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The OpportunityOf Our Lifetime

IRAQ

A Special Report From Oil and Gas Investorand Global Business Reports

even years after the regime change and after 20years of political and economic isolation, Iraqis returning to the world economy. Sanctions

in place since 1990 have left its economy tatteredand almost exclusively dependent on an oil industryperforming well below its potential. Democracybrings Iraq’s first real chance to fully capitalize on itsabundant hydrocarbon resources. The developmentof a modern oil and gas industry benefiting Iraq andits foreign investors is the ticket to prosperity.

The international oilsWhen discussing Iraq’s potential, it is easy to

lapse into superlatives. The sheer volume of reservesand size of investment needed to develop them areon a scale no other country can match.

Iraq currently ranks third globally in proven oilreserves, with a total of more than 143.1 billion bar-rels. The cost of extracting these reserves is approxi-mately US$1 per barrel, the lowest in the world.However, the bulk of Iraq’s data comes from exploration performedmore than three decades ago. With more than 70% of the countryunexplored and 3-D seismic technology only recently introduced,estimates of total oil reserves still approach 350 billion barrels—afigure that would make Iraq the world’s wealthiest hydrocarboncountry.

Licensing roundsIraq’s first step towards exploiting its resources has been the im-

plementation of three petroleum licensing rounds, in a process thatAhmed Redza Abdul Wahab, group general manager, legal and cor-porate affairs, Petronas, describes as “courageous given the chal-lenges that were faced post-2003.” The first two of these auctionsoffered 45 international oil companies (IOCs) the opportunity tobid on 18 oilfields; 11 contracts were awarded to consortia involv-ing 16 companies. The third round offered three natural gas fields,which were awarded to three consortia involving four companies.

Under terms of these contracts, the IOCs will develop the fieldson the basis of a total service contract (TSC). Bids were submittedon two criteria: plateau production target and remuneration fee.

The remuneration fee is payable on each barrel ofcrude oil or barrel of oil equivalent of liquefiedpetroleum gas (LPG) recovered from a gas-process-ing plant after the awarded oil field reaches a baserate of production, which differs according to thefield and its current production capacity.

The combined plateau production targets fromthe first and second petroleum licensing roundstotal 11.59 million barrels per day, which, whenadded to the fields that the Ministry of Oil is devel-oping directly (most notably Kirkuk), brings thetotal planned production capacity to more than12.5 million barrels daily, from its current level of2.4 million. The 16 companies with interests inthese contracts include a strong representation ofAsian companies, with China’s CNPC andMalaysia’s Petronas achieving large interests in nu-merous fields and smaller players such as Japan’sJapan Petroleum Exploration Co. (Japex) makinglimited but strategic bids to come away successful.

European giants such as BP and Shell emerged as operating part-ners in the super-giant fields of Rumaila and Majnoon, respectively,and Statoil, Turkish Petroleum and Total staked claims with minor-ity shares in selected fields. The leading Russian players, GazpromNeft and Lukoil, are operating partners for Badra and West QurnaPhase Two fields, respectively.

American firms also took stakes, with California’s OccidentalPetroleum gaining a significant minority share in Zubair Field andExxonMobil announced as the operating partner of super-giantWest Qurna Phase One. Even Africa has a representative in themix, with Angola’s Sonangol independently awarded two fields,Najmah and Qaiyarah, in Iraq’s northern Nineveh governorate.

OUTLOOK

After three decades of turmoil and war, during which oil exploration ceased, it is widely believed thatIraq’s as-yet undiscovered reserves could soon make it the world’s wealthiest hydrocarbon country. Iraq isthe opportunity of our lifetime.

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This reportwas prepared by BarnabyFletcher and Lise Liezenga of Global Business Reports.For more information contact [email protected].

January 2011 ▪ OilandGasInvestor.com I-105

ExxonMobil is operatingpartner of super-giant WestGurna Phase One. Above, JamesAdams, vice president ofExxonMobil Iraq Ltd.


Production targetsAlthough the IOCs are confident of

reaching their plateau production targets inthe time frames stipulated, predictions as tothe fields’ total capacities or developmentschedules cannot, at this stage, be 100%certain. Says ExxonMobil’s James Adams,“Based on the information provided to us bythe ministry and SOC (South Gas Co.), weare comfortable with our preliminary esti-mates, but as is standard practice, we haveadditional work to do to reach greater cer-tainty regarding the future performance ofthe field, including seismic and injectivity

testing, and that is precisely what the con-tract anticipates and requires that we do.”

Indeed, three-quarters of the 30-billion-barrel increase in proven reserves an-nounced by the Oil Ministry on Oct. 4,2010, comes from West Qurna Phase Oneand Phase Two, showing the fluctuating na-ture of current information on these fields.

Gazprom Neft’s estimates of the reservesin Badra Field have risen just in the shorttime since its contract was awarded. Ac-cording to Alexander Kolomatsky,Gazprom’s country director for Iraq, “Duringthe bidding round the reserves of oil in

Badra Field were put forward at 1.2 billionbarrels. After our initial calculations, we in-creased this value to 2.4 billion barrels andnow, as we are preparing for the start ofdrilling and development, additional datafrom our Iraqi partners has put this value to2.5 billion barrels. …

“By the end (of our appraisal program)we should have the correct figure for thetotal oil potential. We are confident thatthis potential will reach 2.9 billion barrelsof oil.”

