Bahrain’s 80 billion barrel reboot

Updated 13 April 2018
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Bahrain’s 80 billion barrel reboot

  • Bahrain hopes to produce from the Khalij Al-Bahrain Basin, doubling its current output
  • The basin also contains an estimated 14 trillion cubic feet of gas

Bahrain’s discovery of around 80 billion barrels of shale oil in the offshore Khalij Al-Bahrain Basin has the potential to turbocharge the island-nation’s fragile economy despite near-term challenges, according to analysts interviewed by Arab News.


James Henderson, a senior research fellow at the UK’s Oxford Institute for Energy Studies, said: “Yes, it’s a potential game changer for Bahrain. That said, we are not going to see it turning into Saudi Arabia, producing 10 million barrels a day as the recovery rate in the Basin could be as low as 5 percent.”


The basin also contains an estimated 14 trillion cubic feet of gas, according to Bahrain’s National Oil and Gas Authority.


While officials declined to give a figure for anticipated production levels from the new field, local daily Al Ayam quoted Abdulrahman Bu Ali, head of parliament’s financial and economic committee, as saying output was expected to reach 200,000 barrels per day.


If things go according to plan, said Henderson, it would encourage foreign investment and allow Bahrain to develop a petrochemicals industry, as well as oil services.


And it could provide the government with much needed revenue to further diversify its economy, not to mention cutting its onerous budget deficit.


Henderson said it could take Bahrain anywhere between five and ten years to produce just 100,000 barrels a day.


But Toril Bosoni, a Paris-based analyst at the International Energy Agency, said: “If the Bahrainis can bring this new discovery to production and reach their goal of 200,000 barrels per day in about five years that would double what they produce today. So it’s definitely significant.”


However, Bosoni said “we need to know more about the technical and economic challenges, whether everything stacks up from a financial perspective, but they are digging more wells so additional information is on the way.”


A senior energy consultant in London, who spoke on the basis of anonymity due to client confidentiality, said Bahrain’s GDP per capita is low relative to the region. “There are restive communities, but additional oil revenue will help bring stability and prosperity,” he said.


At the end of last year, credit rating agency Fitch changed its outlook for Bahrain from stable to negative, claiming the government had yet to identify a clear medium-term strategy to tackle high deficits and a rapidly growing government debt ratio. Although Fitch expected the deficit to narrow to 10.2 percent of GDP by 2018, “this will be insufficient to stabilize the debt trajectory”, it said.


Oil and gas sales account for 60-70 percent of state revenues, according to geopolitical intelligence provider Stratfor. Plunging revenues stemming from the sharp fall in oil prices from 2014 have seen the government attempt to reign in spending and cut costs, by cutting subsidies on utilities and raising new taxes.


Bahrain currently produces about 50,000 barrels a day from one field and about 150,000 from another that is shared with Saudi Arabia.


Henderson said there were geological and technical issues when it comes to fracking and shale.


“We have seen from the US that we are not talking about one or two wells, you are fracking a lot of wells to crack the rock across a very large acreage.


“The tightness of the reservoirs means you have to go in more regularly than you would with a conventional well, so it will be more challenging than a conventional field,” he said. Offshore was potentially more difficult than onshore, moreover apart from the US, no other country in the world has the infrastructure in place to support a sizeable shale fracking industry, said Henderson.


He added: “The problem with shale is that it’s very heterogeneous. That means you can drill a well in one place, and move a kilometer away, and everything has changed. Often there are no analogies from one well to another. In the States, the guys are still constantly evolving their techniques, to optimize well-productivity.


A report in Forbes pointed out that the Bahrain field is located in shallow waters off the country’s west coast of the country, and since this is close to existing oilfield facilities it 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 evaluate the find, said Sheikh Mohammed bin Khalifa, Oil Minister of Bahrain at a press conference last week. He said the quantities of oil discovery may exceed 80 billion barrels with the area of discovery estimated at 2,000 square kilometers.


