THE theme of Bapco’s 2008 Annual Review is Serving the world to serve Bahrain. The theme has been chosen to reflect Bapco’s growing stature as a reliable provider of quality petroleum products to the international marketplace. During the past year, the company exported to more than 40 countries around the world.
For many years now, 95 per cent of its crude and refined product has been destined for overseas. Exports include liquefied petroleum gas (LPG), naphtha, gasoline, kerosene, aviation and jet fuel, diesel, fuel oil, asphalt, and sulphur.
Today, Bapco is at the forefront of process technology with the coming on-stream of the Low Sulphur Diesel Plant (LSDP). This enables the company to enter new markets, especially those in Europe, with the most environmentally-friendly products available. These products have a higher value than in the past, and will help the company maintain its crucial role as the key provider of wealth to the kingdom.
STRONG SALES BOLSTER ECONOMY
A strong demand for refined product throughout the first half of the year enabled the company to export 81.3 million barrels in 2008 compared with 86.5 million barrels in 2007. The decrease in international sales arose from planned process unit shutdowns and increased domestic demand.
Because of the strong global demand for almost all refined products through most of 2008, the company achieved its highest refining margin at $11.84 per barrel of crude. In particular, margins for diesel and kerosene were strong during the year, thanks to the first full year of operation of the LSDP that increased yields of middle distillates.
The end of the year did experience a softening of the naphtha and gasoline markets due to the downturn in petrochemicals in the Asian region, and a general fall in product demand as a result of the global financial and economic crises.
Nevertheless, Bapco was able to maximise the benefit from high product prices through careful planning and refinery optimisation, which resulted in high average crude runs, particularly during the early part of the year. The situation was also aided by planned major shutdowns falling towards the end of the year.
The jewel in Bapco’s crown is its capability to produce up to 100,000 barrels per day (bpd) of ultra low-sulphur diesel (ULSD), which has a sulphur content of less than 10 parts per million (ppm). This meets the most stringent requirements almost anywhere in the world. No other refiner in the region is able to produce ULSD on such a large scale.
Since the commissioning of the new Low Sulphur Diesel Production (LSDP) facilities in June 2007, Bapco has been gradually phasing in lower sulphur diesel cargoes. The first phase saw 24 cargoes of 500 ppm low sulphur diesel shipped out. The second phase was reached when the company exported the first cargo of 50 ppm low sulphur diesel aboard the ship Lyra Pioneer in May 2008. Preparations for the final phase – a segregated pipeline system with dedicated storage tanks for the export of ultra-low 10ppm sulphur diesel – were largely completed by the end of the year.
Crude prices saw a spectacular rise throughout the first half of the year, peaking in July at $147. The rapid unfolding of the financial crisis, followed closely by the economic crisis, saw crude oil prices spiralling downwards to finally rest 70 per cent below the July peak. Attempts by Opec to bolster prices during the latter half of the year through production cuts failed to have the desired effect. The global economy was facing a crisis of confidence and credit.
Sales of crude oil from the Abu Safah offshore field amounted to 54.5 million barrels, a similar figure to 2007; very different was the average sales price realised, which was approximately $91 per barrel compared with the figure of $66 achieved during 2007. Bapco holds an equity share of 150,000 bpd in the Abu Safah field.
Despite the difficult trading conditions towards the latter part of the year, the net oil revenues to the Government of Bahrain reached $6 billion – 40 per cent higher than the approved budget of $4.3 billion for 2008.
BUSINESS DEVELOPMENT
To provide a sharper focus on its strategy of Growth and Diversification the company has created a new Strategy and Business Development Division headed by a general manager to explore and evaluate business opportunities, in and outside Bahrain. Significant progress was made in the exploration and development of oil and gas resources, and three investment projects forming part of the current strategic investment programme also moved forward.
A brief overview of these developments follows:
Exploration and Development: The Bahrain Field Phased Development Project (BFPDP) is the largest and most important project of its type undertaken by Bapco. The project will increase oil and gas production and generate additional oil and gas reserves, thereby increasing revenue to the kingdom.
In conjunction with Noga, Bapco tendered an Incremental Development Production Sharing Agreement. Following the second phase bidding round, bids from three companies were opened by the Tender Board and preliminary negotiations commenced with the preferred bidder, Occidental Petroleum (Oxy).
The year 2008 also marked the initiation of a new exploration project to explore for gas in the deep Paleozoic geologic layers of the Bahrain Field. This Bahrain Deep Gas initiative was launched on October 27, supported by three road shows which attracted strong interest from international oil companies.
Offshore exploration: The Offshore Exploration Bid Round that was initiated in 2007 was concluded with the award of Block 2 to PTTEP of Thailand and Blocks 3 and 4 to Occidental Petroleum. In 2008 the remaining Block 1 located to the north of Bahrain was also awarded to Oxy.
The exploration programme on Blocks 2, 3 and 4 has already been started with geochemical surveys on Blocks 3 and 4 completed in December and a start made on seismic processing and interpretation of 2D and 3D data.
