Bahrain mulls asset sale as cash crunch bites
Manama may seek to sell non-producing assets in order to mitigate the severe shock of falling oil prices, experts say
With global oil demand decimated by virus panic and a price war threatening to flood the markets with cheap supply, oil prices have suffered some of their worst intraday declines since the first Gulf War in 1991. It seems like the worst possible moment for a small Middle Eastern country to list oil and gas assets, but Bahrain may have to.
When Bloomberg reported last week that Bahrain is hoping to emulate neighbouring Saudi Arabia in listing unspecified oil and gas assets, the report raised a lot of eyebrows.
“The current oil price environment is poor for such an attempt. In addition, Bahrain’s assets unfortunately compare unfavourably to those of its neighbour,” says Jan Kalicki, an energy security expert at the Wilson Center, a Washington-based thinktank.
Bahrain’s crude exports have averaged just 150,000 bl/d in 2020, and its fiscal breakeven oil price—or the minimum price that would allow the country to balance its budget—is $91.80/bl, according to International Monetary Fund data. This makes Bahrain an unlikely candidate to share in an oil investment bonanza.
Last week oil minister Mohammed bin Khalifa Al Khalifa said “nothing is not for sale anymore”, which sounds more like a distressed sale plea than an enticing offer.
The country has come under a lot of financial pressure in recent weeks. Even before the most recent precipitous decline in Brent futures—which approached $31/bl in early Monday trade—credit agency S&P Global Ratings warned in mid-February that Manama could face a rating downgrade if crude prices stay low.
Last Thursday, the country’s central bank reportedly asked banks and lending institutions to share in the pain and consider measures that would help mitigate the effects of global panic, including by rescheduling loans.
“Bahrain’s assets unfortunately compare unfavourably to those of its neighbour” Kalicki, Wilson Center
“The oil price fall puts [Bahrain] under even greater fiscal pressure,” says Robin Mills, CEO of Dubai-based consultancy Qamar Energy. “It could sell stakes in non-production assets—such as refining—as these are not so sensitive to oil prices. If low oil prices persist, it is more likely these sales will go ahead, but it will still take a significant time to prepare them.”
Bahrain’s inventory of assets is also fairly humble by regional standards. The country has one refinery, at Sitra, which runs mostly on Saudi crude and is seeing its capacity expanded from 267,000 bl/d to 360,000 bl/d. Nevertheless, Manama is exploring the possibility of building a giant urea/ammonia plant to tap a 2018 discovery of approximately 80bn bl of tight oil and up to 20tn ft³ of tight gas in place, although experts say this may be expensive to recover. There are also several pipelines, gas processing projects and an idling LNG import terminal among assets that could interest investors.
Selected resources would be transferred into a state-administered fund and shares would be sold to investors, according to the reports, but no specific timeline has been offered other than plans to hold a domestic roadshow during 2020.
“At this time, I am not aware of a roadshow to the US regarding Bahrain’s plans to list their [oil and gas] assets,” says Mary McGinnis, the executive director of the American Chamber of Commerce in Bahrain. A delegation from the US is expected to visit Bahrain in November “to learn more about the exploration and extraction opportunities related to the new [oil and gas] fields in Bahrain”, she adds.
Several international industry conferences planned in or near Bahrain have been postponed in recent weeks due to the Covid-19 epidemic, which has infected more than 110,000 people and killed about 4,000 worldwide. The organisers of the Middle East Refining Technology Conference, which was originally planned to take place in Bahrain in early March but has now been rescheduled for later in the year, told Petroleum Economist they were unable to comment on whether discussions about downstream asset listings would be on the agenda of the event.