Nexen earnings rise fourfold
Mechanical problems still plaguing Long Lake
By Jeffrey Jones, Reuters October 29, 2010
Nexen Inc. and Cenovus Energy Inc. on Thursday said operational problems weighed on their quarterly results, prompting investors to pull away from shares of the Canadian tarsands producers.
The issues were both internal and external, and highlighted complexities of developing Alberta's tarsands, the largest crude-oil source outside the Middle East.
Nexen, Canada's No. 5 independent explorer, earned $534 million, or $1.02 a share, up fourfold from a year-earlier $122 million, or 23 cents a share.
Profit included a net gain of $522 million on the sale of western Canadian heavy oil assets.
Cash flow, an indicator of its ability to fund development, rose 28 per cent to $485 million, or 92 cents a share, from $379 million, or 73 cents.
Nexen, also known for shale gas development as well as offshore operations in the Gulf of Mexico and North Sea, said production for the year is expected to be in its forecast range of 230,000 to 280,000 barrels of oil equivalent.
The company struggled with outages at the processing plant at its Long Lake tarsands project, where it pumps steam into the ground to loosen up the bitumen so it can be pumped to the surface.
Steam generation was hampered by outages at its upgrading plant and power interruptions in August and September, which delayed the ramp-up of output by a few months, it said. Gross bitumen production at Long Lake is about 31,500 barrels a day, about half the capacity.
"What was in the market was, we already knew July and August volumes, and we thought September volumes would be a wee bit better. But they were weak as well," FirstEnergy Capital Corp analyst Michael Dunn said.
The company has wrestled with numerous mechanical problems since startup nearly three years ago, something CEO Marvin Romanow conceded has pressured Nexen's shares.
The equipment is running normally again, but Romanow was hesitant to say if output would climb into the 40,000 to 60,000 bpd range by year-end.
During the quarter, benchmark oil prices averaged $76.25 a barrel, 12 per cent higher than a year earlier.
However, Canadian producers were hampered by wide discounts on their heavy crude due to the shutdowns of two U.S. pipelines on Enbridge Inc's U.S. system, one factor Cenovus cited for lower than expected operating earnings.
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