DBRS Confirms Nexen Inc.’s Ratings at R-2 (high), BBB and BBB (low), Stable Trends

DBRS has today confirmed the Long-Term Unsecured Debt of Nexen Inc. (Nexen or the Company) at BBB, its Subordinated Unsecured Notes at BBB (low) and its Commercial Paper rating at R-2 (high), all with Stable trends, following its announced proposed agreement to acquire an additional 15% working interest (currently 50% interest) in the Long Lake Oil Sands Project (Long Lake) from OPTI Canada (OPTI, not rated by DBRS) for $735 million. DBRS expects the transaction to be funded by a combination of cash on hand and a modest amount of debt with minimal impact on Nexen’s credit metrics. The transaction, scheduled to close by the end of January 2009, is subject to regulatory and other approvals.

Upon closing of the transaction, Nexen will have a 65% working interest in Phase 1 of Long Lake (Phase 1) and all joint venture lands with OPTI. Furthermore, the Company will become the operator of Long Lake, including the upgrader. The transaction should provide OPTI with some near-term liquidity. DBRS expects that Nexen would manage its credit profile in 2009 within the parameters of its current credit ratings, including a potential scale back of its capital spending in a continued lower commodity pricing environment and a tight credit market.

DBRS believes that the transaction will provide a strong strategic fit for Nexen, which will benefit from being the sole operator of Long Lake. This, together with a 65% interest, should enable Nexen to have more control over the pace of future developments of the project. Further, Nexen will increase its working interest at a time of lower risk as Phase 1 is near completion with first production of synthetic crude oil (Premium Sweet Crude or PSC) expected by the end of the year and full ramp-up (to 60,000 b/d) in 2010. As a result of the transaction, the Company will add 9,000 b/d of PSC at peak capacity (from 30,000 b/d to 39,000 b/d) and approximately 75 million barrels of proved reserves (based on December 31, 2007 numbers) at favourable pricing of approximately $82,000 per flowing barrel and $10 per barrel of proved reserves, respectively. DBRS will continue to monitor progress as the project is entering the critical start-up phase.

Nexen reported strong operating results for the nine months ended September 30, 2008, principally driven by high crude oil pricing, with operating cash flow before extraordinary items of $3.3 billion, debt-to-capital of 46% and debt-to-cash flow of 1.37 times (DBRS adjusted). However, as Nexen will be increasing debt to partly fund the transaction, DBRS expects a very modest deterioration in its credit metrics. The Company has maintained strong liquidity with undrawn credit lines of $2 billion and cash balances of $1.8 billion as of September 30, 2008.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Oil & Gas which can be found on our web site under Methodologies.

This is a Corporate rating.