To date, Yemens territory has been divided into 84 blocks, only 11 of which actually produce oil. Around half of the blocks have been licensed for exploration and possible production of oil and/or natural gas. Unlike much of the petroleum and natural gas production in the region, Yemeni production is heavily reliant on private foreign companies, with more than 20 foreign firms operating concessions. Dozens of other foreign and domestic companies are partners in the concessions, including ExxonMobil and TransGlobe Energy. Since the withdrawal of major international oil companies in the mid-to-late 1990s, due to a combination of economic and security issues, the government of Yemen has targeted smaller, independent oil companies to take part in Production Sharing Agreements (PSAs).
Currently there are nine PSAs in existence. Canadas Nexen, which owns 52 percent of the Masila (Block 14) and an 87.5 percent of East Al Hajr (Block 51), produces around 200,000 bbl/d in Yemen - 170,000 bbl/d from Masila and 30,000 bbl/d from East Al Hajr. US-based Hunt Oil produces an estimated 125,000 bbl/d as well --75,000 bbl/d from Marib al Jawf (Block 18) and 50,000 bbl/d from the Jannah Block.
In March 2005, Yemens Parliament decided to terminate Hunts Block 18 concession when it expires in November, despite an earlier agreement to extend it by 5 years. Hunt, which has operated in Yemen since 1984, reacted by threatening legal action against the Yemeni government, while hinting that the companys participation in the Yemen LNG project could be adversely impacted. Nexen has indicated interest in Hunts Block 18 if the concession is not renewed. However, in mid-September 2005, the government reportedly was considering a consortium of Premier Oil and the Yemen Oil Company to replace Hunt.
Frances Total produces around 35,000 bbl/d from its East Shabwa concession. U.K. independent Dove Energy, which operates the East-Saar (Block 53, including the Sharyoof field), produces an estimated 25,000 bbl/d. Norways DNO produces an estimated 16,000 bbl/d in the Hawarim Block (Block 32 - Tasour field), 15,000 bbl/d in Nabrajah (online in July 2005) and 5,000 bbl/d in South Hawarim (Block 43). In mid-September 2005, Yemen awarded Koreas KNOC the rights to develop and operate Iyad (Block 4), which produces around 500 bbl/d. Independent Vintage Oil operates the S1 block (Damis, including the An Nagyah field ), with production of 8,500 bbl/d. Calvalley is expected to bring on 8,000 bbl/d from its Malik (Block 9) field in 2006.

The Ministry of Oil and Mineral Resources (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 contractor to the government of Yemen. In late 1999, the government took steps toward improving investment in the countrys oil, gas, energy and petrochemical activities by redefining terms for certain concession agreements. These more favorable terms include lower signature bonuses, an increase in the proportion of oil earnings that companies can claim for development cost recovery to between 50 percent and 70 percent (compared with a previous range of 25-45 percent), and the introduction of a sliding scale of 3-10 percent for royalties (compared with a previous flat fee of 10 percent). In mid-2001, Yemeni officials took further steps to improve the energy-related investment climate, announcing a policy of contract extensions, added flexibility on negotiations, and a commitment to amending existing legislation if necessary.
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); the Petroleum Exploration and Production Authority (PEPA) and the General Department of Crude Oil Marketing (GDCOM). All branches report to the MOMR. The company is responsible for managing the industry contracts and relations with operators and partners, as well as the governments share of crude exports.

Despite declining output in mature fields, Yemens immediate goal for the petroleum industry involves increasing oil production and oil exports (in 2005, around 330,000 bbl/d is being exported, primarily to Asian markets, including China, India, and Thailand). In order to realize this goal, oil exploration activity in Yemen has accelerated since 1997, after a downturn following Yemens civil war. In July 2005, Yemen completed an upstream bidding round with the award of seven blocks, six onshore and one offshore. Companies winning blocks included Oil Search (Blocks 7 and 74), Al Thani (Blocks 34, 37 and 55), and Occidental (Block 75). The country is slated to hold another upstream bidding round in early 2006, with 14 blocks being offered in Hadramout (6 blocks), Mahra (2 blocks), Shabwah (2 blocks), Hodeidah (1 block) and others.

In August 2003, Canadas Calvalley Petroleum announced the discovery of four oil bearing wells in the Roidhat field in the Malik Block (9). Calvalley has yet to determine if the oil find is of commercial quality. In August 2005, Yemens Oil Ministry granted a license to Calvalley, Reliance Industries (India) and Hoodoil (Yemen) to develop Block 9 through 2025.
Nexen continues to explore Block 51, adjacent to their Masila fields and Totals East Shabwa. In June 2004, the Yemeni government offered newly demarcated Blocks 69-74 up for bid (Blocks 69-70 are in the Sabatain Basin, Blocks 71-74 are located in the Masila/ Shabwa Basins). In the same month, a consortium including Norways DNO and Canadas TransGlobal Energy was awarded exploration rights to Block 72. The oil concession encompasses 703 square miles and is located next to Nexens holdings. Chinas Sinopec was awarded rights to explore blocks 69 and 71, while Dove Energy acquired Block 73. Blocks 70 and 74 are yet to receive bids.
In July 2005, Norways DNO ASA announced that its Nabrajah Field had begun production. This is DNOs third Yemen oilfield development since the company entered the country in 1998. In August 2005, OMV announced that it made a third oil discovery in the Al-Uglah area (Block S2) of the Shabwah Basin. OMV also is slated to conduct exploration work in Block 2, located near Block S2.

In June 2000, Yemen and Saudi Arabia signed the Treaty of Jeddah, resolving a longstanding border dispute. The agreement opened up opportunities for increased Saudi trade and investment in Yemen, and made possible the award of oil and gas exploration rights for areas in Yemen, adjacent to the border.  In 2000, four new blocks were demarcated in this area, and several companies have signed memoranda of understanding (MOU) for exploration rights. In January 2001, Nexen was granted the right to operate Block 59, located adjacent to the Saudi border. Nexen holds a 60 percent interest, with the other 40 percent held by Occidental Petroleum (of which Nexen is no longer a subsidiary). In December 2001, Austrias OMV, along with Cepsa of Spain and PanCanadian, concluded an exploration and production contract with the Yemeni government for Block 60.