Nexen Oil & Gas Fairly Traded
Nexen, Inc. (NXY) reported strong second-quarter results from its oil and gas business and increased its full-year capital by about $600-800 million. The company announced a share buyback program for 10 percent of its outstanding shares. Nexen has several identified projects that will generate future production growth and create value.
However, we believe that these positives are already reflected in the current valuation, leaving little upside from current levels. As such, we are keeping our Hold rating unchanged at this stage.
Nexen has been actively investing in its upstream assets in recent years, which has significantly improved its long-term production-growth prospects. Nexen is expected to spend around C$3.0 3.2 billion this year, up from the previous estimate of C$2.4 billion. This increase will allow the company to accelerate shale gas, coalbed methane and shallow gas projects in western Canada, along with development drilling in Yemen and the development of Usan in offshore West Africa.
Nexen's strong project line-up includes the Long Lake oil sands project in Canada, the Buzzard Field development in the North Sea, development of Block 51 discoveries in Yemen and continued active exploration projects in the U.S. Gulf of Mexico, offshore Nigeria, and the North Sea. These projects have added approximately 300 MMBOE [millions of barrels of oil equivalent] of proved reserves and are characterized by multi-year investments, which result in timing differences between reserve additions and capital expenditures.
Nexen significantly strengthened its North Sea position through its $2.1 billion acquisition of EnCana Corp.'s url=http://www.zacks.com/research/report.php?t=ECA]ECA[/url]) assets, which included the Buzzard development project and the Scott and Telford producing fields. The Buzzard development is one of the largest discoveries in the U.K. North Sea with a gross resource potential of approximately 550 MMBOE.
3Com Corp. Negatives Priced In
Headquartered in Marlborough, Massachusetts, 3Com Corporation (COMS) provides voice and data networking products, services, and solutions for commercial and public sector organizations of all sizes. The company has become a leader in the Chinese enterprise networking market.
3Com plans to grow its top-line and accelerate integration of its worldwide operations to achieve further operational efficiency and increase its market share. However, we are concerned about the future of COMS business in China as it reduces its dependence on Huawei as a reseller, which contributes close to a quarter of revenue.