Gas import venture: Bahrain has enough gas to guarantee current commitments. However, any further industrial expansion will depend on new finds, or require a long-term supply contract with one of its neighbours.
Noga signed a framework agreement with Iran to develop the gas resources of Blocks 15 and 16 of South Pars Field and Bapco is to seek partnership with interested and capable international oil companies to fast track this initiative.
Lube base oil plant: A joint venture agreement was signed in June 2008 by Nogaholding, Bapco and Neste Oil of Finland for a lube base oil manufacturing plant.
The EPC (Engineering, Procurement and Construction) contract for the $314-million project was signed with the Korean contracting company Samsung Engineering in August 2008.
A Bapco project team left for South Korea in September to work on the detailed design engineering and procurement phase of the project, which is scheduled to go on stream late 2011.
Neste Oil, which has been in the high-quality lube oil business for a long while with a commanding market share, provides a perfect partner creating many synergistic benefits. Bapco will operate the plant while Neste Oil will market the lube oils, which will provide a significant upgrade in quality and value to Bapco’s product slate.
A-B pipeline: Agreement was reached to replace the 60-year-old A-B crude oil pipeline from Saudi Aramco to the Bapco Refinery with a new 30-inch diameter pipeline, running 115 kilometres along a new route to avoid residential areas.
To meet the forecasted increase in crude oil demand, the pipeline capacity will be increased from the current 235,000 bpd to 350,000 bpd of Arabian Light Crude. Cost of the project is estimated at $350 million with a late 2011 completion date.
Independent Terminal - Bahrain: Bapco continued to participate in the feasibility study to build and operate an independent petroleum storage terminal and marine facility at Sitra in Bahrain in partnership with IPG of Kuwait and Apicorp. Audex Ltd of Singapore is conducting the Front End Engineering Design (Feed) study for the terminal.
OIL AND GAS PRODUCTION
Management of the Oil Field: Bapco achieved an average daily oil production of 32,861 barrels during 2008.
Compliance with the policy of eliminating all gas flaring and venting in the field added another 5 per cent to the existing natural decline of 14 per cent during the year. But an active drilling and work-over programme, together with increased gas injection rates, combined with intensive preventative maintenance schedules, helped reduce this decline to around 4 per cent and provide a continuous supply of oil to the refinery and gas to industry.
The Development Wells Drilling Programme encompasses 48 new oil wells. By the end of the year, 40 vertical wells were successfully drilled and 22 new well sites became available for drilling during 2009. In addition, drilling for the Special Wells Programme, consisting of 21 unconventional wells, continued unabated during the year, with contractors working to put a well into production within three weeks of the rig moving out.
Among the measures taken to enhance production was Coiled Tubing Stimulation. Because conventional stimulation techniques have not been effective in horizontal and re-entry wells, seven wells were stimulated with coiled tubing in 2008. This measure has significantly increased oil and non associated gas production.
A second measure, acid fracturing treatment, was performed on 13 wells tapping into the tight reservoirs of the Bahrain Field.
Significant initiatives aimed at arresting the oil production decline in future years include:
• A study to optimally design the Arab Zone re-entry wells. Drilling horizontal wells to enhance oil production from the Kharaib reservoir; and
• Drilling two test wells to evaluate potential of the currently unproductive zones below the Arab reservoirs.
Management of the Khuff Gas Field: Daily gas production averaged 1,192 mmscfd (million standard cubic feet per day) in 2007, an increase of 87 million over the previous year’s average, ensuring that the demands of all sectors in Bahrain were met. During the year the company signed an agreement to supply an extra 55 mmscfd to GIIC iron plant, bringing the total supply to that company to 120 mmscfd.
Commissioning of new facilities such as Khuff gas dehydration units (GDUs), distribution lines, and valve stations enhanced the reliability of the gas system. In addition, the engineering design to lay a new gas pipeline to Al Dur Power Plant was completed by Tebodin in November.
Increased Khuff gas production capacity is of national importance and good progress was made on the $200-million investment plan to increase gas production capacity by 500 million cubic feet per day. This involves drilling eight new gas wells and constructing seven new gas dehydrators. The first well was completed in December.
REFINING BREAKS MORE RECORDS
The average crude run to the refinery was 257,400 bpd, of which 32,900 barrels came from the Bahrain Field with the remainder from Saudi Arabia through the A-B pipeline. This was 3,000 bpd above target.
Refining operations turned in another strong performance. Thanks to effective teamwork between engineering, maintenance and process unit operations, five annual records were broken in 2008:
• Lowest fuel oil yield at 15.8 per cent volume;
• Highest asphalt yield at 3.6 per cent volume;
• Highest liquid recovery at 101.2 per cent volume;
• Lowest mass loss at 0.59 wt per cent; and
• Highest refining margin at $11.84/bbl crude
Also, significant monthly records of the decade were achieved during the year:
• Highest crude run of 270.3 thousand was attained in May;
• Lowest fuel oil yield of 14 per cent was achieved in July; and
• Lowest mass loss of 0.57 wt per cent was achieved in September.
