Nexen Posts Second Quarter Earnings, Issues Quarterly Dividend

Quarterly cash flow from Nexen's operations was $443 million compared to $946 million last year. This reflects the impact of lower commodity prices as WTI averaged US $60/bbl for the quarter, compared to US $124/bbl a year ago.

Production was lower in the quarter due to a shutdown at Buzzard for a planned rig move and a coker turnaround at Syncrude. Presently, total company production volumes are approximately 260,000 boe/d with Buzzard and Syncrude back at full rates.

For the quarter, our marketing business contributed $34 million to our cash flow, compared to $84 million in the previous quarter. Marketing's first quarter contribution was boosted by gains on the use of its storage positions to take advantage of contango in the crude oil markets.

WTI averaged US$60/bbl in the second quarter, compared to US$43/bbl in the previous quarter. With oil prices increasing throughout the second quarter, the fair value of our put options has fallen considerably. The put options have an annual average Dated Brent strike price of US$60/bbl and would be in-the-money if prices average approximately US$70/bbl or lower for the rest of the year.

Year to date, our capital investment has exceeded cash flow. Our 2009 capital program is somewhat front-end loaded as we complete our new developments at Ettrick and Longhorn, and the Long Lake debottleneck project. With expenditures on these investments behind us, capital on these projects next year will be minimal. When ramped up, the annual pre-tax cash flow contribution of Ettrick and Longhorn at current commodity prices is approximately $300 million. Gas prices will drive the pace of our future shale gas investment programs.

"Our solid quarterly cash flow continues to be driven by our industry leading cash netbacks," stated Marvin Romanow, Nexen's President and Chief Executive Officer. "Our financial position remains strong and we have substantial liquidity. When we combine this with our high netbacks, we are well positioned in the current environment."

Second quarter production volumes averaged 240,000 boe/d (208,000 boe/d after royalties) with 85% of our production weighted to crude oil. Volumes were lower due to a planned rig move at Buzzard and a turnaround at Syncrude. At Buzzard, production was temporarily shut-in while a development drilling rig was moved back to the platform following the completion of rig modifications. Buzzard contributed 87,500 boe/d (202,500 boe/d gross) to our volumes, which was 5,200 boe/d less than the first quarter. Syncrude production was lower due to a planned turnaround of Coker 8-3, which took longer than anticipated. Presently, total company production volumes are approximately 260,000 boe/d with Buzzard and Syncrude back at full rates.

In the third quarter, production is expected to be temporarily lower than second quarter volumes as a result of maintenance downtime at a number of fields. As previously announced, Buzzard will be shut down for four weeks for the tie-in and jacket installation of the fourth platform. This platform will allow us to handle higher levels of hydrogen sulphide and maintain peak production until at least 2014. The shutdown is scheduled to coincide with an expected six week slowdown of the Forties pipeline for routine maintenance.

Elsewhere in the North Sea, Scott/Telford will be shut down for approximately five weeks for planned maintenance. In the Gulf of Mexico, production volumes from Wrigley will be limited for approximately three weeks to complete corrosion mitigation work. Finally, at Long Lake, bitumen volumes will be impacted by downtime related to the replacement of valves and maintenance in the water treatment plant.

In the fourth quarter, volumes are expected to grow significantly from current levels with the continued ramp up of Long Lake, the start up of Ettrick and Longhorn and incremental shale gas production.

"New volumes from the start-up of Ettrick and Longhorn will help to offset some of this downtime," said Romanow. "With the longer than expected turnaround at Syncrude and the ongoing ramp up of Long Lake, we now expect to be towards the low end of our annual guidance."

Quarterly Dividend

The Board of Directors has declared the regular quarterly dividend of $0.05 per common share payable October 1, 2009, to shareholders of record on September 10, 2009. Shareholders are advised that the dividend is an eligible dividend for Canadian Income Tax purposes.

 

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