Opti Cda Inc. (OPCDF)

[OilStockReport]

Nexen Inc. (NXY) posted stronger second-quarter results on higher oil prices, reported continued improvement in production from its Long Lake oil sands project and said it will sell C$1.5 billion in assets, exceeding its original C$1 billion goal.

The Calgary oil and gas producer earned C$255 million or 49 Canadian cents a share in its latest quarter, up from C$20 million or four Canadian cents a year earlier.

The Thomson Reuters mean estimate was for earnings of 35 Canadian cents a share.

Cash flow rose to C$558 million or C$1.06 a share from C$443 million or 85 Canadian cents a year earlier. Net sales rose to C$1.46 billion from C$1.20 billion.

"All our success is contributing to new production volumes, starting with approximately 70,000 barrels a day coming from Long Lake, Usan and shale gas over the next 24 months," the company said in a release.

Nexen produced an average of 248,000 barrels of oil equivalent a day in the second quarter before royalties, up from 240,000 barrels of oil equivalent a day a year earlier. Production was hampered by scheduled maintenance at its Buzzard operation in the North Sea.

Nexen's production is weighted 85% to oil, and its average realized oil price during the quarter rose 12% from a year earlier, to C$76.23 a barrel.

The company said it is on track to meet its annual production guidance of 230,000 to 280,000 barrels of oil equivalent a day before royalties.

Nexen also said it now expects to sell more than C$1.5 billion in non-core assets, exceeding its original C$1 billion target. During the quarter, Nexen sold heavy-oil properties in western Canada for about C$975 million, a stake in its gas marketing business, and announced plans to sell its two-thirds stake in chemical company Canexus Income Fund (CUS.UN.T, CXUSF) over the next 12 to 18 months. Proceeds of the sales will be used to develop conventional exploration, oil sands and shale-gas assets.

The company reiterated that the six-month drilling moratorium in the Gulf of Mexico has had no significant impact on its operations to date. However, Nexen has delayed an exploration well and an appraisal well in the Gulf of Mexico because of the moratorium on deepwater drilling. The company also has two deepwater rigs under contract later this year, but Chief Executive Marvin Romanow said Nexen will see no, or only small, cash costs as a result of the moratorium over the remainder of the next six months.

The U.S. government has placed a moratorium on deepwater drilling in the wake of the oil spill caused by the accident aboard the Deepwater Horizon rig leased by BP PLC (BP).

Nexen's Long Lake oil sands project saw production increase to 25,000 barrels a day from 19,000 during the first quarter, and the company said the project will start generating cash flow later this year and end the year producing 40,000 to 60,000 barrels a day.

The Long Lake project, a joint venture between Nexen and OPTI Canada Inc. (OPC.T, OPCDF), uses a newer gasification technology to upgrade heavy oil sands oil into light oil, but the project has been plagued by technical glitches and is still among the most costly and inefficient oil sands projects. Nexen said the gasification technology will eventually give the project a significant margin over its peers, and lower its operating costs to $25 a barrel when fully ramped up. Since the first quarter, Nexen said its cash operating loss from Long Lake has dropped to C$19 million from C$58 million. Nexen owns a 65% stake in the project.

Development of Nexen's Usan field in offshore West Africa continued, with first production expected in 2012. Usan will add 36,000 barrels a day to the company's planned production growth of 70,000 barrels a day over the next two years, Chief Executive Marvin Romanow said. Nexen owns a 20% stake in the project and Total SA (TOT, FP.FR) is the operator.

Nexen also continued development of its shale gas properties in the Horn River area of British Columbia. It expects to see first production from the area by year-end and to ramp production up to 50 million cubic feet per day by early next year. Nexen more than doubled its land position in shale gas areas through a land acquisition in June, to 300,000 acres from 128,000 acres. The company didn't disclose how much it paid for the land.

Nexen shares rose 1.6% to C$21.04 in recent trading on the New York Stock Exchange.

-By Edward Welsch, Dow Jones Newswires; 403-229-9095; [e-mail]