NXY NXY
Q2 2012 Earnings Call Transcript

Operator: Good morning, ladies and gentlemen. Welcome to the Nexen's Second Quarter 2012 Conference Call.

I would now like to turn the meeting over to Janet Craig, Nexen's Vice President of Investor Relations. Please go ahead, Ms. Craig.

Janet Craig - VP, IR: Thank you, Sarah. As a reminder, some of our comments today will be forward-looking in nature. Our earnings release provides more information about these statements and our AIF describes our various risk factors. We have we have a few slides that supplement our disclosure again this quarter. They're available on our website. You do not require them to follow our remarks this morning.

In a moment, I'm going to turn the call over to Kevin Reinhart, Nexen's Interim President and CEO. Joining him is Una Power, our Interim CFO. Kevin will provide an update on our operational results and progress against our strategic priorities, and then Una will provide some comments on the financial results. Kevin and Una will then be available to answer questions.

I'd like to remind everyone if you have detailed modeling questions, my IR team would be pleased to respond to those questions after the conclusion of the call.

With that I'll turn the call over to Kevin.

Kevin Reinhart - Interim President and CEO: Thank you, Janet, and good morning, everyone. As always, we appreciate your time and interest this morning. I'm going to keep my comments quite brief as I'm assuming everyone has had a chance to read our news release.

Last quarter I spoke about 4 topics that are very important to our business for 2012 and beyond. This quarter let me again make a few comments on each of those 4 items. First, we have strong cash flow despite lower global oil prices. Cash flow was up 6% to over C$700 million, primarily reflecting the inclusion of Usan in our financial results for the first time. Netbacks at Usan are very strong. This quarter they were almost double our corporate average netback from last year.

Global oil prices were lower than the first quarter, but our weighting to Brent continues to benefit us compared to peers who have production linked to either WTI or further discounted Canadian benchmark crudes. Second, we met our production guidance again. We came at the midpoint at our guidance range which was slightly higher than what we had expected last conference call. This was due to a strong reliability run at Buzzard and good production late in the quarter from the Telford field in the U.K.

We ramped up production at Usan during the quarter, and we averaged about 100,000 barrels per day gross in line with our guidance. The Gulf of Mexico was at the low end of our guidance, as we previously indicated we had expected. And lastly, we saw higher production in Canada, because of the delay in closing the shale gas joint venture. We have started the process for closing and expect it to be concluded before the end of July. This will generate over C$800 million of cash including the reimbursement of capital we've incurred on our partner's behalf since the effective date of last July.

A third key business driver for us is the progress we're making towards filling the upgrader at Long Lake. As we disclosed a few weeks ago, we're ahead of schedule on pads 12 and 13 largely due to some technology advances that shorten the steam circulation phase. We're now generating record steam levels, and are getting close to the capacity of the existing steam plant. As a result as we move forward, we'll direct our steam to the best available reservoir and start shutting in some of our poorest wells. This may cause a dip in production in the short term, as the new wells ramp up, but it will pay off quickly with steam going into the better part of the reservoir.