Iraq’s booming E&P market has been drawing companies in from around the region, Oil & Gas Middle East checks in on the ones that are shaking things up and getting work done
There is no shortage of reasons for oil companies from around the world to operate in Iraq. Low production costs, strong well productivity and high quality oil continue to attract more investors.
The Iraqi federal government is expected to invest as much as $14 billion into the country’s upstream sector this year, a $5 billion jump from 2012’s $9 billion worth of investments, more than quadrupling investments in 2011.
With increased exploration activity, construction and a growing community of service companies entering the multiple stages of the oil and gas supply chain in Iraq, national oil production is expected to soar.
In fact, Iraq’s oil production growth is projected to account for approximately 45% of the anticipated growth in global output to 2035, according to the International Energy Agency’s special report on Iraq.
Contracts already in place in Iraq with international companies imply an extraordinary increase in oil production capacity, to a level almost five times higher than today’s 3 million barrels per day (mb/d), over the current decade, says the report. And the country’s reserves are only expected to grow.
According to Dr. Fatih Birol, the IEA’s chief economist and primary author of the report, “Iraq is one of the most unexplored countries in the world, for decades and decades there was no exploration activity.”
But now, the country stands to gain as much as $5 trillion in revenues from oil exports over the period to 2035, averaging annual revenues of $200 billion and an opportunity to transform the country’s future prospects, according to the IEA report.
It’s no wonder that more and more companies are working hard in Iraq to get a bigger piece of the pie. Earlier this year, Kuwait Energy signed its third exploration and production agreement with the Iraqi Federal Government.
Spurred on by the success of its 60% working interests in the Siba gas field, and a 30% working interest in the TPAO-operated Mansuriya gas field, the independent Kuwaiti company won a bid for the Block 9 in Basra earlier this year.
“There are a lot of oil reserves there, and a lot of activity,” says Sara Akbar, chief executive officer of Kuwait Energy.
“We are confident in Iraq, if we were not, then we would not have made a bid there,” she adds bluntly.
“Iraq has important resources, a growing energy industry, and ambitious but necessary growth targets to meet,” says Akbar.
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“We see an opportunity in new unexplored fields, which could help Iraq reach these long-term goals. We’re also poised on grabbing opportunities to explore and develop gas fields that would help Iraq meet its domestic needs and export demand.”
But international operators and companies throughout the industry share Akbar’s sentiments. Going into Iraq can be great business, but the conditions have to be just right.
For Miles Walker, CEO of Crest Energy Services, an onsite Nitrogen generation, pumping and purging services provider; Iraq’s oil and gas infrastructure presents some great opportunities for work.
“Southern Iraq is very interesting for Crest because that’s where the majority of large scale redevelopment is taking place that requires our services” says Walker.
A burgeoning oil and gas industry with numerous gaps in its infrastructure has presented service companies with a plethora of opportunities. But setting up operations in Iraq will still require caution and care, and of course, the right partners.
“To set up operations in Iraq, it would be advantageous to have a strong business partner there, being an independent company means that partnering with a local Iraqi firm would allow us a faster market entry,” says Walker.
“Within the region, in key strategic markets, Crest’s goal is to find a strategic partner who can help us grow the business as quickly as we can,” he hints.
With the right ingredients, Walker believes that Crest can quickly become a success.
“If we came across an opportunity, today, it’s feasible for us to enter the market very quickly,” he says. “Our investors would of course expect us to achieve profitability as soon as possible and based on experience in other areas we know that assistance from the right local partner will expedite that process.
There will be no shortage of niche markets opening up in Iraq as it races to catch up, and possibly overtake its neighbours. And for a lot of operators in the region, the move into the country will be very natural.
“We see a lot of potential in Iraq, physically it’s very close to Dubai and it’s a natural trend and extension of our work to get into that country,” says Nazar Shahinian, general manager of Technical Supplies & Services Co., a Sharjah-based housing and shelters manufacturer.
Iraq will become an increasingly important and critical area not only for the oil and gas industry, but in general as more construction projects spring up, buildings materials suppliers such as TSSC will see demand for products rise at warehouses and industrial buildings. “It’s not only the oil and gas industry,” says Shahinian. “It’s the need to be present there.”
Of course for some of the new entrants, the Iraqi market can be exciting and full of opportunity, but it would be folly to forget about the companies that have been there since it all started.
Having expanded into the Iraq market, Weatherford has faced the challenges of operating in Iraq first hand. “The concerns are that our overheads are relatively high compared to our normal operations; we overcome that by looking for volume of work,” says Nial Shepherd, vice president for Iraq, Weatherford.
“It doesn’t always make it a viable business, and all of the challenges relating to the importing of equipment, having no guarantee on the volume of work and the perception that Iraq is a dangerous place to be has kept out some of the service companies that we would usually see.”
But for many, Iraq is really going to be a long term investment. “Five years down the line, we would hope that the market has settled down, I think that as per anywhere else in the world, there is certainly space for ourselves, other big players, and the normal oil field service companies,” says Shepherd.
“It’s good that the competition is there, but we would hope that the infrastructure is there, so that it can support the goals set by the Iraqi government.”
