Nexen

Printable company profile from OilVoice

Address
Nexen Inc.
801 7th Ave SW
Calgary, Alberta,
Canada
T2P 3P7
Tel 403-699-4000
Fax 403-699-5800
Web http://www.nexeninc.com

Description

Nexen Inc. is an independent global energy and chemicals company listed on the Toronto and New York stock exchanges under the symbol NXY. The company was formed in 1972 and was originally known as Canadian Occidental Petroleum, Ltd.

Nexen is uniquely positioned for growth in the North Sea, deep-water Gulf of Mexico, the Athabasca oil sands of Alberta, in Yemen and West Africa.

The company's core business activities are exploration, development, production and marketing of crude oil and natural gas and manufacturing and marketing of sodium chlorate and chlor-alkali products (chlorine, caustic soda and muriatic acid).

History

1970s

Nexen Inc. (formerly Canadian Occidental Petroleum Ltd.) was formed under the laws of Canada on July 12, 1971 through a reorganization which combined the crude oil, natural gas and sulphur operations of its predecessor Jefferson Lake Petrochemicals of Canada Ltd. and the Canadian crude oil, natural gas and chemicals operations of Occidental Petroleum Corporation of Los Angeles, California. Following the amalgamation, Occidental Petroleum Corporation owned 80% of CanadianOxy's outstanding stock.

In the 1970s, CanadianOxy:

- Expanded exploration activities to include offshore Texas and Louisiana in the Gulf of Mexico;
- Bought Occidental Minerals Corporation of Canada; and
- Acquired sodium chlorate facilities in Brandon, Manitoba and British Columbia.

1980s

- Built a sodium chlorate facility in Nanaimo, British Columbia.
- Purchased a sodium chlorate facility at Amherstburg, Ontario.
- Acquired McCormack Energy, Inc. (renamed CXY Energy Inc. and now named Nexen Petroleum U.S.A. Inc.) which increased U.S. reserves by 70%.
- Acquired interests in various oil and gas fields in the U.S. Gulf of Mexico and the U.K. North Sea.
- Reduced interests in the Athabasca oil sands.

1990s

- Discovered significant oil reserves on the Masila Block in the Republic of Yemen in 1991. Production began in 1993 and millionth barrel produced in 1993, 700 millionth barrel produced in July 2003.
- Acquired interests in Gulf of Mexico, offshore Indonesia, offshore northwest Australia, Ecuador, Colombia, Pakistan, Kazakhstan, Vietnam, Nigeria and Saskatchewan (heavy oil).
- Increased interests in the U.K. North Sea.
- Began production in Ecuador and the U.K. North Sea.
- Sold interests in Bolivia, Kazakhstan and Romania.
- Expanded sodium chlorate facility in Brandon, Manitoba.
- Began production of sodium chlorate at a new facility in Bruderheim, Alberta.
- Acquired sodium chlorate plants at Beauharnois, Quebec and Taft, Louisiana (85 per cent interest).
- Increased public ownership to 70% when Occidental Petroleum Corporation sold 12 million common shares.
- Reorganized Company into three strategic business units: North American Oil and Gas, International Oil and Gas and Chemicals.
- Acquired Wascana Energy Inc., increasing Canadian holdings.

1998
- CXY Energy Inc. (now Nexen Petroleum U.S.A. Inc.) acquired 50% of Fina's interest in 64 lease Blocks in Gulf of Mexico.
- International Division acquired 50% of Kerr-McGee's interests in two Blocks in Yemen and also acquired four blocks on the Saudi Arabia/Yemen border, increasing the company's acreage holdings in Yemen to 20 million acres.
- The Company divested its Canadian assets except for the Wascana assets.
- Syncrude project produces one billionth barrel of synthetic crude oil.
- First offshore project in Nigeria began producing 10,000 bopd in October 1998.

