Check out who in the UK oil&gas supply chain is busy in Iraq, either bidding for business or working on contracts, and they are like hen’s teeth, according to Gavin Jones and Adrian Green of business consultancy Upper Quartile.
They are closely wrapped up in Iraq, trying to persuade British companies that locking on to the massive reconstruction programme, especially oil, is an investment that outweighs the attendant risk, assuming appropriate precautions are taken.
Jones and Green especially want to see Aberdeen companies out there, but admit that they have so far failed to persuade, even though the level of activity has ramped up massively of late.
June last year saw the first licensing round, December saw the second and it is reckoned that field development/rehabilitation projects from just these could see Iraqi production ramp from 2million to 12million barrels per day.
“The current position is that there is frenzied activity going on in the south, with many large IOCs (international oil companies) and NOCs (national oil companies) present in one form or another,” says Jones.
“And, just recently, BP issued a contract for $500million to three contractors … not one of them from the UK. One was the US group, Weatherford.
“So you have the interesting position where a UK company (BP) is handing out huge pieces of work and there isn’t anyone from Aberdeen in play. Yet everyone else is there, including the Chinese and Americans.”
Jones and Green warn that, if benefit from such large-scale activity is ever to flow to the UK supply chain, let alone into Aberdeen, then British companies must be on the ground in Iraq, prowling for contracts.
“But, basically, they’re not,” says Green.
“Weatherford got the contract because they’re there, on the ground. That’s the key thing.
“The point is that it doesn’t matter whether you’re from Aberdeen, the US or anywhere else, if you’re going to be viewed as being credible in that market you have to actually be in Iraq. And, at the moment, we, the Brits, are not.
“There’s a huge amount of business to go for. The estimates are that, by the end of this year/early next, about $20billion of contracts will have to be placed if the timelines laid out in the IOC (and NOC) service contracts that were issued by the ministry of oil are to be met.
“And that is less than a fifth of what they expect to be letting in terms of contract value, judging by the estimates of various analysts. That means $100billion of contracts have to be let for this single largest expansion in the history of probably any oil&gas-producing country ever.”
As far as both are concerned, whether or not 12million bpd is achievable is neither here nor there, there’s a lot of business to bid for. For sure, they see at least between 4million and 6million bpd, and that means a stack of contracts to be bid.
And while the accent is on oil&gas, there is also a huge amount of opportunity on the civil-engineering side, including rebuilding desalination plant, roads, schools, and so forth.
“Everything attached and not attached to the oil industry needs to be refurbished,” says Jones.
“The money being tipped into the Iraq budget will see a construction boom that will dwarf Dubai. There’s an assumption that, if they hit the 123million bpd, then that will generate $122billion a year based $60-a-barrel oil (current prices are around $70).
“Obviously, even if they get only halfway, it will be half of that figure, but its still a shed-load of money that will pour into Iraqi coffers.
“One of the Iraqis told me recently that they’d quite like to do business with the British, but they don’t have to.”
Upper Quartile has been plugging away in Iraq for three years, “through bad times and good”.
Jones: “We’ve endeavoured to be present at all levels within the Iraqi system, and we’ve been witnessing the transition from the process being driven by government-type agencies to a private-sector-driven frenzy, basically public-private partnerships.
“It ha’s been a fantastic transition to witness.
“I’d say that if one were to look back in 10-15 years’ time, the transition from an all-out war to actually getting to a functioning, wealthy economy will seem extremely short by the standards of any economy in any environment.
“Of course, there’s is talk of Iraqis being unable to make decisions. Such people are wrong.”
Green and Jones say the Iraqis have, in fact, moved swiftly – witness the manner in which the licensing rounds have been handled.
“If you look at the second licensing round in December, by mid-January, they had six licences awarded,” says Jones.
“I think most Western governments would struggle to get to that level of achievement. The Iraqis have done it their way.
“And, don’t forget, the first licensing round was shown on television. It was about as transparent as you’re ever going to get.
“The Iraqis managed to get oil companies to provide the figures that they were looking for and, as a result, they’ve now got lifting or fee payments to those oil companies to less than $2 per barrel overall – $2.40 is the highest, and it goes down to $1.15.
“If you look at the original figures that came in, some were around $35 per barrel. So the Iraqis have been transparent and extremely slick.”
Green spent summer 2009 working with the World Bank in Iraq. He already had prior experience of working with some of the ministers, one of whom confided, “We have a plan and, after the next elections, you’ll start to see it rolling out”.
“Of course, the next elections may not have brought the results that he was hoping for, but the point is that they did have a plan; they very clearly manoeuvred the IOCs into providing ppp-type projects,” says Green.
“And that’s the genius of their plan. It’s a case of we don’t have the money at the moment but we do need the projects to be delivered.
“Somebody else has to finance and deliver those projects – bring in the expertise – and the Iraqi view is that they will provide the licences, in return for which the IOCs can have long-term concessions. It’s a ppp-type system at work.”
Reiterating Iraqi disappointment regarding the dearth of UK firms, Green and Jones say they don’t want Chinese companies, nor Polish, Bulgarian or Ukranian.
“But if those are the people willing and ready to do the business, then they are the guys who will win out in order to get a job done.
“UK companies are backward in coming forward. From the Iraqi perspective, there’s the interesting phenomenon where British companies who, by brand and image, are among the most competitive in the world are simply not responding to an open marketplace,” says Green.
There are multiple ironies in this as the British colonial influence in Iraq, dating back many decades, can still be detected. Moreover, the legal system still resonates of English law.
And we should not forget that thousands of Iraqi civil servants were trained in Britain during the 1960s and 1970s.
“Those same people are now buying elsewhere because they have no choice. So they’re going to Europe, Russia, the US; they even have people coming in from China and Japan. But we’re not evident,” adds Jones.
“Of course, there are various things to persuade that one can do from a public-sector perspective, such as incentives for market entry. However, having been so closely involved in the Iraqi troubles, Britain has stood back, and I think the Foreign Office advisory is still quite negative, as is the American one.
“But the key thing here is that the responsibility for making a market for private companies rests not with the British Government but the companies themselves, and that’s not happening.
“There are even Brits sitting in Dubai and Kuwait who are not interested in looking at the Iraq marketplace, despite the fact that there’s plenty of evidence that significant money is flowing.
“This year alone, the Iraqi government has committed $70-plus billion, despite oil prices having fallen through the floor last year.
“And yet we have a compelling, competitive advantage in the north-east of Scotland,” says Jones, adding that, at least on the licences side, there had been one partial success – that of Mesopotamian, of which Aberdeen company was a shareholder.
That company failed in its ambition, but Ramco’s Steve Remp and other partners in the project didn’t fail because of anything to do with Iraq. They failed because, ultimately, they were unable to put together the finance required.
