Yemen is a meager country, cobbled together from rock and sand on the southern tip of the Arabian peninsula. A sporadically volatile confederation of tribes that predates recorded history, Yemen still is not sure of its exact borders. It is a bit player in the Middle East, a political punk compared to its rich northern neighbor, Saudi Arabia.

Great wealth last graced the area before Christ was born, farther north on the peninsula. When there was still a bustling trade in frankincense and myrrh, the region that is now Yemen had trees producing the fragrant resins.

The rise of the Roman Empire knocked the legs out from under the frankincense trade, when Christians eschewed pagan rituals involving the once-precious incense. For Yemen, centuries of occupation, assassination, civil war, and political unrest ensued. Throughout it all the country has remained mostly poor, not as impoverished as Ethiopia, just across the Red Sea, but worse off than the bulk of the world.

That was supposed to change when Yemen decided to follow the lead of its Middle Eastern neighbors and cash in on the oil and gas that lie under its unforgiving deserts.

In 1981, Yemen awarded the Hunt Oil Company rights to drill for oil in a patch of desert that seemed to hold riches for both the Dallas-based company and the country's government.

Landing the Yemen agreement was a coup for the company headed by Ray Hunt, a son of one of legendary Texas wildcatter H.L. Hunt's three families. The family-owned company was no heavy hitter in the international oil business, yet it won the contract to pump oil into the next century from the deserts around Ma'rib. All it had to do was share the profits with the Yemeni government.

But almost 15 years later, Yemen's people are still relatively poor, and some factions within the country apparently believe that Hunt Oil bears at least a small share of the blame. Hunt's company did indeed find oil, and has been pumping it out for more than a decade.

For almost a year now, newspapers in Yemen and other Arab countries have been publishing stories accusing Hunt Oil of shortchanging the country of millions of dollars. The government, according to the Arab press reports, claims that the company owes $36 million in back taxes that it failed to pay on the salaries of non-Yemenis working for Hunt.

In addition, auditors who have looked at Hunt Oil's books, according to internal Yemeni government records, found that the company has overstated its expenses, allowing Hunt Oil to keep revenue that should have been counted as profits and shared with the country.

Amid the turmoil, the circumstances of Hunt Oil's efforts 15 years ago to win the oil contract are being revisited. Lengthy published stories, based largely on documents uncovered as part of an unsuccessful lawsuit litigated in Texas against the company, are reviving old allegations that Hunt Oil used treachery, bribes, and a mysterious double agent to land the oil contract in the first place.

Hunt Oil's methods of securing the oil agreement are also the subject of a complaint filed with the U.S. Department of Justice by another Dallas company that lost out in a bid for the oil rights. The complaint, which has been pending for more than four years, charges that Hunt Oil violated U.S. laws that prohibit companies from cheating in international trade.

In 1994, one senior Yemeni government official recommended that Hunt Oil be denied an extension when its oil agreement expires in 2005. The minister of petroleum and mineral resources also charged that Hunt Oil is purposely pumping oil out of the field too quickly. The rapid depletion, he said, could damage the oil field and Yemen's long-term prospects of profiting from its own reserves.

The allegations, contained in two government memos written by minister Fayssal Othman ben Shamlan, fueled reports in Arab newspapers that Hunt is falling out of favor with some factions in Yemen. (Shamlan, who has since retired, could not be reached for comment.)

A NovembR>er 1994 column in one Yemeni newspaper alleged that Hunt Oil won its contract through "seductions and presents," and is now "looting" the country's wealth "and transforming it into a mirage."

Al-Wahdawi, a newspaper published in the Yemeni capital of San'a, has called on the government to investigate corruption allegedly involving Hunt Oil. (All newspaper quotes have been translated from Arabic.)

"In spite of the suspicious relationship between those in power in our country with 'Hunt,' the smell of these exposures has become unbearable," the newspaper wrote in July of this year. "The Yemen Government has become intolerant of the Company's (Hunt) disrespectful behavior toward its officials, and its disregard for the agreements, to the extent that the government is looking for legal cause to terminate its agreement with the company before 2005 so as to be finished with these problems."

A London-based journalist with extensive experience covering Yemen cautions that the country's newspapers are notoriously biased, not to mention opportunistic. With a sufficient bribe, an individual or business with an axe to grind can usually place stories in news columns, he says. "It is not untypical of a person to buy editorial space in a paper," he says. "They [Yemeni papers] all tend to be bought, either in whole or in part."

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.

Hatem El-Khalidi, a geologist, first surmised the presence of the underground basin in 1957, when he was sent to map the region for an ambitious U.S. company called the Yemen Development Corporation. El-Khalidi thought there might be oil, but Yemen was too untamed for an outside company to risk undertaking an expensive drilling venture. Strife between various tribes made the area around Ma'rib particularly chaotic.

