Nexen Announces First Quarter Results & Strong Progress on Strategic Priorities

CALGARY, April 25, 2012 /PRNewswire/ - Nexen Inc. (TSX: NXY) (NYSE: NXY) today reported first quarter 2012 operating and financial results and provided an update on strategic priorities.

Production volumes for the first quarter averaged 202,000 boe/d, which was around the midpoint of our expectations. We generated cash flow from operations of $670 million ($1.27/share), reflecting solid operational performance, our significant weighting to Brent-priced oil and strong cash netbacks. Net income was also strong at $171 million ($0.32/share).

We have made progress on several of our strategic priorities:

• Long Lake bitumen production increased 10% from Q4 to 34,500 bbls/d (gross).
• Steaming began at Long Lake pad 12 and we received regulatory approval for pads 14, 15 and Kinosis 1A.
• Buzzard produced 190,000 boe/d (82,000 boe/d net to Nexen) and had a production efficiency rate of 86%.
• We achieved first production from the Usan development, offshore West Africa.
• We added 50 mmboe of net contingent resource from the northeast fault block at Appomattox.
• Drilling commenced on the North Uist exploration well west of the Shetland Islands in the UK North Sea.

"We've had a strong start to the year," said Kevin Reinhart, Nexen's interim President & CEO. "We met our production guidance for the quarter due to progress at Long Lake, reliable performance at Buzzard and the start-up of Usan. We're making progress on our plans to fill the upgrader at Long Lake. Our drilling program is well underway with continued success at Appomattox and commencement of drilling at North Uist. These successes contributed to Nexen delivering strong financial results that will continue to grow with the ramp-up of Usan."

Operational Update

Conventional

Offshore West Africa - Oil production from Usan started in late February on block OML-138 in Nigeria. Since then, we have ramped-up to rates of over 100,000 bbls/d (20,000 bbls/d net to Nexen), consistent with expectations. There are 7 wells producing as of April 20; several more wells are expected to be brought on-stream over the coming months. Well performance and the pace of ramp-up are the primary variables that will affect production rates over the remainder of the year.

Our financial results do not include any contribution from Usan until oil sales start in the second quarter.

We expect to drill an exploration well at Owowo West on block OPL-223 later this year. This well is targeted to follow-up on our 2009 oil discovery at Owowo South B.

UK North Sea - We have seen improved reliability at our Buzzard field over the last several months. Production efficiency for the first quarter was 86%, consistent with the prior quarter and our 2012 target of 85% efficiency, excluding planned downtime.

We continue to drill in areas surrounding our existing infrastructure. At Buzzard, we plan to drill an appraisal well in the north terrace area. Our UK team is also evaluating potential tie-back targets near the Buzzard, Scott and Ettrick facilities.

At Rochelle, we are working towards our planned start-up date in December. Additional development drilling is planned for the summer. Rochelle is primarily a natural gas and condensate discovery which we plan to tie-in to the Scott platform. It is expected to produce approximately 5,000 boe/d net to Nexen once online. We expect to earn an attractive return on this project as UK gas prices continue to be strong.

The Golden Eagle development is progressing toward first production in late 2014. Work continues on the fabrication of the facilities, utilizing the same team that oversaw the construction of the Buzzard platforms. The work is proceeding on-time and on-budget.

Our exploration program in the UK North Sea has advanced with the start of drilling operations on the BP-operated North Uist prospect, an exploration well located west of the Shetland Islands. Nexen has a 35% interest in North Uist, where we expect to reach target depths this summer. We are also currently drilling the Stingray prospect, which is located to the northeast of the Scott platform.

Gulf of Mexico - At Appomattox, we have completed the resource evaluation of our successful appraisal drilling in the northeast fault block. Our best estimate of contingent resource is approximately 215 mmboe (50 mmboe net to Nexen), with a range of 120 to 370 mmboe (25 to 90 mmboe net to Nexen) of light oil. This resource is in addition to the 65 mmboe of probable reserves we booked from the south fault block in 2011.

We have a 20% interest in Appomattox and a 25% interest in Vicksburg and various other blocks in the area. The remaining interests are held by Shell Gulf of Mexico Inc., who is the operator.

Nexen and Shell plan to conduct additional exploration and appraisal activity in the Appomattox area during 2012 and 2013. We are currently drilling an appraisal well in the south fault block to further define the existing resource. From that well, we plan to sidetrack into the northwest fault block to test another major part of the Appomattox structure. Following this, we expect to drill an exploration well on a structure located between Appomattox and our 2007 discovery at Vicksburg, and a subsequent sidetrack to further appraise the northeast fault block discovery.

