Nexen Spotlights 4Q10 Earnings, Ops

Nexen released its 2010 financial results and highlighted its significant progress in delivering results and building value. 2010 highlights include:

  • Corporate-wide
    • Increased annual after royalties production by 7% (after adjusting for the heavy oil sale)
    • Achieved mid-point of production guidance as solid production across the portfolio more than compensated for the sale of our heavy oil properties and disruptions caused by maintenance at third-party facilities
    • Added 101 million boe of proved reserves from its $2.5 billion oil and gas capital investment program, resulting in a competitive F&D cost and replacing 114% of its production
    • Non-core asset disposition program including early 2011 Canexus sale generated $1.7 billion of cash proceeds and net debt reduction of $2.1 billion, capturing significant value and enhancing our financial capacity
  • Conventional operations
    • Progressed Usan field toward first production next year
    • Advanced the Golden Eagle area project by capturing land adjacent to the field and filing a Field Development Plan with the regulatory authority
    • Made a significant discovery at Appomattox in the Gulf of Mexico, and several other discoveries around our existing infrastructure in the North Sea
  • Northeast BC shale gas
    • Delivered drilling, fracing and completions program at industry-leading pace with a 100% success rate
    • Initial production from the eight-well program is meeting expectations and is giving us the desired information on well design
    • Acquired additional acreage in the Cordova and Liard basins, making us one of the largest acreage-holders in this highly attractive area
  • Oil sands
    • Although we doubled production during 2010, the ramp-up at Long Lake was below expectations; we commenced actions to: fill the upgrader through accelerated pad drilling; increase steam capacity; enhance independence between the SAGD and upgrader operations; and increase water-disposal capacity
    • Developed a bitumen-leading strategy at Kinosis to simplify the development while retaining the option to capture the benefits of upgrading and our integrated process
  • Focus for 2011
    • Delivering new production of 70,000 boe/d over the next 12 to 24 months from Usan start-up, shale gas growth, UK tie-backs and Long Lake ramp-up
    • Sanctioning Golden Eagle development in the first half of 2011
    • Obtaining a contract extension in Yemen
    • Returning to drilling in the Gulf of Mexico to further appraise and explore our Appomattox discovery and our other attractive exploration prospects
    • Progressing plans to drill an 18-well shale gas program at Horn River

"I am pleased with the success we've had in virtually all areas of our operations during 2010 as this sets us up for robust growth in the coming years," commented Marvin Romanow, President and Chief Executive Officer. "While I'm disappointed with the Long Lake ramp-up, I'm satisfied that we are taking the right steps to get the upgrader full so we can demonstrate the significant value of our oil sands strategy and vast bitumen resource."

Our fourth quarter and 2010 financial highlights include:

  • Cash flow from operations of $549 million ($1.04/share); annual cash flow of $2.1 billion ($4.06/share)
  • Net income of $220 million ($0.42/share); annual net income of $1.2 billion ($2.28/share)
  • Production after royalties of 227,000 boe/d (246,000 boe/d before royalties) representing a 7% increase over third quarter 2010; decline from fourth quarter 2009 due to heavy oil sale and downtime related to the start-up of Buzzard fourth platform in 2010
  • Annual production after royalties of 220,000 boe/d (246,000 boe/d before royalties) representing a 7% increase over 2009 (excluding dispositions, after royalties) and well within initial production guidance
  • Reduced our net debt by $1.5 billion, over 25%, with an additional $0.5 billion reduction in early February from the Canexus disposition

Financial Results

Fourth quarter cash flow from operations increased 13% to $549 million ($1.04/share) over the third quarter 2010. This reflects increased production and rising oil prices driven by the strengthening global economic recovery. In 2010, WTI and Brent traded at similar levels. Since late December, international oil prices have risen faster than WTI with Brent currently trading at a premium of $18/bbl (average January premium $7/bbl) as WTI is being held back by high regional inventories. With 80% of our oil production receiving international prices, we are seeing the strong benefits of this in 2011 as our cash flow sensitivity is $270 million annually per $10 change in Brent after tax.

Fourth quarter cash flow from operations was lower than the same period in 2009, primarily as a result of lower production, lower marketing contribution and adjustments to the annual cash tax provision in the U.K. Production decreases reflect downtime related to the commissioning of the fourth platform at Buzzard, natural declines in Yemen and the sale of our Canadian heavy oil properties. The higher 2009 marketing contribution reflected the increased value of our natural gas inventories with rising gas prices in late 2009. This business was sold in the third quarter of 2010.

Cash flow from operations for the year was $2.1 billion ($4.06/share) and net income was $1.2 billion ($2.28/share). The doubling of net income in 2010 reflects the net gains from our disposition program ($566 million, after tax.)