UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File No. 001-06702
A. Full title of the plan and address of the plan, if different from that of the issuer named below:
NEXEN 401(K) SAVINGS AND PENSION PLAN
5601 Granite Parkway Suite 1400
Plano, Texas 75024-6654
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
NEXEN INC.
801 – 7th Avenue SW
Calgary, Alberta, Canada T2P 3P7
NEXEN 401(K) SAVINGS AND PENSION PLAN
FINANCIAL REPORT AND SUPPLEMENTAL SCHEDULE
DECEMBER 31, 2010
C O N T E N T S
| Page | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1 |
| FINANCIAL STATEMENTS | |
| Statements of Net Assets Available for Benefits | 2 |
| Statements of Changes in Net Assets Available for Benefits | 3 |
| Notes to Financial Statements | 4 |
SUPPLEMENTAL SCHEDULE * | |
| Schedule H, line 4i - Schedule of Assets (Held at End of Year) | 17 |
* Other schedules required by 29 CFR 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Administrative Committee
Nexen 401(k) Savings and Pension Plan
Plano, Texas
We have audited the accompanying statements of net assets available for benefits of the Nexen 401(k) Savings and Pension Plan (the Plan) as of December 31, 2010 and 2009, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s Administrative Committee. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2010 and 2009, and the changes in its net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for purposes of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ WEAVER AND TIDWELL, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
June 23, 2011
AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL | WEAVER AND TIDWELL LLP CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS WWW.WEAVERLLP.COM | DALLAS 12221 MERIT DRIVE, SUITE 1400, DALLAS, TX 75251 P: (972) 490 1970 F: (972) 702-8321 |
| STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS |
| DECEMBER 31, 2010 AND 2009 |
| 2010 | 2009 | |||||||
| ASSETS | ||||||||
| Cash | $ | 70,417 | $ | 183,602 | ||||
| Investments, at fair value | 84,234,661 | 74,560,448 | ||||||
| Investment trades receivable | 266 | 124,819 | ||||||
| Notes receivable from participants | 990,923 | 804,239 | ||||||
| TOTAL ASSETS | 85,296,267 | 75,673,108 | ||||||
| LIABILITIES | ||||||||
| Due to broker | 69,545 | 183,942 | ||||||
| Other payables | 127 | - | ||||||
| TOTAL LIABILITIES | 69,672 | 183,942 | ||||||
| NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE | 85,226,595 | 75,489,166 | ||||||
| Adjustment from fair value to contract value for fully benefit-responsive investment contracts | - | (68,943 | ) | |||||
| NET ASSETS AVAILABLE FOR BENEFITS | $ | 85,226,595 | $ | 75,420,223 | ||||
The Notes to Financial Statements are
an integral part of these statements.
2
| STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS |
| YEARS ENDED DECEMBER 31, 2010 AND 2009 |
| 2010 | 2009 | |||||||
| ADDITIONS | ||||||||
| Investment income: | ||||||||
| Net appreciation in fair value of investments | $ | 5,950,688 | $ | 11,012,611 | ||||
| Interest | 58,840 | 54,760 | ||||||
| Dividends | 1,156,413 | 616,717 | ||||||
| 7,165,941 | 11,684,088 | |||||||
| Contributions: | ||||||||
| Participants | 3,547,198 | 3,280,741 | ||||||
| Employer | 5,652,362 | 2,196,049 | ||||||
| Investment Concessions | 54,587 | - | ||||||
| Rollover | 36,600 | 315 | ||||||
| 9,290,747 | 5,477,105 | |||||||
| Other income | - | 7,747 | ||||||
| Transfer into plan | 293,443 | 22,313,374 | ||||||
| NET ADDITIONS | 16,750,131 | 39,482,314 | ||||||
| DEDUCTIONS | ||||||||
| Benefits paid to participants | 6,938,422 | 2,828,467 | ||||||
| Administrative expenses | 5,337 | 5,216 | ||||||
| TOTAL DEDUCTIONS | 6,943,759 | 2,833,683 | ||||||
| NET INCREASE IN NET ASSETS AVAILABLE | 9,806,372 | 36,648,631 | ||||||
| NET ASSETS AVAILABLE FOR BENEFITS, | ||||||||
| beginning of year | 75,420,223 | 38,771,592 | ||||||
| NET ASSETS AVAILABLE FOR BENEFITS, | ||||||||
| end of year | $ | 85,226,595 | $ | 75,420,223 | ||||
The Notes to Financial Statements are
an integral part of these statements.
