Significant progress was made during 2008 in building the backbone of facilities that will enable Calvalley to exploit the opportunities which reside within Block 9. The completion of the Central Processing Facilities ("CPF") removes bottlenecks that previously impacted the Company's ability to maximize output from existing wells. Additional facilities which will be situated adjacent to the CPF are already under construction, including gas and water injection facilities that will provide pressure maintenance at the Hiswah field which will permit the Company to increase production rates and reserve recoveries.

The completion of the road from the CPF over the plateau to the Al Roidhat field will decrease operating costs associated with the Al Roidhat field by improving access and shortening the route for trucking oil from Al Roidhat to the CPF. This road also opens up the top of the plateau for further exploration activities. Once production from Al Roidhat has been established, a smaller diameter (8 inch) pipeline is expected to be built from the Al Roidhat field to the CPF along this route.

It has been Calvalley's position that the pipeline is an economical transportation mode if all the oil from Block 9 can be shipped for export. Block 9 contains hydrocarbon discoveries to-date of various qualities ranging from 15 degree API to 44 degree API. Calvalley and its JV partners have not finalized a marketing agreement for all its crude. We have received all the regulatory requirements to construct the said pipeline pending the marketing agreement. We continue to look for an optimal solution for such a large capital investment. Significant drop in steel prices and availability of cheaper labour partially offset the adverse impact of lower commodity prices on the economics of the pipeline.

Click to enlarge

Figure 12 - Satellite image of Yemen Block 9 and the existing export pipeline.

Figure 13 - Yemen

Figure 14 - Drilling Location in Yemen