Nexen Reports Strong Second Quarter Cash Flow and Earnings

"We had another strong quarter financially and operationally," said Charlie Fischer, Nexen's President and CEO. "With the platforms now installed at Buzzard in the North Sea, we are another step closer to delivering strong production growth later this year."

Second Quarter Highlights:

- Cash flow of $2.78 per share, earnings of $1.55 per share
- Production before royalties averages 215,000 boe/d
- Production after royalties expected to grow approximately 50% in 2007
- Buzzard project approximately 95% complete-project on schedule and on budget
- Long Lake project on schedule-potential cost overrun up to 10% if cost trends continue
- Successful appraisal well on Alaminos Canyon Block 856 in the Gulf of Mexico

                                   Three Months Ended  Six Months Ended
                                              June 30           June 30
                                   ------------------- -----------------
(Cdn$ millions)                          2006    2005      2006    2005
------------------------------------------------------------------------
Production (mboe/d)(1)
 Before Royalties(2),(3)                  215     251       219     255
 After Royalties(2),(3)                   158     180       159     182
Net Sales                               1,039     976     2,019   1,892
Cash Flow from Operations(4)              729     623     1,402   1,143
 Per Common Share ($/share)(4)           2.78    2.39      5.35    4.40
Net Income                                406     200       327     237
 Per Common Share ($/share)              1.55    0.77      1.25    0.91
Capital Expenditures                      819     676     1,551   1,275
------------------------------------------------------------------------


(1) Production includes our share of Syncrude oil sands. US investors
    should read the Cautionary Note to US Investors at the end of this
    release.


(2) Second quarter 2005 volumes include approximately 19 mboe/d before
    royalties and 14 mboe/d after royalties of production related to
    asset dispositions completed in the third quarter of 2005.


(3) First half 2005 volumes include approximately 19 mboe/d before
    royalties and 14 mboe/d after royalties of production related to
    asset dispositions completed in the third quarter of 2005.


(4) For reconciliation of this non-GAAP measure see Cash Flow from
    Operations on pg 7.

Strong benchmark crude oil prices and narrowing differentials resulted in cash flow of $729 million and earnings of $406 million for the quarter. Included in cash flow is $74 million of proceeds from business interruption insurance in the UK. Included in earnings are $37 million related to the UK insurance and $32 million related to reductions in corporate tax rates in Canada.

During the quarter, we purchased put options on approximately 38 million barrels of crude oil production in calendar year 2007. These options establish a WTI floor price of US$50/bbl on these volumes and were purchased for approximately US$24 million (US$0.63/bbl). These put options provide us with a base level of price protection without limiting our upside in a sustained high price environment.






Oil and Gas Production


                Production before Royalties  Production after Royalties
Crude Oil,
 NGLs and
 Natural Gas
 (mboe/d)              Q2 2006      Q1 2006        Q2 2006      Q1 2006
-------------------------------------------- ---------------------------
Yemen                       95          102             52           54
North Sea                   23           20             23           20
Canada                      38           40             31           33
United States               35           39             30           34
Other Countries              7            6              6            5
Syncrude                    17           15             16           13
                 --------------------------- ---------------------------
Total                      215          222            158          159
                 --------------------------- ---------------------------



Our second quarter production averaged 215,000 boe/d (158,000 boe/d after royalties). This was less than the first quarter due primarily to lower well productivity at BAK-B in Yemen Block 51. In the Gulf of Mexico, approximately 4,000 boe/d of pre-storm production remains shut-in due to pipeline damage caused by last year's hurricanes. This production is expected to be restored later this year.

The Syncrude expansion came on-line in early May, increasing our share of production from Syncrude to over 25,000 bbls/d. The expansion was subsequently shut down on May 18 due to odour emissions. The modifications required to eliminate the odours are underway and the expansion is expected to resume operations in late July.

"We expect our 2006 annual production to average between 220,000 and 240,000 boe/d before royalties," said Fischer. "Production is expected to increase later this year as we bring the Syncrude expansion back on-line, bring on another development well at Aspen in the Gulf of Mexico and commence production at Buzzard. Where we end up in our range will largely be determined by the productivity of the Aspen well and the timing of first oil from Buzzard."

Buzzard on Track for First Oil in Late 2006

Our Buzzard project remains on schedule and on budget. It is approximately 95% complete and first oil is scheduled for late this year.

During the quarter, we installed the production deck and the utilities and quarters deck, together with the connecting bridges and the flare boom. With the successful installation of the facilities, final hook-ups and commissioning are underway.

"The installation of the decks is a major milestone for this world-class project," said Fischer. "We look forward to seeing first oil from Buzzard late this year."

The initial field development will consist of eight development and four injection wells. To date, six development wells and three injection wells have been drilled. Additional drilling will follow to sustain deliverability and optimize field recovery.

The Buzzard facility is designed to process up to 200,000 bbls/d of oil and 60 mmcf/d of gas. At its peak, our share of production is expected to be approximately 85,000 boe/d and generate between $1.6 and $1.7 billion of annual pre-tax cash flow, assuming oil prices of US$50/bbl. We have a 43.2% operated working interest in Buzzard.