The Yemen Development Corporation ran into financial problems, and decided not to pursue prospects in Yemen. El-Khalidi went on to other things. Born in Jerusalem in 1924, he had come to the United States as a student in 1946, and earned his master's degree in geology from Michigan State University in 1950. Three years later, he became a naturalized U.S. citizen. He has spent a large part of his life scouring the Middle East for oil and minerals on behalf of companies large and small.

In 1967, 10 years after he first mapped the Ma'rib area, El-Khalidi and other investors formed Arabian Shield Development Company, a small concern, based in Dallas, that counts members of the Saudi Arabian royal family among its shareholders.

The company's stated goal was to find minerals--copper, zinc, gold, and silver. But 28 years later, it still has little to show for its efforts. Arabian Shield, according to its 1994 annual stockholders' report, holds a mineral lease on 44 acres in Saudi Arabia, but doesn't have the money to begin full-scale exploration or development.

Virtually all of the company's $17 million in 1994 revenues came from a refinery ArabiR>an Shield owns in Texas. The company also owns a coal company that has no coal mines, and a passel of inactive mining claims in Nevada. The company boasts $41 million in assets in its stockholders' report, but three-quarters of that is the presumed value of the Saudi Arabian mineral lease.

Arabian Shield is making little money and carrying a load of debt, its annual report shows. Its stock trades at less than $2 a share on NASDAQ, and it has never paid its shareholders a dividend. The company's 1994 report is able to make only lukewarm predictions that the future will look any better.

El-Khalidi certainly hoped that Arabian Shield would have done better by now. What he hoped, specifically, is that the company would be rolling in profits from Yemeni oil.

For the past 38 years, ever since he first mapped the Safir salt dome, El-Khalidi has watched Yemen, yearning for the time when he could return and help tap into the rich basin of oil that he believed lay under the Ma'rib desert.

When that day finally came--El-Khalidi would allege in court--the Hunt Oil Company cheated him out of the chance.

Sitting at a conference table in a small office building on Central Expressway, surrounded by boxes and boxes of documents, he spins out a tale of intrigue and deceit. The conference room is part of the modest offices of Arabian Shield, of which El-Khalidi remains president. The boxes are jammed with documents he has accumulated in his efforts to prove that Hunt Oil stole his dream.

El-Khalidi has some circumstantial evidence to bolster his allegations, mostly documents unearthed during a lawsuit his company filed against Hunt Oil in a Dallas district court in 1987. Arabian Shield and its partner claimed that Hunt Oil fraudulently obtained the oil concession in Yemen, and illegally interfered with Arabian Shield's efforts to win the drilling rights.

The claims were never fully aired in court. Arabian Shield's case was lost when a judge ruled that the company waited too long before filing the suit, a ruling that was eventually upheld by the Texas Supreme Court.

But El-Khalidi waited too long for a shot at the riches of the Safir Basin to easily forget the events of 1980, when Hunt Oil beat out Arabian Shield in a race for the oil concession.

Those same events are again coming back to haunt Hunt Oil under the name of Yemengate.

About 15 years ago, Yemen broke with tradition and finally seemed to settle down.

At the time, there were actually two Yemens. Ma'rib, and the oil field coveted by Hatem El-Khalidi, was in the Yemen Arab Republic, also known as North Yemen. It was a Western-leaning country, with a constitution based on Islamic law and a history of losing its leaders to assassination.

The Northern Yemenis skirmished periodically with the People's Democratic Republic of Yemen, also known as South Yemen. A former British colony, South Yemen dumped its monarchy in the 1960s and evolved into the only Marxist state on the Arabian peninsula. Its leftist political inclinations and ties to the Soviet Union were not appreciated by rich neighbors like Saudi Arabia.

By 1980, the two countries settled into relative calm. In particular, North Yemen was able to quell problems with the cantankerous tribes around Ma'rib. A paved road was even built to the village from the capital of San'a.

The time seemed ripe for someone to plumb the desert around Ma'rib and see if there really was oil in the underground Safir Basin.

El-Khalidi saw a chance for his long-held dream to come true. His Arabian Shield Development Company allied itself with the Dorchester Gas Company, a much larger U.S. oil and gas outfit, and the partners began pursuing rights to the Ma'rib field.

About the same time, according to later court records, the Hunt Oil Company was looking to expand its international holdings. A former colleague of one of Hunt Oil's executives alerted the company to the prospects in Yemen. Hunt Oil decided it, too, was interested in the Ma'rib field.

Arabian Shield hired a well-connected Yemeni businessman, Shaher Abdulhak, and promised him a cut of the profits if Abdulhak helped steer its proposal through the tricky waters of North Yemeni politics. Arabian Shield officials flew to San'a in February 1981 to discuss the deal with government officials. By the time they left, El-Khalidi thought his company was on the verge of winning the government's permission to explore for oil.

