Nexen Inc. is on the hunt for deals to cash in on its large shale gas holdings in northeastern British Columbia, executives said Tuesday after the firm announced that output from its Long Lake oilsands project will come in below capacity in 2011.
Finding partners to help develop its existing assets in the Horn River Basin is a better option than chasing acquisitions, chief executive officer Marvin Romanow told a webcast for analysts and investors.“When we look around the acquisition world today, we tend to see a lot of very mature assets on their last legs in mature basins,” Romanow said.To snap up new properties would dilute Nexen’s (TSX:NXY) high-quality asset base, he said.
“We were there early. I think there’s an opportunity to extract some value out of that.” Nexen has been in discussions with players interested in buying liquefied natural gas — a method that allows delivery by ship to markets outside of North America. “We’ve been in China, Korea and recently in Japan. And those discussions, I’m optimistic, will allow us and perhaps other players in that basin to monetize that asset through a much higher valued option (than acquisitions).” “If something comes along, it has to compete against that and it has to be very interesting for us — and somehow fit in to the kind of things that we do,” Romanow said. Other Canadian energy firms, including Encana Corp. (TSX:ECA) and Penn West Energy Trust (TSX:PWT.UN), have teamed up with Asian partners to more quickly develop their respective shale lands.
Late Monday, Nexen said it expects its Long Lake oilsands project to produce between 38,000 and 45,000 barrels of bitumen per day — an improvement from the 25,000 barrels per day it produced this year but still well short of the project’s 72,000 barrel-per-day capacity.
Investors pushed Nexen’s stock down nearly 3.7 per cent to $21.55 on the Toronto Stock Exchange on Tuesday.
Long Lake has had a rocky startup, with Nexen and its partner, Opti Canada Inc. (TSX:OPC), having to take down its plant to fix water treatment equipment at the site near Fort McMurray, Alta.
“The Long Lake targets appear realistic given the trend of production additions over the past year,” CIBC World Markets analyst Andrew Potter wrote in a note to clients.
Calgary-based Nexen said in a release Monday it plans to spend between $2.4 billion and $2.7 billion next year to advance its projects in Canada and abroad.
It expects to produce the equivalent of between 230,000 and 270,000 barrels of oil per day next year.
That’s about the same as this year but with a bigger contribution from Long Lake. Nexen sold its conventional heavy oil assets earlier this year, taking about 15,000 barrels of daily production out of the mix.
CIBC’s Potter said Nexen’s very wide 2011 production guidance range reflects uncertainty around Long Lake’s ramp-up, run times and scheduling in the North Sea and timing of shale gas development.
The midpoint of the range implies a seven per cent growth rate from last year, after adjusting for asset sales — “a respectable growth rate,” Potter wrote.
In addition to shale gas, oilsands and the North Sea, Nexen also develops oil and gas in Yemen, West Africa and the Gulf of Mexico.