Long Lake Project Update

The Long Lake project remains on schedule. With over 75% of the project's costs committed, field labor is the major remaining cost uncertainty. Labor and associated support costs have been higher than expected and labor productivity has been lower than forecast. We are taking actions to improve productivity and are seeing improvements. However, incorporating current market conditions and labor productivity to date, our projections indicate that total costs could be up to 10% higher than the $3.8 billion budget ($1.9 billion net to Nexen).

"We are an industry leader in insitu oil sands development and have been able to attract the labor we need to keep to our schedule. We are making excellent progress on the project," said Fischer. "Long Lake is an outstanding project that will produce for over 40 years. Going forward, our focus is on completing this project on time and for as close to our original budget as possible."

All SAGD wells have been drilled and completed. SAGD module fabrication is complete with over 90% of modules on site. Upgrader module fabrication is advancing with over 90% of modules completed and approximately 80% of modules on site. SAGD construction is over 75% complete while the upgrader is approximately 50% complete.

We are on track to begin steam injection in late 2006 and begin operation of the upgrader in the second half of 2007. Production capacity for this phase is approximately 60,000 bbls/d (30,000 bbls/d net to Nexen) of premium synthetic crude.

Our plan is to expand oil sands production to approximately 240,000 bbls/d (120,000 bbls/d net to Nexen) over the next 10 years. Three additional phases of 60,000 bbls/d (30,000 bbls/d net to Nexen) are planned using the same technology and design as Long Lake. We are currently progressing Phase 2 development. We have completed the seismic and core hole drilling programs, ordered several major vessels and are finalizing regulatory applications. With sanctioning anticipated in 2008, Phase 2 is expected to commence synthetic crude oil production in 2011.

Coalbed Methane (CBM) Development Continues

In Canada, we continue to develop CBM from Mannville coals. We currently have eight rigs drilling and have completed construction of gas processing facilities with a capacity of 94 mmcf/d (38 mmcf/d net to Nexen).

Our CBM production is currently five mmcf/d and we expect this to increase to over 30 mmcf/d by year-end. We expect further growth as we continue to drill development wells and complete additional processing capacity. We expect to add at least 150 mmcf/d of production by 2011, generating attractive full-cycle rates of return.

"We are excited about our Mannville CBM opportunities," said Fischer. "Results from our horizontal drilling program have exceeded our expectations and our longer term production target is based on developing less than half of our CBM lands, giving us significant opportunity to further develop and sustain our growth here."

Offshore West Africa Update

On Nigeria block OPL-222, the preliminary Usan field development plan remains with Nigerian governmental agencies for approval. Basic engineering and tendering of contracts for a multi-well development plan is proceeding. The current plan consists of a floating production, storage and offloading vessel capable of handling peak production rates of 160,000 bbls/d of oil, and with a storage capacity of two million barrels. The partners expect to formally sanction the project following government approval of the field development plan. Exploration and appraisal of additional opportunities on the block continues. We have a 20% interest in this exploration and development program.

Exploration Drilling Update

In the Gulf of Mexico, the Alaminos Canyon Block 856 No. 2 well encountered 85 feet of oil pay in the main objective. This well was a follow up to the Alaminos Canyon Block 856 No. 1 well which encountered 290 feet of oil pay. We are currently evaluating development options for this block, which is located approximately 240 miles south of Houston and is immediately west of the Great White discovery. We have a 30% non-operated interest in the block and a 10% non-operated interest in the Tobago discovery, located approximately seven miles east of Great White.

In the Gulf of Mexico, we are currently drilling exploration wells at West Cameron 135 and at Ringo Shallow on Mississippi Canyon 546. We have a 60% operated working interest at West Cameron 135 and a 50% operated working interest at Ringo Shallow.

To date, we have drilled five exploration wells at BAK-K on Block 51 in Yemen. One well is a small oil discovery, three wells were dry and abandoned and one will be tested during the third quarter. We plan to drill a further exploration well in the third quarter. BAK-K is located approximately 65 kilometers northwest of our processing facilities.

Capital Update

Our capital budget for 2006 is $2.9 billion. This amount could increase by 10% as we accelerate investment in CBM, pursue additional drilling opportunities and allow for higher costs at Aspen and Long Lake. We invested $1.6 billion during the first six months of the year.

We are planning to drill additional wells in the North Sea, Yemen and in our Canadian conventional operations. In addition, we plan to acquire and evaluate additional acreage in the oil sands, the Gulf of Mexico, Canadian CBM and offshore West Africa.

Active Second Half

The second half of the year will be very exciting. Buzzard is expected to begin producing late this year. At Long Lake we expect to begin injecting steam into the reservoir late this year. Our exploration program remains active as we expect to drill up to 15 wells in the Gulf of Mexico, the North Sea, Yemen, Colombia and offshore West Africa.

Quarterly Dividend

The Board of Directors has declared the regular quarterly dividend of $0.05 per common share payable October 1, 2006, to shareholders of record on September 10, 2006.

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.

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