July 12 (Bloomberg) -- Nexen Inc., a Canadian oil and natural-gas producer, said second-quarter profit fell 9.8 percent in the absence of gains posted a year earlier.

Net income fell to C$368 million ($349.7 million), or 68 cents a share, from C$408 million, or 76 cents, a year earlier, the Calgary-based company said in a statement today. The results exceeded the expectations of analysts. Insurance payments and tax reductions added C$69 million to second-quarter profit in 2006. Sales rose 20 percent to C$1.7 billion.

Nexen received higher-than-expected prices for its oil production in the U.K.'s North Sea and began production from its Buzzard field in that region without incident in January, said Steve Calderwood, an analyst at Raymond James Ltd. in Calgary.

``This project has started up with virtually no problems, and that's not usual for offshore projects,'' Calderwood said. ``Buzzard is a substantial success, and it's definitely the jewel in the crown for Nexen.''

Excluding one-time items such as a C$31 million gain to reflect a decline in value of stock options granted to employees, Nexen earned 65 cents a share, spokesman Sean Noe said in a telephone interview.

On that basis, the company was expected to earn 60 cents a share, the average of 10 analyst estimates compiled by Bloomberg. Calderwood, who rates the company's stock at ``market perform'' and owns none, expected 61 cents.

Buzzard

Shares of Nexen fell 51 cents, or 1.5 percent, to C$34.05 on the Toronto Stock Exchange. The stock, which has 14 buy recommendations by analysts, 10 holds and one sell, has risen 6 percent this year.

Nexen owns 43 percent of the Buzzard field, the U.K.'s largest offshore discovery in the past decade. The startup of production there helped increase the company's daily output of oil and gas before royalties by 18 percent to the equivalent of 253,000 barrels of oil.

The company said its oil sold for an average of C$72.27 a barrel in the second quarter, a decline of 0.9 percent from a year earlier. Nexen's gas fetched C$7.52 per thousand cubic feet, a gain of 13 percent.

Chief Executive Officer Charlie Fischer is counting on Buzzard and Long Lake to reverse three years of production declines.

Production Forecast

Nexen expects 2007 production to be ``at or slightly below the lower end of our guidance range of 275,000 to 305,000 barrels'' of oil equivalent a day, Fischer said in today's statement. Drilling delays in the Wrigley and Aspen fields in the Gulf of Mexico contributed to the revised forecast. Production last year was equivalent to 212,000 barrels a day.

The Wrigley field, which started production a few days ago, will add the equivalent of 5,000 barrels of oil to daily output, Fischer said on a conference call with analysts and investors. An Aspen well that's scheduled to start in mid-August will increase daily output from that field by as much as 15,000 barrels, he said.

Nexen affirmed an April 26 cost estimate of as much as C$5.3 billion for Long Lake. The company and partner Opti Canada Inc. raised the cost estimate for the project three times in 15 months. Long Lake, scheduled to start production later this year, is designed to produce 60,000 barrels a day of refinery-ready crude from heavy oil extracted from tar-like deposits in northeastern Alberta.

Nexen owns oil and gas wells in North America, the U.K., the Middle East and Africa.

To contact the reporter on this story: Ian McKinnon in Calgary at imckinnon1@bloomberg.net.

Last Updated: July 12, 2007 16:29 EDT