It was part of a trend: Five of the six major fields, together representing several million barrels per day of potential output, went to European, Russian and Asian oil companies. It looked as though not much was going to companies from the US, the country that took the leading role in the war.
But read the fine print of those contracts, and companies more familiar to Americans are now poised to benefit handsomely as the oil business picks up in Iraq.
The oil services companies Halliburton, Baker Hughes, Weatherford International and Schlumberger already won lucrative drilling subcontracts and are likely to bid on many more in one of the world’s richest markets for companies that drill oil wells. These days, that is not the oil majors.
Halliburton and Baker Hughes are American, while Schlumberger is based in Paris though its drilling subdivision is headquartered in Houston. Weatherford, though founded in Texas, is now incorporated in Switzerland. “Iraq is a huge opportunity for contractors,” Alex
Halliburton has won drilling and well refurbishment contracts at three of the six major fields, Weatherford International, Schlumberger and Baker Hughes at two others. One Chinese oil-services company is also working on these projects, as is a domestic Iraqi subcontractor, the Iraq Drilling Co.
Iraq signed the production contracts with international oil companies with the goal of increasing its oil output from about 2.4 million barrels a day in 2009 to as much as 12 million barrels a day within six years. So far, output has risen to 2.7 million barrels of oil per day.
Unrealistic optimism
Experts have dismissed the initial Iraqi target as unrealistically optimistic; last week, Iraq’s oil minister said it could be revised down to between seven and eight million barrels per day. Still, even the smaller increase from Iraq in coming years could ease global supplies and provide the Iraqi government with much needed funds for reconstruction.
The awarding of this vast new oil frontier to mostly non-American oil majors deflected criticism that the US had invaded Iraq for its oil. The Russian oil concession in Iraq shows how geopolitics shaped the awarding of the primary contracts but is not preventing US oil services companies from winning business today.
Lukoil struggled to hold onto its Saddam-era contract in a sprawling, geopolitical chess game over a decade. It wrapped in US oil companies, the Russian government, and threats by Moscow to cancel post-war Iraqi debt relief if the Iraqis followed US advice and stripped Lukoil of its license.
When Lukoil finally secured rights to the field by re-bidding for it, the company quickly subcontracted the drilling.
The more sweeping drilling tendering for this field, called West Qurna 2, is just getting under way now. Under its contract, Lukoil committed to produce 1.8 million barrels of oil per day from the field by 2017; it was unclear whether that would be revised along with the broader revision of output targets under way in Iraq now.
In any case, Lukoil says it will need to drill more than 500 wells to develop the deposit, which is underneath agricultural, scrub and dry clay land west of the Euphrates River in the southern Basra province. Along with the contract already granted, Lukoil has tendered for 23 production wells, and plans another tender this year for another 50 or so. Analysts estimate drilling an oil well in Iraq costs between $10 and $20 million.
Munton said US oil-services companies were poised to win much of the drilling work at West Qurna, as at other Iraqi fields, though other capital outlays such as for processing facilities and pipelines would go to a more international cast.
Joost R Hiltermann, deputy programme director for the Middle East and North Africa with the International Crisis Group, which is monitoring the security implications of Iraq’s oil policies, said Iraqi officials are unlikely to try to diversify away from US companies at the less politically sensitive subcontracting level.
US oil-services companies are well positioned to win the work because they have been in Iraq for years on contract with the US occupation authorities and military. Rather than scaling back as the US military pulls out, Halliburton is planning to expand.
The company has 600 employees in Iraq today and said in a statement it intends to hire “several hundred” more before the end of the year. “We continue to win significant contracts in Iraq, and are investing heavily in our infrastructure,” Halliburton said.