1999
- In Yemen, achieved record production levels - exiting the year at 109,200 barrels per day, net to Nexen.
- Identified additional exploration potential on Masila Block.
Began development of Hay in northeastern British Columbia and had a significant light oil and natural gas discovery in Western Canada.
- Australia quickly became one of the company's core areas with the Buffalo Field coming on-stream in December.
- Exited the year producing over 257,000 barrels of oil equivalent - a new record.
- The company's Chemicals operation expanded internationally with the acquisition of sodium chlorate and chlor-alkali facilities in Brazil.

2000s

2000
- Successfully separated from their largest shareholder, Occidental Petroleum Corporation, ending a 30-year relationship.
- Changed their name from Canadian Occidental Petroleum Limited to Nexen Inc.
- Achieved record earnings of $602 million ($4.52 per share), up 500% from 1999.
- Doubled cash flow from operations $1.6 billion ($12.01 per share).
- Made two major discoveries at Gunnison in the deep-water Gulf of Mexico, and at Guando in Colombia.
- Began operations at Hay, one of Nexen's biggest discoveries in Canada, on the northeast border of B.C.
- Began a gas capturing project at their Canadian facilities to gather and sell gas that was previously vented to the environment.
- Acquired the remaining 50% ownership of the Buffalo field offshore northwest Australia, becoming the sole owner and operator.

2001
- Achieved record production averaging 268,000 boe per day for the year.
- Made two new discoveries, Aspen and Durango, in the deep-water Gulf of Mexico.
- Began a joint-venture project with OPTI Canada Ltd. to use steam-assisted-gravity-drainage to extract bitumen and upgrade it using OPTI's licensed field upgrader technology.
- Participated in approving the Stage 3 expansion at Syncrude's, estimated to increase Nexen's share (7.23%) of production by 8,000 bbls/d by mid 2006.
- Recognized as one of the top 50 companies to work for in Canada by Report on Business magazine.
- Added to the Dow Jones Sustainability World Index, a benchmark for companies committed to sustainable business practices.

2002
- Brought first deep-water project in the Gulf of Mexico, Aspen, on stream in December, just 19 months after the initial discovery, producing 16,000 barrels per day net to Nexen.
- Began pilot project in northeastern Alberta at Long Lake to test whether steam-assisted-gravity-drainage can successfully extract bitumen for upgrading.
- Continued acquiring acreage to build a resource base of more than four billion barrels of recoverable bitumen across Alberta.
- Built a one million-barrel storage tank at their marine facility in Yemen. There are less than 100 tanks this size worldwide.
- Drilled 74 new development wells at their Masila project in Yemen to maintain production at 226,900 barrels per day.
- Began commercial development of their Guando discovery in Colombia.
- Started coalbed methane pilot project in northeast Alberta to extract natural gas from underground coal beds.

2003
- Grew cash flow 37% to a record $1.8 billion; achieved net income of $578 million.
- Brought second deep-water project, Gunnison, on stream in the Gulf of Mexico.
- Acquired the remaining 40% of their deep-water Aspen project, operating their first deep-water project.
- Began development of Block 51 in Yemen with expectations of between 20,000 and 25,000 barrels per day from the Baishir al Khair field by 2005.
- Continued appraising our offshore Nigeria discoveries containing a commercial resource estimated to be at least 300 million barrels.
- Obtained commercial approval for the Long Lake Synthetic Crude pilot project with plans to start producing 60,000 barrels per day by 2006.
- Received encouraging results from their coalbed methane project in northeastern Alberta.

2004
- Grew cash flow 8% to a record $1.9 billion; achieved net income of $793 million.
- Sanctioned commercial development of their Long Lake project in the Athabasca oil sands at a cost to us of $1.7 billion.
- Entered the UK North Sea with US$2.1 billion acquisition, including the world-class Buzzard field development and the producing Scott and Telford fields.
- Brought production for Block 51 in Yemen on stream earlier than planned.
- Had another significant discovery on OPL-222, offshore Nigeria. This westerly extension of Usan was also appraised by a second well.

