================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



|X|    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the quarterly period ended September 30, 2005

|_|    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       For the transition period from.............to..........

                          COMMISSION FILE NUMBER 1-6702

                               [GRAPHIC OMITTED]
                                  [NEXEN LOGO]


                                   NEXEN INC.


                      Incorporated under the Laws of Canada
                                   98-6000202
                      (I.R.S. Employer Identification No.)

                              801 - 7th Avenue S.W.
                        Calgary, Alberta, Canada T2P 3P7
                            Telephone (403) 699-4000
                           Web site - www.nexeninc.com


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.

                 Yes    [X]                 No  [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                 Yes    [X]                 No  [_]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                 Yes    [_]                 No  [X]

On September 30, 2005, there were 260,879,092 common shares issued and
outstanding.

================================================================================
<PAGE>


                                   NEXEN INC.

                                      INDEX

PART I FINANCIAL INFORMATION                                                PAGE

   Item 1.      Unaudited Consolidated Financial Statements .................. 3

   Item 2.      Management's Discussion and Analysis of Financial
                Condition and Results of Operations...........................30

   Item 3.      Quantitative and Qualitative Disclosures about Market Risk....50

   Item 4.      Controls and Procedures.......................................50

PART II         OTHER INFORMATION

   Item 6.      Exhibits......................................................51


This report should be read in conjunction with our 2004 Annual Report on Form
10-K.

SPECIAL NOTE TO CANADIAN INVESTORS
Nexen is a US Securities and Exchange Commission (SEC) registrant and a Form
10-K and related forms filer. Therefore, our reserves estimates and securities
regulatory disclosures generally follow SEC requirements. In 2004, certain
Canadian regulatory authorities adopted NATIONAL INSTRUMENT 51-101 - STANDARDS
OF DISCLOSURE FOR OIL AND GAS ACTIVITIES (NI 51-101) which prescribe that
Canadian companies follow certain standards for the preparation and disclosure
of reserves and related information. We have been granted certain exemptions
from NI 51-101. Please refer to the SPECIAL NOTE TO CANADIAN INVESTORS on page
72 of our 2004 Annual Report on Form 10-K.

UNLESS WE INDICATE OTHERWISE, ALL DOLLAR AMOUNTS ($) ARE IN CANADIAN DOLLARS,
AND OIL AND GAS VOLUMES, RESERVES AND RELATED PERFORMANCE MEASURES ARE PRESENTED
ON A WORKING-INTEREST, BEFORE-ROYALTIES BASIS. WHERE APPROPRIATE, INFORMATION ON
A NET, AFTER-ROYALTIES BASIS IS PRESENTED IN TABLES. VOLUMES AND RESERVES
INCLUDE SYNCRUDE OPERATIONS UNLESS OTHERWISE NOTED.

Below is a list of terms specific to the oil and gas industry. They are used
throughout the Form 10-Q.

<TABLE>
<S>                                                       <C>
/d        =   per day                                 mboe    =   thousand barrels of oil equivalent
bbl       =   barrel                                  mmboe   =   million barrels of oil equivalent
mbbls     =   thousand barrels                        mcf     =   thousand cubic feet
mmbbls    =   million barrels                         mmcf    =   million cubic feet
mmbtu     =   million British thermal units           bcf     =   billion cubic feet
boe       =   barrels of oil equivalent               NGL     =   natural gas liquid
                                                      WTI     =   West Texas Intermediate
</TABLE>

Oil equivalents (boes) are used to aggregate quantities of natural gas with
crude oil by expressing them in a common unit. To calculate equivalents, we use
1 bbl = 6 mcf of natural gas. Boes may be misleading, particularly if used in
isolation. The conversion ratio is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.

Electronic copies of our filings with the SEC and the Ontario Securities
Commission (OSC) (from November 8, 2002 onward) are available, free of charge,
on our web site (www.nexeninc.com). Filings prior to November 8, 2002 are
available free of charge, upon request, by contacting our investor relations
department at (403) 699-5931. As soon as reasonably practicable, our filings are
made available on our website once they are electronically filed with the SEC or
the OSC. Alternatively, the SEC and the OSC each maintain a website (www.sec.gov
and www.sedar.com) that contain our reports, proxy and information statements
and other published information that have been filed or furnished with the SEC
and the OSC.

On September 30, 2005, the noon-day exchange rate for Cdn$1.00 was US$0.8613 as
reported by the Bank of Canada.

                                       2
<PAGE>

                                     PART I


ITEM 1.  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                TABLE OF CONTENTS


Unaudited Consolidated Statement of Income
for the Three and Nine Months Ended September 30, 2005 and 2004...............4

Unaudited Consolidated Balance Sheet
as at September 30, 2005 and December 31, 2004................................5

Unaudited Consolidated Statement of Cash Flows
for the Three and Nine Months Ended September 30, 2005 and 2004...............6

Unaudited Consolidated Statement of Shareholders' Equity
for the Three and Nine Months Ended September 30, 2005 and 2004...............7

Notes to Unaudited Consolidated Financial Statements..........................8


                                       3
<PAGE>

<TABLE>
<CAPTION>
NEXEN INC.
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
Cdn$ millions, except per share amounts

                                                                          THREE MONTHS                NINE MONTHS
                                                                        ENDED SEPTEMBER 30         ENDED SEPTEMBER 30
                                                                        2005          2004          2005         2004
----------------------------------------------------------------------------------------------------------------------
                                                                                                         Restated for
                                                                                                           Changes in
                                                                                                           Accounting
                                                                                                           Principles
                                                                                                               Note 1
<S>                                                                    <C>            <C>          <C>          <C>
REVENUES
    Net Sales                                                          1,094          778          2,859        2,139
    Marketing and Other (Note 14)                                         24          147            343          439
    Gain on Dilution of Interest in Chemicals Business (Note 2)          193            -            193            -
                                                                     -------------------------------------------------
                                                                       1,311          925          3,395        2,578
                                                                     -------------------------------------------------
EXPENSES
    Operating                                                            221          195            650          534
    Depreciation, Depletion, Amortization and Impairment                 256          164            748          480
    Transportation and Other                                             201          122            583          400
    General and Administrative                                           342           57            647          247
    Exploration                                                           32           54            164          107
    Interest (Note 7)                                                     19           35             84          118
                                                                     -------------------------------------------------
                                                                       1,071          627          2,876        1,886
                                                                     -------------------------------------------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                    240          298            519          692
                                                                     -------------------------------------------------

PROVISION FOR INCOME TAXES
    Current                                                               95           73            255          189
    Future                                                               (71)          25           (141)          19
                                                                     -------------------------------------------------
                                                                          24           98            114          208
                                                                     -------------------------------------------------

NET INCOME FROM CONTINUING OPERATIONS
   BEFORE NON-CONTROLLING INTERESTS                                      216          200            405          484

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS                       5            -              5            -
                                                                     -------------------------------------------------

NET INCOME FROM CONTINUING OPERATIONS                                    211          200            400          484
    Net Income from Discontinued Operations (Note 15)                    404           20            452           63
                                                                     -------------------------------------------------

NET INCOME                                                               615          220            852          547
                                                                     =================================================

EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS ($/share)
    Basic (Note 12)                                                     0.81          0.77          1.54         1.88
                                                                     =================================================

    Diluted (Note 12)                                                   0.79          0.76          1.51         1.86
                                                                     =================================================

EARNINGS PER COMMON SHARE ($/share)
    Basic (Note 12)                                                     2.36          0.85          3.28         2.13
                                                                     =================================================

    Diluted (Note 12)                                                   2.30          0.84          3.21         2.10
                                                                     =================================================
</TABLE>

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<PAGE>

<TABLE>
<CAPTION>
NEXEN INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
Cdn$ millions, except share amounts

                                                                                SEPTEMBER 30      DECEMBER 31
                                                                                        2005             2004
--------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>             <C>
ASSETS
    CURRENT ASSETS
      Cash and Cash Equivalents                                                          200              73
      Margin Deposits (Note 10)                                                          202               -
      Accounts Receivable (Note 3)                                                     2,828           2,100
      Inventories and Supplies (Note 4)                                                  514             351
      Assets of Discontinued Operations (Note 15)                                          -              38
      Other                                                                               56              41
                                                                                ------------------------------
         Total Current Assets                                                          3,800           2,603
                                                                                ------------------------------

    PROPERTY, PLANT AND EQUIPMENT (Note 6)
      Net of Accumulated Depreciation, Depletion, Amortization and
         Impairment of $5,158 (December 31, 2004-- $4,922)                             9,068           8,200
    GOODWILL                                                                             366             375
    FUTURE INCOME TAX ASSETS                                                             395             333
    DEFERRED CHARGES AND OTHER ASSETS (Note 5)                                           366             429
    ASSETS OF DISCONTINUED OPERATIONS (Note 15)                                            -             443
                                                                                ------------------------------

                                                                                      13,995          12,383
                                                                                ==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
      Short-Term Borrowings (Note 7)                                                       -             100
      Accounts Payable and Accrued Liabilities                                         3,663           2,377
      Accrued Interest Payable                                                            39              34
      Dividends Payable                                                                   13              13
      Liabilities of Discontinued Operations (Note 15)                                     -              39
                                                                                ------------------------------
         Total Current Liabilities                                                     3,715           2,563
                                                                                ------------------------------

    LONG-TERM DEBT (Note 7)                                                            3,670           4,259
    FUTURE INCOME TAX LIABILITIES                                                      1,903           2,023
    ASSET RETIREMENT OBLIGATIONS (Note 8)                                                437             399
    DEFERRED CREDITS AND OTHER LIABILITIES (Note 9)                                      494             142
    LIABILITIES OF DISCONTINUED OPERATIONS (Note 15)                                       -             130
    NON-CONTROLLING INTERESTS (Note 2)                                                    91               -
    SHAREHOLDERS' EQUITY (Note 11)
      Common Shares, no par value
        Authorized:        Unlimited
        Outstanding:       2005-- 260,879,092 shares
                           2004-- 258,399,166 shares                                     719             637
      Contributed Surplus                                                                  1               -
      Retained Earnings                                                                3,148           2,335
      Cumulative Foreign Currency Translation Adjustment                                (183)           (105)
                                                                                ------------------------------
         Total Shareholders' Equity                                                    3,685           2,867
                                                                                ------------------------------

COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 16)
                                                                                      13,995          12,383
                                                                                ==============================
</TABLE>

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>

<TABLE>
<CAPTION>
NEXEN INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
Cdn$ millions

                                                                               THREE MONTHS                NINE MONTHS
                                                                            ENDED SEPTEMBER 30          ENDED SEPTEMBER 30
                                                                             2005         2004           2005         2004
---------------------------------------------------------------------------------------------------------------------------
                                                                                  Restated for                Restated for
                                                                                    Changes in                  Changes in
                                                                                    Accounting                  Accounting
                                                                                    Principles                  Principles
                                                                                        Note 1                      Note 1
<S>                                                                          <C>           <C>           <C>           <C>
OPERATING ACTIVITIES
    Net Income from Continuing Operations                                     211          200           400           484
    Net Income from Discontinued Operations                                   404           20           452            63
    Charges and Credits to Income not Involving Cash (Note 13)               (142)         234           666           696
    Exploration Expense                                                        32           54           164           107
    Changes in Non-Cash Working Capital (Note 13)                             216          (55)          120           (99)
    Other                                                                     (79)         (50)         (127)          (21)
                                                                           ------------------------------------------------
                                                                              642          403         1,675         1,230

FINANCING ACTIVITIES
    Repayment of Term Credit Facilities, Net                                 (329)           -           (67)            -
    Proceeds from Long-Term Debt (Note 7)                                       -            -         1,253             -
    Repayment of Long-Term Debt (Note 7)                                     (577)           -        (1,818)         (300)
    Repayment of Short-Term Borrowings, Net                                   (48)           -           (99)            -
    Redemption of Preferred Securities                                          -            -             -          (289)
    Dividends on Common Shares                                                (13)         (13)          (39)          (39)
    Issue of Common Shares                                                     11            7            51           116
    Net Proceeds from Canexus Initial Public Offering (Note 2)                301            -           301             -
    Proceeds from Term Credit Facilities of Canexus, Net (Notes 2 and 7)      173            -           173             -
    Other                                                                     (19)           -           (35)            -
                                                                           ------------------------------------------------
                                                                             (501)          (6)         (280)         (512)

INVESTING ACTIVITIES
    Capital Expenditures
      Exploration and Development                                            (624)        (347)       (1,869)         (977)
      Proved Property Acquisitions                                            (15)           -           (21)            -
      Chemicals, Corporate and Other                                           (9)         (33)          (33)          (69)
    Proceeds on Disposition of Assets                                         904            6           911            10
    Changes in Non-Cash Working Capital (Note 13)                             (81)          45           (54)          107
    Changes in Margin Deposits (Note 10)                                     (210)           -          (210)            -
    Other                                                                       -           (6)            7           (20)
                                                                           ------------------------------------------------
                                                                              (35)        (335)       (1,269)         (949)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                   (8)         (35)            1            10
                                                                           ------------------------------------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               98           27           127          (221)

CASH AND CASH EQUIVALENTS-- BEGINNING OF PERIOD                               102          839            73         1,087
                                                                           ------------------------------------------------

CASH AND CASH EQUIVALENTS-- END OF PERIOD                                     200          866           200           866
                                                                           ================================================
</TABLE>

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                        6
<PAGE>

<TABLE>
<CAPTION>
NEXEN INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
Cdn$ millions

                                                                                      THREE MONTHS               NINE MONTHS
                                                                                   ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
                                                                                   2005          2004         2005         2004
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Restated for
                                                                                                                     Changes in
                                                                                                                     Accounting
                                                                                                                     Principles
                                                                                                                         Note 1
<S>                                                                               <C>           <C>          <C>          <C>
COMMON SHARES
    Balance at Beginning of Period                                                  694           622          637          513
    Issue of Common Shares                                                           11             7           51          116
    Previously Recognized Liability Relating to Stock Options Exercised              14             -           31            -
                                                                            ----------------------------------------------------
    Balance at End of Period                                                        719           629          719          629
                                                                            ====================================================

CONTRIBUTED SURPLUS
    Balance at Beginning of Period                                                    1             -            -            1
    Stock Based Compensation Expense                                                  -             -            1           (1)
                                                                            ----------------------------------------------------
    Balance at End of Period                                                          1             -            1            -
                                                                            ====================================================

RETAINED EARNINGS
    Balance at Beginning of Period                                                2,546         1,895        2,335        1,594
    Net Income                                                                      615           220          852          547
    Dividends on Common Shares                                                      (13)          (13)         (39)         (39)
                                                                            ----------------------------------------------------
    Balance at End of Period                                                      3,148         2,102        3,148        2,102
                                                                            ====================================================

CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT
    Balance at Beginning of Period                                                  (82)          (19)        (105)         (33)
    Translation Adjustment, Net of Income Taxes                                    (101)          (49)         (78)         (35)
                                                                            ----------------------------------------------------
    Balance at End of Period                                                       (183)          (68)        (183)         (68)
                                                                            ====================================================
</TABLE>

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                        7
<PAGE>

NEXEN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Cdn$ millions except as noted

1.       ACCOUNTING POLICIES

The Unaudited  Consolidated Financial Statements are prepared in accordance with
Canadian  Generally  Accepted  Accounting   Principles  (GAAP).  The  impact  of
significant   differences   between  Canadian  and  US  GAAP  on  the  Unaudited
Consolidated  Financial  Statements  is disclosed  in Note 19. The  consolidated
financial  statements  include  the assets and  liabilities  of Canexus  Limited
Partnership,  with an  adjustment  made for  non-controlling  interests.  In the
opinion of management,  the Unaudited  Consolidated Financial Statements contain
all  adjustments  of a normal and recurring  nature  necessary to present fairly
Nexen Inc.'s (Nexen, we or our) financial position at September 30, 2005 and the
results of our operations and our cash flows for the three and nine months ended
September, 2005 and 2004.

Management  makes estimates and assumptions  that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the Unaudited  Consolidated  Financial Statements,  and revenues and
expenses during the reporting  period.  Our management  reviews these estimates,
including  those related to litigation,  asset  retirement  obligations,  income
taxes and  determination  of proved  reserves,  on an ongoing basis.  Changes in
facts and  circumstances  may result in revised estimates and actual results may
differ from these  estimates.  The results of operations  and cash flows for the
three and nine months ended September 30, 2005 are not necessarily indicative of
the  results of  operations  or cash flows to be  expected  for the year  ending
December 31, 2005.

These Unaudited Consolidated Financial Statements do not conform in all respects
with the requirements  for annual  financial  statements and therefore should be
read in conjunction with our Audited Consolidated  Financial Statements included
in our 2004 Annual Report on Form 10-K.  The  accounting  policies we follow are
described in Note 1 of the Audited Consolidated Financial Statements included in
our 2004 Annual Report on Form 10-K.


CHANGES IN ACCOUNTING PRINCIPLES

FINANCIAL INSTRUMENTS

In the fourth quarter of 2004, we retroactively  adopted the changes to Canadian
Institute  of  Chartered   Accountants   (CICA)   standard   S.3860,   FINANCIAL
INSTRUMENTS.  These changes require that  fixed-amount  contractual  obligations
that can be  settled  by  issuing a  variable  number of equity  instruments  be
classified as a liability.  Our US-dollar denominated preferred and subordinated
securities have these  characteristics and accordingly have been reclassified as
long-term debt. Dividends and interest on these securities have been included in
interest  expense and issue costs previously  charged to retained  earnings have
been amortized  over the life of the  securities.  Unamortized  issue costs have
been expensed on the  redemption of the  preferred  securities in 2004.  Foreign
exchange  gains or losses from  translation  of the US-dollar  amounts have been
included as cumulative foreign currency translation adjustments.  The change was
adopted  retroactively and all prior periods presented have been restated.  This
change in  accounting  principle  has no effect  on our  Unaudited  Consolidated
Financial Statements for the three and nine months ended September 30, 2005.


GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

In  2004,  we  adopted  CICA  standard  S.1100,  GENERALLY  ACCEPTED  ACCOUNTING
PRINCIPLES which eliminated  general industry  practice in Canada as a component
of GAAP. Our accounting policy is to include geological and geophysical costs as
operating cash outflows in our Unaudited  Consolidated  Statement of Cash Flows.
For previous  years, we included  geological and geophysical  costs as investing
cash  outflows  consistent  with industry  practice in Canada.  In our Unaudited
Consolidated  Statement of Cash Flows for the three months ended  September  30,
2005, we included $17 million (2004 - $15 million) and for the nine months ended
September  30, 2005,  we included $37 million (2004 - $40 million) of geological
and  geophysical  costs  as  other  operating  cash  outflows.  This  change  in
accounting policy was adopted prospectively.


IMPACT OF CHANGES IN ACCOUNTING PRINCIPLES

The  impact  of  these  changes  in  accounting   principles  on  our  Unaudited
Consolidated Statement of Income and Earnings per Common Share for the three and
nine months ended September 30, 2004, are shown below.

                                        8
<PAGE>

<TABLE>
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004

                                                                                                 THREE MONTHS     NINE MONTHS
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                      <C>             <C>
Transportation and Other Expense as Reported                                                              122            389
    Plus: Unamortized Issue Costs on Redemption of Preferred Securities                                     -             11
                                                                                               -------------------------------
Transportation and Other Expense as Restated                                                              122            400
                                                                                               -------------------------------

Interest Expense as Reported                                                                               35            115
    Plus: Dividends on Preferred Securities                                                                 -              3
                                                                                               -------------------------------
Interest Expense as Restated                                                                               35            118
                                                                                               -------------------------------

Provision for Future Income Taxes as Reported                                                              25             25
    Plus: Tax Effect of Changes in Accounting Principles                                                    -             (6)
                                                                                               -------------------------------
Provision for Future Income Taxes as Restated                                                              25             19
                                                                                               -------------------------------

NET INCOME AND EARNINGS PER COMMON SHARE FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004

                                                                                                 THREE MONTHS     NINE MONTHS
------------------------------------------------------------------------------------------------------------------------------
Net Income Attributable to Common Shareholders
    As Reported                                                                                           220             553
    Less: Unamortized Issue Costs on Redemption of Preferred Securities, Net of Income Taxes                -              (6)
                                                                                               -------------------------------
    As Restated                                                                                           220             547
                                                                                               ===============================

Earnings per Common Share ($/share)
    Basic as Reported                                                                                    0.85            2.15
                                                                                               ===============================
    Restated                                                                                             0.85            2.13
                                                                                               ===============================

    Diluted as Reported                                                                                  0.84            2.13
                                                                                               ===============================
    Restated                                                                                             0.84            2.10
                                                                                               ===============================
</TABLE>

RECLASSIFICATION

Certain  comparative  figures have been reclassified to ensure  consistency with
current period  presentation.

