Nexen Shale Gas Development:Policy & Regulatory Experience in British Columbia

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) or “forward-looking information” (within the meaning of applicable Canadian securities legislation). Such statements or information (together “forward-looking statements”) are generally identifiable by the forward-looking terminology used such as “anticipate”, “believe”, “intend”, “plan”, “expect”, “estimate”, “budget”, “outlook”, “forecast” or other similar words and include statements relating to or associated with individual wells, regions or projects. Any statements as to possible future crude oil, natural gas or chemicals prices, future production levels, future capital expenditures and their allocation to exploration and development activities, future earnings, future asset acquisitions or dispositions, future sources of funding for our capital program, future debt levels, availability of committed credit facilities, possible commerciality, development plans or capacity expansions, future ability to execute dispositions of assets or businesses, future sources of liquidity, cash flows and their uses, future drilling of new wells, ultimate recoverability of current and long-term assets, ultimate recoverability of reserves or resources, expected finding and development costs, expected operating costs, future cost recovery oil revenues from our Yemen operations, future demand for chemicals products, estimates on a per share basis, future foreign currency exchange rates, future expenditures and future allowances relating to environmental matters and dates by which certain areas will be developed, come on stream, or reach expected operating capacity and changes in any of the foregoing are forward-looking statements. Statements relating to “reserves” or “resources” are forward-looking statements, as they involve the implied assessment, based on estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future.The forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for oil and gas and chemicals products; our ability to explore, develop, produce, upgrade and transport crude oil and natural gas to markets; ultimate effectiveness of design or design modifications to facilities; the results of exploration and development drilling and related activities; volatility in energy trading markets; foreign-currency exchange rates; economic conditions in the countries and regions in which we carry on business; governmental actions including changes to taxes or royalties, changes in environmental and other laws and regulations; renegotiations of contracts; results of litigation, arbitration or regulatory proceedings; and political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict, including conflict between states. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are interdependent, and management’s future course of action would depend on our assessment of all information at that time. Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the statements contained herein, which are made as of the date hereof and, except as required by law, Nexen undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Readers should also refer to Items 1A and 7A in our 2009 Annual Report on Form 10-K for further discussion of the risk factors.Cautionary Note to US InvestorsIn this disclosure, we may refer to “recoverable reserves”, “recoverable resources” and “recoverable contingent resources” which are inherently more uncertain than proved reserves or probable reserves. These terms are not used in our filings with the SEC. Our reserves and related performance measures represent our working interest before royalties, unless otherwise indicated. Please refer to our Annual Report on Form 10-K available from us or the SEC for further reserve disclosure.Cautionary Note to Canadian InvestorsNexen is an SEC registrant and a voluntary Form 10-K (and related forms) filer. Therefore, our reserves estimates and securities regulatory disclosures follow SEC requirements. In Canada, National Instrument 51-101—Standards of Disclosure for Oil and Gas Activities (NI 51-101) prescribes that Canadian companies follow certain standards for the preparation and disclosure of reserves and related information. Nexen’s reserves disclosures are made in reliance upon exemptions granted to it by Canadian securities regulators from certain requirements of NI 51-101 which permits us to:● prepare our reserves estimates and related disclosures in accordance with SEC disclosure requirements, generally accepted industry practices in the US and the Canadian Oil and Gas Evaluation Handbook (COGE Handbook) standards modified to reflect SEC requirements; ● substitute those SEC disclosures for much of the annual disclosure required by NI 51-101; and● rely upon internally-generated reserves estimates and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein, included in the Supplementary Financial Information, without the requirement to