TANDEM OPTION PLAN

with respect to the distribution to the public or pursuant to a private placement of securities, or (II) pursuant to a pledge of securities in the ordinary course of business); and

(iii)           any securities which are Beneficially Owned within the meaning of clauses (i) or (ii) above by any other Person with which such Person is Acting Jointly or in Concert:

provided, however, that a Person shall not be deemed the “Beneficial Owner” or to have “Beneficial Ownership” of or to “Beneficially Own” any security where such Person is the registered holder of securities as the result of carrying on the business of or acting as nominee for a securities depository.

For purposes of the Plan, the percentage of Shares Beneficially Owned by any Person, shall be and be deemed to be the product determined by the formula:

100 x A/B

A =          the number of votes for the election of all directors generally attaching to the Shares Beneficially Owned by such Person; and

B =           the number of votes for the election of all directors generally attaching to all outstanding Shares.

For the purposes of the foregoing formula, where any Person is deemed to Beneficially Own unissued Shares which may be acquired pursuant to Convertible Securities, such Shares shall be deemed to be outstanding for the purpose of calculating the percentage of Shares Beneficially Owned by such Person in both the numerator and the denominator, but no other unissued Shares which may be acquired pursuant to any other outstanding Convertible Securities shall, for the purposes of that calculation, be deemed to be outstanding;

2.4            “ Board ” means the board of directors of the Corporation or, if established and duly authorized to act with respect to this Plan, any committee of the board of directors of the Corporation;

2.5            “ Business Day ” means any day, other than a Saturday or a Sunday, on which the Exchange is open for trading;

2.6            “ CBCA ” means the Canada Business Corporations Act as amended from time to time and any successor legislation thereto;

2.7            “ Change of Control ” means when any Person directly becomes the Beneficial Owner of 50% or more of the Shares;

2.8            “ Change of Control Event ” has the meaning ascribed to it in Section 8.1;

2.9            “ Convertible Securities ” means at any time:

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(i)             any right (contractual or otherwise and regardless of whether such right constitutes a security) to acquire Shares; and

(ii)            any securities issued by the Corporation from time to time (other than the Rights) carrying any exercise, conversion or exchange right;

which is then exercisable or exercisable within a period of 60 days from that time pursuant to which the holder thereof may acquire Shares or other securities which are convertible into or exercisable or exchangeable for Shares (in each case, whether such right is then exercisable or exercisable within a period of 60 days from that time and whether or not on condition or the happening of any contingency);

2.10          “ Corporation ” means Nexen Inc. or any successor entity in relation thereto;

2.11          “ Eligible Person ” means any director, officer or employee of the Corporation or any Subsidiary;

2.12          “ Exchange ” means the Toronto Stock Exchange and, where the context permits, any other exchange on which the Shares are or may be listed from time to time;

2.13          “ Exercise Price ” means the price per Share at which Shares may be purchased under the Option, as the same may be adjusted from time to time in accordance with Article 8;

2.14          “ Insider ” means:

(i)             an insider as defined under Section 1(aa) of the Securities Act (Alberta) other than a Person who falls within that definition solely by virtue of being a director or officer of a Subsidiary; and

(ii)            an associate as defined under Section 1(c) of the Securities Act (Alberta) of any Person who is an insider by virtue of (i) above;

2.15          “ In the Money ” means the excess, if any, of the Market Price of a Share at any time over the Exercise Price;

2.16          “ Market Price ” at any date in respect of the Shares shall be either:

(i)             for the purposes of determining the Exercise Price, the closing price of the Shares on the Exchange on the last Business Day preceding the date on which the Option is approved by the Board; and, for the purposes of determining the In the Money amount, the closing price of the Shares on the Exchange on the date of surrender of the Option, or if there is no trading of the Shares on the Exchange that day, the last Business Day preceding the date of surrender of the Option; or

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(ii)            in the discretion of the Board, such price as may be determined by any mechanism for establishing the market value of the Shares approved by the Board.  Any such determination or mechanism shall be pre-cleared with the Exchange;