3
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE PLAN
The following description of the Nexen 401(k) Savings and Pension Plan (the Plan) is provided for general information purposes only. More complete information regarding the Plan’s provisions may be found in the Plan Document.
General
The Plan is a defined contribution plan that was adopted September 1, 1988, and amended and restated effective January 1, 2010, to provide eligible employees of Nexen Petroleum U.S.A. Inc. (the Company) and wholly owned subsidiaries of Nexen Inc. who adopt the Plan (the Participating Employers), a method to meet their long-range financial objectives under the requirements of Section 401(k) of the Internal Revenue Code.
Other than the Company, as of January 1, 2010, Nexen Marketing U.S.A. Inc. (NMU) was the only Participating Employer. On June 1, 2010, the Company’s board approved the adoption of the Plan by Nexen Energy Marketing U.S.A. Inc. (NEMU). On December 29, 2010, the Board of NMU resolved to cease participation in the Plan as the result of a divestiture of NMU.
Charles Schwab Trust Company (the Trustee) is the Plan trustee; the recordkeeping function is performed by Schwab Retirement Services Company.
On December 31, 2009, the Company merged the Nexen Pension Plan into the Nexen Savings Plan, and effective January 1, 2010, the merged plan was renamed the Nexen 401(k) Savings and Pension Plan. All investments from the Nexen Pension Plan were reregistered to the Plan, and a transfer into the Plan in the amount of $293,443 and $22,313,374 was recognized and reflected on the statement of changes in net assets available for benefits for the years ended December 31, 2010 and 2009, respectively.
Eligibility
All regular employees of the Company and Participating Employers who are 18 years of age and over are eligible to participate in the Plan on the entry date coinciding with or following the date the employee attains age 18.
Contributions
Participant contributions are made on a voluntary basis and directly withheld from the participant’s eligible compensation, as defined in the Plan Document. The Plan offers participants the option of making Salary Deferral Contributions and/or Roth 401(k) Contributions. Contributions may be made with: pretax dollars; after-tax dollars; or a combination of pretax and after-tax dollars. Participants are immediately vested in their employee contribution account and actual earnings thereon.
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NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE PLAN – CONTINUED
Contributions – Continued
The Company and Participating Employers will match 100% of participant contributions up to 6% of the participant’s eligible compensation. Participants are immediately 100% vested in their employer matching account.
The Company and Participating Employers will make a pension contribution to the Plan. The contribution is 6% of a participant’s eligible compensation up to the social security wage base and 11.5% thereafter until the IRS compensation limit is reached.
Vesting
Vesting in the Plan is based on the following schedule:
| Vested Percentage | ||||||||
| Years of Credited Service | 401(k) Matching Account | Employer Pension Account | ||||||
| Less than 2 | 100% | 0% | ||||||
| 2 or more | 100% | 100% | ||||||
Forfeitures
Forfeitures related to non-vested interest in terminated employees pension accounts are used to: (a) restore any prior forfeited amounts in an employee’s account who was previously terminated, rehired, and meets the requirements to receive his or her original non-vested portion which had been forfeited, (b) used to pay any reasonable and necessary expenses incurred in connection with the administration of the Plan as the Plan’s Administrative Committee directs, or (c) applied to reduce the amount of matching contributions and employee pension contributions the employer would otherwise make under the terms of the Plan. As of December 31, 2010 and 2009 unallocated forfeitures totaled $4,951 and $69,457, respectively.
