This is the “breakout year” for engineering, procurement and construction (EPC) contracts in the Iraq oil and gas sector, according to one industry analyst. Since the signing of oil field development contracts with international oil firms in 2009, it is certainly the most active.
According to data from MEED Projects, seven projects worth $2.7bn were awarded in the first half of 2012. This is more than the whole of 2011, which totalled $1.4bn.
The first half of 2011 saw $410m-worth of contracts awarded across three projects. Contract awards more than doubled in the second half of 2011 to $967m from four projects. These include a $518m contract signed by Australia’s Leighton Offshore for the installation of onshore and offshore pipelines as part of Iraq’s southern oil export facilities expansion.
Russia’s Lukoil has been one of the most active clients in Iraq this year, awarding four of the seven contracts. This includes one of the largest contracts signed so far in Iraq’s upstream oil sector, a $998m deal with South Korea’s Samsung Engineering in late March for the construction of central processing facilities at the West Qurna Phase-Two oil field in the south of Iraq.
Russian firms will play a major role in the EPC market for the rest of the year. In fact, some contractor sources note that the Russian and Chinese-led oil field developments have taken the lead in tenders and contract awards. Lukoil also awarded three smaller projects worth $454m for pipelines, storage tanks and a power plant to support production.
Two other major upstream oil production contracts were also awarded. US oil field services firm, Weatherford International, won a $843m contract with Italy’s Eni to build six trains of early production facilities at the Zubair field in June. The UK’s Petrofac also signed a contract with Gazprom, another Russian developer, for the first phase of central processing facilities at the Badra oil field for $330m.
About $6.1bn-worth of contracts are yet to be awarded. This figure includes $2.5bn for a planned grassroot refinery in the eastern Missan province. The refinery’s front-end engineering and design (feed) has been completed, but EPC tenders are yet to be issued, making a 2012 contract award unlikely at this late stage of the year.
The remaining 13 projects, worth $3.6bn, are all under bid. The bulk of this will be from upstream oil production and oil pipelines, which amount to $2.6bn. Samsung Engineering emerged in April as the lowest-priced bidder for a second phase of processing facilities at the Badra field, beating proposals from Petrofac, Italy’s Saipem and France’s Technip. It remains unclear when a contract will be signed.
Storage will also play a major role with new tank farms planned at Bin Umr, Nassiriya and Badra oil field in the south of Iraq worth $540m. Gas compression facilities and pipelines account for $427m.