-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UsENDDYRd6kCKLbgHiBJ0wLqAKE9G8cfrHhE9kjUr0YP+9G7eRCP1EwbKyuemtga pUDYdvzjwQVawnSNpnAxfQ== 0000950142-04-000548.txt : 20040220 0000950142-04-000548.hdr.sgml : 20040220 20040220160841 ACCESSION NUMBER: 0000950142-04-000548 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXEN INC CENTRAL INDEX KEY: 0000016873 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 986000202 STATE OF INCORPORATION: A0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06702 FILM NUMBER: 04619454 BUSINESS ADDRESS: STREET 1: 801-7TH AVENUE SW CITY: CALGARY ALBERTA CANA STATE: A0 ZIP: T2P 3P7 BUSINESS PHONE: 4036994000 MAIL ADDRESS: STREET 1: 801-7TH AVENUE SW STREET 2: 801-7TH AVENUE SW CITY: CALGARY ALBERTA CANA STATE: A0 ZIP: T2P 3P7 FORMER COMPANY: FORMER CONFORMED NAME: CANADIAN OCCIDENTAL PETROLEUM LTD DATE OF NAME CHANGE: 19960813 10-K 1 form10k_2003.txt 2003 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2003 COMMISSION FILE NUMBER 1-6702 [GRAPHIC OMITTED] [LOGO - NEXEN INC.] 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE EXCHANGE REGISTERED ON ----- ---------------------- Common shares, no par value The New York Stock Exchange The Toronto Stock Exchange Subordinated Securities, due 2043 The New York Stock Exchange The Toronto Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None. 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [_] On June 30, 2003, the aggregate market value of the voting shares held by non-affiliates of the registrant was approximately Cdn $4.2 billion based on the Toronto Stock Exchange closing price on that date. On January 31, 2004, there were 126,738,410 common shares issued and outstanding. TABLE OF CONTENTS
PART I PAGE Items 1 and 2. Business and Properties ..................................................... 1 Item 3. Legal Proceedings............................................................ 23 Item 4. Submission of Matters to a Vote of Security Holders.......................... 23 PART II Item 5. Market for the Registrant's Common Shares and Related Stockholder Matters............................................. 24 Item 6. Selected Financial Data...................................................... 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................... 59 Item 8. Financial Statements and Supplementary Financial Information................. 61 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 105 Item 9A. Controls and Procedures...................................................... 105 PART III Item 10. Directors and Executive Officers of the Registrant........................... 106 Item 11. Executive Compensation....................................................... 108 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................................... 115 Item 13. Certain Relationships and Related Transactions............................... 116 Item 14. Principal Accounting Fees and Services ...................................... 116 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................................. 117
SPECIAL NOTE TO CANADIAN INVESTORS - see page 60 Unless we indicate otherwise, all dollar amounts ($) 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 an after-royalties basis is provided in tabular format. Below is a list of terms specific to the oil and gas industry. They are used throughout the Form 10-K.
/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 km = kilometre WTI = West Texas Intermediate NGL = natural gas liquid
Oil equivalents are used to convert 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. The noon-day Canadian to US dollar exchange rates for Cdn $1.00, as reported by the Bank of Canada, were: (US$) DECEMBER 31 AVERAGE HIGH LOW - -------------------------------------------------------------------------------- 1999 0.6929 0.6730 0.6929 0.6537 2000 0.6666 0.6733 0.6973 0.6413 2001 0.6279 0.6458 0.6695 0.6241 2002 0.6331 0.6369 0.6618 0.6199 2003 0.7738 0.7135 0.7738 0.6350 On January 31, 2004, the noon-day exchange rate was US$0.7539 for Cdn $1.00. Electronic copies of our filings with the Securities Exchange Commission (SEC) and the Ontario Securities Commission (OSC) (from November 8, 2002 onward) are available, free of charge, on our website (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. PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES TABLE OF CONTENTS PAGE Background.....................................................................2 Strategy.......................................................................3 Operations.....................................................................3 Conventional Oil and Gas..............................................3 United States - Gulf of Mexico...............................5 Middle East..................................................7 West Africa..................................................9 Other International.........................................10 Western Canada..............................................12 Athabasca Oil Sands..................................................14 Reserves, Production and Related Information.........................16 Oil and Gas Marketing................................................18 Chemicals Operations.................................................19 Additional Factors Affecting Business.........................................20 Government Regulations...............................................20 Environmental Regulations............................................20 Employees.....................................................................23 1 BACKGROUND Nexen Inc. (Nexen, we or our) is a Canadian-based global energy and chemicals company incorporated under the laws of Canada. We are one of the largest independent Canadian oil and gas exploration and production companies. We explore for, develop and produce conventional crude oil and natural gas primarily in western Canada, the United States (US) Gulf of Mexico, the Middle East and offshore West Africa. We develop and produce synthetic crude oil in Canada's Athabasca oil sands region. We also manage a growing crude oil and natural gas marketing business and manufacture, market and distribute sodium chlorate, caustic soda and chlorine in North and South America. Our history is set out below: DATE EVENT - ---------------- ------------------------------------------------------------- July 12, 1971 We were formed under the name Canadian Occidental Petroleum Ltd. (COPL) through a reorganization by Occidental Petroleum Corporation (Occidental) of Los Angeles, California, which combined the crude oil, natural gas and sulphur operations of its 55% owned subsidiary, Jefferson Lake Petrochemicals of Canada Ltd., and the operations, including chemicals, of its wholly owned subsidiary, New Hooker Canada Ltd. May 20, 1983 We purchased Canada-Cities Service, Ltd. (Cities Service) for $354 million. The acquisition doubled our size, while substantially increasing reserves and revenues partly through a 13.23% interest in the Syncrude Project. COPL and Cities Service amalgamated and continued under the name COPL on January 1, 1984. February, 1984 We acquired Cities Offshore Production Co., a company that held interests in producing oil and gas fields in the Gulf of Mexico, offshore Louisiana, for US$132.5 million. May 31, 1988 We purchased Moore McCormack Energy, Inc. a company with mostly onshore operations in Texas, Louisiana and Alabama. During 1988 we sold 6% of the interest we acquired in Syncrude through the Cities Service acquisition for approximately $330 million. We retained a 7.23% interest. April 14, 1997 We acquired Wascana Energy Inc. (Wascana) as a result of a take-over bid. The total purchase price for Wascana was approximately $1.7 billion. Wascana became a wholly-owned subsidiary as a result of an amalgamation on June 30, 1997. April 17, 2000 We entered into an agreement with Ontario Teachers' Pension Plan Board (Teachers) and Occidental where Occidental sold its 29% interest in COPL, which was approved by a majority of shareholders other than Occidental or Teachers. Teachers purchased 20.2 million common shares, we repurchased the remaining 20 million common shares for $605 million ($29.61 per share) including associated fees, and exchanged our oil and gas operations in Ecuador for Occidental's 15% interest in our chemicals operations. November 2, 2000 Further to the sale of Occidental's interest we changed our name to Nexen Inc. 2 STRATEGY Our goal is to grow long-term shareholder value by generating an attractive return on every dollar of capital we invest. In the oil and gas industry, creating value means long-term growth per share in reserves, production, cash flow and earnings, independent of price volatility. We pursue a grassroots, exploration-led strategy supplemented by strategic acquisitions and the development of innovative technology. Our value-based strategy is supported by: o solid core assets that provide free cash flow to finance our new growth development projects; o active exploration programs aimed at adding to our portfolio of new growth projects; and o a culture based on integrity and social responsibility. We believe this strategy of full-cycle exploration and development can deliver the best overall returns. To succeed, we continue to locate and develop economic oil and natural gas reserves. We allocate capital to projects based first on their investment returns and strategic fit, and second on the potential to grow reserves and production. In building our portfolio, we target material opportunities that balance risk and reward, have multiple opportunities for continued growth and build on our technical skills. Our goal is to operate most of our core assets and control offsetting acreage and infrastructure for future development. Recognizing some time ago that conventional North American basins were maturing, we began transitioning to under-explored areas, and incorporating emerging technologies in maturing regions. We positioned ourselves in four of the world's most attractive areas for oil and gas exploration and development: o the deep-water Gulf of Mexico; o the Middle East; o offshore West Africa; and o the Canadian Athabasca oil sands. These areas offer an optimal combination of prospectivity, attractive commercial terms and low costs. Given our exploration success over the past several years, we are now executing multi-year development projects in each area that are starting to add significant value to Nexen. We maximize value in our marketing operations by providing superior customer service and growing our business with low-risk opportunities. Our marketing group provides a key source of market intelligence that helps us make sound investment decisions. For chemicals, our strategy is to remain a low-cost producer in North America, while capturing an increasing share of the growing markets in South America. OPERATIONS Nexen has operations in four main areas: o Conventional Oil and Gas o Athabasca Oil Sands o Oil and Gas Marketing o Chemicals For financial reporting purposes, these areas are defined as reportable segments. Conventional oil and gas is further broken down into geographic segments. Information on production, revenues, net income, capital expenditures and identifiable assets for these segments for the past three years appears in Note 15 to the Consolidated Financial Statements and in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in this report. CONVENTIONAL OIL AND GAS We explore for, develop and produce conventional crude oil, natural gas and related products around the world. Our core assets are located in the United States (US) Gulf of Mexico, Yemen and western Canada, with other producing properties offshore Australia and Nigeria, and onshore in Colombia. We continue to develop new growth opportunities in the Middle East and offshore West Africa. 3 We generally manage our operations on a country-by-country basis reflecting differences in the regulatory environments and risk factors associated with each country. The oil and gas industry is highly competitive and this is particularly true when searching for, and developing, new sources of supply, and in constructing and operating crude oil and natural gas pipelines and facilities. [GRAPHIC OMITTED] [MAP] [_] CANADA [_] GULF OF MEXICO [_] COLUMBIA [_] BRAZIL [_] WEST AFRICA [_] YEMEN [_] AUSTRALIA Crude oil and natural gas commodities are sensitive to numerous worldwide factors and are generally sold at contract or posted prices. Changes in world crude oil and natural gas prices can significantly affect our net income and cash generated from operating activities. Consequently, these prices may also affect the carrying value of our oil and gas properties and our level of spending for oil and gas exploration and development. We have a broad customer base for our crude oil and natural gas. Alternative customers are generally available, therefore, the loss of any one customer is not expected to have a significant adverse effect. Oil and gas operations are generally not seasonal, except for heavy oil which generally experiences higher demand in the summer months. 4 UNITED STATES - GULF OF MEXICO [GRAPHIC OMITTED] [MAP] ACREAGE - -------------------------------------------------------------------------------- (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Shallow-Water Gross 168 152 320 Net 94 99 193 - -------------------------------------------------------------------------------- Deep-Water Gross 23 734 757 Net 11 337 348 - -------------------------------------------------------------------------------- Total Gross 191 886 1,077 Net 105 436 541 - -------------------------------------------------------------------------------- PROVED RESERVES Before Royalties After Royalties - -------------------------------------------------------------------------------- Crude Oil (mmbbls) 75 67 Natural Gas (bcf) 304 256 - -------------------------------------------------------------------------------- Total (mmboe) 126 110 - -------------------------------------------------------------------------------- 2003 PRODUCTION Before Royalties After Royalties - -------------------------------------------------------------------------------- Shallow-Water Crude Oil (mbbls/d) 7.8 6.5 Natural Gas (mmcf/d) 124 103 - -------------------------------------------------------------------------------- Total (mboe/d) 28.5 23.7 - -------------------------------------------------------------------------------- Deep-Water Crude Oil (mbbls/d) 20.5 18.5 Natural Gas (mmcf/d) 21 19 - -------------------------------------------------------------------------------- Total (mboe/d) 24.0 21.7 - -------------------------------------------------------------------------------- Total (mboe/d) 52.5 45.4 - -------------------------------------------------------------------------------- Our oil and gas assets offshore in the US Gulf of Mexico are our single largest source of cash flow. We currently hold interests ranging from 3.7% to 100% in 193 federal lease blocks in the Gulf, 133 of which are located in water depths exceeding 1,000 feet. Our strategy in the Gulf is to explore for new deep-water reserves and for new deep gas trends on the shelf, acquire assets with upside, and exploit our existing asset base. Royalties on our oil and gas production in the US average approximately 15% of working interest volumes. Aspen and Gunnison qualify for royalty relief on the first 87.5 million equivalent barrels. The Gunnison leases are also subject to price threshold limitations which could require annual royalty payments. Royalties on other Gulf and state water properties range from 12.5% to 25%. Profits from our US operations are subject to the US federal tax rate of 35%. State taxes in the jurisdictions in which we operate range from 0% to 8%. SHALLOW-WATER EXPLORATION AND PRODUCTION Our shelf production comes from our assets located offshore Louisiana and Texas, primarily in four fields: Eugene Island 18, Eugene Island 255/257/258/259, Eugene Island 295, and Vermilion 76 (consisting of blocks 65, 66 and 67). We continue to exploit these assets, and look for other opportunities on the shelf. In late 2001, we acquired 100% working interests at Vermilion 76 and Eugene Island 295. Since then we have drilled 12 development wells at Vermilion 76, meeting our growth expectations and more than doubling field production to approximately 40 million cubic feet per day. In the first quarter of 2003, we restored production at Eugene Island 295. The field was shut-in during the second half of 2002 from extensive damage caused by Hurricane Lili. Daily field production at year-end was approximately 22 million cubic feet of natural gas. In 2002, we signed an agreement with Shell Exploration and Production Company (Shell) to jointly explore a 1,044 square-mile area in the south Timbalier and Ship Shoal areas on the shelf. We have a 40% interest in this exploration area. We are targeting natural gas in deep shelf reservoirs. This play is attractive because it has deep-water type reserve potential but is located within the shelf infrastructure. We drilled a dry hole in 2002 in this play. We have recently finished drilling the shark exploration well, located on South Timbalier 174, to a depth of 25,743 feet. This is the deepest well drilled to date in the shelf. No commercial hydrocarbons were encountered and the well is temporarily abandoned while we evaluate the data collected from the well bore. We expect to drill two additional deep shelf wells in 2004 in the Main Pass area. 5 DEEP-WATER EXPLORATION AND PRODUCTION Over the past decade, the deep-water Gulf of Mexico has moved from an exploration frontier to one of the most prospective sources of oil and gas production in the world. The deep-water Gulf is generally characterized by multiple productive horizons and high production rates, which greatly reduces risk and improves economics. The technology to find, drill, and develop deep-water discoveries is rapidly progressing and becoming more cost effective. In addition, the deep-water Gulf is in close proximity to infrastructure and continental US markets, allowing oil and gas discoveries to be quickly brought on stream. Large discoveries, high success rates, production infrastructure and attractive fiscal terms make this a premier exploration opportunity. In 1997, we began building a deep-water acreage position, and shifted our exploration focus from the shelf into the deep water, where we are one of the largest independent leaseholders. In 2000 and 2001, we had discoveries in the Gunnison and Aspen sub-basins. Appraisal drilling justified proceeding with the commercial development of both sub-basins. In 2003, we drilled Santa Rosa and Shiloh, exploratory wells located in the eastern Gulf of Mexico in deep water. Both wells were written off. Shiloh encountered hydrocarbons but in non-commercial quantities. The results were promising, we acquired additional acreage in the area and exploration activity is ongoing. ASPEN Aspen is located on Green Canyon Block 243 in 3,150 feet of water. The project was developed using subsea wells tied back to the Shell-operated Bullwinkle platform 16 miles away. Production commenced in December 2002. In March 2003, we acquired the remaining 40% interest in Aspen and five exploration blocks in the area for US$113 million. This acquisition established Nexen as a deep-water operator and increased our exploration acreage in the greater Aspen area to over 80,000 net acres. Aspen is producing 22,000 boe per day, of which 15% is natural gas. Returns from Aspen are attractive with cash netbacks twice our corporate average. We are currently drilling our third development well at Aspen. We plan to follow up Aspen Well No. 3 with an exploratory well at Crested Butte, located on the next block west of Aspen at Green Canyon Block 242. GUNNISON In 2001, our Board of Directors approved plans to develop our 30% interest in the Gunnison sub-basin. This area is located approximately 170 miles offshore Louisiana in water depths just over 3,100 feet, and includes Garden Banks Blocks 667, 668 and 669. One discovery was located in May 2000 on Garden Banks Block 668 and a second discovery was located June 2001 on Garden Banks Block 667. Gunnison began producing in December 2003 with the tie-in of three subsea wells. Our share of production from the field at year-end was approximately 39 mmcf of gas and 1,200 bbls of oil per day. Gunnison produces from a truss SPAR platform with a design capacity of 40,000 barrels of oil per day and 200 million cubic feet of gas per day. A total of ten wells will be tied-in to the SPAR. Production will continue to grow throughout most of 2004 as the remaining seven wells are completed and brought on-stream. Peak daily rates of 28,000 to 30,000 bbls of oil and 165,000 to 180,000 mcf of gas are expected at the end of 2004. This would fill approximately 75% of the capacity of the facility, leaving room for growth from exploration and the processing of third-party volumes. The Dawson Deep exploration well on Garden Banks Block 625 was drilled to a total depth of 24,450 feet. The well encountered hydrocarbons and is currently sidetracking to delineate the extent of the reservoirs. Dawson Deep is located in 2,900 feet of water, northeast of our existing Gunnison facility. OTHER In 2003, we entered into an agreement with Shell to jointly explore a 1,116 square mile area of the deep-water eastern Gulf of Mexico. The area of mutual interest consists of 124 blocks located in Mississippi and Desoto Canyon. Shiloh was the first exploratory well to be drilled under the agreement. This well was drilled to a total depth of over 24,000 feet and was abandoned. We are continuing to explore in the deep-water Gulf and to increase our land position. In 2003, we acquired an additional 21 blocks. In 2004, we plan to drill at least three high-potential exploration wells. 6 MIDDLE EAST YEMEN [GRAPHIC OMITTED] [MAP] ACREAGE (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Gross 44 19,547 19,591 Net 23 9,798 9,821 - -------------------------------------------------------------------------------- PROVED RESERVES (mmbbls) Before Royalties After Royalties - -------------------------------------------------------------------------------- Masila Block 161 91 Block 51 31 19 - -------------------------------------------------------------------------------- 192 110 - -------------------------------------------------------------------------------- 2003 PRODUCTION (mbbls/d) Before Royalties After Royalties - -------------------------------------------------------------------------------- Masila Block 116.8 57.5 - -------------------------------------------------------------------------------- Our strategy in Yemen is to: o maintain production rates and fully exploit the Masila Project; o develop new growth on Block 51; and o continue to explore on the Masila Block. MASILA BLOCK We have a 52% working interest in and operate the Masila Project. The Masila Project is the largest single source of oil production in Yemen and has grown steadily since discovery in 1990. To date, the 16 fields on the block have produced 750 million gross barrels of oil from total gross recoverable reserves of just over one billion barrels. We have the right to produce oil from the Masila fields until 2011 and the right to negotiate a five-year extension. The Production Sharing Agreement (PSA) governing the Masila Project was signed with the Yemen Government in March 1987 with the first exploratory well drilled at Sunah where oil was discovered in 1990. Additional discoveries quickly followed at Heijah and Camaal. Commerciality was declared in December 1991 with the development plan approved by the Government in May 1992. Initial production began in July 1993 with the first lifting of oil in August 1993. Masila blend oil is sweet and averages 31o API at very low gas oil ratios. Facilities consist of over 600 km of flowlines from the individual wells, which connect to larger gathering lines for transport of crude oil, water and gas to the central processing facility. From there, the crude oil is transported by pipeline over 138 km of rugged terrain to the export terminal located near Ash Shihr on the Gulf of Aden. The export terminal consists of one 1,000,000 barrel and five 500,000 barrel storage tanks from which oil is pumped to an offshore loading buoy located in 150 feet of water for loading onto tankers. Gross production was maintained throughout the year at approximately 224,500 barrels per day, net of fuel use of approximately 4,700 barrels per day. Currently the majority of crude oil production comes from the Upper Qishn formation. Oil is also produced from formations below the Upper Qishn including the Lower Qishn, Upper Saar, Saar, Madbi, Basal Sand, and Basement formations. 7 Production from the Masila Project is governed by a PSA between the Government of Yemen and the Masila joint venture partners including Nexen (Partners). Under the terms of the agreement, production is divided into cost recovery oil and profit oil. Cost recovery oil provides for the recovery of all of the Project's exploration, development, and operating costs which are funded by the Partners. Costs are recovered from a maximum of 40% of production each fiscal year, as follows: COSTS RECOVERY - -------------------------------------------------------------------------------- Operating 100% in year incurred Exploration 25% per year for 4 years Development 16.7% per year for 6 years The remaining production is profit oil that is shared between the Partners and the Government on a sliding scale based on production rates. The Partners' profit oil share ranges from 20% to 33%. The Government's share includes a provision for Yemen income taxes payable by the Partners at a rate of 35%. In 2003, the Partners' share of production from the Masila Project, including recovery of past costs, was approximately 37%. The economics of Masila production are attractive. Over the past two years, finding and development costs have averaged approximately US$6 per barrel and operating costs have averaged US$1.40 per barrel, resulting in excellent returns for shareholders. In addition, the structure of the agreement moderates the impact on the Partners' cash flows during periods of low prices. We recover our costs first, and then share any remaining profit oil with the Government. At current production levels, the Government is entitled to approximately 73-74% of the profit oil. If price goes down, we still recover the same amount of costs, but the profit oil is decreased. Yemen crude oil is sold based on reference prices, generally Dated Brent crude oil (Brent), adjusted for transportation and quality. West Texas Intermediate (WTI) normally trades at a premium to Brent, but the differential can vary during the year. As the demand for Brent crude oil increases relative to WTI the differential narrows, increasing the price of Brent on a relative basis. During 2003, we sold our Masila crude oil for an average discount of US$3.29/bbl to WTI. BLOCK 51 Block 51 is governed by a PSA between the Government of Yemen, and the partners comprising The Yemen Company (TYCO) (an entity owned by the Government of Yemen) and Nexen. The PSA expires in 2023 and we have the right to negotiate a five-year extension. Our most exciting drilling results to date come from exploration wells drilled in 2003 at Baishir al Khair BAK-A (formerly Tammum) and BAK-B (formerly Amir). Late in 2003, we declared commerciality on this block with approval from the Yemen Government. On declaration of commerciality, 36% of the remaining block was converted to a development area for a period of 20 years. The remainder of the block was relinquished. The additional potential of the block will continue to be evaluated in 2004. Based on drilling results to date, we expect to develop at BAK-A in excess of 60 million barrels of reserves and add between 20,000 and 25,000 barrels per day of production capacity in early 2005. Development of the BAK-A discovery will commence in 2004. Initial development will include ten additional wells, a central processing facility, a gathering system and a 22 km tieback to our Masila export pipeline. Under the terms of the PSA, a royalty ranging from 3% to 10% is payable to the Government, after which the remaining production is divided into cost recovery oil and profit oil. Cost recovery oil provides for the recovery of all of the project's exploration, development and operating costs, which are funded solely by Nexen. Costs are recovered from a maximum of 50% of production each fiscal year, as follows: COSTS RECOVERY - -------------------------------------------------------------------------------- Operating 100% in year incurred Exploration 75% per year, declining balance Development 75% per year, declining balance The remaining production is profit oil that is shared between the partners and the Government on a sliding scale based on production rates. The partners' profit oil share ranges from 20% to 30%, of which we are entitled to 87.5%. The remaining 12.5% of the partner share is payable to TYCO. The Government's share of profit oil includes provision for Yemen income taxes payable by the partners at a rate of 35%. In 2003, we also drilled a third prospect (HEK) 25 km northwest of BAK-B, however, the well was dry. We also completed a 2D seismic program and have begun processing the data. We will continue exploring the block and plan to drill at least six exploration wells in 2004. 8 EXPLORATION BLOCKS BLOCK 50 We successfully farmed out a portion of this block in 2002. Following completion of the 2003 exploration program by the new partner, our interest was reduced to 33.337%. All commitments have been fulfilled and we plan to relinquish this block in 2004. NORTHERN BLOCKS The Northern Blocks comprise five large exploration blocks (11, 12, 36, 54 and 59) that cover almost 13 million acres. They are located 250 km north of Masila in an undeveloped frontier area bordering Saudi Arabia. We currently have a 60% working interest in these blocks. We have evaluated these blocks and intend to relinquish them in 2004. WEST AFRICA [GRAPHIC OMITTED] [MAP] ACREAGE (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Gross 1 1,630 1,631 Net 1 404 405 - -------------------------------------------------------------------------------- PROVED RESERVES (mmbbls) Before Royalties After Royalties - -------------------------------------------------------------------------------- Ejulebe Field -- -- - -------------------------------------------------------------------------------- 2003 PRODUCTION (mbbls/d) Before Royalties After Royalties - -------------------------------------------------------------------------------- Ejulebe Field 2.2 1.6 - -------------------------------------------------------------------------------- Offshore West Africa, we have three projects underway, OPL-222 and OML-115, offshore and Block K, offshore Equatorial Guinea. We also produce crude oil offshore at Ejulebe on Block OML-109. Our strategy is to explore and quickly develop our current portfolio. Our 2004 program for Nigeria includes five exploration wells with the potential to deliver significant medium-term growth. NIGERIA BLOCK OML-109 - EJULEBE We operate the Ejulebe field located in 45 feet of water on Block OML-109 in the Niger Delta, approximately 15 km offshore Nigeria. Crude oil production from Ejulebe is transported through a pipeline to a third-party owned FPSO (floating production storage and off-loading vessel) where it is made available for export. We operate the block under a risk service contract, which requires us to provide exploration, development and operatorship services and fund all costs in return for a service fee payable out of production from the block. We expect the Ejulebe field to produce its final barrel of crude oil in early 2004. Abandonment will commence upon receipt of government approval. Since government approval for field decommissioning in Nigeria is in the early stages of development, official approval may take some time. No capital expenditures are proposed for 2004. BLOCK OPL-222 In 1998, we acquired a 20% interest in Block OPL-222, which includes 448,000 acres and is located approximately 80 km offshore in water depths ranging from 600 to 3,500 feet. Elf Petroleum Nigeria Limited, a subsidiary of Total, is the operator. The ongoing appraisal of the block indicates significant hydrocarbon accumulations based on the drilling results outlined below: o In 1998, the Ukot-1 exploration well encountered three oil-bearing intervals and flowed at a restricted rate of 13,900 bbls per day from two intervals. o In 2002, the Usan-1 exploration well encountered several oil-bearing intervals and one zone flowed at a restricted rate of 5,000 bbls per day. o In 2003, the Usan-2 well was drilled three km west of the discovery well, Usan-1, and appraised an up-dip portion of the fault block. o In 2003, Usan-3 was drilled approximately two km northwest of the discovery well and appraised a separate fault block. One zone in the well was production tested and produced 5,600 bbls of oil per day under restricted flow conditions. 9 o In 2003, Ukot-2 was drilled 3.5 km south of Ukot-1 and was not flow tested. o In 2003, the Usan-4 appraisal well flow tested two zones. They flowed at restricted rates of 4,400 and 6,300 bbls of oil per day. Usan-4 confirmed the presence of commercial quantities of crude oil. The operator has applied to convert the block's licence to an Oil Mining Lease which gives 20 years to appraise, develop and produce the reserves. A field development plan is being prepared for submission to the government. Priority to date has focused on the Usan field. We plan additional exploration drilling on OPL-222 in 2004. The partners are currently in the process of determining which prospects will be drilled. BLOCK OML-115 The Nigerian Government formally approved the Deed of Assignment for Block 115 in December 2003, which assigned us a 40% interest in the block. Under the terms of our Joint Operating Agreement with Oriental Energy Resources Limited, we have a 100% paying interest and are entitled to 90 - 95% of the revenues for an initial ten-year period. Existing 3D seismic is currently being evaluated to finalize our first exploration well location. In January 2004, we commenced a 410 km2 3D seismic program on the block. Additional prospects identified by this program will be pursued in 2005. EQUATORIAL GUINEA In 2003, we acquired a 25% interest and became the operator of Block K, a deep-water block located 100 km offshore Equatorial Guinea. We expect to interpret existing 3D seismic and drill two exploration wells in 2004. This program will meet all work commitments under the production sharing contract prior to the end of the initial exploration period on June 1, 2005. OTHER INTERNATIONAL COLOMBIA [GRAPHIC OMITTED] [MAP] ACREAGE (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Gross 1 909 910 Net -- 674 674 - -------------------------------------------------------------------------------- PROVED RESERVES (mmbbls) Before Royalties After Royalties - -------------------------------------------------------------------------------- Guando 10 10 - -------------------------------------------------------------------------------- 2003 PRODUCTION (mbbls/d) Before Royalties After Royalties - -------------------------------------------------------------------------------- Guando 3.2 3.0 - -------------------------------------------------------------------------------- BOQUERON BLOCK - GUANDO In 2000, we made our first discovery at Guando on the non-operated Boqueron Block. Boqueron is located in the Upper Magdalena Basin of central Colombia, approximately 45 km southwest of Bogota. Based on successful results from four appraisal wells and three development wells, we submitted an application for commerciality early in 2002. Our application was accepted by Ecopetrol, the national oil company. Ecopetrol exercised their right to back into a 50% interest in the development, reducing our interest from 40% to 20%. Under the arrangement, we have recovered our share of costs incurred on Ecopetrol's behalf before they exercised their back-in right, from production. Development drilling and a waterflood pilot program began in 2002 and continued in 2003. Given the results from the pilot, a full-field waterflood program was approved in 2003. With a full-field waterflood and 24 planned development wells, we expect our share of production will grow to 4,900 bbls per day by the end of 2004. Production from Guando is subject to a 5% to 25% royalty depending on daily production levels. The corporate income tax rate is 38.5%. 10 EXPLORATION BLOCKS Exploration activities in Colombia are focused on assessing potential drilling opportunities on captured blocks. In addition to Boqueron, we have interests in four exploration blocks in the Upper Magdalena Basin. Villarrica was acquired in 2000, Andino in 2002, El Queso in 2003 and Boqueron Deep in 2003. BLOCK INTEREST (%) 2003 ACTIVITY - -------------------------------------------------------------------------------- Boqueron Deep 40 Signed the block in 2003 Villarrica 50 Interpreted seismic and submitted environmental impact assessment El Descanso 50 Relinquished the block Andino 100 Drilled Andino-1 exploration well and evaluated 50 km of seismic Muisca 100 Relinquished the block El Queso 100 Signed the block in 2003 and evaluated 71 km of seismic The fiscal policy structure in Colombia is being revised to make the terms competitive in the world market. The revised terms are to be finalized in early 2004 and the El Queso block will have the option to use the new terms. Boqueron Deep has favourable terms, whereby Ecopetrol retains the right to back-in at the declaration of commerciality for a 30% interest. The exploration commitments have been completed for the current phase on all blocks except for Boqueron Deep. A decision to renew or relinquish the blocks will be made by mid-2004. At Andino, an exploration well was drilled in October 2003, which tested wet and was abandoned. A 50 km 2D seismic program was also completed in 2003. The El Queso Block, which we acquired in 2003, is highly prospective with eight leads identified. We have completed a 71 km seismic program and will be evaluating the data to determine our future plans on this block. AUSTRALIA [GRAPHIC OMITTED] [MAP] ACREAGE (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Gross 1 -- 1 Net 1 -- 1 - -------------------------------------------------------------------------------- PROVED RESERVES (mmbbls) Before Royalties After Royalties - -------------------------------------------------------------------------------- Buffalo Field 1 1 - -------------------------------------------------------------------------------- 2003 PRODUCTION (mbbls/d) Before Royalties After Royalties - -------------------------------------------------------------------------------- Buffalo Field 6.1 5.6 - -------------------------------------------------------------------------------- BUFFALO The Buffalo field located offshore on the northwest shelf of Australia has been an excellent project. This field produces high-quality crude oil that attracts a premium price. Production from Buffalo began in December 1999 using a fixed wellhead platform linked to a leased floating production storage and off-loading vessel (FPSO). In late 2000, we acquired the remaining 50% interest in this field and became the operator. As a result of an extensive 3D seismic reprocessing program in 2001, we identified additional oil reserves that would not be recovered by the existing production wells. In 2002, we successfully completed a two well infill drilling program which allowed us to maximize our reserve recovery and to add incremental recoverable reserves. We expect to produce our final barrel of crude oil in late 2004. The final date of production will be determined by the economics of the field as we continue to maximize the remaining value through cost-effective operations. No capital expenditures are expected in 2004. Field abandonment is scheduled to begin in the fourth quarter of 2004 and finish by the end of 2005. 11 In Australia, profits from offshore production, less allowable capital expenditures, are subject to Petroleum Resource Rent Tax (PRRT) at a rate of 40%. Any PRRT paid is deductible in computing corporate income tax. The corporate income tax rate in Australia is 30%. BRAZIL In 2002, we acquired the right to earn a 20% interest in a 2,060 sq. km exploration license in Block BC-20 located in the Campos Basin, approximately 100 km offshore Brazil, by way of a farm-in arrangement. The first well in a two-well drilling commitment was drilled in late 2002 and the second in 2003. We encountered no economic hydrocarbons. This farm-in provided us with a strategic entry into Brazil and has enabled us to build on our offshore knowledge in an under-explored basin. We continue to evaluate our opportunities in this basin. WESTERN CANADA [GRAPHIC OMITTED] [MAP] ACREAGE (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Gross 902 2,511 3,413 Net 705 1,417 2,122 - -------------------------------------------------------------------------------- PROVED RESERVES Before Royalties After Royalties - -------------------------------------------------------------------------------- Crude Oil and NGLs (mmbbls) 119 101 Natural Gas (bcf) 470 405 - -------------------------------------------------------------------------------- Total (mmboe) 197 169 2003 PRODUCTION Before Royalties After Royalties - -------------------------------------------------------------------------------- Light Oil (mbbls/d) 20.1 15.0 Heavy Oil (mbbls/d) 26.2 20.4 Natural Gas (mmcf/d) 158 125 - -------------------------------------------------------------------------------- Total (mboe/d) 72.6 56.2 - -------------------------------------------------------------------------------- Our strategy in western Canada is to maximize value from our core operations while we actively pursue emerging sources of supply in the western Canadian sedimentary basin. These operations provide steady cash flow and earnings from our established portfolio of light oil, heavy oil, and natural gas assets. Additionally, we are advancing three promising initiatives for future growth in western Canada: gas exploration, coal bed methane development and enhanced recovery technology. Our exploration program targets high productivity deep gas plays in the foothills of Alberta where we have production operations. We have a coal bed methane extraction pilot in central Alberta, and we are actively testing enhanced oil recovery techniques on our heavy oil fields. LIGHT OIL We continue to focus on the development and full exploitation of our Hay property in northeast British Columbia. We discovered Hay in 1997 and brought production on stream in April 2000. It is now the largest producing oil field in British Columbia. In 2003, we produced our eight millionth barrel from the field and drilled 23 wells to increase productivity at low cost. In 2004, we will add 17 producing development wells to further exploit the existing pool and drill five vertical wells to test the pool boundaries. We also produce light oil in southeast Saskatchewan. Our operations in the area are characterized by mature fields producing medium depth, Mississippian age light oil. In 2003, we drilled 19 development wells on our light oil properties. We also sold land holdings in the area during the year producing approximately 9,000 bbls of oil per day (7,000 bbls, net to us) for approximately $30,000 per daily flowing barrel, realizing $268 million of net proceeds from the transaction. HEAVY OIL There are a significant number of large heavy oil fields in western Canada. Typically, finding and development costs for heavy oil are lower than light oil. Heavy oil is characterized by high specific gravity or weight, and high viscosity or resistance to flow. Because of these features, heavy oil is more difficult to extract, transport and refine than other types of oil. Heavy oil yields a lower price relative to light oil, because a smaller percentage of high value petroleum products can be refined from a barrel of heavy oil than from a barrel of higher quality crude without expensive refinery conversion capacity. 12 Our heavy oil operations are located in west central Saskatchewan. A strong focus on managing finding and operating costs is fundamental to maximizing heavy oil returns. Our large production base and existing infrastructure are important factors in managing these costs. In 2003, a total of 54 heavy oil wells were drilled and brought on production. A key success for heavy oil will be the development of new technology to increase oil recovery. ENHANCED OIL RECOVERY Heavy oil reservoirs typically have lower recovery factors than conventional oil reservoirs providing the opportunity for increased recovery with the application of new technology. We are currently researching the use of solvent mixtures of hydrocarbon gases to enhance our heavy oil recovery. Early field test results at our Plover Lake field are encouraging. NATURAL GAS Our natural gas is primarily produced from shallow sweet assets in Alberta and Saskatchewan, and from deep sour gas near Calgary and in the foothills of Alberta. Approximately 48% of our natural gas production comes from shallow low permeability gas properties. Shallow gas is natural gas produced from thin, shallow sand formations predominantly located in southern areas of Alberta and Saskatchewan. These reservoirs typically cover a broad geographical area yielding sweet, low-pressure gas. In general, shallower gas targets are cheaper to drill and develop, but have relatively smaller reserves and lower productivity per well. We also have sweet gas operations from shallow high permeability sands in northwest Saskatchewan. This is a mature area comprising 26% of our natural gas production. Our shallow gas properties provide production and consistent returns as they approach full development, and will continue to do so for years to come. During 2003, we drilled 78 shallow gas development wells. Our Balzac field produces 13% of our natural gas and we process it through our Balzac plant, northeast of Calgary. The Balzac area has been in operation since 1961 and is characterized by long life reserves and consistent cash flows. During the year, we drilled three development wells on our Balzac property. The balance of our natural gas production comes from the Findley properties in the Alberta foothills and gas production associated with oil wells. Future growth in natural gas will come from gas exploration prospects in the foothills of Alberta and Montana, and from the development of coal bed methane. GAS EXPLORATION In 2004, our gas exploration will concentrate on the foothills of west central Alberta. In northeast British Columbia we are working to farmout out our prospective acreage. At Lochend, located just outside Calgary, public consultation for the drilling of a deep exploratory well will continue in 2004. Our core foothills area is anchored by the producing Findley field where we actively drilled for new reserves in 2003. We drilled five wells in the year, the best of which flowed 8.5 mmcf/d (gross). Development drilling will continue into 2004 along with facility expansion to handle the extra volume. In this trend we have been able to assemble a good undeveloped land base and we plan to drill three exploratory wells in 2004 to test multiple targets. COAL BED METHANE Coal bed methane (CBM) is becoming a significant gas resource in Canada. CBM is commonly referred to as an unconventional form of natural gas because it is primarily stored through absorption to the coal itself rather than in the pore space of the rock, like most conventional gas. The gas is released in response to a drop in pressure in the coal. If the coal is water saturated, water will need to be extracted to initially reduce the pressure and allow gas production to occur. If the coal is gas saturated, little or no water will be produced, and gas will be produced from the onset of production. Typical water saturated CBM wells show increasing gas production rates for a period of generally one to three years before rates begin to decline. Although CBM production comprises approximately 8% of the total domestic gas production in the United States, Canadian CBM production is estimated to be only producing approximately 20 to 25 mmcf/d, or less than 0.2% of current gas production. The National Energy Board forecasts that CBM production in Canada could be as much as 3 bcf/d by 2025. Our CBM project at Corbett is still in the pilot phase and results are largely meeting our expectations. We are partnered on this project with an experienced US CBM operator. In 2003, we added 114 sections at 100% working interest of prospective lands along the Corbett trend, increasing our total CBM land position in this area to over 240 net sections. We are currently expanding our pilot operation at Corbett from 15 to 49 producing wells. We plan to decide on commerciality by the end of 2004. Outside of Corbett, we have established a foothold in four other prospective CBM areas. 13 ROYALTIES AND TAXES In Canada, the federal and provincial governments impose royalties on oil and gas production from lands where they own the mineral rights. Royalties vary depending on factors such as well production volumes, selling prices, recovery methods, drilling date of the well, and the date of initial production. Royalty rates can range from 16% to 25%. Some provinces also receive revenue by imposing taxes on production from lands where they do not own the mineral rights. In addition, the Province of Saskatchewan assesses a resource surcharge of 3.6% on gross Saskatchewan resource sales. This surcharge has been reduced to 2.0% on wells completed after October 1, 2002. Profits earned in Canada from Canadian resource properties are subject to federal and provincial income taxes. In 2003, legislation was introduced to reduce the general federal corporate income tax rate on income from Canadian oil and gas activities from 28% to 21% over a five-year period (2003-2007). The federal capital tax rate is 0.225%. This tax is to be repealed by 2008 through a combination of rate reductions and an increased exemption. Provincial capital tax rates vary from 0.15% to 0.60%. Canadian entities are also subject to capital taxes. ATHABASCA OIL SANDS A key part of Nexen's strategy is the economic development of our bitumen resource to provide low risk, stable future growth. World events in the last three years have highlighted the need to develop stable oil resources in various areas of the world. The bitumen resource in northern Alberta has a significant role to play in providing this stability. The US Geological Survey now recognizes bitumen as reserves. It is estimated that there are over 300 billion barrels of recoverable bitumen in northern Alberta. 20% of this resource is recoverable by way of surface mining. The remaining 80% is too deep for surfacing mining recovery and requires Steam Assisted Gravity Drainage (SAGD) technology. We have a 7.23% joint venture interest in Syncrude Canada Ltd. (Syncrude). Syncrude mines shallow deposits of oil sands in Canada, extracts the bitumen and upgrades it to produce synthetic crude oil. We also have interests in numerous oil sands leases in the Athabasca region of northern Alberta and have acquired the rights to proprietary, patent-protected technology to upgrade bitumen recovered from these leases. We are in the development stage of our synthetic crude oil project at Long Lake. SYNCRUDE [GRAPHIC OMITTED] [MAP] ACREAGE (thousand acres) Developed Undeveloped Total - -------------------------------------------------------------------------------- Gross 117 141 258 Net 9 10 19 - -------------------------------------------------------------------------------- PROVED RESERVES (mmbbls) Before Royalties After Royalties - -------------------------------------------------------------------------------- 285 248 - -------------------------------------------------------------------------------- 2003 PRODUCTION (mbbls/d) Before Royalties After Royalties - -------------------------------------------------------------------------------- 15.3 15.2 - -------------------------------------------------------------------------------- Syncrude was created in 1975 to mine shallow deposits of oil sands and extract and upgrade crude oil bitumen into a high-quality, light, synthetic crude oil. The oil sands are located on eight leases (10, 12, 17, 22, 29, 30, 31, 34) spanning 258,000 acres north of Fort McMurray, Alberta. Since start-up in 1978, Syncrude has produced nearly 1.5 billion barrels of synthetic crude oil. The operating term for leases controlled by Syncrude currently extends to the year 2035. However, Syncrude can hold the leases for 80 years if there are plans to develop them. Syncrude mines oil sands at three mines: Base, North and Aurora. Approximately two tons of oil sands are required to produce one barrel of synthetic crude oil. The oil sands must be mixed with water to form a slurry. Air and chemicals are added to separate bitumen from the sand grains. The process at the Base Mine involves hot water, steam and caustic soda to create a slurry, while at the North Mine and the Aurora Mine the oilsands are mixed with warm water to produce a slurry. 14 The slurries are transported to extraction facilities where they are treated to remove water and solids. The bitumen product is fed into a vacuum distillation tower and two cokers for primary upgrading. The resulting products are then separated into naphtha, light gas oil and heavy gas oil streams. These streams are hydrotreated to remove sulphur and nitrogen impurities and are mixed together to form light, sweet synthetic crude oil. Sulphur and coke, which are by-products of the process, are stockpiled for possible future sale. The quality of Syncrude's synthetic crude oil typically allows it to be sold at a premium to WTI. EXPANSION In 1999, the Alberta Energy and Utilities Board (AEUB) approved an increase in Syncrude's production capacity to 465,700 barrels per day. At the end of 2001, Syncrude had increased its synthetic crude oil capacity to 246,500 barrels per day (17,820 barrels net) with the development of the Aurora Mine. In 2001, the Syncrude owners approved the third stage of the Syncrude expansion, which will increase capacity to 356,000 barrels per day (25,750 barrels net) in 2005. Due to higher engineering, manufacturing, and construction costs, the estimated costs of the Stage 3 expansion have increased from initial estimates of $4.1 billion ($296 million net) to $5.7 billion ($412 million net). Activities in 2004 will focus on completing the upgrader expansion and replacing bitumen production capacity that will be lost with the mined-out southwest quadrant of the Mildred Lake Base Mine in 2005. ROYALTIES Syncrude pays a royalty to the Province of Alberta. Subsequent to 1987, this royalty was equal to 50% of Syncrude's deemed net profits after deduction of certain capital expenditures. In 1995, the Province announced generic royalty terms for new oil sands projects that provide for a royalty rate of 25% on net revenues after all costs have been recovered, subject to a minimum 1% gross royalty. In 1997, the Province of Alberta and the Syncrude owners agreed to move to the generic royalty terms when the total of all allowed capital costs incurred after December 31, 1995 equaled $2.8 billion (gross). That total was surpassed at the end of 2001, and so Syncrude moved to generic terms in January 2002. LONG LAKE SYNTHETIC CRUDE We have interests in numerous oil sands leases in the Athabasca region of northern Alberta - one of the largest non-conventional oil deposits in the world. These bitumen resources can be produced using Steam Assisted Gravity Drainage (SAGD), a technology now being commercialized at several locations in the region. SAGD involves the drilling of two parallel horizontal wells, generally between 2,300 and 3,300 feet in length with about 16 feet of vertical separation. Steam is injected into the shallower well, where it heats the bitumen that then flows by gravity to the deeper producing well. Recovery factors of 50% to 70% of the oil-in-place are possible with this technology. We have interests in SAGD projects at various stages of development including a 50% interest in a joint venture with OPTI Canada Inc. (OPTI). OPTI JOINT VENTURE [GRAPHIC OMITTED] [MAP] In 2001, we formed a joint venture with OPTI to develop in-situ bitumen using SAGD technology, and to construct a field upgrading facility on the Long Lake property, incorporating patented OrCrude(TM) technology licensed to OPTI. As part of the agreement, Nexen acquired the exclusive right with OPTI to use the technology within approximately 100 miles of the Long Lake property, and the right to use the technology elsewhere in the world. The OrCrude(TM) technology converts bitumen into partially upgraded sour crude oil and liquid asphaltenes. A 500-barrel per day demonstration plant applying this technology has been successfully upgrading bitumen from the Cold Lake and Athabasca regions since April 2001. By coupling the OrCrude(TM) process with commercially available hydrocracking and gasification technologies, the sour crude will be upgraded to light (37(0) to 43(0) API) premium synthetic crude oil and the asphaltenes will be converted to a low-energy, synthetic fuel gas containing free hydrogen (for use in the upgrading process). We estimate the capital costs of producing and upgrading bitumen using this technology will be comparable to those of surface mining and coking upgrading on a barrel of daily production basis. In addition, the project will have significantly lower price risk on input costs, since it manufactures its hydrogen and fuel gas from internally produced asphaltenes rather than purchased natural gas. 15 An application to construct a 70,000 barrel per day SAGD project and an integrated 70,000 barrel per day input (60,000 barrel per day premium synthetic crude output) upgrader at Long Lake (Lease 27) was granted regulatory approval in 2003. We are the operator of the Long Lake lease and are responsible for construction, development and operation of the SAGD project, while OPTI is responsible for the design, construction and operation of the upgrader. The Long Lake SAGD and upgrader project will develop approximately 10% of our Athabasca bitumen resource and will upgrade the bitumen into a high quality, light, sweet synthetic crude oil. To optimize the project's well design, a three-well pair SAGD pilot capable of producing 3,000 barrels per day of bitumen was completed and commissioned. Wells were transitioned from the warm-up phase to SAGD production to reach 1,500 bbls per day (gross) by year-end as we expected. On February 12, 2004, our Board of Directors approved proceeding with commercial development of the Long Lake SAGD and upgrader project and as a result we have booked 200 million barrels of new proved reserves in 2004. Field construction work is expected to begin in 2004. Commercial production of bitumen is expected in the second half of 2006 with synthetic crude oil production expected in 2007. Peak production will reach 60,000 bbls per day (gross) of synthetic crude oil and is expected to be maintained over the project's 35 plus year life. We expect the gross capital cost to construct the Long Lake project to total $3.4 billion ($1.7 billion, net to us). Ongoing sustaining capital is expected to average $2.50 per barrel. The project will generate its own fuel and electricity, resulting in significant operating cost savings when compared to other bitumen production and upgrading projects. Operating costs are expected to average $7 - $9 per barrel. Assuming WTI oil prices average in the US$ mid-twenties per barrel, the project will generate returns in the low to mid-teens. RESERVES, PRODUCTION AND RELATED INFORMATION In addition to the tables below, we refer you to the Supplementary Data in Item 8 of this Form 10-K for information on our oil and gas producing activities. Nexen has not filed with nor included in reports to any other United States federal authority or agency, any estimates of total proved crude oil or natural gas reserves since the beginning of the last fiscal year. NET SALES BY PRODUCT FROM CONTINUING OPERATIONS
(Cdn$ millions) 2003 2002 2001 - ----------------------------------------------------------------------------------------- Conventional Crude Oil and Natural Gas Liquids 1,654 1,539 1,328 Synthetic Crude Oil 240 245 225 Natural Gas 618 345 494 ----------------------------------------- 2,512 2,129 2,047 =========================================
Crude oil and natural gas liquids represent approximately 75% of oil and gas sales, while natural gas represents the remaining 25%. SALES PRICES AND PRODUCTION COSTS (Based on working interest production after royalties)
AVERAGE SALES PRICE (1) AVERAGE PRODUCTION COSTS (1) - ------------------------------------------------------------------------ --------------------------------------------- 2003 2002 2001 2003 2002 2001 ---------------------------------------- --------------------------------------------- Crude Oil and NGLs (Cdn$/bbl) Yemen 39.45 38.80 35.05 4.37 4.13 3.47 Canada (2) 32.37 31.13 24.86 10.00 8.98 7.90 United States 37.68 38.88 38.35 5.08 10.95 7.24 Australia 43.14 40.30 38.71 20.21 12.14 14.38 Other Countries 38.22 38.96 37.35 9.01 10.69 9.94 Synthetic Crude Oil 43.36 40.89 39.90 22.18 18.21 20.29 Corporate Average 38.04 37.13 33.10 8.43 8.72 7.65 Natural Gas (Cdn$/mcf) Canada (2) 5.64 3.57 5.02 0.65 0.70 0.54 United States 8.16 5.29 6.66 0.89 1.83 1.21 Corporate Average 6.85 4.25 5.69 0.75 1.10 0.81
Note: (1) Prices and unit production costs are calculated using our working interest production after royalties. (2) Includes results of discontinued operations (See Note 9 of our Consolidated Financial Statements.) 16 PRODUCING OIL AND GAS WELLS
(number of wells) 2003 - ------------------------------------------------------------------------------------------------------------------------------- OIL GAS TOTAL ---------------------------- --------------------------- ---------------------------- Gross (1) Net (2) Gross (1) Net (2) Gross (1) Net (2) United States 192 86 200 120 392 206 Yemen 332 173 -- -- 332 173 Nigeria 2 2 -- -- 2 2 Canada 2,672 1,928 2,484 2,174 5,156 4,102 Colombia 51 11 -- -- 51 11 Australia 3 3 -- -- 3 3 ---------------------------- --------------------------- ---------------------------- Total 3,252 2,203 2,684 2,294 5,936 4,497 ============================ =========================== ============================
Notes: (1) Gross wells are the total number of wells in which an interest is owned. (2) Net wells are the sum of fractional interests owned in gross wells. OIL AND GAS ACREAGE
(thousands of acres) 2003 - ---------------------------------- -------------------------------------------------------------------------------------------- DEVELOPED UNDEVELOPED (1) TOTAL ---------------------------- --------------------------- ---------------------------- Gross Net Gross Net Gross Net United States 191 105 886 436 1,077 541 Yemen (2) 44 23 19,547 9,798 19,591 9,821 Nigeria (2),(3),(4) 1 1 524 128 525 129 Equatorial Guinea -- -- 1,106 276 1,106 276 Canada 902 705 2,511 1,417 3,413 2,122 Colombia (5) 1 -- 909 674 910 674 Brazil -- -- 509 102 509 102 Australia 1 1 -- -- 1 1 ---------------------------- --------------------------- ---------------------------- Conventional Total 1,140 835 25,992 12,831 27,132 13,666 ============================ =========================== ============================ Syncrude 117 9 141 10 258 19 ============== ============= =========================== ============================
Notes: (1) Undeveloped acreage is considered to be those acres on which wells have not been drilled or completed to a point that would permit production of commercial quantities of crude oil and natural gas regardless of whether or not such acreage contains proved reserves. (2) The acreage is covered by production sharing contracts. (3) The acreage is covered by a risk service contract. (4) The acreage is covered by a joint venture agreement. (5) The acreage is covered by an association contract. 17 DRILLING ACTIVITY
(number of net wells) 2003 - ------------------------------------------------------------------------------------------------------------------------------- NET EXPLORATORY NET DEVELOPMENT -------------------------------------- ------------------------------------------ Productive Dry Holes Total Productive Dry Holes Total Total United States -- 0.5 0.5 8.3 0.1 8.4 8.9 Yemen 8.0 1.0 9.0 49.0 -- 49.0 58.0 Nigeria 0.6 -- 0.6 -- -- -- 0.6 Canada 15.4 1.7 17.1 157.7 2.5 160.2 177.3 Colombia -- 1.0 1.0 6.2 -- 6.2 7.2 Brazil -- 0.2 0.2 -- -- -- 0.2 -------------------------------------- -------------------------------------------------------- Total 24.0 4.4 28.4 221.2 2.6 223.8 252.2 ====================================== ======================================================== 2002 - ------------------------------------------------------------------------------------------------------------------------------- NET EXPLORATORY NET DEVELOPMENT -------------------------------------- ------------------------------------------ Productive Dry Holes Total Productive Dry Holes Total Total United States -- 1.4 1.4 14.9 0.6 15.5 16.9 Yemen -- 0.6 0.6 38.0 1.0 39.0 39.6 Canada 16.0 4.0 20.0 225.0 8.0 233.0 253.0 Australia -- -- -- 2.0 -- 2.0 2.0 Other Countries (1) 0.2 0.7 0.9 2.0 0.2 2.2 3.1 -------------------------------------- -------------------------------------------------------- Total 16.2 6.7 22.9 281.9 9.8 291.7 314.6 ====================================== ======================================================== 2001 - ------------------------------------------------------------------------------------------------------------------------------- NET EXPLORATORY NET DEVELOPMENT -------------------------------------- ------------------------------------------ Productive Dry Holes Total Productive Dry Holes Total Total United States 3.8 1.2 5.0 5.3 -- 5.3 10.3 Yemen -- 1.5 1.5 30.7 1.6 32.3 33.8 Canada 38.6 20.8 59.4 369.9 8.3 378.2 437.6 Australia -- 0.4 0.4 -- -- -- 0.4 Other Countries 1 1.2 2.9 4.1 1.8 0.4 2.2 6.3 -------------------------------------- -------------------------------------------------------- Total 43.6 26.8 70.4 407.7 10.3 418.0 488.4 ====================================== ========================================================
Note: (1) Other countries include drilling primarily in Nigeria, Colombia and Brazil. WELLS IN PROGRESS At December 31, 2003, we were in the process of drilling three wells (1.6 net) in the United States, nine wells (7.3 net) in Canada, and five wells in Yemen (3.0 net). OIL AND GAS MARKETING Our marketing operation sells our own crude oil and natural gas production, markets third-party crude oil and natural gas and engages in energy trading through the use of both physical and financial contracts (energy trading activities). These activities are intended to enhance price realizations from selling both proprietary and third-party oil and gas production, provide market and business intelligence in support of our oil and gas growth activities, and contribute independent earnings and cashflow. We focus on four key areas: domestic oil marketing and trading, domestic gas marketing and trading, international oil marketing and trading, and power marketing. We have offices in Calgary, Houston, Denver, Detroit, and Singapore to service our primary markets. The oil and gas areas are involved in the purchase, transport, storage and sale of oil or natural gas from the point of production to end-use customers. Related to this, our marketing operation owns transportation assets and has investments in third-party controlled gas-processing facilities. Transportation assets include pipelines and batteries in the Lloydminster area as well as the Hay pipeline. In addition, we manage various natural gas transportation and storage commitments for ourselves as well as third-party clients. These management arrangements help optimize our energy trading activities. We also trade on active markets such as the New York Mercantile Exchange and the International Petroleum Exchange as part of our total portfolio. 18 Power marketing is involved in power production and marketing power to larger commercial, industrial and municipal clients within Alberta. It is responsible for optimizing the use of Nexen's power generation facility at Balzac, Alberta. This facility began operations during the fourth quarter of 2001. CHEMICALS OPERATIONS AVERAGE ANNUAL PRODUCTION CAPACITY 2003 2002 2001 - -------------------------------------------------------------------------------- Sodium Chlorate (short-tons) North America 432,812 500,650 474,250 Brazil 70,213 57,320 42,550 - -------------------------------------------------------------------------------- Total 503,025 557,970 516,800 - -------------------------------------------------------------------------------- Chlor-alkali (short-tons) North America 356,002 351,844 351,844 Brazil 109,430 97,462 90,078 - -------------------------------------------------------------------------------- Total 465,432 449,306 441,922 - -------------------------------------------------------------------------------- Our global strategy is to add value by enhancing our cost position, maintaining our market share, building a strong sustainable customer base in North America and by capturing new opportunities offshore. Over the past four years, we have made significant investments to grow our capacity, expand internationally and lower our overall cost structure. These investments have allowed us to maintain a strong position in the bleaching chemicals industry. We manufacture sodium chlorate and chlor-alkali products (chlorine, caustic soda and muriatic acid) in Canada and Brazil for distribution in those countries and the US. We also market a small amount of sodium chlorate in Asia. The key factors for marketing bleaching chemicals are reliability of supply and price. Our manufacturing facilities are modern, reliable, and strategically located to capitalize on competitive power costs or transportation infrastructure in order to minimize production and delivery costs. Electricity is the single largest cost incurred by our operations, representing over half of our cash costs. Other primary raw materials used in the production of sodium chlorate and chlor-alkali products are salt and fresh water. We secure long-term contracts for these materials to ensure sufficient supply and competitive costs. Labour is also a significant component of the manufacturing costs, with approximately 50% of our chemicals' workforce being unionized. We have active collective agreements in place at all of our unionized plants. NORTH AMERICA [GRAPHIC OMITTED] [MAP] We manufacture sodium chlorate at five facilities in North America: Nanaimo, British Columbia; Bruderheim, Alberta; Brandon, Manitoba; Amherstburg, Ontario; and Beauharnois, Quebec. We also manufacture chlor-alkali products at North Vancouver, British Columbia. The pulp and paper industry consumes approximately 95% of sodium chlorate production in North America. Our North American sodium chlorate production is marketed to numerous pulp and paper mills under multi-year contracts that contain price and volume provisions. Approximately 28% of this production is sold in Canada and the remainder is sold in the US, with a small component marketed offshore. In 2002, we completed an expansion of our Brandon plant in Manitoba. Our Brandon, Manitoba plant is one of the lowest cost sodium chlorate facilities in the industry. We are currently expanding this facility by 33% to 260,000 tonnes per year to replace higher cost capacity idled in 2002 at Taft, Louisiana. When complete in the fourth quarter of 2004, this expansion will make Brandon the largest sodium chlorate facility in the world, significantly enhancing our competitive position in North America. In 2002, we idled our Taft, Louisiana plant due to high operating costs and in 2003 we transferred those assets to Brandon as part of the new expansion. Sodium chlorate production capacity in North America decreased in 2003 as a result of this idling. Capacity will increase in the fourth quarter of 2004 once our Brandon expansion is complete. Our chlor-alkali facility in British Columbia manufactures caustic soda, chlorine and muriatic acid. In British Columbia, almost all of our caustic soda is consumed by local pulp and paper mills, while our chlorine is sold to various customers in the polyvinyl chloride, water purification and petrochemicals industries, primarily in the United States. 19 BRAZIL [GRAPHIC OMITTED] [MAP] In December 1999, we acquired a 39,000 short-ton per year sodium chlorate plant and a 35,000 short-ton per year chlor-alkali plant in Brazil from Aracruz Cellulose S.A., the leading manufacturer of pulp in Brazil. Substantially all of our production is sold to Aracruz under a long-term sales agreement that has an initial six year take-or-pay component. In 2002, we completed an expansion of both the chlorate and chlor-alkali facilities to meet Aracruz's expansion needs. This expanded the chlorate production capacity by 70% and the chlor-alkali capacity by 35%. ADDITIONAL FACTORS AFFECTING BUSINESS See Item 7 of this Form 10-K. GOVERNMENT REGULATIONS Our operations are subject to various levels of government controls and regulations in the countries in which we operate. These laws and regulations include matters relating to land tenure, drilling, production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax, and foreign trade and investment, all of which are subject to change from time to time. Current legislation is generally a matter of public record, and we are unable to predict what additional legislation or amendments may be proposed that will affect our operations or when any such proposals, if enacted, might become effective. However, we do participate in many industry and professional associations and otherwise monitor the progress of proposed legislation and regulatory amendments. ENVIRONMENTAL REGULATIONS OIL AND GAS OPERATIONS Our oil and gas operations are subject to government laws and regulations designed to protect the environment in the countries where we operate. We believe that our operations comply in all material respects with applicable environmental laws. From time to time, we may conduct activities in countries where environmental regulatory frameworks are in various stages of evolution. Where regulations are lacking, we observe Canadian standards where applicable, as well as internationally accepted industry environmental management practices. CANADA In Canada, these provisions, which are implemented principally by Environment Canada, Transport Canada and comparable provincial agencies, govern the management of hazardous waste, the discharge of pollutants, the construction of new discharge sources and the transportation of dangerous goods. The laws generally provide for civil and criminal penalties and fines, as well as injunctive and remedial relief. UNITED STATES In the United States, these provisions, which are implemented principally by the United States Environmental Protection Agency, the Department of Transportation, the Department of the Interior and comparable state agencies, govern the management of hazardous waste, the discharge of pollutants into the air and into surface and underground waters, the construction of new discharge sources, the manufacture, sale and disposal of chemical substances, and surface and underground mining. These laws generally provide for civil and criminal penalties and fines, as well as injunctive and remedial relief. 20 YEMEN In Yemen, the Yemen Environmental Protection Law was ratified by Parliament and issued by Presidential decree in October 1995. Yemen Republican Decree No. 11 in respect of Protection of the Maritime Environment from Pollution was passed in 1993 and establishes the Public Corporation for Maritime Affairs as the regulatory authority for maritime activities. Under the terms of an agreement with the Government of Yemen in March 1996, we prepaid the dismantlement and site restoration costs on the Masila Block Development Project, and were released from any further obligation relating to these costs on this block. NIGERIA In Nigeria, we have a risk service contract on Block OML-109 with an indigenous company. The indigenous company is responsible for obtaining all regulatory approvals associated with development in Nigeria. Pollution control regulations in oil and gas operations are governed by the Principal Legislation of Petroleum Act 1969. The regulations are made pursuant to section 8(i)b(iii) of the Petroleum Act which empowers the Minister of Petroleum Resources to make regulations for the prevention of pollution of water sources and the atmosphere. In 1981, the Department of Petroleum Resources (DPR) issued interim guidelines concerning the monitoring, handling, treatment, and disposal of effluents, oil spills and chemicals, drilling muds and cuttings by leases/oil operators. Tentative allowable limits of waste discharges into fresh water, coastal waters and offshore areas of operations were established. The guidelines were updated in 2002 as the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN). In November 1999, the Federal Ministry of the Environment (FME) announced that, pursuant to the Environmental Impact Assessment (EIA) Decree No. 86 of 1992, they have been charged with full responsibility for supervising all aspects of the environmental management of the oil and gas industry, replacing the environment division of the DPR and the defunct Federal Environmental Protection Agency. The timing and implications of these changes have yet to be determined. Accordingly, approvals are usually required from the DPR and the FME for all aspects of environmental management of the oil and gas industry. AUSTRALIA In Australia, the offshore petroleum industry is regulated by two environmental regimes: firstly, broadly consistent, petroleum industry specific, Federal (Commonwealth) and State/Territory legislation; and secondly, a non-industry specific, Federal regime. The States and Northern Territory have jurisdiction over their onshore petroleum operations, including petroleum within coastal waters. Petroleum operations beyond three nautical miles from the territorial sea baseline are subject to the Commonwealth Petroleum (Submerged Lands) Act 1967 (P(SL)A). The main environmental regulations are the P(SL)A Management of Environment regulations, 1999, and the Dept of Environment & Heritage, (DEH), (formerly Environment Australia), Environment Protection, Biodiversity, & Conservation (EPBC) Act. In July of 2000, the EPBC Act became law. The EPBC Act requires separate documentation to that required under the P(SL)A, and while the two Acts have similar objectives, the processes are quite different. Under the EPBC Act, operators are required to assess their projects to determine whether an action is likely to have a significant impact on matters of national environmental significance, and make a decision respecting submission of that assessment to a public referral process. Under the P(SL)A, there are two administrative decision-making bodies in respect of each offshore area; a Joint Authority, (which is the principal decision-making body), comprising the Commonwealth Minister responsible for resources, and the equivalent State or Northern Territory Minister, and a Designated Authority, which handles the day-to-day administrative matters relating to petroleum activities in the defined area. Titleholders under the P(SL)A are responsible for all petroleum related activities (including safety & environment matters) in the permit/licence area. The designated representative of the titleholder is the operator. COLOMBIA In Colombia, operations are subject to environmental regulations under the Ministry of the Environment. Community consultation is regulated by the Ministry of the Interior. The basic process, which results in an average time to receipt of license of between four months and two years, starts with the Ministry of Interior requirements for community consultation, followed by preparation of the required environmental impact assessment and management plans, followed by review within the Ministry of the Environment and the regional environmental authorities. Recent attempts to streamline the issuance of hydrocarbon licenses have resulted in some process improvements. 21 KYOTO PROTOCOL For a discussion of the Kyoto Protocol, see the Business Risk Management section in Item 7. SYNCRUDE OPERATIONS Syncrude is regulated by the Alberta Energy and Utilities Board (AEUB) and the Alberta Department of Environment (AENV). In 1999, the AEUB extended Syncrude's operating term through 2035 giving the flexibility required for ongoing orderly development of the operation and reclamation of the site. The AENV issued its approval under the Alberta Environmental Protection and Enhancement Act effective December 21, 1995. The approval has been extended beyond the original 10-year period such that it now expires December 31, 2006, and is a consolidated document covering air, land, water, and waste management matters. Land reclamation is proceeding at a rate of approximately 270 hectares per year, thereby minimizing annual future reclamation costs. CHEMICALS OPERATIONS We maintain an active environmental and safety program at our chemicals sites to further our goal of excelling as a Responsible Care(R) Organization. Our chemicals facilities have completed quantitative risk assessments to assist both the facilities and the communities in their emergency response and risk management plans. The results of these reviews have been communicated to each respective community. Since 1972, our North Vancouver facility has been the British Columbia regional control center for the North America Chlorine Emergency Plan (CHLOREP). Through this plan, we participate with other chlorine producers to provide professional and responsive action in the event of a chlor-alkali related emergency anywhere in their region of responsibility. We have taken an active role in the Canadian Chemical Producers' Association (CCPA), CAER (Community Awareness and Emergency Response) and TRANSCAER (Transportation CAER) projects. In 1989, we and other members of the CCPA expanded the CAER and TRANSCAER programs to the Responsible Care(R) initiative. This initiative is based on the industry's commitment to the responsible development, manufacture, transportation, handling, distribution, use and ultimate disposal of chemicals so as to minimize adverse effects on people and the environment. We successfully completed the CCPA's Round 1 Responsible Care(R) verification process in 1995. In 1998, we were the first company to undergo Round 2 verification of our Responsible Care(R) management systems. In 2002, we completed a CCPA Round 3 Responsible Care(R) reverification. Regulations that apply to our pulp and paper customers are significant to our chemicals operations. In January 1992, the Province of British Columbia amended the PULP MILL AND PULP AND PAPER MILL LIQUID EFFLUENT CONTROL REGULATION to require all British Columbia pulp mills to achieve a zero AOX (Absorbable Organic Halogens) effluent discharge standard from their bleaching processes by the end of 2002. In June 2002, the Province of British Columbia announced that it would amend the Regulation to require all British Columbia pulp mills to meet a new effluent discharge standard of 0.5 kilogram/Air Dried tonne AOX annual average. Currently, all British Columbia pulp mills are complying with the new standard. Operations in the United States are also subject to various federal and state laws and regulations which govern the management of hazardous waste, the discharge of pollutants into the air and into surface and underground waters, the construction of new discharge sources, and the manufacture, sale and disposal of chemical substances. The Aracruz facility in Brazil operates in accordance with a number of federal and state laws and regulations, as well as a new civic environmental policy for the city of Aracruz. These regulations address various aspects of environmental management, including environmental zoning for industrial applications, assessment of environmental impacts and licensing of activities that may impact the environment. Our Brazil chemicals operation is a member of the Brazilian Industrial Chemical Association (ABIQUIM) and is committed to the ABIQUIM Responsible Care initiative. We are currently implementing management systems in Brazil to fulfill the Responsible Care Codes(R) of Practice, with implementation scheduled for completion in 2004. For a discussion of the remediation of the site at Squamish, B.C., see the Legal Proceedings section in Item 3. OTHER ACTIVITIES Our Balzac gas plant and power generation facility received Round 1 Responsible Care(R) verification in 2002. This is the first oil and gas plant in the world to implement Responsible Care(R) - an initiative originally found only in chemical facilities. 22 ENVIRONMENTAL PROVISIONS AND EXPENDITURES At December 31, 2003, $197 million has been provided in the accounts for future dismantlement and site restoration costs, which are currently estimated at approximately $514 million for all of our oil and gas and chemicals facilities. During 2003, we recorded a provision for future dismantlement and site restoration costs of $38 million. During 2003, our capital expenditures for environmental-related matters, including environment control facilities, were approximately $21 million. Our operating expenditures for environmental-related matters were approximately $6 million. Environmental related capital expenditures in 2004 are expected to be similar to 2003. EMPLOYEES We had 2,875 employees on December 31, 2003. Information on our executive officers is presented in Item 10 of this report. ITEM 3. LEGAL PROCEEDINGS There are a number of lawsuits and claims pending against Nexen, the ultimate results of which cannot be ascertained at this time. Management is of the opinion that any amounts assessed against us would not have a material adverse effect upon our consolidated financial position or results of operations. Nexen believes it has made adequate provisions for such lawsuits and claims. Nexen received an order on February 17, 1999, under the British Columbia Waste Management Act to conduct a comprehensive remediation program, including soil and ground water remediation, with respect to our former chlor-alkali plant site at Squamish, British Columbia. The Order is within the scope of contemplated and accrued environmental remediation requirements for the former plant site and does not constitute a fine or penalty upon Nexen. We are in compliance with the Order as the land has been remediated and we have submitted a final report. Nexen's US operations have received, over the years, notices and demands from the United States Environmental Protection Agency, state environmental agencies, and certain third parties seeking to require investigation and remediation under federal or state environmental statutes. Although no assurances can be made, we believe our US operations are protected from any present or future material liabilities that may arise from these sites because of Assumption and Indemnification Agreements in place. A subsidiary of Occidental Petroleum Corporation (Occidental) has initiated a request for arbitration at the International Court of Arbitration of the International Chamber of Commerce regarding an Area of Mutual Interest Agreement (Agreement) in the Republic of Yemen. Pursuant to the Agreement, if Nexen proposed to conduct petroleum development operations within two small areas of Block 51 in the Republic of Yemen (Heijah/Tawila Extension Lands), then we were to offer Occidental the right to acquire 50% of its interest in those areas. The Agreement expired on March 12, 2003, with Nexen not having proposed any such operations. Occidental seeks a claim for declaratory relief under the Agreement, claims compensation for breach of contract (50% of the net profits earned or to be earned from the Heijah/Tawila Extension Lands), plus interest and costs. Since the expiry of the Agreement, we commenced exploration activities within Block 51, including the Heijah/Tawila Extension Lands and, in December 2003, filed a notice of commercial discovery with the Yemen government. Given that the agreement expired without Nexen having proposed to conduct petroleum development operations, we believe Occidental's claim is without merit and we intend to vigorously defend our contractual rights. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of Nexen's security holders during the fourth quarter of 2003. 23 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED STOCKHOLDER MATTERS Nexen's common shares are traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol NXY. On December 31, 2003, there were 1,420 registered holders of common shares and 125,606,107 common shares outstanding. The number of registered holders of common shares is calculated excluding individual participants in securities positions listings.
TRADING RANGE OF NEXEN'S COMMON SHARES ($/share) TORONTO STOCK EXCHANGE NEW YORK STOCK EXCHANGE - ------------------------------------------------------------------------------------------------------- HIGH LOW HIGH LOW (Cdn $) (US $) 2003 First Quarter 34.85 29.30 22.55 19.89 Second Quarter 35.59 28.26 26.31 19.75 Third Quarter 39.68 33.02 29.00 24.03 Fourth Quarter 47.08 36.65 36.47 27.32 2002 First Quarter 39.75 29.70 25.11 18.57 Second Quarter 42.50 37.20 28.04 23.30 Third Quarter 42.18 34.34 27.71 21.70 Fourth Quarter 37.78 31.00 23.85 19.79 ---------------------------------------------------------------- QUARTERLY DIVIDENDS ON COMMON SHARES FIRST SECOND THIRD FOURTH ($/share) QUARTER QUARTER QUARTER QUARTER - -------------------------------------------------- ---------------- -- --------------- ---------------- 2003 0.075 0.075 0.075 0.100 2002 0.075 0.075 0.075 0.075 ----------------------------------------------------------------
Payment date for dividends was the first day of the next quarter. The Income Tax Act of Canada requires us to deduct a withholding tax from all dividends remitted to non-residents. In accordance with the Canada-US Tax Treaty, we have deducted a withholding tax of 15% on dividends paid to residents of the United States, except in the case of a company that owns at least 10% of the voting stock where the withholding tax is 5%. The Investment Canada Act requires that a "non-Canadian" (as defined) file notice with Investment Canada and obtain government approval prior to acquiring control of a "Canadian business" (as defined). Otherwise, there are no limitations, either under the laws of Canada or in Nexen's charter on the right of a non-Canadian to hold or vote Nexen's securities. On February 3, 2000, at a Special Meeting of Shareholders, a Shareholder Rights Plan was approved. On May 2, 2002, at the Annual General and Special Meeting of Shareholders, an Amended and Restated Shareholder Rights Plan (Plan) was approved. The Plan creates a right, which attaches to each present and future outstanding common share. Each right entitles the holder to acquire additional common shares during the term of the right. Prior to the separation date, the rights are not separable from the common shares and no separate certificates are issued. The separation date would typically occur at the time of an unsolicited takeover bid, but our Board can defer the separation date. The Plan creates a right, which can only be exercised when a person acquires 20% or more of our common shares (a Flip-In Event), for each shareholder, other than the 20% buyer, to acquire additional common shares at one-half of the market price at the time of exercise. The Plan must be reapproved by shareholders on or before our annual general meeting in 2005 to remain effective past that date. 24 ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA IN ACCORDANCE WITH US GAAP (Cdn$ millions) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS Net Sales (1) 2,908 2,506 2,497 1,533 1,411 Net Income from Continuing Operations 475 338 348 493 62 Basic Earnings per Common Share from Continuing Operations ($/share) 3.83 2.77 2.89 3.94 0.45 Diluted Earnings per Common Share from Continuing Operations ($/share) 3.80 2.73 2.85 3.88 0.45 Net Income 420 352 365 522 63 Basic Earnings per Common Share ($/share) 3.39 2.88 3.03 4.17 0.46 Diluted Earnings per Common Share ($/share) 3.36 2.84 2.99 4.12 0.46 Production - Before Royalties (mboe/d) (2) 269 269 268 256 239 Production - After Royalties (mboe/d) (2) 185 176 184 171 163 FINANCIAL POSITION Total Assets (2) 7,703 6,764 5,609 5,874 4,922 Long-Term Debt (3), (4) 2,472 2,575 2,242 2,238 1,997 Shareholders' Equity 2,131 1,812 1,414 1,050 1,130 Capital Expenditures 1,494 1,625 1,404 915 612 Dividends per Common Share ($/share) (5) 0.325 0.30 0.30 0.30 0.30 Common Shares Outstanding (thousands) (6) 125,606 122,966 121,202 119,855 138,145 ------- ------- ------- ------- -------
Notes: (1) During 2003, we sold non-core conventional light oil assets in southeast Saskatchewan in Canada producing 9,000 bbls/d. The results of these operations are shown as discontinued operations as described in Note 9 of our Consolidated Financial Statements. (2) In 1999, production and total assets decreased as we sold our North Sea assets and certain producing assets in Canada. These North Sea assets were producing 34 mmcf/d of gas and the Canadian assets were producing 40 mboe/d. In 2000, production increased as additional development wells were brought on stream in Yemen and Buffalo in Australia began producing. In 2003, production increased from our deep-water Aspen development in the Gulf of Mexico in the US. (3) In February 2004, $575 million of Long-Tem Debt was repaid. At December 31, 2003, this amount was included in the current portion of Long-Term Debt on the balance sheet. (4) Under US GAAP, our Long-Term Debt, net of working capital, of $1,662 decreased by $848 million during 2003. (5) Quarterly dividends were increased to 10(cent)in the fourth quarter of 2003. (6) During 2000, we entered into an agreement to repurchase 20 million Nexen common shares. 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE OF CONTENTS PAGE Executive Summary of 2003 Results...........................................27 Capital Investment..........................................................29 2003 Capital.........................................................30 2004 Estimated Capital...............................................30 Financial Results Year to Year Change in Net Income....................................33 Oil and Gas Production .................................................34 Commodity Prices.............................................36 Operating Costs..............................................38 Depreciation, Depletion and Amortization.....................39 Exploration Expense..........................................40 Oil and Gas Marketing................................................40 Chemicals............................................................43 Corporate Expenses...................................................44 Outlook for 2004............................................................45 Liquidity...................................................................46 Contingencies...............................................................50 Business Risk Management....................................................51 Market Risk Management......................................................54 Critical Accounting Estimates...............................................56 New Accounting Pronouncements...............................................58 THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS REPORT. THE 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 16 TO THE CONSOLIDATED FINANCIAL STATEMENTS. UNLESS OTHERWISE NOTED, TABULAR AMOUNTS ARE IN MILLIONS OF CANADIAN DOLLARS. OUR DISCUSSION AND ANALYSIS OF OUR OIL AND GAS 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 AN AFTER-ROYALTY BASIS IN TABULAR FORMAT. NOTE: CANADIAN INVESTORS SHOULD READ THE SPECIAL NOTE TO CANADIAN INVESTORS ON PAGE 60 WHICH HIGHLIGHTS DIFFERENCES BETWEEN OUR RESERVE ESTIMATES AND RELATED DISCLOSURES THAT ARE OTHERWISE REQUIRED BY CANADIAN REGULATORY AUTHORITIES. 26 EXECUTIVE SUMMARY OF 2003 RESULTS (Cdn$ millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Net Income 639 452 450 Earnings per Common Share ($/share) 4.84 3.34 3.40 Cash Flow from Operations (1) 1,859 1,383 1,423 Production, before royalties (mboe/d) (2) 269 269 268 Production, after royalties (mboe/d) 185 176 184 Capital Expenditures 1,494 1,625 1,404 Proved Reserve Additions, net (mmboe) (2) 38 126 131 Finding and Development Costs ($/boe) (3) 11.64 12.41 9.24 Net Debt (4) 1,377 1,775 1,460 Net Debt to Cash Flow (times) (5) 0.8 1.4 1.1 ----------------------------- We achieved record financial results in 2003. As the variance table on page 33 shows, the three biggest drivers impacting net income growth were higher-margin volumes primarily in the US, strong oil and gas prices and exceptional marketing results. A strengthening Canadian dollar and an impairment charge largely attributable to heavy oil assets reduced these gains. Overall net income grew 41% over 2002 to $639 million and our cash flow from operations reached a record $1.9 billion. Crude oil prices remained strong in 2003 as supply and demand fundamentals supported higher prices. Instability in the Middle East, growing demand and low inventory levels kept average WTI at US$31.04/bbl. Natural gas prices peaked during the first quarter of the year and again in December, tracking weather patterns in the US. Our marketing group was positioned to take advantage of these fluctuations, benefiting from price differences between the west and the east, as well as between the summer and winter months. The strengthening Canadian dollar relative to the US dollar reduced our net income by $130 million and cash flow from operations by $250 million. This is because our foreign revenues and realized commodity prices, referenced in US dollars, were lower when translated to Canadian dollars. However, we benefit to the extent that our foreign operating costs and capital expenditures are also reduced when translated. In addition, most of our fixed-rate debt is denominated in US dollars so this debt is reduced with a strengthening Canadian dollar. As a result of certain negative reserve revisions in Canada, our net income includes a non-cash impairment charge of $175 million, after-tax, of which almost 90% relates to heavy oil reserves. The revisions resulted from changes to late field-life economic assumptions, a reduction in proved undeveloped reserves based on drilling results and geological mapping, and reassessments of expected future production profiles. The reduction does not affect our production forecast for 2004. Our Canadian oil and gas properties will continue to be a significant source of free cash flow for future investment since the future estimated cash flow from our total conventional Canadian assets is approximately 2.5 times their related carrying value. - -------------------- (1) We evaluate our performance and that of our business segments based on earnings and cash flow from operations. Cash flow from operations is a non-GAAP term that represents cash generated from operating activities before changes in non-cash working capital and other. We consider it a key measure as it demonstrates our ability and the ability of our business segments to generate the cash flow necessary to fund future growth through capital investment and repay debt. (Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------- Cash Flow from Operating Activities 1,469 1,322 1,566 Changes in Non-Cash Working Capital 320 46 (143) Other 70 15 -- ---------------------------- Cash Flow from Operations 1,859 1,383 1,423 ============================ (2) Production, before royalties and reserves include our working interest before royalties. We have presented our working interest before royalties as we measure our performance on this basis consistent with other Canadian oil and gas companies. We have used our year-end pricing assumptions. (3) Finding and Development Costs is defined as oil and gas exploration and development expenditures divided by total proved reserves additions on a before-royalties basis, prior to acquisitions, dispositions and revisions. (4) Long-term debt less net working capital (5) Net debt divided by cash flow from operations after dividends on Preferred Securities. 27 High-margin barrels from Aspen and now Gunnison replaced declining production in North America and at Buffalo, offshore Australia and Ejulebe, offshore Nigeria - both of which will be fully depleted in 2004. Canada's production was reduced mid-year as we disposed of 9,000 boe/d of non-core light oil properties in southeast Saskatchewan. The revenues and expenses associated with these disposed properties are segregated as discontinued operations in our financial statements. The shift from low-margin production in maturing areas to high-margin production in new growth areas grew overall production after royalties by 5% despite flat production before royalties. In 2004, we expect production before royalties to average between 255,000 and 275,000 boe. Production after royalties will continue to grow with more low-royalty volumes from Gunnison and Aspen. In 2003, we continued our strategy of growing long-term value primarily through grassroots exploration and development. We focused on maximizing returns from our capital investment program growing value beyond simply adding production volumes. Targeting higher returns, we have shifted our capital investment away from higher-cost, maturing North American conventional production into four key basins with significant growth projects as described in Item 1 of this 10-K. Below are highlights of our strategic progress in 2003: One-third of our total $1.5 billion capital budget was invested in the Gulf of Mexico, now our largest cash flow contributor. We advanced our deep-water strategy in 2003 by acquiring the remaining 40% interest in Aspen and becoming operator of our first deep-water project. Aspen's low cost and low royalty production generated cash netbacks of US$23 per boe, nearly twice our corporate average. We added to Aspen's high-margin production by bringing our second deep-water project, Gunnison, on stream ahead of schedule in December 2003. Production is ramping up at Gunnison through 2004 and we expect to tie-in a third development well at Aspen, adding to our improving margins. Exploration continues in 2004 on acreage in the Aspen and Gunnison areas, the eastern Gulf and the shelf deep-gas trend. In 2003, we invested $253 million in the Middle East: 87% on development and exploitation at Masila and the remainder on exploration on Block 51, adjacent to Masila, and in northern Yemen. Activities at Masila were focussed on maintaining existing production rates. Extensions to Masila's Heijah and Tawila fields and appraisal of Block 51 discoveries contributed 63 mmboe of proved reserves in 2003. In 2004, we plan additional delineation drilling on Block 51 to establish even more reserves. With new production from Block 51 planned for 2005, we expect to maintain strong production rates from Yemen for several years. We invested $57 million to continue building our presence offshore West Africa. On Block 222, offshore Nigeria, three appraisal wells at Usan delivered very good results. In addition, one appraisal well was drilled at Ukot. A development plan is being prepared for submission to the Nigerian government. Exploration will continue on this block as well as on OML-115, offshore Nigeria and Block K, offshore Equatorial Guinea - both attractive new prospects we acquired during 2003. To date, we have not booked any proved reserves for our Block 222 discoveries. Proved reserves will be booked once commercial development is approved. Our $96 million investment in the Long Lake project in the Athabasca oil sands allowed us to continue detailed engineering, implement a SAGD pilot, and obtain regulatory approval for the commercial project in 2003. With Board sanctioning of the commercial project in February 2004, we have booked 200 million of proved reserves in 2004. Only 3 million barrels of proved reserves were booked in 2003 related to the SAGD pilot. Construction of commercial facilities will begin this summer. In 2003, we also invested $173 million in Syncrude's Stage 3 expansion, which together with base operations added 26 million barrels of proved reserves at a cost of $7.38 per boe. We expect this expansion to be completed in 2005, adding 8,000 barrels per day of new production to Nexen. Beyond these four basins, capital was invested in our core assets in Canada and the shallow-water Gulf, in Colombia and in our chemicals operations as we expand our Brandon facility and transfer sodium chlorate capacity there from our Taft, Louisiana plant. In Canada, our exploration and development programs in Canada added 16 mmboe of conventional proved reserves. Overall, we added 38 mmboe of net proved reserves as follows: (mmboe) - -------------------------------------------------------------------------------- Additions (Extensions and Discoveries) 111 Acquisitions (Aspen) 24 Dispositions (primarily southeast Saskatchewan) (30) Revisions (primarily in Canada) (67) -------------- 38 ============== 28 Additions of 111 mmboe of proved reserves replaced 113% of our production at a finding and development (F&D) cost of $11.64 per boe. Our F&D costs have trended upwards over the past few years given the long-lead times associated with our new growth projects. These projects consume large amounts of capital and mismatches are created in the timing of reserve recognition. Over their lives these projects are expected to generate attractive returns and low full-cycle F&D costs. In 2003, we took steps to improve our liquidity and financial flexibility to ensure we are able to fund our multi-year development projects. Record cash flow, disposition proceeds and a strong Canadian dollar reduced net debt and preferred securities by $758 million. Net debt and preferred securities at year-end was 1.0 times cash flow. We also took advantage of the low interest rate environment and issued US$960 million of public debt, enabling us to fund debt maturities, retire our preferred securities and reduce future financing costs. Going forward, we are well positioned for growth. Our 2004 oil and gas capital program of $1.7 billion will continue to support progress on our major development projects and fund an active exploration program, half of which is directed to US exploration. Strong commodity prices are likely to continue partially offset by the impact of a strong Canadian dollar on our US-dollar denominated revenues. Removing the impact of price and exchange rate fluctuations, we expect our improving margins in the US to grow our cash flow from operations by 10% year-over-year. CAPITAL INVESTMENT (Cdn$ millions) 2003 2002 2001 - ------------------------------------------------------------------------------- Capital Investment New Growth Exploration 329 259 411 New Growth Development 358 626 110 Core Asset Development 589 592 641 Property Acquisition 164 4 122 -------------------------------- Total Oil & Gas 1,440 1,481 1,284 Chemicals, Marketing and Other 54 144 120 -------------------------------- Total 1,494 1,625 1,404 ================================ Our capital programs are focused on maximizing returns on every dollar of capital invested. Investment dollars are allocated between: o core assets for short-term growth and free cash flow to fund ongoing capital programs; o development projects that convert our discoveries into new production and cash flow; and o exploration projects for longer-term growth. Given our exploration success over the past several years, we have made significant investments in major development projects in our four key basins. In 2001, we invested in new development projects at Aspen and Gunnison in the deep-water Gulf of Mexico and Syncrude's Stage 3 expansion. In 2002, we continued developing these projects and began scoping out our Long Lake project. We also made discoveries at Usan offshore Nigeria. In 2003, the first of these projects, Aspen came onstream. We converted the discoveries on Block 51 in Yemen into a development project. Late in 2003, our second deep-water project at Gunnison came onstream, with cash netbacks that are twice our corporate average. While our deep-water Gulf investments are already contributing high-value production, driving our corporate margins, our growth projects in the other basins have yet to contribute production and cash flow. Most of these are long-lead time projects, with three to five years between discovery and first production. Although these large capital investments have yet to generate cash flow, the capital invested is not at risk. Over their lives, these projects are expected to generate attractive returns and low full-cycle finding and development costs. The results of our capital programs are detailed below. 29 2003 CAPITAL In 2003, we invested over $1.4 billion in oil and gas with: o 41% in core assets to maintain existing production levels; o 36% in new growth development projects, and; o 23% in new growth exploration projects.
(Cdn$ millions) Development Exploration Other Total - ---------------------------------------------------------------------------------------------------------------- Oil and Gas United States 249 147 164 560 Yemen 219 34 -- 253 Nigeria -- 35 -- 35 Canada 259 51 -- 310 Syncrude 195 -- -- 195 Other Countries 25 62 -- 87 ------------------------------------------------------------------ 947 329 164 1,440 Chemicals - - 24 24 Marketing, Corporate and Other - - 30 30 ------------------------------------------------------------------ Total Capital 947 329 218 1,494 ==================================================================
In 2004, we plan to invest almost $1.7 billion in oil and gas with: o 35% in core assets to maintain existing production levels; o 45% in new growth development projects, and; o 20% in new growth exploration projects.