Investments
All Company and Participating Employers’ contributions are invested in accordance with the investment choices selected by each respective participant.
5
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE PLAN – CONTINUED
Payments of Benefits
Distribution of a participant’s entire account becomes due in three ways: (1) upon termination of employment, (2) death, or (3) disability, as defined in the Plan Document. At the option of the participant or beneficiary, such account balances may be distributed in a lump-sum payment or via periodic installment payments as described in the Plan Document.
Withdrawals from the Plan by active participants are permitted for specific instances of financial hardship and age 59½ withdrawals, which can be made once every six months. A participant may also withdraw a portion or all of his or her after-tax and rollover account once every six months, subject to a $250 minimum.
Basis of Accounting
The financial statements of the Plan are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Current year contributions, expenses, and investment income, including both interest and dividends, which are not received or paid until the subsequent year, are accrued in the current year. Benefits are recorded when paid.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions to and deductions from net assets available for benefits during the reporting period. Actual results could differ from those estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
Investments are stated at fair value based on quoted market prices at the Plan’s year end. Purchases and sales of investments are recorded on a trade date basis. Participants may direct their contributions and any related earnings into many distinct investment options, including the Nexen Inc. Stock Fund. Interest is allocated to participant accounts on a pro-rata basis depending on the participants’ account balance. Dividends are allocated based on the number of shares in a participant’s account.
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NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
Nature of Investment Contracts
The Plan’s Charles Schwab Stable Value Class S Fund (the Fund) invests primarily in wrap contracts (also known as synthetic GICs). In a wrap contract, the underlying investments are owned by the Fund and held in trust for plan participants. The Fund purchases wrap contracts from high-quality insurance companies or banks that serve to substantially offset the price fluctuations in the underlying investments caused by movements in interest rates. Each wrap contract obligates the principal amounts invested in the underlying investments, plus interest accrued at a crediting rate established under the contract, less any adjustments for withdrawals (as specified in the wrap agreement). Under the terms of the wrap contract, the realized and unrealized gains and losses on the underlying investments are, in effect, amortized over the duration of the underlying investments, through adjustments to the future contract interest crediting rate (which is the rate earned by participants in the Fund for the underlying investments). The wrap contract provides that the adjustments to the interest crediting will not result in a future interest crediting rate that is less than zero. This ensures that participants’ principal and accrued interest will be protected.
In general, if the contract value of the wrap agreement exceeds the market value of the underlying investments (including accrued interest), the wrap issuer becomes obligated to pay that difference to the Fund in the event that shareholder redemptions result in a total liquidation. In the event that there are partial shareholder redemptions that would otherwise cause the contract’s crediting rate to fall below zero percent, the wrap issuer is obligated to contribute to the Fund an amount necessary to maintain the contract’s crediting rate at least zero percent. The circumstance under which payments are made and the timing of payments between the Fund and the wrap issuer may vary based on the terms of the wrap contract.
In certain circumstances, the amount withdrawn from the wrap contract would be payable at fair value rather than at contract value. These events include termination of the Plan, a material adverse change to the provisions of the Plan, the employer elects to withdraw from a wrap contract in order to switch to a different investment provider, or if the terms of a successor plan (in the event of the spin-off or sale of a division) do not meet the wrap contract issuer’s underwriting criteria for issuance of a clone wrap contract.
While it is possible that some of the plans participating in the Fund may experience plan terminations or other events that would trigger fair value payouts under the Fund’s wrap agreements, based on prior experience, management of the Fund believes it is not probable that such events would be of sufficient magnitude to limit the ability of the Fund to transact at contract value with the participants in the Fund. Given that such events are beyond the control of the Plan, however, there can be no guarantee that this will be the case.
