Nexen Says Commissioning of SAGD Plant and Wells Underway

Nexen Inc. provides an update on Phase 1 of its Long Lake development project. Commissioning and start up of the SAGD plant and wells is underway. We are currently injecting steam into 4 of the 10 well pads and expect to be steaming all well pads by the end of September. "Although we are still early in the steaming process, SAGD performance at Long Lake is as expected or slightly better and we expect bitumen production to ramp up to full rates over the next 12 to 24 months," stated Charlie Fischer, Nexen's President and Chief Executive Officer.

Construction of the upgrader continues. We expect construction of the hydrocracker, the OrCrude(TM) unit and all main plant utilities to be completed in the third quarter of 2007. This is in-line with previous expectations. Progress on other units of the upgrader, however, has been slower than expected. Completion of the gasifier and the air separation units is expected to extend into the fourth quarter while completion of the sulphur recovery unit is now expected in the first quarter of 2008. This is largely the result of lower than expected labor productivity resulting in additional time to complete the units. In addition, we experienced difficulties securing sufficient labor, particularly pipefitters, to work on the sulphur recovery unit. This work is now substantially complete and labor for all remaining activities is expected to be in sufficient supply.

Commissioning activities have commenced on completed units of the upgrader and these activities will expand as additional units are completed. Utility steam boilers are currently being commissioned with start up expected during the third quarter of 2007. While full start up of the upgrader will follow the commissioning phase, this cannot take place until the sulphur recovery unit is complete and ready for operation. As a result, we now expect start up activities for the upgrader to commence in the first and second quarters of 2008, with first production of synthetic crude oil late in the second quarter. We anticipate the upgrader will reach its full production capacity about 12 to 18 months after start up.

As a result of these construction delays and the extended start up schedule, the capital cost for the project is expected to increase by 10 to 15 percent over the previous forecast of $5.3 billion ($2.65 billion net to Nexen). The key risks in this cost estimate continue to be the pace of completion of the sulphur recovery unit, access to labor, workforce productivity and the pace of commissioning activities.

"While the increase in capital costs is disappointing, project returns from Long Lake at current commodity prices are higher than expected at the time of sanctioning," stated Fischer. "We expect to produce synthetic crude oil at Long Lake for several decades and benefit from a significant operating cost advantage."

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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