Nexen to Invest $2.9 Billion in Capital Projects in 2006

In 2006, Nexen plans to invest a record $2.9 billion in value accretive projects, with capital allocated as follows: - 45% in major development projects. These include Buzzard, Long Lake, coal bed methane (CBM) and Syncrude Stage 3 which come on-stream in 2006 and 2007; - 10% in early stage development projects expected to contribute production and cash flow beyond 2006. These include development of additional CBM lands, enhanced oil recovery projects, additional phases of oil sands and existing North Sea discoveries; - 24% in our existing producing assets and other corporate assets; and - 21% in high-quality exploration opportunities in our growth areas. ------------------------------------------------------------------------- Estimated 2006 Estimated 2005 Capital Investment Profile ($millions) % ($millions) % ------------------------------------------------------------------------- Major Development 1,300 45 1,600 56 Early Stage Development 300 10 100 4 Core Asset Development 600 21 500 18 ------------------------------------------ Total Development 2,200 76 2,200 78 Exploration 600 21 500 18 ------------------------------------------ Oil and Gas 2,800 97 2,700 96 Marketing and Other 100 3 100 4 ------------------------------------------ Total Capital 2,900 100 2,800 100 -------------------------------------------------------------------------

"This budget reflects our commitment to building sustainable businesses in Canada, the Gulf of Mexico, North Sea, Yemen and offshore West Africa," commented Charlie Fischer, Nexen's President and CEO. "By the end of this decade, each core area will be anchored by world-class producing assets that combine large reserves and low costs to provide superior returns and sustained value creation."

Major Development - Major Projects Coming On-stream in 2006

Almost half our 2006 capital program is focused on major development projects in our key growth areas. To date, we've invested almost $5 billion in these projects which come on-stream beginning in 2006, generating future reserve additions and significant sustained growth for shareholders for years to come.

    Major Development Capital                                 Estimated 2006
     Investment Profile                                        ($millions)
    Long Lake                                                            650
    UK North Sea - Buzzard Development                                   450
    CBM Development                                                      150
    Syncrude Stage 3 Expansion                                            50
    Major Development                                                  1,300

"These projects were inventoried when commodity prices were much lower and have attractive cost structures," said Charlie Fischer. "On a full-cycle basis, they earn their cost of capital at prices significantly below current levels and are expected to generate outstanding returns in the current price environment."

Long Lake SAGD Steaming in 2006, Upgrader in 2007

One-half of our major development capital in 2006, approximately $650 million, will be invested at our Long Lake project in the Athabasca oil sands. The project remains on schedule and on budget. Steam assisted gravity drainage (SAGD) drilling program (78 well pairs) was completed in November ahead of schedule and under budget. We expect to complete and tie-in our commercial SAGD wells and commence steam injection late in 2006. Production from these wells is expected to ramp-up in advance of the upgrader completion in the second half of 2007 with production capacity of approximately 60,000 bbls/d (30,000 bbls/d, net to Nexen) of premium synthetic crude oil. Construction on the upgrader will continue during 2006 with the completion of the modules and advancement of on-site construction.

Detailed engineering is substantially complete and approximately 65% of the project's total costs have been committed. The major remaining uncertainty relates to labor access and productivity. We are monitoring these factors as field construction progresses and will provide more information in the first half of 2006 as we make further progress on module and field construction.

To ensure bitumen feedstock supply and create capacity for future growth, we are evaluating additional steam generating capacity to enable us to operate at a steam oil ratio of up to 3.3 compared to the existing design of 2.5. The estimated cost of this expansion is up to $250 million ($125 million, net to Nexen). We expect to make a decision on this investment during the first half of 2006.

"By gasifying the bottom of the barrel, we produce our own fuel for steam generation and hydrogen for upgrading, creating a significant cost advantage," said Fischer. "This advantage will perpetuate in the years to come as we develop additional phases of the oil sands."

North Sea Buzzard Development On-stream Late-2006

At Buzzard, we plan to invest approximately $450 million in 2006 to drill and complete eight production and six injection wells, and complete and tie-in all facilities. Buzzard is on budget and on schedule to commence production in late-2006.

"Bringing Buzzard on-stream next year is a major milestone, as we expect our share of production to grow to approximately 85,000 boe/d during 2007," said Fischer.

CBM Development

We will continue to develop our Upper Mannville coal bed methane assets in the Fort Assiniboine area of Alberta. In 2006, we plan to invest approximately $150 million to develop 115 gross (53 net) sections using single and multiple-leg horizontal wells and construct gas gathering and processing facilities. We expect our CBM production to be modest in 2006 and to grow substantially in 2007 and beyond as we de-water the reservoirs.

"We are focused primarily on Upper Mannville coals which have high gas-in-place and large aerial extent," said Fischer. "We currently have almost 600 net sections of CBM lands containing an estimated 3 tcf of gas-in-place. We are targeting to add approximately 150 million cubic feet of daily CBM production by 2011 which will generate attractive full-cycle rates of return."