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NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
Nature of Investment Contracts – Continued
Average yields for Charles Schwab Stable Value Fund
| Year ended | ||||
| December 31, | ||||
| 2010 | 2009 | |||
| Based on actual earnings (at fair value) | 2.26% | 2.65% | ||
| Based on interest rate credited to participants (at fair value) | 2.73% | 3.06% | ||
The Plan follows current guidance on investment contracts held by a defined-contribution plan which requires these types of investments to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. As required, the Statements of Net Assets Available for Benefits present the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statements of Changes in Net Assets Available for Benefits are prepared on a contract value basis.
Market and Credit Risks
The Plan invests in a variety of investments. Investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that the changes in the values of the investments will occur in the near term and that such changes could materially affect the amount reported in the Plan’s statement of net assets available for benefits.
Administration
The Plan is administered by the Administrative Committee, which is composed of members who are either officers or employees of the Company. Investment options for the Plan are selected by the Benefit Plan Design Committee from funds available through the Recordkeeper.
Some of the fund providers charge 12b-1 fees which are based on Plan assets invested in each fund before earnings are paid to investors. The Recordkeeper and the Trustee receive a portion of the 12b-1 fees charged to the funds.
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NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
Notes Receivable from Participants
Notes receivable from participants are participant loans stated at the unpaid principal balance plus any accrued but unpaid interest. A participant may borrow up to the lesser of 50% of his or her vested account balance or $50,000 with a minimum loan amount of $1,000. The vested account balance for loans does not include pension sources. Loans are repayable through payroll deductions over periods ranging up to 60 months. Participants are charged a $50 loan set-up fee with a $2 monthly maintenance fee per loan. Loans are secured by a lien on the borrower’s vested account balance in the Plan and bear interest at rates based on prevailing market conditions. Interest rates on outstanding loans ranged from 4.3% to 9.13% at December 31, 2010.
Plan Termination
Although it has not expressed any intention to do so, the Company has the right to terminate the Plan pursuant to provisions set forth by the Plan Document and subject to the provisions of ERISA. In the event of Plan termination, each participant’s account shall become fully vested and participants will be entitled to distributions of their entire accounts.
New Accounting Pronouncements
In January 2010, the FASB issued ASU No. 2010-25, “Plan Accounting – Defined Contribution Pension Plans” (ASU 2010-25), which requires disclosure and measurement changes related to participant loans. For reporting purposes, participant loans shall be classified as notes receivable from participants and are no loner subject to fair value measurement disclosure requirements. In addition, notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. The Plan adopted the amendments in ASU 2010-25 effective January 1, 2010, and has retrospectively applied throughout the Plan’s financial statements.
NOTE 3. INVESTMENT PROGRAMS
As of December 31, 2010, the investment alternatives include the following:
Nexen Inc. Stock Fund – provides ownership interest in Nexen Inc. common stock. Quarterly blackout periods apply to this fund and during such blackout periods, participants are unable to purchase or sell shares of Nexen Inc. common stock.
Charles Schwab Stable Value Select – is a collective investment trust fund that allows participants to invest in stable value assets. The fund seeks to provide investors with a stable rate of return while preserving principal and maintaining liquidity.
9
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENT PROGRAMS – CONTINUED
American Beacon Small Cp Val Inv – is a small value fund that seeks long-term capital appreciation and current income by investing over 80% of its assets in equity securities of companies within the United States.
Vanguard Total Bond Market Index Inst – is a fund that seeks to track the performance of a broad, market-weighted bond index.
Cohen and Steers Realty Shares – is a real estate fund that seeks total return through investment in real estate securities and invests at least 80% of its total assets in common stocks and other equity securities issued by real estate companies.
Royce Value Plus Invmt – is a small growth fund that seeks long-term capital appreciation by investing at least 80% of assets in equity securities of small-, mid-, and micro-cap companies.
Schwab S&P 500 Index – is a large blend fund that seeks to track the total return of the S&P 500 index and normally invests at least 80% of net assets in the stocks that are included in the S&P 500 Index.