2004 ESTIMATED CAPITAL (Cdn$ millions) Development Exploration Other Total - ---------------------------------------------------------------------------------------------------------------- Oil and Gas United States 175 158 -- 333 Yemen 397 23 -- 420 Nigeria 19 59 -- 78 Canada 130 52 -- 182 Long Lake Synthetic 391 9 -- 400 Syncrude 182 -- -- 182 Other Countries 17 60 -- 77 --------------- ----------------- --------------- ---------------- 1,311 361 -- 1,672 Chemicals -- -- 53 53 Marketing, Corporate and Other -- -- 41 41 --------------- ----------------- --------------- ---------------- Total Capital 1,311 361 94 1,766 =============== ================= =============== ================
GULF OF MEXICO ASPEN Our deep-water Gulf of Mexico strategy began paying off in 2003. After bringing Aspen on-stream in December 2002, a record 19 months after discovery, we acquired the remaining 40% interest in March 2003 from BP for $164 million. With 100% interest in Aspen, we are now deep-water operators and control the timing of future exploration and development on our acreage in the Greater Aspen area. Aspen's production has low royalties and operating costs, resulting in high-margin production that has already recovered approximately 55% of our investment of US$374 million. A third development well is drilling at Aspen. GUNNISON In 2003, production from our second deep-water project at Gunnison, discovered in 2000, came on-stream. Gunnison's SPAR production facility was completed and moved from Finland to the Gulf mid-summer. We installed the remaining equipment on the production platform, and completed and tied-in the subsea wells. Production came on-stream in December 2003. Gunnison will deliver equally attractive returns as Aspen, with its low royalties and operating costs. 30 EXPLORATION In 2003, we drilled three exploration wells in the Gulf, including a deep-water dry hole at Santa Rosa. Under our first exploration venture with Shell, we have recently finished drilling the Shark prospect on the shelf in search of natural gas in deep shelf sands. No commercial hydrocarbons were encountered and the well is temporarily abandoned while we evaulate the data collected from the well bore. In 2003, we entered into a second exploration venture with Shell to jointly explore a 1,116 square mile area of the deep-water eastern Gulf of Mexico. The area includes 124 blocks located in Mississippi Canyon and Desoto Canyon. Under this exploration venture, we drilled the Shiloh-1 well on Desoto Canyon 269 to a total depth of over 24,000 feet. At Shiloh, we encountered hydrocarbons in non-commercial quantities so the well was written off. We have acquired additional acreage in the area and will continue drilling in hopes of proving-up commercial quantities in the region. In 2004, almost half our exploration capital will be invested in the Gulf of Mexico. Our plans include five high-potential exploration wells: two deep shelf gas prospects on the shelf, Crested Butte offsetting Aspen, a well in Garden Banks, and another in the eastern Gulf of Mexico. MIDDLE EAST MASILA Our primary focus at Masila is to maintain production rates. During 2003, we invested $219 million to drill 94 development wells, construct new facilities, increase water handling capabilities, and perform additional workovers to maintain production rates. We plan to spend US$176 million in 2004 on development projects in the Masila field to drill 90 wells and complete facility enhancements to partially offset the field's natural decline. BLOCK 51 In 2003, we enjoyed exploration success with discoveries in the Baishir al Khair Field (BAK) at BAK-A (formerly Tammum) and BAK-B (formerly Amir). Seven appraisal wells were drilled, encountering oil in the Qishn and Saar horizons, and we began commercial development late in the year. Initial development includes completing the seven wells drilled, ten new development wells, a central processing facility, a gathering system and a tieback to our Masila export system. Based on drilling results to date, we expect to develop in excess of 60 million barrels of reserves and add between 20,000 and 25,000 barrels per day of production capacity in early 2005. The field has additional potential that will be quantified by a 3D seismic program and further delineation drilling in 2004. We are continuing to explore the Block and plan to drill at least six exploration wells in 2004. EXPLORATION In addition to Block 51, we drilled the Husan El Kradis (HEK-1R) exploration well 25 kilometres northwest of BAK-B to test for oil in fractured basement; however, the well was dry. Further exploration is planned in the area. OFFSHORE WEST AFRICA NIGERIA In 2003, we focused on developing our Usan and Ukot discoveries on Block OPL-222. We drilled three appraisal wells at Usan and announced a significant extension of that field. An additional appraisal well at Ukot was also drilled. The operator is preparing a field development plan for submission to the Nigerian government for approval and we expect first production around 2008. In 2004, we plan additional exploration drilling to test the Block's remaining potential. In December 2003, as part of our initiative to expand our position in West Africa, we were assigned an interest in OML-115 offshore Nigeria. We commenced a program to acquire 410 km2 of 3D seismic data over the block and plan to drill one exploration well in 2004. EQUATORIAL GUINEA We acquired a 25% interest in Block K located 100 km offshore. The Block is on trend with the 300-million barrel Ceiba field and other discoveries on Block G to the north. In 2004, we plan to drill two wells to assess Equatorial Guinea's ability to contribute to the growth of our West Africa region. 31 ATHABASCA OIL SANDS SYNCRUDE In 2003, the Stage 3 expansion proceeded as expected. The Aurora 2 bitumen train was completed and successfully placed in production. The upgrader expansion at Mildred Lake is 35% complete, on-track for start-up in 2005. We expect the Stage 3 expansion to increase our share of production to over 25,000 barrels per day. Due to higher engineering, manufacturing and construction costs, the estimated costs of the Stage 3 expansion have increased from initial estimates of $4.1 billion ($296 million net) to $5.7 billion ($412 million net). Activities in 2004 will also focus on replacing bitumen production capacity that will be lost when the southwest quadrant of the Mildred Lake Base Mine is depleted. SYNTHETIC OIL AT LONG LAKE The Long Lake project is progressing rapidly. In 2003, we commenced pilot testing of SAGD technology at Long Lake, obtained Alberta Energy Utilities Board approval and completed more than 15% of the detailed engineering. On February 12, 2004, our Board of Directors approved the Phase 1 commercial development plan. The project will develop approximately 10% of our Athabasca bitumen resource, upgrading this bitumen into high-quality light, sweet synthetic crude oil. As a result of the approval, we have booked 200 million barrels of proved reserves in 2004. In 2004, we expect to continue with detailed engineering, order long-lead time equipment and commence construction at Long Lake to meet a 2006 start-up date for bitumen production and a 2007 start-up date for synthetic crude oil production. Gross capital costs are expected to total $3.4 billion. OTHER EXPLORATION AND CORE ASSET DEVELOPMENT CANADA - CONVENTIONAL As our conventional assets in Western Canada mature, we are focusing on projects that provide the highest return on invested capital. In 2003, we sold over 9,000 barrels of daily production at attractive prices. We've also continued our transition to new sources of production growth such as synthetic crude oil and coal bed methane. CANADA - EXPLORATION We increased our coal bed methane (CBM) land holdings and proceeded with our Corbett pilot, drilling 24 wells. In 2004, we will significantly expand the size of our CBM pilot project at Corbett and expect to decide on commerciality by year-end. We will test four other Upper Mannville CBM prospects and drill a number of gas exploration well in the Alberta foothills. COLOMBIA In 2003, we drilled 31 development wells to increase production rates and test the viability of a waterflood program on the Guando field. In 2004, we plan to drill 24 development wells and implement a full-field waterflood at Guando. We continued exploration in Colombia. One exploration well drilled on the Andino Block tested wet and was abandoned. CHEMICALS During 2003, we focused on increasing reliability and cost reduction at all of our manufacturing facilities. We also began relocating the assets from our Taft facility in Louisiana to Brandon, Manitoba, the lowest-cost sodium chlorate production facility in North America. In 2004, we expect to complete our Brandon expansion including the relocation and installation of the Taft assets. Upon completion of this expansion, the Brandon plant will be the largest sodium chlorate plant in the world. MARKETING, CORPORATE AND OTHER Capital spending in 2003 and planned spending in 2004 includes systems development, computer hardware and software, office equipment and leasehold improvements. 32 FINANCIAL RESULTS
YEAR TO YEAR CHANGE IN NET INCOME (Cdn$ millions) 2003 VS 2002 2002 VS 2001 - ------------------------------------------------------------------------------------------------ NET INCOME FOR 2002 AND 2001 452 450 ============================ Favourable (unfavourable) variances: Cash Items: Production volumes, net of royalties: Crude oil 92 30 Natural gas 41 (18) Change in inventory - crude oil sales, net of royalties (25) -- Realized commodity prices: Crude oil 41 183 Natural gas 234 (113) Oil and gas operating expense: Conventional 37 (63) Synthetic (14) 5 Marketing contribution 96 (23) Chemicals contribution (5) 1 General and administrative (38) (16) Interest expense 4 3 Current income taxes 13 (7) Other -- (22) ---------------------------- Total Cash Variance 476 (40) Non-Cash Items: Depreciation, depletion and amortization: Oil and Gas (327) (80) Other (5) (10) Exploration expense (19) 79 Future income taxes 28 79 Other 34 (26) ---------------------------- Total Non-Cash Variance (289) 42 ------------- -------------- NET INCOME FOR 2003 AND 2002 639 452 ============================
Significant variances in net income are explained in the sections that follow. 33 OIL AND GAS
PRODUCTION 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------- Before After Before After Before After Royalties Royalties Royalties Royalties Royalties Royalties ------------------------------------------------------------------------------------------- Oil and Liquids (mbbls/d) Yemen 116.8 57.5 118.0 55.8 118.3 55.5 Canada (1) 46.3 35.4 56.3 43.4 58.0 48.3 United States 28.3 25.0 9.9 8.2 10.0 8.3 Australia 6.1 5.6 12.8 10.3 10.2 9.6 Other Countries 5.4 4.6 8.9 5.2 6.2 5.3 Syncrude 15.3 15.2 16.6 16.5 16.1 15.5 ------------------------------------------------------------------------------------------- 218.2 143.3 222.5 139.4 218.8 142.5 ------------------------------------------------------------------------------------------- Natural Gas (mmcf/d) Canada (1) 158 125 167 128 174 147 United States 145 122 112 93 121 99 ------------------------------------------------------------------------------------------- 303 247 279 221 295 246 ------------------------------------------------------------------------------------------- Total (mboe/d) 269 185 269 176 268 184 ===========================================================================================
Notes: (1) Includes the following production from discontinued operations. See Note 9 to our Consolidated Financial Statements. (mboe/d) 2003 2002 2001 -------------------------------------------------------------------------- Production Before Royalties 6.2 10.5 11.0 After Royalties 4.6 7.8 8.0 ---------------------------- 2003 VS 2002 - 5% PRODUCTION GROWTH AFTER ROYALTIES ADDED $133 MILLION TO NET INCOME Production after royalties grew 5%, with new low-royalty deep-water production from Aspen and more recently Gunnison, and more cost recovery barrels from Masila in Yemen. At Masila, we received a greater percentage of gross production to recover costs we incurred on the government's behalf. Production before royalties was flat compared to 2002 as growth in our US deep-water production was partially offset by dispositions in Canada, expected production declines offshore Nigeria and Australia, and maturing conventional assets. We expect 2004 production before royalties to average between 255,000 and 275,000 boe - similar to 2003 levels. Production after royalties will continue to grow with more low-royalty volumes from Gunnison and Aspen. MASILA BLOCK IN YEMEN Production before royalties decreased slightly in 2003 consistent with the overall decline in the field's base production. As Masila matures, we continue to drill more development wells, perform more workovers and expand our water handling capacity to manage the declines. Late in 2003, our expanded drilling and workover efforts successfully increased production to 120,000 barrels per day (net to us). While the field's total production decreased in 2003, our share of production after royalties grew due to the cost recovery mechanism in our production sharing contract. We are entitled to recover the costs we have incurred on the government's behalf (up to a 40% limit) through additional production volumes. As recent development drilling, facilities expansion and infrastructure modifications have increased our pool of recoverable costs, we receive a larger portion of total production to recover these costs. CANADA Given the maturity of the Western Canadian Sedimentary Basin, production additions are shrinking and declines are increasing. Our conventional Canadian assets are no exception. We aggressively managed our assets by developing them where we could add value or by selling them at attractive prices where we could not. Our conventional volumes in Canada fell 12% excluding the sale of our non-core properties in southeast Saskatchewan. We are investing the free cash flow from our Canadian assets in more profitable, multi-year development projects. 34 Crude oil production was down 18%. On August 28, 2003, we sold 9,000 boe/d of non-core, light oil properties in the Williston Basin of southeast Saskatchewan for net proceeds of $268 million. The remaining decrease was due to base declines on our heavy oil properties as water cuts increased at Marsden and wells at Edam sanded up. Our natural gas volumes fell 5% as new production from drilling did not offset the natural decline in our gas properties. We expect conventional production to decline modestly in 2004 as our asset base matures. However, this trend will reverse as our Long Lake project starts up with the production of bitumen in 2006 and synthetic crude oil in 2007. GULF OF MEXICO A full year of deep-water Aspen production increased US production rates 84% to record levels in 2003. Production adds and optimization activities at Eugene Island 295 and Vermilion 76 offset declines on the shelf. Aspen came on-stream and began delivering high-margin barrels in December 2002. We then acquired the remaining 40% interest in late March 2003. This acquisition contributed 8,000 boe per day at a cash return of $33.11 per boe in 2003. We locked-in a portion of our return on the acquisition by selling approximately 60% of the acquired production forward to March 2004 at a weighted average price of US$29.50 per boe. The forward sale of 10% of the acquired reserves effectively pays for 70% of the purchase price. Late in 2003, additional deep-water production came on-stream at Gunnison. Three subsea wells were tied-in and were producing 7,200 boe per day at year-end. Our total deep-water production for the year was 24,000 boe per day. Our shelf production was consistent with 2002 levels as we optimized production where possible. We restored production at hurricane-damaged Eugene Island 295 ahead of schedule in February 2003 and continued to deliver solid rates from our Vermilion 76 development. These gains were offset, in part, by lower performance at Eugene Island 18 and West Cameron 170. We expect the deep-water Gulf of Mexico to remain our fastest growing area in 2004 with Gunnison production increasing to 17,000 boe per day. We estimate our US production levels will reach over 70,000 boe per day by the end of the year. OTHER COUNTRIES Our production at Buffalo offshore Australia and at Ejulebe offshore Nigeria declined as expected throughout 2003 as both fields approach the end of their economic life. We expect final production from both in 2004. Colombia production grew 131% with 31 new development wells. Our pilot test confirmed the viability of a waterflood and we are moving to full-field waterflood in 2004. We expect to see volumes increase by 50% in 2004. SYNCRUDE Production decreased 8% in 2003 as an extra turnaround was completed during the year. A 37-day unplanned coker turnaround reduced volumes in the fourth quarter to 14,800 bbls per day. The turnaround delivered greater operational reliability immediately as we exited 2003 at 19,900 bbls per day. We expect the benefits of this turnaround to continue and do not anticipate a coker turnaround in 2004. 2002 VS 2001 - HIGHER PRODUCTION ADDED $12 MILLION TO NET INCOME Production from our core assets in Yemen, Canada and the US remained largely stable year over year. On-going development activities at Masila in Yemen, at Hay in Canada and on the shelf in the US Gulf of Mexico helped maintain production rates. In the US, poor weather in the third and fourth quarters, including tropical storm Isidore and Hurricane Lili caused the temporary shut-in of production, a 6-week delay at Aspen and damage to our Eugene Island 295 production platform. All production, except Eugene Island 295, was restored in the fourth quarter of 2002. Aspen's first well came on-stream in early December 2002 and the second well in late December. Our non-core assets made significant contributions during the year. At Buffalo offshore Australia a successful two-well infill drilling program contributed 7,500 boe per day of incremental production. Ejulebe offshore Nigeria contributed a 27% increase as the reservoir continued to perform better than anticipated. Both Buffalo and Ejulebe were declining at year-end as they were approaching the end of their expected lives. 35 COMMODITY PRICES (Prices based on working interest production before royalties)
2003 2002 2001 - -------------------------------------------------------------------------------------------- CRUDE OIL West Texas Intermediate (US$/bbl) 31.04 26.09 25.97 ----------------------------------- Differentials (US$/bbl): Masila 3.03 1.41 3.29 Heavy Oil 8.63 6.49 10.68 Mars 3.53 2.51 4.89 Producing Assets (Cdn$/bbl) Yemen 39.45 38.80 35.05 Canada 32.37 31.13 24.86 United States 37.68 38.88 38.35 Syncrude 43.36 40.89 39.90 Australia 43.14 40.30 38.71 Other Countries 38.22 38.96 37.37 Corporate Average (Cdn$/bbl) 38.04 37.13 33.10 ----------------------------------- NATURAL GAS New York Mercantile Exchange (US$/mmbtu) 5.60 3.37 4.00 AECO (Cdn$/mcf) 6.35 3.84 5.97 ----------------------------------- Producing Assets (Cdn$/mcf) Canada 5.64 3.57 5.02 United States 8.16 5.29 6.66 Corporate Average (Cdn$/mcf) 6.85 4.25 5.69 ----------------------------------- AVERAGE REALIZED OIL AND GAS PRICE (Cdn$/boe) 38.63 35.14 33.28 ----------------------------------- AVERAGE FOREIGN EXCHANGE RATE Canadian to US Dollar 0.7135 0.6369 0.6458 -----------------------------------
2003 VS 2002 - HIGHER REALIZED PRICES ADDED $275 MILLION TO NET INCOME Both crude oil and natural gas commodity prices reached near record levels in 2003 as supply and demand fundamentals supported strong prices. The positive impact of strong crude oil and natural gas reference prices was offset in part by the strengthening Canadian dollar and widening crude oil differentials. All of our oil sales and most of our gas sales are denominated in or referenced to US dollars. As a result, the strengthening Canadian dollar relative to the US dollar reduced our realized crude oil price by $4.50 per bbl and our realized natural gas price by $0.80 per mcf. In total, our net sales decreased $280 million from 2002 levels with the strengthening of the Canadian dollar. The Canadian to US dollar exchange rate closed the year at 77(cent). 36 CRUDE OIL REFERENCE PRICES Supply and demand fundamentals consistently supported strong reference prices throughout 2003. WTI opened and closed the year around US$33 per bbl, with highs of approximately US$38 per barrel and lows around US$25 per barrel. [CHART OMITTED] Overall, the higher average WTI prices were supported by: o ongoing concerns over the security and stability of Iraqi production; o higher political risk in the Middle East; o labour disputes, and the resulting and threatened supply disruptions, in Nigeria and Venezuela; o OPEC's determination to hold production quotas in support of their price band; o growing demand in Asia, particularly China and India; o low crude oil and product inventories in North America; and, o the decline in value of the US dollar relative to other major world currencies. These factors, along with speculation around their severity and duration, created volatility in world crude oil prices. In 2004, analysts expect crude oil prices to fall to between US$25 to US$28, as non-OPEC supply from Russia and Iraq grows. An OPEC production cut, escalated Middle East risk or a greater-than-expected economic recovery would put upward pressure on these forecasts. CRUDE OIL DIFFERENTIALS Crude oil differentials widened in 2003 largely in response to the overall strength of WTI. Our Masila differential continued to track the Brent/WTI spread. Despite the strength in WTI during the year, the Brent differential actually remained relatively narrow. Brent prices strengthened with high demand in Europe during the exceptionally warm summer months and growing demand in Asia late in the year. Unexpected platform turnarounds in the North Sea reduced supply, causing the Brent/WTI differential to narrow even further. We expect the Masila differential to remain around US$3 per bbl in 2004. The wider heavy oil differential was largely due to an overall increase in supply from new Canadian heavy oil projects and some temporary decreases in demand from unexpected refinery turnarounds and the August blackout in parts of eastern North America. The heavy oil differential is expected to remain around US$8 per bbl in 2004. The Mars differential impacts the pricing of our Aspen production and averaged US$3.53 per bbl. Again, despite the strength in WTI, the Mars differential was relatively narrow in 2003. The pricing of Mars blend is directly affected by the pricing of sour blends. The instability of Iraqi supply and OPEC production cuts improved the pricing of sour blends and allowed the Mars differential to remain narrow. 37 NATURAL GAS REFERENCE PRICES North American natural gas prices were exceptionally strong during both the first quarter of 2003 and December 2003. Natural gas prices reached almost US$10 per mcf in the first quarter, but more notably did not dip below US$4.40 per mcf throughout the rest of the year. [CHART OMITTED] Extended cold weather last winter and resulting low storage inventory levels were the major reason for the initial price increase early in the year. Fears of cold weather in the east increased gas prices in December. This also caused the NYMEX/AECO basis to widen significantly late in the year as weather forecasts in the west were suggesting above normal temperatures. We expect natural gas prices to decline to around US$4.25 per mmbtu in 2004. 2002 VS 2001 - HIGHER REALIZED PRICES ADDED $70 MILLION TO NET INCOME WTI contributed little to cash flow growth in 2002, however narrow crude oil differentials contributed around $180 million. At the beginning of 2002, WTI was US$19.73 per barrel and strengthened to close the year at US$31.20 per barrel. Low inventory levels in Europe kept the Brent/WTI differential narrow throughout most of the year. Given that our Masila crude tends to price off Brent, the Masila differential remained narrow along with the Brent/WTI spread. The heavy oil differential was narrow due to the unexpected disruption of heavy oil supply from Venezuela late in 2002. Lower natural gas prices reduced net income by $113 million. Natural gas prices fell in the first part of 2002 as inventories were high, but increased late in the year as cold weather hit the eastern US. OPERATING COSTS
(Cdn$/boe) 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------ Before After Before After Before After Royalties(1) Royalties Royalties(1) Royalties Royalties(1) Royalties -------------------------------------------------------------------------------------------- Conventional Oil and Gas Yemen 2.16 4.37 1.95 4.13 1.62 3.47 Canada 6.00 7.76 5.70 7.45 4.87 5.82 United States 4.49 5.19 9.09 10.87 6.01 7.31 Australia 18.60 20.21 9.76 12.14 13.50 14.38 Other Countries 7.47 9.01 6.21 10.69 8.07 9.94 Average Conventional 4.17 6.24 4.60 7.24 3.92 5.88 -------------------------------------------------------------------------------------------- Synthetic Crude Oil Syncrude 21.96 22.18 18.10 18.21 19.43 20.29 Average Oil and Gas 5.19 7.56 5.42 8.26 4.88 7.10 --------------------------------------------------------------------------------------------
Note: (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. See Reserves, Production and Other Information in Items 1 and 2 in this 10-K for unit operating costs based on our production after royalties. 38 2003 VS 2002 - LOWER OIL AND GAS OPERATING COSTS INCREASED NET INCOME BY $23 MILLION Conventional unit operating costs decreased with the addition of low-cost production from Aspen in the Gulf of Mexico and the strengthening of the Canadian dollar relative to the US dollar. Increased workover and maintenance activity in Yemen and higher water handling costs in Canada partially offset this decrease. Low-cost Aspen production reduced US operating costs by 50% and lowered our corporate average unit operating costs by approximately $0.40 per boe. Aspen production costs are about $1.05 per boe, $3.12 per boe lower than our corporate average for conventional production as most of the costs in our deep-water are capital related. Gunnison will produce at similar attractive operating costs. The strengthening Canadian dollar decreased US-dollar denominated operating costs, lowering our corporate average unit operating costs by approximately $0.25 per boe. Higher repairs, increased maintenance and workover activity resulted in a US$0.40 per barrel increase in Yemen operating costs. We expect ongoing maintenance and workover activities at Masila to keep operating costs around US$1.70 per barrel. As well, unit operating costs offshore Australia and Nigeria increased as fixed costs were spread over declining production volumes. Syncrude operating costs increased 21% due to higher natural gas input costs and increased turnaround and maintenance activity in 2003. Lower volumes also increased unit operating costs as more than 95% of the operating costs are fixed. 2002 VS 2001 - HIGHER OIL AND GAS OPERATING COSTS REDUCED NET INCOME BY $58 MILLION Conventional operating costs increased $0.68 per equivalent barrel due to industry cost pressures in Canada, increased workover and repair activity on the shelf in the Gulf of Mexico and increased water-handling and waterflood costs in Yemen. As well, weather-related shut-ins and storm damage in the Gulf of Mexico and one time flood-related costs in Yemen contributed to the increase. In Australia, per-unit operating costs decreased significantly as fixed costs were spread over more barrels. DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A)
(Cdn$/boe) 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------- Before After Before After Before After Royalties(2) Royalties Royalties(2) Royalties Royalties(2) Royalties -------------------------------------------------------------------------------------------- Conventional Oil and Gas Yemen 3.96 8.03 3.47 7.34 2.56 5.48 Canada (1) 9.10 11.76 8.22 10.72 7.14 8.53 United States 10.80 12.47 12.74 15.38 10.59 12.85 Australia 13.31 14.46 10.45 12.99 16.61 17.69 Other Countries 17.09 22.47 13.22 22.90 15.11 18.62 Average Conventional 7.37 11.04 6.84 10.81 5.97 8.98 -------------------------------------------------------------------------------------------- Synthetic Crude Oil Syncrude 2.50 2.53 2.13 2.17 2.03 2.13 Average Oil and Gas 7.09 10.33 6.55 10.01 5.73 8.40 --------------------------------------------------------------------------------------------
Notes: (1) DD&A per boe excludes the impairment charge described in Note 4 of the Consolidated Financial Statements. (2) 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. 2003 VS 2002 - HIGHER OIL AND GAS DD&A REDUCED NET INCOME BY $327 MILLION Conventional depletion rates increased with higher 2002 finding and development costs and our changing production mix, as more capital-intensive properties like Aspen contribute growing volumes. These properties, however, deliver higher-margin returns making them a valuable part of our portfolio. We also experienced higher depletion rates offshore Nigeria and Australia, as we prepare to abandon these fields in 2004. The strengthening Canadian dollar offset these increases as our depletion from International and the US is denominated in US dollars. This lowered our corporate average rate by approximately $0.48 per boe. Our DD&A expense for 2003 includes an impairment charge of $269 million ($175 million after-tax) largely attributable to reserve revisions to Canadian heavy oil properties. These reserve revisions were the result of changes to late field-life assumptions with respect to estimated future operating costs, changes to proved undeveloped reserves based on drilling results and geological mapping and reassessments of future estimated production profiles. 39 2002 VS 2001 - HIGHER OIL AND GAS DD&A REDUCED NET INCOME BY $80 MILLION Conventional depletion rates increased with higher 2001 finding and development costs in Canada, Yemen and the Gulf of Mexico and our changing production mix. A decrease in rates in Australia, resulting from successful infill drilling, partially offset these increases.
EXPLORATION EXPENSE (Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------------------------------- Seismic 62 75 77 Unsuccessful Drilling 70 61 133 Other 68 45 50 --------------------------------------- Total Exploration Expense 200 181 260 ======================================= Total Exploration Capital 329 259 411 Exploration Expense as a % of Exploration Capital (%) 61 70 63 ---------------------------------------
2003 VS 2002 - HIGHER EXPLORATION EXPENSE REDUCED NET INCOME $19 MILLION Exploration expense grew consistent with an increase in our 2003 exploration capital spending. Overall, our exploration program delivered excellent results from the Gulf of Mexico, OPL-222 offshore Nigeria and Block 51 in Yemen. Dry hole and seismic costs in the Gulf of Mexico accounted for over 40% of our exploration expense. Exploration in the Gulf yielded some promising results at Shiloh. At Shiloh, we found hydrocarbons but not commercial quantities, so the well costs were written off. We still plan to actively pursue this prospect, have acquired additional acreage in the area and hope to prove-up commercial quantities in the region. We were unsuccessful at Santa Rosa but continue to pursue opportunities in the area. Dry hole costs also included three wells in the Alberta foothills of Canada, the Andino-1 well in Colombia, the Escargot well offshore Brazil and the HEK well in Yemen on Block 51. In addition, we acquired seismic over a number of prospects. 2002 VS 2001 - LOWER EXPLORATION EXPENSE ADDED $79 MILLION TO NET INCOME Exploration expense was lower in 2002 as we spent less on exploration capital, focusing our efforts on developing earlier exploration successes. Unsuccessful exploration wells included Block 59 in Yemen, Fusa in Colombia, Block BC-20 offshore Brazil and Fergana in the Gulf of Mexico.
OIL AND GAS MARKETING (Cdn$ millions) 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- Revenue 568 496 438 Transportation (398) (423) (342) Other (1) -- -- ---------------------------------------- Net Revenue 169 73 96 ======================================== Marketing contribution to Income from Continuing Operations before Income Tax 111 35 59 ---------------------------------------- Physical Sales Volumes (excluding intra-segment transactions) Crude Oil (mboe/d) 479 412 400 Natural Gas (mmcf/d) 3,301 2,865 2,499 Value-at-Risk Year-end 21 19 19 High 31 28 24 Low 14 12 6 Average 20 17 13 ----------------------------------------
40 2003 VS 2002 - RECORD NET MARKETING REVENUE INCREASED NET INCOME BY $96 MILLION Marketing delivered record financial results growing their cash flow by 132% over 2002. This achievement was driven primarily by exceptional results from our gas marketing and trading group, supplemented by steady profits from our crude oil trading and marketing group. Our natural gas group successfully positioned themselves to benefit from price differences between western Canada and eastern North America, and between summer and winter months. We also added transportation and storage capacity to our contract base. Added transportation capacity allowed us to take advantage of price differences between receipt and delivery points while added storage allowed us to take advantage of varying seasonal demand in the summer and winter months. The continued exit of competitors from the market in 2003 enabled us to acquire contracts on favourable terms, including storage and transportation contracts and natural gas contracts. We also successfully mitigated earlier volatility related to our storage positions by implementing a hedge accounting strategy. Until October 25, 2002, mark-to-market gains on our storage positions were included in net income. New accounting rules required us to exclude these gains from our results in 2003 until the inventory was sold despite having futures contracts in place that locked-in the profit on our stored volumes. At the beginning of the third quarter, we designated certain futures contracts as accounting hedges of the future sale of our stored volumes. As a result, recognition of the mark-to-market gain or loss on the futures contracts is deferred until the inventory is sold. See Note 5 to the Consolidated Financial Statements for further details. 2002 VS 2001 - LOWER NET MARKETING REVENUE REDUCED NET INCOME BY $23 MILLION Marketing delivered solid results in 2002 despite having fewer opportunities. Less price volatility in 2002 resulted in smaller margins. This was offset somewhat by an increase in our marketed volumes, as there were fewer competitors in the market. COMPOSITION OF NET MARKETING REVENUE (Cdn$ millions) 2003 2002 - ----------------------------------------------------------------------------- Derivative Energy Contracts 148 58 Non-Derivative Energy Contracts 21 15 ----------------------- 169 73 ======================= DERIVATIVE ENERGY CONTRACTS Our marketing operation engages in crude oil and natural gas marketing activities to enhance prices from the sale of our own production, and for energy marketing and trading. We enter into contracts to purchase and sell crude oil and natural gas. These contracts expose us to commodity price risk between the time contracted volumes are purchased and sold. We actively manage this risk by using physical purchases and sales, energy-related futures, forwards, swaps and options, and by balancing physical and financial contracts in terms of volumes, timing of performance and delivery obligations. However, net open positions may exist, or we may establish them to take advantage of market conditions. Consistent with our management practices, we account for all derivative energy contracts that are not designated as a hedge using mark-to-market accounting, and record the net gain or loss from their revaluation in marketing and other income. The fair value of these instruments is recorded as accounts receivable or payable. They are classified as long-term or short-term based on their anticipated settlement date. We value derivative energy trading contracts daily using: o actively quoted markets such as the New York Mercantile Exchange and the International Petroleum Exchange; and o other external sources such as the Natural Gas Exchange, independent price publications and over-the-counter broker quotes. 41 FAIR VALUE OF DERIVATIVE ENERGY CONTRACTS At December 31, 2003, the fair value of our derivative energy contracts not designated as hedges totalled $106 million (2002 - $3 million). The following table shows the valuation methods underlying these contracts together with details of contract maturity:
(Cdn$ millions) MATURITY - ------------------------------------------------------------------------------------------------------------------------------ less than more than one year 1-3 years 4-5 years 5 years Total -------------------------------------------------------------------- Prices Actively Quoted Markets (9) 1 -- -- (8) From Other External Sources 77 30 9 (2) 114 Based on Models and Other Valuation Methods -- -- -- -- -- -------------------------------------------------------------------- Total 68 31 9 (2) 106 ====================================================================
More than 64% of the unrealized gain is related to contracts that will settle in 2004. Contract maturities vary from a single day up to six years. Those maturing beyond one year are primarily from natural gas related positions. The relatively short maturity position of our contracts lowers our portfolio risk. At December 31, 2003, the unrecognized losses on our derivative energy contracts accounted for as hedges of the future sale of our inventory totalled $11 million. The following table shows the valuation methods underlying these contracts together with details of contract maturity:
(Cdn$ millions) MATURITY - ------------------------------------------------------------------------------------------------------------------------------ less than more than one year 1-3 years 4-5 years 5 years Total -------------------------------------------------------------------- Price Actively Quoted Markets (11) -- -- -- (11) From Other External Sources -- -- -- -- -- Based on Models and Other Valuation Models -- -- -- -- -- ------------------------------------------------------------------- Total (11) -- -- -- (11) ===================================================================
Our accounting policy does not permit us to record income on transportation and storage contracts using option valuation methods.
CHANGES IN FAIR VALUE OF DERIVATIVE ENERGY CONTRACTS Contracts Contracts Contracts Entered into Outstanding at Entered into During Year Beginning of and Closed and Outstanding (Cdn$ millions) Year During Year at End of Year Total - ----------------------------------------------------------------------------------------------------------------------------- Fair Value at December 31, 2002 3 -- -- 3 Change in Fair Value of Contracts 6 53 89 148 Net Losses (Gains) on Contracts Closed 2 (53) -- (51) Derivative Energy Contracts Acquired -- -- 6 6 Changes in Valuation Techniques and Assumptions (1) -- -- -- - ------------------------------------------------------------------- Fair Value at December 31, 2003 11 - 95 106 ------------------------------------------------------------------- Unrecognized Losses on Hedges of Future Sale of Inventory at December 31, 2003 - - (11) (11) ------------------------------------------------------------------- Total Outstanding at December 31, 2003 11 - 84 95 ===================================================================
Note: (1) Our valuation methodology has been applied consistently year over year. 42
TOTAL CARRYING VALUE OF DERIVATIVE ENERGY CONTRACTS (Cdn$ millions) 2003 2002 - ------------------------------------------------------------------------------------------ Current Assets 102 42 Non Current Assets 63 14 ----------------------------- Total Derivative Energy Contract Assets 165 56 ============================= Current Liabilities 34 46 Non Current Liabilities 25 7 ----------------------------- Total Derivative Energy Contract Liabilities 59 53 ============================= Total Derivative Energy Contract Net Assets (1) 106 3 =============================
Note: (1) Does not include effective hedges. We recognize gains and losses on effective hedges in the same period as the hedged item. Unrecognized losses on forward contracts for the future sale of oil and gas production are disclosed in Note 5 of the Consolidated Financial Statements. NON-DERIVATIVE ENERGY CONTRACTS We enter into fee for service contracts related to transportation and storage of third party oil and gas. We also earn income from our power generation facility. We earned $21 million from our non-derivative energy activities in 2003 (2002 - $15 million).
CHEMICALS (Cdn$ millions) 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- Net Sales 375 367 373 Sales Volumes (thousand short tons) Sodium chlorate 478 454 457 Chlor-alkali 396 375 365 Operating Profit (1) 95 100 99 Operating Margin (%) 25 27 27 Chemicals contribution to Income from Continuing Operations before Income Taxes 28 27 47 Capacity Utilization (%) 95 85 89 ---------------------------------------
Note: (1) Total revenues less operating costs, transportation and other. 2003 VS 2002 - LOWER CHEMICALS OPERATING PROFIT REDUCED NET INCOME BY $5 MILLION Many of the challenges we successfully managed in 2002 were replaced with new challenges in 2003. Strong North American demand for chlor-alkali and sodium chlorate helped boost sales volumes and prices in 2003. In North America, we manufacture our products in Canada. Most of our sales, however, are into US markets. As the Canadian dollar strengthened, our US-dollar denominated revenues declined, lowering our operating profit by $13 million. Higher natural gas prices in North America put pressure on electricity costs. To deal with these cost pressures, we idled our Taft plant, our highest electricity cost facility, and relocated the assets to Brandon. Our cost savings from idling the plant were offset by product we purchased from other suppliers to satisfy southeastern US customers. Once the assets are installed at Brandon, we expect the savings to flow to our bottom line. The installation of the Taft assets at Brandon should be completed in 2004 eliminating our need for purchased product. 2002 VS 2001 - CHEMICALS OPERATING PROFIT ADDS $1 MILLION TO NET INCOME We faced many challenges in 2002. Slow economic recovery in North America placed downward pressure on sodium chlorate volumes and eroded market prices. Also, increasing energy costs in Louisiana put pressure on our Taft plant. During 2002, margins remained strong due to lower overall energy costs and the shifting of production from higher-cost to lower-cost facilities following the expansion of our Brandon and Brazil facilities. The expansion of these plants increased our depreciation. 43 CORPORATE EXPENSES GENERAL AND ADMINISTRATIVE (Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------- General and Administrative Expenses 190 152 136 ----------------------------- 2003 VS 2002 - HIGHER COSTS AND LOWER RECOVERIES REDUCED NET INCOME BY $38 MILLION Approximately 75% of the G&A increase relates to higher variable compensation: o Record 2003 results increased bonus compensation by $16 million; and o Strong stock prices at year-end increased the value of our employee stock appreciation rights and related expense by $13 million. The continued expansion of our marketing group also increased our staffing costs in 2003. 2002 VS 2001 - HIGHER COSTS REDUCED NET INCOME BY $16 MILLION Approximately 70% of the increase was due to higher staffing levels associated with our record capital investment program and growth in our marketing operations. The remainder resulted from increased pension expense due to poor equity market performance, higher building lease costs and incremental expenses associated with our stock appreciation rights plan. INTEREST (Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------- Interest 148 140 112 Less: Capitalized Interest 43 31 -- ------------------------------ Net Interest Expense 105 109 112 ============================== Effective Rate (%) 7.2 7.1 7.6 ------------------------------ 2003 VS 2002 - LOWER INTEREST EXPENSE INCREASED NET INCOME BY $4 MILLION Total interest costs increased $20 million due to: o Full-year impact of our 30-year notes issued in March 2002, and; o US$960 million issuance of new fixed-rate debt in November 2003. This increase was offset by the strengthening Canadian dollar, which lowered our US-dollar denominated interest expense by $10 million. Net interest expense decreased as capitalized interest related to major development projects costs continued to grow. Capitalized interest is expected to increase in 2004 as we proceed with major development projects at Long Lake and Syncrude. 2002 VS 2001 - LOWER INTEREST EXPENSE ADDED $3 MILLION TO NET INCOME Higher borrowing rate on our new 30-year notes increased interest costs by $28 million. We continued to capitalize interest on our major development projects resulting in lower net interest expense. INCOME TAXES (Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------- Current 210 223 216 Future (40) (12) 67 --------------------------------- 170 211 283 ================================= Effective Rate (%) 22 34 40 --------------------------------- 44 2003 VS 2002 - EFFECTIVE TAX RATE DECLINES FROM 34% TO 22% The 2003 effective tax rate fell primarily due to a reduction in tax rates for Canadian resource activities that resulted in a recovery of future income taxes of $76 million during the second quarter. The effective tax rate for 2004 is expected to be 33%. The majority of our 2003 current income taxes were paid in Yemen. Current taxes include cash taxes in Yemen of $201 million (2002 - $207 million; 2001 - $191 million). During 2003 and 2002, federal and provincial capital taxes were payable in Canada. In 2003, current income taxes also include alternative minimum tax in the United States. 2002 VS 2001 - EFFECTIVE TAX RATE DECLINES FROM 40% TO 34% Rate decreased due to: o lower federal and provincial statutory tax rates for Canadian non-oil and gas operations; o higher portions of income coming from international operations where rates are lower; and o non-taxable capital gain on the sale of our Moose Jaw operations. GAIN OR LOSS ON DISPOSITION OF ASSETS There was no gain or loss on the 2003 sale of our southeast Saskatchewan properties as described in Note 9 to the Consolidated Financial Statements. The net loss in 2002 includes a gain of $13 million on the sale of our asphalt operation in Moose Jaw, Saskatchewan and a loss of $21 million on the sale of a non-operated property by our Canadian oil and gas business segment. OTHER INCOME (Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------- Foreign Exchange Gain (Loss) 6 (3) - Business Interruption Insurance Proceeds 12 - - Interest Income 9 7 17 Other 15 4 20 ------------------------------ 42 8 37 ============================== The business interruption insurance proceeds received in 2003 relate to damage sustained in the Gulf of Mexico during tropical storm Isidore and hurricane Lili in the third and fourth quarters of 2002. OUTLOOK FOR 2004 Our largest ever-capital program of $1.8 billion will focus on advancing our major development programs and high-quality exploration in four key basins. Our solid capital structure and surplus liquidity will support this program. In 2004, we plan to invest almost $1.7 billion in oil and gas with: o 35% in core assets to maintain existing production levels; o 45% in new growth development projects, and; o 20% in new growth exploration projects. Details of our 2004 capital investment program are included in the Capital Investment section in the MD&A. This program is consistent with our strategy to grow reserves and production primarily through the drill bit. 45 DAILY PRODUCTION Approximately 45% of our cash flow from core assets will be reinvested in those assets to deliver production between 255,000 and 275,000 boe per day in 2004. The remaining 55% of cash flow will be invested in new growth projects.
2004 ESTIMATED PRODUCTION ---------------------------------- (mboe/d) BEFORE ROYALTIES AFTER ROYALTIES - ---------------------------------------------------------------------------------------- Gulf of Mexico (1) 60 - 65 55 - 57 Yemen, Masila 110 - 118 58 - 62 Canada Conventional (2) 57 - 65 46 - 53 Syncrude 16 - 18 16 - 17 Other International 7 - 9 6 - 8 ------------------------------------- Total 255 - 275 180 - 195 =====================================
Notes: (1) US natural gas production is estimated to comprise 45% of total US equivalent production in 2004. (2) Canadian natural gas production is estimated to comprise 33% of total Canadian equivalent production in 2004. Our net production growth will be modest in 2004, as over half our cash flow is invested in major growth projects coming on-stream in 2005 and beyond. Many of these projects have low or no royalties, lower costs and ultimately higher returns than our current producing assets. This changing production mix will improve profitability, even if oil prices trend lower. We expect to generate around $1.3 billion in cash flow from operations in 2004 assuming the following: - -------------------------------------------------------------------------------- WTI (US$/bbl) 25.00 NYMEX natural gas (US$/mmbtu) 4.25 US to Canadian dollar exchange rate 0.75 Changes in actual commodity prices and exchange rates will impact our annual cash flow from operations as follows: (Cdn$ millions) - -------------------------------------------------------------------------------- WTI - US$ 1 change 53 NYMEX natural gas - US$0.50 change 60 Exchange rate - $0.01 change 21 In a price-neutral environment, cash flow from operations would grow by approximately 10% over 2003 and we would see 11% growth in our corporate cash netback. In addition to strong cash flow from our oil & gas operations, we expect solid performance from our chemicals and marketing businesses in 2004. Our chemicals operations anticipate improved cash flow from growing production and lower unit costs as we continue to consolidate production at our low-cost facility in Brandon. Our marketing group also anticipates another profitable year as they continue to increase their presence in core markets in the US midwest and eastern Canada. LIQUIDITY SOURCES AND USES OF CASH Our business strategy is focused on value-based growth through full-cycle exploration and development, supplemented by strategic acquisitions when appropriate. We rely on operating cash flows to fund capital requirements and provide liquidity. We build our opportunity portfolio to provide a balance of short-term, mid-term, and longer-term growth. This enables us to generate ongoing sustainable operating cash flows as shown below:
(Cdn$ millions) 2003 2002 2001 2000 1999 - ------------------------------------------------------------------ ----------------------------------------------------------- Cash Flow from Operations 1,859 1,383 1,423 1,569 780 Capital Expenditures (1,494) (1,625) (1,404) (915) (612) ----------------------------------------- -------------------------- 365 (242) 19 654 168 ==================================================================== WTI (US $/bbl) 31.04 26.09 25.97 30.21 19.24 NYMEX natural gas (US $/mmbtu) 5.60 3.37 4.00 4.31 2.31 --------------------------------------------------------------------
46 The capital investment in our oil and gas operations is primarily funded by our cash flow from operations. Although this spending is mostly discretionary, we rely on prudent capital investment to generate future operating cash flows. Given the long cycle time of some of our development projects, particularly internationally, and the volatility of commodity prices, it is not unusual, in any given year for capital expenditures to exceed our cash flow. In 1998 and 1999, commodity prices were low and we reduced our capital investment. In 2000, commodity prices improved, allowing us to generate sufficient cash flow from operations to buy back 20 million common shares. In 2001 and 2002, we began to invest significantly in two deep-water Gulf of Mexico prospects (Aspen and Gunnison), our Syncrude expansion and our Long Lake project. In 2003, Aspen contributed significantly to our cash flow from operations and in 2004, we expect additional significant contributions from Gunnison. We anticipate cash flows from the Syncrude expansion and Long Lake to commence in 2006 and 2007, respectively. Given the cyclical nature of the upstream oil and gas business, we manage our capital structure so that we are well positioned from a liquidity perspective throughout both positive and negative commodity price cycles. Our capital structure is characterized by a modest level of absolute debt, a long term to maturity and undrawn committed credit facilities. CAPITAL STRUCTURE (Cdn$ millions) 2003 2002 - -------------------------------------------------------------------------------- Bank Debt -- -- Senior Public Debt 2,776 1,844 ------------------ 2,776 1,844 Less: Cash 1,087 59 Less: Non-Cash Working Capital (1) 312 10 ------------------ Net Debt (2) 1,377 1,775 Preferred and Subordinated Securities 364 724 ------------------ Net Debt, including Preferred and Subordinated Securities 1,741 2,499 ================== Shareholders' Equity (3), (4) 2,418 2,348 ================== Notes: (1) Excludes current portion of long-term debt. (2) Long-term debt less net working capital. (3) Included in shareholders' equity are preferred and subordinated securities of $364 million (2002 - $724 million). Under US generally accepted accounting principles, these are considered long-term debt. (4) At January 31, 2004, there were 126,738,410 common shares and US$460 million of unsecured subordinated securities outstanding. These subordinated securities may be redeemed by the issuance of common shares at our option after November 8, 2008. The number of shares to be issued will depend upon the common share price on the redemption date. We significantly enhanced our capital structure in 2003: SHAREHOLDERS' EQUITY Continued to strengthen with record net income in 2003. US$500 MILLION OF 5.05% DEBT Issued in November 2003 and maturing in 10 years. Proceeds were used to repay US$225 million of long term debt early in February 2004, and to fund a portion of our 2004 capital investment program. US$460 MILLION OF 7.35% SUBORDINATED DEBENTURES Issued in November 2003 and maturing in 40 years. Proceeds were partially used to redeem our 2047 preferred securities in December 2003 and our 2048 preferred securities in early February 2004. COMMITTED BANK FACILITIES OF $1,656 MILLION All undrawn at year-end with 75% of the facilities available to the end of 2008 and the remainder to the end of 2007. US$1 BILLION UNIVERSAL DEBT SHELF PROSPECTUS Available until October 2005 in the US and Canada. FAVOURABLE DEBT MATURITIES Pre-financed our 2004 debt maturity. Our remaining maturities over the next five years are minimal. The average term to maturity of our debt is 20 years.
47 CHANGE IN WORKING CAPITAL 2003 2002 INCREASE/ Cdn$ millions (DECREASE) - -------------------------------------------------------------------------------- Cash and Short-Term Investments 1,087 59 1,028 Accounts Receivable 1,423 988 435 Inventories and Supplies 270 256 14 Accounts Payable and Accrued Liabilities (1,404) (1,194) (210) Other 23 (40) 63 ----------------------------------- 1,399 69 1,330 =================================== Cash and short-term investments increased with our fourth quarter financing activities. We received proceeds of US$960 million when we issued US$500 million of notes and US$460 million of subordinated debentures in November 2003. We used US$701 million of this cash to redeem US$259 million of preferred securities in December 2003, US$217 million of preferred securities in early February 2004 and US$225 million of senior notes in early February 2004. Accounts receivable increased in part because there was no sale of receivables at the end of 2003 compared to the sale of $178 million at the end of 2002. The remainder of the increase was due to higher commodity prices and growth in our marketing business offset by the strengthening of the Canadian dollar relative to the US dollar. The increase in other was related to the prepayment of natural gas storage inventory in December. NET DEBT Our net debt levels are directly related to our operating cash flows and our capital expenditure activities. During the year, we successfully reduced net debt, including preferred and subordinated securities, by $758 million:
(Cdn$ millions) 2003 2002 - ------------------------------------------------------------------------------------------------------------------ Capital Expenditures 1,494 1,625 Cash Flow from Operations (1,859) (1,383) ----------------------------- (365) 242 Dividends on Preferred Securities and Common Shares 104 109 Foreign Exchange Translation of US-dollar Debt and Cash (281) -- Proceeds on Disposition of Assets (293) (49) Issue of Common Shares 73 51 Other 4 (38) ----------------------------- Increase (Decrease) in Net Debt, including Preferred and Subordinated Securities (758) 315 =============================
The reduction in net debt has a positive impact on our leverage metrics:
2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------- Net Debt, including Preferred Securities and Subordinated Securities, to Cash Flow (1) (times) 1.0 1.9 1.6 Interest Coverage (2) (times) 13.3 10.7 13.7 Fixed Charge Coverage (3) (times) 9.5 7.2 8.4 ---------------------------------
Notes: (1) Cash flow comprises cash flow from operations after dividends on Preferred Securities. (2) Cash flow from operations before interest expense divided by total interest. (3) Cash flow from operations before interest expense divided by total interest plus dividends on Preferred Securities. Our net debt and preferred securities are equal to 1.0 times our 2003 cash flow from operations after dividends on preferred securities. This, together with our coverage ratios, provides us with sufficient financial flexibility and liquidity to pursue our business strategy. 48 FUTURE LIQUIDITY Our future liquidity is primarily dependent on cash flows generated from our operations, our capital investment programs and the flexibility of our capital structure. Assuming WTI of US$25 per bbl for 2004, we expect our 2004 capital investment program and dividend requirements to exceed our cash flow from operations by almost $550 million. Our cash flow from operations is sensitive to changes in commodity prices and exchange rates. For 2004, we expect cash flow from operations of $1.3 billion, assuming the following: - -------------------------------------------------------------------------------- WTI (US$/bbl) 25.00 NYMEX natural gas (US$/mmbtu) 4.25 US to Canadian dollar exchange rate 0.75 Changes in commodity prices and exchange rates will impact our cash flow from operations and our borrowing requirements. The impact of a variance, in any one of the above assumptions, on our cash flow from operations is described in the Outlook for 2004 section in the MD&A. If we change our capital investment program, we may draw more or less on our cash balances and our available facilities. We are currently entering a 4-year period of investing in major development projects as we move forward with our projects at Long Lake in Canada and on Block 51 in Yemen. Given our stable operating cash flows, strong cash position and undrawn committed credit facilities, we do not anticipate any problems in funding our capital programs, dividend requirements, and debt repayments or in meeting the obligations that arise from our day-to-day operations. In 2003, we declared common share dividends of $0.325 per common share (2002 - $0.30, 2001 - $0.30). We expect to declare common share dividends of $0.40 per common share in 2004. CONTRACTUAL OBLIGATIONS, COMMITMENTS AND GUARANTEES We have assumed various contractual obligations and commitments in the normal course of our operations and financing activities. These obligations and commitments have been considered when assessing our cash requirements in the above discussion of future liquidity.
(Cdn$ millions) Payments (1) - ------------------------------------------------------------------------------------------------------------------------------ less than more than Total one year 1-3 years 4-5 years 5 years ------------------------------------------------------------------------------- Long-Term Debt (1) 2,776 291 98 275 2,112 Preferred and Subordinated Securities (1) 364 331 -- -- 33 Operating Leases (2) 217 33 58 35 91 Transportation and Storage Commitments (2) 580 212 172 85 111 Work Commitments 81 64 17 -- -- Dismantlement and Site Restoration 514 18 28 32 436 Other 1 1 -- -- -- ------------------------------------------------------------------------------- Total 4,533 950 373 427 2,783 ===============================================================================
Notes: (1) Payment obligations are not discounted and do not include related interest, accretion or dividends. At December 31, 2003, we had cash and short-term investments of $1,087 million. (2) Payments for operating leases and transportation commitments are deducted from our cash flow from operations. Contractual obligations include both financial and non-financial obligations. Financial obligations represent known future cash payments that we are required to make under existing contractual arrangements, such as debt and lease arrangements. Non-financial obligations represent contractual obligations to perform specified activities such as work commitments. Commercial commitments represent contingent obligations that become payable only if certain pre-defined events occur. o Long-term debt amounts are included in our December 31, 2003 Consolidated Balance Sheet. The amount due in 2004 has been included in our current liabilities. Under US GAAP, $331 million of preferred securities and $33 million of subordinated securities would be included in long-term debt. o Operating leases include leases for office space, rail cars, vehicles, the lease of the FPSO in Australia, and our processing agreement with Shell that allows our Aspen production to flow through Shell's processing facilities at the Bullwinkle platform. The terms of the processing agreement give Shell an annual option to take payment in cash or in kind. For 2004, Shell has elected to take payment in kind so the 2004 obligation has been excluded from this table. o Our marketing operation manages various natural gas transportation and storage commitments on behalf of our Canadian oil and gas business and a number of third-party customers. 49 o Work commitments include non-discretionary capital spending related to drilling and seismic commitments in our international operations and development commitments at Syncrude. The remainder of our 2004 capital investment is discretionary. o We have $514 million of future dismantlement and site restoration obligations. As of December 31, 2003, $197 million of these obligations have been provided for on our balance sheet (including $18 million of current liabilities). The timing of any payments is difficult to determine with certainty and the table has been prepared using our best estimates. o We have unfunded obligations under our defined benefit pension and post retirement benefit plans of $84 million. Our unfunded obligation is $43 million and our share of Syncrude's unfunded obligation is $41 million. Our $43 million obligation includes $29 million that is unfunded as a result of statutory limitations. These obligations are backed by letters of credit. During 2003, we contributed $16 million to our defined benefit pension plan. Post year-end positive equity markets have helped restore our defined benefit plan to a fully funded position. o We have excluded our normal purchase arrangements as they are discretionary and are reflected in our expected cash flow from operations and our capital expenditures for 2004. From time to time we enter into contracts that require us to indemnify parties against possible claims, particularly when these contracts relate to the sale of assets. On occasion, we provide indemnifications to the purchaser. Generally, a maximum obligation is not stated. Because the obligation is stated, the overall maximum amount cannot be reasonably estimated. We have not made any significant payments related to these indemnifications. Our Risk Management Committee actively monitors our exposure to the above risks and obtains insurance coverage to satisfy potential or future claims as necessary. We believe these matters would not have a material adverse effect on our liquidity, financial condition or results. CREDIT RATINGS Currently, our senior debt is rated BBB by Standard & Poor's, Baa2 by Moody's Investor Service, Inc. and BBB by Dominion Bond Rating Service. In addition, all rating agencies currently rate our outlook as stable. Our strong financial results, ample liquidity and financial flexibility continue to support our credit rating. FINANCIAL ASSURANCE PROVISIONS IN COMMERCIAL CONTRACTS The commercial agreements our marketing division enters into often include financial assurance provisions that allow Nexen and our counterparties to effectively manage credit risk. The agreements normally require posting collateral (in the form of either cash or a letter of credit) if a buyer's credit rating drops below investment grade, indicating their creditworthiness has deteriorated. Based on the contracts in place and commodity prices at December 31, 2003, we would be required to post collateral of $321 million if we were downgraded to non-investment grade. This obligation is reflected in our balance sheet. The posting of collateral merely accelerates the payment of such amounts. Our committed undrawn credit facilities of $1.7 billion adequately cover any potential collateral requirements. Just as we may be required to post collateral in the event of a downgrade below investment grade, we have similar provisions in many of our customer contracts that allow us to demand certain customers post collateral with us if they are downgraded to non-investment grade. OFF-BALANCE SHEET ARRANGEMENTS None. CONTINGENCIES See Note 10 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference for a discussion of our contingencies. 50 BUSINESS RISK MANAGEMENT The oil and gas industry is highly competitive, particularly in the following areas: o searching for and developing new sources of crude oil and natural gas reserves; o constructing and operating crude oil and natural gas pipelines and facilities; and o transporting and marketing crude oil, natural gas and other petroleum products. Our competitors include major integrated oil and gas companies and numerous other independent oil and gas companies. The pulp and paper chemicals market is also highly competitive. Key success factors are: o price and product quality; and o logistics and reliability of supply. We are one of the largest producers of sodium chlorate in North America and have continent-wide supply capability. OPERATIONAL RISK Acquiring, developing and exploring for oil and natural gas involves many risks. These include: o encountering unexpected formations or pressures; o premature declines of reservoirs; o blow-outs, well bore collapse, equipment failures and other accidents; o craterings and sour gas releases; o uncontrollable flows of oil, natural gas or well fluids; o adverse weather conditions; and o environmental risks. Although we maintain insurance according to customary industry practice, we cannot fully insure against all of these risks. Losses resulting from the occurrence of these risks may have a material adverse impact. Our future crude oil and natural gas reserves and production, and therefore our operating cash flows and results of operations, are highly dependent upon our success in exploiting our current reserve base and acquiring or discovering additional reserves. Without reserve additions, our existing reserves and production will decline over time as reserves are produced. The business of exploring for, developing or acquiring reserves is capital intensive. If cash flow from operations is insufficient and external sources of capital become limited or unavailable, our ability to make the necessary capital investments to maintain and expand our oil and natural gas reserves could be impaired. UNCERTAINTY OF RESERVE ESTIMATES Oil and gas reserves are integral to assessing our expected future financial performance, preparing our financial statements and making investment decisions. There are numerous uncertainties inherit in estimating quantities of proved oil and natural gas reserves, including many factors beyond our control. The reserves included in this Form 10-K represent estimates only. To estimate the economically recoverable oil and natural gas reserves and related future net cash flows, we incorporate many factors and assumptions including: o expected reservoir characteristics based on geological, geophysical and engineering assessments; o future production rates based on historical performance and expected future operating and investment activities; o future oil and gas prices and quality differentials; o assumed effects of regulation by governmental agencies; and o future development and operating costs. We believe these factors and assumptions are reasonable based on the information available to us at the time we prepared the estimates. However, actual results could vary considerably, which could cause material variances in: o estimated quantities of proved oil and natural gas reserves in aggregate and for any particular group of properties; o reserve classification based on risk of recovery; o future net revenues, including production, revenues, taxes, and development and operating expenditures; and o financial results including the annual rate of depletion and recognition of property impairments. 51 Management is responsible for estimating the quantities of proved oil and natural gas reserves and preparing related disclosures. Estimates and related disclosures are prepared in accordance with SEC requirements, generally accepted industry practices in the US as promulgated by the Society of Petroleum Engineers, and the standards of the Canadian Oil and Gas Evaluation Handbook modified to reflect SEC requirements. Reserve estimates for each property are prepared at least annually by the property's reservoir engineer. They are reviewed by engineers familiar with the property and by divisional management. Senior management, including our CEO, CFO and Board-appointed internal qualified reserves evaluator, meet with divisional reserves personnel to review the estimates and any changes from previous estimates. The internal qualified reserves evaluator assesses whether our reserves estimates and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein, included in the Supplementary Financial Information, have been prepared in accordance with our reserve standards. His opinion stating that the reserves information has, in all material respects, been prepared according to our reserves standards is included in an exhibit to Form 10-K. We also have at least 80% of our reserve estimates audited annually by independent qualified reserves consultants. Given that the reserves estimates are based on numerous assumptions and interpretations, differences in estimates prepared by us and an independent reserves consultant within 10% are considered immaterial. Differences greater than 10% are resolved. The Board of Directors has established a Reserves Review Committee (Reserves Committee) to assist the Board and the Audit and Conduct Review Committee to oversee the annual review of our oil and gas reserves and related disclosures. The Reserves Committee is comprised of three or more directors, the majority of whom are independent, and each being familiar with estimating oil and gas reserves. The Reserves Committee meets with management periodically to review the reserves process, results and related disclosures. The Reserves Committee appoints and meets with each of the internal qualified reserves evaluator and independent reserves consultants independent of management to review the scope of their work, whether they have had access to sufficient information, the nature and satisfactory resolution of any material differences of opinion, and in the case of the independent reserves consultants, their independence. The Reserves Committee has reviewed Nexen's procedures for preparing the reserve estimates and related disclosures. It has reviewed the information with management, and met with the internal qualified reserves evaluator and the independent qualified reserves consultants. As a result of this, the Reserves Committee is satisfied that the internally-generated reserves are reliable and free of material misstatement. Based on the recommendation of the Reserves Committee, the Board has approved the reserves estimates and related disclosures in the Form 10-K. The estimated discounted future net cash flows from estimated proved reserves included in the Supplementary Financial Information in the Form 10-K are based on prices and costs as of the date of the estimate. Actual future prices and costs may be materially higher or lower. Actual future net cash flows will also be affected by factors such as actual production levels and timing, and changes in governmental regulation or taxation, and may differ materially from estimated cash flows. See the Critical Accounting Estimates section of this MD&A where we discuss the impact of changes in our reserve estimates. POLITICAL RISK We operate in numerous countries, some of which may be considered politically and economically unstable. Our operations and related assets are subject to the risks of actions by governmental authorities, insurgent groups or terrorists. We conduct our business and financial affairs to protect against political, legal, regulatory and economic risks applicable to operations in the various countries where we operate. However, there can be no assurance that we will be successful in protecting ourselves from the impact of these risks. Our Masila operations are important to Yemen, providing 50% of the country's oil production. We are a responsible member of the Yemeni community; we build relationships with its members and involve them in key decisions that impact their lives. We also ensure that they benefit from our presence in their country beyond the revenue they receive from the production we operate. Our strong relationship with the people and Government of Yemen has allowed us to operate there without interruptions for almost 14 years and we anticipate this continuing. Our practices have enabled us to operate successfully, not only in Yemen, but also in other parts of the world. We have developed excellent practices to manage the risks successfully. ENVIRONMENTAL RISK Environmental risks inherent in the oil and gas and chemicals industries are becoming increasingly sensitive as related laws and regulations become more stringent worldwide. Many of these laws and regulations require us to remove or remedy the effect of our activities on the environment at present and former operating sites, including dismantling production facilities and remediating damage caused by the disposal or release of specified substances. 52 We manage our environmental risks through a comprehensive and sophisticated Safety, Environmental and Social Responsibility (SESR) Management System that meets or exceeds ISO14001 criteria and those of similar management systems. Overall guidance and direction is provided by the SESR Committee of the Board of Directors. In addition, senior management, including the CEO and CFO, regularly meets with SESR management to review and approve SESR policies and procedures, provide strategic direction, review performance and ensure that corrective action is taken when necessary. We develop and implement proactive and preventative measures designed to reduce or eliminate future environmental liabilities, we are prudent and responsible in our management of existing environmental liabilities, and we continuously seek opportunities for performance improvement. We also maintain an ongoing awareness of external trends, demands, commitments, events or uncertainties that may reasonably have a material effect on revenues from continuing operations. These actions provide assurance that we meet or exceed appropriate environmental standards worldwide. o At December 31, 2003, $197 million has been provided in the Consolidated Financial Statements for future dismantlement and site restoration costs, currently estimated at $514 million for our oil and gas and chemicals facilities. o During 2003, we recorded a provision for future dismantlement and site restoration costs of $38 million (2002 - $43 million; 2001 - $45 million). o Actual site remediation expenditures for the year were $21 million (2002 - $20 million; 2001 - $24 million). We anticipate actual site remediation expenditures in 2004 to approximate 2003 levels. o We perform periodic internal and external assessments of our operations and adjust our estimates and annual provision accordingly. o During 2002, we conducted an external audit of our management system for safety, environment and social responsibility issues. In general, the review was very positive and the few minor recommendations for improvement are being implemented. o During 2003, we commenced an external operational audit to confirm whether our management system for safety, environment and social responsibility issues is actually being followed. This work is continuing into 2004, but initial reports are very positive. CLIMATE CHANGE The Kyoto Protocol, an agreement to reduce the concentration of certain man-made gases (Green House Gases or GHG) that may be contributing to climate change, was signed by approximately 160 countries since 1997. Canada ratified the Kyoto Protocol in December 2002, but it will not come into effect until it is ratified by Russia. The Kyoto Protocol obliges the Annex 1 countries to meet national targets. Canada's target is an emission reduction of 6% below 1990 levels during the First Commitment period of 2008 to 2012. Economic modeling studies have shown that if emission reductions are met through domestic action in Annex I countries alone, there will be severe negative impacts to those countries' economies, and in particular those such as Canada whose economies are resource and energy intensive. The US government's decision to withdraw from the Kyoto Protocol has serious implications for Canada in the context of a continental or hemispheric energy market. The Canadian government has addressed the uncertainty around ratification and implementation of the Kyoto Protocol by providing the oil and gas sector with limits on cost (a cap of $15 per tonne) and volume (a cap of 55 megatonnes for large industrial emitters) as well as its position on long-term high capital cost projects. However, the government has yet to enact national legislation that will detail the obligations of Canadian industry with respect to emission reduction and management, and it is uncertain at this time when those obligations will be determined. The financial markets have viewed these developments favourably and have issued various analyses in the aftermath of these announcements indicating that implementation of GHG-related legislation should not adversely affect the development of new energy projects such as the oilsands. For years, Nexen has been assessing the impact of climate change developments on our various business interests. We have created a senior management committee (The Climate Change Steering Group) to: consider national and international developments; hear from leading experts with respect to science, business and risk issues; and, consider investment opportunities. As well, Nexen continues to work closely with the Canadian and Alberta governments to assess the impact of regulatory options and provide information on our business to assist governments in their policy deliberations. Nexen maintains a wide range of business contacts to ensure that a full slate of options is available to the corporation in order to meet the obligations that may be imposed by future legislation. Nexen is a Gold level reporter in Canada's Voluntary Challenge and Registry (VCR); our 2002 VCR report includes the observation that we have voluntarily reduced our direct emissions by almost 2 million tons of CO2 equivalent since we started reporting in 1996. As well, progress has been made toward reduction of our energy inputs per unit of production. In 2003, we initiated another gas gathering project in heavy oil. We are still assessing our 2003 performance and it will be reported to the VCR. 53 Nexen has looked to GHG emission reduction and to offset investments. In 1995, we started capturing, compressing and selling methane gas from our Canadian heavy oil operation instead of venting it to the atmosphere. As a Canadian-based international oil and gas exploration and production company, we have worked closely with the Canadian Clean Development Mechanism/Joint Implementation Office of the Department of Foreign Affairs and International Trade to ensure that Canadian companies get access to low cost/high quality carbon offset investments. Nexen has entered into discussions with the management of several GHG investment pools and continues to evaluate the opportunities associated with biological and geological sequestration of CO2 and the capture of methane from landfills. We continue to investigate carbon-offset opportunities in each of our core countries in the belief that there may be synergies between our oil and gas activities and carbon investments. We continuously review the feasibility of new and ongoing projects with respect to current social, political and economic factors and will continue to take into account the policy and requirements with respect to GHG when conducting these reviews . We are committed to the principles of full disclosure and will keep our stakeholders apprised of how these issues affect us. Since emission levels applicable to our business operations have not been determined and there are no reliable estimates of the costs of achieving those levels, premature disclosure would be speculative and any financial estimates would be based on arbitrary assumptions of emission levels; however, Canadian government assurances of cost and volume limits suggest that incremental risks and liabilities attributable to addressing climate change policies are manageable. Finally, any indirect risks and liabilities attributable to GHG are too remote and unquantifiable at this time. MARKET RISK MANAGEMENT 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 manage our operations to minimize our exposure, as described in Note 5 to the Consolidated Financial Statements, which is incorporated by reference here. SENSITIVITIES (Cdn$ millions) Cash Flow Net Income - -------------------------------------------------------------------------------- Estimated 2004 impact: Crude Oil - US$1.00/bbl change in WTI 53 41 Natural Gas - US$0.50/mcf change 60 38 Foreign Exchange - $0.01 change in US to Cdn Dollar 21 9 ----------------------- COMMODITY PRICE RISK Commodity price risk related to conventional and synthetic crude oil prices is our most significant market risk exposure. Crude oil prices and quality differentials are influenced by worldwide factors such as OPEC actions, political events and supply and demand fundamentals. To a lesser extent we are also exposed to natural gas price movements. Natural gas prices are generally influenced by oil prices and North American supply and demand, and to a lesser extent local market conditions. NON-TRADING ACTIVITIES The majority of our production is sold under short-term contracts, exposing us to short-term price movements. Other energy contracts we enter into also expose us to commodity price risk between the time we purchase and sell contracted volumes. From time to time, we actively manage these risks by using commodity futures, forwards, swaps and options. In March 2003, we sold WTI and NYMEX gas forward contracts for the next 12 months to lock-in part of the return on the remaining 40% interest acquired in the Aspen field. The forward contracts fix our oil and gas prices at the contract prices for the hedged volumes, less applicable price differentials as follows:
Hedged Average Volumes Term Price - ------------------------------------------------------------------------------------------------ (US$) Fixed WTI Price 5,000 bbls/d April 2003 - March 2004 28.50/bbl Fixed NYMEX Price 12,000 mmbtu/d April 2003 - March 2004 5.35/mmbtu
During 2002 and 2001, we purchased fixed-to-floating swaps to modify the terms of certain fixed-price natural gas contracts as we prefer to receive an index-based price for our natural gas. Under the terms of these contracts, we were required to deliver four million cubic feet per day of natural gas to counterparties at prices ranging from $3.06 to $6.08 per mcf. On settlement, we received or paid cash for the difference between the contract and floating rates on the affected volumes. These swaps expired in 2003. 54 MARKETING AND TRADING ACTIVITIES Our marketing operation is involved in the marketing and trading of crude oil and natural gas, through the use of both physical and financial contracts (energy trading activities). These activities expose us to commodity price risk. Open positions exist where not all contracted purchases and sales have been matched, in order to take advantage of market movements. These net open positions allow us to generate income, but also expose us to risk of loss due to fluctuating market prices (market risk) and credit exposure. We control the level of market risk through daily monitoring of our energy-trading portfolio relative to: o prescribed limits for Value-at-Risk (VaR); o nominal size of commodity positions; o stop loss limits; and o stress testing. VaR is a statistical estimate that is reliable when normal market conditions prevail. Our VaR calculation estimates the maximum probable loss given a 95% confidence level that we would incur if we were to unwind our outstanding positions over a two-day period. We estimate VaR using the Variance-Covariance method based on historical commodity price volatility and correlation inputs. Our estimate is based upon the following key assumptions: o changes in commodity prices are normally distributed; o price volatility remains stable; and o price correlation relationships remain stable. If a severe market shock occurred, the key assumptions underlying our VaR estimate could be violated and the potential loss could be greater than our estimate. There were no changes in the methodology we used to estimate VaR in 2003. Stress testing complements our VaR estimate. It is used to ensure that we are not exposed to large losses, not captured by VaR, which might result from infrequent but extreme market conditions. Our Board of Directors has approved formal risk management policies for our energy trading activities. Market and credit risks are monitored daily by a risk group that operates independently and ensures compliance with our risk management policies. The Finance Committee of the Board of Directors and our Risk Management Committee monitor our exposure to the above risks and review the results of energy trading activities regularly. FOREIGN-CURRENCY RATE RISK A substantial portion of our operations are denominated in or referenced to US dollars. These activities include: o prices received for sales of crude oil, natural gas and certain chemicals products; o capital spending and expenses related to our oil and gas and chemicals operations outside Canada; and o short-term and long-term borrowings. We manage our exposure to fluctuations between the US and Canadian dollar by matching our expected net cash flows and borrowings in the same currency. Net revenue from our foreign operations and our US-dollar borrowings are generally used to fund US-dollar capital expenditures and debt repayments. Since the timing of cash inflows and outflows is not necessarily interrelated, particularly for capital expenditures, we maintain revolving US-dollar borrowing facilities that can be used or repaid depending on expected net cash flows. We designate our long-term US-dollar borrowings as a hedge against our US-dollar net investment in foreign operations. We do not have any material exposure to highly inflationary foreign currencies. We occasionally use derivative instruments to effectively convert cash flows from Canadian to US dollars and vice versa. Information regarding our foreign currency net investments, borrowings and related derivative instruments is provided in Note 5 to the Consolidated Financial Statements. INTEREST RATE RISK We are exposed to fluctuations in short-term interest rates from our floating-rate debt and, to a lesser extent, derivative instruments, as their market value is sensitive to interest rate fluctuations. We maintain a portion of our debt capacity in revolving, floating-rate bank facilities with the remainder issued in fixed-rate borrowings. To minimize our exposure to interest rate fluctuations, we occasionally use derivative instruments as described in Note 5 to the Consolidated Financial Statements. At December 31, 2003, we had no floating-rate debt outstanding (2002 - $nil; 2001 - $424 million). 55 CREDIT RISK Credit risk is the risk of loss if customers or counterparties do not fulfill their contractual obligations. Most of our receivables are with customers in the energy industry requiring our products on an ongoing basis. These customers are subject to normal industry credit risk. This concentration of risk within the energy industry is mitigated through our broad domestic and international customer base. It is also possible that derivative instrument counterparties will not fulfill their contractual obligations. We take the following measures to reduce this risk: o we assess the financial strength of our customer and counterparty base through a rigorous credit process; o we limit the total exposure extended to individual counterparties, and may require collateral from some counterparties; o we routinely monitor credit risk exposures, including sector, geographic and corporate concentrations of credit, and report these to our Risk Management Committee and the Finance Committee of the Board; o we set credit limits based on counterparty credit ratings and internal models, which are based primarily on company and industry analysis; o we review counterparty credit limits regularly; and o we use standard agreements that allow for netting of positive and negative exposures associated with a single counterparty. We believe these measures minimize our overall credit risk. However, there can be no assurance that these processes will protect us against all losses from non-performance. At December 31, 2003: o 90% of our counterparty exposures were investment grade; and o only five customers individually made up greater than 5% of our exposure from energy trading activities. All were investment grade. CRITICAL ACCOUNTING ESTIMATES As an oil and gas producer, there are a number of critical estimates underlying the accounting policies we apply when preparing our Consolidated Financial Statements. These critical estimates are discussed below. OIL AND GAS ACCOUNTING - RESERVES DETERMINATION We follow the successful efforts method of accounting for our oil and gas activities, as described in Note 1 to our Consolidated Financial Statements. Successful efforts accounting depends on the estimated reserves we believe are recoverable from our oil and gas properties. The process of estimating reserves is complex. It requires significant judgements and decisions based on available geological, geophysical, engineering and economic data. These estimates may change substantially as additional data from ongoing development activities and production performance becomes available and as economic conditions impacting oil and gas prices and costs change. Our reserve estimates are based on current production forecasts, prices and economic conditions. See Business Risk Management for a complete discussion of our reserves estimation process. Reserve estimates are critical to many of our accounting estimates, including: o Determining whether or not an exploratory well has found economically producible reserves. If successful, we capitalize the costs of the well, and if not, we expense the costs immediately. In 2003, $70 million of our total $180 million spent on exploration drilling was expensed in the year. If none of our drilling had been successful, our net income would have decreased by $72 million after tax. o Calculating our unit-of-production depletion and asset retirement obligation rates. Both proved and proved developed reserve (6) estimates are used to determine rates that are applied to each unit-of-production in calculating our depletion expense and our provision for dismantlement and site restoration. Proved reserves are used where a property is acquired and proved developed reserves are used where a property is drilled and developed. In 2003, oil and gas depletion, before impairment charges, and oil and gas dismantlement and site restoration costs of $636 million and $34 million, respectively, were recorded in depletion, depreciation and amortization expense. If our reserve estimates changed by 10%, our depletion, depreciation and amortization expense would have changed by approximately $50 million, after tax, assuming no other changes to our reserve profile. - -------------------- (6) "Proved" oil and gas reserves are the estimated quantities of natural gas, crude oil, condensate and natural gas liquids that geological and engineering data demonstrate with reasonable certainty can be recoverable in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered "proved" if economic producability is supported by either actual production or a conclusive formation test. "Proved developed" oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. 56 o Assessing, when necessary, our oil and gas assets for impairment. Estimated future undiscounted cash flows are determined using proved reserves. The critical estimates used to assess impairment, including the impact of changes in reserve estimates, are discussed below. As circumstances change and additional data becomes available, our reserve estimates also change, possibly materially impacting net income. Estimates made by our engineers are reviewed and revised, either upward or downward, as warranted by the new information. Revisions are often required due to changes in well performance, prices, economic conditions and governmental restrictions. Although we make every reasonable effort to ensure that our reserve estimates are accurate, reserve estimation is an inferential science. As a result, the subjective decisions, new geological or production information and a changing environment may impact these estimates. Revisions to our reserve estimates can arise from changes in year-end oil and gas prices, and reservoir performance. Such revisions can be either positive or negative. Reserves information is shown in the Supplementary Financial Information set out in Item 8 of this Form 10-K. It would take a very significant decrease in our proved reserves to limit our ability to borrow money under our term credit facilities, as previously described in Liquidity. OIL AND GAS ACCOUNTING - IMPAIRMENT We evaluate our oil and gas properties for impairment if an adverse event or change occurs. Among other things, this might include falling oil and gas prices, a significant revision to our reserve estimates, changes in operating costs, or significant or adverse political changes. If one of these occurs, we estimate undiscounted future cash flows for affected properties to determine if they are impaired. If the undiscounted future cash flows for a property are less than the carrying amount of that property, we calculate its fair value using a discounted cash flow approach. The property is then written down to its fair value. We assessed our oil and gas properties for impairment following the 2003 revisions to our reserve estimates. As a result of this assessment, it was determined that certain Canadian oil and gas properties were impaired. These properties were written down to their fair value which resulted in an impairment charge of $175 million, after-tax. See Note 4 to the Consolidated Financial Statements for further information. Our cash flow estimates for purposes of our impairment assessments require assumptions about two primary elements - future prices and reserves. Our estimates of future prices require significant judgements about highly uncertain future events. Historically, oil and gas prices have exhibited significant volatility - over the last five years, prices for WTI and NYMEX gas have ranged from US$10/bbl to US$38/bbl and US$2/mmbtu to US$10/mmbtu, respectively. Our forecasts for oil and gas revenues are based on prices derived from a consensus of future price forecasts amongst industry analysts and our own assessments. Our estimates of future cash flows generally assume our long-term price forecast and forecast operating costs. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of impairment to be a critical accounting estimate. A change in this estimate would impact all except our chemicals business. If we decreased our long-term forecast for WTI crude oil prices by US$1.00-1.50/bbl, our initial assessment of impairment indicators would not change. Although oil and gas prices fluctuate a great deal in the short-term, they are typically stable over a longer-time horizon. This mitigates the potential for impairment. It is difficult to determine and assess the impact of a decrease in our proved reserves on our impairment tests. The relationship between the reserve estimate and the estimated undiscounted cash flows, and the nature of the property-by-property impairment test, is complex. As a result, we are unable to provide a reasonable sensitivity analysis of the impact that a reserve estimate decrease would have on our assessment of impairment. We do, however, have confidence in our reserve estimates. Any impairment charges would lower our net income. 57 NEW ACCOUNTING PRONOUNCEMENTS CANADIAN PRONOUNCEMENTS In December 2001, the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline 13, HEDGING RELATIONSHIPS (AcG-13). AcG-13 establishes certain conditions for when hedge accounting may be applied. The guideline is effective for fiscal years beginning on or after July 1, 2003. Adoption of AcG-13 is not expected to have a material impact on our financial position or results of operations as we are already in compliance with Financial Accounting Standards Board (FASB) Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In September 2002, the CICA approved Section 3063, IMPAIRMENT OF LONG-LIVED ASSETS (S.3063). S.3063 establishes standards for the recognition, measurement and disclosure of the impairment of long-lived assets, and applies to long-lived assets held for use. An impairment loss is recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. S.3063 is effective for fiscal years beginning on or after April 1, 2003. Adoption of S.3063 is not expected to have a material impact on our financial position or results of operations. In December 2002, the CICA approved Section 3110, ASSET RETIREMENT OBLIGATIONS (S.3110). S.3110 requires liability recognition for retirement obligations associated with our property, plant and equipment. These obligations are initially measured at fair value, which is the discounted future value of the liabilities. This fair value is capitalized as part of the cost of the related assets and amortized to expense over their useful life. The liabilities accrete until we expect to settle the retirement obligations. S.3110 is effective for fiscal years beginning on or after January 1, 2004. The impact on our consolidated balance sheet at January 1, 2004, will be as follows: - ------------------------------------------------------------------------------- (Cdn$ millions) Increase/(Decrease) - ------------------------------------------------------------------------------- Property, Plant and Equipment 81 Asset Retirement Obligation 126 Future Income Tax Liability (16) Retained Earnings (29) In February 2003, the CICA issued Accounting Guideline 14, DISCLOSURE OF GUARANTEES (AcG-14). AcG-14 establishes the disclosures required for obligations we may have under certain guarantees that we have issued. The disclosure requirements are effective for interim and annual periods beginning on or after January 1, 2003. We adopted FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS TO OTHERS, the US equivalent of AcG-14 for the year ended December 31, 2002. We have disclosed our guarantees in Note 10. There were no material guarantees outstanding at December 31, 2003. In November 2003, the CICA approved an amendment to Section 3860, FINANCIAL INSTRUMENTS - DISCLOSURE AND PRESENTATION, to clarify the difference between an equity and liability instrument. An equity instrument exists only when an instrument is settled in shares. This amendment is effective for fiscal years beginning on or after November 1, 2004. Once adopted, our preferred and subordinated securities would be reclassified from equity to long term debt, and the dividends paid would be classified as interest expense. Adoption of this amendment at December 31, 2003, would increase long term debt by $313 million, decrease preferred and subordinated securities by $364 million and increase the cumulative translation adjustment by $51 million. The following standards or revisions issued by the CICA do not impact us: o Section 1100, GENERAL ACCOUNTING PRINCIPLES effective for years beginning on or after October 31, 2003. o Section 1400, GENERAL STANDARDS OF FINANCIAL STATEMENT PRESENTATION effective for years beginning on or after October 31, 2003. o Accounting Guideline 15, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, effective for annual and interim periods beginning on or after January 1, 2004. US PRONOUNCEMENTS The following standards issued by the FASB do not impact us: o Statement No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. o Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, effective for financial statements issued after January 31, 2003. 58 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Please refer to the Business and Marketing Risk Management sections of Item 7 for the required disclosures about Market Risk. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this report, including those appearing in ITEMS 1 AND 2 - BUSINESS AND PROPERTIES and ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, are forward-looking statements. (7) Forward-looking statements are generally identifiable by terms such as ANTICIPATE, BELIEVE, INTEND, PLAN, EXPECT, ESTIMATE, BUDGET, OUTLOOK or other similar words. 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 armed other conflict, including conflict between states. The above items and their possible impact are discussed more fully in the section, titled BUSINESS RISK Management and MARKET RISK MANAGEMENT in Item 7. 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 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 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. - -------------------- (7) 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. 59 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 2003, 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 the following exemptions permitting us to: o substitute our SEC disclosures for much of the annual disclosure required by NI 51-101; o prepare our reserves estimates and related disclosures in accordance with SEC requirements, generally accepted industry practices in the US as promulgated by the Society of Petroleum Engineers, and the standards of the Canadian Oil and Gas Evaluation Handbook (COGE Handbook) modified to reflect SEC requirements; o dispense with the requirement to have our reserves estimates and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein, included in the Supplementary Financial Information, evaluated or audited by independent qualified reserves evaluators; and o not disclose certain prescribed information pertaining to prospects if such disclosures would result in the contravention of a legal obligation, would likely be detrimental to our competitive interests or the information does not exist. As a result of these exemptions, Canadian investors should note the following fundamental differences in reserves estimates and related disclosures contained in the Form 10-K: o SEC registrants apply SEC reserves definitions and prepare their reserves estimates in accordance with SEC requirements and generally accepted industry practices in the US whereas NI 51-101 requires adherence to the definitions and standards promulgated by the COGE Handbook; o the SEC mandates disclosure of proved reserves and the Standardized Measure of Discounted Future Net Cash Flows and Changes Therein calculated using year-end constant prices and costs only whereas NI 51-101 also requires disclosure of reserves and related future net revenues using forecast prices; o the SEC mandates disclosure of proved and proved producing reserves by country only whereas NI 51-101 requires disclosure of more reserve categories and product types; o the SEC does not require separate disclosure of proved undeveloped reserves or related future development costs whereas NI 51-101 requires disclosure of more information regarding proved undeveloped reserves, related development plans and future development costs; o the SEC does not prescribe standards for calculating finding and development costs per boe of proved reserves additions whereas NI 51-101 requires that finding and development costs per boe be calculated by dividing the aggregate of exploration and development costs incurred in the current year and the change in estimated future development costs relating to proved reserves by the additions to proved reserves in the current year. However, this will generally not reflect full cycle finding and development costs related to reserve additions for the year. Instead, we have calculated finding and development costs by dividing exploration and development costs incurred in the current year by the additions to proved reserves in the current year (F&D); and o the SEC leaves the engagement of independent qualified reserves evaluators to the discretion of a company's board of directors whereas NI 51-101 requires issuers to engage such evaluators and to file their reports. The foregoing is a general description of the principal differences only. NI 51-101 requires that we make the following disclosures: o we use oil equivalents (boes) to express quantities of natural gas and crude oil in a common unit. A conversion ratio of 6 mcf of natural gas to 1 barrel of oil is used. 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. 60 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION TABLE OF CONTENTS REPORT OF MANAGEMENT...................................................... 62 REPORTS OF INDEPENDENT AUDITORS........................................... 63 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Income .................................... 65 Consolidated Balance Sheet .......................................... 66 Consolidated Statement of Cash Flows ................................ 67 Consolidated Statement of Shareholders' Equity ...................... 68 Notes to Consolidated Financial Statements .......................... 69 SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED) Quarterly Financial Data in Accordance with Canadian and US GAAP..... 99 Oil and Gas Netbacks................................................. 100 Oil and Gas Producing Activities .................................... 101 61 REPORT OF MANAGEMENT To the Shareholders of Nexen Inc.: We are responsible for the preparation and integrity of all the information contained in the accompanying consolidated financial statements. Fulfilling this responsibility requires the preparation and presentation of our consolidated financial statements in accordance with generally accepted accounting principles in Canada with a reconciliation to generally accepted accounting principles in the US. We have established disclosure controls and procedures, internal controls over financial reporting and corporate-wide policies to ensure that Nexen's consolidated financial position, results of operations and cash flows are presented fairly. Our disclosure controls and procedures are designed to ensure timely disclosure and communication of all material information required by regulators. We oversee, with assistance from our Disclosure Review Committee, these controls and procedures and all the required regulatory disclosures. To gather and control financial data, we have established accounting and reporting systems supported by internal controls over financial reporting and an internal audit program. We believe that the existing internal controls over financial reporting provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that the records are reliable for preparing consolidated financial statements and other financial information. We believe our policies and procedures provide reasonable assurance that our consolidated financial statements are prepared in accordance with applicable securities rules and regulations. Financial information displayed in other sections of this report has been reviewed to ensure consistency with the consolidated financial statements. To ensure the integrity of our financial statements, we carefully select and train qualified personnel. We also ensure our organizational structure provides appropriate delegation of authority and division of responsibilities. Our policies and procedures are communicated throughout the organization including a written ethics and integrity policy that applies to all employees including the chief executive officer, chief financial officer and chief accounting officer or controller. Our Board of Directors approves the consolidated financial statements. Their financial statement related responsibilities are fulfilled mainly through the Audit and Conduct Review Committee (the Audit Committee) with assistance from the Reserves Review Committee regarding the annual review of our crude oil and natural gas reserves and from the Finance Committee regarding the assessment and mitigation of risk. The Audit Committee is composed entirely of independent directors, and includes four directors with financial expertise. The Audit Committee meets regularly with management, the internal auditors, and external auditors, to discuss reporting and control issues and ensures each party is properly discharging its responsibilities. The Audit Committee also considers the independence of the external auditors, reviews their fees and (subject to applicable securities laws) pre-approves the retention of the external auditors for any significant permitted non-audit services and the fee for such services. The internal and external auditors have access to the Committee without the presence of management. /s/ Charles W. Fischer /s/ Marvin F. Romanow - ------------------------------------- -------------------------------- President and Chief Executive Officer Executive Vice President and Chief Financial Officer 62 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Nexen Inc.: We have audited the consolidated balance sheet of Nexen Inc. as at December 31, 2003 and 2002 and the consolidated statements of income, cash flows and shareholders' equity for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Nexen Inc. as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years then ended in accordance with Canadian generally accepted accounting principles. The financial statements of Nexen Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an opinion without reservation on those financial statements in their report dated January 23, 2002. As described in Note 9, those financial statements have been revised to give effect to the discontinued operations. We audited the amounts reclassified as discontinued operations in the 2001 financial statements. Also, as described in Note 1(s), certain amounts in the 2001 financial statements have been reclassified to give effect to a change in generally accepted accounting principles in 2002. We audited the reclassification of amounts described in Note 1(s) that relates to the 2001 financial statements. In our opinion, the adjustments related to discontinued operations for 2001, and the reclassification of the amounts described in Note 1(s) are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2001 financial statements of Nexen Inc., other than with respect to the adjustments and disclosures related to discontinued operations and the reclassification of the amounts described in Note 1(s), and accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole. Calgary, Alberta /s/ Deloitte & Touche LLP February 9, 2004 Chartered Accountants 63 THIS REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS IS A COPY OF THE REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED. REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS To the Shareholders of Nexen Inc.: We have audited the consolidated balance sheet of Nexen Inc. as at December 31, 2001 and 2000 and the consolidated statements of income, cash flows and shareholders' equity for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001 and 2000 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in accordance with generally accepted accounting principles in Canada. Calgary, Alberta /s/ Arthur Andersen LLP January 23, 2002 Chartered Accountants 64 NEXEN INC. CONSOLIDATED STATEMENT OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 2003 Cdn$ millions, except per share amounts
2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------ REVENUES Net Sales 2,908 2,506 2,497 Marketing and Other (Note 12) 610 504 475 Gain (Loss) on Disposition of Assets -- (8) 5 ------------------------------------------- 3,518 3,002 2,977 ------------------------------------------- EXPENSES Operating 751 751 758 Transportation and Other 461 475 400 General and Administrative 190 152 136 Depreciation, Depletion and Amortization (Note 4) 1,017 685 595 Exploration 200 181 260 Interest (Note 6) 105 109 112 ------------------------------------------- 2,724 2,353 2,261 ------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 794 649 716 ------------------------------------------- PROVISION FOR INCOME TAXES (Note 13) Current 210 223 216 Future (40) (12) 67 ------------------------------------------- 170 211 283 ------------------------------------------- NET INCOME FROM CONTINUING OPERATIONS 624 438 433 Net Income from Discontinued Operations (Note 9) 15 14 17 ------------------------------------------- NET INCOME 639 452 450 Dividends on Preferred Securities, Net of Income Taxes (Note 7) 40 43 39 ------------------------------------------- NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS 599 409 411 =========================================== EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS ($/share) Basic (Note 8) 4.72 3.23 3.26 =========================================== Diluted (Note 8) 4.67 3.19 3.22 =========================================== EARNINGS PER COMMON SHARE ($/share) Basic (Note 8) 4.84 3.34 3.40 =========================================== Diluted (Note 8) 4.79 3.30 3.36 ===========================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 65 NEXEN INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2003 AND 2002 Cdn$ millions, except share amounts
2003 2002 - ----------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and Short-Term Investments 1,087 59 Accounts Receivable (Note 2) 1,423 988 Inventories and Supplies (Note 3) 270 256 Other 79 26 -------------------------- Total Current Assets 2,859 1,329 PROPERTY, PLANT AND EQUIPMENT (Note 4) 4,469 4,863 GOODWILL 36 36 FUTURE INCOME TAX ASSETS (Note 13) 108 263 DEFERRED CHARGES AND OTHER ASSETS 153 69 -------------------------- 7,625 6,560 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-Term Borrowings (Note 6) -- 18 Current Portion of Long-Term Debt (Note 6) 291 -- Accounts Payable and Accrued Liabilities 1,404 1,194 Accrued Interest Payable 44 39 Dividends Payable 12 9 -------------------------- Total Current Liabilities 1,751 1,260 -------------------------- LONG-TERM DEBT (Note 6) 2,485 1,844 FUTURE INCOME TAX LIABILITIES (Note 13) 724 873 DISMANTLEMENT AND SITE RESTORATION 179 191 OTHER DEFERRED CREDITS AND LIABILITIES 68 44 SHAREHOLDERS' EQUITY (Note 7) Preferred and Subordinated Securities 364 724 Common Shares, no par value Authorized: Unlimited Outstanding: 2003 - 125,606,107 shares 2002 - 122,965,830 shares 513 440 Contributed Surplus 1 -- Retained Earnings 1,659 1,069 Cumulative Foreign Currency Translation Adjustment (119) 115 -------------------------- Total Shareholders' Equity 2,418 2,348 -------------------------- COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 10 and 13) 7,625 6,560 ==========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Approved on behalf of the Board: /s/ Charles W. Fischer /s/ David A. Hentschel - ---------------------- ---------------------- Director Director 66 NEXEN INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 2003 Cdn$ millions
2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income from Continuing Operations 624 438 433 Net Income from Discontinued Operations 15 14 17 Charges and Credits to Income not Involving Cash (Note 14) 1,020 750 713 Exploration Expense 200 181 260 Changes in Non-Cash Working Capital (Note 14) (320) (46) 143 Other (70) (15) -- -------------------------------------------- 1,469 1,322 1,566 FINANCING ACTIVITIES Proceeds from Long-Term Notes and Debentures (Note 6) 651 790 -- Repayment of Long-Term Notes and Debentures -- -- (75) Proceeds from (Repayment of) Term Credit Facilities, Net 93 (419) (10) Repayment of Short-Term Borrowings, Net (18) (33) (17) Proceeds from Subordinated Securities (Note 6) 613 -- -- Redemption of Preferred Securities (Note 7) (340) -- -- Dividends on Preferred Securities (64) (72) (70) Dividends on Common Shares (40) (37) (37) Issue of Common Shares 73 51 39 Other (26) (23) -- -------------------------------------------- 942 257 (170) INVESTING ACTIVITIES Capital Expenditures Exploration and Development (1,276) (1,477) (1,162) Proved Property Acquisitions (164) (4) (122) Chemicals, Corporate and Other (54) (144) (120) Proceeds on Disposition of Assets 293 49 5 Changes in Non-Cash Working Capital (Note 14) (18) 7 (18) Other -- -- (52) -------------------------------------------- (1,219) (1,569) (1,469) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND SHORT-TERM INVESTMENTS (164) (12) 24 -------------------------------------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 1,028 (2) (49) CASH AND SHORT-TERM INVESTMENTS - BEGINNING OF YEAR 59 61 110 -------------------------------------------- CASH AND SHORT-TERM INVESTMENTS - END OF YEAR 1,087 59 61 ============================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 67 NEXEN INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 2003 Cdn$ millions
CUMULATIVE PREFERRED FOREIGN AND CURRENCY SUBORDINATED COMMON CONTRIBUTED RETAINED TRANSLATION SECURITIES SHARES SURPLUS EARNINGS ADJUSTMENT - --------------------------------------------------------------------------------------------------------------------------------- (Note 7) (Note 7) DECEMBER 31, 2000 724 350 -- 323 63 Exercise of Stock Options -- 16 -- -- -- Issue of Common Shares -- 23 -- -- -- Net Income -- -- -- 450 -- Dividends on Preferred Securities, Net of Income Taxes -- -- -- (39) -- Dividends on Common Shares -- -- -- (37) -- Translation Adjustment, Net of Income Taxes -- -- -- -- 31 ----------------- -------------- ----------------- ---------------- ----------------- DECEMBER 31, 2001 724 389 -- 697 94 Exercise of Stock Options -- 27 -- -- -- Issue of Common Shares -- 24 -- -- -- Net Income -- -- -- 452 -- Dividends on Preferred Securities, Net of Income Taxes -- -- -- (43) -- Dividends on Common Shares -- -- -- (37) -- Translation Adjustment, Net of Income Taxes -- -- -- -- 21 ----------------- -------------- ----------------- ---------------- ----------------- DECEMBER 31, 2002 724 440 -- 1,069 115 Exercise of Stock Options -- 50 -- -- -- Issue of Common Shares -- 23 -- -- -- Redemption of Preferred Securities (Note 7) (393) -- -- -- -- Gain on Redemption of Preferred Securities, Net of Income Taxes (Note 7) -- -- -- 31 -- Issue of Subordinated Securities (Note 7) 33 -- -- -- -- Net Income -- -- -- 639 -- Dividends on Preferred Securities, Net of Income Taxes -- -- -- (40) -- Dividends on Common Shares -- -- -- (40) -- Stock Based Compensation Expense (Note 7) -- -- 1 -- -- Translation Adjustment, Net of Income Taxes -- -- -- -- (234) ----------------- -------------- ----------------- ---------------- ----------------- DECEMBER 31, 2003 364 513 1 1,659 (119) ================= ============== ================= ================ =================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 68 NEXEN INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cdn$ millions except as noted 1. ACCOUNTING POLICIES Our 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 Consolidated Financial Statements is disclosed in Note 16. We make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and revenues and expenses during the reporting period. Actual results can differ from those estimates. (a) PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the accounts of Nexen Inc. and our subsidiary companies (Nexen, we or our). All subsidiary companies are wholly owned and all material intercompany accounts and transactions have been eliminated. We conduct most exploration, development and production activities in our oil and gas business and Syncrude jointly with others and our accounts reflect only Nexen's proportionate interest. (b) ACCOUNTS RECEIVABLE Accounts receivable are recorded based on our revenue recognition policy (see Note 1(i)). Our allowance for doubtful accounts provides for specific doubtful receivables. (c) INVENTORIES AND SUPPLIES Inventories and supplies for our oil and gas and chemicals operations are stated at the lower of cost and net realizable value. Cost is determined on the first-in, first-out method or average basis. After October 25, 2002, inventories for our marketing operation are accounted for at the lower of cost and net realizable value determined on an average basis. Prior to that, these inventories were reported at market value. (d) PROPERTY, PLANT AND EQUIPMENT (PP&E) Property, plant and equipment is recorded at cost and includes only recoverable costs that directly result in an identifiable future benefit. Unrecoverable costs, major maintenance and turnaround costs are expensed as incurred. Improvements that increase capacity or extend the useful lives of the related assets are capitalized to PP&E. We follow successful efforts accounting for our oil and gas business. All property acquisition costs are initially capitalized to PP&E as unproved property costs. Once proved reserves are discovered, the acquisition costs are reclassified to proved property acquisition costs. Exploration drilling costs are capitalized until we determine whether the well is successful. If successful, the costs are reclassified to proved property costs. If unsuccessful, the exploration drilling costs are expensed to earnings. All other exploration costs, including geological and geophysical and annual lease rentals are expensed to earnings as incurred. All development costs are capitalized as proved property costs. General and administrative costs that directly relate to acquisition, exploration and development activities are capitalized to PP&E. We engage in research and development activities to develop or improve processes and techniques to extract oil and gas. Research involves investigating new knowledge. Development involves translating that knowledge into a new technology or process. Research costs are expensed as incurred. Development costs are deferred once technical feasibility is established and we intend to proceed with development. We defer these costs in PP&E until the commencement of commercial operations or production. Otherwise, development costs are expensed as incurred. Development costs include pre-operating revenues and costs. We periodically evaluate our PP&E to ensure that the carrying value of properties on the balance sheet is recoverable. If carrying value exceeds the sum of undiscounted future cash flows, the property's value is impaired. The property is assigned a fair value equal to its estimated total future cash flows, discounted for the time value of money, and we expense the excess carrying value to depreciation, depletion and amortization. Our cash flow estimates require assumptions about future commodity prices, operating costs and other factors. Actual results can differ from those estimates. (e) DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A) Under successful efforts accounting, we deplete oil and gas costs using the unit-of-production method. Development and exploration drilling and equipping costs are depleted over remaining proved developed reserves and proved property acquisition costs over proved reserves. We depreciate other plant and equipment costs, including our chemicals facilities, using the straight-line method based on the estimated useful lives of the assets, which range from 3 years to 30 years. 69 Unproved property costs and major projects that are under construction or development are not depreciated, depleted or amortized. (f) CARRIED INTEREST We conduct certain international operations jointly with foreign governments in accordance with production sharing agreements. Under these agreements, we pay both our share and the government's share of operating and capital costs. We recover the government's share of these costs from future revenues or production over several years. The government's share of operating costs are recorded in operating expense when incurred and capital costs are recorded in PP&E and are expensed to DD&A in the year recovered. All recoveries are recorded as revenue in the year of recovery. (g) DISMANTLEMENT AND SITE RESTORATION We provide for dismantlement and site restoration costs on our resource properties, facilities, production platforms, pipelines and chemicals facilities based on estimates established by current legislation and industry practices. We record an annual provision for these costs in DD&A based on proved reserves or estimated remaining asset lives. Actual dismantlement and site restoration expenditures incurred in the year reduce the provision. (h) GOODWILL Goodwill and intangible assets with an indefinite useful life are recorded at cost and are not amortized. We test for impairment at least annually based on estimated future cash flows. No goodwill impairment writedowns were required. (i) REVENUE RECOGNITION CRUDE OIL AND NATURAL GAS Revenue from the production of crude oil and natural gas is recognized when title passes to the customer. In Canada and the US, our customers typically take title when the crude oil and natural gas reaches the end of the pipeline. For our international operations, our customers take title when the crude oil is loaded onto the tanker. When we produce or sell more or less oil or natural gas than our share, production overlifts and underlifts occur. We record overlifts as liabilities, and underlifts as assets. We settle these over time as liftings are equalized, or in cash when production ends. Revenue represents Nexen's share and is recorded net of royalty payments to governments and other mineral interest owners. For our international operations, all government interests, except for income taxes, are considered royalty payments. Our revenue also includes the recovery of costs paid on behalf of foreign governments in international locations. See Note 1(f). CHEMICALS Revenue from our chemicals operations is recognized when our products reach our customers. MARKETING Substantially all of the physical purchase and sale contracts entered into by our marketing operation are considered to be derivative instruments. Accordingly, financial and physical commodity contracts (collectively derivative instruments) held by our marketing operation are stated at fair value on the balance sheet date. We record any change in fair value as a gain or loss in marketing and other. Any margin realized by our marketing department on the sale of our proprietary oil and gas production is included in marketing and other. (j) INCOME TAXES We follow the liability method of accounting for income taxes (see Note 13). This method recognizes income tax assets and liabilities at current rates, based on temporary differences in reported amounts for financial statement and tax purposes. The effect of a change in income tax rates on future income tax assets and future income tax liabilities is recognized in income when substantively enacted. We do not provide for foreign withholding taxes on the undistributed earnings of our foreign subsidiaries, since we intend to invest such earnings indefinitely in foreign operations. (k) PETROLEUM RESOURCE RENT TAX We treat Petroleum Resource Rent Tax on our Australian oil and gas operations as a royalty and deduct it from sales. Any temporary differences between financial statement and tax reported amounts, including depletion, dismantlement and site restoration, are recorded as a future liability or asset using current tax rates. 70 (l) FOREIGN CURRENCY TRANSLATION Our foreign operations, which are considered financially and operationally independent, are translated from their functional currency into Canadian dollars as follows: o assets and liabilities using exchange rates at the balance sheet dates; and o revenues and expenses using the average exchange rates throughout the year. Gains and losses resulting from this translation are included in the cumulative foreign currency translation adjustment in shareholders' equity. Monetary balances denominated in a currency other than a functional currency are translated into the functional currency using exchange rates at the balance sheet dates. Gains and losses arising from translation, except on our designated US-dollar debt, are included in income. We have designated US-dollar debt as a hedge against our net investment in US-dollar based self-sustaining foreign operations. Gains and losses resulting from the translation of the designated US-dollar debt are included in the cumulative foreign currency translation adjustment in shareholders' equity. If our US-dollar debt, net of income taxes, exceeds our US-dollar investment in foreign operations, then the gains or losses attributable to such excess are included in marketing and other in the Consolidated Statement of Income. (m) CAPITALIZED INTEREST Prior to commercial production, we capitalize interest on major development projects using the weighted-average interest rate on all of our borrowings. Capitalized interest cannot exceed the actual interest expense. (n) DERIVATIVE INSTRUMENTS NON-TRADING ACTIVITIES We use derivative instruments such as physical purchase and sales, forwards, futures, swaps and options for non-trading purposes to manage fluctuations in commodity prices, foreign currency exchange rates and interest rates (see Note 5). Hedge accounting is used when there is a high degree of correlation between price movements in the derivative instruments and the items designated as being hedged. Nexen formally documents all hedges and the risk management objectives. We recognize gains and losses on the derivative instruments in the same period as the gains or losses on the hedged items are recognized. If effective correlation ceases, hedge accounting is terminated and future changes in the market value of the derivative instrument are included as gains or losses in marketing and other in the period of change. TRADING ACTIVITIES Our marketing operation uses derivative instruments for marketing and trading crude oil and natural gas including: o commodity contracts settled with physical delivery; o exchange-traded futures and options; and o non-exchange traded forwards, swaps and options. We record these instruments at fair value at the balance sheet date and record changes in market value as net gains or losses in marketing and other during the period of change. The fair value of these instruments is recorded as accounts receivable or payable if we anticipate settling the instruments within a year of the balance sheet date. If we anticipate settling the instruments beyond 12 months we record them as deferred charges and other assets or other deferred credits and liabilities. (o) EMPLOYEE BENEFITS The cost of pension benefits earned by employees in our defined benefit pension plans is actuarially determined using the projected-benefit method prorated on service and our best estimate of the plans' investment performance, salary escalations and retirement ages of employees. To calculate the plans' expected returns, assets are measured at fair value. Past service costs arising from plan amendments, and net actuarial gains and losses which exceed 10% of the greater of the accrued benefit obligation and the fair value of plan assets, are expensed in equal amounts over the expected average remaining service life of the employee group. We measure the plan assets and the accrued benefit obligation on October 31 each year. (p) STOCK-BASED COMPENSATION We estimate the fair value of stock options on the grant date using the Generalized Black-Scholes option pricing model with the assumptions described in Note 7(f). For options granted prior to January 1, 2003, we use the intrinsic value based method and recognize no compensation expense. For options granted after January 1, 2003, we use the fair-value based method and expense them over the vesting period. We provide stock appreciation rights to employees as described in Note 7. Obligations are accrued as compensation expense over the vesting period of the stock appreciation rights. 71 (q) CASH AND SHORT-TERM INVESTMENTS Cash and short-term investments are instruments that mature within three months of their purchase. (r) TRANSPORTATION We pay to transport the crude oil, natural gas and chemicals products that we market, and then bill our customers for the transportation. This transportation is presented in our Consolidated Financial Statements as a cost to us and is recorded as transportation and other. (s) CHANGES IN ACCOUNTING PRINCIPLES STOCK BASED COMPENSATION During the year, we prospectively adopted the fair-value method of accounting for stock options granted to employees and directors. We record stock based compensation expense on the Consolidated Statement of Income as general and administrative expense for all options granted on or after January 1, 2003, with a corresponding increase recorded as contributed surplus. Compensation expense for options granted during 2003 is based on the estimated fair values at the time of the grant and we recognize the expense over the vesting period of the option. We recognized $1 million of compensation expense for options granted during 2003. For options granted prior to January 1, 2003, we continue to disclose the pro forma earnings impact of related stock based compensation expense (see Note 7(g)). PRESENTATION OF TRANSPORTATION During 2002, we adopted the new interpretation of the Emerging Issues Committee relating to the presentation of costs for which we are reimbursed. We pay for the transportation of the crude oil, natural gas and chemicals products that we market, and then bill our customers for the transportation. Under the new interpretation, this transportation should be presented as a cost to us. Previously, we netted this cost against our revenue. Effective October 1, 2002, we show these costs as transportation and other on the Consolidated Statement of Income, resulting in the following increases: 2002 2001 - ------------------------------------------------------------------------------- Net Sales 35 32 Marketing and Other 423 342 Transportation and Other 458 374 (t) RECLASSIFICATION Certain information provided for prior years has been reclassified to conform to the presentation adopted in 2003. 2. ACCOUNTS RECEIVABLE 2003 2002 - ------------------------------------------------------------------------------- Trade Oil and Gas Marketing 1,078 574 Other 263 330 Chemicals and Other 47 59 ------------------- 1,388 963 Non-Trade 50 34 ------------------- 1,438 997 Allowance for Doubtful Receivables (15) (9) ------------------- 1,423 988 =================== 72 3. INVENTORIES AND SUPPLIES 2003 2002 - ------------------------------------------------------------------------------- FINISHED PRODUCTS Oil and Gas Marketing 138 130 Other 16 - Chemicals and Other 12 13 ------------------- 166 143 Work in Process 6 6 Field Supplies 98 107 ------------------- 270 256 =================== 4. PROPERTY, PLANT AND EQUIPMENT
2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ Accumulated Net Book Accumulated Net Book Cost DD&A Value Cost DD&A Value ----------------------------------------- ----------------------------------------------- Oil and Gas Yemen 656 489 167 711 531 180 Yemen - Carried Interest 1,242 1,008 234 1,343 1,115 228 Canada 2,879 1,428 1,451 3,098 1,137 1,961 United States 2,095 854 1,241 2,186 959 1,227 Australia 172 168 4 209 184 25 Other Countries 313 198 115 305 198 107 Marketing 157 56 101 86 40 46 ----------------------------------------- ----------------------------------------------- 7,514 4,201 3,313 7,938 4,164 3,774 Syncrude 811 141 670 628 139 489 Chemicals 760 371 389 789 345 444 Corporate and Other 168 71 97 213 57 156 ----------------------------------------- ----------------------------------------------- 9,253 4,784 4,469 9,568 4,705 4,863 ========================================= ===============================================
The above table includes capitalized costs of $630 million (2002 - $585 million) relating to unproved properties and projects under construction or development. These costs are not being depreciated, depleted or amortized. Our 2003 depreciation, depletion and amortization expense in the Consolidated Statement of Income includes an impairment charge of $269 million ($175 million net of income tax) relating to certain Canadian oil and gas properties. The impairment results from negative reserve revisions and is largely attributable to Canadian heavy oil properties. The revisions resulted from changes in late field-life economic assumptions, changes in proved undeveloped reserves based on drilling results and geological mapping, and reassessments of estimated future production profiles. Even though we expect to recover the carrying value of our Canadian oil and gas properties in aggregate from their future cash flows, under successful efforts accounting, we are required to make impairment assessments on a property-by-property basis. The impairment charge represents the write-down of the carrying value of the impaired properties to their estimated fair value. We have determined the estimated fair value of the impaired properties based on the present value of the expected future net cash flows we expect to receive from the properties. We incurred $20 million (2002 - $6 million) related to research and development activity. Costs of $14 million (2002 - $6 million) were recorded in other expense on the Consolidated Statement of Income. The remaining costs have been deferred and are included in PP&E. 2003 2002 - -------------------------------------------------------------------------------- Development Costs Deferred, Beginning of Year -- -- Deferred in the Year 6 -- Amortized in the Year -- -- ---------------------- Development Costs Deferred, End of Year 6 -- ====================== 73 5. DERIVATIVE INSTRUMENTS AND FINANCIAL RISK MANAGEMENT The nature of our operations and long-term debt expose us to fluctuations in commodity prices, foreign-currency exchange rates, interest rates and credit risk. We recognize these risks and manage our operations to minimize our exposure to the extent practical and, to a lesser extent, using derivative instruments. Our marketing operation uses derivative instruments to manage its exposure to commodity price fluctuations and for trading purposes. We use physical purchases and sales contract, exchange-traded futures and options and non-exchange traded forwards, swaps and options, which may be settled in cash or by delivery of the physical commodity. The Finance Committee of the Board of Directors and our Risk Management Committee monitor our exposure to the above risks and regularly review our derivative activities and all outstanding positions. The carrying value, fair value, and unrecognized gains or losses on our outstanding derivatives and long-term financial assets and liabilities at December 31 are:
Cdn$ millions 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ Carrying Fair Unrecognized Carrying Fair Unrecognized Net Assets/(Liabilities) Value Value Gain/(Loss) Value Value Gain/(Loss) ----------------------------------------- ------------------------------------- Commodity Price Risk - Non-Trading Activities Natural Gas Swaps -- -- -- -- 2 2 Future Sale of Oil and Gas Production -- (3) (3) -- -- -- Commodity Price Risk-- Trading Activities Crude Oil and Natural Gas 106 106 -- 3 3 -- Future Sale of Gas Inventory -- (11) (11) -- -- -- Foreign Currency Risk -- (1) (1) -- (3) (3) ----------------------------------------- ------------------------------------- Total Derivatives 106 91 (15) 3 2 (1) ========================================= ===================================== Financial Assets and Liabilities Long-Term Debt (2,485) (2,706) (221) (1,844) (1,948) (104) Preferred and Subordinated Securities (364) (319) 45 (724) (756) (32) ----------------------------------------- ------------------------------------- (2,849) (3,025) (176) (2,568) (2,704) (136) ========================================== ======================================
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 short-term investments, amounts receivable and short-term obligations approximates their fair value because the instruments are near maturity. (a) COMMODITY PRICE RISK MANAGEMENT NON-TRADING ACTIVITIES We generally sell our crude oil and natural gas under short-term market based contracts. NATURAL GAS SWAPS During 2002 and 2001, we purchased fixed-to-floating swaps to modify the terms of certain fixed-price natural gas contracts as we prefer to receive an index-based price for our natural gas. Under the terms of these contracts, we were required to deliver 4 million cubic feet per day of natural gas to counterparties at prices ranging from $3.06 to $6.08 per thousand cubic feet. On settlement, we either paid or received cash for the difference between the contract and floating rates. These swaps expired in 2003. 74 FUTURE SALE OF OIL AND GAS PRODUCTION In March 2003, we sold WTI and NYMEX gas forward contracts for the next 12 months to lock-in part of the return on the remaining 40% interest acquired in the Aspen field. The forward contracts fix our oil and gas prices at the contract prices for the hedged volumes, less applicable price differentials. Unrecognized losses on these contracts are:
Hedged Average Unrecognized Volumes Term Price Loss - ------------------------------------------------------------------------------------------------------------------------------ (US$) (Cdn$ millions) Fixed WTI Price 5,000 bbls/d April 2003 - March 2004 28.50/bbl (2) Fixed NYMEX Price 12,000 mmbtu/d April 2003 - March 2004 5.35/mmbtu (1) ------------ (3) ============
TRADING ACTIVITIES CRUDE OIL AND NATURAL GAS Our marketing operation engages in crude oil and natural gas marketing activities to enhance prices from the sale of our oil and gas production, and for energy trading. As part of our strategy: o we enter into contracts to purchase and sell crude oil and natural gas; o we inject and withdraw natural gas into and from storage to take advantage of seasonal changes in demand; and o we create net open positions to take advantage of market conditions. These contracts and positions expose us to changes in market prices. To mitigate this price risk, we use energy-related futures, forwards, swaps and options. We also balance physical and financial contracts in terms of volumes, timing of performance and delivery obligations. TOTAL CARRYING VALUE OF DERIVATIVE ENERGY CONTRACTS Amounts related to derivative energy instruments held by our marketing operation are equal to fair value as we use mark-to-market accounting, and are as follows at December 31: Cdn $millions 2003 2002 - ------------------------------------------------------------------------------- Accounts Receivable 102 42 Deferred Charges and Other Assets (1) 63 14 ------------------- Total Derivative Energy Contract Assets 165 56 =================== Accounts Payable and Accrued Liabilities 34 46 Other Deferred Credits and Liabilities (1) 25 7 ------------------- Total Derivative Energy Contract Liabilities 59 53 =================== Total Derivative Energy Contract Net Assets 106 3 =================== Note: (1) These derivative instruments settle beyond 12 months and are considered non-current. 75 FUTURE SALE OF GAS INVENTORY Our marketing inventory is carried at the lower of cost and net realizable value while generally our derivative contracts are stated at market value. To better match our accounting with our economic exposure, we began designating certain NYMEX natural gas futures contracts and AECO/NYMEX basis swaps in July 2003 as hedges of our price risk on the future sale of our inventory. We have designated in writing some of our financial contracts as cash flow hedges. The principal terms of these outstanding contracts and the unrecognized losses at December 31, 2003 are:
Hedged Average Unrecognized Volumes Month Price Loss - ------------------------------------------------------------------------------------------------------- (mmcf) (US$ mcf) (Cdn$ millions) NYMEX Natural Gas Futures 5,610 January 2004 4.91 - 6.19 (6) 3,850 February 2004 4.93 - 6.09 (3) 150 March 2004 4.85 -- 1,500 April 2004 4.76 (1) AECO/NYMEX Basis Swaps 380 January 2004 5.51 (1) 300 February 2004 5.15 -- ------------ (11) ============
Our marketing strategy enables our marketing operation to generate income using competitive information from marketing activities, but it exposes us to risks of loss from fluctuating market prices. Our exposure is restricted to prescribed limits and is monitored daily using value-at-risk measures, stress testing and scenario analysis. The value-at-risk calculation estimates the maximum probable loss, given a 95% confidence level, that we would incur if our open positions were unwound over two days. Our net margins from trading activities and our value-at-risk are: 2003 2002 2001 - ---------------------------------------------------------------------------- Net Revenue 568 496 438 Less: Transportation (398) (423) (342) Other (1) -- -- -------------------------------- 169 73 96 ================================ Value-at-Risk Year End 21 19 19 ================================ Average 20 17 13 ================================ (b) FOREIGN CURRENCY EXCHANGE RATE RISK MANAGEMENT Many of our activities are transacted in or referenced to US dollars including: o sales of crude oil, natural gas and certain chemicals products; o capital spending and expenses for our oil and gas and chemicals operations outside Canada; and o short-term and long-term borrowings. We manage our exposure to fluctuations between the US and Canadian dollar by minimizing the need to convert between the two currencies. Net revenue from our foreign operations and our US-dollar borrowings are generally used to fund US-dollar capital expenditures and debt repayments. Until 2003, all of our US-dollar debt was designated as a hedge against our net investment in foreign operations. In early 2003, we de-designated our unsecured syndicated term credit facilities from the hedge as funds drawn were used to fund US-dollar working capital in our Canadian operations. Our remaining US-dollar debt continued to be designated as a hedge against our net investment in foreign operations. In the third quarter of 2003, we re-designated our unsecured syndicated term credit facilities, as US-dollar funds drawn were no longer funding working capital in our Canadian operations. The US-dollar debt issued in November 2003 to re-finance existing designated US-dollar debt was designated as part of the hedge in February 2004. 76 The foreign exchange gains or losses related to the designated debt are included in the cumulative foreign currency translation adjustment in shareholders' equity. The exchange gains and losses on the unsecured syndicated term credit facilities during the de-designated period were included in marketing and other. Foreign exchange gains or losses on the November 2003 debt issues were included in marketing and other. Our net investment in foreign operations and our designated US-dollar long-term debt at December 31 are as follows: (US$ millions) 2003 2002 - ---------------------------------------------------------------------------- Net Investment in Foreign Operations 1,574 1,389 Long-Term Debt 925 962 -------------------- We do not have any material exposure to highly inflationary foreign currencies. We occasionally use derivative instruments to effectively convert cash flows from Canadian to US dollars and vice versa. At December 31, 2003, 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 (see Note 6). (c) INTEREST RATE RISK MANAGEMENT We use fixed and floating rate debt to finance our operations. The floating rate debt exposes us to changes in interest payments as interest rates fluctuate. To manage this exposure, we maintain a combination of fixed and floating rate borrowings and facilities. At December 31, 2003, fixed-rate borrowings comprised 100% (2002 - 100%) of our long-term debt at an effective average rate of 6.8% (2002 - 7.4%). During the year we periodically drew on our floating rate unsecured syndicated term credit facilities. We had no interest rate swaps outstanding in 2003 or 2002. (d) CREDIT RISK MANAGEMENT A substantial portion of our accounts receivable are with customers in the energy industry and are subject to normal industry credit risk. This concentration of risk within the energy industry is reduced because of our broad base of domestic and international customers. We are also exposed to possible non-performance by derivative instrument counterparties. We assess the financial strength of our customer and counterparty base, including those involved in marketing and other commodity arrangements and we limit the total exposure to individual counterparties. As well, a number of our contracts contain provisions that allow us to demand the posting of collateral in the event downgrades to non-investment grade credit ratings occur. Credit risk, including credit concentrations are routinely reported to our Risk Management Committee. We also use standard agreements that net positive and negative exposures of a single counterparty. We believe this minimizes our overall credit risk. 6. LONG-TERM DEBT AND SHORT-TERM BORROWINGS 2003 2002 - ------------------------------------------------------------------------------ Unsecured Syndicated Term Credit Facilities (a) -- -- Unsecured Redeemable Notes, due 2004 (b) 291 355 Unsecured Redeemable Debentures, due 2006 (c) 98 108 Unsecured Redeemable Medium Term Notes, due 2007 (d) 150 150 Unsecured Redeemable Medium Term Notes, due 2008 (e) 125 125 Unsecured Redeemable Notes, due 2013 (f) 646 -- Unsecured Redeemable Notes, due 2028 (g) 258 316 Unsecured Redeemable Notes, due 2032 (h) 646 790 Unsecured Subordinated Debentures, due 2043 (i) 562 -- ----------------- 2,776 1,844 Less: Current Portion of Long-Term Debt 291 -- ----------------- 2,485 1,844 ================= (a) UNSECURED SYNDICATED TERM CREDIT FACILITIES Nexen has committed, unsecured, revolving term credit facilities totalling $1,656 million, $410 million of which is available until 2007 and $1,246 million until 2008. The lenders have the option to extend the terms annually. No repayments are required until the end of the availability periods. 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. During 2003, the weighted average interest rate was 2.0% (2002 - 2.5%). 77 (b) UNSECURED REDEEMABLE NOTES, DUE 2004 During February 1999, we issued US$225 million of notes. Interest is payable semi-annually at a rate of 7.125%, and the principal was repaid at par in February 2004. The notes have been included as a current liability on the Consolidated Balance Sheet. (c) UNSECURED REDEEMABLE DEBENTURES, DUE 2006 During November 1996, we issued $100 million of unsecured 10-year redeemable debentures. Interest is payable semi-annually at a rate of 6.85% and the principal is to be repaid in November 2006. In December 1996, $50 million of this obligation was effectively converted through a currency exchange contract with a Canadian chartered bank to a US$37 million liability bearing interest at 6.75% for the term of the debentures. We may redeem part or all of the debentures at any time. The redemption price will be the greater of par and an amount that provides the same yield as a Government of Canada Bond having a term to maturity equal to the remaining term of the debentures plus 0.1%. (d) UNSECURED REDEEMABLE MEDIUM TERM NOTES, DUE 2007 During July 1997, we issued $150 million of notes. Interest is payable semi-annually at a rate of 6.45% and the principal is to be repaid in July 2007. 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 Government of Canada Bond having a term to maturity equal to the remaining term of the notes plus 0.125%. (e) UNSECURED REDEEMABLE MEDIUM TERM NOTES, DUE 2008 During October 1997, we issued $125 million of notes. Interest is payable semi-annually at a rate of 6.3% and the principal is to be repaid in June 2008. 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 Government of Canada Bond having a term to maturity equal to the remaining term of the notes plus 0.125%. (f) UNSECURED REDEEMABLE NOTES, DUE 2013 During November 2003, we issued US$500 million of notes. Interest is payable semi-annually at a rate of 5.05% and the principal is to be repaid in November 2013. 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%. Included in deferred charges and other assets at December 31, 2003 are issue costs of US$8 million which are amortized to earnings over the term of the issue. (g) UNSECURED REDEEMABLE NOTES, DUE 2028 During April 1998, we issued US$200 million of notes. Interest is payable semi-annually at a rate of 7.4% and the principal is to be repaid in May 2028. We may redeem part or all of the notes 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 0.25%. (h) UNSECURED REDEEMABLE NOTES, DUE 2032 During March 2002, we issued US$500 million of notes. Interest is payable semi-annually at a rate of 7.875% and the principal is to be repaid in March 2032. 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 0.375%. Included in deferred charges and other assets at December 31, 2003 is a debt discount of US$13 million (2002 - US$14 million) which is amortized to earnings over the term of the debt issue. (i) UNSECURED SUBORDINATED DEBENTURES, DUE 2043 On November 4, 2003, we issued US$460 million of unsecured subordinated debentures. Interest is payable quarterly in cash. We may redeem part or all of the debentures at any time on or after November 8, 2008. The redemption price is equal to the par value of the principal amount plus any accrued and unpaid interest to the redemption date. We may choose to redeem the principal amount with either cash or common shares. As a result, we are required to classify the carrying value of the debentures into debt and equity components. The debt component of US$435 million represents the present value of future interest payments. The remaining US$25 million represents the equity component and has been recorded in shareholders' equity (see Note 7(a)). Included in deferred charges and other assets at December 31, 2003 are issue costs of US$12 million which are amortized to earnings over the term of the issue. 78 (j) DEBT REPAYMENTS - ----------------------------------------------------------------------------- 2004 291 2005 - 2006 98 2007 150 2008 125 Thereafter 2,112 -------- 2,776 ======== (k) DEBT COVENANTS Most of our debt instruments contain covenants with respect to certain financial ratios and our ability to grant security. At December 31, 2003, we were in compliance with all covenants. (l) SHORT-TERM BORROWINGS Nexen has unsecured operating loan facilities of approximately $328 million. Interest is payable at floating rates and the facilities are subject to periodic reviews. During 2003, the weighted average interest rate on short-term borrowings was 2.4% (2002 - 2.3%). Occasionally, we sell the future proceeds of our accounts receivable; however, we retain a 10% exposure to related credit losses. At December 31, 2003, we did not sell any of our accounts receivable proceeds. At December 31, 2002 we sold $178 million of accounts receivable and retained a credit exposure of $18 million which was included in short-term borrowings. During 2003, this credit exposure was eliminated as the receivable proceeds were fully collected. (m) INTEREST EXPENSE 2003 2002 2001 - ------------------------------------------------------------------------------- Long-Term Debt 140 134 106 Other 8 6 6 ------------------------------ Total 148 140 112 Less: Capitalized 43 31 -- ------------------------------ 105 109 112 ============================== Capitalized interest relates to and is included as part of the cost of oil and gas properties. The capitalization rates are based on our weighted-average cost of borrowings. 7. SHAREHOLDERS' EQUITY (a) PREFERRED AND SUBORDINATED SECURITIES
Principal Amount Interest Rate Maturity Date First Call Date - ------------------------------------------------------------------------------------------------------------------------------ (US$ millions) (%) Preferred Securities 259 9.75 October 30, 2047 October 30, 2003 Preferred Securities 217 9.375 March 31, 2048 February 9, 2004 Subordinated Securities (Note 6(i)) 25 7.35 November 4, 2043 November 8, 2008 -------------------------------------------------------------------------------------
Nexen may redeem part or all of the preferred securities at any time on or after their call date. We may defer, subject to certain conditions, up to 20 consecutive quarterly interest payments and may satisfy our interest, principal or redemption payments by issuing common shares. Interest is payable quarterly. Since we have the unrestricted ability to settle the interest, principal and redemption payments by issuing common shares, the preferred securities are classified as equity. We record the principal amount in shareholders' equity and interest payments, net of income taxes, are classified as dividends and charged directly to retained earnings. On December 15, 2003, we redeemed $393 million (US$259 million) of preferred securities at par. On redemption we realized a gain of $31 million, net of income tax, for the difference between the carrying value and the settlement amount. This gain related to the change in foreign exchange rates between the date of issue and settlement, and has been included in retained earnings. 79 On January 9, 2004, we gave notice to redeem our US$217 million preferred securities. These securities were redeemed at par on February 9, 2004. The realized foreign exchange gain of $34 million, net of income taxes, for the difference between the carrying value and the settlement amount was included in retained earnings in 2004. (b) AUTHORIZED CAPITAL Authorized share capital consists of an unlimited number of common shares of no par value, and an unlimited number of Class A preferred shares of no par value, issuable in series. (c) ISSUED COMMON SHARES AND DIVIDENDS (thousands of shares) 2003 2002 2001 - -------------------------------------------------------------------------------- Beginning of Year 122,966 121,202 119,855 Issue of Common Shares for Cash: Exercise of Stock Options 1,964 1,090 648 Dividend Reinvestment Plan 476 500 533 Employee Flow-through Shares 200 174 166 --------------------------------- End of Year 125,606 122,966 121,202 ================================= Dividends per Common Share ($/share) 0.325 0.30 0.30 ================================= Cash Consideration (Cdn$ millions) Exercise of Stock Options 50 27 16 Dividend Reinvestment Plan 15 17 17 Employee Flow-through Shares 8 7 6 --------------------------------- 73 51 39 ================================= At December 31, 2003, there were 1,307,305 (2002 - 1,783,968; 2001 - 489,329) common shares reserved for issuance under the Dividend Reinvestment Plan. (d) STOCK OPTIONS GRANTED, EXERCISED AND FORFEITED We have granted options to purchase common shares to directors, officers and employees. Each option permits the holder to purchase one Nexen common share at the stated exercise price. Options granted prior to February 2001 vest over 4 years and are exercisable on a cumulative basis over 10 years. Options granted after February 2001 vest over 3 years and are exercisable on a cumulative basis over 5 years. At the time of grant, the exercise price equals the market price. The following options have been granted: Weighted-Average Options Exercise Price - -------------------------------------------------------------------------------- (thousands) ($/option) DECEMBER 31, 2000 7,976 29 Granted 1,645 31 Exercised (648) 24 Forfeited (142) 30 ----------- DECEMBER 31, 2001 8,831 30 Granted 1,788 31 Exercised (1,090) 25 Forfeited (53) 30 ----------- DECEMBER 31, 2002 9,476 30 Granted 1,877 44 Exercised (1,964) 28 Forfeited (186) 32 ----------- DECEMBER 31, 2003 9,203 34 =========== OPTIONS EXERCISABLE AT DECEMBER 31 2001 4,232 27 2002 5,113 29 2003 5,067 30 ----------------------------------- 80 At December 31, 2003 there were 9,787,833 (2002 - 9,759,545; 2001 - 10,896,060) common shares reserved for issuance under the stock option plan and there were 9,203,121 (2002 - 9,475,985; 2001 - 8,831,235) outstanding options. (e) EXERCISE PRICE RANGE
Outstanding Options Exercisable Options - ------------------------------------------------------------------------------------------------------------------------------ Weighted- Weighted- Weighted- Average Average Average Number of Exercise Years to Number of Exercise Options Price Expiry Options Price ------------------------------------------- -------------------------------- (thousands) ($/option) (years) (thousands) ($/option) $12.13 to $19.99 416 18 5 416 18 $20.00 to $24.99 176 23 3 176 23 $25.00 to $29.99 1,828 28 5 1,709 28 $30.00 to $34.99 2,729 33 4 1,151 32 $35.00 to $39.99 2,169 36 7 1,607 36 $40.00 to $44.99 1,885 44 5 8 40 ------------------------------------------- -------------------------------- 9,203 5,067 =============== ===============
(f) ESTIMATED FAIR-VALUE OF STOCK OPTIONS We estimate the fair value of stock options issued using the Generalized Black-Scholes option pricing model under the following assumptions:
2003 2002 2001 - ------------------------------------------------------------------------------------------------------ Weighted-Average Fair Value ($/option) 10.10 9.08 12.24 Risk-Free Interest Rate (%) 3.6 3.6 5.1 Estimated Hold Period Prior to Exercise (years) 3 3 5 Volatility in the Price of Nexen's Common Shares (%) 30 35 40 Dividends per Common Share ($/share) 0.40 0.30 0.30 -----------------------------------
(g) PRO FORMA NET INCOME - FAIR-VALUE METHOD OF ACCOUNTING FOR STOCK OPTIONS The following shows pro forma net income and earnings per common share had we applied the fair-value method to account for all stock options outstanding that were granted up to December 31, 2002. Stock options granted after that date have been expensed as general and administrative costs.
