"I am pleased with our second quarter results," stated Charlie Fischer, Nexen's President and Chief Executive Officer. "We generated the highest quarterly cash netbacks in our history and our production is unhedged so we remain well positioned to capture all upside from high commodity prices." Charlie Fischer, President and CEO

Q2 Earnings Release pdf / html     Financials html / excel     Conference Call      Netbacks 

• Cash flow of $946 million ($1.78/share) for the second quarter of 2008
• Net income of $380 million ($0.72/share)
• Quarterly production before royalties of 254,000 boe/d—on track to meet annual production guidance
• Encouraging exploration results in the UK North Sea
• At Long Lake, bitumen production rates are approximately 13,000 bbls/d (6,500 bbls/d net to us); upgrader start up on track for late third quarter
• Approval for Normal Course Issuer Bid to be sought from Toronto Stock Exchange to allow for share repurchases
• 2008 capital program increased by between $600 and $800 million to accelerate various projects

Nexen delivered solid second quarter results generating cash flow from operations of $946 million and net income of $380 million. We also generated the highest quarterly cash netbacks in our history. Our production is unhedged and we remain well positioned to capture all upside from high commodity prices.

Production averaged 254,000 boe/d (211,000 boe/d after royalties) for the second quarter. The shut down of the Forties pipeline by a two-day labour strike at the Grangemouth refinery in Scotland caused us to temporarily shut in our North Sea production. Consequently, our production volumes for the second quarter were lower than our first quarter volumes. We remain on track to meet our annual production guidance.

At the end of the quarter, we were carrying approximately 850,000 barrels of crude oil inventory from our North Sea operations. This moved approximately $50 million of cash flow into early July, when the inventory was sold.

Net income includes a charge of approximately $330 million ($240 million after tax) for stock-based compensation resulting from a 33% increase in our stock price since the end of the first quarter. Our marketing division reported a cash flow loss of $164 million in the second quarter compared to a contribution of $13 million in the first quarter. The loss primarily relates to significant increases in NYMEX natural gas prices in North America which resulted in widening location spreads between western supply regions and eastern consuming regions at a time when we were positioned to take advantage of traditional seasonal narrowing. By way of offset, we have $207 million of unrecognized gains on our marketing inventories and transportation assets that have increased in value. These gains can only be booked in the future when the inventories are sold and the transportation assets are used.

Comparing our second quarter results year over year, additional current taxes primarily in the UK and the impact of a weaker US dollar reduced our cash flow in 2008 by more than $500 million.

For the first six months of 2008, our cash flow exceeded our capital investment by over $500 million and we expect this excess to grow over the balance of the year. These net cash inflows can be used to fund additional capital investment programs, reduce net debt, increase dividends and repurchase shares. Earlier this year, we doubled our quarterly dividend and repaid maturing long term debt. We now intend to seek approval from the Toronto Stock Exchange (TSX) for a Normal Course Issuer Bid. Subject to approval by the TSX, this Normal Course Issuer Bid will allow us to repurchase for cancellation up to 10% of our public float of common shares. 10% of our public float amounts to approximately 53 million common shares.

We have also increased our capital investment by between $600 and $800 million, depending on program timing. This additional investment allows us to accelerate various projects such as shale gas, coalbed methane (CBM) and Medicine Hat shallow gas and provides Usan with funding for the remainder of 2008. In our shale gas program, encouraging results have led us to increase our investment plans by almost $150 million. Modifications to the royalty regime for CBM have restored development economics and we have reinstated our investment program accordingly. In the Medicine Hat area of Alberta and Saskatchewan, we plan to drill, complete and tie-in approximately 190 shallow gas wells. At Usan, we expect to invest a total of $300 million this year now that development of the project is underway. We have also allocated additional capital to the Masila field in Yemen where we plan to drill more development wells. We expect these wells will increase our 2008 exit rate and 2009 production volumes.

At Ettrick, additional drilling is required later this year to maximize reserves recoveries, bringing our share of total full-cycle development costs to approximately $620 million. Capital allocated to Long Lake brings the total Phase 1 investment to the upper end of our previously announced range.

For the full year, we expect to generate approximately $4 billion of cash flow assuming WTI oil price of US$90 per barrel and NYMEX gas price of US$8.50 for the second half of the year. This will fund our revised capital investment program of between $3.0 and $3.2 billion and other working capital requirements. Each US$1 increase in benchmark oil and gas prices adds about $20 million and $25 million, respectively, to our after tax cash flow for the balance of the year.

“We continue to review the best opportunities we have to deploy our excess cash to generate value for our shareholders,” stated Charlie Fischer, Nexen’s President and Chief Executive Officer. “The additional capital investment will add between 4,000 and 6,000 boe/d to our 2008 exit volumes and increase our production in 2009.”

Middle East Opportunity
We have recently been advised that we have successfully pre-qualified to participate in future oil and gas opportunities that may present themselves in Iraq.

“We were the only Canadian company to successfully pre-qualify in a group that contains a number of the world’s major oil and gas companies,” stated Fischer. “This builds on our strength in the Middle East and could present us with long term opportunities in one of the world’s richest resource basins.”

Quarterly Dividend
The Board of Directors has declared the regular quarterly dividend of $0.05 per common share payable October 1, 2008, to shareholders of record on September 10, 2008. Shareholders are advised that the dividend is an eligible dividend for Canadian Income Tax purposes.

Read highlights from our capital programs.