17 August 2004
Despite its deteriorating security situation and unstable future, Iraq managed to attract a strong turnout for a contract to conduct reservoir and engineering studies at its largest two oil fields, Kirkuk and Rumaila. Some 14 bids were submitted from companies in Europe, North America and Australia, a senior Iraqi official said Monday.
Iraq in June invited more than 30 companies to participate in the tender, which would give the Iraqi oil ministry its first comprehensive study of its largest producing fields in the north and south. About 19 companies or groups bought the tender documents for the two fields on a compact disc for a fee of $5,000, said Hazem Sultan, director general of reservoirs and field development at the Iraqi oil ministry.
“We are very happy with the results so far. I think 14 bidders out of 19 who considered bidding is a very good response,” Sultan told International Oil Daily from Baghdad Monday.
The size of the turnout surprised some Western oil executives.
The bids came from a mix of oil companies and engineering firms, although none of the US majors took part.
The European oil companies competing for the project are BP, Royal Dutch/Shell, and a partnership of Italy’s Eni and Spain’s Repsol YPF.
Australian BHP Billiton bid in partnership with Tigris Petroleum, a small firm also from Australia.
The majority of the bidders were oil engineering companies and consultants. These involved Schlumberger, Halliburton subsidiary Landmark, RSK Group in partnership with Ryder Scott Petroleum Consultants, Canada’s CMG, DeGolyer and MacNaughton of the US, the UK’s Gaffney Cline, US Hyperion, Kvaerner of Norway, Exploration Consultants Ltd. (ECL) of the UK, and France’s Beicip, the consultancy affiliate of the Institut Francais du Petrole.
An executive from a major oil company said the project would allow companies “to get an understanding of what’s happening in those major reservoirs and what the future potential would be.”
“It’s also useful to establish key relations” with Iraqi oil officials, the executive told International Oil Daily.
Shell in a statement Monday confirmed the company’s bid, and added: “We have evaluated the tender documentation and see substantial mutual value from addressing urgent needs in support of the Iraqi oil industry.”
Analysis and evaluation of the bids’ technical and commercial aspects will start right away, with the aim of awarding a contract to the best offer by September, according to Sultan. Iraq originally aimed at selecting a winner by the end of August, but the deadline for submission of bids was extended by two weeks as a result of communications problems between the bidders and Baghdad.
“We are aiming at awarding the contract as soon as possible. I hope we can do it within one month,” Sultan said.
The tender set out a number of criteria for making the award. The technical criteria, which make up 75% of the evaluation, award points according to the bidder’s experience and references, compliance with the work plan, field understanding and qualifications of the personnel who would work on the study.
The commercial evaluation makes up the remaining 25%. Sultan declined to put a value on the bids until the commercial envelopes are opened, which will come in a second stage once technical evaluation is complete. Independent analysts estimate the contract at about $10 million.
The studies aim to use the latest technologies to monitor the reservoirs and collect data on their performance. The production process will then be adjusted according to simulations based on the studies, in order to maximize recovery.
Under the former regime of Saddam Hussein, when Iraq was subject to sanctions, the fields were pushed to produce at maximum capacity without adequate maintenance. The Kirkuk field was producing at close to 700,000 barrels per day, while the Rumaila fields supplied the majority of Iraq’s output, at more than 1.2 million b/d.
The reservoir engineering study, together with crash programs already put in place by the oil ministry, will try to rectify the situation inherited from the old regime, by setting new objectives for maximum economic recovery rates and resource optimization at the fields. Crude production since the end of last year’s war has continued in the same manner as before, with little sub-surface maintenance.
Kirkuk — which has been producing since 1928 and has been declining in recent years, after reaching maturity — was last assessed by an outside company in the late 1970s and early 1980s. Reservoirs at the less mature North and South Rumaila fields were last assessed in the 1980s.
Although the tender documents included work both inside and outside Iraq, Sultan said he would have to wait and see what the different companies have offered to do, and whether any of them are willing to take the risk to do some of the work in the troubled country.
Iraq’s southern oil province around Basrah has been engulfed in turmoil recently, disrupting oil exports. The Kirkuk area has also seen some conflict, but more as a result of Kurdish-Arab tension.
By Ruba Husari, London
(Published in International Oil Daily Aug. 17, 2004)