Yemen oil production cut by more than a half

12 July 2011

Concern grows over Yemen concessions

The ongoing political instability in Yemen has reduced crude oil production to less than 50 per cent of its normal output.

The London-based Centre for Global Energy Studies estimates that more than 189,000 barrels a day (b/d) of capacity is now offline, from a total of 274,000 b/d from 12 concession blocks.

Canada’s Nexen was forced to halt production briefly in May by a strike. This brought down output from Norway’s DNO, which operates Blocks 32 and 43. DNO delivers its production to Nexen for onward shipment at the Bir Ali export terminal on the Gulf of Aden.

The disruption has caused some panic and concern that international oil companies will leave  the country.

“We have a long relationship with Yemen. We have no plans to pull out of the country. In fact, Nexen is eager to secure an extension to the existing PSA on Block 14 that expires in December 2011,” a spokesman for the company tells MEED.

Yemen oil production 
YearThousand barrels a day
Source: BP

Nexen continues production at two blocks in Yemen, but its production sharing agreement (PSA) at the Block 14 in the central Masila Basin expires at the end of the year.

The company has been in talks with the Oil Ministry since before June 2010 to extend the Block 14 PSA, the country’s largest producing acreage, which is also coveted by state-owned Safer Exploration & Production Operations Company (Sepoc).

Yemen wants to transfer expired leases to make Sepoc the dominant oil company in the country, says a source in the country. It had already taken over the expired 20-year PSA at the Marib block in 2005, previously held by the US’ Hunt Oil since the 1980s.

Despite obtaining a five-year extension, the concession was annulled by parliament and ownership transferred to Sepoc. A lengthy and unsuccessful arbitration followed at the International Chamber of Commerce. Hunt Oil maintains a stake in Yemen Liquefied Natural Gas (LNG) Company.

“They [Sepoc] are basically an operating company with little development experience,” says the Yemen source. “They are very bullish about the deal going through parliament, which is still working, despite the troubles.”

The 1,257-square-kilometre-block, produces only 74,000 barrels a day (b/d), having reached a high of 230,000 b/d in 2004. Without the use of enhanced oil recovery techniques, production could fall as low as 30,000 b/d by the end of the year.

Disruption to the Marib pipeline, which was attacked in mid-March has affected the operation of other international oil companies. Canada’s Calvalley Petroleum reported on 30 June that production operations continued at restricted levels to build inventory volumes.  Austria’s OMV has also faced shutdown after a oil pipeline closure (MEED 6:7:11).

Sepco is reported to have reached an agreement with local tribes to allow access to the damaged section of pipeline, but the scale of the security operation means it is unlikely to happen quickly.

France’s Total, which has an operator stake in the Yemen LNG, met with senior government ministers in early July to discuss the new developments and procedures aiming to raise the oil and gas production in the country.

Yemeni vice‐president Abd Rabbu Mansur Hadi said associated gas from Total’s onshore Block 10 was needed to feed planned power stations in the country and new markets for the Yemeni gas, state-owned Saba news agency reports.

Oil production in Block 10 increased to 80,000 b/d from 70,000 b/d in December. The block also produces around 60 million cubic feet a day (cf/d) of associated gas. Despite the disruption to Yemen’s oil production, Yemen LNG still receives 1 billion cf/d of gas from Sepoc’s Block 18 through a separate pipeline.

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