How does Yemen’s oil future look like?

by Raidan Al-Saqqaf

Minister of Oil, Gas and Minerals Khalid Mahfoud Bahah says that there are large prospects for the Oil Industry in Yemen, the first of which are intensive exploration activities and new Technology which will not only compensate for the current decline in production, but will rise the production to 500,000 bpd.

Question: Kindly brief us on the developments in Yemen’s oil Production.

Answer: Oil productions became one of the challenging issues nowadays especially with the gradual decline which started in 2006 continues in 2007 and we expect it to continue in 2008, we call this a natural gradual landing. When you work in the oil and gas sector you have to make a long term plan, so when you have a limited number of oil wells you can anticipate when oil production will start to decline, and therefore you have to increase your exploration activities in order to compensate for the decline and increase production.
Yemen for a long time has relied mainly on two blocks, that is block 18 Mareb and block 14 Masela, and these two blocks constitute more than 50 % of Yemen’s current oil production. And we know since the Mareb block started production over twenty years ago and our expectations for the last five years that current production from the Mareb block should’ve been zero by now. The same thing with block 14 Masela, the expectation that it should be zero by 2011, knowing that we have to heavily intensify our exploration activities.

But unfortunately, it was a very slow process for exploration that has started only recently and now we have a challenge to stabilize current production, while there is nothing we can do with immediate effect towards increasing production within the next two years. However, this does not necessarily indicate that the picture is negative, what we have done since 2006 is that we are continuously increasing the number of exploration blocks to 40 blocks by the end of this year, which means by the end of 2007 40 blocks will have intensive exploration activities.

And by the standard of a minimum of 25 % success rate, I think we can catch up the decline which started in 2006 and stabilize the production and potentially increase production to the benchmark of 500,000 bpd. This is our target and we are going to reach that target mainly through heavy exploration activities, provided that we continue with the same speed of exploration activities. I think we can meet our target in the near future, however, I must emphasize that although we are intensifying exploration activities and expecting a 25 % success rate at a minimum, the target of producing 500,000 bpd might be possible from one block or from ten blocks, depending on the capacity to produce and the amount of extractable oil the explorations find.

Question: There are reliable reports that indicate that Yemen will run out of oil within five years. How do you comment on such reports?

Answer: The calculations upon which such reports are formulated rely on the current data which state the current reserves plus the expected reserves which exploration activities will discover. However, the World Bank, to be on the safe side, considers only the current reserves and calculates the speed of production and therefore comes to the conclusion that oil in Yemen will finish by 2012. This fact is partially true because it considers the current reserves, but if differs from our reports because we have detailed information about new and potential discoveries through geological surveys.
Another important factor is that there is a new technology of enhancements which substantially increases oil production. This technology has been used in many countries including neighbouring Oman and this technology can increase production from the current reserves from a margin of 30 % to 50 % and sometimes to 70 % which can be extracted from the same oil reserve. So this means that with the current reserve, there is a new technology which will allow us to extract more oil from the current reserves in place. Once this technology is introduced in Yemen this will result in a fundamental change in the numbers of Yemen’s oil production.

Question: How can you quantify Yemen’s oil reserves?

Answer: At this point in time, Yemen’s oil reserves stand at 10 bn barrels, but they key issue is how much can we extract from this oil reserve. Normally we can get 30–40 %, however, with the new technology and the enhancement system which I mentioned we can extract up to 70 % of Yemen’s 10 bn barrels. We are going to start this enhancement system with one company in a selected block, thereafter we will expand the use of this technology to other blocks, and this is the reason why our numbers are more optimistic.
Another reason for optimism is that there is a strong interest from a number of multinational oil corporations in the 11 offshore oil blocks which will be tendered in August. Companies undertake their own geological surveys and preliminary results indicate that there are considerable reserves located in the offshore blocks in the Red and Arab seas which, upon exploration, add substantially to Yemen’s known oil reserves.

Question: Yemen is expected to start the export of natural gas in 2009. How much revenue can the country expect from the sale of gas?Answer: It was announced previously that we are expecting somewhere between $ 10–20 bn over the span of 20. But the exact number depends on the price of oil because the price or gas correlates with the prices of oil, but the tendency worldwide is to move from oil to gas.
The market for gas was limited to selected countries, but now the demand curve indicates that there is a major change in the global gas market, and the demand on gas is likely to boom for different reasons. So when we forecast the income from the sale of gas to range between $ 10-20 bn, we are optimistic that income will be at the maximum level considering the expected increase in gas prices in the future.

Question: You are a strong advocator of transparency. What progress has Yemen made to join the Extractive Industries Transparency Initiative?

Answer: Transparency is a global must which you cannot avoid anywhere in the world. We in the Ministry of Oil have adopted very transparent and simple dealings in our dealings with oil companies, especially following the third international bidding round. Every block is auctioned through a tendering process and we have received a lot of positive feedback that our measures to establish transparency have helped Yemen’s ranking and competitiveness of the oil industry in Yemen.
Yemen has become a leading country in transparency when compared to other third world and Arab countries. The process of joining the Extractive Industries Transparency Initiative has started over a year ago and our ministry will become the focal point in applying this transparency initiative.

Since Yemen still heavily relies on oil, it is our duty to make sure that anything that is everything in this sector is highly transparent in accordance to the highest international standards for transparency. It is our moral obligation as custodians of Yemen’s oil and gas wealth to show the public how this wealth is generated and where it is going and how it is spent. There is also a committee overseeing the mechanism to join this initiative within the ministry and in cooperation with oil companies and the civil society.
In addition to that, there is a disclosure mechanism which has been established in consultation with Transparency International, which includes an auditing process for all oil-related income through an International Auditing Committee which validates what the ministry is doing. Sometimes we have a problem with educating its staff and associates on the importance of transparency and advocating for more transparent dealings in order to build the required capacities in order to implement this initiative professionally, within the preset deadline of upcoming August 31st.