2.       CANEXUS INCOME FUND

In June 2005,  our board of directors  approved a plan to monetize our chemicals
operations  through the  creation of an income  trust and the  issuance of trust
units in an initial  public  offering.  This initial public  offering  closed on
August 18, 2005 with Canexus Income Fund ("Canexus") issuing 30 million units at
a price of $10 per unit for gross proceeds of $300 million ($284 million, net of
underwriters' commissions).

Concurrent with the closing of the offering,  Canexus  acquired a 36.5% interest
in Canexus  Limited  Partnership  ("Canexus LP") using the net proceeds from the
initial public  offering.  Canexus LP acquired  Nexen's  chemicals  business for
approximately  $1 billion,  comprised of the net proceeds from Canexus'  initial
public  offering  and $200  million  (US$167  million)  of bank  debt,  plus the
issuance of 52.3 million  exchangeable  limited partnership units ("Exchangeable
LP Units") of Canexus LP. At that time, the  Exchangeable LP Units held by Nexen
represented a 63.5% interest in Canexus LP.

The  Exchangeable LP Units held by Nexen are exchangeable on a one for one basis
for trust  units of Canexus.  As a result,  the  Exchangeable  LP Units owned by
Nexen were exchangeable into 52.3 million trust units which represented 63.5% of
the outstanding  trust units of Canexus assuming exchange of the Exchangeable LP
Units.

On September 16, 2005, the underwriters of the initial public offering exercised
a portion of their over-allotment option to purchase 1.75 million trust units at
$10  per  unit  for  gross  proceeds  of  $18  million  ($17  million,   net  of
underwriters'  commissions).  As a result,  Nexen  exchanged 1.75 million of its
Exchangeable  LP Units for $17  million in net  proceeds.  After this  exchange,
Nexen  has  a  61.4%   interest  in  Canexus  LP  represented  by  50.5  million
Exchangeable LP Units. The initial public  offering,  together with the exercise
of the over-allotment, resulted in total net proceeds to Nexen of $301 million.

These transactions diluted our interest in our chemicals operations. As a result
of this dilution, we recorded a gain of $193 million during the third quarter.

                                        9
<PAGE>

We have the right to  nominate a majority of the members of the board of Canexus
Limited,  the corporation with  responsibility for the strategic  management and
operational  decisions of Canexus and Canexus LP. Nexen has currently  nominated
two  representatives  to the ten-member board of Canexus Limited.  Since we have
retained effective control of our chemicals  business,  the results,  assets and
liabilities of this business have been included in these  financial  statements.
The  non-Nexen  ownership  interests  in our  chemicals  business  are  shown as
non-controlling interests.

3.       ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30    DECEMBER 31
                                                                                2005           2004
-----------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>
Trade
    Marketing                                                                  2,157          1,452
    Oil and Gas                                                                  538            557
    Chemicals and Other                                                           68             57
                                                                        -----------------------------
                                                                               2,763          2,066
Non-Trade                                                                         72             49
                                                                        -----------------------------
                                                                               2,835          2,115
Allowance for Doubtful Accounts                                                   (7)           (15)
                                                                        -----------------------------
Total                                                                          2,828          2,100
                                                                        =============================
4.       INVENTORIES AND SUPPLIES

                                                                        SEPTEMBER 30    DECEMBER 31
                                                                                2005           2004
-----------------------------------------------------------------------------------------------------
Finished Products
    Marketing                                                                    339            199
    Oil and Gas                                                                    6              6
    Chemicals and Other                                                           13             13
                                                                        -----------------------------
                                                                                 358            218
Work in Process                                                                    5              4
Field Supplies                                                                   151            129
                                                                        -----------------------------
Total                                                                            514            351
                                                                        =============================
5.       DEFERRED CHARGES AND OTHER ASSETS

                                                                        SEPTEMBER 30    DECEMBER 31
                                                                                2005           2004
-----------------------------------------------------------------------------------------------------
Long-Term Marketing Derivative Contracts                                         210             91
Crude Oil Put Options                                                             16            200
Defined Benefit Pension Plan Asset                                                 5             13
Deferred Financing Costs                                                          63             67
Asset Retirement Obligation Remediation Fund (Note 8)                             14             --
Other                                                                             58             58
                                                                        -----------------------------
Total                                                                            366            429
                                                                        =============================
</TABLE>

6.       SUSPENDED WELL COSTS

In the third quarter of 2005,  we adopted staff  position 19-1 (FSP 19-1) issued
by the Financial  Accounting  Standards Board (FASB) on accounting for suspended
well costs.  FSP 19-1 amends FASB  Statement No. 19,  FINANCIAL  ACCOUNTING  AND
REPORTING BY OIL AND GAS PRODUCING COMPANIES, for companies using the successful
efforts method of accounting  which required that  capitalized  exploratory well
costs be expensed if related  reserves  could not be classified as proved within
one year. FSP 19-1 provides that  exploratory  well costs should  continue to be
capitalized  when a well has found a sufficient  quantity of reserves to justify
its  completion  as a producing  well and  sufficient  progress is being made to
assess the reserves and the economic and  operating  viability of the well.  FSP
19-1 also requires certain  disclosures with respect to capitalized  exploratory
well costs.

                                       10
<PAGE>

The following table sets out the changes in capitalized  exploratory  well costs
during the three and nine month periods ended  September 30, 2005 and 2004,  and
does not  include  amounts  that were  initially  capitalized  and  subsequently
expensed in the same period.

<TABLE>
<CAPTION>
                                                                      THREE MONTHS                  NINE MONTHS
                                                                    ENDED SEPTEMBER 30           ENDED SEPTEMBER 30
                                                                     2005         2004         2005            2004
--------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>          <C>              <C>
Balance at Beginning of Period                                       196           119          117              91
Additions to Capitalized Exploratory Well Costs Pending the
   Determination of Proved Reserves                                  100            27          178              51
Effects of Foreign Exchange                                          (14)           (8)         (13)             (4)
                                                                   -------------------------------------------------
Balance at End of Period                                             282           138          282             138
                                                                   =================================================
</TABLE>

The following  table  provides an aging of  capitalized  exploratory  well costs
based on the date  drilling was  completed  and shows the number of projects for
which exploratory well costs have been capitalized for a period greater than one
year since the completion of drilling.

<TABLE>
<CAPTION>
                                                                                         SEPTEMBER 30   SEPTEMBER 30
                                                                                                 2005           2004
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>             <C>
Capitalized for a Period of One Year or Less                                                      199             75
Capitalized for a Period of Greater than One Year                                                  83             63
                                                                                         ----------------------------
Balance at End of Period                                                                          282            138
                                                                                         ============================

Number of Projects that have Exploratory Well Costs Capitalized for a Period Greater than
    One Year                                                                                        3              2
                                                                                         ----------------------------
</TABLE>

As at September 30, 2005, we have  exploratory  costs that have been capitalized
for  more  than one year  relating  to our  interest  in an  exploratory  block,
offshore Nigeria ($71 million),  our interest in exploratory  blocks in the Gulf
of Mexico ($5 million) and coal bed methane exploratory activities in Canada ($7
million).  Exploratory costs offshore Nigeria were first capitalized in 1998 and
we have subsequently  drilled a further seven successful wells on the block. The
joint venture  partners have  finalized  pre-development  design studies and are
moving towards the next phase of the project.  Drilling activity has resumed and
an appraisal  and  exploration  program is  currently  in  progress.  Once final
regulatory approvals have been received and the project has been sanctioned,  we
will book proved reserves. We have capitalized costs related to successful wells
drilled  in  2004  and  2005  in the  Gulf  of  Mexico  and in  Canada,  we have
capitalized  exploratory costs relating to our coal bed methane projects. We are
currently  assessing all of these wells and projects and we are working with our
partners to prepare development plans.

7.       LONG-TERM DEBT AND SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
                                                                                          SEPTEMBER 30   DECEMBER 31
                                                                                                  2005          2004
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>           <C>
Acquisition Credit Facilities (a)                                                                    -         1,806
Canexus LP Term Credit Facilities (US$144 million drawn) (b)                                       167             -
Term Credit Facilities (c)                                                                           -            87
Debentures, due 2006 (1)                                                                            93            93
Medium-Term Notes, due 2007                                                                        150           150
Medium-Term Notes, due 2008                                                                        125           125
Notes, due 2013 (US$500 million)                                                                   581           602
Notes, due 2015 (US$250 million) (d)                                                               290             -
Notes, due 2028 (US$200 million)                                                                   232           241
Notes, due 2032 (US$500 million)                                                                   581           602
Notes, due 2035 (US$790 million) (e)                                                               917             -
Subordinated Debentures, due 2043 (US$460 million)                                                 534           553
                                                                                          ---------------------------
                                                                                                 3,670         4,259
                                                                                          ===========================
Note:
(1)  Includes $50 million of principal that was effectively converted through a currency exchange contract to
     US$37 million.
</TABLE>

                                       11
<PAGE>

(a)      ACQUISITION CREDIT FACILITIES

During the  quarter,  we repaid in full,  amounts  outstanding  under the bridge
facility  used to fund a portion of the purchase  price for the  acquisition  of
EnCana (UK) Limited in 2004. The US$500 million development  facility associated
with the acquisition credit facilities was replaced with the renewal of our term
credit facilities during the quarter.

(b)      CANEXUS LP TERM CREDIT FACILITIES

Canexus LP has $350  million of  committed,  unsecured,  revolving  term  credit
facilities which are available until 2009. At September 30, 2005, US$144 million
($167  million)  was drawn on these  facilities.  The lenders have the option to
extend  the terms  annually.  Borrowings  are  available  as  Canadian  bankers'
acceptances,  LIBOR-based  loans,  Canadian  prime loans or US-dollar  base rate
loans.  Interest  is  payable  monthly  at a  floating  rate.  The  term  credit
facilities are secured by a floating  charge  debenture over all of Canexus LP's
assets  and  by  certain   guarantees,   security  interests  and  subordination
agreements  provided by certain  affiliates  of Canexus LP (which do not include
Nexen).

(c)      TERM CREDIT FACILITIES

We have a committed, unsecured, revolving term credit facility of US$2.0 billion
which is available  until 2010. At September  30, 2005,  these  facilities  were
undrawn.  The lenders have the option to extend the terms  annually.  Borrowings
are available as Canadian  bankers'  acceptances,  LIBOR-based  loans,  Canadian
prime  loans,  US-dollar  base rate  loans or pound  sterling  call rate  loans.
Interest is payable monthly at a floating rate.

(d)      NOTES, DUE 2015

In  March  2005,  we  issued  US$250  million  of  notes.  Interest  is  payable
semi-annually  at a rate of 5.20%  and the  principal  is to be  repaid in March
2015. We may redeem part or all of the notes at any time. The  redemption  price
will be the  greater of par and an amount that  provides  the same yield as a US
Treasury  security  having a term to maturity equal to the remaining term of the
notes plus 0.15%.  The proceeds were used to repay a portion of the  Acquisition
Credit Facilities.

(e)      NOTES, DUE 2035

In  March  2005,  we  issued  US$790  million  of  notes.  Interest  is  payable
semi-annually  at a rate of 5.875%  and the  principal  is to be repaid in March
2035. We may redeem part or all of the notes at any time. The  redemption  price
will be the  greater of par and an amount that  provides  the same yield as a US
Treasury  security  having a term to maturity equal to the remaining term of the
notes plus 0.2%.  The proceeds  were used to repay a portion of the  Acquisition
Credit Facilities.

(f)      INTEREST EXPENSE

<TABLE>
<CAPTION>
                                                 THREE MONTHS             NINE MONTHS
                                              ENDED SEPTEMBER 30      ENDED SEPTEMBER 30
                                                2005        2004      2005          2004
-----------------------------------------------------------------------------------------
<S>                                              <C>          <C>      <C>           <C>
Long-Term Debt                                   65           43       197           136
Other                                             3            3        12             9
                                               ------------------------------------------
                                                 68           46       209           145
   Less: Capitalized                            (49)         (11)     (125)          (27)
                                               ------------------------------------------
Total                                            19           35        84           118
                                               ==========================================
</TABLE>

Capitalized  interest relates to and is included as part of the cost of our oil,
gas and Syncrude properties,  plant and equipment.  The capitalization rates are
based on our weighted-average cost of borrowings.

(g)      SHORT-TERM BORROWINGS

Nexen has unsecured  operating loan facilities of approximately $427 million. No
amounts were drawn under these  facilities at September  30, 2005  (December 31,
2004 - $100 million).  Interest is payable at floating  rates.  During the first
nine  months of 2005,  the  weighted  average  interest  rate on our  short-term
borrowings was 3.4%.

                                       12
<PAGE>

8.       ASSET RETIREMENT OBLIGATIONS

Changes in carrying amounts of the asset retirement obligations associated with
our property, plant and equipment are as follows:

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30      DECEMBER 31
                                                                                2005             2004
------------------------------------------------------------------------------------------------------
<S>                                                                              <C>              <C>
Balance at Beginning of Period                                                   468              323
    Obligations Assumed with Development Activities                               52               12
    Obligations Assumed with Business Acquisition                                  -              134
    Obligations Discharged with Disposed Properties                              (38)              (4)
    Expenditures Made on Asset Retirements                                       (30)             (31)
    Accretion                                                                     19               17
    Revisions to Estimates                                                         -               24
    Effects of Foreign Exchange                                                  (21)              (7)
                                                                        ------------------------------
Balance at End of Period (1), (2)                                                450              468
                                                                        ==============================
Notes:
(1)  Obligations  due within 12 months of $13 million  (December  31, 2004 - $47
     million)  have been included in accounts  payable and accrued  liabilities.
     Obligations related to discontinued operations of $nil (December 31, 2004 -
     $22  million)  have  been  included  with   liabilities   of   discontinued
     operations.

(2)  Obligations  relating to our oil and gas activities  amount to $403 million
     (December  31,  2004  -  $422  million)  and  obligations  relating  to our
     chemicals business amount to $47 million (December 31, 2004 - $46 million).
</TABLE>

Our total estimated  undiscounted  asset retirement  obligations  amount to $750
million  (December  31,  2004 - $770  million).  We have  discounted  the  total
estimated asset retirement obligations using a weighted-average, credit-adjusted
risk-free  rate  of  5.7%.  Approximately  $98  million  included  in our  asset
retirement  obligations  will be settled over the next five years. The remaining
obligations  settle  beyond  five years and will be funded by future  cash flows
from our operations.

In  connection  with the sale of our  chemicals  business to Canexus LP, we have
contributed  $14 million to a remediation  fund to be used for asset  retirement
obligations  associated  with the assets  sold.  This is included on our balance
sheet as part of deferred charges and other assets.

We own  interests  in assets  for which the fair  value of the asset  retirement
obligations cannot be reasonably determined because the assets currently have an
indeterminate  life and we cannot  determine when  remediation  activities would
take place. These assets include our interest in Syncrude's upgrader and sulphur
pile. The estimated future recoverable  reserves at Syncrude are significant and
given  the long  life of this  asset,  we are  unable to  determine  when  asset
retirement  activities  would take place.  Furthermore,  we believe the Syncrude
plant can continue to run indefinitely with ongoing maintenance activities.  The
retirement  obligations  for these  assets will be recorded in the first year in
which the lives of the assets are determinable.

9.       DEFERRED CREDITS AND OTHER LIABILITIES

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30    DECEMBER 31
                                                                                2005           2004
----------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>
Long-Term Marketing Derivative Contracts                                         115             46
Fixed Price Natural Gas Contracts                                                124              -
Deferred Transportation Revenue                                                   34             33
Stock Based Compensation Liability                                                75              -
Defined Benefit Pension Obligation                                                36             32
Other                                                                            110             31
                                                                        ----------------------------
Total                                                                            494            142
                                                                        ============================
</TABLE>

                                       13
<PAGE>

10.      DERIVATIVE INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

(a)      CARRYING VALUE AND ESTIMATED FAIR VALUE OF DERIVATIVE AND FINANCIAL
         INSTRUMENTS

The  carrying  value,  fair  value,  and  unrecognized  gains or  losses  on our
outstanding derivatives and long-term financial assets and liabilities are:

<TABLE>
<CAPTION>
Cdn$ millions                                         SEPTEMBER 30, 2005                      DECEMBER 31, 2004
-------------------------------------------------------------------------------------------------------------------------
                                             Carrying      Fair    Unrecognized      Carrying      Fair     Unrecognized
                                                Value     Value     Gain/(Loss)         Value     Value             Gain
                                            ------------------------------------    -------------------------------------
<S>                                            <C>       <C>               <C>         <C>       <C>               <C>
Commodity Price Risk
    Non-Trading Activities
      Crude Oil Put Options                        16        16               -           200       200               -
      Fixed Price Natural Gas Contracts          (187)      (187)             -             -       (98)            (98)
      Natural Gas Swaps                            25         25              -             -         -               -

    Trading Activities
      Crude Oil and Natural Gas                    42         42              -            83        83               -
      Future Sale of Gas Inventory                  -       (121)          (121)            -         6               6

Foreign Currency Risk
    Non-Trading Activities                         17        17               -             7         7               -
    Trading Activities                             10        10               -            10        10               -
                                            ------------------------------------    -------------------------------------
Total Derivatives                                 (77)     (198)           (121)          300       208             (92)
                                            ====================================    =====================================

Financial Assets and Liabilities
      Long-Term Debt                           (3,670)   (3,854)           (184)       (4,259)   (4,503)           (244)
                                            ====================================    =====================================
</TABLE>

The estimated fair value of all derivative instruments is based on quoted market
prices and, if not available,  on estimates from third-party brokers or dealers.
The  carrying  value of cash  and cash  equivalents,  margin  deposits,  amounts
receivable and short-term obligations  approximates their fair value because the
instruments are near maturity.

(b)      COMMODITY PRICE RISK MANAGEMENT

NON-TRADING ACTIVITIES

We generally  sell our crude oil and natural gas under  short-term  market based
contracts.

CRUDE OIL PUT OPTIONS

We  purchased  WTI crude oil put  options  to manage  the  commodity  price risk
exposure  of a portion of our oil  production  in 2005 and 2006.  These  options
establish an annual  average WTI floor price of US$43/bbl in 2005 and  US$38/bbl
in 2006 at a cost of $144  million  and are stated at fair value on our  balance
sheet.  Any  change in fair  value is  included  in  marketing  and other on the
Unaudited Consolidated Statement of Income.

<TABLE>
<CAPTION>
                                           NOTIONAL                      AVERAGE              FAIR
                                            VOLUMES        TERM      PRICE (WTI)             VALUE
---------------------------------------------------------------------------------------------------
                                            (bbls/d)                    (US$/bbl)   (Cdn$ millions)
<S>                                         <C>            <C>          <C>         <C>
WTI Crude Oil Put Options                    30,000        2005               44                 -
                                             20,000        2005               43                 -
                                             10,000        2005               41                 -
                                             30,000        2006               39                 9
                                             20,000        2006               38                 5
                                             10,000        2006               36                 2
                                                                                    ---------------
                                                                                                16
                                                                                    ===============
</TABLE>

FIXED PRICE NATURAL GAS CONTRACTS AND NATURAL GAS SWAPS

In July and August 2005, we sold certain  Canadian oil and gas properties and we
retained  fixed price natural gas  contracts  that were  previously  used in the
operation of those properties. See Note 15.

                                       14
<PAGE>

Since these contracts are no longer used in the normal course of our oil and gas
operations,  they have been  marked-to-market  and are included in the Unaudited
Consolidated  Balance  Sheet.  Any change in fair value is included in marketing
and other in the Unaudited Consolidated Statement of Income.

<TABLE>
<CAPTION>
                                           NOTIONAL                                              FAIR
                                            VOLUMES             TERM           PRICE            VALUE
------------------------------------------------------------------------------------------------------
                                             (Gj/d)                            ($/Gj)  (Cdn$ millions)
<S>                                          <C>         <C>             <C>           <C>
Fixed Price Natural Gas Contracts            22,034      2005 - 2006     2.28 - 3.72              (63)
                                             15,514      2007 - 2010     2.47 - 2.77             (124)
                                                                                      ----------------
                                                                                                 (187)
                                                                                      ================
</TABLE>

Following  the sale of the  Canadian  oil and gas  properties,  we entered  into
natural gas swaps to economically  hedge our exposure to the fixed price natural
gas  contracts.  Any change in fair value is included in marketing  and other in
the Unaudited Consolidated Statement of Income.

