We asked Marvin: In 2007, Nexen’s net production grew by 33%, but you don’t expect growth of this magnitude for a few years until projects like Usan, Knotty Head and Phase 2 of Long Lake come on stream. Do you believe growth should be the company’s strategic focus?

If we grow volumes but no value, our shareholders are worse off—we’ll have paid too much for the barrels. If we focus solely on growth, we’ll walk away from properties as soon as we see the slightest decline, leaving lots of value in the ground.

Our capacity to add value is driven by the quality of three ingredients: portfolio, projects and people. We have all of these in abundance. Our portfolio includes undeveloped conventional discoveries, oil sands development, non-conventional plays such as CBM and shale gas, and exploration prospects. That’s a rich inventory with numerous opportunities to mitigate production declines in mature properties.

Our projects are high quality as well. For example, Buzzard’s low operating costs and no royalties allow us to realize about 85% of the price of Brent before taxes. This means that at current oil prices, we expect to recover our total investment in Buzzard, including acquisition costs, in less than two years. We also did not hedge away the upside and our shareholders are benefiting 100% from strong oil prices. Equally impressive, Buzzard is helping us generate significantly higher company-wide operating cash netbacks per barrel—in some cases 50% better than our peers. This means for every barrel we produce, some competitors have to produce one and a half barrels to generate the same cash flow. All barrels are not created equal and the more value we create with each barrel, the more capacity we have to plan for what’s next.

The final ingredient is our people. We must engage people’s minds, inspire creativity and reward success. Part of this is deploying people in roles they are best suited for and developing their passions and strengths. The other part is creating a great work environment that allows talent to flourish. I believe when a company does these things well, value creation is the natural outcome.

We asked Roger: Since the Long Lake pilot performed below initial expectations and there’s proprietary upgrading technology involved, what gives you confidence this project will be a great success?

We’re very confident in Long Lake and excited to bring it on stream this year. Any time you break new ground with a new technology or process, there’s initial skepticism surrounding its success. I’d say our greatest indicator that we’re on track is that many competitors are now trying to make gasification work for them.

And here’s why. With our integrated gasification process, we convert the bottom of the barrel into synthetic gas, which substantially reduces our need to purchase natural gas—a key cost driver in oil sands production. At current prices, this translates into an estimated $10/bbl operating cost advantage.

The appeal of the patented process is its simplicity. It takes conventional “pots and pans” and uniquely configures them. We know the “pots and pans” work—gasifiers and hydrocrackers have been operating globally for decades. We also know the OrCrude process works—it was successfully tested in a demonstration plant for two years.

The SAGD pilot provided us with valuable learnings, including how to operate wells drilled into lean zones where less than half the zone is bitumen and steam oil ratios are higher. We now have over 300 cored wells within our commercial area and our geologic mapping indicates lean zones represent less than 3% of the total reservoir volume. So we’re confident our commercial performance at Long Lake will exceed results from the pilot and steam oil ratios will be better than other projects in the area.

Phase 1 is just the beginning of what’s next as Long Lake will only develop about 10% of our oil sands leases. We can therefore potentially duplicate Long Lake up to 9 times. With a $10/bbl operating cost advantage and low development costs per barrel, this is a legacy asset in the making.

We asked Larry: Buzzard was one of few global mega projects in the last several years to be completed virtually on time and on budget, yet it missed its 2007 production goal. What happened?

Buzzard was definitely a highlight in 2007. We committed to a safe start up for this asset taking care to protect our people and the environment, and achieved that goal. Let me take you through the story.

We set an aggressive first-year target for Buzzard—to safely ramp up production to 190,000 boe/d gross, or 95% of name-plate design through the latter half of 2007. Instead we achieved 88% of this target which is still first quartile performance for a new offshore facility in the UK North Sea. A few factors set us back. A two-month delay in start up cost us about 9,000 boe/d in lost production. Considering Buzzard was a 42-month project, this delay was modest. We lost similar volumes due to operational downtime typical with commissioning and start up of a new facility. And the remaining shortfall was caused by third-party export facility outages. We’re pleased to have these setbacks largely behind us and Buzzard is now operating well. In fact, production for January 2008 was over 220,000 boe/d (95,000 boe/d net).

Buzzard is a world-class asset that keeps getting better. When we acquired it in 2004, we expected the field’s ultimate recovery to be around 486 million boe gross. Since then, our reserves estimate has grown 35%. With current oil prices almost three times higher than when we made the acquisition and a facility that can handle greater volumes than originally forecasted, we see exceptional value from Buzzard.

Looking back, I am proud of how we delivered and operated Buzzard in 2007. We did not take shortcuts to achieve production goals and operated in a safe and responsible manner, keeping with Nexen’s values and how we operate around the world.