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Bahrain: Digging Deeper

As the Kingdom's known reserves begin to dwindle, Bahrain is set to boost its oil and gas production as part of a multi-billion dollar programme to identify new reserves and to extend the life of existing fields, in part by making use of new technology.

While having invested much of its oil earnings into diversifying the country's economy, promoting the financial, heavy industry and the services sectors, Bahrain still looks to oil as a stable revenue earner. According to a report issued by the Central Bank of Bahrain on November 26, the oil sector made up approximately 24% of the Kingdom's total gross domestic product (GDP) in 2007, contributing $4.5bn out of a total GDP of $18.4bn.

In mid-September, oil majors ExxonMobil , Occidental and Maersk were short listed from among eight firms to carry out an expansion project at Bahrain's main onshore field of Awali. The final results of the tender are expected to be announced early next year, when officials have completed their study of the submitted proposals from the three companies.

According to Abdul Hussain bin Ali Mirza, minister of oil and gas affairs, the project, which if commercially viable would require investments of up to $5bn, could double Bahrain's oil output from the present 33,000 barrels per day (bpd).

Under the terms of the contract, the winning firm will develop and renovate the Awali field at no cost to the state, with an agreement on funding and production share to be reached following the initial work, Mirza told local media on November 18.

"The winning company will foot the entire cost according to the terms of the agreement," said Mirza.

According to the minister, Bahrain is also planning to use newly developed equipment to drill deeper in the search for oil and gas as well as utilise digital technology to assess earlier exploration work to determine if certain wells could be commercially viable. Thus the results of previous efforts that had been deemed unsuccessful are now being re-evaluated.

"The reports that we have had from previous unsuccessful attempts will now be digitised so that we can see if we can get anywhere with them," Mirza said.

At least one of the firms in the running for the Awali contract is no stranger to the Bahraini energy sector. Late last year, US-based Occidental won a tender to conduct geological studies and drill test wells in two offshore blocks, while Thai firm PTT Exploration & Production Company was given exploration rights on a third undersea block as part of the same tender process. Initial drilling on these blocks is scheduled to be completed in February next year, with the results then to be analysed.

In addition to ramping up domestic oil and gas production, the Kingdom is also planning to increase crude imports from neighbouring Saudi Arabia for processing at its Sitra refinery.

The existing pipeline from Saudi Arabia has a capacity of 235,000 barrels bpd, but this could be expanded to 350,000 bpd through a $300-350m project currently under consideration, according to Abdulkarim Al Sayed, chief executive officer of Bahrain Petroleum Co. (BAPCO) , who spoke to local media on November 16.

Part of the flow through the existing pipeline is Bahrain's share of output from the Abu Saafa oilfield, amounting to just under 150,000 bpd, and operated by Saudi Arabia but with production split between the two countries.

However, with plans to expand the refining capacity of the Sitra plant from the present 260,000 bpd to 360,000 bpd, existing imports and local fields will not be able to provide sufficient raw material for processing. The plans are part of a $2bn upgrade of the facility scheduled to be completed before 2016.

In addition to increased oil output, Bahrain is also hoping to tap into new gas reserves and boost production at existing fields.

In late November, work began at the offshore wells of the Bahrain Field, located in the Gulf of Sulwa between Saudi Arabia and Qatar. Under the project, eight new wells will be sunk to depths of between 3650 to 3800 metres, with the combined output predicted to reach 14m cubic metres per year, according to a state media agency report on November 25. In addition, the five wells currently operating will be upgraded to improve their production rates. In total, $200m will be spent to raise output from the field, including $45m to enhance the gas transmission system from the field.

Additionally, at the end of October, Bahrain opened bids for licences to conduct deep onshore gas exploration, with the winning bidder expected to sink wells to a depth of up to 6000 metres. The results of the tender are expected to be announced in the second quarter of 2009.

Announcing the opening of the bid on October 29, Mirza said successful discoveries of viable quantities of natural gas at deeper levels in neighbouring countries such as Saudi Arabia showed that there was potential for Bahrain to find commercially exploitable gas deposits within its own fields.

As its existing oil deposits dry up, Bahrain has been working to increase gas production to compensate. On November 18, Mirza said the new projects would boost gas output from 33.6m cubic metres to 56m cubic metres.

Of course, all of these projects will involve large investments, either from the Kingdom itself or from overseas oil and gas companies. With falling oil prices and funds drying up faster than Bahrain's energy reserves, some investors may be wary of committing to such big ticket and high-risk projects. However, having been the first oil producer in the region, Bahrain hopes to strike it lucky again.

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© Oxford Business Group 2008