2003 2002 2001 - ------------------------------------------------------------------------------------------------------ Fair Value of Stock Options Granted 25 22 25 Less: Fair Value of Stock Options Expensed (1) - - ----------------------------------- 24 22 25 Net Income Attributable to Common Shareholders As Reported 599 409 411 ----------------------------------- Pro Forma 575 387 386 =================================== Earnings Per Common Share ($/share) Basic as Reported 4.84 3.34 3.40 =================================== Pro Forma 4.65 3.16 3.20 =================================== Diluted as Reported 4.79 3.30 3.36 =================================== Pro Forma 4.60 3.13 3.16 ===================================
81 (h) STOCK APPRECIATION RIGHTS Under our stock appreciation rights plan established in 2001, employees are entitled to cash payments equal to the excess of the market price of the common shares over the exercise price of the right. The vesting period and other terms of the plan are similar to the stock option plan. The total rights granted and outstanding at any time cannot exceed 10% of Nexen's total outstanding common shares. 2003 2002 2001 - -------------------------------------------------------------------------------- Weighted Average Exercise Price ($/right) 42.67 33.94 31.17 Rights Expensed ($ millions) 14 2 -- ----------------------------- The following stock appreciation rights have been granted: Rights - ------------------------------------------------------------------------------ (thousands) DECEMBER 31, 2000 -- Granted 915 ------------ DECEMBER 31, 2001 915 Granted 908 Exercised (3) Forfeited (8) ------------ DECEMBER 31, 2002 1,812 Granted 1,017 Exercised (363) Forfeited (62) ------------ DECEMBER 31, 2003 2,404 ============ 8. EARNINGS PER COMMON SHARE We calculate basic earnings per common share from continuing operations using net income from continuing operations less dividends on preferred securities, net of income taxes, divided by weighted average number of common shares outstanding. We calculate basic earnings per common share using net income attributable to common shareholders 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.
(millions of shares) 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------- Weighted-average number of common shares outstanding 123.8 122.4 120.7 Shares issuable pursuant to stock options 6.2 8.1 4.7 Shares to be purchased from proceeds of stock options (5.1) (6.7) (3.3) ------------------------------------------ Weighted-average number of diluted common shares outstanding 124.9 123.8 122.1 ==========================================
In calculating diluted earnings per common share for the year ended December 31, 2003, we excluded 2,817,023 options (2002 - 46,167; 2001 - 2,992,903), because the exercise price was greater than the annual average market price of our common shares in those periods. During these three years, outstanding stock options were the only dilutive instrument. 82 9. DISCONTINUED OPERATIONS On August 28, 2003, we sold certain non-core conventional light oil properties in southeast Saskatchewan in Canada. Net proceeds were $268 million and there was no gain or loss on the sale. The results of operations from these properties are detailed below and shown as discontinued operations in our Consolidated Statement of Income. 2003 2002 2001 - ------------------------------------------------------------------------------- Revenues Net Sales 66 100 96 Expenses Operating 16 25 23 Depreciation, Depletion and Amortization 20 35 30 Exploration 1 8 5 ------------------------------ Income before Income Taxes 29 32 38 Future Income Taxes 14 18 21 ------------------------------ Net Income from Discontinued Operations 15 14 17 ============================== Earnings Per Common Share ($/share) Basic (Note 8) 0.12 0.11 0.14 ============================== Diluted (Note 8) 0.12 0.11 0.14 ============================== Assets and liabilities on the Consolidated Balance Sheet include the following amounts for discontinued operations. December 31 December 31 2003 2002 - -------------------------------------------------------------------------------- Accounts Receivable -- 12 Property, Plant and Equipment -- 289 Accounts Payable and Accrued Liabilities -- 9 Dismantlement and Site Restoration -- 10 --------------------------- 10. COMMITMENTS, CONTINGENCIES AND GUARANTEES
2004 2005 2006 2007 2008 THEREAFTER - ----------------------------------------------------------------------------------------------------------- Operating leases 33 38 20 19 16 91 Transportation commitments 212 94 78 52 33 111 ----------------------------------------------------------------------- 245 132 98 71 49 202 =======================================================================
We have a number of lawsuits and claims pending including income tax reassessments (see Note 13), for which we currently cannot determine the ultimate result. 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. During 2003, total rental expense was $49 million (2002 - $47 million; 2001 - $42 million). From time to time we enter into certain types of contracts that require us to indemnify parties against possible third party claims particularly when these contracts relate to divestiture transactions. On occasion we may provide routine indemnifications. The terms of such obligations vary and generally, a maximum is not explicitly stated. Because the obligations in these agreements are often not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, we have not been obligated to make significant payments for these obligations. Our Risk Management Committee actively monitors our exposure to the above risks and obtains insurance coverage to satisfy potential or future claims as necessary. We believe that payments, if any, related to such matters would not have a material adverse effect on our liquidity, financial condition or results of operations. 83 11. PENSION AND OTHER POST RETIREMENT BENEFITS Nexen has contributory and non-contributory defined benefit and defined contribution pension plans, which together cover substantially all employees. Syncrude has a defined benefit plan for its employees, and we disclose only our share of this plan. Under these defined benefit plans, we provide benefits to retirees based on their length of service and final average earnings. Benefits paid out of Nexen's defined benefit plan are indexed to 75% of the annual rate of inflation. (a) DEFINED BENEFIT PENSION PLANS The cost of pension benefits earned by employees is determined using the projected-benefit method prorated on employment services and is expensed as services are rendered. We fund these plans according to federal and provincial government regulations by contributing to trust funds administered by an independent trustee. These funds are invested primarily in equities and bonds.
2003 2002 - --------------------------------------------------------------------------------------------------------------------------- Change in Projected Benefit Obligation (PBO) Nexen Syncrude Nexen Syncrude ------------------------------ -------------------------------- Beginning of Year 164 68 163 63 Service Cost 7 3 7 3 Interest Cost 11 4 10 4 Plan Participants' Contributions 2 - 2 - Actuarial Loss/(Gain) 14 6 (11) - Benefits Paid (6) (2) (7) (2) ------------------------------ -------------------------------- End of Year (1) 192 79 164 68 ------------------------------ -------------------------------- Change in Fair Value of Plan Assets Beginning of Year 127 37 136 41 Actual Return on Plan Assets 15 7 (7) (3) Employer's Contribution 16 2 3 1 Plan Participants' Contributions 2 - 2 - Benefits Paid (6) (2) (7) (2) ------------------------------ -------------------------------- End of Year 154 44 127 37 ------------------------------ -------------------------------- Reconciliation of Funded Status Funded Status (2) (38) (35) (37) (31) Unamortized Transitional Obligation 1 - 1 - Unamortized Prior Service Costs 5 - 6 1 Unamortized Net Actuarial Loss 26 25 19 23 ------------------------------ -------------------------------- Pension Liability (6) (10) (11) (7) ------------------------------ -------------------------------- Pension Liability Recognized: Deferred Charges and Other Assets 15 - 7 - Other Deferred Credits and Liabilities (21) (10) (18) (7) ------------------------------ -------------------------------- Pension Liability (6) (10) (11) (7) ------------------------------ -------------------------------- Assumptions (%) Discount Rate 6.25 (4) 6.00 (4) 6.75 (3) 6.50 (3) Long-Term Rate of Employee Compensation Increase 4.00 (4) 4.00 (4) 4.00 (3) 4.00 (3) Long-Term Annual Rate of Return on Plan Assets (5) 7.00 (4) 9.00 (4) 7.00 (3) 9.00 (3) ---------------------------------------------------------------------
Notes: (1) Nexen's employee pension plan's accumulated benefit obligation (the projected benefit obligation excluding future salary increases) was $139 million at December 31, 2003. Nexen's supplemental pension plan's accumulated benefit obligation was $19 million at December 31, 2003. Nexen's share of Syncrude's employee pension plan's accumulated benefit obligation was $56 million at December 31, 2003. (2) Includes unfunded obligations for supplemental benefits to the extent that the benefit is limited by statutory guidelines. At December 31, 2003, the PBO for supplemental benefits was $29 million (2002 - $26 million). (3) The assumptions have been used to calculate the October 31, 2002 PBO and the 2003 recognized expense. (4) The assumptions have been used to calculate the October 31, 2003 PBO and the 2004 recognized expense for Nexen. There were no changes to the assumptions between the measurement date and December 31, 2003. Syncrude's measurement date was December 31, 2003. (5) The long-term rate of return on plan assets assumption is based on a mix of historical market returns from debt and equity securities. 84 NET PENSION EXPENSE RECOGNIZED UNDER OUR DEFINED BENEFIT PENSION PLANS 2003 2002 2001 - ------------------------------------------------------------------------------- Nexen Cost of Benefits Earned by Employees 7 7 5 Interest Cost on Benefits Earned 11 10 9 Expected Return on Plan Assets (9) (10) (10) Net Amortization and Deferral 1 1 - ------------------------------- Net 10 8 4 ------------------------------- Syncrude Cost of Benefits Earned by Employees 3 3 2 Interest Cost on Benefits Earned 4 4 4 Expected Return on Pension Plan Assets (3) (4) (4) Net Amortization and Deferral 1 1 - ------------------------------- Net 5 4 2 ------------------------------- ------------------------------- Total 15 12 6 =============================== (b) PLAN ASSET ALLOCATION AT DECEMBER 31 Our investment goal for the assets in our defined benefit pension plan is to preserve capital and earn a long-term rate of return on assets, net of all management expenses, in excess of the inflation rate. Investment funds are managed by external fund managers based on policies mandated by our Board of Directors and Pension Committee. Nexen's investment strategy is to diversify plan assets between debt and equity securities of Canadian and non-Canadian corporations, that are traded on recognized stock exchanges. A fund's market value may not exceed a maximum in any one issuer at the time of purchase, as set out by our investment policy provided to fund managers. Allowable and prohibited investment types are also prescribed in Nexen's investment policy. Syncrude's pension plan is governed and administered separately from ours. Syncrude's investment assets are subject to a similar investment goal, policy and strategy. EXPECTED (%) 2004 2003 2002 - ----------------------------------------------------------------------------- Nexen Equity Securities 60 52 54 Debt Securities 40 40 42 Real Estate - - - Other - 8 4 --------------------------------------------- Total 100 100 100 ============================================= Syncrude Equity Securities 70 72 70 Debt Securities 30 28 30 Real Estate - - - Other - - - --------------------------------------------- Total 100 100 100 ============================================= (c) DEFINED CONTRIBUTION PENSION PLANS Under these plans, pension benefits are based on plan contributions. During 2003, Canadian pension expense for these plans was $4 million (2002 - $3 million; 2001 - $3 million). During 2003, US pension expense for these plans was $3 million (2002 - $3 million; 2001 - $3 million). (d) POST-RETIREMENT BENEFITS Nexen provides certain post-retirement benefits, including group life and supplemental health insurance, to eligible employees and their dependents. These costs are fully accrued as compensation in the period employees work; however, these future obligations are not funded. The present value of Nexen employees' future post retirement benefits in 2003 was $5 million (2002 - $4 million). Nexen's share of post-retirement and post-employment benefits related to Syncrude in 2003 was $6 million (2002 - $6 million). 85 (e) EMPLOYER FUNDING CONTRIBUTIONS AND BENEFIT PAYMENTS Canadian regulators have prescribed funding requirements for our defined benefit plans. Our funding contributions over the last three years have met these requirements and also included additional discretionary contributions permitted by law. For our defined contribution plans, we always match the employee contribution and no further obligation exists. Our funding contributions for the defined benefit plans are: EXPECTED 2004 2003 2002 - ----------------------------------------------------------------------------- Nexen Defined Benefit 6 15 2 Other -- 1 1 --------------------------------------- Total Funding Contributions 6 16 3 ======================================= Syncrude Defined Benefit 4 2 1 Other -- -- -- --------------------------------------- Total Funding Contributions 4 2 1 ======================================= Our most recent funding valuation was prepared as of June 30, 2003. Our next funding valuation is required by June 30, 2006. Syncrude's most recent funding valuation was prepared as of January 1, 2001. Syncrude's next funding valuation is January 1, 2004. Our total benefit payments in 2003, were $6 million (2002 - $7 million). Our share of Syncrude's total benefit payments in 2003 was $2 million (2002 - $2 million). Our estimated future payments are as follows: Defined Benefit Other - ---------------------------------------------------------------------------- Nexen Syncrude Nexen Syncrude ---------------------------------------------- 2004 7 2 1 -- 2005 8 2 1 -- 2006 8 3 1 -- 2007 9 3 1 -- 2008 9 3 2 -- 2009 - 2013 60 23 10 2 12. MARKETING AND OTHER 2003 2002 2001 - ------------------------------------------------------------------------------- Marketing Revenue, Net 568 496 438 Interest 9 7 17 Foreign Exchange Gains (Losses) 6 (3) - Other 27 4 20 ---------------------------------- ---------------------------------- 610 504 475 ================================== For 2003, other includes $12 million of business interruption proceeds received from our insurers. The proceeds result from damage sustained in the Gulf of Mexico during tropical storm Isidore and Hurricane Lili in the third and fourth quarters of 2002. 86 13. INCOME TAXES (a) TEMPORARY DIFFERENCES
2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ Future Future Future Future Income Tax Income Tax Income Tax Income Tax Assets Liabilities Assets Liabilities ---------------------------------- -------------------------------- Property, Plant and Equipment, Net 26 523 23 704 Tax Losses Carried Forward 69 -- 226 -- Deferred Income -- 200 -- 177 Recoverable Taxes 13 -- 14 -- Other -- 1 -- (8) ---------------------------------- -------------------------------- 108 724 263 873 ================================== ================================
(b) CANADIAN AND FOREIGN INCOME TAXES 2003 2002 2001 - ------------------------------------------------------------------------------- Income before Income Taxes: From Continuing Operations Canadian (173) 108 187 Foreign 967 541 529 ----------------------------------- 794 649 716 From Discontinued Operations 29 32 38 ----------------------------------- 823 681 754 =================================== Provision for Income Taxes: Current Canadian 5 4 6 Foreign 205 219 210 ----------------------------------- 210 223 216 ----------------------------------- Future From Continuing Operations Canadian (105) 20 60 Foreign 65 (32) 7 ----------------------------------- (40) (12) 67 From Discontinued Operations 14 18 21 ----------------------------------- (26) 6 88 =================================== The Canadian and foreign components of the provision for income taxes are based on the jurisdiction in which income is taxed. Foreign taxes relate mainly to Yemen, the United States and Australia, and include Yemen cash taxes of $201 million (2002 - $207 million; 2001 - $191 million). Income taxes from our discontinued operations are Canadian. 87 (c) RECONCILIATION OF EFFECTIVE TAX RATE TO THE CANADIAN FEDERAL TAX RATE
2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------ Income before Income Taxes From Continuing Operations 794 649 716 From Discontinued Operations 29 32 38 ------------------------------------------ 823 681 754 ========================================== Provision for Income Taxes Computed at the Canadian Statutory Rate 304 269 317 Add (Deduct) the Tax Effect of: Royalties and Rentals to Provincial Governments 51 57 66 Resource Allowance and Provincial Tax Rebates (55) (67) (68) Lower Tax Rates on Foreign Operations (54) (37) (15) Additional Canadian Tax on Canadian Resource Income 12 8 2 Federal and Provincial Capital Tax 4 4 5 Revaluation of the Future Tax Liability for the Reductions in the Statutory (76) (1) (5) Rates Other (2) (4) 2 ------------------------------------------ Provision for Income Taxes 184 229 304 ==========================================
During the last three years, the federal and some provincial governments in Canada reduced statutory income tax rates. In 2003, this reduced our liability and provision for future income taxes by $76 million (2002 - $1 million; 2001 - $5 million). (d) AVAILABLE UNUSED TAX LOSSES AND TAX CONTINGENCIES At December 31, 2003, we had unused tax losses totalling $195 million (2002 - $534 million) mostly from our US operations. Nexen's income tax filings are subject to audit by taxation authorities. There are audits in progress and items under review, some that may increase our tax liability. In addition, we have filed notices of objection with respect to certain issues. While the results of these items cannot be ascertained at this time, we believe we have an adequate provision for income taxes based on available information. At the time of acquisition, Wascana had outstanding taxation issues in dispute from prior taxation years. Wascana disagreed with issues raised and has filed notices of objection. The value of the tax pools acquired at the time of acquisition reflected our evaluation of the potential impact of these issues. 14. CASH FLOWS (a) CHARGES AND CREDITS TO INCOME NOT INVOLVING CASH
2003 2002 2001 - ------------------------------------------------------------------------------------------------------- Depreciation, Depletion and Amortization 1,017 685 595 Loss (Gain) on Disposition of Assets -- 8 (5) Future Income Taxes (40) (12) 67 Non-Cash Items included in Discontinued Operations 35 61 56 Other 8 8 -- ------------------------------------------ 1,020 750 713 ==========================================
88
(b) CHANGES IN NON-CASH WORKING CAPITAL 2003 2002 2001 - ------------------------------------------------------------------------------------------------------- Operating Activities Accounts Receivable (488) (388) 471 Inventories and Supplies (45) (73) 73 Other Current Assets (59) (6) (5) Accounts Payable and Accrued Liabilities 260 404 (397) Accrued Interest Payable 9 17 1 Dividends Payable 3 -- -- ------------------------------------------ (320) (46) 143 Investing Activities Accounts Payable and Accrued Liabilities (18) 7 (18) ------------------------------------------ Total (338) (39) 125 ========================================== (c) OTHER CASH FLOW INFORMATION 2003 2002 2001 - ------------------------------------------------------------------------------------------------------- Interest Paid 133 117 106 Income Taxes Paid 211 238 211 ------------------------------------------
15. OPERATING SEGMENTS AND RELATED INFORMATION Nexen has three operating segments in various industries and geographic locations: OIL AND GAS: We explore for, develop and produce crude oil, natural gas and related products around the world. We manage our operations to reflect differences in the regulatory environments and risk factors for each country. Our core operations are onshore in Yemen and Canada, and offshore in the US Gulf of Mexico. Our other operations are primarily in West Africa, Australia and Colombia. Oil and gas also includes our marketing operations. Marketing sells our own crude oil and natural gas, markets third party crude oil and natural gas and engages in energy trading. SYNCRUDE: We own 7.23% of the Syncrude Joint Venture, which develops and produces synthetic crude oil from oil sands in northern Alberta, Canada. CHEMICALS: We manufacture, market and distribute industrial chemicals, principally sodium chlorate, chlorine and caustic soda. We produce sodium chlorate at five facilities in Canada and one in Brazil. We produce chlorine and caustic soda at chlor-alkali facilities in Canada and Brazil. The accounting policies of our operating segments are the same as those described in Note 1. Net income of our operating segments excludes interest income, interest expense, unallocated corporate expenses and foreign exchange gains and losses. Identifiable assets are those used in the operations of the segments. 89 2003 OPERATING AND GEOGRAPHIC SEGMENTS
(Cdn$ millions) Corporate and Oil and Gas Syncrude Chemicals Other Total - ------------------------------------------------------------------------------------------------------------------------------------ United Other Yemen Canada States Australia Countries(1) Marketing(2) ------------------------------------------------------------- Net Sales (3) 827 609 707 64 65 21 240 375 (4) -- 2,908 Marketing and Other 6 5 14 -- -- 568 -- 2 15 (5) 610 Gain (Loss) on Disposition of -- -- -- -- -- -- -- -- -- -- Assets ------------------------------------------------------------------------------------------------------ Total Revenues 833 614 721 64 65 589 240 377 15 3,518 Less: Expenses Operating 92 143 86 30 15 22 123 240 -- 751 Transportation and Other 5 4 -- -- -- 398 11 42 1 461 General and Administrative 5 27 13 -- 20 43 1 21 60 190 Depreciation, Depletion and Amortization 168 490(11) 207 22 38 15 14 46 17 1,017 Exploration 17 34 89 1 59 (6) -- -- -- -- 200 Interest -- -- -- -- -- -- -- -- 105 105 ------------------------------------------------------------------------------------------------------ Income (Loss) from Continuing Operations before Income Taxes 546 (84) 326 11 (67) 111 91 28 (168) 794 Less: Provision for (Recovery of) Income Taxes (7) 191 (96) 115 (2) (1) 39 25 10 (111) 170 ------------------------------------------------------------------------------------------------------ Net Income (Loss) from 355 12 211 13 (66) 72 66 18 (57) 624 Continuing Operations Add: Net Income from Discontinued Operations - 15(8) -- -- -- -- -- -- -- 15 ------------------------------------------------------------------------------------------------------ Net Income (Loss) 355 27 211 13 (66) 72 66 18 (57) 639 ====================================================================================================== Identifiable Assets 574 2,136 1,420 28 165 1,518(9) 712 471 601 7,625 ====================================================================================================== Capital Expenditures Development and Other 219 259 249 1 24 1 195 24 29 1,001 Exploration 34 51 147 1 96 -- -- -- -- 329 Proved Property Acquisitions -- -- 164(10) -- -- -- -- -- -- 164 ------------------------------------------------------------------------------------------------------ 253 310 560 2 120 1 195 24 29 1,494 ====================================================================================================== Property, Plant and Equipment Cost 1,898 2,879 2,095 172 313 157 811 760 168 9,253 Less: Accumulated DD&A 1,497 1,428 854 168 198 56 141 371 71 4,784 ------------------------------------------------------------------------------------------------------ Net Book Value (3) 401 1,451 1,241 4 115 101 670 389 97 4,469 ====================================================================================================== Goodwill Cost -- -- -- -- -- 60 -- -- -- 60 Less: Accumulated DD&A -- -- -- -- -- 24 -- -- -- 24 ------------------------------------------------------------------------------------------------------ Net Book Value -- -- -- -- -- 36 -- -- -- 36 ======================================================================================================
Notes: (1) Includes results of operations from producing activities in Nigeria and Colombia. (2) Includes results of operations from a natural gas-fired generating facility in Alberta. In 2002, these results were included in Corporate and Other. (3) Net sales made from all segments originating in Canada. 1,218 Property, Plant and equipment located in Canada. $ 2,566 (4) Net sales for our chemicals operations include: Canada $ 282 United States 13 Brazil 80 -------- $ 375 ======== (5) Includes interest income of $9 million and foreign exchange gains of $6 million. (6) Includes exploration activities primarily in West Africa, Colombia and Brazil. (7) The provision for (recovery of) income taxes for foreign locations is based on in-country taxes on foreign income. For oil and gas locations with no operating activities, the provision is based on the tax jurisdiction of the entity performing the activity. (8) In August 2003, we sold non-core conventional light oil assets in southeast Saskatchewan for net proceeds of $268 million. No gain or loss was recognized on the sale. (9) Approximately 80% of Marketing's identifiable assets are accounts receivable and inventories. (10) On March 27, 2003, we acquired the residual 40% interest in Aspen in the Gulf of Mexico for US$109 million. (11) Includes impairment charge of $269 million as discussed in Note 4. 90 2002 OPERATING AND GEOGRAPHIC SEGMENTS
(Cdn$ millions) Corporate and Oil and Gas Syncrude Chemicals Other(1) Total - ------------------------------------------------------------------------------------------------------------------------------------ United Other Yemen Canada States Australia Countries(2) Marketing ------------------------------------------------------------ Net Sales (3) 789 556 296 165 78 -- 245 367(4) 10 2,506 Marketing and Other -- 2 -- -- -- 496 -- 2 4(5) 504 Gain (Loss) on Disposition of Assets -- (21)(6) -- -- -- -- -- -- 13(7) (8) ------------------------------------------------------------------------------------------------------ Total Revenues 789 537 296 165 78 496 245 369 27 3,002 Less: Expenses Operating 86 151 94 50 22 -- 109 229 10 751 Transportation and Other -- -- 3 -- -- 423 6 40 3 475 General and Administrative 4 22 11 1 19 30 1 21 43 152 Depreciation, Depletion and Amortization 149 218 133 53 46 8 13 52 13 685 Exploration 21 30 82 3 45(8) -- -- -- -- 181 Interest -- -- -- -- -- -- -- -- 109 109 ------------------------------------------------------------------------------------------------------ Income (Loss) from Continuing Operations before Income Taxes 529 116 (27) 58 (54) 35 116 27 (151) 649 Less: Provision for (Recovery of) Income Taxes (9) 188 41 (10) 19 (18) 12 37 9 (67) 211 ------------------------------------------------------------------------------------------------------ Net Income (Loss) from Continuing Operations 341 75 (17) 39 (36) 23 79 18 (84) 438 Add: Net Income from Discontinued Operations -- 14(10) -- -- -- -- -- -- -- 14 ------------------------------------------------------------------------------------------------------ Net Income (Loss) 341 89 (17) 39 (36) 23 79 18 (84) 452 ====================================================================================================== Identifiable Assets 600 2,124 1,452 63 159 811(11) 536 538 277 6,560 ====================================================================================================== Capital Expenditures Development and Other 209 258 541 46 23 2 141 45 97(12) 1,362 Exploration 22 60 116 3 58 -- -- -- -- 259 Proved Property Acquisitions -- 4 -- -- -- -- -- -- -- 4 ------------------------------------------------------------------------------------------------------ 231 322 657 49 81 2 141 45 97 1,625 ====================================================================================================== Property, Plant and Equipment Cost 2,054 3,098 2,186 209 305 86 628 789 213 9,568 Less: Accumulated DD&A 1,646 1,137 959 184 198 40 139 345 57 4,705 ------------------------------------------------------------------------------------------------------ Net Book Value 3 408 1,961 1,227 25 107 46 489 444 156 4,863 ====================================================================================================== Goodwill Cost -- -- -- -- -- 60 -- -- -- 60 Less: Accumulated DD&A -- -- -- -- -- 24 -- -- -- 24 ------------------------------------------------------------------------------------------------------ Net Book Value - -- -- -- -- 36 -- -- -- 36 ======================================================================================================
Notes: (1) Includes results of operations from a natural gas-fired generating facility in Alberta. (2) Includes results of operations from producing activities in Nigeria and Colombia. (3) Net sales made from all segments originating in Canada. $ 1,162 Property, Plant and equipment located in Canada. $ 2,908 (4) Net sales for our chemicals operations include: Canada $ 251 United States 56 Brazil 60 -------- $ 367 ======== (5) Includes interest income of $7 million and foreign exchange losses of $3 million. (6) On December 30, 2002, we disposed of non-operated oil and gas properties for proceeds of $14 million. (7) On January 2, 2002, we disposed of our Moose Jaw Asphalt operation for proceeds of $27 million plus working capital. (8) Includes exploration activities primarily in Nigeria, Colombia and Brazil. (9) The provision for (recovery of) income taxes for foreign locations is based on in-country taxes on foreign income. For oil and gas locations with no operating activities, the provision is based on the tax jurisdiction of the entity performing the activity. (10) In August 2003, we sold non-core conventional light oil assets in southeast Saskatchewan for net proceeds of $268 million. No gain or loss was recognized on the sale. (11) Approximately 87% of Marketing's identifiable assets are accounts receivable and inventories. (12) Includes $67 million related to the buy out of the lease agreement related to the construction of a natural gas-fired generating facility in Alberta. 91 2001 OPERATING AND GEOGRAPHIC SEGMENTS
(Cdn$ millions) Corporate and Oil and Gas Syncrude Chemicals Other(1) Total - ----------------------------------------------------------------------------------------------------------------------------------- United Other Yemen Canada States Australia Countries(2) Marketing ------------------------------------------------------------ Net Sales (3) 711 551 358 141 61 -- 225 373(4) 77 2,497 Marketing and Other -- 10 1 -- 6 438 -- 3 17(5) 475 Gain on Disposition of Assets -- -- 1 3 -- -- -- -- 1 5 ----------------------------------------------------------------------------------------------------- Total Revenues 711 561 360 144 67 438 225 376 95 2,977 Less: Expenses Operating 71 132 66 52 19 -- 114 243 61 758 Transportation and Other -- -- -- -- -- 342 -- 34 24 400 General and Administrative 3 25 8 1 21 23 1 18 36 136 Depreciation, Depletion and Amortization 111 197 116 65 31 14 12 34 15 595 Exploration 25 39 101 13 82(6) -- -- -- -- 260 Interest -- -- -- -- -- -- -- -- 112 112 ----------------------------------------------------------------------------------------------------- Income (Loss) from Continuing Operations before Income Taxes 501 168 69 13 (86) 59 98 47 (153) 716 Less: Provision for (Recovery of) Income Taxes (7) 185 69 27 5 (24) 26 32 16 (53) 283 ----------------------------------------------------------------------------------------------------- Net Income (Loss) from Continuing Operations 316 99 42 8 (62) 33 66 31 (100) 433 Add: Net Income from Discontinued Operations -- 17(8) -- -- -- -- -- -- -- 17 ----------------------------------------------------------------------------------------------------- Net Income (Loss) 316 116 42 8 (62) 33 66 31 (100) 450 ====================================================================================================== Identifiable Assets 520 2,123 880 47 179 470(9) 399 534 173 5,325 ===================================================================================================== Capital Expenditures Development and Other 185 367 120 (4) 23 -- 60 73 47 871 Exploration 44 84 197 12 74 -- -- -- -- 411 Proved Property Acquisitions -- 7 115 -- -- -- -- -- -- 122 ----------------------------------------------------------------------------------------------------- 229 458 432 8 97 -- 60 73 47 1,404 ===================================================================================================== Property, Plant and Equipment Cost 1,839 2,867 1,636 167 271 89 487 744 137 8,237 Less: Accumulated DD&A 1,491 913 848 144 166 32 127 296 50 4,067 ----------------------------------------------------------------------------------------------------- Net Book Value (3) 348 1,954 788 23 105 57 360 448 87 4,170 ===================================================================================================== Goodwill Cost -- -- -- -- -- 60 -- -- -- 60 Less: Accumulated DD&A -- -- -- -- -- 24 -- -- -- 24 ----------------------------------------------------------------------------------------------------- Net Book Value -- -- -- -- -- 36 -- -- -- 36 =====================================================================================================
Notes: (1) Includes results of our Moose Jaw Asphalt operation, which was disposed of on January 2, 2002. (2) Includes results of operations from producing activities in Nigeria. (3) Net sales made from all segments originating in Canada. $ 1,190 Property, Plant and equipment located in Canada. $ 2,709 (4) Net sales for our chemicals operations include: Canada $ 241 United States 90 Brazil 42 -------- $ 373 ======== (5) Includes interest income of $17 million. (6) Includes exploration activities primarily in Nigeria, Indonesia, and Colombia. (7) The provision for (recovery of) income taxes for foreign locations is based on in-country taxes on foreign income. For oil and gas locations with no operating activities, the provision is based on the tax jurisdiction of the entity performing the activity. (8) In August 2003, we sold non-core conventional light oil assets in southeast Saskatchewan for net proceeds of $268 million. No gain or loss was recognized on the sale. (9) Approximately 78% of Marketing's identifiable assets are accounts receivable and inventories. 92 16. DIFFERENCES BETWEEN CANADIAN AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. US GAAP Consolidated Financial Statements and summaries of differences from Canadian GAAP are as follows: (a) CONSOLIDATED STATEMENT OF INCOME - US GAAP FOR THE THREE YEARS ENDED DECEMBER 31, 2003
(Cdn$ millions except per share amounts) 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- REVENUES Net Sales (xi) 2,908 2,506 2,497 Marketing and Other (iii); (v); (x) 623 498 475 -------------------------------------------- 3,531 3,004 2,972 -------------------------------------------- EXPENSES Operating (xi) 757 751 758 Transportation and Other (i); (viii); (xi) 489 483 395 General and Administrative 190 152 136 Depreciation, Depletion and Amortization (ii); (ix) 1,130 738 641 Exploration 200 181 260 Interest (i) 169 181 182 -------------------------------------------- 2,935 2,486 2,372 -------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 596 518 600 -------------------------------------------- PROVISION FOR INCOME TAXES Current 210 223 216 Deferred (i) - (xi) (89) (43) 36 -------------------------------------------- 121 180 252 -------------------------------------------- NET INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 475 338 348 Net Income (Loss) from Discontinued Operations (ii) (7) 14 17 Cumulative Effect of Changes in Accounting Principles, Net of Income Taxes (ix); (x) (48) -- -- -------------------------------------------- NET INCOME - US GAAP 1 420 352 365 ============================================ EARNINGS PER COMMON SHARE ($/share) Basic (Note 8) Net Income from Continuing Operations 3.83 2.77 2.89 Net Income (Loss) from Discontinued Operations (0.06) 0.11 0.14 Cumulative Effect of Changes in Accounting Principles (0.38) -- -- -------------------------------------------- 3.39 2.88 3.03 ============================================ Diluted (Note 8) Net Income from Continuing Operations 3.80 2.73 2.85 Net Income (Loss) from Discontinued Operations (0.06) 0.11 0.14 Cumulative Effect of Changes in Accounting Principles (0.38) -- -- -------------------------------------------- 3.36 2.84 2.99 ============================================ Note: (1) RECONCILIATION OF CANADIAN AND US GAAP NET INCOME (Cdn$ millions) 2003 2002 2001 -------------------------------------------------------- ---------------- ------------- ----------------- Net Income - Canadian GAAP 639 452 450 Impact of US Principles, Net of Income Taxes: Fair Value of Currency Swap (v) 3 (4) -- Fair Value of Preferred Securities (x) 7 -- -- Depreciation, Depletion and Amortization (ii); (ix) (92) (53) (46) Dividends on Preferred Securities (i) (40) (43) (39) Issue Costs on Preferred Securities Redeemed (i) (21) -- -- Natural Gas Futures and Basis Swaps(iii) (2) -- -- Research and Development Costs (xi) (4) -- -- Loss on Disposition (ii) (22) -- -- Cumulative Effect of Changes in Accounting (48) -- -- Principles (ix); (x) ---------------- ------------- ----------------- Net Income - US GAAP 420 352 365 ================ ============= =================
93 (b) CONSOLIDATED BALANCE SHEET - US GAAP
December 31 December 31 (Cdn$ millions, except share amounts) 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and Short-Term Investments 1,087 59 Accounts Receivable (iii) 1,423 990 Inventories and Supplies 270 256 Other 79 26 --------------------------------- Total Current Assets 2,859 1,331 PROPERTY, PLANT AND EQUIPMENT Net of Accumulated Depreciation, Depletion and Amortization of $5,330 (December 31, 2002 - $4,992) (ii); (ix); (xi) 4,583 5,064 GOODWILL 36 36 DEFERRED INCOME TAX ASSETS 108 263 DEFERRED CHARGES AND OTHER ASSETS (i); (vi) 117 70 --------------------------------- 7,703 6,764 ================================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term Borrowings -- 18 Current Portion of Long-Term Debt 575 -- Accounts Payable and Accrued Liabilities (iii) 1,418 1,200 Accrued Interest Payable 44 39 Dividends Payable 12 9 --------------------------------- Total Current Liabilities 2,049 1,266 --------------------------------- LONG-TERM DEBT (i); (vi); (x) 2,472 2,575 DEFERRED INCOME TAX LIABILITIES (i) - (xi) 676 876 DISMANTLEMENT AND SITE RESTORATION (ix) -- 191 ASSET RETIREMENT OBLIGATION (ix) 305 -- OTHER DEFERRED CREDITS AND LIABILITIES (vii) 70 44 SHAREHOLDERS' EQUITY Common Shares, no par value Authorized: Unlimited Outstanding: 2003 -- 125,606,107 shares 2002 -- 122,965,830 shares 513 440 Contributed Surplus 1 -- Retained Earnings (i)-- (xi) 1,660 1,280 Accumulated Other Comprehensive Income (i); (iii); (iv); (vii) (43) 92 --------------------------------- Total Shareholders' Equity 2,131 1,812 --------------------------------- COMMITMENTS, CONTINGENCIES AND GUARANTEES 7,703 6,764 ================================= (C) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - US GAAP FOR THE THREE YEARS ENDED DECEMBER 31, 2003 (Cdn$ millions) 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------ Net Income - US GAAP 420 352 365 Other Comprehensive Income, net of income taxes: Translation Adjustment (i); (iv) (127) 34 (3) Unrealized Mark-to-Market Gain (Loss) (iii) (7) - - Minimum Unfunded Pension Liability (vii) (1) (2) - ---------- ---------------- ---------------- Comprehensive Income 285 384 362 ========== ================ ================
94 (d) CONSOLIDATED STATEMENT OF CASH FLOWS Under US principles, dividends on preferred securities of $64 million (2002 - $72 million; 2001 - $70 million) that are included in financing activities would be reported in operating activities. Under US principles, geological and geophysical costs of $62 million (2002 - $80 million; 2001 - $79 million) that are included in investing activities would be reported in operating activities. (e) OTHER SUPPLEMENTARY INFORMATION
2003 2002 2001 - --------------------------------------------------------------------------------- --------------------------------------- Pro Forma Earnings - Fair-Value Method of Accounting for Stock Options Net Income - US GAAP As Reported 420 352 365 Plus: Fair Value of Stock Options Granted after December 31, 2002 1 -- -- Less: Fair Value of Stock Options Awarded 25 22 25 --------------------------------------- 396 330 340 ======================================= Earnings per Common Share ($/share) Basic as Reported 3.39 2.88 3.03 ======================================= Pro Forma 3.19 2.70 2.81 ======================================= Diluted as Reported 3.36 2.84 2.99 ======================================= Pro Forma 3.16 2.67 2.79 =======================================
(f) CHANGES IN ACCOUNTING PRINCIPLES ASSET RETIREMENT OBLIGATIONS On January 1, 2003 we adopted Financial Accounting Standards Board (FASB) Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS (FAS 143) for US GAAP reporting purposes. FAS 143 requires recognition of a liability for the future retirement obligations associated with our property, plant and equipment, which includes oil and gas wells and facilities, and chemicals plants. These obligations, which generally relate to dismantlement and site restoration, are initially measured at fair value, which is the discounted future value of the liability. This fair value is capitalized as part of the cost of the related asset and amortized to expense over its useful life. The liability accretes until we expect to settle the retirement obligation. This change in accounting policy has been reported as a cumulative effect adjustment in the Consolidated Statement of Income as a loss of $37 million, net of income taxes of $25 million. Under the old accounting rules, our results would have been: 2003 - -------------------------------------------------------------------------------- Net Income - US GAAP As Reported 420 Cumulative Effect of Change in Accounting Principle 37 Depreciation, Depletion, Amortization, and Accretion 10 --------- Adjusted 467 ========= Earnings per Common Share ($/share) Basic as Reported 3.39 ========= Adjusted 3.76 ========= Diluted as Reported 3.36 ========= Adjusted 3.73 ========= 95 Had FAS 143 been applied during all periods presented, our asset retirement obligation, including current obligations of $18 million at December 31, 2003 and $14 million at December 31, 2002, would have been reported as follows: As Reported Pro-forma - ------------------------------------------------------------------------------- January 1, 2002 182 364 December 31, 2002 205 390 December 31, 2003 323 323 --------------------------- The change in our asset retirement obligation since the beginning of the year is as follows: 2003 - ------------------------------------------------------------------------------- Asset Retirement Obligation at January 1 390 Obligation Incurred 6 Abandonment Expenditures (20) Property Disposition (27) Accretion 22 Revision in Estimate (19) Effect of Foreign Exchange (29) ---------- Asset Retirement Obligation at December 31 323 ========== We own interests in several assets for which the fair value of the asset retirement obligation cannot be reasonably determined because the assets currently have an indeterminate life. These assets include our interests in one gas plant and our interest in Syncrude's upgrader and sulfur pile. The asset retirement obligation for these assets will be recorded in the first year in which the lives of the assets are determinable. Had FAS 143 been applied during all periods presented, our December 31, 2002 and 2001 results would have been reported as follows: 2002 2001 - ------------------------------------------------------------------------------- Net Income - US GAAP As Reported 352 365 Depreciation, Depletion, Amortization, and Accretion 2 1 ----------------- Adjusted 350 364 ================= Earnings per Common Share ($/share) Basic as Reported 2.88 3.03 ================= Adjusted 2.86 3.02 ================= Diluted as Reported 2.84 2.99 ================= Adjusted 2.82 2.98 ================= FAIR VALUE OF INSTRUMENTS WITH EQUITY AND LIABILITY COMPONENTS In May 2003, FASB issued Statement No. 150, ACCOUNTING FOR CERTAIN INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY that establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. Certain financial instruments, including our preferred securities, must be recorded at fair value with changes in fair value recognized through net income. The change in fair value of our preferred securities up to June 30, 2003 increased the carrying value of our long-term debt by $16 million and was recognized as a loss of $11 million, net of income taxes of $5 million. This was reported as a cumulative effect of a change in an accounting principle. Since adopting this change in accounting principle at the beginning of the third quarter, the fair value of our preferred securities has decreased by $12 million and this gain was included in marketing and other. The tax effect of $5 million on this gain increased our deferred income tax provision. 96 NOTES TO THE CONSOLIDATED US GAAP FINANCIAL STATEMENTS: i. Under US principles, the preferred and subordinated securities are classified as long-term debt rather than shareholders' equity. The pre-tax dividends on the preferred securities are included in interest expense, and the related income tax is included in the provision for income taxes in the Consolidated Statement of Income. The related pre-tax issue costs are included in deferred charges and other assets rather than as an after-tax charge to retained earnings. The foreign-currency translation gains or losses are included in accumulated other comprehensive income (AOCI) as the preferred securities have been designated as a hedge of our foreign net investments. The pre-tax dividends are included in operating activities in the Consolidated Statement of Cash Flows. On December 15, 2003, we redeemed our US$259 million preferred securities. Under Canadian principles, a foreign exchange gain of $31 million, net of income tax, was recognized in retained earnings. Under US principles, the preferred securities have been revalued each reporting period and the gains and losses have been included in AOCI. Issue costs of $27 million have been expensed to other expense. ii. Under US principles, 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 principles, 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, depreciation expense under US principles is higher. During the third quarter of 2003, some of these assets were sold as described in Note 9. With the carrying value of these assets higher under US GAAP, the sale resulted in a loss on disposition of $22 million, net of income taxes of $10 million. This loss is included in the income (loss) from discontinued operations on the Consolidated Statement of Income. Included in depreciation, depletion and amortization expense for 2003 is an impairment charge of $315 million ($205 million after tax) as described in Note 4. The amount is higher under US GAAP as we have higher US GAAP carrying values for the assets impaired resulting from differences in adopting the liability method of accounting for income taxes as previously described. iii. Under US principles, 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 deferred and recognized in earnings in the same period as the hedged item. The effective portion of the change is deferred in other comprehensive income with any ineffectiveness of the hedge recognized immediately on the income statement. Included in accounts payable at December 31, 2003 is a $3 million loss (December 31, 2002 - $nil) on the forward contracts we used to hedge the future sale of a portion of our production from the Aspen field as described in Note 5. The contracts limit our exposure to fluctuations in commodity prices by fixing our cash flow from the hedged sale production. We deferred this loss ($2 million, net of income tax) in AOCI until the underlying production is sold. All of these deferred losses will be reclassified to net sales in the next twelve months as the production is sold. Included in accounts payable at December 31, 2003 are losses of $11 million (December 31, 2002 - $nil) on the futures and basis swap contracts we used to hedge the future sale of our gas inventory as described in Note 5. The effective portion of these losses is deferred to AOCI until the underlying gas inventory is sold ($5 million after taxes of $3 million). The ineffective portion of the losses is recognized immediately in marketing and other ($2 million after taxes of $1 million). All of the deferred losses in AOCI will be reclassified to marketing and other in the next twelve months as the gas inventory is sold. FAIR VALUE HEDGES: Both the derivative instrument and the underlying commitment are recognized on the balance sheet at their fair value. The change in the fair value of both are reflected in earnings. Included in both accounts receivable and accounts payable at December 31, 2003 is $nil (December 31, 2002 - $2 million) related to fair value hedges. The hedges converted fixed prices for physical delivery of natural gas into a floating price through a fixed to floating swap. The contracts expired in November 2003. The impact on earnings was immaterial. iv. Under US principles, 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 Consolidated Balance Sheet. 97 v. Under US principles, a derivative and a cash instrument cannot be designated in combination as a net investment hedge. The $4 million gain in fair value and foreign exchange gains and losses during the year (2002 - loss of $5 million; 2001 - $nil) on our US$37 million currency swap were included in marketing and other. vi. Under US principles, discounts on long-term debt are classified as a reduction of long-term debt rather than as deferred charges and other assets. vii. Under US principles, the amount by which our accrued pension cost is less than the unfunded accumulated benefit obligation is included in comprehensive income and accrued pension liabilities. This amount was $2 million at December 31, 2003 (December 31, 2002 - $4 million). viii. Under US principles, gains and losses on the disposition of assets are shown as other expense. ix. On January 1, 2003, we adopted Financial Accounting Standards Board (FASB) Statement No. 143, "Accounting for Asset Retirement Obligations" (FAS 143) as described under Changes in Accounting Principles. Under Canadian GAAP, we will adopt similar standards effective January 1, 2004. x. On July 1, 2003, we adopted FASB Statement No. 150, "Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity" as described under Changes in Accounting Principles. xi. Under Canadian principles, we defer certain development costs and all pre-operating revenues and costs to PP&E. Under US principles, these costs are charged to earnings as incurred. In 2003, we recognized $6 million of pre-operating expenses in earnings rather than defer them. xii. On January 1, 2002, we adopted FASB Statement No. 142, which eliminated goodwill amortization and instead required annual impairment testing. No goodwill impairment writedowns were required during the year. Our unamortized goodwill at January 1, 2002 was $36 million. The following shows the adjusted net income and earnings per common share had the new standard been applied in 2001: 2003 2002 2001 - ------------------------------------------------------------------------------ Net Income As Reported 420 352 365 Add: Goodwill Amortization -- -- 6 -------------------------------- Adjusted 420 352 371 ================================ Earnings Per Common Share ($/share) Basic as Reported 3.39 2.88 3.03 ================================ Adjusted 3.39 2.88 3.07 ================================ Diluted as Reported 3.36 2.84 2.99 ================================ Adjusted 3.36 2.84 3.04 ================================ NEW ACCOUNTING PRONOUNCEMENTS The following standards issued by the FASB do not impact us: o Statement No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. o Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, effective for financial statements issued after January 31, 2003. 98 SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED) QUARTERLY FINANCIAL DATA IN ACCORDANCE WITH CANADIAN AND US GAAP
(Cdn$ millions) QUARTER ENDED - ------------------------------------------------------------------------------------------------------------------------------ March 31 June 30 September 30 December 31 2003 2002 2003 2002 2003 2002 2003 2002 ------------------------------------------------------------------------------------- Net Sales (1) 806 517 726 621 716 687 660 681 ===================================================================================== Operating Profit Oil and Gas (1),(2),(3) 379 91 261 180 260 210 (57) 176 Syncrude (4) 28 20 18 9 32 47 13 40 Chemicals 3 3 9 4 12 11 4 9 ------------------------------------------------------------------------------------- 410 114 288 193 304 268 (40) 225 Interest and Other Corporate (5) 45 24 27 43 35 36 61 48 Income Tax Expense (6) 121 28 3 49 91 82 (45) 52 ------------------------------------------------------------------------------------- Net Income from Continuing Operations in accordance with Canadian GAAP 244 62 258 101 178 150 (56) 125 US GAAP Adjustment (25) (23) (99) (22) (11) (23) (14) (32) ------------------------------------------------------------------------------------- Net Income from Continuing Operations in accordance with US GAAP 219 39 159 79 167 127 (70) 93 ===================================================================================== Net Income in accordance with Canadian GAAP 251 65 263 101 181 157 (56) 129 US GAAP Adjustment (62) (23) (99) (22) (44) (23) (14) (32) ------------------------------------------------------------------------------------- Net Income in accordance with US GAAP 189 42 164 79 137 134 (70) 97 ===================================================================================== Net Income from Continuing Operations per Common Share ($/share) Canadian GAAP 1.89 0.42 2.01 0.74 1.36 1.13 (0.52) 0.94 US GAAP 1.78 0.32 1.29 0.65 1.35 1.03 (0.56) 0.77 Net Income per Common Share ($/share) Canadian GAAP 1.95 0.44 2.05 0.74 1.38 1.20 (0.52) 0.96 US GAAP 1.53 0.35 1.33 0.65 1.11 1.09 (0.56) 0.79 Dividends Declared (7) 0.075 0.075 0.075 0.075 0.075 0.075 0.100 0.075 ------------------------------------------------------------------------------------- Common Share Prices ($/share) Toronto Stock Exchange High 34.85 39.75 35.59 42.50 39.68 42.18 47.08 37.78 Low 29.30 29.70 28.26 37.20 33.02 34.34 36.65 31.00 New York Stock Exchange High (US$) 22.55 25.11 26.31 28.04 29.00 27.71 36.47 23.85 Low (US$) 19.89 18.57 19.75 23.30 24.03 21.70 27.32 19.79 -------------------------------------------------------------------------------------
Notes: (1) Excludes results of the non-core conventional light oil assets in southeast Saskatchewan that were sold. These results are shown as discontinued operations (see Note 9 of the Consolidated Financial Statements). (2) A loss of $21 million was recorded on the disposition of non-operated oil and gas properties during the fourth quarter of 2002. (3) Includes impairment charge of $269 million (see Note 4 of the Consolidated Financial Statements). (4) Plant turnarounds and unplanned coker maintenance in the second quarter of 2002 and the fourth quarter of 2003 increased operating costs and temporarily reduced production volumes. (5) A gain of $13 million was recorded on the disposition of our Moose Jaw Asphalt operation during the first quarter of 2002. (6) Canadian GAAP net income includes a reduction in tax rates for Canadian resource activities in the second quarter of 2003. This reduction was recognized in the fourth quarter of 2003 for US GAAP. (7) In February 2004, the Board of Directors declared a regular quarterly dividend of $0.10 per common share, payable April 1, 2004, to shareholders of record on March 10, 2004. (8) At December 31, 2003, there were 1,420 registered holders of common shares and 125,606,107 common shares outstanding. 99 OIL AND GAS NETBACKS BEFORE ROYALTIES (Sales prices, per unit costs and netbacks are calculated using our working interest production before royalties.)
($/boe) 2003 - ------------------------------------------------------------------------------------------------------------------------------ Yemen Canada US Australia Other Syncrude Total --------------------------------------------------------------------------------------------- Sales 39.45 32.99 42.88 43.14 38.22 43.36 38.63 Royalties and other (19.98) (7.53) (5.91) (3.44) (5.69) (0.48) (12.14) Operating expense (2.16) (6.00) (4.49) (18.60) (7.47) (21.96) (5.19) In-country taxes (4.73) -- -- -- -- -- (2.06) --------------------------------------------------------------------------------------------- Cash netback 12.58 19.46 32.48 21.10 25.06 20.92 19.24 ============================================================================================= ($/boe) 2002 - ------------------------------------------------------------------------------------------------------------------------------ Yemen Canada US Australia Other Syncrude Total --------------------------------------------------------------------------------------------- Sales 38.80 27.90 34.21 40.30 38.96 40.89 35.14 Royalties and other (20.45) (6.53) (5.82) (7.88) (16.48) (0.36) (12.56) Operating expense (1.95) (5.70) (9.09) (9.76) (6.21) (18.10) (5.42) In-country taxes (4.81) -- -- -- -- -- (2.10) --------------------------------------------------------------------------------------------- Cash netback 11.59 15.67 19.30 22.66 16.27 22.43 15.06 ============================================================================================= ($/boe) 2001 - ------------------------------------------------------------------------------------------------------------------------------ Yemen Canada US Australia Other Syncrude Total --------------------------------------------------------------------------------------------- Sales 35.05 26.60 39.42 38.71 37.37 39.90 33.28 Royalties and other (18.66) (6.26) (6.85) (2.36) (7.07) (1.72) (11.40) Operating expense (1.62) (4.87) (6.01) (13.50) (8.07) (19.43) (4.88) In-country taxes (4.40) -- -- -- -- -- (1.95) --------------------------------------------------------------------------------------------- Cash netback 10.37 15.47 26.56 22.85 22.23 18.75 15.05 ============================================================================================= OIL AND GAS NETBACKS AFTER ROYALTIES (Sales prices, per unit costs and netbacks are calculated using our working interest production after royalties.) ($/boe) 2003 - ------------------------------------------------------------------------------------------------------------------------------ Yemen Canada US Australia Other Syncrude Total --------------------------------------------------------------------------------------------- Sales 39.45 32.99 42.88 43.14 38.22 43.36 38.63 Operating expense (4.37) (7.76) (5.19) (20.21) (9.01) (22.18) (7.56) In-country taxes (9.58) -- -- -- -- -- (3.00) --------------------------------------------------------------------------------------------- Cash netback 25.50 25.23 37.69 22.93 29.21 21.18 28.07 ============================================================================================= ($/boe) 2002 - ------------------------------------------------------------------------------------------------------------------------------ Yemen Canada US Australia Other Syncrude Total --------------------------------------------------------------------------------------------- Sales 38.80 27.90 34.21 40.30 38.96 40.89 35.14 Operating expense (4.13) (7.45) (10.87) (12.14) (10.69) (18.21) (8.26) In-country taxes (10.17) -- -- -- -- -- (3.20) --------------------------------------------------------------------------------------------- Cash netback 24.50 20.45 23.34 28.16 28.27 22.68 23.68 ============================================================================================= ($/boe) 2001 - ------------------------------------------------------------------------------------------------------------------------------ Yemen Canada US Australia Other Syncrude Total --------------------------------------------------------------------------------------------- Sales 35.05 26.60 39.42 38.71 37.35 39.90 33.28 Operating expense (3.47) (5.82) (7.31) (14.38) (9.94) (20.29) (7.10) In-country taxes (9.41) -- -- -- -- -- (2.86) --------------------------------------------------------------------------------------------- Cash netback 22.17 20.78 32.11 24.33 27.41 19.61 23.32 =============================================================================================
100 OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) The following oil and gas information is provided in accordance with the US Financial Accounting Standards Board Statement No. 69 "Disclosures about Oil and Gas Producing Activities". A. RESERVE QUANTITY INFORMATION Our net proved reserves and changes in those reserves are disclosed below. The net proved reserves represent management's best estimate of proved oil and natural gas reserves after royalties. Reserve estimates for each property are prepared internally each year and at least 80% of the reserves have been assessed by independent qualified reserves consultants. Estimates of conventional crude oil and natural gas proved reserves are determined through analysis of geological and engineering data, and demonstrate reasonable certainty that they are recoverable from known reservoirs under economic and operating conditions that existed at year-end. See Critical Accounting Policies and Business Risk Management sections in Item 7 for a discussion of reserves estimation and the related risks.
Conventional oil and Syncrude reserves are in mmbbls and natural gas reserves in bcf Total United Other - ----------------------------------- Conventional Yemen(1) Canada States Countries(2) Syncrude(3) Oil Gas Oil Oil Gas Oil Gas Oil ---------- -------------------------------------------------------------------- Proved Developed and Undeveloped Reserves (4) December 31, 2000 203 300 673 107 166 509 18 164 9 ----------- -------------------------------------------------------------------- Revisions of Previous Estimates -- 1 -- 7 (14) (1) 2 1 6 Purchases of Reserves in Place -- 2 64 -- 2 3 -- 61 -- Sales of Reserves In Place -- -- (2) -- -- (2) -- -- -- Extensions and Discoveries 34 53 146 17 21 91 11 55 4 Production (6) (47) (90) (20) (18) (54) (3) (36) (6) ----------- -------------------------------------------------------------------- December 31, 2001 231 309 791 111 157 546 28 245 13 ----------- -------------------------------------------------------------------- Revisions of Previous Estimates (12) (6) (10) (14) 7 (6) 1 (4) -- Purchases of Reserves in Place -- -- 1 -- -- 1 -- -- -- Sales of Reserves in Place -- (6) (1) -- (2) (1) -- -- (4) Extensions and Discoveries 13 72 103 23 10 31 32 72 7 Production (6) (45) (81) (20) (16) (47) (3) (34) (6) ----------- -------------------------------------------------------------------- December 31, 2002 226 324 803 100 156 524 58 279 10 ----------- -------------------------------------------------------------------- Revisions of Previous Estimates 5 (31) (99) (5) (28) (88) (2) (11) 4 Purchases of Reserves in Place -- 19 21 -- -- -- 19 21 -- Sales of Reserves in Place -- (24) (7) -- (24) (6) -- (1) -- Extensions and Discoveries 22 48 33 36 10 20 1 13 1 Production (5) (47) (90) (21) (13) (45) (9) (45) (4) ----------- -------------------------------------------------------------------- December 31, 2003 248 289 661 110 101 405 67 256 11 =========== ==================================================================== Proved Developed Reserves (5) December 31, 2001 212 223 676 70 126 505 18 171 9 =========== ==================================================================== December 31, 2002 196 246 702 61 131 487 46 215 8 =========== ==================================================================== December 31, 2003 192 216 576 63 91 367 54 209 8 =========== ====================================================================
Notes: (1) Under the terms of the Masila and the Block 51 production sharing contracts, production is divided into cost recovery oil and profit oil. Cost recovery oil provides for the recovery of all our costs and those of our partners. Remaining production is profit oil, which is shared between the partners and the Government of Yemen based on production rates, with the partners' share ranging from 20% to 33%. The Government's share of profit oil represents their royalty interest and an amount for income taxes payable in Yemen. Yemen's net proved reserves include our share of future cost recovery and profit oil after the Government's royalty interest but before reserves relating to income taxes payable. Under this method, reported reserves will increase as oil prices decrease (and vice versa) since the barrels necessary to achieve cost recovery change with prevailing oil prices. (2) Represents reserves in Australia, Nigeria and Colombia. (3) US Securities and Exchange Commission regulations define these reserves as mining-related and not part of conventional oil and gas reserves. For management purposes, we view these reserves and their development as integral to our oil and gas operations. These reserves are not considered in the standardized measure of discounted future net cash flows, which follows. In 2002, Syncrude moved to generic royalty terms that provide for a royalty of 25% on net revenues after all costs have been recovered, subject to a minimum 1% gross royalty. Under this royalty regime, reported reserves will increase as oil prices decrease (and vice versa) since the barrels necessary to recover costs change with prevailing oil prices. (4) "Proved" oil and gas reserves are the estimated quantities of natural gas, crude oil, condensate and natural gas liquids that geological and engineering data demonstrate with reasonable certainty can be recovered in future years from known reservoirs under existing economic and operating conditions. Reserves are considered "proved" if they can be produced economically, as demonstrated by either actual production or conclusive formation test. (5) "Proved developed" oil and gas reserves are expected to be recovered through existing wells with existing equipment and operating methods. 101 B. CAPITALIZED COSTS
Accumulated Depreciation, Proved Unproved Depletion and Capitalized (Cdn$ millions) Properties Properties Amortization Costs - ----------------------------------------------------------------------------------------------------------- December 31, 2003 Yemen 1,881 17 1,497 401 Canada 3,271 129 1,863 1,537 United States 2,034 123 892 1,265 Other Countries 454 85 420 119 Syncrude 819 -- 144 675 ------------------------------------------------------------ Total 8,459 354 4,816 3,997 ============================================================ December 31, 2002 Yemen 2,024 30 1,646 408 Canada 2,882 216 1,137 1,961 United States 2,061 125 959 1,227 Other Countries 460 54 382 132 Syncrude 628 -- 139 489 ------------------------------------------------------------ Total 8,055 425 4,263 4,217 ============================================================ December 31, 2001 Yemen 1,808 31 1,491 348 Canada 2,750 117 913 1,954 United States 1,522 114 848 788 Other Countries 434 4 310 128 Syncrude 487 -- 127 360 ------------------------------------------------------------ Total 7,001 266 3,689 3,578 ============================================================ C. COSTS INCURRED (Cdn$ millions) Total Conventional Oil and Gas - ------------------------------------------------------------------------------------------------------------------------------ Conventional United Other Oil and Gas Syncrude Yemen Canada States Countries --------------------------------------------------------------------------- Year Ended December 31, 2003 Property Acquisition Costs Proved 164 -- -- -- 164 -- Unproved 38 -- -- -- 38 -- Exploration Costs 291 -- 34 51 109 97 Development Costs 752 195 219 259 249 25 Asset Retirement Costs 185 8 -- 69 62 54 --------------------------------------------------------------------------- 1,430 203 253 379 622 176 =========================================================================== Year Ended December 31, 2002 Property Acquisition Costs Proved 4 -- -- 4 -- -- Unproved 31 -- -- -- 31 -- Exploration Costs 228 -- 22 60 85 61 Development Costs 1,077 141 209 258 541 69 --------------------------------------------------------------------------- 1,340 141 231 322 657 130 =========================================================================== Year Ended December 31, 2001 Property Acquisition Costs Proved 122 -- -- 7 115 -- Unproved 37 -- 19 -- 18 -- Exploration Costs 374 -- 25 84 179 86 Development Costs 691 60 185 367 120 19 --------------------------------------------------------------------------- 1,224 60 229 458 432 105 ===========================================================================
102 D. RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
(Cdn$ millions) Total Conventional Oil and Gas - ------------------------------------------------------------------------------------------------------------------------------ Conventional United Other Oil and Gas Syncrude Yemen Canada States Countries --------------------------------------------------------------------------- Year Ended December 31, 2003 Net Sales 2,338 240 827 675 707 129 Production Costs 382 123 92 159 86 45 Exploration Expense 201 -- 17 35 89 60 Depreciation, Depletion and Amortization 1,057 15 168 613 207 69 Other Expenses (Income) 87 12 4 64 (1) 20 --------------------------------------------------------------------------- 611 90 546 (196) 326 (65) Income Tax Provision (Recovery) 188 25 191 (112) 115 (6) --------------------------------------------------------------------------- Results of Operations 423 65 355 (84) 211 (59) =========================================================================== Year Ended December 31, 2002 Net Sales 1,984 245 789 656 296 243 Production Costs 428 115 86 176 94 72 Exploration Expense 189 -- 21 38 82 48 Depreciation, Depletion and Amortization 634 13 149 253 133 99 Other Expenses (Income) 79 1 4 41 14 20 --------------------------------------------------------------------------- 654 116 529 148 (27) 4 Income Tax Provision (Recovery) 238 37 188 59 (10) 1 --------------------------------------------------------------------------- Results of Operations 416 79 341 89 (17) 3 =========================================================================== Year Ended December 31, 2001 Net Sales 1,918 225 711 647 358 202 Production Costs 363 114 71 155 66 71 Exploration Expense 265 -- 25 44 101 95 Depreciation, Depletion and Amortization 550 12 111 227 116 96 Other Expenses (Income) 37 1 3 15 6 13 --------------------------------------------------------------------------- 703 98 501 206 69 (73) Income Tax Provision (Recovery) 283 32 185 90 27 (19) --------------------------------------------------------------------------- Results of Operations 420 66 316 116 42 (54) ===========================================================================
E. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN The following disclosure is based on estimates of net proved reserves and the period during which they are expected to be produced. Future cash inflows are computed by applying year-end prices to our after royalty share of estimated annual future production from proved conventional oil and gas reserves (excluding Syncrude). Future development and production costs to be incurred in producing and further developing the proved reserves are based on year-end cost indicators. Future income taxes are computed by applying year-end statutory-tax rates. These rates reflect allowable deductions and tax credits, and are applied to the estimated pre-tax future net cash flows. Discounted future net cash flows are calculated using 10% mid-period discount factors. The calculations assume the continuation of existing economic, operating and contractual conditions. However, such arbitrary assumptions have not proved to be the case in the past. Other assumptions could give rise to substantially different results. We believe this information does not in any way reflect the current economic value of our oil and gas producing properties or the present value of their estimated future cash flows as: o no economic value is attributed to probable and possible reserves; o use of a 10% discount rate is arbitrary; and o prices change constantly from year-end levels. 103
(Cdn$ millions) United Other Total Yemen Canada States Countries - ------------------------------------------------------------------------------------------------------------------------------ December 31, 2003 Future Cash Inflows 14,660 4,416 5,319 4,470 455 Future Production Costs 3,651 868 1,980 666 137 Future Development Costs 788 412 102 249 25 Future Dismantlement and Site Restoration Costs, Net 309 - 112 137 60 Future Income Tax 2,152 574 656 854 68 --------- ------------------------------------------------- Future Net Cash Flows 7,760 2,562 2,469 2,564 165 10% Discount Factor 2,243 620 879 691 53 --------- ------------------------------------------------- Standardized Measure 5,517 1,942 1,590 1,873 112 ========= ================================================= December 31, 2002 Future Cash Inflows 18,687 4,662 9,067 4,516 442 Future Production Costs 3,943 881 2,375 535 152 Future Development Costs 722 296 169 228 29 Future Dismantlement and Site Restoration Costs, Net 227 - 24 150 53 Future Income Tax 3,650 790 1,976 863 21 --------- ------------------------------------------------- Future Net Cash Flows 10,145 2,695 4,523 2,740 187 10% Discount Factor 3,776 819 2,081 818 58 --------- ------------------------------------------------- Standardized Measure 6,369 1,876 2,442 1,922 129 ========= ================================================= December 31, 2001 Future Cash Inflows 10,337 3,068 5,034 1,880 355 Future Production Costs 3,104 597 1,694 633 180 Future Development Costs 790 283 202 231 74 Future Dismantlement and Site Restoration Costs, Net 229 - 47 136 46 Future Income Tax 1,520 661 751 96 12 --------- ------------------------------------------------- Future Net Cash Flows 4,694 1,527 2,340 784 43 10% Discount Factor 1,607 385 1,004 202 16 --------- ------------------------------------------------- Standardized Measure 3,087 1,142 1,336 582 27 ========= =================================================
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The following are the principal sources of change in the standardized measure of discounted future net cash flows:
(Cdn$ millions) 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- Beginning of Year 6,369 3,087 4,991 Sales and Transfers of Oil and Gas Produced, Net of Production Costs (2,298) (1,158) (2,012) Net Changes in Prices and Production Costs Related to Future Production (1,249) 3,083 (2,871) Extensions, Discoveries and Improved Recovery, Less Related Costs 740 1,929 691 Changes in Estimated Future Development and Dismantlement Costs (279) (103) (382) Previous Estimated Future Development and Dismantlement Costs Incurred during the Period 456 425 443 Revisions of Previous Quantity Estimates (291) 267 (33) Accretion of Discount 884 409 736 Purchases of Reserves in Place 354 2 161 Sales of Reserves in Place (252) (109) (1) Net Change in Income Taxes 1,083 (1,463) 1,364 ----------------------------------------- End of Year 5,517 6,369 3,087 =========================================
104 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 3, 2002, the Canadian firm of Deloitte & Touche LLP (Deloitte Canada) completed a transaction with the Canadian firm of Arthur Andersen LLP (Andersen Canada) to integrate partners and staff of Andersen Canada into Deloitte Canada. On July 11, 2002, our Board accepted the resignation of Andersen Canada and appointed Deloitte Canada as our auditors until the 2003 Annual General Meeting (AGM). Deloitte Canada was re-appointed as our auditors at the 2003 AGM until the next AGM in 2004. There were no disagreements with accountants on accounting and financial disclosure. ITEM 9A. 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 judgement 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. There has not been any change in the Company's internal control over financial reporting during the fourth quarter of 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 105 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS According to our Articles, Nexen must have between three and 15 directors. On January 5, 2004, the directors determined that, until changed, there will be 11 directors. Our By-Laws provide that directors will be elected at the annual general meeting of shareholders (AGM) each year and will hold office until their successors are elected. All of our current directors were elected at the last AGM except Mr. Newell, who was appointed by the Board on January 5, 2004. This table shows each director's principal occupation or employment during the past five years and any other directorships they held in public companies as at February 12, 2004. The following directors are management nominees for election to the Board.
PRINCIPAL OCCUPATION AND DIRECTOR NAME (AGE) OTHER DIRECTORSHIPS SINCE - ----------------------------------------------------------------------------------------------------------------------------- Charles W. Fischer (53) President and Chief Executive Officer (CEO) of Nexen. 2000 Formerly, Executive Vice President and Chief Operating Officer (COO). - ----------------------------------------------------------------------------------------------------------------------------- Dennis G. Flanagan 1, 2 (64) Retired oil executive. Director of NAL Oil and Gas Trust. 2000 - ----------------------------------------------------------------------------------------------------------------------------- David A. Hentschel 1 (70) Retired oil executive. Formerly, Chairman and CEO of Occidental Oil and Gas 1985 Corporation. A director of Cimarex Energy Co. - ----------------------------------------------------------------------------------------------------------------------------- S. Barry Jackson 1 (51) Retired oil executive. Formerly, President and CEO of Crestar Energy Inc. 2001 Director and Executive Chairman of Resolute Energy Inc. and a director of TransCanada Corporation, and TransCanada Pipelines Limited and Deer Creek Energy Limited. - ----------------------------------------------------------------------------------------------------------------------------- Kevin J. Jenkins 1, 2 (47) Managing Director of TriWest Capital Management Corp. Formerly, President and 1996 CEO and a director of The Westaim Corporation. - ----------------------------------------------------------------------------------------------------------------------------- Eric P. Newell, O.C. (59) Retired Chairman and CEO of Syncrude Canada Ltd. Director of Canfor 2004 Corporation. - ----------------------------------------------------------------------------------------------------------------------------- Thomas C. O'Neill 1, 2 (58) Retired Chairman of PwC Consulting. Formerly, CEO of PwC Consulting. Prior to 2002 that, COO of PricewaterhouseCoopers LLP, Global. Prior to that, CEO of PricewaterhouseCoopers LLP, Canada and, prior to that, Chairman and CEO of Price Waterhouse Canada. Director of BCE Inc., Loblaw Companies Limited, Dofasco Inc. - ----------------------------------------------------------------------------------------------------------------------------- Francis M. Saville, Q.C. (65) Counsel to Fraser Milner Casgrain LLP, Barristers and Solicitors. Formerly, 1994 Senior Partner of Fraser Milner Casgrain LLP, Barristers and Solicitors. Director of Mullen Transportation Inc. - ----------------------------------------------------------------------------------------------------------------------------- Richard M. Thomson, O.C. Retired banking executive. Director of the Toronto-Dominion Bank, Prudential 1997 1, 2 (70) Financial Inc., INCO Limited, The Thomson Corporation, Trizec Properties Inc. and Stuart Energy Systems Corporation. - ----------------------------------------------------------------------------------------------------------------------------- John M. Willson (64) Retired Vice Chairman of Placer Dome Inc. Formerly, CEO of Placer Dome Inc., 1996 and, prior to that, President and CEO of Placer Dome Inc. Director of Finning International Inc. and PanAmerican Silver Corp. - ----------------------------------------------------------------------------------------------------------------------------- Victor J. Zaleschuk (60) Retired President and CEO of Nexen. Director of Cameco Corporation and 1997 Agrium Inc. - -----------------------------------------------------------------------------------------------------------------------------
Notes: (1) Members of Nexen's Audit and Conduct Review Committee. All members of the Committee are independent pursuant to Nexen's Categorical Standards for Director Independence which meet or exceed all requirements under applicable regulations of the US Securities and Exchange Commission, the SARBANES-OXLEY ACT OF 2002 and the New York Stock Exchange. (2) Financial Experts on Nexen's Audit and Conduct Review Committee. 106 EXECUTIVE OFFICERS The Board of Directors determines the term of office for each executive officer. Below are Nexen's officers. Prior offices and non-executive positions are set out for officers who have not held their current executive positions with Nexen for more than 5 years. Start dates are indicated for officer positions with Nexen.
EFFECTIVE DATE OF EXECUTIVE OFFICER (AGE) CURRENT AND PAST POSITION(S) WITH NEXEN CURRENT POSITION OFFICER SINCE - --------------------------------------------------------------------------------------------------------------------------------- Charles W. Fischer (53) President and Chief Executive Officer and a Director June 1, 2001 1994 Formerly: Executive Vice President and Chief Operating Officer since May 14, 1997 - --------------------------------------------------------------------------------------------------------------------------------- Marvin F. Romanow (49) Executive Vice President and Chief Financial Officer June 1, 2001 1997 Formerly: Senior Vice President, Finance since February 19, 1999 Vice President, Finance and Chief Financial Officer since February 27, 1998 - --------------------------------------------------------------------------------------------------------------------------------- Laurence Murphy(1) (53) Senior Vice President, International Oil and Gas January 1, 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- John B. McWilliams Q.C. (1) (56) Senior Vice President, General Counsel and Secretary May 11, 1993 1987 - --------------------------------------------------------------------------------------------------------------------------------- Douglas B. Otten(1) (60) Senior Vice President, United States Oil and Gas May 12, 1998 1990 - --------------------------------------------------------------------------------------------------------------------------------- Thomas A. Sugalski(1) (60) Senior Vice President, Chemicals May 10, 1994 1988 - --------------------------------------------------------------------------------------------------------------------------------- Roger D. Thomas (51) Senior Vice President, Canadian Oil and Gas February 19, 1999 1998 Formerly: Vice President, Canada since May 12, 1998 - --------------------------------------------------------------------------------------------------------------------------------- Nancy F. Foster (44) Vice President, Human Resources and Corporate July 11, 2000 2000 Services Formerly: Division Vice President, Finance - Canadian Oil and Gas General Manager, Human Resources - --------------------------------------------------------------------------------------------------------------------------------- Gary H. Nieuwenburg (45) Vice President, Synthetic Crude July 11, 2002 2001 Formerly: Vice President, Corporate Planning and Business Development since February 16, 2001 Division Vice President, Exploration and Production - Canadian Oil and Gas - --------------------------------------------------------------------------------------------------------------------------------- Kevin J. Reinhart (45) Vice President, Corporate Planning and Business July 11, 2002 1994 Development Formerly: Treasurer since October 20, 1998 - --------------------------------------------------------------------------------------------------------------------------------- Una M. Power(2) (39) Treasurer July 11, 2002 1998 Formerly: Controller and Director, Corporate Insurance since May 2, 2002 Controller and Director, Risk Management since December 1, 1998 - --------------------------------------------------------------------------------------------------------------------------------- Michael J. Harris (40) Controller December 10, 2002 2002 Formerly: Manager, Corporate Finance - Treasury Division Vice President, Finance - International General Manager - New Ventures Finance - ---------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Officer has held the same executive position with Nexen for more than 5 years. (2) Ms. Power concurrently maintained her position as Controller until December 10, 2002. 107 ETHICS POLICY Under Nexen's Ethics Policy, all directors, officers and employees must demonstrate a commitment to ethical business practices and behaviour in all business relationships, both within and outside of Nexen. An employee, regardless of his or her position, is not permitted to commit an unethical, dishonest or illegal act or to instruct other employees to do so. Our Ethics Policy has been adopted as a code of ethics applicable to our principal executive officer, principal financial officer and principal accounting officer or controller. Any waivers of or changes to the Ethics Policy must be approved by the Board of Directors and appropriately disclosed. Our Ethics Policy is available on our internet website at www.nexeninc.com, under "Our Commitment", and it is our intention to provide disclosure in this manner. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION This table summarizes the compensation earned by Nexen's Chief Executive Officer and the four highest compensated officers other than the Chief Executive Officer.
- -------------------------------------------------------------------------------------------------------------------------- Annual Compensation Long-Term Compensation ------------------------------------------------------------------- Awards ------------------------ Other Annual Securities Underlying All Other Name and Principal Salary Bonus (1) Compensation Options Granted Compensation Position Year ($) ($) ($) (#) ($) - ------------------------------------------------------------------------------------------------------------------------------- Charles W. Fischer 2003 725,000 600,000 - 100,000 43,500 (2) President and Chief 2002 637,500 300,000 - 100,000 38,250 (2) Executive Officer 2001 540,667 400,000 - 105,000 32,440 (2) - ------------------------------------------------------------------------------------------------------------------------------- Marvin F. Romanow 2003 440,500 267,000 - 55,000 26,430 (2) Executive Vice President 2002 418,000 310,000 - 50,000 25,080 (2) and Chief Financial 2001 376,333 225,000 - 60,000 22,582 (2) Officer - ------------------------------------------------------------------------------------------------------------------------------- Douglas B. Otten 2003 416,152 226,170 - 37,000 24,969 (2) / 60,221 (3) Senior Vice President, 2002 485,873 125,886 - 35,000 29,156 (2) / 63,005 (3) United States Oil and Gas 2001 456,783 405,685 - 28,000 27,407 (2) / 79,874 (3) - ------------------------------------------------------------------------------------------------------------------------------- Thomas A. Sugalski 2003 384,439 156,380 - 30,000 23,066 (2) / 53,395 (3) Senior Vice President, 2002 449,993 118,019 - 30,000 26,999 (2) / 60,889 (3) Chemicals 2001 422,908 232,240 417,695 (4) 25,000 25,374 (2) / 76,059 (3) - ------------------------------------------------------------------------------------------------------------------------------- Laurence Murphy 2003 366,500 196,000 - 37,000 21,990 (2) Senior Vice President, 2002 346,000 90,000 - 35,000 20,760 (2) International Oil and Gas 2001 329,250 180,000 - 28,000 19,758 (2) - -------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Bonuses for a year are determined based on performance during the year and are paid to the employee in the following year. Bonuses are paid pursuant to the Incentive Compensation Plan. The bonuses indicated were the payments made in the year shown. (2) Contributions to the Employee Savings Plan. (3) Nexen contributed to a Qualified Defined Contribution Plan and a Restoration Plan with Nexen Petroleum U.S.A. Inc. for Mr. Otten and Mr. Sugalski. (4) Represents a special settlement payment for termination from Occidental Petroleum Corporation Non-Qualified Executive Benefit Plans. 108 STOCK OPTIONS Pursuant to Nexen's Stock Option Plan, the Board, on the recommendation of the Compensation and Human Resources Committee, may grant stock options to Nexen officers and employees. Nexen does not receive any consideration when options are granted. The option exercise price is the market price of Nexen's common shares on the Toronto Stock Exchange for Canadian based employees or the New York Stock Exchange for US based employees, when the option is granted. The Board determines the term of each option, to a maximum of ten years, and the vesting schedule. Options granted before February 2001 have a term of ten years; 20% of the grant vests after six months and then 20% more vests each year for four years on the anniversary of the grant. Options granted after February 2001 have a term of five years and vest one-third each year over three years. Generally, if a change of control event occurs (as defined in the Stock Option Plan), all issued but unvested options will become vested. OPTION GRANTS DURING 2003
- ------------------------------------------------------------------------------------------------------------------------------- % of Total Potential Realizable Value at Options/Stock Assumed Annual Rates of Stock Appreciation Price Appreciation for Option Term Rights ------------------------------------ Securities Granted to Underlying Employees Options in Exercise or Granted Financial Base Price (1) Name (#) Year ($/Security) (2) Expiration Date 5% ($) 10% ($) - ------------------------------------------------------------------------------------------------------------------------------- Charles W. Fischer 100,000 3.5 43.50 December 9, 2008 1,201,825 2,655,719 - ------------------------------------------------------------------------------------------------------------------------------- Marvin F. Romanow 55,000 1.9 43.50 December 9, 2008 661,004 1,460,645 - ------------------------------------------------------------------------------------------------------------------------------- Douglas B. Otten 37,000 1.3 33.38 (US$) December 9, 2008 417,161 921,816 - ------------------------------------------------------------------------------------------------------------------------------- Thomas A. Sugalski 30,000 1.1 33.38 (US$) December 9, 2008 357,566 790,128 - ------------------------------------------------------------------------------------------------------------------------------- Laurence Murphy 37,000 1.3 43.50 December 9, 2008 444,675 982,616 - -------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Equal to the market value of securities underlying options on the date of grant. (2) All values in Canadian dollars unless otherwise noted. OPTIONS EXERCISED DURING 2003 AND FINANCIAL YEAR-END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------------------- Number of Securities Underlying Unexercised Value of Unexercised Securities Acquired Options at Financial In-The-Money-Options at on Exercise Value Realized (1) Year-end Financial Year-end Name (#) ($) (2) (#) ($)(2) Exercisable / Unexercisable Exercisable / Unexercisable - ---------------------------------------------------------------------------------------------------------------------------------- Charles W. Fisher - - 424,750 / 214,650 8,267,883 / 1,871,016 - ---------------------------------------------------------------------------------------------------------------------------------- Marvin F. Romanow - - 199,200 / 117,800 3,012,334 / 920,106 - ---------------------------------------------------------------------------------------------------------------------------------- Douglas B. Otten 71,329 1,240,978 146,131 / 75,340 2,370,825 / 742,312 - ---------------------------------------------------------------------------------------------------------------------------------- Thomas A. Sugalski 51,000 578,078 95,950 / 65,050 1,545,036 / 1,088,696 - ---------------------------------------------------------------------------------------------------------------------------------- Laurence Murphy - - 170,660 / 77,340 3,199,051 / 658,699 - ----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Equals market price at the time of the exercise minus exercise price. (2) All values in Canadian dollars. 109 BENEFIT PLANS All named executive officers, except Mr. Sugalski and Mr. Otten, are members of Nexen's Defined Benefit Pension Plan and of the Executive Benefit Plan. DEFINED BENEFIT PENSION PLAN Under this plan, participants must contribute 3% of their regular gross earnings, up to an allowable maximum, to the pension plan. Upon retirement, they receive a benefit equal to 1.7% of their average earnings for the 36 highest paid consecutive months during the ten years before retirement, multiplied by the number of years of credited service. The plan is integrated with the Canada Pension Plan (CPP) in order to provide a maximum offset of one-half of the CPP benefit. Pension benefits earned prior to January 1, 1993 will be indexed on an ad hoc basis. Pension benefits earned after December 31, 1992 will be indexed at an amount equal to the greater of: o 75% of the increase in the Canadian Consumer Price Index less 1% to a maximum of 5%; and o 25% of the increase in the Canadian Consumer Price Index. Nexen contributed $14 million to the Defined Benefit Pension Plan in 2003. EXECUTIVE BENEFIT PLAN The plan provides supplemental benefits to the extent that benefits under the pension plan are limited by statutory guidelines. ESTIMATED PENSION BENEFIT This table shows the estimated annual pension an executive officer who retired on December 31, 2003 would receive, assuming that the amount in the Summary Compensation Table above is the officer's final average salary. It includes benefits from both the Defined Benefit Pension Plan and Executive Benefit Plan and assumes a retirement age of 65. The normal form of benefit paid from this plan is joint life with 66 2/3% to the surviving spouse.
