We operate Block 51, which is also governed by a PSA between the Government of Yemen and the East Al Hajr partners (EAH Partners): The Yemen Company (TYCO) (12.5% carried working interest) and Nexen (87.5% working interest). Under the PSA, TYCO has no obligation to fund capital or operating expenditures. Our effective interest is 100% and for purposes of accounting and reserves recognition, we treat TYCO’s 12.5% participating interest as a royalty interest. We recognize both the Government’s share and TYCO’s share of profit oil under the PSA as royalties and taxes consistent with our treatment of our Masila operations. The PSA expires in 2023, and we have the right to negotiate a five-year extension. Under the PSA, the EAH Partners pay a royalty ranging from 3% to 10% to the Government depending on production volumes. The remaining production is divided into cost recovery oil and profit oil. Cost recovery oil provides for the recovery of all of the project’s exploration, development and operating costs, funded solely by Nexen. Costs are recovered from a maximum of 50% of production each year after royalties, as follows:

The remaining production is profit oil that is shared between the EAH Partners and the Government on a sliding scale based on production rates. The EAH Partners’ share of profit oil ranges from 20% to 30%. The Government’s share of profit oil includes a component for Yemen income taxes payable by the EAH Partners at a rate of 35%. In 2007, the EAH Partners’ share of Block 51 production, including recovery of past costs, was approximately 54%.

The first successful exploratory well was drilled at BAK-A in 2003, with BAK-B discovered shortly after. Block 51 development began in 2004 and includes a CPF, gathering system and a 22-km tieback to our Masila export pipeline. Production began in November 2004. During 2007, production averaged 14,600 bbls/d before royalties (9,900 after royalties).