American Funds Growth Fund of America R5 – is a large growth fund that seeks capital growth by investing primarily in common stocks. The fund may invest a portion of assets in securities of issuers domiciled outside of the United States and Canada.
First Eagle Overseas Fund A – is a foreign stock fund that seeks long-term capital growth by investing primarily in equities of small and mid-sized foreign companies in developed and emerging markets.
American Funds EuroPacific Gr R5 – is foreign large blend fund that seeks long-term capital appreciation by investing in companies domiciled in developed countries outside the United States.
American Funds Washington Mutual R5 – is a large company value-oriented growth and income fund that invests primarily in common stocks of established companies that are listed on, or meet the financial listing requirements of, the New York Stock Exchange.
Oppenheimer Developing Markets Fund A – is an emerging markets stock fund that seeks long-term growth by investing in stock of issues in countries with developing markets.
Third Avenue Value Instl – is a world stock that seeks long-term capital appreciation by investing in equity securities issued by companies that are believed to be undervalued and to have strong financial positions and responsible management.
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NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INVESTMENT PROGRAMS – CONTINUED
American Century Real Estate Inv – invests primarily in income-producing real estate or makes loans to persons involved in the real estate industry. It seeks high total investment return through a combination of capital appreciation and current income. The fund invests at least 80% of its assets in equity securities issued by real estate investment trusts and companies engaged in the real estate industry.
Federated Capital Reserves – seeks to provide investors with current income consistent with stability of principle and liquidity. The fund pursues its objective by investing primarily in a portfolio of short-term, high-quality, fixed-income securities issued by banks, corporations, and the U.S. government.
NOTE 4. TAX STATUS
The Plan received a favorable determination letter from the Internal Revenue Service dated April 5, 2002, stating that the Plan and its amendments are qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the Code), and the trust is exempt from taxation under Section 501(a) of the Code. The trust established under the Plan to hold the Plan’s assets is intended to qualify pursuant to the appropriate section of the Internal Revenue Code as a tax-exempt organization. The Plan has been amended since receiving the determination letter. However, the Company and the Plan’s tax counsel believe that the trust continues to qualify and operate as designed.
In December 2010, the Plan filed Form 5300 with the IRS to request a new determination letter confirming that the Plan continues to qualify under the provision of Sections 401(a) and 501(a) of the IRS Code of 1986 as amended and is waiting for a response on that filing.
11
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS
Investments that represent 5% or more of the net assets available for Plan benefits at December 31, 2010 and 2009 are as follows:
| December 31, | December 31, | |||||||
| 2010 | 2009 | |||||||
| Fair Value | Fair Value | |||||||
| American Funds EuroPacific Gr R5 | $ | 7,407,868 | $ | - | ||||
| American Funds Growth Fund of Amer R5 | 6,604,365 | - | ||||||
| American Funds Washington Mutual R5 | 8,049,040 | - | ||||||
| Schwab S&P 500 Index | 6,266,633 | - | ||||||
| Vanguard Total Bond Market Inst | 6,971,484 | - | ||||||
| Nexen Inc. Stock Fund | 15,742,858 | 16,405,315 | ||||||
| Schwab Stable Value Select | 12,037,489 | 9,995,303 | ||||||
| Oppenheimer Developing Markets Fund A | 4,890,140 | 4,843,033 | ||||||
| Vanguard Total Bond Market Signal | - | 5,669,546 | ||||||
| Washington Mutual Investors Fund A | - | 7,297,581 | ||||||
| American Funds Growth Fund of Amer A | - | 5,857,423 | ||||||
| DWS Equity 500 Index S | - | 4,831,307 | ||||||
| American Funds EuroPacific Gr A | - | 6,476,852 | ||||||
During 2010 and 2009, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) increased in value by $7,165,941 and $11,684,088, respectively, as follows:
| 2010 | 2009 | |||||||||||||||
| Realized and | Realized and | |||||||||||||||
| Interest and | Unrealized | Interest and | Unrealized | |||||||||||||
| Dividends | Gains (losses) | Dividends | Gains (losses) | |||||||||||||
