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The world’s biggest oilfield contractors are building bases in the deserts of Iraq in a bet they’ll profit as the country strives to boost crude oil output to rival Saudi Arabia.

Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc. are among companies this past week that said they’re expanding operations in Iraq. Weatherford International Ltd., the fourth- largest oilfield-services provider by market value, will expand staff in Iraq to more than 1,000 by July, Chief Executive Officer Bernard Duroc-Danner told investors yesterday on a conference call.

The prize is a share of the billions of dollars to be spent as the war-torn country seeks within seven years to increase crude-oil production capacity to 12 million barrels a day, on a par with the world’s largest oil exporter, Saudi Arabia. Iraq’s current production is about 2.4 million.

“It’s all becoming more real, in that contract awards are getting closer,” said Jeff Tillery, an analyst at investment bank Tudor, Pickering, Holt & Co. in Houston. “It’s a big opportunity for these guys.” Revenue potential is high, he said. “The profit side is a little bit of a leap of faith.”

The risks are financial, legal and political. Contractors don’t yet have a firm grip on what costs might be, Duroc-Danner said. Last month’s parliamentary elections left no political party with enough seats to govern alone, and Iraq doesn’t have a law yet for how oil revenue will be distributed.

Second-Biggest Field

Iraq’s government has signed 10 contracts for oilfield development with London-based BP Plc, Exxon Mobil Corp. and other producers.

BP, which is leading development of Iraq’s biggest oil field, known as Rumaila, awarded $500 million in service contracts last month. Included were projects won by Geneva-based Weatherford and a partnership between Schlumberger, based in Houston and Paris, and state-owned Iraqi Drilling Co.

Rumaila may become the second-biggest oil field by production in the world, BP said earlier this year. Saudi Arabia’s Ghawar field is the largest.

Halliburton, which plans to invest $100 million in Iraq this year, said it’s in the process of securing its first major base in Iraq.

‘Plenty of Work’

“There’s going to be plenty of work in Iraq, and believe me, all the service companies will have opportunities there,” David Lesar, chief executive officer at Houston-based Halliburton, said on an April 19 conference call with investors. “So we’re going along at the pace we want, and we’re confident we’re going to be successful.”

Schlumberger’s base will have 300 people this year, and that number will double by early 2011, CEO Andrew Gould said last month.

“Competition will be fierce, start-up costs high, and we do not expect significant revenue before 2011,” Gould said at the Howard Weil Energy Conference in New Orleans. “The significance of Iraq will only really emerge once the post- election political landscape is understood and some form of oil law has been passed.”

Development of Iraq’s oil industry is moving ahead as security improves after decades of wars and sanctions.

Al-Qaeda

U.S. and Iraqi forces said yesterday that they killed two of al-Qaeda’s regional chiefs in raids. A day earlier, Prime Minister Nouri al-Maliki said Iraqi and U.S. forces killed the terror network’s two principal leaders in the country. “Iraq is probably the biggest opportunity, along with possibly Brazil, confronting the oil-services industry,” said James D. Crandell, an analyst at Barclays Capital in New York. “It’s a country that has a significantly higher capability of exporting crude oil, but it needs a lot of work done on its fields.”

Within five years, service providers may be competing for more than $5 billion annually in contracts, he said.

The four biggest oilfield contractors all rose 4 percent or more yesterday on the New York Stock Exchange. Schlumberger gained 17 cents to $68.02 today, and Halliburton fell 2 cents to $33.29. Baker Hughes climbed 60 cents to $50.89, and Weatherford dropped 59 cents to $16.62.

‘Surge’ coming

if anything, service companies are late in positioning themselves for the “upcoming surge” in oil contracts, said Nansen Saleri, CEO at Quantum Reservoir Impact in Houston and former reservoir-management chief at Saudi Arabia’s state oil company. “Iraq is pregnant for huge growth,” Saleri said yesterday.

The country has potential reserves of 200 billion to 300 billion barrels of oil, Saleri said, and “the early movers will be the big winners.”

“It presents a tremendous opportunity for the service companies,” Gene Shiels, a spokesman for Houston-based Baker Hughes, said yesterday.

All of the companies said investors shouldn’t be quick to judge results from their Iraq forays.

“It’s going to be a very expensive place to operate, at least initially, because you’ve got all your mobilization costs, you’ve got people you’ve hired, bases that you’ve built,” Shiels said. “It’s going to take some time.”

