Dr. Abdul Hussain bin Ali Mirza, Bahrain’s Minister of Oil & Gas Affairs and Chairman of the National Oil and Gas Authority, reveals his hopes and vision for the Kingdom’s upstream sector.
It is no exaggeration to say that Bahrain is currently going through its most exciting E&P phase in more than seven decades. Four offshore exploration and production sharing blocks have been allocated, and drilling will commence this year.
Onshore, new depths are being plumbed to discover natural gas, and a host of enhanced oil recovery techniques are soon to be deployed to not only stem decline, but actually increase production at the country’s 77-year old Bahrain Field.
In addition to these massive upstream developments, a major midstream overhaul is at FEED stage to replace the KSA-Bahrain pipeline, the critical artery pumping the Saudi-feedstock of Bahrain’s refining sector. In turn, this will provide the vital crude for a major petrochemical master plan, which will see billions of dollars poured into the production of high quality, value-added gasoline and aviation fuels.
The shift from a sedate, almost forgotten upstream environment, into a thriving hotbed of activity has been expedited and made possible by a dramatic overhaul of the energy business in Bahrain.
The National Oil and Gas Authority was born when three ministries with overlapping and blurred boundaries were streamlined into one body by Royal Decree in 2005, marking a sea change which the current flurry of activity can be attributed to.
Guiding the authority, and entrusted with the whole energy remit in the Kingdom is Dr Abdul Hussain bin Ali Mirza, chairman of the Authority and Minister of Oil & Gas Affairs.
Dr Mirza shared his vision and passion for Bahrain’s energy prospects exclusively with Arabianoilandgas.com from NOGA’s headquarters in Manama.
“To put where we are today in context it is important to note that Bahrain was the first country in the GCC where oil was discovered, back in 1932. Since that field was developed there have been no new discoveries, so for 77 years we have been producing from that original find,” outlines Dr Mirza.
Bahrain also shares an offshore field called Abu Saafa with Saudi Arabia. It is estimated that this produces some 300 000 barrels per day, which is split 50:50. The product from Abu Saafa is sold directly as crude on international spot markets, and does not come to Bahrain.
“After eight decades, naturally, the production from the Bahrain field has been declining, so our current indigenous onshore crude production is only around 34 000bpd, and it’s declining at a rate of 2% each year – if we do nothing,” explains Dr Mirza.
After several decades without exploration success, HM the King of Bahrain initiated a number of political, social and economic reforms. “As part of the economic reforms he restructured the oil and gas industry in September 2005 by establishing NOGA, and I was honoured to be made chairman.”
NOGA, in turn became an umbrella organisation responsible for all government assets and all the oil companies in Bahrain. Both the Bahrain Petroleum Company and Bahrain National Gas Company (75% held by the government with 25% minority stake split equally between the Arab Petroleum Investment Corporation (APIC) and Caltex Bahrain (Chevron)) fall entirely under its remit, as does the downstream powerhouse GPIC.
Before 2005, the energy portfolio was managed as the Supreme Oil Council, chaired by the HH Prime Minister, the Supreme Gas Committee chaired by HH the Crown Prince, and the separate Ministry of Oil.
“The formation of NOGA marked a strategic change for the Kingdom, allowing all efforts to be focussed in one direction. The idea behind NOGA notably not being a ministry is to foster a culture more akin to the private sector, to think more commercially and business-like, and not be bogged down in politics,” enthuses Dr Mirza.
“In this way it was hoped the new authority would be more innovative and creative and think of new ways to do business. There are six other board members and we will typically meet on a weekly basis, and this has greatly enhanced the decision making process.”
To encourage foreign investment in Bahrain’s upstream oil sector, in March 2007 NOGA announced that it had opened a new licensing round for four offshore exploration and production (E&P) projects.
Until 2001, much of the offshore territory in the Gulf of Bahrain was unavailable for E&P work as a result of a maritime boundary dispute with Qatar, which has since been resolved. The result of subsequent prospecting in Bahrain’s eastern and south-eastern territorial waters after the dispute with Qatar had been resolved was disappointing.