Yahya Al Ansari, chief exploration geologist at the Bahrain Petroleum Company (Bapco), told Forbes the find was “a layer with moderate conventional reservoir properties on top of an organic-rich source rock.”


According to the United States Geological Survey, the biggest shale resources in the world are in Russia. However, unlike the US, Russia doesn’t have a competitive services industry to provide the number of rigs that are needed, which sometimes run into hundreds.


Henderson said: “You need hundreds of rigs to keep drilling these wells as they ramp up very rapidly, but within a year, production is in rapid decline, and you have to drill others.


The amount of oil and gas that can be recovered from hard-to-reach pockets in shale rocks under the sea is uncertain, and development is potentially expensive, but with American help and expertise, there is everything to play for. Furthermore, future deals could prove transformational for Bahrain at a difficult time, interviewees told Arab News.

Decoder

Tight oil and gas

Tight oil and gas are produced from reservoir rocks with such low permeability that massive hydraulic fracturing is necessary to produce the well at economic rates.


INTERVIEW: Sam Darwish, Group CEO at IHS Towers - the accidental engineer who found his calling

Updated 25 May 2019
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INTERVIEW: Sam Darwish, Group CEO at IHS Towers - the accidental engineer who found his calling

  • The CEO has made it big in telecoms, in a career shaped early on by Lebanon’s bloody civil war

For some, student survival means merely coasting along at university in the hope of bagging a 2.1, as well as invites to as many parties as possible.

For telecoms executive Sam Darwish, however, survival took on a more literal sense, having embarked on his studies in the dying days of the Lebanese civil war.

Teenage life was tough for Darwish, who is now 47 and a US citizen. Growing up in Beirut in the 1980s meant a constant backdrop of violence —  “there were many wounded,” he said — plus the daily struggles of putting food on the table and regular electricity blackouts.

But it was this experience that taught Darwish a certain “pragmatism” that he continues to put to use today as chief executive of telecoms company IHS Towers, which has to date raised more than $5.5 billion in funding.

Sitting in the IHS office in London’s plush Mayfair district, Darwish recounted how, when he was a student, his father would give him a small sum of money each day. He could either use it to take public transport to the American University of Beirut campus — or buy lunch, and risk the walk through the war-torn streets.

“Decisions like that make you pragmatic. It makes you solution-orientated. It makes you appreciate what the basics in life are,” said Darwish.

“You need just to survive. You need to find a solution. Electricity would disappear for a few days, then people started charging their batteries in their cars, and at the end of the day remove the battery to put on a light or small TV,” he added.

“It taught me to not take anything for granted. You needed to think and rethink every little thing that exists.”

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BIO

SAM DARWISH

•47 years old

•US citizen, grew up in Lebanon

•Married, three children based in US

EDUCATION

•Bachelor’s engineering degree in computer communications, American University of Beirut

CAREER

•Network chief engineer, Libancell, Lebanon

•Vice chairman, director of projects, Lintel

•Deputy managing director, CELIA Motophone, Nigeria

•Co-founder, IHS Towers

OTHER INTERESTS

•Founder, Singularity Investments

•Founder, DAR Properties

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This practical attention to detail — along with an awareness of the importance of finance, power and security — are very much required in Darwish’s role today.

IHS Towers’ business model is relatively straightforward: The company buys mobile towers from telecoms companies, or builds them itself, then leases them back to the operators.

Darwish co-founded the company in Nigeria in 2001, and it now has operations in Cameroon, Cote d’Ivoire, Rwanda and Zambia.

Renting out mobile communications towers is hardly the most glamorous of businesses — it is “simple and low profile, we don’t make it flashy,” he said — but the economics stack up.

Selling mobile towers allows telecoms companies to free up cash, while companies such as IHS can rent space on the masts to multiple carriers, which is more efficient. It is a model that Darwish believes the entire industry will one day embrace.

“When (a single operator) owns a tower, often it’s not optimized in terms of the revenue that that tower can get,” he said.

