CALGARY, ALBERTA--(Marketwire - July 16, 2009) - Nexen announces second quarter results highlighted by exploration success in the UK North Sea. A summary of the quarter is as follows:
- Cash flow of $443 million ($0.85/share) and net income of $20 million ($0.04/share)
- Production before royalties of 240,000 boe/d-impacted by scheduled downtime at Buzzard and Syncrude
- Current production volumes approximately 260,000 boe/d; third quarter volumes expected to be lower as a result of planned maintenance downtime; fourth quarter volumes expected to be higher as new fields ramp up
- Ongoing exploration success in the UK North Sea at Hobby-significant development potential for the Golden Eagle area
- Long Lake-record steam injection driven by water treatment modifications; bitumen volumes ramping up; reservoir performing well
Three Months Ended Six Months Ended
June 30 June 30
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(Cdn$ millions) 2009 2008 2009 2008
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Production (mboe/d)(1)
Before Royalties 240 254 246 261
After Royalties 208 211 217 217
Net Sales 1,200 2,071 2,248 3,941
Cash Flow from Operations(2) 443 946 1,000 1,985
Per Common Share ($/share)(2) 0.85 1.78 1.92 3.75
Net Income 20 380 155 1,010
Per Common Share ($/share) 0.04 0.72 0.30 1.91
Capital Investment(3), excluding
Acquisitions 746 660 1,605 1,456
Acquisitions(4) - 2 755 2
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(1) Production includes our share of Syncrude oil sands. US investors should
read the Cautionary Note to US Investors at the end of this release.
(2) For reconciliation of this non-GAAP measure see Cash Flow from
Operations on pg. 10.
(3) Includes geological and geophysical expenditures.
(4) 2009 represents acquisition of additional 15% interest in Long Lake
from Opti Canada Inc.
Financial Results
Quarterly cash flow from 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.
In the second quarter, cash flow from operations of $443 million (Q1 - $557 million) and net income of $20 million (Q1 - $135 million) were impacted by lower production, higher oil prices and the following items:
Comparing Q2 vs Q1 2009
(Cdn$ millions) Cash Flow Reduction Net Income Reduction
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Lower quarterly marketing
contribution (50) (29)
Decrease in value of put options (48) (82)
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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."
Quarterly Production-Rig move at Buzzard; turnaround at Syncrude
Production before Production after
Royalties Royalties
Crude Oil, NGLs and
Natural Gas (mboe/d) Q2 2009 Q1 2009 Q2 2009 Q1 2009
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North Sea 101 107 101 107
Yemen 51 54 29 36
Canada - Oil & Gas 38 38 33 32
Canada - Bitumen 9 8 9 8
United States 22 19 20 17
Other Countries 4 6 3 5
Syncrude 15 20 13 20
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Total 240 252 208 225
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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."
Global Exploration-Delivering exciting results
UK North Sea
The Golden Eagle area is emerging as a potential significant development opportunity. Our current estimates of recoverable resource are at the high end of our pre-drill estimates. We expect development of the area will be economic at approximately US$40/bbl and should support standalone facilities with project sanction targeted for 2010.
In 2007, we drilled the initial Golden Eagle discovery well in what is now the Golden Eagle area. This well, and a subsequent sidetrack to the north, indicated the presence of a high quality reservoir and testing of the initial discovery well demonstrated production rates of approximately 5,000 boe/d. Net pays of 150 feet and 60 feet were encountered in the discovery and sidetrack wells, respectively.
In 2008, we drilled our Pink discovery well further south, between the Golden Eagle discovery well and Buzzard. We encountered 57 feet of net pay in a high quality reservoir, which was primarily light oil from Upper Jurassic Burns sands. We successfully sidetracked the well to the west and encountered 134 feet of net oil pay. In addition, we have recently completed an appraisal well here and the results are being assessed.
In January 2009, we drilled the Hobby discovery. The well encountered light sweet oil with an API of 37 degrees and was tested at a constrained rate of 5,550 bbls/d with a 56/64 inch choke. We have subsequently drilled three successful sidetracks from the discovery well and an appraisal well. In the second half of the year, we expect to continue the appraisal drilling program for the Hobby discovery. We have a 34% operated interest in both Hobby and Golden Eagle and a 46% operated working interest in Pink.
"The success we are having in the Golden Eagle area is coming from hard to find, stratigraphic traps. These discoveries come from the same exploration team that found Buzzard, one of the largest stratigraphic traps in the UK," commented Romanow. "Our geological model is working well in this mature basin and we intend to leverage this knowledge as we move forward with our exploration programs in the North Sea."