2005
- Achieved record financial results, delivering more than $1 billion in net income for the first time ever ($1.15 billion or $4.43 per share) and record cash flow from operations of $2.4 billion or $9.23 per share.
- Met production targets despite Canadian asset sales and hurricane disruptions in the Gulf of Mexico.
- Disposed of approximately 18,300 boe/d of conventional Canadian oil and gas assets and restructured their chemicals business into Canexus Income Fund, retaining a 61.4% interest. Total proceeds of more than $1.4 billion were used to reduce net debt.
- Advanced the company's major projects at Buzzard in the North Sea, and Long Lake and the Syncrude Stage 3 expansion in Canada, keeping them on time and on budget.
- Sanctioned Phase 2 of Nexen's Athabasca oil sands project, replicating the Long Lake project.
- Began commercial development of coalbed methane in the Upper Manville Coals in Canada.
- Encountered exploration success in the deep-water Gulf of Mexico at Knotty Head, the deepest oil discovery ever drilled in the Gulf.
- Drilled successful appraisal wells at Usan, Offshore Nigeria and submitted a development plan to Nigerian government agencies for approval.
- Added 82 million barrels of proved reserves, replacing 91% of their production. Nexen anticipate more reserves to come as they complete development projects, delineate discoveries and sanction new development projects.
- Grew shareholder value by $8 billion with the 7th best performing stock on the S&P TSX Composite Index.
- Included on the Dow Jones Sustainability Index for the fifth year in a row.

2006
- Grew cash flow 11% to a record $2.7 billion or $10.18 per share; net income of $601 million or $2.29 per share.
- Added 341 million barrels of proved reserves, replacing approximately 440% of our 2006 production. This included 246 million barrels of proved reserves at Long Lake.
- Completed Buzzard development and commenced production in January 2007.
- Completed Syncrude Stage 3 expansion, adding 8,000 bbls/d of production capacity to Nexen.
- Progressed Long Lake project for start up in 2007.
- Achieved exploration successes in the Gulf of Mexico and the UK North Sea.
- Received several awards reflecting our high standards in safety, leadership, social responsibility, reporting, and corporate governance.
- Outperformed the company's North American peers for the second year in a row in terms of stock market performance.

Strategy

In 2008, Nexen plans to invest $2.4 billion in value adding projects, grow net production by between 8% and 10% and generate $2.9 billion in cash flow.

2008 Plan Highlights:

• Expected cash flow of $2.9 billion assuming commodity prices of US$70/bbl (WTI) for crude oil and US$6.75/mmbtu for natural gas
• Anticipated free cash flow of $400 million after dividend payments
• Production, net of royalties, expected to grow by between 8% and 10% compared to 2007 and range from 220,000 to 240,000 boe/d (260,000 to 280,000 boe/d before royalties)
• Start up of Long Lake upgrader scheduled for mid 2008
• Ettrick on track for first production mid 2008
• Plan to drill 11 exploration wells, testing approximately 800 mmboe of unrisked resource potential (approximately 300 mmboe net)

For the past several years, Nexen have invested significant capital in a number of major development projects. The Syncrude Stage 3 expansion was completed last year and Buzzard commenced production in early 2007, ramping up to full rates during the year. These projects contributed to the company’s net production growth of approximately 35% in 2007 but was less than the 50% growth forecasted a year ago. The shortfall was the result of ramp-up delays on Nexen’s major projects at Buzzard, Long Lake and coalbed methane (CBM) coupled with disappointing results from development drilling at Aspen. Nexen are now injecting steam at Long Lake and expect bitumen production to begin ramping up in the spring. The upgrader is expected to start up in mid 2008, with production of premium synthetic crude ramping up over a 12 to 18 month period. In addition, first oil from Ettrick is anticipated in mid 2008.

