Business

Canadian Nexen continues negotiations with Yemen government

NY

Deputy President meets with Nexen Seniors

BY: NY Staff

Canadian Nexen Petroleum Yemen, operator of Masial Block 14, is facing an uncertain future regarding its future operations in Yemen. The ongoing civil unrest in the country did not give the company enough time to settle out a deal to finalize a transition process or approve any sections of the proposed future partnership outline plan.

Accordingly, 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.

Last week the Deputy President Abdurabu Mansour Hadi, met with the high delegation from Nexen-Calgary which included Mr. Ali M. Sohaigi, the deputy executive chairman and Amir Al-Edross, minister of oil and minerals. This is the second meeting with the deputy president in two months. At the conclusion of the meeting, Mr. Mansour rejected Nexens request to renew the license for the next five years, however he did give them the green light to continue their operations for one year more due the uncertainty of Yemen’s political landscape.

The loss of the license to continue operations in Al-Masial block would be a blow to Nexen, which produces more than 110,000 barrels per day – a tenth of its global output – from the field.

Nexen has been working to renew the license as it is set to expire in December. This has proven exceptionally difficult, especially during the recent months of anti-government protest against President Ali Abdullah Saleh’s refusal to accept a mediated plan to quit power.

“[a license extension] is not going to be easy . . . It is a difficult process under a political crisis,” a senior government official told Reuters.

“If there is no agreement, [Nexen] will have to hand over production to a local company. . . . oil production will not stop,” the source added.

Industry sources have suggested some government members believe the deal with Nexen will bring in less revenue than a locally managed project.

Nexen said it was still talking to the government.

“Discussions are continuing 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 e-mail.

“Production and shipping activities continue to be unaffected,” he added. “We remain focused on the safe and efficient operation of our facilities as we have for the past two decades.”

Nexen produces from two blocks in Yemen, Masila (Block 14) and East Al Hajr (Block 51), and exports almost all of it to Asia from the Ash Shahir terminal on the southern coast of the country.

Block 14 had the country’s largest 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 its license.

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 Marib Block 18.

“It looks like there is a movement within the government to allow 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.

Sources are saying that SEPOC might not receive a warm welcome to operate Block 14 as SEPOC is owned by the government and already operates in the north and in block 14 located in Hadhramout in the south. Some southern officials have complained by remarking that companies from the south deserve to operate the block.

Nexen began production in the Masila oilfield in 1993 and its 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 suppressed protests over Saleh’s refusal to accept a mediated handover plan. As a result, Nexen said it has temporarily closed its office in Sanaa due to the violence.

The company has over 900 employees in Yemen, more than 90 per cent 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 down for more than three months earlier this year.

The pipeline was repaired in July and crude from Marib began to flow again enabling the Aden refinery to produce fuel again. However, Gulf-based traders say the country still imports some 2-3 cargoes of fuel per month.