Bahrain faces setback in oil field expansion plans

It is unclear what future holds for production from Bahrain oil field given economic cli­mate, departure of foreign investment and know-how.

Men work on an oil pump during a sandstorm in the desert oil fields of Sakhir, Bahrain.

2016/08/07 Issue: 67 Page: 19

The Arab Weekly
Jareer Elass

Washington - Bahrain’s goal of boosting output from the oldest producing oil field on the Arab side of the Persian Gulf to 100,000 barrels per day (bpd) by next year has been thwarted by foreign partners decid­ing to exit the joint venture over­seeing the project.

It is unclear what the future holds for production from the Bahrain oil field — formerly known as the Awali oil field — given the economic cli­mate and the departure of foreign investment and know-how.

This development occurred as the small Gulf kingdom went through a cabinet restructuring affecting its Energy Ministry and appointed a new Oil minister — a member of the ruling al-Khalifa clan — raising questions about Bahrain’s oil-de­velopment plans.

Bahrain is one of two members of the Gulf Cooperation Council (GCC) that are not members of the Organi­sation of the Petroleum Exporting Countries (OPEC), the other being Oman. Bahrain is the smallest GCC oil producer, with output of about 200,000 bpd, compared to Oman’s crude production of around 1 mil­lion bpd.

The Bahrain oil field was discov­ered in 1932, giving it the distinc­tion of being the first oil field found on the Arab side of the Gulf (oil was discovered in Iran in 1908) and is one of the longest-producing oil fields in the world. Output from the Bahrain oil field peaked at 79,000 bpd in 1970 but has declined to around 32,000 bpd.

It was in late 2009 that Tatweer Petroleum was formed as a joint venture of Bahrain’s National Oil & Gas Authority (NOGA), US oil firm Occidental Petroleum and Abu Dhabi’s state investment arm Mubadala Development Company with the mission of redeveloping the field to raise output to 100,000 bpd by 2017 through enhanced re­covery technology and employing workers from Occidental, Mubada­la and state oil firm Bahrain Petro­leum Company (Bapco).

The joint venture made only limited progress, however, with output from the mature field hit­ting 50,600 bpd in 2015. In May, Occidental and Mubadala Petrole­um — a wholly owned energy sub­sidiary of Mubadala Development — announced they had reached an agreement with the Bahraini gov­ernment to exit Tatweer Petroleum at the end of June.

The project fell victim to several factors, including the ongoing poor economic climate driven by low oil prices that can make enhanced re­covery techniques prohibitively ex­pensive and the fact that Occiden­tal has been diligently working to rid itself of underperforming Mid­dle East and US assets to focus on its core operating areas.

In addition, it was announced in late June that the Abu Dhabi gov­ernment was planning to merge Mubadala Development and its other state-owned investment fund, International Petroleum In­vestment Company (IPIC), which could have an effect on subsidiaries such as Mubadala Petroleum.

Occidental and Mubadala Petro­leum had reportedly been trying to renegotiate terms of the 20-year contract covering the Bahrain field development with the al-Khalifa government for more than a year before pulling out of the project. A Mubadala spokesman was quoted as saying in late May that “signifi­cant advances have been made in production and efficiency of opera­tions at the field under the leader­ship of the partners, and the time is now right to transfer full respon­sibility for the asset into Bahraini hands”.

However, it is unclear whether Bapco will continue to operate the Bahrain field on its own, particu­larly if it intends to push produc­tion higher as that probably would require foreign investment and ex­pertise. Bahrain’s largest oil volume derives from its shared 300,000 bpd-producing Abu Safa oil field with Saudi Arabia, with Riyadh es­sentially responsible for all produc­tion from the field and for market­ing Bahrain’s 150,000 bpd share on Manama’s behalf.

As the Bahraini government was grappling with the decision of the two foreign players to depart operations at its oldest oil field, King Hamad bin Isa al-Khalifa an­nounced in mid-June that he was abolishing the kingdom’s Energy Ministry and creating two new port­folios from it. Sheikh Mohammed bin Khalifa bin Ahmed al-Khalifa was named Oil minister and former Energy minister Abdul Hussain bin Ali Mirza was appointed Electricity and Water Affairs minister.

Mirza had served as Bahrain’s En­ergy minister for ten years. He had oversight of the kingdom’s electric­ity and water operations since 2011 when two ministries were merged.

As Oil minister, Sheikh Moham­med has been appointed chairman of NOGA — the state body respon­sible for petroleum licensing and monitoring and inspection. He al­ready had positions as chief execu­tive officer of Oil and Gas Holding Company, a NOGA investment arm, and chairman of Bapco.

Although he was appointed chairman of Tatweer Petroleum upon being named Oil minister, it is unclear what will become of that venture without the participation of two of the original partners.

It also raises the question of why the Bahraini government has decid­ed to create a separate oil portfolio and whether it perhaps believes it will have the financial muscle in the coming years to go it alone in further developing its limited oil assets or must continue relying on foreign investment and technical expertise.

Jareer Elass is a Washington-based energy analyst, with 25 years of industry experience and a particular focus on the Arabian Gulf producers and OPEC.

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