Nexen Inc.
TSX : NXY
NYSE : NXY

Nexen Inc.

October 27, 2011 05:30 ET

Nexen Announces Third Quarter Results

Reduced Buzzard Output Lowers Production; Major Initiatives On Track

CALGARY, ALBERTA--(Marketwire - Oct. 27, 2011) - Nexen Inc. today reported third quarter 2011 operating and financial results as well as continued progress on our major initiatives. We generated cash flow from operations of $516 million ($0.98/share) and net income of $200 million ($0.38/share). Our financial results reflect quarterly production of 186,000 barrels of oil equivalent per day (boe/d). Production was below our expectations primarily due to pipeline constraints and longer time to commission the fourth platform at our Buzzard facility in the UK North Sea. Production at Buzzard has since returned to 208,000 boe/d (gross) during October. All other areas met their production expectations during the quarter.

We continued to advance key projects in all areas of operation during the quarter. In the UK North Sea, we obtained all required partner and government approvals to begin development at Golden Eagle. Offshore West Africa, the Usan floating production and storage offloading vessel (FPSO) was successfully moored and final commissioning activities are underway.

At Long Lake, we saw a 6% increase in quarterly bitumen production and we expect to exit the year in the mid 30,000 bbls/d (gross) range. A portion of the increase came from pad 11, which continues to ramp-up as expected. Additionally, we completed drilling on pad 12 and started drilling on pad 13 while advancing plans for subsequent drilling at both Long Lake and Kinosis as part of our strategy to fill the upgrader.

We successfully advanced our shale gas operations in the Horn River basin as we achieved targeted cost reductions on our 9-well pad. Our joint venture process is also proceeding well.

"While we have made good progress against several key initiatives so far this year, our production has been below our expectations due to the downtime at Buzzard," said Marvin Romanow, President and Chief Executive Officer. "With the work complete and the fourth platform commissioned, we are now able to produce from our full well set at Buzzard."

Summary

Financial


--  Cash flow from operations of $516 million ($0.98/share). 
--  Net income of $200 million ($0.38/share). 
--  Cash netback from oil & gas operations of $56.71/boe ($38.29/boe after
    tax). 
--  As expected, net debt increased during the quarter due to higher capital
    investment and foreign exchange translation impacts. Net debt is down by
    more than 35% from mid-2010. 

Production


--  Company-wide production of 186,000 boe/d (164,000 boe/d after royalties)
    impacted by Buzzard activity, planned maintenance at Scott/Telford
    and Ettrick, and weather-related downtime in the Gulf of Mexico. 
--  Buzzard production averaged 114,000 boe/d gross (49,300 boe/d net to
    Nexen). The scheduled maintenance activity is now complete and the
    fourth platform is commissioned; field production has been 208,000 boe/d
    (gross) during October. 
--  Long Lake bitumen production of 29,500 bbls/d gross (19,200 bbls/d net
    to Nexen), with October rates averaging about 31,700 bbls/d (20,600
    bbls/d net to Nexen) following scheduled maintenance and continued
    growth in production volumes. 
--  Production in Yemen continues without interruption. 

Project Advancements


--  Obtained all partner and government approvals necessary to begin
    development work at Golden Eagle. 
--  The Usan FPSO arrived at site offshore West Africa and was moored
    successfully. Commissioning activities are underway and first production
    is expected in the first half of 2012. 
--  Continued drilling at Kakuna and Appomattox in the Gulf of Mexico with
    results expected over the next few months. 
--  Successfully completed scheduled maintenance activities at Long Lake,
    continued the ramp-up of pad 11, completed drilling on pad 12 and
    continued drilling on pad 13. 
--  Supported CNOOC Limited's acquisition, subject to regulatory approvals,
    of our partner at Long Lake, OPTI Canada; CNOOC brings technical and
    financial capacity to the partnership. 
--  Our shale gas operations in the Horn River basin advanced as we further
    reduced our costs on our 9-well pad, where we expect to begin production
    shortly. Our joint venture process continues to proceed as planned. 

Financial Summary                                                           
                                       Three Months Ended  Nine Months Ended
--------------------------------------------------------- ------------------
                                Sept. 30 June 30 Sept. 30  Sept. 30 Sept. 30
(Cdn$ millions unless noted)        2011    2011     2010      2011     2010
--------------------------------------------------------- ------------------
WTI ($US/bbl)                      89.76  102.56    76.20     95.48    77.65
Brent ($US/bbl)                   113.47  117.36    76.86    111.94    77.13
NYMEX natural gas ($US/mmbtu)       4.06    4.37     4.24      4.21     4.54
Average Daily Production                                                    
 (mboe/d)                                                                   
  Before Royalties                   186     204      239       207      246
  After Royalties                    164     180      213       184      218
Cash flow from operations(1)         516     598      496     1,783    1,594
Per common share ($/share)          0.98    1.13     0.95      3.38     3.04
Net income                           200     252      581       654      967
  Per common share ($/share)        0.38    0.48     1.11      1.24     1.84
Capital investment(2)                729     530      629     1,758    2,039
Net debt(3)                        3,454   2,838    4,497     3,454    4,497
                               -------------------------- ------------------

1.  For reconciliation of this non-GAAP measure, see Cash Flow from
    Operations on pg. 10 
2.  Includes geological and geophysical expenditures. 
3.  Net debt is defined as long-term debt and short-term borrowings less
    cash and cash equivalents. 

Our portfolio weighting towards unhedged, Brent-priced oil again bolstered our financial results this quarter. Brent averaged US$113.47 per barrel, a premium of over US$23 per barrel above WTI. Our strategy of buying put options allows us to benefit when prices rise, while providing partial protection if prices decline below certain levels.

Third quarter cash flow from operations was lower compared to the second quarter, primarily due to scheduled maintenance at Scott and Ettrick and weather-related downtime in the Gulf of Mexico. Commodity prices were also slightly lower. Net income was lower due to a $106 million (after-tax) impairment on some of our non-shale Canadian natural gas properties due to sustained low gas prices.

Compared to the third quarter of 2010, cash flow was higher as higher realized prices more than offset lower production. Net income was lower due to a significant gain on the disposition of our Canadian heavy oil properties in Q3 2010.

We continue to expect our capital investment for the year to be between $2.4 billion and $2.7 billion. Net debt rose compared to the prior quarter due to increased drilling and the translation of our US dollar long-term debt into Canadian dollars.


Production                                                                  

                       Average Daily Quarterly       Average Daily Quarterly
                   Production before Royalties    Production after Royalties
Crude Oil, NGLs                                                             
 and Natural                                                                
 Gas (mboe/d)    Q3 2011  Q2 2011      Q3 2010  Q3 2011  Q2 2011     Q3 2010
----------------------------------------------------------------------------
North Sea             71       84          111       71       84         111
Yemen                 32       35           41       17       19          24
United States         21       25           27       19       22          24
Canada - Oil &                                                              
 Gas(1)               19       20           22       17       19          19
Canada -                                                                    
 Syncrude             22       20           19       21       18          18
Canada -                                                                    
 Bitumen              19       18           17       17       17          16
Other Countries        2        2            2        2        1           1
                ------------------------------------------------------------
Total                186      204          239      164      180         213
                ------------------------------------------------------------

1.  Q3 2010 includes production before royalties of 3 mboe/d and production
    after royalties of 3 mboe/d from discontinued operations as disclosed in
    Note 14 to our Unaudited Condensed Consolidated Financial Statements. 

Production rates during the third quarter were primarily impacted by activities at our Buzzard platform, scheduled maintenance at Scott/Telford and Ettrick, and weather-related downtime in the Gulf of Mexico.

Buzzard typically produces 195,000-220,000 boe/d (85,000-95,000 boe/d net to Nexen). Production at Buzzard in the third quarter averaged 114,000 boe/d (49,300 boe/d net to Nexen) as we completed scheduled maintenance, commissioned the fourth platform and were constrained by downtime on the third-party owned Forties and Frigg pipelines. While the maintenance was completed on schedule, production was below our expectations due to longer than expected constraints on the Frigg gas export system. These restrictions required us to reduce oil production to minimize gas flaring for six weeks. The export constraints also delayed commissioning of the fourth platform and we experienced higher than expected downtime during commissioning.

During October, the Buzzard facility has been producing at rates of 208,000 boe/d (90,000 boe/d net to Nexen). This production is from the full set of wells with the fourth platform now operational. This platform will allow us to produce all wells, regardless of H2S levels, to keep Buzzard at full rates and enable the future tieback of discoveries with high H2S content. While we anticipate strong production from Buzzard going forward, we also expect some variability as we continue to increase the rate through the fourth platform.

Yemen production reflects natural field declines with no further development drilling activities as we near the end of the primary Masila contract term on December 17th of this year. While we continued our extension efforts, macro political events in the country have made it difficult to make visible progress. At the same time as we continue our discussions, we are preparing for an orderly exit from the country if our renewal discussions are unsuccessful. We remain focused on secure and reliable operations.

In the Gulf of Mexico, we had a few days of downtime on both our shelf and deepwater production as a result of Tropical Storm Lee. This downtime was within our planned allowance for weather-related disruptions and production returned to normal levels shortly thereafter.

The scheduled coker turnaround at Syncrude began September 8th and production has been correspondingly lower in September and October. The maintenance is nearing completion.

At Long Lake, bitumen production averaged 29,500 bbls/d gross (19,200 bbls/d net to Nexen), up 1,600 bbls/d (6%) from the prior quarter and our highest quarterly volume to date. Bitumen production in the month of September was 30,500 bbls/d (19,900 bbls/d net to Nexen), and has averaged 31,700 bbls/d (20,600 bbls/d net to Nexen) during October.

Pad 11 continues to ramp-up in line with expectations as Q3 production was 1,700 bbls/d compared to 900 bbls/d in the second quarter. September production from the pad averaged 2,000 bbls/d at an SOR of 3.2 as we progressed toward our longer-term expectation of 4,000-8,000 bbls/d.

Full-field monthly SOR continues to fall, and reached 4.8 in September. We remain on track to reach production rates in the mid 30,000 bbls per day (gross) by the end of 2011 as volumes from pad 11 and many of our other better-quality existing wells continue to grow while production from the other wells remains stable.

Unit operating costs at Long Lake averaged $85/bbl in Q3 and include scheduled maintenance costs on the third hot lime softener and the second cogeneration unit. We expect per barrel operating costs to trend downward as production continues to grow. Operating costs have been high year-to-date due to planned and unplanned maintenance activity, along with initiatives to increase upgrader reliability and improve well performance.

Our upgrader on-stream time and Premium Synthetic Crude (PSC(TM)) yield this quarter were similar to the previous quarter, averaging 82 percent and 70 percent, respectively. Cash flow at Long Lake was lower than the previous quarter primarily due to lower PSC(TM) prices and lower volumes of third-party bitumen processed.


                    Long Lake Quarterly Operating Metrics                   
                  Bitumen      Steam        Unit                            
               Production  Injection   Operating                    Realized
                   (Gross)    (Gross)   Costs(1)        Cash Flow      Price
----------------------------------------------------------------------------
                   bbls/d     bbls/d       $/bbl    $Cdn millions      $/bbl
2011                                                                        
  Q3               29,500    144,000          85               (4)        94
  Q2               27,900    152,000          95                6        109
  Q1               25,500    146,000          89              (19)        90
2010                                                                        
  Q4               28,100    158,000          86               (9)        83
  Q3               25,700    146,000          85              (42)        71
  Q2               24,900    137,000          90              (19)        74
  Q1               18,700    114,000         154              (58)        81

(1)Unit operating costs and realized prices are based on PSC(TM) volumes sold and exclude activities related to third-party bitumen purchased, processed and sold. Unit operating costs includes energy costs.


Guidance Update                                                             


                      Average Daily Quarterly Production before Royalties   
Crude Oil, NGLs                                                             
 and                 Q1 2011   Q2 2011   Q3 2011       Q3 2011      Q4 2011 
Natural Gas         (actual)  (actual)  (actual)  (prior est.)   (estimate) 
(mboe/d)                                                                    
----------------------------------------------------------------------------
Buzzard                   71        49        49       67 - 74      75 - 95 
Other UK                  32        35        22       23 - 27      24 - 32 
Yemen                     38        35        32       32 - 34      24 - 33 
United States             26        25        21       20 - 24      21 - 24 
Canada - Oil & Gas        23        20        19       19 - 21      19 - 22 
Canada - Syncrude         23        20        22       19 - 22      20 - 23 
Canada - Bitumen          17        18        19       18 - 21      18 - 24 
Other Countries            2         2         2             2            2 
                   ---------------------------------------------------------
Total                                                                approx.
                         232       204       186     200 - 225    200 - 230 
                   ---------------------------------------------------------
                   ---------------------------------------------------------

Guidance Update                                                             
                                                               Average Daily
                                                           Annual Production
                                                            before Royalties
Crude Oil, NGLs                                                             
 and                                                                 FY 2011
Natural Gas                                                       (estimate)
(mboe/d)                                                                    
----------------------------------------------------------------------------
Buzzard                                                              61 - 66
Other UK                                                             28 - 30
Yemen                                                                32 - 35
United States                                                        23 - 24
Canada - Oil & Gas                                                   20 - 21
Canada - Syncrude                                                    21 - 22
Canada - Bitumen                                                     18 - 20
Other Countries                                                            2
                  ----------------------------------------------------------
Total                                                      approx. 200 - 215
                  ----------------------------------------------------------
                  ----------------------------------------------------------

Production for the quarter was below our guidance primarily due to longer than expected gas export restrictions and higher than expected variability in Buzzard's operating performance as we commissioned the fourth platform and integrated the new facilities into normal operations.

In the fourth quarter, we expect to see significantly higher volumes at Buzzard as we have returned to normal operating levels, although we expect some fluctuations as we increase the production rate through the new platform. We also expect to see several new sources of production come on-stream, including the Telford and Blackbird tiebacks in the North Sea, and our nine-well shale gas pad in the Horn River. Facility shutdowns will be required at both Telford and Ettrick in order to bring the tiebacks on stream. We will be near the low end of our Yemen guidance if we are unsuccessful in obtaining an extension there. We recently shut down the upgrader at Long Lake for repairs to the air separation unit. With the natural gas pipeline installed this summer, we expect to be able to continue to produce and sell bitumen during this shut-down.

In aggregate, we expect our full-year production to be marginally lower than our previous guidance, primarily as a result of lower volumes at Buzzard during the third quarter and potential variability as we increase the rate through the new platform.

Project Advancements

Nexen has a number of opportunities available with several development and appraisal projects underway, and a large resource base to support long-term growth. Near-term projects include new production from a Telford development well; the Blackbird field tie-in; ongoing shale gas drilling; and the Rochelle development. Longer-term projects include Golden Eagle, Appomattox, Knotty Head and Owowo, along with further oil sands and shale gas development.