Drilling operations are ongoing at Kakuna, a Nexen-operated exploration well in the central Gulf of Mexico. We expect to reach the main target reservoir section shortly and complete drilling operations in May.

Oil Sands

Long Lake - Our focus at Long Lake is on increasing production from our existing wells and adding more wells in good quality resource in order to fill the upgrader.

As we recently reported, our operations made strong progress in the first quarter. Total production increased 10% over the prior quarter; we averaged 34,500 bbls/d of gross bitumen at a steam-to-oil ratio (SOR) of 4.7.

Long Lake production continues to benefit from the well optimization initiatives we have undertaken on existing wells and from the ramp-up of pad 11, where recent rates of 5,700 bbls/d are trending toward the upper end of our expected range of 4,000 to 8,000 bbls/d.

Upgrader yield (PSC^TM barrels per barrel of bitumen) in the first quarter was 75% and facility on-stream time was 86%. Per-barrel operating costs increased marginally due to the sale of inventory carried at a higher cost. Costs in the next two quarters are expected to increase as we prepare for and perform the scheduled turnaround in the third quarter of this year. Following the turnaround, we expect operating costs to decrease on a per-barrel basis as production increases. 

We are making good progress on our plans to fill the upgrader. Steaming on pad 12 started in March as planned and production is expected to begin this summer. Completion work is underway on pad 13 and steam injection is expected to begin mid-year. Bitumen production is expected to begin before the end of the year. Production from pads 12 and 13 is expected to ramp-up to full rates over an 18-24 month period.

We have also received the necessary regulatory approvals to proceed with the development of pads 14 and 15 at Long Lake as well as the Kinosis 1A project. Our winter 2011 core hole program has confirmed the high quality of resource in each of these areas. It has also allowed us to finalize the initial number of wells to be drilled in each area and to optimize the well layouts. 

Drilling is expected to commence on pads 14, 15 and Kinosis 1A later this year. Steam injection is expected on pads 14 and 15 in the second half of 2013, with Kinosis 1A following by mid-year 2014. Together with the existing producing wells, we anticipate these wells will allow us to fill the upgrader over the next few years:

 

 

"I am pleased with the quarter we had at Long Lake," said Reinhart. "We made progress on increasing production rates from the existing wells and pad 11 is trending toward the higher end of our expectations. Securing regulatory approvals for the remainder of our 60-well program was a major step towards adding more high-quality wells and filling the upgrader."

Nexen has a 65% working interest in both Long Lake and Kinosis and is the operator. The remaining 35% interest is held by CNOOC Canada Inc.

Shale Gas

Northeast British Columbia - Our previously announced joint venture agreement with INPEX and JGC is expected to close in the second quarter.

We continue to progress our 18-well pad in the Horn River toward first production in Q4 2012. We recently completed the drilling of the wells and the cost came in under budget; completions activity is scheduled for the next several months.

Production Summary

First quarter production decreased 3% from the prior quarter on a before-royalties basis and 1% on an after-royalties basis. The expiry of the Masila contract in Yemen in December 2011 was largely offset by higher rates in the UK and the start-up of Usan.

In the UK, our Blackbird tie-back came on-stream in November and production rates have met our expectations. A full quarter of Blackbird production and Telford coming back on-stream contributed to an increase in UK production compared to the prior quarter.

Guidance Update

Our first quarter production of 202,000 boe/d met our guidance of 180,000 to 220,000 boe/d. Operational performance was good across our asset base, except at Syncrude, where production was reduced due to unplanned maintenance. This maintenance is expected to continue into the second quarter.

We are on-track to meet our second quarter and 2012 annual production guidance, with Buzzard reliability, Usan ramp-up and Long Lake performance being the critical drivers of our guidance ranges.

We also continue to expect production to increase as we move from 2012 into 2013. During 2013, our results are expected to reflect a full year of production and cash flow at Usan; pads 12 and 13 at Long Lake should be ramping-up; Rochelle is expected to be producing; and we have less scheduled downtime on our major assets.

 

Financial Results

First quarter financial results returned to levels from a year ago despite the loss of Yemen Masila production. This was driven by our significant weighting to strong, Brent-linked oil prices and recently secured long-term export capacity to the west coast of Canada.

