x Abu Dhabi, UAEMonday 24 July 2017

Oil Search strikes gas for second time in Yemen

Oil Search, an international oil and gas developer in which Abu Dhabi is a major shareholder, has struck gas for a second time in Yemen.

Oil Search, an international oil and gas developer in which Abu Dhabi is a major shareholder, has struck gas for a second time in Yemen, suggesting the company could soon develop its first gas project outside its home country of Papua New Guinea. Oil Search, which is 17.6 per cent owned by the Abu Dhabi Government-owned International Petroleum Investment Company (IPIC), said the Al Meashar-1 exploration well - in which it holds a 34 per cent interest - had found "high levels of gas". Flow testing would be conducted once the well had reached its total planned depth, the company added.

Last November, Oil Search announced that the Tubb'a-1 well in Yemen - in which it holds a 60 per cent interest - produced up to 9 million cubic feet per day (cfd) of gas during tests. It is too early to tell whether the discoveries will lead to a commercial project, but two successive gas strikes are encouraging. The Yemeni exploration concessions held by Oil Search are adjacent to a block containing the Habban oilfield, which may contain more than 100 million barrels of crude.

That field is being developed by the Austrian petroleum group OMV, which is 20 per cent owned by IPIC. Oil Search is much smaller than OMV and the even larger oil and gas companies that Yemen's government has long courted in the hope of reversing years of declining oil output and developing new gas production. Last year, it produced less than 21,000 barrels per day (bpd) of oil and just 15 million cfd of gas, all from Papua New Guinea, where it has booked significant reserves and is a partner with ExxonMobil in a US$15 billion (Dh55.05bn) liquefied natural gas (LNG) project.

Oil Search's early success in Yemen, however, could indicate a way forward for the country, which is on the brink of economic collapse amid mounting security problems and falling oil revenue. Instead of seeking help from major oil and gas companies, the latest being the Russian gas giant Gazprom, the impoverished Arabian nation could approach well-capitalised smaller firms that may be less risk-averse than the larger players.

Yemen is viewed as a "boutique" market, mostly attractive to resources enterprises seeking to establish themselves, said Christopher Boucek, an associate in the Middle East programme for the Washington-based Carnegie Endowment for International Peace. Yemeni officials have been betting on the country's recently commissioned $5bn LNG venture, led by France's Total, to shore up the country's ailing economy.

For that to happen, however, Yemen would need to make significant strides in developing its estimated 17.3 trillion cubic feet of gas reserves. "While LNG exports may offer a brief respite from a future without oil exports, even at full capacity the country's potential gas exports will not sufficiently replace declining oil production," Samuel Ciszuk, the Middle East energy analyst at IHS Global Insight, warned in a report last September.

Yemen's oil output has fallen from a peak of 457,000 bpd in 2002 to less than 281,000 bpd last year, and is expected to drop to about 250,000 bpd by 2014, according to the US energy information administration. The country's new LNG facility, which exported its first cargo in November, can produce up to 6.7 million tonnes per year of the supercooled fuel, and could generate up to $50bn of revenue by 2028.