North American Gas Marketing

The marketing and trading of North American natural gas has historically been our marketing group’s largest revenue source. We focus on key regional markets where we have a strategic presence, equity production, solid customer relationships, in-depth understanding of the market or established physical assets. We capture regional opportunities by managing supply, transportation and storage assets for producers and end users. In addition to the fee-for-service income we realize from managing these assets, we generate further revenue by:

• capitalizing on location spreads (differences in prices between locations) using our transportation assets;
• offering customized service to our customers that bundle our assets with the commodity;
• utilizing our storage assets where we optimize forward and seasonal pricing differences; and
• leveraging regional knowledge we gain through optimizing our assets.

We have offices in key regions including Calgary, Detroit, Denver and Houston. Our offices provide a variety of services, including supply, storage, and transportation management as well as netback pool arrangements and other customer services. Our customers include producers and consumers (including utilities) in western Canada, eastern Canada, the northeastern US, the US mid-continent, the Pacific northwest and the US Rockies. We use our access to transportation and storage facilities to optimize returns for ourselves as well as our customers.

Over the years, we focused on growing our asset base by acquiring physical gas purchase and sales contracts, as well as natural gas transportation and storage capacity, on favourable terms. The growth in our underlying physical business was supplemented by an expanding profitable financial trading business with a focus on time and location spreads. In 2008, financial trading proved particularly challenging causing us to reassess the merits of this activity. While we expect to continue to focus on our core physical business, we are reducing our financial trading levels and exposures in an orderly fashion.

Our position as a physical marketer at multiple delivery points in key markets gives us flexibility to capitalize on time and location spreads. With pipeline capacity, we can move gas from producing to consuming regions to take advantage of price differences. At the end of 2008, we held 1.8 bcf/d of pipeline capacity, primarily between western Canada and the eastern US. We also use storage capacity to store normally cheaper summer gas in the ground until the winter heating season arrives. We had access to 38 bcf of natural gas storage facilities at the end of the year.

In addition to transportation and storage assets, we enter into financial contracts that enable us to capture profits around time and location spreads. The risks we assume on these contracts are based on fundamental analysis and knowledge of regional markets. The risk is managed by our product group teams and monitored by our risk group, with regular reporting to Management and the Board of Directors.

North American Crude Oil Marketing

Our crude oil business focuses on marketing physical crude oil to end-use refiners. The crude oil group markets Nexen’s production and more than 650,000 bbls/d of third-party production. In addition to physical marketing, we take advantage of quality, time and location spreads.

Our North American operations focus on key regions supported by our offices in Calgary, Houston and Denver. In western Canada, our producer services group concentrates on purchasing from a diversified supply base, while our trading team seeks to optimize the mix for sale to refiners. The Chicago and Denver areas have been key markets for our western Canadian crude, however, we continue to expand our presence into the US Gulf Coast. Our deep-water Gulf of Mexico crude oil production expanded our presence in that market through our Houston office. At the end of 2008, we had access to 2.6 mmbbls of storage and over the course of the year, marketed approximately 656 mbbls per day.

Our operations also include a North American natural gas liquids (NGLs) business that focuses on buying and selling NGLs. This business acquires and moves product within North America. At the end of 2008, we had access to 1.2 mmbbls of NGL storage and over the course of the year, moved approximately 26 mbbls per day of product. In 2008, we were active in the ethanol markets in North America but we expect to turn our focus to more traditional NGL markets in 2009.

Our crude oil marketing group also enters into financial contracts intended to capture trading profits around time, quality and location spreads. Like gas marketing, the risks assumed are based on fundamental analysis and proprietary knowledge of regional markets, and are monitored by our risk group.

North American Power Marketing

Our power marketing group is responsible for optimizing our 50% interest in a 120 MW gas-fired, combined-cycle power generation facility at Balzac, Alberta, as well as our 50% interest in the 70 MW Soderglen wind power operation in southern Alberta. We also market the surplus power from the 170 MW cogeneration facility at Long Lake (Nexen 65% interest) that commenced operation in 2008. We market power to larger commercial, industrial and municipal clients in Alberta. We are currently the largest supplier of power to commercial and industrial sectors in the province. Our Balzac facility began operations in 2001 and Soderglen in October 2006.