But the Arabian Shield proposal suddenly stalled, El-Khalidi recalls. When Arabian Shield officials asked for updates, the Yemeni government seemed to be holding them off.

El-Khalidi says he was stunned when word came from Yemen in the summer of 1981 that the government had signed an agreement with the Hunt Oil Company. Hunt later allowed Exxon and a consortium of companies from South Korea to invest in the project and share profits.

Several years later, El-Khalidi would claim in court documents, he was told by friends and contacts in the Middle East how Hunt managed to win the oil concession: Abdulhak, the Yemeni middleman retained by Arabian Shield, had turned double agent and fed information about Arabian Shield's proposal to Hunt Oil.

Abdulhak could not be reached for comment. In an affidavit filed during the lawsuit, he denied any wrongdoing.

In 1984, El-Khalidi began writing a series of increasingly combative letters to Hunt Oil, outlining his suspicions and asking for a cut of the Yemeni oil deal.

Hunt Oil denied the allegations, and said company officials did not even know Arabian Shield and Dorchester were vying for the contract until late in the game.

Hunt Oil considered it suspicious that El-Khalidi had not raised his protests until after Hunt actually struck oil in the Safir Basin. El-Khalidi's first letter to Ray Hunt, in fact, was written six days after Hunt Oil announced its success in Yemen, even though El-Khalidi stated in the letter that he had heard about Abdulhak's alleged treachery a year earlier.

In 1987, Arabian Shield filed suit against Hunt Oil in a Dallas district court, claiming that Hunt Oil used information from Abdulhak to win the oil rights. Arabian Shield lawyers hoped they could show that Hunt Oil wrongfully interfered with Arabian Shield's right to negotiate fairly for the oil contract. It was an argument similar to the one used by Pennzoil in winning a mammoth judgment against Texaco in one of Texas' most famous civil cases.

Hunt Oil executives not only were alerted to the prospects in Yemen by information from Abdulhak, Arabian Shield's lawyers argued, but may have bribed their way into the deal, using another Arabian businessman as a funnel for money. In the lawsuit, Arabian Shield accused Hunt Oil of using "wrongful and prohibited means" to win the oil contract.

During depositions and discovery, Arabian Shield attempted to show Hunt Oil's bribery. El-Khalidi says Abdulhak told him during the negotiations that Arabian Shield would have to provide up-front money to bribe government officials. El-Khalidi says he refused to provide any. Hunt Oil, he contends, must have greased the skids, given its success in winning the contract.

In response to the lawsuit, Hunt Oil vigorously denied all of the allegations, and described its dealings in Yemen as a straight-up business deal. The company said it received no inside information from Abdulhak or anyone else in the Arabian Shield camp.

Jim Oberwetter of Hunt Oil now calls El-Khalidi's allegations "garbage. They are as old as Methuselah and just as dead."

During the lawsuit, Arabian Shield was able to obtain copies of Hunt Oil documents that El-Khalidi says bolster his claims.

First and foremost, he claims, is the involvement of another man, Moujib Al-Malazi, in Hunt's quest for the oil. Al-Malazi, the documents show, was the one who tipped Hunt Oil off to the possibility of a deal in Yemen and helped negotiate with the government.

Ray Hunt, in a sworn deposition, described Al-Malazi's role as that of a "facilitator" in the negotiations with Yemeni officials.

But Arabian Shield contended that Al-Malazi obtained his information about the Ma'rib field, and Arabian Shield's proposal, from double agent Abdulhak.

"[Hunt Oil] knowingly and intentionally subverted [Arabian Shield's] business agent in the Yemen Arab Republic and, through him, obtained copies of Arabian Shield's proprietary geological information," the lawsuit argued.

Al-Malazi also became the funnel for bribes that Hunt Oil paid to win the Yemeni contract, Arabian Shield's lawyers claimed. After Hunt won the contract, a Panamanian company set up by Al-Malazi and his family received a $100,000 fee from Hunt Oil, according to company documents and depositions of company officials.

Al-Malazi's company was also promised one percent of Hunt's profits from the oil deal, and El-Khalidi claims the payments began before Hunt actually struck oil.

Al-Malazi did not return a phone message left by the Observer at his London office.

In its responses to the Arabian Shield lawsuit, Hunt Oil denied using Al-Malazi as a conduit for bribes. When he was deposed, Ray Hunt said the company's arrangement with Al-Malazi was a simple business deal, paying Al-Malazi for his work, which Hunt personally approved. "I was told that he [Al-Malazi] was a world-class geophysicist, a very competent person, and an honest person," Hunt said.