Cash netbacks rose 7% compared to the fourth quarter from stronger oil prices and increased production in higher-netback areas such as the UK North Sea. Cash flow from operations rose 15% as the higher netbacks more than offset slightly lower production. We expect netbacks and cash flow from operations to continue to increase as we sell our first oil from Usan and continue to ramp-up production through the remainder of the year.

Net income rose substantially compared to the fourth quarter. Prior quarter net income was affected by significant one-time charges.

Net debt decreased slightly during the quarter; it is expected to further decline in Q2 following the close of our shale gas joint venture agreement.

Quarterly Dividends

The Board of Directors has declared the regular quarterly dividend of $0.05 per common share payable July 1, 2012, to shareholders of record on June 8, 2012.

The Board has also declared the initial quarterly dividend on our Series 2 Preferred Shares of $0.3928 per share payable July 3, 2012 to shareholders of record on June 8, 2012.

About Nexen

Nexen Inc. is an independent, Canadian-based global energy company, listed on the Toronto and New York stock exchanges under the symbol NXY. Nexen is focused on three growth strategies: oil sands and shale gas in western Canada and conventional exploration and development primarily in the North Sea, offshore West Africa and deepwater Gulf of Mexico. Nexen adds value for shareholders through successful full-cycle oil and gas exploration and development, and leadership in ethics, integrity, governance and environmental stewardship.

For further information on our shale gas joint venture, please refer to our press release dated November 29, 2011. For more information on our estimates of reserves, please refer to our 2011 Annual Information Form.  For more information on our estimates of resource, please refer to our press releases dated November 15, 2010 and April 2, 2012.

Earnings Conference Call

Nexen will discuss its 2012 first quarter financial results in a conference call on Wednesday, April 25, 2012 at 7:00 am Mountain Time (9:00 am Eastern Time) following the release of the results at approximately 3:00 am Mountain Time.

Kevin Reinhart, interim President and CEO, and Una Power, Senior Vice President and interim CFO, will discuss the financial and operating results as well as Nexen's business strategy and future expectations.

To listen to the conference call, please call one of the following:

(647) 427-7450 (Toronto)
(888) 231-8192 (North American toll-free)
(800) 051-7107 (UK toll-free)

We invite you to visit our website at www.nexeninc.com/2012q1 to listen to a live webcast of the conference call. Supplementary slides will also be available on our website.

A replay of the call will be available for two weeks starting at 10:00 am Mountain Time, April 25, by calling (416) 849-0833 (Toronto) or (855) 859-2056 (toll-free) and entering the passcode 66037475.

Annual General Meeting

Nexen will hold its Annual General Meeting of Shareholders on Wednesday, April 25, 2012 at 11:00 am Mountain Time (1:00 pm Eastern Time) at the Hyatt Hotel in Calgary, Alberta.

An archived video of the meeting will be available on our website at www.nexeninc.com two business days after the conclusion of the meeting and will remain on our website for six months.

Forward-Looking Statements

Certain statements in this Release constitute "forward-looking statements" (within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended) or "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements or information (together "forward-looking statements") are generally identifiable by the forward-looking terminology used such as "anticipate", "believe", "intend", "plan", "expect", "estimate", "budget", "outlook", "forecast" or other similar words and include statements relating to or associated with individual wells, regions or projects. Any statements as to possible future crude oil or natural gas prices; future production levels; future royalties and tax levels; future capital expenditures, their timing and their allocation to exploration and development activities; future earnings; future asset acquisitions or dispositions; future sources of funding for our capital program; future debt levels; availability of committed credit facilities; possible commerciality of our projects; development plans or capacity expansions; the expectation that we have the ability to substantially grow production at our oil sands facilities through controlled expansions; the expectation of achieving the production design rates from our oil sands facilities; the expectation that our oil sands production facilities continue to develop better and more sustainable practices; the expectation of cheaper and more technologically advanced operations; the expected design size of our facilities; the expected timing and associated production impact of facility turnarounds and maintenance; the expectation that we can continue to operate our offshore exploration, development and production facilities safely and profitably; future ability to execute dispositions of assets or businesses; future sources of liquidity, cash flows and their uses; future drilling of new wells; ultimate recoverability of current and long-term assets; ultimate recoverability of reserves or resources; expected finding and development costs; expected operating costs; future cost recovery oil revenues from our Yemen operations; the expectation of our ability to comply with the new safety and environmental rules enacted in the US at a minimal incremental cost, and of receiving necessary drilling permits for our US offshore operations; estimates on a per share basis; future foreign currency exchange rates; future expenditures and future allowances relating to environmental matters and our ability to comply with them; dates by which certain areas will be developed, come on stream or reach expected operating capacity; and changes in any of the foregoing are forward-looking statements.