<TABLE>
<CAPTION>
                                           NOTIONAL                                              FAIR
                                            VOLUMES             TERM           PRICE            VALUE
------------------------------------------------------------------------------------------------------
                                             (Gj/d)                            ($/Gj)  (Cdn$ millions)
<S>                                          <C>         <C>            <C>            <C>
Natural Gas Swaps                            22,034      2005 - 2006    9.02 - 11.81               13
                                             15,514      2007 - 2010            7.45               12
                                                                                      ----------------
                                                                                                   25
                                                                                      ================
</TABLE>

TRADING ACTIVITIES

CRUDE OIL AND NATURAL GAS

We enter  into  physical  purchase  and  sales  contracts  as well as  financial
commodity  contracts to enhance our price  realizations and lock-in our margins.
The physical and financial commodity contracts (derivative contracts) are stated
at market  value.  The $42  million  fair value of the  commodity  contracts  at
September 30, 2005 is included in the Unaudited  Consolidated  Balance Sheet and
any change in fair value is included  in  marketing  and other on the  Unaudited
Consolidated Statement of Income.

FUTURE SALE OF GAS INVENTORY

We have certain NYMEX futures  contracts and swaps in place,  which  effectively
lock-in our margins on the future sale of our natural gas  inventory in storage.
We have designated,  in writing, some of these derivative contracts as cash flow
hedges of the  future  sale of our  storage  inventory.  As a result,  gains and
losses on these  designated  futures  contracts and swaps are  recognized in net
income  when the  inventory  in storage is sold.  The  principal  terms of these
outstanding contracts and the unrecognized losses at September 30, 2005 are:

<TABLE>
<CAPTION>
                                            HEDGED                         AVERAGE    UNRECOGNIZED
                                           VOLUMES             MONTH         PRICE            LOSS
---------------------------------------------------------------------------------------------------
                                            (mmcf)                        (US$/mcf) (Cdn$ millions)
<S>                                         <C>        <C>                <C>       <C>
NYMEX Natural Gas Futures                    1,520      October 2005          6.96             (12)
                                             1,140     December 2005         10.02              (6)
                                            11,100      January 2006          8.96             (75)
                                               400     February 2006         10.96              (2)

NYMEX Natural Gas Fixed Price Swaps            850     December 2005          8.00              (6)
                                             2,750      January 2006          8.30             (20)
                                                                                   ----------------
                                                                                              (121)
                                                                                   ================
</TABLE>

(c)      FOREIGN CURRENCY EXCHANGE RATE RISK MANAGEMENT

<TABLE>
<CAPTION>
NON-TRADING ACTIVITIES

                                                                                                           FAIR
                                                          AMOUNT            TERM           RATE           VALUE
----------------------------------------------------------------------------------------------------------------
                                                                                   (for US$1.00) (Cdn$ millions)
<S>                                           <C>                    <C>            <C>          <C>
Foreign Currency Call Options - Buzzard (i)   (pound)207 million     2005 - 2006    1.95 - 2.00               -

US Dollar Call Options - Canexus (ii)              US$11 million     2005 - 2006          0.813               9

Foreign Currency Swap (iii)                        US$37 million            2006          0.736               8
                                                                                                ----------------
                                                                                                             17
                                                                                                ================
</TABLE>

                                       15
<PAGE>

(i)  BUZZARD

Our  Buzzard  development  project  in the North Sea  creates  foreign  currency
exposure as a portion of the capital costs are denominated in British pounds and
Euros.  In order to reduce our  exposure  to  fluctuations  in these  currencies
relative to the US dollar,  we purchased  foreign currency call options in early
2005  which  effectively  set a ceiling  on most of our  British  pound and Euro
spending exposure from March 2005 through to the end of 2006. Any change in fair
value is included in marketing and other on the Unaudited Consolidated Statement
of Income.

(ii) CANEXUS

The operations of Canexus are exposed to changes in the US dollar  exchange rate
as a portion of their sales are  denominated in US dollars.  In connection  with
the initial public  offering of Canexus,  we purchased US dollar call options to
reduce this exposure to  fluctuations in the Canadian - US dollar exchange rate.
Canexus  has the right to sell  US$11  million  monthly  and  purchase  Canadian
dollars at an exchange  rate of US$0.813  until August 2006.  Any change in fair
value is included in marketing and other on the Unaudited Consolidated Statement
of Income.

(iii) FOREIGN CURRENCY SWAP

We  occasionally  use derivative  instruments to effectively  convert cash flows
from  Canadian to US dollars and vice versa.  At September  30, 2005,  we held a
foreign currency derivative instrument that obligates us and the counterparty to
exchange  principal and interest  amounts.  In November  2006, we will pay US$37
million  and  receive  Cdn$50  million.  Any change in fair value is included in
marketing and other on the Unaudited Consolidated Statement of Income.


TRADING ACTIVITIES

Our sales and purchases of crude oil and natural gas are generally transacted in
or referenced to the US dollar, as are most of the financial commodity contracts
used by our marketing group.  Our marketing group enters into forward  contracts
and  swaps to sell US  dollars.  When  combined  with  certain  commodity  sales
contracts, either physical or financial, these forward contracts and swaps allow
us to lock-in our  Canadian  dollar  margins on the future sale of crude oil and
natural gas. The $10 million fair value of the US dollar  forward  contracts and
swaps at September  30, 2005 is included in the Unaudited  Consolidated  Balance
Sheet and any change in fair value is  included  in  marketing  and other on the
Unaudited Consolidated Statement of Income.

(d) TOTAL CARRYING VALUE OF DERIVATIVE CONTRACTS RELATED TO TRADING ACTIVITIES

Amounts related to derivative contracts held by our marketing group are equal to
fair value as we use mark-to-market accounting. The amounts are as follows:

                                                   SEPTEMBER 30    DECEMBER 31
CDN$ MILLIONS                                              2005           2004
-------------------------------------------------------------------------------
Accounts Receivable                                         508            177
Deferred Charges and Other Assets (1)                       210             91
                                                   ----------------------------
    Total Derivative Contract Assets                        718            268
                                                   ============================

Accounts Payable and Accrued Liabilities                    551            129
Deferred Credits and Other Liabilities (1)                  115             46
                                                   ----------------------------
    Total Derivative Contract Liabilities                   666            175
                                                   ============================

    Total Derivative Contract Net Assets (2)                 52             93
                                                   ============================

Notes:
(1)  These  derivative  contracts  settle  beyond 12 months  and are  considered
     non-current.
(2)  Comprised  of  $42  million  (2004  - $83  million)  related  to  commodity
     contracts and $10 million (2004 - $10 million) related to US dollar forward
     contracts and swaps.

Our  exchange-traded   derivative   contracts  are  subject  to  margin  deposit
requirements.  We are  required to advance  cash to  counterparties  in order to
satisfy  these  requirements.  We have margin  deposits of US$174  million ($202
million) as at September 30, 2005  (December  31, 2004 - $nil),  which have been
presented as margin deposits on our Unaudited Consolidated Balance Sheet.

                                       16
<PAGE>

11.      SHAREHOLDERS' EQUITY

DIVIDENDS

Dividends  per common share for the three months ended  September  30, 2005 were
$0.05  (2004 - $0.05).  Dividends  per common  share for the nine  months  ended
September 30, 2005 were $0.15 (2004 - $0.15).

12.      EARNINGS PER COMMON SHARE

Our shareholders approved a split of our issued and outstanding common shares on
a  two-for-one  basis at our annual and special  meeting on April 27, 2005.  All
common share and per common share  amounts have been  restated to  retroactively
reflect this share split.

We calculate  basic earnings per common share from continuing  operations  using
net income from continuing operations divided by the weighted-average  number of
common shares  outstanding.  We calculate  basic earnings per common share using
net income and the  weighted-average  number of common  shares  outstanding.  We
calculate  diluted  earnings per common  share from  continuing  operations  and
diluted earnings per common share in the same manner as basic, except we use the
weighted-average number of diluted common shares outstanding in the denominator.

<TABLE>
<CAPTION>
                                                                    THREE MONTHS                NINE MONTHS
                                                                  ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
(MILLIONS OF SHARES)                                              2005          2004         2005         2004
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>          <C>          <C>
Weighted-average number of common shares outstanding             260.6         258.0        260.1        256.8
Shares issuable pursuant to stock options                         12.9          12.6         13.8         13.4
Shares to be purchased from proceeds of stock options             (6.4)         (9.8)        (8.6)       (10.0)
                                                                -----------------------------------------------
Weighted-average number of diluted common shares outstanding     267.1         260.8        265.3        260.2
                                                                ===============================================
</TABLE>

In calculating the weighted-average  number of diluted common shares outstanding
for the three and nine months ended  September  30, 2005 and  September 30, 2004
all options were included because their exercise price was less than the average
common  share  market  price  in  the  period.  During  the  periods  presented,
outstanding stock options were the only potential dilutive instruments.

13.      CASH FLOWS

<TABLE>
<CAPTION>
(a)      CHARGES AND CREDITS TO INCOME NOT INVOLVING CASH

                                                                   THREE MONTHS               NINE MONTHS
                                                                ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
                                                                2005          2004         2005         2004
-------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>          <C>          <C>
Depreciation, Depletion, Amortization and Impairment             256           164          748          480
Stock Based Compensation                                         227            11          390          100
Future Income Taxes                                              (71)           25         (141)          19
Change in Fair Value of Crude Oil Put Options                      1             -          184            -
Non-Cash Items included in Discontinued Operations              (381)           29         (325)          95
Unamortized Issue Costs on Redemption of Preferred Securities      -             -            -           11
Gain on Dilution of Interest in Chemicals Business              (193)            -         (193)           -
Net Income Attributable to Non-Controlling Interests               5             -            5            -
Other                                                             14             5           (2)          (9)
                                                               -----------------------------------------------
Total                                                           (142)          234          666          696
                                                               ===============================================
</TABLE>

                                       17
<PAGE>

<TABLE>
<CAPTION>
(b)      CHANGES IN NON-CASH WORKING CAPITAL

                                                                     THREE MONTHS               NINE MONTHS
                                                                  ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
                                                                  2005          2004         2005         2004
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>         <C>           <C>
   Accounts Receivable (1)                                        (639)           17         (817)        (134)
   Inventories and Supplies                                         35           (68)        (174)        (145)
   Other Current Assets                                            (26)          (18)         (15)          37
   Accounts Payable and Accrued Liabilities (1)                    783            59        1,067          259
   Accrued Interest Payable                                        (18)            -            5           (9)
                                                                -----------------------------------------------
Total                                                              135           (10)          66            8
                                                                ===============================================

Relating to:
   Operating Activities                                            216           (55)         120          (99)
   Investing Activities                                            (81)           45          (54)         107
                                                                -----------------------------------------------
Total                                                              135           (10)          66            8
                                                                ===============================================
<CAPTION>
Note:
(1)  Includes  changes in  non-cash  working  capital  related  to  discontinued
     operations.

(c)      OTHER CASH FLOW INFORMATION

                                                                     THREE MONTHS               NINE MONTHS
                                                                  ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
                                                                  2005          2004         2005         2004
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>         <C>           <C>
Interest Paid                                                       80            41          190          143
Income Taxes Paid                                                   96            67          248          182
                                                                -----------------------------------------------

<CAPTION>
14.      MARKETING AND OTHER

                                                                     THREE MONTHS               NINE MONTHS
                                                                  ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
                                                                  2005          2004         2005         2004
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>         <C>           <C>
Marketing Revenue, Net                                              29           144          481          403
Change in Fair Value of Crude Oil Put Options                       (1)            -         (184)           -
Interest                                                             4             3           22            8
Foreign Exchange Gains/(Losses)                                    (27)           (9)           1            6
Other                                                               19             9           23           22
                                                                -----------------------------------------------
Total                                                               24           147          343          439
                                                                ===============================================
</TABLE>

15.      DISCONTINUED OPERATIONS

In June  2005,  we  agreed to sell  certain  Canadian  conventional  oil and gas
properties in southeast Saskatchewan,  northwest Saskatchewan, northeast British
Columbia  and  the  Alberta  foothills.  The  results  of  operations  of  these
properties have been accounted for as discontinued operations.  The sales closed
in the third quarter with proceeds of $900 million after closing adjustments and
we realized gains of $225 million. These gains are net of losses attributable to
pipeline  contracts  and  fixed  price  gas  contracts   associated  with  these
properties  that we have retained but no longer use in  connection  with our oil
and gas business.

                                       18
<PAGE>

During the fourth  quarter of 2004,  we  concluded  production  from our Buffalo
field,  offshore  Australia as  anticipated.  The results of our  operations  in
Australia have been treated as discontinued  operations,  as we have no plans to
continue operations in the country.  Remediation and abandonment  activities are
virtually completed and no gain or loss is expected from these activities.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30

                                                                  2005                    2004
                                                                 CANADA      CANADA     AUSTRALIA       TOTAL
------------------------------------------------------------------------   -----------------------------------
<S>                                                              <C>         <C>        <C>             <C>
Revenues
    Net Sales                                                        27          59            -           59
    Gain on Disposition of Assets                                   225           -            -            -
                                                                --------    ----------------------------------
                                                                    252          59            -           59
Expenses
    Operating                                                         4          10            -           10
    Depreciation, Depletion, Amortization and Impairment              -          17            -           17
                                                                --------    ----------------------------------
Income before Income Taxes                                          248          32            -           32
    Future Income Taxes                                            (156)         12            -           12
                                                                --------    ----------------------------------
Net Income from Discontinued Operations                             404          20            -           20
                                                               =========   ===================================

Earnings per Common Share
    Basic                                                          1.55        0.08            -         0.08
                                                               =========   ===================================
    Diluted                                                        1.51        0.08            -         0.08
                                                               =========   ===================================

NINE MONTHS ENDED SEPTEMBER 30

                                                                  2005                    2004
                                                                 CANADA      CANADA     AUSTRALIA       TOTAL
------------------------------------------------------------------------   -----------------------------------
Revenues
    Net Sales                                                       154         171           49          220
    Gain on Disposition of Assets                                   225           -            -            -
                                                                --------    ----------------------------------
                                                                    379         171           49          220
Expenses
    Operating                                                        27          31           31           62
    Depreciation, Depletion, Amortization and Impairment             28          52            9           61
    Exploration Expense                                               1           1            -            1
                                                                --------    ----------------------------------
Income before Income Taxes                                          323          87            9           96
    Future Income Taxes                                            (129)         33            -           33
                                                                --------    ----------------------------------
Net Income from Discontinued Operations                             452          54            9           63
                                                               =========   ===================================

Earnings per Common Share
    Basic                                                          1.74        0.21         0.04         0.25
                                                               =========   ===================================
    Diluted                                                        1.70        0.21         0.03         0.24
                                                               =========   ===================================
</TABLE>

Assets and liabilities on the Unaudited  Consolidated  Balance Sheet include the
following  amounts  for  discontinued  operations.  There  were  no  assets  and
liabilities related to discontinued operations at September 30, 2005.

<TABLE>
<CAPTION>
AS AT DECEMBER 31, 2004

                                                                              CANADA   AUSTRALIA         TOTAL
---------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>      <C>               <C>
Cash and Cash Equivalents                                                          -           1             1
Accounts Receivable                                                               28           8            36
Other Current Assets                                                               -           1             1
Property, Plant and Equipment, Net                                               443           -           443
Accounts Payable and Accrued Liabilities                                          14          25            39
Asset Retirement Obligations                                                      22           -            22
Future Income Tax Liabilities                                                    108           -           108
                                                                             --------------------   -----------
</TABLE>

                                       19
<PAGE>

16.      COMMITMENTS, CONTINGENCIES AND GUARANTEES

As  described  in  Note  12 to the  Audited  Consolidated  Financial  Statements
included in our 2004 Annual Report on Form 10-K,  there are a number of lawsuits
and claims pending,  the ultimate results of which cannot be ascertained at this
time.  We record costs as they are incurred or become  determinable.  We believe
the resolution of these matters would not have a material  adverse effect on our
liquidity, consolidated financial position or results of operations.

17.      PENSION AND OTHER POST RETIREMENT BENEFITS

<TABLE>
<CAPTION>
(a)      NET PENSION EXPENSE RECOGNIZED UNDER OUR DEFINED BENEFIT PENSION PLANS

                                                                    THREE MONTHS                NINE MONTHS
                                                                 ENDED SEPTEMBER 30         ENDED SEPTEMBER 30
                                                                 2005          2004         2005          2004
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>          <C>           <C>
Nexen
    Cost of Benefits Earned by Employees                            4             2           10             6
    Interest Cost on Benefits Earned                                3             3           10             9
    Expected Return on Plan Assets                                 (3)           (3)          (8)           (9)
    Net Amortization and Deferral                                   -             -            1             -
                                                               ------------------------------------------------
    Net                                                             4             2           13             6
                                                               ------------------------------------------------

Syncrude
    Cost of Benefits Earned by Employees                            1             1            3             3
    Interest Cost on Benefits Earned                                1             1            4             3
    Expected Return on Plan Assets                                 (1)           (1)          (3)           (3)
    Net Amortization and Deferral                                   -             -            -             -
                                                                -----------------------------------------------
    Net                                                             1             1            4             3
                                                                -----------------------------------------------
Total                                                               5             3           17             9
                                                               ================================================
</TABLE>

(b)      EMPLOYER FUNDING CONTRIBUTIONS

Our expected total funding contributions for 2005 disclosed in Note 13(e) to the
Audited Consolidated Financial Statements in our 2004 Annual Report on Form 10-K
have not changed for both our Nexen defined benefit pension plan and our share
of Syncrude's defined benefit pension plan.

                                       20
<PAGE>

18.      OPERATING SEGMENTS AND RELATED INFORMATION

Nexen is involved in activities  relating to Oil and Gas, Syncrude and Chemicals
in  various  geographic  locations  as  described  in  Note  18 to  the  Audited
Consolidated  Financial  Statements  included in our 2004 Annual  Report on Form
10-K.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2005
                                                                                                             CORPORATE
                                                                                                                   AND
 (CDN$ MILLIONS)                                  OIL AND GAS                          SYNCRUDE(1)  CHEMICALS    OTHER     TOTAL
---------------------------------------------------------------------------------------------------------------------------------
                                               UNITED    UNITED      OTHER
                               YEMEN   CANADA  STATES   KINGDOM  COUNTRIES(2) MARKETING
                               --------------------------------------------------------
<S>                            <C>     <C>     <C>      <C>      <C>          <C>       <C>         <C>       <C>          <C>
 Net Sales                       417      136    212         69        29          6        124         101          -     1,094
 Marketing and Other               3        -      -          1         -         29          -          15        (24)(3)    24
 Gain on Dilution of Interest
    in Chemicals Business          -        -      -          -         -          -          -         193          -       193
                               --------------------------------------------------------------------------------------------------
 Total Revenues                  420      136    212         70        29         35        124         309        (24)    1,311
 Less: Expenses
   Operating                      36       29     25         23         1          8         37          62          -       221
  Depreciation, Depletion,
   Amortization and
     Impairment                  107       35     57         33         2          3          4           9          6       256
   Transportation and Other        2        6      -          -         -        147          5          10         31       201
   General and
  Administrative (4)               1       39     34          -        70         39          -          12        147       342
   Exploration                     2        4     10          3        13(5)       -          -           -          -        32
   Interest                        -        -      -          -         -          -          -           1         18        19
                               --------------------------------------------------------------------------------------------------
 Income (Loss) from
    Continuing Operations
      before Income Taxes        272       23     86         11       (57)      (162)        78         215       (226)      240
                              =========================================================================================
 Less: Provision for
   Income Taxes (6)                                                                                                           24
 Less: Non Controlling
   Interests                                                                                                                   5
 Add: Net Income from
   Discontinued Operations                                                                                                   404
                                                                                                                          -------
 Net Income                                                                                                                  615
                                                                                                                         ========
 Identifiable Assets             670    2,103  1,362      4,684       239      3,123(7)   1,067         491        256    13,995
                              ===================================================================================================

 Capital Expenditures
   Development and Other          53      221     28        131         3          1         55           5          3       500
   Exploration                    11       26     46         35        15          -          -           -          -       133
   Proved Property
   Acquisitions                    -       15      -          -         -          -          -           -          -        15
                               --------------------------------------------------------------------------------------------------
                                  64      262     74        166        18          1         55           5          3       648
                              ===================================================================================================

 Property, Plant and
 Equipment
   Cost                        2,174    3,254  2,308      3,838       252        168      1,179         821        232    14,226
   Less: Accumulated DD&A      1,737    1,279  1,106        120       116         69        168         447        116     5,158
                              ---------------------------------------------------------------------------------------------------
 Net Book Value                  437    1,975  1,202      3,718       136         99      1,011         374        116     9,068
                              ===================================================================================================
</TABLE>
Notes:
(1)  Syncrude  is  considered  a mining  operation  for US  reporting  purposes.
     Property,  plant and equipment at September 30, 2005 include mineral rights
     of $6 million.

