Credit risk affects both our trading and non-trading activities and is the risk of loss if counterparties do not fulfill their contractual obligations. Most of our credit exposures are with counterparties in the energy industry, including integrated oil companies, refiners and utilities and are subject to normal industry credit risk. Approximately 71% of our exposure is with these large energy companies. This concentration of risk within the energy industry is reduced because of our broad base of domestic and international counterparties. We take the following measures to reduce this risk:

• assess the financial strength of our counterparties through a formal credit process;
• limit the total exposure extended to individual counterparties, and may require collateral from some counterparties;
• routinely monitor credit risk exposures, including sector, geographic and corporate concentrations of credit, and report these to our Risk Management Committee and the Finance Committee of the board;
• set credit limits based on rating agency credit ratings and internal assessments based on company and industry analysis;
• review counterparty credit limits regularly; and
• use standard agreements that allow for the netting of exposures associated with a single counterparty.

We believe these measures minimize our overall credit risk. However, there can be no assurance that these processes will protect us against all losses from non-performance. During 2008, we have taken the following specific actions for certain counterparties deemed to be at higher risk of non-performance:

• ceased trading activities;
• significantly reduced and, in some cases, revoked credit privileges;
• redirected business to i) exchanges or clearing houses; and ii) entities with physical-based operations;
• increased “set off” arrangements with counterparties; and
• increased collateral and margining requirements where possible.

At December 31, 2008, only one counterparty individually made up more than 10% of our credit exposure. This counterparty is a major integrated oil company with a strong investment grade rating. No other counterparties made up more than 5% of our credit exposure. In addition, the following table illustrates the composition of credit exposure by credit rating.

Our maximum counterparty credit exposure at the balance sheet date consists primarily of the carrying amounts of non-derivative financial assets such as accounts receivable, as well as the fair value of derivative financial assets. In September, Lehman Brothers filed for bankruptcy protection and our exposure at the time was approximately $39 million. This amount was written off, however, we continue to pursue recovery of these amounts. We also provided an additional $15 million for credit risk with our counterparties. We are closely monitoring credit exposures. In addition, we incorporate the credit risk associated with counterparty default, as well as Nexen’s own credit risk, into our estimates of fair value. We based our credit risk estimates, to the extent possible, on market observable inputs such as bond spreads.