2.17          “ Option ” means an option to purchase Shares granted under the Plan;

2.18          “ Optionee ” means an Eligible Person to whom an Option has been granted;

2.19          “ Person ” includes an individual, partnership, association, body corporate, trustee, executor, administrator, legal representative and any national, provincial, state or municipal government;

2.20          “ Plan ” means this Nexen Inc. Tandem Option Plan, as amended from time to time;

2.21          “ Rights ” means the rights distributed pursuant to the Amended and Restated Shareholder Rights Plan Agreement between the Corporation and CIBC Mellon Trust Company dated May 2, 2002, as amended or superseded from time to time;

2.22          “ Share Compensation Arrangement ” means any stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Shares, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise;

2.23          “ Shares ” means the common shares of the Corporation, or, in the event of an adjustment contemplated by Article 8, such other shares or securities to which an Optionee may be entitled upon the exercise of an Option as a result of such adjustment; and

2.24          “ Subsidiary ” means any subsidiary of the Corporation within the meaning of the CBCA.

3.              ADMINISTRATION OF THE PLAN

3.1            The Plan shall be administered by the Board.

3.2            The Board shall have the power, where consistent with the general purpose and intent of the Plan and subject to the specific provisions of the Plan, to:

(i)             establish policies and to adopt rules and regulations for carrying out the purposes, provisions and administration of the Plan;

(ii)            interpret and construe the Plan and to determine all questions arising out of the Plan and any Option granted pursuant to the Plan, and any such interpretation, construction or determination made by the Board shall be

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final, binding and conclusive for all purposes on the Corporation and the Optionee;

(iii)           grant Options;

(iv)           determine which Eligible Persons are granted Options;

(v)            determine the number of Shares covered by each Option;

(vi)           determine the Exercise Price;

(vii)          determine the time or times when Options will be granted and exercisable;

(viii)         determine if the Shares that are subject to an Option will be subject to any restrictions or conditions upon the exercise or surrender of such Option, including conditions in respect of the financial performance or results of the Corporation or its Subsidiaries; and

(ix)            prescribe the form of documents relating to the grant, exercise, surrender and other terms of Options.

4.              SHARES SUBJECT TO PLAN

4.1            Options may be granted in respect of authorized and unissued Shares, provided that the aggregate number of Shares reserved for issuance under this Plan, subject to adjustment or increase of such number pursuant to the provisions of Section 8.4, shall not exceed 14,250,000 Shares (being the original 6,000,000 Shares authorized as of February 27, 1998, plus the 3,500,000 additional Shares authorized in accordance with the requirements of Section 8.4 as of May 2, 2001, and the 2,000,000 additional Shares authorized in accordance with the requirements of Section 8.4 as of May 6, 2003 plus the 2,750,000 additional Shares authorized effective July 1, 2004), which shall not include options under stock option agreements outstanding at the date of the Plan whether continued hereunder pursuant to Section 14.1 hereof or continued under the terms of the applicable agreement in effect at the date of the Plan.  Shares in respect of which: i) Options are not exercised, or ii) Options are surrendered in exchange for the In the Money amount, shall be available for subsequent Options under the Plan.  No fractional Shares may be purchased or issued under the Plan.

5.              ELIGIBILITY, GRANT AND TERMS OF OPTIONS

5.1            Options may be granted to directors, officers or employees of the Corporation or of any Subsidiary.

5.2            Except as otherwise provided for in this Plan, the number of Shares subject to each Option, the Exercise Price, the expiration date of each Option, the extent to which each Option is exercisable or may be surrendered from time to time during the term of the Option and other terms and conditions relating to each such Option

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shall be determined by the Board; provided, however, that if no specific determination is made by the Board with respect to any of the following matters, each Option shall, subject to any other specific provisions of the Plan, contain the following terms and conditions:

(i)

(a)            for Options granted up to and including February 15, 2001, the period during which an Option shall be exercisable shall be ten years from the date the Option