Syncrude Stage 3 Expansion On-stream in Mid-2006

We plan to invest approximately $50 million to complete and commission Syncrude's Stage 3 upgrader expansion. The expansion is expected to be completed and fully on-stream by mid-year, adding approximately 8,000 bbls/d of production, net to us.

Early Stage Development - Exciting Future Growth Opportunities

In 2006, we plan to invest approximately $300 million in early stage development projects. "These projects are natural extensions of our core expertise and knowledge," said Fischer. "We can take advantage of the tremendous capacity we've already established in our growth areas, and continue expanding this with identified, low-risk projects for long-term growth."

In the North Sea, we plan to invest approximately $100 million to complete appraisal and development evaluation work on a number of small discoveries.

In the oil sands, we are planning to increase synthetic crude oil production to 240,000 bbls/d over the next 10 years (120,000 bbls/d, net to Nexen) in 60,000 bbls/d (30,000 bbls/d, net to Nexen) phases using the same technology as Long Lake. In 2006, we plan to invest approximately $100 million in additional drilling and seismic to develop our leases and to advance our regulatory applications. Phase 2 bitumen production is expected to commence in late 2010, with upgrader commissioning in 2011.

Our Upper Mannville CBM strategy continues to progress. In addition to developing the Fort Assiniboine area, we plan to acquire additional seismic and drill wells to evaluate our CBM lands at Bittern Lake, Wetaskiwin and Provost.

We also continue to focus on large unconventional resource opportunities in Canada. We are evaluating enhanced oil recovery technologies such as solvent extraction and alkaline flooding to significantly increase recovery factors from our heavy oil properties.

Offshore Nigeria, the Field Development Plan on Block 222 has been approved by the Nigerian National Petroleum Corporation, the concessionaire of the license. Approvals are being sought from the Department of Petroleum Resources. In 2006, we will invest in pre-development engineering with production start-up anticipated in 2010.

Exploration - Building on our 2005 Successes

Our 2006 exploration program builds on our recent successes, including a major discovery at Knotty Head in the Gulf of Mexico, smaller discoveries in the Gulf and North Sea, and continued success on Block 222 in Nigeria. We plan to invest approximately $600 million to follow-up on our successes and drill approximately 20 high-impact exploration wells in the Gulf of Mexico, North Sea, West Africa and Yemen. In total, we will test almost 800 million equivalent barrels of unrisked resource potential.

                                                              Estimated 2006
    Exploration Capital Investment Profile                     ($millions)
    US Gulf of Mexico                                                    255
    CBM Exploration                                                       80
    UK North Sea                                                          75
    West Africa                                                           40
    Yemen Block 51                                                        35
    Other International                                                   75
    Other Canadian                                                        40
    Exploration                                                          600

In the Gulf of Mexico, we plan to drill eight high-impact exploration wells including three deep-shelf gas prospects, and five deep-water prospects. In addition we plan to delineate the deep-water Knotty Head discovery.

Knotty Head encountered 400 feet of net pay in a secondary objective. The well has surpassed its original depth of 32,500 feet and is currently drilling towards 34,000 feet. The well is expected to reach its total depth by year-end. In 2006, we plan to drill a sidetrack appraisal well and another appraisal well into this structure to test the aerial extent of the discovery. We have a 25% interest in Knotty Head.

In the North Sea, we plan to drill four exploration wells in 2006, and complete the drilling of the Black Cat well. Black Cat is expected to begin drilling in late December after the Bennachie well which commenced drilling in late-November. We drilled the Black Horse well in the fourth quarter of 2005. The well encountered approximately 50 feet of net pay in the Upper Jurassic sandstones and flowed at a facilities constrained rate of 5,000 bbls/d. We are currently evaluating these results and the potential tieback opportunity to the Scott platform. We have a 60% interest in this well.

On East Al Hajr Block 51 in Yemen, we plan to drill three exploration wells and acquire additional seismic data in 2006.

Offshore West Africa, we expect to drill two deep-water exploration wells and conduct seismic work in 2006.

We have drilling rigs secured for approximately 75% of our drilling program next year, including the sidetrack well to be drilled at Knotty Head in the Gulf of Mexico. We are reasonably confident that we will be able to secure the remaining rigs required to complete our program.

Maximizing Value from Core Producing Assets

"Free cash flow from our core producing assets in the Gulf of Mexico, Western Canada, the North Sea and Yemen is the major source of capital to fund our new growth activities," said Fischer.

In the Gulf of Mexico, our development program will focus on gas opportunities in the Eugene Island and Vermilion areas of the shelf. An additional well at Aspen is also planned to further delineate the field.

In the North Sea, we plan to drill, complete and tie-in three development wells in the Scott/Telford area, work-over several existing wells and upgrade water processing facilities on the Scott platform to re-inject produced water back into the formation for pressure support.

On East Al Hajr Block 51 in Yemen, we expect to drill 17 development wells at our BAK-A and BAK-B fields throughout the year. On the Masila Block, we plan to drill 30 development wells to manage declines and ensure we recover the remaining reserves in the most economical manner.

