped deep underground to soften the thick, tarry bitumen so it can flow to the surface. The project is unique in that uses the dregs of each barrel of crude as a fuel source.

But the project has lagged its design capacity of 72,000 barrels of bitumen per day. In the first quarter, Long Lake was producing only 28,500 barrels per day.

Nexen´s erstwhile Long Lake joint-venture partner, Opti Canada Ltd., filed for court protection from creditors earlier this year. In July, China National Offshore Oil Corp. acquired Opti for $2.1 billion.

Nexen has traced the hiccups back to the project´s inception around a decade ago and is currently working on fixing those mistakes.

It initially planned to develop land closest to the upgrader first in order to save money on pipelines and other infrastructure. Those areas, however, are not in the highest quality part of the reservoir.

Nexen is a major landholder in northeastern B.C.´s natural gas-rich Horn River Basin. It has been actively seeking a partner to help develop those assets, potentially exporting the gas to Asia via the West Coast.

In addition, Nexen has a seven per cent interest in the massive Syncrude Canada Ltd. oilsands mine, offshore operations in the North Sea, Gulf of Mexico and West Africa and oil production in Yemen.

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