Offshore West Africa
We recently completed drilling an exploration well in the southern portion of Oil Prospecting License (OPL) 223, Offshore West Africa.
The Owowo South B-1 well was drilled in a water depth of 670 metres and is located 20 kilometres northeast of the Usan field, currently under development. We expect to announce drilling results shortly.
Under the production sharing contract governing OPL 223, the Nigerian National Petroleum Corporation (NNPC) is concessionaire of the license, which is operated by Total Exploration & Production Nigeria Ltd. (18%) with its co-venturers: Nexen Petroleum Exploration & Production Nigeria Ltd. (18%), Chevron Nigeria Deepwater F Ltd. (27%), Esso Exploration and Production Nigeria (Upstream) Ltd. (27%) and Nigerian Petroleum Development Company (NPDC) Ltd. (10%).
Deep-water Gulf of Mexico
In the Eastern Gulf of Mexico, we have previously made two discoveries at Vicksburg and Shiloh. We are currently reviewing tie-back options to existing platforms for the Vicksburg discovery and expect to drill an appraisal well here in 2010. In addition, we recently spud the Antietam prospect, which is located three miles west of our Shiloh discovery. Drilling results are expected in the third quarter. Later this year, we also expect to drill an exploration well at Appomattox, about six miles west of Vicksburg. We have a 25% interest in Vicksburg and a 20% interest in Antietam, Appomattox and Shiloh, with Shell operating all four.
"By focusing where we have had success, our global exploration program is delivering excellent results," said Romanow, "We are leveraging talent and learnings across our select basins and the discoveries we are making are adding significant upside to our strong portfolio of identified growth projects."
Long Lake-Bitumen volumes responding to record steam injection rates
The ramp up of Long Lake is progressing and the reservoir continues to perform as expected given the amount of steam that has been injected. Steam volumes have been limited by our ability to treat water.
In May, we successfully completed a project to add supplementary heat to the hot lime softeners ("HLS") in the water treatment plant. We also completed routine maintenance work to remove deposits which typically build up in water treatment plants. Steam production increased in June and we have achieved record injection rates of approximately 95,000 bbls/d and gross bitumen production rates of approximately 18,000 bbls/d. There are currently 41 of 81 well pairs on production and we are producing at a steam to oil ratio ("SOR") which ranges between 4.0 and 5.0. We continue to expect a long term SOR of 3.0, over the life of the project.
Bitumen production volumes for the second quarter set a new record and averaged approximately 14,300 bbls/d (gross), an increase of 7% over the first quarter. Production volumes have been impacted by downtime associated with improvements made to the HLS units. We plan to replace valves and conduct maintenance on our water treatment plant during the third quarter to further optimize our steam production. The cost of these activities will not be significant and will result in scheduled downtime in the third quarter, impacting bitumen and premium synthetic crude (PSC(TM)) production. As steam generation increases, all wells will be converted to production mode.
With respect to the Upgrader, all major units are operational and Syngas is being used in SAGD operations. This allows us to decrease operating costs by reducing the requirement for purchased natural gas. The solvent de-asphalter and thermal cracker units are expected to start shortly and will allow us to transition from gasifying vacuum residue, which contains some lighter parts of the barrel, to gasifying asphaltenes, the heaviest part of the barrel. As a result, we expect our PSC(TM) yield to increase from approximately 60% to 80%.
During the ramp up phase, we expect periods of downtime but anticipate that the stability of operations will continue to improve. We expect to reach full design rates of 72,000 bbls/d of gross bitumen production, upgraded to approximately 60,000 bbls/d (39,000 bbls/d, net to us) of PSC(TM) in 2010. We have a 65% interest in the Long Lake project and joint venture lands. We are the sole operator of the resource and upgrader. This allows us to maximize operational efficiencies and reduce the cost of managing the project.
"The reservoir at Long Lake continues to meet expectations," commented Romanow. "Water treatment issues have limited production to date, but we have identified and continue to implement cost effective solutions. We are committed to a safe and reliable start-up. Long Lake will generate significant value with 40 years of production at a $10/bbl margin advantage."
UK North Sea-First oil at Ettrick scheduled in the next few weeks
Our Ettrick development in the North Sea is expected to produce first oil in the next few weeks. The project is expected to add approximately 12,000 to 16,000 boe/d to our production volumes for the remainder of the year. Ettrick will produce to a leased floating production, storage and offloading vessel (FPSO) designed to handle 30,000 bbls/d of oil and 35 mmcf/d of gas. We have a discovery at Blackbird which could be a future tie-back to Ettrick. We operate both Ettrick and Blackbird, with an 79.73% working interest in each.