2008 Estimated Production

UK North Sea
Before Royalties (mboe/d): 95-115
After Royalties (mboe/d): 95-115

Yemen
Before Royalties (mboe/d): 50-55
After Royalties (mboe/d): 27-32

Canada (1)
Before Royalties (mboe/d): 45-50
After Royalties (mboe/d): 40-45

US Gulf of Mexico (2)
Before Royalties (mboe/d): 25-30
After Royalties (mboe/d): 20-25

Syncrude
Before Royalties (mboe/d): 25-25
After Royalties (mboe/d): 17-22

Other International
Before Royalties (mboe/d): 6-7
After Royalties (mboe/d): 5-6

Total (3)
Before Royalties (mboe/d): 260-280
After Royalties (mboe/d): 220-240

(1) Production includes bitumen volumes from Long Lake in the Athabasca oil sands. Canadian natural gas production is estimated to comprise approximately 45% of total Canadian equivalent production in 2008.
(2) US natural gas production is estimated to comprise approximately 60% of total US equivalent production in 2008.
(3) Includes maintenance downtime at Buzzard and Syncrude in Q2 and Q3.

In 2008, capital will be allocated as follows:

• 29% on major development projects. This will allow us to bring Long Lake Phase 1 and Ettrick in the North Sea on stream in 2008 as well as progress Longhorn in the Gulf of Mexico and CBM at Fort Assiniboine in Alberta;
• 17% on early-stage development projects expected to contribute production and cash flow growth beyond 2008. These include future phases of oil sands in the Athabasca region, Block OPL-222 offshore West Africa, and our Knotty Head and Golden Eagle discoveries in the Gulf of Mexico and North Sea, respectively;
• 25% on exploration opportunities in our North Sea and Gulf of Mexico growth areas and on shale gas in northeast British Columbia; and
• 25% on our existing producing assets.

Estimated 2008 Capital Investment Profile ($millions)
Major Development: 700 (29%)
Core Asset Development: 600 (25)
Early-Stage Development: 400 (17)
Total Development: 1,700 (71)
Exploration: 600 (25)
Oil and Gas: 2,300 (96)
Other: 100 (4)

Total Capita: 2,400 (100)

Nexen’s 2008 capital investment program is approximately $1.2 billion less than the 2007 program. The decrease reflects reduced investment in a number of their major development projects.

The company expect to generate $2.9 billion of cash flow for 2008 which compares to expected cash flow of approximately $3.4 billion for 2007. The decrease reflects the impact of higher cash taxes, especially in the UK reflecting strong cash flow from Buzzard, combined with the impact of a stronger Canadian dollar.

Major Development

Long Lake - SAGD steaming underway and upgrader start up scheduled for mid 2008
Almost 60% of Nexen’s major development capital in 2008 will be invested at Long Lake in the Athabasca oil sands where the company plan to invest approximately $400 million, including capitalized interest, to bring Phase 1 on stream mid year. Nexen are currently injecting steam into the reservoir through all ten well pads. The company expect bitumen production to begin ramping up in the spring and are on track to have sufficient bitumen production for the start up of the upgrader. The bitumen production capacity of the SAGD facilities is approximately 72,000 bbls/d (36,000 bbls/d net to Nexen).

Ettrick - On track for first production in 2008
The company’s Ettrick development in the North Sea is progressing well towards first oil in mid 2008. This development project comprises three subsea production wells and one water injector tied back to a leased floating production, storage and offloading vessel (FPSO). The FPSO is designed to handle 30,000 bbls/d of oil, 35 mmcf/d of gas and to re-inject 55,000 bbls/d of water. Nexen expect to ramp up to full production of approximately 25,000 boe/d gross by the end of the year. The company’s share of production from this field is expected to average approximately 9,000 boe/d in 2008. Nexen operate Ettrick with an 80% working interest.

Other - Longhorn and CBM
The original discovery well at Longhorn in the Gulf of Mexico was drilled in 2006 with a pre-drill resource estimate of between 60 and 250 bcfe. Earlier this year, Nexen completed drilling an appraisal well which exceeded expectations and encountered approximately 400 feet of net gas pay in multiple sands. Nexen expect to sanction development of the Longhorn discovery in early 2008, with first production in 2009. The Longhorn development comprises subsea tie-backs to an existing platform and the company expect to invest almost $70 million here in 2008. Nexen have a 25% non-operated interest in this development.

