* Iraq's oil contracts a boom for service firms
* Costs per barrel seen low because of huge reserves
* Iraq may create 'black hole' for sector
By Ayla Jean Yackley
BAGHDAD, Dec 10 If all of Iraq's oil deals get
off the ground, it will need scores of drilling rigs, thousands
of tonnes of cement and steel, many miles of pipeline and tens
of thousands of trained and qualified workers.
The potential workload for oil service firms in Iraq is
unprecedented in the history of the oil industry, and could
overwhelm the global oil-service sector.
If Iraq signs all contracts now on offer, output may surpass
10 million barrels per day (bpd) and lift Iraq to third place or
higher from 11th among global oil producers.
"Iraq will place a massive call on the service sector," said
Raad Alkadiri, head of global risk at Washington-based
consultancy PFC Energy. "It will start to be a black hole,
sucking a lot of the sector in from the region and beyond."
The Iraqi Oil Ministry on Friday and Saturday will hold a
tender for deals on 10 untapped oilfields, the second such
auction since the 2003 U.S.-led invasion. The first was in June,
when BP (BP.L) and China's CNPC won Rumaila, and officials say
deals are close on at least two other fields. [ID:nGEE5B726F]
A huge quantity of materials to build wells, platforms,
gas-gathering centres and pipelines will be needed.
A 12,000-foot (3,658-metre) deep well needs about 900 cubic
metres of concrete and 76 tonnes of steel, said Jerry Kiser,
chief operating officer at Almaha Group Petroleum Services.
That means some 14,000 tonnes of steel casing and 160,000
cubic metres of concrete would be required just to complete the
180 wells the Iraq Drilling Company intends to drill next year
to boost output by 360,000 bpd, oil experts say.
BP and CNPC want to lift Rumaila's production to 2.85
million bpd from 1.05 million bpd, so they would probably need
at least four times as much steel and concrete to do the job.
OIL SERVICE SECTOR TO BOOM
The contracts on offer will push Iraq's oil services market
to $8 billion in 2014 from $1.3 billion next year, according to
research firm Ergo. Capital spending on oilfield services in
2011 alone will be five times that of Saudi Arabia, Bahrain,
United Arab Emirates, Oman, Qatar and Kuwait combined.
The rush for services may strain capacity and lead to price
inflation in Iraq, the region and beyond, observers said.
"It will be very difficult for Iraq to follow up on all
these projects. Prices for oil services will skyrocket," said
one senior oil executive at a large European energy company.
A critical component is finding enough oil rigs to drill the
thousands of wells Oil Minister Hussain al-Shahristani has said
Iraq will need.
The number of land and offshore oil rigs operating outside
of the United States was 783 at the end of November, according
to oil-services firm Baker Hughes. That does not include Iraq
and Iran and is a partial count for Russia and China.
The Iraq Drilling Company said it will have 46 drilling rigs
and 14 rigs to repair wells next year to meet its goal of adding
360,000 bpd to capacity. Wells in the southern fields can take
between two and six months to drill, one Iraqi engineer said.
Top oil exporter Saudi Arabia drilled 420 wells at its $10
billion Khurais project to reach 1.2 million bpd. Khurais was
the largest-ever single increment to global oil capacity when it
started this year but is only a portion of what Iraq plans.
"The bottleneck will be land rigs, then the personnel to man
them," said Ole Slorer, analyst at Morgan Stanley. "Without an
excessive amount of expats in Iraq, locals, who will be in short
supply, must be trained."
Iraq needs at least 40,000 more oil workers by 2015, Ergo
Chief Executive R.P. Eddy said. There are now about 36,000.
They will have to build four floating oil terminals, clear
land at greenfield sites, set up water-treatment plants for well
injection, build oil-processing plants, lay pipelines, install
gas-gathering equipment and power generators, and haul in water
and truck out fuel until pipelines are built.
"The oil service industry should do really well out of
this," said Samuel Ciszuk, Middle East energy analyst at IHS
Global Insight. "There is no pressure on them to take low
margins. 'Either you pay or you don't' will be their attitude."
(Additional reporting by Simon Webb in Dubai; Editing by
(For a factbox on the oilfields on offer pleae click on
For a factbox on prequalified companies click on
For a factbox on security and political risks of each of the
oilfields, click on [ID:nGEE5B71AS]
For a factbox on the history of foreign oil companies in Iraq
click on [ID:nGEE5B60HD]
For a factbox on Iraqi oilfield deals in the pipeline click on