Gulf of Mexico-Longhorn nearing first production
Longhorn is expected to commence production shortly. We expect peak production of approximately 200 mmcf/d or 33,000 boe/d gross (50 mmcf/d or 8,000 boe/d, net to us). A fourth development well for the project, Leo, exceeded expectations and has extended our reserve base. We have a 25% non-operated working interest and ENI is the operator.
At Knotty Head, we plan to start drilling an appraisal well in the fourth quarter of 2009 after the first of our two new deep-water drilling rigs arrives. The rig left the Singapore shipyard in mid-June and is expected to enter the Gulf of Mexico in August and begin deep-water sea trials. This new rig has been contracted at attractive day rates, which are significantly better than industry average. We are currently negotiating the terms of an agreement to jointly develop Knotty Head and Pony. We have a 25% operated interest in Knotty Head.
Horn River Shale Gas-Well tests confirm high quality resource
During the quarter, we put two horizontal wells on production that were drilled last summer and completed in the first quarter. Initial production rates for the first month averaged 850 mcf/d per frac. These results are in line with previous tests and those of our competitors. We drilled three additional wells earlier this year and we recently began fracing these wells. We are starting to see efficiencies in our shale gas program as the time to complete the initial fracs in our new program is substantially less than our previous experience. We plan to complete and tie-in these wells in the third quarter. By the end of the year, we expect to have six wells on production at a total exit rate ranging between 12 and 18 mmcf/d.
Our drilling activity to date has allowed us to secure tenure on the majority of our Dilly Creek lands. Only two more wells are required to secure the remainder. Primary tenure in the Horn River basin is four years and drilling activity and extensions increases this up to 18 years.
The Horn River basin has the potential to become the most significant shale gas play in North America as it has the highest resource density and excellent well productivity. We have approximately 88,000 acres in the Dilly Creek area and 38,000 acres in the Cordova area in northeast British Columbia with a 100% working interest in each. As previously announced on April 22, 2008, we estimate that our Dilly Creek lands contain between 3 and 6 trillion cubic feet (0.5 to 1.0 billion barrels of oil equivalent) of recoverable contingent resource which could double our total proved reserves. Further appraisal activity is required before these estimates can be finalized and commerciality established.
"Our most recent well tests continue to confirm the resource quality of our Horn River shale gas play," said Romanow. "The long land tenure we have secured gives us significant optionality in pacing our development, allowing us to focus on creating value as gas prices warrant, rather than managing land expiries."
Offshore West Africa-Usan development continues
Development of the Usan field on block OML 138, offshore Nigeria is fully underway. The field development plan includes a FPSO vessel with a storage capacity of two million barrels of oil. Development drilling has begun and throughout the course of the year the FPSO hull will be constructed. The Usan field is expected to come on stream in 2012 and will ramp up to a peak production rate of 180,000 bbls/d (36,000 bbls/d net to us). Nexen has a 20% interest in exploration and development along with Total E&P Nigeria Limited (20% and Operator), Chevron Petroleum Nigeria Limited (30%) and Esso Exploration and Production Nigeria (Offshore East) Limited (30%).
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.
Nexen Inc. is an independent, Canadian-based global energy company, listed on the Toronto and New York stock exchanges under the symbol NXY. We are uniquely positioned for growth in the North Sea, Western Canada (including the Athabasca oil sands of Alberta and unconventional gas resource plays such as shale gas and coalbed methane), deep-water Gulf of Mexico, offshore West Africa and the Middle East. We add value for shareholders through successful full-cycle oil and gas exploration and development and leadership in ethics, integrity, governance and environmental protection.
Information with respect to forward-looking statements and cautionary notes is set out below.
Conference Call
Marvin Romanow, President and CEO, and Kevin Reinhart, Senior Vice-President and CFO will host a conference call to discuss our financial and operating results and expectations for the future.
Date: July 16, 2009
Time: 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time)
To listen to the conference call, please call one of the following:
416-340-8530 (Toronto)
877-240-9772 (North American toll-free)
800-9559-6849 (Global toll-free)
A replay of the call will be available for two weeks starting at 9:00 a.m. Mountain Time, by calling 416-695-5800 (Toronto) or 800-408-3053 (toll-free) passcode 2755450 followed by the pound sign. A live and on demand webcast of the conference call will be available at www.nexeninc.com.
