Bahrain looking to develop Khaleej al-Bahrain oil field

Some 60-70% of the Gulf kingdom’s revenues are derived from oil and gas sales, so a doubling of its energy-related earnings would greatly bolster Bahrain’s fragile economy.
Sunday 24/03/2019
Big ambitions. Pipelines and fuel storage tanks of state-run Bahrain Petroleum Company. (Reuters)
Big ambitions. Pipelines and fuel storage tanks of state-run Bahrain Petroleum Company. (Reuters)

Bahrain is keen to move forward by year’s end in teaming up with a US partner to develop its giant tight oil and gas find discovered a year ago.

The government of Bahraini King Hamad bin Isa al-Khalifa is hoping that development of the Khaleej al-Bahrain field will translate into a major oil boom for Manama, doubling the Gulf state’s crude oil production and providing substantial income for the debt-ridden country.

The economics of extracting shale oil and gas from Khaleej al-Bahrain, including current oil prices and the technological difficulties involved, could delay the project should it even prove to be commercially viable, however.

Last April, Bahraini Oil Minister Sheikh Mohammed bin Khalifa bin Ahmed announced the discovery of the Khaleej al-Bahrain field, with estimates of the field holding 81.5 billion barrels of oil and 390 billion cubic metres of associated gas.

The find, covering 2,000 in shallow waters off the Gulf kingdom’s west coast, is Bahrain’s largest oil and gas discovery since 1932, when the country started producing crude from the Bahrain (formerly Awali) field. The Bahraini government anticipates production from Khaleej al-Bahrain to begin within five years.

Last month, Sheikh Mohammed said the first test well was being drilled at the field. Noting that his government has been in discussions with international oil firms to help develop the discovery, the Bahraini oil minister said: “Maybe towards the end of this year we might be in a position to have an interested company, we hope.”

He stated that the Bahraini government was zeroing in on US oil majors and independent oil firms with “operating capabilities in US shale, because tight oil is very much a US phenomenon now.”

Tight oil is light crude oil contained in shale rock formations far below the Earth’s surface that can be extracted through fracking, by employing deep horizontal wells. However, only a portion of crude typically is recovered from even the largest shale deposits because of the features of the ultra-low-permeability rock.

Sheikh Mohammed acknowledged the recovery rate for shale deposits is about 5-15% of available reserves. Energy consultancy Wood Mackenzie cautioned that tapping into the Khaleej al-Bahrain field could be “technically challenging and potentially high-cost to develop.”

If King Hamad’s government moves forward with developing Khaleej al-Bahrain, it will be challenged by extracting crude from an offshore tight reservoir, a test for even the most experienced fracking companies.

The US shale boom has solely come from onshore fields, with exploratory efforts in the Gulf of Mexico yet to result in commercially viable production. Sheikh Mohammed has downplayed the effects of the field’s location, saying: “The good news is it is very shallow offshore. It’s a bathtub area.”

Bahrain’s proven crude reserves of 124.6 million barrels are dwarfed by its larger Gulf neighbours, in particular, the reserves of Saudi Arabia, which recently were appraised at 268.5 billion barrels. Bahrain’s oil production totals around 200,000 barrels per day (bpd). Manama receives revenues from half the output of the 300,000 bpd Abu Safah offshore field that it shares with Saudi Arabia.

Bahrain’s remaining output flows from the 87-year-old Bahrain field. Production from the field peaked in 1970 at nearly 80,000 bpd but current output is about 45,000 bpd.

Bahrain’s National Oil and Gas Authority formed a joint venture in 2009 called Tatweer Petroleum with US oil firm Occidental Petroleum and Abu Dhabi’s Mubadala Petroleum to expand the Bahrain field’s output to 100,000 bpd by 2017 through enhanced recovery techniques. A poor economic environment, along with frustration from the foreign partners over contract renegotiation terms, resulted in their exit from the venture in the summer of 2016 and plans to increase production were derailed.

The Bahraini government is aware it must offer foreign players with shale expertise enticing contracts to get the Khaleej al-Bahrain project under way. “Ultimately we have to make this attractive,” Sheikh Mohammed said. “It should give investors the returns they require while still being fair to the government here.”

Manama is expected to allow international oil firms to book reserves from the field on their balance sheets and offer them production-sharing agreements.

Much must be ascertained about oil and gas volumes that can be extracted from the Khaleej al-Bahrain field, whether that production is economically viable and if output can realistically be achieved by 2023. King Hamad’s government is targeting production of up to 200,000 bpd from the field, effectively doubling Bahrain’s oil output.

Some 60-70% of the Gulf kingdom’s revenues are derived from oil and gas sales, so a doubling of its energy-related earnings would greatly bolster Bahrain’s fragile economy.

The government is in the process of introducing fiscal reforms, including a value added tax and changes in public spending, that were mandated by Saudi Arabia, the United Arab Emirates and Kuwait as part of a $10 billion financial aid package they provided Manama last fall.