Nexen to Invest $2.6 Billion in Capital Projects in 2005

"Nexen's strategy is to grow in the Gulf of Mexico, the North Sea, offshore West Africa, the Middle East and Alberta's Athabasca oil sands where we can generate superior returns," said Charlie Fischer, Nexen's President and Chief Executive Officer. "We have significant ongoing multi-year capital investment programs in each of these regions. In 2005, we will manage the largest development and exploration capital programs in our history. By the end of 2005, our cumulative investment in multi-year development projects with production start-up at least one year in the future will reach over $4 billion. These projects are expected to begin to come on stream in late 2006 and beyond, generating significant, sustained value growth for our shareholders."

In 2005, we plan to invest approximately $2.6 billion in capital projects, an increase of over $700 million compared to 2004. Less than 20% of this capital will be directed toward sustaining production and cash flow from our producing oil, gas and other assets in the short term. The balance will be invested in longer-cycle time growth opportunities that will begin contributing production and cash flow in 2006 and beyond.

                                            Estimated 2005    Estimated 2004
    Capital Investment Profile             ($millions)   %   ($millions)   %
    New Growth Development                    1,675    65%        735    16%
    New Growth Exploration                      375    14%        300     7%
    New Growth Other                             60     2%         25     1%
    New Growth                                2,110    81%      1,060    24%
    Core Asset Development                      435    17%        700    15%
    UK North Sea Acquisition                      -     0%      2,675    59%
    Oil and Gas                               2,545    98%      4,435    98%
    Chemicals, Marketing and Other               50     2%        100     2%
    Total Capital                             2,595   100%      4,535   100%

     Longer-Cycle Time Investments to Provide Significant Future Growth

    New Growth Capital Investment Profile   Estimated 2005    Estimated 2004
                                              ($millions)       ($millions)
    Yemen Block 51                                     200               125
    Syncrude Expansion                                 120               170
    UK North Sea                                       590                60
    Long Lake                                          765               380
    New Growth Development                           1,675               735

    Gulf of Mexico                                     215               165
    West Africa                                         85               100
    UK North Sea                                        50                 5
    Other International                                 25                30
    New Growth Exploration                             375               300

    CBM                                                 45                25
    EOR                                                 15                 0
    New Growth Other                                    60                25
    Total New Growth                                 2,110             1,060
New Growth - Development

"Our inventory of high quality development projects is continuing to grow," said Fischer. "Projects such as the Syncrude expansion and Long Lake in the Athabasca oil sands, Buzzard in the North Sea, and Usan, offshore Nigeria, will have lower operating costs and royalties than our current average production and will generate attractive returns at oil prices well below the levels we see today."

Syncrude Stage 3 Expansion On Stream Mid 2006

The Syncrude Stage 3 expansion is expected to add an incremental 8,000 bbls/d of production net to our 7.23% interest in the joint venture, following completion in early 2006. Activities next year will focus on completing and commissioning the upgrader expansion and increasing bitumen production capacity.

North Sea Buzzard Development On Stream Late 2006

Next year at Buzzard, we plan to invest approximately $530 million for development drilling, pipeline installation and facility construction. This development is on budget and on schedule to commence production in late 2006, with our share of production ramping up to 80,000 boe/d during 2007. We also plan to invest an additional $60 million to evaluate and commence development of a number of smaller discoveries on our North Sea acreage. These discoveries will contribute to the expected doubling of non-Buzzard production in the North Sea by 2008. The first of these projects, Farragon, will come on stream in late 2005, with our share of production reaching approximately 3,000 to 4,000 boe/d in early 2006.

Long Lake Project On Stream in 2007

The Long Lake Project remains on schedule. Drilling of the SAGD wells commenced in late 2004 and will continue throughout 2005. Construction of the SAGD and upgrader facilities will commence in earnest next year, with the SAGD facilities planned to be completed in late 2006 and the upgrader in 2007. The upgrader is expected to come on stream in the second half of 2007 with synthetic crude oil production ramping up to approximately 60,000 bbls/d. Nexen has a 50% interest in the project.

To ensure certainty and reliability of bitumen production at the commencement of upgrader operations, we are accelerating drilling of an additional well pad consisting of 13 well pairs. The additional well pad will be drilled and tied-in after the current 65 well pair program for a gross cost of $98 million. This acceleration of future drilling capital increases the total capital required through start-up of the upgrader at Long Lake from $3.4 billion to $3.5 billion. To date, approximately 30% of the project's total costs are committed and 15% of these costs have been incurred. Our cost experience to date is inline with our original estimates.

Our acreage in the Athabasca region of northern Alberta contains approximately four billion barrels of recoverable bitumen resource. We continue to gather core and seismic information over this acreage and plan to acquire additional bitumen prone lands to support the next phase of development in line with our Synthetic Crude oil strategy.

