BUSINESS

Nexen CEO's exit a long time coming, portfolio manager says; shares rise

01/10/2012 12:36 EST | Updated 03/11/2012 05:12 EDT
CALGARY - The sudden departure of Nexen Inc.'s chief executive was a long time coming, a portfolio manager said Tuesday, noting investors have been losing patience with chronic problems at the company's Long Lake oilsands project.

Marvin Romanow "was not seen as a plus" for the Calgary-based company (TSX:NXY), said First Asset Investment Management's John Stephenson, adding he was surprised the shakeup didn't happen sooner.

"He just seemed woefully out of touch. I think he was a good engineer, but I don't think he was a good CEO."

In the wake of the executive change announced late Monday, Nexen shares rose nearly eight per cent to $18.40 Tuesday on the Toronto Stock Exchange.

Nexen's "Achilles heel" has been its Long Lake oilsands project near Fort McMurray, Alta., Stephenson said.

Since it started up in late 2008, the steam-driven project has consistently lagged its design capacity of 72,000 barrels of oil per day due to a litany of operational glitches.

Nexen's original partner at Long Lake, Opti Canada, filed for court protection from creditors last year and was later acquired by China National Offshore Oil Co. for $2.1 billion.

Nexen owns 65 per cent of the Long Lake development and operates it.

"I think it's time now to fish or cut bait because the view is 'as Long Lake goes, so goes the company,' " said Stephenson.

"And if they want that impression to change, they need to give us a reason, as investors, to either have faith that Long Lake can turn the corner ... or they need to figure out a way to write it off, move forward and find other growth opportunities."

Nexen said Monday that Romanow and the executive vice-president for Canada, Gary Nieuwenburg, were leaving their posts "effective immediately." The company did not say why.

Kevin Reinhart, the company's chief financial officer, has been appointed as interim president and CEO while the company searches for a new CEO.

UBS analyst George Toriola agreed the changing ranks at Nexen is likely a positive for the company.

"We see Kevin Reinhart as capable, knowledgeable about his business and very genuine," Toriola wrote in a note.

"In our meetings with him, we always came away with a deeper understanding of the issues, the challenges, and the opportunities. We expect this to be well received by shareholders, while the company conducts a search for a new CEO."

In addition to the Long Lake challenges, Nexen has also encountered outages at its Buzzard offshore platform in the North Sea and has been shouldered out of a major in Yemen.

Its stock has traded at a steep discount to its peers, noted Lanny Pendill, an analyst at the Edward Jones brokerage in St. Louis, Mo.

"Investors had pretty much checked out on the company," he said.

While Reinhart is "fully capable" of running the company for now, Pendill said he'd like to see the board look outside the company for a permanent replacement.

"I think the company needs a fresh perspective," he said, adding Romanow's successor should have experience in the oilsands and a proven track record.

Nexen is one of Canada's most international energy companies, with operations in the oilsands, shale natural gas fields in Western Canada and offshore in the Gulf of Mexico, the North Sea and West Africa.