Doubling oil output may prove a challenge too far

• Oil field discovery could add 200k barrels a day
• Geology could make development too expensive

Four years after announcing a giant discovery of 80 billion barrels of oil shale and 20 trillion cubic feet of gas off the coast of Bahrain, Manama has yet to make a final decision on whether to push ahead with what would be an expensive and challenging project.

The offshore basin, which wraps around the western and southern coasts of the island, along its maritime border with Saudi Arabia, could be transformational for the country.

But there are persistent doubts about how much of the resource could ever be extracted on a commercially viable basis.

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Recent high oil prices make complex discoveries such as the Khaleej al-Bahrain appear relatively attractive, but there is never any guarantee such prices will be sustained over the length of time needed for investors to make a return.

Speaking on the sidelines of the Middle East Petroleum and Gas Conference in Manama in May this year, then oil minister Sheikh Mohammed bin Khalifa al-Khalifa said the authorities were still examining the field to see what was possible.

“We are still working on the technical side of things, understanding the resource play,” he said. “Ultimately, it depends on the cost of the production.”

The authorities had initially suggested it would take five years to reach production, but that deadline looks likely to be extended – and indeed may never be reached.

A contract was signed with US services company Haliburton in 2018 to drill two wells to evaluate the resource. Since then, however, there has been little movement. 

A cabinet reshuffle in mid-June may have complicated things further, however.

On June 13, King Hamad bin Isa al-Khalifa made wide-ranging changes to the government, including naming climate affairs envoy Mohammed bin Mubarak bin Daina as oil and environment minister, replacing Sheikh Mohammed, who had been in post for six years.

Bahrain is one of the smaller oil producers in the region, with an annual output of less than 200,000 barrels a day (b/d) of oil.

Around 43,000 b/d of that comes from the onshore Bahrain field, which was discovered in 1932 and is these days operated by the state-owned Tatweer Petroleum.

The rest comes from Bahrain’s half-share of the 300,000 b/d offshore Abu Safah field it jointly owns with Saudi Arabia.

If development goes ahead, the Khaleej al-Bahrain field could add some 200,000 b/d of output, thereby more than doubling the country’s production in one go.

Outside investors would certainly be needed to help exploit the asset, although Nogaholding, the government’s energy investment and development arm, declined to respond to questions from AGBI on this. 

Most of the country’s output is currently directed to the 267,000 b/d Bapco refinery at Sitra, which is being expanded to a capacity of 380,000 b/d.

The refinery depends on imports from Saudi Arabia for most of its crude feedstock.

If the new offshore field is brought online, though, those imports could be scaled back sharply or even ended.

But Nogaholding is proceeding very cautiously. In June, its chief executive Mark Thomas said in an interview with S&P Global that it wanted to gather more 3D seismic data before deciding whether to launch any drilling campaign.

He said the Khaleej al-Bahrain field was “a very challenging geology” and more assessment work was needed. “It will be a very expensive development for us,” he said, adding that no drilling work was due to happen this year.

Such comments have led some observers to assume that the field will never be developed. “Reading between the lines, it seems that the field is not feasible,” says one energy industry analyst in Manama.

“If it’s not attractive from a financial point of view when oil is at more than $100 a barrel, that says a lot.”

Instead, Nogaholding appears intent on trying to extract more from the Bahrain field.

In August 2021 the state-owned company announced a $200 million addition to its previous $1.4 billion Islamic financing facility, with the additional funds to be used to finance a development and expansion programme on the historic oil field. In May this year it expanded the facility by a further $600 million to $2.2 billion. 

After all the excitement prompted by the April 2018 announcement, the signs are that Bahrain’s oldest oil field will continue to be its main operating asset for some time to come.