Iraq oilfield deals herald boom for service firms

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Big Oil has led interest in Iraq's oil sector since it opened to investment, but the country also promises to be lucrative for oil service firms quietly fixing wells and pipes in the background.

Oilfield service companies ranging from big players like Weatherford International Ltd to small regional outfits have begun work or are sniffing out opportunities in Iraq, which must upgrade its dilapidated infrastructure after years of war and neglect.

Unlike high profile oil majors, which have to skirt resistance from politicians wary of signing away Iraq's oil wealth to foreigners, service firms can quietly subcontract directly with the majors, avoiding lengthy talks with officials.

The sheer size of the market in Iraq makes it increasingly important for the oil services industry, which is facing a slump in major markets like North America, due to spending cuts by energy producers.

In fact, the amount of oilfield development planned in Iraq in the coming few years will likely strain the oil service industry's capacity and lead to inflation in the industry.

"Iraq is the place to be for oilfield service firms," said R P Eddy, CEO of Ergo, an Iraq-focused research firm.

"There is much less political risk than if you're a major. I'd be shocked if any oilfield service firm did not make a major effort to be here in the next few years."

Iraq is striking deals with several oil companies that could transform it into the world's third-largest oil producer and rehabilitate an oil sector that has suffered from years of war, sanctions and most recently the sectarian violence triggered by the 2003 US-led invasion.

Much of the attention has centred on supermajors like Exxon, whose consortium snapped up an initial deal to develop the West Qurna field, while BP and China's CNPC sealed a $15bn deal to develop the Rumaila field.

However, oilfield service firms are now quietly building a presence in the sector.

The market for oilfield services in Iraq will jump from $1.3bn in 2010 to $8bn in 2014, estimates Ergo.

Capital spending on oilfield services in Iraq in 2011 alone will be five times that of similar spending in all GCC nations put together, Ergo believes.

A yardstick for judging the value of looming service work may be a short-lived joint venture agreed in February between Iraq and British firm Mesopotamia Petroleum Co. The project, aimed at drilling 60 new wells a year but terminated in July, kicked off with initial capital of $400m.

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