Oil majors begin talks with firms over Iraqi deals

17 February 2010

Baghdad to award engineering, procurement and construction contracts in 2010

International oil majors have started talks with engineering consultants and construction firms over deals to develop Iraq’s oil and gas sector, according to a number of sources at the consultants.

The talks are the first stages of plans by international oil companies (IOCs) to be one of the biggest potential expansions in oil production ever seen in the region.

“There is a lot of interest and lot of activity in Iraq,” says a senior executive at an international contracting firm. “We are in talks with three oil companies. Most of the IOCs in Iraq have started to look for contractors. Some have started drilling and surveys. Some are more advanced, starting conceptual designs.”

He also says his company recently completed design work on an oilfield development for an IOC and is now working on detailed designs for the same project.

In total, tens of millions of dollars worth of project management consultancy (PMC) and front-end engineering and design (Feed) contracts are likely to be tendered in the second quarter of 2010.

A series of major engineering, procurement and construction (EPC) deals are likely to follow before the end of 2010.

According to another engineering contractor working in Iraq, the design contract for at least one development in the south of the country will be tendered by the end of April.  

Iraq signed its latest oil and gas exploration and production contract on 31 January, for the West Qurna-2 field, with Russia’s Lukoil and Norway’s Statoil.

It was the tenth deal to be agreed from the two licensing rounds held by Baghdad since the US-led invasion in 2003.

Iraq’s crude oil production in 2008 averaged 2.4 million barrels a day (b/d), according to the UK’s BP. Baghdad plans to boost production by 4.7 million b/d by 2016 and is targeting total output in excess of 12 million b/d by 2020.

 “Even if you are sceptical about Iraq achieving 12 million b/d in seven years, if they achieve half of that, this will represent a massive increase”, says Samuel Ciszuk, Middle East analyst at US-based consultant IHS Global Insight.

However, implementing the deals will be difficult. The scale of the proposed expansion, demands a large investment in the country’s transportation and export infrastructure.

At the same time, the UAE is moving ahead with its own expansion plans and Saudi Arabia is continuing its search for gas, raising the prospect of potential price increases in EPC projects. “We could see a significant heating up of the EPC market,” says Ciszuk.

From a contractor’s perspective, the most exciting upcoming development in Iraq is likely to be the Majnoon field, 60 kilometres from Basra in the south of the country. The UK/Dutch Shell Group and Malaysia’s Petronas won the contract to develop the 12.5-billion-barrel field.

The consortium pledged to boost output to 1.8 million b/d from current production of 45,000 b/d in return for a fee of $1.39 for every additional barrel they produce.

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