During the third quarter, we continued to progress our action plan to move these projects into production and cash flow.

Conventional

Offshore West Africa - Development of the Usan field remains on track for first oil in the first half of 2012. The FPSO has arrived in Nigeria and has been successfully moored at site. The process of commissioning the FPSO and connecting the sub-sea wells to the facility has begun and is expected to continue into the early part of next year. At peak rates, the Usan project is capable of producing 180,000 boe/d (36,000 boe/d net to Nexen).

UK North Sea - On October 19th, we received approval from the UK Department of Energy & Climate Change to proceed with the Golden Eagle development, a $3.3 billion investment ($1.2 billion net to Nexen) that is expected to produce an estimated 140 mmboe (gross) of proved and probable reserves over an 18-year period.

We are the operator of Golden Eagle and hold a 36.54% working interest in the field. The development has been sanctioned by all of the Golden Eagle co-venturers. Detailed design engineering has commenced and fabrication is scheduled to start before year-end. First oil production is forecast for approximately three years from now, in late 2014, and the development is expected to have an initial gross production rate of up to 70,000 boe/d (26,000 boe/d net to Nexen).

We continue to progress our tieback projects at Telford, Blackbird and Rochelle. We expect to see increased production at Telford and first oil from Blackbird before the end of this year. First production at Rochelle is expected around the end of 2012. Elsewhere in the North Sea, appraisal drilling continues at Polecat, to be followed by an exploration well at Edgware in Q4 2011.

Gulf of Mexico - We returned to drilling in the Gulf of Mexico during the second quarter with the spud of our Kakuna well in late June. We expect to conclude drilling operations at Kakuna in the next few months.

Drilling also started in the third quarter at Appomattox on an appraisal well in the northeast fault block of the structure to follow up on our success in the southern fault block. This well is expected to be complete in the fourth quarter and will be followed by other appraisal and exploration in the area. Nexen has a 20% working interest in Appomattox; the remaining 80% is held by Shell, who is the operator.

Oil Sands

Long Lake - We continue to progress our strategy to increase bitumen production to fill the upgrader. This action plan is focused on the continued drilling of high-quality resource at Long Lake and the advancement of development of a portion of the Kinosis lease.

Our action plan is expected to provide us with an attractive return on capital as each incremental barrel of production contributes significantly to cash flow and profitability given the primarily fixed costs of the Long Lake operation.

In addition to continuing to optimize production from the initial 10 pads, our plans to fill the upgrader include:


                        Number of Wells       Expected Rates
                                                      bbls/d
------------------------------------------------------------
Pad 11                               10        4,000 - 8,000
Pads 12 & 13                         18      11,000 - 17,000
Pads 14 & 15                      10-12        6,000 - 9,000
Kinosis                           25-30      15,000 - 25,000

Drilling on pad 12 was completed during the third quarter, and drilling on pad 13 continues to proceed as planned. These pads have specifically targeted geologically high-quality areas of the lease and our drilling results are confirming our expectations around reservoir quality. We expect to begin steaming pad 12 in spring 2012 and pad 13 in fall 2012. First oil would then follow about three months later, with ramp-up occurring over the following 18 months.

We continue to work through the engineering and regulatory processes for pads 14 and 15 at Long Lake. Similar work is ongoing for 25-30 wells on the Kinosis lease, which is along the southern border of the Long Lake lease. These wells will be drilled in high-quality resource where our extensive information and analysis indicates that their geological characteristics are similar to our current best-producing areas. Drilling on these pads is expected to take place in 2012 or 2013 with first steam at the end of 2013 or in 2014, subject to regulatory approvals.

We are also continuing work on a non-operated SAGD project at Hangingstone, of which we own 25%. Project sanctioning is expected early next year, and first steam would be in 2015. Our share of production at full rates is expected to be about 6,000 bbls/d.

Shale Gas

Northeast British Columbia - Our shale gas program continued to progress during the third quarter as we fraced and completed our nine-well pad. Start-up activities on this pad are currently underway and the production from this pad should allow us to produce to our current facility limit of 50 mmcf/d until additional facility expansions come online a year from now. We reduced our pad costs to under $700,000/frac on the nine-well pad, 5% below 2010 levels. Since 2009, these costs have dropped almost 70%.

Drilling continues on our first 18-well pad, with start-up scheduled for late 2012 and associated peak field volumes of around 155 mmcf/d expected in early 2013. We expect to be able to reduce our pad costs a further 7-12% on this pad through application of previous learnings and economies of scale.

Our process to secure a JV partner to accelerate value realization for a portion of our northeast BC shale gas asset is proceeding well.

Quarterly Dividend

The Board of Directors has declared the regular quarterly dividend of $0.05 per common share payable January 1st, 2012, to shareholders of record on December 9th, 2011.

About Nexen

Nexen Inc. is an independent, Canadian-based global energy company, listed on the Toronto and New York stock exchanges under the symbol NXY. Nexen is focused on three growth strategies: oil sands and shale gas in Western Canada and conventional exploration and development primarily in the North Sea, offshore West Africa and deepwater Gulf of Mexico. Nexen adds value for shareholders through successful full-cycle oil and gas exploration and development, and leadership in ethics, integrity, governance and environmental stewardship.

For further information on Appomattox resource disclosure, please refer to our press release dated September 27th, 2010. For more information on our estimates of reserves, please refer to our 2010 Annual Information Form. For more information on our estimates of resource, please refer to our press release dated November 15th, 2010.

Conference Call

Marvin Romanow, President and CEO, and Kevin Reinhart, Executive Vice President and CFO, will discuss the financial and operating results and expectations for the future.

Conference Call Details: Date: October 27th, 2011

Time: 7:00 a.m. Mountain Time (9:00 a.m. Eastern Time) To listen to the conference call, please call one of the following:

(416) 340-8527 (Toronto)

(877) 440-9795 (North American toll-free)

(800) 2787-2090 (Global toll-free)

A replay of the call will be available for two weeks starting at 9:00 a.m. Mountain Time, October 27th by calling (905) 694-9451 (Toronto) or (800) 408-3053 (toll-free) passcode 7426133 followed by the pound sign.

We invite you to visit our website at www.nexeninc.com to listen to a live webcast of the conference call. The webcast will be archived under the Investors section of our website.

Forward-Looking Statements

Certain statements in this release constitute "forward-looking statements" (within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended) 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 royalties and tax levels; future capital expenditures, their timing 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 of our projects; development plans or capacity expansions; the expectation that we have the ability to substantially grow production at our oil sands facilities through controlled expansions; the expectation of achieving the production design rates from our oil sands facilities; the expectation that our oil sands production facilities continue to develop better and more sustainable practices; the expectation of cheaper and more technologically advanced operations; the expected design size of our operations; the expected timing and associated production impact of facilities turnarounds and maintenance; the expectation that we can continue to operate our offshore exploration, development and production facilities safely and profitably; 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; the expectation of negotiating of an extension to certain of our production sharing agreements; the expectation of our ability to comply with the new safety and environmental rules enacted in the US at a minimal incremental cost, and of receiving necessary drilling permits for our US offshore 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 our ability to comply therewith; 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.

All of the forward-looking statements in this release are qualified by the assumptions that are stated or inherent in such forward-looking statements. Although we believe that these assumptions are reasonable, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include the following: that we will conduct our operations and achieve results of operations as anticipated; that our development plans will achieve the expected results; the general continuance of current or, where applicable, assumed industry conditions; the continuation of assumed tax, royalty and regulatory regimes; the accuracy of the estimates of our reserve volumes; commodity price and cost assumptions; the continued availability of adequate cash flow and debt and/or equity financing to fund our capital and operating requirements as needed; and the extent of our liabilities. We believe the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

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; 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; the cumulative impact of oil sands development on the environment; the impact of technology on operations and processes and how new complex technology may not perform as expected; the availability of pipeline and global refining capacity; risks inherent to the operations of any large, complex refinery units, especially the integration between production operations and an upgrader facility; availability of third-party bitumen for use in our oil sands production facilities; labour and material shortages; risks related to accidents, blowouts and spills in connection with our offshore exploration, development and production activities, particularly our deepwater activities; direct and indirect risks related to the imposition of moratoriums, suspensions or cancellations of our offshore exploration, development and production operations, particularly our deepwater activities; the impact of severe weather on our offshore exploration, development and production activities, particularly our deepwater activities; the effectiveness and reliability of our technology in harsh and unpredictable environments; risks related to the actions and financial circumstances of our agents, counterparties, contractors, and joint venture parties; 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 including without limitation, those related to our offshore exploration, development and production activities; renegotiations of contracts; results of litigation, arbitration or regulatory proceedings; political uncertainty, including actions by terrorists, insurgent or other groups, or other armed conflict, including conflict between states; and other factors, many of which are beyond our control.

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 forward-looking 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 the Risk Factors contained in our 2010 Annual Information form, and to the Quantitative Disclosures about Market Risk and our Forward Looking Statements contained in our 2010 Management Discussion and Analysis.

Cautionary Note to US Investors

In this disclosure, we may refer to "recoverable reserves", "recoverable resources", "recoverable contingent resources" and "prospective 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 Information Form available under our profile on SEDAR at www.sedar.com for further reserves disclosure.

Cautionary Note to Canadian Investors

Nexen has received an exemption from the securities regulatory authorities in the various provinces of Canada from certain requirements of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") that permits us to disclose reserves estimates and related disclosures that have been prepared in accordance with SEC requirements.

As a result of this exemption, Nexen's disclosures may differ from other Canadian companies and investors should note the following fundamental differences between reserves estimates and related disclosures prepared in accordance with SEC requirements and those prepared in accordance with NI 51-101:


--  SEC reserves estimates are based upon different reserves definitions and
    are prepared in accordance with generally recognized industry practices
    in the US whereas NI 51-101 reserves are based on definitions and
    standards promulgated by the Canadian Oil and Gas Evaluation Handbook
    ("COGE Handbook") and generally recognized industry practices in Canada;
--  SEC reserves definitions differ from NI 51-101 in areas such as the use
    of reliable technology, areal 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 monthly average prices and costs held
    constant whereas NI 51-101 requires disclosure of reserves and related
    future net revenues using forecast prices and costs;
--  the SEC mandates disclosure of reserves by geographic area whereas NI
    51-101 requires disclosure of reserves by additional categories and
    product types;
--  the SEC does not require the disclosure of future net revenue of proved
    and proved plus probable reserves using forecast pricing at various
    discount rates;
--  the SEC requires future development costs to be estimated using existing
    conditions held constant, whereas NI 51-101 requires estimation using
    forecast conditions;
--  the SEC does not require the validation of reserves estimates by
    independent qualified reserves evaluators or auditors, whereas, without
    an exemption noted below, NI 51-101 requires issuers to engage such
    evaluators or auditors to evaluate, audit or review reserves and related
    future net revenue attributable to those reserves; and
--  the SEC does not allow proved and probable reserves to be aggregated
    whereas NI 51-101 requires issuers to make such aggregation.

The foregoing is a general description of the principal differences only. The differences between SEC requirements and NI 51-101 may be material for certain properties. Please also note:


--  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.

Nexen has also received an exemption from NI 51-101 that permits us to forego the requirement to have our reserves and related future net revenue attributable to our reserves evaluated, audited or reviewed by an independent qualified reserves evaluator or auditor. Accordingly, our future net revenue and reserves estimates are based on internal evaluations. Due to the extent and expertise of our internal reserves evaluation resources, our staff's familiarity with our properties and the controls applied to the evaluation process, we believe the reliability of our internally generated reserves estimates is not materially less than would be generated by an independent reserves evaluator.

Resources

The resource estimates contained in this news release were announced on September 27, 2010 and were prepared by qualified reserves evaluators. The estimated contingent and prospective resources in this news release reflects all of our low, high and best case of recoverable resources. A "best estimate" is the best estimate of the quantity of resources that will actually be recovered. It is equally likely that the actual quantities recovered will be greater or less than the best estimate. Those resources that fall within the best estimate have a 50% confidence level that the actual quantities recovered will equal or exceed the estimate. The 'low estimate' and 'high estimate' are considered to be conservative and optimistic estimates of resources with 90% and 10% confidence respectively. Nexen's estimates of contingent and prospective resources are based on definitions set out in the Canadian Oil and Gas Evaluation Handbook. Contingent resources are 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. Prospective resources are quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

Contingencies on resources may include, but are not limited to, factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. Specific oil sands contingencies precluding these contingent resources being classified as reserves include but are not limited to: project sanction, the cost and effectiveness of steam-assisted gravity drainage application, stakeholder and regulatory approvals, access to required services and infrastructure, oil prices and a demonstration of economic viability. There is no certainty that it will be commercially viable to produce any portion of these contingent oil sands resources.

Specific shale gas contingencies precluding these contingent resources being classified as reserves include but are not limited to: future drilling program and testing results, project sanction, the cost and effectiveness of fracing optimization, stakeholder and regulatory approvals, access to required services and field development infrastructure, gas prices and a demonstration of economic viability. There is no certainty that it will be commercially viable to produce any portion of these contingent shale gas resources. In the case of shale gas prospective 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.

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.


Nexen Inc.                                                                  
Financial Highlights                                                        
                                   Three Months Ended      Nine Months Ended
                            Sept 30  June 30  Sept 30     Sept 30    Sept 30
(Cdn$ millions)                2011     2011     2010        2011       2010
----------------------------------------------------------------------------
Net Sales (1)                 1,399    1,507    1,452       4,546      4,447
Cash Flow from Operations                                                   
 (1)                            516      598      496       1,783      1,594
  Per Common Share                                                          
   ($/share)                   0.98     1.13     0.95        3.38       3.04
Net Income (1)                  200      252      581         654        967
  Per Common Share                                                          
   ($/share)                   0.38     0.48     1.11        1.24       1.84
Capital Investment (2)          729      530      629       1,758      2,039
Net Debt (3)                  3,454    2,838    4,497       3,454      4,497
Common Shares Outstanding                                                   
 (millions of shares)         527.4    527.0    525.0       527.4      525.0
                           -------------------------------------------------

1.  Includes discontinued operations as discussed in Note 14 to our
    Unaudited Condensed Consolidated Financial Statements. 
2.  Includes oil and gas development, exploration, and expenditures for
    other property, plant and equipment. 
3.  Net debt is defined as long-term debt and short-term borrowings less
    cash and cash equivalents. 