Nexen have scaled back capital investment on their CBM projects in 2008 in light of the uncertainty that exists around proposed changes to Alberta's royalty regime but remain optimistic that final royalty regulations will continue to support the economic development of Alberta's unconventional gas resource. In the Fort Assiniboine area, Nexen plan to tie-in 19 wells and drill three new horizontal wells. The company expect CBM production will continue to increase in 2008 as existing wells continue to dewater and the additional wells are tied in.

Core Asset Development

Nexen plan to invest approximately $600 million on their core assets in 2008 with just over half of this amount planned for their North Sea assets. At Buzzard, the company plan to drill five production wells, two sidetracks and one water injector, and plan to commence construction work on a fourth platform which will contain production sweetening facilities designed to handle higher levels of hydrogen sulphide previously identified in the reservoir. Existing equipment and processes on the Buzzard platform can maintain current deliverability until the additional equipment is commissioned in 2010.

Elsewhere in the North Sea, Nexen plan to drill, complete and tie-in two development wells at Scott and Telford.

In the Gulf of Mexico, Nexen’s development program will focus on the deep-water. At Green Canyon 6, the company expect to spud a well and then commence completion operations in the first quarter of 2008. Production from this well is expected to add approximately 5,000 boe/d to the company’s annual volumes. At Gunnison, a subsea development well is planned that will be tied-back through existing flowlines to the Gunnison Spar. On the shelf, a total of nine recompletion projects are planned in the Eugene Island and Vermilion areas.

In Canada, Nexen plan to invest almost $80 million to maximize value from their heavy oil and natural gas assets. At Syncrude, the company plan to invest approximately $45 million in sustaining capital projects.

In Yemen, Nexen expect to drill six development wells and four sidetracks at Masila to manage declines and ensure they recover remaining reserves as economically as possible. On Block 51, the company plan to drill, complete and tie-in five development wells.

Early-Stage Development

In 2008, Nexen plan to invest approximately $400 million in a number of early-stage development projects. In the oil sands, capital investment plans will allow the company to advance detailed engineering on SAGD and upgrader facilities for future phases of Long Lake and drill appraisal wells to further assess their leases.

Offshore West Africa, Nexen plan to invest approximately $165 million primarily to progress the development of their Usan discovery on Block OPL-222. The project will have the ability to process an average of 180,000 bbls/d of oil during the initial production plateau period through a new FPSO which will contain two million barrels of storage capacity. Once the Usan development is formally sanctioned, the major deep-water facilities contracts will be awarded. Nexen have a 20% interest in exploration and development on this block.

Elsewhere, Nexen are assessing development alternatives for their Golden Eagle discovery and for Selkirk in the UK North Sea. The company have a 34% and a 38% operated working interest at Golden Eagle and Selkirk, respectively.

Exploration

Nexen plan to invest approximately $600 million in their 2008 exploration program and expect to drill up to 11 exploration wells in the Gulf of Mexico, the North Sea and Yemen. In total, this will test approximately 800 million boe of unrisked resource potential (approximately 300 million boe net to Nexen).

Estimated 2008 Exploration Capital Investment Profile ($millions)
US Gulf of Mexico: 225
North Sea: 210
Shale Gas: 70
Other: 95
Exploration: 600

In the Gulf of Mexico, Nexen plan to drill three deep-water wells and one shelf gas well. Two of the three deep-water wells will test sub-salt Miocene prospects. At Knotty Head, the company continue to pursue rig availability to allow them to spud an appraisal well in mid 2008 and Nexen have contracted two new deep-water drilling rigs that are scheduled to arrive in mid 2009 and 2010. In addition, Nexen plan to drill an appraisal well at Vicksburg.

