Nexen Posts Strong 4Q Results, Replaces 200% of Production
In 2009, Nexen made significant progress on its three corporate strategies relating to the Athabasca oil sands, Horn River shale gas, and conventional exploration and development. Strong proved reserve adds allowed the company to replace over 200% of its production. During the year, Nexen generated cash flow of $2.2 billion ($4.25/share) and earnings of $536 million ($1.03/share) driven by outstanding results in the fourth quarter. Nexen achieved major milestones at its Long Lake oil sands project as the company successfully brought the upgrader on stream. The company is now creating its own fuel source and producing premium synthetic crude oil. In the Horn River, Nexen moved its shale gas costs down. The company's exploration program delivered significant discoveries and brought new production on stream in the North Sea and the Gulf of Mexico. As the company moves into the new year, its priorities include the ongoing ramp up of Long Lake, building on the success of its Horn River shale gas program, the development of its offshore Usan project, and ongoing exploration and development in its core areas.
Recent highlights include:
- Fourth quarter cash flow of $836 million ($1.60/share), an increase of 50% over 2008
- Quarterly earnings of $259 million ($0.50/share)
- Quarterly production before royalties of 265,000 boe/d (235,000 boe/d after royalties), 13% higher than the average of the first three quarters of the year
- Excellent 2009 proved reserve adds of 184 million boe which replaces over 200% of our production
- Successful exploration well at Owowo, offshore West Africa
- Post turnaround, Long Lake has experienced its three best consecutive months of steaming and bitumen production; the upgrader is consistently processing 90% of bitumen feedstock
Financial Results-Strong Fourth Quarter
Strong fourth quarter production volumes combined with attractive oil prices, industry-leading cash netbacks and solid results from our marketing division generated cash flow of $836 million, almost 40% of our annual cash flow. WTI strengthened on renewed economic optimism and averaged US$76.19/bbl for the quarter compared to US$58.73/bbl a year ago. With 85% of our production weighted to oil, we continue to benefit from increasing oil prices. Our industry-leading cash netbacks are generated by our low-royalty production and low conventional operating costs which averaged $9.13/bbl. Net income for the quarter was $259 million compared to a loss of $181 million in 2008 which included impairment charges and marketing losses.
For the year we generated cash flow of $2.2 billion ($4.25/share) and earnings of $536 million ($1.03/share). Our results were lower than the previous year as WTI averaged US$61.80/bbl in 2009 compared to US$99.65/bbl in 2008. In addition, the impact of scheduled downtime at several of our facilities reduced production volumes for the year.
"We had a strong fourth quarter which has set us up well for 2010," commented Marvin Romanow, Nexen's President and Chief Executive Officer. "At Long Lake steam volumes are at record levels and we are steaming more wells than ever before. On the exploration and appraisal front, our Appomattox and Knotty Head wells in the Gulf of Mexico are progressing well. And in the Horn River area, our winter drilling campaign is underway."
The fourth quarter delivered our strongest quarterly production volumes since early 2008, averaging 265,000 boe/d (235,000 boe/d after royalties) compared to 214,000 boe/d (184,000 boe/d after royalties) in the previous quarter. This increase reflects more production in the North Sea from Ettrick and Telford as well as the start up of Longhorn in the Gulf of Mexico. In addition, we saw production return from scheduled downtime during the previous quarter for maintenance and turnaround activities at Buzzard, Scott/Telford, the Gulf of Mexico and Long Lake.
Buzzard continues to perform well and contributed 86,500 boe/d (200,000 boe/d gross) in the quarter. We expect our North Sea volumes to remain strong in 2010 with Buzzard producing at plateau rates, Ettrick ramping up and additional development drilling at Telford.
Our annual production averaged 243,000 boe/d before royalties and was impacted by extended downtime during the year for maintenance and turnaround activities at Buzzard, Scott/Telford, the Gulf of Mexico, Syncrude and Long Lake. Fourth quarter volumes averaged 265,000 boe/d before royalties and reflects new production from a successful step-out well at Telford, the start up of Ettrick and Longhorn, and the ramp up of Long Lake.
In 2010, we expect our annual production to grow approximately 4% to 6%, assuming the midpoint of our guidance, and range from 230,000 to 280,000 boe/d (200,000 to 250,000 boe/d after royalties). This growth reflects a full year of production from Ettrick and Longhorn, and increasing volumes from Long Lake. At the high end of our guidance, our production growth would be as high as 15%. The low end includes the possibility of advancing the start up of the fourth platform at Buzzard which is currently scheduled for 2011. Advancement to 2010 would only be required if we see higher than expected levels of hydrogen sulphide. The downtime associated with advancing the start up could reduce annual volumes by 10,000 to 15,000 boe/d.
Our annual production grew from 210,000 boe/d to 213,000 boe/d, after royalties, reflecting increasing contributions from Long Lake. Over the last three years our production, after royalties, has grown at an average compound annual rate of 11%.
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