Editor's Comment: All that glitters…
Bahrain’s headline-grabbing windfall may not be quite as substantial as the news reports suggest.
…is not necessarily black gold.
It has certainly been a momentous month in Manama with one of the Arabian Gulf’s more modest upstream operators suddenly generating a cascade of global headlines.
On April 1st, the island kingdom’s news agency declared the country had unearthed its largest oil find since the days of sepia tinted photographs of Jabal Ad Dukhan, the first oil well in the Arabian Peninsula. Words like “highly significant” and “substantial” only added to the unfolding drama.
This was no April Fool’s Day joke. Just a few days later and the breaking news was even more jaw-dropping as estimates of 80bn barrels of oil and up to 20tn cubic feet of natural gas were unveiled by Bahrain’s Oil Minister Sheikh Mohammed bin Khalifa Al Khalifa. If the minister privately kicked up his heels on his way back to his office, you’d have had to forgive him.
The offshore Khaleej Al Bahrain Basin, the location of the find, was surely set to be thrust into the shared consciousness of the global oil industry.
But embedded in the detail is the most relevant part of the story - this discovery consists of tight oil and deep gas. Extracting this resource is going to be technically challenging, therefore expensive and unclear as to recovery rates.
To be fair, amid some of the more incendiary adjectives, the Bahraini government has stressed there is uncertainty as to the true scale of this find and more testing is required.
The good news is that such is the size of this discovery, Bahrain’s modest domestic crude production of less than 50,000 barrels per day (bpd), which ranks it alongside the likes of Cuba (hardly known for its oil production) will be transformed.
Presently Bahrain’s most notable oil revenue comes from its share of the offshore Abu Safah 300,000 bpd field that it splits 50-50 with Saudi Arabia. Bahrain’s upstream activities are going to get a mighty boost thanks to this welcome find.
Now for the bad news – rates of recovery from shale oil plays are notoriously poor. Energy consultants Wood Mackenzie were one of the first ghosts at the feast stressing that only a “fraction” of this oil is likely to be recoverable.
The UAE’s Shilaif Formation contains an estimated 367bn barrels of shale oil and yet ‘only’ 22bn barrels are deemed as recoverable. If this example provides a rule of thumb, then around 75bn barrels of Bahrain’s newly found oil will stay right where it is.
But stumbling upon another 4-5bn barrels of accessible crude oil, with a current value of almost $350bn, may not cause much of a stir across the border in Riyadh, but for a nation whose credit rating has been described as ‘junk’ for more than two years, this is a long-overdue economic shot in the arm.