28 April 2010 - Bloomberg

BP Plc will be paid in crude for its investment costs in an Iraqi contract that offers about the same rate of return as other projects worldwide, Chief Executive Officer Tony Hayward said.

BP and China National Petroleum Corp. are spending about $15 billion in Rumaila, Iraq’s largest oil deposit, pledging to more than double production to at least 2.85 million barrels a day in the second half of this decade. Hayward predicted the company will reach an initial goal of raising output 10 percent in the next 18 months.

“We think the terms are perfectly good terms that will allow us to earn returns commensurate with returns elsewhere in our portfolio,” Hayward said yesterday at a briefing for reporters. “The cost of developing this oil is very low.”

The deal that BP and CNPC reached with Iraq’s government last year pays the companies’ costs plus a service fee of $2 a barrel, a rate that some analysts say doesn’t offer sufficient rewards given security concerns and the risk of political instability in Iraq.

“The nature of the contract is that after the first increment of 100,000 barrels a day has been achieved, then we go immediately into cost recovery,” Hayward said, speaking from Washington. “At that stage, essentially every dollar that goes in comes out in the same year.”

Base Production

BP and CNPC agreed to a base production for Rumaila of 1.066 million barrels a day. After the initial target of increasing output by 100,000 barrels day, the oil companies promised to boost output to 2.85 million barrels a day. BP’s head of production Andy Inglis has said Rumaila may become the world’s second-largest field by 2015.

BP and CNPC awarded $500 million of oilfield services contracts last month for Rumaila to Schlumberger Ltd., Weatherford International Ltd., Iraqi Drilling Co. and China’s Daqing Drilling. BP said it is building from the operation it inherited at the field.

“We benefit enormously from the fact that we inherit a going concern,” Hayward said.

21 April 2010 - Houston Chronicle

As oil and gas operators ramp up service contract offerings in Iraq to begin developing the country's vast, war-ravaged oil reserves, Weatherford Chief Executive Bernard Duroc-Danner said Tuesday in a conference call with analysts, the company has established nine rigs operating on the ground in Iraq with 1,000 employees who would begin work by July.

The Swiss-based oil field services company reported Tuesday a loss of $40 million for the first quarter, or 5 cents a share, compared with income of $164.8 million, or 24 cents a share, a year earlier.

The loss was largely due to the devaluation of Venezuelan currency and a $38 million charge related to a supplemental executive retirement plan.

Revenue increased 4 percent to $2.33 billion, compared with $2.26 billion in the same period a year ago, thanks to improvement in its North American markets.

Weatherford, which has about 2,500 employees in Houston, said revenue from its North America market increased 6 percent to $891  million, compared with a year ago. Versus the fourth quarter, revenue rose 21 percent, in tandem with the rising rig count on the continent.

BP has announced the first major contracts involving its partners on the rehabilitation of the Rumaila field in Southern Iraq. Three contractor groups were selected for drilling wells, worth a total of around $500 million, and will provide seven additional drilling rigs from the second half of 2010.

The contracts will be awarded to:
- Schlumberger in partnership with the Iraqi Drilling Company has been awarded contracts for three rigs
- Daqing Drilling has also been awarded contracts for three rigs
- Weatherford has been awarded a contract for one rig

These contracts supplement drilling contracts already in place on Rumaila provided by the Iraqi Drilling Company and Weatherford. We expect around 70 wells to be drilled on Rumaila this year.

Two two-year contracts, worth a total of around $100 million, have been awarded for the supply and installation of electrical submersible pumps (ESPs) and associated services to Centrilift, Al-Khorayef Petroleum. Cameron will supply the associated trees and wellheads.

The contractors were selected after a competitive bidding process and the awards endorsed on 24 March in Basra by the members of the Rumaila Joint Management Committee comprising BP, CNPC, the Iraqi State Oil Marketing Organisation and the South Oil Co.

( The Engineer )

BP has announced the first major contracts involving its partners on the rehabilitation of the Rumaila field in Southern Iraq. Three contractor groups were selected for drilling wells, worth a total of around $500 million, and will provide seven additional drilling rigs from the second half of 2010.