| Mutual funds | $ | 1,042,591 | $ | 6,621,389 | $ | 534,367 | $ | 6,583,643 | ||||||||
| Stock funds | 113,822 | (670,701 | ) | 82,350 | 4,428,968 | |||||||||||
| Notes receivable from participants | 58,840 | 54,760 | ||||||||||||||
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NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 6. PLAN AMENDMENTS
On June 1, 2010, Amendment No. 1 to the Nexen 401(k) Savings and Pension Plan was executed and adopted. The purpose of this Amendment was to 1) exclude vacation conversion pay that is elected by the employee in lieu of vacation from the Plan’s definition of compensation, 2) amend the definition of a “Covered Employee” to exclude a member of a collective bargaining unit with which an employer negotiates and with respect to whom no coverage under this Plan has been provided by a collective bargaining agreement, 3) grant the Benefit Plan Design Committee the authority to approve a new Participating Employer, and 4) create an Expense Account to receive excess remuneration from the Plan’s recordkeeper. Amounts held in the Plan Expense Account shall be applied for the purpose of paying Plan expenses during the Plan year with any amounts remaining allocated to Plan participants in a manner determined by the Administrative Committee.
On November 10, 2010, Amendment No. 2 to the Nexen 401(k) Savings and Pension Plan was executed adopted. The purpose of this amendment was to 1) exclude differential wage payments (as defined in Code Section 3401(h)(2)) paid to a participant by an employer from the definition of a participant’s compensation, 2) amend the definition of “Covered Employee” to exclude a nonresident alien who receives no U.S. earned income, 3) amend the definition of "Limitation Year Compensation" to include differential wage payments made by an employer to a participant for purposes of applying the IRC Section 415 limitations as required by the HEART Act and IRS Notice 2010-15, 4) provide that a participant whose death occurs while performing qualified military service be treated as having died while employed by an Employer for vesting purposes, 5) clarify that a participant’s beneficiary who is not a surviving spouse and is a “designated beneficiary” within the meaning of Treasury Regulation Section 1.401(a)(9)-4, may elect to begin receiving monthly or quarterly installment payments according to Plan provisions, and 6) stipulate that if a participant dies while performing qualified military service (as defined in Section 414(u)(5) of the Code), the survivors of the participant shall be entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan had the participant resumed and then terminated employment on account of death to the extent required by section 401(a)(37) of the Code.
On December 16, 2010, Amendment No. 3 to the Nexen 401(k) Savings and Pension Plan was executed and adopted. The purpose of the Amendment was to 1) exclude amounts paid to or with respect to a seconded employee (as defined by Section 1.1(q) of the Plan) for (a) work permit and visa application costs, (b) relocation expenses including relocation travel and moving expenses, temporary accommodation costs and interim expenses, (c) domicile costs and hotel and living allowances, (d) additional taxes arising from the seconded employee’s working and residing in a foreign country, and (e) any amount attributable to “gross pay factor” or other payments or benefits in excess of those that would have been paid by an employer to a seconded employee as if he or she were performing services as an employee that is not a seconded employee, 2) amend the definition of “Employee” to include a “Seconded Employee” which is an employee whose base salary is paid on the payroll of an Employer but who has been transferred, loaned or seconded to an Affiliated Company pursuant to a written agreement to perform services as an employee of the Affiliated Company for a period of time that will not exceed 60 months and 3) fully vest employer contributions for employees of Nexen Marketing U.S.A. Inc. whose employment was severed as a result of the divestiture of that company.
13
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 7. FAIR VALUE MEASUREMENT
In accordance with current guidance on fair value measurements and disclosures, the Plan defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Plan considers the principal or most advantageous market in which the Plan would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
The Plan applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 inputs: Quoted prices in active markets for identical assets or liabilities.
