Our oil and gas, Syncrude and chemical operations are subject to government laws and regulations designed to protect and regulate the discharge of materials into the environment in countries where we operate. We believe our operations comply, in all material respects, with applicable environmental laws. To reduce our exposure, we apply industry standards, codes and best practices to meet or exceed these laws and regulations. We may conduct activities in countries where environmental regulatory frameworks are in various stages of evolution. Where regulations are lacking, we observe Canadian standards where applicable, as well as internationally accepted industry environmental management practices.

We have an active Health, Safety, Environment and Social Responsibility group (HSE&SR) that ensures our worldwide operations are conducted in a safe, ethical and socially responsible manner. Our HSE&SR practices are reported to our Board of Directors throughout the year. Our overall HSE&SR program is guided by the following 12 element management system:

• leadership and commitment;
• regulatory compliance;
• safety and occupational health management;
• social responsibility;
• environmental management;
• supply chain management;
• documentation and procedure management;
• training and awareness;
• process safety management;
• emergency preparedness;
• event reporting, investigation and follow-up; and
• continuous improvement.

Our performance against this system is reviewed by an external auditor every three years and we have been recognized by the Dow Jones Sustainability Index as a global sustainability leader for eight years in a row. Our progress is publicly reported in our sustainability report which is available on our website at www.nexeninc.com.

Climate Change and Environmental Responsibilities

A growing awareness of possible causes and effects of climate change along with volatile consumer prices have increased concern over the manner by which the world produces and consumes energy. Government and investor expectations continue to converge on sustainable resource development and responsible operating practices, including the preservation of air, water and land. Some jurisdictions in which we operate have already formalized these expectations into regulation while others move closer to doing so. Regardless of how the jurisdictions in which we operate ultimately define their emissions regulation, we expect that our regulatory obligations and the associated cost of compliance will increase. Due to the uncertainty surrounding the future implementation of emissions regulations, we are unable to estimate our costs of compliance.

As a result of our commitment to sustainable development and responsible operating practices, we believe we are well positioned to meet the challenges of climate change and environmental regulation. We have built a corporate culture of integrity and respect for the communities and environments in which we operate, and have developed policies and practices for continuing compliance with all environmental laws and regulations.

Air

To meet our current greenhouse gas (GHG) emissions obligations, we adhere to a five point emissions management strategy:

• reduce emissions by decreasing vent gas and improving energy efficiency;
• self-generate carbon credits from wind power;
• acquire carbon credits through qualified offshore projects, such as the Greenhouse Gas Credit Aggregation Pool (GGCAP);
• participate in eligible international and domestic offset projects such as methane capture from landfills; and
• purchase carbon credits on the spot market.

Water

We are developing a company-wide water management strategy to limit water use. An external consulting firm compiled information on water issues relevant to Nexen’s projects and operations, reviewed key business drivers related to water, and surveyed Nexen’s business units with respect to their water policies and practices. Benchmarking of oil and other industry related water policies, strategies and programs was also completed. This information was used as the starting point for our HSE&SR group to begin the process of developing corporate water management principles that are aligned with our stated objective to “grow value responsibly”.

Land

Our land use practices are based upon principles of minimal disturbance and a commitment to return land to its natural state after responsibly producing oil and gas resources. We also recognize our ability to effectively access land is directly linked to the way in which we manage potential environmental effects and in how we cooperate with other industries to reduce our cumulative impact.

For many stakeholders, a company’s ability to meet environmental expectations is a significant criteria upon which their decision to invest or conduct business is based. A failure to meet those expectations can limit access to exploration, development and partnership opportunities. We therefore believe that superior environmental and social responsibility performance is directly linked to economic performance.

We have outlined and more fully discussed our environmental practices and policies in our sustainability report, available on our website at www.nexeninc.com.

Environmental Provisions and Expenditures

Meeting the challenges of climate change and environmental regulation and our commitment to sustainable resource development increases the cost of our operations. The ultimate financial impact of our sustainability practices and compliance with environmental laws and regulations is not clearly known and cannot be reasonably estimated as new standards continue to evolve in the countries in which we operate. We estimate our future environmental costs based on past experience and current regulations. At December 31, 2008, $1,059 million ($2,393 million, undiscounted, adjusted for inflation) has been provided in our Consolidated Financial Statements for asset retirement obligations. In 2008, we increased our retirement obligations for future dismantlement and site restoration by over $200 million primarily from ongoing development of the Long Lake Project in the Athabasca oil sands, our CBM wells in Canada and from industry cost pressures in the North Sea and the US Gulf of Mexico.

In 2008, our expenditures for environmental-related matters, including environment control facilities, were approximately $55 million. In 2009, we estimate these expenditures to range between $35 and $50 million.