By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
"Mr. Bafadel [Yemen's minister of supplies and trade] said that Hunt Oil is committing non-ethical acts in interfering in the investment policies of Yemen," the Cairo newspaper Al Alam Alyoum reported last September. "[Hunt is] sending all companies interested in investment in Yemen threatening letters warning such companies of presenting any offers by presenting itself as the owner of the concession in this vital and important project."
At the time, the main challenge to Hunt for the natural gas project was from Houston-based Enron. An internal Yemeni government memo in August 1994 concluded that Enron's proposal was most favorable to Yemen, but noted that Hunt Oil and Exxon, its partner, were "threatening Enron Company and other companies which voiced interest in participating in the project with legal action against them."
A translation of the memo, written by Minister of Petroleum and Mineral Resources Shamlan, shows that it castigates Hunt Oil's behavior and recommends that the company not be awarded a share of the natural gas concession.
"Because of previous actions of Hunt/Exxon which are full of mistakes and violations, this Ministry concludes that entering into an agreement with Hunt is not acceptable, and will produce many problems," the memo says.
Shamlan then laid out some of the "previous actions" by Hunt Oil that have outraged Yemeni officials.
A 1989 audit of Hunt Oil's books by Touche Ross, the memo says, "indicated violations of $140 million in the expenses of (Hunt) for the period preceding 1989." The government ultimately received $9 million from Hunt Oil to settle the claim that it had jacked up its expenses to avoid sharing profits with the government.
The executive summary of a later Touche Ross audit, dated March 1994, contends that Hunt Oil racked up another $102 million in questionable expenses after 1989. There is no indication whether that amount remains in dispute.
Shamlan also accused Hunt Oil of causing a "quick depletion of the oil reservoir contrary to all methods and ways which are accepted in the oil industry, and that is for the purpose of extracting the most quantities of oil during the period which precedes the date of the expiry of the agreement (2005.)"
Hunt Oil's excessive pumping of the field, the memo noted, would make the remaining oil denser and less valuable, leaving Yemen with a spoiled oilfield by the time the company's contract expires.
Shamlan's recommendations to Yemen's acting minister included "not to give Hunt Company any extension to its Production Sharing Agreement after 2005 A.D., and closing the door to any hope it may have for that."
As for the natural gas, Shamlan recommended that the contract be awarded to Enron, endorsing a tentative understanding that Enron and Yemen had signed in December 1993. Enron had the lead for the gas project before Yemen's civil war broke out in 1994.
After the hostilities were quelled, the government began reconsidering offers.
Enron later withdrew from the contest. The company would not comment on the reasons for its withdrawal, and has no business pending in Yemen. Hunt Oil also would not comment.
In February of this year, Yemen announced that a French energy group, TOTAL, had been chosen to spearhead the natural gas project.
Caroline Cook, the Edinburgh-based analyst recently returned from Yemen, says Yemen's choice of TOTAL did not necessarily reflect dissatisfaction with Hunt Oil. "I don't think that's the prime motivation behind them not getting the LNG award." Government officials probably favored TOTAL because it has more experience in LNG production, she says.
Hunt Oil is still angling for a piece of the LNG project. Oberwetter cited the natural gas negotiations as the reason he cannot discuss Hunt Oil's status in Yemen.
Conflict over natural gas rights is not the only issue riling the Yemenis. Recent articles have also claimed that Hunt Oil and the government are at odds over $36 million in back taxes that the company might owe the government.
"Biggest Case of Tax Evasion: Hunt Company Evades Payment of $36 Million Dollars Due To The Government," read a June headline in the Yemeni newspaper 22 Mayo.
The newspaper has reported in several stories that Hunt Oil has not paid taxes on the wages of foreign employees working in Yemen. (Hunt Oil's failure to hire more local workers is also a sore spot with the Yemeni government.)
"Hunt Oil claims that the agreement between it and the government exempts it from paying taxes," the newspaper said in one article. "This is not true, because the agreement did not mention anything about tax exemptions for foreign employees."
The Yemeni government is trying to collect the back taxes, the newspapers say, but Hunt Oil is claiming it does not owe them.
Mike Barbis, the analyst with UBS Securities, says the $36 million figure sounds high to him, and speculates that the government may be getting even with Hunt Oil for its behavior during the LNG negotiations.
"They were very angry before, and maybe this is a tack by the government," he says.
How disgruntled the Yemeni government may be with Hunt Oil is impossible to determine, although at least two government officials have already castigated the company for its actions.
The newspapers, however, show no sign of backing off from their coverage of Yemengate. Al Wahdawi, a San'a paper, ended a July article about the controversy with the following pledge: