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

With our major development projects coming on stream, we have significant growth in hand. In fact, in 2008, we expect production after royalties to be between 220,000 and 240,000 boe/d.

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.

At Long Lake, we are developing the first phase or our oil sands resource, a $5.8 to $6.1 billion, 50/50 joint venture project with OPTI Canada to produce premium synthetic crude oil 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. In April 2007, we began injecting steam into the reservoir and during the quarter, we reached two major milestones as bitumen production began ramping up and we completed construction of the upgrader. Total costs and project timing remain on schedule. We expect our share of premium synthetic oil to reach 30,000 barrels per day 12 - 18 months after initial startup.

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 and expect to reach 120,000 bbls/d (net to us) of synthetic crude over the next decade. 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 to at least 150 mmcf/d by 2011, more than doubling our current Canadian natural gas production. At the end of 2007, we held more than 725 net sections of land in Alberta with CBM potential. The Government of Alberta recently provided clarification of the length adjustment to be used for calculation of the proposed royalties and we are reviewing our investment program in light of this announcement.

As part of our growth strategy in unconventional Canadian resource plays, we acquired approximately 123,000 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 85,000 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 recently announced positive results from our 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 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.

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. In 2007, our deep-water production averaged approximately 19,000 boe/d, with the majority coming from our 100%-operated Aspen field and 30% non-operated Gunnison field. We have also secured significant deep-water acreage and pursue an active exploration program focused on three areas—deep-shelf gas, deep-water prospects near existing infrastructure and new deep-water core areas.

We are building on our EXPLORATION SUCCESS. In 2007, we drilled successful wells at Vicksburg, South Marsh, Island 25, and Mississippi Canyon 72. We also continued to appraise our world-class Knotty Head discovery, drilling a successful sidetrack well. We have an EXCELLENT PROSPECT INVENTORY in the Gulf and are a top 10 acreage holder in the deepwater.

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% nameplate design capacity. Additionally our Ettrick development is progressing towards first oil in the second half of 2008.

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 we are moving forward with our partners on the development of this discovery. During the quarter, we commenced development of the Usan field, offshore Nigeria. The field development plan includes a floating production, storage and offloading vessel with a storage capacity of two million barrels of oil. All major contracts for deep-water facilities have been awarded and contractors are mobilizing for detailed engineering and project execution. 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.