Cash Flow from Operations (1)                                               
                                     Three Months Ended   Nine Months Ended 
                              Sept 30  June 30  Sept 30  Sept 30    Sept 30 
(Cdn$ millions)                  2011     2011     2010     2011       2010 
----------------------------------------------------------------------------
Conventional Oil & Gas                                                      
  United Kingdom                  645      699      670    2,231      1,995 
  North America (2)                50       91       63      206        292 
  Other Countries (3)              86      115      101      297        292 
Oil Sands                                                                   
  In Situ                          (4)       6      (42)     (17)      (119)
  Syncrude                        106      103       58      316        203 
                              ----------------------------------------------
                                  883    1,014      850    3,033      2,663 
Interest, Marketing and Other                                               
 Corporate Items (2)              (62)     (90)    (127)    (237)      (401)
Income Taxes (4)                 (305)    (326)    (227)  (1,013)      (668)
                              ----------------------------------------------
Cash Flow from Operations (1)     516      598      496    1,783      1,594 
                              ----------------------------------------------

1.  Defined as cash flow from operating activities before changes in non-
    cash working capital and other. We evaluate our performance and that of
    our business segments based on earnings and cash flow from operations.
    Cash flow from operations is a non-GAAP term that represents cash
    generated from operating activities before changes in non-cash working
    capital and other. We consider it a key measure as it demonstrates our
    ability to generate the cash flow necessary to fund future growth
    through capital investment. Cash flow from operations may not be
    comparable with the calculation of similar measures for other companies.

                            Three Months Ended            Nine Months Ended 
                           Sept 30     June 30  Sept 30  Sept 30    Sept 30 
(Cdn$ millions)               2011        2011     2010     2011       2010 
----------------------------------------------------------------------------
Cash Flow from Operating                                                    
 Activities                    288       1,014      705    2,038      2,050 
Changes in Non-Cash                                                         
 Working Capital Including                                                  
 Income Taxes                                                               
 and Interest Payable          198        (419)    (215)    (287)      (413)
Other                           38          11       14       56        (13)
Impact of Annual Crude Oil                                                  
 Put Options                    (8)         (8)      (8)     (24)       (30)
                           -------------------------------------------------
Cash Flow from Operations      516         598      496    1,783      1,594 
                           -------------------------------------------------

Weighted-average Number of                                                  
 Common Shares Outstanding                                                  
 (millions of shares)        527.4       527.0    525.0    526.9      524.4 
                           -------------------------------------------------
Cash Flow from Operations                                                   
 Per Common Share                                                           
 ($/share)                    0.98        1.13     0.95     3.38       3.04 
                           -------------------------------------------------

2.  Includes discontinued operations as discussed in Note 14 to our
    Unaudited Condensed Consolidated Financial Statements. 
3.  After in-country cash taxes in Yemen of $46 million for the three months
    ended September 30, 2011 (June 30, 2011 - $58 million; September 30,
    2010 - $43 million) and $146 million for the nine months ended September
    30, 2011 (September 30, 2010 - $125 million). 
4.  Excludes in-country cash taxes in Yemen. 

Nexen Inc.                                                                  
Production Volumes (before                                                  
 royalties) (1)                                                             
                                          Three Months           Nine Months
                                         Ended Sept 30         Ended Sept 30
                                       2011       2010       2011       2010
----------------------------------------------------------------------------
Crude Oil and Liquids (mbbls/d)                                             
  United Kingdom                       66.8      106.3       80.4      103.4
  Yemen                                32.3       41.6       35.1       41.8
  Oil Sands - Syncrude                 21.6       19.1       21.7       20.7
  Oil Sands - Long Lake Bitumen        19.2       16.7       18.0       15.0
  United States                         7.7        9.9        8.6        9.9
  Canada (2)                              -        2.9          -       10.0
  Other Countries                       1.6        2.0        1.7        2.1
                                 -------------------------------------------
                                      149.2      198.5      165.5      202.9
                                 -------------------------------------------
Natural Gas (mmcf/d)                                                        
  United Kingdom                         26         27         32         36
  United States                          81        102         94        100
  Canada (2)                            111        113        123        124
                                 -------------------------------------------
                                        218        242        249        260
                                 -------------------------------------------

Total Production (mboe/d)               186        239        207        246
                                 -------------------------------------------
                                 -------------------------------------------

Production Volumes (after                                                   
 royalties)                                                                 
                                          Three Months           Nine Months
                                         Ended Sept 30         Ended Sept 30
                                       2011       2010       2011       2010
----------------------------------------------------------------------------
Crude Oil and Liquids (mbbls/d)                                             
  United Kingdom                       66.4      106.3       80.2      103.4
  Yemen                                17.4       23.5       18.9       22.9
  Oil Sands - Syncrude                 20.6       17.9       20.2       19.1
  Oil Sands - Long Lake Bitumen        17.3       16.0       16.6       14.3
  United States                         6.8        8.9        7.7        8.9
  Canada (2)                              -        2.3          -        7.7
  Other Countries                       1.5        1.9        1.6        2.0
                                 -------------------------------------------
                                      130.0      176.8      145.2      178.3
                                 -------------------------------------------
Natural Gas (mmcf/d)                                                        
  United Kingdom                         26         27         32         36
  United States                          71         89         81         86
  Canada (2)                            104        104        117        114
                                 -------------------------------------------
                                        201        220        230        236
                                 -------------------------------------------

Total Production (mboe/d)               164        213        184        218
                                 -------------------------------------------
                                 -------------------------------------------

1.  We have presented production volumes before royalties as we measure our
    performance on this basis consistent with other Canadian oil and gas
    companies. 
2.  Includes the following production from discontinued operations in Note
    14 to our Unaudited Condensed Consolidated Financial Statements. 

                                          Three Months          Nine Months 
                                         Ended Sept 30         Ended Sept 30
                                       2011       2010       2011       2010
----------------------------------------------------------------------------
Before Royalties                                                            
  Crude Oil and NGLs (mbbls/d)            -        2.9          -       10.0
  Natural Gas (mmcf/d)                    -        2.2          -        8.3
After Royalties                                                             
  Crude Oil and NGLs (mbbls/d)            -        2.3          -        7.7
  Natural Gas (mmcf/d)                    -        2.1          -        7.2

Nexen Inc.                                    
Oil and Gas Prices and Cash Netback (1)       


                                                          Quarters - 2011   
(all dollar amounts in Cdn$                                                 
 unless noted)                               1st      2nd      3rd      4th 
----------------------------------------------------------------------------
PRICES:                                                                     
Brent Crude Oil (US$/bbl)                 104.97   117.36   113.47          
WTI Crude Oil (US$/bbl)                    94.10   102.56    89.76          
Nexen Average - Oil (Cdn$/bbl)             98.37   110.28   103.98          
NYMEX Natural Gas (US$/mmbtu)               4.20     4.37     4.06          
AECO Natural Gas (Cdn$/mcf)                 3.58     3.54     3.53          
Nexen Average - Gas (Cdn$/mcf)              4.51     4.75     4.36          
NETBACKS (1):                                                               
----------------------------------------------------------------------------
United Kingdom                                                              
 Crude Oil:                                                                 
  Sales (mbbls/d)                          104.2     73.3     75.2          
  Price Received ($/bbl)                   99.97   110.55   106.71          
 Natural Gas:                                                               
  Sales (mmcf/d)                              36       37       26          
  Price Received ($/mcf)                    7.29     8.20     7.28          
 Total Sales Volume (mboe/d)               110.2     79.5     79.5          

 Price Received ($/boe)                    96.91   105.76   103.31          
 Operating Costs                            9.85     8.48    14.46          
----------------------------------------------------------------------------
 Netback                                   87.06    97.28    88.85          
----------------------------------------------------------------------------
United States                                                               
 Crude Oil:                                                                 
  Sales (mbbls/d)                            9.2      8.9      7.7          
  Price Received ($/bbl)                   91.39   101.89    96.00          
 Natural Gas:                                                               
  Sales (mmcf/d)                             103       96       81          
  Price Received ($/mcf)                    4.36     4.42     4.27          
 Total Sales Volume (mboe/d)                26.3     24.9     21.2          

 Price Received ($/boe)                    48.91    53.56    50.72          
 Royalties & Other                          5.65     6.11     5.63          
 Operating Costs                           10.43    10.72    11.18          
----------------------------------------------------------------------------
 Netback                                   32.83    36.73    33.91          
----------------------------------------------------------------------------
Canada - Natural Gas                                                        
 Sales (mmcf/d) (2)                           97       85       79          

 Price Received ($/mcf)                     3.65     3.62     3.51          
 Royalties & Other                          0.28     0.24     0.27          
 Operating Costs                            1.70     1.54     1.65          
----------------------------------------------------------------------------
 Netback                                    1.67     1.84     1.59          
----------------------------------------------------------------------------
Yemen                                                                       
 Sales (mbbls/d)                            34.9     39.3     31.8          

 Price Received ($/bbl)                   101.57   111.77   107.98          
 Royalties & Other                         46.98    52.26    49.72          
 Operating Costs                           10.75     9.18    13.20          
 In-country Taxes                          13.48    16.26    15.49          
----------------------------------------------------------------------------
 Netback                                   30.36    34.07    29.57          
----------------------------------------------------------------------------


                                                                       Total
                                          Quarters - 2010               Year
(all dollar amounts in Cdn$                                                 
 unless noted)                       1st      2nd      3rd      4th     2010
----------------------------------------------------------------------------
PRICES:                                                                     
Brent Crude Oil (US$/bbl)          76.23    78.30    76.86    86.48    79.47
WTI Crude Oil (US$/bbl)            78.71    78.03    76.20    85.12    79.52
Nexen Average - Oil (Cdn$/bbl)     78.00    76.23    77.03    84.47    78.94
NYMEX Natural Gas (US$/mmbtu)       5.04     4.34     4.24     3.97     4.39
AECO Natural Gas (Cdn$/mcf)         5.08     3.66     3.52     3.41     3.92
Nexen Average - Gas (Cdn$/mcf)      5.37     4.42     4.18     4.16     4.54
NETBACKS (1):                                                               
----------------------------------------------------------------------------
United Kingdom                                                              
 Crude Oil:                                                                 
  Sales (mbbls/d)                  106.5    102.1    103.9    110.0    105.6
  Price Received ($/bbl)           77.24    77.18    77.45    83.88    79.02
 Natural Gas:                                                               
  Sales (mmcf/d)                      33       41       29       38       36
  Price Received ($/mcf)            4.81     4.80     5.11     6.34     5.28
 Total Sales Volume (mboe/d)       112.1    109.0    108.8    116.3    111.5

 Price Received ($/boe)            74.84    74.12    75.35    81.37    76.51
 Operating Costs                    7.60     7.85     8.41     9.19     8.28
----------------------------------------------------------------------------
 Netback                           67.24    66.27    66.94    72.18    68.23
----------------------------------------------------------------------------
United States                                                               
 Crude Oil:                                                                 
  Sales (mbbls/d)                    9.8      9.9      9.8     10.1      9.9
  Price Received ($/bbl)           79.12    73.60    73.72    80.41    76.73
 Natural Gas:                                                               
  Sales (mmcf/d)                     101       95      102       99       99
  Price Received ($/mcf)            6.00     5.14     4.70     4.05     4.97
 Total Sales Volume (mboe/d)        26.6     25.8     26.9     26.6     26.5

 Price Received ($/boe)            51.92    47.23    44.85    45.55    47.35
 Royalties & Other                  4.92     4.86     5.10   (0.63)     3.55
 Operating Costs                    8.96    10.90     9.44    10.78    10.02
----------------------------------------------------------------------------
 Netback                           38.04    31.47    30.31    35.40    33.78
----------------------------------------------------------------------------
Canada - Natural Gas                                                        
 Sales (mmcf/d) (2)                  124      121      107      104      114

 Price Received ($/mcf)             5.02     3.72     3.43     3.48     3.94
 Royalties & Other                  0.40     0.34     0.26     0.24     0.32
 Operating Costs                    1.70     1.89     1.90     1.55     1.76
----------------------------------------------------------------------------
 Netback                            2.92     1.49     1.27     1.69     1.86
----------------------------------------------------------------------------
Yemen                                                                       
 Sales (mbbls/d)                    47.3     39.3     43.5     38.8     42.2

 Price Received ($/bbl)            80.39    80.50    79.33    87.82    81.86
 Royalties & Other                 37.52    36.65    34.75    37.72    36.65
 Operating Costs                    9.67    10.01     9.46    12.05    10.25
 In-country Taxes                  10.14    10.97    10.70    11.52    10.80
----------------------------------------------------------------------------
 Netback                           23.06    22.87    24.42    26.53    24.16
----------------------------------------------------------------------------

1.  Defined as average sales price less royalties and other, operating
    costs, and in-country taxes in Yemen. 
2.  Excludes sales related to shale gas activities in north eastern British
    Columbia. 



                                                  Quarters - 2011           
(all dollar amounts in Cdn$                                                 
 unless noted)                              1st       2nd      3rd      4th 
----------------------------------------------------------------------------
Other Countries                                                             
 Sales (mbbls/d)                            1.8       1.7      1.6          

 Price Received ($/bbl)                   93.52    106.57   101.28          
 Royalties & Other                         6.22      6.93     6.57          
 Operating Costs                           8.11     10.19     8.58          
----------------------------------------------------------------------------
 Netback                                  79.19     89.45    86.13          
----------------------------------------------------------------------------
In Situ (2)                                                                 
 Sales (mbbls/d)                           12.9      14.3     11.8          

 Price Received ($/bbl)                   89.82    108.78    94.15          
 Royalties & Other                         3.58      6.05     5.07          
 Operating Costs                          89.43     95.34    85.42          
----------------------------------------------------------------------------
 Netback (2)                              (3.19)     7.39     3.66          
----------------------------------------------------------------------------
Syncrude                                                                    
 Sales (mbbls/d)                           23.2      20.4     21.6          

 Price Received ($/bbl)                   94.60    111.79    97.65          
 Royalties & Other                         4.30     13.82     4.65          
 Operating Costs                          36.11     39.98    37.10          
----------------------------------------------------------------------------
 Netback                                  54.19     57.99    55.90          
----------------------------------------------------------------------------
Company-Wide                                                                

 Oil and Gas Sales (mboe/d)               225.5     194.3    180.7          

 Price Received ($/boe)                   85.98     95.26    90.70          
 Royalties & Other                         8.74     13.42    10.47          
 Operating & Other Costs (2)              17.32     18.68    20.80          
 In-country Taxes                          2.08      3.29     2.72          
----------------------------------------------------------------------------
 Netback                                  57.84     59.87    56.71          
----------------------------------------------------------------------------


                                                                      Total 
                                          Quarters - 2010              Year 
(all dollar amounts in Cdn$                                                 
 unless noted)                      1st      2nd      3rd      4th     2010 
----------------------------------------------------------------------------
Other Countries                                                             
 Sales (mbbls/d)                    2.3      2.1      2.0      1.9      2.1 

 Price Received ($/bbl)           78.88    74.77    75.93    77.63    76.83 
 Royalties & Other                 5.72     5.28     5.22     5.24     5.37 
 Operating Costs                   5.58     7.42     6.98     8.19     6.99 
----------------------------------------------------------------------------
 Netback                          67.58    62.07    63.73    64.20    64.47 
----------------------------------------------------------------------------
In Situ (2)                                                                 
 Sales (mbbls/d)                    6.6     10.3     11.9     12.1     10.3 

 Price Received ($/bbl)           81.04    74.08    70.64    82.99    77.07 
 Royalties & Other                 4.37     2.98     3.08     3.81     3.65 
 Operating Costs                 154.00    89.95    84.75    85.61   100.09 
----------------------------------------------------------------------------
 Netback (2)                     (77.33)  (18.84)  (17.19)   (6.43)  (26.67)
----------------------------------------------------------------------------
Syncrude                                                                    
 Sales (mbbls/d)                   19.5     23.4     19.1     22.8     21.2 

 Price Received ($/bbl)           83.55    77.93    78.27    85.12    81.23 
 Royalties & Other                 7.09     6.37     4.82     6.72     6.27 
 Operating Costs                  35.84    32.67    38.06    31.65    34.34 
----------------------------------------------------------------------------
 Netback                          40.62    38.89    35.39    46.75    40.62 
----------------------------------------------------------------------------
Company-Wide                                                                

 Oil and Gas Sales (mboe/d)       249.1    243.1    232.9    235.9    240.2 

 Price Received ($/boe)           70.16    67.56    68.23    74.49    70.11 
 Royalties & Other                 9.38     8.05     7.96     7.13     8.16 
 Operating & Other Costs (2)      14.93    15.85    15.42    15.97    15.48 
 In-country Taxes                  1.92     1.76     2.00     1.89     1.90 
----------------------------------------------------------------------------
 Netback                          43.92    41.90    42.85    49.50    44.57 
----------------------------------------------------------------------------

1.  Defined as average sales price less royalties and other, operating
    costs, and in-country taxes in Yemen. 
2.  Excludes activities related to third-party bitumen purchased, processed
    and sold. Sales volumes and amounts relate to PSC(TM) sales made to
    third parties during the period. 

