Calgary energy firms work through Yemen violence

REBECCA PENTY | JUNE 2011 | SOURCE: Calgary Herald

Calgary-based energy firms are continuing to produce oil from Yemen's reserves while contending with the violent, political upheaval raging in parts of the Middle Eastern nation.

And while the volatile situation has not curtailed output, the difficulties have not gone unnoticed.

Companies have relocated employees due to travel constraints in the capital city and shifted production and transportation of oil while coping with the closure of the country's largest pipeline since a blast in March.

Nexen Inc., which operates Yemen's largest oil project, has moved its people out of the capital city of Sanaa, while Calvalley Petroleum, a Calgary-based junior, has been shipping its crude from the eastern part of the country through a Nexen-operated pipeline after Yemen's largest export pipeline was knocked out more than two months ago by a suspected tribal attack.

Nexen closed its Sanaa office two weeks ago while most other oil and gas companies were getting out of the city, spokesman Pierre Alvarez said.

"It was hard to move around the city and there was, as you know, lots of activity on the streets," Alvarez said Thursday.

Nexen has about 1,000 people working in Yemen, 95 per cent of whom are Yemenese.

Alvarez said the company moved some employees based in Sanaa to facilities in Hadhramaut province while others moved out of the country, though he wouldn't say how many left Yemen.

"We always rotate people," Alvarez said. "We have reduced our work list, but not dramatically."

Alvarez said Nexen has been able to keep production and shipments at normal levels from the country, because its operations are remote -far from where popular uprisings first erupted in Sanaa in January.

"We've had absolutely no concerns about the safety and security of our people and our operations."

As questions about the health of Yemen's president, Ali Abdullah Saleh, continue, the factional violence and pro-democracy protests surrounding his leadership, show no signs of abating.

More demonstrations are planned today as Saleh, who is being treated for bomb blast wounds in Saudi Arabia, has come under mounting international pressure to quit as five months of protests have drawn in powerful tribes, sparking deadly fighting with loyalist security forces.

Calvalley, which operates about 350 kilometres east of Sanaa, said in a statement Thursday that it has continued operations at all key production locations during the political unrest and is proceeding with facility upgrades that should increase production and blending of crude oil.

Junior firm TransGlobe Energy Corp. shut in production in one turbulent part of the country and is making up for the loss by producing more oil in Egypt, it revealed in first-quarter results last month.

Nexen operates two oilfield blocks in Yemen's east -the East Al Hajr and the Masila -and produces some 75,000 barrels of oil per day, which are shipped through a 138-kilometre pipeline to an Arabian Sea port.

The Masila oilfield, traditionally considered the largest in the country, is where most Nexen production occurs through a joint venture in which the company has a 52 per cent interest.

Nexen has worked the Masila since 1993; its total production from Yemen now tops one billion barrels of oil.

The company's Masila production was halted briefly during a two-day labour strike among Yemenese workers that was resolved in mid-May.

While production was down due to labour unrest, the London-based Centre for Global Energy Studies estimated that the strike and pipeline closure together meant 70 per cent of Yemen's typical oil production - or 190,000 barrels of oil per day - was shut in.

An agreement to operate in the Masila field is due for renewal at the end of 2011 and there are no guarantees Nexen will get its contract extended.

"At this point, we have been talking to the government for the last year. Nothing's been concluded," Alvarez said.

BMO Capital Markets research analyst Randy Ollenberger downplayed the potential impact of the political turmoil in Yemen on Nexen.

"I don't think the unrest in Yemen is having an impact on Nexen's stock at this point in time and my understanding is it's not affecting their operations, although I bet they're taking precautions."

But Jennings Capital Inc. analyst Gregory Chornoboy, who covers Calvalley, said there is justified nervousness on the markets about Yemen right now.

"The fact that (Calvalley) have come out and said, 'Look, we're producing, we're not affected,' will offer some comfort to the market, but I don't think that will send shares shooting upwards."

Calvalley, which also has working interests in Ethiopia, is undergoing an executive makeover following the resignation of company president Memet Kont, who is facing Alberta Securities Commission allegations of insider trading.

The ASC, in March, alleged Kont and other former Calvalley employees had, in early 2009, been "in possession of material information not publicly disclosed at the time" shares of Calvalley Petroleum were purchased.

The allegations will be heard by an ASC panel next spring.

No one from Calvalley could be reached Thursday.

The company's progress in Yemen is notable since the firm was affected by protests last month in Sanaa, which temporarily prevented the company from being able to truck a cable necessary to move production from the west to the east.

Tensions in Yemen have spiked recently as clashes involving loyalists to Saleh and rival factions spread.

Uncertainty about the country's leadership has emerged since Saleh, who has ruled for three decades, was reportedly seriously wounded in a rocket or bomb attack at his palace last Friday.

Saleh, 69, who has not been seen since being flown to Saudi Arabia for surgery, was burned on 40 per cent of his body, according to U.S. and Yemeni officials.

University of Alberta political science professor Tom Butko, who specializes in Middle East politics, predicted it will continue to be tough to do business in Yemen due to political uncertainty tied to Saleh's questionable health.

"Most of the major tribes outside of his town have turned on him and that's where you're getting most of the fighting," Butko said.

"It's really turned into a tribal conflict and really now, with Saleh out of the country, it's really disintegrated.

"There are a lot of areas in the country where there is a no-go sort of no-travel zone."

Related article: Turmoil hits Yemen’s oil production

For further insight into Yemenese oil production, subscribe to the Global Oil Insight