Yemengate

In a tiny Middle Eastern country, government officials have accused Dallas oilman Ray Hunt's company of cheating them out of millions.

For its part, Hunt Oil will not discuss the specific allegations that have surfaced in the Arab press. Hunt Oil Vice President Jim Oberwetter declined to respond to the allegations, except to generally characterize them as "scurrilous."

In response to a series of written questions concerning the allegations faxed to Hunt Oil by the Observer, the company instructed one of its attorneys to issue the following statement:

"The allegations referred to [in the Observer letter] are replete with misleading and false statements, many of which appear calculated to harm the reputation of Hunt Oil. Therefore, the company will not dignify them with a response."

It may be no coincidence that Hunt-bashing is showing up in the Arab press just as the Yemeni government is trying to finalize a deal awarding rights to natural gas reserves that are located in the same field where Hunt holds oil rights.

The Yemeni government wants the natural gas tapped, pumped to a coastal processing plant, and turned into liquefied natural gas (LNG) which can then be sold.

Hunt Oil vied for the LNG contract, which would have given the company a virtual stranglehold over the Ma'rib field, one of the greatest potential sources of wealth for Yemen.

Newspaper articles and two internal government memos accused Hunt Oil of trying to usurp Yemen's sovereignty during the negotiations. Hunt Oil, according to the Yemeni government memos and two industry analysts who follow the company, tried to scare off potential competitors by claiming that it was already entitled to the natural gas rights.

"A huge argument developed between the government and Hunt/Exxon because... Hunt/Exxon wanted the gas and felt it was theirs," says Mike Barbis, an analyst with Union Bank of Switzerland Securities. (Exxon is a partner with Hunt Oil in the Ma'rib field.)

But Hunt Oil is a "relatively small company" with no experience in LNG, and the Yemeni government wanted someone with more experience to lead the project, says Caroline Cook, an analyst for Natwest Securities in Edinburgh, Scotland.

"With a thing like LNG, it's a very large international contract, very large amounts of money," says Cook, who returned from a trip to Yemen last week. "You'd rather rely on a well-established player in the LNG market. Hunt doesn't have any particular experience in that market."

A French consortium, TOTAL, ultimately won the contract to spearhead the LNG project. But the negotiations are not finished. Hunt Oil is still trying to win a share of the pie. Cook says Hunt may try to win a contract under which it would actually pump out the gas and pipe it to a TOTAL plant. The French group would then liquefy the gas and ship it to customers.

But Hunt Oil's behavior in pursuing the LNG contract, and the controversy surrounding its oil operations, have provoked strident criticism in the Arab press and from at least one high-ranking government official.

"Because of all the previous happenings and all the violations that Hunt is committing in implementing the [oil] agreement, and because of all the arrogance and non-care this company displays with the Ministry...I consider that entering with Hunt into another agreement, if it continues with its present behavior, will be a catastrophe," the country's former Minister of Petroleum and Mineral Resources wrote in a letter to Yemen's acting prime minister last fall, before the LNG contract was given to the French.

A spokesman for the Yemeni Embassy in Washington did not return repeated calls from the Observer seeking comment on the relationship between Hunt Oil and the Yemeni government.

The U.S. State Department is staying out of the situation, according to a spokeswoman. "It's our understanding that Hunt and the government in Yemen are actively engaged in an ongoing discussion on this matter, and for that reason we are not going to be making any sort of public comment on it," she said.

Oberwetter says many of the charges being leveled against Hunt Oil are just old bones, rehashing groundless claims from an unsuccessful lawsuit filed a few years back by a company that lost out on the oil contract.

But the Arab press is not letting the issues rest. Newspapers in the Middle East have taken to calling the whole affair "Yemengate," accusing Hunt Oil and the Yemeni government of shady dealing.

A June article in the Cairo newspaper Al Alam Alyoum was headlined "Petroleum, Concessions, Bribes, Notoriety, Sabotage and Corruption: Yemengate Threatens Biggest Officials." It presented a gloomy assessment of Hunt Oil's reputation in Yemen. "Sources assure us that Hunt is facing a big crisis in the Yemeni street, which is bursting with anger," the newspaper wrote.

Yemen's road to riches has turned into a bog, and the Hunt Oil Company is caught in the muck.

About 60 miles east of San'a, the Yemeni capital, lies the little village of Ma'rib. Under the desert near Ma'rib lies the Safir Basin, a sedimentary formation capped by a salt dome. It is the classic geology of an oil source, and it is the source that Ray Hunt's company has been pumping since the mid-1980s.

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