Nexen hears the drum rolls

Gary Park

For Petroleum News

There’s a circle forming at Canadian independent Nexen (once Canadian Occidental) these days.

Whether it’s vultures or wagons is not yet clear, but the instigators seem to be hedge fund managers who want to see the company either broken up or sold.

The betting is that this could be the first of many showdowns between underperforming companies and activist shareholders.

Nexen, with a C$17 billion market value, is vulnerable to such pressures because of its far-flung assets, with 40 percent in the North Sea and the rest scattered among the Alberta oil sands, Canadian natural gas, the Gulf of Mexico, Yemen and West Africa.

The leading stirrers are said to be Toronto-based money manager Salida Capital and New York-based Halcyon Asset Management.

Nexen Chief Executive Officer Charlie Fischer fired back at the rumor-mongers, saying the company is “not being pressed to sell or break up parts of our business and we have not received any letters to that effect.”

He brushed aside news reports that there have been discussions with at least one fund manager, who said the only disagreement with Nexen is what do to about the company’s undervalued state.

Fischer said it is not news that Nexen’s stock prices do not reflect the value of its underlying assets.

Plans to unlock value

The steps include starting production at the Long Lake oil sands project by mid-2008 and ramping up output of premium synthetic crude over 12 to 18 months.

In addition, Fischer said the Buzzard project in the North Sea and the Gulf of Mexico are poised to create value and there are no fixed price caps or hedges in place, meaning Nexen can “fully benefit from high commodity prices.”

He said net production is expected to grow from 8 percent to 10 percent this year. The latest reported volume was an average 261,000 barrels of oil equivalent per day in the third quarter of 2007, far short of its earlier forecast of 305,000 boe per day for the year.

Curiously, Fischer made no comment on Yemen, once the flagship producing region, which has fallen from a peak of 93,000 barrels per day in 2005 to 70,000 bpd last year. The company’s only recent assessment said Yemen has “met expectations” in the third quarter.

That could point to the sale of those holdings, given that ExxonMobil and France’s Total are reportedly hungry to acquire assets in the region.

There is also a belief that multinational companies would pay a premium for North Sea and oil sands assets.

RBC Dominion Securities analyst Gordon Gee said in a December report that if Nexen’s share price remains at its current level of about C$33 the “valuation gap may be appealing to a potential acquirer or require a restructuring by the company to unlock value.”