We prepare our reserves disclosure in accordance with US securities regulations. In February, we reported that we recorded 200 million barrels of proved synthetic crude oil reserves for our Long Lake Project. Following review by the Securities and Exchange Commission of our annual report on Form 10-K, we have decided to recognize bitumen reserves rather than upgraded synthetic crude oil. Accordingly, we will report approximately 245 million barrels of proved bitumen reserves for this project instead of the 200 million barrels of proved synthetic crude oil reserves previously reported. This change in reserves disclosure does not reflect any change in our plans or the economics of the project, which is to produce a 39 degree API, ultra-low sulphur synthetic crude oil. Approximately 245 million barrels of proved bitumen reserves will produce about 200 million barrels of synthetic crude oil, as 45 million bitumen barrels will be consumed in the upgrading, steam and power generation processes.

New Growth - Exploration

"Exploration is a primary driver of our growth and we are making significant investments in this strategy in 2004 and 2005," commented Fischer.

2004 Exploration Update and 2005 Plans

In Yemen, the BAK-I exploration well in the northern area of Block 51 encountered oil shows and will be production tested in the next few months after sourcing the necessary testing equipment. The fourth exploration well on the block has recently commenced drilling, with plans for a fifth well to begin drilling before year-end. We expect to drill at least two more exploration wells in 2005 to test independent structures. We have an 87.5% working interest in Block 51.

Offshore Nigeria, the Ameena-1 exploration well, on OML-115, encountered high quality reservoir sands. However, the sands were wet and the well has been abandoned. A second well will test a separate structure on the block in mid 2005. We also plan to test a number of new structures on OPL-222 in 2005.

The K-1 (Zorro) exploration well on Block K, offshore Equatorial Guinea, found non-commercial quantities of hydrocarbons and has been abandoned. Multiple prospects have been identified on this 1.1 million acre block, and the drilling of the next exploration well is expected early next year once a final location has been determined. We have a 50% operated working interest and Repsol Exploracion Guinea, S.A. has the remaining interest.

In the Gulf of Mexico deep-water, the final sidetrack of the Dawson Deep well is complete. The well is expected to begin production in late 2005 through a sub-sea tie-back to the Gunnison spar. We have a 15% non-operated working interest. Our Crested Butte well encountered approximately 75 net feet of oil bearing sands in a number of horizons. Due to the proximity to salt, further seismic work is required to confirm the areal extent of the sands to determine if a sidetrack from the existing well is warranted. The well is currently being abandoned in a manner that will facilitate re-entry if required. We have a 100% working interest. An exploration well on the Fawkes prospect on Garden Banks 303 commenced drilling in mid-November, with results expected around year-end. We have a 33.3% non-operated working interest.

We currently have two deep-shelf gas tests drilling at Main Pass 240 and Wind River. Results from Main Pass 240, where we have a 45% non-operated working interest, are expected before year-end. Wind River, located in West Cameron 335, commenced drilling in early November with results expected early next year. We have a 50% non-operated working interest here.

We also expect to begin drilling a number of wells around year-end. These include the Anduin and Wrigley deep-water prospects near existing infrastructure in the Mississippi Canyon area, deep-shelf gas tests at a Main Pass prospect and the Big Bend prospect located in Mustang Island, and the Vrede deep-water sub-salt prospect in the Atwater Valley area.

We expect to invest half of our 2005 exploration capital in the Gulf of Mexico, where we plan to drill at least eight high-potential exploration wells. These include testing deep-shelf gas prospects and two types of deep-water plays, those near existing infrastructure and sub-salt prospects.

In the North Sea, we plan to drill six exploration wells in 2005. The majority of these wells are in the vicinity of our producing Scott/Telford fields and Buzzard development project.

"Our inventory of exploration prospects has depth and balance in terms of cycle times, chance of success and materiality," said Fischer. "Many of these prospects are located near existing infrastructure, allowing for relatively quick tie-in upon success."

In the fourth quarter, we expect to recognize approximately $70 million before tax, and approximately $45 million after tax, in exploration expense for the drilling of the Ameena, Block K and Crested Butte wells.

New Growth - Other

In Canada, we continue to focus on large unconventional resource type opportunities. We expect to establish commerciality of our Upper Mannville CBM pilot at Corbett in 2005, setting the stage for full field development, and continue the evaluation of other Upper Mannville and Horseshoe Canyon CBM prospects. In addition, we plan to continue with a number of enhanced oil recovery pilot projects in west central Saskatchewan. These projects are evaluating VAPEX extraction and alkaline flood technologies for increasing recovery factors from our extensive heavy oil properties.

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.

Approximately 20% of the cash flow from our core assets will be reinvested in those assets in 2005. This will deliver production of between 230,000 and 250,000 equivalent barrels per day, before royalties, and between 170,000 and 185,000 equivalent barrels per day, after royalties in 2005.