The success of these petroleum licensingrounds, despite contractual terms that wereless favorable to the IOCs than many ofthem were used to receiving from othercountries, represents recognition of the Iraqmarket’s importance. As Arnaud Breuillac,Total’s senior vice president, Middle East,says, “What is happening in Iraq is quitefundamental for the future of the industry.It is going to be one of the main sources ofgrowth for the world’s oil production in thenext 10 to 15 years, and therefore the suc-cess of Iraq is essential.” ▪

Gas Master PlanThis increased oil production brings

with it a pressing concern. Currently,US$50 worth of gas is being flared offevery second in Iraq, a waste that is onlygoing to worsen as production rises. Todeal with this problem, Shell developedthe concept of the South Iraq Gas JointVenture. This idea was born out of the“Gas Master Plan” Shell undertook for theMinistry of Oil in 2004 and which wasproposed to the ministry in 2007.

“Our Iraqi partners had already clearideas in mind,” says Mounir Bouaziz, vicepresident, Middle East and North Africa,upstream international, Shell E&P Inter-national Ltd. “They wanted to develop amodern gas industry in the south, they

wanted it to be a joint venture, and theywanted the existing South Gas Co. to be-come a holding structure—a regulatorrather than an operator.”

This is essentially what Shell is helpingthe Oil Ministry to achieve today. TheBasra Gas Co., a Shell-led joint venturethat has taken control of the state-ownedSouth Gas Co.’s 4,000-person staff, willcapture the associated gas from Rumaila,Zubair, West Qurna Phase One and Ma-jnoon oil fields.

Efforts have been made to provide someimmediate benefits to Iraq, with quick-im-plementation projects already reducingflaring by 20%, a power plant of 18megawatts fixed and a 50-megawatt powerplant being developed.

ÒWhat ishappening in Iraq is quitefundamental for thefuture of the industry.”

hile what is below ground provides theincentive for IOCs in Iraq, it is the

lack of anything aboveground that con-stitutes the most compelling aspect of the coun-try for service providers. Thirty years of wars,sanctions and a centralized government have re-sulted in an inadequate infrastructure and under-developed private sector. The services foreignfirms can provide will prove both necessary andhighly profitable.

IntegrationFor many companies, the key to success in Iraq

is the ability to offer integrated services. Thereare two reasons: first, the IOCs’ desire to devolverisk, and second, the dearth of supporting net-works.

Brage Johannessen, vice president of BakerHughes Global Integrated Operations, says,“Prior to the first bid round, we very much sawIraq as an integrated operations market. How-ever, we also believed that a significant minorityof our operations would be call-out services. Since the terms andconditions for the IOCs were revealed at the first bidding round, wehave seen a shift towards more integrated solutions as IOCs seek tospread the investment risk.”

As for market opportunity, KBR’s Alex Haynes, business devel-opment manager, oil and gas, says, “When you look at the Iraq mar-ket, you see that the IOCs and state companies have plans andresources, but there is no Iraqi private sector to support them. In-deed, there has not been a private sector in Iraq for 20 years; I sawfigures recently that state that only 3% of GDP is currently in theprivate sector. … The amount of work that is going to be releasedwill stretch the contracting community to its limit.”

No matter how established and confident acompany is, however, Iraq is a unique marketwith unique difficulties. “This process, fromthe first surveys to the supply of the final sta-tions, has been a learning curve for us,” saysLaith M. Hayawi, regional general manager,North East Gulf, GE Oil & Gas. “Establishingthe right finance, credit and procedures tocater for such a large project had not been es-tablished in Iraq and we had to figure out howto work within this environment.”

Climbing the learning curve early hasserved GE well. Having decided to reopen of-fices in Baghdad and Basra, its oil and gas di-vision alone has done more than US$500million in work in the past five years.

On the groundEstablishing a physical presence in the mar-

ket is not only important from the technicalaspect. Mohamed El Gamal, Iraq countrymanager for Schlumberger, keenly appreciates

the importance of sending the right message: “Schlumberger has al-ways shown a commitment to Iraq and the footprint we have heredoes give us a competitive advantage in the market. At the end ofthe day, it comes down to the client’s perceptions of your intentionsin the country. Our clients, whether they are international oil com-panies or the Ministry of Oil, can see that we have made a long-term investment in the country, and that inspires trust.”

Mott MacDonald returned to the country in 2003 and estab-lished a competitive edge early by conducting a study on the infras-tructure baseline in southern Iraq. It quickly re-established an officein Basra and is undertaking significant projects for BP and Exxon-Mobil. “Without this Iraqi presence,” says Bob Phillips, divisional

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SERVICE AND SUPPLY

Service Solutions EmergeThe lack of infrastructure represents unparalleled prospects for foreign firms and their local counterparts.