Nexen were recently named the high bidder on 30 offshore blocks in the Central Gulf of Mexico Outer Continental Shelf Lease Sale 205. These awards are subject to the approval of the Minerals Management Service section of the US Department of the Interior. Nexen’s current deep-water portfolio totals approximately 230 blocks in the Gulf which contains several exciting sub-salt drill-ready prospects.

In the UK North Sea, Nexen plan to drill six exploration wells in 2008 as well as appraisal wells at Bugle and Kildare. As part of their growth strategy in the North Sea, Nexen have acquired interests in six exploration licenses in Norway and recently opened an office in Stavanger. Nexen are also awaiting results of bids submitted in a recent Norwegian exploration licensing round. In 2008, the company plan to participate in upcoming licensing rounds and invest capital on seismic and geologic studies. Nexen expect to drill our first exploration well in Norway in 2009.

Nexen have secured a material land position of approximately 123,000 acres in northeast British Columbia on an emerging Devonian shale gas play which has the potential to be one of the most significant shale gas plays in Canada. In 2008, the company plan to complete and test the two vertical wells drilled last winter and drill and complete three horizontal wells. In addition, the company plan to drill two vertical wells on a second lease in the area to acquire reservoir information.

Elsewhere, Nexen expect to drill one exploration well on Block 51 in Yemen.

Key data

Fourth Quarter and Annual Results in 2007

2007 Highlights:
• Record annual cash flow of $3.5 billion ($6.56/share)-an increase of 30% over 2006
• Annual earnings of $1.1 billion ($2.06/share)-an increase of 81% over 2006
• Production after royalties growth of 33% for the year
• Proved reserve additions of 102 million boe, replacing approximately 110% of 2007 production
• 400 million bbls of probable reserves added for Long Lake Phase 2
• All wells steaming at Long Lake and upgrader on track for mid 2008 start up
• Ettrick project on track for mid 2008 start up
• Exploration success in the Gulf of Mexico and the UK North Sea

Quarterly cash flow was over $1 billion for the first time in company history and cash flow for the year grew 30% to a record $3.5 billion. With strong oil and gas production from their Buzzard field in the North Sea, attractive commodity prices and high cash operating margins, Nexen had solid financial results for the fourth quarter and the year.

Production
Fourth quarter production averaged 262,000 boe/d (214,000 boe/d after royalties) with Buzzard contributing 75,000 boe/d. During the quarter, Nexen shut in production from the Buzzard platform following storm damage to one of the power generation turbine stacks. The damage was repaired within a few days. Reliability issues with the acid gas removal system at Buzzard also temporarily reduced production volumes. These issues have largely been resolved and Buzzard is now performing well, with Nexen’s share of production averaging over 95,500 boe/d (221,000 boe/d gross) for the month of January 2008.

Annual production averaged 254,000 boe/d (207,000 boe/d after royalties) as compared to 212,000 boe/d (156,000 boe/d after royalties) in 2006. This resulted in industry-leading production after royalties growth of 33%, but was less than the 50% growth forecasted a year ago. Project start-up and ramp-up delays, coupled with disappointing results from development drilling at Aspen, caused 2007 production to be less than originally forecast. At Buzzard, commissioning of all systems took longer than expected but this work is now complete and the platform is performing well. At Long Lake, project start up was deferred approximately six months to allow for completion of the air separation and sulphur recovery units. Despite these timing setbacks, project returns have not been impacted.

In 2008, Nexen expect additional production growth over 2007 and expect production to range from 260,000 to 280,000 boe/d (220,000 to 240,000 boe/d after royalties). For the month of January 2008, Nexen’s production was approximately 275,000 boe/d (233,000 boe/d after royalties).

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

OVERVIEW OF OPERATIONS

United Kingdom
In the UK, Nexen invested $726 million. This included $160 million at Buzzard where the company drilled six development wells and added 46 mmboe of proved reserves. Increases in both the reservoir size and overall recovery factor from successful drilling and production performance resulted in these proved reserve adds.