                                        2005                  2004
                                Estimated Production  Estimated Production
    Core Asset Development        Before     After      Before     After
                                Royalties  Royalties  Royalties  Royalties
                                (mboe/d)   (mboe/d)   (mboe/d)   (mboe/d)
    Gulf of Mexico(1)               50-60      43-53      54-56      48-49
    UK North Sea                    14-18      14-18        1-2        1-2
    Yemen                          90-100      52-58    106-107      53-54
    Canada(2)                       52-56      40-44      59-60      47-48
    Syncrude                        16-18      16-17      17-18      17-18
    Other International(3)            4-6        4-5        7-8        6-7
    Total                         230-250    170-185    244-251    172-178
    (1) US natural gas production is estimated to comprise 46% of total US
        equivalent production in 2005.
    (2) Canadian natural gas production is estimated to comprise 44% of total
        Canadian equivalent production in 2005.
    (3) 2004 production includes Australia, Nigeria and Colombia;
        2005 production is Colombia only.

In the Gulf of Mexico, our development program will focus on a number of high deliverability gas opportunities in the Eugene Island and Vermilion areas of the shelf. In the deep-water, we intend to drill and tie-back two sub-sea wells and the Dawson Deep discovery to the Gunnison spar.

In the North Sea, we plan to drill, complete and tie-in five development wells in the Scott/Telford area, work-over several existing wells and de-bottleneck and upgrade production facilities on the Scott platform.

In Yemen, the Masila Block continues to generate exceptional value. By the end of 2004, we will have produced approximately 80% of Masila's expected reserves and have generated more than US $1.5 billion of free cash flow, net to our interest. As we continue to deplete the remaining reserves, we expect to recover in excess of US $1 billion of additional free cash flow prior to the expiry of the primary term of our production sharing contract in 2011.

The Masila fields are maturing and we are slowing the pace of our drilling program to between 20 to 40 wells per year to ensure we recover the remaining reserves in the most economical and prudent manner.

In 2005, we plan to drill at least 20 wells to further develop existing fields and test deeper horizons where we have had recent success. This results in approximately 74,000 to 84,000 barrels of oil production per day from Masila and generates approximately $300 million of free cash flow, net to our interest. We are also updating our field depletion plans and expect drilling activity to increase following completion of these revised plans.

At Block 51 in Yemen, we commenced first oil production from the BAK-A field in mid-November, and production is now averaging 5,000 bbls/d. We expect to reach full production of close to 25,000 bbls/d from the field late in the second quarter of 2005, and drill another 15 development wells throughout the year to maintain deliverability. The BAK-B field will initially be developed with five wells and will come on stream in late 2005. With these two fields on stream, production from Block 51 is expected to be maintained at approximately 25,000 bbls/d, through 2007. We could see additional growth through exploration success on the block. We have an 87.5% operated working interest in Block 51.

"The structure of our production sharing agreements along with the addition of more valuable Block 51 volumes is expected to keep net production from Yemen unchanged from 2004," commented Fischer. "This allows Yemen to continue to generate significant cash flow, even with declining gross production."

In Canada, we are focused on maximizing value from our existing assets, through infill drilling, optimizing production from existing wells, and reducing operating costs.

Planned Dispositions Reduce Debt

Following our UK North Sea acquisition, we are planning to dispose of US$1.2 billion in non-core assets. The capital, cash flow and production guidance presented here does not take into account any dispositions as the assets will be identified during the first quarter of 2005. The disposition process is expected to conclude by the end of 2005.

"We will pay for prolific, new, higher margin production in the North Sea, in part, by selling mature, non-strategic production. This is a trade we believe creates real shareholder value," said Fischer.

Cash Flow to Exceed $2 Billion

"The addition of over 40,000 barrels per day of new, low cost, high margin production from the deep-water Gulf of Mexico over the past two years has significantly improved the cash flow from our oil and gas business," said Fischer. "In addition to strong cash flow from oil and gas, we expect improved cash flow following expansion of our chemical business, and another profitable year from our natural gas, crude oil and power marketing businesses."

Assuming WTI oil prices average US$40.00 per barrel plus the impact from our purchased put options, gas prices average US$6.50 per mmbtu and the exchange rate averages US$0.80 in 2005, we expect 2005 cash flow to increase to over $2 billion.

We have purchased put options on 60,000 bbls/d of our oil production in both 2005 and 2006. These options establish an average floor price for this production of US$43.17 (WTI) per barrel in 2005 and US$38.17 (WTI) in 2006, at an average after-tax cost of US$1.70 and US$1.90 per barrel, respectively. This ensures base cash flow over the next two years to help fund capital investment at Long Lake and Buzzard.

Each US$1.00 change in oil prices above US$43.17 impacts our 2005 cash flow by about $50 million and below US$43.17 impacts our cash flow by about $25 million, reflecting the effect of our put options. A US$0.10 change in natural gas prices impacts our cash flow by about $10 million and a US$0.01 variation in the exchange rate impacts our cash flow by about $25 million.