Level 2 inputs: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Mutual Funds
These investments are public investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in an active market and classified within level 1 of the valuation hierarchy.
Collective Investment Trust (Stable Value Fund)
These investments are public investment vehicles valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is classified within level 2 of the valuation hierarchy because the NAV's unit price is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market.
14
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 7. FAIR VALUE MEASUREMENT – CONTINUED
Nexen Inc. Common Stock
Nexen Inc. common stock is valued at the closing price reported on the New York Stock Exchange Composite Listing and is classified within Level 1 of the valuation hierarchy.
Below are the Plan’s financial instruments carried at fair value on a recurring basis by the fair value hierarchy levels described above:
| As of December 31, 2010 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||
| Assets: | ||||||||||||||||
| Common stock - Nexen | $ | 15,742,858 | $ | - | $ | - | $ | 15,742,858 | ||||||||
| Mutual funds | ||||||||||||||||
| Bond | 6,971,484 | - | - | 6,971,484 | ||||||||||||
| Domestic equity | 30,177,329 | - | - | 30,177,329 | ||||||||||||
| Real estate | 3,783,735 | - | - | 3,783,735 | ||||||||||||
| International/global | 15,521,766 | - | - | 15,521,766 | ||||||||||||
Collective investment trusts (Stable value fund) | - | 12,037,489 | - | 12,037,489 | ||||||||||||
| Total assets | $ | 72,197,172 | $ | 12,037,489 | $ | - | $ | 84,234,661 | ||||||||
| As of December 31, 2009 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||
| Assets: | ||||||||||||||||
| Common stock - Nexen | $ | 16,405,315 | $ | - | $ | - | $ | 16,405,315 | ||||||||
| Mutual funds | ||||||||||||||||
| Bond | 5,669,546 | - | - | 5,669,546 | ||||||||||||
| Domestic equity | 25,160,337 | - | - | 25,160,337 | ||||||||||||
| Real estate | 3,129,953 | - | - | 3,129,953 | ||||||||||||
| International/global | 14,199,994 | - | - | 14,199,994 | ||||||||||||
Collective investment trusts (Stable value fund) | - | 9,995,303 | - | 9,995,303 | ||||||||||||
| Total assets | $ | 64,565,145 | $ | 9,995,303 | $ | - | $ | 74,560,448 | ||||||||
For the years ended December 31, 2010 and 2009, the plan held no investments classified as level three in the fair value hierarchy.
15
NEXEN 401(K) SAVINGS AND PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 8. RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500
The following is a reconciliation of net assets available for benefits and changes in net assets available for benefits per the financial statements to Schedule H of Form 5500 as of and for the years ending:
| 2010 | 2009 | |||||||
| Net assets available for benefits per financial statements | $ | 85,226,595 | $ | 75,420,223 | ||||
| Adjustment from contract value to fair value not reported | ||||||||
| on Schedule H of Form 5500 | - | 68,943 | ||||||
| Net assets available for benefits per Schedule H of Form 5500 | $ | 85,226,595 | $ | 75,489,166 | ||||
| Increase in net assets available for benefits per financial | ||||||||
| statements | $ | 9,806,372 | $ | 36,648,631 | ||||
| Adjustment from contract value to fair value reported | ||||||||
| on Schedule H of Form 5500 | (68,943 | ) | 288,623 | |||||
| Transfers of assets into the Plan included in increase in | ||||||||
| net assets available for benefits per financial statements | ||||||||
| but not included in net income per Schedule H of Form 5500 | (293,443 | ) | (22,313,374 | ) | ||||
| Net gain per Schedule H of Form 5500 | $ | 9,443,986 | $ | 14,623,880 | ||||
Investments in the common collective trust are recorded on the Form 5500 and the financial statement presentation at contract value.