YEARS OF SERVICE --------------------------------------------------------------------------------------------- Remuneration 5 10 15 20 25 30 35 --------------------------------------------------------------------------------------------------------------------- $500,000 $41,681 $83,363 $125,044 $166,726 $208,407 $250,089 $291,770 --------------------------------------------------------------------------------------------------------------------- $550,000 $45,931 $91,863 $137,794 $183,726 $229,657 $275,589 $321,520 --------------------------------------------------------------------------------------------------------------------- $600,000 $50,181 $100,363 $150,544 $200,726 $250,907 $301,089 $351,270 --------------------------------------------------------------------------------------------------------------------- $650,000 $54,431 $108,863 $163,294 $217,726 $272,157 $326,589 $318,020 --------------------------------------------------------------------------------------------------------------------- $700,000 $58,681 $117,363 $176,044 $234,726 $293,407 $352,089 $410,770 --------------------------------------------------------------------------------------------------------------------- $750,000 $62,931 $125,863 $188,794 $251,726 $314,657 $377,589 $440,520 --------------------------------------------------------------------------------------------------------------------- $800,000 $67,181 $134,363 $201,544 $268,726 $335,907 $403,089 $470,270 --------------------------------------------------------------------------------------------------------------------- $850,000 $71,431 $142,863 $214,294 $285,726 $357,157 $428,589 $500,020 --------------------------------------------------------------------------------------------------------------------- $900,000 $75,681 $151,363 $227,044 $302,726 $378,407 $454,089 $529,770 --------------------------------------------------------------------------------------------------------------------- $950,000 $79,931 $159,863 $239,794 $319,726 $399,657 $479,589 $559,520 --------------------------------------------------------------------------------------------------------------------- $1,000,000 $84,181 $168,363 $252,544 $336,726 $420,907 $505,089 $589,270 --------------------------------------------------------------------------------------------------------------------- $1,050,000 $88,431 $176,863 $265,294 $353,726 $442,157 $530,589 $619,020 --------------------------------------------------------------------------------------------------------------------- $1,100,000 $92,681 $185,363 $278,044 $370,726 $463,407 $556,089 $648,770 --------------------------------------------------------------------------------------------------------------------- $1,150,000 $96,931 $193,863 $290,794 $387,726 $484,657 $581,589 $678,520 --------------------------------------------------------------------------------------------------------------------- $1,200,000 $101,181 $202,363 $303,544 $404,726 $505,907 $607,089 $708,270 --------------------------------------------------------------------------------------------------------------------- $1,250,000 $105,431 $210,863 $316,294 $421,726 $527,157 $632,589 $738,020 --------------------------------------------------------------------------------------------------------------------- $1,300,000 $109,681 $219,363 $329,044 $438,726 $548,407 $658,089 $767,770 --------------------------------------------------------------------------------------------------------------------- $1,350,000 $113,931 $227,863 $341,794 $455,726 $569,657 $683,589 $797,520 ---------------------------------------------------------------------------------------------------------------------
An executive officer's average earnings for purposes of the plan includes stated salary and the lesser of the eligible target incentive bonus or the actual incentive bonus paid. Messrs. Fischer, Romanow and Murphy have 19.58, 16.50 and 17.67 years of credited service, respectively. 110 EMPLOYEE SAVINGS PLAN The Summary Compensation Table includes Nexen's contribution to the savings plan made on behalf of executive officers. All regular employees may participate in our Employee Savings Plan. Through payroll deductions, employees may contribute any percentage of their regular earnings to purchase Nexen common shares and/or mutual fund units. Nexen matches employee contributions to a maximum of 6% of regular earnings. The extent of matching is based on the investment option selected and the employee's length of participation in the plan. The full amount of Nexen's contribution is invested in common shares and is fully vested immediately. Employee and employer contributions may be allocated to registered or non-registered accounts. CHANGE OF CONTROL AGREEMENTS Nexen has entered into Change of Control Agreements with Messrs. Fischer, Romanow, Otten, Sugalski, Murphy and other key executives. The agreements were effective October 1999, amended December 2000 and amended and restated December 2001. The agreements recognize that these executives are critical to Nexen's ongoing business. They recognize the need to retain the executives, protect them from employment interruption due to a change in control and treat them in a fair and equitable manner, consistent with industry standards. For the purposes of these agreements, a change of control includes any acquisition of common shares or other securities that carry the right to cast more than 35% of the votes attaching to all common shares and, in general, any event, transaction or arrangement which results in a person or group exercising effective control of Nexen. If the named executives are terminated following a change in control, they will be entitled to receive salary and benefits for a specified severance period. For Mr. Fischer and Mr. Romanow, the severance period is 36 months. They may also terminate their employment on a voluntary basis following a change of control with severance periods of 36 and 30 months, respectively. For Messrs. Otten, Sugalski and Murphy, the severance period is 30 months. DIRECTOR COMPENSATION All directors who are not employees are paid: o an annual retainer of $28,100 for services on the Board and $1,800 for each Board meeting attended; and o an annual retainer of $9,100 for service on each Committee and $1,800 for each Committee meeting attended. The Chair of the Board was paid an annual retainer of $108,000 until the end of 2003. The Chair of each Committee is paid an additional annual retainer of $5,300. In October 2003, all director compensation was reviewed and the annual retainer for the Chair of the Board was increased to $150,000. In 2001, a Deferred Share Unit (DSU) plan was approved as an alternative form of compensation for non-employee directors. Under the plan, eligible directors may elect annually to receive all or part of their fees in the form of DSUs, rather than cash. A DSU is a bookkeeping entry which tracks the value of one Nexen common share. DSUs are not paid out until the director leaves the Board, providing an ongoing equity stake in Nexen during the director's term of service. Payments of DSUs may be made in cash or in Nexen common shares purchased on the open market at the time of payment. In 2003, the Board adopted a policy setting out that non-executive directors would no longer be granted stock options. Non-executive directors will not be eligible to receive stock options under the proposed amendments to the Stock Option Plan. Deferred Stock Units have since been employed as an alternate method of performance-based compensation. In December 2003, all directors who were not employees of Nexen were granted 2,100 DSUs, except for the Chair of the Board, who was granted 3,200 DSUs. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE Nexen maintains a directors' and officers' liability insurance policy for the benefit of our directors and officers. The policy provides coverage for costs incurred to defend and settle claims against its directors and officers to an annual limit of US$125 million with a US$1 million deductible per occurrence. The cost of coverage for 2003 was approximately US$0.6 million. SHARE OWNERSHIP GUIDELINES FOR DIRECTORS The Board believes it is important that directors demonstrate their commitment through share ownership. The Board has approved guidelines setting out that directors are expected to own or control at least 3,000 shares, to be accumulated over three years. Specific arrangements may be made when a qualified candidate might be precluded from serving by these guidelines. The guidelines are reviewed by the Board from time to time. 111 REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE The Compensation and Human Resources Committee administers Nexen's Incentive Compensation Plan, Stock Option Plan, Stock Appreciation Rights Plan and Pension Plan. It reviews and approves executive management's recommendations for the annual salaries, bonuses and grants of stock options and stock appreciation rights. The Committee reports to the Board and the Board gives final approval to compensation matters. The Committee evaluates the performance of the CEO and recommends his compensation which is approved by the independent directors of the Board. POLICIES OF THE COMMITTEE Nexen is committed to pay for performance, improved shareholder returns and external competitiveness. These principles are factored into the design, development and administration of our compensation programs, as directed by the Committee. The Committee believes maximizing shareholder return is the most important measure of success. At the operational level, this translates primarily into net income, cash flow and net asset value growth. At the corporate headquarters level, this results from successful implementation of necessary strategic change. The Committee recognizes the need to attract and retain a stable and focused leadership capable of managing Nexen's operations, finances and assets. As appropriate, the Committee rewards exceptional individual contributions with highly competitive compensation. To ensure competitiveness, Nexen hires various independent compensation consulting firms to compare our executive compensation practices to our peers, primarily major Canadian oil and gas and, where relevant, chemical and marketing companies. Our compensation program has three components: salary, annual cash incentives and long-term incentives. BASE SALARIES To determine base salaries, Nexen maintains a framework of job levels based on internal comparability and external market data. The Committee's goal is to provide total cash compensation for our top performing employees between the 50th and 75th percentile as compared to our peers. ANNUAL INCENTIVES The Board approves any annual cash incentives awarded under the Annual Incentive Plan. The Committee determines the total amount of cash available for annual incentive awards by evaluating a combination of financial and non-financial criteria, including net income, operating cash flow and specific strategic goals outlined in a balanced scorecard. The primary indicators, net income and cash flow, are commonly used metrics in our industry and each represents one-quarter of the overall assessment. The qualitative assessment of the balanced scorecard performance indicators provides a comprehensive evaluation and accounts for the remaining one-half of the overall performance assessment. Individual target award levels increase in relation to job responsibilities so that the ratio of at-risk versus fixed compensation is greater for higher levels of management. Individual awards are intended to reflect a combination of overall Nexen, personal and business unit performance, along with market competitiveness. The incentive plan is reviewed annually to ensure the plan continues to attract, motivate, reward and retain the high performing and high potential employees needed to achieve Nexen's business objectives, while reflecting long-term fiscal responsibility to our shareholders. STOCK AND LONG-TERM INCENTIVES The Board believes that employees should have a stake in Nexen's future and that their interest should be aligned with the interests of our shareholders. To this end, Nexen's contributions to employee savings plans are made in Nexen common shares. In addition, the Committee selects those directors, officers and employees whose decisions and actions can most directly impact business results to participate in the Stock Option Plan and the Stock Appreciation Rights Plan. Under these plans, participating directors, officers and employees receive grants of stock options or stock appreciation rights as a long-term incentive to increase shareholder value. The grants have a five-year term and vest one-third each year for the first three years of the term on the anniversary date of the grant. Awards of stock options and stock appreciation rights are supplementary to the Annual Incentive Plan and are intended to increase the variable pay component for senior management. The Stock Appreciation Rights Plan was introduced in 2001. For employees at or below mid-level department managers, these rights are typically granted instead of stock options. To determine the number of stock options available for distribution, we consider market information on stock options and the impact of the program on shareholders. The focus in 2003 was on providing differentiated awards based on performance, potential and retention risk. 112 The total options granted and shares reserved for issuance under our stock-based compensation arrangements will not, at any time, exceed 10% of our total outstanding shares. Nexen maintains share ownership guidelines for executive officers as a way of aligning executive and shareholder interests. The Chief Executive Officer, Chief Financial Officer and other executive officers are expected to own shares representing three, two and one times annual base salary, respectively. In determining compliance with the guidelines, share ownership includes the net value of exercisable options, flow-through shares, shares purchased and held within the Nexen Savings Plan and any other personal holdings. PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPENSATION Competitive compensation information for our President and Chief Executive Officer is determined based on assessments conducted by independent compensation consulting firms which compare similar positions in oil and gas and in the broader industrial sector. Target total cash compensation (base salary plus incentive bonus) is at the low end of the range of the oil and gas comparator group. The award to Mr. Fischer under the Annual Incentive Plan, is a percentage of his target bonus based on the composite performance rating approved by the Board which takes into account the three components of the plan, the first two being the targets for net income and cash flow and the last one being a qualitative assessment. The qualitative assessment includes a scorecard of targets for growth and operating performance, such as net asset value growth, cost management, safety record, production volumes and reserve growth, among others. An important measure in the scorecard is the extent to which the operations were conducted in an environmentally safe and socially responsible manner. Annual salary increases for Mr. Fischer are based on his performance against key objectives using a broad selection of criteria including the following: o overall achievement of corporate/financial performance; o achievement of strategic objectives; o progress on long-term objectives; o team building and succession planning; o visionary leadership; and o social responsibility. Based on the Board assessment of Mr. Fischer's achievement of objectives in 2002, his base salary was increased to $750,000 in 2003 and he was awarded a bonus of $600,000 under the Annual Incentive Plan. Mr. Fischer was also granted options to purchase 100,000 shares at an exercise price of $43.50 under the Nexen Stock Option Plan. Awards under the Stock Option Plan are a direct link to the stock performance and form a part of the competitive overall compensation package. Submitted on behalf of the Compensation and Human Resources Committee: John Willson, Chair Dave Hentschel Barry Jackson Francis Saville, Q.C. Dick Thomson, O.C. Vic Zaleschuk 113 SHARE PERFORMANCE GRAPH The following graph shows changes in the past five year period, ending December 31, 2003 in the value of $100 invested in our common shares, compared to the S&P/TSX Composite Index, the S&P/TSX Energy Sector Index and the S&P/TSX Oil & Gas Exploration & Production Index as at December 31, 2003. Our common shares are included in each of these indices. TOTAL RETURN INDEX VALUES [CHART OMMITTED]
1998/12 1999/12 2000/12 2001/12 2002/12 2003/12 - ------------------------------------------------------------------------------------------------------------------------ Nexen Inc. 100.00 181.55 237.58 201.38 223.69 309.16 S&P/TSX Energy Sector Index 100.00 126.86 187.36 200.31 227.84 284.72 S&P/TSX Oil & Gas Explor. & Prod. Index 100.00 122.38 179.94 185.75 215.78 259.26 S&P/TSX Composite Index 100.00 131.71 141.47 123.69 108.30 137.25
Assuming an investment of $100 and the reinvestment of dividends 114 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Nexen's common shares are the only class of voting securities. Based on information known to Nexen, the following table shows each person or group who beneficially owns (pursuant to SEC Regulations) more than 5% of Nexen's voting securities at December 31, 2003.
# OF SHARES NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED % OF SHARES - ---------------------------------------------------------------------------------------------------- Jarislowsky Fraser Limited (1) 21,565,906 17.2 Suite 2005, 1010 Sherbrooke Street West Montreal, Quebec, Canada, H3A 2R7 - ---------------------------------------------------------------------------------------------------- Ontario Teachers' Pension Plan Board (2) 19,533,318 15.6 5650 Yonge Street Toronto, Ontario, Canada, M2M 4H5 - ---------------------------------------------------------------------------------------------------- Capital Research and Management Co. (3) 7,080,010 5.6 333 South Hope Street Los Angeles, California, U.S.A., 90071-1447 - ----------------------------------------------------------------------------------------------------
Notes: (1) The beneficial owner has sole voting power over 19,262,406 shares, shared voting power over 2,303,500 shares; and sole power to dispose of all of the shares. (2) The beneficial owner has sole voting and power to dispose all of the shares. (3) The beneficial owner has sole power to dispose all of the shares and disclaims beneficial ownership pursuant to Rule 13d-4. SECURITY OWNERSHIP OF MANAGEMENT At December 31, 2003, the following directors, certain executive officers, and all directors and executive officers as a group beneficially owned the following Nexen common shares:
NUMBER OF EXERCISABLE NAME OF BENEFICIAL OWNER SHARES (1) STOCK OPTIONS (2) - ------------------------------------------------------------------------------------------------------------------ Charles W. Fischer 28,096 424,750 - ------------------------------------------------------------------------------------------------------------------ Dennis G. Flanagan 3,001 18,225 - ------------------------------------------------------------------------------------------------------------------ David A. Hentschel 5,615 28,225 - ------------------------------------------------------------------------------------------------------------------ S. Barry Jackson 6,000 6,225 - ------------------------------------------------------------------------------------------------------------------ Kevin J. Jenkins 3,044 28,225 - ------------------------------------------------------------------------------------------------------------------ Eric P. Newell, O.C. Nil Nil - ------------------------------------------------------------------------------------------------------------------ Thomas C. O'Neill 4,000 1,870 - ------------------------------------------------------------------------------------------------------------------ Francis M. Saville, Q.C. 3,151 28,225 - ------------------------------------------------------------------------------------------------------------------ Richard M. Thomson, O.C. 23,001 42,388 - ------------------------------------------------------------------------------------------------------------------ John M. Willson 5,001 28,225 - ------------------------------------------------------------------------------------------------------------------ Victor J. Zaleschuk 15,612 297,025 - ------------------------------------------------------------------------------------------------------------------ Laurence Murphy 19,480 170,660 - ------------------------------------------------------------------------------------------------------------------ Douglas B. Otten 17,200 146,131 - ------------------------------------------------------------------------------------------------------------------ Marvin F. Romanow 19,627 199,200 - ------------------------------------------------------------------------------------------------------------------ Thomas A. Sugalski 9,663 95,950 - ------------------------------------------------------------------------------------------------------------------ All directors and executive officers as a group (22 persons) 212,435 2,005,874 - ------------------------------------------------------------------------------------------------------------------
Notes: (1) The number of shares held and stock options exercisable by each beneficial owner represents less than 1% of the shares outstanding. (2) Includes all stock options exercisable within 60 days of December 31, 2003. Under the terms of our stock option plan, the Board of Directors may grant stock options to officers and employees and, when previously allowed for, to directors. Nexen does not receive any consideration when options are granted. 115 Equity Compensation Plan Information:
(a) (b) (c) Number of securities Number of securities to be Weighted-average remaining available for issued upon exercise of exercise price of future issuance under outstanding options outstanding options equity compensation plans - ------------------------------------------------------------------------------------------------------------------------------ Equity compensation plans approved by shareholders 9,203,121 $34.00 9,787,853 ---------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN BUSINESS RELATIONSHIPS Mr. Saville, a director, was a senior partner of Fraser Milner Casgrain LLP (FMC), Barristers and Solicitors, Calgary, Alberta until the end of January 2004. Beginning on February 1, 2004, he is counsel with the firm. FMC has rendered legal services to Nexen during each of the last five years. Mr. Saville is independent pursuant to the Categorical Standards for Director Independence (Categorical Standards) adopted by Nexen. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES AUDIT FEES Fees billed by Deloitte & Touche LLP were: o $596,000 for 2003 ($550,000 for 2002) for the audit of the Consolidated Financial Statements included in our Annual Report on Form 10-K. o $42,000 for the 2003 first, second and third quarter reviews ($31,000 for the 2002 second and third quarter reviews) for the Consolidated Financial Statements included on Form 10-Qs. Fees billed by Arthur Andersen LLP during 2002 were $13,000 for the 2002 first quarter review of the Consolidated Financial Statements included on our form 10-Q. AUDIT-RELATED FEES Fees billed by Deloitte & Touche LLP, were: o $322,000 for 2003 ($231,500 for 2002) for the annual audits of our subsidiary financial statements and employee benefit plans. o $87,000 for 2003 ($4,000 for 2002) for comfort letters to commissions. Fees billed by Arthur Andersen LLP during 2002 were $88,300 for comfort letters to commissions. TAX FEES Fees billed by Deloitte & Touche LLP, were $160,000 for 2003 ($72,550 for 2002) for tax return preparation assistance and tax-related consultation. Fees billed by Arthur Andersen LLP during 2002 were $106,601 for tax return preparation assistance and tax-related consultation. ALL OTHER FEES No other fees were billed by Deloitte & Touche LLP during 2003. Fees billed by Arthur Andersen LLP during 2002 were $62,900 for assisting the internal audit group with its evaluation of the implementation of an enterprise-wide resource system. AUDIT COMMITTEE APPROVAL Before Deloitte & Touche LLP is engaged by Nexen or our subsidiaries to render audit or non-audit services, the engagement is approved by Nexen's Audit Committee. All audit-related and tax services provided by Deloitte & Touche LLP after May, 6, 2003 were approved by our Audit Committee. 116 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS AND SCHEDULES We refer you to the Index to Financial Statements and Related Information under Item 8 of this report where these documents are listed. Schedules and separate financial statements of subsidiaries are omitted because they are not required or applicable, or the required information is shown in the Consolidated Financial Statements or notes. EXHIBITS Exhibits filed as part of this report are listed below. Certain exhibits have been previously filed with the Commission and are incorporated in this Form 10-K by reference. Instruments defining the rights of holders of debt securities that do not exceed 10% of Nexen's consolidated assets have not been included. A copy of such instruments will be furnished to the Commission upon request. 3.5 Restated Certificate of Incorporation of the Registrant dated June 5, 1995, and Restated Articles of Incorporation (filed as Exhibit 3.5 to Form 10-K for the year ended December 31, 1995, filed by the Registrant). 3.6 Certificate of Amendment of the Articles of the Registrant dated May 9, 1996 (filed as Exhibit 3.6 to Form 10-K for the year ended December 31, 1996, filed by the Registrant). 3.7 Certificate of Amendment and Articles of Amendment of the Registrant dated November 2, 2000, with respect to the name change to Nexen Inc. (filed as Exhibit 3.7 to Form 10-K for the year ended December 31, 2000, filed by the Registrant). 3.8 By-Law No. 1 of the Registrant enacted February 15, 2002, being a by-law relating generally to the transaction of the business and affairs of the Registrant (filed as Exhibit 2 to Form 8A/A dated August 20, 2002, filed by the Registrant). 3.9 By-Law No. 2 of the Registrant enacted December 9, 2003, being a by-law relating generally to the transaction of the business and affairs of the Registrant. 4.29 Acquisition Agreement between the Registrant, Occidental Petroleum Corporation and Ontario Teachers' Pension Plan Board, dated March 1, 2000, (filed as Exhibit 4.29 to Form 10-K for the year ended December 31, 1999, filed by the Registrant). 4.32 Amended and Restated Loan Agreement of December 29, 1988, between the Registrant, the Toronto Dominion Bank, as Agent, and the Lenders, dated November 17, 2000, amending the amount of the facility to $400 million and providing for various conforming covenant amendments to the Loan Agreement dated April 14, 1997 (as restated) (filed as Exhibit 4.32 to Form 10-K for the year ended December 31, 2000, filed by the Registrant). 4.33 Restated Loan Agreement of April 14, 1997, between the Registrant, Toronto Dominion Bank, as Agent, and the Lenders dated October 16, 2000, reducing the amount of the facility to $975 million and splitting the loan into 364 day (40%) and six-year term (60%) portions, and other various amendments (filed as Exhibit 4.33 to Form 10-K for the year ended December 31, 2000, filed by the Registrant). 4.36 First Amending Agreement to the October 16, 2000 Restated Loan Agreement of April 14, 1997, between the Registrant, the Toronto Dominion Banks, as Agent, and the Lenders, dated July 31, 2001 (filed as Exhibit 4.36 to Form 10-K for the year ended December 31, 2001, filed by the Registrant). 4.37 First Amending Agreement to the November 17, 2000 Amended and Restated Loan Agreement of December 29, 1988, between the Registrant, the Toronto Dominion Bank, as Agent, and the Lenders, dated August 1, 2001 (filed as Exhibit 4.37 to Form 10-K for the year ended December 31, 2001, filed by the Registrant). 4.38 Second Amending Agreement to the October 16, 2000 Restated Loan Agreement of April 14, 1997, between the Registrant, the Toronto Dominion Banks, as Agent, and the Lenders, dated July 30, 2002 (filed as Exhibit 4.38 to Form 10-K for the year ended December 31, 2002, filed by the Registrant). 4.39 Second Amending Agreement to the November 17, 2000 Amended and Restated Loan Agreement of December 29, 1988, between the Registrant, the Toronto Dominion Bank, as Agent, and the Lenders, dated July 31, 2002 (filed as Exhibit 4.39 to Form 10-K for the year ended December 31, 2002, filed by the Registrant). 117 4.40 Amended and Restated Shareholder Rights Plan Agreement dated May 2, 2002 between the Corporation and CIBC Mellon Trust Company, as Rights Agent, which includes the Form of Rights Certificate as Exhibit A (filed as Exhibit 3 to Form 8-A/A dated August 20, 2002, filed by the Registrant). 4.42 Trust Indenture dated April 28, 1998 between the Registrant and CIBC Mellon Trust Company providing for the issue of debt securities from time to time. 4.43 First Supplemental Indenture dated April 28, 1998 to the Trust Indenture dated April 28, 1998 between the Registrant and CIBC Mellon Trust Company pertaining to the issuance of US $200 million, 7.40% notes due 2028. 4.44 Third Amending Agreement dated July 29, 2003 to the October 16, 2000 Restated Loan Agreement of April 14, 1997 between the Registrant, the Toronto Dominion Banks, as Agent, and the Lenders. 4.45 Third Amending Agreement dated July 29, 2003 to the November 17, 2000 Amended and Restated Loan Agreement of December 29, 1988, between the Registrant, the Toronto Dominion Bank, as Agent, and the Lenders. 4.46 Third Supplemental Indenture dated March 11, 2002 to the Trust Indenture dated April 28, 1998 between the Registrant and CIBC Mellon Trust Company pertaining to the issuance of $500 million, 7.85% notes due 2032. 4.47 Subordinated Debt Indenture dated November 4, 2003 between the Registrant and Deutsche Bank Trust Company Americas, pertaining to the issue of subordinated notes from time to time. 4.48 Officer's Certificate dated November 4, 2003 pursuant to the Subordinated Debt Indenture dated November 4, 2003 between the Registrant and Deutsche Bank Trust Company Americas, pertaining to the issuance of US $460 million, 7.35% subordinated notes due 2043. 4.49 Fourth Amending Agreement dated November 4, 2003 to the October 16, 2003 Restated Loan Agreement of April 14, 1997, between the Registrant, the Toronto Dominion Banks, as Agent, and the Lenders. 4.50 Fourth Amending Agreement dated November 4, 2003 to the November 17, 2000 Amended and Restated Loan Agreement of December 29, 1988, between the Registrant, the Toronto Dominion Bank, as Agent, and the Lenders. 4.51 Fourth Supplemental Indenture dated November 20, 2003 to the Trust Indenture dated April 28, 1998, between the Registrant and CIBC Mellon Trust Company pertaining to the issuance of US $500 million, 5.05% notes due 2013. 10.40 Amended and Restated Change of Control Agreements with Executive Officers dated during December, 2001 (filed as Exhibit 10.41 to Form 10-K for the year ended December 31, 2001, filed by the Registrant). 10.41 Indemnification Agreements made between the Registrant and its directors and officers during 2002 (filed as Exhibit 10.41 to Form 10-K for the year ended December 31, 2002, filed by the Registrant). 10.42 Indemnification Agreement made between the Registrant and one of its directors, Eric P. Newell, as of January 5, 2004. 11.2 Statement regarding the Computation of Per Share Earnings for the three years ended December 31, 2003. 16.1 Letter re change in certifying accountant (filed as Exhibit 16.1 to Form 8-K filed July 17, 2002 by the Registrant). 21.0 Subsidiaries of the Registrant. 23.0 Consent of Independent Chartered Accountants. 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. 99.1 Opinion of Internal Qualified Reserves Evaluator on National Instrument 51-101 Form F2 as required by certain Canadian securities regulatory authorities. 118 REPORTS ON FORM 8-K During the quarter ended December 31, 2003, we filed or furnished the following report on Form 8-K: o Current report on Form 8-K dated October 16, 2003, to furnish our press release announcing our 2003 third quarterly results. Up until the filing of this Form 10-K, during 2004, we filed or furnished the following reports on Forms 8-K: o Current report on Form 8-K dated February 5, 2004, to file our press release announcing our reserves as at December 31, 2003. o Current report on Form 8-K dated February 13, 2004, to furnish our press release announcing our 2003 annual results. 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 February 20, 2004. NEXEN INC. By: /s/ Charles W. Fischer ------------------------- Charles W. Fischer President, Chief Executive Officer and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 20, 2004. /s/ Dennis G. Flanagan /s/ Charles W. Fischer - --------------------------------- --------------------------------- Dennis G. Flanagan, Director Charles W. Fischer President, Chief Executive Officer and Director /s/ David A. Hentschel (Principal Executive Officer) - --------------------------------- David A. Hentschel, Director /s/ Marvin F. Romanow /s/ S. Barry Jackson --------------------------------- - --------------------------------- Marvin F. Romanow S. Barry Jackson, Director Executive Vice President and Chief Financial Officer /s/ Kevin J. Jenkins (Principal Financial Officer) - --------------------------------- Kevin J. Jenkins, Director /s/ Michael J. Harris --------------------------------- /s/ Eric P. Newell Michael J. Harris - --------------------------------- Controller Eric P. Newell, Director (Principal Accounting Officer) /s/ Thomas C. O'Neill /s/ John B. Mcwilliams - --------------------------------- --------------------------------- Thomas C. O'Neill, Director John B. McWilliams Senior Vice President, General /s/ Francis M. Saville Counsel and Secretary - --------------------------------- Francis M. Saville, Director /s/ Kevin J. Reinhart --------------------------------- /s/ Richard M. Thomson Kevin J. Reinhart - --------------------------------- Vice President, Corporate Planning Richard M. Thomson, Director and Business Development /s/ John M. Willson - --------------------------------- John M. Willson, Director /s/ Victor J. Zaleschuk - --------------------------------- Victor J. Zaleschuk, Director 119 EX-3 3 ex3-9form10k_2003.txt EXHIBIT 3.9 EXHIBIT 3.9 ----------- NEXEN INC. By-Law No. 2 A by-law relating generally to the transaction of the business and affairs of the Corporation. Effective December 9, 2003 1 NEXEN INC. BY-LAW NO. 2 A BY-LAW RELATING GENERALLY TO THE TRANSACTION OF THE BUSINESS AND AFFAIRS OF THE CORPORATION. SECTION ONE - INTERPRETATION 1.01 DEFINITIONS. In this by-law and all other by-laws of the Corporation, unless the context otherwise requires: "ACT" means the CANADA BUSINESS CORPORATIONS ACT and regulations under the Act, and any statute or regulation that may be substituted for the Act, as from time to time amended. In the case of a substitution, any references in the by-laws of the Corporation to provisions of the Act or regulations under the Act shall be read as references to the substituted provisions in the new statute, statutes or regulations; "APPOINT" includes "elect" and vice versa; "ARTICLES" means the articles of the Corporation as from time to time amended or restated; "BOARD" means the board of directors of the Corporation; "BY-LAWS" means this by-law and all other by-laws of the Corporation from time to time in force and effect; "CHEQUE" includes a draft; "CORPORATION" means Nexen Inc.; "INDEPENDENT MEMBER OF THE BOARD" means a director who the board has affirmatively determined to be independent pursuant to the Corporation's Categorical Standards for Director Independence in force at the time; "MEETING OF SHAREHOLDERS" includes an annual meeting of shareholders and a special meeting of shareholders; "special meeting of shareholders" includes a meeting of any class or classes of shareholders and a special meeting of all shareholders entitled to vote at an annual meeting of shareholders; "NON-BUSINESS DAY" means Saturday, Sunday and any other day that is a holiday as defined in the INTERPRETATION ACT (Canada) as from time to time amended; "RECORDED ADDRESS" means, in the case of a shareholder, the address as recorded in the securities register of the Corporation and, in the case of joint shareholders, the address appearing in the securities register in respect of the joint holding or the first address appearing if there are more than one; and in the case of a director, officer, auditor or member of a committee of the board, that individual's latest address as recorded in the records of the Corporation; "RESIDENT CANADIAN" means an individual who is: (a) a Canadian citizen ordinarily resident in Canada; (b) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons; or (c) a permanent resident within the meaning of the IMMIGRATION ACT and ordinarily resident in Canada, except a permanent resident who has been ordinarily resident in Canada for more than one year after the time at which the individual first became eligible to apply for Canadian citizenship; By-Law No. 2 2 Nexen Inc. Effective December 9, 2003 "SIGNING OFFICER" means, in relation to any instrument, any person authorized to sign the instrument on behalf of the Corporation by or pursuant to section 2.04. 1.02 GENERAL. Except as defined above, words and expressions defined in the Act have the same meanings when used in these by-laws. Words importing the singular number include the plural and vice versa; and, words importing a person include an individual, partnership, association, body corporate or personal representative. SECTION TWO - BUSINESS OF THE CORPORATION 2.01 REGISTERED OFFICE. The registered office of the Corporation shall be in Calgary, Alberta at such place and address as determined from time to time by the directors. 2.02 CORPORATE SEAL. The board may adopt a corporate seal for the Corporation or may change a corporate seal that has been adopted for the Corporation. 2.03 FINANCIAL YEAR. Until changed by the board, the financial year of the Corporation ends on the last day of December each year. 2.04 EXECUTION OF INSTRUMENTS. Contracts, documents or instruments in writing signed on behalf of the Corporation by any director, the chair, the chief executive officer, the president, any executive vice president, senior vice president or vice president, the secretary, the treasurer, the controller or any assistant secretary or any other office created by by-law or by the board are binding on the Corporation without any further authorization or formality. The board may also from time to time appoint any director or directors, or any officer or officers, or any other person or persons to sign contracts, documents and instruments in writing generally or to sign specific contracts, documents or instruments in writing on behalf of the Corporation ("signing officers"), in which case those contracts, documents or instruments in writing shall be binding on the Corporation without any further authorization or formality only if signed on behalf of the Corporation by the signing officers appointed by the board. The corporate seal, if any, may be affixed to contracts, documents and instruments in writing signed by any signing officer, and any contract, document or instrument in writing is valid even if the corporate seal, if any, is not affixed. The term "contracts, documents or instruments in writing" as used in this by-law includes security certificates, deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property real or personal, immovable or movable, agreements, releases, receipts and discharges for the payment of money or other obligations and conveyances, transfers and assignments of shares, share warrants, stocks, bonds, debentures or other securities and all paper writings of the Corporation. The signature of any signing officer may be printed, engraved, lithographed or otherwise mechanically or electronically reproduced on any contract, document or instrument in writing executed or issued on behalf of the Corporation and all contracts, documents or instruments in writing on which the signature of any one or more signing officers is reproduced are deemed to have been manually signed and are as valid as if they had been manually signed even if this signing officer whose signature is reproduced ceased to hold office at the date of the delivery or issue of the contracts, documents or instruments in writing. By-Law No. 2 3 Nexen Inc. Effective December 9, 2003 2.05 VOTING RIGHTS IN OTHER BODIES CORPORATE. The signing officers of the Corporation may sign and deliver proxies and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation in favour of the persons determined by the signing officers. In addition, the board may from time to time direct the manner in which and the persons by whom any particular voting rights or class of voting rights may or shall be exercised. 2.06 DIVISIONS. The board may cause the business and operations of the Corporation or any part of the business and operations of the Corporation to be divided into one or more divisions by types of business or operations, geographical territories, product lines, goods, services, or any other basis the board may from time to time consider appropriate. In particular, the board shall authorize any material subdivision, consolidation or reorganization of the business and operations of the Corporation. 2.07 INFORMATION AVAILABLE TO SHAREHOLDERS. Subject to the provisions of the Act, a shareholder is not entitled to any information about the details or conduct of the Corporation's business which, in the opinion of the board or counsel to the Corporation, is privileged or confidential or would not be in the best interests of the shareholders or the Corporation to communicate to the public. The board may from time to time determine whether, to what extent, when, where and under what conditions any of the accounts, records and documents of the Corporation are open to the inspection of shareholders. A shareholder does not have any right to inspect any account, record or document of the Corporation except as provided for by the Act, authorized by the board, or authorized by resolution passed at a meeting of shareholders. SECTION THREE - BORROWING AND SECURITIES 3.01 BANKING ARRANGEMENTS. The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security for money borrowed, shall be transacted with such banks, trust companies, other bodies corporate or organizations as may from time to time be designated by or under the authority of the board. The banking business of the Corporation shall be transacted under those agreements, instructions and delegations of powers as the board may from time to time prescribe. 3.02 BORROWING POWER. Without limiting the borrowing powers of the Corporation as set forth in the Act, but subject to the articles of the Corporation, the board may from time to time on behalf of the Corporation, without authorization of the shareholders: (a) borrow money on the credit of the Corporation; (b) issue, reissue, sell or pledge secured or unsecured bonds, debentures, notes or other evidences of indebtedness or guarantees of the Corporation; (c) to the extent permitted by the Act, give a guarantee on behalf of the Corporation to secure performance of any present or future indebtedness, liability or obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in any or all currently owned or subsequently acquired real or personal, movable or immovable, property of the Corporation including book debts, rights, powers, franchises and undertakings to secure any such bonds, debentures, notes or other evidences of indebtedness or guarantee or any other present or future indebtedness, liability or obligation of the Corporation. By-Law No. 2 4 Nexen Inc. Effective December 9, 2003 Nothing in this section limits or restricts the borrowing of money by the Corporation on bills of exchange or promissory notes made, drawn, accepted or endorsed on behalf of the Corporation. 3.03 DELEGATION. The board may from time to time delegate to any director or directors, or any officer or officers or any committee of the board, or any other person or persons any or all of the powers conferred on the board by section 3.02 or by the Act. SECTION FOUR - DIRECTORS 4.01 NUMBER OF DIRECTORS. The board shall consist of not fewer than the minimum number and not more than the maximum number of directors provided for in the articles. 4.02 QUALIFICATION. No person is qualified for election as a director if the person: is less than 18 years of age; is of unsound mind and has been so found by a court in Canada or elsewhere; is not an individual; or, has the status of a bankrupt. A director does not need to be a shareholder of the Corporation. Unless otherwise required by the Act, at least 25% of the directors shall be resident Canadians. The board may declare vacant the office of any director who is incapacitated or unqualified. 4.03 ELECTION AND TERM. The election of directors shall take place at each annual meeting of shareholders and all the directors then in office shall retire but, if qualified, be eligible for re-election. The number of directors to be elected shall be the number of directors then in office unless the directors or the shareholders determine otherwise. Where the shareholders adopt an amendment to the articles to increase the number or minimum number of directors, the shareholders may, at the meeting at which they adopt the amendment, elect the additional number of directors authorized by the amendment. Directors shall be elected by way of ordinary resolution. If an election of directors is not held at the proper time, the incumbent directors continue in office until their successors are elected. 4.04 REMOVAL OF DIRECTORS. Subject to the Act, the shareholders may remove any director from office by resolution passed at a meeting specially called to remove the director and the vacancy created by the removal may be filled at that meeting or, if not filled then, filled by the board. 4.05 VACATION OF OFFICE. A director ceases to hold office when: the director dies; the director is removed from office by the shareholders; the director ceases to be qualified for election as a director; or, the director's written resignation is sent or delivered to the Corporation, or at the time specified in the resignation, whichever is later. A resignation does not need to be accepted to be effective. 4.06 VACANCIES. Subject to the Act and the articles, a quorum of the board may fill a vacancy in the board. 4.07 ACTION BY THE BOARD. The board shall manage, or supervise the management of, the business and affairs of the Corporation. The powers of the board may be exercised at a meeting (subject to sections 4.08 and 4.09) at which a quorum is present or by resolution in writing signed by all the directors entitled to vote on that resolution at a meeting. As long as a quorum remains in office when there is a vacancy in the board, the remaining directors may exercise all the powers of the board. By-Law No. 2 5 Nexen Inc. Effective December 9, 2003 4.08 CANADIAN DIRECTORS PRESENT AT MEETINGS. Unless otherwise required by the Act, the board shall not transact business at a meeting, other than filling a vacancy in the board, unless at least 25% of the directors present are resident Canadians, unless: (a) a resident Canadian director, who is unable to be present, approves in writing or by telephonic, electronic or other communications facilities the business transacted at the meeting; and (b) the required number of resident Canadians would have been present had that director been present at the meeting. 4.09 MEETING BY TELEPHONE AND OTHER MEANS. Subject to the Act, if all of the directors of the Corporation consent, a director may participate in a meeting of the board or of a committee of the board by means of such telephonic, electronic or other communications facilities as permit all persons participating in the meeting to communicate adequately with each other, and a director participating in a meeting by those means is deemed to be present at the meeting. A consent is effective whether given before or after the meeting and may be given with respect to all meetings of the board and of committees of the board. 4.10 PLACE OF MEETINGS. Meetings of the board may be held at any place in or outside Canada. 4.11 CALLING OF MEETINGS. Meetings of the board shall be held from time to time at the time and place determined by the board, the chair of the board, the chief executive officer, the president or any two directors. 4.12 NOTICE OF DIRECTORS MEETING. Notice of the time and place of each meeting of the board shall be given in the manner provided in section Eleven to each director at least 48 hours before the meeting. A notice of a meeting of directors does not need to specify the purpose of or the business to be transacted at the meeting unless required by the Act. As required by the Act, a notice of meeting shall specify any proposal to: (a) submit to the shareholders any question or matter requiring approval of the shareholders; (b) fill a vacancy among the directors or in the office of auditor, or appoint additional directors; (c) issue securities; (d) declare dividends; (e) purchase, redeem or otherwise acquire shares issued by the Corporation; (f) pay a commission for the sale of shares; (g) approve a management proxy circular; (h) approve a take-over bid circular or directors' circular; (i) approve annual financial statements and the report of the Corporation's auditor regarding such statements; or (j) adopt, amend or repeal by-laws. In any manner and before or after a meeting, a director may waive notice of, or otherwise consent to, a meeting of the board. 4.13 FIRST MEETING OF NEW BOARD. Provided a quorum of directors is present, each newly elected board may, without notice, hold its first meeting immediately following the meeting of shareholders at which it was elected. By-Law No. 2 6 Nexen Inc. Effective December 9, 2003 4.14 ADJOURNED MEETING. Notice of an adjourned meeting of the board is not required if the time and place of the adjourned meeting is announced at the original meeting. An adjourned meeting is duly constituted if held in accordance with the terms of the adjournment and a quorum is present. The directors who formed a quorum at the original meeting are not required to form the quorum at the adjourned meeting. If there is no quorum present at the adjourned meeting, the original meeting is deemed to have terminated after its adjournment. Any business may be brought before or dealt with at any adjourned meeting if it might have been brought before or dealt with at the original meeting in accordance with the notice calling the original meeting. 4.15 REGULAR MEETINGS. The board may appoint a day or days in any month or months for regular meetings of the board at a place and hour to be named. A copy of any resolution of the board fixing the place and time of regular meetings shall be sent to each director and no other notice is required for any regular meeting unless the Act requires the purpose of the meeting or the business to be transacted at the meeting to be specified. 4.16 CHAIR OF MEETINGS. The chair of the board shall be the chair of any meeting of the board. If the chair of the board is not present, the directors present shall choose an independent member of the board to be chair of the meeting. 4.17 QUORUM. Subject to section 4.08, a quorum for the transaction of business at any meeting of the board is three directors or a greater number of directors as the board may from time to time determine. 4.18 VOTES TO GOVERN. Every question at a meeting of the board shall be decided by a majority of the votes cast on the question. In case of an equality of votes, the chair of the meeting shall be entitled to a second or casting vote. 4.19 CONFLICT OF INTEREST. A director or officer of the Corporation who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation, or is a director or an officer, or an individual acting in a similar capacity of, or has a material interest in, any person who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation shall disclose the nature and extent of the interest at the time and in the manner provided in the Act. Except as provided in the Act, no director shall vote on any resolution to approve a contract or transaction that the director has an interest in, but the director may be counted to determine the presence of a quorum at the meeting. No director is disqualified by reason of holding the office of director from contracting with the Corporation nor is any contract or arrangement entered into on behalf of the Corporation with any director or in which any director is in any way interested liable to be voided, nor is any director contracting with the Corporation or being interested in any contract or arrangement with the Corporation liable to account to the Corporation for any profit realized by the contract or arrangement by reason of the director holding that office or of the fiduciary relationship established by the director holding that office; provided that the director complied with the Act. 4.20 REMUNERATION AND EXPENSES. The directors shall be paid such remuneration for their services as the board may from time to time determine. The directors are also entitled to be reimbursed for travelling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. Nothing By-Law No. 2 7 Nexen Inc. Effective December 9, 2003 in these by-laws precludes a director from serving the Corporation in any other capacity and receiving remuneration for such service. SECTION FIVE - COMMITTEES 5.01 COMMITTEES OF THE BOARD. The board may appoint committees of the board, however designated, and delegate to any committee any of the powers of the board except those which a committee of the board has no authority to exercise under the Act. 5.02 TRANSACTION OF BUSINESS. The powers of a committee of the board may be exercised at a meeting at which a quorum is present or by resolution in writing signed by all members of the committee entitled to vote on that resolution at a meeting of the committee. Meetings of committees may be held at any place in or outside Canada. 5.03 ADVISORY BODIES. The board may from time to time appoint such advisory bodies as it may deem advisable. 5.04 PROCEDURE. Unless otherwise determined by the board, each committee and advisory body has the power to fix its quorum, at not less than a majority of its members, to elect its chair and to regulate its procedure. 5.05 MEMBERS. The board may from time to time remove and appoint members of any committee as it sees fit. 5.06 MINUTES. All committees shall keep regular minutes of their proceedings and report all their actions to the board at the next board meeting. SECTION SIX - OFFICERS 6.01 APPOINTMENT. The board may from time to time appoint a chair (who shall be a director), a chief executive officer (who may also hold the office of president and who shall be a director), a president, one or more vice presidents (to which title may be added words indicating seniority or function), a secretary, a treasurer, a controller and such other officers as the board may determine, including one or more assistants to any of the officers appointed. The board may specify the duties of and, in accordance with this by-law and subject to the Act, delegate to the officers powers to manage the business and affairs of the Corporation. Except as required by this section and subject to sections 6.02 and 6.03, an officer may, but does not need to be, a director and one person may hold more than one office. 6.02 CHAIR OF THE BOARD. The chair of the board presides at all meetings of the board and shareholders. The chair of the board shall have such other powers and duties as the board specifies. 6.03 CHIEF EXECUTIVE OFFICER. The chief executive officer is the executive head of the Corporation and shall have general supervision over its business and affairs and over the other officers of the Corporation, and is responsible to the board. By-Law No. 2 8 Nexen Inc. Effective December 9, 2003 6.04 PRESIDENT. Subject to the authority of the board, the president has general supervision of the business of the Corporation and shall have such other powers and duties as the board specifies. During the absence or inability of the chief executive officer, the duties of the chief executive officer may be performed and the powers of the chief executive officer may be exercised by the president. If the president exercises any duty or power of the chief executive officer, the absence or inability of the chief executive officer is presumed. 6.05 VICE PRESIDENT. A vice president has the powers and duties the board, the chief executive officer or the president specifies. During the absence or inability of the president, the duties of the president may be performed and the powers of the president may be exercised by a vice president. If a vice president exercises any duty or power of the president, the absence or inability of the president is presumed. 6.06 SECRETARY. The secretary is the secretary of all meetings of the board and shareholders and any committees of the board. The secretary causes to be entered, in records kept for that purpose, minutes of all proceedings at all meetings of the board and shareholders and any committees of the board. The secretary causes to be given, as and when instructed, all notices to shareholders, directors, officers, auditors and members of committees of the board. The secretary is the custodian of the corporate seal of the Corporation and of all books, papers, records, documents and instruments belonging to the Corporation, except when some other officer or agent has been appointed for that purpose. The secretary shall have such other powers and duties as the board, the chief executive officer or the president specifies. 6.07 TREASURER. The treasurer has custody of the corporate funds and securities and keeps full and accurate accounts of receipts and disbursements in books belonging to the Corporation and deposits all moneys and other valuable effects in the name and to the credit of the Corporation in the depositories as may be designated by the board. The treasurer disburses the funds of the Corporation as may be ordered by the board, taking proper vouchers for the disbursements, and renders to the chief executive officer, the president and the board, at its regular meetings, or when the board requires, an account of all substantial transactions related to the financial condition of the Corporation. The treasurer shall have such other powers and duties as the board, the chief executive officer or the president specifies. 6.08 CONTROLLER. The controller is the principal accounting officer of the Corporation and has charge of all books and accounting relating to assets, liabilities, receipts, disbursements, revenues and expenditures and is responsible for all internal and external reporting requirements of the Corporation. The controller is responsible for all duties incidental to the office of the principal accounting officer of the Corporation. The controller shall have such other powers and duties as the board, the chief executive officer or the president specifies. 6.09 POWERS AND DUTIES OF OTHER OFFICERS. The powers and duties of all other officers are those powers and duties as the terms of their engagement call for or as the board, the chief executive officer or the president specifies. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by the assistant, unless the board, the chief executive officer or the president otherwise directs. By-Law No. 2 9 Nexen Inc. Effective December 9, 2003 6.10 VARIATION OF POWERS AND DUTIES. The board may from time to time and subject to the provisions of the Act, vary, add to or limit the powers and duties of any officer. 6.11 TERM OF OFFICE. The board, in its discretion, may remove any officer of the Corporation, without prejudice to such officer's rights under any employment contract or in law. Otherwise, each officer appointed by the board shall hold office until a successor is appointed, or until the earlier of the resignation or death of the officer. 6.12 CONFLICT OF INTEREST. An officer shall disclose any interest in a material contract or proposed material contract with the Corporation in accordance with section 4.19. 6.13 AGENTS AND ATTORNEYS. The Corporation, by or under the authority of the board, has the power from time to time to appoint agents or attorneys for the Corporation in or outside Canada with powers of management, administration or otherwise as may be thought fit, including the power to sub-delegate. SECTION SEVEN - PROTECTION OF DIRECTORS, OFFICERS AND OTHERS 7.01 LIMITATION OF LIABILITY. Every director and officer of the Corporation shall act honestly and in good faith with a view to the best interests of the Corporation and shall exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, including reliance in good faith on: (a) financial statements of the Corporation represented to the director by an officer of the Corporation or in a written report of the auditor of the Corporation fairly to reflect the financial condition of the Corporation; or (b) a report of a person whose profession lends credibility to a statement made by the professional person. Subject to the above provisions, no director or officer is liable for the acts, receipts, neglects or defaults of any other director, officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Corporation are invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of the moneys, securities or effects of the Corporation are deposited, or for any loss occasioned by any error of judgement or oversight on the part of the director or officer, or for any other loss, damage or misfortune which happens in the execution of the duties of the office of director or officer; provided that nothing in this section relieves any director or officer from the duty to act in accordance with the Act or from liability for any breach of the Act. 7.02 INDEMNITY. Subject to the provisions of the Act, the Corporation shall indemnify a director or officer, a former director or officer, or another individual who acts or acted at the Corporation's request as a director or officer, or an individual acting in a similar capacity of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgement, reasonably incurred by the individual in respect of any civil, criminal, administrative or investigative action or other proceeding in which the individual is involved because of that By-Law No. 2 10 Nexen Inc. Effective December 9, 2003 association with the Corporation or other entity if, exercising the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances: (a) the individual acted honestly and in good faith with a view to the best interests of the Corporation or, as the case may be, to the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at the Corporation's request; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual's conduct was lawful. The Corporation shall also indemnify any of the persons set out above in any other circumstances which the Act or law permits or requires. Nothing in this by-law limits the right of any person entitled to indemnity to claim indemnity apart from the provisions of this by-law to the extent permitted by the Act or law. 7.03 ADVANCE OF COSTS. The Corporation may advance money to any director, officer or other individual for the costs, charges and expenses of a proceeding referred to in section 7.02. The individual, however, shall repay the money to the Corporation if the individual does not fulfil the conditions set out in subsection 7.02 (a) and, as applicable, subsection 7.02 (b). 7.04 INSURANCE. Subject to the Act, the Corporation may purchase and maintain insurance for the benefit of any person referred to in section 7.02 against any liability incurred by such person in their capacity as a director or officer of the Corporation or of another body corporate where the individual acts or acted in that capacity at the Corporation's request. SECTION EIGHT - SHARES 8.01 ALLOTMENT OF SHARES. Subject to the Act and the articles, the board may from time to time issue or grant options to purchase the whole or any part of the authorized and unissued shares of the Corporation at such times and to such persons and for such consideration as the board determines, provided that no share may be issued until it is fully paid as provided by the Act. 8.02 COMMISSIONS. The board may from time to time authorize the Corporation to pay a reasonable commission to any person in consideration of the person purchasing or agreeing to purchase shares of the Corporation, whether from the Corporation or from any other person, or procuring or agreeing to procure purchasers for any shares of the Corporation. 8.03 REGISTRATION OF TRANSFER. Subject to the Act, a transfer of a share may only be registered in the Corporation's securities register upon presentation of the certificate representing such share with an endorsement, which complies with the Act, made on the certificate or delivered with the certificate, duly executed by an appropriate person as provided by the Act, together with reasonable assurance that the endorsement is genuine and effective, upon payment of all applicable taxes and any reasonable fees prescribed by the board. 8.04 TRANSFER AGENTS AND REGISTRARS. The board may from time to time appoint one or more agents to maintain, in respect of each class of shares of issued by the Corporation, a central securities register and one or more branch By-Law No. 2 11 Nexen Inc. Effective December 9, 2003 securities registers. An appointed person may be designated as transfer agent or registrar according to the functions carried out, and one person may be designated both transfer agent and registrar. The board may at any time terminate an appointment as transfer agent or registrar. 8.05 NON-RECOGNITION OF TRUSTS. Subject to the Act and any other applicable legislation or regulation, the Corporation may treat the registered holder of any share as the person exclusively entitled to vote, to receive notices, to receive any dividend or other payments in respect of the share, and otherwise to exercise all the rights and powers of an owner of the share. 8.06 SHARE CERTIFICATES. Every holder of one or more shares of the Corporation is entitled, at the option of the holder, to a share certificate, or to a non-transferable written certificate of acknowledgement of the right to obtain a share certificate, stating the number and class or series of shares held as shown on the securities register. Certificates shall be in the form the board may from time to time approve. Any certificate shall be signed in accordance with section 2.04 and does not need to be under corporate seal provided that, unless the board otherwise determines, certificates in respect of which a transfer agent and/or registrar has been appointed shall only be valid if countersigned on behalf of the transfer agent and/or registrar. Subject to the Act, the signature of any signing officer, including the transfer agent and/or registrar, if required, may be printed or mechanically reproduced in facsimile on the certificate. Every facsimile signature is deemed to be the signature of the officer whose signature it reproduces and is binding upon the Corporation. A certificate executed as set out in this section is valid even if an officer whose facsimile signature appears on the certificate no longer holds office at the date of issue of the certificate. 8.07 REPLACEMENT OF SHARE CERTIFICATES. The board or any officer or agent designated by the board may, in its discretion or the discretion of the officer or agent, direct the issue of a new share or other certificate on cancellation of a certificate that has been mutilated or in substitution for a certificate claimed to have been lost, destroyed or wrongfully taken, on payment of a reasonable fee and on terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the board may from time to time prescribe, whether generally or in any particular case. 8.08 JOINT HOLDERS. If two or more persons are registered as joint holders of any share, the Corporation is not bound to issue more than one certificate in respect the shareholding, and delivery of a certificate to one of the joint holders is sufficient delivery to all of them. Any joint holder may give effectual receipts for the certificate issued or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such share. 8.09 DECEASED SHAREHOLDERS. In the event of the death of a holder, or of one of the joint holders, of a share, the Corporation is not required to make any entry in the securities register or to make any dividend or other payments except on production of all documents as may be required by law and on compliance with the reasonable requirements of the Corporation and its transfer agents. SECTION NINE - DIVIDENDS AND RIGHTS 9.01 DIVIDENDS. Subject to the Act, the board may from time to time declare dividends payable to the shareholders according to their respective rights and interest in the Corporation. Dividends may be paid in money or property or by issuing fully paid shares of the Corporation. By-Law No. 2 12 Nexen Inc. Effective December 9, 2003 9.02 PAYMENT OF DIVIDENDS. A dividend payable in money shall be paid by cheque to the order of each registered holder of shares of the class or series in respect of which it has been declared and mailed by prepaid ordinary mail to the registered holder at the recorded address of the registered holder, or by electronic funds transfer to the bank account designated by the registered holder. In the case of joint holders, the cheque shall, unless the joint holders otherwise direct, be made payable to the order of all of such joint holders and mailed to them at their recorded address. The mailing of a cheque as set out in this section, unless the same is not paid on due presentation, or the electronic funds transfer as set out in this section satisfies and discharges the liability for the dividend to the extent of the sum represented by the cheque or funds transferred plus the amount of any tax which the Corporation is required to and does withhold. 9.03 NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend cheque by the person to whom it is sent as set out in section 9.02, the Corporation shall cause to be issued to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board or dividend disbursing agent may from time to time prescribe, whether generally or in any particular case. 9.04 RECORD DATE FOR DIVIDENDS AND RIGHTS. The board may fix in advance a date, less than 50 days before the date for the payment of any dividend or the date for the issue of any warrant or other evidence of the right to subscribe for securities of the Corporation, as record date for the determination of the persons entitled to receive payment of the dividend or to exercise the right to subscribe for the securities, and notice of any record date shall be given not less than seven days before the record date in the manner provided by the Act. If no record date is fixed, the record date for the determination of the persons entitled to receive payment of any dividend or to exercise the right to subscribe for securities of the Corporation shall be at the close of business on the day on which the resolution relating to such dividend or right to subscribe is passed by the board. 9.05 UNCLAIMED DIVIDENDS. Any dividend not claimed within six years after the date on which it was declared to be payable is forfeited and reverts to the Corporation. SECTION TEN - MEETINGS OF SHAREHOLDERS 10.01 ANNUAL MEETINGS. The annual meeting of shareholders shall be held at such time in each year and at such place in Canada as the board may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. 10.02 SPECIAL MEETINGS. The board has the power to call a special meeting of shareholders at any time. Any special meeting of shareholders shall be held at such time and at such place in Canada as the board may determine. 10.03 PARTICIPATION IN MEETINGS BY ELECTRONIC MEANS. Any person entitled to attend a meeting of shareholders may participate in the meeting, in accordance with the Act, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the By-Law No. 2 13 Nexen Inc. Effective December 9, 2003 Corporation, in its sole discretion, makes available such a communication facility. For the purposes of the Act, a person participating in a meeting by electronic means is deemed to be present at the meeting. 10.04 MEETINGS HELD BY ELECTRONIC MEANS. If the directors or the shareholders of the Corporation call a meeting of shareholders pursuant to the Act, the directors may determine that the meeting shall be held, in accordance with the Act, entirely by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting. 10.05 NOTICE OF MEETINGS. Notice of the time and place of each meeting of shareholders shall be given in the manner provided in section 11 more than 21 days and less than 50 days before the date of the meeting to each director, to the auditor, and to each shareholder who, at the close of business on the record date for notice, is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditor's report, election of directors and reappointment of the incumbent auditor shall state the nature of the business to be transacted in sufficient detail to permit the shareholder to form a reasoned judgement on the matter and shall state the text of any special resolution to be submitted to the meeting. 10.06 LIST OF SHAREHOLDERS ENTITLED TO NOTICE. Subject to applicable legislation or regulation, for every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares held by each shareholder entitled to vote at the meeting. If a record date for the meeting is fixed as provided for in section 10.07, the shareholders listed shall be those registered at the close of business on the record date. If no record date is fixed, the shareholders listed shall be those registered at the close of business on the day before the day on which the notice of the meeting is given or, where no such notice is given, on the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where the central securities register is maintained and at the meeting for which the list was prepared. Where a separate list of shareholders has not been prepared, the names of persons appearing in the securities register at the requisite time as the holder of one or more shares carrying the right to vote at such meeting is be deemed to be a list of shareholders. 10.07 RECORD DATE FOR NOTICE. The board may fix in advance a date, preceding the date of any meeting of shareholders by more than 21 days and less than 50 days, as the record date for determining the shareholders entitled to notice of the meeting. Notice of the record date shall be given at least seven days before the record date, by newspaper advertisement in the manner provided in the Act, and by written notice to each stock exchange in Canada on which the shares of the Corporation are listed for trading. If no record date is fixed, the record date for determining the shareholders entitled to receive notice of the meeting is the close of business on the day before the day on which the notice is given or, if no notice is given, the day on which the meeting is held. 10.08 WAIVER OF NOTICE. A shareholder and any other person entitled to attend a meeting of shareholders may, in any manner, waive notice of the meeting of shareholders and attendance of any person at a meeting of shareholders constitutes a waiver of notice of the meeting, unless the person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. By-Law No. 2 14 Nexen Inc. Effective December 9, 2003 10.09 OMISSION OF NOTICE. The accidental omission to give notice of any meeting or any irregularity in the notice of any meeting of shareholders or the non-receipt of any notice by any shareholder, director or the auditor of the Corporation does not invalidate any resolution passed or any proceedings taken at the meeting. 10.10 CHAIR, SECRETARY AND SCRUTINEERS. The chair of the board shall be the chair of any meeting of shareholders. If the chair of the board is not present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose an independent member of the board to be chair of the meeting. If the secretary of the Corporation is absent, the chair shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. One or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chair with the consent of the meeting. 10.11 PERSONS ENTITLED TO BE PRESENT. The only persons entitled to be present at a meeting of shareholders are those entitled to vote at the meeting, the directors and auditor of the Corporation and others who are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting, even if they are not entitled to vote. Any other person may be admitted only on the invitation of the chair of the meeting or with the consent of the meeting. 10.12 QUORUM. Subject to the Act, a quorum for the transaction of business at any meeting of shareholders shall be two persons present in person, each being a shareholder entitled to vote at the meeting or a duly appointed proxyholder or representative of a shareholder entitled to vote at the meeting, and together holding or representing by proxy not less than 25% of the outstanding shares of the Corporation entitled to vote at the meeting. If a quorum is present at the opening of any meeting of shareholders, the shareholders present or represented may proceed with the business of the meeting even if a quorum is not present throughout the meeting. If a quorum is not present at the opening of any meeting of shareholders, the shareholders present or represented may adjourn the meeting to a fixed time and place but may not transact any other business. 10.13 RIGHT TO VOTE. Subject to applicable legislation or regulation, every person named in the list referred to in section 10.06 is entitled to vote the shares shown on the list opposite the person's name at the meeting to which the list relates, except to the extent that: (a) where the Corporation has fixed a record date in respect of the meeting, and the person has transferred any of the shares held by that person after the record date, or where the Corporation has not fixed a record date in respect of the meeting, the person has transferred any of the shares held by that person after the date on which the list is prepared, and (b) the transferee produces properly endorsed certificates evidencing the shares or otherwise establishes the transferee's ownership the shares and has demanded not later than 10 days before the meeting that the transferees name be included in the list. In such a case, the transferee shall be entitled to vote the transferred shares at such meeting. 10.14 PROXYHOLDERS AND REPRESENTATIVES. Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, to attend and act as representative of the shareholder at the meeting with the authority conferred by the proxy. A proxyholder or representative of a shareholder does not need to be a shareholder. A proxy shall be in writing executed by the shareholder or the shareholder's attorney and shall conform with the requirements of the Act. By-Law No. 2 15 Nexen Inc. Effective December 9, 2003 Alternatively, every shareholder that is a body corporate or association may authorize by resolution of its directors or governing body an individual to represent it at a meeting of shareholders and the individual may exercise all the powers on the shareholder's behalf that it could exercise if it were an individual shareholder. The authority of the individual shall be established by depositing with the Corporation a certified copy of the resolution, or in any other manner satisfactory to the secretary of the Corporation or the chair of the meeting. A proxy is valid only at the meeting for which it is given or any adjournment of that meeting. The personal representative of a deceased shareholder of record is entitled, upon filing with the secretary of the meeting sufficient proof of appointment, to exercise the same voting rights at any meeting of shareholders as the shareholder of record would have been entitled to exercise. 10.15 TIME FOR DEPOSIT OF PROXIES. The board may specify in a notice calling a meeting of shareholders a time 48 hours or less, exclusive of non-business days, prior to the meeting, before which proxies to be used at the meeting must be deposited. A proxy shall be acted upon only if deposited with the Corporation or an agent of the Corporation as set out in the notice prior to the time specified or, if no time is specified in the notice, the proxy is received by the secretary of the Corporation or by the chair of the meeting or any adjournment of the meeting prior to the time of voting. The board may from time to time make regulations regarding the lodging of proxies at some place other than the place at which a meeting or adjourned meeting of shareholders is to be held, and for particulars of the proxies to be provided before the meeting or adjourned meeting to the Corporation or any agent of the Corporation and providing that proxies lodged in accordance with those regulations may be voted as though they were produced at the meeting or adjourned meeting and votes given in accordance with those regulations shall be valid and shall be counted. The chair of any meeting of shareholders may, subject to any regulations made as set out in this section, in the chair's discretion, accept any legible form of communication as to the authority of any person claiming to represent and vote on behalf of a shareholder even if a proxy conferring such authority has not been lodged with the Corporation, and any votes given in accordance with the communication accepted by the chair of the meeting are valid and shall be counted. 10.16 JOINT SHAREHOLDERS. If two or more persons hold shares jointly, any one of them present in person or duly represented at a meeting of shareholders may, in the absence of the others, vote the shares. If two or more persons who hold shares jointly are present in person or represented, only one of them may vote the shares jointly held by them. 10.17 VOTES TO GOVERN. Unless otherwise required by the articles or by-laws or by law, every question at a meeting of shareholders shall be determined by a majority of the votes cast on the question. In case of an equality of votes either on a show of hands or on a poll, the chair of the meeting shall be entitled to a second or casting vote. 10.18 SHOW OF HANDS. Subject to the Act, every question at a meeting of shareholders shall be decided by a show of hands, which may include such other indication of a vote made by means of the telephonic, electronic or other communication facility, if any, made available by the Corporation for that purpose, unless a ballot on the question is required or demanded. On a show of hands, every person who is present, in person or by means of the telephonic, electronic or other communication facility, if any, made available by the Corporation, and entitled to vote shall have one vote. If a vote by show of hands has been taken on a question, unless a ballot on the question By-Law No. 2 16 Nexen Inc. Effective December 9, 2003 is required or demanded, a declaration by the chair of the meeting that the vote has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting is evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the question, and the result of the vote is the decision of the shareholders on the question. 10.19 BALLOTS. On any question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has already been taken, the chair may require a ballot or any person who is present, in person or by means of the telephonic, electronic or other communication facility, if any, made available by the Corporation, and entitled to vote on the question may demand a ballot. Any ballot required or demanded shall be taken in the manner directed by the chair including, wholly or partially by indication of a vote made by means of telephonic, electronic or other communication facility, if any, that the Corporation has made available for that purpose. A requirement or demand for a ballot may be withdrawn at any time prior to the ballot being taken. If a ballot is taken, each person present, in person or by means of the telephonic, electronic or other communication facility, if any, made available by the Corporation, is entitled to the number of votes provided by the Act or the articles for each share which the person is entitled to vote and the result of the ballot is the decision of the shareholders on the question. 10.20 ADJOURNMENT. The chair of a meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn the meeting from time to time and from place to place. If a meeting of shareholders is adjourned for less than 30 days, notice of the adjourned meeting is not required other than by announcement at the meeting that is adjourned. Subject to the Act, if a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting is required as if it was an original meeting. Any business may be brought before or dealt with at any adjourned meeting which might have been brought before or dealt with at the original meeting in accordance with the notice calling the original meeting. 10.21 RESOLUTION IN WRITING. A resolution in writing signed by all of the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if passed at a meeting of the shareholders unless a written statement with respect to the subject matter of the resolution is submitted by a director or the auditor in accordance with the Act. 10.22 ONLY ONE SHAREHOLDER. Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or duly represented constitutes a meeting. SECTION ELEVEN - NOTICES 11.01 METHOD OF GIVING NOTICES. Any notice (which term includes any communication or document) to be given (which term includes sent, delivered or served) pursuant to the Act, the articles, the by-laws or otherwise to a shareholder, director, officer, auditor or member of a committee of the board is sufficiently given if: delivered personally to the person; delivered to the recorded address of the person; mailed to the person's recorded address by prepaid ordinary or air mail; sent to the person's recorded address by any means of prepaid transmitted or recorded communication; or, an electronic document is provided in accordance with section 12 of this by-law. A notice delivered as set out in this section is deemed to have been given when it is delivered personally or to the recorded By-Law No. 2 17 Nexen Inc. Effective December 9, 2003 address; a notice mailed as set out in this section is deemed to have been given when deposited in a post office or public letter box; a notice sent as by any means of transmitted or recorded communication as set out in this section is deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch; and a notice sent by means of an electronic document as set out in this section and section 12 is deemed to have been given upon receipt of reasonable confirmation of transmission to the designated information system indicated by the person entitled to receive such notice. The secretary may cause the recorded address of any shareholder, director, officer, auditor or member of a committee of the board to be changed in accordance with any information believed by the secretary to be reliable. 11.02 NOTICE TO JOINT SHAREHOLDERS. If two or more persons are registered as joint holders of a share, any notice may be addressed to all of the joint holders, but notice addressed to any one of the joint holders is sufficient notice to all of them. 11.03 COMPUTATION OF TIME. In computing the date when notice must be given, the date of giving the notice is excluded and the date of the meeting or other event is included. 11.04 UNDELIVERED NOTICES. If any notice given to a shareholder pursuant to section 11.01 is returned on three consecutive occasions because the shareholder cannot be found, the Corporation is not required to give any further notices to the shareholder until the shareholder informs the Corporation in writing of the shareholder's new address. 11.05 OMISSIONS AND ERRORS. The accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the board or the non-receipt of any notice by any person or any error in any notice not affecting the substance of the notice does not invalidate any action taken at a meeting held pursuant to the notice. 11.06 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. Every person who, by operation of law, transfer, death of a shareholder or any other means, becomes entitled to any share is bound by every notice in respect of that share which was duly given to the shareholder from whom title to the share was derived prior to the person's name and address being entered on the securities register and prior to the person furnishing proof of authority or evidence of entitlement prescribed by the Act to the Corporation. 11.07 WAIVER OF NOTICE. Any shareholder, proxyholder, other person entitled to attend a meeting of shareholders, director, officer, auditor or member of a committee of the board may at any time waive any notice, or waive or abridge the time for any notice, required to be given to the individual under the Act, the articles, the by-laws or otherwise, and the waiver or abridgement cures any default in the giving or in the time of the notice whether the waiver or abridgement is given before or after the meeting or other event for which notice was required to be given. A waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the board or a committee of the board which may be given in any manner. By-Law No. 2 18 Nexen Inc. Effective December 9, 2003 11.08 SIGNATURE TO NOTICES. The signature of any director or officer of the Corporation on any notice or document to be given by the Corporation may be written, stamped, mechanically reproduced, electronically reproduced in whole or in part. 11.09 PROOF OF SERVICE. With respect to every notice or other document sent by post it is sufficient to prove that the envelope or wrapper containing the notice or other document was properly addressed as provided in this by-law and put into a post office or into a letter box. With respect to every notice or other document sent as an electronic document it is sufficient to prove that the electronic document was properly addressed to the designated information system as provided in this by-law and sent by electronic means. A certificate of an officer of the Corporation or of a transfer officer of any transfer agent or branch transfer agent of shares of any class of the Corporation as to the sending, delivery or publication of any notice or other document to any shareholder, director, officer or auditor is conclusive evidence of the sending, delivery or publication and is binding on every shareholder, director, officer or auditor of the Corporation as the case may be. SECTION TWELVE - ELECTRONIC DOCUMENTS 12.01 CREATION AND PROVISION OF INFORMATION. Unless the Corporation's articles provide otherwise, and subject to and in accordance with the Act and this section, the Corporation may satisfy any requirement under the Act to create or provide a notice, document or other information to any person by the creation or provision of an electronic document. Except as provided for in the Act, "electronic document" means any form of representation of information or of concepts fixed in any medium in or by electronic, optical or other similar means and that can be read or perceived by a person by any means. 12.02 CONSENT AND OTHER REQUIREMENTS. Further to section 12.01, a requirement under the Act to provide a person with a notice, document or other information is not satisfied by the provision of an electronic document unless: (a) the addressee has consented, in accordance with the Act, and has designated an information system for the receipt of the electronic document; and (b) the electronic document is provided to the designated information system. The term "information system" means a system used to generate, send, receive, store, or otherwise process an electronic document. SECTION THIRTEEN - MISCELLANEOUS 13.01 INVALIDITY OF ANY PROVISIONS OF THIS BY-LAW. The invalidity or unenforceability of any provision of this by-law does not affect the validity or enforceability of the remaining provisions of this by-law. SECTION FOURTEEN - REPEAL AND COMING INTO FORCE 14.01 EFFECTIVE DATE. Subject to its confirmation by the shareholders in accordance with the Act, this by-law comes into force on the date it is approved by the directors. 14.02 REPEAL. All previous by-laws of the Corporation are repealed when this by-law comes into force provided that the repeal does not affect the previous operation of any by-law repealed or affect the validity By-Law No. 2 19 Nexen Inc. Effective December 9, 2003 of any act done on right, privilege, obligation or liability acquired or incurred under or the validity of any contract on agreement made pursuant to any by-law prior to its repeal. All officers and persons acting under any by-law repealed by this by-law shall continue to act as if appointed by the directors under the provisions of this by-law or the Act until their successors are appointed. ENACTED the 9th day of December, 2003. /s/ Charles W. Fischer /s/ John B. Mcwilliams - ----------------------------- ----------------------------- President Secretary i TABLE OF CONTENTS Section One - INTERPRETATION...................................................1 1.01 Definitions...........................................................1 1.02 General...............................................................2 Section Two - BUSINESS OF THE CORPORATION......................................2 2.01 Registered Office.....................................................2 2.02 Corporate Seal........................................................2 2.03 Financial Year........................................................2 2.04 Execution of Instruments..............................................2 2.05 Voting Rights in Other Bodies Corporate...............................3 2.06 Divisions.............................................................3 2.07 Information Available to Shareholders.................................3 Section Three - BORROWING AND SECURITIES.......................................3 3.01 Banking Arrangements..................................................3 3.02 Borrowing Power.......................................................3 3.03 Delegation............................................................4 Section Four - DIRECTORS.......................................................4 4.01 Number of Directors...................................................4 4.02 Qualification.........................................................4 4.03 Election and Term.....................................................4 4.04 Removal of Directors..................................................4 4.05 Vacation of Office....................................................4 4.06 Vacancies.............................................................4 4.07 Action by the Board...................................................4 4.08 Canadian Directors Present at Meetings................................5 4.09 Meeting by Telephone and Other Means..................................5 4.10 Place of Meetings.....................................................5 4.11 Calling of Meetings...................................................5 4.12 Notice of Directors Meeting...........................................5 4.13 First Meeting of New Board............................................5 4.14 Adjourned Meeting.....................................................6 4.15 Regular Meetings......................................................6 4.16 Chair of Meetings.....................................................6 4.17 Quorum................................................................6 4.18 Votes to Govern.......................................................6 4.19 Conflict of Interest..................................................6 4.20 Remuneration and Expenses.............................................6 Section Five - COMMITTEES......................................................7 5.01 Committees of the Board...............................................7 5.02 Transaction of Business...............................................7 5.03 Advisory Bodies.......................................................7 5.04 Procedure.............................................................7 5.05 Members...............................................................7 5.06 Minutes...............................................................7 By-Law No. 2 ii Nexen Inc. Effective December 9, 2003 Section Six - OFFICERS.........................................................7 6.01 Appointment...........................................................7 6.02 Chair of the Board....................................................7 6.03 Chief Executive Officer...............................................7 6.04 President.............................................................8 6.05 Vice President........................................................8 6.06 Secretary.............................................................8 6.07 Treasurer.............................................................8 6.08 Controller............................................................8 6.09 Powers and Duties of Other Officers...................................8 6.10 Variation of Powers and Duties........................................9 6.11 Term of Office........................................................9 6.12 Conflict of Interest..................................................9 6.13 Agents and Attorneys..................................................9 Section Seven - PROTECTION OF DIRECTORS, OFFICERS AND OTHERS...................9 7.01 Limitation of Liability...............................................9 7.02 Indemnity.............................................................9 7.03 Advance of Costs.....................................................10 7.04 Insurance............................................................10 Section Eight - SHARES........................................................10 8.01 Allotment of Shares..................................................10 8.02 Commissions..........................................................10 8.03 Registration of Transfer.............................................10 8.04 Transfer Agents and Registrars.......................................10 8.05 Non-recognition of Trusts............................................11 8.06 Share Certificates...................................................11 8.07 Replacement of Share Certificates....................................11 8.08 Joint Holders........................................................11 8.09 Deceased Shareholders................................................11 Section Nine - DIVIDENDS AND RIGHTS...........................................11 9.01 Dividends............................................................11 9.02 Payment of Dividends.................................................12 9.03 Non-receipt of Cheques...............................................12 9.04 Record Date for Dividends and Rights.................................12 9.05 Unclaimed Dividends..................................................12 Section Ten - MEETINGS OF SHAREHOLDERS........................................12 10.01 Annual Meetings......................................................12 10.02 Special Meetings.....................................................12 10.03 Participation in Meetings by Electronic Means........................12 10.04 Meetings Held by Electronic Means....................................13 10.05 Notice of Meetings...................................................13 10.06 List of Shareholders Entitled to Notice..............................13 10.07 Record Date for Notice...............................................13 10.08 Waiver of Notice.....................................................13 10.09 Omission of Notice...................................................14 10.10 Chair, Secretary and Scrutineers.....................................14 By-Law No. 2 iii Nexen Inc. Effective December 9, 2003 10.11 Persons Entitled to be Present.......................................14 10.12 Quorum...............................................................14 10.13 Right to Vote........................................................14 10.14 Proxyholders and Representatives.....................................14 10.15 Time for Deposit of Proxies..........................................15 10.16 Joint Shareholders...................................................15 10.17 Votes to Govern......................................................15 10.18 Show of Hands........................................................15 10.19 Ballots..............................................................16 10.20 Adjournment..........................................................16 10.21 Resolution in Writing................................................16 10.22 Only One Shareholder.................................................16 Section Eleven - NOTICES......................................................16 11.01 Method of Giving Notices.............................................16 11.02 Notice to Joint Shareholders.........................................17 11.03 Computation of Time..................................................17 11.04 Undelivered Notices..................................................17 11.05 Omissions and Errors.................................................17 11.06 Persons Entitled by Death or Operation of Law........................17 11.07 Waiver of Notice.....................................................17 11.08 Signature to Notices.................................................18 11.09 Proof of Service.....................................................18 Section Twelve - ELECTRONIC DOCUMENTS.........................................18 12.01 Creation and Provision of Information................................18 12.02 Consent and Other Requirements.......................................18 Section Thirteen - MISCELLANEOUS..............................................18 13.01 Invalidity of any Provisions of this By-law..........................18 Section Fourteen - REPEAL AND COMING INTO FORCE...............................18 14.01 Effective Date.......................................................18 14.02 Repeal...............................................................18 EX-4 4 ex4-42form10k_2003.txt EXHIBIT 4.42 EXHIBIT 4.42 ------------ TRUST INDENTURE BETWEEN CANADIAN OCCIDENTAL PETROLEUM LTD. AND CIBC MELLON TRUST COMPANY Made as of April 28, 1998 TABLE OF CONTENTS ARTICLE 1. - INTERPRETATION 1.1 Definitions............................................................1 Additional Amounts..............................................2 business day....................................................2 Certificate of the Corporation..................................2 Certified Resolution............................................2 Consolidated Net Tangible Assets................................2 Corporation.....................................................2 Corporation's Auditors..........................................2 Counsel.........................................................2 Current Assets..................................................3 Debt Securities.................................................3 Debt Securities Guarantee.......................................3 Debt Security holders...........................................3 Depositary......................................................3 directors.......................................................4 Equity..........................................................4 Event of Default................................................4 Generally Accepted Accounting Principles........................4 Global Debt Security............................................4 Guarantor.......................................................4 Indebtedness....................................................4 Indebtedness for Borrowed Money.................................4 Indexed Debt Security...........................................4 Original Issue Discount Debt Security...........................5 Paying Agent....................................................5 Periodic Offering...............................................5 Permitted Encumbrances..........................................5 Person..........................................................8 principal.......................................................8 Purchase Money Mortgage.........................................8 Purchase Money Obligation.......................................9 Restricted Subsidiary...........................................9 Security Interest...............................................9 Subsidiary.....................................................10 TIA............................................................10 Trustee........................................................10 this Trust Indenture...........................................10 U.S. Government Obligations....................................10 Written Order of the Corporation...............................10 1.2 Meaning of "outstanding" for Certain Purposes.........................11 1.3 Interpretation not Affected by Headings...............................12 1.4 References............................................................12 1.5 Applicable Law........................................................12 1.6 Consent to Jurisdiction and Service of Process........................12 1.7 Method of Payment.....................................................13 -ii- 1.8 Currency..............................................................13 1.9 Reference to Provinces................................................14 ARTICLE 2. - ISSUE OF DEBT SECURITIES 2.1 Issue Unlimited.......................................................14 2.2 Terms of the Debt Securities of any Series............................14 2.3 Form..................................................................16 2.4 Certification and Delivery of Debt Securities.........................16 2.5 Execution of Debt Securities..........................................17 2.6 Certification by Trustee..............................................17 2.7 Interim Debt Securities...............................................18 2.8 Issue of Substitutional Debt Securities...............................19 2.9 Pledge and Re-Issue of Debt Securities................................19 2.10 Commencement of Interest..............................................20 2.11 Debt Securities to Rank Pari Passu....................................20 2.12 Additional Terms......................................................20 2.13 Issue of Global Debt Securities.......................................21 2.14 Registration, Transfer, Exchange and Ownership of Global Debt Securities.......................................................22 ARTICLE 3. - REGISTRATION, TRANSFER AND EXCHANGE OF DEBT SECURITIES, OWNERSHIP OF DEBT SECURITIES AND NOTICE TO DEBT SECURITY HOLDERS......24 3.1 Negotiability of Debt Securities and Coupons..........................25 3.2 Registered Debt Securities............................................25 3.3 Transferee entitled to Registration...................................25 3.4 No Notice of Trusts...................................................25 3.5 Registers open for Inspection.........................................25 3.6 Exchanges of Debt Securities..........................................26 3.7 Closing of Registers..................................................26 3.8 Charges for Registration, Transfer and Exchange.......................26 3.9 Ownership of Debt Securities and Coupons..............................27 3.10 Payment Free from Equities............................................27 3.11 Evidence of Ownership.................................................27 3.12 Notice to Debt Security Holders.......................................28 3.13 Notice to Corporation.................................................28 3.14 Notice to Trustee.....................................................29 ARTICLE 4. - REDEMPTION AND PURCHASE OF DEBT SECURITIES 4.1 Applicability of Article..............................................29 4.2 Partial Redemption....................................................29 4.3 Notice of Redemption..................................................29 4.4 Debt Securities Due on Redemption Dates...............................30 4.5 Deposit of Redemption Moneys..........................................30 4.6 Cancellation of Debt Securities Redeemed..............................31 4.7 Purchase of Debt Securities by the Corporation........................31 -iii- ARTICLE 5. - COVENANTS OF THE CORPORATION 5.1 General Covenants.....................................................31 5.2 Not to Accumulate Interest............................................34 5.3 Performance of Covenants by Trustee...................................34 ARTICLE 6. - DEFAULT AND ENFORCEMENT 6.1 Events of Default.....................................................34 6.2 Acceleration on Default...............................................36 6.3 Waiver of Default.....................................................37 6.4 Right of Trustee to Enforce Payment...................................38 6.5 Application of Moneys by Trustee......................................38 6.6 Notice of Payment by Trustee..........................................39 6.7 Trustee May Demand Production of Debt Securities......................39 6.8 Trustee Appointed Attorney............................................39 6.9 Remedies Cumulative...................................................39 6.10 Judgment Against Corporation..........................................39 6.11 Immunity of Shareholders, etc.........................................40 6.12 Suits by Debt Security Holders........................................40 ARTICLE 7. - SATISFACTION AND DISCHARGE 7.1 Cancellation and Destruction..........................................40 7.2 Non-Presentation of Debt Securities and Coupons.......................40 7.3 Repayment of Unclaimed Moneys to Corporation..........................41 7.4 Satisfaction and Discharge............................................41 7.5 Application of Trust Funds............................................42 ARTICLE 8. - SUCCESSOR CORPORATIONS 8.1 Certain Requirements in Respect to Mergers, etc.......................43 8.2 Vesting of Powers in Successor........................................45 8.3 Additional Amounts....................................................45 ARTICLE 9. - MEETINGS OF DEBT SECURITY HOLDERS 9.1 Right to Convene Meeting..............................................46 9.2 Notice................................................................46 9.3 Chairman..............................................................46 9.4 Quorum................................................................47 9.5 Power to Adjourn......................................................47 9.6 Poll..................................................................47 9.7 Voting................................................................47 9.8 Regulations...........................................................47 9.9 Corporation and Trustee may be Represented............................48 9.10 Powers Exercisable by Extraordinary Resolution........................49 9.11 Meaning of "Extraordinary Resolution".................................50 9.12 Powers Cumulative.....................................................51 9.13 Minutes...............................................................51 9.14 Instruments in Writing................................................51 -iv- 9.15 Binding Effect of Resolutions.........................................52 9.16 Serial Meetings.......................................................52 9.17 Covenants Applicable to a Particular Series of Debt Securities............................................................53 ARTICLE 10. - SUPPLEMENTAL INDENTURES 10.1 Provisions for Supplemental Indentures for Certain Purposes...........53 ARTICLE 11. - CONCERNING THE TRUSTEE 11.1 Conditions Precedent to Trustee's Obligations to Act Hereunder........55 11.2 Evidence..............................................................56 11.3 Experts and Advisers..................................................56 11.4 Documents, Moneys, etc. Held by Trustee...............................56 11.5 Trustee not Required to Give Security.................................57 11.6 Protection of Trustee.................................................57 11.7 Compensation and Indemnification of Trustee...........................57 11.8 Replacement of Trustee................................................58 11.9 Power of Trustee to Protect Interest..................................58 11.10 Acceptance of Trust...................................................58 11.11 Duty of Trustee.......................................................59 11.12 Provisions Relieving Liability........................................59 11.13 Material Conflict of Interest.........................................59 11.14 Notice of Events of Default...........................................59 11.15 Certificate of No Default.............................................59 11.16 Trustee May Rely on Certain Documents.................................59 11.17 Evidence of Compliance................................................60 ARTICLE 12. - DEBT SECURITIES GUARANTIES 12.1 Capacity of Trustee Re Debt Securities Guarantees.....................61 12.2 Acceptance of Trust Re Debt Securities Guarantees.....................61 12.3 Proceedings by the Trustee............................................61 12.4 Suits by Debt Securities Holders......................................62 12.5 Application of Guarantee Moneys by Trustee............................62 12.6 Amendments and Waivers................................................62 ARTICLE 13. - DEFEASANCE AND COVENANT DEFEASANCE 13.1 Defeasance............................................................63 13.2 Covenant Defeasance...................................................63 13.3 Conditions to Defeasance or Covenant Defeasance.......................64 13.4 Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions..............................66 13.5 Reinstatement.........................................................67 ARTICLE 14. - COUNTERPARTS 14.1 Counterparts and Formal Date..........................................68 THIS TRUST INDENTURE made as of April 28, 1998 BETWEEN: CANADIAN OCCIDENTAL PETROLEUM LTD., a corporation incorporated under the CANADA BUSINESS CORPORATIONS ACT and having its head office in the City of Calgary, in the Province of Alberta (hereinafter referred to as the "Corporation") OF THE FIRST PART AND: CIBC MELLON TRUST COMPANY, a trust corporation incorporated under the laws of Canada and having an office in the City of Calgary, in the Province of Alberta (hereinafter referred to as the "Trustee") OF THE SECOND PART WITNESSETH THAT: WHEREAS the Corporation deems it necessary for its corporate purposes to create and issue the Debt Securities to be created and issued in the manner hereinafter appearing; AND WHEREAS the Corporation, under the laws relating thereto, is duly authorized to create and issue the Debt Securities to be issued as herein provided; AND WHEREAS all things necessary have been done and performed to make the Debt Securities, when certified by the Trustee and issued as in this Indenture provided, valid, binding and legal obligations of the Corporation with the benefits and subject to the terms of this Indenture and to make this Indenture a valid and binding indenture in accordance with its terms; NOW THEREFORE it is hereby agreed, covenanted and declared as follows: ARTICLE 1. - INTERPRETATION 1.1 DEFINITIONS In this Trust Indenture, unless there is something in the subject matter or context inconsistent therewith or unless otherwise provided with respect to any series of Debt Securities pursuant to Section 2.2, the following expressions shall have the following meanings, namely: -2- (a) "Additional Amounts" has the meaning set forth in Section 8.1; (b) "business day" means any day other than a Saturday, Sunday or any other day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close, except that, when used with respect to any place (other than The City of New York) where the principal of or premium, if any, or interest on any Debt Securities is payable (a "Place of Payment") or any other particular location (other than The City of New York), such term means any day, other than a Saturday, Sunday or any other day on which banking institutions in that Place of Payment or other location. as the case may be, are authorized or obligated by law or executive order to close; (c) "Certificate of the Corporation" means a certificate in writing signed in the name of the Corporation by: (i) any two of the chairman of the board, president, chief executive officer, chief operating officer, chief financial officer, any senior vice-president and the vice-president, finance of the Corporation; or (ii) any one of the foregoing together with the treasurer, secretary, assistant treasurer, assistant secretary or controller of the Corporation, and may consist of one or more instruments so executed and may be combined with a Written Order of the Corporation; (d) "Certified Resolution" means a copy of a resolution certified by the corporate secretary or an assistant secretary of the Corporation under its corporate seal to have been duly passed by the directors and to be in full force and effect on the date of such certification; (e) "Consolidated Net Tangible Assets" means, in respect of the Corporation or any Subsidiary, the aggregate amount of assets less (i) all current liabilities (excluding any current portion of long-term debt) and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense, and other intangibles, all as reflected in the most recent consolidated financial statements of the Corporation or such Subsidiary, as the case may be, in each case prepared in accordance with Generally Accepted Accounting Principles; (f) "Corporation" means the Party of the First Part and every corporate successor to or of the Party of the First Part which shall have complied with any applicable provisions of Article 8; (g) "Corporation's Auditors" means the auditors of the Corporation at the date hereof, or any other independent firm of accountants duly appointed as auditors of the Corporation; (h) "Counsel" means a general counsel of the Corporation or other legal counsel who may be an employee of or counsel to the Corporation (unless otherwise expressly provided herein or, with respect to the Debt Securities of any series, pursuant to Section 2.2) and who shall be acceptable to the Trustee; -3- (i) "Current Assets" means current assets as determined in accordance with Generally Accepted Accounting Principles; (j) "Debt Securities" means the debt securities, notes or other evidences of indebtedness of the Corporation issued and certified hereunder and for the time being outstanding, whether in definitive or interim form, and without limiting the generality of the foregoing: (i) "coupon Debt Securities" means Debt Securities which are issued with coupons attached thereto; (ii) "coupons" means the interest coupons attached or appertaining to coupon Debt Securities; (iii) "fully registered Debt Securities" means Debt Securities without coupons registered as to both principal and interest; (iv) "registered Debt Securities" where not qualified by other words means collectively fully registered Debt Securities, coupon Debt Securities registered as to principal only and non-interest bearing Debt Securities registered as to principal; and (v) "unregistered Debt Securities" means Debt Securities which are not registered Debt Securities; (k) "Debt Securities Guarantee" means any guarantee of any Debt Securities executed by any Subsidiary of the Corporation or other Person in accordance with the terms of any executed supplemental indenture, Certified Resolution, Certificate of the Corporation, Written Order of the Corporation or otherwise. (l) "Debt Security holders" or "holders" means, with respect to registered Debt Securities, the several persons for the time being entered in the register or registers hereinafter mentioned as holders of any of the Debt Securities, and, with respect to unregistered Debt Securities, the bearers thereof for the time being; (m) "Depositary" means with respect to the Debt Securities of any series issuable or issued in the form of one or more Global Debt Securities, the Person designated as Depositary by the Corporation pursuant to Sections 2.2 and 2.12 hereof, until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, "Depositary" as used with respect to the Debt Securities of any series shall mean each Depositary with respect to the Global Debt Security of such series; -4- (n) "directors" means the board of directors of the Corporation, or whenever duly empowered the executive committee, if any, of the board of directors of the Corporation, for the time being, and reference to action by the directors or by the board of directors shall mean action by the directors as a board or by the executive committee as such; (o) "Equity" means, as to any Person, the shareholders' equity (or, if such Person is not a corporation, the amount corresponding to shareholders' equity) appearing in such Person's most recent consolidated financial statements prepared in accordance with Generally Accepted Accounting Principles; (p) "Event of Default" means any of the events described in Section 6.1; (q) "Generally Accepted Accounting Principles" means generally accepted accounting principles which are in effect from time to time in Canada; (r) "Global Debt Security" means a Debt Security representing all or part of any series of Debt Securities, that is issued to and registered in the name of the Depositary for such series, or its nominee, pursuant to Section 2.13 hereof, (s) "Guarantor" means any Subsidiary of the Corporation or other Person who executes a Debt Securities Guarantee as guarantor. (t) "Indebtedness", as to any Person, means, without duplication, all items of indebtedness or liability which in accordance with Generally Accepted Accounting Principles would be considered to be indebtedness or liabilities of such Person as at the date as of which indebtedness is to be determined, including Indebtedness for Borrowed Money; (u) "Indebtedness for Borrowed Money", as to any Person, means, without duplication, the full amount of all liabilities of such Person for the repayment, either in money or in property, of borrowed money, and the full amount of liabilities of others for the repayment, either in money or in property, of borrowed money, that is guaranteed or endorsed (otherwise than for purposes of collection) by such Person, or which such Person is obligated, contingently or otherwise, to purchase, or on which such Person is otherwise contingently liable, provided that a contingent liability for borrowed money shall only constitute Indebtedness for Borrowed Money where the amount thereof is recorded as a liability in the most recent consolidated financial statements of such Person prepared in accordance with Generally Accepted Accounting Principles; (v) "Indexed Debt Security" means a Debt Security the terms of which provide that the principal amount thereof payable at final maturity may be more or less than the principal face amount thereof at original issuance; -5- (w) "Original Issue Discount Debt Security" means any Debt Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 6.2; (x) "Paying Agent" means any Person authorized by the Corporation to pay the principal of or any premium or interest on any Debt Securities on behalf of the Corporation and includes the Corporation acting as a Paying Agent provided that the Corporation may not act as the only Paying Agent at any time and may not as a Paying Agent with respect to moneys deposited or paid pursuant to Sections 7.4 or 7.5 or Article 13; (y) "Periodic Offering" means an offering of Debt Securities of a series from time to time, the specific terms of which Debt Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity or maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Corporation subject to the terms hereof, upon the issuance of such Debt Securities from time to time; (z) "Permitted Encumbrances" means any of the following: (i) liens for taxes, assessments or governmental charges which are not due or delinquent, or the validity of which the Corporation or any Restricted Subsidiary shall be contesting in good faith; (ii) the liens of any judgments rendered, or claims filed, against the Corporation or any Restricted Subsidiary which the Corporation or such Restricted Subsidiary shall be contesting in good faith; (iii) liens, privileges or other charges imposed or permitted by law such as carriers' liens, builders' liens, materialmen's liens and other liens, privileges or other charges of a similar nature which relate to obligations which are not due or delinquent, or the validity of which the Corporation or any Restricted Subsidiary shall be contesting in good faith; (iv) undetermined or inchoate liens arising in the ordinary course of and incidental to construction or current operations of the Corporation or any Restricted Subsidiary which relate to obligations which are not due or delinquent, or the validity of which the Corporation or such Restricted Subsidiary shall be contesting in good faith; (v) easements, rights-of-way, servitudes, zoning or other similar rights or restrictions in respect of land held by the Corporation or any Restricted Subsidiary (including, without limitation, rights-of-way and servitudes for railways, sewers, drains, pipe lines, gas and water mains, electric light and power and telephone or telegraph or cable television conduits, poles, wires and cables) which: (A) are in existence on the date of execution of this Indenture; or -6- (B) do not, either alone or in the aggregate, materially detract from the value of such land or materially impair its use in the operation of the business of the Corporation or of any such Restricted Subsidiary; (vi) security arising under partnership agreements, oil and gas leases, overriding royalty agreements, net profits agreements, production payment agreements, royalty trust agreements, master limited partnership agreements, farm-out agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of oil, gas or other hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, operating agreements, production sales contracts (including security in respect of take or pay or similar obligations thereunder), area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, which in each of the foregoing cases is customary in the oil and gas business, and other agreements which are customary in the oil and gas business, provided in all instances that such security is limited to the assets that are the subject of the relevant agreement, and such security does not secure Indebtedness for Borrowed Money; (vii) security arising under partnership agreements, production payment agreements, contracts for the sale, purchase, exchange, transportation or processing of industrial chemicals, operating agreements, production sales contracts (including security in respect of take or pay or similar obligations thereunder) and shared facilities and services agreements which in each of the foregoing cases is entered into in the ordinary course of the industrial chemical business, and other agreements which are customary in the industrial chemical business, provided in all instances that such security is limited to the assets that are the subject of the relevant agreement, and such security does not secure Indebtedness for Borrowed Money; (viii) security on property not situated in Canada, the United Kingdom or the United States; (ix) security on any specific property or any interest therein, construction thereon or improvement thereto to secure all or any part of the costs incurred for acquisition, surveying, exploration, drilling, extraction, mining, development, operation, production, construction, alteration, repair or improvement of, in, under or on such property and the plugging and abandonment of wells located thereon (it being understood that costs incurred for "development" shall include costs incurred for all facilities relating to such properties including power plants and utilities or to projects, ventures or other arrangements of which such properties form a part or which relate to such properties or interests), or for acquiring ownership of any Person which owns any such property or interest therein, provided in all instances that such security is limited to such property or any such interest therein, construction thereon or improvement thereto (including any such related facilities); (x) security in respect of securities or Indebtedness of a Subsidiary other than a Restricted Subsidiary; -7- (xi) security given to a public utility or any municipality or governmental or other public authority when required by such utility, municipality or authority in connection with the operations of the Corporation or any Restricted Subsidiary, to the extent such security does not materially detract from the value of any material part of the property of the Corporation or any such Restricted Subsidiary; (xii) cash or marketable securities deposited in connection with bids or tenders, or deposited with a court as security for costs in any litigation, or to secure workmen's compensation or unemployment insurance liabilities; (xiii) liens on cash or marketable securities of the Corporation or any Restricted Subsidiary granted in the ordinary course of business in connection with: (A) any currency swap agreements, forward exchange rate agreements, foreign currency futures or options, exchange rate insurance and other similar agreements or arrangements; (B) any interest rate swap agreements, forward rate agreements, interest rate cap or collar agreements or other similar financial agreements or arrangements; or (C) any agreements or arrangements entered into for the purpose of hedging product prices; (xiv) pre-existing encumbrances on assets when acquired or when the owner thereof becomes a Restricted Subsidiary, or encumbrances given by such Restricted Subsidiary on other assets of such Restricted Subsidiary in compliance with obligations under trust deeds or other instruments entered into prior to its becoming a Restricted Subsidiary, or pre-existing encumbrances existing on assets of a Person at the time such Person is merged, amalgamated, liquidated or consolidated with or into the Corporation or any Restricted Subsidiary; (xv) Purchase Money Mortgages; (xvi) security on Current Assets given in the ordinary course of business to any financial institution to secure any Indebtedness payable on demand or maturing (including any right of extension or renewal) 18 months or less after the date such Indebtedness is incurred or the date of any renewal or extension thereof; (xvii) security given by the Corporation in favour of a Restricted Subsidiary or by a Restricted Subsidiary in favour of the Corporation or another Restricted Subsidiary; (xviii) security in respect of transactions such as the sale (including any forward sale) or other transfer, in the ordinary course of business, of: -8- (A) oil, gas or other minerals, whether in place or when produced, for a period of time until, or in an amount such that, the purchaser will realize therefrom a specified amount of money (however determined) or a specified amount of such minerals; or (B) any other interests in property of a character commonly referred to as a "production payment"; (xix) rights of set off; (xx) security existing as of the date of this Indenture; (xxi) extensions, renewals or replacements of all or part of any security permitted under paragraphs (i) to (xx) hereof or successive extensions, renewals or replacements thereof provided that such security relates to the same property plus improvements, if any, and provided that the amount of Indebtedness secured thereby will not exceed the principal amount of such Indebtedness immediately prior to such extension, renewal or replacement plus an amount necessary to pay any fees or expenses, including premiums, related to such extension, renewal or replacement; and (xxii) security that would otherwise be prohibited (including any extensions, renewals or replacements thereof or successive extensions, renewals or replacements thereof), provided that the aggregate Indebtedness outstanding and secured under this paragraph (xxii) does not (calculated at the time of giving of security on the Indebtedness and not at the time of any extension, renewal or replacement thereof) exceed an amount equal to 10% of Consolidated Net Tangible Assets of the Corporation; (aa) "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other business entity; (bb) "principal", as used herein with respect to any Debt Security, shall be deemed to include a reference to "and premium, if any" unless otherwise expressly stated, unless the context otherwise requires, or where such reference is to the aggregate principal amount of Debt Securities which shall constitute a particular series; (cc) "Purchase Money Mortgage" means a mortgage, charge or other lien on or against any property securing any Purchase Money Obligation for such property, provided that such mortgage, charge or lien is created or assumed within 12 months after such property is acquired; -9- (dd) "Purchase Money Obligation" means any Indebtedness created or assumed as part of the purchase price of real or personal property, whether or not secured, and any extensions, renewals, refinancings or refundings of any such Indebtedness, provided that the principal amount of such Indebtedness outstanding on the date of such extension, renewal, refinancing or refunding is not increased other than by an amount necessary to pay any fees or expenses, including premiums, related to such extension, renewal, refinancing or refunding and further provided that any security given in respect of such Indebtedness shall not extend to any property other than the property acquired in connection with which such Indebtedness was created or assumed and fixed improvements, if any, erected or constructed thereon; (ee) "Restricted Subsidiary" means: (i) any Subsidiary of the Corporation which owns oil or natural gas properties, or interests therein, in Canada, the United Kingdom or the United States, or refining, production or manufacturing facilities, or interests therein, in Canada, the United Kingdom or the United States, related to the refining, production or manufacture of petroleum hydrocarbons, industrial chemicals, the constituents thereof or the derivatives therefrom, which assets represent not less than the greater of 5% of the Corporation's Consolidated Net Tangible Assets and $50,000,000 (or the equivalent thereof in any other currency), excluding however any such Subsidiary if the amount of the Corporation's share of the Equity therein does not at the time exceed 2% of the Equity of the Corporation, and (ii) any Subsidiary of the Corporation designated as a Restricted Subsidiary from time to time in any designation in substantially the form set forth in Schedule A to this Indenture (a "Designation"), provided that notwithstanding anything herein to the contrary (A) a Restricted Subsidiary shall cease to be a Restricted Subsidiary when it ceases to be a Subsidiary for any reason, (B) any Subsidiary to which assets held by a Restricted Subsidiary, which assets have a value equal to or greater than 5% of the Consolidated Net Tangible Assets of such Restricted Subsidiary, are, directly or indirectly, transferred, other than for fair value, shall itself be deemed to be a Restricted Subsidiary, and (C) a Restricted Subsidiary shall cease to be a Restricted Subsidiary when the assets thereof represent less than the greater of 5% of the Corporation's Consolidated Net Tangible Assets and $50,000,000 (or the equivalent thereof in any other currency) unless such Restricted Subsidiary has been designated under paragraph (ii) above; (ff) "Security Interest" means any security by way of an assignment, mortgage, charge, pledge, lien, encumbrance, title retention agreement or other security interest whatsoever, howsoever created or arising, whether absolute or contingent, fixed or floating, perfected or not; provided, however, for greater certainty, "Security Interest" shall not include any security interest referred to in Section 1(1)(qq)(ii) of the PERSONAL PROPERTY SECURITY ACT (Alberta); -10- (gg) "Subsidiary" of a Person means (i) any corporation of which such Person or one or more of its Subsidiaries or a combination thereof own securities having ordinary voting power which in the aggregate represent more than 50% of the aggregate voting power of all outstanding securities of such corporation having ordinary voting power and (ii) any Person (other than a joint venture or similar business arrangement to the extent not consolidated in the financial statements of such Person in accordance with Generally Accepted Accounting Principles) of which such Person or one or more of its Subsidiaries or a combination thereof own more than 50% of the outstanding ownership interests, in either case having the power to direct the policies, management and affairs of such Person. For the purposes of this definition, "securities having ordinary voting power" means securities or other equity interests that ordinarily have voting power for the election of directors, or Persons having management power with respect to the Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency; (hh) "TIA" means the U.S. Trust Indenture Act of 1939, as amended and as may be amended from time to time; (ii) "Trustee" means the Party of the Second Part and includes any new Trustee under Article 11; (jj) "this Trust Indenture", "this Indenture", "these presents", "herein", "hereof", "hereby", "hereto", "hereunder" and similar expressions refer to this Indenture and not to any particular Article, Section or other provision hereof, and include any and every instrument supplemental or ancillary hereto or in implementation hereof (including, without limitation, any amendments or supplemental indentures hereto) and the form and terms of any particular series of Debt Securities established hereunder; (kk) "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank or trust company as custodian with respect to any U.S. Government Obligation set forth in (i) or (ii) above or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depositary receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of any such U.S. Government Obligations set forth in (i) or (ii) above or the specific payment of interest on or principal of such U.S. Government Obligation evidenced by such depositary receipt; (ll) "Written Order of the Corporation" means an order, statement or request in writing signed in the name of the Corporation by: (i) any two of the chairman of the board, president, chief executive officer, chief operating officer, chief financial officer, any senior vice-president and vice-president, finance of the Corporation; or -11- (ii) any one of the foregoing together with the treasurer, secretary, assistant treasurer, assistant secretary or controller of the Corporation; and may consist of one or more instruments so executed and may be combined with a Certificate of the Corporation; and (mm) words importing the singular number shall include the plural and vice versa and words importing gender shall include all genders. 