* Q1 EPS C$0.35 vs C$0.26 a yr ago
* Misses analyst forecast of C$0.39/shr
* Says Long Lake output ramping up
* Natgas marketing sale expected in next few weeks
* Shares down 2.1 pct (Recasts to add details, comments; updates shares; changes dateline from Toronto)
By Scott Haggett
CALGARY, Alberta, April 27 (Reuters) - Nexen Inc (NXY.TO) said on Tuesday that production at its troubled C$6.1 billion ($6 billion) Long Lake oil sands project is on the rise and reported a 37 percent boost in first-quarter profit as oil prices climbed.
The company, Canada's fifth-largest independent oil explorer, said the output at the Long Lake project in northern Alberta is now producing about 25,000 barrels of tarry bitumen a day, less than half its 72,000 barrel capacity but three times as much as its output in October 2009.
Nexen has a 65 percent stake in Long Lake -- the remainder is held by Opti Canada Inc (OPC.TO) -- but has struggled to raise production from the expensive project while worried investors questioned if the money was well spent.
Now, the company says the steam-driven technology it uses to liquefy the bitumen so it can flow to the surface is working. Its upgrader, which converts the bitumen into refinery-ready synthetic crude, is working reliably and the company expects Long Lake to soon begin adding cash instead of draining it away.
"By the end of this year, so later in the second half, we should be at positive cash flow ... as we ramp up production," Kevin Reinhart, Nexen's chief financial officer, said on a conferee call.
However the number of production interruptions and technical difficulties Nexen has seen at Long Lake have convinced some analysts to be cautious about saying the project's troubles are behind it.
"It's too early to make a call one way or another on Long Lake," said Chris Feltin, an analyst at Macquarie Securities Canada. "Directionally, rates are ramping up but it continues to be at a pretty measured pace. It remains to be seen what the ultimate peak rates will be from the project."
Nexen also said that the Appomattox discovery in the Gulf of Mexico, announced in March, was the best it has yet made in the region and is large enough to support construction of facilities to produce the field. However it did not say when production was expected to begin.
The company is also looking for a joint-venture partner to for some its holdings in the Gulf in order to speed up exploration.
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Nexen said net income in the first quarter rose to C$185 million, or 35 Canadian cents per share, from C$135 million, or 26 Canadian cents a share, a year earlier.
The per-share result lagged the average analyst estimate of 39 Canadian cents, according to Thomson Reuters I/B/E/S.
Nexen, which operates in Canada, the Gulf of Mexico, Yemen, the North Sea and elsewhere, benefited from oil prices 86 percent above the previous year.
Cash flow, an indicator of Nexen's ability to pay for new projects and drilling, fell 3.4 percent to C$538 million, or C$1.03 per share.
The company also said it is close to finding a buyer for its North American natural-gas marketing operations, saying on Tuesday it expects to wrap up negotiations in the next few weeks.
However its expects to post a non-cash charge of up to C$290 million to account for a drop in value of gas transportation agreements, as robust inventories of the fuel made pipeline space less valuable.
Earlier this year, Nexen said it expects to raise more than C$1 billion over the next two years from asset sales. It said on Tuesday it remains confident the sales will generate over C$1 billion in the next 12 to 18 months, with timing dependent on market conditions.
Quarterly oil and gas production, before royalties, averaged 252,000 bpd, about the same as a year earlier, as Nexen temporarily closed the prolific Buzzard field in the North Sea.
Revenue rose 43 percent to C$1.50 billion
Nexen shares fell 57 Canadian cents to C$25.93 by midday on the Toronto Stock Exchange.
($1=$1.02 Canadian) (Additional reporting by Euan Rocha in Toronto; editing by Rob Wilson)
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