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 to be deployed to stem decline and 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 the Kingdom’s refining sector. 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 hamlet, 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, a sea change which the current flurry of activity can be attributed to.
Guiding NOGA, 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.
“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,” 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 the production from the Bahrain field has been declining, so our current indigenous onshore crude production is only around 34 000, 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 reforms. “As part of the economic reforms he restructured the oil and gas industry in 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.
“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.”
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 2009, 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.”
Offshore is playing a 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.
“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 are very different,” he signs off.
Project execution
Occidental Petroleum Corporation and Mubadala Development Company, through its business unit Mubadala Oil & Gas, announced last year that they have signed a DPSA with the National Oil and Gas Authority of Bahrain (NOGA) for the further development of the Bahrain Field. Under this agreement, a Joint Operating Company will be formed to serve as operator for the project under the DPSA.
“We are pleased to expand upon our existing relationship with Abu Dhabi and look forward to working with Bahrain on this exciting project,” said Dr Ray Irani, chairman and chief executive officer of Occidental. “Signing this DPSA is another important step in the implementation of our growth strategy in the Middle East, and the further development of the Bahrain Field will create significant value for the people of Bahrain.”
“We are delighted with the successful conclusion of our joint negotiations with NOGA,” said Khaldoon Khalifa Al Mubarak, chief executive officer and managing director, Mubadala Development Company. “Our collaboration with Oxy is wholly in line with Mubadala’s strategy of developing a top class international oil and gas unit focused on exploration and development projects in the Middle East, North Africa and South East Asia.”
Oil production from the field is expected to more than double to approximately 75,000 barrels per day within five years and grow to a peak level of more than 100,000 barrels per day thereafter. Gas production capacity is expected to grow from the current level of 1.7 billion cubic feet per day to over 2.5 billion cubic feet per day under the Field development plan. Oxy’s net share of production is expected to be approximately 28,000 barrels of oil equivalent per day (BOEPD) in 2010 growing to 56,000 BOEPD within five years. Mubadala’s net share of production is expected to be 18,500 BOEPD and 37,000 BOEPD for the same time periods. Net reserve additions over the life of the project for Oxy are said to be 450 million barrels of oil equivalent.
Bahrain quick facts
• Bahrain’s oil sector accounts for about two-thirds of total government revenues.
• Bahrain exports much of its oil in the form of refined petroleum products rather than crude oil.
• Bahrain has modest natural gas reserves, and is looking to import natural gas supplies from neighboring countries.
• Bahrain’s government expects that the country’s electricity demand will grow by 7% annually through 2020.