1.2 MEANING OF "OUTSTANDING" FOR CERTAIN PURPOSES Every Debt Security certified and delivered by the Trustee hereunder shall be deemed to be outstanding except: (i) Debt Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Debt Securities, or portions thereof, for whose payment at maturity or upon redemption money in the necessary amount has been theretofore deposited (other than pursuant to Article 13 hereof) with the Trustee or any Paying Agent (other than the Corporation) in trust or set aside and segregated in trust by the Corporation (if the Corporation shall act as its own Paying Agent) for the holders of such Debt Securities and any coupons appertaining thereto, provided that, if such Debt Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Debt Securities, except to the extent provided in Sections 13.1 and 13.2, with respect to which the Corporation has effected defeasance and/or covenant defeasance as provided in Article 13; and (iv) Debt Securities in exchange for or in lieu of which other Debt Securities have been authenticated and delivered pursuant to this Indenture; provided, however, that in determining whether the holders of the requisite principal amount of the outstanding Debt Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of holders for quorum purposes, (i) the principal amount of an Original Issue Discount Debt Security that may be counted in making such determination or calculation and that shall be deemed to be outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the maturity thereof pursuant to Section 6.2, (ii) the principal amount of any Debt Security denominated in a currency other than U.S. dollars that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the U.S. dollar equivalent, determined by the directors as of the date such Debt Security is originally issued by the Corporation, of the principal -12- amount (or, in the case of an Original Issue Discount Debt Security, the U.S. dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above) of such Debt Security, (iii) the principal amount of any Indexed Debt Security that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Debt Security at original issuance, unless otherwise provided with respect to such Debt Security pursuant to Section 2.2, and (iv) Debt Securities owned by the Corporation or any other obligor upon the Debt Securities or any affiliate of the Corporation or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debt Securities which the Trustee knows to be so owned shall be so disregarded. Debt Securities so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debt Securities and that the pledgee is not the Corporation or any other obligor upon the Debt Securities or any affiliate of the Corporation or of such other obligor. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS The division of this Indenture into Articles and Sections, the provision of the table of contents hereto and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture. 1.4 REFERENCES All references herein to Articles, Sections and other subdivisions refer to the corresponding Articles, Sections and other subdivisions of this Indenture. 1.5 APPLICABLE LAW This Indenture and the Debt Securities and coupons, if any, shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein and shall be treated in all respects as Alberta contracts. This Indenture is also subject to and governed by certain provisions of the TIA that apply to indentures qualifying for certain exemptions from the provisions of the TIA (a) pursuant to section 304(d) of the TIA and rule 4d-9 promulgated thereunder and (b) which meet the Trustee eligibility requirements of section 310(a) of the TIA and rule 10a-5 promulgated thereunder, and shall, to the extent applicable, be governed by such provisions. If and to the extent that any provision hereof conflicts with the duties imposed by any such provisions, such imposed duties shall control. 1.6 CONSENT TO JURISDICTION AND SERVICE OF PROCESS The Corporation irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in The City of New York over any suit, action or proceeding arising out of or relating to this Indenture or any Debt Security. The Corporation irrevocably waives, to the fullest extent permitted by law, any objection which it may have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding -13- brought in such a court has been brought in an inconvenient forum. The Corporation agrees that final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon the Corporation and may be enforced in the courts of Canada or any province or territory of Canada (or any other courts of the jurisdiction to which the Corporation is subject) by a suit upon such judgment, provided that service of process is effected upon the Corporation in the manner specified in this Section 1.6 or as otherwise permitted by law. As long as any of the Debt Securities remain outstanding and until the principal of, premium, if any, and interest, if any, on all of the outstanding Debt Securities has been paid in full or such payment duly provided for, the Corporation will at all times have an authorized agent in the United States, upon whom process may be served in any legal action or proceeding arising out of or relating to this Indenture or any Debt Security. Service of process upon such agent and written notice of such service mailed, delivered or sent by facsimile to the Corporation in the manner and at the address provided in or pursuant to Section 3.13 shall to the extent permitted by law be deemed in every respect effective service of process upon the Corporation in any such legal action or proceeding. The Corporation hereby appoints Corporation Service Company as its agent for such purpose, and covenants and agrees that service of process in any such legal action or proceeding may be made upon it at the office of such agent at 80 State Street, 6th Floor, Albany, New York 12207 (or at such other address as the Corporation may designate by written notice to the Trustee). The Corporation hereby consents to process being served in any suit, action or proceeding of the nature referred to in the preceding paragraphs by service upon such agent together with the mailing of a copy thereof or the delivery or sending by facsimile of a copy thereof to the address of the Corporation specified in or pursuant to Section 3.13 of this Indenture. The Corporation irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of any such service (but does not waive any right to assert lack of subject matter jurisdiction) and agrees that such service (i) shall be deemed in every respect effective service of process upon the Corporation, in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to the Corporation. Nothing in this Section 1.6 shall affect the right of the Trustee or any Debt Security holder to serve process in any manner permitted by law or limit the right of the Trustee or any Debt Security holder to bring proceedings against the Corporation in the courts of any jurisdiction or jurisdictions. 1.7 METHOD OF PAYMENT Payments pursuant to this Indenture, including payments stated herein to be made by cheque, may be made by wire transfer or other electronic means on the due date. 1.8 CURRENCY Unless otherwise denoted or the context otherwise requires, any reference to dollars or $ herein are references to Canadian dollars. -14- 1.9 REFERENCE TO PROVINCES As used in this Indenture, references to "provinces" of Canada shall include both provinces and territories of Canada. ARTICLE 2. - ISSUE OF DEBT SECURITIES 2.1 ISSUE UNLIMITED The aggregate principal amount of Debt Securities which may be certified and delivered under this Indenture is unlimited. 2.2 TERMS OF THE DEBT SECURITIES OF ANY SERIES The Debt Securities may be issued in one or more series. The Debt Securities of each such series shall rank equally and PARI PASSU with all existing and future unsecured and unsubordinated indebtedness of the Corporation. There shall be established herein or in or pursuant to one or more resolutions of the directors (and, to the extent established pursuant to rather than set forth in a resolution of directors, set forth in a Certificate of the Corporation detailing such establishment or in one or more indentures supplemental hereto), prior to the initial issuance of Debt Securities of any particular series, (a) the designation of the Debt Securities of the series (which need not include the term "Debt Securities"), which shall distinguish the Debt Securities of the series from the Debt Securities of all other series; (b) any limit upon the aggregate principal amount of the Debt Securities of the series that may be certified and delivered under this Indenture (except for Debt Securities certified and delivered upon registration of, transfer of, amendment of, or in exchange for, or in lieu of, other Debt Securities of the series pursuant to Sections 2.7, 2.8, 2.14 and 4.2 and Article 3) (provided that, unless otherwise provided pursuant to this Section 2.2, the Corporation may at any time or from time to time increase the principal amount of any series of Debt Securities previously issued (in whole or in part) and issue such increased principal amount (or any portion thereof)), and whether such Debt Securities shall be issuable as coupon Debt Securities, fully registered Debt Securities, unregistered Debt Securities or any combination of the foregoing; (c) the date or dates on which the principal of the Debt Securities of the series is payable; (d) the rate or rates at which the Debt Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, on which such interest shall be payable and on which a record, if any, shall be taken for the determination of holders to whom such interest shall be payable and/or the method or methods by which such rate or rates or date or dates shall be determined, and, if other than as provided in Section 2.10(c), the method by which interest on the Debt Securities of the series shall be calculated; -15- (e) the place or places where the principal of and any interest on Debt Securities of the series shall be payable or where any Debt Securities of the series may be surrendered for registration of transfer or exchange; (f) the right, if any, of the Corporation to redeem Debt Securities of the series, in whole or in part, at its option and the period or periods within which, the price or prices at which and any terms and conditions upon which, Debt Securities of the series may be so redeemed; (g) the obligation, if any, of the Corporation to redeem, purchase or repay Debt Securities of the series pursuant to any mandatory redemption, sinking fund or analogous provisions or at the option of a holder thereof and the price or prices at which, the period or periods within which, the date or dates on which, and any terms and conditions upon which, Debt Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligations; (h) if other than denominations of U.S. $1,000 and any integral multiple thereof, the denominations in which Debt Securities of the series shall be issuable; (i) any authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Debt Securities of the series; (j) any other Events of Default or covenants with respect to the Debt Securities of the series; (k) whether and under what circumstances the Debt Securities of the series will be convertible into or exchangeable for securities of any Person; (l) whether the Debt Securities of the series shall be issuable in whole or in part as Global Debt Securities and the other matters contemplated by Section 2.12; (m) if other than U.S. dollars, the currency in which the Debt Securities of the series are denominated and payable; (n) whether the Debt Securities of the series are to be entitled to the benefit of any Debt Securities Guarantees (including any Debt Securities Guarantees which may arise upon the occurrence of certain events or conditions), and any provisions for the delivery of legal opinions, representations or other modifications to this Indenture relating to such Debt Securities Guarantees; and (o) any other terms of the Debt Securities of the series, including, without limitation, any changes in or deletions to the Events of Default, covenants or other provisions of this Indenture with respect to the Debt Securities of the series, whether or not inconsistent with the other provisions of this Indenture. All Debt Securities of any one series shall be substantially identical, except as may otherwise be established herein or by or pursuant to a resolution of the directors (including a Certificate of the Corporation) or in an indenture supplemental hereto. All Debt Securities of any one series need not be issued at the same time and may be issued from time to time, consistent with the terms of this -16- Indenture, by or pursuant to a resolution of the directors (including a Certificate of the Corporation) or in an indenture supplemental hereto. 2.3 FORM The Debt Securities of each series shall be substantially in such form as shall be established by or pursuant to one or more resolutions of the directors (as set forth in a resolution of the directors or to the extent established pursuant to rather than set forth in a resolution of the directors, in a Certificate of the Corporation detailing such establishment) or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have imprinted or otherwise reproduced thereon such legend or legends or endorsements as may be required to comply with any law or with any rules or regulations pursuant thereto or with any rules or regulations of any securities exchange or securities regulatory authority or as may be required by any Depositary or to conform to general usage, all as may be determined by the officers executing such Debt Securities, as conclusively evidenced by their execution of such Debt Securities. 2.4 CERTIFICATION AND DELIVERY OF DEBT SECURITIES The Corporation may from time to time request the Trustee to certify and deliver Debt Securities of any series by delivering to the Trustee the documents referred to below in this Section 2.4 whereupon the Trustee shall certify such Debt Securities and cause the same to be delivered in accordance with the Written Order of the Corporation referred to below or pursuant to such procedures acceptable to the Trustee as may be specified from time to time by a Written Order of the Corporation. In certifying such Debt Securities the Trustee shall be entitled to receive and shall be fully protected in relying upon, unless and until such documents have been superseded or revoked: (a) a Certified Resolution, Certificate of the Corporation and/or executed supplemental indenture by or pursuant to which the form and terms of such Debt Securities were established; (b) a Written Order of the Corporation requesting certification and delivery of such Debt Securities and setting forth delivery instructions, provided that, with respect to Debt Securities of a series subject to a Periodic Offering, (i) such Written Order of the Corporation may be delivered by the Corporation to the Trustee prior to the delivery to the Trustee of such Debt Securities of such series for certification and delivery, (ii) the Trustee shall certify and deliver Debt Securities of such series for original issue from time to time, in an aggregate principal amount not exceeding the aggregate principal amount, if any, established for such series, pursuant to a Written Order of the Corporation or pursuant to procedures acceptable to the Trustee as may be specified from time to time by a Written Order of the Corporation, -17- (iii) the maturity date or dates, issue date or dates, interest rate or rates and any other terms of Debt Securities of such series shall be determined by a Written Order of the Corporation or pursuant to such procedures, and (iv) if provided for in such procedures, such Written Order of the Corporation may authorize certification and delivery pursuant to electronic instructions from the Corporation; (c) an opinion of Counsel that all requirements imposed by this Indenture or by law in connection with the proposed issue of Debt Securities have been complied with, subject to the delivery of certain documents or instruments specified in such opinion, and that the holders of the Debt Securities shall be entitled to all applicable rights hereunder as modified by any applicable Certificate of the Corporation, Written Order of the Corporation or supplemental indenture; and (d) a Certificate of the Corporation certifying that the Corporation is not in default under this Indenture, that the terms and conditions for the certification and delivery of the Debt Securities have been complied with subject to the delivery of any documents or instruments specified in such Certificate and that no default will exist upon such certification and delivery under the provisions of Article 6. 2.5 EXECUTION OF DEBT SECURITIES The Debt Securities shall be under the corporate seal of the Corporation or a facsimile thereof (which shall be deemed to be the corporate seal of the Corporation) and shall be signed by any two of the chairman of the board, president, chief executive officer, chief operating officer, chief financial officer, any senior vice-president and vice-president, finance or any one of the foregoing together with the treasurer, secretary, assistant treasurer, assistant secretary or controller of the Corporation and the coupons shall be signed by any one of the chairman of the board, president, chief executive officer, chief operating officer, chief financial officer, any senior vice-president or vice-president, finance. The signatures of any of such officers may be mechanically reproduced in facsimile and Debt Securities and coupons bearing such facsimile signatures shall be binding upon the Corporation as if they had been manually signed by such officers. Notwithstanding that any of the Persons whose manual or facsimile signature appears on any Debt Security or coupon as one of such officers may no longer hold the official capacity in which he signed at the date of this Indenture or at the date of such Debt Security or coupon or at the date of certification and delivery thereof, any Debt Security or coupon signed as aforesaid shall be valid and binding upon the Corporation. 2.6 CERTIFICATION BY TRUSTEE (a) No Debt Security shall be issued or shall be obligatory or entitle the holder to the benefit hereof until it has been certified by the Trustee substantially in the following form: -18- TRUSTEE'S CERTIFICATE This is one of the [name of or defined term for Debt Security] referred to in the Indenture within mentioned. CIBC MELLON TRUST COMPANY, Trustee by: ----------------------------------------- Authorized Officer Date of Certification: or in some other form approved by the Trustee. The certification by the Trustee upon any Debt Security shall be conclusive evidence that the Debt Security so certified has been duly issued hereunder and is a valid obligation of the Corporation. (b) The certificate of the Trustee on Debt Securities issued hereunder shall not be construed as a representation or warranty by the Trustee as to the validity of this Indenture or of the Debt Securities (except the due certification thereof) and the Trustee shall in no respect be liable or answerable for the use made of the Debt Securities or any of them or of the proceeds thereof. 2.7 INTERIM DEBT SECURITIES Pending the delivery of definitive Debt Securities of any series to the Trustee, the Corporation may issue and the Trustee certify in lieu thereof interim Debt Securities, with or without coupons, in such forms and in such denominations and signed in such manner as provided herein, entitling the holders thereof to definitive Debt Securities of the said series when the same are ready for delivery, or the Corporation may execute and the Trustee certify an interim Debt Security for the whole principal amount of Debt Securities of the said series then authorized to be issued hereunder and deliver the same to the Trustee and thereupon the Trustee shall, when the same are ready for delivery, certify definitive Debt Securities in such form and in such amounts, not exceeding in the aggregate the principal amount of the interim Debt Security so delivered to it, as the Corporation and the Trustee may approve. When so issued and certified, such interim Debt Securities shall, for all purposes but without duplication, rank in respect of this Indenture equally with Debt Securities duly issued hereunder and, pending the exchange thereof for definitive Debt Securities, the holders of the said interim Debt Securities shall be deemed without duplication to be Debt Security holders and entitled to the benefit of this Indenture to the same extent and in the same manner as though the said exchange had actually been made. Forthwith after the Corporation shall have delivered the definitive Debt Securities to the Trustee, the Trustee shall cancel such interim Debt Securities, if any, and shall call in for exchange all interim Debt Securities that shall have been issued and forthwith after such exchange shall cancel the same together with all unmatured coupons, if any, appertaining thereto. No charge shall be made by the Corporation or the Trustee or any transfer agent to the holders of such interim Debt Securities for the exchange thereof. All interest paid upon interim Debt Securities without coupons shall be noted on the definitive Debt Securities as a condition precedent to delivery of definitive Debt Securities unless paid by cheque to the registered holders thereof. -19- 2.8 ISSUE OF SUBSTITUTIONAL DEBT SECURITIES In case any of the Debt Securities issued and certified hereunder or coupons appertaining thereto shall become mutilated or be lost, destroyed or stolen, the Corporation in its discretion may issue, and thereupon the Trustee shall certify and deliver, a new Debt Security or coupon of like date and tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of and upon cancellation of such mutilated Debt Security or coupon or in lieu of and in substitution for such lost, destroyed or stolen Debt Security or coupon and the substituted Debt Security or coupon shall be in a form approved by the Trustee and shall be entitled to the benefit hereof and rank equally in accordance with its terms with all other Debt Securities or coupons issued or to be issued hereunder. The applicant for a new Debt Security or coupon shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Corporation and to the Trustee such evidence of ownership and of the loss, destruction or theft of the Debt Security or coupon so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Trustee in their discretion and such applicant may also be required to furnish an indemnity in amount and form satisfactory to the Corporation and the Trustee in their discretion, and shall pay the reasonable charges of the Corporation and the Trustee in connection therewith. 2.9 PLEDGE AND RE-ISSUE OF DEBT SECURITIES Provided that the Corporation is not at the time in default hereunder, all or any of the Debt Securities may be pledged, hypothecated or charged from time to time by the Corporation as security for advances or loans to or for Indebtedness or other obligations of the Corporation, provided that the principal amount of the advances, loans, Indebtedness or other obligations so secured is initially not less than 100% of the principal amount of Debt Securities so pledged, hypothecated or charged in respect thereof. When such Debt Securities are redelivered to the Corporation or its nominees on or without payment, satisfaction, release or discharge in whole or in part of any such advances, loans, Indebtedness or obligations, pursuant to any provision of the Debt Securities, such Debt Securities may be held by the Corporation for such period or periods as it deems expedient and shall (except when acquired pursuant to any provision of the Debt Securities or of this Indenture or pursuant to a resolution of the directors of the Corporation which provision or resolution requires cancellation and retirement of such Debt Securities so acquired) while the Corporation remains in possession thereof be treated as unissued Debt Securities and accordingly may be issued or re-issued, pledged or charged, sold or otherwise disposed of as and when the Corporation may think fit, and all such Debt Securities so issued, re-issued or pledged or charged, sold or otherwise disposed of before but not after the respective dates of maturity thereof shall, subject to the provisions of Section 1.2, continue to be entitled, as upon their original issue, to the benefit of all the terms, conditions, rights, priorities and privileges hereby attached to or conferred on Debt Securities issued hereunder. -20- 2.10 COMMENCEMENT OF INTEREST (a) The coupons, if any, matured at the date of delivery by the Trustee of any coupon Debt Securities shall be detached therefrom and cancelled before delivery, unless such Debt Security is being issued in exchange or in substitution for another Debt Security (whether in interim or definitive form) other than pursuant to Section 2.8, whereupon such matured coupons shall represent unpaid interest to which the holder of such exchanged or substituted Debt Security is entitled. (b) Each fully registered Debt Security issued hereunder, whether originally or upon exchange or in substitution for previously issued Debt Securities, shall, unless otherwise provided pursuant to Section 2.2, bear interest from its date of original issue or from the last interest payment date to which interest shall have been paid or made available for payment on such Debt Security, whichever shall be the later; (c) Except as otherwise provided pursuant to Section 2.2, interest on Debt Securities shall be computed on the basis of a 360 day year comprised of 12 30-day months. (d) For the purposes only of the disclosure required by the INTEREST ACT (Canada), and without affecting the amount of interest payable to any holder of a Debt Security or the calculation of interest on any Debt Security, if any rate of interest on any Debt Security is calculated on the basis of a year (the "deemed year") which contains fewer days than the actual number of days in the calendar year of calculation, such rate of interest shall be expressed as a yearly rate for the purposes of the INTEREST ACT (Canada) by multiplying such rate of interest by the actual number of days in the calendar year of calculation and dividing it by the number of days in the deemed year. 2.11 DEBT SECURITIES TO RANK PARI PASSU All Debt Securities shall rank PARI PASSU without discrimination, preference or priority, whatever may be the actual date or terms of the issue of the same respectively, save only as to sinking fund provisions (if any) applicable to one or more series. 2.12 ADDITIONAL TERMS (a) As provided in Section 2.2, there may also be established, in the manner described in Section 2.2, with respect to any particular series of Debt Securities, if applicable, that the Debt Securities of the series shall be issuable in whole or in part in the form of one or more Global Debt Securities and, in such case, the Depositary or Depositaries for such Global Debt Securities in whose name the Global Debt Securities will be registered, and any circumstances other than or in addition to those set forth in Section 2.8 or Section 2.14 hereof or those applicable with respect to any specific series of Debt Securities, as the case may be, in which any such Global Debt Security may be exchanged for coupon Debt Securities or fully registered Debt Securities, or transferred to and registered in the name of a Person other than the Depositary for such Global Debt Securities or a nominee thereof or a successor Depositary or nominee thereof. -21- (b) Each Depositary designated for a Global Debt Security must, at the time of its designation and at all times while it serves as such Depositary, be a clearing agency registered or designated under the securities legislation of the jurisdiction applicable to the issue of such Debt Securities, and under any other applicable legislation. Without limitation to the foregoing, if the Depositary designated for a Global Debt Security is The Depository Trust Company ("DTC"), it must, at the time of its designation and at all times while it serves as such Depositary, be a clearing agency registered under the U.S. SECURITIES EXCHANGE ACT OF 1934 (or any successor thereto) if so required by applicable law or regulation. 2.13 ISSUE OF GLOBAL DEBT SECURITIES If the Corporation shall establish that the Debt Securities of a series are to be issued in whole or in part in the form of one or more Global Debt Securities, the Corporation shall execute and the Trustee shall certify and deliver one or more Global Debt Securities that shall: (a) represent an aggregate amount equal to the aggregate principal amount of the outstanding Debt Securities of such series to be represented by one or more Global Debt Securities; (b) be registered in the name of the Depositary for such Global Debt Security or Global Debt Securities or a nominee of such Depositary; (c) be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions; and (d) bear a legend substantially to the following effect (or to such other effect as may be required by the relevant Depositary from time to time): "This Debt Security is a Global Debt Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Debt Security may not be transferred to, or registered or exchanged for Debt Securities registered in the name of, any Person other than the Depositary or a nominee thereof, except in the limited circumstances described in the Indenture and, unless and until it is exchanged for Debt Securities in definitive certificated form as aforesaid, may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or its nominee to a successor Depositary or its nominee." Any Global Debt Security may bear such additional legends as may be required by the applicable Depositary. -22- 2.14 REGISTRATION, TRANSFER, EXCHANGE AND OWNERSHIP OF GLOBAL DEBT SECURITIES (a) Notwithstanding any other provision of the Indenture but except as may otherwise be provided pursuant to Section 2.2, unless and until it is wholly exchanged for fully registered Debt Securities or coupon Debt Securities in definitive form in accordance with the terms hereof or the particular terms applicable to the series of Debt Securities it represents, a Global Debt Security representing all or a portion of the Debt Securities of any series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or to another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. (b) If at any time the Depositary of a Global Debt Security representing all or a portion of the Debt Securities of a series notifies the Corporation that it is unwilling or unable to continue as Depositary of such Global Debt Security, or ceases to be eligible to be a Depositary under subsection 2.12(b) hereof, the Corporation shall appoint a successor Depositary with respect to such Global Debt Security. If a successor Depositary is not appointed by the Corporation within 90 days after the Corporation receives such notice or becomes aware of such ineligibility, the Corporation's determination that the Debt Securities represented by such Global Debt Security be held as a Global Debt Security shall no longer be effective with respect to the Debt Securities represented by such Global Debt Security, and the Corporation will execute, and the Trustee, upon receipt of a Written Order of the Corporation for the certification and delivery of individual Debt Securities of such series, will certify and deliver, in exchange for such Global Debt Security, individual Debt Securities of such series, in accordance with subsections 2.14(e) and (f), in an aggregate principal amount equal to the principal amount of, and with the same terms as, such Global Debt Security. (c) The Corporation may at any time and in its sole discretion determine that Debt Securities of any series issued in the form of one or more Global Debt Securities shall no longer be represented by such Global Debt Securities, in which event the Corporation will execute, and the Trustee, upon receipt of a Written Order of the Corporation for the certification and delivery of individual Debt Securities of such series, will certify and deliver, in exchange for such Global Debt Securities, individual Debt Securities of such series, in accordance with subsections 2.14(e) and (f), in an aggregate principal amount equal to the principal amount of, and with the same terms as, such Global Debt Securities. (d) A Global Debt Security shall be exchanged for individual Debt Securities of a series upon the Trustee notifying the Depositary in writing that the Trustee has determined that an Event of Default has occurred and is continuing with respect to the Debt Securities of the series represented by such Global Debt Security in which event the Corporation will execute, and the Trustee will certify and deliver, in exchange for such Global Debt Security, individual Debt Securities of such series in accordance with subsections 2.14(e) and (f), in an aggregate principal amount equal to the principal amount of, and with the same terms as, such Global Debt Security. -23- (e) In any exchange provided for in any of subsections 2.14(b), (c) and (d), or in the terms applicable to any particular series of Debt Securities, the Corporation will execute and the Trustee will certify and deliver individual Debt Securities in definitive certificated form: (i) as fully registered Debt Securities in authorized denominations if the Debt Securities of such series are issuable as fully registered Debt Securities; (ii) as coupon Debt Securities, registrable as to principal only, in authorized denominations with coupons attached if the Debt Securities of such series are issuable as coupon Debt Securities registrable to the principal only; (iii) as coupon Debt Securities not registrable as to principal if the Debt Securities of such series are issuable as coupon Debt Securities not registrable as to principal; or (iv) in any combination of the foregoing Debt Securities, if issuable as such; all according to instructions from the Depositary to the Trustee in that regard, as contemplated by subsection 2.14(f), and all in the denominations applicable to such series. (f) Upon the exchange of a Global Debt Security for individual Debt Securities in definitive form, pursuant to any of subsections 2.14(b), (c) and (d), or pursuant to the terms applicable to any particular series of Debt Securities, such Global Debt Security shall be cancelled by the Trustee. Individual registered Debt Securities exchanged for portions of a Global Debt Security shall be registered in such names and in such authorized denominations as the Depositary for such Global Debt Security, pursuant to instructions from its direct and indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver any such registered Debt Securities to the Persons in whose names such Debt Securities are so registered. The Trustee shall deliver individual coupon Debt Securities exchanged for a Global Debt Security to the Persons, as the Depositary for such Global Debt Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. (g) If authorized by the Corporation pursuant to Section 2.12, with respect to a series of Debt Securities issued in the form of one or more Global Debt Securities, the Depositary registered as holder of a Global Debt Security representing such series of Debt Securities may surrender the Global Debt Security for such series of Debt Securities in exchange in whole or in part for definitive certificated Debt Securities of such series on such terms as are acceptable to the Corporation and such Depositary. Thereupon, the Corporation shall execute, and the Trustee shall certify and deliver: (i) to each Person specified by such Depositary, one or more new definitive certificated Debt Securities of the same series in any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Global Debt Security; and (ii) to such Depositary a new Global Debt Security in the principal amount of the surrendered Global Debt Security less the aggregate principal amount of new individual Debt Securities delivered to Persons under clause (i) of this subsection 2.14(g). (h) All Debt Securities executed for delivery upon any transfer or exchange of a Global Debt Security shall be valid obligations of the Corporation, evidencing the same debt and entitled to the same benefits under this Indenture as the Global Debt Security surrendered for such transfer or exchange. -24- (i) Participants in the Depositary ("Participants") holding beneficial interest in a Global Debt Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary shall not be deemed holders of such Global Debt Securities and the Depositary may be treated by the Corporation, the Trustee and any agent of the Corporation or the Trustee as the sole and absolute owner of a Global Debt Security for all purposes. Except as otherwise provided pursuant to Section 2.2 with respect to the Debt Securities of any series, payments of principal of and interest on Debt Securities represented by a Global Debt Security shall be made by the Corporation to the Depositary or its nominee as the registered owner of such Debt Securities. Notwithstanding the foregoing, nothing herein shall prevent the Corporation, the Trustee or any agent of the Corporation or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Debt Security. (j) Anything herein to the contrary notwithstanding, but except as may be otherwise specified pursuant to Section 2.2 with respect to the Debt Securities of any series, (i) payments on the Global Debt Securities of any series registered in the name of DTC (or any successor Depositary) or its nominee shall be made by wire transfer of immediately available funds unless otherwise required by such Depositary; (ii) if definitive certificated Debt Securities of any series are issued in exchange for interests in any Global Debt Securities of such series, the Corporation will pay the principal of and interest, if any, on such definitive certificated Debt Securities by wire transfer of immediately available funds (provided that the holders thereof shall have provided appropriate wire transfer instructions to the Corporation); and (iii) if definitive certificated Debt Securities of any series are issued in exchange for interests in any Global Debt Securities of such series, or if the Depositary for the Debt Securities of such series shall so require, the Corporation will maintain a Paying Agent, registrar and transfer agent for the Debt Securities of such series in the Borough of Manhattan, The City of New York. ARTICLE 3. - REGISTRATION, TRANSFER AND EXCHANGE OF DEBT SECURITIES, OWNERSHIP OF DEBT SECURITIES AND NOTICE TO DEBT SECURITY HOLDERS 3.1 NEGOTIABILITY OF DEBT SECURITIES AND COUPONS Unregistered Debt Securities and coupons issued hereunder shall be negotiable and ownership thereof shall pass by delivery. Notwithstanding registration of coupon Debt Securities as to principal, the coupons when detached shall continue to be payable to bearer and ownership thereof shall pass by delivery. -25- 3.2 REGISTERED DEBT SECURITIES (a) With respect to each series of Debt Securities issuable as registered Debt Securities, the Corporation shall cause to be kept by and at the principal office of the Trustee in Calgary and by the Trustee or such other registrar as the Corporation, with the approval of the Trustee, may appoint at such other place or places, if any, as may be specified in the Debt Securities of such series or as the Corporation may designate with the approval of the Trustee, a register in which shall be entered the names and addresses of the holders of registered Debt Securities and particulars of the Debt Securities held by them respectively and of all transfers of registered Debt Securities. Such registration shall be noted on the Debt Securities by the Trustee or other registrar unless a new Debt Security shall be issued upon such transfer. (b) No transfer of a registered Debt Security shall be valid unless made on such register by the registered holder or his executors, administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee or other registrar upon compliance with such reasonable requirements as the Trustee and/or other registrar may prescribe, nor, except in the case where a new Debt Security is issued upon such transfer, unless the transfer shall have been noted on the Debt Security by the Trustee or other registrar. 3.3 TRANSFEREE ENTITLED TO REGISTRATION The transferee of a registered Debt Security shall be entitled, after the appropriate form of transfer is lodged with the Trustee or other registrar and upon compliance with all other conditions in that behalf required by this Indenture or by law, to be entered on the register as the owner of such Debt Security free from all equities or rights of set-off or counterclaim between the Corporation and the transferor or any previous holder of such Debt Security, save in respect of equities of which the Corporation is required to take notice by statute or by order of a court of competent jurisdiction. 3.4 NO NOTICE OF TRUSTS Neither the Corporation nor the Trustee nor any registrar shall be bound to take notice of or see to the execution of any trust, whether express, implied or constructive, in respect of any Debt Security, and may transfer the same on the direction of the Person registered as the holder thereof, whether named as trustee or otherwise, as though that Person were the beneficial owner thereof. 3.5 REGISTERS OPEN FOR INSPECTION The registers hereinbefore referred to shall at all reasonable times be open for inspection by the Corporation, the Trustee or any Debt Security holder. The Trustee and every registrar shall from time to time when requested so to do by the Corporation or by the Trustee furnish the Corporation or the Trustee, as the case may be, with a list of names and addresses of holders of registered Debt Securities entered on the register kept by them and showing the principal amount and serial numbers of the Debt Securities held by each such holder. -26- 3.6 EXCHANGES OF DEBT SECURITIES (a) Debt Securities in any authorized form or denomination may be exchanged for Debt Securities in any other authorized form or denomination, of the same series, date of maturity and other terms, bearing the same interest rate, the same aggregate principal amount and the same redemption and other provisions as the Debt Securities so exchanged. (b) Debt Securities of any series may be exchanged only at the principal office of the Trustee in the City of Calgary or at such other place or places, if any, as may be specified in the Debt Securities of such series or pursuant to Section 2.2 or required pursuant to Section 2.14 (j) and at such other place or places as may from time to time be designated by the Corporation with the approval of the Trustee. Any coupon Debt Securities tendered for exchange shall be surrendered to the Trustee together with all unmatured coupons, if any, and all matured coupons, if any, in default pertaining thereto. The Corporation shall execute and the Trustee shall certify all Debt Securities necessary to carry out exchanges as aforesaid. All Debt Securities and coupons surrendered for exchange shall be cancelled. (c) Debt Securities issued in exchange for Debt Securities which at the time of such issue have been selected or called for redemption at a later date shall be deemed to have been selected or called for redemption in the same manner and shall have noted thereon a statement to that effect. 3.7 CLOSING OF REGISTERS Neither the Corporation nor the Trustee nor any registrar shall be required: (a) to make exchanges of any Debt Securities on the day of or during the 15 business days next preceding any selection by the Trustee of Debt Securities to be redeemed; or (b) to make exchanges of any Debt Securities which have been selected or called for redemption, unless upon due presentation thereof for redemption such Debt Securities shall not be redeemed and except for the unredeemed portion of any Debt Security to be redeemed in part. 3.8 CHARGES FOR REGISTRATION, TRANSFER AND EXCHANGE Unless otherwise specified pursuant to Section 2.2 with respect to the Debt Securities of any series, no service charge may be made for any exchange, registration, transfer or discharge from registration of any Debt Security, although the Corporation and the Trustee may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. Subject to Section 2.14(j) and without limitation to the right of the Corporation to appoint additional Paying Agents, transfer agents and registrars, unless otherwise provided with respect to a series of Debt Securities pursuant to Section 2.2, the Trustee, acting through its principal office in Calgary, Alberta, shall be the initial Paying Agent, transfer agent and registrar for the Debt Securities of each series unless and until replaced by the Corporation; provided, however, if the Corporation shall act -27- as a Paying Agent with respect to a series of Debt Securities, the Corporation shall maintain an additional Paying Agent, transfer agent and registrar for such series of Debt Securities (other than the Corporation) in Calgary, Alberta and, if required with respect to a series of Debt Securities, the Corporation shall maintain an additional Paying Agent, transfer agent and registrar for such series of Debt Securities in the Borough of Manhattan, The City of New York or such other location as may be required by such series of Debt Securities. 3.9 OWNERSHIP OF DEBT SECURITIES AND COUPONS The Person in whose name any registered Debt Security is registered shall for all the purposes of this Indenture be and be deemed to be the owner thereof and payment of or on account of the principal of and premium, if any, on such Debt Security and, in the case of a fully registered Debt Security, interest thereon shall be made to such registered holder. The Corporation and the Trustee may deem and treat the bearer of any unregistered Debt Security and the bearer of any coupon, whether or not the Debt Security from which it has been detached shall be registered as to principal, as the absolute owner of such Debt Security or coupon, as the case may be, for all purposes and the Corporation and the Trustee shall not be affected by any notice to the contrary. 3.10 PAYMENT FREE FROM EQUITIES The registered holder for the time being of any registered Debt Security and the bearer of any unregistered Debt Security and the bearer of any coupon (except any coupon which shall be void by reason of redemption pursuant to Section 4.4, or the acceleration pursuant to Section 6.2, of the coupon Debt Security to which it was annexed) shall be entitled to the principal, premium, if any, and/or interest evidenced by such instruments respectively free from all equities or rights of set-off or counterclaim between the Corporation and the original or any intermediate holder thereof and all Persons may act accordingly and the receipt of any such registered holder or bearer, as the case may be, for any such principal, premium or interest shall be a good discharge to the Corporation and/or the Trustee for the same and neither the Corporation nor the Trustee shall be bound to inquire into the title of any such registered holder or bearer. 3.11 EVIDENCE OF OWNERSHIP Upon receipt of a certificate of any bank, trust company or other depositary satisfactory to the Trustee stating that the unregistered Debt Securities and coupons specified therein have been deposited by a named Person with such bank, trust company or other depositary and will remain so deposited until the expiry of the period specified therein, the Corporation and the Trustee may treat the Person so named as the owner, and such certificate as sufficient evidence of the ownership by such Person during such period, of such Debt Securities and coupons, for the purpose of any requisition, direction, consent, instrument, proxy or other document to be made, signed or given by the holder of the Debt Securities so deposited. -28- 3.12 NOTICE TO DEBT SECURITY HOLDERS Unless herein otherwise expressly provided, any notice to be given hereunder to Debt Security holders shall be deemed to be validly given: (a) to the holders of registered Debt Securities if such notice is delivered in person or by facsimile or is sent by first-class mail, postage prepaid, addressed to such holders at their respective addresses appearing on the register above mentioned, and if in the case of joint holders of any Debt Security more than one address appears in the register in respect of such joint holding, such notice shall be addressed only to the first address so appearing; and (b) to the holders of unregistered Debt Securities if such notice is published once in each of two successive weeks in a newspaper of general circulation in the United States, as approved by the Trustee; provided that in the case of notice convening a meeting of Debt Security holders, the Trustee may require such additional publications of such notice as it may deem necessary for the reasonable protection of the Debt Security holders. Any notice delivered in person or by facsimile shall be deemed to have been given on the day of delivery. Any notice so given by mail shall be deemed to have been given five business days after it has been mailed, provided however that in the event of actual or anticipated postal disruption any notice by mail shall not be deemed to have been effectively given until actual delivery thereof. Any notice so given by publication shall be deemed to have been given on the day on which publication shall have been first effected in one of the newspapers in which publication was required, publication having been effected at least once contemporaneously or previously in all other of such newspapers. In determining under any provision hereof the date when notice of any meeting, redemption or other event must be given, the date of giving the notice shall be included and the date of the meeting, redemption or other event shall be excluded. Accidental error or omission in giving notice or accidental failure to mail notice to any Debt Security holder shall not invalidate any action or proceeding founded thereon. 3.13 NOTICE TO CORPORATION Any notice to the Corporation under the provisions of this Indenture shall be valid and effective if given by registered or certified letter, postage prepaid, addressed to the Corporation, by delivery by courier, air courier or in person or by facsimile to its principal office at 635 - 8th Avenue S.W., Calgary, Alberta T2P 3Z1, (facsimile number (403) 234-6971) (Attention: General Counsel) and shall be deemed to have been effectively given five business days after mailing, or on the date of delivery by courier, air courier or in person or by facsimile, provided however that in the event of actual or anticipated postal disruption any notice by mail shall not be deemed to have been effectively given until actual delivery thereof. The Corporation may from time to time notify the Trustee in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Corporation for all purposes of this Indenture. -29- 3.14 NOTICE TO TRUSTEE Any notice to the Trustee under the provisions of this Indenture shall be valid and effective if given by registered or certified letter, postage prepaid, addressed to the Trustee by delivery by courier, air courier or in person or by facsimile at its principal office at 600, 333 - 7th Avenue S.W., Calgary, Alberta T2P 2Z1 (facsimile number (403) 264-2100) (Attention: Manager Corporate Services) and shall be deemed to have been effectively given five business days after mailing or on the date of delivery by courier, air courier or in person or by facsimile, provided however that in the event of actual or anticipated postal disruption any notice by mail shall not be deemed to have been effectively given until actual delivery thereof. The Trustee may from time to time notify the Corporation in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Trustee for all purposes of this Indenture. ARTICLE 4. - REDEMPTION AND PURCHASE OF DEBT SECURITIES 4.1 APPLICABILITY OF ARTICLE The Corporation shall have the right at its option to redeem any Debt Securities issued hereunder of any series which by their terms are made so redeemable (subject, however, to any applicable restriction on the redemption of Debt Securities of such series) at such rate or rates of premium, if any, and on such date or dates and in accordance with such other provisions as shall have been established pursuant to Section 2.2 at the time of issue of such Debt Securities. 4.2 PARTIAL REDEMPTION In the event that less than all the Debt Securities of any series for the time being outstanding are at any time to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the Debt Securities to be redeemed in whole or in part. For this purpose, the Trustee may make, and from time to time vary, regulations with respect to the manner in which such Debt Securities may be selected for redemption and regulations so made shall be valid and binding upon all holders of such Debt Securities notwithstanding the fact that as a result thereof one or more of such Debt Securities may become subject to redemption in part only. In the event that one or more of such Debt Securities becomes subject to redemption in part only, upon surrender of any such Debt Securities for payment of the redemption price, the Corporation shall execute and the Trustee shall certify and deliver without charge to the holder thereof or upon his order one or more new Debt Securities of the same series and terms for the unredeemed part of the principal amount of the Debt Security or Debt Securities so surrendered. Unless the context otherwise requires, the terms "Debt Security" or "Debt Securities" as used in this Article 4 shall be deemed to mean or include any part of the principal amount of any Debt Security which in accordance with the foregoing provisions has become subject to redemption. 4.3 NOTICE OF REDEMPTION Notice of redemption of any series of Debt Securities shall be given to the holders of the Debt Securities so to be redeemed not more than 60 days nor less than 30 days prior to the date fixed for redemption, in the manner provided in Article 3. The Corporation shall give the Trustee notice of such redemption at least 45 days prior to the date of the proposed notice of redemption to the holders -30- of the Debt Securities (or such shorter notice period as is satisfactory to the Trustee), specifying the aggregate principal amount of Notes to be redeemed and their redemption date. Every notice of redemption to the holders of the Debt Securities so to be redeemed shall specify the aggregate principal amount of Debt Securities held by such holders which are being called for redemption, the redemption date, the redemption price and the places of payment and shall state that interest upon the principal amount of Debt Securities called for redemption shall cease to be payable from and after the redemption date. In addition, unless all the outstanding Debt Securities are to be redeemed, the notice of redemption shall specify: (a) in the case of a published notice the distinguishing letters and numbers of the Debt Securities which are to be redeemed; and (b) in the case of a notice mailed to a registered Debt Security holder, the distinguishing letters and numbers of the registered Debt Securities which are to be redeemed (or of such thereof as are registered in the name of such Debt Security holder) and the principal amounts of such Debt Securities or, if any such Debt Security is to be redeemed in part only, the principal amount of such part. In the event that all Debt Securities to be redeemed are registered Debt Securities, publication shall not be required. 4.4 DEBT SECURITIES DUE ON REDEMPTION DATES Notice having been given as aforesaid, all the Debt Securities so called for redemption shall thereupon be and become due and payable at the redemption price together with, unless otherwise specified pursuant to Section 2.2 and subject to Section 4.5, accrued and unpaid interest thereon, on the redemption date specified in such notice, in the same manner and with the same effect as if it were the date of maturity specified in such Debt Securities, anything therein or herein to the contrary notwithstanding, and from and after such redemption date, if the moneys necessary to redeem such Debt Securities shall have been deposited as provided in Section 4.5 and affidavits or other proof satisfactory to the Trustee as to the publication and/or mailing of such notices shall have been lodged with it, the said Debt Securities shall cease to bear interest on the date fixed for such redemption specified in such notices and coupons for interest to accrue after the said date upon the said Debt Securities shall become and be void and the only right of holders of such Debt Securities will be to receive payment of the redemption price plus accrued interest, if any. In the case any question shall arise as to whether any notice has been given as above provided and such deposit made, such question shall be decided by the Trustee whose decision shall be final and binding upon all parties in interest. 4.5 DEPOSIT OF REDEMPTION MONEYS Redemption of Debt Securities shall be provided for by the Corporation depositing with the Trustee or any Paying Agent to the order of the Trustee, on or before the redemption date specified in such notice, such sums as may be sufficient to pay the redemption price of the Debt Securities so called for redemption, plus accrued interest thereon to the date of redemption. From the sums so deposited the Trustee shall pay or cause to be paid to the holders of such Debt Securities so called for redemption, upon surrender of such Debt Securities with the unmatured coupons, if any, appertaining -31- thereto, the principal, premium, if any, and interest to which they are respectively entitled on redemption, provided that, in the case of coupon Debt Securities, the accrued interest as represented by coupons matured prior to, or on, the redemption date shall continue to be payable (but without interest thereon, unless the Corporation shall make default in the payment thereof upon demand) to the respective bearers of the coupons therefor upon presentation and surrender thereof, and provided, further, that unless otherwise provided pursuant to Section 2.2 with respect to the Debt Securities of any series, installments of interest on Debt Securities which are due and payable on any date on or prior to the relevant redemption date will be payable to the holders of such Debt Securities (or one or more predecessor Debt Securities) registered as such at the close of business on the relevant record dates. 4.6 CANCELLATION OF DEBT SECURITIES REDEEMED All Debt Securities redeemed and paid under this Article 4 together with all unmatured coupons, if any, appertaining thereto shall forthwith be delivered to the Trustee and cancelled and no Debt Securities shall be issued in substitution therefor. 4.7 PURCHASE OF DEBT SECURITIES BY THE CORPORATION Unless otherwise specifically provided with respect to a particular series of Debt Securities, the Corporation may if it is not at the time in default hereunder, at any time and from time to time, purchase Debt Securities in the market (which shall include purchase from or through an investment dealer or a firm holding membership on a recognized stock exchange) or by tender or by contract. All Debt Securities so purchased, together with any unmatured coupons appertaining thereto, may, at the option of the Corporation, be delivered to the Trustee whereupon they shall be cancelled and no Debt Securities shall be issued in substitution therefor. Alternatively, the Corporation may, subject to any mandatory redemption, sinking fund or analogous provisions, hold and re-issue the Debt Securities so purchased, and the provisions of Section 2.9 shall apply MUTATIS MUTANDIS. ARTICLE 5 - COVENANTS OF THE CORPORATION 5.1 GENERAL COVENANTS The Corporation covenants with the Trustee that so long as any Debt Securities remain outstanding: (a) The Corporation shall well, duly and punctually pay or cause to be paid to every holder of every Debt Security issued hereunder the principal thereof, premium, if any, and interest accrued thereon, if any (including, in the case of default, interest at the rate specified therein on the amount in default or, if no such interest rate is specified therein, at the same rate of interest as is borne by such Debt Securities) at the dates and places, in the currencies and in the manner mentioned herein and in such Debt Securities and in the coupons, if any, appertaining thereto. Subject to Sections 1.7 and 2.14, as interest becomes due on each fully registered Debt Security (except at maturity or on redemption, when interest may at the option of the Corporation be paid upon surrender of such Debt Security) the Corporation, either directly or through the Trustee, shall send, at least five days prior to each date on which interest becomes due, by prepaid ordinary mail, a cheque for such interest (less any tax required to be withheld therefrom) payable to the order of the then registered holder of -32- such Debt Security at the close of business on the relevant record dates and addressed to him at his last address appearing on the register, unless such holder otherwise directs. In the case of joint holders, cheques for principal and interest shall, unless such joint holders otherwise direct, be made payable to the order of all of such joint holders and the receipt or deemed receipt by any one of such holders therefor shall be a valid discharge to the Trustee and any Debt Security registrar and to the Corporation. If, in the case of fully registered Debt Securities, more than one address appears on the register in respect of a joint holding any cheque for interest shall be mailed to the first address so appearing. The mailing of any cheque shall, to the extent of the sum represented thereby, plus the amount of any tax withheld as aforesaid, satisfy and discharge all liability for interest on a Debt Security, unless such cheque be not paid at par on presentation at any one of the places where such interest is, by the terms of such Debt Security and the coupons, if any, pertaining thereto, made payable. In the event of non-receipt of any cheque for interest by the Person to whom it is so sent as aforesaid, the Corporation or the Trustee will issue to such Person a replacement cheque for a like amount upon being furnished with such evidence of non-receipt as it shall reasonably require. (b) The Corporation shall (subject to the provisions of Article 8) at all times maintain its corporate existence. The Corporation will, and will cause its Restricted Subsidiaries to, carry on and conduct their respective businesses in a proper, efficient and business-like manner and in accordance with good business practice, and diligently maintain, use and operate its and their respective properties and plants so as to preserve and protect the earnings, incomes, rents, issues and profits thereof (provided however that the foregoing shall not prevent the discontinuance of any business of a Restricted Subsidiary if, at the time of such discontinuance, the Corporation shall determine that such discontinuance is desirable in the conduct of the business of the Corporation and is not disadvantageous in any material respect to the holders of the Debt Securities), will keep or cause to be kept proper books of account in accordance with generally accepted accounting practice, will file with the Trustee copies of all consolidated financial statements of the Corporation furnished to its shareholders after the date hereof and any reports of the Corporation's Auditors thereon and at all reasonable times will furnish or cause to be furnished to the Trustee or its agents or attorneys such information relating to its business or the business of any Restricted Subsidiary as the Trustee may reasonably require. (c) The Corporation shall from time to time pay or cause to be paid all taxes, rates, levies, assessments, ordinary or extraordinary, government fees or dues lawfully levied, assessed or imposed upon or in respect of its property or any part thereof or upon the income and profits of the Corporation and of its Restricted Subsidiaries as and when the same become due and payable, and it will exhibit or cause to be exhibited to the Trustee, when required, the receipts and vouchers establishing such payment and will duly observe and conform to all applicable requirements of any governmental authority relative to any of the property or rights of the Corporation and of its Restricted Subsidiaries and all covenants, terms and conditions upon or under which any such property or rights are held, except where the failure to comply with any of the foregoing requirements would not, individually or in the aggregate, be disadvantageous in any material respect to the holders of the Debt Securities and further provided that the Corporation and its Restricted Subsidiaries shall have the right -33- to contest by legal proceedings any taxes, rates, levies, assessments, government fees or dues, and upon such contest, may delay or defer payment or discharge thereof. (d) The Corporation shall and shall cause each Restricted Subsidiary to have in full force and effect such policies of insurance in such amounts issued by insurers of recognized standing covering the properties and operations of the Corporation and the Restricted Subsidiaries as are customarily held by similar corporations engaged in the same or similar business in the localities where its properties and operations are located, provided however that the Corporation shall be entitled to self-insure any portion of its properties or operations if in its reasonable opinion it is prudent to do so. (e) Except for Permitted Encumbrances, (i) the Corporation shall not create, incur, assume or suffer to exist, nor shall it allow or permit any Restricted Subsidiary to create, incur, assume or suffer to exist, any Security Interest upon or with respect to any of its properties or assets or any income or profits therefrom, whether owned on the date of this Indenture or hereafter acquired, and (ii) without limitation to the provisions of clause (i) of this sentence, the Corporation shall not create, incur, assume or suffer to exist, nor shall it allow or permit any Subsidiary to create, incur, assume or suffer to exist, any Security Interest upon or with respect to any shares of capital stock, Indebtedness or other securities of, or other ownership interests in, any Restricted Subsidiary, whether owned on the date of this Indenture or hereafter acquired, unless, in any case described in (i) or (ii) of this sentence, the Corporation or such Restricted Subsidiary or Subsidiary, as the case may be, shall secure or cause to be secured the Debt Securities equally and rateably with the Indebtedness secured by such Security Interest. (f) The Corporation shall observe and perform all of its obligations as provided in this Indenture except any such obligations which may have been terminated pursuant to Sections 13.1 or 13.2. (g) The Corporation shall and shall cause each Restricted Subsidiary to observe and comply, in all material respects, with all applicable laws and regulations except where the failure to so comply would not, individually or in the aggregate, be disadvantageous in any material respect to the holders of the Debt Securities. (h) The Corporation shall give notice in writing to the Trustee of the occurrence of any Event of Default or any event which would, with notification or with the lapse of time or otherwise, constitute an Event of Default forthwith upon becoming aware thereof and without waiting for the Trustee to take any further action, and specifying the nature of such default and the steps taken or proposed to be taken to remedy the same. (i) In addition to its obligations under Section 2.14(j)(iii), the Corporation shall, with respect to the Debt Securities of any series, maintain in Calgary, Alberta and in each other place, if any, specified pursuant to Section 2.2 with respect to the Debt Securities of such series, a Paying Agent where Debt Securities of that series may be presented or surrendered for payment and a transfer agent where Debt Securities of that series may be surrendered for registration of transfer or exchange. -34- 5.2 NOT TO ACCUMULATE INTEREST In order to prevent any accumulation after maturity of unpaid coupons or of unpaid interest or of unpaid Debt Securities, the Corporation covenants with the Trustee that it will not, directly or indirectly, extend or assent to the extension of time for payment of any interest on any Debt Security or be a party to or approve any such arrangement by purchasing or funding any of said coupons or interest or in any other manner. In case the time for payment of any such coupons or interest shall be so extended, whether for a definite period or otherwise, such coupons or interest shall not be entitled, in case of default hereunder, to the benefit of these presents except subject to the prior payment in full of the principal of all Debt Securities issued hereunder and then outstanding and of all matured coupons and interest of such Debt Securities, the payment of which has not been so extended, and of all other moneys payable hereunder. 5.3 PERFORMANCE OF COVENANTS BY TRUSTEE If the Corporation shall fail to perform any of its covenants contained in this Indenture, the Trustee may notify the Debt Security holders of such failure on the part of the Corporation or may itself perform any of the said covenants capable of being performed by it, but shall be under no obligation to do so or to notify the Debt Security holders. All sums so expended or advanced by the Trustee shall be repayable as provided in Section 11.7. No such performance, expenditure or advance by the Trustee shall be deemed to relieve the Corporation of any default hereunder. ARTICLE 6. - DEFAULT AND ENFORCEMENT 6.1 EVENTS OF DEFAULT The events following are hereinafter sometimes referred to as "Events of Default": (a) if the Corporation defaults in payment of the principal of or premium, if any, on or any sinking fund payment with respect to, any Debt Security when the same becomes due and payable, and if the default in payment continues for a period of four days after written notice thereof has been provided to the Corporation by the Trustee or any holder of outstanding Debt Securities; or (b) if the Corporation defaults in payment of any interest on any Debt Security or on any sinking fund payment with respect to any Debt Security, in each case when the same becomes due and payable, and if the default in payment continues for a period of 30 days after written notice thereof has been provided to the Corporation by the Trustee or any holder of outstanding Debt Securities; or (c) if an order or decree shall be made, or if an effective resolution of the Corporation or any of its Restricted Subsidiaries shall be passed, for (i) the winding-up or liquidation of the Corporation, except in the course of carrying out the provisions of Article 8 or pursuant to a transaction in respect of which the conditions of Article 8 are duly observed and performed, or (ii) the winding-up or liquidation of any Restricted Subsidiary except a voluntary windingup or liquidation of a Restricted Subsidiary which is not undertaken in connection with the bankruptcy, insolvency, reorganization or other similar proceedings with respect to such -35- Restricted Subsidiary, and in the case of any such order or decree (but not resolution) described in (i) or (ii) above such order or decree, as the case may be, continues in effect unstayed for a period of 60 days after the date of entry of such order or decree, except where such order or decree, as the case may be, is made by, at the request or with the consent of or pursuant to proceedings initiated by the Corporation or a Restricted Subsidiary in which case such 60 day period shall not apply; or (d) if (i) the Corporation or any Restricted Subsidiary shall make a general assignment for the benefit of its creditors or shall commence proceedings under any statute or regulation to be adjudicated a bankrupt or insolvent or seeking reorganization, proposal, arrangement, moratorium, compromise, readjustment of debt, stay of creditor proceedings or other relief with respect to its debts or that may reasonably have the effect of compromising the rights of creditors without such creditors' consent, or (ii) the Corporation or any Restricted Subsidiary consents to the institution of bankruptcy, insolvency or similar proceedings against it or to the filing of any petition seeking reorganization, arrangement, adjustment, composition or other relief or benefit under any bankruptcy, insolvency, reorganization or other similar law, or (iii) an order or decree shall be made adjudicating the Corporation or any Restricted Subsidiary a bankrupt or insolvent or approving as properly filed a petition seeking reorganization, arrangement, adjustment, composition or other relief or benefit under any bankruptcy, insolvency, reorganization or other similar law of or in respect of the Corporation or any Restricted Subsidiary, or (iv) a custodian or a sequestrator or a receiver and manager or any other officer with similar powers shall be appointed in respect of the Corporation or any Restricted Subsidiary or the property of the Corporation or of any Restricted Subsidiary or any part thereof which is, in the opinion of the Trustee, a substantial part thereof and solely in the case of any such order, decree or appointment described in (iii) or (iv) above, such order, decree or appointment continues in effect unstayed for a period of 60 days, except where such order, decree or appointment is made by, at the request or with the consent of, or pursuant to proceedings initiated by, the Corporation or a Restricted Subsidiary in which case such 60 day period shall not apply; or (e) if any process of execution is enforced or levied upon any of the property of the Corporation or a Restricted Subsidiary and such property has a net book value in excess of the greater of $75,000,000 and 7.5% of the Equity of the Corporation, or the equivalent thereof in any other currency, and such process remains unsatisfied for a period of 60 days, as to movable or personal property, or 90 days, as to immovable or real property, provided that such process is not in good faith disputed by the Corporation or such Restricted Subsidiary, or, if so disputed, the Corporation shall not have given evidence satisfactory to the Trustee that it has or such Restricted Subsidiary has available a sum sufficient to pay in full the amount claimed in the event that it shall be held to be a valid claim; or (f) if the Corporation or a Restricted Subsidiary fails to make any payment at maturity, including any applicable grace period, in respect of any one or more issues of Indebtedness for Borrowed Money in an aggregate amount in excess of the greater of $75,000,000 and 7.5% of the Equity of the Corporation, or the equivalent thereof in any other currency, and such failure shall have continued for a period of 30 days after written notice thereof shall have been given to the Corporation by the Trustee, or to the Corporation and the Trustee by -36- the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities; or (g) if a default or defaults with respect to any one or more issues of Indebtedness for Borrowed Money of the Corporation or any Restricted Subsidiary occur, which default or defaults, as the case may be, result in the acceleration of Indebtedness for Borrowed Money of the Corporation or any Restricted Subsidiary in an aggregate amount in excess of the greater of $75,000,000 and 7.5% of the Equity of the Corporation, or the equivalent thereof in any other currency, without such Indebtedness for Borrowed Money having been discharged or such acceleration having been cured, waived, rescinded or annulled for a period of 30 days after written notice thereof shall have been given to the Corporation by the Trustee, or to the Corporation and the Trustee by the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities; or (h) default by the Corporation in the performance or observance of any other covenant or condition contained in this Indenture or any Debt Security on its part to be observed and performed and after notice in writing has been given to the Corporation by the Trustee, or to the Corporation and the Trustee by holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities (or, in the case of any covenant or condition included solely for the benefit of one or more series of Debt Securities, by the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities of such series), specifying such default and requiring the Corporation to remedy the same and the Corporation shall fail to make good such default within a period of 60 days or such shorter period as the Trustee determines would at any time, if continued, render any material property of the Corporation or any of its Restricted Subsidiaries liable to forfeiture, unless the Trustee (having regard to the subject matter of the neglect or non-observance) shall have agreed to a longer period, and in such event, within the period agreed to by the Trustee (provided that the Trustee shall not be entitled to agree to any such longer period if notice of default pursuant to this subparagraph (h) shall have been given to the Corporation and the Trustee by holders of Debt Securities as aforesaid). In addition to the events hereinabove set forth the Corporation may by indenture supplemental hereto, executed and delivered pursuant to the provisions of Article 10, provide for additional Events of Default. 6.2 ACCELERATION ON DEFAULT Subject to the absolute and unconditional right of each holder of a Debt Security to receive payment of the principal thereof and interest thereon on or after the respective due dates therefor as provided in Section 6.12, in case an Event of Default has occurred, the Trustee may in its discretion and shall upon the requisition in writing of the holders of at least 25% of the aggregate principal amount of the Debt Securities then outstanding (or, if the Event of Default has occurred with respect only to one or more series of Debt Securities, 25% in aggregate principal amount of the outstanding Debt Securities of such series), subject to the provisions of Section 6.3, by notice in writing to the Corporation declare the principal of and interest on all Debt Securities then outstanding (or the Debt Securities of such series, as the case may be) and other moneys payable hereunder to be due and payable and the same shall become immediately due and payable to the Trustee on demand, anything -37- therein or herein to the contrary notwithstanding, and the Corporation shall on such demand forthwith pay to the Trustee for the benefit of the Debt Security holders the principal of and accrued and unpaid interest on and interest on amounts in default on such Debt Securities (and, where such a declaration is based upon a voluntary winding-up or liquidation of the Corporation, the premium, if any, on the Debt Securities then outstanding which would have been payable upon the redemption thereof by the Corporation on the date of such declaration) and all other moneys secured hereby, together with subsequent interest (to the extent permitted by law) on all such amounts at the rates specified by the Debt Securities or, in the case of any Debt Securities which do not specify a rate of interest for amounts in default, at the rate of interest borne by such Debt Securities or in the case of any Debt Securities which do not bear interest at an annual rate equivalent to the annual rate of interest announced from time to time by Citibank N.A. in The City of New York as being its reference or base rate then in effect for determining interest rates on U.S. dollar commercial loans, from the date of the said declaration until payment is received by the Trustee, such subsequent interest to be payable at the times and places and in the moneys mentioned in and according to the tenor of the Debt Securities and coupons (provided that, if no time for the payment of such subsequent interest is specified, such subsequent interest shall be payable on demand). Such payment when made shall be deemed to have been made in discharge of the Corporation's obligations hereunder and any moneys so received by the Trustee shall be applied as provided in Section 6.5. 6.3 WAIVER OF DEFAULT In case an Event of Default has occurred otherwise than by default in payment of any principal moneys at maturity: (a) except with regard to defaults in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the holder of each Debt Security affected (in which case only those holders whose consent is actually given shall be bound by such consent), the holders of not less than 66 2/3% of the aggregate principal amount of Debt Securities then outstanding (or, if the default has occurred with respect only to one or more series of Debt Securities, 66 2/3% in aggregate principal amount of the outstanding Debt Securities of such series) shall have power (in addition to and subject to the powers exercisable by extraordinary resolution as hereinafter provided) by requisition in writing to instruct the Trustee to waive the default and/or to cancel or annul any declaration made by the Trustee pursuant to Section 6.2 and the Trustee shall thereupon waive the default and/or cancel or annul such declaration upon such terms and conditions as such Debt Security holders shall prescribe; and (b) the Trustee, so long as it has not become bound to institute any proceedings hereunder, shall have power to waive the default if, in the Trustee's opinion, the same shall have been cured or adequate satisfaction made therefor, and in such event to cancel or annul any such declaration theretofore made by the Trustee in the exercise of its discretion, upon such terms and conditions as to the Trustee may seem advisable; provided that no act or omission either of the Trustee or of the Debt Security holders in the premises shall extend to or be taken in any manner whatsoever to affect any subsequent default or the rights resulting therefrom. -38- 6.4 RIGHT OF TRUSTEE TO ENFORCE PAYMENT Subject to the provisions of Section 6.3, in case the Corporation shall fail to pay to the Trustee, on demand, and when due, the principal of and premium (if any) and interest on all or any Debt Securities then outstanding (including, without limitation, amounts due and payable as the result of a declaration pursuant to Section 6.2), together with any other amounts due hereunder, the Trustee may in its discretion and shall upon the request in writing of the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding (or, if such failure to pay relates to an Event of Default that has occurred with respect to only one or more series of Debt Securities, 25% in aggregate principal amount of the outstanding Debt Securities of such series), and upon being indemnified to its reasonable satisfaction against all costs, expenses and liabilities to be incurred, proceed in its name as Trustee hereunder to obtain or enforce payment of the said principal of and premium (if any) and interest (without possession of any of the Debt Securities or coupons or the production thereof at any trial or proceeding) together with any other amounts due hereunder, by any remedy provided hereunder or by law or equity. Except in accordance with the foregoing provisions of this Section 6.4 and Section 6.12, no holder of any Debt Security of any series shall have any right by virtue or by availing of any provision of this Indenture to institute any action or proceeding against the Corporation at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture, or for the appointment of a trustee, receiver, receiver and manager, liquidator, custodian or other similar official or for any other remedy hereunder. If the written request and indemnity referred to in this Section 6.4 has been tendered to the Trustee and the Trustee has failed to act within a reasonable time thereafter, any Debt Security holder acting on behalf of himself and all other Debt Security holders shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken under this Section 6.4. 6.5 APPLICATION OF MONEYS BY TRUSTEE Except as herein otherwise expressly provided, any moneys received by the Trustee from the Corporation pursuant to the foregoing Sections of this Article 6, or as a result of legal or other proceedings or from any trustee in bankruptcy or liquidator of the Corporation, shall be applied, together with any other moneys in the hands of the Trustee available for such purposes, as follows: FIRST: to the payment or reimbursement to the Trustee of its compensation, costs, charges, expenses, borrowings, advances, or other moneys furnished or provided by or at the instance of the Trustee in or about the execution of its trust or otherwise in relation to this Indenture, with interest thereon as herein provided; SECOND: subject to the provisions of Section 5.2 and as hereinafter in this Section 6.5 provided, in payment of the principal of and premium (if any) and accrued and unpaid interest and interest on amounts in default on the Debt Securities and coupons which shall then be outstanding rateably, without preference or priority of any kind, according to the aggregate amount of principal, premium, if any, and interest due and payable unless otherwise directed by extraordinary resolution passed as hereinafter provided and in that case in such order of priority as between principal, premium and interest as may be directed by such resolution; and THIRD: the surplus (if any) of such moneys shall be paid to the Corporation or its assigns; -39- provided, however, that no payment shall be made in respect of the principal, premium or interest of any Debt Security or coupon held, directly or indirectly, by or for the benefit of the Corporation or any Subsidiary (other than any Debt Security pledged for value and in good faith to a Person other than the Corporation or any Subsidiary, but only to the extent of such Person's interest therein) except subject to the prior payment in full of the principal, premium (if any) and interest of all Debt Securities which are not so held. 6.6 NOTICE OF PAYMENT BY TRUSTEE Not less than 21 days notice shall be given by the Trustee of any payment to be made under this Article 6 to the Debt Security holders. Such notice shall state the time when and place where such payment is to be made and also the liability under this Indenture upon which it is to be applied. After the day so fixed, unless payment shall have been duly demanded and have been refused, the Debt Security holders will be entitled to interest only on the balance (if any) of the principal moneys, premium (if any) and interest due to them, respectively, on the Debt Securities, after deduction of the respective amounts payable in respect thereof on the day so fixed. 6.7 TRUSTEE MAY DEMAND PRODUCTION OF DEBT SECURITIES The Trustee shall have the right to demand production of the Debt Securities and/or coupons in respect of which any payment of principal, interest or premium required by this Article 6 is made and may cause to be endorsed on the same a memorandum of the amount so paid and the date of payment, but the Trustee may, in its discretion, dispense with such production and endorsement in any special case, upon such indemnity being given to it and to the Corporation as the Trustee shall deem sufficient. 6.8 TRUSTEE APPOINTED ATTORNEY After an Event of Default and until such Event of Default shall have been rectified, the Trustee shall be the attorney of the Corporation for and in the name and on behalf of the Corporation to execute any instrument and do any acts and things which the Corporation ought to sign, execute and do hereunder and generally to use the name of the Corporation in the exercise of all or any of the powers hereby conferred on the Trustee, with full powers of substitution and revocation. 6.9 REMEDIES CUMULATIVE Each and every remedy herein conferred upon or reserved to the Trustee, or upon or reserved to the holders of the Debt Securities, shall be cumulative and shall be in addition to every other remedy given hereunder or now existing or hereafter to exist by law or by statute. 6.10 JUDGMENT AGAINST CORPORATION The Corporation covenants and agrees with the Trustee that, in case of any proceedings to obtain judgment for the principal of or interest or premium on the Debt Securities, judgment may be rendered against it in favour of the Debt Security holders hereunder, or in favour of the Trustee, as trustee of an express trust for the Debt Security holders, for any amount which may remain due in respect of the Debt Securities and premium (if any) and interest thereon. -40- 6.11 IMMUNITY OF SHAREHOLDERS, ETC. Each holder of Debt Securities outstanding from time to time under this Indenture and the Trustee hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any past, present or future incorporator, shareholder, director, officer or employee of the Corporation, as such, but not against the Corporation or any successor corporation for the payment of the principal of or premium or interest on any of the Debt Securities or on any covenant, agreement, representation or warranty by the Corporation herein or in the Debt Securities contained. 6.12 SUITS BY DEBT SECURITY HOLDERS Notwithstanding any other provision in this Trust Indenture and any provision of any Debt Security, each holder of any Debt Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest on such Debt Security in the amounts, at the rates and on or after the respective due dates expressed in such Debt Security, and to institute suit for the enforcement of any such payment on or after such respective dates, which rights shall not be impaired or affected (whether by modification of this Indenture or of the rights of holders of Debt Securities pursuant to Article 9 hereof, waiver of an Event of Default in payment of principal or interest pursuant to Section 6.3 hereof, or otherwise) without the consent of such Debt Security holder. Without limitation to the foregoing, no modification, amendment or waiver to this Indenture or the Debt Securities of any series shall, without the prior consent of the holder of each Debt Security affected, reduce the principal of or premium, if any, on any Debt Security or the amount payable upon redemption or repurchase thereof, or reduce the rate of interest on any Debt Securities, or extend the time for payment (whether at stated maturity, upon redemption or repurchase, acceleration or otherwise) of any principal of, or premium, if any, or interest on any Debt Security or change the coin or currency in which any Debt Security is payable or alter the provisions of this sentence. ARTICLE 7. - SATISFACTION AND DISCHARGE 7.1 CANCELLATION AND DESTRUCTION All matured coupons and Debt Securities shall forthwith after payment thereof be delivered to the Trustee and cancelled by it. All Debt Securities and coupons cancelled or required to be cancelled under this or any other provisions of this Indenture may be destroyed by or under the direction of the Trustee by incineration or otherwise (in the presence of a representative of the Corporation if the Corporation shall so require) and the Trustee shall retain a certificate of such destruction and deliver a duplicate thereof to the Corporation. 7.2 NON-PRESENTATION OF DEBT SECURITIES AND COUPONS Subject to the redemption provisions applicable to any Debt Securities, in case the holder of any Debt Security or coupon shall fail to present the same for payment on the date on which the principal thereof, the premium, if any, thereon and/or the interest thereon or represented thereby becomes payable either at maturity, on redemption or otherwise or shall not accept payment on account thereof and give such receipt therefor, if any, as the Trustee may require: -41- (a) the Corporation shall be entitled to pay to the Trustee and direct it to set aside; or (b) in respect of moneys in the hands of the Trustee which may or should be applied to the payment or redemption of the Debt Securities, the Corporation shall be entitled to direct the Trustee to set aside; or (c) if the redemption was pursuant to notice given by the Trustee, the Trustee may itself set aside; the principal moneys and the premium, if any, and/or the interest, as the case may be, in trust to be paid to the holder of such Debt Security or coupon upon due presentation or surrender thereof in accordance with the provisions of this Indenture, and from and after such setting aside all such amounts shall be deemed to have been paid by the Corporation in accordance with the provisions of this Indenture and such Debt Security or coupon shall be deemed not to be outstanding hereunder and no further interest shall accrue thereon to the holder, and the holder of such Debt Security or coupon shall, subject to Section 7.3, have no rights in respect thereof except that of receiving payment of the moneys so set aside, without interest, upon due presentation and surrender thereof. 7.3 REPAYMENT OF UNCLAIMED MONEYS TO CORPORATION Any moneys set aside under Section 7.2 and not claimed by and paid to holders of Debt Securities or coupons as provided in said Section 7.2 within six years after the date of maturity or redemption, as the case may be, shall, subject to any applicable laws and regulations, become the property of the Corporation free of any beneficial claim by the holders of the Debt Securities or coupons, and shall be repaid to the Corporation by the Trustee together with any interest accrued thereon and thereupon the Trustee shall be released from all further liability with respect to such moneys. 7.4 SATISFACTION AND DISCHARGE This Indenture shall upon Written Order of the Corporation be discharged and cease to be of further effect with respect to the outstanding Debt Securities (except as hereinafter provided in this Section 7.4), and the Trustee, upon receipt of a Written Order of the Corporation, and at the expense of the Corporation, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to the outstanding Debt Securities when (a) either (i) all Debt Securities theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than (A) Debt Securities and coupons which have been destroyed, lost or stolen and which have been replaced as provided in Section 2.8, and (B) Debt Securities and coupons for whose payment money has theretofore been deposited in trust and set aside by the Trustee as provided in Section 7.2 and thereafter repaid to the Corporation as provided in Section 7.3) have been delivered to the Trustee for cancellation; or (ii) all Debt Securities and, in the case of (A) below, any coupons appertaining thereto not theretofore delivered to the Trustee for cancellation (A) have become due and -42- payable or (B) in the case of Debt Securities which are subject to redemption at the option of the Corporation, have been duly called for redemption in accordance with the provisions of this Indenture and such Debt Securities and, in the case of either (A) or (B) above, the Corporation has irrevocably deposited or caused to be deposited with the Trustee, and directed the Trustee to set aside, as trust funds in trust for the purpose cash in U.S. dollars in an amount sufficient to pay and discharge the entire indebtedness on the outstanding Debt Securities and such coupons not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, and any Additional Amounts with respect thereto to the date of such deposit (in the case of Debt Securities which have become due and payable) or to the relevant redemption date, as the case may be, together with irrevocable instructions from the Corporation directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (b) the Corporation has paid or caused to be paid all other sums payable under this Indenture and the Debt Securities by the Corporation; (c) there shall have occurred and be continuing no Event of Default or event which, with notice or passage of time or both, would constitute an Event of Default; and (d) the Corporation has delivered to the Trustee a Certificate of the Corporation and an opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Corporation to the Trustee and any predecessor Trustee under Section 11.7, the obligation of the Corporation to pay Additional Amounts in respect of the Debt Securities pursuant to Section 8.1, the provision of Sections 1.5, 1.6 and 8.3, and if money shall have been deposited with and is held by the Trustee pursuant to subclause (ii) of clause (a) of this Section, the provisions of Sections 2.7, 2.8, 2.14, 5.1(i), 7.4, 7.5 and 11.4 and of Article 3 shall survive any such satisfaction and discharge and remain in full force and effect. 7.5 APPLICATION OF TRUST FUNDS Subject to the provisions of Section 7.3, all money deposited with the Trustee pursuant to Section 7.4 shall be held in trust and applied by it, in accordance with the provisions of the Debt Securities, the coupons and this Indenture, to the payment, either directly or through any Paying Agent (other than the Corporation acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any), and interest, if any, and Additional Amounts, if any, for whose payment such money has been deposited with or received by the Trustee, but such money need not be segregated from other funds except to the extent required by law. -43- ARTICLE 8. - SUCCESSOR CORPORATIONS 8.1 CERTAIN REQUIREMENTS IN RESPECT TO MERGERS, ETC. The Corporation will not merge, amalgamate or consolidate with or into any other Person, or sell, assign, lease, convey or otherwise transfer all or substantially all of its property and assets to any other Person, or change the jurisdiction under whose laws the Corporation is organized and existing (a "Reincorporation"), unless, in any such case: (a) either (i) the Corporation shall be the surviving corporation in the case of a merger (which term, as used in this Section 8.1, shall not include an amalgamation or consolidation) and, immediately after such merger, shall remain a corporation organized and validly existing under the laws of the same jurisdiction in which it was organized and existing immediately prior to such merger or (ii) the Person formed by such amalgamation or consolidation, or into which the Corporation is merged, or to which the Corporation has sold, assigned, leased, conveyed or otherwise transferred all or substantially all of its property and assets, or resulting from such Reincorporation is a corporation (the "successor corporation") organized and validly existing under the laws of its applicable jurisdiction and shall expressly assume, by supplemental indenture executed by such successor corporation and delivered by it to the Trustee, the due and punctual payment of the principal of and premium, if any, and interest on, and all other amounts (including, without limitation, Additional Amounts), if any, and sinking fund payments, if any) payable in respect of, the Debt Securities and the due and punctual performance and observance of all other covenants and conditions contained in this Trust Indenture and the Debt Securities to be performed or observed by the Corporation (including, without limitation, the appointment of an agent for service of process in the United States of America); provided that no such supplemental indenture shall be required pursuant to the provisions of this clause (a) if (1) the transaction in question is an amalgamation of the Corporation with any one or more other corporations, which amalgamation is governed by the statutes of Canada or any province thereof, as applicable, (2) the successor corporation is and, immediately prior to such amalgamation, the Corporation was organized and existing under the laws of Canada or any province thereof, (3) upon the effectiveness of such amalgamation, the successor corporation shall have become or shall continue to be (as the case may be), by operation of law and as expressly provided by the statutes of Canada or any province thereof (as the case may be) applicable to such amalgamation, liable for the due and punctual payment of the principal of and premium, if any, and interest on, and all other amounts (including, without limitation, Additional Amounts, if any, and sinking fund payments, if any) payable in respect of, the Debt Securities and the due and punctual performance and observance of all other covenants and conditions contained in this Indenture and the Debt Securities to be performed or observed by the Corporation (including, without limitation, the appointment of an agent for service of process in the United States of America), and (4) the Corporation shall have delivered to the Trustee an opinion of outside counsel experienced in such matters to the effect set forth in clauses (1) through (3) above; (b) the Trustee is satisfied, and Counsel is of the opinion (which opinion shall be delivered to the Trustee), that such transaction is upon such terms as substantially to preserve and not to prejudice any of the rights and powers of the Trustee or of the holders of Debt Securities (including, in respect of any Debt Securities that may be convertible, the conversion rights of holders thereof); (c) there shall exist no condition or event either at the time of or immediately following such transaction, as to either the Corporation or the successor corporation, which constitutes or would with the passage of time or giving of notice or both constitute an Event of Default under this Indenture; (d) the Corporation shall have delivered to the Trustee an opinion of outside counsel of nationally recognized standing with respect to matters of Canadian federal -44- income taxation to the effect that (i) the holders of the Debt Securities will not recognize income, gain or loss for Canadian federal income tax purposes as a result of such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation, (ii) after such transaction, any payment or credit by the Corporation or the successor corporation, as applicable, of the principal of, or premium, if any, or interest on, or any other amount payable under or in respect of, the Debt Securities to any holder thereof will be exempt from Canadian withholding tax if the holder, for purposes of the INCOME TAX ACT (Canada) (or any successor law) is or is deemed to be a non-resident of Canada and deals at arms-length with the Corporation at the time of such payment or credit, as applicable, and (iii) after such transaction, holders of the Debt Securities will be subject to Canadian federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred; and (e) the Corporation shall have delivered to the Trustee a Certificate of the Corporation and an opinion of Counsel each stating that such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Indenture and that all conditions precedent in this Indenture relating to such transaction have been complied with; provided that, if the successor corporation is not organized and validly existing under the laws of the United States of America or any State thereof or the District of Columbia or Canada or any province of Canada, such successor corporation shall expressly agree, in a supplemental indenture executed by such successor corporation, (i) to indemnify and hold harmless each holder of any Debt Securities from and against (x) any and all present and future taxes, duties, levies, imposts, fees, assessments or other governmental charges (including penalties, interest and other liabilities related thereto) (collectively "Taxes") of whatever nature which may be imposed on such holder or required to be withheld or deducted from any payment to such holder as a consequence of such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation and (y) any and all costs and expenses arising out of or relating to such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation, and (ii) that the principal of, and premium, if any, and interest on, and any and all other amounts payable under or in respect of, the Debt Securities will be paid without withholding or deduction for or on account of any present or future Taxes of whatever nature imposed, levied, withheld, assessed or collected by or on behalf of the jurisdiction or jurisdictions in which such successor corporation is organized, is resident or is deemed for tax purposes to be resident (each such jurisdiction being hereinafter called an "Applicable Jurisdiction") or any political subdivision or taxing authority of or in any Applicable Jurisdiction unless such Taxes are required by any Applicable Jurisdiction or any political subdivision or taxing authority thereof or therein to be withheld or deducted, in which case such successor corporation will pay such additional amounts ("Additional Amounts") as may be necessary in order that the net amount paid to each holder of any Debt Securities, after such deduction or withholding, will not be less than the amount which such holder would have received in accordance with the terms of the Debt Securities and this Indenture if no such deduction or withholding had been required. Whenever there is mentioned herein or in any Debt Securities, in any context, the payment of the principal of, or premium, if any, or interest on, or in respect of, any Debt Security, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to this Indenture, and express mention of the payment of Additional Amounts in any instance shall not be construed as excluding Additional Amounts in those instances where such express mention is not made. -45- 8.2 VESTING OF POWERS IN SUCCESSOR In the event of any merger of the Corporation into, consolidation or amalgamation of the Corporation with, or sale, assignment, lease, conveyance or other transfer of all or substantially all of the Corporation's assets to, another Person, the successor corporation shall succeed to and be substituted for and may exercise every right and power of the Corporation under the Debt Securities and this Indenture as if it had been named as the Corporation herein and therein, and the predecessor corporation, except in the case of a consolidation, an amalgamation or a lease, shall be released from any further obligation under the Debt Securities and this Indenture and holders of Debt Securities will thereafter be required to look solely to such successor corporation for the payment of all amounts which may become due and payable under the Debt Securities and this Indenture. 8.3 ADDITIONAL AMOUNTS (a) The Corporation covenants and agrees that, if the Corporation becomes obligated to pay Additional Amounts with respect to the Debt Securities of any series, the Corporation will (i) at least 10 days prior to each date on which any payment under or with respect to the Debt Securities of such series is due and payable, deliver to the Trustee a Certificate of the Corporation specifying the amount required to be withheld or deducted in respect of the relevant Taxes, specifying the amount of Additional Amounts that will be so payable, and setting forth such other information as is necessary to enable the Trustee to pay such Additional Amounts to the holders of the Debt Securities of such series on the relevant payment date; (ii) pay such Taxes on or prior to the date for payment thereof; and (iii) within 15 days after paying the amount referred to in clause (ii) of this sentence, deliver to the Trustee evidence of such payment and remittance thereof to the relevant Applicable Jurisdiction or political subdivision or taxing authority thereof or therein. The Corporation also covenants and agrees to furnish to each holder of any Debt Securities and, in the case of Global Debt Securities, each beneficial owner of any interest therein (by mail sent to its registered address or, in the case of any such beneficial owner, to the address provided by such beneficial owner to the Trustee or the Corporation for such purpose) a receipt for any Taxes deducted within 30 days after the date the same are due pursuant to applicable law or regulation; PROVIDED, HOWEVER, that if no such time is prescribed by applicable law or regulation, the Corporation has agreed to furnish such information as soon as practicable but in any event prior to the last day of February in the calendar year subsequent to the calendar year of payment. (b) The Corporation covenants and agrees to indemnify the Trustee and each Paying Agent for, and to hold each of them harmless from and against, any and all loss, liability, claim, damage and expense incurred without negligence or willful misconduct on such Person's part and arising out of or in connection with actions taken or omitted by any of them in reliance on any Certificate of the Corporation furnished pursuant to the foregoing paragraph Section 8.3(a) or the failure of the Trustee or any Paying Agent for any reason (other than its own negligence or willful misconduct) to receive on a timely basis such Certificate of the Corporation or any information or documentation requested by it or otherwise required by applicable law or regulation to be obtained, furnished or filed in respect of any Taxes. -46- (c) The obligations of the Corporation under this Section 8.3 shall survive the payment of the Debt Securities, the resignation or removal of the Trustee or any Paying Agent and the defeasance, covenant defeasance, discharge, satisfaction or other termination of this Indenture. ARTICLE 9. - MEETINGS OF DEBT SECURITY HOLDERS 9.1 RIGHT TO CONVENE MEETING The Trustee may at any time and from time to time and shall on requisition in writing made by the Corporation or by the holders of at least ten percent of the principal amount of Debt Securities then outstanding and upon being indemnified to its reasonable satisfaction by the Corporation or by the Debt Security holders making such requisition against the costs which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Debt Security holders. In the event of the Trustee failing within 30 days after such a requisition is made and indemnity given as aforesaid to give notice convening a meeting, the Corporation or such Debt Security holders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Calgary or at such other place as may be approved or determined by the Trustee. The record date for determining the holders of Debt Securities entitled to attend and vote at a meeting of the Debt Security holders shall be the close of business on that day which is 20 days prior to the scheduled date of such meeting and if that day is not a business day, the close of business on the latest business day preceding such day. 9.2 NOTICE At least 30 days notice of any meeting shall be given to the Debt Security holders in the manner provided in Section 3.12 and a copy thereof shall be sent by post to the Trustee unless the meeting has been called by it and to the Corporation unless the meeting has been called by it. Such notice shall state the time when and the place where the meeting is to be held and shall state briefly the general nature of the business to be transacted thereat and it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article. 9.3 CHAIRMAN Any Person, who need not be a Debt Security holder, nominated in writing by the Trustee shall be chairman of the meeting and if no Person is nominated, or if the Person so nominated is not present within fifteen minutes from the time fixed for the holding of the meeting, the Debt Security holders present in person or by proxy shall choose any Person present to be chairman. -47- 9.4 QUORUM Subject to the provisions of Section 9.11, at any meeting of the Debt Security holders a quorum shall consist of Debt Security holders present in person or by proxy and representing at least 25% of the principal amount of the outstanding Debt Securities. If a quorum of the Debt Security holders shall not be present within half-an-hour from the time fixed for holding any meeting, the meeting, if summoned by or on the requisition of Debt Security holders, shall be dissolved, but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is a non-business day in which case it shall be adjourned to the next following business day thereafter) at the same time and place. Subject to the provisions of Section 9.11, at the adjourned meeting the Debt Security holders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened notwithstanding that they may not represent 25% in principal amount of the outstanding Debt Securities. 9.5 POWER TO ADJOURN The chairman of any meeting at which a quorum of the Debt Security holders is present may with the consent of the holders of a majority in principal amount of the Debt Securities represented thereat adjourn any such meeting and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe. 9.6 POLL On every resolution (including, without limitation, every extraordinary resolution) and on any other question submitted to a meeting a poll shall be taken in such manner as the chairman shall direct and the result of the poll shall be and be deemed to be the decision of the meeting. Questions other than extraordinary resolutions and except as otherwise provided in this Indenture or with respect to the Debt Securities of any series pursuant to Section 2.2 shall be decided by the votes of the holders of a majority in principal amount of the Debt Securities voted on the poll. 9.7 VOTING On a poll each Debt Security holder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each U.S. $1,000 (or the equivalent thereof in any other currency determined as provided in the definition of the term "outstanding") principal amount of Debt Securities of which he shall then be holder. A proxy need not be a Debt Security holder. In the case of joint registered holders of a Debt Security, any one of them present in person or by proxy at the meeting may vote in the absence of the other Persons, but in case more than one of them be present in person or by proxy, they shall vote together in respect of the Debt Securities of which they are joint registered holders. 9.8 REGULATIONS The Trustee or the Corporation with the approval of the Trustee may from time to time make and from time to time vary such regulations as it shall from time to time think fit: -48- (a) for the issue of voting certificates: (i) by any bank, trust company or other depositary approved by the Trustee certifying that specified unregistered Debt Securities have been deposited with it by a named holder and will remain on deposit until after the meeting and any adjournment thereof; and (ii) by any bank, trust company, insurance company, governmental department or agency approved by the Trustee certifying that it is the holder of specified unregistered Debt Securities and will continue to hold the same until after the meeting and any adjournment thereof; which voting certificates shall entitle the holders named therein to be present and vote at any such meeting and at any adjournment thereof or to appoint a proxy or proxies to represent them and vote for them at any such meeting and at any adjournment thereof, in the same manner and with the same effect as though the holders so named in such voting certificates were the actual bearers of the Debt Securities specified therein; (b) for the deposit of voting certificates and/or instruments appointing proxies at such place as the Trustee, the Corporation or the Debt Security holders convening the meeting, as the case may be, may in the notice convening the meeting direct; and (c) for the deposit of voting certificates and/or instruments appointing proxies at some approved place or places other than the place at which the meeting is to be held and enabling particulars of such voting certificates and/or instruments appointing proxies to be mailed, telecopied or sent by other means of recorded communication before the meeting to the Corporation or to the Trustee at the place where the same is to be held and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting. Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only Persons who shall be recognized at any meeting as the holders of any Debt Securities, or as entitled to vote or be present at the meeting in respect thereof, shall be Persons who produce unregistered Debt Securities at the meeting and the registered Debt Security holders and Persons whom registered Debt Security holders have by instrument in writing duly appointed as their proxies. 9.9 CORPORATION AND TRUSTEE MAY BE REPRESENTED The Corporation and the Trustee, by their respective officers, employees and directors, and the legal advisers of the Corporation and the Trustee may attend any meeting of the Debt Security holders, but shall have no vote as such. -49- 9.10 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION Subject to the limitations in Section 6.12, in addition to all other powers conferred upon them by Section 9.7 or any other provisions of this Indenture or by law, a meeting of the Debt Security holders shall have the following powers exercisable from time to time by extraordinary resolution: (a) power to agree to any modification, abrogation, alteration, compromise or arrangement of the rights of the Debt Security holders and/or the Trustee against the Corporation or against its undertaking, property and assets or any part thereof whether such rights arise under this Indenture or the Debt Securities or otherwise; (b) power to direct or authorize the Trustee to exercise any power, right, remedy or authority given to it by this Indenture or the Debt Securities in any manner specified in such extraordinary resolution or to refrain from exercising any such power, right, remedy or authority; (c) power to waive or direct the Trustee to waive any default on the part of the Corporation in complying with any provision of this Indenture or the Debt Securities either unconditionally or upon any conditions specified in such extraordinary resolution, and in case any Debt Security holder shall have commenced any proceeding to enforce any remedy hereunder by reason of such default, subject to Section 6.4, to restrain such Debt Security holder from continuing such proceeding and to stay or discontinue the same, upon payment of the reasonable and necessary costs, charges or expenses incurred by such Debt Security holder in connection therewith; (d) power to assent to any modification of or change in or omission from the provisions contained herein which shall be agreed to by the Corporation and to authorize the Trustee to concur in and execute any instrument supplemental hereto embodying such modification, change or omission; (e) power to authorize the distribution in specie of any shares or securities received upon the realization of any security created pursuant hereto or the use or disposal of the whole or any part of such shares or securities or any cash received thereon in such manner and for such purpose or purposes as may be specified in or authorized or approved in the resolution authorizing the same; (f) power to sanction any scheme for the reorganization of the Corporation and/or any Subsidiary or for the consolidation, amalgamation or merger of the Corporation and/or any Subsidiary with any other company and for the selling or leasing of the undertaking, property and assets of the Corporation and/or any Subsidiary or any part thereof, provided no such sanction shall be necessary for a reorganization, consolidation, amalgamation, merger, sale or lease under the provisions of Article 8; -50- (g) power to appoint and remove a committee to consult with the Trustee and to delegate to such committee (subject to such limitations, if any, as may be prescribed in such extraordinary resolution) the power to give to the Trustee any or all of the directions or authorizations which the Debt Security holders could give by extraordinary resolution under the foregoing clauses (a), (b), (c), (d), (e) and (f); the extraordinary resolution making such appointment may provide for payment of the expenses and disbursement of and compensation to such committee; such committee shall consist of such number of Persons as shall be prescribed in the extraordinary resolution appointing it, and the members need not be themselves Debt Security holders; subject to the extraordinary resolution appointing it, every such committee may elect its chairman and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number, the manner in which it may act and its procedure generally and such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by the number of members thereof necessary to constitute a quorum; all acts of any such committee within the authority delegated to it shall be binding upon all Debt Security holders; neither the committee nor any member thereof shall be liable for any loss arising from or in connection with any action taken or omitted to be taken by them in good faith; all costs of such committees shall, unless otherwise agreed to by the Corporation, be for the account of the Debt Security holders; (h) power to amend, alter or repeal any extraordinary resolution previously passed or sanctioned by the Debt Security holders; and (i) power to remove the Trustee from office and to appoint a new Trustee or Trustees. 9.11 MEANING OF "EXTRAORDINARY RESOLUTION" (a) The expression "extraordinary resolution" when used in the Indenture means, subject as hereinafter in this Section 9.11 and in Sections 9.14, 9.16 and 9.17 provided, a resolution proposed to be passed as an extraordinary resolution at a meeting of Debt Security holders duly convened for such purpose and held in accordance with the provisions in this Article contained at which the holders of at least a majority in principal amount of the Debt Securities then outstanding are present in person or by proxy and passed by the favourable votes of the holders of not less than 66 2/3% of the principal amount of Debt Securities represented at the meeting and voted on a poll upon such resolution. (b) If at any such meeting called for the purpose of passing an extraordinary resolution, the holders of a majority in principal amount of the Debt Securities outstanding are not present in person or by proxy within half-an-hour after the time appointed for the meeting, then the meeting, if convened by or on the requisition of Debt Security holders, shall be dissolved; but in any other case it shall stand adjourned to such date, being not less than 21 nor more than 60 days later, and to such place and time as may be appointed by the chairman. Not less than ten days notice shall be given of the time and place of such adjourned meeting in the manner provided in Section 3.12. Such notice shall state that at the adjourned meeting the Debt Security holders present in person or by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Debt Security holders present in person or by -51- proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in this Section 9.11 shall be an extraordinary resolution within the meaning of this Indenture notwithstanding that the holders of a majority in principal amount of the Debt Securities then outstanding are not present in person or by proxy at such adjourned meeting. (c) Votes on an extraordinary resolution shall always be given on a poll and no demand for a poll on an extraordinary resolution shall be necessary. 9.12 POWERS CUMULATIVE It is hereby declared and agreed that any one or more of the powers and/or any combination of the powers in this Indenture stated to be exercisable by the Debt Security holders by extraordinary resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Debt Security holders to exercise such power or powers or combination of power or any power or powers or combination of powers thereafter from time to time. 9.13 MINUTES Minutes of all resolutions and proceedings at every such meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the Trustee at the expense of the Corporation, and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings had, or by the chairman of the next succeeding meeting of the Debt Security holders, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting, in respect of the proceedings of which minutes shall have been made, shall be deemed to have been duly held and convened, and all resolutions passed thereat or proceedings had, to have been duly passed and had. 9.14 INSTRUMENTS IN WRITING Subject to Section 9.16, all actions which may be taken and all powers that may be exercised by the Debt Security holders at a meeting held as hereinbefore in this Article provided may also be taken and exercised by the holders of 66 2/3% of the principal amount of all the outstanding Debt Securities by an instrument in writing signed in one or more counterparts and the expression "extraordinary resolution" when used in this Indenture shall include an instrument so signed. The record date for determining the holders of Debt Securities entitled to sign such instrument in writing shall be the close of business on the day prior to the date upon which the instrument in writing is proposed to be effective, and if that day is not a business day, the close of business on the latest day preceding such day. Proof of the execution of an instrument in writing by any Debt Security holder may be made by the certificate of any notary public, or other officer with similar powers, that the Person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Trustee may consider adequate. -52- Any instrument in writing signed as herein provided shall bind all future holders of the same Debt Security or any Debt Security or Debt Securities issued in exchange therefor in respect of anything done or suffered by the Corporation or the Trustee in pursuance thereof. 9.15 BINDING EFFECT OF RESOLUTIONS Every resolution and every extraordinary resolution passed in accordance with the provisions of this Article at a meeting of Debt Security holders shall be binding upon all the Debt Security holders, whether present at or absent from such meeting, and every instrument in writing signed by Debt Security holders in accordance with Section 9.14 shall be binding upon all the Debt Security holders, whether signatories thereto or not, and each and every Debt Security holder and the Trustee (subject to the provisions for its indemnity herein contained) shall be bound to give effect accordingly to every such resolution, extraordinary resolution and instrument in writing. 9.16 SERIAL MEETINGS (a) If any business to be transacted at a meeting of Debt Security holders, or any action to be taken or power to be exercised by instrument in writing under Section 9.14, especially affects the rights of the holders of Debt Securities of one or more series in a manner or to an extent substantially differing from that in which it affects the rights of the holders of Debt Securities of any other series (as to which an opinion of Counsel delivered to the Trustee shall be binding on all Debt Security holders, the Trustee and the Corporation for the purposes hereof), then: (i) reference to such fact, indicating each series so especially affected, shall be made in the notice of such meeting and the meeting shall be and is herein called a "serial meeting"; (ii) the holders of Debt Securities of a series so especially affected shall not be bound by any action taken at a serial meeting unless in addition to compliance with the other provisions of this Article: (A) there are present in person or by proxy at the said meeting holders of at least 25% (or, for the purpose of passing any extraordinary resolution, a majority) in principal amount of the outstanding Debt Securities of such series, subject to the provisions of this Article as to adjourned meetings; (B) the resolution is passed by the favourable votes of the holders of at least a majority (or, in the case of an extraordinary resolution, not less than 66 2/3%) of the principal amount of Debt Securities of such series voted on the resolution; and (iii) the holders of Debt Securities of a series so especially affected shall not be bound by any action taken or power exercised by instrument in writing under Section 9.14 -53- unless such instrument is signed in one or more counterparts by the holders of 66 2/3% of the principal amount of outstanding Debt Securities of such series. (b) If in the opinion of Counsel delivered to the Trustee any business to be transacted at any meeting or any action to be taken or power to be exercised by instrument in writing under Section 9.14 does not adversely affect the rights of the holders of Debt Securities of one or more particular series, the provisions of this Article 9 shall apply as if the Debt Securities of such series were not outstanding and no notice of any such meeting need be given to the holders of the Debt Security of such series. 9.17 COVENANTS APPLICABLE TO A PARTICULAR SERIES OF DEBT SECURITIES Notwithstanding anything herein contained, if any business to be transacted at any meeting or any action to be taken or power to be exercised by any instrument in writing under Section 9.14 relates only to the waiver, amendment, alteration, modification or cancellation of a covenant or provision hereof which by its terms is applicable and has effect only so long as one or more particular series of Debt Securities remains outstanding or the benefit of which is restricted to any one or more particular series of Debt Securities, the provisions of this Article 9 shall be read and construed and shall apply as if the Debt Securities of such one or more particular series of Debt Securities were the only Debt Securities outstanding hereunder. A proposal: (a) to extend the maturity or maturities of Debt Securities of any series or any date on which any principal thereof, or premium, if any, or interest thereon is payable, or change the coin or currency in which any of the foregoing is payable, or reduce the principal amount thereof or the amount of any premium thereon or the rate of interest thereon, (b) to modify or terminate any covenant or agreement which by its terms is effective only so long as Debt Securities or a particular series are outstanding or the benefit of which is restricted to a particular series of Debt Securities, or (c) to reduce with respect to holders of Debt Securities of any series any percentage required for a quorum stated in Sections 9.5, 9.6, 9.11, 9.14 or 9.16, shall be applicable to the Debt Securities of that series and shall be deemed to especially affect the rights of the holders of Debt Securities of such series in a manner substantially differing from that in which it affects the rights of holders of Debt Securities of any other series or maturity whether or not a similar extension, reduction, modification or termination is proposed with respect to Debt Securities of any or all other series or maturities. ARTICLE 10. - SUPPLEMENTAL INDENTURES 10.1 PROVISIONS FOR SUPPLEMENTAL INDENTURES FOR CERTAIN PURPOSES From time to time the Corporation when authorized by a resolution of its directors (which resolution may provide general terms or parameters for such action and may provide that the specific terms of such action may be determined in accordance with or pursuant to a Certificate or Written Order of the Corporation) and the Trustee may, subject to the provisions of these presents, and they shall, -54- when so directed by these presents, execute and deliver by their proper officers, indentures or instruments supplemental hereto which thereafter shall form part hereof, for any one or more or all of the following purposes: (a) creating and establishing the terms of any series of Debt Securities as permitted hereby and the forms and denominations in which they may be issued as provided in Article 2; (b) mortgaging, pledging, transferring, assuring and confirming to or vesting in the Trustee, or charging in favour of the Trustee, any property or assets now owned or hereafter acquired by the Corporation; (c) evidencing the succession of successor corporations to the Corporation and the covenants of and obligations assumed by such successor corporations in accordance with the provisions of Article 8; (d) giving effect to any extraordinary resolution passed as provided in Article 9; (e) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder or for the purpose of obtaining a listing or quotation of the Debt Securities or any series thereof or to facilitate their sale on any stock exchange provided that such provisions are not, in the opinion of the Trustee, prejudicial to the interest of the Debt Security holders; (f) adding to or altering the provisions hereof in respect of the registration and transfer of Debt Securities including provision for the issue of Debt Securities of different denominations, the exchange of Debt Securities of different denominations and making any modification in the form of the Debt Securities and coupons which does not affect the substance thereof and which, in the opinion of the Trustee, is not prejudicial to the interest of the Debt Security holders; (g) adding limitations or restrictions, thereafter to be observed, upon the amount, dates of maturity, issue or the purposes of the issue of Debt Securities hereunder or upon the dealing with the property of the Corporation, provided that the Trustee shall be of the opinion that such further limitations or restrictions shall not be prejudicial to the interest of the Debt Security holders; (h) adding to the covenants of the Corporation herein contained for the protection of the holders of the Debt Securities and/or providing for Events of Default in addition to those herein specified; (i) making such amendments, deletions or alterations to Sections 11.10 to 11.16, inclusive, without the consent of the Debt Security holders, as may be considered necessary or desirable by the Corporation and the Trustee to give effect to any applicable legislation or regulation; -55- (j) providing that the terms of any covenant or other provision is applicable and has effect only so long as any one or more particular series of Debt Securities remains outstanding or restricting the benefit of any covenant or other provision to one or more particular series of Debt Securities, provided that the Trustee shall be of the opinion that the interest of holders of Debt Securities outstanding on the date of the supplemental indenture for any such purpose shall not be prejudiced thereby, and provided, further, that no supplemental indenture pursuant to this subparagraph (j) shall deprive any then outstanding Debt Security of the benefit of any covenant or other provision to which it is entitled; (k) for any other purpose not inconsistent with the terms hereof, including the correction or rectification of any errors, ambiguities, defective provisions or omissions in this Indenture, provided that such corrections or rectifications shall in the opinion of the Trustee not prejudice the rights of the Trustee or of the Debt Security holders hereunder pursuant to Section 6.12 or otherwise; and (l) for the purpose of adding any Debt Securities Guarantee which may be authorized from time to time pursuant to Section 2.2 and to add such provisions to this Indenture as may, in connection with such Debt Securities Guarantee, be required pursuant to such Section 2.2 or in the opinion of the Trustee be appropriate in relation thereto. ARTICLE 11. - CONCERNING THE TRUSTEE 11.1 CONDITIONS PRECEDENT TO TRUSTEE'S OBLIGATIONS TO ACT HEREUNDER (a) The Trustee shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof, nor shall the Trustee be required to take notice of any default hereunder, other than in payment of any moneys required by any provision hereof to be paid to it, unless and until notified in writing of such default, which notice shall distinctly specify the default desired to be brought to the attention of the Trustee and in the absence of any such notice the Trustee may for all purposes of this Indenture conclusively assume that the Corporation is not in default hereunder and that no default has been made with respect to the payment of principal, premium, if any, interest or sinking fund on the Debt Securities or in the observance or performance of any of the covenants, agreements or conditions contained herein. Any such notice or requisition shall in no way limit any discretion herein given to the Trustee to determine whether or not the Trustee shall take action with respect to any default or take action without any such notice or requisition. (b) The obligation of the Trustee to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Trustee or the Debt Security holders hereunder shall be conditional upon the Debt Security holders furnishing, when required by notice in writing by the Trustee, sufficient funds to commence or continue such act, action or proceeding and indemnity reasonably satisfactory to the Trustee to protect and hold harmless the Trustee against the costs, charges and expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. -56- (c) None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified as aforesaid. (d) The Trustee may, before commencing or at any time during the continuance of any such act, action or proceeding require the Debt Security holders at whose instance it is acting to deposit with the Trustee the Debt Securities held by them, for which Debt Securities the Trustee shall issue receipts. 