Nexen Reports Record Quarterly Cash Flow

Nexen delivered solid financial results in the second quarter with record cash flow of $913 million and net income of $368 million. These results reflect increasing production from the successful ramp up of Buzzard and strong commodity prices. While the price of West Texas Intermediate crude oil (WTI) was strong in the quarter, averaging US$65.03/bbl, the price of Brent crude was stronger, averaging US$68.76/bbl. This Brent premium to WTI of US$3.73/bbl for the quarter compares to a US$1.08/bbl discount in the second quarter of 2006. The WTI discount reflects excess supply of crude in the US Midwest due to high local storage levels at Cushing, Oklahoma, extensive refinery downtime and increased imports of Canadian crude. Since approximately 80% of our production is priced off Brent, the benefit we receive from strong Brent prices is substantial.

Our marketing group contributed $70 million to our cash flow for the quarter primarily from trading spreads related to natural gas, crude oil and power. So far this year, we have booked $71 million of cash flow from our marketing activities and we have an additional $45 million of gains on the increased value of our oil and gas marketing inventories and transportation assets that have not yet been booked. These gains can only be booked in the future when the inventories are sold and the transportation assets are used.

Exploration expense totaled $105 million ($60 million after tax) for the quarter. This includes seismic data acquisition and exploration expense related to drilling activity in Colombia, the UK North Sea and on the shelf in the Gulf of Mexico.

During the quarter, we purchased put options on approximately 100,000 bbls/d of crude oil production for calendar year 2008. These options establish a Dated Brent floor price of US$50/bbl on these volumes and were purchased for approximately US$23 million (US$0.63/bbl). These put options provide us with a continued base level of price protection without limiting our upside in a high price environment.

"The majority of our production is priced off Brent which is currently very strong," commented Charlie Fischer, Nexen's President and Chief Executive Officer. "With Buzzard production now approaching facility design rates, we are on track to generate record cash flow this year reflecting significant growth and value for our shareholders."


Oil and Gas Production

                                    Production before      Production after
                                            Royalties             Royalties

Crude Oil, NGLs and
Natural Gas (mboe/d)               Q2 2007    Q1 2007    Q2 2007    Q1 2007
------------------------------------------------------  --------------------
Yemen                                   73         77         42         45
North Sea                               88         58         88         58
Canada                                  37         38         30         30
United States                           30         38         26         34
Other Countries                          6          6          5          5
Syncrude                                19         21         17         19
                                  --------------------  --------------------
Total                                  253        238        208        191
                                  --------------------  --------------------

Our second quarter production averaged 253,000 boe/d (208,000 boe/d after royalties) as the Buzzard field in the North Sea continued to ramp up to design rates. Buzzard contributed 68,000 boe/d to our quarterly volumes.

In the Gulf of Mexico, drilling and completion delays have caused initial production from our Wrigley and Aspen developments to slip into the third quarter. At Aspen, we experienced unexpected production downtime as a result of maintenance to third party processing facilities. At Syncrude, production was lower following the advancement of turnaround activity originally scheduled for late this year. With Buzzard producing at facility design rates, Syncrude back up to full capacity and incremental volumes from Wrigley and Aspen, we expect much stronger production volumes for the remainder of the year.

"The timing of several of our projects has slipped but this has not impacted project returns," stated Fischer. "As a result of these timing delays, we will likely be at or slightly below the lower end of our guidance range of 275,000 boe/d to 305,000 boe/d for the full year."

North Sea Update

At Buzzard, we currently have eight development wells on stream. The production ramp up to date has met our expectations and we have sufficient well deliverability to take advantage of additional processing capacity that may be available on the platform. The platform is designed to process up to 200,000 bbls/d of oil and 60 mmcf/d of gas.

"We are delighted with the performance of the Buzzard field as the pressure response we have seen indicates reservoir connectivity is outstanding," said Fischer. "With cash netbacks per barrel averaging 85% of the price of Brent, Buzzard's cash flow contribution is significant. For example, with Buzzard producing at full facility design rates, we expect it to generate approximately $1.6 billion of annual pre-tax cash flow, assuming WTI of US$50/bbl."

Elsewhere in the North Sea, we are evaluating development options for our Golden Eagle discovery. In addition we are drilling an appraisal well at Selkirk located on Block 22/22b. The pre-drill unrisked resource estimate is between 10 and 20 million boe. Results from this well are expected in the third quarter. We have a 38% operated working interest here. Additionally, we plan to drill an appraisal well at Bugle, and spud three exploration wells later this year.

Long Lake Project Update

At Long Lake, commissioning of our large steam generator units is underway. While we are experiencing delays in the start up of these units, all 81 SAGD well pairs (10 pads) are expected to be steaming by the end of August. As we circulate steam and heat up the reservoir to establish communication between the wells, we will start to produce bitumen. We expect bitumen production to ramp up to full rates over a 12 to 24 month period. While our initial steam-to-oil ratios will be high as we heat up the reservoir, we expect our steam-to-oil ratio to average approximately 3.0 over the project life.

