The oil exploration scene is now undergoing a considerable change. The high optimism for new discoveries in the late 1980s and early 1990s has now been dampened by lack of success. During this period, most of the major oil companies signed exploration agreements for acreage principally in the Shabwa region, previously operated by the Russians. The terms were exceptionally advantageous for the government of Yemen with high signature bonuses and heavy work programmes. Many of the companies also paid large sums towards the cost of earlier exploration activities by the Russians. Such terms were agreed by the companies in the expectation of making major oil discoveries in that area. Other smaller oil companies including Clyde and Lasmo also signed agreements at that time for areas to the east of Shabwa towards the border with Oman.

A major programme of seismic work and exploration drilling was undertaken in these areas in the early 1990s, but the results were disappointing. In consequence, some of the major companies such as BP Sun and Shell withdrew from the Yemen and others, like Occidental, scaled down their operations. Some companies, such as Chevron, Amoco, Total, Arco, BHP and British Gas, however, are continuing their operations pro tem: British Gas is currently perhaps the largest operator and its acreage includes an offshore block south of the island of Socotra.

Two small discoveries have been made by Total in the Jinna block, just west of Shabwa and in its east Shabwa block. It is possible that production from these blocks could reach 30,000 barrels per day, utilising the existing Marib and Masila pipelines. However, the general lack of success means that a re-evaluation of terms is now considered necessary in order to attract smaller companies to take on the available acreage.

Despite this lack of success by the majors, a few smaller companies have recently signed agreements for acreage, including Mayfair Petroleum, al-Qawi of Oman, a Malaysian group and Ansan Wikfs of Indonesia. It is particularly interesting to note the growing interest being shown by far eastern companies in the oil sector in the Yemen. There is currently particular interest in Block S-1, formerly held by Shell, where a small discovery was made.

It is important for the development of oil resources to attract more of these smaller companies to take up the current open blocks and continue the exploration effort for the longer term benefit of the country. These companies will not offer the same level of terms and work programmes as the major oil companies, but it is of great importance to maintain the exploration effort in the country. The key to this is to offer more flexible terms which are more appropriate to the smaller finds which are now the most likely scenario. It is most unlikely that major companies will take up this acreage.

Perhaps the most interesting development in the oil and gas sector is the utilisation of the large natural gas reserves which have been discovered. After protracted discussions with Enron Corporation, Yemen Hunt and Total, the government signed an agreement, in March this year, with Total as a first stage towards a full agreement for the development of the country’s gas reserves. The plan includes use of some of the gas for local consumption and a liquified natural gas plant. The project would include a pipeline system and associated facilities on the coast to liquefy and export the gas. Discussions on progressing this project are likely to continue for some time and to be very complicated due to the number of questions such as the ownership of the gas and the introduction of additional partners to the project. The cost of this major project would reach $5-6 billion and would bring considerable long term benefits to the country.

Another major project that has been under discussion for some years is the rehabilitation of the Aden refinery. Talks have been held with a number of companies but, as yet, no decision has been taken. One of the key difficulties, apparently, has been the arrangement of finance.

An additional factor which could influence the oil scene in Yemen is the recent changes in the Ministry of Oil and Mineral Resources. The new minister is Dr. al-Attar, who is also Minister of Industry, and a number of senior officials in the Ministry have also changed. It remains to be seen how these changes will affect the policy and development of activities in the Yemen.

Despite, therefore, the lack of success during the ‘boom’ years of exploration, the oil and gas sector has considerable opportunities for smaller scale discoveries, given a sense of realism in terms and conditions for exploration and development. Even small scale discoveries are of benefit to the country, especially in the present difficult economic circumstances.

November 1995