11.2 EVIDENCE The Trustee may accept a Certificate of the Corporation as conclusive evidence of any action taken, decision made, opinion held, resolution passed or by-law enacted by the Corporation or the directors or shareholders thereof and of the truth of any statement of fact made therein relating to the Corporation, but the Trustee may in its discretion require further evidence or information before acting or relying on any such Certificate. The Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, telegram, cablegram or other paper or document believed by it to be genuine and to have been signed, sent or presented by or on behalf of the proper party or parties. 11.3 EXPERTS AND ADVISERS (a) The Trustee may employ or retain such counsel, accountants, engineers, appraisers or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder, may pay their fees and expenses and the Trustee shall not be responsible for any misconduct on the part of any of them. (b) The Trustee may act and shall be protected in acting in good faith on the opinion or advice of or information obtained from any counsel, accountant, engineer, appraiser or other expert or adviser, whether retained or employed by the Corporation or by the Trustee, in relation to any matter arising in the administration of the trusts hereof. 11.4 DOCUMENTS, MONEYS, ETC. HELD BY TRUSTEE Any securities, documents of title or other instruments that may at any time be held by the Trustee subject to the trusts hereof may be placed in the deposit vaults of the Trustee or of any chartered bank of Canada or deposited for safekeeping with any such bank, and any moneys so held, pending the application, investment or withdrawal thereof under any provisions of this Indenture may be deposited in the name of the Trustee in any chartered bank of Canada or, with the consent of the Corporation, may be deposited in the deposit department of the Trustee or any other loan or trust company authorized to accept deposits under the laws of Canada or any province thereof, at the rate of interest, if any, then current on similar deposits or invested in obligations issued or guaranteed by the government of Canada. -57- 11.5 TRUSTEE NOT REQUIRED TO GIVE SECURITY The Trustee shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise in respect of the premises. 11.6 PROTECTION OF TRUSTEE By way of supplement to the provisions of any law for the time being relating to trustees, it is expressly declared and agreed as follows: (a) The Trustee shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Debt Securities (except in the certificate of the Trustee thereon) or required to verify the same, but all such statements or recitals are and shall be deemed to be made by the Corporation. (b) The Trustee shall not be bound to give notice to any Person or Persons of the execution hereof. (c) The Trustee, in its personal or any other capacity, may buy, lend upon and deal in shares in the capital stock of the Corporation and in the Debt Securities and generally may contract and enter into financial transactions with the Corporation or any Subsidiary without being liable to account for any profit made thereby. 11.7 COMPENSATION AND INDEMNIFICATION OF TRUSTEE The Corporation covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Corporation covenants and agrees to pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other Persons not regularly in its employ) and as set out in certain letter agreements made from time to time between the Corporation and Trustee, as the same may be amended from time to time, except any such expense, disbursement or advance as may arise from its gross negligence or bad faith. The Corporation also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and its duties hereunder, including liability which the Trustee may incur as a result of failure to withhold, pay or report any tax, assessment or other governmental charge, and the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Corporation under this Section 11.7 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. -58- 11.8 REPLACEMENT OF TRUSTEE The Trustee may resign its trust and be discharged from all further duties and liabilities hereunder by giving to the Corporation three months notice in writing or such shorter notice as the Corporation may accept as sufficient. The Debt Security holders by extraordinary resolution shall have power at any time to remove the Trustee and to appoint a new Trustee. In the event of the Trustee resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Corporation shall forthwith appoint a new Trustee unless a new Trustee has already been appointed by the Debt Security holders, and failing such appointment by the Corporation the retiring Trustee or any Debt Security holder may apply to a Judge of the Court of Queen's Bench of Alberta, on such notice as such Judge may direct, for the appointment of a new Trustee, but any new Trustee so appointed by the Corporation or by the Court shall be subject to removal as aforesaid by the Debt Security holders. The Trustee and any new Trustee appointed under any provision of this Section 11.8 shall be a corporation authorized to carry on the business of a trust company in Alberta and shall meet the requirements of sections 310(a)(2) of the TIA (assuming, however, that the combined capital and surplus required by such section is Cdn. $10,000,000) and 310(a)(5) of the TIA and rules 4d-9 and 10a-5 under the TIA (or in each case any successor provisions thereto). If at any time the Trustee or any successor Trustee shall cease to be eligible in accordance with the provisions of this Section 11.8, such Trustee shall be deemed to have resigned immediately without the necessity of notice, with effect as heretofore provided in this Section 11.8. On any new appointment the new Trustee shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Trustee, without any further assurance, conveyance, act or deed, but there shall be immediately executed, at the expense of the Corporation, all such conveyances or other instruments as may, in the opinion of Counsel, be necessary or advisable for the purpose of assuring the same to the new Trustee. Any company into which the Trustee may be merged or with which it may be consolidated or amalgamated, or any company resulting from any merger, consolidation or amalgamation to which the Trustee shall be a party, shall be the successor Trustee under this Indenture without the execution of any instrument or further act. 11.9 POWER OF TRUSTEE TO PROTECT INTEREST The Trustee shall have power to institute and to maintain such actions and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interest and the interest of the Debt Security holders. 11.10 ACCEPTANCE OF TRUST The Trustee hereby accepts the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions hereinbefore set forth in trust for the various Persons who shall from time to time be Debt Security holders or holders of coupons subject to all the terms and conditions herein set forth. -59- 11.11 DUTY OF TRUSTEE In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Trustee shall act honestly and in good faith with a view to the best interests of the Debt Security holders and shall exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. 11.12 PROVISIONS RELIEVING LIABILITY The provisions of Section 11.11 shall apply notwithstanding any provision in this Indenture, including any provision relieving or purporting to relieve the Trustee from liability for its own negligent action or failure to act or its own wilful misconduct. 11.13 MATERIAL CONFLICT OF INTEREST If a material conflict of interest in the role of the Trustee as a fiduciary hereunder exists or shall arise, the Trustee shall within 90 days after ascertaining that it has such a material conflict of interest either eliminate such material conflict of interest or resign from office by giving notice in writing to the Corporation at least 21 days prior to such resignation within such period of 90 days and a new Trustee shall be appointed in accordance with the provisions of Section 11.8. 11.14 NOTICE OF EVENTS OF DEFAULT The Trustee shall give to the Debt Security holders, within a reasonable time but not exceeding 30 days after the Trustee becomes aware of the occurrence thereof, notice in the manner provided in Section 3.12 of every Event of Default arising under this Indenture and continuing at the time such notice is given, unless the Trustee in good faith determines that the withholding of such notice is in the best interest of the Debt Security holders and so advises the Corporation in writing. 11.15 CERTIFICATE OF NO DEFAULT The Corporation shall furnish the Trustee annually within 120 days after the end of its fiscal year, and at any other reasonable time if the Trustee so requires, a Certificate of the Corporation stating that the Corporation has complied with all covenants, conditions or other requirements contained in this Indenture and the Debt Securities, the non-compliance with which would, with the giving of notice or the lapse of time, or both, or otherwise, constitute an Event of Default hereunder or, if such is not the case, specifying the covenant, condition or other requirement which has not been complied with and giving particulars of such non-compliance. 11.16 TRUSTEE MAY RELY ON CERTAIN DOCUMENTS In the exercise of its rights and duties hereunder, the Trustee may, if it is acting in good faith, rely, as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports or certificates furnished to the Trustee under Section 11.17 or pursuant to any other provision of this Indenture or at the request of the Trustee where, -60- (a) in the case of a statutory declaration, opinion, report or certificate furnished under Section 11.17, the Trustee examines the same and determines that it complies with the applicable requirements, if any, of Section 11.17; or (b) in the case of a statutory declaration, opinion, report or certificate furnished pursuant to any other provision of this Indenture or at the request of the Trustee, the Trustee examines the same and determines that it complies with the applicable requirements, if any, of this Indenture. 11.17 EVIDENCE OF COMPLIANCE (a) The Corporation shall furnish to the Trustee evidence of compliance by the Corporation with the conditions precedent provided for in this Indenture to be fulfilled by the Corporation relating to, (i) the certification and delivery of Debt Securities hereunder on the original issue thereof; (ii) the satisfaction and discharge of this Indenture; and (iii) the taking of any other action to be taken by the Trustee at the request of or on the application of the Corporation; forthwith if and when such evidence is required to be furnished to the Trustee by this Indenture. (b) The evidence of compliance required under paragraph (a) of this Section 11.17 shall consist of, (i) a statutory declaration or a certificate of a director or officer of the Corporation stating that such conditions precedent have been complied with in accordance with the terms of this Indenture; and (ii) in the case of conditions precedent compliance with which are, by this Indenture, made subject to review or examination by Counsel, an opinion of Counsel that such conditions precedent have been complied with in accordance with the terms of this Indenture. (c) The evidence of compliance required under paragraph (a) of this Section 11.17 shall comply with any legislation relating to trust indentures applicable to this Indenture. (d) The Corporation shall, whenever the Trustee so requires by written notice, furnish the Trustee with evidence by way of statutory declaration, opinion, report or certificate as specified by the Trustee as to any action or step required or permitted to be taken by the Corporation under this Indenture or as a result of any obligation imposed by this Indenture. -61- ARTICLE 12. - DEBT SECURITIES GUARANTIES 12.1 CAPACITY OF TRUSTEE RE DEBT SECURITIES GUARANTEES Each Debt Securities Guarantee shall be granted to the Trustee in its capacity as trustee for and on behalf of the Debt Securities holders (or, if the Debt Securities Guarantee is only for the benefit of one or more series of Debt Securities, the holders of such series of Debt Securities) and on behalf of the Trustee and all covenants, representations, warranties, rights, benefits and protections made or given in favour of the Trustee thereunder shall be for the benefit of such Debt Securities holders entitled to the benefit thereof. 12.2 ACCEPTANCE OF TRUST RE DEBT SECURITIES GUARANTEES The Trustee hereby accepts the trusts declared and provided for in regard to any Debt Securities Guarantees and agrees to perform the same upon the terms and conditions in this Indenture and any Debt Securities Guarantee set forth and in trust for the various Persons who shall from time to time be Debt Securities holders entitled to the benefit thereof, subject to all the terms and conditions set forth herein or in any Debt Securities Guarantee. The provisions of Article 11 shall apply, MUTATIS MUTANDIS, in regard to the Debt Securities Guarantees, the Guarantors thereunder and the Trustee's right and responsibilities in regard thereto. 12.3 PROCEEDINGS BY THE TRUSTEE Whenever any demand for payment has been made under a Debt Securities Guarantee, or if a Guarantor shall fail to pay when due (whether or not any demand for payment has been made) any amount which is payable under a Debt Securities Guarantee, but in each case subject to the provisions of Section 6.12 and any extraordinary resolution: (a) the Trustee, in the exercise of its discretion, may proceed to enforce the rights thereunder of the Trustee and of the Debt Securities holders entitled to the benefit thereof by any action, suit, remedy or proceeding authorized or permitted by law or by equity, and may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Debt Securities holders entitled to the benefit thereof lodged in any bankruptcy, winding-up or other judicial proceedings relative to the any Guarantor; and (b) upon receipt of a request in writing signed by the holders of not less than 25% in aggregate principal amount of the Debt Securities then outstanding (or, if the Debt Securities Guarantee is only for the benefit of one or more series of Debt Securities, 25% in aggregate principal amount of the then outstanding Debt Securities of such series) and upon being indemnified to its reasonable satisfaction against all costs, expenses and liabilities to be incurred, the Trustee shall proceed in its name as Trustee hereunder to obtain or enforce payment of the amount due under such Debt Securities Guarantee (together with any other amounts due thereunder) and shall exercise or take such one or more of the said remedies as the Trustee in such requests shall have been directed to take or, if such request contains no direction, as the Trustee may deem expedient. -62- 12.4 SUITS BY DEBT SECURITIES HOLDERS Except in accordance with the provisions of Sections 6.12, 12.3 and this 12.4, no holder of any Debt Security of any series shall have any right by virtue or by availing of any provision of any Debt Securities Guarantee to institute any action or proceeding against any Guarantor at law or in equity or in bankruptcy or otherwise upon or under or with respect to such Debt Securities Guarantee or for the appointment of a trustee, receiver, receiver and manager, liquidator, custodian or other similar official or for any other remedy with respect to such Debt Securities Guarantee. If the written request and indemnity referred to in Section 12.3(b) have been tendered to the Trustee and the Trustee has failed to act within a reasonable time thereafter, any Debt Security holder acting on behalf of himself and all other Debt Security holders entitled to the benefit of the relevant Debt Securities Guarantee shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken under Section 12.3, it being understood and intended that no one or more of the Debt Securities holders shall have any right in any manner whatsoever to affect, disturb or prejudice the rights created under any Debt Securities Guarantee by his or their action, or to enforce any right thereunder except subject to the conditions and in the manner herein provided, and that all powers and trusts under any Debt Securities Guarantee shall be exercised and all proceedings at law in respect of any Debt Securities Guarantee shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the benefit of all Debt Securities holders entitled to the benefit thereof in accordance with the provisions of this Indenture. 12.5 APPLICATION OF GUARANTEE MONEYS BY TRUSTEE Except as herein otherwise expressly provided, any moneys received by the Trustee from any Guarantor pursuant to any Debt Securities Guarantee, pursuant to the foregoing Sections of this Article 12, or as a result of legal or other proceedings or from any trustee in bankruptcy or liquidator of any Guarantor, shall be applied, together with any other moneys in the hands of the Trustee available for such purpose, in the manner provided in Section 6.5 of this Indenture. 12.6 AMENDMENTS AND WAIVERS The Trustee may agree to an amendment to any provision of a Debt Securities Guarantee only if Debt Securities holders holding in the aggregate more than 50% in principal amount of the outstanding Debt Securities entitled to the benefit of such Debt Securities Guarantee so agree in writing and the Trustee may waive any provision of a Debt Securities Guarantee only if the Debt Securities holders holding in the aggregate more than 50% in principal amount of the outstanding Debt Securities entitled to the benefit of such Debt Securities Guarantee so agree in writing; provided, notwithstanding the foregoing, the Trustee may agree to any amendment to or may provide any waiver of any provision of a Debt Securities Guarantee where the Trustee is of the opinion that the amendment or waiver will not be prejudicial to the interests of the Debt Securities holders entitled to the benefit of such Debt Securities Guarantee. Any such agreement or waiver shall be binding on the Trustee and all of the Debt Securities holders entitled to the benefit of the relevant Debt Securities Guarantee. -63- ARTICLE 13. - DEFEASANCE AND COVENANT DEFEASANCE 13.1 DEFEASANCE The Corporation may, at its option and at any time, upon delivery to the Trustee of a Certified Resolution authorizing such action, terminate the obligations (subject to the exceptions set forth below) of the Corporation with respect to all outstanding Debt Securities and any coupons appertaining thereto and any Debt Securities Guarantee which may have been given in respect of any series of outstanding Debt Securities and the Corporation shall be deemed to have been discharged from its obligations with respect to the outstanding Debt Securities and any coupons appertaining thereto, and any such Debt Securities Guarantee shall terminate, on the date the conditions set forth in Section 13.3 are satisfied (hereinafter "defeasance"). For this purpose, such defeasance means that the Corporation shall be deemed to have paid and discharged the entire indebtedness represented by all then outstanding Debt Securities and any coupons appertaining thereto, which shall thereafter be deemed to be "outstanding" only for the purposes of the provisions of this Indenture referred to in clauses (1) through (4) below, and to have satisfied all of its other obligations under such Debt Securities and any coupons appertaining thereto and this Indenture insofar as such Debt Securities and any coupons appertaining thereto are concerned and also means that any such Debt Securities Guarantee which may have been given in respect of the outstanding Debt Securities shall be terminated (and the Trustee, at the expense of the Corporation, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of holders of such outstanding Debt Securities and any coupons appertaining thereto to receive, solely from the trust fund described in Section 13.3 and as more fully set forth in such Section and Section 13.4, payments in respect of the principal of (and premium, if any) and interest, if any, on, and Additional Amounts, if any, payable with respect to, such Debt Securities and any coupons appertaining thereto when such payments are due, (2) the obligation of the Corporation to pay Additional Amounts in respect of the Debt Securities pursuant to Section 8.1, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder, and (4) the provisions of Sections 1.5, 1.6, 2.7, 2.8, 2.14, 5.1(i), 7.4, 7.5, 8.3 and 11.4 and of this Article 13. Subject to compliance with this Article 13, the Corporation may exercise its option under this Section 13.1 notwithstanding the prior exercise of its option under Section 13.2 with respect to such Debt Securities and any coupons appertaining thereto. 13.2 COVENANT DEFEASANCE The Corporation may, at its option and at any time, upon delivery to the Trustee of a Certified Resolution authorizing such action, be released from its obligations with respect to (and only with respect to) the outstanding Debt Securities and any coupons appertaining thereto under (i) paragraphs (b) (other than the first sentence thereof), (c), (d), (e) and (g) of Section 5.1, (ii) under any covenant to provide a Debt Securities Guarantee with respect to the outstanding Debt Securities, and (iii) to the extent specified pursuant to Section 2.2, its obligations under any other covenant applicable to the outstanding Debt Securities and any coupons appertaining thereto, on and after the date the conditions set forth in Section 13.3 are satisfied (hereinafter, "covenant defeasance"), and such Debt Securities and any coupons appertaining thereto shall thereafter be deemed to be not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Debt Securities holders (and the consequences of any thereof) in connection with paragraphs (b) (other than the first sentence thereof), (c), (d), (e) and (g) of Section 5.1, or any such other covenant, but shall continue to be -64- deemed "outstanding" for all other purposes hereunder. In connection with any covenant defeasance, the Corporation may at its option, by written notice given to the Trustee prior to the delivery to the Trustee of the legal opinion referred to in Section 13.3(e), elect (which election shall be irrevocable) that any Debt Securities Guarantees which may have been given in respect of the outstanding Debt Securities will be terminated on the date the obligations set forth in Section 13.3 are satisfied; if no such notice is given to the Trustee, such Debt Securities Guarantee shall remain in full force and effect following such covenant defeasance. For this purpose, such covenant defeasance means that, with respect to such outstanding Debt Securities and any coupons appertaining thereto, the Corporation may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such paragraphs of Section 5.1 (other than its obligations under the first sentence of paragraph (b)) or any such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such paragraph or any such other covenant or by reason of reference in any such paragraph or such other covenant to any provision herein or any other document, and such omission to comply shall not constitute a default or an Event of Default under Section 6.1 or otherwise, as the case may be, but the remainder of this Indenture and such Debt Securities and any coupons appertaining thereto shall be unaffected thereby and if the Corporation shall have elected to terminate any Debt Securities Guarantee which may have been given in respect of the outstanding Debt Securities in accordance with the provisions of this Section 13.2, such Debt Securities Guarantee shall terminate. 13.3 CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE The following shall be the conditions to application of Section 13.1 or Section 13.2 to the outstanding Debt Securities and any coupons appertaining thereto: (a) The Corporation shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of this Indenture who shall agree to comply with the provisions of this Article 13 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the holders of such Debt Securities and any coupons appertaining thereto, (A) an amount in U.S. dollars, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, no later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Debt Securities and any coupons appertaining thereto, or (C) a combination thereof, in any case, in an amount sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any) and interest, if any, on all outstanding Debt Securities and any coupons appertaining thereto as and when the same shall become due and payable in accordance with their terms and the terms of this Indenture and (ii) any mandatory sinking fund payments or analogous payments applicable to such outstanding Debt Securities and any coupons appertaining thereto on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Debt and any coupons appertaining thereto. -65- (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Corporation is a party or by which it is bound. (c) No Event of Default or event which with notice or lapse of time or both would constitute an Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as Sections 6.1(c) or (d) are concerned, at any time during the period ending on the day which is the later of (A) three months and one day after the date of such deposit and (B) 91 days after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (d) In the case of defeasance under Section 13.1, the Corporation shall have delivered to the Trustee an opinion of outside counsel of nationally recognized standing in the United States with respect to U.S. federal income tax matters stating that subsequent to the date of this Indenture, (A) the Corporation has received from, or there has been published by the U.S. Internal Revenue Service a ruling or (B) there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the outstanding Debt Securities and any coupons appertaining thereto will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of covenant defeasance under Section 13.2, the Corporation shall have delivered to the Trustee an opinion of outside counsel of nationally recognized standing in the United States with respect to U.S. federal income tax matters to the effect that the holders of the outstanding Debt Securities and any coupons appertaining thereto will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred (if Debt Securities Guarantees are terminated in connection with such covenant defeasance, such opinion shall expressly indicate that such counsel has considered such termination in rendering such opinion). (f) The Corporation shall have delivered to the Trustee an opinion of outside Canadian counsel of recognized standing with respect to Canadian federal income tax matters to the effect that (A) the holders of the outstanding Debt Securities and coupons will not recognize income, gain or loss for Canadian federal income tax purposes as a result of such defeasance or covenant defeasance, (B) after such defeasance or covenant defeasance, any payment or credit by the Corporation of the principal of, or premium, if any, or interest on the Debt Securities or coupons to a holder thereof will be exempt from Canadian withholding tax if the holder thereof, for the purposes of the INCOME TAX ACT (Canada) (or any successor law) is or is deemed to be a non-resident of Canada and deals at arms' length with the Corporation at the time of such payment or credit, and (C) after such defeasance or covenant defeasance, holders of the Debt Securities and coupons will be subject to Canadian federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred. -66- (g) The Corporation shall have delivered to the Trustee a Certificate of the Corporation stating that the deposit with the Trustee was not made by the Corporation with the intent of preferring the holders of the Debt Securities or coupons over the other creditors of the Corporation or with the intent of defeating, hindering, delaying or defrauding creditors of the Corporation or otherwise; (h) The Corporation shall have delivered to the Trustee a Certificate of the Corporation and an opinion of Counsel, each stating that all conditions precedent to the defeasance under Section 13.1 or the covenant defeasance under Section 13.2 (as the case may be) have been complied with and an opinion of U.S. Counsel to the effect that either (A) as a result of a deposit pursuant to clause (1) above and the related exercise of the Corporation's rights under Section 13.1 or 13.2 (as the case may be), registration is not required under the United States Investment Company Act of 1940, as amended, by the Corporation, with respect to the trust funds representing such deposit or by the trustee for such trust funds or (B) all necessary registrations under said Act have been effected. Notwithstanding any other provisions of this Section 13.3, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Corporation in connection therewith pursuant to Section 2.2. Any deposits with the Trustee (or other qualifying trustee) referred to in paragraph (1) above shall be made under the terms of an escrow trust agreement in form and substance satisfactory to the Trustee. 13.4 DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS Subject to the provisions of Section 7.3, all money and U.S. Government Obligations (or other property as may be provided pursuant to Section 2.2) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 13.4, the "Trustee") pursuant to Section 13.3 in respect of the outstanding Debt Securities and any coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Debt Securities and any coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (other than the Corporation) as the Trustee may determine, to the holders of such Debt Securities and any coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest and Additional Amounts, if any, but such money need not be segregated from other funds except to the extent required by law. The Corporation shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations or other property deposited pursuant to Section 13.3 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the holders of such outstanding Debt Securities and any coupons appertaining thereto. -67- Anything in this Article 13 to the contrary notwithstanding, subject to Section 11.7, the Trustee shall deliver or pay to the Corporation from time to time upon Written Order of the Corporation any money or U.S. Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 13.3 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Article 13. 13.5 REINSTATEMENT If the Trustee (or other qualifying trustee appointed pursuant to Section 13.4) or any Paying Agent is unable to apply any cash or U.S. Government Obligations (or other property or any proceeds therefrom) deposited pursuant to Sections 13.3 or 13.4 in accordance with this Indenture or the Debt Securities by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Corporation's obligations under this Indenture and the Debt Securities and any coupons appertaining thereto shall be revived and reinstated as though no deposit had occurred pursuant to Sections 13.3 or 13.4 until such time as the Trustee (or other qualifying trustee) or any Paying Agent is permitted to apply such money in accordance with this Indenture and the Debt Securities and any coupons appertaining thereto; provided, however, that if the Corporation makes any payment of principal of, premium, if any, or interest on any Debt Security and any coupons appertaining thereto following the reinstatement of its obligations, the Corporation shall be subrogated to the rights of the holders of such Debt Securities to receive such payment from the cash and U.S. Government Obligations held by the Trustee or any Paying Agent. -68- ARTICLE 14. - COUNTERPARTS 14.1 COUNTERPARTS AND FORMAL DATE This Indenture may be executed in several counterparts, each of which so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to bear a date as of the date first above written. IN WITNESS WHEREOF the parties hereto have executed these presents under their respective corporate seals and the hands of their proper officers in that behalf as of the date first above written. CANADIAN OCCIDENTAL PETROLEUM LTD. Per: (signed) /s/ Victor J. Zaleschuk --------------------------------- Name: Victor J. Zaleschuk Title: Chief Executive Officer [Seal] Per: (signed) /s/ Marvin F. Romanow --------------------------------- Name: Marvin F. Romanow Title: Vice-President, Finance and Chief Financial Officer CIBC MELLON TRUST COMPANY Per: (signed) /s/ Jacquie Fisher --------------------------------- Name: Jacquie Fisher Title: Senior Account Manager [Seal] Per: (signed) /s/ Roger Booth --------------------------------- Name: Roger Booth Title: Assistant Vice-President, Alberta Region SCHEDULE A to the Trust Indenture dated as of April 28, 1998 made between Canadian Occidental Petroleum Ltd. and CIBC Mellon Trust Company, as Trustee. DESIGNATION Pursuant to a Trust Indenture dated as of April 28, 1998 between Canadian Occidental Petroleum Ltd. (the "Corporation") and CIBC Mellon Trust Company, as amended and supplemented from time to time, the Corporation hereby designates each of the following as a "Restricted Subsidiary" pursuant to paragraph (ii) of the definition thereof: [LIST ALL RESTRICTED SUBSIDIARIES TO BE DESIGNATED PURSUANT TO PARAGRAPH (II) OF THE DEFINITION OF RESTRICTED SUBSIDIARY] DATED effective this __ day of ____________, ____. CANADIAN OCCIDENTAL PETROLEUM LTD. Per: ----------------------------------- Per: ----------------------------------- EX-4 5 ex4-43form10k_2003.txt EXHIBIT 4.43 EXHIBIT 4.43 ------------ Dated as of April 28, 1998 CANADIAN OCCIDENTAL PETROLEUM LTD. and CIBC MELLON TRUST COMPANY FIRST SUPPLEMENTAL INDENTURE to the TRUST INDENTURE DATED AS OF APRIL 28, 1998 TABLE OF CONTENTS 1. INTERPRETATIONS AND AMENDMENTS........................................2 1.1 SUPPLEMENTAL INDENTURE.......................................2 1.2 DEFINITIONS IN TRUST INDENTURE...............................2 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS......................2 2. NOTES.................................................................2 2.1 FORM AND TERMS OF NOTES......................................2 2.2 ISSUANCE OF NOTES............................................4 3. REDEMPTION OF NOTES...................................................5 3.1 REDEMPTION OF NOTES..........................................5 3.2 ADDITIONAL DEFINITIONS.......................................5 4. DEBT SECURITIES GUARANTEE.............................................6 4.1 COVENANT TO PROVIDE DEBT SECURITIES GUARANTEE................6 4.2 OPINIONS.....................................................7 4.3 AUTOMATIC TERMINATION........................................7 5. GENERAL...............................................................7 5.1 INDENTURE SUPPLEMENTAL TO TRUST INDENTURE....................7 5.2 ACCEPTANCE OF TRUST..........................................8 5.3 COUNTERPARTS AND FORMAL DATE.................................8 SCHEDULES Schedule A..........................................................Form of Note THIS FIRST SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") dated as of April 28, 1998. BETWEEN: CANADIAN OCCIDENTAL PETROLEUM LTD., a corporation incorporated under the Canada Business Corporations Act and having its head office in the City of Calgary, in the Province of Alberta (the "Corporation") OF THE FIRST PART and - CIBC MELLON TRUST COMPANY, a trust corporation incorporated under the laws of Canada, having an office in the City of Calgary, in the Province of Alberta (the "Trustee") OF THE SECOND PART WITNESSETH THAT: WHEREAS in and by a trust indenture made as of April 28, 1998 (the "Original Indenture") between the Corporation and the Trustee (the Original Indenture, as amended and supplemented by this Supplemental Indenture and as the same may be further amended or supplemented from time to time, being hereinafter called the "Trust Indenture," which term includes any and every instrument supplemental or ancillary thereto or in implementation thereof and the form and terms of any particular series of Debt Securities (as defined below) established thereunder), provision was made for the issue, in one or more series, by the Corporation of debt securities of the Corporation (the "Debt Securities") in an unlimited aggregate principal amount; AND WHEREAS the proper officers of the Corporation have duly authorized the creation and issuance of a series of Debt Securities to be designated as 7.40% Notes due 2028 (the "Notes"), and to be limited (subject to the exceptions described herein and in the Trust Indenture) to the aggregate principal amount of U.S. $200,000,000, the further terms and conditions thereof being hereinafter set forth, all in accordance with a resolution of the directors of the Corporation; AND WHEREAS all necessary acts and proceedings have been done and taken to authorize the execution of this Supplemental Indenture, to establish the terms and form of the Notes pursuant to the Trust Indenture, and to make this Supplemental Indenture and the said series of Notes, when executed and delivered by the Corporation and certified and delivered by the Trustee as provided in the Trust Indenture, legal, valid and binding upon the Corporation; AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not by the Trustee; -2- NOW THEREFORE, it is hereby covenanted, agreed and declared as follows: 1. INTERPRETATIONS AND AMENDMENTS 1.1 SUPPLEMENTAL INDENTURE This "Supplemental Indenture", "hereto", "herein", "hereof", "hereby", "hereunder" and similar expressions refer to this Supplemental Indenture and not to any particular Article, Section or other portion hereof and include any and every instrument supplemental or ancillary hereto or in implementation hereof, and further include the terms of the Notes set forth in the form of Note annexed as Schedule A hereto. 1.2 DEFINITIONS IN TRUST INDENTURE All terms contained in this Supplemental Indenture which are defined in the Original Indenture and not defined herein shall, for all purposes hereof, have the meanings given to such terms in the Original Indenture unless the context otherwise specifies or requires; provided, however, that notwithstanding the foregoing, the terms "Corporation" and "Trustee" shall have the respective meanings given to them in the Original Indenture. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS The division of this Supplemental Indenture into Articles and Sections, the provision of the table of contents hereto and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Supplemental Indenture. 2. NOTES 2.1 FORM AND TERMS OF NOTES There shall be and is hereby created for issuance under the Trust Indenture a series of Debt Securities which shall consist of and be limited (subject to the exceptions set forth in Section 2.2(b) of the Original Indenture) to the aggregate principal amount of U.S. $200,000,000 and shall be designated as 7.40% Notes due 2028 (the "Notes"); provided, however, that if the Corporation shall, at any time after the date hereof, increase the principal amount of Notes which may be issued and issue such increased principal amount (or any portion thereof), then any such additional Notes so issued shall have the same form and terms (other than the date of issuance and the date from which interest thereon shall begin to accrue), and shall carry the same right to receive accrued and unpaid interest, as the Notes theretofore issued; and provided, further, that, notwithstanding the foregoing, the Corporation shall not be entitled to increase the principal amount of Notes which may be issued or issue any such increased principal amount if the Corporation has effected satisfaction and discharge of the Trust Indenture pursuant to Section 7.4 of the Original Indenture or defeasance or covenant defeasance pursuant to Article 13 of the Original Indenture. -3- The Notes will mature, and the principal of the Notes and accrued and unpaid interest thereon will be due and payable, on May 1, 2028, or such earlier date as the principal of any of the Notes may become due and payable in accordance with the provisions of the Trust Indenture. The Notes shall bear interest on the principal amount thereof from April 28, 1998 or from the last date to which interest shall have been paid or duly made available for payment on the Notes, whichever is later, at the rate of 7.40% per annum, payable semiannually in arrears on May 1 and November 1, 1998 (each, an "Interest Payment Date") in each year, commencing November 1, 1998, until the principal of and premium, if any, on the Notes is paid or duly made available for payment; and should the Corporation at any time default in the payment of any principal of, or premium, if any, or interest on the Notes when due, the Corporation shall pay interest (such interest to be payable on demand), to the extent permitted by law, on the amount in default at the same rate. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Trust Indenture, be paid to the Persons in whose names the Notes (or one or more predecessor Notes) are registered at the close of business on the April 15 or October 15 (the "Regular Record Dates"), as the case may be, immediately prior to such Interest Payment Date, regardless of whether any such Regular Record Date is a business day. Any such interest on the Notes not so punctually paid or duly provided for on any Interest Payment Date shall be payable as provided in the form of Note annexed hereto as Schedule A to this Supplemental Indenture. For the purposes only of the disclosure required by the INTEREST ACT (Canada), and without affecting the amount of interest payable to any holder of a Note or the calculation of interest on any Note, if the rate of interest on any Note is calculated on the basis of a year (the "deemed year") which contains fewer days than the actual number of days in the calendar year of calculation, such rate of interest shall be expressed as a yearly rate for the purposes of the INTEREST ACT (Canada) by multiplying such rate of interest by the actual number of days in the calendar year of calculation and dividing it by the number of days in the deemed year. All payments of principal of and premium, if any, and interest on the Notes will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, and all references herein to "United States dollars", "U.S. $" or "U.S. dollars" shall be deemed to refer to such coin or currency of the United States of America. The principal of and premium, if any, and interest on the Notes shall be payable, and the Notes may be surrendered for exchange, registration, transfer or discharge from registration, at the office or agency maintained by the Corporation for such purpose from time to time in the City of Calgary, Alberta (which shall initially be the office of the Trustee in the City of Calgary, Alberta) and, under the circumstances described in Section 2.14(j) of the Original Indenture, in the Borough of Manhattan, The City of New York, and in such other places as the Corporation may from time to time designate. The Trustee is hereby appointed as the initial Paying Agent, registrar and transfer agent for the Notes in the City of Calgary, Alberta. The Notes shall be issued only as fully registered Notes, without coupons, in denominations of U.S. $1,000 and integral multiples thereof. The Notes initially will be represented by one or more Global -4- Debt Securities (collectively, the "Global Note") registered in the name of The Depository Trust Company, as Depositary or its nominee, or a successor depositary or its nominee. The Notes and the certificate of the Trustee endorsed thereon shall be substantially in the form set out in Schedule A to this Supplemental Indenture with such appropriate insertions, omissions, substitutions and variations as the Trustee may approve and shall be numbered in such manner as the Trustee may approve, such approvals of the Trustee concerning any Note to be conclusively evidenced by its certification of such Note. The register referred to in Section 3.2 of the Original Indenture shall, with respect to the Notes, be kept at the office or agency in the City of Calgary, Alberta that the Corporation may from time to time designate for such purpose (which shall initially be the office of the Trustee in the City of Calgary, Alberta), and at such other place or places as the Corporation with the approval of the Trustee may hereafter designate. Without limitation to the foregoing, if the Corporation shall at any time be required by the terms of the Notes or the Trust Indenture to appoint a registrar for the Notes in the Borough of Manhattan, The City of New York, the Corporation shall cause a register for the Notes also to be kept at the office of the registrar in the Borough of Manhattan, The City of New York and the Trustee hereby gives its approval to a register being kept at such place. The Notes shall be subject to redemption at the option of the Corporation as provided in Article 3 of this Supplemental Indenture. The Corporation shall not be required to redeem, purchase or repay Notes pursuant to any mandatory redemption, sinking fund or analogous provision or at the option of the holders thereof. The Notes will not be convertible into or exchangeable for securities of any Person. The Notes will be entitled to the benefit of Debt Securities Guarantees upon the terms and conditions set forth in Article 4 of this Supplemental Indenture. The Notes shall have the other terms and provisions set forth in the form of Note attached hereto as Schedule A to this Supplemental Indenture, with the same force and effect as if such terms and provisions were set forth in full at this place. 2.2 ISSUANCE OF NOTES Notes in the aggregate principal amount of U.S. $200,000,000 shall be executed by the Corporation and delivered by it to the Trustee on the date of issue for certification and delivery pursuant to and in accordance with the provisions of Sections 2.4, 2.5 and 2.6 of the Original Indenture and, upon the requirements of such provisions being complied with, the Notes shall be certified by or on behalf of the Trustee and delivered by it to or upon the written order of the Corporation without any further act or formality on the part of the Corporation. The Trustee shall have no duty or responsibility with respect to the use or application of any of the Notes so certified and delivered or the proceeds thereof. -5- 3. REDEMPTION OF NOTES 3.1 REDEMPTION OF NOTES The Notes will be redeemable at any time, in whole or from time to time in part, at the option of the Corporation (in the manner and in accordance with and subject to the terms and provisions set forth in the Trust Indenture), at a redemption price equal to the greater of: (a) 100% of the principal amount of the Notes to be redeemed; and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 25 basis points; plus in each case accrued interest to the date of redemption; provided that installments of interest on Notes which are due and payable on any date falling on or prior to a redemption date will be payable to the registered holders of such Notes (or one or more predecessor Notes), registered as such as of the close of business on the relevant record dates. 3.2 ADDITIONAL DEFINITIONS For the purposes of this Supplemental Indenture, the following expressions shall have the following meanings: "Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date; "Comparable Treasury Issue" means the U.S. Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes; "Independent Investment Banker" means one of the Reference Dealers selected by the Corporation; "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury -6- Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Corporation is unable to obtain three such Reference Treasury Dealer Quotations, the average of all such Quotations; "Reference Treasury Dealer Quotations" means, with respect to each Reference Dealer and any redemption date, the average, as determined by the Corporation, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Corporation by such Reference Dealer at 5:00 p.m. (New York City time) on the third business day preceding such redemption date; and "Reference Dealer" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Salomon Brothers Inc and their respective successors; provided, however, that if any of the foregoing Reference Dealers shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Corporation shall substitute therefor another Primary Treasury Dealer. 4. DEBT SECURITIES GUARANTEE 4.1 COVENANT TO PROVIDE DEBT SECURITIES GUARANTEE The Corporation covenants and agrees that, so long as any of the Notes remains outstanding: (a) if any Subsidiary of the Corporation shall at any time guarantee (a "Subsidiary Guarantee") any Indebtedness of the Corporation pursuant to (i) Article 4 of the fourth supplemental indenture (the "Fourth Supplemental Indenture") made as of the 2nd day of July, 1997 to the trust indenture dated as of June 7, 1991 between the Corporation and CIBC Mellon Trust Company, as successor trustee, or (ii) any of the Subject Debt Agreements (as defined below), then the Corporation will cause such Subsidiary (a "Guarantor") to execute a Debt Securities Guarantee pursuant to which it will guarantee the Debt Securities (including the Notes) on substantially the same terms as are set forth in such Subsidiary Guarantee with such changes as may be necessary to conform to local law or practice of the jurisdiction in which the Guarantor is organized (which, in the case of a Subsidiary which is organized and existing under the laws of any State of the United States or the District of Columbia, may include a customary provision limiting amounts payable under such Debt Securities Guarantee to such amount as will not violate applicable fraudulent conveyance or other similar laws and a customary provision providing for contribution from other Guarantors, if any) or as may be recommended by independent legal counsel to the Trustee and incorporating provisions pursuant to which the Guarantor shall submit to jurisdiction, waive immunity, and appoint an agent for service of process to the same extent done by the Corporation pursuant to the Trust Indenture; and (b) the Corporation will comply, and will cause such Guarantor to comply, with all applicable securities laws and regulations, including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939 (and in each of the foregoing cases all applicable rules and regulations thereunder) and with state securities and blue sky laws and regulations of the United States in connection with any Debt Securities Guarantee. Any such Debt Securities Guarantee shall be subject to the terms and provisions of the Trust Indenture, including, without limitation, Article 12 of the Original Indenture. Any such Debt Securities Guarantee shall be duly executed and delivered to the Trustee by the applicable Guarantor, and shall be effective as of a date, (1) in the case of a Subsidiary Guarantee entered into or to be entered into pursuant to -7- the Fourth Supplemental Indenture, not later than 90 days after the date on which the Corporation becomes obligated to provide such Subsidiary Guarantee and (2) in the case of a Subsidiary Guarantee entered into pursuant to any Subject Debt Agreement, not later than 90 days after the date on which Subsidiary Guarantee shall be effective. "Subject Debt Agreements" means the Loan Agreement dated as of June 30, 1995 among the Corporation, Canadian Imperial Bank of Commerce, as agent, and the financial institutions party thereto, and the Loan Agreement dated as of October 31, 1996 between the Corporation and Royal Bank of Canada, each as heretofore or hereafter amended, supplemented, modified or restated from time to time. 4.2 OPINIONS The Trustee will, at the expense of the Corporation, engage independent legal counsel of recognized standing (in the jurisdiction in which the Guarantor is organized) with respect to matters relating to publicly issued debt securities to review the form of Debt Securities Guarantee, and both counsel to the Corporation and such independent legal counsel shall deliver legal opinions to the Trustee to the effect that such Debt Securities Guarantee has been duly authorized, executed and delivered by, and is a valid, binding and enforceable obligation of, the Guarantor (subject to customary exceptions). In addition, the Trustee will, at the expense of the Corporation, engage independent legal counsel of recognized standing with respect to matters of United States federal securities laws (which, if possible, shall be the same independent legal counsel referred to in the first sentence of this paragraph) and such independent legal counsel shall deliver legal opinions to the Trustee to the effect that such Debt Securities Guarantee has been registered under the Securities Act of 1933 and that the Trust Indenture has been duly qualified under the Trust Indenture Act of 1939 or that no such registration or qualification is required. All such opinions shall be in form and substance satisfactory to the Trustee, acting reasonably, and shall be delivered to the Trustee not later than the time of delivery to the Trustee of the corresponding Debt Securities Guarantee. 4.3 AUTOMATIC TERMINATION In the event a Subsidiary Guarantee is discharged or released, then, upon Written Order of the Corporation to the Trustee accompanied by a Certificate of the Corporation confirming that the corresponding Subsidiary Guarantee has been discharged or released, such Debt Securities Guarantee shall automatically terminate and be released and the Trustee shall return to the Corporation such Debt Securities Guarantee. 5. GENERAL 5.1 INDENTURE SUPPLEMENTAL TO TRUST INDENTURE This Supplemental Indenture is supplemental to the Original Indenture and the Original Indenture and the Notes issued thereunder shall, from this date forward, be read in conjunction with this Supplemental Indenture. The Original Indenture and this Supplemental Indenture shall, from this date forward, have effect so far as practicable as if all the provisions of the Original Indenture and this Supplemental Indenture were contained in one instrument. -8- 5.2 ACCEPTANCE OF TRUST The Trustee hereby accepts the trusts in this Supplemental Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein before set forth in trust for the various Persons who shall from time to time be Note holders subject to all the terms and conditions herein set forth. 5.3 COUNTERPARTS AND FORMAL DATE This Supplemental Indenture may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to bear the date first above written. IN WITNESS WHEREOF the parties hereto have executed this Supplemental Indenture under their respective corporate seals on the date first above written. CANADIAN OCCIDENTAL PETROLEUM LTD. Per: /s/ Victor J. Zaleschuk --------------------------------- Name: Victor J. Zaleschuk Title: Chief Executive Officer [Seal] Per: /s/ Marvin F. Romanow --------------------------------- Name: Marvin F. Romanow Title: Vice President, Finance and Chief Financial Officer CIBC MELLON TRUST COMPANY Per: /s/ Jacquie Fisher --------------------------------- Name: Jacquie Fisher Title: Senior Account Manager [Seal] Per: /s/ Roger Booth --------------------------------- Name: Roger Booth Title: Assistant Vice-President, Alberta Region SCHEDULE A to the First Supplemental Indenture dated as of April 28, 1998 made between Canadian Occidental Petroleum Ltd. and CIBC Mellon Trust Company, as Trustee. FORM OF NOTES [Insert if the Note is a Global Debt Security: THIS NOTE IS A GLOBAL DEBT SECURITY WITHIN THE MEANING OF THE TRUST INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE NOTES), A NEW YORK CORPORATION, OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR NOTES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST INDENTURE AND UNLESS AND UNTIL IT IS EXCHANGED FOR NOTES IN DEFINITIVE CERTIFICATED FORM AS AFORESAID, MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ITS NOMINEE TO A SUCCESSOR DEPOSITARY OR ITS NOMINEE.] [Insert if the Note is a Global Debt Security: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE CORPORATION (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] CANADIAN OCCIDENTAL PETROLEUM LTD. (organized under the laws of Canada) 7.40% Notes due 2028 No. ____ Principal Amount: U.S. _________ CUSIP No. 136 420 AF3 FOR VALUE RECEIVED, CANADIAN OCCIDENTAL PETROLEUM LTD., a corporation organized under the laws of Canada (hereinafter called the "Corporation", which term includes any successor corporation under the Trust Indenture referred to below), for value received, acknowledges itself indebted and hereby promises to pay to: or registered assigns, on May 1, 2028 or on such earlier date as the principal hereof may become due in accordance with the provisions of the Trust Indenture hereinafter mentioned, the principal sum of ________ United States dollars (U.S.$________) in immediately available funds, in lawful money of the United States of America, and to pay interest on the principal amount hereof from April 28, 1998 or from the last date to which interest shall have been paid or duly made available for payment on the Corporation's outstanding 7.40% Notes due 2028 (the "Notes"), whichever is later, at the rate of 7.40% per annum, payable semiannually in arrears in like money, on May 1 and November 1 (each, an "Interest Payment Date") in each year, commencing November 1, 1998, until the principal hereof and premium, if any, hereon is paid or duly made available for payment; and should the Corporation at any time default in the payment of any principal of, or premium, if any, or interest on, this Note when due, to pay interest (such interest to be payable on demand), to the extent permitted by law, on the amount in default at the same rate, in like money. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The interest payable, and -2- punctually paid or duly provided for, on any Interest Payment Date, will, as provided in such Trust Indenture, be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the April 15 or October 15 (the "Regular Record Dates"), as the case may be, immediately prior to such Interest Payment Date, regardless of whether any such Regular Record Date is a business day. Any such interest on this Note not so punctually paid or duly provided for on any Interest Payment Date will forthwith cease to be payable to the holder on such Regular Record Date by virtue of having been such holder and may either (i) upon (A) written notice by the Corporation to the Trustee (as defined below) of the aggregate amount of defaulted interest proposed to be paid by the Corporation and the date of such proposed payment and (B) the concurrent deposit by the Corporation with the Trustee of U.S. dollars in an amount equal to the aggregate amount proposed to be paid with respect to such defaulted interest or upon such arrangements satisfactory to the Trustee for such deposit of U.S. dollars in such amount on or prior to the date of such proposed payment (such monies when so deposited to be held in trust for the benefit of the Persons entitled thereto), be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee (which special record date shall not be more than 15 days or less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the aforesaid notice from the Corporation), notice whereof shall be given to the holders of Notes not less than 10 days prior to such special record date in the manner provided in the Trust Indenture, or (ii) be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange. As interest on this Note becomes due (except interest payable at maturity or on redemption which, so long as the date of such maturity or such redemption date is not an Interest Payment Date, shall be paid upon presentation and surrender of this Note for payment), the Corporation, either directly or through the Trustee, shall send, at least five days prior to each date on which interest becomes due, by prepaid ordinary mail, a cheque for such interest (less any tax required to be withheld therefrom) payable to the order of the registered holder of this Note at the close of business on the relevant Regular Record Date and addressed to him at his last address appearing on the Note register, unless such holder otherwise directs; provided that the Corporation may make any such payment of interest (less any tax required to be withheld therefrom) by wire transfer. In the case of joint holders, cheques shall, unless such joint holders otherwise direct, be payable to the order of all such joint holders and, if more than one address appears on the Note register in respect of a joint holding, any cheque for interest shall be mailed to the first address so appearing. The mailing of any such cheque or the making of any such payment by wire transfer shall, to the extent of the sum represented thereby plus the amount of any tax withheld as aforesaid, satisfy and discharge all liability for interest on this Note, unless such cheque is not paid at par on presentation. Notwithstanding the foregoing provisions of this paragraph or any other provision of the Notes or the Trust Indenture, (i) so long as this Note is registered in the name of The Depository Trust Company (or any successor Depositary for the Notes) or its nominee (a "Global Note"), payments of principal of and premium, if any, and interest on this Note shall be made by wire transfer of immediately available funds unless otherwise required by such Depositary (ii) if definitive certificated Notes are issued in exchange for interests in any Global Note, the Corporation will pay the principal of and premium, if any, and interest on such definitive certificated Notes by wire transfer of immediately available funds (provided that the holders thereof shall have provided appropriate wire transfer instructions to the -3- Corporation); and (iii) if definitive certificated Notes are issued in exchange for interests in any Global Note or if the Depositary for the Notes shall so require, the Corporation will maintain a Paying Agent, registrar and transfer agent for the Notes in the Borough of Manhattan, The City of New York. All payments of the principal of and premium, if any, and interest on this Note will be made in such coin or currency of the United States of America as of the time of payment is legal tender for payment of public and private debts, and all references herein to "United States dollars", "U.S. $" or "U.S. dollars" shall be deemed to refer to such coin or currency of the United States of America. This Note is one of the duly authorized series of Debt Securities of the Corporation (herein called the Notes) issued under and entitled to the benefits of a trust indenture made as of April 28, 1998, as supplemented by the First Supplemental Indenture thereto made as of April 28, 1998, each between the Corporation and CIBC Mellon Trust Company, as trustee (the "Trustee", which term includes any successor trustee under the Trust Indenture) (such trust indenture and first supplemental trust indenture, as the same may be further amended or supplemented from time to time, are herein called collectively the "Trust Indenture"). Reference is hereby made to the Trust Indenture for a description of the terms and conditions upon which the Notes are issued or may be issued and held and the rights of the holders of Notes issued and to be issued thereunder and of the Corporation and of the Trustee, all to the same effect as if the provisions of the Trust Indenture were herein set forth, to all of which provisions the holder of this Note by acceptance hereof assents. This Note is one of the series designated on the face hereof, limited (subject to exceptions provided in the Trust Indenture) in aggregate principal amount to U.S. $200,000,000, subject to the right of the Corporation, on the terms and subject to the conditions set forth in the Trust Indenture, at any time or from time to time to increase the principal amount of such series and to issue such increased principal amount of Notes (or any portion thereof). All terms used in this Note which are defined in the Trust Indenture and not defined herein shall have the meanings assigned to them in the Trust Indenture. This Note is a direct obligation of the Corporation. This Note is redeemable at any time, in whole or from time to time in part, at the option of the Corporation, upon the terms and subject to the conditions set forth in the Trust Indenture, at a redemption price equal to the greater of (i) 100% of the principal amount of this Note to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest hereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 25 basis points, plus in each case accrued interest to the date of redemption (provided that installments of interest which are due and payable on any date falling on or prior to a redemption date will be payable to the registered holder of this Note (or one or more predecessor Notes), registered as such as of the close of business on the relevant record date), all as more fully provided in the Trust Indenture. This Note will not be entitled to the benefit of a sinking fund. -4- If an Event of Default with respect to the Notes shall occur and be continuing, the principal of and interest on the Notes may be declared due and payable in the manner and with the effect provided in the Trust Indenture. This Note is subject to the provisions in the Trust Indenture on defeasance and covenant defeasance. The Trust Indenture contains provisions for holding meetings of holders of Notes and, subject to certain exceptions, for making binding upon all holders of Notes extraordinary resolutions passed at such meetings in accordance with such provisions and instruments in writing signed by the holders of a specified percentage in principal amount of the Debt Securities outstanding. No reference herein to the Trust Indenture and no provision of this Note shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Note at the times, place and rate, and in the currency, herein and in the Trust Indenture prescribed. No transfer of this Note shall be valid unless made on the registers to be kept at the office of the Trustee in the City of Calgary, Alberta and at such other place or places (if any) as the Corporation may designate, by the registered holder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee or other registrar, and upon compliance with such reasonable requirements as the Trustee or other registrar may prescribe and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Person in whose name this Note shall be registered shall be deemed and regarded as the owner hereof for all purposes of the Trust Indenture and payment of or on account of the principal hereof and premium, if any, and interest hereon shall be made only to or upon the order of such registered holder. As provided in the Trust Indenture and subject to certain limitations set forth therein, the Notes are exchangeable for a like aggregate principal amount of Notes of authorized denominations as requested by the holders surrendering the same. No service charge will be made for any exchange, registration, transfer or discharge from registration of any Note, although the Corporation and the Trustee may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. This Note may be surrendered for registration of transfer, exchange and payment at the office of the Trustee in the City of Calgary, Alberta and, if so required pursuant to the Trust Indenture and the Notes, at the office or agency maintained by the Corporation for that purpose in the Borough of Manhattan, The City of New York. The Notes are issuable only in registered form without coupons in denominations of U.S. $1,000 and integral multiples of U.S. $1,000. The Trust Indenture requires that the Corporation comply with certain restrictive covenants set forth therein and provides that, under certain circumstances, one or more subsidiaries of the Corporation may be required to guarantee the Notes. Reference is made to the Trust Indenture for a further description of all such terms and provisions. -5- This Note shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein and, to the extent provided in the Trust Indenture, by the TRUST INDENTURE ACT of 1939, as amended. This Note shall not become obligatory for any purpose until it shall have been certified by the Trustee for the time being under the Trust Indenture. IN WITNESS WHEREOF CANADIAN OCCIDENTAL PETROLEUM LTD. has caused this Note to be sealed with its corporate seal and to be signed by its duly appointed and authorized officers this day of . CANADIAN OCCIDENTAL PETROLEUM LTD. Per: ----------------------------------- [Seal] Per: ----------------------------------- This is one of the Notes referred to in the Trust Indenture within mentioned CIBC MELLON TRUST COMPANY, TRUSTEE Per: ----------------------------------- Authorized Officer Date of Certification: ------------------------- -6- ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT- __________Custodian_________ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of Under Uniform Gifts to Minors survivorship and not as tenants Act__________________________________ in common (State)
Additional abbreviations may also be used though not in the above list. ________________________________ FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________ | | |________________________________________| ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE ________________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________ Attorney to transfer said Note on the books of the Corporation with full power of substitution in the premises. Dated: _________________________________________________________________________ Notice: The signature to this assignment must correspond with the name as it appears upon the face of the within Note in every particular, without alteration or enlargement or any change whatever. EX-4 6 ex4-44form10k_2003.txt EXHIBIT 4.44 EXHIBIT 4.44 ------------ EXECUTION COPY THIRD AMENDING AGREEMENT ------------------------ THIS AGREEMENT is made as of July 29, 2003 BETWEEN: NEXEN INC., a corporation subsisting under the laws of Canada, (hereinafter referred to as the "Borrower"), OF THE FIRST PART, - and - THE FINANCIAL INSTITUTIONS SET FORTH ON THE SIGNATURE PAGES HEREOF UNDER THE HEADING "LENDERS:" (hereinafter sometimes collectively referred to as the "Lenders" and sometimes individually referred to as a "Lender"), OF THE SECOND PART, - and - THE TORONTO-DOMINION BANK, a Canadian chartered bank, as agent of the Lenders (hereinafter referred to as the "Agent") OF THE THIRD PART. WHEREAS the parties hereto entered into the Restated Credit Agreement; AND WHEREAS the parties hereto have agreed to amend and supplement certain provisions of the Restated Credit Agreement as hereinafter set forth; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by each of the parties hereto, the parties hereto covenant and agree as follows: 1. INTERPRETATION 1.1. In this Agreement and the recitals hereto, unless something in the subject matter or context is inconsistent therewith: "AGREEMENT" means this agreement, as amended, modified, supplemented or restated from time to time. 2 "RESTATED CREDIT AGREEMENT" means the restated credit agreement made as of April 14, 1997 and amended and restated as of October 16, 2000 between the Borrower, as borrower, the Lenders and the Agent, as amended to the date hereof. 1.2. Capitalized terms used herein without express definition shall have the same meanings herein as are ascribed thereto in the Restated Credit Agreement. 1.3. The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof', "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other portion hereof and include any agreements supplemental hereto. 1.4. This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein. 2. ADDITION OF BNP PARIBAS AS LENDER 2.1. BNP PARIBAS AS LENDER. The parties hereto hereby confirm and agree that, from and after the date hereof, BNP Paribas (Canada) ("BNP PARIBAS") shall be a Lender for all purposes of the Restated Credit Agreement and the other Documents and all references therein to "Lenders" or "a Lender" shall be deemed to include BNP Paribas. 2.2. BNP PARIBAS COMMITMENT. The parties hereto hereby confirm and agree that, from and after the date hereof, the A Facility Commitment of BNP Paribas shall be Cdn. $44,000,000 and the B Facility Commitment of BNP Paribas shall be Cdn. $66,000,000. 2.3. NOVATION OF BNP PARIBAS. BNP Paribas hereby agrees that it will be bound by the Restated Credit Agreement and the other Documents as a Lender to the extent of its aggregate Commitments as fully as if it had been an original party to the Restated Credit Agreement. 2.4. NOTICES. The parties hereto hereby confirm and agree that, from and after the date hereof, any demand, notice or communication to be given to BNP Paribas, as a Lender, in accordance with the provisions of the Restated Credit Agreement shall be made or given to BNP Paribas at the address set out in Schedule A to the Restated Credit Agreement, as amended hereby. 2.5. THE AGENT. Without in any way limiting the other provisions hereof, BNP Paribas irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Restated Credit Agreement and the other Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with the provisions of the Restated Credit Agreement. 2.6. BNP CREDIT DECISION. BNP Paribas acknowledges to the Agent that BNP Paribas has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Borrower and its Subsidiaries, all of the matters and transactions contemplated herein and in the Restated Credit Agreement and other Documents and all other matters 3 incidental to the Restated Credit Agreement and the other Documents. BNP Paribas confirms with the Agent that it does not rely, and it will not hereafter rely, on the Agent: (a) to check or inquire on its behalf into the adequacy, accuracy or completeness of any information provided by the Borrower, its Subsidiaries or any other person under or in connection with the Restated Credit Agreement and other Documents or the transactions therein contemplated (whether or not such information has been or is hereafter distributed to BNP Paribas by the Agent); or (b) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrower and its Subsidiaries. BNP Paribas acknowledges to the Agent that a copy of the Restated Credit Agreement (including a copy of the Schedules annexed thereto) has been made available to it for review and further acknowledges and agrees that it has received copies of such other Documents and such other information that it has requested for the purposes of its investigation and analysis of all matters related to this Agreement, the Restated Credit Agreement, the other Documents and the transactions contemplated hereby and thereby. BNP Paribas acknowledges to the Agent that it is satisfied with the form and substance of the Restated Credit Agreement and the other Documents. 3. EXTENSION DATE; REVISED COMMITMENTS 3.1. The Extension Date is hereby extended to July 27, 2004 pursuant to Section 2.17 of the Restated Credit Agreement with respect to each Lender. 3.2. Schedule A (Lenders and Commitments) to the Restated Credit Agreement is hereby deleted in its entirety and replaced with the attached Schedule A to reflect the changes in the Commitments of certain Lenders contemplated by this Agreement. Further, the definition of "A Facility" in Section 1.1 of the Restated Credit Agreement is hereby amended to delete "Cdn. $400,400,000" and to substitute therefore "Cdn. $468,400,000" and the definition therein of "B Facility" is hereby amended to delete "Cdn. $600,600,000" and to substitute therefore "Cdn. $702,600,000". 4. REPRESENTATIONS AND WARRANTIES 4.1. The Borrower hereby represents and warrants as follows to each Lender and the Agent and acknowledges and confirms that each Lender and the Agent is relying upon such representations and warranties: (a) CAPACITY, POWER AND AUTHORITY (i) It is duly incorporated and is validly subsisting under the laws of its jurisdiction of incorporation or creation and has all the requisite corporate capacity, power and authority to carry on its business as presently conducted and to own its property; and 4 (ii) It has the requisite corporate capacity, power and authority to execute and deliver this Agreement. (b) AUTHORIZATION; ENFORCEABILITY It has taken or caused to be taken all necessary action to authorize, and has duly executed and delivered, this Agreement, and this Agreement is a legal, valid and binding obligation of it, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, winding up, insolvency, moratorium or other laws of general application affecting the enforcement of creditors' rights generally and to the equitable and statutory powers of the courts having jurisdiction with respect thereto. 4.2. The representations and warranties set out in this Agreement shall survive the execution and delivery of this Agreement and the making of each Drawdown, notwithstanding any investigations or examinations which may be made by the Agent, the Lenders or Lenders' Counsel. Such representations and warranties shall survive until the Restated Credit Agreement has been terminated. 5. CONFIRMATION OF CREDIT AGREEMENT AND OTHER DOCUMENTS The Restated Credit Agreement and the other Documents and all covenants, terms and provisions thereof, except as expressly amended and supplemented by this Agreement, shall be and continue to be in full force and effect and the Restated Credit Agreement as amended and supplemented by this Agreement and each of the other Documents is hereby ratified and confirmed and shall from and after the date hereof continue in full force and effect, in the case of the Restated Credit Agreement, as herein amended and supplemented, with such amendments and supplements being effective as of the date hereof. 6. FURTHER ASSURANCES The parties hereto shall from time to time do all such further acts and things and execute and deliver all such documents as are required in order to effect the full intent of and fully perform and carry out the terms of this Agreement. 7. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement may be executed and delivered by facsimile, which when so executed and delivered shall constitute a binding agreement of the parties hereto. 5 IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written. NEXEN INC. By: /s/ Una Power ----------------------------------- Name: Una Power Title: Treasurer By: /s/ Rick Beingessner ----------------------------------- Name: Rick Beingessner Title: Vice-President General Counsel-Corporate and Assistant Secretary LENDERS: -------- THE TORONTO-DOMINION BANK By: /s/ Dean Ariss ----------------------------------- Name: Dean Ariss Title: Managing Director By: /s/ Kevin Kynoch ----------------------------------- Name: Kevin Kynoch Title: Associate - Corporate Credit EXPORT DEVELOPMENT CANADA By: /s/ Albert Van Eaden ----------------------------------- Name: Albert Van Eaden Title: Senior Financial Services Manager By: /s/ Lissa Bjerkelund ----------------------------------- Name: Lissa Bjerkelund Title: Senior Financial Services Manager CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Chris A. Perks ----------------------------------- Name: Chris A. Perks Title: Executive Director By: /s/ David J. Swain ----------------------------------- Name: David J. Swain Title: Managing Director 6 DEUTSCHE BANK AG, CANADA BRANCH By: /s/ Paul Jurist ----------------------------------- Name: Paul Jurist Title: Managing Director and Principal Officer By: /s/ Robert A. Johnston ----------------------------------- Name: Robert A. Johnston Title: Vice President ROYAL BANK OF CANADA By: /s/ S.G. Tibbatts ----------------------------------- Name: S.G. Tibbatts Title: Senior Manager By: /s/ ----------------------------------- Name: Title: BANK OF AMERICA, N.A. By: /s/ Nelson Lam ----------------------------------- Name: Nelson Lam Title: Vice President By: ----------------------------------- Name: Title: CITIBANK, N.A., CANADIAN BRANCH By: /s/ C.D. Impey ----------------------------------- Name: C.D. Impey Title: Director By: ----------------------------------- Name: Title: 7 BNP PARIBAS (CANADA) By: /s/ Jean-Philippe Cadot ----------------------------------- Name: Jean-Philippe Cadot Title: Vice President Energy & Project Finance By: /s/ Charles Ritchie ---------------------------------- Name: Charles Ritchie Title: Vice President Energy & Project Finance HSBC BANK CANADA By: /s/ Nigel Richardson ----------------------------------- Name: Nigel Richardson Title: Head of Corporate & Institutional Banking Western Region By: /s/ Allison Dowhanik ----------------------------------- Name: Allison Dowhanik Title: Assistant Vice President Corporate & Institutional Banking BANK OF TOKYO-MITSUBISHI (CANADA) By: /s/ T. Kodama ----------------------------------- Name: T. Kodama Title: Executive Vice President & General Manager By: ----------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: /s/ Richard D. Lee ----------------------------------- Name: Richard D. Lee Title: Managing Director By: ----------------------------------- Name: Title: 8 AGENT: ------ THE TORONTO-DOMINION BANK, in its capacity as Agent By: /s/ Wayne M. Shiplo ----------------------------------- Name: Wayne M. Shiplo Title: Vice President, Loan Syndications-Agency SCHEDULE A LENDERS AND COMMITMENTS LENDER AND ADDRESS COMMITMENTS ------------------ ----------- - -------------------------------------------------------------------------------- THE TORONTO-DOMINION BANK A Facility Commitment: 800 Home Oil Tower Cdn. $64,000,000 324 - 8th Avenue S.W. Calgary, Alberta T2P 2Z2 B Facility Commitment: Cdn. $96,000,000 Attention: Norm Birbeck Telecopy No.: (403) 292-2772 - -------------------------------------------------------------------------------- EXPORT DEVELOPMENT CANADA A Facility Commitment: 151 O'Connor Street Ottawa, Ontario Cdn. $60,000,000 K1A 1K3 Attention: Vito Dituri Telecopy No.: (613) 598-3167 B Facility Commitment: Cdn. $90,000,000 - -------------------------------------------------------------------------------- CANADIAN IMPERIAL BANK OF COMMERCE A Facility Commitment: 10th Floor, Bankers Hall Cdn. $50,400,000 855 - 2nd Street S.W. Calgary, Alberta B Facility Commitment: T2P 2P2 Cdn. $75,600,000 Attention: Chris Perks Telecopy No.: (403) 221-5779 - -------------------------------------------------------------------------------- DEUTSCHE BANK AG, CANADA BRANCH A Facility Commitment: 222 Bay Street, 11th Floor Cdn. $50,000,000 Toronto, Ontario M5K 1H6 B Facility Commitment: Cdn. $75,000,000 Attention: Rod O'Hara/Rod Johnston Telecopy No.: (416) 682-8444 - -------------------------------------------------------------------------------- A-2 - -------------------------------------------------------------------------------- ROYAL BANK OF CANADA A Facility Commitment: Corporate Banking, 23rd Floor Cdn. $46,000,000 334 - 8th Avenue S.W. Calgary, Alberta T2P 1C9 B Facility Commitment: Cdn. $69,000,000 Attention: Sonia Tibbatts Telecopy No.: (403) 292-3234 - -------------------------------------------------------------------------------- BANK OF AMERICA, N.A. A Facility Commitment: c/o Bank of America Securities Cdn. $44,000,000 NY1-301-48-05 9 West 57th Street New York, NY 10019 B Facility Commitment: Cdn. $66,000,000 Attention: Robert J. Brooks Telecopy No.: (212) 847-5931 - -------------------------------------------------------------------------------- CITIBANK, N.A., CANADIAN BRANCH A Facility Commitment: 400 -3rd Avenue S.W., Suite 4210 Cdn. $44,000,000 Calgary, Alberta T2P 4H2 B Facility Commitment: Cdn. $66,000,000 Attention: James Campbell Telecopy No.: (403) 294-0601 - -------------------------------------------------------------------------------- BNP PARIBAS (CANADA) A Facility Commitment: 77 King Street West, Suite 4100 Cdn. $44,000,000 Toronto, Ontario M5K 1N8 B Facility Commitment: Attention: Jean-Philippe Cadot Cdn. $66,000,000 Telecopy No.: (416) 947-3538 - -------------------------------------------------------------------------------- HSBC BANK CANADA A Facility Commitment: 2210, 777-8th Avenue S.W. Cdn. $40,000,000 Calgary, Alberta T2P 3R5 B Facility Commitment: Cdn. $60,000,000 Attention: Nigel Richardson/Allison Dowhanik Telecopy No.: (403) 215-4433 - -------------------------------------------------------------------------------- A-3 - -------------------------------------------------------------------------------- BANK OF TOKYO MITSUBISHI (CANADA) A Facility Commitment: Suite 950 Parkplace Cdn. $16,000,000 666 Burrard Street Vancouver, British Columbia V6C 3L1 B Facility Commitment: Cdn. $24,000,000 Attention: Davis Stewart Telecopy No.: (604) 691-7311 - -------------------------------------------------------------------------------- THE BANK OF NOVA SCOTIA A Facility Commitment: Scotia Capital Bank Finance Cdn. $10,000,000 3200, 700 - 2nd Street S.W. Calgary, Alberta T2P 2N7 B Facility Commitment: Cdn. $15,000,000 Attention: Dan Lindquist Telecopy No.: (403) 221-6497 - -------------------------------------------------------------------------------- EX-4 7 ex4-45form10k_2003.txt EXHIBIT 4.45 EXHIBIT 4.45 ------------ EXECUTION COPY THIRD AMENDING AGREEMENT ------------------------ THIS AGREEMENT dated effective as of July 29, 2003. BETWEEN: NEXEN INC., a corporation subsisting under the laws of Canada (hereinafter referred to as the "BORROWER"), OF THE FIRST PART, - and - THE FINANCIAL INSTITUTIONS SET FORTH ON THE SIGNATURE PAGE HEREOF UNDER THE HEADING "LENDERS:" (hereinafter collectively referred to as the "Lenders" and sometimes individually referred to as a "Lender"), OF THE SECOND PART, - and - THE TORONTO-DOMINION BANK, a Canadian chartered bank, as agent of the Lenders (hereinafter referred to as the "AGENT"), OF THE THIRD PART. WHEREAS the parties hereto entered into the Credit Agreement; AND WHEREAS the parties hereto have agreed to amend and supplement certain provisions of the Credit Agreement as set out herein; AND WHEREAS the Lenders have agreed that the Agent execute this Agreement on their behalf; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by each of the parties hereto, the parties hereto covenant and agree as follows: 1. -2- 1. INTERPRETATION 1.1 In this Agreement and the recitals hereto, unless something in the subject matter or context is inconsistent therewith: "AGREEMENT" means this agreement, as amended, modified, supplemented or restated from time to time; and "CREDIT AGREEMENT" means the Restated Credit Agreement among the parties hereto originally made as of December 29, 1988 and amended and restated as of November 17, 2000, as amended by the First Amending Agreement made as of August 1, 2001 and by the Second Amending Agreement made as of July 31, 2002 and as otherwise amended, supplemented, modified or restated from time to time. 1.2 Capitalized terms used herein without express definition shall have the same meanings herein as are ascribed thereto in the Credit Agreement. 1.3 The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other portion hereof and include any agreements supplemental hereto. 1.4 This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and federal laws of Canada applicable therein. 2. AMENDMENTS The Credit Agreement is hereby amended as follows: (a) the definition of "Credit Facility" in Section 1.1 is hereby amended by deleting "$400,000,000" and substituting therefor "$410,000,000"; (b) the definition of "Maturity Date" in Section 1.1 is hereby amended by deleting the word "fourth" in the second line and substituting therefor the word "third"; and (c) Clause (a) of Section 2.17 is amended as follows: (i) by deleting the number "5" in the second line and substituting therefor the number "4"; and (ii) by deleting the number "4" in the tenth line and substituting therefor the number "3". 3. ADDITION OF BNP PARIBAS AS LENDER 3.1 BNP PARIBAS AS LENDER. The parties hereto hereby confirm and agree that, from and after the date hereof, BNP Paribas (Canada) ("BNP Paribas") shall be a Lender for all purposes -3- of the Credit Agreement and the other Documents and all references therein to "Lenders" or "a Lender" shall be deemed to include BNP Paribas. 3.2 BNP PARIBAS COMMITMENT. The parties hereto hereby confirm and agree that, from and after the date hereof, the Commitment of BNP Paribas shall be Cdn. $50,000,000. 3.3 NOVATION OF BNP PARIBAS. BNP Paribas hereby agrees that it will be bound by the Credit Agreement and the other Documents as a Lender to the extent of its aggregate Commitment as fully as if it had been an original party to the Credit Agreement. 3.4 NOTICES. The parties hereto hereby confirm and agree that, from and after the date hereof, any demand, notice or communication to be given to BNP Paribas, as a Lender, in accordance with the provisions of the Credit Agreement shall be made or given to BNP Paribas at the following address: 77 King Street West, Suite 4100 Toronto, Ontario M5K 1N8 3.5 THE AGENT. Without in any way limiting the other provisions hereof, BNP Paribas irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with the provisions of the Credit Agreement. 3.6 BNP CREDIT DECISION. BNP Paribas acknowledges to the Agent that BNP Paribas has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Borrower and its Subsidiaries, all of the matters and transactions contemplated herein and in the Credit Agreement and other Documents and all other matters incidental to the Credit Agreement and the other Documents. BNP Paribas confirms with the Agent that it does not rely, and it will not hereafter rely, on the Agent: (a) to check or inquire on its behalf into the adequacy, accuracy or completeness of any information provided by the Borrower, its Subsidiaries or any other person under or in connection with the Credit Agreement and other Documents or the transactions therein contemplated (whether or not such information has been or is hereafter distributed to BNP Paribas by the Agent); or (b) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrower and its Subsidiaries. BNP Paribas further acknowledges to the Agent that a copy of the Credit Agreement (including a copy of the Schedules annexed thereto) has been made available to it for review and further acknowledges and agrees that it has received copies of such other Documents and such other information that it has requested for the purposes of its investigation and analysis of all matters related to this Agreement, the Credit Agreement, the other Documents and the transactions -4- contemplated hereby and thereby. BNP Paribas acknowledges to the Agent that it is satisfied with the form and substance of the Credit Agreement and the other Documents. 4. INCREASE IN LOAN LIMIT; ADJUSTMENT OF LENDER COMMITMENTS AND OUTSTANDING PRINCIPAL 4.1 Effective as of the date of this Agreement, the Loan Limit shall be and is hereby increased from Cdn. $400,000,000 to Cdn. $410,000,000. 4.2 Effective as of the date of this Agreement, the revised Commitments of each Lender shall be as set forth in Schedule A attached hereto. To evidence and give effect to the foregoing, Schedule A (Lenders and Commitments) to the Credit Agreement is hereby deleted in its entirety and the new Schedule A attached hereto is substituted therefor. The Lenders hereby agree that on the effective date of this Agreement and after giving effect to such change in Commitments, each Lender is owed its amended Rateable Portion of all Outstanding Principal. 5. REPRESENTATIONS AND WARRANTIES 5.1 The Borrower hereby represents and warrants as follows to each Lender and the Agent and acknowledges and confirms that each Lender and the Agent is relying upon such representations and warranties: (a) Capacity, Power and Authority (i) The Borrower is duly incorporated and is validly subsisting under the laws of its jurisdiction of incorporation or creation and has all the requisite corporate capacity, power and authority to carry on its business as presently conducted and to own its property; and (ii) The Borrower has the requisite corporate capacity, power and authority to execute and deliver this Agreement. (b) Authorization; Execution; Enforceability The Borrower has taken or caused to be taken all necessary action to authorize, and has duly executed and delivered this Agreement. This Agreement is a legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, winding up, insolvency, moratorium or other laws of general application affecting the enforcement of creditors rights generally and to the equitable and statutory powers of the courts having jurisdiction with respect thereto. 5.2 The representations and warranties set out in this Agreement shall survive the execution and delivery of this Agreement and the making of each Drawdown, notwithstanding any investigations or examinations which may be made by the Agent, the Lenders or Lenders' counsel. Such representations and warranties shall survive until the Credit Agreement has been terminated. -5- 6. MATURITY DATE The parties hereto confirm that the Maturity Date shall continue to be July 31, 2007. 7. CONFIRMATION OF CREDIT AGREEMENT AND OTHER DOCUMENTS The Credit Agreement and the other Documents and all covenants, terms and provisions thereof, except as expressly amended and supplemented by this Agreement, shall be and continue to be in full force and effect. The Credit Agreement as amended and supplemented by this Agreement is hereby ratified and confirmed and shall from and after the date hereof continue in full force and effect as herein amended and supplemented. 8. FURTHER ASSURANCES The parties hereto shall from time to time do all such further acts and things and execute and deliver all such documents as are required in order to effect the full intent of and fully perform and carry out the terms of this Agreement. 9. COUNTERPARTS This Agreement may be executed in any number of counterparts, and by facsimile, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. IN WITNESS WHEREOF the parties hereto have executed this Agreement. BORROWER: AGENT: NEXEN INC. THE TORONTO-DOMINION BANK, as Agent By: /s/ Una Power By: /s/ Wayne M. Shiplo --------------------------- ----------------------------- Name: Una Power Name: Wayne M. Shiplo Title: Treasurer Title: Vice President, Loan Syndications - Agency By: /s/ Rick Beingessner By: --------------------------- ----------------------------- Name: Rick Beingessner Name: Title: Vice President, General Title: Counsel--Corporate and Assistant Secretary -6- LENDERS: THE TORONTO-DOMINION BANK ROYAL BANK OF CANADA By: /s/ Dean Ariss By: /s/ S.G. Tibbatts --------------------------- ----------------------------- Name: Dean Ariss Name: S.G. Tibbatts Title: Managing Director Title: Senior Manager By: /s/ Kevin Kynoch By: --------------------------- ----------------------------- Name: Kevin Kynoch Name: Title: Associate -- Title: Corporate Credit THE BANK OF NOVA SCOTIA CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Dan W. Lindquist By: /s/ Chris A. Perks --------------------------- ----------------------------- Name: Dan W. Lindquist Name: Chris A. Perks Title: Director Title: Executive Director By: By: /s/ David J. Swain --------------------------- ----------------------------- Name: Name: David J. Swain Title: Title: Managing Director BANK OF AMERICA, N.A. BNP PARIBAS (CANADA) By: /s/ Nelson Lam By: /s/ David J. Swain --------------------------- ----------------------------- Name: Nelson Lam Name: Jean-Philippe Cadot Title: Vice President Title: Vice President Energy & Project Finance By: By: /s/ Charles Ritchie --------------------------- ----------------------------- Name: Name: Charles Ritchie Title: Title: Vice President Energy & Project Finance SCHEDULE A LENDERS AND COMMITMENTS The Toronto-Dominion Bank Commitment: $90,000,000 Royal Bank of Canada Commitment: $85,000,000 The Bank of Nova Scotia Commitment: $75,000,000 Canadian Imperial Bank of Commerce Commitment: $60,000,000 Bank of America, N.A. Commitment: $50,000,000 BNP Paribas (Canada) Commitment: $50,000,000 EX-4 8 ex4-46form10k_2003.txt EXHIBIT 4.46 EXHIBIT 4.46 ------------ DATED AS OF MARCH 11, 2002 NEXEN INC. (FORMERLY CANADIAN OCCIDENTAL PETROLEUM LTD.) AND CIBC MELLON TRUST COMPANY THIRD SUPPLEMENTAL INDENTURE TO THE TRUST INDENTURE DATED AS OF APRIL 28, 1998 TABLE OF CONTENTS 1. INTERPRETATIONS AND AMENDMENTS.......................................2 1.1. SUPPLEMENTAL INDENTURE......................................2 1.2. DEFINITIONS IN TRUST INDENTURE..............................2 1.3. INTERPRETATION NOT AFFECTED BY HEADINGS.....................2 2. NOTES................................................................2 2.1. FORM AND TERMS OF NOTES.....................................2 2.2. ISSUANCE OF NOTES...........................................4 3. REDEMPTION OF NOTES..................................................4 3.1. REDEMPTION OF NOTES.........................................4 3.2. ADDITIONAL DEFINITIONS......................................5 3.3. NOTICE TO TRUSTEE...........................................6 4. DEBT SECURITIES GUARANTEE............................................6 4.1. COVENANT TO PROVIDE DEBT SECURITIES GUARANTEE...............6 4.2. OPINIONS....................................................6 4.3. AUTOMATIC TERMINATION.......................................7 5. GENERAL..............................................................7 5.1. INDENTURE SUPPLEMENTAL TO TRUST INDENTURE...................7 5.2. ACCEPTANCE OF TRUST.........................................7 5.3. COUNTERPARTS AND FORMAL DATE................................8 THIS THIRD SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") dated as of March 11, 2002. BETWEEN: NEXEN INC. (FORMERLY "CANADIAN OCCIDENTAL PETROLEUM LTD."), a corporation amalgamated under the Canada Business Corporations Act and having its head office in the City of Calgary, in the Province of Alberta (the "Corporation") OF THE FIRST PART - and - CIBC MELLON TRUST COMPANY, a trust corporation incorporated under the laws of Canada, having an office in the City of Calgary, in the Province of Alberta (the "Trustee") OF THE SECOND PART WITNESSETH THAT: WHEREAS in and by a trust indenture made as of April 28, 1998 (the "Original Indenture") between the Corporation and the Trustee (the Original Indenture, as amended and supplemented by the first supplemental indenture dated as of April 28, 1998 (the "First Supplemental Indenture"), the second supplemental indenture dated as of February 4, 1999 (the "Second Supplemental Indenture") and this Supplemental Indenture and as the same may be further amended or supplemented from time to time, being hereinafter called the "Trust Indenture," which term includes any and every instrument supplemental or ancillary thereto or in implementation thereof and the form and terms of any particular series of Debt Securities (as defined below) established thereunder), provision was made for the issue, in one or more series, by the Corporation of debt securities of the Corporation (the "Debt Securities") in an unlimited aggregate principal amount; AND WHEREAS the proper officers of the Corporation have duly authorized the creation and issuance of a series of Debt Securities to be designated as 7.875% Notes due 2032 (the "Notes"), and to be limited (subject to the exceptions described herein and in the Trust Indenture) to the aggregate principal amount of U.S. $500,000,000, the further terms and conditions thereof being hereinafter set forth, all in accordance with a resolution of the directors of the Corporation; AND WHEREAS all necessary acts and proceedings have been done and taken to authorize the execution of this Supplemental Indenture, to establish the terms and form of the Notes pursuant to the Trust Indenture, and to make this Supplemental Indenture and the said series of Notes, when executed and delivered by the Corporation and certified and delivered by the Trustee as provided in the Trust Indenture, legal, valid and binding upon the Corporation; AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not by the Trustee; -2- NOW THEREFORE, it is hereby covenanted, agreed and declared as follows: 1. INTERPRETATIONS AND AMENDMENTS 1.1. SUPPLEMENTAL INDENTURE This "Supplemental Indenture", "hereto", "herein", "hereof", "hereby", "hereunder" and similar expressions refer to this Supplemental Indenture and not to any particular Article, Section or other portion hereof and include any and every instrument supplemental or ancillary hereto or in implementation hereof, and further include the terms of the Notes set forth in the form of Note annexed as Schedule A hereto. 1.2. DEFINITIONS IN TRUST INDENTURE All terms contained in this Supplemental Indenture which are defined in the Original Indenture and not defined herein shall, for all purposes hereof, have the meanings given to such terms in the Original Indenture unless the context otherwise specifies or requires; provided, however, that notwithstanding the foregoing, the terms "Corporation" and "Trustee" shall have the respective meanings given to them in the Original Indenture. 1.3. INTERPRETATION NOT AFFECTED BY HEADINGS The division of this Supplemental Indenture into Articles and Sections, the provision of the table of contents hereto and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Supplemental Indenture. 2. NOTES 2.1. FORM AND TERMS OF NOTES There shall be and is hereby created for issuance under the Trust Indenture a series of Debt Securities which shall consist of and be limited (subject to the exceptions set forth in Section 2.2(b) of the Original Indenture) to the aggregate principal amount of U.S. $500,000,000 and shall be designated as 7.875% Notes due 2032 (the "Notes"); provided, however, that if the Corporation shall, at any time after the date hereof, increase the principal amount of Notes which may be issued and issue such increased principal amount (or any portion thereof), then any such additional Notes so issued shall have the same form and terms (other than the date of issuance and the date from which interest thereon shall begin to accrue and, under certain circumstances, the first interest payment date), and shall carry the same right to receive accrued and unpaid interest, as the Notes theretofore issued; and provided, further, that, notwithstanding the foregoing, the Corporation shall not be entitled to increase the principal amount of Notes which may be issued or issue any such increased principal amount if the Corporation has effected satisfaction and discharge of the Trust Indenture pursuant to Section 7.4 of the Original Indenture or defeasance or covenant defeasance pursuant to Article 13 of the Original Indenture. The Notes will mature, and the principal of the Notes and accrued and unpaid interest thereon will be due and payable, on March 15, 2032, or such earlier date as the principal of any of the Notes may become due and payable in accordance with the provisions of the Trust Indenture. -3- The Notes shall bear interest on the principal amount thereof from March 11, 2002 or from the last date to which interest shall have been paid or duly made available for payment on the Notes, whichever is later, at the rate of 7.875% per annum, payable semi-annually in arrears on March 15 and September 15 (each, an "Interest Payment Date") in each year, commencing September 15, 2002, until the principal of and premium, if any, on the Notes is paid or duly made available for payment; and should the Corporation at any time default in the payment of any principal of, or premium, if any, or interest on the Notes when due, the Corporation shall pay interest (such interest to be payable on demand), to the extent permitted by law, on the amount in default at the same rate. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Trust Indenture, be paid to the Persons in whose names the Notes (or one or more predecessor Notes) are registered at the close of business on the March 1 or September 1 (the "Regular Record Dates"), as the case may be, immediately prior to such Interest Payment Date, regardless of whether any such Regular Record Date is a business day. Any such interest on the Notes not so punctually paid or duly provided for on any Interest Payment Date shall be payable as provided in the form of Note annexed hereto as Schedule A to this Supplemental Indenture. For the purposes only of the disclosure required by the INTEREST ACT (Canada), and without affecting the amount of interest payable to any holder of a Note or the calculation of interest on any Note, if the rate of interest on any Note is calculated on the basis of a year (the "deemed year") which contains fewer days than the actual number of days in the calendar year of calculation, such rate of interest shall be expressed as a yearly rate for the purposes of the INTEREST ACT (Canada) by multiplying such rate of interest by the actual number of days in the calendar year of calculation and dividing it by the number of days in the deemed year. All payments of principal of and premium, if any, and interest on the Notes will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, and all references herein to "United States dollars", "U.S. $" or "U.S. dollars" shall be deemed to refer to such coin or currency of the United States of America. The principal of and premium, if any, and interest on the Notes shall be payable, and the Notes may be surrendered for exchange, registration, transfer or discharge from registration, at the office or agency maintained by the Corporation for such purpose from time to time in the City of Calgary, Alberta (which shall initially be the office of the Trustee in the City of Calgary, Alberta) and, under the circumstances described in Section 2.14(j) of the Original Indenture, in the Borough of Manhattan, The City of New York, and in such other places as the Corporation may from time to time designate. The Trustee is hereby appointed as the initial Paying Agent, registrar and transfer agent for the Notes in the City of Calgary, Alberta. The Notes shall be issued only as fully registered Notes, without coupons, in denominations of U.S. $1,000 and integral multiples thereof. The Notes initially will be represented by one or more Global Debt Securities (collectively, the "Global Note") registered in the name of The Depository Trust Company, as Depositary or its nominee, or a successor depositary or its nominee. -4- The Notes and the certificate of the Trustee endorsed thereon shall be substantially in the form set out in Schedule A to this Supplemental Indenture with such appropriate insertions, omissions, substitutions and variations as the Trustee may approve and shall be numbered in such manner as the Trustee may approve, such approvals of the Trustee concerning any Note to be conclusively evidenced by its certification of such Note. The register referred to in Section 3.2 of the Original Indenture shall, with respect to the Notes, be kept at the office or agency in the City of Calgary, Alberta that the Corporation may from time to time designate for such purpose (which shall initially be the office of the Trustee in the City of Calgary, Alberta), and at such other place or places as the Corporation with the approval of the Trustee may hereafter designate. Without limitation to the foregoing, if the Corporation shall at any time be required by the terms of the Notes or the Trust Indenture to appoint a registrar for the Notes in the Borough of Manhattan, The City of New York, the Corporation shall cause a register for the Notes also to be kept at the office of the registrar in the Borough of Manhattan, The City of New York and the Trustee hereby gives its approval to a register being kept at such place. The Notes shall be subject to redemption at the option of the Corporation as provided in Article 3 of this Supplemental Indenture. The Corporation shall not be required to redeem, purchase or repay Notes pursuant to any mandatory redemption, sinking fund or analogous provision or at the option of the holders thereof. The Notes will not be convertible into or exchangeable for securities of any Person. The Notes will be entitled to the benefit of Debt Securities Guarantees upon the terms and conditions set forth in Article 4 of this Supplemental Indenture. The Notes shall have the other terms and provisions set forth in the form of Note attached hereto as Schedule A to this Supplemental Indenture, with the same force and effect as if such terms and provisions were set forth in full at this place. 2.2. ISSUANCE OF NOTES Notes in the aggregate principal amount of U.S. $500,000,000 shall be executed by the Corporation and delivered by it to the Trustee on the date of issue for certification and delivery pursuant to and in accordance with the provisions of Sections 2.4, 2.5 and 2.6 of the Original Indenture and, upon the requirements of such provisions being complied with, the Notes shall be certified by or on behalf of the Trustee and delivered by it to or upon the written order of the Corporation without any further act or formality on the part of the Corporation. The Trustee shall have no duty or responsibility with respect to the use or application of any of the Notes so certified and delivered or the proceeds thereof. 3. REDEMPTION OF NOTES 3.1. REDEMPTION OF NOTES The Notes will be redeemable at any time, in whole or from time to time in part, at the option of the Corporation (in the manner and in accordance with and subject to the terms and provisions set forth in the Trust Indenture), at a redemption price equal to the greater of: -5- (a) 100% of the principal amount of the Notes to be redeemed; and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 37.5 basis points; plus in each case accrued interest to the date of redemption; provided that installments of interest on Notes which are due and payable on any date falling on or prior to a redemption date will be payable to the registered holders of such Notes (or one or more predecessor Notes), registered as such as of the close of business on the relevant record dates. 3.2. ADDITIONAL DEFINITIONS For the purposes of this Supplemental Indenture, the following expressions shall have the following meanings: "Treasury Rate" means, with respect to any redemption date, the rate per year equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date; "Comparable Treasury Issue" means the U.S. Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes; "Independent Investment Banker" means one of the Reference Dealers selected by the Corporation; "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Corporation is unable to obtain three such Reference Treasury Dealer Quotations, the average of all such Quotations; "Reference Treasury Dealer Quotations" means, with respect to each Reference Dealer and any redemption date, the average, as determined by the Corporation, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Corporation by such Reference Dealer at 5:00 p.m. (New York City time) on the third business day preceding such redemption date; and -6- "Reference Dealer" means each of Banc of America Securities LLC and Deutsche Banc Alex. Brown Inc. and their respective successors; provided, however, that if any of the foregoing Reference Dealers shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Corporation shall substitute therefor another Primary Treasury Dealer. 3.3. NOTICE TO TRUSTEE The Corporation will provide notice to the Trustee prior to the redemption date of the calculation of the redemption price. 4. DEBT SECURITIES GUARANTEE 4.1. COVENANT TO PROVIDE DEBT SECURITIES GUARANTEE The Corporation covenants and agrees that, so long as any of the Notes remains outstanding: (a) if any Subsidiary of the Corporation shall at any time guarantee (a "Subsidiary Guarantee") any Indebtedness of the Corporation pursuant to Article 4 of the fourth supplemental indenture (the "Fourth Supplemental Indenture") made as of the 2nd day of July, 1997 to the trust indenture dated as of June 7, 1991 between the Corporation and CIBC Mellon Trust Company, as successor trustee, then the Corporation will cause such Subsidiary (a "Guarantor") to execute a Debt Securities Guarantee pursuant to which it will guarantee the Debt Securities (including the Notes) on substantially the same terms as are set forth in such Subsidiary Guarantee with such changes as may be necessary to conform to local law or practice of the jurisdiction in which the Guarantor is organized (which, in the case of a Subsidiary which is organized and existing under the laws of any State of the United States or the District of Columbia, may include a customary provision limiting amounts payable under such Debt Securities Guarantee to such amount as will not violate applicable fraudulent conveyance or other similar laws and a customary provision providing for contribution from other Guarantors, if any) or as may be recommended by independent legal counsel to the Trustee and incorporating provisions pursuant to which the Guarantor shall submit to jurisdiction, waive immunity, and appoint an agent for service of process to the same extent done by the Corporation pursuant to the Trust Indenture; and (b) the Corporation will comply, and will cause such Guarantor to comply, with all applicable securities laws and regulations, including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939 (and in each of the foregoing cases all applicable rules and regulations thereunder) and with state securities and blue sky laws and regulations of the United States in connection with any Debt Securities Guarantee. Any such Debt Securities Guarantee shall be subject to the terms and provisions of the Trust Indenture, including, without limitation, Article 12 of the Original Indenture. Any such Debt Securities Guarantee shall be duly executed and delivered to the Trustee by the applicable Guarantor, and shall be effective as of a date not later than 90 days after the date on which the Corporation becomes obligated to provide such Subsidiary Guarantee. 4.2. OPINIONS The Trustee will, at the expense of the Corporation, engage independent legal counsel of recognized standing (in the jurisdiction in which the Guarantor is organized) with respect to matters relating to publicly issued debt securities to review the form of Debt Securities Guarantee, and both counsel to the Corporation and such independent legal counsel shall deliver -7- legal opinions to the Trustee to the effect that such Debt Securities Guarantee has been duly authorized, executed and delivered by, and is a valid, binding and enforceable obligation of, the Guarantor (subject to customary exceptions). In addition, the Trustee will, at the expense of the Corporation, engage independent legal counsel of recognized standing with respect to matters of United States federal securities laws (which, if possible, shall be the same independent legal counsel referred to in the first sentence of this paragraph) and such independent legal counsel shall deliver legal opinions to the Trustee to the effect that such Debt Securities Guarantee has been registered under the Securities Act of 1933 and that the Trust Indenture has been duly qualified under the Trust Indenture Act of 1939 or that no such registration or qualification is required. All such opinions shall be in form and substance satisfactory to the Trustee, acting reasonably, and shall be delivered to the Trustee not later than the time of delivery to the Trustee of the corresponding Debt Securities Guarantee. 4.3. AUTOMATIC TERMINATION In the event a Subsidiary Guarantee is discharged or released, then, upon Written Order of the Corporation to the Trustee accompanied by a Certificate of the Corporation confirming that the corresponding Subsidiary Guarantee has been discharged or released, such Debt Securities Guarantee shall automatically terminate and be released and the Trustee shall return to the Corporation such Debt Securities Guarantee. 5. GENERAL 5.1. INDENTURE SUPPLEMENTAL TO TRUST INDENTURE This Supplemental Indenture is supplemental to the Original Indenture and the Original Indenture, the First Supplemental Indenture and the Second Supplemental Indenture shall, from this date forward, be read in conjunction with this Supplemental Indenture. The Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture and this Supplemental Indenture shall, from this date forward, have effect so far as practicable as if all the provisions of the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture and this Supplemental Indenture were contained in one instrument. 5.2. ACCEPTANCE OF TRUST The Trustee hereby accepts the trusts in this Supplemental Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein before set forth in trust for the various Persons who shall from time to time be Note holders subject to all the terms and conditions herein set forth. -8- 5.3. COUNTERPARTS AND FORMAL DATE This Supplemental Indenture may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to bear the date first above written. IN WITNESS WHEREOF the parties hereto have executed this Supplemental Indenture under their respective corporate seals on the date first above written. NEXEN INC. Per: /s/ Marvin F. Romanow -------------------------------------- Name: Marvin F. Romanow Title: Executive Vice President and Chief Financial Officer [Seal] Per: /s/ John B. McWilliams -------------------------------------- Name: John B. McWilliams Title: Senior Vice President, General Counsel and Secretary CIBC MELLON TRUST COMPANY Per: /s/ Roger Booth -------------------------------------- Name: Roger Booth Title: Asst. V. Pres. [Seal] Per: /s/ Robert Solis -------------------------------------- Name: Robert Solis Title: Account Manager SCHEDULE A to the Third Supplemental Indenture dated as of March 11, 2002 made between Nexen Inc. (formerly Canadian Occidental Petroleum Ltd.) and CIBC Mellon Trust Company, as Trustee. FORM OF NOTES [INSERT IF THE NOTE IS A GLOBAL DEBT SECURITY: THIS NOTE IS A GLOBAL DEBT SECURITY WITHIN THE MEANING OF THE TRUST INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE NOTES), A NEW YORK CORPORATION, OR A NOMINEE THEREOF. THIS NOTE MAY NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR NOTES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST INDENTURE AND UNLESS AND UNTIL IT IS EXCHANGED FOR NOTES IN DEFINITIVE CERTIFICATED FORM AS AFORESAID, MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ITS NOMINEE TO A SUCCESSOR DEPOSITARY OR ITS NOMINEE.] [INSERT IF THE NOTE IS A GLOBAL DEBT SECURITY: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE CORPORATION (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] NEXEN INC. (FORMERLY CANADIAN OCCIDENTAL PETROLEUM LTD.) (ORGANIZED UNDER THE LAWS OF CANADA) 7.875% NOTES DUE 2032 NO. O Principal Amount: U.S. $500,000,000 CUSIP NO. O FOR VALUE RECEIVED, NEXEN INC., a corporation organized under the laws of Canada (hereinafter called the "Corporation", which term includes any successor corporation under the Trust Indenture referred to below), for value received, acknowledges itself indebted and hereby promises to pay to: or registered assigns, on March 15, 2032 or on such earlier date as the principal hereof may become due in accordance with the provisions of the Trust Indenture hereinafter mentioned, the principal sum of O United States dollars (U.S.$O) in immediately available funds, in lawful money of the United States of America, and to pay interest on the principal amount hereof from March 11, 2002 or from the last date to which interest shall have been paid or duly made available for payment on the Corporation's outstanding 7.875% Notes due 2032 (the "Notes"), whichever is later, at the rate of 7.875% per annum, payable semiannually in arrears in like money, on March 15 and September 15 (each, an "Interest Payment Date") in each year, commencing September 15, 2002, until the principal hereof and premium, if any, hereon is paid or duly made available for payment; and should the Corporation at any time default in the payment of any principal of, or premium, if any, or interest on, this Note when due, to pay interest (such interest to be payable on demand), to the -2- extent permitted by law, on the amount in default at the same rate, in like money. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date, will, as provided in such Trust Indenture, be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the March 1 or September 1 (the "Regular Record Dates"), as the case may be, immediately prior to such Interest Payment Date, regardless of whether any such Regular Record Date is a business day. Any such interest on this Note not so punctually paid or duly provided for on any Interest Payment Date will forthwith cease to be payable to the holder on such Regular Record Date by virtue of having been such holder and may either (i) upon (A) written notice by the Corporation to the Trustee (as defined below) of the aggregate amount of defaulted interest proposed to be paid by the Corporation and the date of such proposed payment and (B) the concurrent deposit by the Corporation with the Trustee of U.S. dollars in an amount equal to the aggregate amount proposed to be paid with respect to such defaulted interest or upon such arrangements satisfactory to the Trustee for such deposit of U.S. dollars in such amount on or prior to the date of such proposed payment (such monies when so deposited to be held in trust for the benefit of the Persons entitled thereto), be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee (which special record date shall not be more than 15 days or less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the aforesaid notice from the Corporation), notice whereof shall be given to the holders of Notes not less than 10 days prior to such special record date in the manner provided in the Trust Indenture, or (ii) be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange. As interest on this Note becomes due (except interest payable at maturity or on redemption which, so long as the date of such maturity or such redemption date is not an Interest Payment Date, shall be paid upon presentation and surrender of this Note for payment), the Corporation, either directly or through the Trustee, shall send, at least five days prior to each date on which interest becomes due, by prepaid ordinary mail, a cheque for such interest (less any tax required to be withheld therefrom) payable to the order of the registered holder of this Note at the close of business on the relevant Regular Record Date and addressed to him at his last address appearing on the Note register, unless such holder otherwise directs; provided that the Corporation may make any such payment of interest (less any tax required to be withheld therefrom) by wire transfer. In the case of joint holders, cheques shall, unless such joint holders otherwise direct, be payable to the order of all such joint holders and, if more than one address appears on the Note register in respect of a joint holding, any cheque for interest shall be mailed to the first address so appearing. The mailing of any such cheque or the making of any such payment by wire transfer shall, to the extent of the sum represented thereby plus the amount of any tax withheld as aforesaid, satisfy and discharge all liability for interest on this Note, unless such cheque is not paid at par on presentation. Notwithstanding the foregoing provisions of this paragraph or any other provision of the Notes or the Trust Indenture, (i) so long as this Note is registered in the name of The Depository Trust Company (or any successor Depositary for the Notes) or its nominee (a "Global Note"), payments of principal of and premium, if any, and interest on this Note shall be made by wire transfer of immediately available funds unless otherwise required by such Depositary (ii) if definitive certificated Notes are issued in exchange for interests in any Global Note, the Corporation will pay the principal of and premium, if any, and interest on such definitive certificated Notes by wire -3- transfer of immediately available funds (provided that the holders thereof shall have provided appropriate wire transfer instructions to the Corporation); and (iii) if definitive certificated Notes are issued in exchange for interests in any Global Note or if the Depositary for the Notes shall so require, the Corporation will maintain a Paying Agent, registrar and transfer agent for the Notes in the Borough of Manhattan, The City of New York. All payments of the principal of and premium, if any, and interest on this Note will be made in such coin or currency of the United States of America as of the time of payment is legal tender for payment of public and private debts, and all references herein to "United States dollars", "U.S. $" or "U.S. dollars" shall be deemed to refer to such coin or currency of the United States of America. This Note is one of the duly authorized series of Debt Securities of the Corporation (herein called the Notes) issued under and entitled to the benefits of a trust indenture made as of April 28, 1998, as supplemented by the first supplemental indenture thereto made as of April 28, 1998, by the second supplemental indenture thereto made as of February 4, 1999 and by the third supplemental indenture thereto made as of March 11, 2002, each between the Corporation and CIBC Mellon Trust Company, as trustee (the "Trustee", which term includes any successor trustee under the Trust Indenture) (such trust indenture, first supplemental trust indenture and second supplemental indenture, as the same may be further amended or supplemented from time to time, are herein called collectively the "Trust Indenture"). Reference is hereby made to the Trust Indenture for a description of the terms and conditions upon which the Notes are issued or may be issued and held and the rights of the holders of Notes issued and to be issued thereunder and of the Corporation and of the Trustee, all to the same effect as if the provisions of the Trust Indenture were herein set forth, to all of which provisions the holder of this Note by acceptance hereof assents. This Note is one of the series designated on the face hereof, limited (subject to exceptions provided in the Trust Indenture) in aggregate principal amount to U.S. $500,000,000 subject to the right of the Corporation, on the terms and subject to the conditions set forth in the Trust Indenture, at any time or from time to time to increase the principal amount of such series and to issue such increased principal amount of Notes (or any portion thereof). All terms used in this Note which are defined in the Trust Indenture and not defined herein shall have the meanings assigned to them in the Trust Indenture. This Note is a direct obligation of the Corporation. This Note is redeemable at any time, in whole or from time to time in part, at the option of the Corporation, upon the terms and subject to the conditions set forth in the Trust Indenture, at a redemption price equal to the greater of (i) 100% of the principal amount of this Note to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest hereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 37.5 basis points, plus in each case accrued interest to the date of redemption (provided that installments of interest which are due and payable on any date falling on or prior to a redemption date will be payable to the registered holder of this Note (or one or more predecessor Notes), registered as such as of the close of business on the relevant record date), all as more fully provided in the Trust Indenture. This Note will not be entitled to the benefit of a sinking fund. -4- If an Event of Default with respect to the Notes shall occur and be continuing, the principal of and interest on the Notes may be declared due and payable in the manner and with the effect provided in the Trust Indenture. This Note is subject to the provisions in the Trust Indenture on defeasance and covenant defeasance. The Trust Indenture contains provisions for holding meetings of holders of Notes and, subject to certain exceptions, for making binding upon all holders of Notes extraordinary resolutions passed at such meetings in accordance with such provisions and instruments in writing signed by the holders of a specified percentage in principal amount of the Debt Securities outstanding. No reference herein to the Trust Indenture and no provision of this Note shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Note at the times, place and rate, and in the currency, herein and in the Trust Indenture prescribed. No transfer of this Note shall be valid unless made on the registers to be kept at the office of the Trustee in the City of Calgary, Alberta and at such other place or places (if any) as the Corporation may designate, by the registered holder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee or other registrar, and upon compliance with such reasonable requirements as the Trustee or other registrar may prescribe and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Person in whose name this Note shall be registered shall be deemed and regarded as the owner hereof for all purposes of the Trust Indenture and payment of or on account of the principal hereof and premium, if any, and interest hereon shall be made only to or upon the order of such registered holder. As provided in the Trust Indenture and subject to certain limitations set forth therein, the Notes are exchangeable for a like aggregate principal amount of Notes of authorized denominations as requested by the holders surrendering the same. No service charge will be made for any exchange, registration, transfer or discharge from registration of any Note, although the Corporation and the Trustee may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. This Note may be surrendered for registration of transfer, exchange and payment at the office of the Trustee in the City of Calgary, Alberta and, if so required pursuant to the Trust Indenture and the Notes, at the office or agency maintained by the Corporation for that purpose in the Borough of Manhattan, The City of New York. The Notes are issuable only in registered form without coupons in denominations of U.S. $1,000 and integral multiples of U.S. $1,000. The Trust Indenture requires that the Corporation comply with certain restrictive covenants set forth therein and provides that, under certain circumstances, one or more subsidiaries of the Corporation may be required to guarantee the Notes. Reference is made to the Trust Indenture for a further description of all such terms and provisions. -5- This Note shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein and, to the extent provided in the Trust Indenture, by the TRUST INDENTURE ACT of 1939, as amended. This Note shall not become obligatory for any purpose until it shall have been certified by the Trustee for the time being under the Trust Indenture. IN WITNESS WHEREOF NEXEN INC. has caused this Note to be sealed with its corporate seal and to be signed by its duly appointed and authorized officers this ___ day of ______________. NEXEN INC. Per: ______________________________________ Name: Title: [Seal] Per: ______________________________________ Name: Title: This is one of the Notes referred to in the Trust Indenture within mentioned CIBC MELLON TRUST COMPANY, TRUSTEE Per: ______________________________________ Authorized Officer [Seal] Date of Certification:_____________________ ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -______ Custodian_____ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of survivorship Under Uniform Gifts to and not as tenants in common Minors Act_____________ (State) Additional abbreviations may also be used though not in the above list. ___________________________________________ FOR VALUE RECEIVED, the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _________________________________________________________ _________________________________________________________ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE ________________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing _______________________________________________________________________Attorney to transfer said Note on the books of the Corporation with full power of substitution in the premises. Dated:__________________________________________________________________________ Notice: The signature to this assignment must correspond with the name as it appears upon the face of the within Note in every particular, without alteration or enlargement or any change whatever. EX-4 9 ex4-47form10k_2003.txt EXHIBIT 4.47 EXHIBIT 4.47 ------------ ================================================================================ NEXEN INC. and DEUTSCHE BANK TRUST COMPANY AMERICAS Trustee -------------- Subordinated Debt Indenture Dated as of November 4, 2003 ================================================================================ NEXEN INC. Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of November 4, 2003 TRUST INDENTURE ACT SECTION INDENTURE SECTION 310(a)(1) 6.09 (a)(2) 6.09 (a)(3) Not Applicable (a)(4) Not Applicable (b) 6.08, 6.10 311 (a) 6.13 (b) 6.13 (c) Not Applicable 312(a) 7.01, 7.02(a) (b) 7.02(b) (c) 7.02(c) 313(a) 7.03(a) (b) 7.03(a) (c) 7.03(a), 7.03(b) (d) 7.03(b) 314(a) 7.04 (b) Not Applicable (c)(1) 1.02 (c)(2) 1.02 (c)(3) Not Applicable (d) Not Applicable (e) 1.02 315(a) 6.01(a) (b) 6.02, 7.03(a) (c) 6.01(b) (d) 6.01(c) (d)(1) 6.01(a), 6.01(c) (d)(2) 6.01(c) (d)(3) 6.01(c) (e) 5.14 316(a)(1)(A) 5.12 (a)(1)(B) 5.02, 5.13 (a)(2) Not Applicable (b) 5.08 (c) 1.04(e) 317(a)(1) 5.03 (a)(2) 5.04 (b) 10.05 318(a) 1.07 i TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.......................................1 SECTION 1.01 DEFINITIONS........................................................................1 SECTION 1.02 COMPLIANCE CERTIFICATES AND OPINIONS...............................................9 SECTION 1.03 FORM OF DOCUMENTS DELIVERED TO TRUSTEE............................................10 SECTION 1.04 ACTS OF HOLDERS...................................................................11 SECTION 1.05 NOTICES, ETC., TO TRUSTEE AND THE ISSUER..........................................12 SECTION 1.06 NOTICE TO HOLDERS; WAIVER.........................................................13 SECTION 1.07 CONFLICT WITH TRUST INDENTURE ACT.................................................13 SECTION 1.08 EFFECT OF HEADINGS AND TABLE OF CONTENTS..........................................14 SECTION 1.09 SUCCESSORS AND ASSIGNS............................................................14 SECTION 1.10 SEPARABILITY CLAUSE...............................................................14 SECTION 1.11 BENEFITS OF INDENTURE.............................................................14 SECTION 1.12 GOVERNING LAW.....................................................................14 SECTION 1.13 LEGAL HOLIDAYS....................................................................14 SECTION 1.14 NO RECOURSE AGAINST OTHERS........................................................14 SECTION 1.15 AGENT FOR SERVICE; SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITIES........................................................................15 SECTION 1.16 JUDGMENT CURRENCY.................................................................15 SECTION 1.17 COUNTERPARTS......................................................................16 ARTICLE 2 SECURITY FORMS...............................................................................16 SECTION 2.01 FORMS GENERALLY...................................................................16 SECTION 2.02 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION...................................17 SECTION 2.03 SECURITIES IN GLOBAL FORM.........................................................17 SECTION 2.04 FORM OF LEGEND FOR THE SECURITIES IN GLOBAL FORM..................................18 ARTICLE 3 THE SECURITIES...............................................................................18 SECTION 3.01 AMOUNT UNLIMITED; ISSUABLE IN SERIES..............................................18 SECTION 3.02 DENOMINATIONS.....................................................................21 SECTION 3.03 EXECUTION, AUTHENTICATION, DELIVERY AND DATING....................................22 SECTION 3.04 TEMPORARY SECURITIES..............................................................24 SECTION 3.05 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE...............................24 SECTION 3.06 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES..................................27 SECTION 3.07 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED....................................28 SECTION 3.08 PERSONS DEEMED OWNERS.............................................................29 SECTION 3.09 CANCELLATION......................................................................29 SECTION 3.10 COMPUTATION OF INTEREST...........................................................30 SECTION 3.11 CUSIP NUMBER......................................................................30 SECTION 3.12 WIRE TRANSFERS....................................................................30
