Nexen Inc. on Thursday kicked off the quarterly earnings season with good news: higher profits than anticipated and solid performance from its operating units.
The Calgary-based producer reported profits in 2Q2010 jumped 92% to C$255 million (C49 cents/share), compared with C$20 million (C4 cents) in 2Q2009. The report beat Wall Street’s estimate by around C35 cents/share. Cash flow reached C$558 million (C$1.06/share) in the quarter.
During a conference call with financial analysts, CEO Marvin Romanow credited “execution success,” higher commodity prices and positive results from the company’s asset sales. Among other things, Nexen sold its North American natural gas marketing business, a transaction now scheduled to close in August (see Daily GPI, May 14).
Operations-wise, the producer nearly doubled its shale gas position in northeast British Columbia in a provincial land sale.
“Following our success at a June land sale, we have increased our position from 128,000 to over 300,000 acres of highly prospective shale gas lands in northeast British Columbia,” said Romanow. “With this acquisition, we are now one of the largest shale gas players in the area.”
Nexen already was a top tier player in the shaly gas region of the Horn River Basin. In 2008 the company estimated its 90,000-acre leasehold in the Dilly Creek held 3-6 Tcf of recoverable contingent resources, assuming a 20% recovery rate (see Daily GPI, April 24, 2008). The latest acquisition added to Nexen’s 38,000 net acres in the promising Cordova play.
Early this year Nexen completed an eight-well program in its Horn River holdings. Average drilling days per well fell to under 25 days, down by one-third from its previous program — even though Nexen has begun drilling 80% longer reservoir lengths and using more hydraulic fractures (fracs).
“We recently began fracing these wells and plan to conduct 18 fracs per well,” said Romanow. “First production is expected before year end, ramping up to 50 MMcf/d in early 2011…Based on what we know today, this play is expected to earn a 10% rate of return with gas prices at US$4/Mcf.”
Nexen also has conducted both vertical and horizontal well tests at the Cordova play and “we’re very encouraged by what we see there,” said the CEO. “When we compare that with Dilly Creek, the way we frame that, the well costs are a bit cheaper because the formation is a bit shallower…The economics look a little better than the Dilly area.”
Nexen’s newest development activities both onshore and offshore are expected to add 70,000 boe/d to the production base, the CEO told analysts.
Natural gas and oil production before royalties reached 248,000 boe/d in 2Q2010. Annual production guidance remains unchanged at 230,000-280,000 boe/d, even with the asset sales. Nexen also is a U.S. Gulf of Mexico explorer, but the deepwater drilling moratorium is not expected to have a big impact on this year’s operations (see related story).
“We are in great shape for the second half of the year,” said Romanow. “Even with the asset sales, we expect to hit our production targets…We also could see some near-term production upside…with the accelerated development of our shale gas properties.”
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