Alternative fuels and renewable energy are gaining market share as energy sources, but oil will nevertheless remain a dominant fuel for at least the next 15-20 years, which is why Nexen Inc. (NYSE: NXY) is worth a review.Nexen, an independent, Canada-based global energy company, explores, develops and produces crude oil, natural gas, and related products in the U.K.'s North Sea, Gulf of Mexico, Western Canada, Yemen, Colombia, offshore West Africa and Norway.
NXY's Q1 production before royalties averaged 252,000 barrels per day of oil equivalent, up 9% from the previous quarter. Further, as of December 2007, NXY had 734 million barrels of proven oil/gas reserve equivalent before royalties, including 1,964 oil wells and 2,663 natural gas wells, primarily in Canada. Another positive: the company has 1.1 million acres of undeveloped land across Western Canada.
To be sure, oil prices must remain above $45-50 to enable Nexen's Athabasca oil sands production to remain profitable; short-term, oil could test $40; longer-term, the probability of oil remaining below $40 is low. The First Call FY2009/FY2010 EPS estimates for NXY are $1.15 to $2.14.
Stock Analysis: Nexen is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in NXY now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your NXY position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $8.50.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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