Statements relating to "reserves" or "resources" are forward-looking statements, as they involve the implied assessment, based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

All of the forward-looking statements in this Release are qualified by the assumptions that are stated or inherent in such forward-looking statements. Although we believe that these assumptions are reasonable based on the information available to us on the date such assumptions were made, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include the following: that we will conduct our operations and achieve results of operations as anticipated; that our development plans will achieve the expected results; the general continuance of current or, where applicable, assumed industry conditions; the continuation of assumed tax, royalty and regulatory regimes; the accuracy of the estimates of our reserve volumes; commodity price and cost assumptions; the continued availability of adequate cash flow and debt and/or equity financing to fund our capital and operating requirements as needed; and the extent of our liabilities. We believe the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

Forward-looking statements are subject to known and unknown risks and uncertainties and other factors, many of which are beyond our control and each of which contributes to the possibility that our forward-looking statements will not occur or that actual results, levels of activity and achievements may differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for oil and gas; our ability to explore, develop, produce, upgrade and transport crude oil and natural gas to markets; ultimate effectiveness of design or design modifications to facilities; the results of exploration and development drilling and related activities; the cumulative impact of oil sands development on the environment; the impact of technology on operations and processes and how new complex technology may not perform as expected; the availability of pipeline and global refining capacity; risks inherent to the operations of any large, complex refinery units, especially the integration between production operations and an upgrader facility; availability of third-party bitumen for use in our oil sands production facilities; labour and material shortages; risks related to accidents, blowouts and spills in connection with our offshore exploration, development and production activities, particularly our deep-water activities; direct and indirect risks related to the imposition of moratoriums, suspensions or cancellations of our offshore exploration, development and production operations, particularly our deep-water activities; the impact  of severe weather on our offshore exploration, development and production activities, particularly our deep-water activities; the effectiveness and reliability of our technology in harsh and unpredictable environments; risks related to the actions and financial circumstances of our agents and contractors, counterparties and joint venture partners; volatility in energy trading markets; foreign currency exchange rates; economic conditions in the countries and regions in which we carry on business; governmental actions including changes to taxes or royalties, changes in environmental and other laws and regulations including without limitation, those related to our offshore exploration, development and production activities; renegotiations of contracts; results of litigation, arbitration or regulatory proceedings; political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict, including conflict between states; and other factors, many of which are beyond our control.

These risks, uncertainties and other factors and their possible impact are discussed more fully in the sections titled "Risk Factors" in our 2011 Annual Information Form and "Quantitative and Qualitative Disclosures About Market Risk" in our 2011 annual MD&A. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are interdependent, and management's future course of action would depend on our assessment of all information at that time. Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the forward-looking statements contained herein, which are made as of the date hereof as the plans, intentions, assumptions or expectations upon which they are based might not occur or come to fruition. Except as required by applicable securities laws, Nexen undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Included herein is information that may be considered financial outlook and/or future-oriented financial information (FOFI). Its purpose is to indicate the potential results of our intentions and may not be appropriate for other purposes. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

Note to Investors on Reserves and Resources
The reserves estimates in this disclosure were prepared with an effective date of December 31, 2011.  The resource estimates were prepared on March 31, 2012.  These estimates have been internally prepared by an internal qualified reserves evaluator in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook"). For more information on this reserves estimate and Nexen's reserves estimation process please refer to our 2011 Annual Information Form. For more information on our Appomattox resource estimate please refer to our press release dated April 2, 2012. Both our Annual Information Form and news releases are available at www.nexeninc.com and www.sedar.com.

Conversions of gas volumes to boe in these estimates were made on the basis of 1 boe to 6 mcf of natural gas. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Using the forecast prices applied to our reserves estimates, the boe conversion ratio based on wellhead value is approximately 30 mcf:1 bbl. Disclosure provided herein in respect of boes may be misleading, particularly if used in isolation.

