Record production in Gulf of Mexico (GOM) operations — notably its Aspen field in the deepwater — along with favorable commodity prices, boosted Calgary-based Nexen’s net income 160% in the second quarter compared with a year ago, the company said Thursday. Production-wise, Nexen has charted a course for 6-10% growth this year.

Sequentially, Nexen reported that natural gas production in the second quarter climbed 6% from the first quarter, to 316 MMcf/d, while crude was up 7%, averaging 227,700 bbl/d. Nexen said it expects to produce between 190,000 and 196,000 boe/d after royalties this year. With production in this range, cash flow will approximate C$1.7 billion (C$13.35 per share), assuming oil prices average US$27/bbl, gas prices average US$4.50/Mcf and the U.S./Canadian exchange rate averages $0.75 for the rest of the year. The average sales price realized for the quarter was C$36.71/boe, compared with C$35.18 in 2Q02.

“Our operations at Aspen in the deepwater of the Gulf of Mexico are having a dramatic impact on our financial results,” said CEO Charlie Fischer on Thursday. “Margins at Aspen are more than twice our corporate average and the cash flow from Aspen’s 27,000 boe/d is equivalent to about 58,000 boe/d from our other operations. The Gulf of Mexico is now our strongest cash contributor and will grow further with the addition of high margin volumes from our Gunnison project which will commence production in about six months time.”

Lehman Brothers analysts Thomas R. Driscoll and Phillip R. Skolnick said Thursday that Nexen has demonstrated the “potential to provide attractive returns” outside of its international operations because of discoveries in the GOM deepwater. Nexen, noted the analysts, expects to spend C$1.3 billion this year without acquisitions, and based on this level of spending, they estimate production net of royalties will grow 6%. For longer-term growth, Nexen is “testing coalbed methane potential in Canada,” and also is targeting deep gas prospects in northeast BC, “particularly on the highly prospective Slave Point trend.”

Nexen now is soliciting bids for a package of non-core light oil properties located in the Williston Basin of southeast Saskatchewan. These properties currently produce approximately 9,100 boe/d (7,100 after royalties), and Nexen expects to close the sale by the end of the third quarter.

“Surplus cash flow, expected proceeds from dispositions and a stronger Canadian dollar are combining to significantly reduce our net debt,” said Fischer. “By improving our balance sheet this year, we are enhancing our ability to finance major growth opportunities like Nigeria and our Premium Synthetic Crude project.” Fischer noted that Nexen also is “building strong competitive positions in the deepwater Gulf of Mexico, offshore West Africa, in the Middle East and in the Athabasca oil sands. These strategic basins offer significant growth opportunities and strong investment returns.”

Nexen said its Gunnison deepwater development project in the GOM remains on budget and on schedule, with production scheduled to begin in early 2004. Production is estimated at 30 MMcf/d and 2,000 bbl/d, net to Nexen, increasing to 50 MMcf/d and 9,000 bbl/d by the end of 2004. The current development plan will fill approximately 75% of the design capacity of the facility, which will leave room for growth from exploration and the processing of third-party volumes.

Nexen also expects to begin drilling a third development well at its GOM Aspen field in the fourth quarter. With success, this will be followed by an exploration well at Crested Butte, a direct offset to Aspen. An exploratory test of the Gotcha prospect, located on Alaminos Canyon Block 856, adjacent to Shell’s announced Great White discovery, is expected to begin drilling late in the fourth quarter or early next year.

“The coming months will be exciting ones at Nexen as we drill major exploration wells in the Gulf of Mexico, Yemen and offshore West Africa, delineate our recent discoveries in Yemen, finalize plans to proceed with commercial development of Long Lake and Block 222, and commence production at Gunnison,” said Fischer.

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