YEMEN - Hunt/ExxonMobil Sue San'a'.

Yemen Exploration & Production Co. (YEPC), a US joint venture of Hunt Oil and ExxonMobil Corp, in late 2005 filed arbitration at the Paris-based International Chamber of Commerce against the San'a' government over the removal of YEPC as operator of Block 18, located in the Ma'rib/Jawf basin

In a statement released to the international media, Hunt said: "Since 15 November, 2005, the government of Yemen has taken numerous actions to prevent YEPC from exercising its duties as operator of Block 18 in breach of various legally executed and binding agreements signed in 2004. This is without precedent in Yemen.

"Furthermore, Yemen has attempted to replace YEPC in the Marib block with a government-owned company, Safer (Safir) Exploration & Production Operations Company".

YEPC had produced crude oil from Block 18 for about 20 years pursuant to a PSA passed into law in Yemen in 1982. A five-year extension to the original PSA was signed by the government of Yemen and YEPC on Jan. 4, 2004 and the five-year term began on Nov. 15, 2005. Since Nov. 15, the government has taken numerous actions to prevent YEPC from exercising its role as operator of Block 18 "in breach of the various legally executed and binding agreements signed in 2004".

Hunt Oil CEO Ray Hunt said: "Since the signing of the extension in January 2004, YEPC has spent millions of additional dollars in Yemen at the request of the Government of Yemen. Unfortunately, YEPC is now forced to respond to the Yemen Government's failure to honor the sanctity of our legal contract by filing this arbitration".

Hunt added: "In our 70 year history, with operations on every continent except Antarctica, we have never had to file arbitration to defend our rights. We are proud of our history in Yemen, having discovered the country's first oil in 1984 and having employed and trained over 2,000 Yemeni nationals while producing over one billion barrels of oil. We are disappointed that YEPC has been forced to file arbitration, but the Government of Yemen's expropriation of Block 18 leaves us no choice".

A major question raised by the dispute is the impact on the rejuvenated Yemen LNG (YLNG) venture. Hunt is an 18% shareholder in the venture company and the gas feedstock for the two planned LNG trains to be built at Bel Haf will be sourced from Block 18.

A spokesperson for Total of France, the main foreign shareholder in YLNG, was in early December 2005 quoted as saying: "We don't foresee it having any impact on the [YLNG] project".

The press in December quoted "another official involved in the [YLNG] project" as saying: "What happened was that the government said that parliamentary approval was needed for the five-year extension of Hunt's [Block 18] concession and parliament rejected the proposal. But I don't see the LNG project being derailed. At worst, it might be delayed for a few months".

Yemen's parliament had earlier objected to aspects of the YLNG scheme, accusing the government of pricing the LNG to the offtakers - Korea Gas Corp (Kogas), Total and Suez Energy Tractebel of Belgium - too cheaply.

However, a final investment decision of YLNG was taken by Total and the other shareholders in late August 2005 and the main engineering, procurement and construction (EPC) contract packages, covering the pipelines and liquefaction trains, had been awarded (see OMT No. 26).