Entering Iraq’s oil and gas industry is no straightforward task, but as the procurement people from oil majors Shell and BP tell Oil & Gas Middle East, good local knowledge really is power.
Iraq is said to have the third largest oil reserves in the world with about 80 major discovered fields said to hold around 115 billion barrels of amounting to 11% of total world reserves.
The country currently produces on average 2.4 million barrels of oil per day (bpd) – production peaked at around 3.3 million bpd in 1990 – aims to be producing at least 12 million bpd in the next few years.
Given this backdrop and despite its current level of post-war instability, Iraq is rapidly pressing ahead with its planned oil and gas production and capacity increase. It is safe to say that major international oil companies (IOCs) are now pretty well established in the country.
The likes of Shell and BP are stepping up efforts to meet the nation’s ambitious energy and infrastructure plans.
At March’s EIConnect, a twice-yearly energy industry expo and networking event held in Abu Dhabi, the procurement personnel from Shell and BP gave an update on the major oilfields of Majnoon and Rumaila respectively.
Iraq is home to some 9 super giant oil fields holding over 5 billion barrels of recoverable oil and 22 giant oil fields holding between 500 million up to 5 billion barrels.
At present the poor quality of infrastructure at much of Iraq’s oilfields is the main obstacle to field development according to Frans Dietvorst, contracting and procurement manager, Shell Iraq Petroleum Development, who was discussing his company’s work at the giant Majnoon field in southeastern Iraq.
“All the majors now are developing their projects. There is a big constraint on exporting capacity, this is the responsibility of the Iraqis, they need to build the infrastructure so that all the oil companies can evacuate into the harbour, into tank farms, terminals and up to the seaport,” he explained.
“The infrastructure is totally insufficient and discussions are taking place on how the infrastructure will be improved,” he added.
According to the Iraqi Ministry of Oil, the Majnoon field has an estimated 38 billion barrels of oil in place.
With a 60% share of the field development work, Shell Iraq Petroleum Development has 20-year a Development and Production Service contract (DPSC) for the field which began on March 1 2010, Petronas Carigali (40%).
Giving a status update, Dietvorst said that: “Tenders have been awarded, Petrofac is procuring equipment and materials as we speak, the subservice contracts have been awarded so no new major tenders as far as we are concerned in the next six months or so.”
He said that development of Majnoon would be taking place in two phases. Phase 1 would be to achieve First Commercial Production (FCP) of an estimated 175 000 bpd by optimising existing wells and facilities.
Phase 2 would be to develop smaller reservoirs to start ramp-up to a plateau of an estimated 1.8 million bpd and maintain production by 2017, this phase would look to drill over 1000 new production wells and over 500 water injection wells.
Phase 2 would also see the deployment of 20 to 30 rigs, as well as a large workforce.
“We are developing a portal at the moment which will be used to provide information to the contractor community at large, said Dietvorst adding that about 1000 contractors were registered in the company’s vendor database.
An official web portal is in the process of being setup and is expected to be up and running soon for process, according to Dietvorst. He also noted that Shell does not have any intention for public tendering at present but that it would use events such as November’s Basra International Oil and
Gas Conference and Exhibition to present its ongoing and future plans.
Rumaila development
Cameron McLean is the procurement & supply chain manager for projects on the Rumaila Support Team for BP Exploration Operating Company.
The super giant Rumaila field spans an area of 80 Kilometres in length and 20 Kilometres in width with multiple reservoirs that have yet to be fully appraised.
The field’s output peaked at 1.6 million bpd in the late 1970s, it currently produces around 1 million bpd and is Iraq’s most productive field holding 29% of Iraq’s overall recoverable oil reserves.
“In terms of targets, the improved production target, the target was an increase of approximately 10% and this was achieved in December 2010. For plateau production target, Rumaila has a target for 2.85 million barrels of oil per day which is the highest target that they’re running.
BP is the lead developer of the Rumaila field with a 38% share followed by PetroChina at 37% and SOMO (State Oil Marketing Organization), the marketing division of Iraq’s South Oil Company holding 25%.
“The Projects Team is established and we have mobilised, we have preliminary contracting strategy established that was set in play in 2009, we have awarded a contract to Worley Parsons for FEED and integrated project management services,” he said.
“Pre-FEED has commenced and we’ve started the 2011 activity plan. We’ve also issued an RFP (Request for Proposal) for the construction project headquarters and that comprises the accommodation facility,
the logistics facility and warehouse facility.”
“We can’t manage this project without the support of contractors and suppliers, said McLean adding that there are five main contracts to support the Rumaila development essentially up for grabs.
“For minor projects, which are effectively maintaining production – less than 12 months in duration – we have an engineering contract and a construction management contract. For major projects which is
production enhancing for projects that are likely to last more than twelve months, we’ve envisaged that we will have three main contracts.”
The five principal contract packages are for engineering, construction management (one package each for both minor and major projects), concept/FEED and Engineering, Project Management Services (EPMS). McLean said that the concept and FEED had been given to Worley Parsons.
McLean also said that both minor and major project contracts would engage local subcontractors. He also said that there were other contracts such as logisitics management, third-party inspection, camp construction, pipeline engineering, pipeline installation and OEM refurbishment contracts.
“We currently don’t have a lot of knowledge about the companies operating in or with Iraq, for this reason most requirements will start with a prequalification process, we will try to identify those candidates that are technically qualified to service our needs,” he explained.
“As a project we’re in the process of setting up a contractor registration system, this is going to be a system called ISNetworld, there around 30 000 contractors registered in the system and 180 operators or clients using that system.”
The development of Rumaila will be a two-phased process. The first phase will be for the rehabilitation of the field over a three-year period which is aimed at optimising existing wells and carrying out recompletions.
Following this, a redevelopment campaign will begin till the 20th year of the overall project aimed at growing the well stock through major drilling work.
“Our plan is to grow production from 1 million to 2.85 million barrels of oil per day, that equates to an increase of over 300 000 barrels of oil per day capacity each year for the next five years, so in other terms this is a major project for the next five years,” said McLean.
He said that both BP and PetroChina would be looking to invest around US$20 billion over the next 20 years at Rumaila with majority of this investment being expended in the first five years.
Local knowledge
In terms of what contractors should be aware of when looking to enter Iraq, both McLean and Dietvorst agree that a sound understanding of the lay of the land is necessary, and obviously security is a major consideration.
“You really need to be living in the country to understand what security means when working in Iraq, you can’t deal with it from abroad, you need to go in and see what it is and understand how to deal with it and manage it,” said McLean.
Another less obvious issue is that of customs when bringing goods and personnel into Iraq said McLean: “You need to watch out for changes, changes in the regulations and the actual changes in the level of duties.
“Develop your local capabilities because you will need to team up with an Iraqi partner in order to be successful in Iraq,” said Deitvorst.
“It’s very difficult to be able to deal with people from offshore, it’s up to you to establish yourself and develop your capability inside Iraq.”
