Nexen’s Evolving Approach to SCMGranville Clutterbuck, SCM Manager

Nexen Petroleum U.K. Limited

November 2016

FORWARD-LOOKING STATEMENT

Certain statements in this presentation constitute “forward-looking statements” within the meaning of the

United States Private Securities Litigation Reform Act of 1995, including statements regarding expected

future events, business prospects or financial results. The words "expect", "anticipate", "continue",

"estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and

similar expressions are intended to identify such forward-looking statements.

These statements are based on assumptions and analyses made by Nexen Energy ULC (Nexen), a

wholly owned subsidiary of CNOOC Limited (the “Company”, NYSE: CEO, SEHK: 00883, TSX: CNU) in

light of its or their experience and perception of historical trends, current conditions and expected future

developments, as well as other factors that Nexen or the Company believes reasonable under the

circumstances. However, whether actual results and developments will meet Nexen’s or the Company’s

expectations and predictions depends on a number of risks and uncertainties which could cause the

actual results, performance and financial conditions to differ materially from the Company’s

expectations, including those associated with fluctuations in crude oil and natural gas prices, the

exploration or development activities, the capital expenditure requirements, the business strategy,

whether the transactions entered into by Nexen or the Company can be completed on schedule

pursuant to its timetable or at all, the highly competitive nature of the oil and natural gas industries, the

foreign operations, environmental liabilities and compliance requirements, and economic and political

conditions in the People’s Republic of China.

For a description of these and other risks and uncertainties, please see the documents the Company

has filed from time to time with the United States Securities and Exchange Commission, including the

2015 Annual Report on Form 20-F filed on 21 April 2016.

2

• Depressed market

• Little potential left for cost cutting

• Need to strive for Marginal Gains

• Need to achieve better performance and productivity

• Need to strive to collaborate more effectively with key supply chain partners

• Need to strive for sustainability so industry can thrive no matter the oil price.

• Nexen’s Cultural Beliefs programme, marginal gains, etc.

Case For Change

E1

Desired/Needed Culture

Current Culture

A Shift in Desired Results Drives the Need for a Shift in Culture

Shifting Change

Images: Partners In Leadership

0%

5%

10%

20%

30%

40%

50%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

PR

OF

IT

MA

RG

INS

% OF OUTSOURCED 3RD PARTY SPEND

Consulting ServicesX

X

X X

X

X

X X

X

XX

X XX

X

Software Services

PharmaceuticalsIT Processors

IT Networking Equipment

Financial Services

Household Products Tobacco Products

Telecoms

Aerospace

Contract

Manufacturing

Food/ Retailing/

FMCG

AutomotiveConstruction

Computer

Manufacture

1 2

3 4

1 = Very low strategic significance

2 = Low/Medium strategic significance

3 = Medium/High strategic significance

4 = Very High strategic significance

What SCM learnings can we take from other industries?

The Newpoint View

0%

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20%

30%

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10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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% OF OUTSOURCED 3RD PARTY SPEND

R&M - Rarely Moves –

Always StrategicChemicals & Refining– Moves with Chemical

Types, Business Cycles &

with Make/Buy Model

1 2

3 4

1 = Very low strategic significance

2 = Low/Medium strategic significance

3 = Medium/High strategic significance

4 = Very High strategic significance

Where does Oil & Gas sit and what does it tell us?The Newpoint View

E&P – Moves

with Oil & Gas

Market Prices E&P

C&R

R&M

• Ability to recognise critical elements/resources in our supply chains and protect i.e. avoid outsourcing otherwise we may become vulnerable to marketplace

• Ability to understand balance of power between buyers and sellers

• Having mechanisms in place to recognise changes in the balance of power between buyers and suppliers and thereafter to develop new marketplace tactics

• Aggregating demand to the highest appropriate level

• Ensuring sufficient transparency in terms of cost structures and performance

• Ensuring appropriate structural dependency between ourselves and our suppliers

Organisational competencies for successful SCM

implementation

8

Nexen’s flexible approach to contract strategy

development

Tendering tends to be the default position for most Operators, however best in

class Supply Chain companies always assess the most appropriate approach

based on the contingent circumstances. The following conditions are relevant

in such a decision making process:

• Forced to by legislation

• Company policy

• Lack of transparency with current commercial arrangements leading one to

conclude that supplier margins are unreasonably high

• Belief that better pricing is out there

• Problems with performance

Personnel working on behalf of Nexen

Internal 30 %

External 70%

Breakdown of Annual Spend

Internal 20 %

External 80%

Breakdown of HSSE

Incidents

Internal 10 %

External 90%

Strong focus on contract performance

management

Contract Performance Management

High Level Definition:

“The process by which we assure that our suppliers performance is

meeting or exceeding our stated expectations or goals”

We need to understand how we want our suppliers to perform and

adjust our management focus and expectation setting to ensure delivery

against our goals and objectives.

Supplier Prioritisation Matrix

Spend

Cri

ticali

tyH

igh

Lo

w

Low High

Tier 3

Tier 2

Tier 1

Elements of Effective CPM

• Individuals have right skills and training to manage Contracts

• Clear Roles and Responsibilities (Contract Owner / SCM Advisor / Performance & Controls / Daily Users etc.)

• Cross functional team involvement ensures all key areas addressed

Competent Organisation

• Clear and tangible deliverables with SMART KPIs

• Focus on Value not just Price

• Focus on productivity over unit rate

• Consistent application across the business

• Always look for marginal gains

Measures & Targets

• Structured Governance Plan (Monthly / Quarterly / Annual)

• Adopt “Plan – Do – Measure – Learn”

• Sharing of best practice

Performance Review Process

• Nexen has initiated “MDs Day” process

• MDs from 25 key suppliers come together to talk about

inefficiencies, opportunities for enhanced collaboration,

opportunities for Marginal Gains and MER

• Two working groups formed to follow through on agreed focus

areas

– Collaborative CPM

– Collaboration on Scott MER

• Periodic updates to full group on progress

• Early days but definitely a worthwhile process

Enhanced Collaboration With Top Suppliers

• The Supply Chain is facing a very difficult period

• Operators need to review their approach to SCM to ensure that their actions

are supportive of making the Supply Chain more resilient and able to thrive

when the business environment improves

• Key components to a successful SCM strategy

• Operators adopt a truly cross functional approach which is actively supported by

leadership

• Supply Chain to be more transparent in terms of performance and commercial

structures

• Adopting a more collaborative, longer term approach with key Supply Chain Partners

• Appropriate incentivisation structures to drive TQ performance, innovation and

technology development

• Learning from others

14

Final Thoughts