In February 2008, Thailand’s PTTEP and US Occidental were awarded exploration and production licenses offshore Bahrain. PTTEP signed the exploration and production-sharing agreement (EPSA) for Block 2, where it committed to drilling at least two wells in the Khuff formation. Occidental signed an EPSA for Blocks 3 and 4, where it committed to drilling three wells in the Arab formation.
“Both companies were selected on the back of a totally transparent and public tendering arrangement, and have committed to perform seismic surveying of their areas during their 6-year exploration periods – this is part of their obligation,” says Dr Mirza.
Crucially for Bahrain, under the terms of the Exploration and Production Sharing Agreements entered into, the country itself does not have to pay for the cost of drilling, which is typically upwards of $10 – 15 million per well.
In case of a commercial discovery, the exploration period will be converted to a 24-year production period. The surveys have so far progressed on schedule, with encouraging signs emerging just last month.
“Oxy completed its survey of Block 3 in February, and has decided to carry on. This is a good sign. If they thought there was nothing here they would have left, which they were free to do. They will drill their first exploration well before the end of this year, and PTT have said they will drill in 2010.”
All of the offshore fields were awarded and commissioned in record time, and approved by Parliament. “Every step has involved open consultations with other ministers so that there was no question or misgivings about how the contract was handled. Everything is totally transparent and streamlined, so quick decisions have been critical and this has made the progress to date swift to say the least.”
Offshore is clearly playing a big part in the drive for discoveries, but at the same time, the onshore Bahrain field has been examined.
“We invited IOCs to use new technology to extract more from it. Initially people thought that there isn’t much more you can extract from a 77-year old field. Occidental won this contract, and they have said to us that they can increase both oil and gas production significantly. This deal is in the final stages of negotiation as we speak,” reveals Dr Mirza.
“This production boost is hugely important to the Kingdom of Bahrain because this means extra revenues will be generated from the original field. It’s not just the case that production will be improved and output levels maintained, Oxy anticipate that production will actually increase significantly,” beams Dr Mirza.
This deal is being brokered as a development and production sharing agreement (DPSA). For any additional increase of oil or gas there is a predefined formula for sharing the proceeds. Crucially again for the country, Bahrain incurs no costs for this work.
A further key primary strategy for achieving production increases is to drill much deeper for gas. “So far we have drilled to 16 000 feet, now we want to go to 20 000 feet. We have announced this, and so far 18 oil and gas companies have booked the data room, so the flurry of interest is extremely encouraging from our perspective.”
Each company has three days before their time is up and the next company arrives. The closing time for bids to be received is May. “I think it sends a clear message that 18 top-ranking companies from around the globe, USA, Canada, France, UK, Japan, Norway, you name it, they’re here and are interested. It’s without doubt the most exciting period for the Bahrain oil and gas sector for a very long time.”
The formation of NOGA has clearly enabled the country to operate its energy business in a much more streamlined fashion than is common around the Gulf region.
“My goal was always to bring about nothing short of a paradigm shift in the way the oil and gas industry in Bahrain is handled. As you can see, there has been a real rejuvenation of the industry. With all this activity, here at NOGA, we don’t believe the oil is going to die away.”
Dr Mirza adds that the new lease of life had a big impact in the minds of Bahrain’s citizens, and has, in just a few years, overhauled the whole brand of ‘Bahrain Oil’.
“At one stage people thought Bahrain was the first to discover oil, and it will be the first to run out of oil, so young graduates here all flocked to the banking sector. We are attracting them back now. We are saying the oil will be here for another 77 years and there is exciting technology being deployed, so it is another life for the upstream business in Bahrain, and we really have changed people’s minds.”
Dr Mirza says that succession plans have been laid so that the next generation of leaders of the NOGA and NOGA Holding group of companies will continue the vitally important work he’s begun. However, his true goal is yet to be fulfilled, but he remains upbeat about its prospects during his tenure.
“My main vision and burning ambition is that we discover oil and gas. A new discovery will be the greatest thing that could happen to Bahrain. When crude was first discovered here the price was less than $1 a barrel. Today the price – and its wider implications for the country – is very different,” he signs off.