Forward-Looking Statements
Certain statements in this report constitute "forward-looking statements" (within the meaning of the United States Private Securities Litigation Reform Act of 1995) or "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements or information (together "forward-looking statements") are generally identifiable by the forward-looking terminology used such as "anticipate", "believe", "intend", "plan", "expect", "estimate", "budget", "outlook", "forecast" or other similar words and include statements relating to or associated with individual wells, regions or projects. Any statements as to possible future crude oil, natural gas or chemicals prices, future production levels, future cost recovery oil revenues from our Yemen operations, future capital expenditures and their allocation to exploration and development activities, future earnings, future asset dispositions, future sources of funding for our capital program, future debt levels, availability of committed credit facilities, possible commerciality, development plans or capacity expansions, future ability to execute dispositions of assets or businesses, future cash flows and their uses, future drilling of new wells, ultimate recoverability of current and long-term assets, ultimate recoverability of reserves or resources, expected finding and development costs, expected operating costs, future demand for chemicals products, estimates on a per share basis, sales, future expenditures and future allowances relating to environmental matters and dates by which certain areas will be developed, come on stream, or reach expected operating capacity and changes in any of the foregoing are forward-looking statements. Statements relating to "reserves" or "resources" are forward-looking statements, as they involve the implied assessment, based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future.
The forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for oil and gas and chemicals products; our ability to explore, develop, produce, upgrade and transport crude oil and natural gas to markets; ultimate effectiveness of design modifications to facilities; the results of exploration and development drilling and related activities; volatility in energy trading markets; foreign-currency exchange rates; economic conditions in the countries and regions in which we carry on business; governmental actions including changes to taxes or royalties, changes in environmental and other laws and regulations; renegotiations of contracts; results of litigation, arbitration or regulatory proceedings; and political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict, including conflict between states. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are interdependent, and management's future course of action would depend on our assessment of all information at that time.
Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the statements contained herein, which are made as of the date hereof and, except as required by law, Nexen undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Readers should also refer to Items 1A and 7A in our 2008 Annual Report on Form 10-K for further discussion of the risk factors.
Cautionary Note to US Investors
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to discuss only proved reserves that are supported by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. In this disclosure, we may refer to "recoverable reserves", "probable reserves", "recoverable resources" and "recoverable contingent resources" which are inherently more uncertain than proved reserves. These terms are not used in our filings with the SEC. Our reserves and related performance measures represent our working interest before royalties, unless otherwise indicated. Please refer to our Annual Report on Form 10-K available from us or the SEC for further reserve disclosure.
In addition, under SEC regulations, the Syncrude oil sands operations are considered mining activities rather than oil and gas activities. Production, reserves and related measures in this release include results from the Company's share of Syncrude.
Under SEC regulations, we are required to recognize bitumen reserves rather than the upgraded premium synthetic crude oil we will produce and sell from Long Lake.
Cautionary Note to Canadian Investors
Nexen is an SEC registrant and a voluntary Form 10-K (and related forms) filer. Therefore, our reserves estimates and securities regulatory disclosures follow SEC requirements. In Canada, National Instrument 51-101-Standards of Disclosure for Oil and Gas Activities (NI 51-101) prescribes that Canadian companies follow certain standards for the preparation and disclosure of reserves and related information. Nexen reserves disclosures are made in reliance upon exemptions granted to Nexen by Canadian securities regulators from certain requirements of NI 51-101 which permits us to:
- prepare our reserves estimates and related disclosures in accordance with SEC disclosure requirements, generally accepted industry practices in the US and the standards of the Canadian Oil and Gas Evaluation Handbook (COGE Handbook) modified to reflect SEC requirements;
- substitute those SEC disclosures for much of the annual disclosure required by NI 51-101; and
- rely upon internally-generated reserves estimates and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein, included in the Supplementary Financial Information, without the requirement to have those estimates evaluated or audited by independent qualified reserves evaluators.