Upgrader construction is approximately 90% complete and projected to start up late this year. Full production of premium synthetic crude oil is expected within 12 to 18 months of upgrader start up. Production capacity for the first phase of Long Lake is approximately 60,000 bbls/d (30,000 bbls/d net to Nexen) of premium synthetic crude. Our cost estimate for Phase 1 ranges from $5.0 to $5.3 billion ($2.5 to $2.65 billion net to Nexen).

"Long Lake is progressing well and we are committed to the safe and steady start up of all facilities," stated Fischer.

Phase 1 of Long Lake will develop approximately 10% of our 5.5 billion barrel recoverable resource using our patented process which significantly reduces our need to purchase natural gas, a key cost driver in competing technologies. This will result in a significant cost advantage for us. We plan to sequentially develop additional 60,000 bbls/d (30,000 bbls/d net to Nexen) phases using the same technology and design as Long Lake. The timing of Phase 2 sanctioning will depend on accumulating sufficient production history from Phase 1 and receiving additional clarity on fiscal and regulatory policies related to oil sands development and climate change.

Ettrick Development On Track for First Oil in 2008

Our Ettrick field development in the North Sea continues to progress well and is approximately 70% complete. The project will consist of three 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. Production from the field is expected to commence in mid 2008 with our share averaging approximately 9,000 boe/d for the year. We have an 80% operated working interest.

Gulf of Mexico Update

At our Wrigley development on Mississippi Canyon Block 506, we began producing early in the third quarter. We expect production to quickly ramp up to 60 mmcf/d (30 mmcf/d net to Nexen). We have a 50% non-operated interest.

At Aspen, we are completing a sidetrack well to exploit a number of deeper sands. We expect this well to come on stream in the third quarter. We have a 100% operated working interest at Aspen.

We are currently drilling our Vicksburg exploration well located on De Soto Canyon Block 353 in the Eastern Gulf. The pre-drill unrisked resource estimate is between 200 and 500 million boe. We expect to have drilling results late in the third quarter. We have a 25% non-operated working interest.

At Knotty Head located on Green Canyon Block 512, we are expecting to drill our next appraisal well in the first half of 2008. Our current estimate of resource for the field is between 200 and 500 million boe. We have a 25% operated interest in the field.

At Longhorn (previously named Ringo) located on Mississippi Canyon Block 546, we have an appraisal well planned later this year and at Alaminos Canyon Block 856 (Great White West), we are continuing to evaluate development options. We have non-operated working interests of 25% and 30% in these projects, respectively.

Coalbed Methane (CBM) Development Continues

Our Mannville CBM project in the Fort Assiniboine area of Alberta is currently producing approximately 24 mmcf/d. We expect this to double by year-end and continue to grow as we develop additional sections of land in the Corbett, Thunder and Doris fields using multiple-leg horizontal wells.

"We remain confident that we can achieve CBM production volumes of at least 150 mmcf/d by 2011," said Fischer.

Offshore West Africa

The Usan field development, located in Nigeria on offshore Block OPL-222, continues to progress toward project sanction. 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. We expect the Usan development to be formally sanctioned this year, at which time the major deep-water facilities and drilling contracts will be awarded. We have a 20% interest in exploration and development on this block.


Over the next 12 months or so, we expect to drill at least 18 exploration wells with the majority in the Gulf of Mexico and the UK North Sea. During the quarter, we were also awarded an additional two licenses in the Norwegian North Sea.

Quarterly Dividend

The Board of Directors has declared the regular quarterly dividend of $0.025 per common share payable October 1, 2007, to shareholders of record on September 10, 2007. Shareholders are advised that the dividend is an eligible dividend for Canadian Income Tax purposes.

                                   Three Months Ended      Six Months Ended
                                              June 30               June 30
                                  --------------------  --------------------
(Cdn$ millions)                       2007       2006       2007       2006
Production (mboe/d)(1)
 Before Royalties                      253        215        246        219
 After Royalties                       208        158        199        159
Net Sales                            1,399      1,039      2,539      2,019
Cash Flow from Operations(2)           913        729      1,511      1,402
 Per Common Share ($/share)(2,3)      1.73       1.39       2.87       2.68
Net Income                             368        408        489        325
 Per Common Share ($/share)(3)        0.70       0.78       0.93       0.62
Capital Expenditures(4)                819        876      1,630      1,629

(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) For reconciliation of this non-GAAP measure see Cash Flow from
    Operations on pg. 7.
(3) 2006 per share values have been adjusted to reflect the May 2007
    two-for-one stock split.
(4) Includes business acquisitions in 2006.