Nexen spins off chemicals, sells assets

Canadian independent Nexen is immersed in a top-to-bottom reshaping of the company as it cuts ties with conventional plays in Western Canada, unloads its chemicals unit and puts its emphasis on the oil sands, Gulf of Mexico, North Sea and Yemen.

In the space of a week, Nexen announced its chemicals business would be converted to an income trust this summer, while the final touches were being applied to the sale of oil and gas properties in northeast British Columbia, the Alberta foothills and Saskatchewan for about C$946 million.

Proceeds from the asset sale of about C$300 million and a projected C$800 million from the chemicals offering will be used to pay down net debt of about C$4.3 billion and help finance its new projects.

Chief Executive Officer Charlie Fischer has C$3 billion invested in projects which have “yet to deliver a drop of oil” and that will rise to C$5 billion by late 2006.

But the major projects, led by the Long Lake oil sands project in Alberta and the North Sea’s Buzzard field, have 802 million barrels of proved and probable reserves that will turn around Nexen’s production trend.

Having slipped to 250,000 boe per day in 2004 from 270,000 boe per day in the 2001-03 period, Nexen has set a target as high as 350,000 boe per day by 2007.

The big contributors to that turnaround will be the North Sea assets acquired for US$2.1 billion in 2004 from EnCana that are yielding greater-than-projected reserves and should deliver 85,000 boe per day in 2007 and the Long Lake joint venture with OPTI Canada that will come on stream at a gross 60,000 bpd of synthetic crude.

The conventional properties Nexen is divesting contain proved reserves of 49 million barrels of oil equivalent and yielded 18,300 boe per day in the first quarter.

Potential buyers have not been identified, but are likely to come from the income trust sector.

The chemicals division, which Nexen believes is undervalued, includes plants in five Canadian cities and one in Brazil, although one in Ontario is being closed because of high electricity costs.

—Gary Park