The contracts will be awarded to:
- Schlumberger in partnership with the Iraqi Drilling Company has been awarded contracts for three rigs
- Daqing Drilling has also been awarded contracts for three rigs
- Weatherford has been awarded a contract for one rig

These contracts supplement drilling contracts already in place on Rumaila provided by the Iraqi Drilling Company and Weatherford. We expect around 70 wells to be drilled on Rumaila this year.

Two two-year contracts, worth a total of around $100 million, have been awarded for the supply and installation of electrical submersible pumps (ESPs) and associated services to Centrilift, Al-Khorayef Petroleum. Cameron will supply the associated trees and wellheads.

The contractors were selected after a competitive bidding process and the awards endorsed on 24 March in Basra by the members of the Rumaila Joint Management Committee comprising BP, CNPC, the Iraqi State Oil Marketing Organisation and the South Oil Co.

Abdul-Mahdy al-Ameedi, director of the licensing office at the Iraqi oil ministry has said that Iraq has awarded contracts to drill 49 out of 56 new wells at the giant Rumaila oilfield, each valued at around $10m, Reuters has reported. Chinese firm Daqing and a joint venture between Schlumberger and the state-owned Iraq Drilling Co are each being awarded contracts to drill 21 new wells, while Weatherford International was awarded seven new wells, Ameedi said. "The remaining seven wells we have left for later, once we review the performance of the contractors," he said.

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.

Iraq announced a $318 million contract with a unit of Turkish Petroleum to drill 45 wells in the supergiant Rumaila oilfield as the country strives to regain and even surpass pre-war production levels.

Britain’s BP and China’s China National Petroleum Corp signed a 20-year contract to develop the Rumaila field in southern Iraq, which alone has more than 17 billion barrels of crude oil reserves.

The announcement this week concerned an award to TPIC, which, along with Halliburton and Weatherford International, is also bidding on a separate contract to drill another 56 wells in Rumaila, according to news agency reports.

Separately, local media reported that Iraq has broken off talks with Nippon Oil over an $8 billion contract to develop the Nassiriya oilfield, which has some 5 billion barrels in proven reserves.

This field was kept out of the round of international auctions and there was no immediate word about what would happen next to develop the field.

The efforts to ramp up oil production in Iraq are taking place as the country faces elections in March that will demonstrate to foreign investors just how ready the country is to take charge of its future.

(OilPrice.com)

Maysan Oil Company - update from the local Basra press;

• Drilling of Halfaya Well/7 is finished, and drilling operations are due to start at Halfaya Well/9, and what should be noted that Halfaya Field- which is located to the south-west of Amara City- is considered one of the most important oil fields in Maysan, which are enriched with the good-qualtiy  crude oil, and additionally this filed is composed of 6-7 reservoirs, including Nehar Aumar Reservoirs, which is regarded as one if the main reservoirs in the area, to which a development plan has been prepared by MOC, to drill 12 wells, as the latter is featured with an oil of good quality.
• MOC has announced about its intensive plan to drill more wells in all oil fields; Halfaya, Abu Garab, Al-Nour, Bazergaan, and others, and heralded that the 2010 would be the year to exploit all the oil fields in Maysan . The Company has contracted an American firm (Weatherford), to drill about 50 wells. This means more sub- contracts are available to provide other services pre, during, and post drilling of these wells.
• Projects commission supervises establishing two reservoirs, to be used for washing the crude oil.
• MoC invests its lands, to build an accommodation complex (1500 unit) for the staff of the company. A Canadian company (IDCC) submitted a proposal for the designs of the units.
• Work is continuing in establishing and installing the treatment unit for the wet oil in Bazergaan Field.

Reuters reports that TPIC, the foreign exploration unit of state-run Turkish Petroleum, has won a $318 million contract to drill 45 wells in Iraq's supergiant Rumaila oilfield, near Basra.

British firm BP and its Chinese partner CNPC signed a 20-year development contract last year for Rumaila, which has an estimated 17 billion barrels of crude reserves.

"We are yet to make a decision on another tender to drill 56 wells in Rumaila. We are still evaluating the submitted bids," Dhiya Jaafar, head of the South Oil Company, told Reuters in the southern oil hub of Basra.

Separately, Iraq had invited 10 firms to bid for a contract to drill 56 additional wells at Rumaila, including TPIC, Halliburton, and Weatherford International.

The German MiGAZIN reports that TPIC has already put 197 wells into operation, 180 of them in Turkey and the rest in Kazakhstan.

(Source: Reuters, MiGAZIN)