(2)  Includes  results of operations  from  producing  activities in Nigeria and
     Colombia.

(3)  Includes  interest  income of $4 million,  foreign  exchange  losses of $27
     million  and  decrease  in the fair  value of crude oil put  options  of $1
     million.

(4)  Includes stock based compensation expense of $260 million.

(5)  Includes  exploration   activities  primarily  in  Nigeria,   Colombia  and
     Equatorial Guinea.

(6)  Includes Yemen cash taxes of $93 million.

(7)  Approximately   80%  of  marketing's   identifiable   assets  are  accounts
     receivable and inventories.

                                       21
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2005
                                                                                                             CORPORATE
                                                                                                                   AND
 (CDN$ MILLIONS)                                  OIL AND GAS                          SYNCRUDE(1)  CHEMICALS    OTHER     TOTAL
---------------------------------------------------------------------------------------------------------------------------------
                                               UNITED    UNITED      OTHER
                               YEMEN   CANADA  STATES   KINGDOM  COUNTRIES(2) MARKETING
                               --------------------------------------------------------
<S>                            <C>     <C>     <C>      <C>      <C>          <C>       <C>         <C>       <C>          <C>
 Net Sales                     1,025      316    593        242        78         16        292         297         -      2,859
 Marketing and Other               6        2      -          1         4        481          -          16       (167)(3)   343
 Gain on Dilution of Interest
    in Chemicals Business          -        -      -          -         -          -          -         193         -        193
                               --------------------------------------------------------------------------------------------------
 Total Revenues                1,031      318    593        243        82        497        292         506      (167)     3,395
 Less: Expenses
   Operating                     109       85     69         76         7         20        110         174         -        650
   Depreciation, Depletion,
    Amortization and
     Impairment                  256      105    182        115        11          8         13          42(4)     16        748
   Transportation and Other        4       17      -          -         -        475         13          30        44        583
   General and
   Administrative (5)              3       93     71          -       117         72          -          39       252        647
   Exploration                     5       15     83         18        43(6)       -          -           -         -        164
   Interest                        -        -      -          -         -          -          -           1        83         84
                               --------------------------------------------------------------------------------------------------
 Income (Loss) from
    Continuing Operations
     before Income Taxes         654        3    188         34       (96)       (78)       156         220      (562)       519
                              ========================================================================================
 Less: Provision for
   Income Taxes (7)                                                                                                          114
 Less: Non Controlling
   Interest                                                                                                                    5
 Add: Net Income from
   Discontinued Operations                                                                                                   452
                                                                                                                          -------
 Net Income                                                                                                                  852
                                                                                                                         ========

 Identifiable Assets             670    2,103  1,362      4,684       239      3,123(8)   1,067         491       256     13,995
                              ===================================================================================================

 Capital Expenditures
   Development and Other         184      651     95        423        10         14        149           9        10      1,545
   Exploration                    27       53    178         51        48          -          -           -         -        357
   Proved Property
   Acquisitions                    -       17      3          1         -          -          -           -         -         21
                               --------------------------------------------------------------------------------------------------
                                 211      721    276        475        58         14        149           9        10      1,923
                              ===================================================================================================

 Property, Plant and Equipment
   Cost                        2,174    3,254  2,308      3,838       252        168      1,179         821        232    14,226
   Less: Accumulated DD&A      1,737    1,279  1,106        120       116         69        168         447        116     5,158
                              ---------------------------------------------------------------------------------------------------
 Net Book Value                  437    1,975  1,202      3,718       136         99      1,011         374        116     9,068
                              ===================================================================================================
</TABLE>
Notes:
(1)  Syncrude  is  considered  a mining  operation  for US  reporting  purposes.
     Property, plant and equipment at September 30, 2005 includes mineral rights
     of $6 million.

(2)  Includes  results of operations  from  producing  activities in Nigeria and
     Colombia.

(3)  Includes  interest  income of $22  million,  foreign  exchange  gains of $1
     million,  decrease  in the  fair  value of crude  oil put  options  of $184
     million and decrease in the fair value of foreign  currency call options of
     $6 million.

(4)  Includes  impairment  charge of $12  million  related to the closure of our
     sodium chlorate plant in Amherstburg, Ontario.

(5)  Includes stock based compensation expense of $450 million.

(6)  Includes  exploration   activities  primarily  in  Nigeria,   Colombia  and
     Equatorial Guinea.

(7)  Includes Yemen cash taxes of $222 million.

(8)  Approximately   80%  of  marketing's   identifiable   assets  are  accounts
     receivable and inventories.

                                       22
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2004
                                                                                                              CORPORATE
                                                                                                                    AND
 (CDN$ MILLIONS)                                        OIL AND GAS                    SYNCRUDE(1)  CHEMICALS     OTHER    TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
                                                        UNITED      OTHER
                                     YEMEN   CANADA     STATES  COUNTRIES(2) MARKETING
                                  ----------------------------------------------------
<S>                                  <C>     <C>        <C>     <C>          <C>        <C>          <C>        <C>         <C>
 Net Sales                             247      101        219      19           4          90           98          -       778
 Marketing and Other                     1        4          3       -         144           -            1         (6)(3)   147
                                   ------------------------------------------------------------------------------------------------
 Total Revenues                        248      105        222      19         148          90           99         (6)      925
 Less: Expenses
  Operating                             27       29         39       3           4          31           62          -       195
   Depreciation, Depletion,
    Amortization and
     Impairment                         39       32         68       5           3           4            9          4       164
  Transportation and Other               -        4          -       -         106           3            9          -       122
  General and Administrative             -        6          4      10          13           -            8         16        57
  Exploration                            1        4         38      11 (4)       -           -            -          -        54
  Interest                               -        -          -       -           -           -            -         35        35
                                   ------------------------------------------------------------------------------------------------
 Income (Loss) from
    Continuing Operations before
     Income Taxes                      181       30         73     (10)         22          52           11        (61)      298
                                  ======================================================================================
 Less: Provision for Income
 Taxes (5)                                                                                                                    98
 Add: Net Income from
  Discontinued Operations                                                                                                     20
                                                                                                                          ---------
 Net Income                                                                                                                  220
                                                                                                                         ==========
 Identifiable Assets                   619    1,793      1,652     254       1,666 (6)     857          497        785     8,123
                                  =================================================================================================

 Capital Expenditures
  Development and Other                 71      120         40      29           1          57           25          7       350
  Exploration                            4        7         17       2           -           -            -          -        30
                                   ------------------------------------------------------------------------------------------------
                                        75      127         57      31           1          57           25          7       380
                                  =================================================================================================

 Property, Plant and Equipment
  Cost                               2,032    2,382      2,304     362         155         972          814        188     9,209
  Less: Accumulated DD&A             1,581    1,169      1,027     225          61         152          404         86     4,705
                                   ------------------------------------------------------------------------------------------------
 Net Book Value                        451    1,213      1,277     137          94         820          410        102     4,504(7)
                                  =================================================================================================
</TABLE>
Notes:
(1)  Syncrude  is  considered  a mining  operation  for US  reporting  purposes.
     Property, plant and equipment at September 30, 2004 includes mineral rights
     of $6 million.

(2)  Includes  results of operations  from  producing  activities in Nigeria and
     Colombia.

(3)  Includes  interest  income of $3 million and foreign  exchange losses of $9
     million.

(4)  Includes exploration activities primarily in Nigeria and Colombia.

(5)  Includes Yemen cash taxes of $65 million.

(6)  Approximately   84%  of  marketing's   identifiable   assets  are  accounts
     receivable and inventories.

(7)  Excludes  property,   plant  and  equipment  related  to  our  discontinued
     operations. See Note 15.

                                       23
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2004
                                                                                                              CORPORATE
                                                                                                                    AND
 (CDN$ MILLIONS)                                        OIL AND GAS                    SYNCRUDE(1)  CHEMICALS     OTHER    TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
                                                        UNITED      OTHER
                                     YEMEN   CANADA     STATES  COUNTRIES(2) MARKETING
                                  ----------------------------------------------------
<S>                                  <C>     <C>        <C>     <C>          <C>        <C>          <C>        <C>         <C>
 Net Sales                             679      290        581      53          10         243          283          -     2,139
 Marketing and Other                     3        6         10       -         403           -            3         14(3)    439
                                   ------------------------------------------------------------------------------------------------
 Total Revenues                        682      296        591      53         413         243          286         14     2,578
 Less: Expenses
  Operating                             80       87         81       6          12          90          178          -       534
   Depreciation, Depletion,
    Amortization and
     Impairment                        123       96        185      14           8          13           28         13       480
  Transportation and Other               2       10          -       -         338           8           28         14       400
  General and Administrative (4)         2       41         28      39          38           -           25         74       247
  Exploration                            2       12         53      40(5)        -           -            -          -       107
  Interest                               -        -          -       -           -           -            -        118       118
                                   ------------------------------------------------------------------------------------------------
 Income (Loss) from
    Continuing Operations before
     Income Taxes                      473       50        244     (46)         17         132           27       (205)      692
                                  =====================================================================================
 Less: Provision for Income                                                                                                  208
   Taxes (6)
 Add: Net Income from
  Discontinued Operations                                                                                                     63
                                                                                                                          ---------
 Net Income                                                                                                                  547
                                                                                                                         ==========

 Identifiable Assets                   619    1,793      1,652     254       1,666(7)      857          497        785     8,123
                                  =================================================================================================

 Capital Expenditures
  Development and Other                176      307        199      44           3         155           47         19       950
  Exploration                            5       14         57      20           -           -            -          -        96
                                  -------------------------------------------------------------------------------------------------
                                       181      321        256      64           3         155           47         19     1,046
                                  =================================================================================================
 Property, Plant and Equipment
  Cost                               2,032    2,382      2,304     362         155         972          814        188     9,209
  Less: Accumulated DD&A             1,581    1,169      1,027     225          61         152          404         86     4,705
                                  -------------------------------------------------------------------------------------------------
 Net Book Value                        451    1,213      1,277     137          94         820          410        102     4,504(8)
                                  =================================================================================================
</TABLE>
Notes:

(1)  Syncrude  is  considered  a mining  operation  for US  reporting  purposes.
     Property, plant and equipment at September 30, 2004 includes mineral rights
     of $6 million.
(2)  Includes  results of operations  from  producing  activities in Nigeria and
     Colombia.
(3)  Includes  interest  income of $8 million and foreign  exchange  gains of $6
     million.
(4)  Includes a one-time  charge of $82 million  related to the  modification of
     our stock option plan.
(5)  Includes  exploration   activities  primarily  in  Nigeria,   Colombia  and
     Equatorial Guinea.
(6)  Includes Yemen cash taxes of $168 million.
(7)  Approximately   84%  of  marketing's   identifiable   assets  are  accounts
     receivable and inventories.
(8)  Excludes  property,   plant  and  equipment  related  to  our  discontinued
     operations. See Note 15.

                                       24
<PAGE>

19.      DIFFERENCES BETWEEN CANADIAN AND US GENERALLY ACCEPTED ACCOUNTING
         PRINCIPLES

The Unaudited Consolidated Financial Statements have been prepared in accordance
with Canadian GAAP. The US GAAP Unaudited  Consolidated  Statement of Income and
Balance Sheet and summaries of differences from Canadian GAAP are as follows:

<TABLE>
<CAPTION>
(a)  UNAUDITED CONSOLIDATED STATEMENT OF INCOME - US GAAP FOR THE THREE AND NINE
     MONTHS ENDED SEPTEMBER 30
                                                                             THREE MONTHS               NINE MONTHS
                                                                          ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
(CDN$ MILLIONS, EXCEPT PER SHARE AMOUNTS)                                   2005        2004         2005         2004
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>        <C>          <C>
REVENUES
    Net Sales                                                              1,094         778        2,859        2,139
    Marketing and Other (ii); (viii)                                          16         146          335          445
    Gain on Dilution of Interest in Chemicals Business                       193           -          193            -
                                                                         ----------------------------------------------
                                                                           1,303         924        3,387        2,584
                                                                         ----------------------------------------------
EXPENSES
    Operating (iv)                                                           222         196          655          539
    Depreciation, Depletion, Amortization and Impairment (i)                 265         175          777          508
    Transportation and Other                                                 201         122          583          398
    General and Administrative                                               342          57          647          211
    Exploration                                                               32          54          164          107
    Interest                                                                  19          35           84          118
                                                                         ----------------------------------------------
                                                                           1,081         639        2,910        1,881
                                                                         ----------------------------------------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                        222         285          477          703
                                                                         ----------------------------------------------

PROVISION FOR INCOME TAXES
    Current                                                                   95          73          255          189
    Deferred (ii); (iv)                                                      (74)         24         (145)          19
                                                                         ----------------------------------------------
                                                                              21          97          110          208
                                                                         ----------------------------------------------

NET INCOME FROM CONTINUING OPERATIONS
  BEFORE NON-CONTROLLING INTERESTS                                           201         188          367          495

NET INCOME ATTRIBUTABLE TO NON CONTROLLING INTERESTS                           5           -            5            -
                                                                         ----------------------------------------------

NET INCOME FROM CONTINUING OPERATIONS                                        196         188          362          495
    Net Income from Discontinued Operations                                  404          20          452           59
                                                                         ----------------------------------------------

NET INCOME-- US GAAP (1)                                                     600         208          814          554
                                                                        ===============================================

EARNINGS PER COMMON SHARE ($/share)
    Basic (Note 12)
      Net Income from Continuing Operations                                 0.75        0.73         1.39         1.93
      Net Income from Discontinued Operations                               1.55        0.08         1.74         0.23
                                                                         ---------------------------------------------
                                                                            2.30        0.81         3.13         2.16
                                                                        ===============================================
    Diluted (Note 12)
      Net Income from Continuing Operations                                 0.74        0.72         1.36         1.90
      Net Income from Discontinued Operations                               1.51        0.08         1.70         0.23
                                                                         ---------------------------------------------
                                                                            2.25        0.80         3.06         2.13
                                                                        ===============================================

NOTE:
(1)   RECONCILIATION OF CANADIAN AND US GAAP NET INCOME                       THREE MONTHS              NINE MONTHS
                                                                          ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
      (CDN$ MILLIONS)                                                       2005        2004         2005         2004
-----------------------------------------------------------------------------------------------------------------------
      Net Income-- Canadian GAAP                                             615         220          852          547
      Impact of US Principles, Net of Income Taxes:
        Depreciation, Depletion, Amortization and Impairment (1) (i)          (9)        (11)         (29)         (32)
        Ineffective Portion of Cash Flow Hedges (ii)                          (5)          -           (5)           -
        Fair Value of Preferred Securities (viii)                              -           -            -            4
        Stock Based Compensation Included in Retained Earnings                 -           -            -           36
        Other (ii); (iv)                                                      (1)         (1)          (4)          (1)
                                                                         ----------------------------------------------
      Net Income-- US GAAP                                                   600         208          814          554
                                                                        ===============================================
   Note:
   (1)  Includes depreciation, depletion, amortization and impairment related to discontinued operations.
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
(b)      UNAUDITED CONSOLIDATED BALANCE SHEET - US GAAP
                                                                                         SEPTEMBER 30      DECEMBER 31
(CDN$ MILLIONS, EXCEPT SHARE AMOUNTS)                                                            2005             2004
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>               <C>
ASSETS
    CURRENT ASSETS
      Cash and Cash Equivalents                                                                  200                73
      Margin Deposits                                                                            202                 -
      Accounts Receivable (ii)                                                                 2,828             2,106
      Inventories and Supplies                                                                   514               351
      Assets of Discontinued Operations                                                            -                38
      Other                                                                                       56                41
                                                                                        -------------------------------
        Total Current Assets                                                                   3,800             2,609
                                                                                        -------------------------------

    PROPERTY, PLANT AND EQUIPMENT
      Net of Accumulated Depreciation, Depletion, Amortization and
         Impairment of $5,551 (December 31, 2004 - $5,290) (i); (iv); (vii)                    9,029             8,189
    GOODWILL                                                                                     366               375
    DEFERRED INCOME TAX ASSETS                                                                   395               333
    DEFERRED CHARGES AND OTHER ASSETS (v)                                                        309               384
    ASSETS OF DISCONTINUED OPERATIONS                                                              -               449
                                                                                        -------------------------------

                                                                                              13,899            12,339
                                                                                       ================================
LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES
      Short-Term Borrowings                                                                        -               100
      Accounts Payable and Accrued Liabilities (ii)                                            3,784             2,377
      Accrued Interest Payable                                                                    39                34
      Dividends Payable                                                                           13                13
      Liabilities of Discontinued Operations                                                       -                39
                                                                                        -------------------------------
        Total Current Liabilities                                                              3,836             2,563
                                                                                        -------------------------------

    LONG-TERM DEBT (v)                                                                         3,613             4,214
    DEFERRED INCOME TAX LIABILITIES (i) - (ix)                                                 1,828             1,993
    ASSET RETIREMENT OBLIGATIONS                                                                 437               399
    DEFERRED CREDITS AND LIABILITIES (vi)                                                        500               148
    LIABILITIES OF DISCONTINUED OPERATIONS                                                         -               130
    NON CONTROLLING INTERESTS                                                                     91                 -
    SHAREHOLDERS' EQUITY
      Common Shares, no par value
        Authorized:   Unlimited
        Outstanding:  2005   - 260,879,092 shares
                      2004   - 258,399,166 shares                                                719               637
      Contributed Surplus                                                                          1                 -
      Retained Earnings (i); (ii); (iv); (vii); (viii)                                         3,135             2,360
      Accumulated Other Comprehensive Income (ii); (iii); (vi)                                  (261)             (105)
                                                                                        -------------------------------
          Total Shareholders' Equity                                                           3,594             2,892
                                                                                        -------------------------------

    COMMITMENTS, CONTINGENCIES AND GUARANTEES
                                                                                              13,899            12,339
                                                                                       ================================
</TABLE>

<TABLE>
<CAPTION>
(c)  UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - US GAAP
     FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30

                                                                              THREE MONTHS             NINE MONTHS
                                                                          ENDED SEPTEMBER 30        ENDED SEPTEMBER 30
(CDN$ MILLIONS)                                                             2005        2004          2005        2004
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>           <C>         <C>
Net Income - US GAAP                                                         600         208           814         554
Other Comprehensive Income, Net of Income Taxes:
    Translation Adjustment (iii)                                            (101)        (49)          (78)        (35)
    Unrealized Mark-to-Market Loss (ii)                                      (71)        (18)          (78)        (12)
                                                                    ---------------------------------------------------
Comprehensive Income                                                         428         141           658         507
                                                                    ===================================================
</TABLE>

                                       26
<PAGE>

NOTES:

i.       Under US GAAP, the liability  method of accounting for income taxes was
         adopted in 1993. In Canada,  the liability  method was adopted in 2000.
         In 1997, we acquired certain oil and gas assets and the amount paid for
         these assets differed from the tax basis acquired.  Under US GAAP, this
         difference was recorded as a deferred tax liability with an increase to
         property,  plant  and  equipment  rather  than  a  charge  to  retained
         earnings. As a result:

         o    additional depreciation, depletion, amortization and impairment of
              $9 million and $29  million  for the three and nine  months  ended
              September  30,  2005,  respectively  (2004 - $11  million  and $32
              million, respectively) was included in net income; and

         o    property,  plant and equipment is higher under US GAAP at December
              31, 2004 by $23 million.

ii.      Under US GAAP, all derivative instruments are recognized on the balance
         sheet as either an asset or a liability measured at fair value. Changes
         in the fair value of  derivatives  are  recognized  in earnings  unless
         specific hedge criteria are met.