Unaudited Condensed Consolidated Financial Statements For the Three and Nine Months ended September 30, 2011

Nexen Inc.

Unaudited Condensed Consolidated Statement of Income

For the Three and Nine Months Ended September 30


                                          Three Months          Nine Months 
                                    Ended September 30   Ended September 30 
(Cdn$ millions, except per share                                            
 amounts)                               2011      2010        2011     2010 
----------------------------------------------------------------------------
Revenues and Other Income                                                   
 Net Sales                             1,399     1,321       4,504    3,973 
 Marketing and Other Income (Note                                           
  13)                                    125       117         266      304 
                                   -----------------------------------------
                                       1,524     1,438       4,770    4,277 
                                   -----------------------------------------
Expenses                                                                    
 Operating                               356       334       1,060      978 
 Depreciation, Depletion,                                                   
  Amortization and Impairment            409       435       1,114    1,136 
 Transportation and Other                110       130         289      464 
 General and Administrative               23       115         204      264 
 Exploration                              59        56         278      199 
 Finance (Note 8)                         59        87         193      273 
 Loss on Debt Redemption and                                                
  Repurchase (Note 7)                      -         -          91        - 
 Net Loss from Dispositions                -       259           -      179 
                                   -----------------------------------------
                                       1,016     1,416       3,229    3,493 
                                   -----------------------------------------

Income from Continuing Operations                                           
 before Provision for Income Taxes       508        22       1,541      784 
                                   -----------------------------------------

Provision for (Recovery of) Income                                          
 Taxes                                                                      
 Current                                 351       270       1,159      793 
 Deferred                                (43)     (194)         30     (304)
                                   -----------------------------------------
                                         308        76       1,189      489 
                                   -----------------------------------------

Net Income (Loss) from Continuing                                           
 Operations                              200       (54)        352      295 
Net Income from Discontinued                                                
 Operations, Net of Tax (Note 14)          -       635         302      672 
                                   -----------------------------------------
Net Income Attributable to Nexen                                            
 Inc. Shareholders                       200       581         654      967 
                                   -----------------------------------------
                                   -----------------------------------------

Earnings (Loss) Per Common Share                                            
 from Continuing Operations                                                 
 ($/share)                                                                  
 Basic                                  0.38     (0.10)       0.67     0.56 
                                   -----------------------------------------
                                   -----------------------------------------

 Diluted                                0.32     (0.10)       0.61     0.54 
                                   -----------------------------------------
                                   -----------------------------------------

Earnings Per Common Share ($/share)                                         
 Basic                                  0.38      1.11        1.24     1.84 
                                   -----------------------------------------
                                   -----------------------------------------

 Diluted                                0.32      1.07        1.16     1.77 
                                   -----------------------------------------
                                   -----------------------------------------
See accompanying notes to the Unaudited Condensed Consolidated Financial    
 Statements.                                                                

Nexen Inc.

Unaudited Condensed Consolidated Balance Sheet


                                      September 30  December 31    January 1
(Cdn$ millions)                               2011         2010         2010
----------------------------------------------------------------------------
Assets                                                                      
 Current Assets                                                             
  Cash and Cash Equivalents                  1,025        1,005        1,700
  Restricted Cash                               52           40          198
  Accounts Receivable (Note 3)               1,870        1,789        2,322
  Derivative Contracts                         106          149          466
  Inventories and Supplies (Note 4)            347          550          680
  Other                                        175          142          185
  Assets Held for Sale (Note 14)                 -          729            -
                                      --------------------------------------
   Total Current Assets                      3,575        4,404        5,551
                                      --------------------------------------

 Non-Current Assets                                                         
  Property, Plant and Equipment (Note                                       
   5)                                       15,451       14,579       14,669
  Goodwill                                     297          286          330
  Deferred Income Tax Assets                   231          160           75
  Derivative Contracts                           8          116          225
  Other Long-Term Assets                       167          102          105
                                      --------------------------------------
Total Assets                                19,729       19,647       20,955
                                      --------------------------------------
                                      --------------------------------------

Liabilities                                                                 
 Current Liabilities                                                        
  Accounts Payable and Accrued                                              
   Liabilities (Note 6)                      2,877        2,459        2,681
  Derivative Contracts                          85          168          456
  Accrued Interest Payable                      63           83           89
  Dividends Payable                             26           26           26
  Liabilities Held for Sale (Note 14)            -          582            -
                                      --------------------------------------
   Total Current Liabilities                 3,051        3,318        3,252
                                      --------------------------------------

 Non-Current Liabilities                                                    
  Long-Term Debt (Note 7)                    4,479        5,090        7,259
  Deferred Income Tax Liabilities            1,712        1,487        1,678
  Asset Retirement Obligations (Note                                        
   9)                                        1,725        1,516        1,397
  Derivative Contracts                          16          115          210
  Other Long-Term Liabilities                  320          307          372

Equity (Note 11)                                                            
 Nexen Inc. Shareholders' Equity                                            
  Common Shares                              1,150        1,111        1,050
  Retained Earnings                          7,268        6,692        5,704
  Accumulated Other Comprehensive                                           
   Income (Loss)                                 8          (37)           -
                                      --------------------------------------
 Total Nexen Inc. Shareholders' Equity       8,426        7,766        6,754
  Canexus Non-Controlling Interest                                          
   (Note 14)                                     -           48           33
                                      --------------------------------------
 Total Equity                                8,426        7,814        6,787
 Commitments, Contingencies and                                             
  Guarantees (Note 12)                                                      
                                      --------------------------------------
Total Liabilities and Equity                19,729       19,647       20,955
                                      --------------------------------------
                                      --------------------------------------
See accompanying notes to Unaudited Condensed Consolidated Financial        
 Statements.                                                                

Nexen Inc.

Unaudited Condensed Consolidated Statement of Cash Flows

For the Three and Nine Months Ended September 30


                                           Three Months         Nine Months 
                                     Ended September 30  Ended September 30 
(Cdn$ millions)                          2011      2010      2011      2010 
----------------------------------------------------------------------------
Operating Activities                                                        
 Net Income (Loss) from Continuing                                          
  Operations                              200       (54)      352       295 
 Net Income from Discontinued                                               
  Operations                                -       635       302       672 
 Charges and Credits to Income not                                          
  Involving Cash (Note 15)                662       245     2,194     1,547 
 Exploration Expense                       59        56       278       199 
 Income Taxes Paid                       (646)     (376)   (1,106)     (626)
 Interest Paid                            (88)     (103)     (218)     (293)
 Changes in Non-Cash Working Capital                                        
  (Note 15)                               139       316       292       243 
 Other                                    (38)      (14)      (56)       13 
                                    ----------------------------------------
                                          288       705     2,038     2,050 

Financing Activities                                                        
 Repayment of Short-Term Borrowings         -      (156)        -         - 
 Repayment of Term Credit                                                   
  Facilities, Net                           -      (463)        -    (1,540)
 Repayment of Long-Term Debt (Note                                         
   7)                                       -         -      (871)        - 
 Proceeds from Canexus Long-Term                                            
  Debt, Net                                 -        56         5       124 
 Dividends Paid on Common Shares          (26)      (26)      (78)      (78)
 Issue of Common Shares and Exercise                                        
  of Tandem Options for Shares              8         9        39        44 
 Other                                      1        (8)       (3)      (28)
                                    ----------------------------------------
                                          (17)     (588)     (908)   (1,478)

Investing Activities                                                        
 Capital Expenditures                                                       
   Exploration, Evaluation, and                                             
    Development                          (683)     (567)   (1,618)   (1,803)
   Capitalized Interest Paid              (33)      (24)      (90)      (64)
   Corporate and Other                    (13)      (38)      (50)     (172)
 Proceeds from Dispositions                 1       950       475     1,046 
 Changes in Restricted Cash                 1       (43)      (10)       40 
 Changes in Non-Cash Working Capital                                        
  (Note 15)                                69      (105)      184       (30)
 Other                                      -        (1)      (75)       (8)
                                    ----------------------------------------
                                         (658)      172    (1,184)     (991)

Effect of Exchange Rate Changes on                                          
 Cash and Cash Equivalents                100       (49)       74       (71)
                                    ----------------------------------------

Increase (Decrease) in Cash and Cash                                        
 Equivalents                             (287)      240        20      (490)

Cash and Cash Equivalents -                                                 
 Beginning of Period                    1,312       970     1,005     1,700 
                                    ----------------------------------------

Cash and Cash Equivalents - End of                                          
 Period (1)                             1,025     1,210     1,025     1,210 
                                    ----------------------------------------
                                    ----------------------------------------
(1)Cash and cash equivalents at September 30, 2011 consists of cash of $277 
 million and short-term investments of $748 million (September 30, 2010 -   
 cash of $211 million and short-term investments of $999 million).          

See accompanying notes to the Unaudited Condensed Consolidated Financial    
 Statements.                                                                

Nexen Inc.

Unaudited Condensed Consolidated Statement of Changes in Equity

For the Three and Nine Months Ended September 30


                                           Three Months         Nine Months 
                                     Ended September 30  Ended September 30 
(Cdn$ millions)                          2011      2010      2011      2010 
----------------------------------------------------------------------------

Common Shares, Beginning of Period      1,142     1,088     1,111     1,050 
  Issue of Common Shares                    8         9        39        41 
  Exercise of Tandem Options for                                            
   Shares                                   -         -         -         3 
  Accrued Liability Relating to                                             
   Tandem Options Exercised for                                             
   Common Shares                            -         -         -         3 
                                    ----------------------------------------
 Balance at End of Period               1,150     1,097     1,150     1,097 
                                    ----------------------------------------
                                    ----------------------------------------

Retained Earnings, Beginning of                                             
 Period                                 7,094     6,038     6,692     5,704 
  Net Income Attributable to Nexen                                          
   Inc. Shareholders                      200       581       654       967 
  Dividends on Common Shares (Note                                          
   11)                                    (26)      (26)      (78)      (78)
                                    ----------------------------------------
 Balance at End of Period               7,268     6,593     7,268     6,593 
                                    ----------------------------------------
                                    ----------------------------------------

Accumulated Other Comprehensive                                             
 Loss, Beginning of Period                (55)       (5)      (37)        - 
  Other Comprehensive Income (Loss)                                         
   Attributable to Nexen Inc.                                               
   Shareholders                            63        (9)       45       (14)
                                    ----------------------------------------
 Balance at End of Period                   8       (14)        8       (14)
                                    ----------------------------------------
                                    ----------------------------------------

Canexus Non-Controlling Interests,                                          
 Beginning of Period                        -        42        48        33 
  Net Income Attributable to Non-                                           
   Controlling Interests                    -         5         1         4 
  Distributions Declared to Non-                                            
   Controlling Interests                    -        (5)        -       (12)
  Issue of Partnership Units to Non-                                        
   Controlling Interests                    -         6         -        23 
  Disposition of Canexus (Note 14)          -         -       (49)        - 
                                    ----------------------------------------
 Balance at End of Period                   -        48         -        48 
                                    ----------------------------------------
                                    ----------------------------------------

See accompanying notes to the Unaudited Condensed Consolidated Financial    
 Statements.                                                                

Nexen Inc.

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the Three and Nine Months Ended September 30


                                           Three Months         Nine Months 
                                     Ended September 30  Ended September 30 
(Cdn$ millions)                          2011      2010      2011      2010 
----------------------------------------------------------------------------
Net Income Attributable to Nexen                                            
 Inc. Shareholders                        200       581       654       967 
 Other Comprehensive Income (Loss),                                         
  Net of Income Taxes:                                                      
  Foreign Currency Translation                                              
   Adjustment                                                               
   Net Gains (Losses) on Investment                                         
    in Self-Sustaining Foreign                                              
    Operations                            339      (154)      200       (88)
   Net Gains (Losses) on Foreign-                                           
    Denominated Debt Hedging of                                             
    Self-Sustaining Foreign                                                 
    Operations (1)                       (276)      145      (155)       74 
                                    ----------------------------------------
  Other Comprehensive Income (Loss)                                         
   Attributable to Nexen Inc.                                               
   Shareholders                            63        (9)       45       (14)
                                    ----------------------------------------
Total Comprehensive Income                263       572       699       953 
                                    ----------------------------------------
                                    ----------------------------------------
(1)Net of income tax recovery for the three months ended September 30, 2011 
 of $39 million (2010 - net of income tax expense of $21 million) and net   
 of income tax recovery for the nine months ended September 30, 2011 of $22 
 million (2010 - net of income tax expense of $10 million).                 

See accompanying notes to the Unaudited Condensed Consolidated Financial    
 Statements.                                                                

Nexen Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Cdn$ millions, except as noted

1. BASIS OF PRESENTATION

Nexen Inc. (Nexen, we or our) is an independent, global energy company with operations in the North Sea, Gulf of Mexico, offshore West Africa, Canada, Yemen and Colombia. Nexen is incorporated and domiciled in Canada. Nexen's shares are publicly traded on both the Toronto Stock Exchange and the New York Stock Exchange.

These Unaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2011 have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The Unaudited Condensed Consolidated Financial Statements do not include all of the information required for annual financial statements. Amounts relating to the three and nine months ended September 30, 2010 and as at December 31, 2010 were previously presented in accordance with Canadian GAAP. These amounts have been restated as necessary to be compliant with our accounting policies under International Financial Reporting Standards ("IFRS") (see Note 2). Reconciliations and descriptions relating to the transition from Canadian GAAP to IFRS are included in Note 17.

The Unaudited Condensed Consolidated Financial Statements were authorized for issue on October 26, 2011 and should be read in conjunction with the Audited Consolidated Financial Statements for the year ended December 31, 2010, which have been prepared in accordance with Canadian GAAP.

2. ACCOUNTING POLICIES

The accounting policies we follow are described in Note 2 of the Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011.

Future Changes in Accounting Policies

As part of our transition to IFRS, we will adopt all IFRS accounting standards in effect on December 31, 2011.

The following standards and interpretations have not been adopted as they apply to future periods. They may result in future changes to our existing accounting policies and other note disclosures.


--  IFRS 9 Financial Instruments - in November 2009, the International
    Accounting Standards Board (IASB) issued IFRS 9 to address
    classification and measurement of financial assets. In October 2010, the
    IASB revised the standard to include financial liabilities. The standard
    is required to be adopted for periods beginning January 1, 2013.
    Portions of the standard remain in development and the full impact of
    the standard will not be known until the project is complete. 
--  IFRS 10 Consolidated Financial Statements - in May 2011, the IASB issued
    IFRS 10 which provides additional guidance to determine whether an
    investee should be consolidated. The guidance applies to all investees,
    including special purpose entities. The standard is required to be
    adopted for periods beginning January 1, 2013. We are evaluating the
    impact that this standard may have on our results of operations and
    financial position. 
--  IFRS 11 Joint Arrangements - in May 2011, the IASB issued IFRS 11 which
    presents a new model for determining whether an entity should account
    for joint arrangements using proportionate consolidation or the equity
    method. An entity will have to follow the substance rather than legal
    form of a joint arrangement and will no longer have a choice of
    accounting method. The standard is required to be adopted for periods
    beginning January 1, 2013. We are evaluating the impact that this
    standard may have on our results of operations and financial position. 
--  IFRS 12 Disclosure of Interests in Other Entities - in May 2011, the
    IASB issued IFRS 12 which aggregates and amends disclosure requirements
    included within other standards. The standard requires a company to
    provide disclosures about subsidiaries, joint arrangements, associates
    and unconsolidated structured entities. The standard is required to be
    adopted for periods beginning January 1, 2013. We are evaluating the
    impact that this standard may have on our financial statement
    disclosure. 
--  IFRS 13 Fair Value Measurement - in May 2011, the IASB issued IFRS 13 to
    provide comprehensive guidance for instances where IFRS requires fair
    value to be used. The standard provides guidance on determining fair
    value and requires disclosures about those measurements. The standard is
    required to be adopted for periods beginning January 1, 2013. We are
    evaluating the impact that this standard may have on our results of
    operations and financial position. 
--  IAS 1 Presentation of Items of Other Comprehensive Income - in June
    2011, the IASB issued amendments to IAS 1 Presentation of Financial
    Statements to split items of other comprehensive income (OCI) between
    those that are reclassed to income and those that do not. The standard
    is required to be adopted for periods beginning on or after July 1,
    2012. We are evaluating the impact that this standard may have on our
    results of operations and financial position. 
--  IAS 19 Employee Benefits - in June 2011, the IASB issued amendments to
    IAS 19 to revise certain aspects of the accounting for pension plans and
    other benefits. The amendments eliminate the corridor method of
    accounting for defined benefit plans, change the recognition pattern of
    gains and losses, and require additional disclosures. The standard is
    required to be adopted for periods beginning on or after January 1,
    2013. We are evaluating the impact that this standard may have on our
    results of operations and financial position. 

3. ACCOUNTS RECEIVABLE


                                    September 30   December 31    January 1 
                                            2011          2010         2010 
----------------------------------------------------------------------------
Trade                                                                       
 Energy Marketing                          1,119           929        1,410 
 Oil and Gas                                 662           822          823 
 Other                                         5             2           44 
                                    ----------------------------------------
                                           1,786         1,753        2,277 
Non-Trade                                    125            80           99 
                                    ----------------------------------------
                                           1,911         1,833        2,376 
Allowance for Doubtful Receivables           (41)          (44)         (54)
                                    ----------------------------------------
Total (1)                                  1,870         1,789        2,322 
                                    ----------------------------------------
                                    ----------------------------------------
(1)At December 31, 2010, accounts receivable related to our chemicals       
 operations have been included with assets held for sale (see Note 14).     

Receivables are generally on 30-day terms and were current as of September 30, 2011, December 31, 2010 and January 1, 2010.

4. INVENTORIES AND SUPPLIES


                                       September 30  December 31   January 1
                                               2011         2010        2010
----------------------------------------------------------------------------
Finished Products                                                           
 Energy Marketing                               271          452         548
 Oil and Gas                                     18           35          25
 Other                                            -            -          12
                                      --------------------------------------
                                                289          487         585
Work in Process                                   6            5           7
Field Supplies                                   52           58          88
                                      --------------------------------------
Total (1)                                       347          550         680
                                      --------------------------------------
                                      --------------------------------------
(1)At December 31, 2010, inventories and supplies related to our chemicals  
 operations have been included with assets held for sale (see Note 14).     

5. PROPERTY, PLANT AND EQUIPMENT (PP&E)

(a) Carrying amount of PP&E


                  Exploration        Assets   Producing                     
                          and         Under   Oil & Gas  Corporate          
                   Evaluation  Construction  Properties  and Other    Total 
----------------------------------------------------------------------------
Cost                                                                        
 As at January 1,                                                           
  2010                  2,393         1,045      20,020      1,849   25,307 
  Additions             1,092           693         696        243    2,724 
  Disposals/                                                                
   Derecognitions         (70)           (8)     (1,638)      (122)  (1,838)
  Transfers               (82)           78           4          -        - 
  Exploration                                                               
   Expense               (326)            -          (2)         -     (328)
  Transferred to                                                            
   Held for Sale            -             -           -     (1,207)  (1,207)
  Other                    36            15         408         (3)     456 
  Effect of                                                                 
   Changes in                                                               
   Exchange Rate          (51)          (75)       (603)        (3)    (732)
                  ----------------------------------------------------------
 As at December                                                             
  31, 2010              2,992         1,748      18,885        757   24,382 
  Additions               787           461         460         49    1,757 
  Disposals/                                                                
   Derecognitions         (48)            -         (52)       (12)    (112)
  Transfers              (296)          292           4          -        - 
  Exploration                                                               
   Expense               (277)            -          (1)         -     (278)
  Other                    81            21         142          -      244 
  Effect of                                                                 
   Changes in                                                               
   Exchange Rate           43           121         520         10      694 
                  ----------------------------------------------------------
 As at September                                                            
  30, 2011              3,282         2,643      19,958        804   26,687 
                  ----------------------------------------------------------
                  ----------------------------------------------------------

Accumulated                                                                 
 Depreciation,                                                              
 Depletion &                                                                
 Amortization                                                               
 (DD&A)                                                                     
 As at January 1,                                                           
  2010                    360            11       9,325        942   10,638 
  DD&A                     41             -       1,384        119    1,544 
  Disposals/                                                                
   Derecognitions         (59)           (8)     (1,378)       (62)  (1,507)
  Impairments               -             -         139          -      139 
  Transferred to                                                            
   Held for Sale            -             -           -       (578)    (578)
  Other                     1             -          (7)        (5)     (11)
  Effect of                                                                 
   Changes in                                                               
   Exchange Rate          (12)           (3)       (409)         2     (422)
                  ----------------------------------------------------------
 As at December                                                             
  31, 2010                331             -       9,054        418    9,803 
  DD&A                     37             -         882         54      973 
  Disposals/                                                                
   Derecognitions         (11)            -         (51)        (8)     (70)
  Impairments               -             -         141          -      141 
  Other                     -             -         (17)         -      (17)
  Effect of                                                                 
   Changes in                                                               
   Exchange Rate           10             -         391          5      406 
                  ----------------------------------------------------------
 As at September                                                            
  30, 2011                367             -      10,400        469   11,236 
                  ----------------------------------------------------------
                  ----------------------------------------------------------

Net Book Value                                                              
 As at January 1,                                                           
  2010                  2,033         1,034      10,695        907   14,669 
                  ----------------------------------------------------------
                  ----------------------------------------------------------
 As at December                                                             
  31, 2010              2,661         1,748       9,831        339   14,579 
                  ----------------------------------------------------------
                  ----------------------------------------------------------
 As at September                                                            
  30, 2011              2,915         2,643       9,558        335   15,451 
                  ----------------------------------------------------------
                  ----------------------------------------------------------

Exploration and evaluation assets mainly comprise of unproved properties and capitalized exploration drilling costs. Assets under construction include our Usan development, offshore Nigeria.

(b) Impairment

Our DD&A expense for the third quarter of 2011 includes non-cash impairment charges of $141 million for our Canadian coalbed methane and conventional gas assets included within our Conventional North America segment. Lower estimated future natural gas prices in the quarter resulted in impairment of the properties.

Our DD&A expense for the third quarter of 2010 includes non-cash impairment charges of $59 million for properties in the US Gulf of Mexico and Canada. In the second half of 2010, low natural gas prices, higher estimated future abandonment costs and declining production performance reduced the properties' estimated fair value less costs to sell.

The properties were written down to the higher amount of value in use and estimated fair value less costs to sell. We estimated fair value based on discounted future net cash flows using market-based future prices, an after-tax discount rate of 9% and management's estimate of future production, capital and operating expenditures.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


                                        September 30  December 31  January 1
                                                2011         2010       2010
----------------------------------------------------------------------------
Energy Marketing Payables                      1,181        1,016      1,366
Accrued Payables                                 825          676        619
Income Taxes Payable                             468          345        179
Trade Payables                                   201          164        210
Stock-Based Compensation                          39          111        173
Other                                            163          147        134
                                       -------------------------------------
Total (1)                                      2,877        2,459      2,681
                                       -------------------------------------
                                       -------------------------------------
(1)At December 31, 2010, accounts payable and accrued liabilities related to
 our chemicals operations have been included with liabilities held for sale 
 (see Note 14).                                                             

7. LONG-TERM DEBT


                                      September 30  December 31   January 1 
                                              2011         2010        2010 
----------------------------------------------------------------------------
Term Credit Facilities, due 2016 (a)             -            -       1,570 
Notes, due 2013 (US$500 million) (b)             -          497         523 
Notes, due 2015 (US$126 million) (c)           131          249         262 
Notes, due 2017 (US$62 million) (c)             64          249         262 
Notes, due 2019 (US$300 million)               312          298         314 
Notes, due 2028 (US$200 million)               208          199         209 
Notes, due 2032 (US$500 million)               519          497         523 
Notes, due 2035 (US$790 million)               821          786         827 
Notes, due 2037 (US$1,250 million)           1,299        1,243       1,308 
Notes, due 2039 (US$700 million)               727          696         733 
Subordinated Debentures, due 2043                                           
 (US$460 million)                              478          457         481 
                                      --------------------------------------
                                             4,559        5,171       7,012 
Unamortized debt issue costs                   (80)         (81)        (88)
                                      --------------------------------------
                                             4,479        5,090       6,924 
Canexus debt                                     -            -         335 
                                      --------------------------------------
Total                                        4,479        5,090       7,259 
                                      --------------------------------------
                                      --------------------------------------

(a) Term credit facilities

We have unsecured term credit facilities of $3.2 billion (US$3.1 billion) available until 2016, none of which were drawn at either September 30, 2011 or December 31, 2010. Borrowings are available as Canadian bankers' acceptances, LIBOR-based loans, Canadian prime rate loans, US-dollar base rate loans or British pound call-rate loans. Interest is payable at floating rates. During the nine months ended September 30, 2011, we did not incur interest expense on our term credit facilities. At September 30, 2011, $271 million (US$261 million) of these facilities were utilized to support outstanding letters of credit (December 31, 2010 - $322 million (US$324 million)).

(b) Redemption of Notes, due 2013

In the second quarter 2011, we redeemed and cancelled US$500 million of principal from bonds due in 2013. We paid $525 million for the redemption. We recorded a $52 million loss as the difference between carrying value and the redemption price.

(c) Repurchase for Cancellation of Certain 2015 and 2017 Notes

In the first quarter 2011, we repurchased and cancelled US$124 million and US$188 million of principal from the 2015 and 2017 bonds, respectively. We paid $346 million for the repurchase and recorded a $39 million loss as the difference between carrying value and the redemption price.

(d) Short-term borrowings

Nexen has uncommitted, unsecured credit facilities of approximately $466 million (US$449 million), none of which were drawn at either September 30, 2011 or December 31, 2010. We utilized $8 million (US$8 million) of these facilities to support outstanding letters of credit at September 30, 2011 (December 31, 2010-$112 million (US$112 million)). Interest is payable at floating rates.

8. FINANCE EXPENSE


                                          Three Months          Nine Months 
                                    Ended September 30   Ended September 30 
                                        2011      2010       2011      2010 
----------------------------------------------------------------------------
Long-Term Debt Interest Expense           73        89        231       269 
Accretion Expense related to Asset                                          
 Retirement Obligations (Note 9)          12        12         35        31 
Other Interest Expense                     7         9         17        30 
                                   -----------------------------------------
Total                                     92       110        283       330 
 Less: Capitalized at 6.7% (2010 -                                          
  6.3%)                                  (33)      (23)       (90)      (57)
                                   -----------------------------------------
Total (1)                                 59        87        193       273 
                                   -----------------------------------------
                                   -----------------------------------------
(1)Excludes interest expense related to our chemical operations (see Note   
 14).                                                                       

Capitalized interest relates to and is included as part of the cost of our oil and gas properties. The capitalization rates are based on our weighted-average cost of borrowings.

9. ASSET RETIREMENT OBLIGATIONS (ARO)

Changes in the carrying amount of our ARO provisions are as follows:


                                                Nine Months   Twelve Months 
                                                      Ended           Ended 
                                               September 30     December 31 
                                                       2011            2010 
----------------------------------------------------------------------------
ARO, Beginning of Period                              1,571           1,432 
 Obligations Incurred with Development                                      
  Activities                                             25              81 
 Changes in Estimates                                   156             332 
 Obligations Related to Dispositions                     (2)           (224)
 Obligations Settled                                    (58)            (43)
 Accretion                                               35              47 
 Effects of Changes in Foreign Exchange Rate             51             (54)
                                              ------------------------------
ARO, End of Period                                    1,778           1,571 
                                              ------------------------------
                                              ------------------------------

Of which:                                                                   
 Due within Twelve Months (1)                            53              55 
 Due after Twelve Months                              1,725           1,516 
                                              ------------------------------
                                              ------------------------------
(1)Included in accounts payable and accrued liabilities.                    

