At the start of April, Bahrain announced that it had made its largest oil discovery since 1932. The announcement of the Khalij al-Bahrain discovery marks the start of a new chapter for the oil industry in Bahrain, which was the first in the GCC to discover oil 86 years ago.
Although still in the early stages of development, the Khalij al-Bahrain find is, like the Bahrain Field in 1932, expected to have a significant impact on the entire economy. “It is difficult to see it not having a positive impact. Although it is too early to quantify it,” says Bahrain’s Oil Minister Sheikh Mohamed bin Khalifa al-Khalifa.
The reserves are located in the Khalij al-Bahrain basin, covering 2,000 square kilometres in shallow Gulf waters off the kingdom’s west coast, and are estimated to contain more than 80 billion barrels of oil.
“The sweet spot was valued at 80 billion barrels in place, and that is the number we use. People took it as 80 billion recoverable. That is different. [Determining] what is recoverable is a matter of time. We need to look at how much oil can be flowed from those rocks now,” says Sheikh Mohamed.
For an unconventional resource, the studies so far are favourable. “The geologists call it between conventional and non-conventional because of the quality of the rock. It is more carbonate, so in terms of ‘frackability’ it is the best lithology for rock to have. Parts of the rock have conventional resource qualities, which hopefully would mean that ultimately the cost of production should be competitive,” says Sheikh Mohamed. “This is unconventional, but it has some advantages that will hopefully bring the cost down. Definitely it will be more expensive than conventional – where that cost will be is something we need to find out.”
The US' Haliburton has been engaged to drill two wells and that work is currently in the design stage. Drilling should start in the coming two months and, once drilled, the wells will be kept flowing for a number of months.
In the meantime, international oil companies (IOCs) are showing interest and have been given access to the field’s data room. Once the two wells are drilled, even more data will be made available. Companies showing interest include Italy’s Eni, US-based Chevron and ExxonMobil, France’s Total, as well as companies from China and India.
“With unconventional, the more you do, the more you learn, and costs usually come down,” says Sheikh Mohamed. “I don’t know what the true appetite of IOCs is now. Do they need more information? Do they need more drilling or are they willing to come? That is the discussion we are having at the moment.”
Bahrain could also split the concession. “It depends, but the area is quite large. It may be logistically better with more than one partner. We are studying that with consultants – how to make it attractive to investors,” says Sheikh Mohamed.
Volume of work
For contractors, subcontractors and suppliers, the volume of upcoming work will be sizeable. “For a resource of this size, it is not only the drilling component; it is the piping, the gas processing. This is volatile oil and there is a lot of gas associated with it, so you have to be able to handle the gas; nobody flares anymore,” says Sheikh Mohamed. “You do have the advantage of the live oil field, so there are synergies that will help. It is not an isolated area. It is shallow offshore, so there are ways of mitigating cost. Reclamation, extended reach – you can make it an onshore operation almost.”
The Khalij al-Bahrain reserve will join Bahrain’s two existing oil fields, the Bahrain Field, and the Abu Safah field that is shared with Saudi Arabia.
The Bahrain Field is a large oil field with stable production of about 45,000 barrels a day (b/d). There is also a gas field below it that currently supplies all of Bahrain’s gas resources. In addition, there is a gas discovery below the existing gas field, known as Pre-Khuff. It is in two formations with reserves of anywhere between 10 and 20 trillion cubic feet (tcf). “The recovery rate we expect to be quite high, somewhere north of 5 tcf of gas to be recovered,” says Sheikh Mohamed.
Work on developing the Pre-Khuff gas resource is expected to start soon after the service companies have been appointed. “We have been working with service companies on a development plan and are now reviewing bids from the service companies,” says Sheikh Mohamed.
Although the volumes expected from the Pre-Khuff resource are significant, Bahrain does not expect to become a major exporter of liquefied natural gas (LNG). “We are a big consumer of gas; we have expansions and industry happening. Alba has a huge expansion, and demand for power and water is also growing. So it is unlikely there will be LNG exports,” says Sheikh Mohamed.
As the Pre-Khuff gas is developed, Bahrain will complete the construction of an LNG terminal with the capacity to import 6 million tonnes of LNG next to Khalifa bin Salman Port. Bahrain LNG is a consortium of US-based Teekay LNG Partners, South Korea’s Samsung C&T and Kuwaiti group Gulf Investment Corporation (GIC). Teekay owns a 30 per cent stake, and Samsung holds 20 per cent. Equity investor GIC owns 20 per cent, with Nogaholding taking the remaining 30 per cent. “That should be ready by early next year and it will add to Bahrain’s sources of gas,” says Sheikh Mohamed.
Although the Pre-Khuff gas will mean Bahrain has more of its own gas in the future, the LNG terminal will still be needed. “We will probably need it at peak times,” says Sheikh Mohamed.
The imported gas may even supply other GCC countries. “We are also talking to the GCC for a gas grid, potentially. The terminal could be made available to neighbouring countries when needed.”
For downstream, the Bahrain Petroleum Company (Bapco) refinery is undergoing a major upgrade. Earlier this year, a team led by France’s Technip FMC was awarded a $4.2bn contract to increase the plant’s capacity to 380,000 b/d. “The new configuration will be one of the more complex refineries in the region. We are adding some deep conversion units that will make this refinery a very profitable venture,” says Sheikh Mohamed.
Like many projects in the region, the scheme is being financed via export credit agencies (ECAs). “We are talking to Italian, South Korean, Spanish and even UK ECAs,” says Sheikh Mohamed.
The refinery will be supplied with crude by a new pipeline from Ras Tanura in Saudi Arabia. “We import 220,000 barrels from Saudi Arabia of Arabian Light, so with the expansion we are going to need a bit more. A pipeline has been under construction for some time. It is now being hydrotested and should be complete and commissioned some time towards the end of this year,” says Sheikh Mohamed.
The pipeline is needed despite the future production from Khalij al-Bahrain. “We have designed this for Arabian Light, which is a favourable crude for us, so I don’t think we need to replace it with our own future produced crude,” says Sheikh Mohamed.
Bahrain is also considering setting up a fund to allow private investors to invest in its oil and gas projects. The aim is to access pools of capital that have traditionally not been invested in government-backed oil and gas schemes.
“We are thinking of launching a fund where we make projects available to investors – investors that typically do not have access to these types of projects,” says Sheikh Mohamed. “These are mature projects; they have been de-risked and construction is almost complete. It is a no-brainer for an investor to look at them.”
The initiative is part of broader plans within Bahrain to open the economy up to private sector investment. “It is part of a drive to allow the private sector to come in. It is a novel approach. We are funding all our projects by ourselves,” says Sheikh Mohamed. “We don’t have an issue, but it will be interesting to see if we can attract private investors to come in through the fund. They will generate yields that they probably won’t be able to get anywhere else.”
Longer-term private sector involvement in Bahrain’s oil and gas sector could come from the listing of state-owned companies, as has happened in Abu Dhabi with Adnoc Distribution and the upcoming initial public offering (IPO) of Saudi Aramco. “We are very open to [launching IPOs] when the time is right. We will make sure we sell good value to investors. We want people to make money. Our focus is on construction and development now,” says Sheikh Mohamed.
Biography: Sheikh Mohamed bin Khalifa al-Khalifa
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