Iraq’s revamp slowed by oil prices

Iraq

Managing partner of the Khudairi Group, Mohammed Khudairi, offers his perspective on the pressing need for Iraq’s oil and gas industry to revamp domestic infrastructure. The Khudairi Group is a US-Iraqi engineering, procurement and construction company, which also offers oilfield services and heavy machinery.

Iraq has the right human capital and abundant natural resources. The country has a smart and educated population and some of the necessary oil and gas infrastructure is already in place.

However, there is an immediate need to upgrade and rehabilitate this infrastructure. Increasing production is one thing; you also need the right infrastructure to cope with greater output. That is why many of the business opportunities in Iraq are related to upgrading existing oil and gas facilities.

ON THE GROUND: Although many of our previous projects have been greenfield projects, in 2015 and 2016, we will concentrate a lot of our efforts on brownfield work.

We believe that the government will be focusing on brownfield projects as well, since the existing infrastructure in Iraq simply cannot cope with the increased production levels. Brownfield projects are challenging because sometimes you are working with facilities that can be up to 30-40 years old.

REAL VALUE: Lower oil prices also play a role in the focus on upgrading and rehabilitating oil and gas infrastructure in Iraq. In fact, the oil crunch probably is a more prohibitive factor and has had a more severe effect than the security situation in some areas of the country. For some companies, the financial viability of drilling, operating and producing is lost at depressed oil prices.

We are seeing a shift in the dynamics of the market. Outside of the major fields in the South, smaller oil companies and operators may limit their activities until they see the price of oil come back up.

The international oil companies, under their long-term contracts with the national oil companies, have to ensure continued production – more than 90 percent of the government’s revenue comes from oil.

At the same time, these large players will be looking to get the most value from their investment. This will likely be in the form of modifying and updating existing facilities to enable an increase in production, rather than building a brand new production facility, for example.

THE LONG HAUL: A lot of co-ordination and leadership will be required from the Ministry of Oil to make sure all of the interests of the involved parties are aligned and that the framework is in place to achieve the goal of increasing oil output through revamping the country’s infrastructure.

For companies, achieving this goal requires a tremendous amount of patience. While 2015 will be difficult, I believe we will see an increase in spending and investment by both local and international players in 2016.

Iraq is not the market for companies that have a one- to three-year horizon. Companies should have a long-term vision when approaching this market. The country is going to be developing its oilfields and infrastructure over the next 20 years, so there will be a lot of work, particularly for companies with a long-term plan.

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