Sarah Abou Ghazaleh reports from Sana.
Yemens oil production is expected to fall from 320,000 b/d in 2007 to 300,000 b/d in 2008, Minister of Oil and Minerals Khalid Bahah said in an interview with MEES on 16 February.In order to face this decline and raise its crude oil output to 500,000 b/d Yemen has, of course, to make new discoveries, said Mr Bahah. Yemens total estimated oil reserves (proven, probable and in place) stand at 10.2bn barrels. Yemen plans to drill 190 wells in 2008-10 (MEES , 3 September 2007) and has recently offered 11 offshore blocks (22, 23, 46, 55, 61, 62, 63, 93, 94, 95, 96) in its fourth international bid round with the aim of raising its oil output to 500,000 b/d.
In total, 25 companies pre-qualified for the bidding round. We are meeting the schedule for the 4th bid round until now and we are expecting to announce the successful bidders by 31 July, said Mr Bahah. We are also in the process of reviewing Yemens production-sharing agreements (PSA) with the help of the American consulting company IHS. Enhanced oil recovery (EOR) has to be used for mature fields and Canadas Nexen are in the process of reviewing this kind of technology. They may use it in the near future.
Declining Production On Blocks 14, 51
Nexens Yemen President and General Manager Gregor Mawhinney said his company was looking into different EOR techniques and EOR screening studies are being finalized right now and should be completed by 2Q-3Q 08. These maybe will be followed by more detailed studies and only if the technology proves to be economical will Nexen discuss the possibility of using EOR with the Yemeni government. Nexens PSA on Block 14 (Masila Block, operator, 52%) ends in 2011 (with a possibility for a five-year extension) and setting in place the EOR technology would take two-to-three years in itself. Only if the existing PSA is extended will it make sense to use EOR, Mr Mawhinney said, without indicating whether or not the company would apply for an extension. The ambivalence is not surprising in light of declining oil production on the block. Nexen is producing 105,000 b/d of oil from Block 14 (with a 90% water ratio) and is expecting production to fall to 90,000 b/d for 2008 (with the same water/oil ratio). Proven oil reserves on Nexens Blocks 14 and 51 once amounted to 1.05bn barrels, of which 1bn are expected to have been recovered by this summer, leaving only 50mn of proven oil reserves. Soon, Nexen will have to work on its possible and probable reserves, Mr Mawhinney said.
Oil production on Nexens Block 51 (East al-Hajr, operator, 87.5%) is also declining. The decline rate is very similar to the one in Block 14 because the producing pools are very similar, said Nexens Block 51 Production Manager Kevin Lett. The company is producing 12,000 b/d of oil from Block 51 and 275,000 b/d of water. Crude output is expected to fall to around 10,500 b/d by end-2008. With the existing wells and the wells we are drilling in 2008, we have oil until 2014 at which date we will be producing around 3,500 b/d of oil, Mr Lett said. The PSA on the Block expires in 2021, long after the 2014 critical date. Nexen is drilling five development wells and one exploration well in 2008. We are also exploring in the western region of our block but while there are a few pools there, other than the producing pools, we have had only mild success in our exploration and have not found enough economic oil to pipeline it to the central processing facilities, he added. Block 51 is approximately three times the size of Block 14 but has a much smaller oil output. While EOR technology could be an option on Block 51 it would make more sense to use it on Block 14 since they have a much larger amount of producing acreage and wells.
Downstream Projects
Yemens current oil refining capacity stands at 110,000 b/d but several new projects are planned (MEES , 14 January). However, the expected scope and completion date of these projects is still uncertain. We are currently conducting a study on the downstream for refineries and petrochemicals, Mr Bahah told MEES . The study is expected to be finalized within three months and we have also called on around eight international consulting companies to lay down a framework for future refining and petrochemicals projects. Yemens two existing refineries are the 100,000 b/d ?Aden refinery (original design capacity was 170,000 b/d) and the 10,000 b/d Marib refinery (MEES , 19 November 2007). ?Aden refinerys capacity is expected to be increased by 50,000 b/d, with the addition of a new fractionation plant to produce unleaded gasoline. The ministry has completed configuration studies, conducted by VECO, determining the kind of crude to be refined and has recently contracted a consulting company to conduct more detailed studies which will include engineering details, Mr Bahah said. These studies should be completed in 2008 and we expect to put out a tender and start the bidding process in 2009. The expansion should cost around $500mn-$1bn and be completed in a period of three years. As to the expansion of the Marib refinery and the petrochemical complex project, they will be determined by the downstream study on which all future refining and petrochemicals projects will be based. said Mr Bahah. The minister went on to say that the Ras ?Isa oil terminal project on the Red Seat coast had attracted many bidders and that the winner would be selected in the next two-to-three weeks. A logistics period of 60 days would follow the selection of the bidder, after which construction, which would take about 24 month, will start, said Mr Bahah. The 3mn barrels storage capacity, project will be completely financed by the ministry at an estimated cost of $150-200mn. This project was delayed a lot. The Ras ?Isa project was initiated in 2006 (MEES , 10 April 2006).
Hood Oil Refinery Plans On Hold
Yemens Hood Oil has put plans to construct a 60,000 b/d refinery at Ras ?Isa on hold while it considers building a larger 160,000 b/d refinery, on which it expects to make a final investment decision in another few months, MEES learns. In May last year, Hood Oil came close to putting in place financing for the original refinery, but then pulled its plans because there would have been insufficient crude coming from the governments Marib field. The expanded refinery would still use crude from the government, but this supply would prove insufficient over an extended time frame, and so Hood Oil hopes to secure crude feedstock from a third party, possibly neighboring Saudi Arabia. The company does not want to proceed with Phase 1 of the project (60,000 b/d capacity by end-2010/early-2011) until it is sure that Phase 2 can be implemented. Constructing the larger refinery in two phases will push costs up to $2-3bn from the $600mn earmarked for Phase 1.
Hood Oil has signed an early works agreement with engineering, procurement and construction (EPC) contractors (LG and Hyundai from South Korea) to procure the long lead items for the projects construction. In January, Aker Kvaerner Powergas, the Indian subsidiary of Aker Kvaerner Group of Norway, was awarded a $6mn contract to provide project management consultancy. The government supply agreement remains in place, and Sana' has also signed a 20-year off-take contract with the company to supply the domestic market with products. The original project financing (which carried a 60:40 debt/equity split) had mandated IFC as the lead arranger, because, as the first of its kind, the deal would have been boosted by the World Bank umbrella. Korean export credit agency (ECA) Kexim, along with Arab Banking Corp (ABC) and a number of other banks, had also planned to supply funds to the project. The decision to postpone the project was made by both Hood Oil and the lenders, with all parties agreeing that the supply issue first needed to be settled in order to secure the long-term sustainability of the project. Hood Oil is a 25% stakeholder in the currently producing Block 9, operated by Calvalley, which has a 50% stake, with another 25% owned by Indias Reliance. Hood Oil has also taken two new blocks (34 and 37) in partnership with Calvalley, but here development work has yet to start.
Copyright MEES 2008.
