Wednesday, 7 December 2011

Yemen: Nexen may leave, Total hopes for extension

Canadian oil company Nexen, which has been active in Yemen since 1987, has announced that it is “reconsidering” its position after it was prevented from renewing its concession for the Masila oil field, which was due to end on 17th December. The company said that, “while we are disappointed we did not receive an extension, we are proud of the accomplishments we’ve achieved there. Our operations at Masila have generated significant value for our company, enabling us to deploy the cash flow to build our current portfolio of legacy assets.” The government has set up Masila Company for Petroleum Exploration and Production (PetroMasila) to take over the field and its proceeds will go to the ministry of finance. Production at the field has dropped to only about 10 per cent of its 2003 peak of 225,000 b/d. Nexen still has another small field at East Al- Hajr, producing 6,000–8,000 b/d.

Earlier this year, Yemeni government sources were signalling that the concession would be renewed. More recently, Nexen indicated that it was planning for a withdrawal should negotiations fail, suggesting that it did not expect to win. It is possible that the government desperately needs as much revenue as it can get from the field to make up for the reduction in income as Yemen’s other oil exports fall. The opposition says that the people will not see any of the money, as it will be squandered by the regime for political purposes.

The affair sends a very bad signal to other companies still looking to enter Yemen, either to farm into existing concessions or try to get new ones. Others are interested in Yemen’s considerable mining potential. Yemen clearly needs to do all it can to encourage foreign investment in both building on the promise of the transition arrangements and the international willingness to help Yemen overcome its problems.

Gas exports, which will be of increasing importance to Yemen, have not been interrupted. Total is negotiating arrangements over its oil concessions. This will no doubt be helped by the high-profile (for Yemen in these dangerous days) visit by the French ambassador to its Block 10 field in Hadhramaut.

For more news and expert analysis about Yemen, please see Yemen Focus.

© 2011 Menas Associates

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