From the ocean swells in the North Sea to the frosty north of Alberta’s oil sands and desert heat of Yemen, our philosophy is to build SUSTAINABLE businesses. Sustainable value comes from our solid core assets that provide superior returns and ongoing free cash flow. It also comes from strong development projects expected to generate attractive returns and high-impact exploration for long-term growth.

We believe our portfolio of assets and opportunities is unique. In fact, no other company our size has the suite of assets and opportunities we do:

• UNCONVENTIONAL resources in oil sands, shale gas and coalbed methane
• DEEP-WATER plays in the Gulf of Mexico and
• strong INTERNATIONAL holdings.

With our development projects coming on stream, we have growth in hand. In fact, in 2009, we expect production after royalties to grow between 7% and 14% to between 225,000 and 240,000 boe/d (255,000 and 270,000 boe/d before royalties).

Unconventional
News of the incredible resources in Alberta’s oil sands is spreading around the world. The oil sands are estimated to hold 1.7 trillion barrels of bitumen in place—second only to Saudi Arabia, the world’s largest resource. We are well positioned with our oil sands projects in the heart of it.

In January 2009, we produced first premium synthetic crude at Long Lake using steam-assisted-gravity-drainage (SAGD) drilling and upgrading technology. More importantly, our patented process significantly reduces our need to purchase natural gas, a key cost driver in competing technologies. As a result, we expect a SIGNIFICANT COST ADVANTAGE of approximately $10/bbl over existing technologies. We expect Long Lake premium synthetic oil to reach 60,000 bbls/d (39,000 bbls/d net to us) once fully ramped up.

Our potential in the Alberta oil sands is enormous. Long Lake is Phase 1 which develops only 10% of our oil sands inventory. We are already planning Phase 2 and looking ahead to future phases. We’ll essentially duplicate Long Lake over and over again. This allows us to cost-effectively access the resource as we control the pace of expansion and apply learnings to future phases.

We also own just over 7% of Syncrude which gives us production capacity of approximately 25,000 barrels per day.

In 2005, we announced the first coalbed methane (CBM) commercial development in the Mannville coals in Alberta. We have a long-term view of this business and plan to increase our CBM production as existing wells dewater and we bring new ones on stream. At the end of 2008, we held more than 726 net sections of land in Alberta with CBM potential.

As part of our growth strategy in unconventional Canadian resource plays, we acquired approximately 126,000 acres of land in an emerging Devonian shale gas play in north eastern British Columbia. Shale gas is natural gas produced from reservoirs composed of organic shale. The gas is stored in pore spaces, fractures or absorbed into organic matter. Currently, the United States is the largest producer of shale gas. Our capital program over the past two winters has primarily focused on the Dilly Creek area in the Horn River Basin where we have approximately 88,000 net acres. This shale gas play has been compared to the Barnett Shale in Texas by other operators in the area as it displays similar rock properties and play characteristics. The average gross shale thickness on our Dilly Creek lands is approximately 175 meters which is almost 50% thicker than the Barnett.

We previously announced positive results from our 2007/2008 winter program where we fraced three vertical wells and one horizontal well with encouraging results. Based on our assessment of the data we acquired, additional analysis conducted by third party consultants and assuming a 20% recovery factor, we estimate our Dilly Creek lands in Horn River contain between 3 and 6 trillion cubic feet (0.5 to 1.0 billion barrels of oil equivalent) of recoverable contingent resources. Further appraisal activity is required before these estimates can be finalized and commerciality established. In 2009, we plan to enhance our understanding of optimal drilling and fracing techniques for this play with an investment plan that includes drilling and testing multiple wells from a single pad.

Deep-water
Many of the world’s oil and gas discoveries are located in deep water, so it is important to have the skills to find, develop and operate DEEP-WATER ASSETS. The Gulf of Mexico has been our training ground. We've been using seismic data to interpret deep-water sub-salt plays and are considered technical experts among our peers. We've had a major energy company partner with us for this expertise and in 2005, we drilled the deepest oil discovery at Knotty Head. We have an EXCELLENT PROSPECT INVENTORY in the Gulf and are a top acreage holder in the deep-water with approximately 200 blocks and several prospects identified.

We are building on our EXPLORATION SUCCESS. In 2009, we plan to drill appraisal wells at Knotty Head and in the Eastern Gulf where we have discoveries at Shiloh and Vicksburg. We have contracted two deep-water drilling rigs that are scheduled to arrive late 2009 and in 2010. With the arrival of these two rigs, we are in a position to drill our exciting deep-water exploration program.

International
In late 2004, Nexen acquired significant assets in the NORTH SEA: the world-class Buzzard discovery, Scott and Telford producing field, plus other satellite discoveries and interests in more than 700,000 net undeveloped acres. We also gained an experienced operating team with an excellent track record. Buzzard is one of the LARGEST DISCOVERIES made in the United Kingdom in the past decade. In January 2007, we brought Buzzard on stream and reached facility design production rates of 200,000 boe/d (85,000 boe/d net) in mid 2007. In late 2007 and early 2008 we achieved sustained production rates in excess of 220,000 boe/d or 10% above nameplate design capacity. Additionally our Ettrick development is progressing towards first oil in mid 2009.

Yemen is one of Nexen’s core producing assets providing SIGNIFICANT FREE CASH FLOW. The Masila Block has been a strong contributor to our growth over the past 10 years, and it still contains substantial long-term value. We still expect to generate approximately 15% of the total project free cash flow from the remaining proved reserves recoverable before the PSA expires in 2011. Production from neighbouring Block 51 adds to this value.

West Africa is a region RICH IN RESOURCE, and is home to a significant discovery at Usan on Block 222, offshore Nigeria. The value of OPL-222 has grown with each well drilled. Appraisal of this field is complete and development of the Usan field is fully underway. The field development plan includes a floating production, storage and offloading vessel with a storage capacity of two million barrels of oil. Development drilling has begun and throughout the course of the year, the FPSO hull will be constructed. The Usan field is expected to come on stream in early 2012. The project will have the ability to process an average of 180,000 bbls/d gross of oil during the initial production plateau. We have a 20% non-operated interest here.