139
under the PSC, the Group is currently collecting 250 km
2
of 3D seismic data to define potential drilling sites in the
southern part of the Block for an exploration well, which it expects to finish collecting by mid-July 2014.
Block 82
Block 82 covers a gross area of 1,853 km
2
and are located in South Central Yemen. The Group has a 21.25% revenue
interest and a 25% cost interest in the Block 82 licence, held through a PSC entered into with the Yemen Ministry of Oil
and Mineral Resources. The Group’s JV partners are Medco Energi International, which holds a 38.25% working interest
and is the operator, Indian Oil Company and Oil India Company, which each hold a 12.75% interest, and TYC, which
holds a 15% interest. The Group was part of a consortium awarded the blocks via international auction in December
2006. The costs associated with TYC’s working interest are carried pro rata by the other JV partners. In 2013, 199 km
2
of 3D seismic data was acquired and processed in Block 82.
The licence for Block 82 has been extended for one more year, to 31 December 2014. At present, collection of 3D
seismic data is suspended due to security issues, although approximately 50% of the survey has been completed to date.
The Group’s expected capital expenditure in relation to Block 82 in 2014 is $4.4 million, in respect of seismic
interpretation and one exploration well and a further $6.8 million in 2015 for additional seismic and other exploration
work. The Group is currently seeking attractive opportunities to sell or monetise the value of Block 82 or otherwise exit.
Sales
Oil produced from Block 5 is transported from the field via a 12-inch pipeline to the Marib central processing unit. The
crude oil is then transported via a 430-kilometer pipeline to Ras Isa Export Terminal located at the deep sea port of Salif.
The oil is sold for export as the Marib Light blend on the international market. It is sold through a Crude Oil Sales
Agreement between Exxon Worldwide Trading Company and Jannah Hunt Oil Company Limited whereby Jannah Hunt
Oil Company Limited receives a netback based on the free-on-board price Exxon receives. The Marib Light blend is
generally sold to far eastern markets such as China, Japan, Singapore, Korea and India.
The Group’s oil exports from Block 43 during 2012 were made through sales to Nexen Marketing Inc. Following a
consideration of offers from competitor offtaker companies, the Group’s oil exports from Yemen during the first three
months of 2014 were made through sales to Arcadia Energy Pte Ltd. The oil that the Group produces from Block 43 in
Yemen is sold for export as Masila Blend on the international market. The Masila Blend is a high quality crude and
achieves prices comparable to Brent Blend on the international market. The crude oil produced at Block 43 is processed
to sales quality at the Block’s processing facilities owned and operated by DNO, and is thereafter transported through
pipelines to a central export facility in Block 14 which is owned and operated by the Masila Company for Petroleum
Exploration and Production (“
PetroMasila
”). From Block 14, the oil exports are transported via a 145 km pipeline to the
Ash Shihr crude export terminal at Al Mukalla on the Gulf of Aden Coast, from which point it is shipped to the
international market. The Directors consider it likely that any oil discovered in Block 49 would require a separate
pipeline to transport the oil to the offtake terminal near Al Mukallah.
Fiscal regimes
The Group’s operations in Yemen are governed by PSCs. The Group holds interests in PSCs relating to Blocks 5, 43, 49
and 82 in Yemen: Blocks 5 and 43 are in the development phase, while the remaining blocks in Yemen are in the
exploration phase. The PSCs have been negotiated with the Yemen Ministry of Oil and Mineral Resources, which has a
working interest through TYC of 15% in the PSCs for Blocks 43, 49 and 82 and through YICOM in the PSC for Block 5.
The Yemen Ministry of Oil and Mineral Resources is responsible for managing the PSCs and the relations with the
operators, as well as the government’s share of oil exports.
Minimum work obligations, which must be completed within the exploration phase under the PSCs, encompass a
minimum expenditure of between $10 million and $20 million for each Block and involve the acquisition, processing
and interpretation of seismic data, the drilling and evaluation of between one and three exploration wells in each Block,
and the reprocessing of available seismic data. A Group company is the operator under four of the PSCs and performs
these obligations on behalf of the JV partners in those areas. The collection of 3D seismic data from Block 49 is the only
commitment outstanding as at 31 March 2014.
Under the PSCs, when there is a commercial discovery in an exploration area, the relevant parts of that exploration area
are converted to a development area or areas. The development phase is typically 20 years from the discovery date. The
Group also has the option to extend the development phase of each PSC by an additional five years, subject to approval
by the government.
