Bahrain has struck gold with its discovery of mammoth oil and gas reserves off its west coast, an achievement that could pump significant petrodollars into the kingdom’s teetering economy. While the extent of the discovery and its potential to boost the state exchequer is tremendous, the real economic impact of the upstream find will depend on how much of the estimated reserves is commercially viable to extract.
Bahrain has announced its newly discovered shale oil reserve is estimated to contain more than 80 billion barrels. Tight gas reserves, of between 10-20 trillion cubic feet, have also been discovered, according to state-owned energy operator National Oil & Gas Holding (Nogaholding). The reserves are located in the Khalij al-Bahrain basin, spread across 2,000 square kilometres in shallow Gulf waters off the kingdom’s west coast.
Seismic studies conducted by US upstream consultancy DeGolyer & MacNaughton on behalf of Nogaholding have revealed P50 estimates of 81.5 billion barrels of light oil and 13.7 trillion cubic feet of tight gas. P50 reserves are defined as probable reserves that have a 50 per cent chance of being commercially produced.
Bahrain’s Oil Minister Sheikh Mohammed bin Khalifa al-Khalifa told a press conference in Manama that extensive work has been carried out to evaluate in-place volumes, but said the amount of recoverable oil is still under study. “No budget has been set for the [exploration and production] programme yet,” he explained.
“While the scale of discoveries is very large, more information is needed to establish how much of the resource is commercially recoverable,” says Tom Quinn, senior analyst for Middle East upstream at consultants Wood Mackenzie. “Core analysis by [US oil field services firm] Schlumberger suggests the oil formation could be classified as a borderline ‘conventional-unconventional play’. A tight reservoir means a low recovery factor and only a fraction of the 80+ billion barrels is likely to be recoverable. The oil will also be technically challenging and potentially high cost to develop.”
The Khalij al-Bahrain reserve is said to dwarf Bahrain’s existing upstream assets and represents the country’s biggest discovery since 1932, when oil production began from the Bahrain Field, the first onshore oil field to produce crude in the Gulf. More recently, the country has been grappling with declining production; output currently totals 45,000 barrels a day (b/d), far behind the 100,000-b/d target.
Bahrain receives 150,000 b/d from the Abu Safah field, which it shares with Saudi Arabia. Manama also imports 230,000 b/d of crude from its neighbour through a pipeline, which is being expanded to carry 350,000 b/d, with the crude supplied to the Sitra refinery.
|Bahrain oil production in 2017|
|Month||Output (barrels a day)|
|Source: Tradingeconomics.com; US Energy Information Administration|
Al-Khalifa says production from the newly discovered oil and gas reserve is expected to begin in five years. Nogaholding hopes to produce 200,000 b/d from the reserve. The pre-Khuff discovery could also produce up to 1 billion cubic feet of gas a day, enough to fulfill local demand.
The offshore oil discovered is shale oil, says Ehsan-ul-Haq, director of crude oil and refined products at London-based Resource Economist. “At present, the average recovery rate for tight oil in North America is between 20 to 40 per cent. As a result, the oil found in this location could last for almost 35 years if it is produced at a rate of 200,000 b/d,” he says.
“Indeed, new technologies could boost the potential for higher output rates. As the Middle East has little experience with shale oil, Western know-how, especially from the US, will be needed. In addition, oil prices should remain high enough to keep the extraction of this oil economical.”
Schlumberger drilled the first test well in October 2017, and state-owned Bahrain Petroleum Company (Bapco) succeeded in flowing “high quality oil from the wells during the testing and flow back phases,” according to a Schlumberger spokesperson.
The first well in the drilling programme is planned to come online in August, and over the next two years the focus will be on maximising production and commercial efficiency. An agreement has been reached with US oil field services firm Halliburton to commence drilling on two further appraisal wells in 2018 “to further evaluate reservoir potential, optimise completions and initiate long-term production,” Al-Khalifa said. Schlumberger and Halliburton have also expressed interest in developing the gas reserve.
“With the type of reservoirs being mentioned – on the cusp of conventional/unconventional – it is likely to be fairly expensive to produce, but of course current production in Bahrain is already fairly expensive heavy oil,” says Andrew Day, upstream director at market data company IHS Markit.
“Development [of the reserve] is likely to require hundreds, if not thousands, of wells and hence it would be a major boost to the oil field service sectors – especially for drilling services. It is interesting to see Schlumberger and Halliburton leading the exploration/development at this stage and not an oil company. It [remains to be seen whether] they can continue in this role once the investment requirements start to increase significantly,” he says.
Al-Khalifa has said Bahrain’s goal is to attract international oil companies (IOCs) to develop the reserve. Nogaholding has stated that the next stage of development will focus on “ensuring robust frameworks, data and terms are in place to facilitate further activities and commercial opportunities with international partners”.
However, Quinn points out that Bahrain’s previous oil contracts had tough fiscal terms by international standards, and the IOC partners made meagre returns. “Therefore new fiscal terms will be needed to attract suitable partners,” he says.
“Further appraisal will be required and suitable commercial terms agreed to establish if the deep gas resource is commercially viable.”
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|This article is part of MEED Business Review's Bahrain Market Focus, which will be published on 24 April in the May edition of the magazine. The rest of the Market Focus section will also appear online at meed.com. This feature has been unlocked to allow non-subscribers to sample MEED’s content for FREE. MEED provides exclusive news, data and analysis about the Middle East every day. Subscribe to MEED to have full access to Middle East business intelligence. Click here|
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