         CASH FLOW HEDGES

         Changes in the fair value of  derivatives  that are  designated as cash
         flow hedges are recognized in earnings in the same period as the hedged
         item.  Any fair value  change in a  derivative  before  that  period is
         recognized on the balance sheet.  The effective  portion of that change
         is recognized in other  comprehensive  income with any  ineffectiveness
         recognized in net income.

         FUTURE  SALE OF GAS  INVENTORY:  Included  in  accounts  receivable  at
         December  31, 2004,  were $6 million of gains on the futures  contracts
         and swaps we used to hedge the commodity  price risk on the future sale
         of  our  gas  inventory  as  described  in  Note  10.  These  contracts
         effectively  lock-in  profits on our stored  gas  volumes.  Gains of $6
         million ($4  million,  net of income  taxes)  related to the  effective
         portion and deferred in accumulated other  comprehensive  income (AOCI)
         at December 31, 2004, were recognized in marketing and other during the
         first quarter of 2005.

         At September  30, 2005,  losses of $121  million ($79  million,  net of
         income  taxes)  were  included in  accounts  payable and the  effective
         portion of $113 million ($74 million, net of income taxes) was deferred
         in AOCI until the  underlying gas inventory is sold. The losses will be
         reclassified  to  marketing  and other as they  settle over the next 12
         months.  The  ineffective  portion  of the  losses  of $8  million  ($5
         million,  net of income taxes) was  recognized in net income during the
         quarter.

         FAIR VALUE HEDGES

         Both  the  derivative  instrument  and the  underlying  commitment  are
         recognized on the balance sheet at their fair value. The change in fair
         value of both are  reflected in earnings.  At September 30, 2005 and at
         December 31, 2004, we had no fair value hedges in place.

iii.     Under US GAAP,  exchange gains and losses arising from the  translation
         of  our  net  investment  in  self-sustaining  foreign  operations  are
         included in  comprehensive  income.  Additionally,  exchange  gains and
         losses,  net of income  taxes,  from the  translation  of our US-dollar
         long-term debt  designated as a hedge of our foreign net investment are
         included in comprehensive  income.  Cumulative  amounts are included in
         AOCI in the Unaudited Consolidated Balance Sheet - US GAAP.

iv.      Under  Canadian  GAAP,  we  defer  certain  development  costs  and all
         pre-operating  revenues  and costs to  property,  plant and  equipment.
         Under US GAAP, these costs have been included in operating expenses. As
         a result:

         o    operating expenses include  pre-operating  costs of $1 million and
              $5 million for the three and nine months ended September 30, 2005,
              respectively  ($1  million and $4  million,  respectively,  net of
              income taxes) (2004 - $1 million and $5 million,  respectively ($1
              million and $3 million, respectively, net of taxes)); and

         o    property,  plant  and  equipment  is  lower  under  US GAAP by $20
              million (December 31, 2004 - $15 million).

v.       Under  US  GAAP,  discounts  on  long-term  debt  are  classified  as a
         reduction of long-term  debt rather than as deferred  charges and other
         assets. Discounts of $57 million (December 31, 2004 - $45 million) have
         been included in long-term debt.

vi.      Under US GAAP,  the amount by which our  accrued  pension  cost is less
         than the unfunded  accumulated  benefit  obligation is included in AOCI
         and  accrued  pension  liabilities.  This  amount  was $6  million  ($4
         million,  net of income taxes) at September 30, 2005 (December 31, 2004
         - $6 million ($4 million, net of income taxes)).

                                       27
<PAGE>

vii.     On January 1, 2003 we adopted FASB  Statement No. 143,  ACCOUNTING  FOR
         ASSET RETIREMENT  OBLIGATIONS (FAS 143) for US GAAP reporting purposes.
         We  adopted  the  equivalent  Canadian  standard  for asset  retirement
         obligations on January 1, 2004.  These standards are consistent  except
         for the  adoption  date  which  resulted  in our  property,  plant  and
         equipment under US GAAP being lower by $19 million.

viii.    In May 2003,  FASB issued  Statement  No. 150,  ACCOUNTING  FOR CERTAIN
         INSTRUMENTS  WITH  CHARACTERISTICS  OF BOTH LIABILITIES AND EQUITY that
         requires  certain  financial   instruments,   including  our  preferred
         securities,  to be valued at fair  value  with  changes  in fair  value
         recognized through net income.

<TABLE>
<CAPTION>
         (Cdn$ millions)                                                         GAIN      TAX    NET GAIN
         --------------------------------------------------------------------------------------------------
         <S>                                                                      <C>      <C>        <C>
         Fair value change from January 1, 2004 to February 9, 2004 (1), (2)        4        -           4
                                                                                ---------------------------
</TABLE>
         Notes:
         (1)  Included in marketing and other.
         (2)  Redemption date of preferred securities.

NEW ACCOUNTING PRONOUNCEMENTS

In November  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement 151,  INVENTORY  COSTS.  This  statement  amends  Accounting  Research
Bulletin 43 to clarify that:

o    abnormal  amounts of idle facility  expense,  freight,  handling  costs and
     wasted material (spoilage) should be recognized as current-period  charges;
     and

o    requires the allocation of fixed production  overhead to inventory based on
     the normal capacity of the production facilities.

The  provisions of this  statement are  effective for inventory  costs  incurred
during fiscal years beginning after June 15, 2005. We do not expect the adoption
of this statement will have any material  impact on our results of operations or
financial position.

In December 2004, the FASB issued Statement 123(R),  SHARE-BASED PAYMENTS.  This
statement revises Statement 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION,  and
supersedes APB Opinion 25,  ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.  Statement
123(R)  requires all  stock-based  awards  issued to employees to be measured at
fair  value and to be  expensed  in the  income  statement.  This  statement  is
effective for fiscal years beginning after June 15, 2005.

We are currently expensing stock-based awards issued to employees using the fair
value  method for equity  based awards and the  intrinsic  method for  liability
based  awards.  Adoption of this  standard will change our expense under US GAAP
for  tandem  options  and  stock  appreciation  rights as these  awards  will be
measured  using the fair value method rather than the intrinsic  method.  We are
currently  evaluating  the  provisions  of  Statement  123(R)  and  have not yet
determined the full impact this statement will have on our results of operations
or financial position under US GAAP.

In December  2004,  the FASB issued  Statement  153,  EXCHANGES  OF  NONMONETARY
ASSETS, an amendment of APB Opinion 29, ACCOUNTING FOR NONMONETARY TRANSACTIONS.
This  amendment  eliminates the exception for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial  substance.  Under Statement 153,
if   a   nonmonetary   exchange   of   similar   productive   assets   meets   a
commercial-substance  test and fair value is determinable,  the transaction must
be accounted for at fair value resulting in the recognition of any gain or loss.
This statement is effective for nonmonetary  transactions in fiscal periods that
begin after June 15, 2005. We do not expect the adoption of this  statement will
have any material impact on our results of operations or financial position.

                                       28
<PAGE>

In March 2005,  the FASB issued  Financial  Interpretation  47,  ACCOUNTING  FOR
CONDITIONAL  ASSET  RETIREMENT  OBLIGATIONS  (FIN 47). FIN 47 clarifies that the
term conditional asset retirement  obligation as used in FASB Statement No. 143,
ACCOUNTING FOR ASSET  RETIREMENT  OBLIGATIONS,  refers to a legal  obligation to
perform an asset  retirement  activity  in which the  timing and (or)  method of
settlement  are  conditional on a future event that may or may not be within the
control of the entity.  The obligation to perform the asset retirement  activity
is unconditional even though uncertainty exists about the timing and (or) method
of settlement. Thus, the timing and (or) method of settlement may be conditional
on a future event.  Accordingly,  an entity is required to recognize a liability
for the fair value of a  conditional  asset  retirement  obligation  if the fair
value of the liability can be reasonably  estimated.  FIN 47 also clarifies when
an entity would have  sufficient  information  to  reasonably  estimate the fair
value of an asset retirement  obligation.  FIN 47 is effective no later than the
end of fiscal  years  ending  after  December  15,  2005.  We do not  expect the
adoption  of this  statement  will  have a  material  impact on our  results  of
operations or financial position.

In March 2005,  the  Emerging  Issues Task Force  (EITF)  reached a consensus on
Issue No. 04-6, ACCOUNTING FOR STRIPPING COSTS INCURRED DURING PRODUCTION IN THE
MINING  INDUSTRY.  In the mining  industry,  companies may be required to remove
overburden and other mine waste materials to access mineral  deposits.  The EITF
concluded  that the costs of  removing  overburden  and waste  materials,  often
referred to as "stripping costs", incurred during the production phase of a mine
are  variable  production  costs  that  should be  included  in the costs of the
inventory  produced  during the period that the  stripping  costs are  incurred.
Issue No.  04-6 is  effective  for the first  reporting  period in fiscal  years
beginning  after  December 15, 2005,  with early adoption  permitted.  We do not
expect the adoption of this statement will have a material impact on our results
of operations or financial position.

In June 2005,  the FASB  issued  Statement  154,  ACCOUNTING  CHANGES  AND ERROR
CORRECTIONS  which  replaces APB Opinion 20 and FASB  Statement 3. Statement 154
changes  the  requirements  for the  accounting  and  reporting  of a change  in
accounting principle. Opinion 20 previously required that most voluntary changes
in accounting  principle be recognized by including the cumulative effect of the
new  accounting  principle in net income of the period of the change.  Statement
154 now requires retrospective application of changes in accounting principle to
prior  period  financial  statements,  unless it is  impracticable  to determine
either the  period-specific  effects or the cumulative effect of the change. The
Statement is effective for fiscal years beginning after December 15, 2005. We do
not expect the  adoption of this  statement  will have a material  impact on our
results of operations or financial position.

                                       29
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

THE FOLLOWING  SHOULD BE READ IN  CONJUNCTION  WITH THE  UNAUDITED  CONSOLIDATED
FINANCIAL  STATEMENTS  INCLUDED  IN  THIS  REPORT.  THE  UNAUDITED  CONSOLIDATED
FINANCIAL  STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE  WITH GENERALLY  ACCEPTED
ACCOUNTING   PRINCIPLES  (GAAP)  IN  CANADA.   THE  IMPACT  OF  THE  SIGNIFICANT
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES (US) ACCOUNTING PRINCIPLES ON THE
FINANCIAL  STATEMENTS  IS  DISCLOSED  IN NOTE 19 TO THE  UNAUDITED  CONSOLIDATED
FINANCIAL STATEMENTS. THE DATE OF THIS DISCUSSION IS OCTOBER 12, 2005.

UNLESS OTHERWISE NOTED, TABULAR AMOUNTS ARE IN MILLIONS OF CANADIAN DOLLARS. THE
DISCUSSION AND ANALYSIS OF OUR OIL, GAS AND SYNCRUDE  ACTIVITIES WITH RESPECT TO
OIL AND GAS VOLUMES, RESERVES AND RELATED PERFORMANCE MEASURES IS PRESENTED ON A
WORKING-INTEREST,  BEFORE-ROYALTIES  BASIS.  WE MEASURE OUR  PERFORMANCE IN THIS
MANNER CONSISTENT WITH OTHER CANADIAN OIL AND GAS COMPANIES.  WHERE APPROPRIATE,
WE HAVE PROVIDED INFORMATION ON A NET, AFTER-ROYALTIES BASIS IN TABULAR FORMAT.

NOTE:  CANADIAN  INVESTORS SHOULD READ THE SPECIAL NOTE TO CANADIAN INVESTORS ON
PAGE 72 OF OUR 2004  ANNUAL  REPORT ON FORM 10-K  WHICH  HIGHLIGHTS  DIFFERENCES
BETWEEN  OUR  RESERVE  ESTIMATES  AND  RELATED  DISCLOSURES  THAT ARE  OTHERWISE
REQUIRED BY CANADIAN REGULATORY AUTHORITIES.

<TABLE>
<CAPTION>
EXECUTIVE SUMMARY OF THIRD QUARTER RESULTS

                                                                   Three Months               Nine Months
                                                                Ended September 30        Ended September 30
(Cdn$ millions)                                                  2005        2004         2005          2004
-------------------------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>          <C>           <C>
Net Income                                                        615         220          852           547
Earnings per Common Share ($/share)                              2.36        0.85         3.28          2.13
Cash Flow from Operating Activities                               642         403        1,675         1,230

Production, before Royalties (mboe/d)                             232         244          247           247
Production, after Royalties (mboe/d)                              164         170          176           171
Nexen's Average Realized Oil and Gas Price (Cdn$/boe)           67.09       48.66        56.44         44.29

Capital Expenditures                                              648         380        1,923         1,046
Net Debt (1)                                                    3,585       1,432        3,585         1,432
                                                            -------------------------------------------------
</TABLE>

Note:
(1)  Net debt is defined as long-term debt less net working capital.

Our third quarter was characterized by the successful execution of our
divestiture program and record high commodity prices. We sold conventional
Canadian oil and gas properties in Alberta, British Columbia and Saskatchewan
and raised $900 million in proceeds after closing adjustments ($946 million
before closing adjustments primarily related to production during the period
from the effective date of the sales to the closing date). In addition, we
raised $301 million of net proceeds from the initial public offering of our
chemicals operations. Gains of $418 million were generated from these
transactions and proceeds were used to repay debt and fund our development
projects.

Tight refining capacity, along with production disruptions from an active
hurricane season in the Gulf of Mexico, lifted commodity prices to all-time
highs. The record prices contributed to our improved results.

Our marketing group reported a loss of $162 million for the third quarter. As a
marketer of natural gas, we actively hold natural gas in storage and pipeline
capacity to transport gas from Alberta to eastern markets. We use financial
instruments to preserve the economic value of these physical assets. During the
quarter, Hurricanes Katrina and Rita caused volatility in the market. This
resulted in a significant increase in the value of our physical assets. At the
same time, the value of the financial instruments protecting the value of these
assets decreased. While accounting rules require us to recognize the loss on the
financial instruments, they do not allow us to recognize the gain on the
offsetting physical assets until the gas is delivered and sold. At quarter-end,
we had unrecognized gains of $195 million relating to this pipeline and storage
capacity that we expect to realize in net income over the next two quarters as
the gas is delivered and sold in eastern markets.

During the quarter, our stock price increased 49% or $18.25 per share, adding
approximately $5 billion in shareholder value. Our stock price has more than
doubled since the beginning of the year. This has resulted in stock based
compensation expense of $260 million for the quarter and $450 million year to
date.

                                       30
<PAGE>

Compared to the second quarter of 2005, our production before royalties declined
by 19,000 boe/d from 251,000 boe/d to 232,000 boe/d. This is largely the result
of selling oil and gas properties in Canada which produced 18,300 boe/d in the
second quarter. These properties contributed 6,500 boe/d to our third quarter
production before the sales closed in July and August. In Yemen, new production
from Block 51 offset base declines in Masila and efforts to enhance recovery
rates from our remaining oil and gas producing properties in Canada yielded
positive results. Our quarterly production, however, was reduced by
approximately 10,000 boe/d from hurricane-related downtime in the Gulf of
Mexico. We expect our average production for the year to be near the mid-point
of our guidance of between 235,000 and 245,000 boe/d, even after our asset
dispositions and the impact of storms in the Gulf.

We progressed our major development projects at Buzzard in the North Sea, at
Long Lake and at Syncrude Stage 3.

CAPITAL INVESTMENT

Capital investment during the third quarter was focused primarily on our major
development projects and on exploration drilling in the Gulf of Mexico, the
North Sea and offshore West Africa. Our capital investment over the next two
years is focused on bringing our major development projects on-stream. To date,
we have invested over $4 billion in the Buzzard, Long Lake and Syncrude Stage 3
development projects. These projects are expected to come on-stream in 2006 and
are expected to add almost 120,000 boe/d (net to us) of new production by the
end of 2007.

In addition to developing these projects, we are also targeting new
opportunities through on-going exploration and the application of new
technologies. Details of our capital programs are set out below.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2005

                                                                New Growth        New Growth       Core Asset
(Cdn$ millions)                                                Development       Exploration      Development          Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>              <C>              <C>
Oil and Gas
   Synthetic (mainly Long Lake)                                        188                 -                -            188
   United Kingdom                                                      114                35               17            166
   Yemen                                                                31                11               22             64
   United States                                                         -                46               28             74
   Canada                                                                1                26               47             74
   Other Countries                                                       -                15                3             18
Syncrude                                                                35                 -               20             55
                                                           ------------------------------------------------------------------
                                                                       369               133              137            639

Chemicals, Marketing, Corporate and Other                                -                 -                9              9
                                                           ------------------------------------------------------------------
Total Capital                                                          369               133              146            648
                                                           ==================================================================
As a % of Total Capital                                                57%               21%              22%           100%
                                                           ------------------------------------------------------------------

<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2005

                                                                New Growth        New Growth       Core Asset
(Cdn$ millions)                                                Development       Exploration      Development          Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>              <C>              <C>
Oil and Gas
   Synthetic (mainly Long Lake)                                        555                 -                -            555
   United Kingdom                                                      348                51               76            475
   Yemen                                                               128                27               56            211
   United States                                                         -               178               98            276
   Canada                                                                8                53              105            166
   Other Countries                                                       -                48               10             58
Syncrude                                                               108                 -               41            149
                                                           ------------------------------------------------------------------
                                                                     1,147               357              386          1,890

Chemicals, Marketing, Corporate and Other                                -                 -               33             33
                                                           ------------------------------------------------------------------
Total Capital                                                        1,147               357              419          1,923
                                                           ==================================================================
As a % of Total Capital                                                60%               18%              22%           100%
                                                           ------------------------------------------------------------------
</TABLE>

                                       31
<PAGE>

NEW GROWTH DEVELOPMENT

SYNTHETIC (LONG LAKE)
Long Lake continues on schedule and on budget. With detailed engineering largely
completed, approximately 60% of the project's total costs committed, and
approximately 45% of these costs incurred, our experience remains in line with
our original estimates. The major remaining cost uncertainty is related to
labour access and productivity. We are monitoring these factors as field
construction progresses. Long Lake is scheduled to commence steam injection in
late-2006 and synthetic crude oil production in 2007.

We and our joint venture partner, OPTI Canada, are currently planning three
future phases to increase total production to 240,000 bbls/d by 2016 (120,000
bbls/d net to us). Phase 2 will develop the southern portion of the Long Lake
lease, known as Kinosis. Phases 3 and 4 are planned to develop jointly held
lands at Cottonwood and Leismer. Detailed planning for Phase 2 has commenced. In
2006, we will invest in additional drilling and seismic to further evaluate our
leases. We are moving forward with environmental and regulatory applications to
support these staged developments.

Phase 2 steam assisted gravity drainage (SAGD) could be on-stream by late 2010
with upgrader start up by the second half of 2011. Each subsequent phase will
leverage the knowledge and experience gained in the successful development of
previous phases. Future phases will be of a similar size and design to Long
Lake, and consist of SAGD and an integrated upgrader. By keeping the core team
in place and repeating and improving upon existing designs and execution plans,
we expect to gain efficiencies in engineering, module fabrication and on-site
construction.


UNITED KINGDOM
The Buzzard development in the North Sea is over 80% complete and remains on
schedule and on budget. We have installed the platform jackets and wellhead
deck. Export and water injection pipelines have been installed and final tie-in
of these pipelines is ongoing. We are mobilizing the Galaxy 3 drilling rig and
will commence drilling the eight initial development wells shortly. Buzzard is
scheduled to come on-stream late-2006. At its peak, Buzzard is expected to add
approximately 85,000 boe/d of net production and between $1.6 and $1.7 billion
of annual cash flow, assuming a US$50/bbl WTI.

Our Farragon field development remains on schedule to begin producing late this
year at between 3,000 and 4,000 boe/d, net to us.

CANADA (COAL BED METHANE)
We and our partners plan to invest approximately $400 million over the next 18
months to develop coal bed methane from Upper Mannville coals in the Fort
Assiniboine area of Alberta. This capital will be used to drill wells, construct
production and water handling facilities, and expand existing facilities in the
Corbett area. We are currently finalizing our drilling program and expect to
have four drilling rigs active in the Corbett area during the fourth quarter.

NEW GROWTH EXPLORATION
We had two small exploration successes in the North Sea during the quarter: the
Polecat-1 well on Block 20/4a and the Yeoman-1 well on Block 15/18b. We have a
40% interest in Polecat and a 50% interest in Yeoman and operate both
discoveries. We are currently drilling the Black Horse prospect on Block 15/22
and expect to drill one or two additional exploration wells in the North Sea
this year.

