CALGARY - Nexen Inc. has struck a deal to sell 40 per cent of its northeastern British Columbia natural gas assets to a consortium led by a Japanese company with global expertise in liquefied natural gas.
The Calgary-based oil and gas producer (TSX:NXY) said Tuesday that it is selling the interests in its Horn River, Cordova and Liard Basin holdings for $700 million to a group led by Inpex Corp., which has LNG projects in Indonesia and Australia.
Nexen will remain operator of the shale gas fields after the deal's expected first-quarter 2012 close. The company is getting half of the proceeds from Inpex up front and the rest through a capital carry.
Nexen shares rose 68 cents or more than four per cent to $15.95 on the Toronto Stock Exchange on Tuesday.
"This joint venture represents a significant milestone in the advancement of our shale gas strategy and the premium over our invested cost shows the value we have created in a short time," said Nexen CEO Marvin Romanow.
The deal continues a trend that has seen companies from around the world seek partnerships to develop Canadian natural gas, with the goal of eventually shipping that fuel to Asia by tanker when LNG terminals are eventually built along the West Coast.
U.S. firms Apache Corp. (NYSE:APA) and EOG Resources (NYSE:EOG) and Canadian natural gas heavyweight Encana Corp. (TSX:ECA) are planning to build a LNG export terminal at Kitimat, B.C.
Encana's $5.4-billion joint-venture deal with Petro-China fell through this past spring, but Encana is looking for similar partnerships to speed up development of its vast B.C. natural gas holdings.
In June, Progress Energy Resources Corp. (TSX:PRQ) and Malaysian energy firm Petronas announced a $1.07-billion deal that could eventually lead to a new West Coast LNG terminal.
Penn West Exploration has a joint-venture deal for its natural gas assets in northeastern British Columbia with Japan's Mitsubishi, though it has not yet expressed any LNG ambitions.
Nexen's announcement of the Japanese investment came as the company revealed its 2012 production, cash flow and capital investment targets.
Nexen said capital expenditures on its projects are expected to come in between $2.7 billion and $3.2 billion for the year.
Cash flow is expected to be between $2.8 billion and $3.3 billion assuming current prices, or cash flow per share of $5.30 to $6.30.
Nexen expects overall production before royalties to be about flat relative to production this year, with production between 185,000 and 220,000 barrels of oil equivalent before royalties. Year-to-date production is approximately 206,000 boe.
"Our budget reflects growing cash flow, on a price-neutral basis, from significant cash margin expansion," added Romanow.
"We expect this increase in cash flow despite flat year-over-year production.”
Nexen is one of Canada's most international energy companies, with operations in the oilsands, shale natural gas formations in Western Canada and offshore in the Gulf of Mexico, the North Sea and West Africa.
Last week, Nexen said it had been shouldered out of a major project in Yemen, prompting it to reconsider its future in the Middle East country.
In its most recent quarter, Nexen reported its net profits were cut by nearly two thirds on lower production and falling sales.
The company earned $200 million or 38 cents a share for the quarter ended Sept. 30. That was down from $581 million or $1.11 a share a year earlier.
Company-wide production after royalties dropped to 164,000 oil equivalent barrels a day from 180,000. Output was hurt by reduced production from its Buzzard field in the North Sea, planned maintenance and weather-related downtime in the Gulf of Mexico.
Quarterly sales dropped to just under $1.4 billion from $1.45 billion.
In Canada, Nexen operates the Long Lake oilsands project, which has been beset by operational glitches since it started up in late 2008. The project continues to lag its design capacity of 72,000 barrels of bitumen per day.