Thanks to strong oil prices, Calgary-based Nexen Inc. posted strong first quarter earnings on Tuesday as the company continues to divest portions of its energy marketing business in order to focus on core competencies.

The producer, which posted net income of C$185 million, or C35 cents/share, attributed its 85% weighting to crude oil for “driving our industry-leading netbacks resulting in superior returns for every dollar we invest.” For 1Q2009 the company recorded net income of C$135 million, or C26 cents/share.

The company produced 252,000 boe/d during 1Q2010, which is flat to last year’s quarter. However, after royalties were taken out, Nexen produced 221,000 boe/d during 1Q2010, down from 225,000 boe/d during 1Q2009.

“We are generating value and are well positioned for growth,” stated CEO Marvin Romanow. “When you combine this with visible growth coming from several identified projects such as Horn River shale gas, Usan in 2012, Golden Eagle two years after that and then Appomattox, Owowo and future phases of Long Lake, the value proposition for Nexen shareholders is significant. In the next few years, we have approximately 70,000 b/d of new production coming on as we grow Long Lake and bring Usan on stream.”

Staying true to its strategy announced last summer to divest its domestic and European natural gas and power marketing businesses (see Daily GPI, July 24, 2009), Nexen said that on the heels of successfully unloading its European gas and power marketing business for C$15 million during 1Q2010, it has “substantially completed negotiations” for the sale of the company’s North American natural gas marketing business subject to finalizing documentation and customary closing conditions. Nexen said it expects to sign the agreement in the second quarter and close the sale in the third quarter. The sale is expected to be cash neutral and Nexen expects to recognize a noncash loss on the sale of C$250-290 million due in part to the transfer of long-term natural gas physical transportation commitments that are less valuable with increased gas supplies that reduce the need for transport services.

During 4Q2009 Nexen was the ninth largest North American gas marketer, according to NGI‘s 4Q2009 Top North American Gas Marketers Ranking. The company transacted 5 Bcf/d.

On the natural gas production side, Nexen said it has successfully completed the drilling of its eight-well program in the Horn River Shale in northeast British Columbia, noting that it continues to make significant progress on lowering costs and gaining access to the shale reservoir on the company’s “substantial” acreage. The company said it plans to complete these wells in the second half of the year with 18 fracs per well, with first production expected before year-end, ramping up to 50 MMcf/d.

Nexen said it continues to estimate that its Dilly Creek lands in the Horn River Basin contain between 3 Tcf and 6 Tcf of recoverable contingent resource, assuming a 20% recovery factor. However, the company noted that production results to date, together with those of its competitors in the region, indicate that recovery factors will be higher.

“I am pleased with the progress we are making in shale gas,” said Romanow. “We are successfully executing our drilling plans and bringing unit costs down. With a substantial land position and favorable land tenure terms, we are in excellent position to control the pace of development and maximize the value of this resource.”

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