Major offshore oil and gas discovery sets Bahrain up for long-term growth

In early 2018 Bahrain announced the most significant recent oil and gas discovery in the kingdom since the 1930s, located in the offshore Khaleej Al Bahrain basin (KABB). Should the basin offer sufficient amounts of recoverable reserves, new production will push Bahrain to regain its status as a major regional oil and gas producer, in addition to offering significant benefits to its downstream oil and gas segments.

Questions remain regarding how new production will be processed at the Sitra refinery, which is undergoing a modernisation programme designed for a different type of primary supply. However, with commercial production still years away, Bahrain has ample time to successfully adjust its development strategy. Furthermore, plans to offer favourable concessions to international oil companies should support the kingdom’s bid to attract new investment in its landmark discovery.

Record Discovery

In April 2018 Sheikh Mohammed bin Khalifa bin Ahmed Al Khalifa, minister of oil, announced that the kingdom had made its largest-ever discovery of tight oil and deep gas resources. The offshore discovery was made off Bahrain’s west coast in October 2017. Seismic surveys were conducted by US-based oil consultancy DeGolyer & MacNaughton, working with US oilfield services company Halliburton on behalf of the National Oil and Gas Authority’s investment and development arm, nogaholding. The surveys revealed P50 reserves – reserves that have a 50% chance of being commercially produced – of 81.5bn barrels of light oil and 13.7trn cu feet of tight gas reserves. Sheikh Mohammed announced that Halliburton was set to drill two new appraisal wells in 2018 to evaluate the reservoir’s potential and set the stage for long-term production, as well as determine how much of the reserves are recoverable.

Cautious Optimism

Although the KABB discovery was Bahrain’s largest find since the 1930s, its announcement has been met with cautious optimism by industry analysts. “I think it would be wise to temper all expectations surrounding KABB,” Jim Eastlack, CEO of Tatweer Petroleum, told OBG. “We should continue working to achieve economic diversification while pursuing all means to see if commercialisation is feasible,” he said. Estimates on recoverable reserves had yet to be published as of November 2019.

Although Bahrain was the GCC’s leading oil and gas producer throughout the 1970s, its oil production had fallen to less than 42,000 bpd as of February 2019, with some experts noting that for reservoirs like KABB, as little as 10% of the resources may actually be recoverable, owing to the technical challenges involved in extraction. Nonetheless, Bahraini authorities have expressed optimism about KABB, with Sheikh Mohammed telling the Financial Times in October 2018 that early results were promising, noting that KABB “is very shallow offshore. It is a bathtub area. So we are looking at ways to optimise costs of development”. The first oil samples from the basin are expected to be extracted before the end of 2020.

The next step is finding the right partners to explore and produce the basin. Against a backdrop of low and volatile global oil prices, favourable investment terms have been identified as one of the most important considerations for successful development. Sheikh Mohammed has told media that the kingdom is planning to offer attractive concessions to international oil companies, most likely through production-sharing agreements where revenue is split among partners.

Refinery Questions

Upon making the announcement, the minister told Reuters the kingdom expected KABB reserves to be under production within five years, offering significant long-term benefits to macroeconomic growth, as well as the kingdom’s vibrant downstream industry. Indeed, an ongoing modernisation programme being undertaken by the Bahrain Petroleum Company’s Sitra refinery and associated facilities could offer the kingdom a major opportunity for downstream expansion when production begins.