Nexen to exit Yemen's Masila block as PSA expires

Yemen’s government has declined Nexen Inc.’s request to extend the production sharing agreement on Masila Block 14, which will be operated by a newly created Yemen national operating company after it expires Dec. 17.

Nexen’s PSA for East Al-Hajr Block 51 in Yemen, producing 6,000 to 8,000 b/d net to Nexen, or 3,000 to 4,000 b/d after royalties, expires in 2023. The company said it is “evaluating alternatives with respect to Block 51 and future activities in the country.”

Nexen noted that it has produced more than 1.1 billion bbl of oil since entering Yemen in 1987. It declared its first discovery commercial on Dec. 18, 1991 (OGJ, Mar. 9, 1992, p. 49) and started production in 1993 (OGJ, Mar. 5, 2001, p. 82). The company said it had not booked any reserves beyond the PSA term and has amortized all capital costs over the contract period.

The Yemeni operations “generated significant value for our company, enabling us to deploy the cash flow to build our current portfolio of legacy assets,” Nexen said.

Masila block production peaked in 2003 at 225,000 b/d of oil. Nexen’s share of production in 2011 is expected to be 24,000 to 28,000 b/d, or 14,000 to 16,000 b/d after royalties.

The Masila block exit comes as Nexen prepares for the start of oil production from Total SA-operated Usan field off Nigeria in the first half of 2012. Nexen said the “change in production mix is expected to contribute to higher cash flow from operations in 2012 as Usan’s anticipated netback is about double the Yemen netback at current prices.”

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