Page 4 - DMEA Week 29 2020

DMEA COMMENTARY DMEA

Bahrain continues to suffer as

Causeway remains closed

Manama has been cut off from the Saudi mainland and a

reliable source of revenue

BAHRAIN RATINGS agency Moody’s noted the severe The island’s struggles were demonstrated
plunge in Bahrain’s central bank reserves over when Bahrain Petroleum Co. (BAPCO)
WHAT: the past few months, highlighting the country’s announced it would cut its expat workforce in
Bahrain’s fiscal reserves acute external vulnerability risk. response to the impact of COVID-19.
have fallen off a cliff and The island state continues to suffer more than
the country was only just most of its Gulf neighbours, with the King Fahd Hydrocarbon hopes
saved from a full-blown Causeway, which connects it to Saudi Arabia’s The onshore Awali field, the site of the GCC’s
current account crisis by Eastern Province, remaining closed. The bridge first oil find in 1932, remains the kingdom’s
a sukuk issuance in May. has been off-limits since March 7 as Riyadh, and sole source of domestic production of around
to a lesser extent, Manama, sought to contain the 46,000 barrels per day. Manama also receives a
WHY: spread of coronavirus (COVID-19). Bahrain is a 50% share of the 150,000 bpd produced by Saudi
Manama has hopes that popular weekend destination for Saudis and the Aramco at the offshore Abu Sa’fah,
the offshore Khaleej large numbers of expats living in the Dammam/ In April 2018, Bahrain announced the big-
al-Bahrain Basin will Khobar area, and the hospitality sector on the gest oil discovery since the Awali discovery by
provide a turnaround island has suffered greatly since this key revenue Chevron. The shallow-water Khaleej al-Bahrain
in fortunes, but its stream was cut off. The causeway is expected to (KAB) Basin off the west coast is estimated to
complex geology and reopen gradually after the Eid al-Adha holiday, contain around 80bn barrels of unconventional
offshore location make which runs from late July into early August. oil. Halliburton was contracted to carry out ini-
it a challenging prospect Moody’s said that the drop in reserves to tial drilling and well tests in the 2,000-square km
in current market a nadir of $800mn in April, equivalent to 0.5 area.
conditions. months of non-oil imports of goods and ser- The government’s National Oil & Gas
vices, was averted from snowballing into a Authority (NOGA) initiated talks with inter-
WHAT NEXT: fully-fledged current account crisis thanks to national companies, primarily those engaged
There has been talk of proceeds from a $2bn international bonds and in the US shale industry, about developing the
a partial privatisation sukuk issuance in May. resource.
of Bahraini oil and gas Central bank foreign currency reserves In April last year the discussions bore fruit
assets, but these hold declined in March and April despite a significant in the form of a letter of intent (LoI) signed by
less appeal that those of increase in the onshore banks’ net foreign liabil- NOGA’s investment arm Nogaholding and
neighbouring countries. ities from January to March of around $2.6bn, shale-specialist Chevron calling for the US major
which would normally have been expected to to assist the state firm’s Tatweer Petroleum sub-
support Bahrain’s balance of payments and lead sidiary in evaluating the basin. No further details
to an accumulation of central bank reserves, on the terms of the accord were disclosed.
Moody’s said. Then in May, the Bahraini government
However, looking ahead, the outlook for signed an exploration and production-shar-
Bahrain’s balance of payments situation remains ing agreement (EPSA) with Eni for an offshore
precarious, it added. The ratings agency antici- block in the north. In February this year, the Ital-
pates Bahrain’s current-account deficit widening ian firm signed an MoU with Tatweer to explore
sharply to 7% of GDP in 2021, up from 2.1% of collaboration in various domains, including gas.
GDP in 2019. Speaking to Middle East Oil & Gas (MEOG),
With foreign currency reserves of $1.8bn at a Manama-based source said: “We have made
the end of May, Moody’s argues that Bahrain’s progress at KAB. We haven’t said much publicly
ability to attract additional net capital inflows because these are very early days, but early devel-
this year will be critical to sustaining the cur- opment of the gas is ongoing.”
rency peg and avoiding a depletion of reserves. It In March, Bloomberg reported cited Bah-
identifies further drawdowns from the $10.25bn rain’s Oil Ministry as saying that a roadshow
Gulf Cooperation Council (GCC) financial would be held later in the year to invite IOCs to
support facility as the primary source of capital bid on gas development contracts for three off-
inflows over the next couple of years, given tur- shore blocks.
bulent global economic and financial conditions. Meanwhile, Bahrain Petroleum Co.’s

P4 www. NEWSBASE .com Week 29 23•July•2020