Feral Jundi

Monday, April 19, 2010

Iraq: Schlumberger Oil Services Giant Builds A FOB For It’s Operations

    The company is finishing up work on a 40-acre compound near Basra. Earlier this month, several dozen employees moved in and set up a mobile barracks. Schlumberger said it expected to have 300 employees there by July and nearly double that by the end of the year.

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There are 36,000 oil field workers in Iraq, according to R. P. Eddy, chief executive of emerging markets consultant Ergo, and he expects that number to rise to 76,000 by 2015. 

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   So if anyone knows what security company they are working with, go ahead and put that in the comments or send me the stuff and I will make an edit. My guess is that this will provide a ton of jobs for Iraqis and expats–both for security work but all just oil industry work.  Something to keep an eye on. –Matt

Edit: 4/21/2010- This recent article in Businessweek details even more companies that are moving into Iraq.

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Schlumberger Gambles on Iraq Work

APRIL 16, 2010

By RUSSELL GOLD

(See Corrections & Amplifications item below.)

Schlumberger Ltd., the world’s largest oilfield service company, has begun staffing an Iraqi business operation, one of the first such moves by a western energy company in decades.

The company is finishing up work on a 40-acre compound near Basra. Earlier this month, several dozen employees moved in and set up a mobile barracks. Schlumberger said it expected to have 300 employees there by July and nearly double that by the end of the year.

Chief Executive Andrew Gould said in an interview from his office in Paris that he believes the security situation has improved considerably in the past year, and the opportunity to provide support to major oil firms is building. If security improves and oilfield work increases, a $3 billion to $4 billion market annually is possible by mid-decade, he said.

The situation in southern Iraq no longer resembles the chaos that engulfed the country five years ago. It has become “more traditional risk of tribal disturbance and banditry rather than any politically motivated security incident,” he said.

Unlike companies working in Iraq under government or military contract, Schlumberger symbolizes the nascent return by western corporations to the country, where many of the world’s largest oilfields are being opened up to foreign oil companies for the first time in a generation.

Rival Baker Hughes Inc. said it has about 30 employees in Iraq and expects a 30-acre base to be finished by the end of April. Halliburton Co. said it expects its slightly smaller base to be complete soon after. It has begun hiring Iraqis with some industry experience. “There’s a capable workforce,” said Tim Probert, Halliburton’s president of global business lines.

While the Iraq Oil Ministry recently gave out redevelopment contracts to well-known multinationals such as Exxon Mobil Corp. and BP PLC, oil services firms will carry out much of the heavy lifting, such as taking seismic surveys and drilling wells. Indeed, the big oil companies will likely have far fewer employees in the country.

Still, Mr. Gould warns that the security situation remains a principal concern and could deteriorate, leading to a drawback.

Michael O’Hanlon, a senior fellow at the Brookings Institute, says that while the security situation in southern Iraq has improved, it is too soon to declare an end to politically motivated attacks. He says Schlumberger’s assessment is “a shade or two more benign than I would personally venture.”

The first step for Schlumberger in Iraq has been to build the high-walled compound to provide a secure place for its employees to live. In weighing the decision to re-enter Iraq, Mr. Gould said he contemplated the 1994 assassination of two Schlumberger employees at a remote drilling camp in Algeria by antigovernment guerillas. The company also had four engineers kidnapped in Nigeria in 2008.

“We ask our personnel to work in remote and dangerous places, but we don’t ask them to expose themselves to those sorts of dangers,” Mr. Gould said. “There is a sort of moral pact, if you like. We will ensure that we are satisfied and they are satisfied with the security arrangements.”

The concerns are being weighed against the enormous profit potential for Schlumberger as well as oilfield service suppliers Halliburton, Weatherford Ltd., Baker Hughes and others.

About $500 million in drilling contracts were awarded by BP just last month to Schlumberger, Weatherford and PetroChina Co. subsidiary Daqing Oil Field Company.

David Ginther, a fund manager who oversees the Ivy Energy Fund and the Waddell & Reed Energy Fund, says he sees a lot of risk and expense involved in building up local operations as companies boost production in southern Iraq, but says it’s likely worth it.

“It’s a great opportunity going forward, but you have to spend money to make money,” he said.

Another major challenge, says Mr. Gould, is finding enough workers. Schlumberger began hiring Iraqi college graduates in the final months of 2009, in an effort to build an Iraqi workforce.

Schlumberger has a longstanding reputation for hiring locally in the 80 countries around the globe where it operates. Mr. Gould said that would be very important to convince Iraqis that developing the oilfields would benefit them.

But Schlumberger has encountered a glitch: It is having trouble securing visas for its new hires to travel outside the country for training and orientation. Iraqi consultants say many Middle Eastern nations are reluctant to issue Iraqis visas, fearing that they will overstay their time.

R. P. Eddy, chief executive of Ergo, an emerging market consultant with an office in Baghdad, predicts Iraq’s oilfield workforce will hit 46,000 in 2015 from 6,000 today. Many will be expatriates, he says, since there aren’t enough Iraqis to fill the jobs.

Schlumberger initially sought to get a leg up on rivals by tapping into its rich past in the region. The company worked in Iraq from the discovery of oil there through the imposition of United Nation’s sanctions in 1990.

But beginning in 2006 and through 2007, it brought back some company retirees who had worked in Iraq to reestablish relationships with Iraqi oil officials.

Iraqi officials have said they expected to raise oil production from 2.5 million barrels a day to 12 million by 2017. That will mean an enormous amount of work for Schlumberger, but people in the oil industry, including Mr. Gould, have doubts.

The need for political stability as well as the rapid construction of roads, ports and other infrastructure makes “it very difficult to imagine this can go very fast,” said Mr. Gould.

Corrections & Amplifications

There are 36,000 oil field workers in Iraq, according to R. P. Eddy, chief executive of emerging markets consultant Ergo, and he expects that number to rise to 76,000 by 2015. This article incorrectly reported that Mr. Eddy said there were currently 6,000 oil field workers in the country and that he estimated there would be 46,000 by 2015.

Write to Russell Gold at russell.gold@wsj.com

Story here.

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