As a result of these exemptions, Nexen's disclosures may differ from other Canadian companies and Canadian investors should note the following fundamental differences in reserves estimates and related disclosures contained herein:
- SEC registrants apply SEC reserves definitions and prepare their proved reserves estimates in accordance with SEC requirements and generally accepted industry practices in the US whereas NI 51-101 requires adherence to the definitions and standards promulgated by the COGE Handbook;
- the SEC mandates disclosure of proved reserves and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein calculated using year-end constant prices and costs only whereas NI 51-101 requires disclosure of reserves and related future net revenues using forecast prices;
- the SEC mandates disclosure of proved and proved developed reserves by geographic region only whereas NI 51-101 requires disclosure of more reserve categories and product types;
- the SEC does not prescribe the nature of the information required in connection with proved undeveloped reserves and future development costs whereas NI 51-101 requires certain detailed information regarding proved undeveloped reserves, related development plans and future development costs;
- the SEC does not require disclosure of finding and development (F&D) costs per boe of proved reserves additions whereas NI 51-101 requires that various F&D costs per boe be disclosed. NI 51-101 requires that F&D costs be calculated by dividing the aggregate of exploration and development costs incurred in the current year and the change in estimated future development costs relating to proved reserves by the additions to proved reserves in the current year. However, this will generally not reflect full cycle finding and development costs related to reserve additions for the year;
- the SEC leaves the engagement of independent qualified reserves evaluators to the discretion of a company's board of directors whereas NI 51-101 requires issuers to engage such evaluators and to file their reports;
- the SEC does not consider the upgrading component of our integrated oil sands project at Long Lake as an oil and gas activity, and therefore permits recognition of bitumen reserves only. NI 51-101 specifically includes such activity as an oil and gas activity and recognizes synthetic oil as a product type, and therefore permits recognition of synthetic reserves. At year end, we have recognized 285 million barrels before royalties of proved bitumen reserves (282 million barrels after royalties) under SEC requirements, whereas under NI 51-101 we would have recognized 233 million barrels before royalties of proved synthetic reserves (231 million barrels after royalties);
- the SEC considers our Syncrude operation as a mining activity rather than an oil and gas activity, and therefore does not permit related reserves to be included with oil and gas reserves. NI 51-101 specifically includes such activity as an oil and gas activity and recognizes synthetic oil as a product type, and therefore permits them to be included with oil and gas reserves. We have provided a separate table showing our share of the Syncrude proved reserves as well as the additional disclosures relating to mining activities required by SEC requirements; and
- any reserves data in this document reflects our estimates of reserves. While we obtain an independent assessment of a portion of our reserves estimates, no independent qualified reserves evaluator or auditor was involved in the preparation of the reserves data disclosed in this Form 10-K.
The foregoing is a general description of the principal differences only. Please note that the differences between SEC requirements and NI 51-101 may be material.
NI 51-101 requires that we make the following disclosures:
- we use oil equivalents (boe) to express quantities of natural gas and crude oil in a common unit. A conversion ratio of 6 mcf of natural gas to 1 barrel of oil is used. Boe may be misleading, particularly if used in isolation. The conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead; and
- because reserves data are based on judgments regarding future events actual results will vary and the variations may be material. Variations as a result of future events are expected to be consistent with the fact that reserves are categorized according to the probability of their recovery.
Resources
Nexen's estimates of contingent resources are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook which generally describe contingent resources as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Such contingencies may include, but are not limited to, factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. Specific contingencies precluding these contingent resources being classified as reserves include but are not limited to: future drilling program results, drilling and completions optimization, stakeholder and regulatory approval of future drilling and infrastructure plans, access to required infrastructure, economic fiscal terms, a lower level of delineation, the absence of regulatory approvals, detailed design estimates and near-term development plans, and general uncertainties associated with this early stage of evaluation. The estimated range of contingent resources reflects conservative and optimistic likelihoods of recovery. However, there is no certainty that it will be commercially viable to produce any portion of these contingent resources.
Nexen's estimates of discovered resources (equivalent to discovered petroleum initially-in-place) are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook which generally describe discovered resources as those quantities of petroleum estimated, as of a given date, to be contained in known accumulations prior to production. Discovered resources do not represent recoverable volumes. We disclose additional information regarding resource estimates in accordance with NI 51-101. These disclosures can be found on our website and on SEDAR.
Cautionary statement: In the case of discovered resources or a subcategory of discovered resources other than reserves, there is no certainty that it will be commercially viable to produce any portion of the resources. In the case of undiscovered resources or a subcategory of undiscovered resources, there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
Nexen Inc.
Financial Highlights
Three Months Six Months
Ended June 30 Ended June 30
(Cdn$ millions) 2009 2008 2009 2008
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Net Sales 1,200 2,071 2,248 3,941
Cash Flow from Operations 443 946 1,000 1,985
Per Common Share ($/share) 0.85 1.78 1.92 3.75
Net Income 20 380 155 1,010
Per Common Share ($/share) 0.04 0.72 0.30 1.91
Capital Investment(1) 715 636 1,464 1,422
Acquisitions - 2 755 2
Net Debt(2) 5,889 3,835 5,889 3,835
Common Shares Outstanding (millions of
shares) 521.2 530.3 521.2 530.3
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(1) Includes oil and gas development, exploration, and expenditures for
other property, plant and equipment.
(2) Net debt is defined as long-term debt and short-term borrowings less
cash and cash equivalents.
