Tags: Nexen | lags | oil | NXY

Nexen Lags Oil Peers, Despite Assets

By    |   Thursday, 10 Nov 2011 12:30 PM

Exploration and production company Nexen (NXY) lags the energy market in terms of results in spite of a portfolio diversified global assets. This is a company which seems to take two steps back for each forward move. For investors, the question is if the underlying assets and business justify future share price appreciation.

Headquartered in Calgary, Nexen produces petroleum from the Canadian oil sands, the North Sea off Britain, the Gulf of Mexico and Yemen. The company also has natural gas exploration and production operations in British Columbia and is conducting oil exploration operations off the coast of West Africa.

Through the first nine months of 2011, Nexen reported net income of $1.24 per share, down from $1.84 at the same point in 2010. The lower earnings are primarily due to a 25 percent drop in North Sea production, the source of almost half of Nexen's production and some of the most profitable.

For the third quarter, earnings per share were down by two-thirds, at 38 cents per share from $1.02 a year earlier. However, the results exceeded the consensus estimate of 32 cents.

Renewed production and growth prospects

After the close of the third quarter, Nexen reported the production level at the company's major North Sea operation almost doubled in October compared to the third quarter results. Also in October, Nexen received approval from the U.K. Department of Energy to start developing a new North Sea oil find. The company's West Africa exploration program is expected to start production in the first half of 2012.

If Nexen can turn around the production numbers with current projects plus new operations coming online, the company's cash flow could increase much faster than analysts anticipate. One point to remember is Nexen does not hedge oil prices, so results are also very dependent on the current price of oil.

A recent report from the analysts at JP Morgan upgraded their picks in the oil production sector, with Nexen listed as one of the top prospects. The same report downgraded the major oil producers Chevron (CVX) and Exxon Mobil (XOM).

The company next reports on Jan. 26.

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Exploration and production company Nexen (NXY) lags the energy market in terms of results in spite of a portfolio diversified global assets. This is a company which seems to take two steps back for each forward move. For investors, the question is if the underlying assets...
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2011-30-10
Thursday, 10 Nov 2011 12:30 PM
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