Bahrain faces setback in oil field expansion plans
Washington - Bahrain’s goal of boosting output from the oldest producing oil field on the Arab side of the Persian Gulf to 100,000 barrels per day (bpd) by next year has been thwarted by foreign partners deciding to exit the joint venture overseeing the project.
It is unclear what the future holds for production from the Bahrain oil field — formerly known as the Awali oil field — given the economic climate and the departure of foreign investment and know-how.
This development occurred as the small Gulf kingdom went through a cabinet restructuring affecting its Energy Ministry and appointed a new Oil minister — a member of the ruling al-Khalifa clan — raising questions about Bahrain’s oil-development plans.
Bahrain is one of two members of the Gulf Cooperation Council (GCC) that are not members of the Organisation of the Petroleum Exporting Countries (OPEC), the other being Oman. Bahrain is the smallest GCC oil producer, with output of about 200,000 bpd, compared to Oman’s crude production of around 1 million bpd.
The Bahrain oil field was discovered in 1932, giving it the distinction of being the first oil field found on the Arab side of the Gulf (oil was discovered in Iran in 1908) and is one of the longest-producing oil fields in the world. Output from the Bahrain oil field peaked at 79,000 bpd in 1970 but has declined to around 32,000 bpd.
It was in late 2009 that Tatweer Petroleum was formed as a joint venture of Bahrain’s National Oil & Gas Authority (NOGA), US oil firm Occidental Petroleum and Abu Dhabi’s state investment arm Mubadala Development Company with the mission of redeveloping the field to raise output to 100,000 bpd by 2017 through enhanced recovery technology and employing workers from Occidental, Mubadala and state oil firm Bahrain Petroleum Company (Bapco).
The joint venture made only limited progress, however, with output from the mature field hitting 50,600 bpd in 2015. In May, Occidental and Mubadala Petroleum — a wholly owned energy subsidiary of Mubadala Development — announced they had reached an agreement with the Bahraini government to exit Tatweer Petroleum at the end of June.
The project fell victim to several factors, including the ongoing poor economic climate driven by low oil prices that can make enhanced recovery techniques prohibitively expensive and the fact that Occidental has been diligently working to rid itself of underperforming Middle East and US assets to focus on its core operating areas.
In addition, it was announced in late June that the Abu Dhabi government was planning to merge Mubadala Development and its other state-owned investment fund, International Petroleum Investment Company (IPIC), which could have an effect on subsidiaries such as Mubadala Petroleum.
Occidental and Mubadala Petroleum had reportedly been trying to renegotiate terms of the 20-year contract covering the Bahrain field development with the al-Khalifa government for more than a year before pulling out of the project. A Mubadala spokesman was quoted as saying in late May that “significant advances have been made in production and efficiency of operations at the field under the leadership of the partners, and the time is now right to transfer full responsibility for the asset into Bahraini hands”.
However, it is unclear whether Bapco will continue to operate the Bahrain field on its own, particularly if it intends to push production higher as that probably would require foreign investment and expertise. Bahrain’s largest oil volume derives from its shared 300,000 bpd-producing Abu Safa oil field with Saudi Arabia, with Riyadh essentially responsible for all production from the field and for marketing Bahrain’s 150,000 bpd share on Manama’s behalf.
As the Bahraini government was grappling with the decision of the two foreign players to depart operations at its oldest oil field, King Hamad bin Isa al-Khalifa announced in mid-June that he was abolishing the kingdom’s Energy Ministry and creating two new portfolios from it. Sheikh Mohammed bin Khalifa bin Ahmed al-Khalifa was named Oil minister and former Energy minister Abdul Hussain bin Ali Mirza was appointed Electricity and Water Affairs minister.
Mirza had served as Bahrain’s Energy minister for ten years. He had oversight of the kingdom’s electricity and water operations since 2011 when two ministries were merged.
As Oil minister, Sheikh Mohammed has been appointed chairman of NOGA — the state body responsible for petroleum licensing and monitoring and inspection. He already had positions as chief executive officer of Oil and Gas Holding Company, a NOGA investment arm, and chairman of Bapco.
Although he was appointed chairman of Tatweer Petroleum upon being named Oil minister, it is unclear what will become of that venture without the participation of two of the original partners.
It also raises the question of why the Bahraini government has decided to create a separate oil portfolio and whether it perhaps believes it will have the financial muscle in the coming years to go it alone in further developing its limited oil assets or must continue relying on foreign investment and technical expertise.