One of our core strategies in the deep-water Gulf of Mexico is to explore for
Miocene-aged, subsalt prospects in the Green Canyon, Walker Ridge, and Garden
Banks areas. This strategy produced encouraging results during the second
quarter at our Knotty Head prospect in a shallower, secondary objective
containing good quality sands.

Knotty Head is a large, four-way dip closure located approximately 15 miles
northeast of the Tahiti discovery. The well is continuing to drill towards the
primary objective in the lower Miocene, to a total depth of 32,500 feet. We have
a 25% working interest in Knotty Head.

Elsewhere in the Gulf, Castleton, on Garden Banks 668 has reached its target
depth and is being evaluated. This is a potential tie-back to the Gunnison
facilities where we have available production capacity. We have a 30%
non-operated interest in this well.

Drilling activity on our Pathfinder and Ringo Shallow prospects has been delayed
due to hurricane damage to drilling rigs. Pathfinder, on Green Canyon 390 is
expected to resume drilling late this year. Ringo, on Mississippi Canyon 546, is
expected to begin drilling early next year.

On Block 51 in Yemen, the BAK-I-2 well was abandoned. The BAK-U-1 is currently
testing a basement target north of the BAK-A field. At BAK-J, we expect to
re-enter the well and commence testing and drilling early in the fourth quarter.

                                       32
<PAGE>

Offshore West Africa, the Usan-7 and Usan-8 appraisal wells were successfully
drilled during the quarter. The Field Development Plan for Usan on Block 222 has
been approved by the Nigerian National Petroleum Corporation, the concessionaire
of the licence. We are currently seeking approval from the Department of
Petroleum Resources. The plan features development of Usan through 35 subsea
wells connected to a two million barrel floating production and storage facility
by subsea lines and risers. The processing capacity will be around 160,000
barrels of oil per day. The operator has taken initial steps in the tendering
process by publishing pre-qualification notices for contractors. A final
investment decision is expected in 2006 with first oil planned by 2010.

<TABLE>
<CAPTION>
FINANCIAL RESULTS

CHANGE IN NET INCOME
                                                                                          2005 VS 2004
                                                                             Three Months            Nine Months
(Cdn$ millions)                                                           Ended September 30     Ended September 30
--------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                    <C>
NET INCOME AT SEPTEMBER 30, 2004 (1)                                                      220                   547
                                                                       =============================================
    Favourable (unfavourable) variances:

    Cash Items:
      Production volumes, after royalties:
        Crude oil                                                                         (14)                  119
        Natural gas                                                                       (10)                  (24)
        Change in crude oil inventory                                                      29                    24
                                                                       ---------------------------------------------
          Total Volume Variance                                                             5                   119

      Realized commodity prices:
        Crude oil                                                                         213                   441
        Natural gas                                                                        61                    74
                                                                       ---------------------------------------------
          Total Price Variance                                                            274                   515

      Oil and gas operating expense:
        Conventional                                                                      (10)                  (57)
        Syncrude                                                                           (6)                  (20)
                                                                       ---------------------------------------------
          Total Operating Expense Variance                                                (16)                  (77)

      Marketing                                                                          (158)                  (61)
      Chemicals                                                                            16                    29
      General and administrative
        Stock-based compensation paid                                                     (32)                  (48)
        Other                                                                             (37)                  (60)
      Interest expense                                                                     16                    34
      Current income taxes                                                                (22)                  (66)
      Other                                                                               (49)                  (53)
                                                                       ---------------------------------------------
    Total Cash Variance                                                                    (3)                  332

    Non-Cash Items:
      Depreciation, depletion, amortization and impairment
        Oil and gas                                                                       (73)                 (218)
        Other                                                                              (2)                  (17)
      Exploration expense                                                                  22                   (57)
      General and administrative - stock-based compensation accrual                      (216)                 (292)
      Future income taxes                                                                 264                   322
      Decrease in fair value of crude oil put options                                      (1)                 (184)
      Gain from divesture programs                                                        418                   418
      Other                                                                               (14)                    1
                                                                       ---------------------------------------------
    Total Non-Cash Variance                                                               398                   (27)
                                                                       ---------------------------------------------

NET INCOME AT SEPTEMBER 30, 2005                                                          615                    852
                                                                       =============================================
</TABLE>

Note:
(1) Includes results of discontinued operations (see Note 15 to our Unaudited
    Consolidated Financial Statements).

Significant variances in net income are explained further in the following
sections.

                                       33
<PAGE>

<TABLE>
<CAPTION>
OIL & GAS AND SYNCRUDE

PRODUCTION (BEFORE ROYALTIES) (1)

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
                                                                                  2005        2004          2005         2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>         <C>           <C>          <C>
Oil and Liquids (mbbls/d)
    Yemen                                                                        113.7       103.3         114.4        107.8
    Canada (2)                                                                    26.3        35.6          31.8         36.5
    United States                                                                 18.5        32.9          23.3         28.5
    United Kingdom                                                                 9.4           -          11.3            -
    Australia (3)                                                                    -         2.1             -          3.0
    Other Countries                                                                5.3         5.3           5.5          5.1
Syncrude (4)                                                                      17.2        17.6          15.2         17.5
                                                                         -----------------------------------------------------
                                                                                 190.4       196.8         201.5        198.4
                                                                         -----------------------------------------------------
Natural Gas (mmcf/d)
    Canada (2)                                                                     112         141           132          145
    United States                                                                  122         144           123          148
    United Kingdom                                                                  14           -            19            -
                                                                         -----------------------------------------------------
                                                                                   248         285           274          293
                                                                         -----------------------------------------------------

Total (mboe/d)                                                                     232         244           247          247
                                                                         =====================================================

<CAPTION>
PRODUCTION (AFTER ROYALTIES)

                                                                                    Three Months              Nine Months
                                                                                 Ended September 30        Ended September 30
                                                                                  2005        2004          2005         2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>         <C>           <C>          <C>
Oil and Liquids (mbbls/d)
    Yemen                                                                         61.2        50.8          60.9         53.0
    Canada (2)                                                                    19.7        27.3          24.5         28.2
    United States                                                                 16.2        29.1          20.6         25.1
    United Kingdom                                                                 9.4           -          11.3            -
    Australia (3)                                                                    -         1.9             -          2.8
    Other Countries                                                                4.9         4.9           5.2          4.7
Syncrude (4)                                                                      17.0        17.4          15.0         17.3
                                                                         -----------------------------------------------------
                                                                                 128.4       131.4         137.5        131.1
                                                                         -----------------------------------------------------
Natural Gas (mmcf/d)
    Canada (2)                                                                      95         106           105          114
    United States                                                                  103         123           104          126
    United Kingdom                                                                  14           -            19            -
                                                                         -----------------------------------------------------
                                                                                   212         229           228          240
                                                                         -----------------------------------------------------

Total (mboe/d)                                                                     164         170           176          171
                                                                         =====================================================

<CAPTION>
Notes:
(1)  We have presented production volumes before royalties as we measure our
     performance on this basis consistent with other Canadian oil and gas
     companies.
(2)  Includes the following production from discontinued operations. See Note 15
     to our Unaudited Consolidated Financial Statements.

                                                                                    Three Months               Nine Months
                                                                                Ended September 30         Ended September 30
                                                                                  2005        2004          2005         2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>         <C>           <C>          <C>
      Before Royalties
        Oil and Liquids (mbbls/d)                                                  4.3        11.4           9.0         11.9
        Natural Gas (mmcf/d)                                                        13          48            32           48
      After Royalties
        Oil and Liquids (mbbls/d)                                                  3.3         8.7           7.0          9.0
        Natural Gas (mmcf/d)                                                         9          33            22           33
                                                                         -----------------------------------------------------
</TABLE>

(3)  Comprises production from discontinued operations. See Note 15 to our
     Unaudited Consolidated Financial Statements.
(4)  Considered a mining operation for US reporting purposes.

                                       34
<PAGE>

LOWER PRODUCTION DECREASED NET INCOME FOR THE QUARTER BY $24 MILLION
Production before royalties decreased 8% from the second quarter as a result of
the sale of Canadian conventional oil and gas properties in Alberta, British
Columbia and Saskatchewan. Our 2005 production includes volumes from our North
Sea acquisition late last year and additional volumes from our Block 51 project
in Yemen. Removing the impact of the asset sales, third quarter production is
comparable to the third quarter of 2004 and year-to-date volumes have increased
2% compared to the same period last year.

The following table summarizes our production volume changes since the last
quarter:

                                                          Before        After
(mboe/d)                                               Royalties    Royalties
------------------------------------------------------------------------------
Production, second quarter 2005                             251          180
    Production changes:
      Masila Block in Yemen                                  (7)          (4)
      Block 51 in Yemen                                       6            2
      Canada, disposition of properties                     (12)          (9)
      Gulf of Mexico, Gunnison and the Shelf                  6            5
      Gulf of Mexico, hurricane-related downtime            (10)          (9)
      Other                                                  (2)          (1)
                                                       ----------------------
Production, third quarter 2005                              232          164
                                                       ======================

Our expected future production increases from known projects will come from
Syncrude in 2006, our North Sea Buzzard project in late-2006, along with bitumen
production in 2006 and synthetic crude in 2007 from our Long Lake project.
Production volumes discussed in this section represent before-royalties volumes,
net to our working interest.

YEMEN
Production from Masila decreased 8% from the second quarter. We are continuing
to see strong initial production rates from development wells drilled and our
development drilling program has helped offset the decline rate on our maturing
Masila fields. We continue to strategically invest capital and are managing our
2005 development drilling program accordingly. In 2004, we drilled 73
development wells and we expect to drill at least 35 wells in 2005.

Block 51 production averaged 30,600 bbls/d in the third quarter, an increase of
22% from the second quarter. We are currently producing from ten wells to
partially completed processing facilities which we expect to complete in the
fourth quarter.

CANADA
Production in Canada decreased 23% from the previous quarter as a result of the
sale of oil and gas properties in Alberta, British Columbia and Saskatchewan,
which produced approximately 18,300 boe/d in the second quarter. Production from
operations that were not sold during the quarter decreased 2% from the second
quarter. Canadian production after the sale is primarily from our heavy oil and
natural gas properties in Alberta and Saskatchewan. We are focusing our capital
on drilling shallow gas wells, on our coal bed methane development projects and
on developing new technologies to increase heavy oil recovery rates. Production
volumes are expected to increase starting in 2006 with the commencement of
bitumen production from Long Lake.

UNITED STATES
Gulf of Mexico production decreased from the second quarter of 2005 because of
the adverse effect of hurricanes, tropical storms and pipeline shut-ins.
Hurricane-related downtime resulted in approximately 10,000 boe/d of lost
production during the quarter. With the exception of our platforms at Vermilion
321 and 340, preliminary inspections suggest that our facilities received only
minor damage from the third quarter hurricanes. Hurricane Rita caused topside
damage to the platforms at Vermilion 321 and 340 and further assessments are
underway to determine if there is any structural damage. Production from these
platforms prior to Hurricane Rita was approximately 3,900 boe/d. We carry
insurance that, subject to certain deductibles, we expect will cover property
damage and business interruption. We have expensed insurance related costs and
deductibles of US$19 million during the quarter as a result of the hurricanes.

Production from Aspen continues to be affected by water production. We are
currently working on plans to drill another development well at Aspen to tap
unrecovered reserves. We tied-in an additional sub-sea well during the quarter
on our other major deep-water project at Gunnison. We expect to complete and
tie-in another Gunnison well during the fourth quarter.

Strong rates from development drilling in the shallow-waters completed in the
quarter helped to maintain production volumes from our shelf properties.
Additional development projects on various shelf fields are expected to be
completed during the fourth quarter.

                                       35
<PAGE>

UNITED KINGDOM
Third quarter North Sea production from the Scott and Telford fields decreased
slightly from the prior quarter. The Scott platform underwent a significant
maintenance turnaround and facilities upgrade during the second and third
quarters to improve reliability and facility capacity. The facilities upgrades
included significant improvements to the electric, produced water injection,
drilling and metering systems. The overhaul was completed in August. Additional
development drilling in the Scott field is ongoing and our Farragon field
development remains on schedule to begin producing late this year at between
3,000 and 4,000 boe/d. Production is expected to increase in late-2006 once the
Buzzard development comes on-stream.

OTHER COUNTRIES
Production from our Guando field in Colombia averaged 5,300 bbls/d during the
quarter. Production increased from 2004 as a result of our development drilling
program.

Australia produced its final barrel in November 2004 and abandonment and
reclamation activities are complete. We sold our Ejulebe field assets, offshore
Nigeria, in the second quarter.

SYNCRUDE
Syncrude production was consistent with the second quarter even with unscheduled
downtime related to minor repairs on a hydrogen plant, pipeline maintenance and
valve replacements for feed pumps during the quarter. Production was reduced
late in the quarter for the scheduled 52-day turnaround of the vacuum
distillation unit. The start-up of the Stage 3 expansion is expected to increase
our volumes by approximately 8,000 bbls/d in 2006.

<TABLE>
<CAPTION>
COMMODITY PRICES
                                                                                    Three Months               Nine Months
                                                                                Ended September 30        Ended September 30
                                                                                  2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>          <C>           <C>
CRUDE OIL AND NGLS
    West Texas Intermediate (WTI) (US$/bbl)                                      63.52       43.88        55.51         39.11
                                                                         -----------------------------------------------------

    Differentials (1) (US$/bbl)
      Masila                                                                      5.00        3.70         5.59          3.85
      Heavy Oil - LLK                                                            19.17       12.84        19.88         11.44
      Mars                                                                        6.58        6.08         6.49          5.21
      Dated Brent                                                                 1.98           -         1.97             -

    Producing Assets (Cdn$/bbl)
      Yemen                                                                      72.04       53.80        61.64         46.97
      Canada                                                                     51.05       41.94        41.80         36.85
      United States                                                              68.30       49.90        56.89         45.44
      United Kingdom                                                             65.87           -        58.88             -
      Australia                                                                      -           -            -         46.00
      Other Countries                                                            65.82       46.22        55.22         43.12
      Syncrude                                                                   78.93       55.58        71.08         51.11

    Corporate Average (Cdn$/bbl)                                                 68.99       50.98        58.39         45.17
                                                                         -----------------------------------------------------

NATURAL GAS
    New York Mercantile Exchange (NYMEX) (US$/mmbtu)                              9.69        5.56         7.71          5.82
    AECO (Cdn$/mcf)                                                               7.75        6.32         7.03          6.34
                                                                         -----------------------------------------------------

    Producing Assets (Cdn$/mcf)
      Canada                                                                      8.19        5.43         6.66          5.66
      United States                                                              11.57        7.64         9.63          7.88
      United Kingdom                                                              4.84           -         6.00             -

    Corporate Average (Cdn$/mcf)                                                  9.68        6.55         7.95          6.78
                                                                         -----------------------------------------------------

NEXEN'S AVERAGE REALIZED OIL AND GAS PRICE (Cdn$/boe)                            67.09       48.66        56.44         44.29
                                                                         -----------------------------------------------------

AVERAGE FOREIGN EXCHANGE RATE
    Canadian to US Dollar (US$)                                                 0.8325      0.7650       0.8170        0.7530
                                                                         -----------------------------------------------------
</TABLE>

Note:
(1)  These differentials are a discount to WTI.

                                       36
<PAGE>

HIGHER REALIZED COMMODITY PRICES INCREASED QUARTERLY NET INCOME BY $274 MILLION
WTI continued its run to new record highs in the quarter averaging US$63.52/bbl
compared to US$43.88/bbl in the third quarter of 2004 (an increase of 45%). We
realized record prices for our crude oil, averaging $68.99/bbl in the quarter,
an increase of 35% over the third quarter of 2004. Our realized gas price
increased 48% from a year ago to average $9.68/mcf. NYMEX increased 74% in the
same period averaging US$9.69/mmbtu.

The full benefit of higher benchmark prices did not flow through to our realized
prices as a result of a weaker US dollar during the quarter. All of our oil
sales and most of our gas sales are denominated in or referenced to US dollars.
As a result, the weakening US dollar decreased net sales for the quarter by
approximately $90 million ($230 million for the year to date), and reduced our
realized crude oil and natural gas prices by approximately $6.10/bbl and
$0.85/mcf, respectively, compared to the third quarter of 2004.

CRUDE OIL REFERENCE PRICES
Crude oil prices strengthened throughout the third quarter with WTI ranging from
US$59 to US$71 per barrel. Despite a strong build in US and global crude oil
inventory levels, the effects of Hurricanes Katrina and Rita put pressure on
tight refinery capacity for product inventories, particularly US gasoline and
WTI spiked in the high US$60 per barrel range. While the hurricane damage to oil
infrastructure is still being assessed, the cumulative effects of the two
hurricanes may be significant and energy prices remain vulnerable to further
supply disruptions.

Energy prices have since reverted to pre-Katrina levels. The decline was
prompted by a combination of factors including fear of overall crude oil demand
destruction. The announced release of oil from the US strategic petroleum
reserve and from International Energy Agency member country reserves coupled
with decisions by several refineries to postpone seasonal maintenance has also
resulted in price softening. Any perceived weakening of economic growth or lower
demand as a result of high energy prices will put downward pressure on commodity
prices.

CRUDE OIL DIFFERENTIALS
Our Canadian heavy crude differential averaged US$24.70/bbl. This compares to a
benchmark LLK heavy differential of US$19.17/bbl. In the second quarter, the LLK
heavy differential was US$21.15/bbl. The narrowing of this differential in the
third quarter, despite higher reference prices, was driven by increased demand
for heavy blends relative to light blends. This reflects normal seasonal
narrowing as we headed into the summer asphalt season. Hurricane Katrina caused
further narrowing of the heavy differential during the month of August because
much of the heavy oil production from the Gulf to US mid-continent was shut-in,
thereby increasing the demand for Canadian heavy oil.

In the US Gulf of Mexico, the Mars differential averaged US$6.58/bbl. Mars
strengthened throughout the quarter mainly due to production interruptions from
Hurricane Katrina, but did not outpace WTI, resulting in a slight widening of
the differential. With the additional impact of Hurricane Rita in mid-September,
approximately 94% of oil production and 76% of natural gas production was
shut-in at the end of the quarter, while 18% of refining capacity remains
off-line mainly due to damage at Port Arthur.

Our Yemen Masila differential was US$5.00/bbl. The Masila differential has
narrowed slightly throughout the quarter with continuing strong demand in
south-east Asia for crude oil, particularly sweeter blends.

The Brent/WTI differential has also narrowed throughout the quarter averaging
US$1.98/bbl, resulting in a solid crude oil price for our North Sea barrels. In
the North Sea, increased Norwegian output in July was largely offset by lower
production in August caused by normal summer field maintenance as well as
unplanned outages. The shut-in of BP's Schiehallion field following a fire on
the floating production vessel resulted in lost production of 120,000 barrels
per day for three weeks driving up North Sea prices and narrowing the Brent/WTI
differential.

NATURAL GAS REFERENCE PRICES
Natural gas prices strengthened significantly in the quarter. The average NYMEX
gas price was US$9.69/mmbtu. Prices increased throughout the third quarter
largely reflecting increased demand from prolonged summer heat waves in the east
and the general tightening of the supply/demand balance. Hotter-than-normal
weather reduced the pace at which gas was stored this summer, even before
Hurricanes Katrina and Rita cut output. Upward pressure on prices caused by
hurricane production losses, ahead of expected colder-than-normal winter weather
in key natural gas consuming areas, should support strong prices for the
remainder of 2005.

                                       37
<PAGE>

<TABLE>
<CAPTION>
OPERATING COSTS

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$/boe)                                                                        2005        2004          2005         2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>           <C>          <C>
Operating Costs per boe based on our working interest production
    before royalties (1)
      Conventional Oil and Gas (2)                                                5.94        5.25          5.85         5.01
      Synthetic Crude Oil
        Syncrude                                                                 23.22       18.87         26.44        18.72
      Total Oil and Gas (2)                                                       7.21        6.25          7.11         5.98
                                                                         -----------------------------------------------------

Operating Costs per boe based on our net production after royalties
      Conventional Oil and Gas (2)                                                8.69        7.93          8.45         7.53
      Synthetic Crude Oil
        Syncrude                                                                 23.46       19.05         26.70        18.91
      Total Oil and Gas (2)                                                      10.21        9.11         10.00         8.68
                                                                         -----------------------------------------------------
</TABLE>

Notes:
(1)  Operating costs per boe are our total oil and gas operating costs divided
     by our working interest production before royalties. We use production
     before royalties to monitor our performance consistent with other Canadian
     oil and gas companies.
(2)  Operating costs includes results of discontinued operations (see Note 15 to
     our Unaudited Consolidated Financial Statements).