Nexen Inc.
Financial Highlights

Cash Flow from Operations ¹

Nexen Inc.
Production Volumes (before royalties) ¹

Production Volumes (after royalties)

Nexen Inc.
Oil and Gas Prices and Cash Netback ¹

Nexen Inc.
Oil and Gas Cash Netback ¹ (continued)

Nexen Inc.
Unaudited Condensed Consolidated Statement of Income
For the Three Months Ended March 31

Nexen Inc.
Unaudited Condensed Consolidated Balance Sheet

Nexen Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
For the Three Months Ended March 31

Nexen Inc.
Unaudited Condensed Consolidated Statement of Changes in Equity
For the Three Months Ended March 31

Nexen Inc.
Unaudited Condensed Consolidated Statement of Comprehensive Income
For the Three Months Ended March 31

Nexen Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Cdn$ millions, except as noted

1. BASIS OF PRESENTATION

Nexen Inc. (Nexen, we or our) is an independent, global energy company with operations in the UK North Sea, Gulf of Mexico, offshore Nigeria, Canada, Yemen, Colombia and Poland. Nexen is incorporated and domiciled in Canada and our head office is located at 801—7^th Avenue SW, Calgary, Alberta, Canada. Nexen's shares are publicly traded on both the Toronto Stock Exchange and the New York Stock Exchange.

These Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2012 have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Specifically, they have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The Unaudited Condensed Consolidated Financial Statements do not include all of the information required for annual financial statements and should be read in conjunction with the Audited Consolidated Financial Statements for the year ended December 31, 2011, which have been prepared in accordance with IFRS.

The Unaudited Condensed Consolidated Financial Statements were authorized for issue by Nexen's Board of Directors on April 24, 2012.

2. ACCOUNTING POLICIES

The accounting policies we follow are described in Note 2 of the Audited Consolidated Financial Statements for the year ended December 31, 2011. There have been no changes to our accounting policies since December 31, 2011.

3. PROPERTY, PLANT AND EQUIPMENT (PP&E)

Carrying amount of PP&E

Exploration and evaluation assets mainly comprise of unproved properties and capitalized exploration drilling costs. Assets under construction at March 31, 2012 primarily include our developments in the UK North Sea.

4. LONG-TERM DEBT

During the three months ended March 31, 2012, we borrowed and repaid approximately $254 million on our term credit facilities and recorded approximately $75 million of unrealized foreign exchange gains on long-term debt in other comprehensive income.

We have undrawn, committed, unsecured term credit facilities of $3.7 billion, of which $700 million is available until 2014 and $3 billion is available until 2016. As at March 31, 2012, $236 million of our term credit facilities were utilized to support letters of credit (December 31, 2011—$367 million).

Nexen has undrawn, uncommitted, unsecured credit facilities of approximately $180 million. We utilized $6 million of these facilities to support outstanding letters of credit at March 31, 2012 (December 31, 2011—$17 million).

Nexen has uncommitted, unsecured credit facilities of approximately $210 million exclusively to support letters of credit. We utilized $18 million of these facilities to support outstanding letters of credit at March 31, 2012 (December 31, 2011—$4 million).

5. FINANCE EXPENSE

Capitalized interest relates to and is included as part of the cost of our oil and gas properties. The capitalization rates are based on our weighted-average cost of borrowings.

6. EQUITY

(a) Common Shares

Authorized share capital consists of an unlimited number of common shares of no par value. At March 31, 2012, there were 528,914,137 common shares outstanding (December 31, 2011—527,892,635 common shares).

(b) Preferred Shares

Authorized share capital consists of an unlimited number of Class A preferred shares of no par value, issuable in series. In March 2012, we issued eight million Cumulative Redeemable Class A Rate Reset Preferred Shares, Series 2 (Series 2 Shares) at a price of $25 per share for net proceeds of $195 million.

The holders of the Series 2 Shares are entitled to receive a fixed cumulative dividend at an annual rate of $1.25 per share, payable quarterly, until March 31, 2017, as and when declared by Nexen's Board of Directors. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current five-year Government of Canada bond yield plus 3.59%. The Series 2 Shares are redeemable at our option on March 31, 2017, and on March 31 of every fifth year thereafter.

The holders of the Series 2 Shares will have the right, at their option, to convert their shares into Cumulative Redeemable Class A Floating Rate Preferred Shares, Series 3 (Series 3 Shares), subject to certain conditions, on March 31, 2017 and on March 31 of every fifth year thereafter. The holders of the Series 3 Shares will be entitled to receive quarterly floating rate cumulative dividends, if declared, at a rate equal to the sum of the then current 90-day Government of Canada treasury bill rate plus 3.59%.