Hunt Oil documents produced during the lawsuit make clear that the company was aware that bribery was a common practice in Yemen.

In January 1981, Hunt Oil Senior Vice President Thomas Meurer and others were dispatched to check out the prospects in Yemen. In a report written upon his return, Meurer noted that in Yemen "bribes (bakeesh) are a customary way of doing business. One businessman told me that we should plan on 10 percent to 15 percent of your contract for bakeesh."

In his deposition, Meurer said he was simply summing up what he had heard about street-level bribery in Yemen, for instance, "if you wanted to get stuff into Customs."

Although he thinks the Hunt documents and statements build a case against Hunt Oil, El-Khalidi concedes that he has never found the "smoking gun"--definitive proof that the company did anything illegal.

The lawsuit was ultimately dismissed in 1988 when a judge ruled that the statute of limitations had expired before the case was filed. Arabian Shield then filed a complaint with the U.S. Justice Department under the Foreign Corrupt Practices Act, charging that Hunt Oil had violated U.S. law by cheating in international trade. The complaint was filed in 1991, and the Justice Department has taken no apparent action on it. Oberwetter says he is not even aware that a complaint was filed.

Even the outcome of the lawsuit produced new controversy. As part of its legal brief asking that the case be dismissed, Hunt Oil included sworn affidavits from numerous players in the drama, attesting that nothing untoward had been done.

Two of the affidavits contained the supposed signature of Ali Al-Bahr, the Yemeni official who signed the oil agreement with Hunt, and one of them purported to explain why the Yemeni government had chosen Hunt Oil over Arabian Shield. But the signatures might have been forgeries.

Two independent experts hired by Arabian Shield--one retired U.S. Secret Service examiner and one Arabian handwriting expert who worked for the government of Jordan--both studied the signatures and concluded they were fakes.

(Frank Finn, the lead attorney who represented Hunt Oil in the case, did not return Observer phone calls. In 1991, another Hunt Oil attorney told D Magazine freelance writer Tom Curtis that the signatures on the affidavits did "look different" than the minister's real signature, but said the issue was of little importance.)

When Arabian Shield challenged the authenticity of the signatures, Hunt Oil produced two more affidavits, not from Al-Bahr but from two other Yemeni officials. Each said they knew what Al-Bahr's signature looks like and felt the challenged signatures were authentic. Al-Bahr was dumped as Yemen's oil minister in 1985.

After their lawsuit was thrown out of court, El-Khalidi and Arabian Shield were stymied in efforts to continue seeking evidence against Hunt Oil.

But events in Yemen have conspired to revive the allegations in that country, with El-Khalidi's help, and suspicious journalists are now trumpeting new charges about the way Hunt Oil has dealt with the country.

Operating in Yemen has never been a cakewalk for Hunt Oil or any of the companies that have since drilled in other parts of the country. Fights still break out between competing tribes. Several times Hunt workers have been kidnaped, although all have ultimately been released unharmed.

In 1990, North and South Yemen decided to merge into one country. With the downfall of the Soviet Union, South Yemen's economy was going to hell and it needed friends.

But the newly reunited Yemen, with an estimated population of 12 million, was not peaceful. The southern socialists and northern power brokers tried to get along, but there was constant friction. Civil war broke out in 1994. Northern forces prevailed, and most of the southern leaders were forced to acquiesce or flee the country.

Through it all, Hunt Oil has managed to continue operating, pumping about 200,000 barrels of oil per day. Hunt spokesman Jim Oberwetter says that is because the company resolutely stays out of Yemeni politics.

"We've operated there since 1981, and we've operated successfully there through the Persian Gulf War and recently the Yemen civil war," Oberwetter says. "What we have avoided in Yemen, which I believe is part of the reason we are successful, is politics. We've stayed out of it, and will not be drawn into it."

Like it or not, Hunt Oil is being drawn into it.
The allegations leveled in the aborted Arabian Shield lawsuit are now just part of the basis for newspapers to go after Hunt Oil.

Whether it got the oil contract legitimateR>ly or not, the company is being accused by newspapers, and at least one former Yemeni official, of caring more about its profits than the welfare of Yemen, or the promises it made to that country when it won the oil rights.

The turmoil has been bubbling since last September, when reports first surfaced that Hunt Oil was in the bidding to develop the natural gas from the Ma'rib field.

According to Middle Eastern newspaper reports, Hunt tried to scare off other competitors for the natural gas contract by claiming it already had rights to the gas, and threatening lawsuits against other suitors.

"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:

"The real tragedy is not represented in the scandals themselves, but the worst tragedy is that what is being published does not get any response! But we assure you that in spite of the pressure we are subjected to because we are publishing these economic scandals, and exposing them, we will not retreat from our purpose, which is to stand up for our country and its rights.

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David Pasztor

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