have those estimates evaluated or audited by independent qualified reserves consultants.As a result of these exemptions, Nexen’s disclosures may differ from other Canadian companies and Canadian investors should note the following fundamental differences in reserves estimates and related disclosures contained in the Form 10-K:● SEC registrants apply SEC reserves definitions and prepare their reserves estimates in accordance with SEC requirements and generally accepted industry practices in the US whereas NI 51-101 requires adherence to the definitions and standards promulgated by the COGE Handbook; ● the SEC’s technical rules in estimating reserves differ from NI 51-101 in areas such as the use of reliable technology, aerial extent around a drilled location, quantities below the lowest known oil and quantities across an undrilled fault block;● the SEC mandates disclosure of proved reserves and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein calculated using the year’s 12-month average prices and costs only whereas NI 51-101 requires disclosure of reserves and related future net revenues using forecast prices;● the SEC mandates disclosure of reserves by geographic area only whereas NI 51-101 requires disclosure of more reserve categories and product types;● the SEC prescribes certain information about proved and probable undeveloped reserves and future developments costs whereas NI 51-101 requirements are different;● the SEC does not require disclosure of finding and development (F&D) costs per boe of proved reserves additions whereas NI 51-101 requires that various F&D costs per boe and additional information be disclosed;● the SEC leaves the engagement of independent qualified reserves consultants to the discretion of a company’s board of directors whereas NI 51-101 requires issuers to engage such evaluators; ● the SEC does not allow proved and probable reserves to be aggregated whereas NI 51-101 requires issuers disclose such; and● the reserves disclosures in this document have not been reviewed by the independent qualified reserves consultants whereas NI 51-101 requires them to review it.The foregoing is a general description of the principal differences only. The differences between SEC requirements and NI 51-101 may be material.NI 51-101 requires that we make the following disclosures:● we use oil equivalents (boe) to express quantities of natural gas and crude oil in a common unit. A conversion ratio of 6 mcf of natural gas to 1 barrel of oil is used. Boe may be misleading, particularly if used in isolation. The conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead; and● because reserves data are based on judgments regarding future events actual results will vary and the variations may be material. Variations as a result of future events are expected to be consistent with the fact that reserves are categorized according to the probability of their recovery. ResourcesNexen’s estimates of contingent resources are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook which generally describe contingent resources as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Such contingencies may include, but are not limited to, factorssuch as economic, legal, environmental, political and regulatory matters or a lack of markets. Specific contingencies precluding these contingent resources being classified as reserves include but are not limited to: future drilling program results, drilling and completions optimization, stakeholder and regulatory approval of future drilling and infrastructure plans, access to required infrastructure, economic fiscal terms, a lower level of delineation, the absence of regulatory approvals, detailed design estimates and near-term development plans, and general uncertainties associated with this early stage of evaluation. The estimated range of contingent resources reflects conservative and optimistic likelihoods of recovery. However, there is no certainty that it will be commercially viable to produce any portion of these contingent resources. Nexen’s estimates of discovered resources (equivalent to discovered petroleum initially-in-place) are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook which generally describe discovered resources as those quantities of petroleum estimated, as of a given date, to be contained in known accumulations prior to production. Discovered resources do not represent recoverable volumes. We disclose additional information regarding resource estimates in accordance with NI 51-101. These disclosures can be found on our website and on SEDAR.Cautionary statement: In the case of discovered resources or a subcategory of discovered resources other than reserves, there is no certainty that it will be commercially viable to produce any portion of the resources. In the case of undiscovered resources or a subcategory of undiscovered resources, there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Lessons and Opportunities for Colombia

• Engage all stakeholders early

• Regulators and industry must work together to provide input into the creation of shale gas regulations to create a stable and beneficial framework that supports investment and provides competitive fiscal system

• Certainty in regulatory environment – avoid tendency to issue separate statutory enactments and instead amend laws

• Baseline studies are important to establish a regulatory and industry accepted starting framework

• Simplify the system whenever possible to reduce cost, bureaucracy and confusion

• Continuous dialogue between industry, government and other shale gas jurisdictions to share best practices and address concerns

• Win/win scenario can be achieved!

Canada:BC Shale Gas Opportunities: Horn RiverOil sands: Long Lake

Gulf of Mexico:Resuming activities following Macondo spill hiatus: Appomattox, Kakuna, Angel Fire and Cypress

Colombia:Unconventional exploration: Shale Gas

West Africa:Evaluating high quality opportunities: Potential exploration and appraisal drilling

Nexen’s 2011 Activities

North Sea:Opening new high impact areas and growing through exploration. Adding value to Golden Eagle and Buzzard areas.

Yemen:Renegotiating PSA for Masila block. Evaluating opportunities.

Nexen sees excellent opportunities in Colombia

• Nexen is in early operational stages of drilling four wells on our Sueva and Chiquinquira shale gas blocks

• Currently working with Petrobras to drill on the Boqueron block in 2011

• Nexen is interested in developing and increasing our shale gas position in Colombia

Nexen position - Colombia

Eastern Cordillera

BasinBogotá

CHIQUINQUIRA E&P Nexen 100% WI

LOWER VILLETA TEA Nexen 100% WI

BOQUERON ASSOCIATION

CONTRACTNX 10% WI

ECP 75% WIPB 15% WI

VILLARRICA NORTE E&PNX 50% WIPB 50%WI

FOMEQUE TEA Nexen 100% WI

SUEVA E&P Nexen 100% WI

GUANDO SWNX 10% WI

ECP 75% WIPB 15% WI

1. Nexen’s shale gas experience

Existing Nexen Acreage

Areas where land was acquired in

subsequent land sale

HighwaysPipelines (dashed – Proposed)

LIARD BASIN

HORN RIVER BASIN

CORDOVA

Fort Nelson

Alberta

N.W.T • Significant shale gas acreage in NE British Columbia, Canada with excellent land tenure (15 years plus)

• 300,000 total acres split over 3 areas

• Horn River

• Cordova

• Liard

• Development in Horn River is at least 2 years ahead of other regions

• Horn River is median depth with high gas in place (GIP)

• Cordova is shallower, lower GIP

• Liard is deeper, potentially higher GIP

Well-positioned in North-Eastern BC for shale gas

The Resource is there

• Drilled and cored wells indicating thick shale resource

• Third party evaluation estimates Nexen’s shale gas resource as 4-15 tcf contingent recoverable resource and 5-23 tcf of unrisked prospective resource

• Competitor wells drilled near Nexen’s lease lines confirm Nexen is in the heart of the play

The Resource can be produced

Breakevens aredropping rapidly

• Wells successfully fracked – resource density supports multiple fracs per well; well productivity is excellent; frac costs coming down

• Strong initial production rates (up to 1 mmcf/d per frac)

• Long-term take away capacity secured

• Play breaks even (10% IRR) at US$4-4.50/mcf

• We control the pace of development; small discrete capital allocations result in quick production adds

• Early signs indicate lower declines than other shale plays leading to superior economics

Nexen’s experience to date in North-Eastern BC

Nexen continues to reduce costs and improve product ivity

Metrics

• Driving down drilling and completion costs

• Improving productivities

• Producing at well rates in line with regional competitors and expectations

Next Steps

• 8-well pad program adding 50 mmcf/d in early 2011

• Pace of development will be driven by gas price outlook

Horn River ($/frac)

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2

4

6

2008 2009 2010 2011 2012

($M

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Frac & Complete

Total D & C

Target

Future shale gas potential of North-Eastern BC

• Potentially more than doubles Nexen’s proved reserves

• 18 wells with 18 fracs/well over 1,800m well length supports 100 mmcf/d facility

• Growing competitive advantage

• 2 more wells will hold all acreage for 10 yrs

• No one has as much core coverage & analysis as Nexen does

• Strategically impacts Nexen’s portfolio

• Short cycle time production adds

• Increased exposure to natural gasHorn River Cordova LiardTotal

5

10

15

20

25

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High

Low

Contingent Resource

Nexen industry leader in shale gas completions

Fracs/Day Performance vs Major Competitors

0.8

0.4

1.7

1.5 – 2.0

2.5

0.0

0.5

1.0

1.5

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2.5

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Q1 2008 Single Well Pad

Winter 2008-2009 2 Well Pad

Summer 2009 3 Well Pad

2009 to2010

Winter 2009-2010 Summer 2010 8 Well Pad

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1.7 Fracs/DayNew Industry

Record

3.5 Fracs/DayNew Industry

Record

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Horn River driven by good rocks and well design that deliver high initial flow rates and shallow production declines

Horn River holds highest Expected Ultimate Return r ates

Comparable resource to leading U.S. shale basins

* Parameters reflect log and core analysis results from three vertical appraisal wells** Barnett shale data from EOG Resources Shale Presentation, February 2008Our contingent recoverable resource estimate of 3 to 6 tcf reflects an assumed 20% recovery factor compared to some Barnett recovery factors ranging from 30-35%Note: Refer to our press release dated April 22, 2008 for information with respect to forward-looking statements and cautionary notes.

Nexen Dilly Creek Parameters*

BarnettShale Parameters**

Thickness (Ft) 572 to 578 355

Permeability (nd) 150 to 450 250

Gas-Filled Porosity (%) 3.2 to 6.2 4.5

Maturity (Ro) 2.2 to 2.6 2.2

Silica Content (%) 45 to 60 55

GIP (Bcf/Mi2) (Discovered Resources)

130 to 250 193

2. Government Approach:The BC Government’s Approach to Development:

Vested Interest in Growth and Supporting Policy and Regulations

Government has Vested Interest in Development of th e Industry

The BC Government has recognized industry as critic al to revenues amidst declines in other sectors and growing demands on so cial programs

2009 Throne Speech: “In 2008 we saw record oil and gas rights sales of $2.66 billion. Beyond that, the industry pays corporate tax, personal income tax, sales tax, property tax and more. Those dollars go to support priorities like health care and education in our communities. Far from government subsidizing energy, energy is subsidizing government.”

