Nexen delivered solid second quarter results generating cash flow from operations of $946 million and net income of $380 million. They also generated the highest quarterly cash netbacks in our history. The production is unhedged and we remain well positioned to capture all upside from high commodity prices.
Production averaged 254,000 boe/d (211,000 boe/d after royalties) for the second quarter. The shut down of the Forties pipeline by a two-day labor strike at the Grangemouth refinery in Scotland caused us to temporarily shut in our North Sea production. Consequently, our production volumes for the second quarter were lower than our first quarter volumes. We remain on track to meet our annual production guidance.
At the end of the quarter, they were carrying approximately 850,000 barrels of crude oil inventory from our North Sea operations. This moved approximately $50 million of cash flow into early July, when the inventory was sold.
Net income includes a charge of approximately $330 million ($240 million after tax) for stock-based compensation resulting from a 33% increase in the stock price since the end of the first quarter.
Their marketing division reported a cash flow loss of $164 million in the second quarter compared to a contribution of $13 million in the first quarter. The loss primarily relates to significant increases in NYMEX natural gas prices in North America which resulted in widening location spreads between western supply regions and eastern consuming regions at a time when we were positioned to take advantage of traditional seasonal narrowing. By way of offset, we have $207 million of unrecognized gains on our marketing inventories and transportation assets that have increased in value. These gains can only be booked in the future when the inventories are sold and the transportation assets are used.
For the first six months of 2008, the cash flow exceeded the capital investment by over $500 million and they expect this excess to grow over the balance of the year. These net cash inflows can be used to fund additional capital investment programs, reduce net debt, increase dividends and repurchase shares. Earlier this year, they doubled their quarterly dividend and repaid maturing long term debt. They now intend to seek approval from the Toronto Stock Exchange for a Normal Course Issuer Bid. Subject to approval by the TSX, this Normal Course Issuer Bid will allow them to repurchase for cancellation up to 10% of our public float of common shares. 10% of our public float amounts to approximately 53 million common shares.
They have also increased their capital investment by between $600 and $800 million, depending on program timing. This additional investment allows them to accelerate various projects such as shale gas, coalbed methane and Medicine Hat shallow gas and provides Usan with funding for the remainder of 2008.
For the full year, they expect to generate approximately $4 billion of cash flow assuming WTI oil price of US$90 per barrel and NYMEX gas price of US$8.50 for the second half of the year. This will fund our revised capital investment program of between $3.0 and $3.2 billion and other working capital requirements. Each US$1 increase in benchmark oil and gas prices adds about $20 million and $25 million, respectively, to our after tax cash flow for the balance of the year.
"We continue to review the best opportunities we have to deploy our excess cash to generate value for our shareholders," stated Charlie Fischer, Nexen's President and Chief Executive Officer. "The additional capital investment will add between 4,000 and 6,000 boe/d to our 2008 exit volumes and increase our production in 2009."
The second quarter production volumes averaged 254,000 boe/d (211,000 boe/d after royalties). North Sea production was disrupted by a strike at the Grangemouth refinery which reduced quarterly volumes by approximately 3,000 boe/d.
"We remain on track to meet our annual guidance range of 260,000 boe/d to 280,000 boe/d," said Fischer. "Our Long Lake volumes are continuing to ramp up and we are seeing improved reliability at Syncrude."
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