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Page added on April 8, 2018

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Why Bahrain’s Huge Oil Discovery Might Not Provide The Windfall It Is Hoping For

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On April 1, Bahrain’s Higher Committee for Natural Resources and Economic Security announced it had made a significant discovery of oil and gas in the offshore Khaleej Al Bahrain Basin, the largest find in the country since the early 1930s.

Oil minister Sheikh Mohamed bin Khalifa Al Khalifa described the find as “at substantial levels, capable of supporting the long-term extraction of tight oil and deep gas.”

Further details have emerged since then from the National Oil and Gas Authority (Noga), which has been working with consultancy firms DeGolyer and MacNaughton (Demac), Halliburton, and Schlumberger to assess the finds. However, as these details have been released, some analysts have urged caution about how difficult and costly it might be to exploit the new finds.

A general view of the Bahraini capital, Manama, on February 10, 2016. (Photo: MOHAMMED AL-SHAIKH/AFP/Getty Images)

According to the authorities, the newly discovered reserve holds more than 80 billion barrels of oil. In addition, a separate natural gas discovery of 13.7 trillion cubic feet (tcf) has been made below Bahrain’s main gas reservoir. “The discovery breaks new ground for the Bahrain oil and gas industry,” said John Hornbrook, senior vice president at Demac.

The oil field is located in shallow waters off the west coast of the island kingdom, close to existing oil field facilities – which should reduce the cost of developing the find. Schlumberger has drilled the first test well and Halliburton is to drill two more appraisal wells this year to further evaluate the find, according to Sheikh Mohammed bin Khalifa.

However, the crude may still prove costly to extract. Yahya Al Ansari, chief exploration geologist at the Bahrain Petroleum Company (Bapco), described the find as “a layer with moderate conventional reservoir properties on top of an organic-rich source rock.”

This potentially tricky geology could see the field classified as being on the borderline between conventional and unconventional. That in turn has led some analysts to warn of the complexities involved in trying to extract the crude.

“While the scale of discoveries is very large, more information is needed to establish how much of the resource is commercially recoverable,” said Tom Quinn, senior analyst for Middle East upstream at consultants Wood Mackenzie. ” A tight reservoir means a low recovery factor and only a fraction of the 80-plus billion barrels is likely to be recoverable. The oil will also be technically challenging and potentially high cost to develop.”

He added that the unconventional nature of the discovery could also force the Bahrain authorities to offer more generous contract terms to international oil companies (IOCs) than they have in the past.

“Bahrain’s previous oil contracts had tough fiscal terms by international standards, and the IOC partners made meagre returns. Therefore new fiscal terms will be needed to attract suitable partners,” said Quinn.

There are also questions still to be answered about the natural gas find before it is clear how lucrative that will prove to be for the authorities in Manama. “Further appraisal will be required and suitable commercial terms [need to be] agreed to establish if the deep gas resource is commercially viable,” added Quinn.

Bahrain is a minnow in terms of the Middle East oil and gas sector, and is the smallest Gulf producer. Before this latest find it had crude reserves of 125 million barrels and natural gas reserves of 92 billion cubic metres (3.25 tcf), according to the CIA World Factbook. It currently produces around 45,000 barrels a day (b/d) from its onshore Awali field. It also receives 150,000 b/d of crude from the Abu Safah field, which it shares with Saudi Arabia.

While the new find could transform its energy sector, it will be at least five years before production starts at the new field. However, there could be an indirect boost for the struggling economy in the meantime. Dubai-based bank Emirates NBD said on April 3 that “following on from the positive sentiment generated on the back of this ‘find’, the Bahrain sovereign may plan to re-approach the bond market for completing bond sales that were shelved last week.”

Forbes



3 Comments on "Why Bahrain’s Huge Oil Discovery Might Not Provide The Windfall It Is Hoping For"

  1. twocats on Mon, 9th Apr 2018 6:20 am 

    This article could have also been called, “Why some jackalope at Forbes knows more than Boat who apparently studies this topic day in day out for years”.

  2. rockman on Mon, 9th Apr 2018 10:59 am 

    twocats – Yep, we are at least several years away from Bahrain having a even rough estimate of the future recoverable reserves. And a number of years after that before full production can be reached…what every that might be. It could be as long as 10+ years depending on the future price of oil and the aggressiveness of the operator.

    In the meantime Bahrain will continue producing and DEPLETING its existing oil reserve base. The NET increase in the country’s total production in a decade or so is even more speculative then the volume of recoverable oil it just discovered.

  3. Cloggie on Wed, 11th Apr 2018 6:16 am 

    http://www.spiegel.de/wirtschaft/bahrain-wie-viel-nutzt-das-riesige-oelfeld-dem-koenigreich-a-1201892.html

    At least 80 billion barrel, at $100 that would be 8 trillion for 1.5 million Bahrainians or 5 million per camel driver… or Iran.

    Bahrein is majority Shia and was often in the Iranian sphere of influence.

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