Cash Flow from Operations(1)
Three Months Six Months
Ended June 30 Ended June 30
(Cdn$ millions) 2009 2008 2009 2008
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Oil & Gas and Syncrude
United Kingdom 552 921 982 1,801
Yemen(2) 78 183 165 348
Canada 43 127 77 213
United States 41 165 53 312
Other Countries 8 29 17 63
Marketing 34 (164) 118 (151)
Syncrude 3 109 29 199
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759 1,370 1,441 2,785
Chemicals 21 19 48 32
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780 1,389 1,489 2,817
Interest and Other Corporate Items (173) (83) (231) (147)
Income Taxes(3) (164) (360) (258) (685)
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Cash Flow from Operations(1) 443 946 1,000 1,985
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(1) Defined as cash flow from operating activities before changes in
non-cash working capital and other. We evaluate our performance and that
of our business segments based on earnings and cash flow from
operations. Cash flow from operations is a non-GAAP term that represents
cash generated from operating activities before changes in non-cash
working capital and other and excludes items of a non-recurring nature.
We consider it a key measure as it demonstrates our ability and the
ability of our business segments to generate the cash flow necessary to
fund future growth through capital investment and repay debt. Cash flow
from operations may not be comparable with the calculation of similar
measures for other companies.
Three Months Six Months
Ended June 30 Ended June 30
(Cdn$ millions) 2009 2008 2009 2008
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Cash Flow from Operating
Activities 109 1,163 898 2,331
Changes in Non-Cash Working
Capital 340 (232) (80) (372)
Other 44 21 185 38
Impact of Annual Crude Oil Put
Options (50) (6) (3) (12)
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Cash Flow from Operations 443 946 1,000 1,985
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Weighted-average Number of
Common Shares Outstanding
(millions of shares) 521.2 530.0 520.7 529.5
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Cash Flow from Operations Per
Common Share ($/share) 0.85 1.78 1.92 3.75
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(2) After in-country cash taxes of $42 million for the three months ended
June 30, 2009 (2008 - $91 million) and $66 million for the six months
ended June 30, 2009 (2008 - $158 million).
(3) Excludes in-country cash taxes in Yemen.
Nexen Inc.
Production Volumes (before royalties) 1
Three Months Six Months
Ended June 30 Ended June 30
2009 2008 2009 2008
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Crude Oil and Liquids (mbbls/d)
United Kingdom 97.7 100.3 100.7 103.1
Yemen 51.5 57.6 52.9 59.9
Canada 14.9 16.4 15.1 16.3
United States 12.1 11.3 11.2 12.5
Long Lake Bitumen (2) 9.3 3.2 8.7 1.9
Other Countries 3.6 5.7 4.5 5.8
Syncrude (mbbls/d) (3) 14.9 19.1 17.3 19.2
--------------------------------------
204.0 213.6 210.4 218.7
--------------------------------------
Natural Gas (mmcf/d)
United Kingdom 18 19 18 20
Canada 136 126 138 127
United States 61 99 56 105
--------------------------------------
215 244 212 252
--------------------------------------
Total Production (mboe/d) 240 254 246 261
--------------------------------------
--------------------------------------
Production Volumes (after royalties)
Three Months Six Months
Ended June 30 Ended June 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Crude Oil and Liquids (mbbls/d)
United Kingdom 97.6 100.3 100.6 103.1
Yemen 29.0 29.2 32.3 30.4
Canada 11.2 12.6 11.8 12.4
United States 10.9 9.7 10.2 10.9
Long Lake Bitumen (2) 9.2 3.2 8.6 1.9
Other Countries 3.3 5.2 4.2 5.4
Syncrude (mbbls/d) (3) 13.0 15.9 16.3 16.4
--------------------------------------
174.2 176.1 184.0 180.5
--------------------------------------
Natural Gas (mmcf/d)
United Kingdom 18 19 18 20
Canada 129 108 127 107
United States 54 85 50 90
--------------------------------------
201 212 195 217
--------------------------------------
Total Production (mboe/d) 208 211 217 217
--------------------------------------
--------------------------------------
(1) We have presented production volumes before royalties as we measure our
performance on this basis consistent with other Canadian oil and gas
companies.
(2) Pre-operating revenues and costs associated with Long Lake bitumen are
capitalized as development costs until we reach commercial operations.
(3) Considered a mining operation for US reporting purposes.
Nexen Inc.
