Yemen is a small, non-OPEC oil producer. According to Oil and Gas Journal (OGJ), the country had proven crude oil reserves of 3 billion barrels in 2007, down from 4 billion in 2006. The oil is concentrated in five areas: Marib-Jawf - Block 18 (estimated 800 million barrels) in the north; Masila - Block 14 (estimated 800+ million barrels) in the south; East Shabwa - Block 10A (estimated 180 million barrels); Jannah - Block 5 (estimated 345 million barrels) and Iyad - Block 4 (estimated 135 million barrels) in central Yemen.

In 2006, Yemen's total oil production was around 380,000 bbl/d, down from 400,000 bbl/d in 2005. In part, according to Yemen's Petroleum Exploration and Production Authority (PEPA), this is due to declining production in Masila and Marib, the country's two largest fields. EIA’s Short-Term Energy Outlook currently projects oil production to be 360,000 bbl/d for 2007 and 350,000 bbl/d in 2008.

Despite these declines, the national government estimates that the country holds around 9 billion barrels of oil reserves, and that as remaining blocks are explored, production will increase in the near future—particularly from offshore fields. The government hopes to boost output to 500,000 bbl/d in the next few years and to this end is carrying out an offshore licensing round in 2007.

Unlike much of the petroleum production in the Middle East region, Yemeni production is heavily reliant on private foreign companies, with more than 20 foreign firms operating concessions. To date, Yemen is divided into 87 blocks, of which 12 actually produce oil. Twenty six of these blocks are at the exploratory phase, 7 blocks are pending approval and there are 34 open blocks. Yemen is currently tendering 11 offshore oil and gas exploration blocks located in the Gulf of Aden and Red Sea. Since the withdrawal of several major international oil companies in the mid-to-late 1990's because of economic and security issues, the government of Yemen has targeted smaller, independent oil companies to take part in Production Sharing Agreements (PSAs).

Yemen General Corporation for Oil & Gas/Mineral Resources is an affiliation of several state-owned subsidiaries including: the Yemen Oil Company (YOC); the Yemen Refining Company (YRC); PEPA and the General Department of Crude Oil Marketing (GDCOM). The company is responsible for managing the industry contracts and relations with operators and partners, as well as the government's share of crude exports. All branches report to the Ministry of Oil and Mineral Resources (MOMR). MOMR is responsible for oil policy but contracts with foreign oil companies still require parliamentary approval.

Oil production in Yemen is dominated by a few international companies including Canada’s Nexen, Hunt Oil, Total, Occidental and DNO. Recent exploration activity in Yemen has concentrated on the areas bordering Saudi Arabia and the Alif area. Additional exploration activities for 2007 have targeted offshore blocks where little development has taken place.

US-based Hunt Oil was one of the largest producers in Yemen, with an estimated production of 110,000 bbl/d in 2004. However, on November 15, 2005 the Yemeni government replaced Hunt Oil as operator of Block 18 with Safer Exploration and Production Operations Company (SEPCO) of Yemen. In March 2005, Yemen's Parliament had decided to terminate Hunt's Block 18 concession when it expired in November 2005, despite an earlier agreement to extend it by 5 years. Hunt, which has operated in Yemen since 1984, reacted by filing for arbitration against the Yemeni government, while hinting that the company's participation in the Yemen Liquefied Natural Gas (LNG) project (see below) could be adversely impacted.

Despite declining output in mature fields, Yemen's immediate goal for the petroleum industry involves increasing oil production and oil exports. In order to realize this goal, oil exploration activity in Yemen has accelerated since 1997, after a downturn following Yemen's civil war. The MOMR recently announced the Fourth International Bid Round for Offshore Exploration and Production. This round is targeting eleven offshore blocks, namely: Kamaran (22), Hodaidah (23), South Balhaf (46), Midi (55), South Mosina’ah (61), Atab (62), South Nashtun (63), Ra’s Mume (93), Abd Al Kuri (94), Samhah (95), and South Ra’s Mume (96). Click here for a link to full concession map from Yemen’s PEPA.

The MOMR places oil tenders up for bid on a semi-annual basis. Contracts typically involve a 2-3 year exploration period and a 20-year production concession. The Petroleum Exploration and Production Board of MOMR authorizes all licenses for exploration and production in Yemen, subject to ratification by parliament. All contracts are signed between a company or group of companies, as a contractor to the government of Yemen.

In early 2006, Yemen began looking at ways to revise the oil and natural gas licensing terms to increase transparency. One revision includes a seven-stage process for all exploration tenders, which will be undertaken by PEPA.

Yemen has an integrated network of pipelines to transport crude oil and natural gas produced in three central areas. This 560-mile network connects with four longer pipelines that transport oil to several major export terminals. The 260-mile Marib-Ras Isa pipeline is the longest of the domestic pipelines, transporting oil from the Marib basin to the Ra's Isa offshore export terminal on the Red Sea. The pipeline has a capacity of 225,000 bbl/d. The Masila-Shahir pipeline, capable of transporting 300,000 bbl/d, has the largest capacity of pipelines in Yemen. It runs approximately 90 miles from Masila to the export terminal at Ash Shahir. The Shabwa-Rudhum pipeline carries up to 135,000 bbl/d from the Eyad-Shabwa block to the Rudhum terminal on the Gulf of Aden. Jannah-Safir, built in 1996, carries 120,000 bbl/d to production facilities in the Marib region.

Yemen currently has a crude refining capacity of 130,000 bbl/d from two aging refineries. The refinery in Aden, operated by Aden Refinery Company (ARC), has a capacity of between 90,000 and 120,000 bbl/d, while capacity at the Marib refinery, operated by Yemen Hunt Oil Company, is 10,000 bbl/d. The Aden refinery, which had a design capacity of 170,000 bbl/d, sustained significant damage during the country's 1994 civil war, but was later partially rebuilt. 

The Yemeni government is planning to upgrade these refineries in the near future. Plans include upgrades of Aden refinery to 150,000 bbl/d while the Marib plant that currently processes Marib Light crude will be upgraded to also refine Masila crude and expanded to a capacity of 25,000 bbl/d.

An additional 50,000 bbl/d of refining capacity is expected to come online in 2010 from a joint venture announced between India’s Reliance Industries and Hood Oil. The refinery is planned for Ras Issa on the Red Sea coast and will be designed for the Yemen market. Construction is planned to begin late 2007.