HIGHER CONVENTIONAL OIL AND GAS AND SYNCRUDE OPERATING COSTS DECREASED NET
INCOME FOR THE QUARTER BY $16 MILLION
The addition of higher-cost North Sea barrels has increased our corporate
average unit costs since 2004. Our North Sea operating costs per boe were higher
than anticipated following maintenance and repair work from generator failures
and a major maintenance turnaround at Scott during the quarter. Overall, the
North Sea increased our corporate average unit operating costs by $1.03/boe as
compared to the third quarter of 2004.

Unit operating costs at Masila increased from the prior year as a result of
increased service rig activity, additional maintenance and lower volumes. Block
51 costs are higher than Masila reflecting the use of temporary facilities. Our
corporate average increased $0.65/boe from these higher costs.

Our corporate average unit cost decreased $0.80/boe from the third quarter in
2004 as we expensed Aspen-1 intervention costs of $12 million last year.
Workovers on our shelf properties in the Gulf of Mexico, coupled with lower
production and property damage costs not covered by insurance, increased our
corporate average $0.30/boe as to the comparable period in 2004.

The Canadian properties that were sold during the quarter decreased our overall
rate by $0.22/boe. Although we sold high cost production relative to our
corporate average, we expect our overall Canadian operating costs per boe to
increase as we will have a higher proportion of production from our heavy oil
properties. These properties have higher operating costs and lower recovery
rates compared to the lighter oil production that was sold. We are focusing our
efforts on increasing recovery rates from our heavy oil properties through the
development of new technologies.

US-dollar denominated operating costs were lower when translated to Canadian
dollars as a result of the weaker US dollar. Our corporate average was reduced
by $0.25/boe as a result.

Syncrude operating costs were up from the third quarter in 2004. Unplanned
maintenance and repair work in addition to higher energy input costs for fuel
consumed in operations increased our corporate average operating costs by
$0.30/boe in the quarter.


                                       38
<PAGE>

<TABLE>
<CAPTION>
DEPRECIATION, DEPLETION, AMORTIZATION AND IMPAIRMENT (DD&A)

                                                                                   Three Months                Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$/boe)                                                                        2005        2004          2005         2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>          <C>          <C>           <C>
DD&A per boe based on our working interest production
    before royalties (1)
      Conventional Oil and Gas (2)                                               11.65        7.83         10.92         7.59
      Synthetic Crude Oil
        Syncrude                                                                  2.85        2.72          3.19         2.73
      Average Oil and Gas (2)                                                    11.01        7.46         10.44         7.25
                                                                         -----------------------------------------------------

DD&A per boe based on our net production after royalties
      Conventional Oil and Gas (2)                                               17.05       11.85         15.76        11.40
      Synthetic Crude Oil
        Syncrude                                                                  2.88        2.75          3.22         2.75
      Average Oil and Gas (2)                                                    15.59       10.88         14.70        10.52
                                                                         -----------------------------------------------------
</TABLE>

Notes:
(1)  DD&A per boe is our DD&A for oil and gas operations divided by our working
     interest production before royalties. We use production before royalties to
     monitor our performance consistent with other Canadian oil and gas
     companies.
(2)  DD&A includes results of discontinued operations (see Note 15 to our
     Unaudited Consolidated Financial Statements).

HIGHER OIL AND GAS DD&A REDUCED NET INCOME FOR THE QUARTER BY $73 MILLION
Strong production volumes, new production from our North Sea assets and
additional capital cost recovery from Block 51 in Yemen increased our third
quarter oil and gas DD&A as compared to the third quarter of 2004. The North Sea
fields purchased in late-2004 include an allocation of the acquisition cost of
our interests in the Scott and Telford fields. North Sea depletion increased our
overall corporate average rate by $1.53/boe for the quarter.

Production from Block 51 in Yemen increased our corporate unit depletion by
$3.32/boe in the quarter from 2004 as a result of carried interest accounting
with respect to the recovery of Block 51 capital costs. Strong production and
higher realized oil prices have allowed faster recovery of capital costs we paid
on behalf of the government.

By way of offset, we benefited from a strong Canadian dollar as the depletion of
our US and international assets are denominated in US dollars. This lowered our
depletion rate by $0.68/boe. Depletion from our Canadian assets decreased during
the quarter as properties that were sold were removed from the depletion pool.
This lowered our corporate unit average by $0.63/boe.

<TABLE>
<CAPTION>
EXPLORATION EXPENSE

                                                                                   Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
                                                                                  2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>          <C>           <C>
Seismic                                                                             17          15           37            40
Unsuccessful Exploration Drilling                                                    3          27           87            27
Other                                                                               12          12           41            41
                                                                         -----------------------------------------------------
Total Exploration Expense (1)                                                       32          54          165           108
                                                                         =====================================================

New Growth Exploration                                                             133          30          357            96
Geological and Geophysical Costs                                                    17          15           37            40
                                                                         -----------------------------------------------------
Total Exploration Expenditures                                                     150          45          394           136
                                                                         =====================================================

Exploration Expense as a % of Exploration Expenditures                              21%        120%          42%           79%
                                                                         -----------------------------------------------------
</TABLE>

Note:
(1)  Exploration expense includes results of discontinued operations (see Note
     15 to our Unaudited Consolidated Financial Statements).

LOWER EXPLORATION EXPENSE INCREASED QUARTERLY NET INCOME BY $22 MILLION
Exploration expense in the quarter included additional costs relating to the
unsuccessful Vrede well in the Gulf of Mexico which was abandoned in the second
quarter.

                                       39
<PAGE>

Exploration capital spending in the third quarter included exploration activity
in the North Sea, the Gulf of Mexico and Yemen. In the North Sea, we had two
small exploration successes at Yeoman-1 on Block 15/18b and at Polecat-1 on
Block 20/4a. We have a 50% interest in Yeoman and a 40% interest in Polecat. We
are currently drilling the Black Horse prospect on Block 15/22 and expect to
drill one or two additional exploration wells in the North Sea this year.

In the Gulf of Mexico, drilling activity continued throughout the quarter on our
Knotty Head prospect as we drill towards our primary objective at a depth of
32,500 feet. We made a discovery earlier in the year on this prospect in a
shallower, secondary objective. Our Castleton prospect on Garden Banks 668
reached its target depth and is being evaluated. We have a 30% non-operated
interest in this well. Drilling activity at the Pathfinder and the Ringo Shallow
prospects has been delayed due to hurricane damage to the drilling rigs.
Pathfinder is expected to resume drilling late this year and Ringo is expected
to begin drilling early next year.

In Yemen, we drilled the BAK-I-2 well on Block 51 which was abandoned. The
BAK-U-1 well is currently testing a basement target north of the BAK-A field. At
BAK-J, we expect to re-enter the well and commence testing and drilling early in
the fourth quarter.

<TABLE>
<CAPTION>
OIL AND GAS MARKETING

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$ millions)                                                                   2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>        <C>          <C>           <C>
    Marketing Revenue, net                                                          29         144          481           403
    Transportation                                                                (147)       (106)        (475)         (338)
    Other                                                                           (2)          -           (4)           (2)
                                                                         -----------------------------------------------------
Net Revenue                                                                       (120)         38            2            63
                                                                         -----------------------------------------------------

Physical Sales Volumes (excluding intra-segment transactions)
    Crude Oil (mboe/d)                                                             470         445            475         444
    Natural Gas (mmcf/d)                                                         4,989       4,929          4,858       4,703

Value-at-Risk
    Quarter-end                                                                     26          27             26          27
    High                                                                            30          36             30          36
    Low                                                                             14          27             14          17
    Average                                                                         21          33             23          28
                                                                         -----------------------------------------------------
</TABLE>

LOWER CONTRIBUTION FROM MARKETING DECREASED QUARTERLY NET INCOME BY $158 MILLION
In the third quarter, our marketing division recorded a net revenue loss of $120
million. This results in a loss of $162 million after DD&A and general and
administrative expenses. As a marketer of natural gas, we actively hold natural
gas in storage and pipeline capacity to transport gas from Alberta to eastern
markets. We use financial instruments to preserve the economic value of these
physical assets. During the quarter, Hurricanes Katrina and Rita caused
volatility in the market, which resulted in a significant increase in the value
of our physical assets. At the same time, the value of the financial instruments
protecting the value of these assets decreased. Accounting rules require us to
recognize the loss on the financial instruments, but they do not allow us to
recognize the gain on the offsetting assets until the gas is delivered and sold.
The unrecognized economic value of these offsetting assets amounts to $195
million, which we expect to recognize in income over the next two quarters as
the gas is delivered and sold in eastern markets.

With respect to crude oil, our crude oil trading group took advantage of time
spreads to capture gains. In addition, we realized gains from narrowing heavy
and sour differentials by liquidating a portion of our heavy oil and sour oil
inventory positions.

<TABLE>
<CAPTION>
COMPOSITION OF NET MARKETING REVENUE

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$ millions)                                                                   2005        2004         2005         2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>         <C>            <C>
Trading Activities                                                                (129)         29          (20)           48
Non-Trading Activities                                                               9           9           22            15
                                                                         -----------------------------------------------------
                                                                                  (120)         38            2            63
                                                                         =====================================================
</TABLE>

                                       40
<PAGE>

TRADING ACTIVITIES
In marketing, we enter into contracts to purchase and sell crude oil and natural
gas. We also use financial and derivative contracts, including futures,
forwards, swaps and options for hedging and trading purposes. These derivative
contracts are valued as described in the MD&A included in our 2004 Annual Report
on Form 10-K. Results from trading activities include physical purchases and
sales, gains and losses on derivative contracts and income relating to our
storage and transportation assets.

FAIR VALUE OF MARKETING DERIVATIVE CONTRACTS
At September 30, 2005, the fair value of our marketing derivative contracts not
designated as accounting hedges totalled $52 million. The following table shows
the valuation methods underlying these contracts together with details of
contract maturity:

<TABLE>
<CAPTION>
(Cdn$ millions)                                                                           MATURITY
--------------------------------------------------------------------------------------------------------------------------------
                                                              less than                                  more than
                                                                  1 year      1-3 years    4-5 years       5 years        Total
                                                            --------------------------------------------------------------------
<S>                                                           <C>             <C>          <C>           <C>              <C>
Prices
    Actively Quoted Markets                                           7             (10)           -             -           (3)
    From Other External Sources                                     (50)             90           12             3           55
    Based on Models and Other Valuation Methods                       -               -            -             -            -
                                                            --------------------------------------------------------------------
Total                                                               (43)             80           12             3           52
                                                            ====================================================================
</TABLE>

At September 30, 2005, we had $121 million of unrecognized losses on our
marketing derivative contracts designated as accounting hedges of the future
sale of our gas inventory. These losses will be recognized in income when the
related inventory is sold and gains are recognized. These contracts were valued
from actively quoted markets and settle within 12 months.

We do not use option valuation methods to record income on transportation and
storage contracts.

<TABLE>
<CAPTION>
CHANGES IN FAIR VALUE OF MARKETING DERIVATIVE CONTRACTS

                                                                                Contracts
                                                                           Outstanding at          Contracts
                                                                             Beginning of       Entered into
(Cdn$ millions)                                                                    Period      During Period           Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                 <C>                <C>
Fair Value at December 31, 2004                                                        93                  -              93
    Change in Fair Value of Contracts                                                 259                (70)            189
    Net Losses (Gains) on Contracts Closed                                            (37)              (193)           (230)
    Changes in Valuation Techniques and Assumptions (1)                                 -                  -               -
                                                                           --------------------------------------------------
Fair Value at September 30, 2005                                                      315               (263)             52
                                                                           ==================================
Unrecognized Losses on Hedges of Future Sale of Gas Inventory
    at September 30, 2005                                                                                               (121)
                                                                                                                  -----------
Total Outstanding at September 30, 2005                                                                                  (69)
                                                                                                                  ===========

<CAPTION>

Note:
(1)  Our valuation methodology has been applied consistently in each period.


TOTAL CARRYING VALUE OF MARKETING DERIVATIVE CONTRACTS

                                                                                                September 30     December 31
(Cdn$ millions)                                                                                         2005            2004
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>              <C>
Current Assets                                                                                           508            177
Non Current Assets                                                                                       210             91
                                                                                              -------------------------------
   Total Marketing Derivative Contract Assets                                                            718            268
                                                                                              ===============================

Current Liabilities                                                                                      551            129
Non Current Liabilities                                                                                  115             46
                                                                                              -------------------------------
   Total Marketing Derivative Contract Liabilities                                                       666            175
                                                                                              ===============================

Total Marketing Derivative Contract Net Assets (1)                                                        52             93
                                                                                              ===============================
</TABLE>

Note:
(1) Does not include effective hedges. We recognize gains and losses on
   effective hedges in the same period as the hedged item.

                                       41
<PAGE>

NON-TRADING ACTIVITIES
We enter into fee for service contracts related to transportation and storage
of third party oil and gas. In addition, we earn income from our power
generation facility. We earned $9 million from these activities in the third
quarter (2004 - $9 million) and $22 million year to date (2004 - $15 million).

In 2003 and 2004, we increased our transportation capacity and were paid to
assume future obligations associated with this capacity. We have $34 million of
deferred revenue on our balance sheet to recognize the liability associated with
these obligations. We are amortizing this deferred revenue to earnings as the
capacity is used.

CHEMICALS

HIGHER CHEMICALS CONTRIBUTION INCREASED NET INCOME BY $16 MILLION
During the quarter, we monetized a portion of our chemicals operations by
creating the Canexus Income Fund through an initial public offering which raised
net proceeds of $301 million. Canexus Income Fund invested the offering proceeds
into Canexus Limited Partnership, which raised US$167 million ($200 million) in
bank debt. Canexus Limited Partnership used the proceeds from Canexus Income
Fund's public offering and the bank debt, together with 50.5 million
exchangeable units of Canexus Limited Partnership to purchase our chemicals
operations. The exchangeable units have a market value of $484 million as of
September 30, 2005. We have retained a 61.4% indirect interest in the chemicals
operations through our investment in Canexus Limited Partnership and we recorded
a gain of $193 million on the dilution of our interest.

Increasing sales volumes and prices continued to generate strong results for the
chemicals business. Sodium chlorate volumes have increased compared to 2004 as a
result of strong demand and higher production capacity from the Brandon plant
expansion completed in October 2004. In addition, the contribution from
chemicals includes $9 million of unrealized currency translation gains arising
substantially from the translation of US dollar long-term debt and $4 million of
income from the change in fair value of US dollar foreign currency call options.
Higher transportation costs, however, reduced chemicals contribution by $1
million. Sales and operations at the Brazil plant are strong as a result of
continued strong demand from Aracruz Celulose, the primary customer in Brazil.

<TABLE>
<CAPTION>
CORPORATE EXPENSES

GENERAL AND ADMINISTRATIVE (G&A)

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$ millions)                                                                   2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>         <C>           <C>
General and Administrative Expense before Stock Based Compensation                  82          45          197           137
Stock Based Compensation (1)                                                       260          12          450           110
                                                                         -----------------------------------------------------
Total General and Administrative Expense                                           342          57          647           247
                                                                         =====================================================
</TABLE>

Note:
(1)  Includes tandem option plan, stock options for our US-based employees and
     stock appreciation rights.

HIGHER COSTS DECREASED QUARTERLY INCOME BY $285 MILLION
In 2004, we modified our stock option plan to a tandem plan which gives option
holders the right to either purchase common shares at the exercise price or to
receive cash payments equal to the excess of the market value of the common
shares over the exercise price. The obligations resulting from these tandem
plans, along with our stock appreciation rights plan are revalued each quarter
based on our current share price and the resulting change is included as stock
based compensation expense. Our share price has more than doubled since the
beginning of the year, adding over $8 billion of shareholder value and creating
a year-to-date expense of $450 million.

Our G&A costs have increased from 2004 as a result of higher employee headcount
with the North Sea acquisition and increases in employee compensation. Higher
insurance costs, increased professional fees and additional director
compensation put further pressure on our costs.

                                       42
<PAGE>

<TABLE>
<CAPTION>
INTEREST AND FINANCING COSTS

                                                                                    Three Months              Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$ millions)                                                                   2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>         <C>           <C>
Interest                                                                            68          46          209           145
    Less: Capitalized Interest                                                     (49)        (11)        (125)          (27)
                                                                         -----------------------------------------------------
Net Interest Expense                                                                19          35           84           118
                                                                         =====================================================
</TABLE>

LOWER NET INTEREST EXPENSE INCREASED QUARTERLY NET INCOME BY $16 MILLION
Our financing costs have increased compared to 2004 as a result of our late-2004
North Sea acquisition. We incurred additional debt to finance a portion of the
acquisition. This higher outstanding debt increased interest expense by $29
million during the quarter and $79 million year to date. However, the stronger
Canadian dollar lowered our US-dollar denominated interest by $7 million during
the quarter and $15 million year to date.

We are capitalizing interest on our major development projects in the North Sea,
Syncrude, Long Lake and Block 51 in Yemen. Capitalized interest increased
primarily from the North Sea Buzzard project and additional spending at Long
Lake. We expect that capitalized interest will continue to increase as we spend
additional capital on these projects prior to their completion in 2006 and 2007.

<TABLE>
<CAPTION>
INCOME TAXES

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$ millions)                                                                   2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>         <C>           <C>
Current                                                                             95          73          255           189
Future                                                                            (227)         37         (270)           52
                                                                         -----------------------------------------------------
Total Provision for Income Taxes                                                  (132)        110          (15)          241
                                                                         =====================================================

Disclosed as:
Provision for Income Taxes - Continuing Operations                                  24          98          114           208
Provision for Income Taxes - Discontinued Operations (1)                          (156)         12         (129)           33
                                                                         -----------------------------------------------------
Total Provision for Income Taxes                                                  (132)        110          (15)          241
                                                                         =====================================================

Effective Tax Rate (%)                                                             (27)         33           (2)           31
                                                                         -----------------------------------------------------
</TABLE>

Note:
(1)  See Note 15 to our Unaudited Consolidated Financial Statements.

EFFECTIVE TAX RATE FOR THE QUARTER DECREASES BY 60%
The future tax recovery of $227 million in the third quarter is attributable to
the disposition of our oil and gas producing properties in Canada and the sale
of our chemicals business to Canexus Limited Partnership. As a result of the
dispositions, we revalued our future income tax liabilities for the change in
underlying book and tax values. This revaluation resulted in the reduction of
our future income tax liabilities. In addition, the gains were taxed at lower
capital gains tax rates. Our tax rate for the remainder of the year is expected
to be 33%.

Current income taxes include cash taxes in Yemen of $93 million (2004 - $65
million) for the quarter and $222 million (2004 - $168 million) year to date.
Our current income tax provision also includes cash taxes in Colombia, federal
and state taxes in the US and capital taxes in Canada.

<TABLE>
<CAPTION>
OTHER

                                                                                    Three Months               Nine Months
                                                                                 Ended September 30        Ended September 30
(Cdn$ millions)                                                                   2005        2004         2005          2004
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>         <C>            <C>
Gain on Dilution of Interest in Chemicals Business                                 193           -          193             -
Gain of Disposition of Oil and Gas Assets
    included as Discontinued Operations                                            225           -          225             -
Decrease in Fair Value of Crude Oil Put Options                                     (1)          -         (184)            -
                                                                         -----------------------------------------------------
</TABLE>

                                       43
<PAGE>

Following the sale of our chemicals operations to Canexus Limited Partnership,
we recorded a gain on the dilution of our interest from 100% to 61.4% of $193
million. The sale of our Canadian oil and gas properties in Alberta, British
Columbia and Saskatchewan gave rise to a gain on sale of $225 million.

Following our North Sea acquisition late last year, we purchased put options on
60,000 bbls/d of oil production for 2005 and 2006, for $144 million, to ensure
base cash flow over the next two years as we invest in major development
projects. These options create an average floor price for this production of
US$43.17/bbl in 2005 and US$38.17/bbl in 2006. Accounting rules require that
these options be recorded at fair value throughout their term. As a result,
changes in forward crude oil prices cause gains or losses to be recorded on
these options each quarter. While a gain of $56 million was recorded in the
fourth quarter of 2004, a significant increase in forward crude oil prices
during 2005 year to date resulted in an expense of $184 million. The carrying
value of these options at the end of the quarter was $16 million.

