DBRS Comments on Nexen Inc.’s Debt Reduction Plans

DBRS notes that Nexen Inc. (Nexen or the Company) has announced that it expects to reduce its total debt by approximately $1.5 billion by late 2011 or early 2012 from approximately $5.1 billion outstanding at year-end 2010. The Company noted that it is confident in achieving this goal based on: (1) $1.5 billion of current cash on hand; (2) Crude oil represents more than 85% of its production, the majority of which is benefiting from higher international prices; and (3) Nexen has initiated a process to find a joint venture partner for various components of its northeast British Columbia gas acreage, allowing it to monetize a portion of the value created in that region.

DBRS believes that achievement of this debt reduction goal would strengthen Nexen’s current BBB rating by continuing the financial profile improvement that occurred during 2010. DBRS estimates that during 2010, the Company reduced its net debt-to-capital and net debt-to-cash flow ratios (from 42% and 3.2 times, respectively, at year-end 2009) to 32% and 2.2 times, respectively, at year-end 2010 and to 29% and 1.9 times, respectively, pro forma the sale of its 65.4% interest in Canexus Income Fund.

However, DBRS notes that the Company’s total debt-to-cash flow ratio of approximately 2.7 times at year-end 2010 remains high given current crude oil pricing. DBRS expects this ratio to be reduced to approximately 2.0 times by the end of 2011 or early 2012, which should be achievable based on the proposed debt reduction plan outlined above.

DBRS expects to publish a detailed report on Nexen in Q2 2011.

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

The applicable methodology is Rating Oil and Gas Companies, which can be found on the DBRS website under Methodologies.