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Canada's Nexen Risks Losing Key Oilfield in Yemen

Source: Reuters 9/22/2011, Location: Middle East

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Nexen may lose its license for Yemen's Masila oilfield to a local operator, officials in Yemen said, as the Canadian company's efforts to renew the deal are hindered by political turmoil and the government's urgent need for cash. The loss would be a blow to Nexen, which produces around 35,000 barrels per day or more than a tenth of its global output from the field and whose license for it expires in December. The Calgary-based company has also seen production problems at its North Sea assets this year.

Nexen has been working to renew the license for another five years. This has proven difficult, especially during months of anti-government protest in Yemen against President Ali Abdullah Saleh's refusal to accept a mediated plan to quit power. "It (a license extension) is not going to be easy... It is a difficult process under a political crisis," a senior government official told Reuters. "In case of no agreement, they (Nexen) will have to hand over to a local company. There is not going to be any stoppage of oil production," the source added. Industry sources have suggested some government members believe the deal with Nexen brings in less revenue than the project should generate for the state. Nexen said it was still talking to the government.

"Discussions continue with the government of Yemen on the extension on Block 14. We will not be making any comments until those talks are completed," a spokesman said in an email. "Production and shipping activities continue unaffected," he added. "And we remain focused on the safe and efficient operation of our facilities as we have for the past two decades". Nexen produces from its two blocks in Yemen -- Masila (Block 14) and East Al Hajr (Block 51) -- and exports almost all of it from the Ash Shahir terminal on the southern coast of the country, mainly to Asia. Block 14 had the country's biggest proven oil reserves at the end of 2010, according to data from Yemen's Petroleum Exploration and Production Authority (PEPA).

The government source did not name the company that would take control of Masila should Nexen be unable to renew. Another industry source based in Yemen and familiar with the matter said the government would like to pass operations at Block 14 to Yemen-based SAFER E&P Operations Company (SEPOC), which is the operator of Maarib Block 18.

"It looks like there is a mood within the government for SEPOC to take over Block 14 in Masila," the industry source said. An official at SEPOC confirmed the possibility but said the final decision would be made by the Oil Ministry. Nexen began production in Masila oilfield in 1993 and operations have been largely unaffected during the eight-month political crisis, except for a brief halt to production in May because of a worker strike. Government forces have violently surpressed protests over Saleh's refusal to accept a mediated handover plan and Nexen said it has temporarily closed its office in Sanaa, which has witnessed much of the violence.

The company has over 900 employees in Yemen, more than 90 percent of whom are Yemeni nationals. World powers fear that chaos in Yemen, home to al Qaeda's most powerful regional branch and adjoining the world's biggest oil exporter Saudi Arabia, could threaten oil shipping lanes and raise the risk of militant strikes on Western targets. The upheaval has hit the poorest Arab country's modest oil industry hard. An attack by tribesmen forced the country's main oil pipeline to shut for more than three months earlier this year. During the pipeline closure flows of high quality, light Maarib crude stopped, causing its Aden refinery to shut and triggering a fuel crisis that forced the country to increase its fuel imports at a time when it could least afford to. The pipeline was repaired in July and the flow of Maarib crude resumed, enabling the Aden refinery to produce fuel again, although Gulf-based traders say the country still imports some 2-3 cargoes of fuel per month.

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