A better guarantee in Iraq

Iraq

Sander van Reijzen, Commercial Head of Sales, Oil & Gas Processing, talks to TOGY about the advantages of contracting directly with the operators in Iraq. Active in the country since 2008, the Dutch company designs and supplies integrated services for oil and gas treatment. In Iraq, it has worked for operators such as BP and Shell.

What are some of the challenges associated with Iraq’s production target?
The government’s target of increasing oil production to between 5.5 million and 6 million barrels of oil per day by 2020 is ambitious. When the discussions about contractual arrangements between the government and international oil companies are finished, investments are likely to be on the rise again. Ramping up the activity quickly will still be difficult because the local supply chain and competencies are limited. A lot of work still has to be done outside of Iraq and then brought into the country.

Why are operators shifting to contract directly with smaller process package suppliers in Iraq?
Operators obviously want to save costs in the current market environment. To achieve this, companies need smarter options because ultimately they are also interested in facilities with high reliability and availability as well as lower operation and maintenance costs.
By contracting directly with a services provider, operators get a better guarantee that they will have a quality facility, which can additionally be tailored to their requirements in terms of design and operations. In some cases, contracts are being shifted from lump-sum turnkey to cost-plus contracts for the critical equipment. This is probably the right way forward for ensuring an optimal balance between quality and reliability in addition to capital and operational expenditures on critical processing equipment.

What opportunities exist in Iraq for specialised process package suppliers to develop?
The biggest potential is in brownfield rehabilitation projects, such as upgrading existing degassing stations and gas or oil treatment facilities with new equipment. For these types of smaller projects, and especially for non-standard works, process package suppliers can contract directly with the clients and offer more tailored services that can be tied-in with the existing facilities. The suppliers can deliver a lot more added value with these types of projects.
For example, large-scale and complicated brownfield projects such as the Basrah Gas Company gas capturing development need to be executed through the combined efforts of the end user and the process package supplier from the early stages of development. This is to ensure that the services can be tailored to the particulars of a specific development.
There is also an opportunity to look at more standardised designs and packages. International oil companies are very much used to imposing hundreds or even thousands of specifications for their projects. This is not getting them the best value because it puts unnecessary constraints on the services. Some clients recognise this and are now engaging in conversation with their solution providers to develop standardised processing facilities that would save them both time and costs as well as be compliant with international safety standards.

How can partnering with a local contractor help companies such as Frames navigate the complexities of the Iraqi market?
Finding the right partner is a challenge because it is difficult to evaluate whether or not they have the right capabilities. In Iraq, even more so than in other markets in the Middle East, we prefer to have a local partner that knows the market, as well as the rules and regulations, otherwise the project will not be completed.
Another challenge is the contractual discussion about the local tax rules. Taxation is a reason of concern for a lot of companies because the regulations can change overnight. Local knowledge on this matter is also necessary.

What do direct relationships with operators require from companies such as Frames?
They need to be able to offer end users a complete package, one that does not only include the design and supply of equipment but also complete support during all phases of the project. In Iraq, more than in any other country, time seems to be a very important factor. The country has great ambitions to increase its oil output as well as a need for gas to be used in local power generation. The operators are pushed to meet these demands and ambitions.
To achieve this, companies are looking for closer co-operation with contractors that can understand their needs and ambitions. They are not only supplying equipment, but should also be responsible for installation and training.

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