(EnergyAsia, February 18 2013, Monday) — This article, written by Frank Wright and Isla Parsons of consulting group Douglas-Westwood, is adapted from its latest report, “Iraq and Kurdistan: Drilling & Oilfield Services Market.” *

The potential scale of the Iraqi oil sector is unprecedented in recent times and represents a significant opportunity for the drilling and oilfield services industry. However, limited historical information, coupled with the complex political situation make accessing realistic data and market forecasts extremely challenging.

This has led Douglas-Westwood to produce its first report on the Iraqi drilling and oilfield services market to aid service companies in reviewing the specific opportunities and risks by service line, in addition to aiding operators to build a view of available supply chain capability in the north and south of the country in terms of rig availability and associated services.

Currently estimated to be the fifth largest in the world, Iraq’s proven oil reserves continue to rise and the country is already the 5th largest producer in the OPEC group. Expanding lucrative oil production has been an overriding priority as the country rebuilds its economy and infrastructure.

Since 2008, four licensing rounds have been held in Iraq (excluding the semi-autonomous region of Kurdistan), opening up the country’s resources to international oil companies (IOCs), and foreign national oil companies (NOCs).

Despite this uncertainty, Kurdistan is still attracting major operators, not only due to its significant potential oil reserves but also the more attractive commercial terms. Some major IOCs have already chosen to forego potential opportunities in Iraq in order to establish a presence in Kurdistan.

Iraq’s major oilfields

There is a concentration of giant oil fields in the south such as Rumaila and Zubair that accounted for more than 75% of the country’s total production in 2011. Expanding production at these fields through rehabilitation of existing infrastructure and extensive development drilling campaigns has been the priority for the federal government. This strategy is starting to pay off with BP and its project partners at Rumaila hitting an incremental production target in early 2011.

Major fields at East Baghdad and Kirkuk to the north, operated by the North Oil Company, are producing below potential capacity. While other fields in the province have been made available, they have attracted less interest. Angola’s state-owned NOC Sonangol operates here but is facing serious security issues.

The Kurdish KRG area is a major exploration opportunity, which has already attracted a wide array of independents and NOCs. A major new field has already been identified by Gulf Keystone Petroleum and estimates have also been upgraded by DNO at the Tawke development play.

Despite significant production potential, gas has not been a priority for the federal government due to a combination of high oil prices and lack of domestic demand. As the economy develops, gas will become more of a focus, especially in the power generation sector, which is currently fuelled mainly by oil.


Douglas-Westwood’s report takes a scenario-based approach to the drilling and associated services market with a high growth scenario linked to the ambitious aims of the Iraqi government and a second, constrained scenario defined by supply chain limitations, infrastructure bottlenecks, and other factors. Market forecasts have been segmented according to drilling services area, oil field and operator.

According to the high-growth scenario, the government’s ambitious production targets of 12 million b/d by 2020 will require unprecedented growth in drilling activity. A total of 2,700 new wells, not including water injectors and gas wells, would need to be drilled in this scenario between 2012 and 2016.

To meet this demand, Douglas-Westwood estimates that approximately 37 rigs would have to be re-allocated from other regions, along with the addition of 13 new-build rigs over time.

Operators would also have to face many other challenges including navigating Iraq’s complex oil bureaucracy, importing drilling equipment into the country, the poor state of the infrastructure, and potential OPEC production restrictions. Based on this combination of internal and external factors, we conclude that this production scenario is highly unlikely to be achieved.

In the constrained growth scenario with oil production reaching five million b/d in Iraq and one million b/d in Kurdistan for a combined six million b/d by 2016, Douglas-Westwood said 1,500 wells would need to be drilled between 2012 and 2016.








Figure 1: Constrained Growth Scenario – Drilling Expenditure

This scenario takes into account both service industry constraints and the poor condition of the infrastructure. Operators will have to deal with tight supplies of rigs and consumables, but would not be burdened with high levels of expenditure and growth rates, although cost pressure on margins would still remain. China National Petroleum Corp (CNPC) and its subsidiaries would have the highest expenditure levels, totalling $4.7 billion over the forecast period.


The scale of Iraq’s ageing giant fields and the lifting costs, amongst the lowest in the world, initially attracted many of the leading IOCs. However, tough contractual terms and difficult operating conditions have tended to limit the return on investment so far. Despite the challenges, operators have been awarding significant turnkey contracts for development drilling and well remediation programmes.

While oil production from Kurdistan accounts for less than 5% of Iraq’s total, the potential reserves are thought to be significant. Kurdistan has designed its terms of business to attract risk-taking exploration companies, with 50 operators already active in the region.

Even in our constrained scenario, drilling expenditures are forecast to grow at an annualised rate of more than 10% over the period from 2012 to 2016. To unlock this potential, significant investment will be required to train personnel, upgrade infrastructure, and develop the local supply chain in specific areas such as casing and mud services.

* For further information on the report, covering the prospects for drilling and associated services in Iraq and the semi-autonomous region of Kurdistan over the period 2012-2016, check out this link: