Our strategy is to generate high value production growth for our shareholders and we are doing this by building material sustainable businesses in the deep-water Gulf of Mexico, Athabasca oil sands, Unconventional gas resource plays, North Sea and offshore West Africa. Long Lake, Knotty Head and Usan will contribute significant value when they come on stream. Charlie Fischer, President and CEO

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Long Lake Project Update
In 2007, we invested a total of $1.1 billion to develop our insitu oil sands resource. This included approximately $1 billion on the first phase of Long Lake, $591 million of which related to the upgrader. At Long Lake, we added 22 mmbbls of proved bitumen reserves based on further delineation of the lease and an increase in recovery factors based on performance from analogous reservoirs. We also added approximately 400 mmbbls of probable bitumen reserves associated with delineation work on Phase 2.

We are injecting steam into the reservoir through all well pads and we started converting wells to SAGD production in late February. Currently 29 of 81 well pairs have been converted to SAGD. While early production rates are variable, total bitumen production is averaging 6,200 bbls/d with peak rates to date in excess of 7,500 bbls/d (3,750 bbls/d net to us). During the first quarter, we started up the first cogeneration unit which has reliably produced power in excess of 80 megawatts. Surplus power was sold into the Alberta power grid. We recently started up the second cogeneration unit and we expect it to be fully operational shortly. We expect to convert the remaining well pairs to SAGD by mid summer. This will allow bitumen production to grow to full rates over the next 6 to 12 months. The bitumen production capacity of the SAGD facilities is approximately 72,000 bbls/d (36,000 bbls/d net to us).

With construction of the upgrader complete, we have turned over all units and systems to operations. We estimate that commissioning is over 50% complete and we plan to start introducing hydrocarbons into key processing units in May. Last week, while introducing oxygen into a liquid oxygen tank, the tank roof was damaged. We are presently investigating the cause of the damage and implementing solutions to keep the upgrader start up process on track. Our start up schedule forecasts production of synthetic crude to ramp up to full rates over a 12 to 18 month period following initial upgrader start up. The upgrader is designed to produce approximately 60,000 bbls/d (30,000 bbls/d net to us) of premium synthetic crude.

This project only develops about 10% of our oil sands leases. We plan to increase synthetic crude oil production as we sequentially develop our lands in 60,000 bbls/d (30,000 bbls/d net to us) phases using technologies developed at Long Lake.

"We are excited about bringing our first integrated insitu oil sands project on stream in the coming months," stated Fischer. "The project, which is designed to produce one of the highest quality crudes in North America, is progressing as planned and once Long Lake is fully ramped up, we expect to enjoy a significant margin improvement over competing technologies as our energy costs will be significantly reduced. This project will generate significant value for our shareholders."

Work continues on Phase 2 and our goal is to sanction this phase by year end. However, ultimate timing depends on accumulating sufficient operating history from Phase 1 and receiving clarity on proposed regulatory changes such as climate change. Proposed federal climate change regulations indicate a move towards carbon capture and sequestration. With the addition of shift reactors to future phases, our unique process allows for the pre-combustion capture of green house gas emissions for future sequestration.

North Sea Update - Ettrick Development Progressing Towards First Oil
Our Ettrick development in the North Sea is progressing towards first oil in the second half of 2008. The development will utilize a leased floating production, storage and offloading vessel (FPSO) designed to handle 30,000 bbls/d of oil and 35 mmcf/d of gas. Construction of the FPSO is nearly complete and sea trials are expected to commence mid year.

We have also identified a number of exploration opportunities in the immediate area that could be future tie-backs to Ettrick. We recently spud one of these opportunities, Blackbird, and have plans to drill another one later this year. We operate both Ettrick and Blackbird with an 80% working interest in each. We plan to drill six exploration wells in total in the UK North Sea before year end.

"Our North Sea strategy is to grow our production here with exploration and exploitation opportunities near existing infrastructure," commented Fischer. "We currently have a number of satellite discoveries near our Buzzard, Scott/Telford, Ettrick and third party facilities that in aggregate have sizeable potential. We are currently assessing development options for these discoveries."

Shale Gas Update
Over the past 18 months, we have accumulated a substantial land position of approximately 123,000 net acres in an emerging Devonian shale gas play in the Horn River Basin in northeast British Columbia which has the potential to become one of the most significant shale gas plays in North America. We have a 100% working interest in these lands. 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.

To further assess the potential of our lands, we are currently engaged in consultations with various stakeholders and are gearing up to conduct a summer drilling program consisting of two horizontal wells which will be fraced, completed and tied-in. We recently participated in the construction of an all-season road, providing us access to these well locations and approximately half of our Dilly Creek lands year round.

Coalbed Methane (CBM) Development Continues
In Canada, we continue to develop CBM from Mannville coals in the Fort Assiniboine area and well performance continues to meet expectations. Our production from this area averaged 34 mmcf/d for the quarter and we expect to exit the year around 46 mmcf/d as our existing wells dewater and production increases.

Offshore West Africa
Our capital investment is expected to be within the range of US$1.6 to US$2.0 billion over the development period, with an estimated 2008 capital commitment of approximately US$300 million. The Usan field is expected to come on stream in early 2012 and will ramp up to a peak production rate of 180,000 bbls/d (36,000 bbls/d net to us).

The Usan field development is located in OML 138 and is covered by the original production sharing contract for OPL 222 issued in 1993, with the Nigerian National Petroleum Corporation as concessionaire. The contract conveys the right to develop and produce crude oil and continue with exploration activity. We are currently processing three-dimensional seismic in anticipation of further exploratory drilling in the area. The Usan field was discovered in 2002 and is located approximately 100 kilometers offshore in water depths ranging from 750 to 850 meters. Nexen has a 20% interest in exploration and development along with Elf Petroleum Nigeria Limited (20% and Operator), Chevron Petroleum Nigeria Limited (30%) and Esso Exploration and Production Nigeria (Offshore East) Limited (30%).

Gulf of Mexico Update
In the Gulf of Mexico, we reduced our proved reserve estimates for Aspen and a few shelf properties by approximately 13 mmboe. At Aspen, disappointing results from our recent investment in development drilling resulted in reserve reductions of 7 mmboe. While we were encouraged by well log data indicating thick pay zones, well deliverability rates could not be sustained. This likely indicates barriers within this section of the reservoir that are not apparent elsewhere. On the shelf, negative reserve revisions of 6 mmboe primarily relate to gas properties, where unsatisfactory investment results, production performance and revised mapping resulted in a downward revision to reserves estimates.

In the Eastern Gulf of Mexico, where we have interests in discoveries at Vicksburg and Shiloh, we increased our acreage position on an unpromoted basis by acquiring working interests of 25% in 33 blocks recently awarded to Shell from the lease sale in late 2007. A number of additional exploration opportunities have been identified in the region and plans are in place to spud one of these opportunities, Fredricksburg, in the next few months. We have a 20% interest in Shiloh, a 25% interest in Vicksburg and a 20% interest in Fredricksburg, with Shell operating all three.

“We are excited about the Eastern Gulf of Mexico,” stated Fischer. “When we combine discoveries at Vicksburg and Shiloh with the prospects we see on our land holdings, this area has the potential to become a significant part of our Gulf of Mexico business.”

Elsewhere in the Gulf of Mexico, we sanctioned development of our Longhorn discovery during the quarter. Development will consist of three subsea wells tied-back to the non-operated Crystal facility. First production is expected in 2009 with a peak production rate of approximately 200 mmcf/d gross. We have a 25% non-operated working interest and Eni is the operator.

To date, we have not been able to find a rig with the capability of drilling a delineation well at Knotty Head. As a result, we plan to drill an appraisal well in mid 2009 when our first new deep-water drilling rig arrives. We have a 25% operated interest in the field.

2007 Capital Investment and Reserves
“Our strategy is to generate high value production growth for our shareholders and we are doing this by building material sustainable businesses in the deep-water Gulf of Mexico, Athabasca oil sands, North Sea and offshore West Africa,” said Fischer. “Long Lake, Knotty Head and Usan will contribute significant value when they come on stream. Projects of this size tend to have longer cycle-times and result in step changes to our production profile.”

In 2007, we added 102 mmboe of proved reserves and invested approximately $2.6 billion in oil and gas exploration and development activities, replacing approximately 110% of our production. Our total proved and probable reserves now total approximately two billion boe.