Nexen Inc.’s(NXY-T25.82-0.68-2.57%) struggling Long Lake oil sands project is on the verge of breaking even, and should start churning out positive cash flow later this year.
After years of missed deadlines and operating problems, Nexen chief executive officer Marvin Romanow said Long Lake is steadily improving, and should more than double its output by the end of this year.
“We’re steadily moving up the growth curve with volume gains in each of the last six months,” he said.
Nexen reported first-quarter profit of $185-million, down from $259-million in the fourth-quarter of 2010, and warned that it will take a substantial loss on the sale of its marketing business, which has struggled to turn a profit in the natural gas market, where supply has been high and commodity prices low.
Three years after it started operating, Long Lake has yet to meet its expected output of 72,000 barrels per day. Average production rose to 19,000 barrels per day in the first quarter of 2010 from 14,000 in the fourth quarter of last year. The company says Long Lake is currently generating 25,000 barrels per day, and is on track to reach between 40,000 and 60,000 by the end of this year.
Long Lake is a joint venture between Nexen and OPTI Canada Inc.
Nexen also said it will take a $250-million to $290-million non-cash loss on the sale of its marketing division. The company does, however, expect to bring in $1-billion from sales of a number of assets over the next 12 to 18 months, including heavy oil properties in Canada and its interest in the Canexus chemicals business.
The company posted first-quarter cash flow of $538-million, or $1.03 per share on quarterly production of 252,000 barrels per day, which was down slightly from previous quarters because of maintenance at several key facilities.
Mr. Romanow pointed to the company’s growth prospects, calling Nexen the only North Sea producer that is expected to raise its production, and pointing to a promising new find in the Gulf of Mexico.
“Appomattox I expect will become the best discovery we have drilled in the Gulf of Mexico, ever,” he said.
Nexen has a 20 per cent interest in Appomattox, which it announced in March. Shell Offshore Inc. operates the discovery, and owns the