ARO represents the present value of estimated remediation and reclamation costs associated with our PP&E. We have discounted the estimated asset retirement obligation using a weighted-average risk-free rate of 3.1% (2010-3.3%). While the provision for abandonment is based on our best estimates of future costs and the economic lives of the assets involved, there is uncertainty regarding both the amount and timing of incurring these costs. We expect approximately $368 million included in our ARO will be settled over the next five years with the balance settling beyond that. We expect to fund ARO from future cash flows from our operations.

10. RELATED PARTY DISCLOSURES

Major subsidiaries and joint ventures

The Unaudited Condensed Consolidated Financial Statements include the financial statements of Nexen Inc. and our subsidiaries as at September 30, 2011. The following is a list of the major subsidiaries of our operations. Transactions between subsidiaries are eliminated on consolidation. Nexen did not have any material related party transactions with entities outside the consolidated group in the nine months ended September 30, 2011 and 2010.



                                         Country of    Principal            
Major Subsidiaries                    Incorporation   Activities   Ownership
----------------------------------------------------------------------------
Nexen Petroleum UK Limited           United Kingdom    Oil & Gas        100%
Nexen Ettrick UK Limited             United Kingdom    Oil & Gas        100%
Nexen Petroleum Nigeria Limited             Nigeria    Oil & Gas        100%
Nexen Petroleum Offshore USA Inc      United States    Oil & Gas        100%
Canadian Nexen Petroleum Yemen                Yemen    Oil & Gas        100%
Canadian Nexen Petroleum East Al                                            
 Hajr                                        Canada    Oil & Gas        100%
Nexen Petroleum Colombia Limited             Jersey    Oil & Gas        100%
Nexen Med Hat-Hatton Partnership             Canada    Oil & Gas        100%
Nexen Crossfield Partnership                 Canada    Oil & Gas        100%
Nexen Marketing                              Canada    Marketing        100%
Nexen Energy Marketing Europe        United Kingdom    Marketing        100%
Nexen Energy Marketing USA Inc        United States    Marketing        100%

Joint Venture                                                               
Syncrude                                     Canada    Oil & Gas       7.23%

11. EQUITY

(a) Common Shares

Authorized share capital consists of an unlimited number of common shares of no par value and an unlimited number of Class A preferred shares of no par value, issuable in series. At September 30, 2011, there were 527,406,242 common shares outstanding (December 31, 2010 - 525,706,403 shares; January 1, 2010 - 522,915,843 shares). There were no preferred shares issued and outstanding as at September 30, 2011 (December 31, 2010 - nil; January 1, 2010 - nil).

(b) Dividends

Dividends paid per common share for the three months ended September 30, 2011 were $0.05 per common share (three months ended September 30, 2010 - $0.05). Dividends per common share for the nine months ended September 30, 2011 were $0.15 per common share (nine months ended September 30, 2010 - $0.15). Dividends paid to holders of common shares have been designated as "eligible dividends" for Canadian tax purposes. On October 26, 2011, the Board of Directors declared a quarterly dividend of $0.05 per common share, payable January 1, 2012 to the shareholders of record on December 9, 2011.

12. COMMITMENTS, CONTINGENCIES AND GUARANTEES

As described in Note 15 to the 2010 Audited Consolidated Financial Statements, there are a number of lawsuits and claims pending, the ultimate results of which cannot be ascertained at this time. We record costs as they are incurred or become determinable. We believe that payments, if any, related to existing indemnities, would not have a material adverse effect on our liquidity, financial condition or results of operations.

We assume various contractual obligations and commitments in the normal course of our operations. Our operating leases, transportation and storage commitments, and drilling rig commitments as at September 30, 2011 have not materially changed from the information previously disclosed in Note 12 to the Unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2011 and Note 15 to the 2010 Audited Consolidated Financial Statements.

13. MARKETING AND OTHER INCOME


                                          Three Months          Nine Months 
                                    Ended September 30   Ended September 30 
                                         2011     2010        2011     2010 
----------------------------------------------------------------------------
Marketing Revenue, Net                     72       84         174      280 
Insurance Proceeds                          -        -          26        - 
Change in Fair Value of Crude Oil                                           
 Put Options                               13       (5)          6      (19)
Foreign Exchange Gains (Losses)            30       (4)         14       (6)
Other                                      10       42          46       49 
                                    ----------------------------------------
Total                                     125      117         266      304 
                                    ----------------------------------------
                                    ----------------------------------------

DISPOSITIONS

(a) Discontinued Operations

In February 2011, we completed the sale of our 62.7% investment in Canexus Limited Partnership, which operates a chemicals business, for net proceeds of $458 million and we realized a gain on disposition of $348 million in the first quarter. In the fourth quarter of 2010, we received board approval to sell our interest in Canexus and classified the assets and liabilities as held for sale at December 31, 2010. The gain on sale and results of our chemicals business have been presented as discontinued operations.

In July 2010, we completed the sale of our heavy oil properties in Canada. We received proceeds of $939 million, net of closing adjustments and realized a gain on disposition of $828 million in the third quarter of 2010. The gain on sale and results of operations of these properties have been presented as discontinued operations.


                                             Three Months Ended September 30
                                                          2010              
                                           ---------------------------------
                                                Canada   Chemicals     Total
----------------------------------------------------------------------------
Revenues and Other Income                                                   
 Net Sales                                          13         118       131
 Other                                               -          13        13
 Gain on Disposition                               828           -       828
                                           ---------------------------------
                                                   841         131       972
                                           ---------------------------------
Expenses                                                                    
 Operating                                           5          80        85
 Depreciation, Depletion, Amortization and                                  
  Impairment                                         -           6         6
 Transportation and Other                            -          13        13
 General and Administrative                          1           8         9
 Finance                                             -           5         5
                                           ---------------------------------
                                                     6         112       118
                                           ---------------------------------
Income before Provision for Income Taxes           835          19       854
Less: Provision for Deferred Income Taxes          210           4       214
                                           ---------------------------------

Income before Non-Controlling Interest             625          15       640
Less: Non-Controlling Interest                       -           5         5
                                           ---------------------------------
Net Income from Discontinued Operations,                                    
 Net of Tax                                        625          10       635
                                           ---------------------------------
                                           ---------------------------------

Earnings Per Common Share                                                   
 Basic                                                                  1.21
 Diluted                                                                1.17
                                           ---------------------------------
                                              Nine Months Ended September 30
                                       2011               2010              
                                 -------------------------------------------
                                  Chemicals      Canada   Chemicals    Total
----------------------------------------------------------------------------
Revenues and Other Income                                                   
 Net Sales                               42         138         336      474
 Other                                   (1)          -          13       13
 Gain on Disposition                    348         828           -      828
                                 -------------------------------------------
                                        389         966         349    1,315
                                 -------------------------------------------
Expenses                                                                    
 Operating                               25          50         228      278
 Depreciation, Depletion,                                                   
  Amortization and Impairment             4          20          20       40
 Transportation and Other                 2           2          41       43
 General and Administrative               2          10          26       36
 Finance                                  2           3          12       15
                                 -------------------------------------------
                                         35          85         327      412
                                 -------------------------------------------
Income before Provision for                                                 
 Income Taxes                           354         881          22      903
Less: Provision for Deferred                                                
 Income Taxes                            51         220           5      225
                                 -------------------------------------------

Income before Non-Controlling                                               
 Interest                               303         661          17      678
Less: Non-Controlling Interest            1           -           6        6
                                 -------------------------------------------
Net Income from Discontinued                                                
Operations, Net of Tax                  302         661          11      672
                                 -------------------------------------------
                                 -------------------------------------------

Earnings Per Common Share                                                   
 Basic                                 0.57                             1.28
 Diluted                               0.55                             1.23
                                 -------------------------------------------

The following table provides the assets and liabilities that are associated with our chemicals business at December 31, 2010 and January 1, 2010. There were no assets or liabilities related to our chemical operations at September 30, 2011.


                                                    December 31    January 1
                                                           2010         2010
----------------------------------------------------------------------------
Cash and Cash Equivalents                                     3           14
Accounts Receivable                                          48           54
Inventories and Supplies                                     35           33
Other Current Assets                                          1            3
Property, Plant and Equipment, Net of Accumulated                           
 DD&A                                                       629          535
Deferred Income Tax Assets                                    7            4
Other Long-Term Assets                                        6           11
                                                    ------------------------
 Assets                                                  729(1)          654
                                                    ------------------------
Accounts Payable and Accrued Liabilities                     59           64
Accrued Interest Payable                                      3            -
Long-Term Debt                                              414          335
Deferred Income Tax Liabilities                              15           11
Asset Retirement Obligations                                 73           74
Other Long-Term Liabilities                                  18           16
                                                    ------------------------
 Liabilities                                             582(1)          500
                                                    ------------------------
 Equity - Canexus Non-Controlling Interest                   48           33
                                                    ------------------------
(1)Included in assets and liabilities held for sale at December 31, 2010    

(b) Asset Dispositions

Natural Gas Energy Marketing Disposition

During the third quarter of 2010, we sold our North American natural gas marketing operations. The sale, which generated proceeds of $11 million, closed in the third quarter of 2010 and we recognized a non-cash loss of $259 million, primarily related to the transfer of long-term physical transportation commitments. On closing, the purchaser acquired our North American natural gas storage and transportation commitments, natural gas inventory, and related financial and physical derivative positions.

Canadian Undeveloped Oil Sand Leases

During the second quarter of 2010, we sold our non-core lands in the Athabasca region for proceeds of $81 million. We had no plans to develop these lands for at least a decade. We recognized a gain on sale of $80 million in the second quarter of 2010.

15. CASH FLOWS

(a) Charges and credits to income not involving cash


                                           Three Months         Nine Months 
                                     Ended September 30  Ended September 30 
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Depreciation, Depletion,                                                    
 Amortization and Impairment              409       435     1,114     1,136 
 Finance                                   59        87       193       273 
Stock-Based Compensation                  (65)       (2)      (67)      (61)
Loss on Debt Redemption and                                                 
 Repurchase                                 -         -        91         - 
Net (Gain) Loss on Dispositions             -       259       (12)      179 
Non-cash Items Included in                                                  
 Discontinued Operations                    -      (637)     (290)     (577)
Provision for Income Taxes                308        76     1,189       489 
Foreign Exchange                          (31)       21       (14)       22 
Other                                     (18)        6       (10)       86 
                                    ----------------------------------------
Total                                     662       245     2,194     1,547 
                                    ----------------------------------------
                                    ----------------------------------------

(b) Changes in non-cash working capital


                                           Three Months         Nine Months 
                                     Ended September 30  Ended September 30 
                                         2011      2010      2011      2010 
----------------------------------------------------------------------------
Accounts Receivable                        61       240       (73)        6 
Inventories and Supplies                   (3)      (88)      181       (12)
Other Current Assets                       (4)      (32)      (13)       46 
Accounts Payable and Accrued                                                
 Liabilities                              154        91       381       173 
                                    ----------------------------------------
Total                                     208       211       476       213 
                                    ----------------------------------------
                                    ----------------------------------------

Relating to:                                                                
 Operating Activities                     139       316       292       243 
 Investing Activities                      69      (105)      184       (30)
                                    ----------------------------------------
Total                                     208       211       476       213 
                                    ----------------------------------------
                                    ----------------------------------------

16. OPERATING SEGMENTS AND RELATED INFORMATION

Effective in the first quarter of 2011, we amended our segment reporting to reflect changes in our business. In 2010, we disposed of non-core operations including heavy oil operations in Canada, chemicals and certain energy marketing businesses, and ramped up production at Long Lake. We report our segments to align with our key growth strategies, specifically, Conventional Oil and Gas, Oil Sands and Unconventional Gas. Prior period results have been revised to reflect the presentation changes made in the current period.

Nexen has the following operating segments:

Conventional Oil and Gas: We explore for, develop and produce crude oil and natural gas from conventional sources around the world. Our operations are focused on the UK, North America (Canada and US) and other countries (Yemen, offshore West Africa and Colombia).

Oil Sands: We develop and produce synthetic crude oil from the Athabasca oil sands in northern Alberta. We produce bitumen using in situ and mining technologies and upgrade it into synthetic crude oil before ultimate sale. Our in situ activities are comprised of our operations at Long Lake and future development phases. Our mining activities are conducted through our 7.23% ownership of the Syncrude Joint Venture.

Unconventional Gas: We explore for and produce unconventional gas from shale formations in northeastern British Columbia. Production and results of operations are included within Conventional Oil and Gas until they become significant.

Corporate and Other includes energy marketing, unallocated items and the results of Canexus prior to its sale in February 2011. Canexus manufactures, markets and distributes industrial chemicals, principally sodium chlorate, chlorine, muriatic acid and caustic soda. The results of our chemicals business have been presented as discontinued operations.

The accounting policies of our operating segments are the same as those described in Note 2 of the Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011. Net income (loss) of our operating segments excludes interest income, interest expense, unallocated corporate expenses and foreign exchange gains and losses. Identifiable assets are those used in the operations of the segments.


Segmented net income for the three months ended September 30, 2011     

                                        Conventional           Oil Sands    
----------------------------------------------------------------------------

                                                     Other                  
                                  United   North Countries      In          
                                 Kingdom America         1    Situ  Syncrude
                                 -------------------------------------------

Net Sales                            756     112       185     146       185
Marketing and Other Income             -       4         5       -         2
                                 -------------------------------------------
                                     756     116       190     146       187

Less: Expenses                                                              
  Operating                          106      34        39      97        73
  Depreciation, Depletion,                                                  
   Amortization and Impairment       124     210        18      30        16
  Transportation and Other             5      10         7      49         6
  General and Administrative          (7)      3         2      (1)        1
  Exploration                         15      17     27 (2)      -         -
  Finance                              6       5         -       1         1
                                 -------------------------------------------
Income (Loss) from Continuing                                               
 Operations before Income Taxes      507    (163)       97     (30)       90
Less: Provision for (Recovery of)                                           
 Income Taxes                        301     (39)       26      (8)       23
                                 -------------------------------------------
Net Income (Loss)                    206    (124)       71     (22)       67
                                 -------------------------------------------
                                 -------------------------------------------

Capital Expenditures                 190     243       161      90        34
                                 -------------------------------------------
                                 -------------------------------------------


                                                Corporate and               
                                                        Other          Total
----------------------------------------------------------------------------




Net Sales                                                  15          1,399
Marketing and Other Income                                114            125
                                 -------------------------------------------
                                                          129          1,524

Less: Expenses                                                              
  Operating                                                 7            356
  Depreciation, Depletion,                                                  
   Amortization and Impairment                             11            409
  Transportation and Other                                 33            110
  General and Administrative                               25             23
  Exploration                                               -             59
  Finance                                                  46             59
                                 -------------------------------------------
Income (Loss) from Continuing                                               
 Operations before Income Taxes                             7            508
Less: Provision for (Recovery of)                                           
 Income Taxes                                               5            308
                                 -------------------------------------------
Net Income (Loss)                                           2            200
                                 -------------------------------------------
                                 -------------------------------------------

Capital Expenditures                                       11            729
                                 -------------------------------------------
                                 -------------------------------------------

1.  Includes results of conventional crude oil and natural gas operations in
    Yemen and Colombia. 
2.  Includes exploration activities primarily in Nigeria, Norway, Colombia
    and Poland. 