ARTICLE 4 SATISFACTION AND DISCHARGE...................................................................30 SECTION 4.01 SATISFACTION AND DISCHARGE OF INDENTURE...........................................30 SECTION 4.02 APPLICATION OF TRUST MONEY........................................................32 SECTION 4.03 REINSTATEMENT.....................................................................32 SECTION 4.04 APPLICATION TO A SPECIFIC SERIES OF SECURITIES....................................32 ARTICLE 5 REMEDIES.....................................................................................33 SECTION 5.01 EVENTS OF DEFAULT.................................................................33 SECTION 5.02 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT................................34 SECTION 5.03 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE...................35 SECTION 5.04 TRUSTEE MAY FILE PROOFS OF CLAIM..................................................36 SECTION 5.05 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.......................37 SECTION 5.06 APPLICATION OF MONEY COLLECTED....................................................37 SECTION 5.07 LIMITATION ON SUITS...............................................................38 SECTION 5.08 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM, OTHER AMOUNTS AND INTEREST........................................................38 SECTION 5.09 RESTORATION OF RIGHTS AND REMEDIES................................................38 SECTION 5.10 RIGHTS AND REMEDIES CUMULATIVE....................................................39 SECTION 5.11 DELAY OR OMISSION NOT WAIVER......................................................39 SECTION 5.12 CONTROL BY HOLDERS................................................................39 SECTION 5.13 WAIVER OF PAST DEFAULTS...........................................................39 SECTION 5.14 UNDERTAKING FOR COSTS.............................................................40 ARTICLE 6 THE TRUSTEE..................................................................................40 SECTION 6.01 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE................................40 SECTION 6.02 NOTICE OF DEFAULTS................................................................41 SECTION 6.03 CERTAIN RIGHTS OF TRUSTEE.........................................................41 SECTION 6.04 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES............................43 SECTION 6.05 MAY HOLD SECURITIES...............................................................43 SECTION 6.06 MONEY HELD IN TRUST...............................................................43 SECTION 6.07 COMPENSATION AND REIMBURSEMENT....................................................43 SECTION 6.08 DISQUALIFICATION; CONFLICTING INTERESTS...........................................44 SECTION 6.09 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY...........................................44 SECTION 6.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.................................44 SECTION 6.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR............................................46 SECTION 6.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.......................47 SECTION 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER..............................47 SECTION 6.14 APPOINTMENT OF AUTHENTICATING AGENT...............................................48 SECTION 6.15 COMPLIANCE WITH TAX LAWS..........................................................49 ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER.............................................49 SECTION 7.01 ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS..........................49
ii SECTION 7.02 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS............................50 SECTION 7.03 REPORTS BY TRUSTEE................................................................51 SECTION 7.04 REPORTS BY THE ISSUER.............................................................51 ARTICLE 8 CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER...............................................52 SECTION 8.01 CERTAIN REQUIREMENTS IN RESPECT TO MERGERS, ETC...................................52 SECTION 8.02 VESTING OF POWERS IN SUCCESSOR....................................................54 SECTION 8.03 REORGANIZATION ADDITIONAL AMOUNTS.................................................55 ARTICLE 9 SUPPLEMENTAL INDENTURES......................................................................56 SECTION 9.01 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS................................56 SECTION 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS...................................58 SECTION 9.03 EXECUTION OF SUPPLEMENTAL INDENTURES..............................................59 SECTION 9.04 EFFECT OF SUPPLEMENTAL INDENTURES.................................................59 SECTION 9.05 CONFORMITY WITH TRUST INDENTURE ACT...............................................59 SECTION 9.06 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES................................60 SECTION 9.07 SUBORDINATION UNIMPAIRED..........................................................60 ARTICLE 10 COVENANTS....................................................................................60 SECTION 10.01 PAYMENT OF SECURITIES.............................................................60 SECTION 10.02 MAINTENANCE OF OFFICE OR AGENCY...................................................60 SECTION 10.03 COMPLIANCE CERTIFICATES...........................................................60 SECTION 10.04 MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.................................61 SECTION 10.05 ADDITIONAL AMOUNTS................................................................62 SECTION 10.06 WAIVER OF CERTAIN COVENANTS.......................................................64 ARTICLE 11 REDEMPTION OF SECURITIES.....................................................................65 SECTION 11.01 APPLICABILITY OF ARTICLE..........................................................65 SECTION 11.02 ELECTION TO REDEEM; NOTICE TO TRUSTEE.............................................65 SECTION 11.03 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.................................65 SECTION 11.04 NOTICE OF REDEMPTION..............................................................65 SECTION 11.05 DEPOSIT OF REDEMPTION PRICE.......................................................66 SECTION 11.06 SECURITIES PAYABLE ON REDEMPTION DATE.............................................66 SECTION 11.07 SECURITIES REDEEMED IN PART.......................................................67 SECTION 11.08 TAX REDEMPTION....................................................................67 ARTICLE 12 SINKING FUNDS................................................................................68 SECTION 12.01 APPLICABILITY OF ARTICLE..........................................................68 SECTION 12.02 SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.............................68 SECTION 12.03 REDEMPTION OF SECURITIES FOR SINKING FUND.........................................69 ARTICLE 13 DEFEASANCE AND COVENANT DEFEASANCE...........................................................69 SECTION 13.01 APPLICABILITY OF ARTICLE; ISSUER'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE............................................................69 SECTION 13.02 DEFEASANCE AND DISCHARGE..........................................................69
iii SECTION 13.03 COVENANT DEFEASANCE...............................................................70 SECTION 13.04 CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE...................................70 SECTION 13.05 DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST....................72 SECTION 13.06 REINSTATEMENT.....................................................................73 ARTICLE 14 SUBORDINATION................................................................................73 SECTION 14.01 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS....................................73 SECTION 14.02 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC....................................74 SECTION 14.03 PAYMENT OF SENIOR INDEBTEDNESS BEFORE PAYMENT OF SECURITIES.......................75 SECTION 14.04 PAYMENT PERMITTED IF NO DEFAULT...................................................75 SECTION 14.05 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS...........................75 SECTION 14.06 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.......................................76 SECTION 14.07 TRUSTEE TO EFFECTUATE SUBORDINATION...............................................76 SECTION 14.08 NO WAIVER OF SUBORDINATION PROVISIONS.............................................76 SECTION 14.09 NOTICE TO TRUSTEE.................................................................77 SECTION 14.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT....................77 SECTION 14.11 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS..........................78 SECTION 14.12 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS...............................................................78 SECTION 14.13 ARTICLE APPLICABLE TO PAYING AGENTS...............................................78 ARTICLE 15 MEETINGS OF HOLDERS OF SECURITIES............................................................79 SECTION 15.01 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.........................................79 SECTION 15.02 CALL, NOTICE AND PLACE OF MEETINGS................................................79 SECTION 15.03 PERSONS ENTITLED TO VOTE AT MEETINGS..............................................79 SECTION 15.04 QUORUM; ACTION....................................................................79 SECTION 15.05 DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS...............81 SECTION 15.06 COUNTING VOTES AND RECORDING ACTION OF MEETINGS...................................82
iv INDENTURE, dated as of November 4, 2003, between NEXEN INC., a corporation formed under the laws of Canada (herein called the "ISSUER") and Deutsche Bank Trust Company Americas, as Trustee (herein called the "TRUSTEE"). RECITALS OF THE ISSUER The Issuer has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its subordinated unsecured debentures, notes or other evidences of indebtedness (herein called the "SECURITIES"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Issuer, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and ratable benefit of the Holders of the Securities, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.01 DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, or defined by Commission rule and not otherwise defined herein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (4) the word "INCLUDING" (and with correlative meaning "INCLUDE") means including, without limiting the generality of, any description preceding such term; and (5) the words "HEREIN," "HEREOF" and "HEREUNDER" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "ACT," when used with respect to any Holder, has the meaning specified in Section 1.04. "ADDITIONAL AMOUNTS" has the meaning specified in Section 10.05. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "CONTROL", as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH" shall have correlative meanings. "APPLICABLE CURRENCY" means, with respect to a Security, the currency or currency unit in which such Security is payable. "APPLICABLE JURISDICTION" has the meaning specified in Section 8.01. "AUTHENTICATING AGENT" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities. "BANKRUPTCY LAW" means the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada) or any other Canadian federal or provincial law relating to, or Title 11, U.S. Code or any similar federal or state law relating to, the relief of debtors. "BOARD OF DIRECTORS" means, with respect to any corporation, the board of directors of such corporation; PROVIDED, HOWEVER, that when the context refers to actions or resolutions of the Board of Directors, then the term "BOARD OF DIRECTORS" shall also mean any duly authorized committee of the Board of Directors authorized to act with respect to any particular matter to exercise the power of the Board of Directors. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the relevant entity to have been duly adopted by the Board of Directors, PROVIDED that, when used without any reference to an entity, "BOARD RESOLUTION" and "BOARD RESOLUTIONS" shall mean Board Resolutions of the Issuer; in each case, to be in full force and effect on the date of such certification, and delivered to the Trustee. "BUSINESS DAY," when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities of any series, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or regulation to close; PROVIDED, HOWEVER, that, if the foreign currency or currency unit is euro, the day is also a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is open. "CANADIAN TAXES" has the meaning specified in Section 10.05. 2 "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations, warrants, rights, options or other equivalents (HOWEVER designated) of capital stock or any other equity interest of such Person, including, without limitation, each class of common stock and preferred stock and, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of the assets of, such partnership. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "CORPORATE TRUST OFFICE" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 60 Wall Street, 27th Floor, New York, New York 10005-2858. "COVENANT DEFEASANCE" has the meaning specified in Section 13.03. "CURRENCY UNIT" or "CURRENCY UNITS" shall mean any composite currency. "CUSTODIAN" means any receiver, custodian, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "DEFAULT" means any event which is, or after notice or passage of time or both would be, an Event of Default. "DEFAULTED INTEREST" has the meaning specified in Section 3.07. "DEFEASANCE" has the meaning specified in Section 13.02. "DEPOSITARY" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more global Securities, the Person designated as Depositary by the Issuer pursuant to Section 3.01 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "DEPOSITARY" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, "Depositary" shall mean the Depositary with respect to the Securities of that series. "DESIGNATED OFFICER" means any Officer of the relevant Person, who must be its Chief Executive Officer, its President, its Chief Financial Officer, its Chief Accounting Officer, its Treasurer or its Controller. "DOLLARS" and "$" means lawful money of the United States of America. "EVENT OF DEFAULT" has the meaning specified in Section 5.01. 3 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder. "EXCLUDED HOLDER" has the meaning specified in Section 10.05. "GAAP" means generally accepted accounting principles which are in effect from time to time in Canada. "HOLDER" or "SECURITYHOLDER" means a Person in whose name a Security is registered in the Security Register. "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more Series Supplements or indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated hereunder. "INTEREST," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "INTEREST PAYMENT DATE," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "ISSUER" means the Person named as the "Issuer" in the first paragraph of this Indenture until a successor corporation or other entity shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Issuer" shall mean such successor corporation or entity. "ISSUER REQUEST" or "ISSUER ORDER" means a written request or order signed in the name of the Issuer by the Designated Officer and delivered to the Trustee. "JUDGMENT CURRENCY" has the meaning specified in Section 1.16. "MATURITY," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "NEW YORK BANKING DAY" has the meaning specified in Section 1.16. "OFFICER" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice President, the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, any Assistant Treasurer, the Controller, any Assistant Controller, the Secretary or any Assistant Secretary of such Person. 4 "OFFICER'S CERTIFICATE" means, with respect to a Person, a certificate signed and delivered to the Trustee by the Designated Officer of that Person. "OPINION OF COUNSEL" means a written opinion of counsel, who may be an employee of or counsel for the Issuer, and who shall be reasonably acceptable to the Trustee. "ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which provides for an amount (excluding any amounts attributable to accrued but unpaid interest thereon) less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02. "OUTSTANDING," when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption money in the necessary amount and in the Applicable Currency has been theretofore deposited with the Trustee or any Paying Agent (other than the Issuer or any other obligor on the Securities) in trust or set aside and segregated in trust by the Issuer or any other obligor on the Securities (if the Issuer or any other obligor on the Securities shall act as its own Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities or portions thereof are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor reasonably satisfactory to the Trustee has been made; (iii) Securities which have been paid as provided herein or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof reasonably satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Issuer; (iv) Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture; and (v) Securities which have been defeased pursuant to Section 13.02; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, or whether sufficient funds are available for redemption or for any other purpose and for the purpose of making the calculations required by Section 313 of the Trust Indenture Act, (a) the principal amount of any Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be that portion of the principal amount thereof that could be declared to be 5 due and payable upon the occurrence of an Event of Default and the continuation thereof pursuant to the terms of such Original Issue Discount Security as of the date of such determination, (b) the principal amount of a Security denominated in one or more foreign currencies or currency units shall be the dollar equivalent that could be obtained for such principal amount on the basis of a spot rate of exchange specified to the Trustee for such series in an Officer's Certificate for such foreign currency or currency unit into dollars as of the date the taking of such action by the Holders of the requisite percentage in principal amount of the Securities is evidenced to the Trustee (or, in the case of an Original Issue Discount Security, the dollar equivalent on such date of the amount determined as provided in (a) above), and (c) Securities owned by the Issuer or any other obligor upon the Securities or any Affiliate of the Issuer or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Issuer or any other obligor upon the Securities or any Affiliate of the Issuer or of such other obligor. "PAYING AGENT" means any Person authorized by the Issuer to pay the principal of, premium, if any, interest or other amounts on any Securities on behalf of the Issuer. An Issuer may act as Paying Agent with respect to any Securities issued hereunder. "PERSON" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PLACE OF PAYMENT," when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest or other amounts on the Securities of that series are payable as specified as contemplated by Section 3.01. "PREDECESSOR SECURITY" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "PROCEEDING" has the meaning specified in Section 14.02. "REDEMPTION DATE," when used with respect to any Security of any series to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. 6 "REDEMPTION PRICE," when used with respect to any Security of any series to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture, payable in the Applicable Currency, which price excludes accrued and unpaid interest, if any, payable on redemption. "REGISTERED SECURITY" means any Security issued hereunder and registered in the Security Register. "REGULAR RECORD DATE" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01. "REINCORPORATION" has the meaning specified in Section 8.01. "REORGANIZATION ADDITIONAL AMOUNTS" has the meaning specified in Section 8.01. "REQUIRED CURRENCY" has the meaning specified in Section 1.16. "RESPONSIBLE OFFICER," when used with respect to the Trustee, means any officer of the Trustee assigned to administer corporate trust matters, including any managing director, director, vice president, assistant vice president, secretary, assistant secretary, assistant treasurer and associate, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "REPRESENTATIVE" means the indenture trustee or other trustee, agent or representative for an issue of Senior Indebtedness. "SECURITIES" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "SECURITIES PAYMENT" has the meaning specified in Section 14.02. "SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings specified in Section 3.05. "SENIOR INDEBTEDNESS" means, with respect to the Issuer, (i) the principal (including redemption payments), premium, if any, interest and other payment obligations in respect of (A) indebtedness of the Issuer for money borrowed and (B) indebtedness evidenced by debentures, bonds, notes or other similar instruments issued by the Issuer, including any such securities issued under any indenture or other instrument to which the Issuer is a party (including, for the avoidance of doubt but subject to clauses (1) and (2) of this sentence, indentures pursuant to which subordinated debentures have been or may be issued), (ii) all capital, operating or other lease obligations of the Issuer, (iii) all obligations of the Issuer issued or assumed as the 7 deferred purchase price of property, all conditional sale obligations of the Issuer, all hedging agreements and agreements of a similar nature thereto (including interest rate, currency or commodity swap agreements and commodity purchase and sale agreements) and all agreements relating to any such agreements, and all obligations of the Issuer under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of the Issuer for the reimbursement of amounts paid pursuant to any letter of credit, banker's acceptance, security purchase facility or similar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which the Issuer is responsible or liable as obligor, guarantor or otherwise, and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of the Issuer (whether or not such obligation is assumed by the Issuer); in each case in (i) to (vi) above, whether outstanding at the date of this Indenture or thereafter incurred, except for (1) any such indebtedness that contains express terms, or is issued under an indenture or other instrument which contains express terms, providing that it is subordinate to or ranks PARI PASSU with the Securities or any series thereof and (2) any indebtedness between the Issuer and its Affiliates. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions of this Indenture irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness and notwithstanding that no express written subordination agreement may have been entered into between the holders of such Senior Indebtedness and the Trustee or any of the Holders. This definition may be modified or superseded in a manner as contemplated by Section 3.01. For purposes of Sections 1.11 and 9.07 and Article 14, "SENIOR INDEBTEDNESS" shall mean the Senior Indebtedness of the Issuer of the Securities in question. "SERIES SUPPLEMENT" has the meaning specified in Section 3.01. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07. "STATED MATURITY," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "SUBSIDIARY" means, with respect to any Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only 8 general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "SUCCESSOR CORPORATION" has the meaning specified in Section 8.01. "TAXES" has the meaning specified in Section 8.01. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" shall mean each such Trustee. The term "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed; PROVIDED, HOWEVER, that in the event that such Act is amended after such date, "TRUST INDENTURE ACT" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed by the full faith and credit of the United States of America which, in either case, are not callable or redeemable at the option of the issuer thereof or otherwise subject to prepayment, and shall also include a depository receipt issued by a New York Clearing House bank or trust company as custodian with respect to any such U.S. Government Obligation, or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount held by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "VICE PRESIDENT," when used with respect to the Issuer or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "VOTING STOCK" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. Section 1.02 COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application or request by the Issuer to the Trustee to take any action under any provision 9 of this Indenture, the Issuer shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1.03 FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer actually knows that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Issuer stating that the information with respect to such factual matters is in the possession of the Issuer, unless such counsel actually knows that the certificate or opinion or representations with respect to such matters are erroneous. Any certificate, statement or opinion of an Officer of the Issuer or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or 10 opinion of or representations by an accountant or firm of accountants in the employ of the Issuer, unless such Officer or counsel, as the case may be, actually knows that the certificate or opinion or representations with respect to the accounting matters upon which his or her certificate, statement or opinion is based are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 1.04 ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Issuer, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Registered Securities shall be proved by the Security Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Security. (e) If the Issuer shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Issuer may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination 11 of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Issuer shall have no obligation to do so, PROVIDED that the Issuer may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the immediately following paragraph. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; PROVIDED that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (f) The Trustee shall set a record date, which shall not be more than 15 days prior to the date of commencement of solicitation of such action contemplated by this section 1.04(f), for the purpose of determining the Holders of Securities of any series entitled to join in the giving or making of (i) any notice of default, (ii) any declaration of acceleration referred to in Section 5.02, (iii) any direction referred to in Section 5.12, (iv) any request to institute proceedings referred to in Section 5.07(2) or (v) any waiver of past defaults pursuant to Section 5.13, in each case with respect to Securities of such series. If such a record date is fixed pursuant to this paragraph, the relevant action may be taken or given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be holders of Securities of a series for the purpose of determining whether Holders of the requisite proportion of Outstanding Securities of such series have authorized or agreed or consented to such action, and for that purpose the Outstanding Securities of such series shall be computed as of such record date; PROVIDED that no such action by Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Issuer's reasonable expense, shall cause notice of such record date and the proposed action by Holders to be given to the Issuer in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.06. Section 1.05 NOTICES, ETC., TO TRUSTEE AND THE ISSUER. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, 12 (a) the Trustee or a Responsible Officer of the Trustee by any Holder or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing and mailed first-class postage prepaid, to or with the Trustee at 60 Wall Street, 27th Floor, Mailstop NYC60-2710, New York, New York 10005-2858 or if sent by facsimile transmission, to a facsimile number provided by the Trustee, with a copy mailed, first-class postage prepaid to the Trustee addressed to it as provided above; or (b) the Issuer by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, addressed to the Issuer's agent for service of process at Nexen Petroleum U.S.A. Inc., 12790 Merit Drive, Suite 800, LB 94, Dallas, Texas 75251, or at any other address previously furnished in writing to the Trustee by the Issuer, or if sent by facsimile transmission, to a facsimile number provided to the Trustee by the Issuer, with a copy mailed, first-class postage prepaid, to the Issuer addressed to it as provided above. Section 1.06 NOTICE TO HOLDERS; WAIVER. Where this Indenture or any Security provides for notice to Holders of any event, such notice shall be deemed sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first- class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders or the validity of the proceedings to which such notice relates. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 1.07 CONFLICT WITH TRUST INDENTURE ACT. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included or deemed included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or 13 excluded, such provision of the Trust Indenture Act shall be deemed to apply to this Indenture as so modified or shall be excluded, as the case may be. Section 1.08 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.09 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Issuer shall bind its successors and assigns, whether so expressed or not. Section 1.10 SEPARABILITY CLAUSE. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.11 BENEFITS OF INDENTURE. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the Holders and, to the extent specifically set forth herein, the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 1.12 GOVERNING LAW. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles thereunder that would indicate the applicability of the laws of any jurisdiction other than such State. Section 1.13 LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu of this Section) payment of interest or principal (and premium and any other amounts, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day or on such other day as may be set out with respect to the Securities of a series in the Series Supplement applicable to such series at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be, PROVIDED that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be, if payment is made on such next succeeding Business Day or other day set out in such Officer's Certificate or in any Series Supplement with respect to a series of the Securities. Section 1.14 NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Issuer shall not have any liability for any obligations of the Issuer under the Securities or this Indenture or for any claim based on, in respect of or by 14 reason of such obligations or their creation. Each Securityholder, by accepting a Security, waives and releases all such liability. Such waivers and releases are part of the consideration for the issuance of the Securities. Section 1.15 AGENT FOR SERVICE; SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITIES. By the execution and delivery of this Indenture, the Issuer (i) acknowledges that it will, by separate written instrument, designate and appoint Nexen Petroleum U.S.A. Inc., 12790 Merit Drive, Suite 800, LB 94, Dallas, Texas 75251 (and any successor entity) as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Indenture or the Securities that may be instituted in any Federal or state court in the State of New York, the City of New York, the Borough of Manhattan, or brought under federal or state securities laws, and acknowledges that Nexen Petroleum U.S.A. Inc. will accept such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon Nexen Petroleum U.S.A. Inc. and written notice of said service to the Issuer in accordance with Section 1.05 shall be deemed in every respect effective service of process upon the Issuer in any such suit or proceeding. To the extent that the Issuer has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of its obligations under the above-referenced documents, to the extent permitted by law. By the execution and delivery of this Indenture, the Trustee (i) acknowledges that it will, by separate written instrument, designate and appoint Deutsche Bank AG, Toronto Branch, 22 Bay Street, Suite 1100, Toronto, Ontario, Canada M5K 1E7 (and any successor entity) as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Indenture or the Securities that may be instituted in any provincial court in the Province of Ontario, or brought under Canadian federal or Canadian provincial securities laws, and acknowledges that Deutsche Bank AG will accept such designation, (ii) submits to the non-exclusive jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon Deutsche Bank AG and written notice of said service to the Trustee in accordance with Section 1.05 shall be deemed in every respect effective service of process upon the Trustee in any such suit or proceeding. Section 1.16 JUDGMENT CURRENCY. The Issuer agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium, other amounts or interest, if any, on the Securities of any series (the "REQUIRED CURRENCY") into a currency in which a judgment will be rendered (the "JUDGMENT Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding that on which a final unappealable judgment is given and (b) its 15 obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "NEW YORK BANKING DAY" means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or required by law or executive order to close. Section 1.17 COUNTERPARTS. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. ARTICLE 2 SECURITY FORMS Section 2.01 FORMS GENERALLY. The Securities of each series shall be in substantially the form as shall be established by or pursuant to a Series Supplement, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to clause (i) or (ii) of the second sentence of Section 3.01, a copy of such Board Resolution or an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Issuer and delivered to the Trustee at or prior to the delivery of the Issuer Order contemplated by Section 3.03 or Section 3.04 for the authentication and delivery of such Securities. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the Officers executing such Securities, as evidenced by their execution of such Securities. 16 Section 2.02 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The Trustee's certificate of authentication shall be in substantially the following form: Dated: ___________ This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. _____________________________________ As Trustee By __________________________________ Authorized Signatory Section 2.03 SECURITIES IN GLOBAL FORM. If Securities of or within a series are issuable in whole or in part in global form, then any such Security of such series may provide that it shall represent the aggregate or a specified amount of the Outstanding Securities of such series from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be reduced or increased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Holders, of Outstanding Securities represented thereby shall be made in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Issuer Order to be delivered to the Trustee pursuant to Section 3.03 or Section 3.04. Subject to the provisions of Section 3.03 and, if applicable, Section 3.04, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Issuer Order. If an Issuer Order pursuant to Section 3.03 or 3.04 has been, or simultaneously is, delivered, any instructions by the Issuer with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel. The provisions of the third to last paragraph of Section 3.03 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Issuer and the Issuer delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby. Notwithstanding the provisions of Sections 2.01 and 3.07, unless otherwise specified as contemplated by Section 3.01, payment of principal of and premium and other amounts, if any, and interest on any Security in permanent global form shall be made to the Person or Persons specified therein. 17 Section 2.04 FORM OF LEGEND FOR THE SECURITIES IN GLOBAL FORM. Any Security in global form authenticated and delivered hereunder shall bear a legend in substantially the following form, or in such other form as may be necessary or appropriate to reflect the arrangements with or to comply with the requirements of any Depositary: "THIS SECURITY IS IN GLOBAL FORM WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN CERTIFICATED FORM IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY." ARTICLE 3 THE SECURITIES Section 3.01 AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued from time to time in one or more series. Prior to the issuance of Securities of any series, there shall be established in or pursuant to (i) a Board Resolution of the Issuer, (ii) actions taken pursuant to a Board Resolution of the Issuer and (subject to Section 3.03) set forth, or determined in the manner provided, in an Officer's Certificate with respect to the Issuer, or (iii) one or more indentures supplemental hereto (each of (i), (ii) and (iii), a "SERIES SUPPLEMENT"): (1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities); (2) the purchase price, denomination and any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 3.04, 3.05, 3.06, 9.06 or 11.07); 18 (3) the date or dates on which the principal of and premium and other amounts, if any, on the Securities of the series is payable or the method of determination thereof; (4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method of calculating such rate or rates of interest, the method of payment of interest (in particular, whether the interest will be paid in kind or otherwise), the date or dates from which such interest shall accrue or the method by which such date or dates shall be determined, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date, if any, for the interest payable on any Interest Payment Date; (5) the place or places where, subject to the provisions of Section 10.02, the principal of, premium and other amounts, if any, and interest, if any, on Securities of the series shall be payable; (6) the place or places where the Securities may be exchanged or transferred and notices and demands to or upon the Issuer in respect of the Securities and this Indenture may be served; (7) the period or periods within which, the price or prices at which, the currency or currencies (including currency unit or units) in which, and the other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Issuer, and, if other than as provided in Section 11.03, the manner in which the particular Securities of such series (if less than all Securities of such series are to be redeemed) are to be selected for redemption; (8) the obligation, if any, of the Issuer to redeem, repay or purchase Securities of the series in whole or in part pursuant to any sinking fund or analogous provisions or upon the happening of a specified event, passage of time, or at the option of a Holder thereof and the period or periods within which, the price or prices at which, and the other terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (10) if other than U.S. dollars, the currency or currencies (including currency unit or units) in which payments of principal of, premium and other amounts, if any, and interest on the Securities of the series shall or may by payable, or in which the Securities of the series shall be denominated, and the particular provisions applicable thereto; (11) if the payments of principal of, premium and other amounts, if any, or interest on the Securities of the series are to be made, at the election of the Issuer or a Holder, in a currency or currencies (including currency unit or units) other than that in which such Securities are denominated or designated to be 19 payable, the currency or currencies (including currency unit or units) in which such payments are to be made, the terms and conditions of such payments and the manner in which the exchange rate with respect to such payments shall be determined, and the particular provisions applicable thereto; (12) if the amount of payments of principal of, premium and other amounts, if any, and interest on the Securities of the series shall be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on a currency or currencies (including currency unit or units) other than that in which the Securities of the series are denominated or designated to be payable), the index, formula or other method by which such amounts shall be determined; (13) if other than the full principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02 or the method by which such portion shall be determined; (14) any modifications of or additions to the Events of Default or the covenants of the Issuer set forth herein with respect to Securities of the series; and whether and the conditions under which the Holders of the Securities of the series may waive any such Event of Default or compliance with any such covenant relating to the Securities of such series; (15) if either or both of Section 13.02 and Section 13.03 shall be inapplicable, in whole or in part, to the Securities of the series (PROVIDED that if no such inapplicability shall be specified, then both Section 13.02 and Section 13.03 shall be applicable to the Securities of the series); and any modification to either such section as it relates to such series of Securities; (16) if other than the Trustee, the identity of the Registrar and any Paying Agent; (17) if the Securities of the series shall be issued in whole or in part in global form, (i) the Depositary for such global Securities, (ii) the form of any legend in addition to or in lieu of that in Section 2.04 which shall be borne by such global Security, (iii) whether beneficial owners of interests in any Securities of the series in global form may exchange such interests for certificated Securities of such series and of like tenor of any authorized form and denomination, and (iv) if other than as provided in Section 3.05, the circumstances under which any such exchange may occur; (18) if the Holders of the Securities of the series may convert or exchange the Securities of the series into or for securities of the Issuer or of other entities or other property (or the cash value thereof), the specific terms of and period during which such conversion or exchange may be made; 20 (19) any provisions for the satisfaction and discharge of the Securities of the series, including provisions in addition to or modifying the provisions of Article 4 as they pertain to Securities of the series; (20) if the Securities of that series do not bear interest, the applicable dates for purposes of Section 7.01; (21) any agents for the series, including trustees, depositories, authenticating, conversion, calculation or paying agents, transfer agents or registrars; (22) the subordination of the Securities of such series to other indebtedness of the Issuer, including without limitation, the Securities of any other series; and (23) any other terms of the series, including any terms which may be required by or advisable under the laws of the United States of America or regulations thereunder or advisable (as determined by the Issuer) in connection with the marketing of Securities of the series. All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided by (i) a Board Resolution of the Issuer, (ii) actions taken pursuant to a Board Resolution of the Issuer and (subject to Section 3.03) set forth, or determined in the manner provided, in an Officer's Certificate or (iii) any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuances of additional Securities of such series. If any of the terms of the Securities of any series are established by action taken pursuant to clause (i) or (ii) of the first sentence of the preceding paragraph, a copy of such Board Resolution or an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Issuer and delivered to the Trustee at or prior to the delivery of the corresponding Officer's Certificate setting forth, or providing the manner for determining, the terms of the Securities of such series, and an appropriate record of any action taken pursuant thereto in connection with the issuance of any Securities of such series shall be delivered to the Trustee prior to the authentication and delivery thereof. Prior to the delivery of a Security of any series in any such form to the Trustee for the Securities of such series for authentication, the Issuer shall deliver to such Trustee an Officer's Certificate of the Issuer dated the date such Certificate is delivered to such Trustee stating that all conditions precedent provided for in this Indenture relating to the authentication and delivery of Securities in such forms have been complied with. Section 3.02 DENOMINATIONS. The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. 21 Section 3.03 EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Securities shall be executed on behalf of the Issuer by its Designated Officer. The signature of the Designated Officer on the Securities may be manual or facsimile. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security that has been duly authenticated and delivered by the Trustee. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Securities of any series executed by the Issuer to the Trustee for authentication, together with an Issuer Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Issuer Order shall authenticate and make such Securities available for delivery. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 2.01 and 3.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Sections 315(a) through (d) of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating (subject to customary assumptions, conditions and exceptions): (a) if the terms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; and (b) that such Securities, when authenticated and delivered by the Trustee and issued by the Issuer in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Issuer, enforceable in accordance with their terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting the enforcement of creditors' rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). If such terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee, or in the written opinion of counsel to the Trustee (which counsel may be an employee of the Trustee) such authentication may not lawfully be made or would involve the Trustee in personal liability. 22 Notwithstanding the provisions of Section 3.01 and of the immediately preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Board Resolution and the Officer's Certificate otherwise required pursuant to Section 3.01 or the Issuer Order and Opinion of Counsel otherwise required pursuant to the second preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. If the Issuer shall establish pursuant to Section 3.01 that the Securities of a series are to be issued in whole or in part in the form of one or more global Securities, then the Issuer shall execute and the Trustee shall, in accordance with this Section and the Issuer Order with respect to the authentication and delivery of such series, authenticate and deliver one or more Securities of such series in global form that (i) shall be in an aggregate amount equal to the aggregate principal amount of the Outstanding Securities of such series to be represented by such Security or Securities in global form, (ii) shall be registered in the name of the Depositary for such Security or Securities in global form or its nominee, and (iii) shall be made available for delivery by the Trustee to such Depositary or pursuant to such Depositary's instruction. If all the Securities of any one series are not to be issued at one time and if a Board Resolution relating to such Securities shall so permit, such Issuer Order may set forth procedures acceptable to the Trustee for the issuance of such Securities, including, without limitation, procedures with respect to interest rate, Stated Maturity, date of issuance and date from which interest, if any, shall accrue. Unless otherwise provided for in the form of Security, each Security shall be dated the date of its authentication. No Security shall be entitled to any benefits under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee or an Authenticating Agent by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Issuer, and the Issuer shall deliver such Security to the Trustee for cancellation as provided in Section 3.09 together with a written statement (which need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Issuer, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall not be entitled to the benefits of this Indenture. In case any Securities shall have been authenticated, but not delivered, by the Trustee or the Authenticating Agent for such series then in office, any successor 23 by merger, conversion or consolidation to such Trustee, or any successor Authenticating Agent, as the case may be, may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee or successor Authenticating Agent had itself authenticated such Securities. Each Depositary designated pursuant to Section 3.01 for a Security in global form must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. Section 3.04 TEMPORARY SECURITIES. Pending the preparation of definitive Securities of any series, the Issuer may execute, and upon an Issuer Order the Trustee shall authenticate and make available for delivery, temporary Securities of such series which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, with like terms and conditions as the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form, representing all or a portion of the Outstanding Securities of such series. Except in the case of temporary Securities in global form (which shall be exchanged in accordance with the provisions thereof), if temporary Securities of any series are issued, the Issuer will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Issuer in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Issuer shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations and of like terms and conditions. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 3.05 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The Issuer shall cause to be kept at the Corporate Trust Office of the Trustee or in any office or agency to be maintained by the Issuer in accordance with Section 10.02 in a Place of Payment a register (the register maintained in such office and in any other office or agency of the Issuer in a Place of Payment being herein sometimes collectively referred to as the "SECURITY REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Securities and of registration of transfers of Securities. The Trustee is hereby appointed "SECURITY REGISTRAR" for the purpose of registering Securities and transfers of Securities as herein provided. 24 Upon surrender for registration of transfer of any Security of any series at the office or agency of the Issuer in a Place of Payment for that series, the Issuer shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and Stated Maturity and with like terms and conditions. At the option of the Holder, Securities of any series (except a Security in global form) may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and Stated Maturity and with like terms and conditions, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. Each Security issued in global form authenticated under this Indenture shall be registered in the name of the Depositary designated for such series or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Security issued in global form shall constitute a single Security for all purposes of this Indenture. Notwithstanding any other provision of this Section or Section 3.04, unless and until it is exchanged in whole or in part for Securities in certificated form in the circumstances described below, a Security in global form representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. If at any time the Depositary for the Securities of a series notifies the Issuer that it is unwilling or unable to continue as Depositary for the Securities of such series or if at any time the Depositary for the Securities of such series shall no longer be eligible to perform such duties, the Issuer shall appoint a successor Depositary with respect to the Securities of such series. If (i) a successor Depositary for the Securities of such series is not appointed by the Issuer within 90 days after the Issuer receives such notice or becomes aware of such ineligibility, (ii) the Issuer delivers to the Trustee for the Securities of such series in registered form an Issuer Order stating that the Securities of such series shall be exchangeable, or (iii) an Event of Default under Section 5.01 hereof has occurred and is continuing with respect to the Securities of such series, then the Issuer's selection pursuant to Section 3.01(17) shall no longer be effective with respect to the Securities of such series, and the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order for the authentication and delivery of certificated Securities of such series of like tenor and like terms and conditions, shall authenticate and deliver Securities of such series of like tenor and with like terms and conditions in certificated form, in authorized denominations and in an aggregate principal amount equal to the principal 25 amount of the Security or Securities of such series of like tenor and like terms and conditions in global form in exchange for such Security or Securities in global form. The Issuer may at any time in its sole discretion determine that Securities issued in global form shall no longer be represented by such a Security or Securities in global form. In such event the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order for the authentication and delivery of certificated Securities of such series of like tenor and like terms and conditions, shall authenticate and deliver, Securities of such series of like tenor and like terms and conditions in certificated form, in authorized denominations and in an aggregate principal amount equal to the principal amount of the Security or Securities of such series of like tenor and like terms and conditions in global form in exchange for such Security or Securities in global form. If specified by the Issuer pursuant to Section 3.01 with respect to a series of Securities, the Depositary for such series may surrender a Security in global form of such series in exchange in whole or in part for Securities of such series in certificated form on such terms as are acceptable to the Issuer and such Depositary. Thereupon, the Issuer shall execute, and the Trustee shall authenticate and deliver, without service charge, but subject to Section 6.07, (i) to each Person specified by such Depositary a new certified Security or Securities of the same series of like tenor and like terms and conditions, of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Security in global form; and (ii) to such Depositary a new Security in global form of like tenor and like terms and conditions in a denomination equal to the difference, if any, between the principal amount of the surrendered Security in global form and the aggregate principal amount of certificated Securities delivered to Holders thereof. Upon the exchange of a Security in global form for Securities in certificated form, such Security in global form shall be canceled by the Trustee. Securities issued in exchange for a Security in global form pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary for such Security in global form, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the Persons in whose names such Securities are so registered. Whenever any Securities are surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. 26 Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Issuer or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Security Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. Unless otherwise provided in the Securities to be transferred or exchanged, no service charge shall be made for any registration of transfer or exchange of Securities, but the Issuer or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer. In the event of any redemption of any series, the Issuer shall not be required to (i) issue, register the transfer of or exchange the Securities of any series during a period beginning 15 days before the mailing of a notice of redemption of Securities of that series to be redeemed or, with respect to which a Holder has exercised an option to require repurchase of the Security prior to the Stated Maturity thereof, and ending on the date of the mailing; or (ii) register the transfer of or exchange any Security, or portion thereof, called for redemption or, with respect to which a Holder has exercised an option to require repurchase of the Security, prior to the Stated Maturity thereof, except the unredeemed portion or portion not being repurchased of any Security being redeemed or repurchased in part. The foregoing provisions relating to registration, transfer and exchange may be modified, supplemented or superseded with respect to any series of Securities by the Series Supplement for such series. Section 3.06 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If (i) any mutilated Security is surrendered to the Trustee for such Security or the Issuer and the Trustee for a Security receive evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) there is delivered to the Issuer, the Paying Agent and such Trustee such security or indemnity as may be required by them to hold each of them and any agent of either of them harmless, then, in the absence of notice to the Issuer or any Responsible Officer of such Trustee that such Security has been acquired by a BONA FIDE purchaser, the Issuer shall execute and upon its request such Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security or in exchange for such mutilated Security, a new Security of the same series and in a like principal amount and of a like Stated Maturity and with like terms and conditions, and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Issuer in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge 27 that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 3.07 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Issuer, at its election in each case, as provided in Clause (1) or (2) below: (1) The Issuer may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Issuer shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment (which shall be not less than 25 days after the receipt by the Trustee of such notice, unless such Trustee shall consent to an earlier date), and at the same time the Issuer shall deposit with the Trustee an amount of money in Applicable Currency equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements reasonably satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Issuer of such Special Record Date and, in the name and at the reasonable expense of the Issuer, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his 28 address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Issuer may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Issuer to the Trustee of the proposed payment pursuant to this Clause (2), such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 3.08 PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium and other amounts, if any, and (subject to Sections 3.05 and 3.07) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be affected by notice to the contrary. None of the Issuer, the Trustee or any agent of the Issuer or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interest of a Security in global form, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. Notwithstanding anything to the contrary in this Indenture, the Depositary or its nominee, as Holder of a Security in global form, may grant proxies and otherwise authorize any Person (including owners of beneficial interests in the Securities) to take any action that the Depositary or its nominee, as Holder of a Security in global form, is entitled to take under this Indenture or the Securities, provided further that with respect to any Security in global form, nothing herein shall prevent the Issuer or the Trustee or any agent of the Issuer or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Depositary (or its nominee), as a Holder, with respect to such Security in global form or impair, as between such Depositary and owners of beneficial interests in such Security in global form, the operation of customary practices governing the exercise of the right of such Depositary (or its nominee) as holder of such Security in global form. Section 3.09 CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund 29 payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Issuer may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be held by the Trustee and may be destroyed (and, if so destroyed, certification of their destruction shall be delivered to the Issuer, unless, by an Issuer Order, the Issuer shall direct that canceled Securities be returned to them). Section 3.10 COMPUTATION OF INTEREST. Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. For the purpose of disclosure under the INTEREST ACT (Canada) only, each rate of interest which is calculated with reference to a period (the "deemed interest period") that is less than the actual number of days in the calendar year of calculation is equivalent to a rate based on a calendar year calculated by multiplying such rate of interest by the actual number of days in the calendar year of calculation and dividing by the number of days in the deemed interest period. Section 3.11 CUSIP NUMBER. The Issuer in issuing Securities of any series may use a "CUSIP" number, and if so, the Trustee may use the CUSIP number in notices of redemption or exchange or other correspondence with holders as a convenience to Holders of such series; PROVIDED, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed on the notice or on the Securities of such series, and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer will promptly notify the Trustee of any change in the CUSIP number of any series of Securities. Section 3.12 WIRE TRANSFERS. Notwithstanding any other provision to the contrary in this Indenture, the Issuer may make any payment of moneys required to be deposited with the Trustee on account of principal of, or premium and other amounts, if any, or interest on the Securities (whether pursuant to optional or mandatory redemption payments, interest payments or otherwise) by wire transfer of immediately available funds to an account designated by the Trustee on or before the date and time such moneys are to be paid to the Holders of the Securities in accordance with the terms hereof. ARTICLE 4 SATISFACTION AND DISCHARGE Section 4.01 SATISFACTION AND DISCHARGE OF INDENTURE. (a) This Indenture shall cease to be of further effect with respect to a series of Securities when the Trustee, upon Issuer Request and at the expense of the Issuer, shall 30 execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (a) all Securities of such series theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in Section 10.04) have been delivered to the Trustee for cancellation; or (b) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) have been called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the reasonable expense, of the Issuer, and the Issuer, in the case of (b)(i), (ii) or (iii) above, has irrevocably deposited with the Trustee as trust funds in trust for the purpose cash in the Applicable Currency or, in the case of a series of Securities payable in dollars, U.S. Government Obligations in an amount certified to be sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium and other amounts, if any, and interest to the date of such deposit (in the case of Securities which have become due and payable) or the Stated Maturity or Redemption Date, as the case may be; (2) the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer and has delivered irrevocable instructions to the Trustee to apply the deposited amounts to the payment of such Securities at Stated Maturity or redemption, as applicable; (3) no Default or Event of Default with respect to this Indenture or the Securities shall have occurred on the date of deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instruments to which any Issuer is a party or to which it is bound; (4) the Issuer has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture with respect to such Securities have been complied with; and (5) no event or condition shall exist on the date of such deposit that, pursuant to the provisions of Section 14.02 or 14.03, would prevent the Issuer from making payments of the principal of or interest on the Securities of such series on the date of such deposit. (b) Notwithstanding the satisfaction and discharge of this Indenture with respect to a series of Securities: 31 (i) Until no notes of such series of Securities are outstanding, (1) the obligations of the Issuer to any Authenticating Agent under Section 6.14, (2) if money shall have been deposited with the Trustee pursuant to clause (a)(1)(b) of this Section, the obligations of the Trustee and any Paying Agent under Section 4.02 and the last paragraph of Section 10.04 and (3) the obligations of the Issuer under this Article 4, Sections 3.03, 3.05, 3.06, 3.07, 7.01, 7.02, 10.01, 10.02 and the last paragraph of Section 10.04 shall survive, in each case, with respect to such series of Securities. (ii) After no notes of such series of Securities are outstanding, (1) the obligations of the Issuer to the Trustee under Section 6.07 and (2) the obligations of the Issuer under this Article 4 shall survive. Section 4.02 APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 10.04, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and other amounts, if any) and interest for whose payment such money has been deposited with or received by the Trustee, but such money need not be segregated from other funds except to the extent required by law. Section 4.03 REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any cash in accordance with this Article 4 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Article 4 until such time as the Trustee or Paying Agent is permitted to apply all such cash in accordance with Article 4; PROVIDED, HOWEVER, that if the Issuer has made any payment of interest on, premium and other amounts, if any, principal or other amounts, if any, of any Securities because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the trustee or Paying Agent. Section 4.04 APPLICATION TO A SPECIFIC SERIES OF SECURITIES. The Issuer may elect to satisfy and discharge its obligations with respect to a specific series of Securities under the Indenture by complying with the terms of Article 4. If the Issuer makes such election, (a) the terms of Section 4.01, 4.02 and 4.03 shall apply only to the specific series of Securities and the terms of the Indenture as it relates to such series of Securities and (b) the other Securities issued hereunder and the Indenture as it relates to such other Securities shall remain in full force and effect. 32 ARTICLE 5 REMEDIES Section 5.01 EVENTS OF DEFAULT. Except as otherwise specified as contemplated by Section 3.01 for Securities of a series, "EVENT OF DEFAULT," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or to be effected by reason of Article 14 hereof or by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) the Issuer defaults in the payment of interest on any Security of that series when such interest becomes due and payable and the default continues for a period of 30 days; PROVIDED, HOWEVER, that a valid extension by the Issuer of an interest payment period for the Securities of such series in accordance with the terms of the Series Supplement of such Series shall not constitute a default in the payment of interest for this purpose; (2) the Issuer defaults in the payment of the principal of, or premium or other amounts, if any, on any Security of that series when the same becomes due and payable at Maturity or on redemption or otherwise; (3) the Issuer fails to deposit any sinking fund payment after it becomes due by the terms of a Security of that series; (4) the Issuer fails to observe or perform any of its other covenants, agreements or warranties in the Securities of that series or this Indenture (other than a covenant, agreement or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and the failure to observe or perform continues for the period and after the notice specified in the last paragraph of this Section; (5) the Issuer pursuant to or within the meaning of any Bankruptcy Law (a) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (b) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (c) consents to or acquiesces in the institution of bankruptcy or insolvency proceedings against it, (d) applies for, consents to or acquiesces in the appointment of or taking possession by a Custodian of it or for all or substantially all of the property of the Issuer, (e) makes a general assignment for the benefit of its creditors, (f) admits in writing to an inability to pay its debts as they become due or (g) takes any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; (6) (i) a court of competent jurisdiction enters a judgment, decree or order for relief in an involuntary case or proceeding under any Bankruptcy Law which 33 shall (a) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Issuer, (b) appoint a Custodian of the Issuer for all or substantially all of the property of the Issuer, or (c) order the winding-up or liquidation of affairs of the Issuer, and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (ii) any bankruptcy or insolvency petition or application is filed, or any bankruptcy or insolvency proceeding is commenced, against the Issuer and such petition, application or proceeding is not dismissed within 60 days; or (iii) a warrant of attachment is issued against any material portion of the property of the Issuer which is not released within 60 days of service; or (iv) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that is for relief in an involuntary case against the Issuer; or (7) any other Event of Default provided with respect to Securities of that series. A Default under clause (4) above is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series notify the Issuer of the Default and the Issuer does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default". When a Default under clause (4) above is cured within such 60-day period, it ceases to be a Default. The Trustee shall not be charged with knowledge of any default or Event of Default unless a Responsible Officer of the Trustee shall have actual knowledge or the Trustee receives written notice of the same. Section 5.02 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default with respect to Securities of any series (other than an Event of Default specified in clause (5) or (6) of Section 5.01) occurs and is continuing, the Trustee by notice in writing to the Issuer, or the Holders of at least 25% in aggregate principal amount of the Securities of that series then Outstanding by notice in writing to the Issuer and the Trustee, may declare the unpaid principal of and interest accrued thereon to the date of acceleration and premium and other amounts, if any, thereon (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) on all the Securities of that series then Outstanding to be due and payable immediately and, upon any such declaration, all the Securities of that series then Outstanding (or specified principal amount) shall become and be immediately due and payable. If an Event of Default specified in clause (5) or (6) of Section 5.01 occurs, all unpaid principal of, interest, premium and other amounts, if any, accrued on all the Securities of that series then Outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of that series. Upon payment of all such principal of, interest, premium, if any, and other amounts, all of the Issuer's obligations under the Securities of that series and (upon 34 payment of the Securities of all series) this Indenture shall terminate, except the obligations of the Issuer under Section 6.07. At any time after a declaration of acceleration of Maturity with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series by notice to the Trustee may rescind an acceleration and its consequences (except with respect to non-payment of principal, premium, interest or other amounts, if any) if (i) all existing Events of Default, other than the nonpayment of the principal of the Securities of that series that has become due solely by such declaration of acceleration, have been cured or waived as PROVIDED herein; PROVIDED that no such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereon, (ii) the Issuer has paid or deposited with the Trustee a sum sufficient to pay in Applicable Currency: (A) all overdue interest on all Securities of that series, (B) to the extent payment thereof is lawful, the principal of (and premium and other amounts, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon from the date such principal became due at a rate per annum equal to the rate borne by the Securities of such series (or, in the case of Original Issue Discount Securities, the Securities' yield to maturity) and (C) to the extent the payment of such interest is lawful, interest at a rate per annum equal to the rate borne by the Securities of such series (or, in the case of an Original Issue Discount Security, the Securities' annual bond-equivalent yield to maturity) on overdue installments of interest and overdue principal that has become due otherwise than by such declaration of acceleration have been paid, (iii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (iv) all payments due to the Trustee and any predecessor Trustee under Section 6.07 have been made. Section 5.03 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Issuer covenants that if: (1) default is made in the payment of any interest on any Security of any series when such interest becomes due and payable and such default continues for a period of 30 days, (2) default is made in the payment of the principal of (or premium or other amounts, if any, on) any Security of any series at the Maturity thereof, or (3) default is made in the payment of any sinking or analogous obligation when the same becomes due by the terms of the Securities of any series, and any such default continues for any period of grace provided with respect to the Securities of such series, the Issuer will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium 35 and other amounts, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium and other amounts, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Issuer fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Issuer or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to secure any other proper remedy. Section 5.04 TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Issuer or any other obligor upon the Securities or the property of the Issuer or of such other obligor or its creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Issuer for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium and other amounts, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceedings, (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and (iii) unless prohibited by law of applicable regulations, to vote on behalf of the Holders of the Securities of such series in any election of a trustee in bankruptcy or other person performing similar functions; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee 36 and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding, except as aforesaid, for the election of a trustee in bankruptcy or other person performing similar functions. Section 5.05 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 5.06 APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article in respect of the Securities of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium or other amounts, if any, or interest, upon presentation of the Securities in respect of which moneys have been collected and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07 applicable to such series; SECOND: To the payment of the amounts then due and unpaid for principal of, and premium and other amounts, if any, and interest on the Securities of such series in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities of such series for principal, and premium and other amounts, if any, and interest, respectively; and THIRD: To the Person or Persons entitled thereto. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 5.06. At least ten (10) days before such record date, the Trustee shall mail to each Holder and the Issuer a notice that states the record date, the payment date and the amount to be paid. 37 Section 5.07 LIMITATION ON SUITS. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of at least 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of Holders of Securities of any series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Securities of the affected series. Section 5.08 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM, OTHER AMOUNTS AND INTEREST. Notwithstanding any other provision in this Indenture but subject to Article 14, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium, other amounts, if any, and (subject to Section 3.07) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 5.09 RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Issuer, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and 38 thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted. Section 5.10 RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11 DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 5.12 CONTROL BY HOLDERS. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, PROVIDED that: (1) such direction shall not be in conflict with any rule of law or with this Indenture; (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (3) subject to Section 6.01, the Trustee need not take any action which might involve the Trustee in personal liability or be unduly prejudicial to the Holders not joining therein. Section 5.13 WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may by written notice to the Trustee on behalf of the Holders of all the Securities of such series waive any Default or Event of Default with respect to such series and its consequences, except a Default or Event of Default: (1) in respect of the payment of the principal of or premium, other amounts, if any, or interest on any Security of such series, or 39 (2) in respect of a covenant or other provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such Default or Event of Default shall cease to exist and shall be deemed to have been cured, for every purpose of this Indenture and the Securities of such series; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 5.14 UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than ten percent in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or premium or other amounts, if any, or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). ARTICLE 6 THE TRUSTEE Section 6.01 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE. (a) Except during the continuance of an Event of Default, of which a Responsible Officer has actual knowledge or the Trustee receives written notice of, the Trustee's duties, responsibilities, covenants and obligations under this Indenture shall (i) be governed by Section 315(a) of the Trust Indenture Act and (ii) not include any further duties, responsibilities, covenants or obligations except those expressly set forth therein and herein. (b) In case an Event of Default has occurred and is continuing, and is known to the Trustee, the Trustee shall exercise the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) None of the provisions of Section 315(d) of the Trust Indenture Act shall be excluded from this Indenture. 40 (d) Every provision of this Indenture which pertains to the Trustee shall be subject to this Section 6.01. (e) The Trustee shall not be a trustee for, or have any fiduciary obligation to, the Issuer. Section 6.02 NOTICE OF DEFAULTS. Within 90 days after the occurrence of any Default or Event of Default with respect to the Securities of any series, the Trustee shall give to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such Default or Event of Default known to the Trustee, unless such Default or Event of Default shall have been cured or waived; PROVIDED, HOWEVER, that, except in the case of a Default or Event of Default in the payment of the principal of or premium, other amounts, if any, or interest on any Security of such series, or in the deposit of any sinking fund payment with respect to Securities of that series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series. Section 6.03 CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of the Trust Indenture Act: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Issuer mentioned herein shall be sufficiently evidenced by an Issuer Request or Issuer Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officer's Certificate and such certificate, in the absence of bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the 41 Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee satisfactory security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) prior to the occurrence of an Event of Default with respect to the Securities of any series and after the curing or waiving of all such Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval or other paper or document, or the books and records of the Issuer, unless requested in writing to do so by the Holders of a majority in principal amount of the Outstanding Securities of any series; PROVIDED, HOWEVER, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is not, in the opinion of the Trustee, reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require indemnity satisfactory to it against such costs, expenses or liabilities as a condition to so proceeding; the reasonable expense of every such investigation shall be paid by the Issuer or, if paid by the Trustee, shall be repaid by the Issuer upon demand; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, attorney, custodian or nominee appointed with due care by it hereunder; (h) the Trustee shall not be required to expend or risk its own funds or otherwise incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it; (i) the Trustee shall not be liable for any error of judgment made in good faith by an officer or officers of the Trustee, unless it shall be conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; (j) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Securities at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to such Securities given under this Indenture; (k) the Trustee shall have no obligation to invest and reinvest any cash held by it in the absence of timely and specific written investment direction from the Issuer. In no event shall the Trustee be liable for the selection of investments or for investment losses incurred thereon. The Trustee shall have no liability in respect of a 42 losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Issuer to provide timely written investment direction; (1) neither the Trustee nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted under this Indenture or in connection therewith except to the extent caused by the Trustee's negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction; (m) for so long as the Trustee shall serve as Security Registrar and Paying Agent, it shall be afforded in such capacities, the same rights, protections, immunities and indemnities provided the Trustee herein; and Section 6.04 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Issuer, and neither the Trustee nor any Authenticating Agent or Paying Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder, and that the statements made by it or to be made by it in a Statement of Eligibility and Qualification on Form T-1 supplied to the Issuer are true and accurate. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Issuer of Securities or the proceeds thereof. Section 6.05 MAY HOLD SECURITIES. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Issuer, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Issuer with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. Section 6.06 MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder (including amounts held by the Trustee as Paying Agent) need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing with the Issuer. Section 6.07 COMPENSATION AND REIMBURSEMENT. The Issuer agrees: (1) to pay to the Trustee from time to time reasonable compensation as agreed in writing between the Issuer and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with the provisions of this Indenture and 43 any other document executed in connection herewith (including the reasonable compensation and the expenses and disbursements of its agents, counsel and all other persons not regularly in its employ), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee and its officers, directors, employees, representatives and agents for, and to hold it and them harmless against, and reimburse it and them for any obligation, injuries (to person, property, or natural resources), penalty, action, suit, judgment, reasonable cost and expense (including reasonable attorney's and agent's fees and expenses), loss, liability, damage, claim or expense, including taxes (other than taxes based upon or determined or measured by the income of the Trustee), of whatever kind or nature, regardless of their merit incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(5) or Section 5.01(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Bankruptcy Law. The provisions of this Section 6.07 shall survive the satisfaction and discharge of this Indenture and the resignation or removal of the Trustee. Section 6.08 DISQUALIFICATION; CONFLICTING INTERESTS. The Trustee shall be disqualified only where such disqualification is required by Section 310(b) of the Trust Indenture Act. Nothing shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act. Section 6.09 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a combined capital and surplus (together with its parent) of at least $100,000,000 and subject to supervision or examination by federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither of the Issuer nor any Person directly or indirectly controlling, controlled by, or under common control with the Issuer may serve as Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 6.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. 44 (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Issuer. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Issuer. (d) If at any time: (i) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Issuer or by any Holder who has been a bona fide Holder of a Security of such series of Securities for at least six months unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 310(b) of the TIA; (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Issuer or by any such Holder of a Security who has been a bona fide Holder of a Security of such series of Securities for at least six months; or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (i) the Issuer by Board Resolutions may remove the Trustee with respect to all Securities, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a bona fide Holder of a Security of such series of Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Issuer, by Board Resolutions, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply 45 with the applicable requirements of Section 6.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Issuer and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Issuer with respect to such Securities. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Issuer or the Holders and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Issuer shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 6.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Issuer and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Issuer or the successor Trustee, such retiring Trustee shall, upon payment of fees, expenses and indemnification amounts, if any, then due and payable, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of some (but not all) series, the Issuer, the retiring Trustee and each successor Trustee with respect to the Securities of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall 46 be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Issuer or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Issuer shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under the Trust Indenture Act and this Article 6. Section 6.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, PROVIDED such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor (by merger, conversion, consolidation or otherwise as permitted hereunder) to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. 47 Section 6.14 APPOINTMENT OF AUTHENTICATING AGENT. At any time when any of the Securities remain Outstanding the Trustee, at the expense of the Issuer, may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of, and subject to the direction of, the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Issuer and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus (together with its parent) of not less than $100,000,000 and subject to supervision or examination by federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, PROVIDED such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the parties hereto or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Issuer. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Issuer and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of 48 its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Issuer agrees to pay to each Authenticating Agent from time to time reasonable compensation as negotiated between the Issuer and such Authenticating Agent for its services under this Section. If an appointment with respect to one or more series of Securities is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: Form of Authenticating Agent's Certificate of Authentication Dated: _______________ This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. _________________________________________ As Trustee By _________________________________________ As Authenticating Agent By _________________________________________ As Authorized Signatory Section 6.15 COMPLIANCE WITH TAX LAWS. The Trustee hereby agrees to comply with all U.S. Federal income tax information reporting and withholding requirements applicable to it with respect to payments of premium, other amounts (if any) and interest on the Securities of any series, whether acting as Trustee, Security Registrar, Paying Agent or otherwise with respect to the Securities of any series. ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER Section 7.01 ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS. With respect to each series of Securities, the Issuer will furnish or cause to be furnished to the Trustee therefor: 49 (a) semi-annually, not later than 15 days after the Regular Record Date for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date (unless the Trustee has such information), or if there is no Regular Record Date for interest for such series of Securities, semi-annually, upon such dates as are set forth in the Series Supplement for such series, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; PROVIDED, HOWEVER, that so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. Section 7.02 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar, if so acting for the relevant series of Securities. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) If three or more Holders of Securities of any particular series (herein referred to as "APPLICANTS") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of that series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of that series with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either: (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a); or (ii) inform such applicants as to the approximate number of Holders of Securities of that series whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of Securities of that series whose name and address appears in the information preserved at the time by the Trustee in accordance with Section 7.02(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable 50 promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Securities of that series or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Every Holder of Securities of such series, by receiving and holding the same, agrees with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of the Securities of such series in accordance with Section 7.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 7.02(b). Section 7.03 REPORTS BY TRUSTEE. (a) Within 60 days after May 15 of each year commencing with the year 2004, the Trustee shall transmit by mail to all Holders of Securities of each series as provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of such reporting date, if required by and in compliance with Section 313(a) of the Trust Indenture Act. The Trustee shall also comply with Section 313(b) of the Trust Indenture Act. (b) A copy of each such report shall, at the time of such transmission to Holders of Securities of a series, be filed by the Trustee with each stock exchange or inter-dealer quotation system upon which any Securities are listed, with the Commission and with the Issuer. The Issuer will notify the Trustee when any Securities are listed on any stock exchange or any inter-dealer quotation system. Section 7.04 REPORTS BY THE ISSUER. The Issuer shall: (1) file with the Trustee, within 15 days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Issuer is not required to file information, documents or 51 reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; and (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations. ARTICLE 8 CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER Section 8.01 CERTAIN REQUIREMENTS IN RESPECT TO MERGERS, ETC. The Issuer will not merge, amalgamate or consolidate with or into any other Person, or sell, assign, lease, convey or otherwise transfer all or substantially all of its property and assets to any other Person, or change the jurisdiction under whose laws the Issuer is organized and existing (a "REINCORPORATION"), unless, in any such case: (a) either (i) the Issuer shall be the surviving corporation in the case of a merger (which term, as used in this Section 8.01, shall not include an amalgamation or consolidation) and, immediately after such merger, shall remain a corporation organized and validly existing under the laws of the same jurisdiction in which it was organized and existing immediately prior to such merger or (ii) the Person formed by such amalgamation or consolidation, or into which the Issuer is merged, or to which the Issuer has sold, assigned, leased, conveyed or otherwise transferred all or substantially all of its property and assets, or resulting from such Reincorporation is a corporation (the "SUCCESSOR CORPORATION") organized and validly existing under the laws of its applicable jurisdiction and shall expressly assume, by supplemental indenture executed by such successor corporation and delivered by it to the Trustee, the due and punctual payment of the principal of and premium, if any,) and interest on, and all other amounts (including, without limitation, Additional Amounts and Reorganization Additional Amounts (as hereinafter defined), if any, and sinking fund payments, if any, payable in respect of, the Securities and the due and punctual performance and observance of all other covenants and conditions contained in this Indenture and the Securities to be performed or observed by the Issuer (including, without limitation, the appointment of an agent for service of process in the United States of America); PROVIDED that no such supplemental indenture shall be required pursuant to the provisions of this clause (a) if (1) the transaction in question is an amalgamation of the Issuer with any one or more other corporations, which amalgamation is governed by the statutes of Canada or any province thereof, as applicable, (2) the successor corporation is and, immediately prior to such amalgamation, the Issuer was organized and existing under the laws of Canada or any province thereof, (3) upon the effectiveness of such amalgamation, the successor corporation shall have 52 become or shall continue to be (as the case may be), by operation of law and as expressly provided by the statutes of Canada or any province thereof (as the case may be) applicable to such amalgamation, liable for the due and punctual payment of the principal of and premium, if any, and interest on, and all other amounts (including, without limitation, Additional Amounts, if any, and Reorganization Additional Amounts, if any, and sinking fund payments, if any,) payable in respect of, the Securities and the due and punctual performance and observance of all other covenants and conditions contained in this Indenture and the Securities to be performed or observed by the Issuer (including, without limitation, the appointment of an agent for service of process in the United States of America), and (4) the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect set forth in clauses (1) through (3) above; (b) the Trustee has received an Opinion of Counsel that such transaction is upon such terms as substantially to preserve and not to prejudice any of the rights and powers of the Trustee or of the Holders of Securities; (c) there shall exist no condition or event either at the time of or immediately following such transaction, as to either the Issuer or the successor corporation, which constitutes or would with the passage of time or giving of notice or both constitute an Event of Default under this Indenture; (d) the Issuer shall have delivered to the Trustee an opinion of outside counsel of nationally recognized standing with respect to matters of Canadian federal income taxation to the effect that (i) the holders of the Securities will not recognize income, gain or loss for Canadian federal income tax purposes as a result of such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation, (ii) after such transaction, any payment or credit by the Issuer or the successor corporation, as applicable, of the principal of, or premium, if any, or interest on, or any other amount payable under or in respect of, the Securities to any Holder thereof will be exempt from Canadian withholding tax if the Holder, for purposes of the INCOME TAX ACT (Canada) (or any successor law) is or is deemed to be a non-resident of Canada and deals at arms-length with the Issuer at the time of such payment or credit, as applicable, and (iii) after such transaction, Holders of the Securities will be subject to Canadian federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred; and (e) the Issuer shall have delivered to the Trustee an Officer's Certificate of the Issuer and an Opinion of Counsel each stating that such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Indenture and that all conditions precedent in this Indenture relating to such transaction have been complied with; provided that, if the successor corporation is not organized and validly existing under the laws of the United States of America or any State thereof or the District of Columbia or Canada or any province of Canada, such successor corporation shall expressly agree, in a supplemental indenture executed by such successor corporation, (i) 53 to indemnify and hold harmless each Holder of any Securities from and against (x) any and all present and future taxes, duties, levies, imposts, fees, assessments or other governmental charges (including penalties, interest and other liabilities related thereto) (collectively "TAXES") of whatever nature which may be imposed on such Holder or required to be withheld or deducted from any payment to such Holder as a consequence of such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation and (y) any and all costs and expenses arising out of or relating to such merger, amalgamation, consolidation, sale, assignment, lease, conveyance, transfer or Reincorporation, and (ii) that the principal of, and premium, if any, and interest on, and any and all other amounts payable under or in respect of, the Securities will be paid without withholding or deduction for or on account of any present or future Taxes of whatever nature imposed, levied, withheld, assessed or collected by or on behalf of the jurisdiction or jurisdictions in which such successor corporation is organized, is resident or is deemed for tax purposes to be resident (each such jurisdiction being hereinafter called an "APPLICABLE JURISDICTION") or any political subdivision or taxing authority of or in any Applicable Jurisdiction unless such Taxes are required by any Applicable Jurisdiction or any political subdivision or taxing authority thereof or therein to be withheld or deducted, in which case such successor corporation will pay such additional amounts ("REORGANIZATION ADDITIONAL AMOUNTS") as may be necessary in order that the net amount paid to each Holder of any Securities, after such deduction or withholding, will not be less than the amount which such Holder would have received in accordance with the terms of the Securities and this Indenture if no such deduction or withholding had been required. Whenever there is mentioned herein or in any Securities, in any context, the payment of the principal of, or premium, if any, or interest on, or in respect of, any Security, such mention shall be deemed to include mention of the payment of Reorganization Additional Amounts to the extent that, in such context, Reorganization Additional Amounts are, were or would be payable in respect thereof pursuant to this Indenture, and express mention of the payment of Reorganization Additional Amounts in any instance shall not be construed as excluding Reorganization Additional Amounts in those instances where such express mention is not made. Section 8.02 VESTING OF POWERS IN SUCCESSOR. Upon any consolidation by the Issuer with or merger by the Issuer into any other corporation or other entity or any conveyance, transfer or lease of all or substantially all of the property and assets of the Issuer as an entirety or substantially as an entirety in accordance with Section 8.01, the successor corporation or other entity formed by such consolidation or into which the Issuer is merged or the successor corporation or entity or affiliated group of corporations or entities to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such successor corporation or corporations or entity or entities had been named as the Issuer herein, and thereafter, except in the case of a lease, the predecessor corporation or corporations or entity or entities shall be relieved of all obligations and covenants under this Indenture and the Securities and in the event of such consolidation, merger, conveyance or transfer, except in the case of a lease, any such predecessor corporation may be dissolved and liquidated. 54 Section 8.03 REORGANIZATION ADDITIONAL AMOUNTS. (a) The Issuer covenants and agrees that, if the Issuer becomes obligated to pay Reorganization Additional Amounts with respect to the Securities, the Issuer will (i) at least 10 days prior to each date on which any payment under or with respect to the Securities is due and payable, deliver to the Trustee an Officer's Certificate specifying the amount required to be withheld or deducted in respect of the relevant Taxes, specifying the amount of Reorganization Additional Amounts that will be so payable, and setting forth such other information as is necessary to enable the Trustee to pay such Reorganization Additional Amounts to the Holders of the Securities on the relevant payment date; (ii) pay such Taxes on or prior to the date for payment thereof, and (iii) within 15 days after paying the amount referred to in clause (ii) of this sentence, deliver to the Trustee evidence of such payment and remittance thereof to the relevant Applicable Jurisdiction or political subdivision or taxing authority thereof or therein. The Issuer also covenants and agrees to furnish to each Holder of any Securities and, in the case of Securities in global form, each beneficial owner of any interest therein (by mail sent to its registered address or, in the case of any such beneficial owner, to the address provided by such beneficial owner to the Trustee or the Issuer for such purpose) a receipt for any Taxes deducted within 30 days after the date the same are due pursuant to applicable law or regulation; PROVIDED, HOWEVER, that if no such time is prescribed by applicable law or regulation, the Issuer has agreed to furnish such information as soon as practicable but in any event prior to the last day of February in the calendar year subsequent to the calendar year of payment. (b) No Reorganization Additional Amounts will be payable with respect to a payment made to a Holder (such Holder, a "REORGANIZATION EXCLUDED HOLDER") in respect of the beneficial owner thereof: (1) which is subject to the relevant Taxes by reason of the Holder being a resident, domiciliary or national of, or engaged in business or maintaining a permanent establishment or other physical presence in or otherwise having some connection with the Applicable Jurisdiction or any political subdivision thereof otherwise than by the mere holding of Securities or the receipt of payments thereunder; or (2) which is subject to the relevant Taxes by reason of its failure to comply with any certification, identification, information, documentation or other reporting requirement if compliance is required by law, regulation, administrative practice or an applicable treaty as a precondition to exemption from, or a reduction in, the rate of deduction or withholding of, such Taxes (provided, that in the case of any change in such certification, identification, information, documentation or other reporting requirement which applies generally to Holders of Securities who are not resident in the Applicable Jurisdiction, at least 60 days prior to any such change, the Issuer shall have notified the Trustee, in writing, of such change and provided the Trustee with such forms or documentation, if any, as the Holders of the Securities may require to comply with 55 such certification, identification, information, documentation, or other reporting requirement). (c) The Issuer will indemnify and hold harmless each Holder (other than a Reorganization Excluded Holder) and, upon written request, reimburse each such Holder for the amount, excluding any Reorganization Additional Amounts that have previously been paid by the Issuer with respect thereto, of: (1) any Taxes levied or imposed by the Applicable Jurisdiction, as described in Section 8.01(e)(ii) and paid by such Holder as a result of payments made under or with respect to the Securities; (2) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; and (3) any Taxes imposed by the Applicable Jurisdiction with respect to any reimbursement under clause (1) or (2) in this paragraph. (d) The Issuer covenants and agrees to indemnify the Trustee and each Paying Agent for, and to hold each of them harmless from and against, any and all loss, liability, claim, damage and expense incurred without negligence or willful misconduct on such Person's part and arising out of or in connection with actions taken or omitted by any of them in reliance on any Officer's Certificate furnished pursuant to the foregoing paragraph Section 8.03(a) or the failure of the Trustee or any Paying Agent for any reason (other than its own negligence or willful misconduct) to receive on a timely basis such Officer's Certificate or any information or documentation requested by it or otherwise required by applicable law or regulation to be obtained, furnished or filed in respect of any Taxes. (e) The obligations of the Issuer under this Section 8.03 shall survive the payment of the Securities, the resignation or removal of the Trustee or any Paying Agent and the defeasance, discharge, satisfaction or other termination of this Indenture. ARTICLE 9 SUPPLEMENTAL INDENTURES Section 9.01 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without notice to or the consent of any Holders, the Issuer, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Issuer and the assumption by any such successor of the covenants of the Issuer herein and in the Securities; 56 (2) to add to the covenants of the Issuer for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Issuer; (3) to add any additional Events of Default with respect to all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); (4) to add or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons; provided, however, that any such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect; (5) to change or eliminate any of the provisions of this Indenture, PROVIDED that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; (6) to secure any or all of the Securities; (7) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); (9) to cure any ambiguity, defect or inconsistency or to correct or supplement any provision herein which may be inconsistent with any other provision herein or to qualify or maintain the qualification of the Indenture under the Trust Indenture Act; (10) to make any change that does not materially adversely affect the interests of the Holders of Securities of any series then Outstanding; or (11) to provide for uncertificated Securities in addition to or in place of certificated Securities (PROVIDED that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of such Code). Upon request of the Issuer, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture, and upon receipt by the 57 Trustee of the documents described in (and subject to the last sentence of) Section 9.03, the Trustee shall join with the Issuer in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture. Section 9.02 SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the written consent of the Holders of a majority in aggregate principal amount of the Outstanding Securities of each series affected by such supplemental indenture (with the Securities of each series voting as a class), by Act of said Holders delivered to the Issuer and the Trustee, the Issuer, when authorized by Board Resolutions, and the Trustee shall, subject to Section 9.03, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or premium, other amounts, if any, or any installment of principal of or premium, other amounts, if any, or interest on, any Security, or reduce the principal amount (or accreted value, as the case may be) thereof or the rate of interest thereon or accretions or any premium or other amounts payable upon the redemption, repurchase or repayment thereof, or change the manner in which the amount of any of the foregoing is determined, or reduce the amount of the principal (or accreted value, as the case may be) that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, or change any Place of Payment where, or the Applicable Currency for, or impair the right to receive payment of principal of a premium, interest or other amounts, if any, on any Holder's Securities on or after their respective due dates or to institute suit for the enforcement of any such payment; (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or Defaults or Events of Default hereunder and their consequences provided for in this Indenture; (3) modify any of the provisions of this Section or Sections 5.07, 5.13 or 10.06, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 10.06, or the deletion of this proviso, in accordance with the requirements of Sections 6.11(b) and 9.01(8); (4) modify any conversion ratio or otherwise impair conversion rights with respect to such Outstanding Securities, except as expressly permitted by the terms of such Outstanding Securities; 58 (5) modify any redemption provisions applicable to such Outstanding Securities; (6) directly or indirectly release any of the collateral or security interest in respect of such Outstanding Securities, except as expressly permitted by the terms of such Outstanding Securities; (7) modify the subordination provisions applicable to the Outstanding Securities or the definition of "Senior Indebtedness" in a manner adverse to the Holders of the Outstanding Securities; or (8) change any obligations to pay additional amounts provided in the terms of such Outstanding Securities. A supplemental indenture which changes or eliminates any covenant or other provisions of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.03 EXECUTION OF SUPPLEMENTAL INDENTURES. The Trustee shall sign any supplemental indenture authorized pursuant to this Article, subject to the last sentence of this Section 9.03. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.04 EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 9.05 CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. 59 Section 9.06 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Issuer shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. Section 9.07 SUBORDINATION UNIMPAIRED. This Indenture may not be amended to alter the subordination of any of the Outstanding Securities without the written consent of each holder of Senior Indebtedness then outstanding that would be adversely affected thereby. ARTICLE 10 COVENANTS Section 10.01 PAYMENT OF SECURITIES. With respect to each series of Securities, the Issuer will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series. Section 10.02 MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain an office or agency in each Place of Payment where Securities may be surrendered for registration of transfer or exchange or for presentation for payment, where notices and demands to or upon the Issuer in respect of the Securities and this Indenture may be served. The Issuer will give prompt written notice to the Trustee of the location, and any change in location, of such office or agency. If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 1.05 hereof. The Issuer may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Issuer will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. If Securities of any series are issued in definitive certificated form, or if the Depositary for such Securities shall so require, the Issuer will maintain a paying agent and transfer agent for such Securities in New York. Section 10.03 COMPLIANCE CERTIFICATES. 60 (a) The Issuer shall deliver to the Trustee within 120 days after the end of each fiscal year of the Issuer (which fiscal year currently ends on December 31), an Officer's Certificate stating (i) that a review of the activities of the Issuer during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Issuer and its Subsidiaries has kept, observed, performed and fulfilled its obligations under this Indenture, (ii) that, as to each such Officer signing such Officer's Certificate, to the best of his or her knowledge, the Issuer and its Subsidiaries has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and (ii) whether or not the signer knows of any Default or Event of Default by the Issuer that occurred prior to the end of the fiscal year and is then continuing. If the signer does know of such a Default or Event of Default, the certificate shall describe each such Default or Event of Default and its status and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. The Issuer shall also promptly notify the Trustee in writing should the Issuer's fiscal year be changed so that the end thereof is on any date other than the date on which the Issuer's fiscal year currently ends. The certificate need not comply with Section 1.02 hereof, but shall comply with Section 314(a)(4) of the Trust Indenture Act. (b) The Issuer shall deliver to the Trustee forthwith upon becoming aware of a Default or Event of Default (but in no event later than 10 days after the occurrence of each Default or Event of Default that is continuing), an Officer's Certificate setting forth the details of such Default or Event of Default and the action that the Issuer proposes to take with respect thereto and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. Section 10.04 MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the Issuer shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium and other amounts, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum, in the Applicable Currency, sufficient to pay the principal (and premium and other amounts, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Issuer shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of (and premium and other amounts, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum, in the Applicable Currency, sufficient to pay the principal (and premium and other amounts, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium, other amounts, if any, or interest, and (unless such Paying Agent is the Trustee) the Issuer will promptly notify the Trustee of their action or failure to so act. The Issuer will cause each Paying Agent for any series of Securities (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: 61 (1) hold all sums held by it for the payment of the principal of (and premium and other amounts, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Issuer (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium and other amounts, if any) or interest on the Securities of that series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Issuer Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Issuer or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Issuer or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Issuer, in trust for the payment of the principal of (and premium and other amounts, if any) or interest on any Security of any series and remaining unclaimed for one year after such principal (and premium and other amounts, if any) or interest has become due and payable shall, subject to any applicable escheat laws, be paid to the Issuer on Issuer Request, or (if then held by the Issuer) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuer as trustees thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York, New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. Section 10.05 ADDITIONAL AMOUNTS. (a) Unless otherwise provided pursuant to Section 3.01, all payments made by or on behalf of the Issuer under or with respect to the Securities of any series will be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax (hereinafter "CANADIAN 62 TAXES"), unless the Issuer is required to withhold or deduct Canadian Taxes by law or by the interpretation or administration thereof by the relevant governmental authority or agency. If the Issuer is so required to withhold or deduct any amount for or on account of Canadian Taxes from any payment made under or with respect to the Securities, the Issuer will pay to each Holder as additional interest such additional amounts ("ADDITIONAL AMOUNTS") as may be necessary so that the net amount received by each Holder after such withholding or deduction (and after deducting any Canadian Taxes on such Additional Amounts) will not be less than the amount the Holder would have received if such Canadian Taxes had not been withheld or deducted. However, no Additional Amounts will be payable with respect to a payment made to a Holder (such Holder, an "EXCLUDED HOLDER") in respect of the beneficial owner thereof: (1) with which the Issuer does not deal at arm's length for the purposes of the INCOME TAX ACT (Canada) at the time of the making of such payment; (2) which is subject to such Canadian Taxes by reason of the Holder being a resident, domicile or national of, or engaged in business or maintaining a permanent establishment or other physical presence in or otherwise having some connection with Canada or any province thereof otherwise than by the mere holding of Securities or the receipt of payments thereunder; or (3) which is subject to such Canadian Taxes by reason of its failure to comply with any certification, identification, information, documentation or other reporting requirement if compliance is required by law, regulation, administrative practice or an applicable treaty as a precondition to exemption from, or a reduction in, the rate of deduction or withholding of, such Canadian Taxes (PROVIDED, that in the case of any change in such certification, identification, information, documentation or other reporting requirement which applies generally to Holders of Securities who are not resident in Canada, at least 60 days prior to any such change, the Issuer shall have notified the Trustee, in writing, of such change and provided the Trustee with such forms or documentation, if any, as the Holders of the Securities may require to comply with such certification, identification, information, documentation, or other reporting requirement). The Issuer will also: (i) make such withholding or deduction; and (ii) remit the full amount deducted or withheld to the relevant authority as and when required in accordance with applicable law. The Issuer will furnish to the Holders of the Securities, within 30 days after the date the payment of any Canadian Taxes is due pursuant to applicable law, certified copies of tax receipts or other documents evidencing such payment by the Issuer. 63 (b) The Issuer will indemnify and hold harmless each Holder (other than an Excluded Holder) and, upon written request, reimburse each such Holder for the amount, excluding any Additional Amounts that have previously been paid by the Issuer with respect thereto, of: (1) any Canadian Taxes so levied or imposed and paid by such Holder as a result of payments made under or with respect to the Securities; (2) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; and (3) any Canadian Taxes imposed with respect to any reimbursement under clause (1) or (2) in this paragraph. At least ten (10) days prior to each date on which any payment under or with respect to the Securities is due and payable, if the Issuer will be obligated to pay Additional Amounts with respect to such payment, the Issuer will deliver to the Trustee an Officer's Certificate stating the fact that such Additional Amounts will be payable and specifying the amounts so payable and will set forth such other information necessary to enable the Trustee to pay such Additional Amounts to Holders on the payment date. Wherever in this Indenture there is mentioned, in any context, the payment of principal (and premium, if any), interest or any other amount payable under or with respect to a Security, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The obligations of the Issuer under this Section 10.05 shall survive the payment of the Securities, the resignation or removal of the Trustee or any Paying Agent and the defeasance, discharge, satisfaction or other termination of this Indenture. Section 10.06 WAIVER OF CERTAIN COVENANTS. The Issuer may omit in any particular instance to comply with any term, provision or condition set forth in Article 8, Article 10 (other than as required under the Trust Indenture Act) or any covenant specified as contemplated under Section 3.01 with respect to the Securities of any series if before the time for such compliance the Holders of not less than a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Issuer and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. 64 ARTICLE 11 REDEMPTION OF SECURITIES Section 11.01 APPLICABILITY OF ARTICLE. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.01 for Securities of any series) in accordance with this Article; PROVIDED, HOWEVER, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. Section 11.02 ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Issuer to redeem any Securities shall be evidenced by Board Resolutions. In case of any redemption at the election of the Issuer of less than all the Securities of any series, the Issuer shall, at least 30 and not more than 60 days prior to the Redemption Date fixed by the Issuer (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Issuer shall furnish the Trustee with Officer's Certificates evidencing compliance with such restriction. Section 11.03 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less than all the Securities of any series are to be redeemed, the particular Securities to be redeemed shall be selected prior to the giving of the applicable notice of redemption to Holders by the Trustee, from the Outstanding Securities of such series not previously called for redemption, substantially pro rata, by lot or by any other method as the Trustee considers fair and appropriate and that complies with the requirements of the principal national securities exchange, if any, on which such Securities are listed, and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series; PROVIDED that in case the Securities of such series have different terms and maturities, the Securities to be redeemed shall be selected by the Issuer, and the Issuer shall give notice thereof to the Trustee. The Trustee shall promptly notify the Issuer in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of the Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. Section 11.04 NOTICE OF REDEMPTION. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior 65 to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price; (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed; (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest or original issue discount thereon will cease to accrue or accrete on and after said date; (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price; (6) that the redemption is for a sinking fund, if such is the case; and (7) the CUSIP number, if any, of the Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Issuer shall be given by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer. Section 11.05 DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date, the Issuer shall deposit with the Trustee or with a Paying Agent (or, if the Issuer is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.04) an amount of money in the Applicable Currency sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. Unless any Security by its terms prohibits any sinking fund payment obligation from being satisfied by delivering and crediting Securities (including Securities redeemed otherwise than through a sinking fund), the Issuer may deliver such Securities to the Trustee for crediting against such payment obligation in accordance with the terms of such Securities and this Indenture. Section 11.06 SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the Applicable Currency, and from and after such date (unless the Issuer shall default in the payment of the Redemption Price or accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Issuer at the Redemption Price, together with 66 accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date or Special Record Date according to their terms and the provisions of Section 3.07. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium and other amounts, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 11.07 SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Issuer at a Place of Payment therefor (with, if the Issuer or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Issuer and the Security Registrar therefor duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Issuer shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity, of any authorized denomination as requested by such Holder, and having the same terms and conditions and in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. Section 11.08 TAX REDEMPTION. Unless otherwise specified pursuant to Section 3.01, the Issuer shall have the right to redeem, at any time, the Securities of a series, in whole but not in part, at a redemption price equal to the principal amount thereof together with accrued and unpaid interest to the date fixed for redemption, upon the giving of a notice as described below, if (1) the Issuer determines that (a) as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of Canada or the Applicable Jurisdiction or of any political subdivision or taxing authority thereof or therein affecting taxation, or any change in the official position regarding the application or interpretation of such laws, regulations or rulings (including a holding by a court of competent jurisdiction), which change or amendment is announced or becomes effective on or after a date or dates specified pursuant to Section 3.01, if any date is so specified, the Issuer has or will become obligated to pay, on the next succeeding date on which interest is due, Additional Amounts pursuant to Section 10.05 or Reorganization Additional Amounts pursuant to Section 8.01 or there is more than an insubstantial risk that the Issuer could be denied the deduction of interest paid or payable in respect of the Securities in computing the Issuer's income for the purposes of the INCOME TAX ACT (Canada) or a Canadian provincial or territorial income tax statute, or (b) on or after a date or dates specified pursuant to Section 3.01, any action has been taken by any taxing authority of, or any decision has been rendered by a court of competent jurisdiction in, Canada or the Applicable Jurisdiction or any political subdivision or taxing authority thereof or therein, including any of those actions specified in (a) above, whether or not such action was taken or decision was rendered with respect to the Issuer, or any change, amendment, application or interpretation shall be officially proposed, which, in any such case, in the Opinion of Counsel to the Issuer, will result in 67 the Issuer becoming obligated to pay, on the next succeeding date on which interest is due, Additional Amounts or Reorganization Additional Amounts with respect to any Security of such series or there is more than an insubstantial risk that the Issuer could be denied the deduction of interest paid or payable in respect of the Securities in computing the Issuer's income for the purpose of the INCOME TAX ACT (Canada) or a Canadian provincial or territorial income tax statute, and (2) in any such case, the Issuer in its business judgment determines that any such obligation under paragraph (1) above cannot be avoided by the use of reasonable measures available to the Issuer; PROVIDED, HOWEVER, that (i) no such notice of redemption may be given earlier than 60 nor later than 30 days prior to the earliest date on which the Issuer would be obligated to pay such Additional Amounts or Reorganization Additional Amounts were a payment in respect of the Securities then due or on which the Issuer would be denied the deduction of interest paid or payable in respect of the Securities, and (ii) at the time such notice of redemption is given, such obligation to pay such Additional Amounts or Reorganization Additional Amounts or such denial of the deductibility of interest remains in effect. ARTICLE 12 SINKING FUNDS Section 12.01 APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise specified as contemplated by Section 3.01 for Securities of such series; PROVIDED, HOWEVER, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "MANDATORY SINKING FUND PAYMENT," and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "OPTIONAL SINKING FUND PAYMENT." If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. Section 12.02 SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The Issuer (1) may deliver Outstanding Securities of a series (other than any Securities previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Issuer pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; PROVIDED that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price 68 specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. Section 12.03 REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 45 days (or such shorter period reasonably acceptable to the Trustee) prior to each sinking fund payment date for any series of Securities, the Issuer will deliver to the Trustee an Officer's Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the Applicable Currency and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 12.02 and will also deliver to the Trustee any Securities to be so delivered (which have not been previously delivered). Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Issuer in the manner provided in Section 11.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.06 and 11.07. ARTICLE 13 DEFEASANCE AND COVENANT DEFEASANCE Section 13.01 APPLICABILITY OF ARTICLE; ISSUER'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. Unless as otherwise specified as contemplated by Section 3.01 for Securities of such series, provision is made for the inapplicability of, in whole or in part, or any modification to, either or both of (a) defeasance of the Securities of a series under Section 13.02 or (b) covenant defeasance of the Securities of a series under Section 13.03, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article, shall be applicable to the Securities of such series and the Issuer may at their option by Board Resolutions of the Issuer, at any time, with respect to the Securities of such series elect to have either Section 13.02 (unless inapplicable) or Section 13.03 (unless inapplicable) be applied to the Outstanding Securities of such series upon compliance with the applicable conditions set forth below in this Article. Section 13.02 DEFEASANCE AND DISCHARGE. Upon the exercise of the option provided in Section 13.01 to defease the Outstanding Securities of a particular series, the Issuer shall be discharged from its obligations with respect to the Outstanding Securities of such series on the date the applicable conditions set forth in Section 13.04 are satisfied (hereinafter, "DEFEASANCE"). Defeasance shall mean that the Issuer shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Issuer, shall execute proper instruments acknowledging the same); PROVIDED, HOWEVER, that the following rights, obligations, powers, trusts, duties, 69 immunities and indemnities shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities of such series to receive, solely from the trust fund provided for in Section 13.04, payments in respect of the principal of (and premium and other amounts, if any) and interest on such Securities when such payments are due, (B) the Issuer's obligations with respect to such Securities under Sections 1.15, 3.04, 3.05, 3.06, 3.07, 7.01, 7.02, 8.03, 10.02, the last paragraph of Sections 10.04, 10.05, Sections 13.05 and 13.06 as well as any obligation under the terms of the Securities of such series to maintain a registrar or paying agent, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuer's obligations with respect therewith, and (D) this Article. Subject to compliance with this Article, the Issuer may exercise its option with respect to defeasance under this Section 13.02 notwithstanding the prior exercise of its option with respect to covenant defeasance under Section 13.03 in regard to the Securities of such series. Section 13.03 COVENANT DEFEASANCE. Upon the exercise of the option provided in Section 13.01 to obtain a covenant defeasance with respect to the Outstanding Securities of a particular series, the Issuer shall be released from its obligations under the covenants contained in Article 10 (other than the covenants contained in Sections 10.01, 10.02, 10.03(b), 10.05, 10.06 and the last paragraph of Section 10.04) of this Indenture and, if specified pursuant to any applicable Series Supplement, its obligations under any other covenant, with respect to the Outstanding Securities of such series on and after the date the applicable conditions set forth in Section 13.04 are satisfied (hereinafter, "COVENANT DEFEASANCE"). Covenant defeasance shall mean that, with respect to the Outstanding Securities of such series, the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenants, whether directly or indirectly by reason of any reference elsewhere herein or by reason of any reference to any other provision herein or in any other document, and such omission to comply shall not constitute an Event of Default under Section 5.01(4) or any such Series Supplement with respect to Outstanding Securities of such series, and the remainder of this Indenture and of the Securities of such series shall be unaffected thereby. Section 13.04 CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to defeasance under Section 13.02 and covenant defeasance under Section 13.03 with respect to the Outstanding Securities of a particular series: (1) The Issuer shall irrevocably have deposited or caused to be deposited with the Trustee, under the terms of an irrevocable trust agreement in form and substance reasonably satisfactory to such Trustee, as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in the Applicable Currency in an amount, or (B) if the Applicable Currency of such Securities is U.S. dollars, U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, in each case 70 sufficient, after payment of all applicable federal, provincial, territorial, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium and other amounts, if any, on) and each installment of principal of (and premium and other amounts, if any) and interest on the Outstanding Securities of such series on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities. Notwithstanding anything herein to the contrary, the Issuer shall be entitled to direct the Trustee to use, and the Trustee shall thereafter cause, the trust funds deposited in accordance with the first sentence of this Section 13.04(1) to effect a redemption in accordance with Section 11.08 hereof. (2) No Default or Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit or, in the case of bankruptcy or insolvency proceedings, at any time during the period ending on the day which is the later of (i) three months and one day after the date of such deposit and (ii) 91 days after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) the Issuer shall have delivered to the Trustee an Officer's Certificate stating that the deposit was not made by the Issuer with the intent of preferring the holders of the Securities over the other creditors of the Issuer, with the intent of defeating, hindering, delaying or defrauding creditors of the Issuer or others. (4) Such deposit, defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under this Indenture, or any other material debt agreement or instrument to which the Issuer is a party or by which it is bound. (5) In the case of an election with respect to Section 13.02, the Issuer shall have delivered to the Trustee (A) an Opinion of Counsel, such counsel to be a U.S. Person, based on a ruling from the Internal Revenue Service or on a change in the applicable U.S. federal income tax law since the date of this Indenture, in either case to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred and (B) an Opinion of Counsel, such counsel to be a Canadian Person, to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Canadian federal income tax purposes as a result of such defeasance and will be subject to Canadian federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. 71 (6) In the case of an election with respect to Section 13.03, the Issuer shall have delivered to the Trustee (A) an Opinion of Counsel, such counsel to be a U.S. Person, to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred and (B) an Opinion of Counsel, such counsel to be a Canadian Person, to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Canadian federal income tax purposes as a result of such defeasance and will be subject to Canadian federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (7) In the case of an election with respect to Section 13.02, the Issuer shall have delivered to the Trustee an Opinion of Counsel, such counsel to be a Canadian Person, to the effect that any payment or credit by the Issuer of the principal of or interest on the Securities to a holder thereof will be exempt from Canadian withholding tax if the holder thereof, for the purposes of the INCOME TAX ACT (Canada) (or any successor law) is or is deemed to be a non-resident of Canada and deals at arm's length with the Issuer at the time of such payment or credit. (8) In the case of an election with respect to Section 13.03, the Issuer shall have delivered to the Trustee an Opinion of Counsel, such counsel to be a Canadian Person, to the effect that any payment or credit by the Issuer of the principal of or interest on the Securities to a holder thereof will be exempt from Canadian withholding tax if the holder thereof, for the purposes of the INCOME TAX ACT (Canada) (or any successor law) is or is deemed to be a non-resident of Canada and deals at arm's length with the Issuer at the time of such payment or credit. (9) Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Issuer in connection therewith pursuant to Section 3.01. (10) The Issuer shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 13.02 or the covenant defeasance under Section 13.03 (as the case may be) have been complied with. Section 13.05 DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST. Subject to the provisions. of the last paragraph of Section 10.04, all money and Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 13.05, the "TRUSTEE") pursuant to Section 13.04 in respect of the Outstanding Securities of a particular series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in 72 respect of principal (and premium and other amounts, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Issuer shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 13.04 or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities of such series. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuer from time to time upon Issuer Request any money or Government Obligations held by it as provided in Section 13.04 with respect to Securities of any series which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited for the purpose for which such money or Government Obligations were deposited. Section 13.06 REINSTATEMENT. If the Trustee or the Paying Agent is unable to apply any money or U.S. Government Obligations, as the case may be, in accordance with this Article with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, including, without limitation, any prohibition imposed as a result of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally under any applicable United States federal or State laws, then the obligations under this Indenture and such Securities from which the Issuer has been discharged or released pursuant to Section 13.02 or 13.03 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money or U.S. Government Obligations, as the case may be, held in trust pursuant to Section 13.05 with respect to such Securities in accordance with this Article; PROVIDED, HOWEVER, that if the Issuer makes any payment of principal of or any premium, other amounts, if any, or interest on any such Security following such reinstatement of its obligations, the Issuer shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations, as the case may be, so held in trust. ARTICLE 14 SUBORDINATION Section 14.01 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS. Except as otherwise specified or contemplated by Section 3.01 or the other provisions of this Indenture, the Issuer covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the payment of the principal of and premium and other amounts, if any, and interest on each and all of the Securities is hereby expressly made subordinate and subject in right of payment to the prior payment in full of all 73 Senior Indebtedness. The terms of this Article 14 may be modified or amended for any series of Securities as contemplated by Section 3.01. Section 14.02 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Issuer or to its creditors or to its assets, or (b) any liquidation, dissolution or other winding up of the Issuer, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Issuer, then and in any such event specified in (a), (b) or (c) above (each such event, if any, a "PROCEEDING"). (1) the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of principal of or premium and other amounts, if any, or interest on the Securities or on account of any purchase or other acquisition of Securities by the Issuer, or any Subsidiary of the Issuer (all such payments, distributions, purchases and acquisitions herein referred to, individually and collectively, as a "SECURITIES PAYMENT"), and to that end the holders of all Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any Securities Payment which may be payable or deliverable in respect of the Securities in any such Proceeding. (2) In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any Securities Payment before all Senior Indebtedness is paid in full or payment thereof provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, and if the occurrence of the Proceeding shall, at or prior to the time of such Securities Payment, have been made known to a Responsible Officer of the Trustee or, as the case may be, such Holder, then and in such event such Securities Payment shall either (i) be held in trust for the benefit of holders of Senior Indebtedness or their Representatives to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of Senior Indebtedness or (ii) be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Issuer for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Issuer provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of 74 competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation or amalgamation of the Issuer with, or the merger of the Issuer into, another Person or the liquidation or dissolution of the Issuer following the conveyance, transfer, sale or lease of all or substantially all of its properties and assets to another Person upon the terms and conditions set forth in Article 8 shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or amalgamation or into which the Issuer is merged or the Person which acquires by conveyance, transfer, sale or lease such properties and assets, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer, sale or lease comply with the conditions set forth in Article 8. Section 14.03 PAYMENT OF SENIOR INDEBTEDNESS BEFORE PAYMENT OF SECURITIES. No payment of principal (including redemption payments) or interest on any Securities may be made (i) if any Senior Indebtedness of the Issuer is not paid when due, (ii) if any applicable grace period with respect to a payment default on Senior Indebtedness of the Issuer has ended and such default has not been cured or waived or ceased to exist, or (iii) if the maturity of any Senior Indebtedness of the Issuer has been accelerated because of a default and such acceleration has not been rescinded and annulled or such Senior Indebtedness repaid in accordance with its terms. In the event that, notwithstanding the foregoing, the Issuer shall make any Securities Payment to the Trustee or any Holder prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such Securities Payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such Securities Payment shall be paid over and delivered forthwith to the Issuer. The provisions of this Section shall not apply to any Securities Payment with respect to which Section 14.02 would be applicable. Section 14.04 PAYMENT PERMITTED IF NO DEFAULT. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Issuer, at any time except during the pendency of any Proceeding referred to in or under the conditions described in Section 14.02 or under the conditions described below Section 14.03, from making Securities Payments, or (b) the application by the Trustee of any money deposited with it hereunder to Securities Payments or the retention of such Securities Payment by the Holders, if at the time of such application by the Trustee, it did not have actual knowledge that such Securities Payment would have been prohibited by the provisions of this Article. Section 14.05 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to the payment in full of all amounts due or to become due on or in respect of Senior Indebtedness, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the Holders of 75 the Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and premium and other amounts, if any, and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Issuer, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Issuer to or on account of the Senior Indebtedness. Section 14.06 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Issuer, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Issuer, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Issuer), to pay to the Holders of the Securities the principal of and premium and other amounts, if any, and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Issuer of the Holders of the Securities and creditors of the Issuer other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such holder. Section 14.07 TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. Section 14.08 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Issuer or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Issuer with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring 76 responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Issuer and any other Person. Section 14.09 NOTICE TO TRUSTEE. The Issuer shall give prompt written notice to the Trustee of any fact known to the Issuer which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Issuer or a holder of Senior Indebtedness or from any trustee therefor or representative thereof; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; PROVIDED, HOWEVER, that if the Trustee shall not have received the notice provided for in this Section at least one full Business Day prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of and premium and other amounts, if any, or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within one full Business Day prior to such date. Subject to the provisions of Section 6.01, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor or representative thereof) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor or representative thereof). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the rights of such Person to receive such payment. Section 14.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Issuer referred to in this 77 Article, the Trustee, subject to the provisions of Section 6.01, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Issuer, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. Section 14.11 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Issuer or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. The Trustee shall not be charged with knowledge of the existence of Senior Indebtedness or of any facts that would prohibit any payment hereunder unless a Responsible Officer of the Trustee shall have received notice to that effect at the address of the Trustee set forth in Section 1.05. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. Section 14.12 RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS; PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.07. Section 14.13 ARTICLE APPLICABLE TO PAYING AGENTS. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Issuer and be then acting hereunder, the term "TRUSTEE" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; PROVIDED, HOWEVER, that Sections 14.09 and 14.12 shall not apply to the Issuer or any Affiliate of the Issuer if it or such Affiliate acts as Paying Agent. 78 ARTICLE 15 MEETINGS OF HOLDERS OF SECURITIES Section 15.01 PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting of Holders of one or more series of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series. Section 15.02 CALL, NOTICE AND PLACE OF MEETINGS. (a) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 15.01, to be held at such time and at such place in New York, New York, in Calgary, Alberta or in London, England as the Trustee shall determine. Notice of every meeting of Holders of one or more series of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided for in Section 1.06, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Issuer, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 15.01, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Issuer or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in New York, New York in Calgary, Alberta or in London, England for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section. Section 15.03 PERSONS ENTITLED TO VOTE AT MEETINGS. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder of Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Person entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Issuer and its counsel. Section 15.04 QUORUM; ACTION. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; PROVIDED, HOWEVER, that, if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture 79 expressly provides may be given by the Holders of not less than a specified percentage in principal amount of the Outstanding Securities of a series, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 15.02(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for lack of a quorum, the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. Except as limited by the proviso to Section 9.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of not less than a majority in principal amount of the Outstanding Securities of such series who have cast their votes; PROVIDED, HOWEVER, that, except as limited by the proviso to Section 9.02, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of not less than such specified percentage in principal amount of the Outstanding Securities of such series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting. Notwithstanding the foregoing provisions of this Section 15.04, if any action is to be taken at a meeting of Holders of Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all Outstanding Securities affected thereby, or of the Holders of such series and one or more additional series: 80 (i) there shall be no minimum quorum requirement for such meeting; and (ii) the principal amount of the Outstanding Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Indenture. Section 15.05 DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS. (a) Notwithstanding any provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.04 and the appointment of any proxy shall be proved in the manner specified in Section 1.04 or by having the signature of the person executing the proxy witnessed or guaranteed by any trust corporation, bank or banker authorized by Section 1.04 to certify to the holding of Securities in bearer form. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.04 or other proof. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Issuer or by Holders of Securities as provided in Section 15.02(b), in which case the Issuer or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (c) At any meeting each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Outstanding Securities of such series held or represented by him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (d) Any meeting of Holders of Securities of any series duly called pursuant to Section 15.02 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. 81 Section 15.06 COUNTING VOTES AND RECORDING ACTION OF MEETINGS. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers, if any, of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 15.02 and, if applicable, Section 15.04. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Issuer, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 82 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. NEXEN INC. By: /s/ Marvin F. Romanow ---------------------------------- Name: Marvin F. Romanow Title: Executive Vice President and Chief Financial Officer DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee By: /s/ Yana Kalachikova ---------------------------------- Name: Yana Kalachikova Title: Associate EX-4 10 ex4-48form10k_2003.txt EXHIBIT 4.48 EXHIBIT 4.48 ------------ OFFICER'S CERTIFICATE I, Una M. Power, Treasurer of Nexen Inc. (the "ISSUER"), pursuant to authority granted to the undersigned by the Board of Directors of the Issuer (and the Pricing Committee thereof), hereby establish the terms of the Issuer's 7.35% Subordinated Notes due 2043 (the "NOTES"), and pursuant to Section 3.01 of the Indenture, dated as of November 4, 2003, between the Issuer and Deutsche Bank Trust Company Americas, as Trustee (the "TRUSTEE") (as supplemented hereby, the "INDENTURE") hereby certify as follows with respect to the Notes (unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Indenture): Section 1. The title of the Notes shall be "7.35% Subordinated Notes due 2043". The Notes constitute a series of Securities as defined in the Indenture. The Notes shall be issuable in fully registered form only in denominations of $25 or any integral multiple thereof. Section 2. The maximum aggregate principal amount of Notes that may be authenticated and delivered under this Series Supplement shall be $460,000,000, which amount includes the exercise of the over-allotment option (the "OVER-ALLOTMENT OPTION") as set forth in the Underwriting Agreement, dated as of October 28, 2003, by and among the Issuer and Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, as representatives of the several underwriters named therein. Section 3. The maturity date of the Notes is November 1, 2043. Section 4. Global Form. Section 4.1. The Notes will be issued in global form (a "GLOBAL NOTE") and shall represent such of the Notes as shall be specified therein and shall represent the aggregate amount of Outstanding Notes from time to time endorsed thereon and the aggregate amount of Outstanding Notes represented thereby may from time to time be increased or decreased to reflect exchanges. Such Global Note shall bear a legend substantially to the effect set forth in the Form of Note attached hereto as Exhibit A. Any endorsement on a Global Note to reflect the amount, or any increase or decrease in the amount, of Outstanding Notes represented thereby shall be made by the Trustee in such manner and upon instructions given in the Issuer Order to be delivered to the Trustee pursuant to Section 3.03 or 3.04 of the Indenture. Subject to the provisions of Section 3.03 of the Indenture and, if applicable, Section 3.04 of the Indenture, the Trustee shall deliver and redeliver any Global Note in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Issuer Order. If an Issuer Order pursuant to Section 3.03 or Section 3.04 of the Indenture has been, or simultaneously is, delivered, any instructions by the Issuer with respect to endorsement or delivery or redelivery of a Global Note shall be in writing but need not comply with Section 1.02 of the Indenture and need not be accompanied by an Opinion of Counsel. Notwithstanding the provisions of Sections 3.07 and 3.08 of the Indenture, payment of principal of and interest on any Global Note shall be made to the Holder or the Person or Persons specified from time to time by the Holder by prior notice in writing to the Issuer and the Trustee. Notwithstanding the provisions of Section 3.08 of the Indenture and except as provided in the preceding paragraph, the Issuer, the Trustee and any agent of the Issuer and the Trustee shall, and shall be entitled to, treat the Holder of a Global Note as the Holder for all purposes. Section 4.2. Global Note. (a) A Global Note may only be issued to DTC or a nominee of DTC and may be transferred, in whole but not in part, only to another nominee of DTC, or to a successor depository selected or approved by the Issuer or to a nominee of such successor depository. (b) If at any time (i) DTC or a successor depository, as applicable, notifies the Issuer that it is unwilling or unable to continue as a depository for such Global Note or (ii) if at any time DTC or a successor depository, as applicable, shall no longer be a clearing agency registered or in good standing under the Exchange Act or other applicable statute or regulation, at which time DTC or a successor depository, as applicable, is required to be so registered under the Exchange Act or other applicable statute or regulation and in either clause (i) or (ii) above a successor depository is not appointed by the Issuer within 90 days or (iii) the Issuer, in its sole discretion, determines that such Global Note shall be exchangeable as described below, or (iv) there shall have occurred and shall be continuing an Event of Default with respect to the Notes and the Trustee has received through DTC or such successor depository a request from an owner of beneficial interests in any Global Note to deliver the Notes in certificated non-book entry, definitive registered form without coupons, the Issuer will execute, and, subject to Article 3 of the Indenture, the Trustee, upon written notice from the Issuer, will authenticate and deliver the Notes in certificated non-book entry, definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Note in exchange for such Global Note. In addition, the Issuer may at any time determine that the Notes shall no longer be represented by a Global Note. In such event the Issuer will execute, and subject to Section 3.03 of the Indenture, the Trustee, upon receipt of an Officer's Certificate evidencing such determination by the Issuer, will authenticate and deliver the Notes in certificated non-book entry, definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Note in exchange for such Global Note. Upon the exchange of the Global Note for such Notes in certificated non-book entry, definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Note, the Global Note shall be surrendered to and cancelled by the Trustee. Such Notes in certificated non-book entry, definitive registered form issued in exchange for the Global Note shall be registered in such names and in such authorized denominations as DTC, or successor depository, as the case may be, pursuant to instructions from the direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Notes to DTC for delivery to the Persons in whose names such Notes are so registered. Section 5. Interest. (a) The Notes will bear interest, payable in U.S. Dollars, at the rate of 7.35% of the principal amount thereof per annum, accruing from the date specified on the face of the Note until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue 2 installment of interest at the interest rate stated above, compounded annually, payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year commencing on February 1, 2004, to the Person in whose name such Note is registered, at the close of business on the Regular Record Date for such interest installment, which shall be the preceding January 15, April 15, July 15 and October 15, respectively. (b) In the event that any date on which interest is payable on the Notes is not a Business Day, then payment of the interest otherwise due on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Interest payments will be made in an amount equal to the interest accrued from and including the immediately preceding Interest Payment Date in respect of which interest has been paid or duly made available for payment (or, from and including the date of issuance of the Notes, if no interest has been paid or duly made available for payment) to but excluding the applicable Interest Payment Date or Maturity Date, as the case may be. Section 6. Common Shares Payment Election. (a) The Issuer may make a Common Shares Payment Election on the Notes with respect to its obligation to pay the Redemption Price or Maturity Amount on such Notes. In connection with the Common Shares Payment Election, the Trustee shall: (i) accept delivery of Common Shares from the Issuer and process the Common Shares in accordance with the Common Shares Election Notice, (ii) accept bids with respect to, and consummate sales of, such Common Shares, each as the Issuer shall direct in writing in its absolute discretion, (iii) invest the proceeds of such sales in short-term U.S. Government Obligations which mature prior to the applicable Payment Date and use the proceeds received from such U.S. Governmental Obligations, together with any proceeds from the sale of Common Shares not invested as aforesaid, to pay the Redemption Price or the Maturity Amount at Maturity, as the case may be, and (iv) perform any other action necessarily incidental thereto. (b) The Issuer may make a Common Shares Payment Election by delivering a Common Shares Election Notice to the Trustee no later than the earlier of (i) the date required by applicable law or the rules of any stock exchange on which the Notes are then listed or (ii) 15 days prior to the Payment Date to which the Common Shares Payment Election relates. The Trustee shall, in accordance with the Common Shares Election Notice, deliver Common Shares Bid Requests to investment banks, brokers or dealers specified in writing by the Issuer in the Common Shares Election Notice. The Common Shares Election Notice shall direct the Trustee to solicit and accept only such bids, and the Common Shares Bid Request shall make the acceptance of any bid conditional on the acceptance of such bids, that together shall provide for the delivery and sale of Common Shares against payment of the Common Shares Election Amount (less any amount attributable to any fractional Common Shares) on the Common Shares Delivery Date. The Common Shares Election Notice shall provide for, and all such bids shall be subject to, the right of the Issuer, by delivering written notice to the Trustee at any time 3 prior to the consummation of the delivery and sale of the Common Shares on the Common Shares Delivery Date, to withdraw the Common Shares Payment Election (which shall have the effect of withdrawing the Common Shares Bid Request), whereupon the Issuer shall be obligated to pay in cash the Common Shares Payment Amount on such Payment Date. Any sale of Common Shares pursuant to this Section 6 may be made to one or more Persons whose bids are solicited, but all such sales with respect to a particular Common Shares Payment Election shall take place concurrently on the Common Shares Delivery Date. (c) The Trustee shall inform the Issuer promptly following receipt of any bid or bids for Common Shares. The Trustee shall accept such bid or bids as the Issuer (in its absolute discretion) shall direct in writing, PROVIDED that the aggregate proceeds of all such sales, on the Common Shares Delivery Date, must equal the Common Shares Election Amount (less any amount attributable to any fractional Common Shares). In connection with any bids so accepted, the Issuer, the Trustee and the applicable bidders shall, not later than the Common Shares Delivery Date, enter into a Common Shares Purchase Agreement reasonably satisfactory to the Issuer, the Trustee and the applicable bidders and shall comply with all applicable laws, including the securities laws of the U.S. and Canada, and any other applicable state, provincial or territorial securities laws in the U.S. or Canada, the laws, rules and regulations of any stock exchange on which the Common Shares are then listed and the rules and regulations of any jurisdiction in which the Common Shares may be offered for sale. The Trustee shall not be required to incur any obligation or liability under the Common Shares Purchase Agreement other than those obligations or liabilities that are expressly set forth in this Section 6; in addition, the Trustee shall be provided upon request and may conclusively rely upon an Opinion of Counsel with respect to compliance with applicable laws (including the securities laws of the U.S. and Canada), as more particularly described in the preceding sentence of this Section 6(c). The Issuer shall pay all reasonable fees and expenses incurred by the Trustee in connection with the Common Shares Purchase Agreements. (d) Provided that (i) all conditions specified in each Common Shares Purchase Agreement to the closing of all sales thereunder have been satisfied, other than the delivery of the Common Shares to be sold thereunder against payment of the Common Shares Election Amount, and (ii) the purchasers under the Common Shares Purchase Agreements shall be ready, willing and able to perform thereunder, in each case on the Common Shares Delivery Date, the Issuer shall, on the Common Shares Delivery Date, deliver to the Trustee the Common Shares to be sold on such date, cash in an amount equal to the value of any fractional shares and the accrued and unpaid interest in respect of the Notes; and an Officer's Certificate to the effect that all conditions precedent to such sales, including those set forth in this Indenture and in each Common Shares Purchase Agreement, have been satisfied. Upon such deliveries, the Trustee shall consummate such sales on such Common Shares Delivery Date by the delivery of the Common Shares to such purchasers against payment to the Trustee in immediately available funds of the purchase price therefor in an aggregate amount equal to the Common Shares Election Amount (less any amount attributable to any fractional Common Shares), whereupon the sole right of a Holder to receive the Common Shares Payment Amount will be to receive same from the Trustee out of the proceeds of such sale of Common Shares (plus any amount received by the Trustee from the Issuer attributable to any fractional Common Shares or the accrued and unpaid interest in respect of the Notes) in full satisfaction of the Issuer's obligation to pay the Common Shares Payment Amount and the Holder will have no further recourse to the 4 Issuer in respect of such Common Shares Payment Amount, nor in respect of any accrued and unpaid interest. (e) On the Common Shares Delivery Date, the Trustee shall (i) use the sale proceeds of the Common Shares (together with any cash received from the Issuer in respect of any fractional Common Shares and any cash received from the Issuer to pay the accrued and unpaid interest in respect of the Notes) to purchase to the extent the Trustee is able to do so short-term U.S. Government Obligations which mature prior to Payment Date, and which the Trustee is required to hold until Maturity (the "COMMON SHARES PROCEEDS INVESTMENT"), and (ii) deposit the balance, if any, of such sale proceeds and cash, if any, received in respect of fractional Common Shares and accrued and unpaid interest in the Property Account. The Trustee shall hold the Common Shares Proceeds Investment and all amounts from time to time deposited in the Property Account under its exclusive control and shall hold the same (other than income earned on any Common Shares Proceeds Investment) in an irrevocable trust for the benefit of the Holders. To the extent that the Trustee shall receive any proceeds of the Common Shares Proceeds Investment earlier than the Business Day immediately preceding the applicable Payment Date, the Trustee shall deposit such proceeds in the Property Account and, no later than one Business Day prior to the applicable Payment Date, the Trustee shall deposit amounts from the proceeds of the Common Shares Proceeds Investment in the Property Account to bring the balance of the Property Account to the Common Shares Election Amount. On such Payment Date, the Trustee shall apply the funds held in the Property Account to payment of the Common Shares Payment Amount, plus accrued and unpaid interest on the Notes, to the Holders as of the applicable Record Date and shall remit to the Issuer, amounts, if any, in respect of income earned on the Common Shares Proceeds Investments or otherwise in excess of the Common Share Election Amount. (f) The Issuer shall indemnify and hold harmless the Trustee, its officers, directors, employees, representatives and agents, and (on an after-tax basis) the Holders and any Person who controls any Holder within the meaning of any applicable securities laws, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any such Person in connection with defending or investigating any such action or claim) caused by or arising in connection with any Common Shares Payment Election or any withdrawal thereof, except in each case for any such losses, claims, damages or liabilities caused by any such Person's gross negligence or willful misconduct. If the indemnification provided for in this paragraph shall be unavailable to an indemnified person or insufficient in respect of any losses, claims, damages or liabilities referred to herein, then the Issuer shall contribute to the amount paid or payable by such indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Issuer and such indemnified Person and any other equitable considerations. (g) Notwithstanding the foregoing, the Issuer shall not be permitted to satisfy its obligations to pay the Redemption Price or the Maturity Amount by making a Common Shares Payment Election pursuant to this Section 6 if, on the Common Shares Delivery Date, the Common Shares are not then listed on a significant stock exchange in Canada or the U.S. 5 (h) Neither the Issuer's making of a Common Shares Payment Election nor the consummation of sales of Common Shares on the Common Shares Delivery Date will (i) result in the Holders not being entitled to receive on the applicable Payment Date cash in an aggregate amount equal to the Redemption Price or Maturity Amount payable plus, in each case, accrued and unpaid interest and other amounts, if any, on the Notes on such Payment Date, as the case may be, or (ii) entitle or oblige such Holders to receive any Common Shares in satisfaction of the Issuer's obligation to pay such Redemption Price or Maturity Amount of the Notes. (i) Pursuant to and in accordance with Section 6.03(g) of the Indenture, the Issuer acknowledges and agrees that the Trustee shall be entitled to perform its duties under this Section 6 either directly or by or through agents, attorneys, custodians or nominees. Section 7. Redemption. The Issuer may redeem, in accordance with this Section 7, the Notes at its option, in whole or in part, at any time and from time to time, on or after November 4, 2008 at a Redemption Price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Redemption Date. Section 8. Sinking Fund. The Notes are not subject to a sinking fund or other analogous fund requirement. Section 9. Definitions. Section 9.1. The following terms shall have the meanings indicated: "COMMON SHARES" means common shares without nominal or par value in the capital of the Issuer. "COMMON SHARES BID REQUEST" means a request for bids made in accordance with the Common Shares Election Notice and which makes the acceptance of any bid conditional on the acceptance of sufficient bids to allow for the payment of the Common Shares Election Amount on the Common Shares Delivery Date. "COMMON SHARES DELIVERY DATE" means a date, no more than 90 days and no less than one Business Day prior to the Payment Date, upon which Common Shares are delivered by the Issuer for purchase pursuant to a Common Shares Election Notice. "COMMON SHARES ELECTION AMOUNT" means the aggregate amount of the proceeds, based on the bids obtained pursuant to the Common Shares Bid Request, of the sale of Common Shares on a Common Shares Delivery Date equal to and not exceeding the Common Shares Payment Amount. "COMMON SHARES ELECTION NOTICE" means a written notice made by the Issuer to the Trustee specifying: (i) that the election relates to an obligation to pay one of the Redemption Price or the Maturity Amount; 6 (ii) the payment to which the election relates and the Payment Date; (iii) the amount of the payment the Issuer proposes to satisfy by the delivery of Common Shares which amount shall be designated by the Issuer in such notice as the Common Shares Payment Amount; (iv) the Persons from whom the Trustee shall seek bids to purchase the Common Shares and the parameters of such bids, which may include minimum number of Common Shares, minimum price per Common Share, timing for closing for bids and such other matters as the Issuer may specify; and (v) the Trustee shall solicit and accept only those bids which comply with such notice. "COMMON SHARES PAYMENT AMOUNT" means the amount due to Holders on the Payment Date designated by the Issuer as the "Common Shares Payment Amount" in a Common Shares Election Notice. "COMMON SHARES PAYMENT ELECTION" means an election to pay the Redemption Price or Maturity Amount on the Payment Date by the delivery of Common Shares. "COMMON SHARES PURCHASE AGREEMENT" means an agreement in customary form among the Issuer, the Trustee and the Persons making acceptable bids pursuant to a Common Shares Bid Request which complies with all applicable laws, including the Securities Act, the Exchange Act, the applicable securities laws of Canada and any other applicable state, provincial or territorial securities laws in the U.S. or Canada, the rules and regulations of any stock exchange on which the Common Shares are then listed and the laws, rules and regulations of any jurisdiction in which the Common Shares may be offered for sale. "DTC" means The Depository Trust Company, New York, New York, its successors or any other depository appointed in its stead in accordance with Section 4.2 of this Officer's Certificate. "MATURITY AMOUNT" means the principal of and premium, if any, on the Notes at Maturity. "MOODY'S" means Moody's Investors Service, Inc., or any successor thereto. "PAYMENT DATE" means the date on which a payment of the Redemption Price or Maturity Amount is due. "PREFERRED SECURITIES DUE 2047" means the Issuer's 9.75% Junior Subordinated Debentures due October 30, 2047 issued pursuant to an indenture dated as of October 30, 1998 between the Issuer and IBJ Schroder Bank & Trust Company, as trustee. 7 "PREFERRED SECURITIES DUE 2048" means the Issuer's 9.375% Junior Subordinated Debentures due March 31, 2048 issued pursuant to an indenture dated as of February 9, 1999 between the Issuer and IBJ Whitehall Bank & Trust Company, as trustee. "PROPERTY ACCOUNT" means a segregated non-interest bearing trust account, established and maintained by, in the name of and under the exclusive control of the Trustee as custodian for and on behalf of the Holders, which account shall be maintained with the Trustee or a banking institution whose long-term unsecured indebtedness has a rating of at least "A" with Standard & Poor's, or at least "A" with Moody's or an equivalent rating assigned by a "nationally recognized statistical rating organization", as that term is defined for the purposes of Rule 436(g) under the Securities Act. Funds deposited in the Property Account shall be held uninvested until disbursed in accordance with this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder. "STANDARD & POOR'S" means Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto. Section 9.2. The definition of "SENIOR INDEBTEDNESS" is hereby amended to include in the list of exceptions to what constitutes Senior Indebtedness following clause (vi) of the definition: "and (3) the Preferred Securities due 2047 outstanding on the date hereof and the Preferred Securities due 2048 outstanding on the date hereof (it being understood that the Notes rank senior in right of payment to the Preferred Securities due 2047 and the Preferred Securities due 2048)." Section 10. The Notes will be represented by one or more global Notes as described under the caption "Description of the Subordinated Notes -- The Depositary, Book-Entry and Settlement" in the Issuer's Prospectus Supplement dated October 28, 2003 with respect to the offering of the Notes. There will be no bearer Notes. Section 11. Limitation on Transactions. If there shall have occurred and be continuing any Event of Default, then (a) the Issuer shall not declare or pay dividends on, or make a distribution with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of the Issuer's capital stock (other than (i) as a result of an exchange or conversion of any class or series of the Issuer's capital stock or rights to acquire such capital stock for any other class or series of the Issuer's capital stock or rights to acquire such capital stock, (ii) the purchase of fractional interests in shares of the Issuer's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iii) dividends paid or distributions made on the Issuer's capital stock or rights to acquire such capital stock with the Issuer's capital stock or rights to acquire such capital stock, (iv) purchases of capital stock in connection with the satisfaction by the Issuer of its obligations under, and in accordance with the terms of, any of its benefit plans for its directors, officers, employees or other persons within the definition of "employee" under any such employee benefit plan, or (v) the repurchase or redemption of rights issued under any shareholder rights plan) and (b) the Issuer shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities or indebtedness for borrowed money (excluding, for the 8 avoidance of doubt, Senior Indebtedness, in respect of which such payments, repayments, repurchases and redemptions may be made at any time and from time to time) issued or incurred by the Issuer that rank PARI PASSU with or junior to the Notes. Section 12. Redemption for Changes in Canadian Tax Law. The relevant date for purposes of Section 11.08(l)(a) and (1)(b) of the Indenture shall be the date specified on the reverse of the Note. Section 13. Savings Clause. In case of any conflict or inconsistency between (x) the terms of this Officer's Certificate or the form of Note set forth in Exhibit A hereto and (y) the terms of the Indenture, the terms of this Officer's Certificate and the form of Note set forth in Exhibit A hereto shall control and be binding. Section 14. This Certificate is delivered pursuant to the provisions of Section 3.03 of the Indenture. The undersigned hereby certifies as follows: (a) I have read each of the Sections of the Indenture referred to above, and the definitions of the Indenture relating thereto; (b) I have examined the Indenture, the form of Notes set forth in Exhibit A hereto, and such other documents, records and instruments as I have deemed necessary for purposes of giving this Certificate; (c) in my opinion, I have made such examination and investigation as is necessary to enable me to express an informed opinion as to whether the conditions precedent to the issuance of the Notes have been complied with; and (d) in my opinion, the conditions precedent to the issuance of the Notes have been complied with. 9 IN WITNESS WHEREOF, I have hereunto signed my name, this 4 day of November, 2004. By: /s/ Una M. Power --------------------------------------- Name: Una M. Power Title: Treasurer EXHIBIT A --------- (FORM OF FACE OF NOTE) UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (55 WATER STREET, NEW YORK, NEW YORK) ("DTC") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. (OR AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF DTC OR A NOMINEE OF DTC. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. NO. 001 U.S. $460,000,000 CUSIP: 65334H 50 8 NEXEN INC. 7.35% SUBORDINATED NOTES DUE NOVEMBER 1, 2043 NEXEN INC., a corporation duly organized and subsisting under the laws of Canada (the "Issuer", which term includes any successor corporation under the Indenture dated as of November 4, 2003, between the Issuer and Deutsche Bank Trust Company Americas, as Trustee (the "Trustee") (as supplemented by an Officer's Certificate dated as of November 4, 2003 (the "Officer's Certificate"), executed pursuant to a Board Resolution of the Issuer, the "Indenture")), for value received, hereby promises to pay to Cede & Co., as nominee for DTC, or its registered assigns, the principal sum of FOUR HUNDRED SIXTY MILLION DOLLARS (U.S. $460,000,000) on November 1, 2043, and to pay interest on said principal sum from November 4, 2003, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, commencing February 1, 2004, at the rate of 7.35% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. For the purpose of disclosure under the INTEREST ACT (Canada) only, each rate of interest which is calculated with reference to a period (the "deemed interest period") that is less than the actual number of days in the calendar year of calculation is equivalent to a rate based on a calendar year calculated by multiplying such rate of interest by the actual number of days in the calendar year of calculation and dividing by the number of days in the deemed interest period. In the event that any date on which interest is otherwise due on this Note is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date, as provided in the Indenture, will be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the Record Date for such interest installment, which shall be the January 15, April 15, July 15 or October 15, as the case may be, immediately preceding such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Record Date and may be paid to the Person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on a Special Record Date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of this Note not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of and the interest on this Note shall be payable at the office or agency of the Trustee maintained for that purpose in U.S. Dollars; PROVIDED, HOWEVER, that payment of interest may be made at the option of the Issuer by mailing a check payable to the Holder at such address as it appears on the Security Register or wire transfer to an account maintained by the payee located in the U.S. Notwithstanding the foregoing, a Holder of U.S.$5.0 million or more in aggregate principal amount of Notes will be entitled to receive interest payments, if any, on any Interest Payment Date other than the Maturity by wire transfer of immediately available funds if appropriate wire transfer instructions have been received in writing by the Trustee not less than 15 days prior to such Interest Payment Date. Any such wire transfer instructions received by the Trustee shall remain in effect until revoked by such Holder. The Issuer may pay the Redemption Price or the Maturity Amount of the Notes at Maturity by making a Common Shares Payment Election in accordance with Section 6 of the Officer's Certificate, in which event the Holder of this Note shall be entitled to receive payments in cash equal to such Redemption Price or Maturity Amount from funds resulting from the sale of the requisite number of Common Shares and any U.S. Government Obligations purchased with such funds, as set forth in the Indenture. The indebtedness evidenced by this Note is, to the extent provided in the Indenture, subordinate and junior in right of payment to all Senior Indebtedness and this Note is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Note, by 2 accepting the same, (a) agrees to and shall be bound by all the provisions of the Indenture, (b) authorizes and directs the Trustee on his or her or its behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) irrevocably appoints the Trustee his or her or its attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her or its acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. This Note shall not be entitled to any benefit under the Indenture, be valid or become obligatory for any purpose until this Note has been authenticated by the Trustee in accordance with Section 2.02 of the Indenture. The provisions of this Note are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. 3 IN WITNESS WHEREOF, the Issuer has caused this instrument to be executed. Dated as of November 4, 2003. NEXEN INC. By: _______________________________________ Name: Title: By: _______________________________________ Name: Title: This is one of the Securities referred to in the within-mentioned Indenture. DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee By: _______________________________________ Authorized Signatory (FORM OF REVERSE OF SECURITY) This Security is one of a duly authorized issue of securities of the Issuer designated as its 7.35% Subordinated Notes due 2043 (hereinafter the "Notes"), limited to the aggregate principal amount of U.S.$460,000,000, which amount includes the exercise of the Over-Allotment Option issued under and pursuant to the Indenture, to which the Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Issuer and the Holders. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of such terms. The Issuer shall have the right, from time to time, without the consent of the Holders of the Notes, to issue additional Securities under the Indenture. The Issuer shall have the right to redeem this Note at its option, in whole or in part, at any time on or after November 4, 2008 at a Redemption Price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the Redemption Date. If the Notes are only partially redeemed by the Issuer, the Notes will be redeemed PRO RATA or by lot or by any other method utilized by the Trustee; PROVIDED that if, at the time of redemption, the Notes are registered as a Global Note, DTC shall determine the principal amount of such Notes owned by each beneficial owner to be redeemed in accordance with its procedures. In the event of redemption of this Note in part only, a new Note or Notes for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the surrender and cancellation hereof. The Issuer shall have the right to redeem, at any time, the Securities of a series, in whole but not in part, at a redemption price equal to the principal amount thereof together with accrued and unpaid interest to the date fixed for redemption, upon the giving of a notice as described below, if (1) the Issuer determines that (a) as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of Canada or the Applicable Jurisdiction or of any political subdivision or taxing authority thereof or therein affecting taxation, or any change in the official position regarding the application or interpretation of such laws, regulations or rulings (including a holding by a court of competent jurisdiction), which change or amendment is announced or becomes effective on or after October 28, 2003, in the case of Additional Amounts or, in the case of Reorganization Additional Amounts, on or after the date on which the Issuer becomes subject to the laws of the Applicable Jurisdiction, the Issuer has or will become obligated to pay, on the next succeeding date on which interest is due, Additional Amounts pursuant to Section 10.05 of the Indenture or Reorganization Additional Amounts pursuant to Section 8.03 of the Indenture or there is more than an insubstantial risk that the Issuer could be denied the deduction of interest paid or payable in respect of the Securities in computing the Issuer's income for the purposes of the INCOME TAX ACT (Canada) or a Canadian provincial or territorial income tax statute, or (b) on or after October 28, 2003, in the case of Additional Amounts or, in the case of Reorganization Additional Amounts, on or after the date on which the Issuer becomes subject to the laws of the Applicable Jurisdiction, any action has been taken by any taxing authority of, or any decision has been rendered by a court of competent jurisdiction in, Canada or the Applicable Jurisdiction or any political subdivision or taxing authority thereof or therein, including any of those actions specified in (a) above, whether or not such action was taken or decision was rendered with respect to the Issuer, or any change, amendment, application or interpretation shall be officially proposed, which, in any such case, in the Opinion of Counsel to the Issuer, will result in the Issuer becoming obligated to pay, on the next succeeding date on which interest is due, Additional Amounts or Reorganization Additional Amounts with respect to any Note of such series or there is more than an insubstantial risk that the Issuer could be denied the deduction of interest paid or payable in respect of the Securities in computing the Issuer's income for the purposes of the INCOME TAX ACT (Canada) or a Canadian provincial or territorial income tax statute, and (2) in any such case, the Issuer in its business judgment determines that any such obligation under paragraph (1) above cannot be avoided by the use of reasonable measures available to the Issuer; PROVIDED, however, that (i) no such notice of redemption may be given earlier than 60 nor later than 30 days prior to the earliest date on which the Issuer would be obligated to pay such Additional Amounts or Reorganization Additional Amounts were a payment in respect of the Securities then due or on which the Issuer would be denied the deduction of interest paid or payable in respect of the Securities, and (ii) at the time such notice of redemption is given, such obligation to pay such Additional Amounts or Reorganization Additional Amounts or such denial of the deductibility of interest remains in effect. The Redemption Price is payable in cash or, at the option of the Issuer, by delivery of Common Shares to the Trustee pursuant to Section 6 of the Officer's Certificate. The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or at such earlier time as the Issuer determines; PROVIDED that the Issuer shall deposit with the Trustee an amount in cash or Common Shares in accordance with Section 6 of the Officer's Certificate sufficient to pay the Redemption Price on the date such Redemption Price is to be paid. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Notes may be declared, and upon such declaration shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Notes, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders; PROVIDED, HOWEVER, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note, (i) change the Stated Maturity of the principal of, or premium, other amounts, if any, or any installment of principal of or premium, other amounts, if any, or interest on, any Note, or reduce the principal amount (or accreted value, as the case may be) thereof or the rate of interest thereon or accretions or any premium or other amounts payable upon the redemption, repurchase or repayment thereof, or change the manner in which the amount of any of the foregoing is determined, or reduce the amount of the principal (or accreted value, as the case may be) that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02 of the Indenture, or change any Place of Payment where, or the Applicable Currency for, or impair the right to receive, payment of the principal of or premium, interest or 2 other amounts, if any, on any Holder's Notes on or after their respective due dates or to institute suit for the enforcement of any such payment; (ii) reduce the percentage in principal amount of the Outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of the Indenture or Defaults or Events of Default thereunder and their consequences provided for in the Indenture; (iii) modify any of the provisions of Section 9.02, Section 5.07, Section 5.13 or Section 10.06 of the Indenture, except to increase any such percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby; PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in Sections 9.02 and 10.06 of the Indenture, or the deletion of the proviso in Section 9.02(3), in accordance with the requirements of Sections 6.11(b) and 9.01(8) of the Indenture; (iv) modify any conversion ratio or otherwise impair conversion rights with respect to the Outstanding Notes; (v) modify the redemption provisions applicable to the Outstanding Notes; (vi) directly or indirectly release any of the collateral or security interest in respect of the Outstanding Notes; (vii) modify the subordination provisions applicable to the Notes or the definition of "Senior Indebtedness" in a manner adverse to the Holders of the Notes; or (viii) change any obligations to pay additional amounts provided in the terms of the Outstanding Notes. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Outstanding Notes, on behalf of the Holders of all the Notes, to waive any past default described in Section 5.01 of the Indenture, and its consequences, except (i) a default in respect of the payment of the principal of or premium, other amounts, if any, or interest on the Notes or (ii) a default in respect of a covenant of the Issuer or a provision of the Indenture that under the Indenture may not be modified or amended without the consent of the Holder of each Outstanding Note. Any such consent or waiver by the registered Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and of any Note issued in exchange therefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note at the time and place and at the rate and in the money herein prescribed. The Issuer may pay the Maturity Amount or the Redemption Price at Maturity by making a Common Shares Payment Election and delivering Common Shares to the Trustee for sale, the proceeds of which shall be deposited in the Property Account and/or invested in U.S. Government Obligations for the payment of the Maturity Amount or the Redemption Price at Maturity, all in accordance with Section 6 of the Officer's Certificate. The Trustee shall, from funds received from such U.S. Government Obligations, together with funds in the Property Account, pay the Maturity Amount at Stated Maturity or the Redemption Price at the Redemption Date to the Holders entitled thereto. As provided in the Indenture and subject to certain limitations therein set forth, this Note is transferable by the registered Holder hereof on the Security Register of the Issuer, upon surrender of this Note for registration of transfer at the office or agency of the Trustee in the 3 Borough of Manhattan in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Issuer and the Trustee duly executed by the registered Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Note, the Issuer, the Trustee, any Paying Agent and the Security Registrar may deem and treat the registered Holder hereof as the absolute owner hereof (whether or not this Note shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Issuer nor the Trustee nor any Paying Agent nor any Security Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Issuer or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Notes are issuable only in registered form without coupons in denominations of U.S.$25 and any integral multiple thereof. This Global Note is exchangeable for Notes in definitive form only under certain limited circumstances set forth in the Indenture. As provided in the Indenture and subject to certain limitations herein and therein set forth, Notes so issued are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. The Indenture and this Note shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture, unless otherwise defined herein. 4 EX-4 11 ex4-49form10k_2003.txt EXHIBIT 4.49 EXHIBIT 4.49 ------------ FOURTH AMENDING AGREEMENT ------------------------- THIS AGREEMENT is made as of November 4, 2003 BETWEEN: NEXEN INC., a corporation subsisting under the laws of Canada, (hereinafter referred to as the "Borrower"), OF THE FIRST PART, - and - THE FINANCIAL INSTITUTIONS SET FORTH ON THE SIGNATURE PAGES HEREOF UNDER THE HEADING "LENDERS:" (hereinafter sometimes collectively referred to as the "Lenders" and sometimes individually referred to as a "Lender"), OF THE SECOND PART, - and - THE TORONTO-DOMINION BANK, a Canadian chartered bank, as agent of the Lenders (hereinafter referred to as the "Agent"), OF THE THIRD PART. WHEREAS the parties hereto entered into the Restated Credit Agreement; AND WHEREAS the parties hereto have agreed to amend and supplement certain provisions of the Restated Credit Agreement as hereinafter set forth; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by each of the parties hereto, the parties hereto covenant and agree as follows: 1. INTERPRETATION 1.1 In this Agreement and the recitals hereto, unless something in the subject matter or context is inconsistent therewith: "AGREEMENT" means this agreement, as amended, modified, supplemented or restated from time to time. 2 "RESTATED CREDIT AGREEMENT" means the restated credit agreement made as of April 14, 1997 and amended and restated as of October 16, 2000 between the Borrower, as borrower, the Lenders and the Agent, as amended to the date hereof. 1.2 Capitalized terms used herein without express definition shall have the same meanings herein as are ascribed thereto in the Restated Credit Agreement. 1.3 The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other portion hereof and include any agreements supplemental hereto. 1.4 Schedule A attached to this Agreement is incorporated by reference and shall be deemed to be a part hereof. 1.5 This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein. 2. AMENDMENT TO DEFINITION OF CAPITAL SECURITIES 2.1 Section 1.1 of the Restated Credit Agreement is hereby amended by deleting the existing definition of "Capital Securities" in its entirety and substituting therefor the definition of "Capital Securities" set forth in Schedule A attached hereto. 3. REPRESENTATIONS AND WARRANTIES 3.1 The Borrower hereby represents and warrants as follows to each Lender and the Agent and acknowledges and confirms that each Lender and the Agent is relying upon such representations and warranties: (a) CAPACITY, POWER AND AUTHORITY (i) It is duly incorporated and is validly subsisting under the laws of its jurisdiction of incorporation or creation and has all the requisite corporate capacity, power and authority to carry on its business as presently conducted and to own its property; and (ii) It has the requisite corporate capacity, power and authority to execute and deliver this Agreement. (b) AUTHORIZATION; ENFORCEABILITY It has taken or caused to be taken all necessary action to authorize, and has duly executed and delivered, this Agreement, and this Agreement is a legal, valid and binding obligation of it, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, winding up, insolvency, moratorium or other laws of general application affecting the enforcement of 3 creditors' rights generally and to the equitable and statutory powers of the courts having jurisdiction with respect thereto. 3.2 The representations and warranties set out in this Agreement shall survive the execution and delivery of this Agreement and the making of each Drawdown, notwithstanding any investigations or examinations which may be made by the Agent, the Lenders or Lenders' Counsel. Such representations and warranties shall survive until the Restated Credit Agreement has been terminated. 4. CONFIRMATION OF RESTATED CREDIT AGREEMENT AND OTHER DOCUMENTS The Restated Credit Agreement and the other Documents and all covenants, terms and provisions thereof, except as expressly amended and supplemented by this Agreement, shall be and continue to be in full force and effect and the Restated Credit Agreement, as amended and supplemented by this Agreement, and each of the other Documents is hereby ratified and confirmed and shall from and after the date hereof continue in full force and effect, in the case of the Restated Credit Agreement as herein amended and supplemented, with such amendments and supplements being effective as of the date hereof. 5. FURTHER ASSURANCES The parties hereto shall from time to time do all such further acts and things and execute and deliver all such documents as are required in order to effect the full intent of and fully perform and carry out the terms of this Agreement. 6. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement may be executed and delivered by facsimile, which when so executed and delivered shall constitute a binding agreement of the parties hereto. [THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] 4 IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written. NEXEN INC. By: /s/ Una Power --------------------------------------- Name: Una Power Title: Treasurer By: /s/ Rick C. Beingessner --------------------------------------- Name: Rick C. Beingessner Title: Assistant Secretary LENDERS: -------- THE TORONTO-DOMINION BANK By: /s/ N.D. Birbeck --------------------------------------- Name: N.D. Birbeck Title: Managing Director By: /s/ Kevin Kynoch --------------------------------------- Name: Kevin Kynoch Title: Associate - Corporate Credit EXPORT DEVELOPMENT CANADA By: /s/ Dan O'Blenis --------------------------------------- Name: Dan O'Blenis Title: Loan Asset Manager By: /s/ Vito di Turi CA --------------------------------------- Name: Vito di Turi CA Title: Asset Management CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Chris A. Perks --------------------------------------- Name: Chris A. Perks Title: Executive Director By: /s/ David J. Swain --------------------------------------- Name: David J. Swain Title: Managing Director 5 DEUTSCHE BANK AG, CANADA BRANCH By: /s/ Robert A. Johnston --------------------------------------- Name: Robert A. Johnston Title: Vice President By: /s/ Rod O'Hara --------------------------------------- Name: Rod O'Hara Title: Director ROYAL BANK OF CANADA By: /s/ David Foltz --------------------------------------- Name: David Foltz Title: Senior Manager By: --------------------------------------- Name: Title: BANK OF AMERICA, N.A., CANADA BRANCH By: /s/ Nelson Lam --------------------------------------- Name: Nelson Lam Title: Vice President By: --------------------------------------- Name: Title: CITIBANK, N.A., CANADIAN BRANCH By: /s/ Jim Campbell --------------------------------------- Name: Jim Campbell Title: Director of Corporate Finance By: --------------------------------------- Name: Title: 6 BNP PARIBAS (CANADA) By: /s/ Jean-Philippe Cadot --------------------------------------- Name: Jean-Philippe Cadot Title: Vice President Energy & Project Finance By: /s/ Michael Gosselin --------------------------------------- Name: Michael Gosselin Title: Director HSBC BANK CANADA By: /s/ Nigel Richardson --------------------------------------- Name: Nigel Richardson Title: Head of Corporate & Institutional Banking Western Region By: /s/ Greg Gannett --------------------------------------- Name: Greg Gannett Title: Sr. Manager BANK OF TOKYO-MITSUBISHI (CANADA) By: /s/ T. Kodama --------------------------------------- Name: T. Kodama Title: Executive Vice President & General Manager By: --------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: /s/ Dan W. Lindquist --------------------------------------- Name: Dan W. Lindquist Title: Director By: /s/ Andrew Kellock --------------------------------------- Name: Andrew Kellock Title: Associate 7 AGENT: ------ THE TORONTO-DOMINION BANK, in its capacity as Agent By: /s/ Michael A. Freeman --------------------------------------- Name: Michael A. Freeman Title: VP Loan Syndications - Agency SCHEDULE A TO THE FOURTH AMENDING AGREEMENT "CAPITAL SECURITIES" means securities, including debt securities, issued by the Borrower which at all times have the following characteristics: (a) an initial final maturity extending beyond the last Maturity Date applicable to any Lender or Lenders; (b) no scheduled payments of principal thereunder prior to the last Maturity Date applicable to any Lender or Lenders; (c) a Default, Event of Default, acceleration of the payment of the Obligations or enforcement of the rights and remedies of the Lenders under the Documents or a default, event of default, acceleration or similar circumstance under any other Senior Debt shall not (i) cause a default or event of default (with the passage of time or otherwise) under such securities or the indenture governing the same, or (ii) cause or permit the obligations thereunder to be due and payable prior to the stated maturity thereof; (d) payments of principal due and payable thereunder can be satisfied by delivering common shares in the capital of the Borrower in accordance with the indenture governing such securities; (e) all amounts payable in respect to such securities are subordinate and junior in right of payment to the prior payment in full of all Obligations and any other Senior Debt upon a payment default on any Senior Debt in respect of which any applicable grace period has ended and such default has not been cured or waived or ceased to exist or the acceleration of any Senior Debt which has not been rescinded; and (f) such securities shall not be entitled to any distribution upon the distribution of assets of the Borrower to creditors for any reason (except in connection with any proceeding permitted under Section 9.2(d)), including dissolution, bankruptcy or any such similar proceedings, until all Obligations and all other Senior Debt have been paid in full; provided that, for certainty, Capital Securities shall include the Borrower's 9.75% Junior Subordinated Debentures due October 30, 2047 issued pursuant to an Indenture dated as of October 30, 1998 between the Borrower and IBJ Schroder Bank & Trust Company, the Borrower's 9.375% Junior Subordinated Debentures due March 31, 2048 issued pursuant to an Indenture dated as of February 9, 1999 between the Borrower and IBJ Whitehall Bank and Trust Company and the Borrower's 7.35% Subordinated Notes due November 1, 2043 issued pursuant to a Subordinated Debt Indenture dated as of November 4, 2003 between the Borrower and Deutsche Bank Trust Company Americas, provided that such Debentures and Notes at all times have all of the characteristics described in subparagraphs (a) to (f), inclusive, above of this definition. EX-4 12 ex4-50form10k_2003.txt EXHIBIT 4.50 EXHIBIT 4.50 ------------ FOURTH AMENDING AGREEMENT THIS AGREEMENT is made as of November 4, 2003 BETWEEN: NEXEN INC., a corporation subsisting under the laws of Canada, (hereinafter referred to as the "Borrower"), OF THE FIRST PART, - and - THE FINANCIAL INSTITUTIONS SET FORTH ON THE SIGNATURE PAGES HEREOF UNDER THE HEADING "LENDERS:" (hereinafter sometimes collectively referred to as the "Lenders" and sometimes individually referred to as a "Lender"), OF THE SECOND PART, - and - THE TORONTO-DOMINION BANK, a Canadian chartered bank, as agent of the Lenders (hereinafter referred to as the "Agent"), OF THE THIRD PART. WHEREAS the parties hereto entered into the Restated Credit Agreement; AND WHEREAS the parties hereto have agreed to amend and supplement certain provisions of the Restated Credit Agreement as hereinafter set forth; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby conclusively acknowledged by each of the parties hereto, the parties hereto covenant and agree as follows: 1. INTERPRETATION 1.1. In this Agreement and the recitals hereto, unless something in the subject matter or context is inconsistent therewith: "AGREEMENT" means this agreement, as amended, modified, supplemented or restated from time to time. -2- "RESTATED CREDIT AGREEMENT" means the restated credit agreement made as of December 29, 1988 and amended and restated as of November 17, 2000 between the Borrower, as borrower, the Lenders and the Agent, as amended to the date hereof. 1.2. Capitalized terms used herein without express definition shall have the same meanings herein as are ascribed thereto in the Restated Credit Agreement. 1.3. The division of this Agreement into Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Section or other portion hereof and include any agreements supplemental hereto. 1.4. Schedule A attached to this Agreement is incorporated by reference and shall be deemed to be a part hereof. 1.5. This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein. 2. AMENDMENT TO DEFINITION OF CAPITAL SECURITIES 2.1. Section 1.1 of the Restated Credit Agreement is hereby amended by deleting the existing definition of "Capital Securities" in its entirety and substituting therefor the definition of "Capital Securities" set forth in Schedule A attached hereto. 3. REPRESENTATIONS AND WARRANTIES 3.1. The Borrower hereby represents and warrants as follows to each Lender and the Agent and acknowledges and confirms that each Lender and the Agent is relying upon such representations and warranties: (a) CAPACITY, POWER AND AUTHORITY (i) It is duly incorporated and is validly subsisting under the laws of its jurisdiction of incorporation or creation and has all the requisite corporate capacity, power and authority to carry on its business as presently conducted and to own its property; and (ii) It has the requisite corporate capacity, power and authority to execute and deliver this Agreement. (b) AUTHORIZATION; ENFORCEABILITY It has taken or caused to be taken all necessary action to authorize, and has duly executed and delivered, this Agreement, and this Agreement is a legal, valid and binding obligation of it, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, winding up, insolvency, moratorium or other laws of general application affecting the enforcement of -3- creditors' rights generally and to the equitable and statutory powers of the courts having jurisdiction with respect thereto. 3.2. The representations and warranties set out in this Agreement shall survive the execution and delivery of this Agreement and the making of each Drawdown, notwithstanding any investigations or examinations which may be made by the Agent, the Lenders or Lenders' Counsel. Such representations and warranties shall survive until the Restated Credit Agreement has been terminated. 4. CONFIRMATION OF RESTATED CREDIT AGREEMENT AND OTHER DOCUMENTS The Restated Credit Agreement and the other Documents and all covenants, terms and provisions thereof, except as expressly amended and supplemented by this Agreement, shall be and continue to be in full force and effect and the Restated Credit Agreement, as amended and supplemented by this Agreement, and each of the other Documents is hereby ratified and confirmed and shall from and after the date hereof continue in full force and effect, in the case of the Restated Credit Agreement as herein amended and supplemented, with such amendments and supplements being effective as of the date hereof. 5. FURTHER ASSURANCES The parties hereto shall from time to time do all such further acts and things and execute and deliver all such documents as are required in order to effect the full intent of and fully perform and carry out the terms of this Agreement. 6. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement may be executed and delivered by facsimile, which when so executed and delivered shall constitute a binding agreement of the parties hereto. [THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] -4- IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written. BORROWER: AGENT: NEXEN INC. THE TORONTO-DOMINION BANK, AS AGENT By: /s/ Una Power By: /s/ Michael A. Freeman ---------------------------- ---------------------------- Name: Una Power Name: Michael A. Freeman Title: Treasurer Title: Vice President, Loan Syndications - Agency By: /s/ Rick C. Beingessner By: ---------------------------- ---------------------------- Name: Rick C. Beingessner Name: Title: Assistant Secretary Title: LENDERS: THE TORONTO-DOMINION BANK ROYAL BANK OF CANADA By: /s/ Dean Ariss By: /s/ David Foltz ---------------------------- ---------------------------- Name: Dean Ariss Name: David Foltz Title: Managing Director Title: Senior Manager By: /s/ Kevin Kynoch By: ---------------------------- ---------------------------- Name: Kevin Kynoch Name: Title: Associate - Title: Corporate Credit THE BANK OF NOVA SCOTIA CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Dan W. Lindquist By: /s/ Chris A. Perks ---------------------------- ---------------------------- Name: Dan W. Lindquist Name: Chris A. Perks Title: Director Title: Executive Director By: /s/ R.L. Mack By: /s/ David J. Swain ---------------------------- ---------------------------- Name: R.L. Mack Name: David J. Swain Title: Associate Title: Managing Director BANK OF AMERICA, N.A., CANADA BRANCH BNP PARIBAS (CANADA) By: /s/ Nelson Lam By: /s/ Jean-Phillippe Cadot ---------------------------- ---------------------------- Name: Nelson Lam Name: Jean-Phillipe Cadot Title: Vice President Title: Vice President Energy & Project Finance By: By: /s/ Michael Gosselin ---------------------------- ---------------------------- Name: Name: Michael Gosselin Title: Title: Director SCHEDULE A TO THE FOURTH AMENDING AGREEMENT "CAPITAL SECURITIES" means securities, including debt securities, issued by the Borrower which at all times have the following characteristics: (a) an initial final maturity extending beyond the last Maturity Date applicable to any Lender or Lenders; (b) no scheduled payments of principal thereunder prior to the last Maturity Date applicable to any Lender or Lenders; (c) a Default, Event of Default, acceleration of the payment of the Obligations or enforcement of the rights and remedies of the Lenders under the Documents or a default, event of default, acceleration or similar circumstance under any other Senior Debt shall not (i) cause a default or event of default (with the passage of time or otherwise) under such securities or the indenture governing the same, or (ii) cause or permit the obligations thereunder to be due and payable prior to the stated maturity thereof; (d) payments of principal due and payable thereunder can be satisfied by delivering common shares in the capital of the Borrower in accordance with the indenture governing such securities; (e) all amounts payable in respect to such securities are subordinate and junior in right of payment to the prior payment in full of all Obligations and any other Senior Debt upon a payment default on any Senior Debt in respect of which any applicable grace period has ended and such default has not been cured or waived or ceased to exist or the acceleration of any Senior Debt which has not been rescinded; and (f) such securities shall not be entitled to any distribution upon the distribution of assets of the Borrower to creditors for any reason (except in connection with any proceeding permitted under Section 9.2(d)), including dissolution, bankruptcy or any such similar proceedings, until all Obligations and all other Senior Debt have been paid in full; provided that, for certainty, Capital Securities shall include the Borrower's 9.75% Junior Subordinated Debentures due October 30, 2047 issued pursuant to an Indenture dated as of October 30, 1998 between the Borrower and IBJ Schroder Bank & Trust Company, the Borrower's 9.375% Junior Subordinated Debentures due March 31, 2048 issued pursuant to an Indenture dated as of February 9, 1999 between the Borrower and IBJ Whitehall Bank and Trust Company and the Borrower's 7.35% Subordinated Notes due November 1, 2043 issued pursuant to a Subordinated Debt Indenture dated as of November 4, 2003 between the Borrower and Deutsche Bank Trust Company Americas, provided that such Debentures and Notes at all times have all of the characteristics described in subparagraphs (a) to (f), inclusive, above of this definition. EX-4 13 ex4-51form10k_2003.txt EXHIBIT 4.51 EXHIBIT 4.51 ------------ DATED AS OF NOVEMBER 20, 2003 NEXEN INC. (FORMERLY CANADIAN OCCIDENTAL PETROLEUM LTD.) AND CIBC MELLON TRUST COMPANY FOURTH SUPPLEMENTAL INDENTURE TO THE TRUST INDENTURE DATED AS OF APRIL 28, 1998 TABLE OF CONTENTS 1. INTERPRETATIONS AND AMENDMENTS........................................2 1.1 SUPPLEMENTAL INDENTURE.......................................2 1.2 DEFINITIONS IN TRUST INDENTURE...............................2 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS......................2 2. NOTES ................................................................2 2.1 FORM AND TERMS OF NOTES......................................2 2.2 ISSUANCE OF NOTES............................................4 3. REDEMPTION OF NOTES...................................................4 3.1 REDEMPTION OF NOTES..........................................4 3.2 ADDITIONAL DEFINITIONS.......................................5 3.3 NOTICE TO TRUSTEE............................................6 4. DEBT SECURITIES GUARANTEE.............................................6 4.1 COVENANT TO PROVIDE DEBT SECURITIES GUARANTEE................6 4.2 OPINIONS.....................................................6 4.3 AUTOMATIC TERMINATION........................................7 5. GENERAL ..............................................................7 5.1 INDENTURE SUPPLEMENTAL TO TRUST INDENTURE....................7 5.2 ACCEPTANCE OF TRUST..........................................7 5.3 COUNTERPARTS AND FORMAL DATE.................................8 THIS FOURTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of November 20, 2003. BETWEEN: NEXEN INC. (FORMERLY "CANADIAN OCCIDENTAL PETROLEUM LTD."), a corporation amalgamated under the Canada Business Corporations Act and having its head office in the City of Calgary, in the Province of Alberta (the "Corporation") OF THE FIRST PART - and - CIBC MELLON TRUST COMPANY, a trust corporation incorporated under the laws of Canada, having an office in the City of Calgary, in the Province of Alberta (the "Trustee") OF THE SECOND PART WITNESSETH THAT: WHEREAS in and by a trust indenture made as of April 28, 1998 (the "Original Indenture") between the Corporation and the Trustee (the Original Indenture, as amended and supplemented by the first supplemental indenture dated as of April 28, 1998 (the "First Supplemental Indenture"), the second supplemental indenture dated as of February 4, 1999 (the "Second Supplemental Indenture"), the third supplemental indenture dated as of March 11, 2002 (the "Third Supplemental Indenture") and this Supplemental Indenture and as the same may be further amended or supplemented from time to time, being hereinafter called the "Trust Indenture," which term includes any and every instrument supplemental or ancillary thereto or in implementation thereof and the form and terms of any particular series of Debt Securities (as defined below) established thereunder), provision was made for the issue, in one or more series, by the Corporation of debt securities of the Corporation (the "Debt Securities") in an unlimited aggregate principal amount; AND WHEREAS the proper officers of the Corporation have duly authorized the creation and issuance of a series of Debt Securities to be designated as 5.05% Notes due 2013 (the "Notes"), and to be limited (subject to the exceptions described herein and in the Trust Indenture) to the aggregate principal amount of U.S.$500,000,000, the further terms and conditions thereof being hereinafter set forth, all in accordance with a resolution of the directors of the Corporation; AND WHEREAS all necessary acts and proceedings have been done and taken to authorize the execution of this Supplemental Indenture, to establish the terms and form of the Notes pursuant to the Trust Indenture, and to make this Supplemental Indenture and the said series of Notes, when executed and delivered by the Corporation and certified and delivered by the Trustee as provided in the Trust Indenture, legal, valid and binding upon the Corporation; AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not by the Trustee; -2- NOW THEREFORE, it is hereby covenanted, agreed and declared as follows: 1. INTERPRETATIONS AND AMENDMENTS 1.1 SUPPLEMENTAL INDENTURE As used herein "Supplemental Indenture", "hereto", "herein", "hereof", "hereby", "hereunder" and similar expressions refer to this Supplemental Indenture and not to any particular Article, Section or other portion hereof and include any and every instrument supplemental or ancillary hereto or in implementation hereof, and further include the terms of the Notes set forth in the form of Note annexed as Schedule A hereto. 1.2 DEFINITIONS IN TRUST INDENTURE All terms contained in this Supplemental Indenture which are defined in the Original Indenture and not defined herein shall, for all purposes hereof, have the meanings given to such terms in the Original Indenture unless the context otherwise specifies or requires; provided, however, that notwithstanding the foregoing, the terms "Corporation" and "Trustee" shall have the respective meanings given to them in the Original Indenture. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS The division of this Supplemental Indenture into Articles and Sections, the provision of the table of contents hereto and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Supplemental Indenture. 2. NOTES 2.1 FORM AND TERMS OF NOTES There shall be and is hereby created for issuance under the Trust Indenture a series of Debt Securities which shall consist of and be limited (subject to the exceptions set forth in Section 2.2(b) of the Original Indenture) to the aggregate principal amount of U.S.$500,000,000 and shall be designated as 5.05% Notes due 2013; provided, however, that if the Corporation shall, at any time after the date hereof, increase the principal amount of Notes which may be issued and issue such increased principal amount (or any portion thereof), then any such additional Notes so issued shall have the same form and terms (other than the date of issuance and the date from which interest thereon shall begin to accrue and, under certain circumstances, the first interest payment date), and shall carry the same right to receive accrued and unpaid interest, as the Notes theretofore issued; and provided, further, that, notwithstanding the foregoing, the Corporation shall not be entitled to increase the principal amount of Notes which may be issued or issue any such increased principal amount if the Corporation has effected satisfaction and discharge of the Trust Indenture pursuant to Section 7.4 of the Original Indenture or defeasance or covenant defeasance pursuant to Article 13 of the Original Indenture. The Notes will mature, and the principal of the Notes and accrued and unpaid interest thereon will be due and payable, on November 20, 2013, or such earlier date as the principal of any of the Notes may become due and payable in accordance with the provisions of the Trust Indenture. -3- The Notes shall bear interest on the principal amount thereof from November 20, 2003 or from the last date to which interest shall have been paid or duly made available for payment on the Notes, whichever is later, at the rate of 5.05% per annum, payable semi-annually in arrears on May 20 and November 20 (each, an "Interest Payment Date") in each year, commencing May 20, 2004, until the principal of and premium, if any, on the Notes is paid or duly made available for payment; and should the Corporation at any time default in the payment of any principal of, or premium, if any, or interest on the Notes when due, the Corporation shall pay interest (such interest to be payable on demand), to the extent permitted by law, on the amount in default at the same rate. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Trust Indenture, be paid to the Persons in whose names the Notes (or one or more predecessor Notes) are registered at the close of business on May 5 or November 5 (the "Regular Record Dates"), as the case may be, immediately prior to such Interest Payment Date, regardless of whether any such Regular Record Date is a business day. Any such interest on the Notes not so punctually paid or duly provided for on any Interest Payment Date shall be payable as provided in the form of Note annexed hereto as Schedule A to this Supplemental Indenture. For the purposes only of the disclosure required by the INTEREST ACT (Canada), and without affecting the amount of interest payable to any holder of a Note or the calculation of interest on any Note, if the rate of interest on any Note is calculated on the basis of a year (the "deemed year") which contains fewer days than the actual number of days in the calendar year of calculation, such rate of interest shall be expressed as a yearly rate for the purposes of the INTEREST ACT (Canada) by multiplying such rate of interest by the actual number of days in the calendar year of calculation and dividing it by the number of days in the deemed year. All payments of principal of and premium, if any, and interest on the Notes will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, and all references herein to "United States dollars", "U.S.$" or "U.S. dollars" shall be deemed to refer to such coin or currency of the United States of America. The principal of and premium, if any, and interest on the Notes shall be payable, and the Notes may be surrendered for exchange, registration, transfer or discharge from registration, at the office or agency maintained by the Corporation for such purpose from time to time in the City of Calgary, Alberta (which shall initially be the office of the Trustee in the City of Calgary, Alberta) and, under the circumstances described in Section 2.14(j) of the Original Indenture, in the Borough of Manhattan, The City of New York, and in such other places as the Corporation may from time to time designate. The Trustee is hereby appointed as the initial Paying Agent, registrar and transfer agent for the Notes in the City of Calgary, Alberta. The Notes shall be issued only as fully registered Notes, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Notes initially will be represented by one or more Global Debt Securities (collectively, the "Global Note") registered in the name of The Depository Trust Company, as Depositary or its nominee, or a successor depositary or its nominee. -4- The Notes and the certificate of the Trustee endorsed thereon shall be substantially in the form set out in Schedule A to this Supplemental Indenture with such appropriate insertions, omissions, substitutions and variations as the Trustee may approve and shall be numbered in such manner as the Trustee may approve, such approvals of the Trustee concerning any Note to be conclusively evidenced by its certification of such Note. The register referred to in Section 3.2 of the Original Indenture shall, with respect to the Notes, be kept at the office or agency in the City of Calgary, Alberta that the Corporation may from time to time designate for such purpose (which shall initially be the office of the Trustee in the City of Calgary, Alberta), and at such other place or places as the Corporation with the approval of the Trustee may hereafter designate. Without limitation to the foregoing, if the Corporation shall at any time be required by the terms of the Notes or the Trust Indenture to appoint a registrar for the Notes in the Borough of Manhattan, The City of New York, the Corporation shall cause a register for the Notes also to be kept at the office of the registrar in the Borough of Manhattan, The City of New York and the Trustee hereby gives its approval to a register being kept at such place. The Notes shall be subject to redemption at the option of the Corporation as provided in Article 3 of this Supplemental Indenture. The Corporation shall not be required to redeem, purchase or repay Notes pursuant to any mandatory redemption, sinking fund or analogous provision or at the option of the holders thereof. The Notes will not be convertible into or exchangeable for securities of any Person. The Notes will be entitled to the benefit of Debt Securities Guarantees upon the terms and conditions set forth in Article 4 of this Supplemental Indenture. The Notes shall have the other terms and provisions set forth in the form of Note attached hereto as Schedule A to this Supplemental Indenture, with the same force and effect as if such terms and provisions were set forth in full at this place. 2.2 ISSUANCE OF NOTES Notes in the aggregate principal amount of U.S.$500,000,000 shall be executed by the Corporation and delivered by it to the Trustee on the date of issue for certification and delivery pursuant to and in accordance with the provisions of Sections 2.4, 2.5 and 2.6 of the Original Indenture and, upon the requirements of such provisions being complied with, the Notes shall be certified by or on behalf of the Trustee and delivered by it to or upon the written order of the Corporation without any further act or formality on the part of the Corporation. The Trustee shall have no duty or responsibility with respect to the use or application of any of the Notes so certified and delivered or the proceeds thereof. 3. REDEMPTION OF NOTES 3.1 REDEMPTION OF NOTES The Notes will be redeemable at any time, in whole or from time to time in part, at the option of the Corporation (in the manner and in accordance with and subject to the terms and provisions set forth in the Trust Indenture), at a redemption price equal to the greater of: -5- (a) 100% of the principal amount of the Notes to be redeemed; and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 20.0 basis points; plus in each case accrued interest to the date of redemption; provided that installments of interest on Notes which are due and payable on any date falling on or prior to a redemption date will be payable to the registered holders of such Notes (or one or more predecessor Notes), registered as such as of the close of business on the relevant record dates. 3.2 ADDITIONAL DEFINITIONS For the purposes of this Supplemental Indenture, the following expressions shall have the following meanings: "Treasury Rate" means, with respect to any redemption date, the rate per year equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date; "Comparable Treasury Issue" means the U.S. Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes; "Independent Investment Banker" means one of the Reference Dealers selected by the Corporation; "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Corporation is unable to obtain four such Reference Treasury Dealer Quotations, the average of all such Quotations; "Reference Treasury Dealer Quotations" means, with respect to each Reference Dealer and any redemption date, the average, as determined by the Corporation, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Corporation by such Reference Dealer at 5:00 p.m. (New York City time) on the third business day preceding such redemption date; and -6- "Reference Dealer" means each of Banc of America Securities LLC and Deutsche Bank Securities Inc. and their respective successors, and two other firms that are primary U.S. government securities dealers (each a "Primary Treasury Dealer") which we specify from time to time; provided, however, that if any of the foregoing Reference Dealers shall cease to be a Primary Treasury Dealer, the Corporation shall substitute therefor another Primary Treasury Dealer. 3.3 NOTICE TO TRUSTEE The Corporation will provide notice to the Trustee prior to the redemption date of the calculation of the redemption price. 4. DEBT SECURITIES GUARANTEE 4.1 COVENANT TO PROVIDE DEBT SECURITIES GUARANTEE The Corporation covenants and agrees that, so long as any of the Notes remains outstanding: (a) if any Subsidiary of the Corporation shall at any time guarantee (a "Subsidiary Guarantee") any Indebtedness of the Corporation pursuant to Article 4 of the fourth supplemental indenture (the "Fourth Supplemental Indenture") made as of the 2nd day of July, 1997 to the trust indenture dated as of June 7, 1991 between the Corporation and CIBC Mellon Trust Company, as successor trustee, then the Corporation will cause such Subsidiary (a "Guarantor") to execute a Debt Securities Guarantee pursuant to which it will guarantee the Debt Securities (including the Notes) on substantially the same terms as are set forth in such Subsidiary Guarantee with such changes as may be necessary to conform to local law or practice of the jurisdiction in which the Guarantor is organized (which, in the case of a Subsidiary which is organized and existing under the laws of any State of the United States or the District of Columbia, may include a customary provision limiting amounts payable under such Debt Securities Guarantee to such amount as will not violate applicable fraudulent conveyance or other similar laws and a customary provision providing for contribution from other Guarantors, if any) or as may be recommended by independent legal counsel to the Trustee and incorporating provisions pursuant to which the Guarantor shall submit to jurisdiction, waive immunity, and appoint an agent for service of process to the same extent done by the Corporation pursuant to the Trust Indenture; and (b) the Corporation will comply, and will cause such Guarantor to comply, with all applicable securities laws and regulations, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Trust Indenture Act of 1939, as amended, (and in each of the foregoing cases all applicable rules and regulations thereunder) and with state securities and blue sky laws and regulations of the United States in connection with any Debt Securities Guarantee. Any such Debt Securities Guarantee shall be subject to the terms and provisions of the Trust Indenture, including, without limitation, Article 12 of the Original Indenture. Any such Debt Securities Guarantee shall be duly executed and delivered to the Trustee by the applicable Guarantor, and shall be effective as of a date not later than 90 days after the date on which the Corporation becomes obligated to provide such Subsidiary Guarantee. 4.2 OPINIONS The Trustee will, at the expense of the Corporation, engage independent legal counsel of recognized standing (in the jurisdiction in which the Guarantor is organized) with respect to -7- matters relating to publicly issued debt securities to review the form of Debt Securities Guarantee, and both counsel to the Corporation and such independent legal counsel shall deliver legal opinions to the Trustee to the effect that such Debt Securities Guarantee has been duly authorized, executed and delivered by, and is a valid, binding and enforceable obligation of, the Guarantor (subject to customary exceptions). In addition, the Trustee will, at the expense of the Corporation, engage independent legal counsel of recognized standing with respect to matters of United States federal securities laws (which, if possible, shall be the same independent legal counsel referred to in the first sentence of this paragraph) and such independent legal counsel shall deliver legal opinions to the Trustee to the effect that such Debt Securities Guarantee has been registered under the Securities Act of 1933, as amended, and that the Trust Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended, or that no such registration or qualification is required. All such opinions shall be in form and substance satisfactory to the Trustee, acting reasonably, and shall be delivered to the Trustee not later than the time of delivery to the Trustee of the corresponding Debt Securities Guarantee. 4.3 AUTOMATIC TERMINATION In the event a Subsidiary Guarantee is discharged or released, then, upon Written Order of the Corporation to the Trustee accompanied by a Certificate of the Corporation confirming that the corresponding Subsidiary Guarantee has been discharged or released, such Debt Securities Guarantee shall automatically terminate and be released and the Trustee shall return to the Corporation such Debt Securities Guarantee. 5. GENERAL 5.1 INDENTURE SUPPLEMENTAL TO TRUST INDENTURE This Supplemental Indenture is supplemental to the Original Indenture and the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture and the Third Supplemental Indenture shall, from this date forward, be read in conjunction with this Supplemental Indenture. The Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture and this Supplemental Indenture shall, from this date forward, have effect so far as practicable as if all the provisions of the Original Indenture, the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture and this Supplemental Indenture were contained in one instrument. 5.2 ACCEPTANCE OF TRUST The Trustee hereby accepts the trusts in this Supplemental Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein before set forth in trust for the various Persons who shall from time to time be Note holders subject to all the terms and conditions herein set forth. -8- 5.3 COUNTERPARTS AND FORMAL DATE This Supplemental Indenture may be executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to bear the date first above written. IN WITNESS WHEREOF the parties hereto have executed this Supplemental Indenture under their respective corporate seals on the date first above written. NEXEN INC. /s/ Marvin F. Romanow ------------------------------------------- Marvin F. Romanow Executive Vice President and Chief Financial Officer [Seal] /s/ Una M. Power ------------------------------------------- Una M. Power Treasurer CIBC MELLON TRUST COMPANY Per: /s/ Jacquie Fisher --------------------------------------- Name: Jacquie Fisher Title: Manager, Client Relations [Seal] Per: /s/ Robert Solis --------------------------------------- Name: Robert Solis Title: Account Manager Corporate Trust Service EX-10 14 ex10-42form10k_2003.txt EXHIBIT 10.42 EXHIBIT 10.42 ------------- INDEMNIFICATION AGREEMENT Dated as of January 5, 2004 between Nexen Inc. ("NEXEN") and Eric P. Newell (together with his or her estate, heirs, executors and legal representatives the "INDEMNIFIED PARTY") BACKGROUND - ---------- (a) The Indemnified Party: (i) is or has been a director or officer of Nexen; (ii) is or has been, at the request of Nexen, a director or officer of a body corporate ("BODY CORPORATE"); or (iii) is or has been, at the request of Nexen, a director or officer of or is acting or has acted in a similar capacity (and the Indemnified Party shall for purposes hereof be referred to as a director or officer in so acting or having acted) for a body corporate, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, joint venture or trust ("ENTITY"); (Nexen, any Body Corporate and any Entity being collectively the "CORPORATIONS" and any one of them being a "CORPORATION"); (b) Nexen acknowledges that the Indemnified Party, acting in the capacity of director or officer, is required to make decisions and take actions in furtherance of the business and affairs of any Corporation which might have the result of attracting personal liability; and (c) It is in the best interests of Nexen to agree to indemnify the Indemnified Party from any and all liabilities, losses, costs, charges, expenses or damages sustained or incurred by the Indemnified Party acting in the capacity of director or officer of any Corporation; AGREEMENT - --------- In consideration of the Indemnified Party having acted and continuing to act as a director or officer, the parties agree as follows: 1. DUTY OF CARE (a) In accordance with the provisions of the CANADA BUSINESS CORPORATIONS ACT (the "ACT"), the Indemnified Party, in exercising his or her powers and discharging his or her duties as a director or officer of any Corporation, shall: (i) act honestly and in good faith with a view to the best interests of the Corporation; and (ii) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 2 (b) Each Corporation acknowledges that the Indemnified Party has complied with his or her duties under subsection 1(a) hereof if the Indemnified Party relied in good faith on: (i) financial statements of the Corporation represented to the Indemnified Party by an officer of the Corporation or in a written report of the auditor of the Corporation fairly to reflect the financial condition of the Corporation; or (ii) a report of a person whose profession lends credibility to a statement made by the professional person. 2. DUTY TO COMPLY (a) The Indemnified Party shall comply with the Act, the regulations made in the Act, the articles of the Corporation, the by-laws of the Corporation and any unanimous shareholder agreement or partnership agreement respecting the Corporation. (b) Each Corporation acknowledges that the Indemnified Party has complied with his or her duties under subsection 2(a) hereof, if the Indemnified Party exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, including reliance in good faith on: (i) financial statements of the Corporation represented to the Indemnified Party by an officer of the Corporation or in a written report of the auditor of the Corporation fairly to reflect the financial condition of the Corporation; or (ii) a report of a person whose profession lends credibility to a statement made by the professional person. 3. DISCLAIMER OF LIABILITY The Indemnified Party shall not be liable for the acts, receipts, neglects, omissions or defaults of any other director or officer or any employee or agent of any Corporation or for any liabilities, damages, costs, charges or expenses sustained or incurred by any Corporation in the execution of the duties of his or her office, provided that nothing herein contained shall relieve the Indemnified Party of any liability for liabilities, damages, costs, charges or expenses suffered or incurred as a direct result of any acts, receipts, neglects, omissions or defaults of the Indemnified Party which are in contravention of the Act or any other applicable law. 4. INDEMNITY (a) Except in respect of an action by or on behalf of a Corporation to procure a judgment in its favour, Nexen shall indemnify and save harmless the Indemnified Party from and against all liabilities, damages, costs, charges and expenses (including, without limitation, court fees, legal expenses and witness fees), including an amount paid to settle an action or satisfy a judgment or any fine or penalty levied, reasonably incurred by him or her in respect of any civil, criminal, 3 administrative, investigative or other action, proceeding or inquiry of any nature, to which he or she is, directly or indirectly, a party by reason of being or having been a director or officer of any Corporation if: (i) the Indemnified Party acted honestly and in good faith with a view to the best interests of the Corporation; and (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the Indemnified Party had reasonable grounds for believing that his or her conduct was lawful. (b) For all purposes of this Agreement, a director or officer shall be conclusively deemed to have acted honestly and in good faith with a view to the best interests of the Corporation and to have had reasonable grounds for believing that his or her conduct was lawful, unless and until the applicable court hearing the action in which indemnity is sought determines in a final judgment that is non-appealable that the director or officer in question did not act honestly and in good faith with a view to the best interests of the Corporation or did not have reasonable grounds for believing that his or her conduct was lawful, as applicable. (c) In respect of an action by or on behalf of a Corporation to procure a judgment in its favour, to which the Indemnified Party is, directly or indirectly, a party by reason of being or having been a director or an officer of the Corporation, Nexen shall make an application at its expense for, and use its best efforts to obtain, approval of the Court of Queen's Bench of Alberta to indemnify and save harmless the Indemnified Party from and against all liabilities, damages, costs, charges and expenses (including, without limitation, court fees, legal expenses and witness fees) reasonably incurred by him or her in connection with such action, if the Indemnified Party fulfills the conditions set out in clauses 4(a)(i) and 4(a)(ii). (d) Notwithstanding the foregoing, Nexen shall indemnify and save harmless the Indemnified Party from and against any and all liabilities, damages, costs, charges and expenses (including, without limitation, court fees, legal expenses and witness fees) reasonably incurred by him or her in connection with any action or proceeding to which the Indemnified Party is, directly or indirectly, a party by reason of being or having been a director or officer of a Corporation (including, without limitation, an action or proceeding to enforce or interpret this Agreement), if the Indemnified Party was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the Indemnified Party ought to have done and the Indemnified Party fulfills the conditions set out in clauses 4(a)(i) and 4(a)(ii). (e) For the purposes of this Agreement, the termination of any civil, criminal or administrative action or proceeding by judgment, order, settlement or conviction shall not, of itself, create a presumption either that the Indemnified Party did not act honestly and in good faith with a view to the best interests of the Corporation or that, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the Indemnified Party did not have reasonable grounds for believing that his or her conduct was lawful. 4 (f) Upon the Indemnified Party becoming, directly or indirectly, a party to any action, proceeding or inquiry of any nature referred to in paragraph 4(a), Nexen shall forthwith assume and pay, or reimburse the Indemnified Party for and indemnify and save harmless the Indemnified Party from and against, any and all costs, charges and expenses (including, without limitation, court fees, legal expenses and witness fees) referred to in paragraph 4(a). Such assumption, payment or reimbursement shall be made continuously and promptly after the Indemnified Party has advised Nexen of such costs, charges and expenses. If the outcome of such action, proceeding or inquiry establishes that the Indemnified Party were not entitled to indemnification of such costs, charges and expenses, then the Indemnified Party shall repay to Nexen all amounts paid by it to or for the benefit of such Indemnified Party under this paragraph 4(f) for which there was no entitlement to indemnification. 5. INSURANCE (a) Unless otherwise agreed between the Parties hereto, Nexen shall purchase and maintain, or cause to be purchased and maintained, while the Indemnified Party remains a director or officer of a Corporation and for a period of six years thereafter, directors' and officers' errors and omissions insurance for the benefit of the Indemnified Party on terms no less favourable in terms of coverage and amounts, to the extent permitted by law and available on reasonable commercial terms, than such insurance maintained in effect by Nexen on the date hereof, provided that such insurance shall not apply to any liability incurred by the Indemnified Party relating to any failure by the Indemnified Party to act honestly and in good faith with a view to the best interests of the Corporation. Nexen shall provide the Indemnified Party with a copy of the insurance policies, if requested, and shall provide the Indemnified Party with prompt written notice if such insurance is not maintained for any reason. (b) The indemnification provided pursuant to this Agreement is intended to be available in all circumstances permitted under the Act and, without limitation, is intended to be available in circumstances where any insurance coverage maintained by Nexen is not available, either because the insurer is denying coverage, the actions are not covered due to an exemption or exclusion from the terms of the insurance policy or otherwise, or where Nexen determined for whatever reason not to obtain or maintain insurance coverage. 6. INCOME TAX Should any payment made pursuant to this Agreement be deemed by any taxing authority to constitute a taxable benefit or otherwise be or become subject to any tax or levy, then Nexen shall pay such greater amount as may be necessary to ensure that the amount received by or on behalf of the Indemnified Party after the payment of or withholding for such tax, is equal to the amount of the costs, charges, expenses or liability actually incurred by or on behalf of the Indemnified Party such that the Indemnified Party shall be indemnified for any and all such taxes. 7. ASSIGNMENT The duties and obligations of Nexen under this Agreement shall be binding upon, and 5 enforceable by the Indemnified Party, against Nexen and its successors and assigns, including any corporation with which Nexen is merged or amalgamated. Nexen covenants and agrees that it shall not, without the consent of the Indemnified Party, transfer of dispose of all or substantially all of its assets or business to any entity that does not agree to assume all of the obligations of Nexen under this Agreement. 8. EFFECTIVE DATE Notwithstanding the date of execution of this Agreement, the terms and provisions hereof shall be effective, binding upon, and enforceable by the parties as of and from the date on which the Indemnified Party was first appointed or elected a director or officer of a Corporation. 9. INDEMNIFICATION NOT EXCLUSIVE The indemnification provided by this Agreement is in addition to the indemnification provided by by-laws of any Corporation or those provided under the legislation governing any Corporation. In addition, the indemnification provided by this Agreement shall be in addition to any right of indemnification, contribution or reimbursement that a director or officer has under applicable law, the constating documents of any Corporation or any other agreement between the director or officer and any Corporation and shall continue for the benefit of the Indemnified Party notwithstanding that he or she may have ceased to be a director or officer of one or more Corporations. 10. DEFENCE OF CLAIMS The Indemnified Party covenants and agrees that, upon becoming aware of any facts or circumstances which may give rise to the Indemnified Party becoming a party, directly or indirectly, to any action, proceeding or inquiry referred to in paragraph 4(a) (a "CLAIM"), the Indemnified Party shall provide written notice to Nexen setting out in reasonable detail the nature of the facts relating to such Claim. Upon receipt of the notice of the Claim, Nexen shall, at its expense and in a timely manner, contest and defend against the Claim or cause the relevant Corporation to contest and defend against the Claim and take all such steps as may be necessary or proper to prevent the resolution thereof in a manner adverse to the Indemnified Party. The Indemnified Party shall fully cooperate with Nexen in taking all such steps. If Nexen does not in a timely manner undertake or cause the contestation or defence of the Claims, the Indemnified Party may do so and such contestation or defence shall be at the expense and risk of Nexen provided that if the outcome of such action, proceeding or inquiry establishes that the Indemnified Party was not entitled to contest or defend the Claim at the risk and expense of Nexen, then the Indemnified Party shall repay to Nexen all amounts paid by Nexen in connection with such contestation or defence pursuant to this section 10 and paragraph 4(f) for which there was no entitlement to indemnification. 11. OBLIGATIONS OF NEXEN ABSOLUTE The obligations of Nexen under this Agreement are absolute and unconditional and shall not be released, discharged or reduced, and the rights of the Indemnified Party hereunder shall not be prejudiced or impaired, by any neglect, delay or forbearance in demanding, requiring or enforcing payment or performance by Nexen of any of its obligations hereunder or by granting any extensions of time for such performance or by 6 waiving any performance (except as to any particular performance which has been waived), or by permitting or consenting to any assignment in bankruptcy, receivership, insolvency or any other creditor's proceedings of or against Nexen or by the winding-up or dissolution of Nexen or any other event or occurrence which would or might otherwise have the effect at law of terminating the obligations of Nexen under this Agreement. 12. INTERPRETATION This Agreement is not intended to, and shall not be interpreted to, authorize a payment of an indemnity contrary to section 124 of the Act. 13. SEVERABILITY If any part of this Agreement or the application of such part to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such part to any other person or circumstance, shall not be affected thereby and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 14. CHOICE OF LAW This Agreement shall be governed and construed in accordance with the laws of Alberta and the laws of Canada applicable therein. IN WITNESS WHEREOF the parties have executed this agreement on the date first above mentioned. SIGNED by the Indemnified Party in the presence of: /s/ Michel Lupien /s/ Eric P. Newell - ----------------------------- ----------------------------- Witness Signature Eric P. Newell MICHEL LUPIEN - ----------------------------- Witness Name 11607-134 STREET - ----------------------------- Witness Address EDMONTON, AB T5M 1J3 - ----------------------------- Witness Address SENIOR PUBLIC AFFAIRS OFFICER - ----------------------------- Witness Occupation NEXEN INC. /s/ Sylvia L. Groves ----------------------------- Sylvia L. Groves EX-11 15 ex11-2form8k_020404.txt EXHIBIT 11.2 EXHIBIT 11.2 ------------ NEXEN INC. COMPUTATION OF EARNINGS PER SHARE - U.S. GAAP FOR THE YEAR ENDED DECEMBER 31, 2003 (Amounts in Cdn$ millions except per share amounts)
2003 2002 2001 ------------------------------------------------------- ------ ------ Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual Annual Annual ------------------------------------------------------ ------ ------ Net income (loss) from continuing operations available to common stockholders (U.S. GAAP) $219 $159 $167 ($70) $475 $338 $348 ------------------------------------------------------ ------ ------ Net income (loss) available to common stockholders (U.S. GAAP) $189 $164 $137 ($70) $420 $352 $365 ------------------------------------------------------ ------ ------ BASIC Weighted average number of common shares outstanding (thousands) 123.1 123.3 123.8 124.8 123.8 122.4 120.7 BASIC EARNINGS PER SHARE FROM CONTINUING OPERATIONS $1.78 $1.29 $1.35 ($0.56) $3.83 $2.77 $2.89 ====================================================== ======= ====== BASIC EARNINGS PER SHARE $1.53 $1.33 $1.11 ($0.56) $3.39 $2.88 $3.03 ====================================================== ======= ====== DILUTED Weighted average number of common 123.1 123.3 123.8 124.8 123.8 122.4 120.7 shares outstanding (thousands) Net additional shares issuable pursuant to stock options (thousands): Issuable on exercise 5.1 5.1 8.9 8.1 6.2 8.1 4.7 Re-purchasable from proceeds (4.4) (4.4) (7.4) (6.3) (5.1) (6.7) (3.3) ------------------------------------------------------ ------ ------ Net dilutive effect of stock options (thousands) 0.7 0.7 1.5 1.8 1.1 1.4 1.4 ------------------------------------------------------ ------ ------ Adjusted number of common shares (thousands) 123.8 124.0 125.3 126.6 124.9 123.8 122.1 DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS $1.77 $1.28 $1.33 ($0.55) $3.80 $2.73 $2.85 ====================================================== ======= ====== DILUTED EARNINGS PER SHARE $1.53 $1.32 $1.09 ($0.55) $3.36 $2.84 $2.99 ====================================================== ======= ======
EX-21 16 ex21-0form10k_2003.txt EXHIBIT 21.0 EXHIBIT 21.0 ------------ SUBSIDIARIES OF NEXEN INC. -------------------------- Canadian Nexen Petroleum East Al Hajr Ltd. Incorporated pursuant to the laws of Alberta Canadian Nexen Petroleum Hazar Ltd. Incorporated pursuant to the laws of Alberta Canadian Nexen Petroleum Yemen A partnership doing business in Yemen Canadian Nexen Yemen Ltd. Incorporated pursuant to the laws of Alberta Canadian Petroleum Ecuador Limited Incorporated pursuant to the laws of Jersey Canadian Petroleum Vietnam Ltd. Incorporated pursuant to the laws of Barbados Canadian Petroleum West Africa Holdings Limited Incorporated pursuant to the laws of Jersey Canadian Petroleum Yemen Limited Incorporated pursuant to the laws of Jersey CanadianOxy Offshore Production Co. Incorporated pursuant to the laws of Delaware ICH Capital Management Hungary Limited Liability Company Incorporated pursuant to the laws of Hungary ICM Assurance Ltd. Incorporated pursuant to the laws of Barbados International Capital Corporation Ltd. Incorporated pursuant to the laws of Barbados International Capital Holdings Limited Incorporated pursuant to the laws of Malta Long Lake Synthetic Crude Management Company Ltd. Incorporated pursuant to the laws of Alberta Nexen Canada Ltd. Incorporated pursuant to the laws of Saskatchewan Nexen Chemicals (B.C.) Ltd. Incorporated pursuant to the laws of British Columbia Nexen Chemicals Canada Limited Partnership A partnership formed pursuant to the laws of British Columbia Nexen Chemicals Canada Ltd. Incorporated pursuant to the laws of Alberta Nexen Chemicals Holdings International Limited Incorporated pursuant to the laws of Jersey 1 Nexen Chemicals Holdings U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Chemicals U.S.A. A partnership formed pursuant to the laws of Delaware Nexen Chemicals U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen E & P Services Nigeria Limited Incorporated pursuant to the laws of Nigeria Nexen Energy Holdings International Limited Incorporated pursuant to the laws of Jersey Nexen Energy Services International Ltd. Incorporated pursuant to the laws of the United Kingdom Nexen Field Services Nigeria Limited Incorporated pursuant to the laws of Nigeria Nexen Holdings U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Marketing A partnership formed pursuant to the laws of Alberta Nexen Marketing International Ltd. Incorporated pursuant to the laws of Barbados Nexen Marketing Singapore Pte Ltd. Incorporated pursuant to the laws of Singapore Nexen Marketing U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen No. 5 Ltd. Incorporated pursuant to the laws of Alberta Nexen of California, Inc. Incorporated pursuant to the laws of Delaware Nexen Oil and Gas U.S.A. Inc. Incorporated pursuant to the laws of Wyoming Nexen Oilfield Services Nigeria Ltd. Incorporated pursuant to the laws of Barbados Nexen Petroleum Australia Pty Limited Incorporated pursuant to the laws of Australia Nexen Petroleum Canada A partnership formed pursuant to the Laws of Saskatchewan Nexen Petroleum Capital Management U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Petroleum Colombia Limited Incorporated pursuant to the laws of Jersey 2 Nexen Petroleum do Brasil Ltda. Incorporated pursuant to the laws of Brazil Nexen Petroleum Equatorial Guinea Limited Incorporated pursuant to the laws of Jersey Nexen Petroleum Exploration and Production Nigeria Limited Incorporated pursuant to the laws of Nigeria Nexen Petroleum Holdings Australia Pty Limited Incorporated pursuant to the laws of Australia Nexen Petroleum Holdings U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Petroleum International Ltd. Incorporated pursuant to the laws of Alberta Nexen Petroleum International (U.S.A.) Inc. Incorporated pursuant to the laws of Delaware Nexen Petroleum Nigeria Limited Incorporated pursuant to the laws of Nigeria Nexen Petroleum Nigeria Offshore Ltd. Incorporated pursuant to the laws of Alberta Nexen Petroleum North Africa Limited Incorporated pursuant to the laws of Jersey Nexen Petroleum Offshore Brazil Ltd. Incorporated pursuant to the laws of Alberta Nexen Petroleum Offshore Equatorial Guinea Ltd. Incorporated pursuant to the laws of Alberta Nexen Petroleum Offshore Systems U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Petroleum Offshore U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Petroleum Operations Yemen Limited (Incorporated pursuant to the laws of Bermuda) Continued pursuant to the laws of Jersey Nexen Petroleum Resources Nigeria Limited Incorporated pursuant to the laws of Nigeria Nexen Petroleum Sales U.S.A. Inc. Incorporated pursuant to the laws of Texas Nexen Petroleum U.S.A. Inc. Incorporated pursuant to the laws of Delaware Nexen Quimica Brasil Ltda. Incorporated pursuant to the laws of Brazil 3 Nexen Services Jersey Limited Incorporated pursuant to the laws of Jersey Wascana Energy 2001 Ltd. Incorporated pursuant to the laws of Saskatchewan 4 EX-23 17 ex23-0form10k_2003.txt EXHIBIT 23.0 EXHIBIT 23.0 ------------ INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the following Registration Statements of Nexen Inc.: o Registration Statement No.'s 033-26582, 033-34467, 033-43426, 033-66538, 033-81334, 333-05494, 333-07344, 333-09286 and 333-13574 on Form S-8; o Registration Statement No.'s 333-09288, 333-10646 and 333-84786 on Form F-3; and o Registration Statement No.'s 333-08142, 333-09542, 333-09856, 333-88254 and 333-109747 on Form F-9 of our report dated February 9, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to (i) the application of procedures relating to certain reclassifications of financial statement amounts for discontinued operations, and (ii) the adoption of a new accounting principle, both related to the 2001 consolidated financial statements that were audited by other auditors who have ceased operations and for which we have expressed no opinion or other form of assurance other than with respect to such disclosures and reclassifications), appearing in this Annual Report on Form 10-K of Nexen Inc. for the year ended December 31, 2003. (signed) "Deloitte & Touche LLP" Chartered Accountants Calgary, Alberta, Canada February 20, 2004 EX-31 18 ex31-1form10k_2003.txt EXHIBIT 31.1 EXHIBIT 31.1 ------------ CERTIFICATIONS I, Charles W. Fischer, President and Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Nexen Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-1(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant's internal control over financial reporting; and; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 20, 2004 /s/ Charles W. Fischer ---------------------- Charles W. Fischer President, and Chief Executive Officer EX-31 19 ex31-2form10k_2003.txt EXHIBIT 31.2 EXHIBIT 31.2 ------------ CERTIFICATIONS I, Marvin F. Romanow, Executive Vice-President and Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-K of Nexen Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is likely to materially affect, the registrant's internal control over financial reporting; and; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 20, 2004 /s/ Marvin F. Romanow --------------------- Marvin F. Romanow Executive Vice President, and Chief Financial Officer EX-32 20 ex32-1form10k_2003.txt EXHIBIT 32.1 EXHIBIT 32.1 ------------ CERTIFICATION OF PERIODIC REPORT I, Charles W. Fischer, President and Chief Executive Officer of Nexen Inc., a Canadian Corporation (the "Company"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 20, 2004 /s/ Charles W. Fischer ---------------------- Charles W. Fischer President, and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Nexen Inc. and shall be retained by Nexen Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 21 ex32-2form10k_2003.txt EXHIBIT 32.2 EXHIBIT 32.2 ------------ CERTIFICATION OF PERIODIC REPORT I, Marvin F. Romanow, Executive Vice President and Chief Financial Officer of Nexen Inc., a Canadian Corporation (the "Company"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 20, 2004 /s/ Marvin F. Romanow --------------------- Marvin F. Romanow Executive Vice President, and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Nexen Inc. and shall be retained by Nexen Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 22 ex99-1form10k_2003.txt EXHIBIT 99.1 EXHIBIT 99.1 ------------ AMENDED FORM 51-101F2 REPORT ON RESERVES DATA BY INTERNAL QUALIFIED RESERVES EVALUATOR To the Board of Directors of Nexen Inc. (the "Company"): 1. Company staff and I have evaluated the Company's reserves data as at December 31, 2003. The reserves data consist of the following: (a) proved oil and gas reserve quantities estimated as at last day of the Company's most recently completed financial year using constant prices and costs; and (b) the related standardized measure. (both (a) and (b) form part of the "FAS 69 Disclosures about Oil and Gas Producing Activities" contained in the Company's Supplementary Financial Information in its Annual Report on Form 10-K). 2. The reserves data have been prepared in accordance with: (a) United States' Securities and Exchange Commission (SEC) requirements; (b) generally accepted industry practices in the United States as promulgated by the Society of Petroleum Engineers; and (c) the standards of the Canadian Oil and Gas Evaluation Handbook modified to reflect SEC requirements. (collectively, the Nexen Reserves Standards). 3. The reserves data are the responsibility of the Company's management. My responsibility is to express an opinion whether the evaluation was carried out in accordance with the Nexen Reserves Standards. 4. I am not independent of the Company, within the meaning of the term "independent" under National Instrument 51-101. 5. Among other things, with respect to matters regarding royalties, operating costs, development plans and costs, abandonment plans and costs, and income taxes (where applicable), I have placed reasonable reliance on the information and decisions of others in their areas of authority, responsibility and expertise within the Company. 6. In my opinion, the reserves data has, in all material respects, been prepared in accordance with the Nexen Reserves Standards. 7. Reserves are estimates only and not exact quantities. Estimates of economically recoverable oil and natural gas reserves and future net cash flows are based on a number of variable factors, assumptions and judgements regarding future events. It is believed that the factors and assumptions used and judgements made in estimating reserves are reasonable based on the information available at the time the estimates were prepared. Actual results will vary and such variances could be material. 8. I have no responsibility to update this opinion for events and circumstances occurring after the date of this opinion. 9. I have signed this Form F2 in my capacity as an employee of Nexen Inc. and not in my personal capacity. /s/ Ian R. McDonald - ----------------------------- IAN MCDONALD NEXEN INC. MANAGER, CORPORATE RESERVES CALGARY, ALBERTA FEBRUARY 3, 2004 -----END PRIVACY-ENHANCED MESSAGE-----