LIQUIDITY

CAPITAL STRUCTURE

                                                 September 30     December 31
(Cdn$ millions)                                          2005            2004
------------------------------------------------------------------------------
NET DEBT (1)
   Bank Debt                                              167          1,993
   Public Senior Notes                                  2,969          1,813
                                                 -----------------------------
     Senior Debt                                        3,136          3,806
   Subordinated Debt                                      534            553
                                                 -----------------------------
     Total Debt                                         3,670          4,359
   Less: Cash and Cash Equivalents                       (200)           (73)
   Less: Margin Deposits                                 (202)             -
                                                 -----------------------------
                                                        3,268          4,286
   Non-Cash Working Capital (2)                           317            (67)
                                                 -----------------------------
TOTAL NET DEBT                                          3,585          4,219
                                                 =============================

SHAREHOLDERS' EQUITY (3)                                3,685          2,867
                                                 =============================


Notes:
(1)  Includes all of our debt and is calculated as long-term debt less net
     working capital.
(2)  Excludes short-term borrowings.
(3)  At September 30, 2005, there were 260,879,092 common shares and US$460
     million of unsecured subordinated securities outstanding. These
     subordinated securities may be redeemed by issuing common shares at our
     option after November 8, 2008. The number of shares issuable depends on the
     common share price on the redemption date.

We have been able to take advantage of strong economic results and successful
asset disposition programs to reduce our debt level and increase our liquidity
since 2004. We have repaid $1.8 billion of bank debt during the year by
refinancing with longer-term debt and by divesting of assets. Earlier in the
year, we issued US$1.04 billion of senior notes with US$250 million maturing in
10 years and US$790 million maturing in 30 years. This new debt increases the
average term to maturity of our debt to 22 years. During the quarter, we
successfully completed the sale of certain Canadian conventional oil and gas
properties for net proceeds of $900 million after closing adjustments. Canexus
raised an additional $301 million of net proceeds in connection with the initial
public offering of our chemicals business in the third quarter. Canexus used the
$301 million of net proceeds and US$167 million of bank debt to purchase our
chemicals business. Funds not used to repay debt will be used to fund future
capital investment.

Our liquidity was also enhanced during the quarter by replacing our existing
$1.7 billion term credit facilities and the US$500 million North Sea development
facility with a new US$2 billion term credit facility available until 2010. We
currently have a shelf prospectus in the US and Canada which allows us to raise
US$1.5 billion of debt or equity.

                                       44
<PAGE>

<TABLE>
<CAPTION>
CHANGE IN WORKING CAPITAL

                                                                 September 30      December 31       Increase/
(Cdn$ millions)                                                          2005             2004      (Decrease)
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>              <C>
Cash and Cash Equivalents                                                 200               73            127
Margin Deposits                                                           202                -            202
Accounts Receivable                                                     2,828            2,100            728
Inventories and Supplies                                                  514              351            163
Accounts Payable and Accrued Liabilities                               (3,663)          (2,377)        (1,286)
Other                                                                       4               (7)            11
                                                                -----------------------------------------------
Net Working Capital                                                        85              140            (55)
                                                                ===============================================
</TABLE>

The increase in cash resulted from asset dispositions during the quarter.
Proceeds from asset sales were used to repay debt and fund future capital
investment. During the quarter, we were required to meet margin deposit
requirements relating to certain exchange-traded derivative contracts. At
September 30, 2005, these deposits amounted to US$174 million ($202 million).
Derivative contracts held by our marketing group which settle in less than 12
months are included in both accounts receivable and accounts payable. Higher gas
prices in North America during the quarter increased amounts included in
accounts receivable and accounts payable relating to these contracts.
Inventories and supplies increased primarily from higher gas storage positions
in our marketing group, coupled with the higher cost to purchase gas for storage
and high cost for oil in storage. In addition to the increase in our marketing
payables, other payables have increased since year-end from the increased
current portion of the accrued liability with respect to our stock based
compensation programs. Margin deposits increased which offset the current losses
on the futures positions used by our marketing group to hedge the change in
value of our storage and transportation assets.

<TABLE>
<CAPTION>
NET DEBT

Our net debt levels are directly related to our operating cash flows and our
capital expenditure activities. Changes in net debt are related to:

                                                                                                 Nine Months
(Cdn$ millions)                                                                           Ended September 30
-------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
Capital Expenditures                                                                                   1,923
Cash Flow from Operating Activities                                                                   (1,675)
                                                                                          -------------------
Excess of Capital Expenditures over Cash Flow                                                            248

Dividends on Common Shares                                                                                39
Issue of Common Shares                                                                                   (51)
Net Proceeds from Canexus Initial Public Offering                                                       (301)
Foreign Exchange on US-dollar Denominated Debt and Cash                                                 (129)
Proceeds on Disposition of Oil and Gas Properties                                                       (911)
Increase in Current Obligation Related to Stock Based Compensation                                       284
Increase in Current Obligation Related to Fixed Price Natural Gas Contracts                               63
Costs Related to Divestiture Programs and Debt Issuances                                                  40
Other                                                                                                     84
                                                                                          -------------------
Decrease in Net Debt                                                                                    (634)
                                                                                          ===================
</TABLE>

OUTLOOK FOR REMAINDER OF 2005

Our original 2005 full year production guidance was for production to average
between 235,000 and 245,000 boe/d before royalties and before asset
dispositions. We expect to remain within this original guidance despite
hurricane-related downtime, unplanned turnaround activity in the North Sea and
our 2005 oil and gas property disposition program. We expect to generate
approximately $2.4 billion in cash flow (before remediation and geological and
geophysical expenditures) in 2005, assuming the following for the remainder of
the year:


----------------------------------------------------------------------------
WTI (US$/bbl)                                                         60.00
NYMEX natural gas (US$/mmbtu)                                          9.00
US to Canadian dollar exchange rate                                    0.80
                                                                    --------

                                       45
<PAGE>

We have incurred almost $2 billion of our planned capital investment for 2005.
We expect our total capital investment for 2005 to be approximately $2.7
billion. Our 2005 capital program is largely targeted towards our major
development projects in the North Sea, Long Lake, Block 51 in Yemen and
Syncrude. We are also investing in the commercial development of our coal bed
methane project in Alberta, and additional development wells at Masila in Yemen.

Our future liquidity is primarily dependent on cash flows generated from our
operations, our capital requirements and the flexibility of our capital
structure. We are in the midst of developing a number of major projects over the
next two years and our capital requirement to bring them on-stream is
significant. We expect that our cash on hand and future cash flows generated
from operations, especially the significant cash flows we expect to generate
when our Buzzard project comes on-stream in late-2006 will be sufficient to
finance the majority of these known requirements. We also have available undrawn
committed credit facilities which provide us with liquidity to meet future
funding requirements. During the year, we declared common share dividends of
$0.05 per share each quarter.


CONTRACTUAL OBLIGATIONS, COMMITMENTS AND GUARANTEES

We have assumed various contractual obligations and commitments in the normal
course of our operations and financing activities. We have described these
obligations and commitments in our MD&A in our 2004 Annual Report on Form 10-K.
During the nine months ended September 30, 2005, we entered into additional
capital commitments totaling $300 million related to our major development
projects. We expect to incur approximately $290 million of these commitments in
the next twelve months and approximately $10 million in one to three years.

CONTINGENCIES
There are a number of lawsuits and claims pending, the ultimate results of which
cannot be ascertained at this time. We record costs as they are incurred or
become determinable. We believe the resolution of these matters would not have a
material adverse effect on our liquidity, consolidated financial position or
results of operations. These matters are described in LEGAL PROCEEDINGS in Item
3 contained in our 2004 Annual Report on Form 10-K. There have been no
significant developments since year end.


NEW ACCOUNTING PRONOUNCEMENTS

CANADIAN PRONOUNCEMENTS
In an effort to harmonize Canadian GAAP with US GAAP, the Canadian Accounting
Standards Board (AcSB) has issued sections:

o    1530, COMPREHENSIVE INCOME;
o    3855, FINANCIAL INSTRUMENTS -- RECOGNITION AND MEASUREMENT; and
o    3865, HEDGES.

Under these new standards, all financial assets should be measured at fair value
with the exception of loans, receivables and investments that are intended to be
held to maturity and certain equity investments, which should be measured at
cost. Similarly, all financial liabilities should be measured at fair value when
they are held for trading or they are derivatives.

Gains and losses on financial instruments measured at fair value will be
recognized in the income statement in the periods they arise with the exception
of gains and losses arising from:

o    financial assets held for sale, for which unrealized gains and losses are
     deferred in other comprehensive income until sold or impaired; and
o    certain financial instruments that qualify for hedge accounting.

Sections 3855 and 3865 make use of "other comprehensive income". Other
comprehensive income comprises revenues, expenses, gains and losses that are
recognized in comprehensive income, but are excluded from net income. Unrealized
gains and losses on qualifying hedging instruments, translation of
self-sustaining foreign operations, and unrealized gains or losses on financial
instruments held for sale will be included in other comprehensive income and
reclassified to net income when realized. Comprehensive income and its
components will be a required disclosure under the new standard.

                                       46
<PAGE>

These new standards are effective for fiscal years beginning on or after October
1, 2006 and early adoption is permitted. Adoption of these standards as at
September 30, 2005 would have the following impact on our Unaudited Consolidated
Financial Statements:

(Cdn$ millions)                                            Increase/(Decrease)
------------------------------------------------------------------------------
Accounts Payable and Accrued Liabilities                                  121
Future Tax Liability                                                      (42)
Shareholders' Equity                                                      (79)
                                                          --------------------

The AcSB issued Section 3831, NON-MONETARY TRANSACTIONS, which replaces Section
3830 and requires all non-monetary transactions to be measured at fair value
unless:

o    the transaction lacks commercial substance;
o    the transaction is an exchange of a product or property held for sale in
     the ordinary course of business for a product or property to be sold in the
     same line of business to facilitate sales to customers other than the
     parties to the exchange;
o    neither the fair value of the assets or services received nor the fair
     value of the assets or services given up is reliably measurable; or
o    the transaction is a non-monetary, non-reciprocal transfer to owners that
     represents a spin-off or other form of restructuring or liquidation.

The new requirements apply to non-monetary transactions initiated in periods
beginning on or after January 1, 2006. Earlier adoption is permitted as of the
beginning of a period beginning on or after July 1, 2005. We do not expect the
adoption of this section will have any material impact on our results of
operations or financial position.

US PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement 151, INVENTORY COSTS. This statement amends ARB 43 to clarify that:

o    abnormal amounts of idle facility expense, freight, handling costs and
     wasted material (spoilage) should be recognized as current-period charges;
     and
o    requires the allocation of fixed production overhead to inventory based on
     the normal capacity of the production facilities.

The provisions of this statement are effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. We do not expect the adoption
of this statement will have any material impact on our results of operations or
financial position.

In December 2004, the FASB issued Statement 123(R), SHARE-BASED PAYMENTS. This
statement revises Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, and
supersedes APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Statement
123(R) requires all stock-based awards issued to employees to be measured at
fair value and to be expensed in the income statement. This statement is
effective for fiscal years beginning after June 15, 2005.

We are currently expensing stock-based awards issued to employees using the fair
value method for equity based awards and the intrinsic method for liability
based awards. Adoption of this standard will change our expense under US GAAP
for tandem options and stock appreciation rights as these awards will be
measured using the fair value method rather than the intrinsic method. We are
currently evaluating the provisions of Statement 123(R) and have not yet
determined the full impact this statement will have on our results of operations
or financial position under US GAAP.

In December 2004, the FASB issued Statement 153, EXCHANGES OF NONMONETARY
ASSETS, an amendment of APB Opinion 29, ACCOUNTING FOR NONMONETARY TRANSACTIONS.
This amendment eliminates the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under Statement 153,
if a nonmonetary exchange of similar productive assets meets a
commercial-substance test and fair value is determinable, the transaction must
be accounted for at fair value resulting in the recognition of any gain or loss.
This statement is effective for nonmonetary transactions in fiscal periods that
begin after June 15, 2005. We do not expect the adoption of this statement will
have any material impact on our results of operations or financial position.

                                       47
<PAGE>

In March 2005, the FASB issued Financial Interpretation 47, ACCOUNTING FOR
CONDITIONAL ASSET RETIREMENT OBLIGATIONS (FIN 47). FIN 47 clarifies that the
term conditional asset retirement obligation as used in FASB Statement No. 143,
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and (or) method
of settlement. Thus, the timing and (or) method of settlement may be conditional
on a future event. Accordingly, an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation if the fair
value of the liability can be reasonably estimated. FIN 47 also clarifies when
an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. We do not expect the
adoption of this statement will have a material impact on our results of
operations or financial position.

In March 2005, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 04-6, ACCOUNTING FOR STRIPPING COSTS INCURRED DURING PRODUCTION IN THE
MINING INDUSTRY. In the mining industry, companies may be required to remove
overburden and other mine waste materials to access mineral deposits. The EITF
concluded that the costs of removing overburden and waste materials, often
referred to as "stripping costs", incurred during the production phase of a mine
are variable production costs that should be included in the costs of the
inventory produced during the period that the stripping costs are incurred.
Issue No. 04-6 is effective for the first reporting period in fiscal years
beginning after December 15, 2005, with early adoption permitted. We do not
expect the adoption of this statement will have a material impact on our results
of operations or financial position.

In June 2005, the FASB issued Statement 154, ACCOUNTING CHANGES AND ERROR
CORRECTIONS which replaces APB Opinion 20 and FASB Statement 3. Statement 154
changes the requirements for the accounting and reporting of a change in
accounting principle. Opinion 20 previously required that most voluntary changes
in accounting principle be recognized by including the cumulative effect of the
new accounting principle in net income of the period of the change. Statement
154 now requires retrospective application of changes in accounting principle to
prior period financial statements, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change. The
Statement is effective for fiscal years beginning after December 15, 2005. We do
not expect the adoption of this statement will have a material impact on our
results of operations or financial position.

<TABLE>
<CAPTION>
EQUITY SECURITY REPURCHASES
During the quarter, we made no purchases of our own equity securities.


SUMMARY OF QUARTERLY RESULTS

                                                                                      Three Months Ended
                                                            2003  |                   2004             |          2005
                                                          --------|------------------------------------|-------------------------
(Cdn$ millions)                                              Dec         Mar      Jun     Sept      Dec     Mar      Jun     Sept
                                                          -----------------------------------------------------------------------
<S>                                                         <C>         <C>      <C>      <C>      <C>     <C>      <C>    <C>
Net Sales from Continuing Operations                         611         664      697      778      805     856      909    1,094

Net Income (Loss) from Continuing Operations                 (83) (1)    167      117      200      220      19      170      211
Net Income (Loss) from Discontinued Operations                (3)         17       26       20       26      18       30      404
                                                          -----------------------------------------------------------------------
Net Income (Loss)                                            (86)        184      143      220      246      37      200      615
                                                          =======================================================================

Earnings per Common Share from Continuing Operations
  ($/share)
     Basic                                                 (0.35)       0.65     0.45     0.77     0.84    0.07     0.65     0.81
     Diluted                                               (0.34)       0.64     0.44     0.76     0.83    0.07     0.64     0.79

Earnings per Common Share ($/share)
     Basic                                                 (0.35)       0.72     0.55     0.85     0.95    0.14     0.77     2.36
     Diluted                                               (0.34)       0.71     0.54     0.84     0.94    0.14     0.76     2.30
                                                          -----------------------------------------------------------------------
</TABLE>

Note:
(1)  Includes an impairment charge of $269 million relating to certain Canadian
     oil and gas properties.

                                       48
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report, including those appearing in ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, are forward-looking statements.(1) Forward-looking statements are
generally identifiable by terms such as ANTICIPATE, BELIEVE, INTEND, PLAN,
EXPECT, SHOULD, ESTIMATE, BUDGET, OUTLOOK or other similar words, and include
statements relating to future production associated with our Long Lake, North
Sea and West Africa projects.

These statements are subject to known and unknown risks and uncertainties and
other factors which may cause actual results, levels of activity and
achievements to differ materially from those expressed or implied by such
statements. These risks, uncertainties and other factors include:

o    market prices for oil, natural gas and chemicals products;
o    our ability to produce and transport crude oil and natural gas to markets;
o    the results of exploration and development drilling and related activities;
o    foreign-currency exchange rates;
o    economic conditions in the countries and regions in which we carry on
     business;
o    governmental actions that increase taxes, change environmental and other
     laws and regulations;
o    renegotiations of contracts; and
o    political uncertainty, including actions by terrorists, insurgent or other
     groups, or other armed conflict, including conflict between states.

The above items and their possible impact are discussed more fully in the
section, titled BUSINESS RISK MANAGEMENT in Item 7 and QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK in Item 7A of our 2004 Annual Report
on Form 10-K.

The impact of any one risk, uncertainty or factor on a particular
forward-looking statement is not determinable with certainty as these are
interdependent and management's future course of action depends upon our
assessment of all information available at that time. Any statements regarding
the following are forward-looking statements:

o    future crude oil, natural gas or chemicals prices;
o    future production levels;
o    future cost recovery oil revenues from our operations in Yemen;
o    future capital expenditures and their allocation to exploration and
     development activities;
o    future asset dispositions;
o    future sources of funding for our capital program;
o    future debt levels;
o    future cash flows and their uses;
o    future drilling of new wells;
o    ultimate recoverability of reserves;
o    future changes to reserves estimates;
o    operation, production, reserves and prospects relating to Buzzard, Scott
     and Telford fields and other exploration properties acquired pursuant to
     our acquisition of EnCana U.K.;
o    expected finding and development costs;
o    expected operating costs;
o    future demand for chemicals products;
o    future expenditures and future allowances relating to environmental
     matters; and
o    dates by which certain areas will be developed or will come on-stream.

We believe that any forward-looking statements made are reasonable based on
information available to us on the date such statements were made. However, no
assurance can be given as to future results, levels of activity and
achievements. We undertake no obligation to update publicly or revise any
forward-looking statements contained in this report. All subsequent
forward-looking statements, whether written or oral, attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements.

-------------------
(1) Within the meaning of the United States PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995, Section 21E of the United States SECURITIES EXCHANGE ACT OF 1934,
as amended, and Section 27A of the United States SECURITIES ACT OF 1933, as
amended.

                                       49
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to normal market risks inherent in the oil and gas and chemicals
business, including commodity price risk, foreign-currency rate risk, interest
rate risk and credit risk. We recognize these risks and manage our operations to
minimize our exposures to the extent practical. The information presented on
market risks on pages 68 - 70 in our 2004 Annual Report on Form 10-K has not
changed materially since December 31, 2004.


ITEM 4.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this
report. They concluded that, as of the end of the period covered by this report,
our disclosure controls and procedures were adequate and effective in ensuring
that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities,
particularly during the period in which this report was being prepared.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and in reaching a reasonable level of assurance,
management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.


CHANGES IN INTERNAL CONTROLS
We have continually had in place systems relating to internal control over
financial reporting. During 2005, we continued to improve and enhance our
financial reporting systems with the implementation of our existing Systems,
Applications and Products in Data Processing (SAP) systems into our chemicals
operations. The conversion of data and the implementation and operation of SAP
has been continually monitored and reviewed. We have evaluated these changes and
confirm that there has not been any change in the Company's internal control
over financial reporting during the third quarter of 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting. As well, based on these evaluations, there
were no material weaknesses in these internal controls requiring corrective
action. As a result, no such corrective actions were taken.



                                       50
<PAGE>

                                     PART II

ITEM 6.     EXHIBITS
-------     --------

 31.1       Certification of Chief Executive Officer pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002.

 31.2       Certification of Chief Financial Officer pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002.

 32.1       Certification of periodic report by Chief Executive Officer
            pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002.

 32.2       Certification of periodic report by Chief Financial Officer
            pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002.




                                    51
<PAGE>

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on October 17, 2005.


                                          NEXEN INC.


                                          /s/ Charles w. Fischer
                                          ---------------------------------
                                          Charles W. Fischer
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)



                                          /s/ Michael J. Harris
                                          ---------------------------------
                                          Michael J. Harris
                                          Controller
                                          (Principal Accounting Officer)



                                    52