BP Awards $500mn Oil Services Contracts in Iraq

BP and partner CNPC have awarded $500 million in drilling contracts to raise production from the giant Rumaila oil field, the largest in Iraq and the first to be handed to international oil companies in the recent licensing rounds.  This is a first step in Iraq’s partnership with IOC’s to revive the country’s energy industry.  If successful, the effort at Rumaila and other fields within 50 miles of Basra could be the largest expansions of crude-oil production ever achieved anywhere.  Increased Iraq production would also have significant impacts globally on poverty, food security and economic stability.   Chinese demand alone will raise the oil price to triple figures without it. (Current oil prices are $82/83 barrel.)

“It makes commercial sense for us to increase production as quickly as we can,” said Toby Odone, a BP spokesman.  Abdul Mahdy al-Ameedi, a senior official in the oil ministry announced that BP and the South Oil Co. had contracted three players in the already burgeoning Iraq international oil services market to drill 49 wells.  China’s Daqing Oil Field Company, Weatherford who have maintained a low profile presence in Iraq, and the state Iraq Drilling Co (IDC) with Schlumberger. BP plans to increase production at Rumaila from 1.07 million barrels a day to 1.23 million barrels within 12 months.

The contracts are the first and signal what is expected to be a significant flow of oil-field-services related work let by BP, Exxon, Eni, Lukoil OAO, Shell and China National Petroleum Company.

Some energy analysts estimate that production rises of the scale mooted would imply over $100bn of work being let. Without an infrastructure and services base though, Iraq will struggle unless a significant wave of international oilfield services sector companies quickly participate. The development of so many enormous projects requires water, power, pipes and pump suppliers, NDT testing, logistics companies and a huge range of related corporate establish a presence in Basra region.  The local labour market will struggle to respond, and general construction needs are likely to far outpace anything seen in the middle east in recent years – as ports, roads, secure storage depots, camps, water desalination and waste water, oil and gas export facilities, are all needed.

 Adrian Green, Partner at Upper Quartile, investment and economic development specialists said “Most of this business is clustered within 50 miles of Basra. Being proactive in entering this market now will reap rewards as the Iraqi’s and IOC’s look for credible partners who can demonstrate their grasp of the market.  Some of those already in Basra are lining up significant contracts.”

“It could change the map of oil,” says Paolo Scaroni, chief executive of Italy’s Eni SpA, which is preparing to begin work on the giant Zubair field. (Quoted in the Wall Street Journal).

Upper Quartile and partners G4S are planning a trade mission to Basra next month, and a further mission in June.

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