The first full year of hydrocracker operation has resulted in the total product yield reaching a record figure of 101.2 per cent volume. A record high gross kerosene yield of 25.5 per cent volume was also achieved.
This work is critical to the quality of Bapco’s export product, and one reason why the highest levels of customer service have been maintained. The cornerstone of this success is Bapco’s quality management system, ISO9001-2000, which is assessed and audited twice-yearly by inspectors from the British Standards Institution (BSI).
Safeguarding the mechanical integrity of Bapco’s assets, the percentage of scheduled equipment inspections completed on time reached 100 per cent in 2008. Tank repairs involved work on 28 tanks of different sizes and at various stages of repair during the year. Following best practice, new aluminium dome roofs will be installed on four tanks during 2009.
BETTER STORAGE, FASTER LOADING
Bapco’s storage tanks at the Refinery and Sitra have a capacity of around 14 million barrels. (A barrel is equivalent to 159 litres). Exports travel along sea lines to the six-berth wharf from where 618 vessels transported product to 40 countries worldwide in 2008.
In April the Ships Inspection Report (SIRE) was successfully implemented. The programme database is used by Oil Storage and Export Marine Operations Section as a primary tool to screen all ships prior to chartering.
The main objective is to avoid the chartering of sub standard ships which could endanger the marine environment and Bapco loading facilities. To segregate the ultra low sulphur (10 ppm) diesel from the higher sulphur diesel grades and so avoid contamination, a new sea line was laid to the Wharf T-Head. In January 2009 new pumps will be commissioned allowing a loading rate of 15,000 barrels per hour for both grades of fuel.
The marketing terminal at Sitra distributed a total of 1,440 million litres of product to the local market in 2008. Unleaded gasoline amounted to 761 million litres, diesel 494 million litres, and LPG 82 million litres. Sales of asphalt amounted to 56 million litres while kerosene sales were 33 million litres.
Sales of aviation jet fuel, which travels by pipeline to Bahrain International Airport, amounted to 223 million gallons.
TECHNOLOGICAL ADVANCES
To maintain control of costs and optimise operations Bapco is constantly looking to apply technological advances in all areas of the company. Significant progress was made on Bapco’s e-procurement programme, with a successful pilot project leading to preparation for full-scale implementation. This is in direct support of Bahrain’s e-Government Initiative. The company also made significant progress along the road to public tendering, despite the complex nature of many of its contracts. Both these will assist the company’s efforts to achieve greater transparency.
• On the production side, Bapco is looking at enhanced oil recovery (EOR) technology as a means to sustain oil and gas production.
• In the tank storage area, the company has begun implementation of advanced gauging techniques using SAAB radar gauging technology, providing accuracy to +/-0.4 mm.
• Near Infra-Red analysers now control gasoline blending to reduce product giveaway and enhance profits.
• The use of “smart fuel cards” to streamline cash collection system has been expanded and the company has embarked on an ambitious plan to upgrade and modernise service stations.
PROTECTING THE ENVIRONMENT
ISO 14001:2004 certification: One of the most significant achievements of 2008 was to gain certification to the internationally recognised environmental management standard ISO 14001:2004.
An independent two-stage audit was carried out by Bureau Veritas (BV) during November and December 2008 to assess Bapco’s environmental management system (EMS) against the requirements of the ISO 14001:2004 standard.
BV stated that Bapco’s commitment towards environmental protection is clearly evident in its compliance plan and actions to raise environmental awareness amongst employees, contractors and the community at large.
Refinery Gas Desulphurisation Project (RGDP): This environmental project with an estimated cost of $151 million, will significantly reduce air emissions and improve effluent water quality at the Bapco Refinery to meet the latest environmental regulations.
The year 2008 also saw the first full year’s operation of the cleaner and larger sulphur handling facility. The amount of sulphur produced as a by-product will increase from around 70,000 tonnes to 150,000 tonnes per year when the combined output of the LSDP and RGDP is available.
LONG-TERM SUSTAINABLE GROWTH
“Not in our lifetime has the world economic climate become so fraught with uncertainty as financial markets, political unrest, and volatile commodity and oil prices, undermine confidence and make business planning all the more difficult.”
That statement, written for last year’s Review, seems something of an over-statement compared to the unprecedented situation the oil industry now faces following the near-collapse of the global banking system and rapid economic recession.
Today the Enterprise Risk Management System is even more crucial as the company seeks to map out scenarios, assess risks and put contingency plans in place to protect critical business processes, and to limit expenditure, secure markets and ensure appropriate levels of funding.
Bapco will continue to implement its strategies by concentrating on the long-term sustainable growth of both upstream and downstream operations with short-term price rises playing a relatively minor role in the executive decision-making.
Despite the world economic situation, Bapco will press ahead with its business philosophy to seek out new areas of growth and diversification, so that when the global upturn comes it will be better placed to take advantage of new opportunities.
In all its endeavours the aim will be to achieve operational excellence: For Bapco, that means a safe work environment, empowered employees, quality products and satisfied customers.
