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CALGARY - Nexen Inc. (TSX:NXY) aims to shed about $1 billion in assets that are not central to its business over the next year or two, directing that extra cash toward growing its oilsands, shale gas and international operations.
The Calgary-based oil and gas company says it has zeroed in on three possible areas to divest, including its 63.5 per cent interest in Canexus Income Fund (TSX:CUS.UN), the chemical business Nexen spun off in 2005.
Others include conventional heavy oil properties in Western Canada and Nexen's energy marketing business.
"Most of the proceeds will come from the first two things. My expectation is that the marketing is a very solid business but it won't form the big proportion of that billion dollars," Nexen chief executive officer Marvin Romanow told analysts on a conference call Wednesday.
Since it has relatively little debt weighing on its balance sheet, Nexen is free to direct proceeds from the asset sales to developing the core parts of its business.
"The two large things that are on the horizon going forward are the sanctioning of future phases of Long Lake and the sanctioning and the development of Golden Eagle," said Romanow, referring to an oilsands project in Northern Alberta and an offshore discovery in the U.K. North Sea.
The capital can also be directed toward developing resources off the coast of West Africa, as well as expanding its drilling activities in northeastern British Columbia's shale gas formations.
Late Tuesday, Nexen said it plans to spend $2.5 billion in 2010, with $1.8 billion of that geared toward conventional development and exploration.
Nexen will also spend $200 million on unconventional shale gas projects, particularly in British Columbia's Horn River Basin, and $400 million on oilsands development in Alberta, including $100 million at the Syncrude partnership.
Most of Nexen's spending on oilsands, however, will be at the Long Lake project in the Athabasca oilsands, which it's developing in partnership with Opti Canada Inc. (TSX:OPC).
UBS Investment Research analyst Andrew Potter said the spending plans were lower than his expectations of $2.7 billion for 2010.
When asked on the conference call by another analyst why the capital spending wasn't higher, Romanow said there is the possibility the budget will be altered if circumstances warrant.
"If gas prices continue to show some resilience as we go through 2010, I think we'll think about advancing a larger program into 2010 and into 2011," Romanow said.
"If we choose to do that larger program, we would need to start a bit earlier, and that would probably require additional capital... I think that's a great position to be in, to have those kinds of choices as we move forward."
Opti announced Tuesday it plans a $120-million capital program for 2010, including $92 million for its share of Phase 1 at Long Lake and $23 million for Phase 2 at the oilsands project. Opti said it and Nexen agreed to put off giving the final green light to Phase 2 to late 2011 in order to gain experience from the first phase.
Long Lake, which uses a steam-assisted extraction process that was developed by Opti, has struggled to meet production targets due to glitches at the facility's water treatment plant. The two companies believe those problems have been resolved.
The company said that a priority is to keep the Long Lake upgrader full. It said the upgrader is fully operational and approaching the volumes it was designed to handle.
Despite the cost and effort expended on it, Long Lake is expected to produce only a small fraction of Nexen's overall output next year - in a range of 20,000 to 30,000 oil-equivalent barrels per day before royalties.
In contrast, its North Sea offshore fields will produce 100,000 to 130,000 barrels per day, nearly half the projected overall total of 230,000 to 280,000 per day, and Yemen will account for 32,000 to 37,000 barrels per day in 2010, although rates in that country are declining.
Nexen shares dropped 31 cents to $23.87 in Wednesday trading on the Toronto Stock Exchange.
