Nexen profit hit by lower production
Increased efficiency starting to help
It’s certainly headed in the right direction LANNY PENDILL, EDWARD JONES ANALYST
Afocus on taking charge of operations rather than being led by results is leading Nexen Inc. into a more productive stage, said the company’s interim leader.
The Calgary-based oil and gas producer already is seeing increased efficiency at its major onshore and offshore operations, with production growing through 2012, Kevin Reinhart said Wednesday.
“A big part of this is having a paradigm shift among all of the people in the organization . . . just committing to achieve our best and not accepting whatever happens, but driving to change outcomes,” Reinhart said in a conference call with analysts. “And I’ve seen a huge improvement on that in the organization and that will pay off significantly.”
The company saw a major leadership change in January when Marvin Romanow stepped down as chief executive. Gary Nieuwenburg, executive vice-president of Canadian operations, followed suit the same day.
Reinhart did not exclude himself from the pool of candidates, but said the board continues to search for a permanent chief executive.
The executives’ sudden departures were not explained but likely the result of investor displeasure at ongoing poor results from Nexen’s Long Lake oilsands project. The thermal project has consistently produced below its 72,000-barrel-per-day capacity, achieving its highest level of production in the first quarter 2012 at 34,500 bpd.
Nexen said it had chosen poorly when drilling first wells near the upgrader to save costs, as the reserves were of lesser quality than farther afield. The company would not quantify how much the poor outcome has cost Nexen share value.
Reinhart remained optimistic investor confidence in the company will grow as production and cash flow increased, but admitted gains made since October at Long Lake lacked weight.
“In fairness, after many years of being disappointed, four months isn’t enough time to erase that, and I accept that,” he told reporters after the annual meeting Wednesday.
Nexen, with operations in Canada, the Gulf of Mexico, the North Sea and offshore West Africa, reported first quarter earnings of $171 million, or 32 cents per share, down from $202 million, or 38 cents per share, a year prior.
The year-over-year slide was attributed to unplanned maintenance at Syncrude, where Nexen has a minority seven per cent stake.
Consolidated revenues were $1.7 billion, up from $1.6 billion a year prior.
Analysts polled by Thomson Reuters were, on average, expecting earnings of 51 cents per share and revenues of more than $1.67 billion.
“Growth may be slow at this point, but it is an improvement from where the company was last year,” said Robert Bellinski of Morningstar. “The company is not in catastrophe mode anymore.”
Cash flow during the first quarter increased to $670 million, from $669 million a year prior.
Nexen’s results benefited from North Sea production, a major contributor to the European benchmark pricing.
“For over a year now we’ve seen Brent trade at a $15 to $29 premium to WTI and lately we’ve seen Canadian crude trade at a significant discount to WTI,” Reinhart said. “The result is we’re getting as much as a $40 per barrel premium over Western Canadian Select oil.”
The firm appears to be staging a turnaround under Reinhart, said analyst Lanny Pendill, with Edward Jones.
“Is two quarters a trend? No, but it’s certainly headed in the right direction, in our view, to the extent that they’ve met production forecasts for the first quarter and they appear to be on track for the second quarter,” Pendill said.
Production during the first quarter averaged 202,000 barrels of oil equivalent per day before royalties, down from 232,000 bpd last year.
Nexen said the slide in volume was made up by the bulk of its oil production being priced off Brent rather than U.S. West Texas Intermediate.
North Sea operations, which account for 85 per cent of Nexen’s oil production, were reduced for much of 2011 as Nexen struggled for nine months to repair a cooling system failure on the rig.
Full production at Buzzard is expected to resume by the weekend after a bearing failure shut down operations Saturday, he said. The interruption was not expected to affect annual production forecasts of 190,000 to 235,000 boe per day.