DBRS: Nexen to reduce debt

DBRS said that Nexen Inc.'s current BBB rating could strengthen if the company is able to achieve its recently announced debt reduction goal.

Nexen said it expects to reduce its total debt by about $1.5 billion by late 2011 or early 2012 from about $5.1 billion outstanding at year-end 2010, DBRS said.

The agency said it believes that the company can achieve this goal because it has $1.5 billion cash on hand and because crude oil represents more than 85% of its production, the majority of which is benefiting from higher international prices.

Nexen also initiated a process to find a joint-venture partner for various components of its northeast British Columbia gas acreage, allowing it to monetize a portion of the value created in that region, DBRS said.

The achievement of this debt reduction goal would strengthen Nexen's current rating by continuing the financial profile improvement that occurred during 2010, the agency said.

However, DBRS noted that the company's total debt-to-cash flow ratio of about 2.7x at year-end 2010 remains high given current crude oil pricing.

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