Segmented net income for the three months ended September 30, 2010          

                                       Conventional            Oil Sands    
----------------------------------------------------------------------------
                                                     Other                  
                                  United   North Countries                  
                                 Kingdom America       (1) In Situ  Syncrude
                                --------------------------------------------

Net Sales                            753     129       192     109       130
Marketing and Other Income             5       -         4       -         2
                                --------------------------------------------
                                     758     129       196     109       132

Less: Expenses                                                              
  Operating                           84      42        39      93        68
  Depreciation, Depletion,                                                  
   Amortization and Impairment       197     152        32      28        12
  Transportation and Other             1       5         3      51         5
  General and Administrative           3      22         5       6         1
  Exploration                         11      25     20 (2)      -         -
  Finance                              4       4         1       1         1
  Net Loss from Dispositions           -       -         -       -         -
                                --------------------------------------------
Income (Loss) from Continuing                                               
 Operations before Income Taxes      458    (121)       96     (70)       45
Less: Provision for (Recovery                                               
 of) Income Taxes                    229     (38)       24     (17)       11
                                --------------------------------------------
Income (Loss) from Continuing                                               
 Operations                          229     (83)       72     (53)       34
Add: Net Income from                                                        
 Discontinued Operations (Note                                              
 14)                                   -     599         -       -         -
                                --------------------------------------------
Net Income (Loss)                    229     516        72     (53)       34
                                --------------------------------------------
                                --------------------------------------------

Capital Expenditures                 194     165       150      47        34
                                --------------------------------------------
                                --------------------------------------------


                                         Corporate and Other          Total 
----------------------------------------------------------------------------



Net Sales                                                  8          1,321 
Marketing and Other Income                               106            117 
                                --------------------------------------------
                                                         114          1,438 

Less: Expenses                                                              
  Operating                                                8            334 
  Depreciation, Depletion,                                                  
   Amortization and Impairment                            14            435 
  Transportation and Other                                65            130 
  General and Administrative                              78            115 
  Exploration                                              -             56 
  Finance                                                 76             87 
  Net Loss from Dispositions                         259 (3)            259 
                                --------------------------------------------
Income (Loss) from Continuing                                               
 Operations before Income Taxes                         (386)            22 
Less: Provision for (Recovery                                               
 of) Income Taxes                                       (133)            76 
                                --------------------------------------------
Income (Loss) from Continuing                                               
 Operations                                             (253)           (54)
Add: Net Income from                                                        
 Discontinued Operations (Note                                              
 14)                                                      36            635 
                                --------------------------------------------
Net Income (Loss)                                       (217)           581 
                                --------------------------------------------
                                --------------------------------------------

Capital Expenditures                                      39            629 
                                --------------------------------------------
                                --------------------------------------------

1.  Includes results of conventional crude oil and natural gas operations in
    Yemen and Colombia. 
2.  Includes exploration activities primarily in Yemen, Nigeria, Norway and
    Colombia. 
3.  Loss on disposition of Natural Gas Energy Marketing Business. 

Segmented net income for the nine months ended September 30, 2011           

                                    Conventional              Oil Sands     
----------------------------------------------------------------------------
                                                   Other                    
                             United    North   Countries                    
                            Kingdom  America         (1) In Situ   Syncrude 
                            ------------------------------------------------

Net Sales                     2,482      379         599     449        555 
Marketing and Other Income       17       36          12       -          3 
                            ------------------------------------------------
                              2,499      415         611     449        558 

Less: Expenses                                                              
  Operating                     265      110         109     331        223 
  Depreciation, Depletion,                                                  
   Amortization and                                                         
   Impairment                   439      431          66      95         46 
  Transportation and Other        5       25          23     118         18 
  General and Administrative    (17)      55          25      12          1 
  Exploration                    32      117     127 (2)       2          - 
  Finance                        16       13           1       2          4 
  Net Loss on Debt                                                          
   Redemption                     -        -           -       -          - 
                            ------------------------------------------------
Income (Loss) from                                                          
 Continuing Operations                                                      
 before Income Taxes          1,759     (336)        260    (111)       266 
Less: Provision for                                                         
 (Recovery of) Income Taxes   1,313      (85)         30     (28)        67 
                            ------------------------------------------------
Income (Loss) from                                                          
 Continuing Operations          446     (251)        230     (83)       199 
Add: Net Income from                                                        
 Discontinued Operations                                                    
 (Note 14)                        -        -           -       -          - 
                            ------------------------------------------------
Net Income (Loss)               446     (251)        230     (83)       199 
                            ------------------------------------------------
                            ------------------------------------------------

Capital Expenditures            368      485         478     310         80 
                            ------------------------------------------------
                            ------------------------------------------------


                                        Corporate and Other            Total
----------------------------------------------------------------------------



Net Sales                                                40            4,504
Marketing and Other Income                              198              266
                            ------------------------------------------------
                                                        238            4,770

Less: Expenses                                                              
  Operating                                              22            1,060
  Depreciation, Depletion,                                                  
   Amortization and                                                         
   Impairment                                            37            1,114
  Transportation and Other                              100              289
  General and Administrative                            128              204
  Exploration                                             -              278
  Finance                                               157              193
  Net Loss on Debt                                                          
   Redemption                                            91               91
                            ------------------------------------------------
Income (Loss) from                                                          
 Continuing Operations                                                      
 before Income Taxes                                   (297)           1,541
Less: Provision for                                                         
 (Recovery of) Income Taxes                            (108)           1,189
                            ------------------------------------------------
Income (Loss) from                                                          
 Continuing Operations                                 (189)             352
Add: Net Income from                                                        
 Discontinued Operations                                                    
 (Note 14)                                              302              302
                            ------------------------------------------------
Net Income (Loss)                                       113              654
                            ------------------------------------------------
                            ------------------------------------------------

Capital Expenditures                                     37            1,758
                            ------------------------------------------------
                            ------------------------------------------------

1.  Includes results of conventional crude oil and natural gas operations in
    Yemen and Colombia. 
2.  Includes exploration activities primarily in Nigeria, Norway, Colombia
    and Poland. 

Segmented net income for the nine months ended September 30, 2010           
                                  Conventional               Oil Sands      
----------------------------------------------------------------------------
                                                Other                       
                            United   North  Countries                       
                           Kingdom America        (1)    In Situ   Syncrude 
                          --------------------------------------------------

Net Sales                    2,243     423        560        302        416 
Marketing and Other                                                         
 Income                         14       1         12          -          4 
                          --------------------------------------------------
                             2,257     424        572        302        420 

Less: Expenses                                                              
  Operating                    238     124        119        273        200 
  Depreciation,                                                             
   Depletion,                                                               
   Amortization and                                                         
   Impairment                  550     342         94         68         39 
  Transportation and                                                        
   Other                         5      15          9        134         16 
  General and                                                               
   Administrative               16      52         13         10          1 
  Exploration                   42      66      90 (2)         1          - 
  Finance                       12      12          1          2          3 
  Net (Gain) Loss from                                                      
   Dispositions                  -       -          -   (80) (3)          - 
                          --------------------------------------------------
Income (Loss) from                                                          
 Continuing Operations                                                      
 before Income Taxes         1,394    (187)       246       (106)       161 
Less: Provision for                                                         
 (Recovery of) Income                                                       
 Taxes                         697     (55)        45        (26)        40 
                          --------------------------------------------------
Income (Loss) from                                                          
 Continuing Operations         697    (132)       201        (80)       121 
Add: Net Income from                                                        
 Discontinued Operations                                                    
 (Note 14)                       -     635          -          -          - 
                          --------------------------------------------------
Net Income (Loss)              697     503        201        (80)       121 
                          --------------------------------------------------
                          --------------------------------------------------

Capital Expenditures           471     692        463        156         83 
                          --------------------------------------------------
                          --------------------------------------------------

                                      Corporate and Other            Total
--------------------------------------------------------------------------



Net Sales                                              29            3,973
Marketing and Other                                                       
 Income                                               273              304
                         -------------------------------------------------
                                                      302            4,277

Less: Expenses                                                            
  Operating                                            24              978
  Depreciation,                                                           
   Depletion,                                                             
   Amortization and                                                       
   Impairment                                          43            1,136
  Transportation and                                                      
   Other                                              285              464
  General and                                                             
   Administrative                                     172              264
  Exploration                                           -              199
  Finance                                             243              273
  Net (Gain) Loss from                                                    
   Dispositions                                   259 (4)              179
                         -------------------------------------------------
Income (Loss) from                                                        
 Continuing Operations                                                    
 before Income Taxes                                 (724)             784
Less: Provision for                                                       
 (Recovery of) Income                                                     
 Taxes                                               (212)             489
                         -------------------------------------------------
Income (Loss) from                                                        
 Continuing Operations                               (512)             295
Add: Net Income from                                                      
 Discontinued Operations                                                  
 (Note 14)                                             37              672
                         -------------------------------------------------
Net Income (Loss)                                    (475)             967
                         -------------------------------------------------
                         -------------------------------------------------

Capital Expenditures                                  174            2,039
                         -------------------------------------------------
                         -------------------------------------------------

1.  Includes results of conventional crude oil and natural gas operations in
    Yemen and Colombia. 
2.  Includes exploration activities primarily in Yemen, Nigeria, Norway and
    Colombia. 
3.  Gain on disposition of non-core lands in the Athabasca region. 
4.  Loss on disposition of Natural Gas Energy Marketing Business. 

 Segmented assets as at September 30, 2011              


                              Conventional                  Oil Sands       
----------------------------------------------------------------------------

                     United      North         Other                        
                    Kingdom    America     Countries     In Situ   Syncrude 
                   ---------------------------------------------------------
Total Assets          4,657      3,328         2,093       6,024      1,278 
                   ---------------------------------------------------------

Property, Plant and                                                         
 Equipment Cost       7,094      7,017         4,289       6,064      1,597 
  Less: Accumulated                                                         
   DD&A               3,639      4,108         2,547         174        403 
                   ---------------------------------------------------------
Net Book Value        3,455   2,909 (2)     1,742 (3)   5,890 (4)     1,194 
                   ---------------------------------------------------------
                   ---------------------------------------------------------

Goodwill                290          -             -           -          - 
                   ---------------------------------------------------------
                   ---------------------------------------------------------



                                        Corporate and Other            Total
----------------------------------------------------------------------------



Total Assets                                       2,349 (1)          19,729
                   ---------------------------------------------------------

Property, Plant and                                                         
 Equipment Cost                                         626           26,687
  Less: Accumulated                                                         
   DD&A                                                 365           11,236
                   ---------------------------------------------------------
Net Book Value                                          261           15,451
                   ---------------------------------------------------------
                   ---------------------------------------------------------

Goodwill                                                  7              297
                   ---------------------------------------------------------
                   ---------------------------------------------------------

1.  Includes cash of $474 million, and Energy Marketing accounts receivable
    and inventory of $1,390 million. 
2.  Includes capitalized costs of $1,198 million associated with our
    Canadian shale gas operations. 
3.  Includes $1,653 million related to our Usan development, offshore
    Nigeria. 
4.  Includes net book value of $5,004 million for Long Lake Phase 1 and $886
    million for future phases of our in situ oil sands projects. 

Segmented assets as at December 31, 2010                                    

                                 Conventional                Oil Sands      
----------------------------------------------------------------------------
                          United     North      Other                       
                         Kingdom   America  Countries    In Situ   Syncrude 
                        ----------------------------------------------------
Total Assets               4,249     3,195      1,646      5,782      1,259 
                        ----------------------------------------------------

Property, Plant and                                                         
 Equipment Cost            6,389     6,422      3,700      5,756      1,519 
  Less: Accumulated                                                         
   DD&A                    3,055     3,597      2,370         91        359 
                        ----------------------------------------------------
Net Book Value             3,334  2,825 (2)  1,330 (3)  5,665 (4)     1,160 
                        ----------------------------------------------------
                        ----------------------------------------------------

Goodwill                     277         -          -          -          - 
                        ----------------------------------------------------
                        ----------------------------------------------------


                                        Corporate and Other            Total
----------------------------------------------------------------------------


Total Assets                                       3,516 (1)          19,647
                       -----------------------------------------------------

Property, Plant and                                                         
 Equipment Cost                                         596           24,382
  Less: Accumulated                                                         
   DD&A                                                 331            9,803
                       -----------------------------------------------------
Net Book Value                                          265           14,579
                       -----------------------------------------------------
                       -----------------------------------------------------

Goodwill                                                  9              286
                       -----------------------------------------------------
                       -----------------------------------------------------

1.  Includes cash of $817 million, Energy Marketing accounts receivable and
    inventory of $1,381 million and Chemicals assets of $729 million. 
2.  Includes capitalized costs of $938 million associated with our Canadian
    shale gas operations. 
3.  Includes $1,210 million related to our Usan development, offshore
    Nigeria. 
4.  Includes net book value of $4,865 million for Long Lake Phase 1 and $800
    million for future phases of our in situ oil sands projects. 

Segmented assets as at January 1, 2010              

                                 Conventional                Oil Sands      
----------------------------------------------------------------------------

                          United     North      Other                       
                         Kingdom   America  Countries    In Situ   Syncrude 
                        ----------------------------------------------------
Total Assets               4,840     3,146      1,320      5,616      1,165 
                        ----------------------------------------------------

Property, Plant and                                                         
 Equipment Cost            5,884     7,464      3,344      5,523      1,390 
  Less: Accumulated                                                         
   DD&A                    2,458     4,600      2,387          7        319 
                        ----------------------------------------------------
Net Book Value             3,426  2,864 (2)    957 (3)  5,516 (4)     1,071 
                        ----------------------------------------------------
                        ----------------------------------------------------

Goodwill                     292         -          -          -          - 
                        ----------------------------------------------------
                        ----------------------------------------------------


                                        Corporate and Other            Total
----------------------------------------------------------------------------



Total Assets                                       4,868 (1)          20,955
                       -----------------------------------------------------

Property, Plant and                                                         
 Equipment Cost                                       1,702           25,307
  Less: Accumulated                                                         
   DD&A                                                 867           10,638
                       -----------------------------------------------------
Net Book Value                                          835           14,669
                       -----------------------------------------------------
                       -----------------------------------------------------

Goodwill                                                 38              330
                       -----------------------------------------------------
                       -----------------------------------------------------

1.  Includes cash of $1,016 million, Energy Marketing accounts receivable
    and inventory of $1,958 million and Chemicals assets of $654 million. 
2.  Includes capitalized costs of $477 million associated with our Canadian
    shale gas operations. 
3.  Includes $760 million related to our Usan development, offshore Nigeria.
4.  Includes net book value of $4,776 million for Long Lake Phase 1 and $740
    million for future phases of our in situ oil sands projects. 