In the event of liquidation, dissolution or winding-up of Nexen, the holders of the Series 2 Shares will be entitled to receive $25 per share as well as all accrued unpaid dividends before any amounts will be paid or any assets will be distributed to the holders of any other shares ranking junior to the preferred shares. The holders of the preferred shares will not be entitled to share in any further distribution of the assets of Nexen.

(c) Earnings Per Common Share (EPS)

We calculate basic EPS using net income attributable to Nexen Inc. shareholders, adjusted for preferred share dividends and divided by the weighted-average number of common shares outstanding. We calculate diluted EPS in the same manner as basic, except we adjust basic earnings for the potential conversion of the subordinated debentures and potential exercise of outstanding tandem options for shares, if dilutive. We use the weighted-average number of diluted common shares outstanding in the denominator of our diluted EPS calculation.

In calculating the weighted-average number of diluted common shares outstanding and related earnings adjustments for the three months ended March 31, 2012, we excluded 14,883,722 tandem options (2011—14,662,587) because their exercise price was greater than the average common share market price in the quarter. During the three months ended March 31, 2012 and 2011, the potential conversion of subordinated debentures was the only dilutive instrument.

(d) Dividends

Dividends paid for the three months ended March 31, 2012 and 2011 were $0.05 per common share. Dividends paid to holders of common shares have been designated as "eligible dividends" for Canadian tax purposes. On April 24, 2012, the board of directors declared a quarterly dividend of $0.05 per common share, payable July 1, 2012 to the shareholders of record on June 8, 2012. On April 24, 2012, the board of directors declared a quarterly dividend of $0.3928 per Series 2 Share, payable July 3, 2012 to the shareholders of record on June 8, 2012.

(e) Stock-Based Compensation

Options and STARs granted in the quarter have a weighted average exercise price of $19.68/unit. We recognized compensation expense related to share-based payments in the amount of $26 million (2011—$ 32 million) for the quarter.

7. COMMITMENTS, CONTINGENCIES AND GUARANTEES

As described in Note 19 to the 2011 Audited Consolidated Financial Statements, there are a number of lawsuits and claims pending, the ultimate results of which cannot be ascertained at this time. We record costs as they are incurred or become determinable. We believe that payments, if any, related to existing indemnities, would not have a material adverse effect on our liquidity, financial condition or results of operations.

We assume various contractual obligations and commitments in the normal course of our operations. During the quarter, we entered into commitments comprised of the following:

The commitments above are in addition to those included in Note 19 to the 2011 Audited Consolidated Financial Statements.

8. MARKETING AND OTHER INCOME

9. CASH FLOWS

(a) Charges and credits to income not involving cash

(b) Changes in non-cash working capital

(c) Other cash flow information

10. DISPOSITIONS

Discontinued Operations

In February 2011, we completed the sale of our 62.7% investment in Canexus, which operates a chemicals business, for net proceeds of $458 million and we realized a gain on disposition of $348 million in the first quarter of 2011. The gain on sale and results of our chemicals business have been presented as discontinued operations.

11. OPERATING SEGMENTS AND RELATED INFORMATION

Nexen has the following operating segments:

Conventional Oil and Gas: We explore for, develop and produce crude oil and natural gas from conventional sources around the world. Our operations are focused in the UK North Sea, North America (Canada and US) and other countries (offshore Nigeria, Colombia, Yemen and Poland).

Oil Sands: We develop and produce synthetic crude oil from the Athabasca oil sands in northern Alberta. We produce bitumen using in situ and mining technologies and upgrade it into synthetic crude oil before ultimate sale. Our in situ activities are comprised of our operations at Long Lake and future development phases. Our mining activities are conducted through our 7.23% ownership of the Syncrude Joint Venture.

Shale Gas: We explore for and produce unconventional gas from shale formations in northeast British Columbia. Production and results of operations are included within Conventional Oil and Gas until they become significant.

Corporate and Other includes energy marketing and unallocated items. The results of Canexus have been presented as discontinued operations.

The accounting policies of our operating segments are the same as those described in Note 2 of our Audited Consolidated Financial Statements for the year ended December 31, 2011. Net income (loss) of our operating segments excludes interest income, interest expense, income tax expense, unallocated corporate expenses and foreign exchange gains and losses. Identifiable assets are those used in the operations of the segments.

Segmented net income for the three months ended March 31, 2012

Segmented net income for the three months ended March 31, 2011

Segmented assets as at March 31, 2012

Segmented assets as at December 31, 2011

 

 

SOURCE Nexen Inc.