Oil and Gas Prices and Cash Netback (1)
Total
Quarters - 2009 Quarters 2008 Year
----------------------------------------------------------------------------
(all dollar amounts in Cdn$
unless noted) 1st 2nd 1st 2nd 3rd 4th 2008
----------------------------------------------------------------------------
PRICES:
WTI Crude Oil (US$/bbl) 43.08 59.62 97.90 123.98 117.98 58.73 99.65
Nexen Average -
Oil (Cdn$/bbl) 50.41 68.32 93.00 118.00 115.56 59.90 96.92
NYMEX Natural Gas
(US$/mmbtu) 4.48 3.81 8.75 11.48 8.95 6.41 8.90
Nexen Average - Gas (Cdn$/mcf) 5.11 3.77 7.97 10.21 8.65 6.34 8.44
----------------------------------------------------------------------------
NETBACKS:
Canada - Heavy Oil
Sales (mbbls/d) 15.4 14.7 16.2 16.4 16.0 16.2 16.2
Price Received ($/bbl) 35.35 56.05 65.94 93.16 97.91 41.14 74.51
Royalties & Other 6.86 12.83 16.65 22.61 24.24 8.81 18.07
Operating Costs 15.42 16.41 15.76 17.17 16.99 16.69 16.66
----------------------------------------------------------------------------
Netback 13.07 26.81 33.53 53.38 56.68 15.64 39.78
----------------------------------------------------------------------------
Canada - Natural Gas
Sales (mmcf/d) 137 134 127 126 133 138 131
Price Received ($/mcf) 4.75 3.42 7.57 9.67 8.00 6.06 7.73
Royalties & Other 0.59 0.15 1.18 1.53 1.52 1.07 1.32
Operating Costs 1.54 1.59 1.67 1.84 1.84 1.66 1.75
----------------------------------------------------------------------------
Netback 2.62 1.68 4.72 6.30 4.64 3.33 4.66
----------------------------------------------------------------------------
Yemen
Sales (mbbls/d) 54.7 51.4 62.5 57.4 54.2 51.7 56.4
Price Received ($/bbl) 52.30 69.40 96.57 120.39 115.92 64.48 99.87
Royalties & Other 19.43 31.94 48.07 59.21 52.47 26.33 46.94
Operating Costs 9.62 10.39 7.76 8.80 7.82 9.80 8.51
In-country Taxes 4.92 9.01 11.82 17.45 16.11 7.60 13.31
----------------------------------------------------------------------------
Netback 18.33 18.06 28.92 34.93 39.52 20.75 31.11
----------------------------------------------------------------------------
Syncrude
Sales (mbbls/d) 19.8 14.9 19.3 19.1 22.9 22.3 20.9
Price Received ($/bbl) 55.48 71.58 101.70 130.90 126.56 65.48 105.47
Royalties & Other 0.40 8.84 11.93 22.08 21.89 4.97 15.11
Operating Costs 36.95 57.21 35.16 45.09 32.40 34.67 36.53
----------------------------------------------------------------------------
Netback 18.13 5.53 54.61 63.73 72.27 25.84 53.83
----------------------------------------------------------------------------
United States
Crude Oil:
Sales (mbbls/d) 10.4 12.1 13.7 11.3 8.5 3.8 9.3
Price Received ($/bbl) 46.27 66.23 94.07 120.77 122.46 58.43 104.94
Natural Gas:
Sales (mmcf/d) 50 61 112 99 70 31 78
Price Received ($/mcf) 5.93 4.58 9.03 11.80 10.14 8.09 10.07
Total Sales Volume (mboe/d) 18.8 22.2 32.4 27.8 20.2 8.9 22.3
Price Received ($/boe) 41.50 48.53 71.10 91.08 86.75 52.77 79.02
Royalties & Other 4.52 4.94 9.53 12.88 12.30 7.89 11.03
Operating Costs 13.79 13.11 8.20 9.28 15.62 21.58 11.57
----------------------------------------------------------------------------
Netback 23.19 30.48 53.37 68.92 58.83 23.30 56.42
----------------------------------------------------------------------------
United Kingdom
Crude Oil:
Sales (mbbls/d) 100.8 97.0 108.9 89.0 107.0 96.4 100.3
Price Received ($/bbl) 51.60 69.42 93.38 118.24 114.89 58.60 96.23
Natural Gas:
Sales (mmcf/d) 21 17 22 24 18 16 20
Price Received ($/mcf) 5.50 3.67 6.82 7.06 7.53 5.44 6.78
Total Sales Volume (mboe/d) 104.3 99.8 112.6 93.0 110.0 99.0 103.7
Price Received ($/boe) 50.97 68.10 91.67 114.95 112.99 57.91 94.45
Operating Costs 5.48 5.85 5.67 7.42 6.71 7.39 6.75
----------------------------------------------------------------------------
Netback 45.49 62.25 86.00 107.53 106.28 50.52 87.70
----------------------------------------------------------------------------
Other Countries
Sales (mbbls/d) 5.5 3.6 6.0 5.7 5.7 5.8 5.8
Price Received ($/bbl) 41.68 66.83 91.85 113.18 120.11 72.43 98.98
Royalties & Other 3.26 5.17 7.46 8.95 9.42 5.81 7.88
Operating Costs 4.81 5.73 4.74 4.43 5.14 3.79 4.52
----------------------------------------------------------------------------
Netback 33.61 55.93 79.65 99.80 105.55 62.83 86.58
----------------------------------------------------------------------------
Company-Wide
Oil and Gas Sales (mboe/d) 241.4 228.9 270.1 240.4 250.9 226.9 247.0
Price Received ($/boe) 47.56 61.28 85.90 108.26 106.22 56.94 89.78
Royalties & Other 5.64 9.23 14.87 19.92 16.98 8.22 15.06
Operating Costs 10.62 11.95 9.46 11.89 10.90 12.01 11.04
In-country Taxes 1.11 2.02 2.74 4.16 3.48 1.73 3.04
----------------------------------------------------------------------------
Netback 30.19 38.08 58.83 72.29 74.86 34.98 60.64
----------------------------------------------------------------------------
(1) Defined as average sales price less royalties and other, operating
costs, and in-country taxes in Yemen.