17. TRANSITION TO IFRS

For all periods up to and including the year ended December 31, 2010, we prepared our Consolidated Financial Statements in accordance with Canadian generally accepted accounting principles (Canadian GAAP). As a publicly listed company in Canada, we are required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for all periods after January 1, 2011 including comparative historical information. As we are also publicly listed in the United States, we were required to include a reconciliation of our financial results between Canadian GAAP and US GAAP. The reconciliation to US GAAP is no longer required.

In accordance with transitional provisions, we prepared our opening balance sheet as at January 1, 2010 (the transition date) and 2010 comparative financial information using the accounting policies set out in Note 2 of the Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011. The consolidated financial statements for the year ended December 31, 2011 will be the first annual financial statements that comply with IFRS by applying existing IFRS with an effective date of December 31, 2011 or earlier. This transition note explains the material adjustments we made to convert our financial statements to IFRS.

Elected Exemptions from Full Retrospective Application

In preparing these Unaudited Condensed Consolidated Financial Statements in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1), we applied the following optional exemptions from full retrospective application of IFRS.

(i) Business Combinations

We applied the business combinations exemption to not apply IFRS 3 Business Combinations retrospectively to past business combinations. Accordingly, we have not restated business combinations that took place prior to the transition date.

(ii) Fair Value or Revaluation as Deemed Cost

We elected to measure certain producing oil and gas properties at fair value as at the transition date and use that amount as its deemed cost in the opening IFRS balance sheet.

(iii) Cumulative Translation Differences

We elected to set the cumulative translation account, which is included in accumulated other comprehensive income, to nil at January 1, 2010. This exemption has been applied to all subsidiaries.

(iv)Share-Based Payment Transactions

We elected to use the IFRS 1 exemption whereby the liabilities for share-based payments that had vested or settled prior to January 1, 2010 were not required to be retrospectively restated.

(v) Employee Benefits

We elected to apply the exemption for employee benefits to recognize the accumulated unrecognized net actuarial loss in retained earnings at January 1, 2010. This exemption has been applied to all defined benefit pension plans.

(vi) Asset Retirement Obligations

We applied the exemption from full retrospective application of our asset retirement obligations as permitted for first-time adoption of IFRS. As such, we re-measured ARO as at January 1, 2010. We estimated the amount to be included in the related asset by discounting the liability to the date when the obligation first arose using our best estimates of the historical risk-free discount rates applicable during the intervening period.

(vii) Borrowing Costs

We applied an IFRS transitional exemption to prospectively capitalize borrowing costs only from the transition date. As a result, borrowing costs previously capitalized under Canadian GAAP were expensed to retained earnings.

Mandatory Exceptions to Retrospective Application

In preparing these Unaudited Condensed Consolidated Financial Statements in accordance with IFRS 1, we were required to apply the following mandatory exceptions from full retrospective application of IFRS.

(i) Hedge Accounting

Only hedging relationships that satisfied the hedge accounting criteria as of the transition date are reflected as hedges in our results under IFRS. Any derivatives not meeting the IAS 39 Financial Instruments: Recognition and Measurement criteria for hedge accounting were recorded as a non-hedging derivative financial instrument.

(ii) Estimates

Hindsight was not used to create or revise estimates and accordingly, our estimates previously made under Canadian GAAP are consistent with their application under IFRS.

Reconciliations of Canadian GAAP to IFRS

IFRS 1 requires the presentation of a reconciliation of shareholders' equity, net income, comprehensive income, and cash flows for prior periods. The transition from Canadian GAAP to IFRS had no material effect upon previously reported cash flows. The following represents the reconciliations from Canadian GAAP to IFRS for the respective periods for shareholders' equity, net income, and comprehensive income:


Reconciliation of Shareholders' Equity            
--------------------------------------------------

                                       January 1  September 30  December 31 
(Cdn$ millions)                Note         2010          2010         2010 
----------------------------------------------------------------------------
Shareholders' Equity under                                                  
 Canadian GAAP                             7,646         8,606        8,791 
Differences increasing                                                      
 (decreasing) reported                                                      
 shareholders' equity:                                                      
  Borrowing Costs                (i)        (841)         (796)        (778)
  Asset Retirement                                                          
   Obligations                  (ii)        (228)         (237)        (241)
  Employee Benefits            (iii)        (104)         (104)        (150)
  Stock-Based Compensation      (iv)         (96)          (72)         (92)
  Property, Plant & Equipment    (v)        (124)          (47)         (90)
  Foreign Exchange              (vi)         (11)           (6)           - 
  Long-term Debt               (vii)          (9)          (27)         (28)
  Income Taxes                (viii)         554           416          429 
  Other                                        -            (9)         (27)
                                     ---------------------------------------
Shareholders' Equity under                                                  
 IFRS                                      6,787         7,724        7,814 
                                     ---------------------------------------
                                     ---------------------------------------

(i) Borrowing Costs

We applied the IFRS 1 exemption to prospectively capitalize borrowing costs only from the transition date as described above.

(ii) Asset Retirement Obligations (ARO)

We applied the IFRS 1 exemption for asset retirement obligations and re-measured our ARO as at January 1, 2010 as described above.

(iii) Employee Benefits

We have chosen to include previously unrecognized actuarial gains and losses of our defined benefit pension plans on the balance sheet under IFRS. Under Canadian GAAP, we amortized actuarial gains and losses to income over the estimated average remaining service life, with disclosure of the unrecognized amount in the notes to the Consolidated Financial Statements. On January 1, 2010, we applied the IFRS 1 exemption to recognize the accumulated unrecognized net actuarial loss in retained earnings on transition to IFRS.

(iv) Stock-Based Compensation (SBC)

Under Canadian GAAP, we recorded obligations for liability-based stock compensation plans using the intrinsic-value method of accounting. IFRS requires that we record these SBC obligations at fair value and subsequently re-measure the obligation each reporting period. Our tandem option, stock appreciation rights and restricted share unit plans are considered liability-based stock compensation plans. On transition, we recorded the liability at fair value for unsettled awards.

(v) Property Plant and Equipment

Impairment

Under Canadian GAAP, if indications of impairment exist and the asset's estimated undiscounted future cash flows were lower than it's carrying amount, the carrying value was written down to fair value. Under IFRS, if indications of impairments exist, the asset's carrying value is immediately compared to its estimated recoverable amount, which could trigger additional impairment under IFRS. We elected to measure certain producing oil and gas properties at fair value as at the transition date and use that amount as its deemed cost in the opening IFRS balance sheet. As a result, oil and gas properties were written down to fair value of $460 million and resulted in an impairment expense of $91 million on transition.

Componentization

Under Canadian GAAP, we depleted oil and gas capitalized costs using the unit-of-production method on a field-by-field basis and depreciated non-resource capitalized costs based on their estimated useful life. On adoption of IFRS, we reviewed our PP&E to identify each material component that has a significantly different useful life and as a result, adjustments to the accumulated depletion of certain assets were required on transition to IFRS.

Major Maintenance

Under Canadian GAAP, operating expenses included major maintenance costs that were expensed as incurred. Under IFRS, these costs are capitalized and depreciated separately until the next planned major maintenance project.

(vi) Foreign Exchange

Foreign Currency Translation

We applied the first-time IFRS adoption exemption to reset our cumulative translation differences to nil on the transition date. Accumulated foreign exchange gains and losses of our self-sustaining foreign operations, net of foreign exchange translation gains and losses of long-term debt designated as hedges are included in retained earnings on the transition date. This one-time adjustment had no impact on shareholders' equity on transition.

Change in Functional Currency

As a result of additional guidance under IFRS, our assessment of the functional currency of a subsidiary changed from Canadian dollars to US dollars to better reflect the economic environment in which it operates.

(vii) Long-Term Debt

Canexus Convertible Debentures

Canexus unitholders have the ability to redeem fund units for cash pursuant to the terms of the trust indenture. Under IFRS, these convertible debentures are considered to be financial liabilities containing an embedded derivative. Under Canadian GAAP, the convertible debentures were considered to be compound instruments with an equity component. Accordingly, the equity component and unamortized deferred transaction costs recorded under Canadian GAAP were derecognized on January 1, 2010 and charged to retained earnings. We elected to recognize the convertible debentures at fair value and to recognize changes in fair value in net income during the period of change.

(viii) Income Taxes

Recognition of Deferred Tax Credit

In 2008, we completed an internal reorganization and financing of our assets in the North Sea, which provided us with a one-time tax deduction in the UK. Canadian GAAP precluded us from recognizing the full estimated benefit of the tax deductions until the assets were recognized in net income either by a sale or depletion through use. As a result, we deferred the initial recognition of the benefit and were amortizing it to future income tax expense over the life of the underlying assets under Canadian GAAP. On adoption of IFRS, no such prohibition exists and we recognized the remaining deferred tax credit in retained earnings on transition to IFRS.

Exceptions

Under Canadian GAAP, deferred taxes were generally provided on all temporary differences. Conversely, IFRS does not recognize deferred taxes on temporary differences arising from the initial recognition of assets or liabilities in transactions that are not business combinations and that affect neither accounting nor taxable profit or loss.

Reconciliation of Net Income


                                  Three Months   Nine Months  Twelve Months 
                                         Ended         Ended          Ended 
                                  September 30  September 30    December 31 
(Cdn$ millions)             Note          2010          2010           2010 
----------------------------------------------------------------------------
Net Income under Canadian                                                   
 GAAP                                      537           977          1,197 
Differences increasing                                                      
 (decreasing) reported net                                                  
 income:                                                                    
  Borrowing Costs             (i)           18            45             63 
  Asset Retirement                                                          
   Obligations               (ii)           15            (9)           (13)
  Stock-Based Compensation  (iii)            9            23              3 
  Property, Plant &                                                         
   Equipment                 (iv)           65            77             34 
  Long-term Debt              (v)           (1)          (18)           (19)
  Income Taxes               (vi)          (57)         (138)          (136)
  Other                                     (5)           10             (2)
                                  ------------------------------------------
  Total Differences in Net                                                  
   Income                                   44           (10)           (70)
                                  ------------------------------------------
Net Income under IFRS                      581           967          1,127 
                                  ------------------------------------------
                                  ------------------------------------------

(i) Borrowing Costs

We applied an IFRS transitional exemption to prospectively capitalize borrowing costs from the transition date. As a result, borrowing costs previously capitalized under Canadian GAAP were expensed to shareholders' equity. The reduced capitalized amounts decreased DD&A expense during 2010.

(ii) Asset Retirement Obligations (ARO)

Under Canadian GAAP, foreign exchange translation gains and losses arising from the revaluation of GBP- denominated asset retirement obligations were included in net income in the period in which they occurred. Under IFRS, these translation gains and losses are treated as a change in estimate and therefore increase or decrease PP&E with a corresponding impact on net income.

(iii) Stock-Based Compensation (SBC)

As described above, we record obligations for liability-based stock compensation plans at fair value each reporting period. Our tandem option, stock appreciation rights and restricted share unit plans are considered liability-based stock compensation plans. The changes in the SBC fair value in 2010 were recognized in net income.

(iv) Property Plant and Equipment

Impairment

As described above, certain properties were impaired and written down to fair value on transition. These adjustments reduced IFRS DD&A expense during 2010 by immaterial amounts. In the last half of 2010, additional properties were impaired and written down to fair value. The impairment expense of $46 million reduced net income in the third and fourth quarters.

Major Maintenance Costs

As described above, Canadian GAAP operating expenses included major maintenance costs that were expensed as incurred. Under IFRS, these costs are capitalized and depreciated separately until the next planned major maintenance project. During 2010, we capitalized $18 million of maintenance costs under IFRS that were expensed as operating costs under Canadian GAAP.

Gain on Sale of Heavy Oil Properties

We completed the sale of our Canadian heavy oil properties in the third quarter of 2010. As the adoption of IFRS resulted in different carrying values of property, plant & equipment and asset retirement obligations prior to the sale, our gain on sale under IFRS was $47 million higher.

(v) Long-Term Debt

Canexus Convertible Debentures

As described above, we elected to carry the Canexus convertible debentures at fair value under IFRS. The change in fair value during 2010 was included in net income.

(vi) Income Taxes

Recognition of Deferred Tax Credit

As described above, we amortized a deferred tax credit to income over the life of the underlying asset under Canadian GAAP. Under IFRS, the deferred tax credit was recognized in retained earnings on transition. Therefore, IFRS net income was lower by $29 million and $88 million for the three and nine months ended September 30, 2010, respectively, and lower by $117 million for the twelve months ended December 31, 2010.

Other

All other adjustments to IFRS net income were tax effected which increased deferred tax expense by $28 million and $50 million for the three and nine months ended September 30, 2010, respectively, and $19 million for the twelve months ended December 31, 2010.


Reconciliation of Comprehensive Income            

                                    Three Months  Nine Months Twelve Months 
                                           Ended        Ended         Ended 
                                    September 30 September 30   December 31 
(Cdn$ millions)                Note         2010         2010          2010 
----------------------------------------------------------------------------
Comprehensive Income under                                                  
 Canadian GAAP                               530          971         1,168 

Differences increasing                                                      
 (decreasing) reported                                                      
 comprehensive income, net of                                               
 income taxes:                                                              
  Differences in net income                   44          (10)          (70)
  Foreign Currency Translation   (i)          (2)          (8)           (8)
  Employee Benefits             (ii)           -            -           (35)
                                    ----------------------------------------
Comprehensive Income under                                                  
 IFRS                                        572          953         1,055 
                                    ----------------------------------------
                                    ----------------------------------------

(i) Foreign Currency Translation

Transitional adjustments reflect the foreign currency exchange impact of the IFRS adjustments during the respective periods.

(ii) Employee Benefits

As described in Note 2 of the Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011, actuarial gains and losses are recognized directly in other comprehensive income in the period in which they occur. For the twelve months ended December 31, 2010, actuarial losses on our defined benefit plans reduced other comprehensive income by $35 million.

Contact Information

  • Janet Craig
    Vice President, Investor Relations
    (403) 699-4230

    Pierre Alvarez
    Vice President, Corporate Relations
    (403) 699-5202

    Nexen Inc.
    801 - 7th Ave SW
    Calgary, Alberta, Canada T2P 3P7
    www.nexeninc.com