Supportive policy and collaboration have ensued….

Requirements and benefits from the government/commu nity perspective

Government/community needs

• Secure gas supply – energy security issues

• Skilled jobs

• Revenue

• Infrastructure development

Government and community benefits from shale gas development

• Energy security

• Encourages exploration

• Promotes foreign investment in the country

• Develop local industry and expertise

• Technological transfer

• Provides jobs and economic growth

Government role in creating the regulatory structur e

Government role to establish successful regulatory structure

• Understand the process for unconventional development, costs and regulations

• Balance the needs of industry and local stakeholders

• Voice and input in development and pace of industry

• Single window regulator vs. multiple voices and influence

3. Industry Approach:Nexen and the Industry’s Approach to Development

Requirements from industry perspective

Industry needs

• Favorable fiscal terms that promotes exploration and shares risk

• Sanctity of contract

• Stable, streamlined, open and transparent regulatory structure

• Transparent process for licensing and permitting

• Access to financing

• Infrastructure to customer

• Liberalized gas market

• Political stability

• Secure and predictable operating environment

• Legitimate government consultation on regulation, terms and policy

Benefits for industry

Industry benefit from shale gas development

• Active investment

• Testing potential

• Additional reserves

• Access to market

• Partnership with governments and stakeholders

• Make reasonable fiscal returns

4. Collaborative Approach:Opportunities for Collaboration and Planning in a G reenfield Area

Industry Collaboration on Planning

• Formed by industry in 2007 to: • Collaborate on infrastructure • Build local capacity• Engage communities in the long term

development plans• Now involvement includes government,

indigenous and community of Fort Nelson.

• Achievements include:• Environmental studies• Operating protocol development• Footprint reduction• Regulatory suggestions• Communication• Social benefits

• Nexen is able to direct HRPG efforts though our leadership position.

Development of the Horn River Producers Group:

Fort Nelson, BC

Working Early with Governments and Regulators

• Using water monitoring data, working with government on surface water licensing protocols

• Inventing technology to enable use of deep saline groundwater – working with government to define saline groundwater and develop regulations that enable its use

• Supporting the development of wildlife policies that both protect the species and enable responsible development

• Open relationship with indigenous peoples - puts us ahead of regulatory process

• Providing technical and financial information to the regulator to enable the best “fit for purpose” regulations possible

Regulatory certainty encourages investment

• Government empowerment of “one window” operational regulator – the Oil and Gas Commission (OGC)

• All activities deemed oil and gas activities are permitted by the OGC.

• Government Developed the Oil and Gas Activities Act

• Various pieces of legislation combined into a single overarching Act.

• Detailed consultation with industry

• Aimed at increased certainty

• Focus on simplicity and mechanisms to review “unintended consequences”

• Government continues to engage Nexen and industry i n an open and consultative manner – examples:

• Wildlife policy

• Roads regulation (increase certainty on road use and cost sharing)

• Climate change

Policy and Programs

• Recognition of challenges:

• Mobility of capital

• Low price environment

• Distance from markets

• Lack of public infrastructure

• Competition for investment dollars

• Resultant policies and programs include:

• Revamp to the deep gas royalty credit

• Net Profit Royalty

• Infrastructure Royalty Credit Program

• Updated policy on holding lands

• Government dollars allocated for infrastructure

Recognized Leadership Role in Dealing with Indigeno us Peoples

The BC Government has recognized and undertaken its duty to consult

• Province has signed Economic Benefits Agreements with some indigenous peoples

• Royalty stream for indigenous groups

• Province has signed Consultation Protocol Agreements with some indigenous peoples

• Outlines consultation requirements and timelines

Nexen’s Role with Indigenous peoples

• Strategic community investment

• Capacity building for local indigenous groups

5. Key challenges facing shale gas exploration

Issues to consider in shale gas industry

• Proving resource is present with sufficient resource density

• Increased well density and design

• Land use and access

• Challenging economics

• Water management and water stress

• Frac sand supply

• Land disturbances

• Infrastructure to market

• Environmental issues

• Impact on industry services and supply chain requirements

• Security

• Regulatory stability

• Indigenous concerns

3. Lessons and Opportunities for Colombia