Nexen Inc.'s decision to scale down its marketing division paid off in 1Q2009, but the Calgary-based producer still saw earnings tumble 79% compared with the same period last year.
Earlier this year Nexen, one of North America's leading gas marketers, said it had been "scaling back" its marketing division to minimize losses on closing positions and to refocus on physical transportation and storage (see NGI, Feb. 16). The marketing division contributed cash flow of C$83 million in 1Q2009, compared with C$14 million in 1Q2008. The increase was driven by a renewed focus on the optimization of physical marketing assets, Nexen said. The company exited the last of its gas trading positions that did not support its physical marketing business in January.
"We have returned our marketing business back to basics and this has reduced our risk exposure," said Nexen CEO Marvin Romanow. "We expect to see positive cash flow from this division for the year."
But improvements in the marketing unit were not enough to lift Nexen's declining income and earnings. The company reported 1Q2009 income of C$135 million (26 cents/share), down 79% from C$630 million ($1.19/share) in 1Q2008.
Nexen has a strong balance sheet, with more than C$3.3 billion of available liquidity in cash and undrawn committed lines, Romanow said.
Production in the first quarter was 252,000 boe/d, Nexen said. The company continues to see the return of Gulf of Mexico (GOM) production that was shut in due to hurricanes in 2008 and expects remaining shut-in production to be back in stream later this year and in 2010. "We expect our U.S. production to increase over the course of the year as [the GOM] Longhorn [development] comes onstream and most fields are restored to pre-hurricane levels," Romanow said. Nexen has a 25% interest in Longhorn. First production from Longhorn is expected by mid-year, with peak production of approximately 200 MMcf/d (50 MMcf/d net to Nexen) expected by the end of the year.
Nexen, which has estimated 3-6 Tcf of recoverable contingent resource on its approximately 88,000 acres in the Dilly Creek area of the Horn River Basin, said horizontal well testing is under way there and it expects to have six wells on production this year.
"We continue to be encouraged by the results of our shale gas drilling program. It demonstrates that we can produce the considerable resource potential contained in our lands. When gas prices recover, we will ramp up the pace of development and focus on reducing well costs," Romanow said.
In December Nexen said it was planning capital expenditures in 2009 of C$2.6 billion, up from the C$2.4 billion it had initially forecast for 2008 spending (see NGI, Dec. 15, 2008). At that time company officials said Nexen was in good shape financially, mostly because several of its long-term projects have been completed. The new projects, which included Longhorn gas development, would help lift Nexen's output by 10% in 2009 over 2008's level to between 220,000 boe/d and 235,000 boe/d, they said.
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