The company’s Ettrick development in the North Sea is progressing well towards first oil mid 2008. In 2007, Nexen invested approximately $260 million and added 4 mmboe of proved reserves and 1 mmboe of probable reserves. To date, the company have recognized 46 mmboe of proved plus probable reserves here. This 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. Nexen expect to ramp up to production of approximately 30,000 boe/d gross by the end of the year. The company operate Ettrick with an 80% working interest. They have also identified a number of exploration opportunities in the immediate area that could be future tie-backs to Ettrick. Nexen have plans to drill at least two of these opportunities this year.

At Scott/Telford and Farragon, Nexen added 5 mmboe of proved reserves as a result of successful development well drilling.

Elsewhere, Nexen are assessing development alternatives for their Golden Eagle discovery where they have a 34% operated working interest. At Kildare, the company are planning to drill an appraisal well this year. The discovery well was drilled to a depth of approximately 14,100 feet and encountered approximately 91 feet of net pay. Nexen also completed an appraisal well at Selkirk which confirmed commercial quantities of hydrocarbons and development options are currently being reviewed. Nexen have a 38% operated working interest here.

At Bugle, Nexen are currently drilling an appraisal well. Well results are still being analyzed but initial test results are encouraging. The company have a 41% working interest here.

Yemen
Yemen remains a significant asset for Nexen and is expected to generate approximately 15% of projected 2008 cash flow. In 2007, the company invested $139 million and added 3 mmboe of proved reserves. In 2008, Nexen expect to produce between 50,000 and 55,000 boe/d before royalties here.

Offshore West Africa
The Usan field development, located in Nigeria on offshore Block OPL-222, continues to move forward. Nexen expect the project to advance to the execution phase shortly and this will facilitate the award of major deep-water facilities contracts. The project will have the ability to process an average of 180,000 bbls/d of oil during the initial production plateau period through a new FPSO with a two million barrel storage capacity. the company have a 20% interest in exploration and development on this block.

United States
In the Gulf of Mexico, Nexen reduced our proved reserve estimates for Aspen and a few shelf properties by approximately 13 mmboe. At Aspen, disappointing results from Nexen’s recent investment in development drilling resulted in reserve reductions of 7 mmboe. While the company 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.

At Longhorn, where the company have a 25% working interest, Nexen completed drilling an appraisal well which exceeded expectations and encountered approximately 400 feet of net gas pay in multiple sands. Nexen added 3 mmboe of proved and 3 mmboe of probable reserves here. The Longhorn project has been sanctioned and development will consist of subsea tie-backs to a host facility with first production expected in 2009.

In late 2007, Nexen invested $104 million to acquire three producing deep-water properties at Garden Banks Block 205 and Green Canyon Blocks 137 and 6/50. These properties added 7 mmboe of proved reserves and are currently producing approximately 3,000 boe/d. Drilling of a development well at Green Canyon 6/50 is underway and Nexen expect production from this well to add up to 5,000 boe/d to support 2008 annual volumes.

Elsewhere, Nexen had positive proved reserve additions and revisions of 4 mmboe, primarily at Gunnison and on the shelf as a result of performance and drilling activities.

At Knotty Head, Nexen continue to pursue rig availability in the short term to allow them to spud an appraisal well. To date, the company have evaluated two rigs but determined that these rigs did not have the drilling capability required. The company have contracted two new deep-water drilling rigs that are scheduled to arrive in mid 2009 and 2010, respectively.