“They end up with hundreds of millions, sometimes billions of dollars on their balance sheet (with) towers (that are) inefficient, and simply depreciating. Sharing means more efficiency, and more margin for everyone.”

There is also a certain advantage to dealing with purely “basic” infrastructure, given the global furor about the security of telecoms networks.

IHS deals with the actual steel masts, rather than the more sensitive communications kit or software they house.

For that reason, it does not face as much scrutiny as a company such as Huawei, the Chinese equipment firm that the US believes poses a security risk.

“There’s a big difference between us and what Huawei does. We’re providers of passive infrastructure,” said Darwish.

“Our towers are simple towers … It’s a location, it’s a tower, it’s power, it’s security —  that’s what we provide,” he added.

“But at the end of the day, we’re also part of critical infrastructure for countries … So there’s always the aspect of ‘who are these guys, who are their shareholders, what’s their track record, what’s their governance like?’”

That is partly why Darwish runs IHS as if it was a “a public company by Western standards.” The company’s governance is “very strict,” and its high-profile shareholders include Goldman Sachs (through a special fund), the Singapore sovereign wealth fund GIC, the Korea Investment Corp. and IFC, the private equity arm of the World Bank.

At the end of the day, we’re part of a critical infrastructure for countries.

Sam Darwish

Such backing — Darwish said IHS has raised between $5.5 billion and $6 billion of capital since it was formed —  and governance standards bode well for a potential initial public offering (IPO) of IHS.

The company last year shelved such a plan, but Darwish said it is thinking about “moving ahead” with plans for a listing in New York or London.

“There are hundreds of thousands of towers out there that could be bought, or built, over the next few years … That’s why a potential listing is important to us at some point in time,” he said.

Such a move would potentially expedite the company’s expansion in areas such as the Arabian Gulf, which is currently its “main focus.”

IHS has already struck regional agreements to buy towers from telecoms operators Zain Kuwait and Zain KSA.

Upon completion of those two deals — which are still subject to regulatory approval — the Mauritius-headquartered IHS will have approximately 33,100 towers in its portfolio. It is currently the world’s second-largest independent, multi-country tower operator.

Darwish said Saudi Arabia is “where we’d like to grow,” with IHS recently having obtained a foreign investment license from the General Investment Authority, with plans for an office staffed by 100-200 people.

He cited the economic reforms underway, which include weaning Saudi Arabia off its reliance on oil and encouraging more women into the workplace.

“The Kingdom is going through a transformation now. This transformation is fascinating, and it’s something that needs to be watched very carefully,” he said.

“They’re using this cash they have now to start planning, and start transforming — theaters, entertainment, industries, manufacturing, all these massive investments they’re doing.”

Whilst inhabiting an industry that lacks a certain glam factor, there is something of the “Davos man” about Darwish.

Dressed casually in a designer jacket in his Mayfair office, he explained some of his interests that run parallel to IHS.

He is the founder of Singularity Investments, a private investment firm with a focus on technology and media companies in the US and emerging markets, along with DAR Properties, a property investment company.

Darwish also has a strong interest in corporate social responsibility, having supported incubator programs for aspiring tech entrepreneurs in Lagos, served as a mentor to local business executives, and worked on several health and education projects in Africa.

His personal passion, however, is the IHS Academy, launched one and a half years ago, which offers online education in the field and has seen some 40,000 course completions.

“The training for me is the single most important thing I can give, and it helps us at the end of the day,” said Darwish.

“I personally believe in the power of education — that’s what transformed my life. My father worked three shifts to basically make sure we stayed in the best private schools … He believed in what education can do in transforming lives.”

Darwish’s own studies in Beirut, however, nearly took a different turn. Though he graduated as an engineer in computer communications with “the highest distinction” — setting him out on a 20-year career in telecoms — it was never the path he envisaged.

“I wanted to be a Nobel Prize physicist. (But the university) dean called me, and he was like, ‘no — we need you in engineering’,” Darwish said. “It was just by accident that I became an engineer, but it paid off.”