"Our operations in Yemen continue to generate significant free cash flow for our company," said Fischer. "The addition of Block 51 production is expected to minimize the impact of Masila declines on overall net production from Yemen."

Following the successful disposition of 18,300 boe/d of Canadian production in the third quarter of 2005, we remain focused on maximizing value from our heavy oil and shallow gas assets. This will be accomplished with infill drilling and optimizing production from existing wells. In 2006, we expect to drill approximately 200 wells on these assets.

2006 Investment Generates Strong Growth in 2007 and Beyond

Our annual production for 2006 is expected to average between 220,000 and 240,000 boe/d, before royalties, and between 165,000 and 180,000 boe/d after royalties.

"Adjusting for the sale of Canadian production in mid-2005, we expect our production before royalties to be essentially unchanged from 2005. Our production will grow dramatically in 2007 as we gain a full year of high margin production from Buzzard and Syncrude Stage 3, and Long Lake volumes come on-stream," said Fischer. "Production after royalties is expected to increase by over 50% in 2007, generating very strong growth in our operating margins and cash flow."

                                          2006                  2005
                                  Estimated Production  Estimated Production
                                   Before      After     Before      After
                                  Royalties  Royalties  Royalties  Royalties
    Core Asset Development        (mboe/d)   (mboe/d)   (mboe/d)   (mboe/d)
    US Gulf of Mexico(1)              40-45      33-38      43-48      36-41
    UK North Sea                      25-30      25-30      14-18      14-18
    Yemen                            90-100      50-55    101-109      56-60
    Canada(2)                         35-40      27-31      48-50(3)   38-40
    Syncrude                          20-22      18-20      16-17      16-17
    Other International(4)              6-7        5-6        5-6        5-6
    Total                           220-240    165-180    235-245    170-175
    (1) US natural gas production is estimated to comprise 59% of total US
        equivalent production in 2006.
    (2) Canadian natural gas production is estimated to comprise 50% of total
        Canadian equivalent production in 2006.
    (3) Included is approximately 11,000 boe/d (before royalties),
        8,000 boe/d (after royalties) of annualized production that was sold
        in 2005.
    (4) Substantially all production is from Colombia.

At the mid-point of our production range, assuming WTI oil prices average US$55.00/bbl, gas prices average US$9.25/mmbtu, operating costs average Cdn$8.85/boe and the US/Cdn exchange rate averages US$0.85, we expect 2006 cash flow to increase to over $2.6 billion.

For 2006, each US$1.00 change in oil prices impacts our cash flow by about $40 million. A US$0.50 change in natural gas prices impacts our cash flow by about $35 million and a US$0.01 variation in the exchange rate impacts our cash flow by about $25 million.

United Kingdom Tax Change

In a recent pre-budget announcement, the government of the United Kingdom said it intends to increase the supplementary income tax charge on North Sea oil and gas companies from 10% to 20%, effective January 1, 2006. This increase is subject to the introduction of legislation and increases our overall income tax rate in the North Sea from 40% to 50%. Expenditures are generally deductible for tax purposes in the year incurred, and production from all new developments, including Buzzard, is not subject to royalties.

Assuming this legislation is introduced, we expect to record a non-cash tax expense of approximately $250 million, reflecting higher future taxes payable. The timing and amount of future cash taxes will be dependent upon a number of factors including future capital expenditures and commodity prices. We expect this change will have no impact on our consolidated cash flow in 2006, and will reduce our consolidated cash flow by less than 1% in 2007.

The deterioration of fiscal terms in the UK and the frequency of these changes could impact our future investment decisions.

Nexen Inc. is an independent, Canadian-based global energy company, listed on the Toronto and New York stock exchanges under the symbol NXY. We are uniquely positioned for growth in the North Sea, deep-water Gulf of Mexico, the Athabasca oil sands of Alberta, the Middle East and offshore West Africa. We add value for shareholders through successful full-cycle oil and gas exploration and development and leadership in ethics, integrity and environmental protection.

                           Conference Call Notice

    Date: December 7, 2005
    Time: 10:30 a.m. Mountain Time (12:30 p.m. Eastern Time)

We invite you to learn more about this by joining Charlie Fischer, President and CEO, and Marvin Romanow, Executive Vice-President and CFO, who will host a conference call to discuss further details around this capital budget and expectations for the future.

    To listen to the conference call, please call:

    866-696-5911 (North American Toll-Free)
    416-641-6111 (Toronto)
    800-9559-6854 (International Toll-Free)

A replay of the call will be available for two weeks starting at 1:30 p.m. Eastern Time, December 7, 2005 by calling 800-408-3053 passcode 3169679 followed by the pound sign. A live and on demand web cast of the conference call will be available at

Forward Looking Statements

Certain statements in this report constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "intend", "plan", "expect", "estimate", "budget", "outlook" or other similar words, and include statements relating to future production associated with our Coal Bed Methane, Long Lake, Syncrude, North Sea and West Africa projects.


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