The company’s 2007 exploration program resulted in discoveries at Vicksburg, Mississippi Canyon 72 and South Marsh Island 257. The Vicksburg discovery well, located on De Soto Canyon Block 353 in the Eastern Gulf of Mexico, was drilled to a depth of approximately 25,400 feet and encountered a hydrocarbon column of 300 feet. Core was recovered from the well and studies are underway to assess the productivity of the column. Additional drilling in the area is planned in 2008. Nexen have a 25% non-operated working interest in this discovery. Shell is the operator with a 57.5% working interest and Plains Exploration & Production Company holds the remaining 17.5% interest. In the same area, Nexen participated in a discovery well in 2003 at Shiloh located on DeSoto Canyon Block 269, that was drilled by Shell. This well was drilled to a total depth of approximately 24,000 feet, encountered hydrocarbons and was temporarily abandoned pending further evaluation of the area. Nexen have a 20% non-operated working interest in Shiloh. Shell operates and owns the remaining 80% working interest.

In the Eastern Gulf of Mexico, where the discoveries at Shiloh and Vicksburg are located, Nexen have identified a number of additional exploration opportunities in the region. The company also have the right to extend their acreage position through the acquisition of working interests in various blocks recently awarded to Shell as a result of their participation in Lease Sale 205 late last year.

Other discoveries at Mississippi Canyon 72 and South Marsh Island 257 are currently being evaluated. Both discoveries are expected to come on production in 2008. Nexen have working interests of 33% and 34.5% respectively in these discoveries.

Canada
In Canada, Nexen are developing the first commercial coalbed methane (CBM) project in the Mannville coals. In 2007, the company invested $173 million in exploration and development activities on their CBM lands. This generated 5 mmboe of proved reserves. To date, Nexen have recognized approximately 36 mmboe of proved plus probable CBM reserves. The company expect their CBM reserves to grow over the coming years as additional wells are drilled, development work progresses and more production history is obtained.

Elsewhere, Nexen added 8 mmboe of proved reserves relating to their conventional heavy oil and gas properties largely as a result of positive price revisions and development drilling.

In northeast British Columbia, Nexen have a material land position of approximately 190 net sections in an emerging Devonian shale gas play which has the potential to be one of the most significant shale gas plays in Canada. The company are currently evaluating this opportunity with a program of drilling, completing and production testing.

Long Lake
In 2007, Nexen invested a total of $1.1 billion to develop their 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, the company 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. Nexen also added approximately 400 mmbbls of probable bitumen reserves associated with delineation work on Phase 2.

Long Lake continues to progress well towards first production of premium synthetic crude in mid 2008. Nexen are currently injecting steam into the reservoir through all well pads. The company have started converting wells to SAGD operation and have also recently started up their first cogeneration unit which allows them to produce electricity and build their steaming capacity. The second cogeneration unit is expected to start up towards the end of the first quarter. Nexen expect bitumen production to ramp up in the spring and they are on track to have sufficient bitumen production for the start up of the upgrader. The bitumen production capacity of the SAGD facilities is approximately 72,000 bbls/d (36,000 bbls/d net to Nexen).

At the end of 2007, construction of the upgrader was 97% complete and commissioning is progressing well. Nexen have turned over the hydrocracker, the OrCrude(TM) unit and all main plant utilities to operations. The gasifier and air separation unit were essentially mechanically complete at year end 2007, and Nexen are completing final electrical and insulation work. Construction of the sulphur recovery unit is expected to be completed by the end of the first quarter, in sufficient time for first production of synthetic crude oil in mid 2008. Production of premium synthetic crude will 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 Nexen) of premium synthetic crude.

The total cost estimate for the Project remains unchanged at between $5.8 billion and $6.1 billion (between $2.90 billion and $3.05 billion net).

Nexen are planning to increase synthetic crude oil production as they sequentially develop their lands with additional 60,000 bbls/d (30,000 bbls/d net) phases using the same technology and design as Long Lake.

Syncrude
At Syncrude, Nexen invested $36 million in 2007 and converted 8 mmboe of probable reserves to proved reserves. In 2008, the company have turnarounds scheduled in the second and third quarters and expect annual production of between 20,000 and 25,000 bbls/d before royalties.

Capex

Total Capita: 2,400 (100)

Nexen’s 2008 capital investment program is approximately $1.2 billion less than the 2007 program. The decrease reflects reduced investment in a number of their major development projects.

Future Plans