Nexen Inc. (NXY) reported third-quarter recurring earnings of 21 cents (23 Canadian cents) per share, below the Zacks Consensus Estimate of 27 cents and lasts year’s earnings of $1.62 (C$1.68).

Production during the quarter, before royalties, averaged 214 thousand barrels of oil equivalent per day (MBOE/d), or 184 MBOE/d net of royalties, comprising 83% crude oil and 15% natural gas. Production before royalties was down 14% year over year, mainly due to turnarounds and
maintenance activities at a number of fields. On a net-of-royalty basis, production was down slightly by 12% year over year to 184 MBOE/d.

While the quarter’s productions were hampered by the scheduled turnarounds on a number of the company’s fields, current production (275 MBOE/d) is increasing with the ramp-up of production at Ettrick, Longhorn and Long Lake. Management hinted that the fourth quarter production will be higher than the reported quarter level.

Nexen’s average oil price realization during the quarter was C$72.95 ($66.4) per barrel, down approximately 37% year over year but up approximately 6.8% sequentially. Natural gas average price realization during the quarter was C$3.04 ($2.76) per Mcf, down 19% sequentially and
6.5% year over year.

Nexen spent C$671 million ($611 million) on capital programs during the quarter. At the end of the quarter, the company had C$2.1 billion ($1.91) in cash and C$7.4 billion ($6.74 billion) in long-term debt, with a debt-to-capitalization ratio of 50.1%.

Nexen’s diversified portfolio of E&P assets includes high-impact exploration prospects in the U.S. Gulf of Mexico, offshore West Africa and the North Sea, stable operations in Yemen and Canada and an attractive unconventional resource base in Canada. This provides the company with a multi-year inventory of development projects and a positive long-term production-growth profile. We, however, believe that this is already discounted in the current valuation.

Additionally, we are also concerned about the downside risks such as execution risk and cost inflation. Rising costs remain a major concern, as cost increases are observed on all fronts. In the first nine months of 2009, costs increased more than 10%, a trend that is not expected to
subside in the near term. We are unchanged with our Neutral rating.

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