Canadian Press - Nexen Inc. (TSX:NXY) says production from its Yemen assets could drop by as much as one-third in 2007, from 90,000 barrels of oil equivalent per day to as little as 60,000.

Nexen president Charlie Fischer said some drilling locations planned in Block 51 turned out to have already been drained by wells in the neighbouring reservoir of Masila.

"Clearly, Block 51 this year has given us some challenges," Fischer told a conference call after release of the company's $2.9-billion 2007 capital budget.

"Some of the drilling locations we had planned had been swept. Those are things we can't see from surface. We drill the wells and we've had a couple surprises this year."

In its third-quarter results released in October, Nexen took a $93-million charge to reflect the possible impact of an arbitration decision that the company breached an obligation on its Block 51 licence.

Late Tuesday, Calgary-based Nexen said its capital spending in 2007 would decline by half a billion dollars from this year's $3.4 billion. It also forecast a 50 per cent jump in production, partly on the strength of its Buzzard operation which comes onstream within weeks in the British North Sea.

Nexen shares closed up 11 cents at $62.31 on the Toronto Stock Exchange.