Nexen Inc.
Unaudited Consolidated Statement of Income
For the Three and Six Months Ended June 30
Three Months Six Months
(Cdn$ millions, except Ended June 30 Ended June 30
per share amounts) 2009 2008 2009 2008
----------------------------------------------------------------------------
Revenues and Other Income
Net Sales 1,200 2,071 2,248 3,941
Marketing and Other (Note 15) 82 34 339 256
----------------------------------------
1,282 2,105 2,587 4,197
----------------------------------------
Expenses
Operating 320 348 625 657
Depreciation, Depletion,
Amortization and Impairment 413 334 822 698
Transportation and Other 232 195 433 400
General and Administrative 167 418 267 473
Exploration 77 101 130 133
Interest (Note 10) 74 16 142 43
----------------------------------------
1,283 1,412 2,419 2,404
----------------------------------------
Income(Loss) before Provision for
Income Taxes (1) 693 168 1,793
----------------------------------------
Provision for (Recovery of)
Income Taxes
Current 206 451 324 843
Future (229) (139) (316) (62)
----------------------------------------
(23) 312 8 781
----------------------------------------
Net Income 22 381 160 1,012
Less: Net Income Attributable to
Non-Controlling Interests (2) (1) (5) (2)
----------------------------------------
Net Income Attributable to Nexen Inc. 20 380 155 1,010
----------------------------------------
----------------------------------------
Earnings Per Common Share ($/share)
(Note 16)
Basic 0.04 0.72 0.30 1.91
----------------------------------------
----------------------------------------
Diluted 0.04 0.70 0.30 1.87
----------------------------------------
----------------------------------------
See accompanying notes to the Unaudited Consolidated Financial Statements.
Nexen Inc.
Unaudited Consolidated Balance Sheet
June 30 December 31
(Cdn$ millions, except share amounts) 2009 2008
----------------------------------------------------------------------------
Assets
Current Assets
Cash and Cash Equivalents 1,974 2,003
Restricted Cash (Notes 2 and 8) 335 103
Accounts Receivable (Note 3) 3,272 3,163
Inventories and Supplies (Note 4) 598 484
Other 167 169
----------------------
Total Current Assets 6,346 5,922
----------------------
Property, Plant and Equipment
Net of Accumulated Depreciation, Depletion,
Amortization and Impairment of $10,722
(December 31, 2008 - $10,393) 15,917 14,922
Goodwill 372 390
Future Income Tax Assets 921 351
Deferred Charges and Other Assets (Note 6) 370 570
----------------------
Total Assets 23,926 22,155
----------------------
----------------------
Liabilities
Current Liabilities
Accounts Payable and Accrued Liabilities (Note 9) 3,608 3,326
Accrued Interest Payable 63 67
Dividends Payable 26 26
----------------------
Total Current Liabilities 3,697 3,419
----------------------
Long-Term Debt (Note 10) 7,863 6,578
Future Income Tax Liabilities 2,852 2,619
Asset Retirement Obligations (Note 12) 1,044 1,024
Deferred Credits and Other Liabilities (Note 13) 1,167 1,324
Shareholders' Equity (Note 14)
Nexen Inc. Shareholders' Equity
Common Shares, no par value
Authorized: Unlimited
Outstanding: 2009 - 521,205,270 shares
2008 - 519,448,590 shares 1,011 981
Contributed Surplus 2 2
Retained Earnings 6,393 6,290
Accumulated Other Comprehensive Loss (157) (134)
----------------------
Total Nexen Inc.