16
SUPPLEMENTAL SCHEDULE
| NEXEN 401(K) SAVINGS AND PENSION PLAN |
| SCHEDULE H, LINEe 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR) |
EIN: 06-0944810 - PLAN NUMBER 001 |
| DECEMBER 31, 2010 |
| (a) | (b) | (c) | (d) | (e) | ||||||
| Description of Investment including | ||||||||||
| Identity of Issuer, borrower | maturity date, rate of investment, | Current | ||||||||
| lessor, or similar party | collateral, par, or maturity value | Cost # | value | |||||||
PARTICIPANT-DIRECTED INVESTMENTS: | ||||||||||
| The Vanguard Group | Vanguard Total Bond Market, | |||||||||
| Net Asset Value $10.35 | $ | 6,971,484 | ||||||||
| The American Funds Group | Washington Mutual Investors Fund R5, | |||||||||
| Net Asset Value $24.64 | 8,049,040 | |||||||||
| The American Funds Group | EuroPacific Growth Fund R5, | |||||||||
| Net Asset Value $38.34 | �� | 7,407,868 | ||||||||
| American Beacon | American Beacon Small Cap Value Plan, | |||||||||
| Net Asset Value $15.50 | 3,105,081 | |||||||||
| Schwab Funds | Schwab S&P 500 Index, | |||||||||
| Net Asset Value $125.14 | 6,266,633 | |||||||||
| First Eagle Funds | First Eagle Overseas Fund A, | |||||||||
| Net Asset Value $19.46 | 3,223,758 | |||||||||
| Royce Funds | Royce Value Plus Invmt, | |||||||||
| Net Asset Value $10.13 | 4,046,853 | |||||||||
| The American Funds Group | Growth Fund of America R5, | |||||||||
| Net Asset Value $27.33 | 6,604,365 | |||||||||
| Third Avenue Funds | Third Avenue Value Instl, | |||||||||
| Net Asset Value $46.32 | 2,103,113 | |||||||||
| Cohen and Steers | Cohen and Steers Realty Shares, | |||||||||
| Net Asset Value $14.43 | 3,783,735 | |||||||||
| Oppenheimer Funds | Oppenheimer Developing Markets Fund A, | |||||||||
| Net Asset Value $28.76 | 4,890,140 | |||||||||
| American Century Investments | American Century Real Estate Inv, | |||||||||
| Net Asset Value $14.43 | 2,108 | |||||||||
| Total mutual funds | 56,454,178 | |||||||||
| Federated Capital Reserve Fund | Cash & Equivalents, | |||||||||
| Net Asset Value $1 | 136 | |||||||||
| Schwab Funds | Schwab Stable Value Class S, | |||||||||
| Net Asset Value $18.82 | 12,037,489 | |||||||||
| * | Nexen Inc. | Nexen Inc. Stock Fund, | ||||||||
| (Nexen Inc. Stock, no par, | ||||||||||
| Net Asset Value $22.90) | 15,742,858 | |||||||||
| CSTC Cash Account | Cash, | |||||||||
| Net Asset Value $1 | 70,417 | |||||||||
| * | Notes receivable from participants | Interest Rates From 4.3% to 9.13% | 990,923 | |||||||
| $ | 85,296,001 | |||||||||
| * | Indicates each identified person/entity known to be party-in-interest. |
| # | Historical cost information omitted as it is not required for participant-directed investments. |
This supplemental schedule lists assets held for investment purposes at December 31, 2010, as required by the Department of Labor's Rules and Regulations for Reporting and Disclosure. |
17
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, Nexen Petroleum U.S.A. Inc. has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
DATED: June 24, 2011
| NEXEN 401(K) SAVINGS AND PENSION PLAN | ||
| By: | Nexen Petroleum U.S.A. Inc. | |
| By: | /s/ Brian C. Reinsborough | |
| Brian C. Reinsborough, President | ||
INDEX TO EXHIBITS
Exhibit Number | Description of Exhibits | ||
| 1 | Consent of Weaver & Tidwell, L.L.P. | ||