Public oil prospecting in Yemen 2: how would it work?

The most appropriate public role might be to step in at the earliest stage in the value chain, with seismic data acquisition and processing, and perhaps also some reprocessing of old perhaps data, not even progressing to appraisal work and exploration wells (certainly not in the case of the offshore fields where the cost would be prohibitive). The objective would simply be to provide enough reliable data to encourage industry action to move to the next step – providing the data support that. The rationale must be to optimise value for money by using the unique position of a public interest investor.

So how would it work?

Well the broad outlines might be: because of Yemen’s generally low prospectivity (and the difficult business environment) IOC capability or interest in running exploration beyond their current limited contractual obligations is low. There are many blocks the Yemeni government is trying to put up for a fifth licensing round at the moment but they have not formally announced this round.

According to the licensing directorate in Yemen’s Ministry of Oil, PEPA, there are 12 producing blocks, 31 blocks under exploration, and 49 open blocks. Of the 12 producing blocks three – blocks 10, 14, and 18 – account for 60% of production – about 170,000 bpd, and half of the proven reserves. They are run by Total, Nexen and the Yemeni state company Safer, who are incidentally the three companies representing the corporate sector in the EITI process.

It’s not always easy with official Yemeni figures to distinguish projections and plans from completed activity. Nevertheless, there seems to have been relatively modest seismic acquisition and geological work done. Of the exploration blocks, they represent about 135,000 square kilometres and about 20,000 kilometres of 2D seismichas been taken. But when you look at individual blocks it seems that much of the data is 15-20 years old (these blocks have been around!) which may have implications for the level of resolution of the data and the noise to signal ratio. Plus, the 3D seismic on all that is 4,300 km squared – which would count as one relatively small survey these days.

I haven’t yet checked how much of the seismic is onshore and offshore. But there are a number of papers describing the difficulties of working in seismic onshore in Yemen because of the patten of jabals and wadis in the three major basins. The first wave of seismic in the 1980s attempted to counter this by holding to straight lines whatever the natural local obstacles while a second phase in the early 90s tried to work more with the contours of the landscape but resulted in what’s called “irregular binning”. This was oil exploration classic along the super hot wadis of the Hadhramawt and the Marib basin – temperatures up to 60 degrees and helicopter borne crews dropping in to loose off dynamite charges as the sound source.

Yet there were more advanced techniques used to try and augment the limited 2D seismic. Another paper describes an initiative in 2001-3 by the Canadian firm Encana, then operating four blocks, to innovate a system of using satellite imagery to corroborate the limited 2D seismic data available, which was considered groundbreaking at the time. A 2001 article in the Oil and Gas Journal talked of Yemen’s great potential – but proven reserves, which climbed to 2 billion barrels  by 1988 just three years after Ray Hunt’s discoveries, peaked at 3 billion in 2004 and have been declining since.

Ongoing Exploration Activities

A closer look at exploration activities listed on the official site PEPA shows they are centered on existing producing fields. Of the 1800 km square 3D to be acquired in 2010, which would increase the total of 3D by 50%, 1350 km squared, or 75%, is within the producing blocks (9, 10, and S2). This suggests it could be appraisal rather than pure exploration (seismic originally began as appraisal of already discoered resources). In 2009, two thirds of the negligeable 3D acquired (totalling some 500 square kilometers across the whole country) was in Block 4, Wadi Ayad, a small producing field operated by KNOC.

It seems possible, therefore, that seismic, leading with 3D seismic and some 2D infill, might be the lion’s share of a public contribution to trying to find new oil in Yemen.

None of the 2010 3D was offshore and yet that is where perhaps Yemen’s last hopes for major discoveries lie.

Marine seismic is becoming more cost efficient and reliable all the time. The latest prestige demonstration of 3D was by BP in the gulf of Sirte through most of 2009, where they employed Geotrace’s ship the Geowave Endeavour to conduct seismic over 17,000 square kilometers of 3D seismic. The ship using 12 streamers (I think) was able to capture nearly 5,000 km of sail run data a month (which resulted in coverage of 2,450 square kilometers). There are no numbers for the value of the contract attached to that figure although we might suppose them to be large.

A report from Guinea in West Africa has Hyperdynamics paying PGS $2.5 million to process 3,675 square kilometers of 3D seismic, for which the acquisition cost $22.5 million. This works out as about $6,000 per square kilometer acquisition and $680 per square kilometer processing. This seems expensive as 3D seismic was costing about $10k per square kilometer in the mid-1990s in some parts of the world, and West Africa has more temperature weather than, say, the North Sea, meaning less down time and more efficiency in the operation. The data processing costs also make the prices charged by the Yemeni oil ministry for access to old 2D seismic data – at something like $40,000 per kilometer line (unexclusive access remember) rather exhorbitant.

Of the blocks offered in the fourth round which were not taken, three lie onshore and offshore near the Saudi border, blocks 22, 23, and 55. Together they represent about 33,000 kilometers square. They have been fairlt well turned over, if some time back, so about 8,000 km of 2D seismic exists as well as well data from some 21 wells across the three blocks. But most of the wells were sunk in the 70s and 80s, and some of the data is so old the depths are recorded in feet form the 1960s. These blocks are mixed onshore/offshore so given the date of the wells it’s hard to believe they’re not also all onshore, together with most of the 2D seismic. A quick look at a bathymetric map of the Red Sea shows that probably three quarters of the waters in the offshore sections of these three blocks are at under 500 meters in depth, so offshore rather than deep offshore.

Another four blocks are around the Socotra Islands, blocks 93 to 96. Some 73,000 square kilometers, a vast terrain, mostly deep offshore but perhaps a third lying on the continuation of the shelf from Somalia. British Gas E & P had an exploration license here in the 1990s and about 7,000 kilometers of 2D seismic lines were shot, perhaps in the 1990s at this time.

If we were to assume about $5,000 per square kilometer for 3D acquisition and processing, $100 million could buy 20,000 kilometers across the whole of the six blocks. We would have to leave to the experts what the survey design would be: perhaps iterative, running loose 2D across wide areas and then focusing in on prospects with 3D, perhaps starting in the Socotra blocks with the areas highlighted from the previous offshore 2D.

In this configuration of an initiative targetting offshore, no funds would be attached to exploration wells – not at $50 million a pop. If combined with onshore, some exploration or appraisal wells could be considered – and this raises an interesting question about a separate strategy. Here we have concentrated on the offshore configuration of seismic because that’s where the chances of a large play are highest – and also where there is no contract incumbency to deal with. A different play is possible, helping producing fields along to discover adjacent wells – apparently lower risk in the sense that large sums spent on this kind of exercise would be much more likely to yield some results. But that perception of risk would be deceptive because the risk of not finding enough oil to achieve the purpose of rescuing the Yemeni economy would still be just as high, and in addition there would be a whole extra layer of contractual issues to deal with.

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