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Remote Projects Services Group’s NicoleRischert, chairman, says, “The ability tooffer a total solution is the mostimportant requirement in Iraq.”


director, Iraq, for Mott MacDonald, “anycompany, including Mott MacDonald,would really struggle.”

Many of the smaller companies support-ing these giants have, in a very real sense,made their fortunes in Iraq by establishingthis local presence. Capitalizing on an inti-mate knowledge of the local market and awillingness to take an early risk, playerssuch as Remote Projects Services Group(RPSG), Petronor and American Iraqi So-lutions Group (AISG) have built them-selves up to become some of the mostreliable and capable operators in Iraq.

Just like the international service compa-nies, these smaller supporting players havelargely adopted an approach of offeringcomprehensive integrated services. RPSG’score business, for example, is camp supportservices. What lies behind these support ser-vices, however, is the ability to successfullycarry out a full turnkey solution, from designand construction to decommissioning.

As Nicole Rischert, RPSG chairman,says, “The ability to offer a total solution isthe most important requirement in Iraq. Allthe contracts currently coming in are forturnkey projects. These start with de-min-ing and raising the land and go rightthrough to camp construction and the pro-vision of services whilst the camp is opera-tional. What RPSG offers the client is a fullsolution.”

AISG is known to many companies for

its security services. However, security ac-counts for only a minority of the US$300million in business that AISG has com-pleted in the past six years. “We were thesecond licensed security company in thecountry and security remains core to ourbusiness,” explains Christopher (Kiffer) An-dress, chief executive officer. “It is not,however, our primary business driver. Weare a construction security company, withthe ability to design, build and operatecamps and other structures.”

Petronor, formed in 2001, is intimately

familiar with the intricacies of the Iraq oilindustry (the company’s managing director,Hans Hoiskar, was the only foreign repre-sentative present at the reopening of theMinistry of Oil in 2003 and continues tomaintain close ties with the government).Unlike some of the other players, it has fo-cused not so much on expanding its ser-vices, which include consultancy andenvironmental studies, but rather on direct-ing its capabilities towards specific projects.

The Mobile Collaboration Center(MCC), for example, an element of its SafeFields™ service, aims to circumnavigate thedifficulties some companies face in visitingsites where they want to invest or operate.Based on open video conferencing technol-ogy and providing an encrypted video feedfrom the location in Iraq to anywhere in theworld, this self-contained, high-technologypiece of equipment with a range of uniquefeatures enables the client to minimize itsphysical presence on the ground.

The major advantage these local playershave is their unrivaled on-the-ground expe-rience. “One of the major advantages ofRPSG is simply the seven years of experi-ence we have in the country,” says Rischert.“We know our way around Iraq, we knowthe procedures with regards checkpoints andimmigration and we have a logistics andtransportation system in place. All of thisallows us to carry out projects effectivelyand at competitive prices.” ▪

“Security remains core to our business,” saysChristopher (Kiffer) Andress, CEO, AmericanIraqi Solutions Group.


ne of the major obstacles to Iraq’s planned 12.5-million-bar-rel-per-day capacity is the lack of adequate infrastructure.This shortage affects every aspect of development of the

country’s oil industry—from companies attempting to bring equip-ment in, to Iraq trying to get its oil exports out.

Iraq has five ports in the Shatt Al-Arab waterway, althoughnone of them are functioning at full capacity. Even inside the coun-try, the lack of reliable infrastructure, especially extending towardsthe remote locations of some of the oilfields, presents difficulties.

The current state of infrastructure is summarized by Dheyaa Jaa-far Hyjam, director general of South Oil Co.: “A lot of effort will berequired to raise our current infrastructure capacity to the level re-quired. Although the capacity of these facilities is enough for thecurrent production, it will not be sufficient when oil production in-creases.

“We have to both build new facilities and upgrade existing ones.In terms of our exporting capabilities, we have two facilities: BasraTerminal, which is in fairly good condition, and Khor al-AmayaTerminal, which was severely damaged during the Iran-Iraq War.Even the pipeline leading to this terminal is very old and cannot beoperated to design capacity due to safety concerns.”

Ala Nuseibeh, KAN International Group of Companies, says,“Iraq has a strategic plan to drill over 6,000 wells in the next five

years. The oil and gas infrastructure cannot handle this. The thou-sands of miles of pipelines required to cope with this amount of pro-duction need either complete repairs or to be built from scratch,and Iraq does not have the money to carry out this type of work.”

Solutions are at hand, however, thanks to a mix of governmentand private initiatives. There are definite plans for the developmentand rehabilitation of Al Faw Port, which, as Dr. Sami Al Araji,chair of the National Investment Commission (NIC) says, “willtake pressure off Basra port and open up imports to the country.”

The local Basra government is heavily involved in this projectand is very enthusiastic about its promise. “There are some im-mense projects planned, such as Al Faw Port, which is going tochange the entire map of the region and link the whole worldthrough Basra; it will psychologically shorten the distance betweenthe East and the West,” says Dr. Shiltagh Aboud Al-Mayah, gover-nor of Basra.

Economic zonesSeveral “economic zones” also are in the planning stages, one lo-

cated near Al-Faw Port, which, in the words of Dr. Sami Al Araji,“will offer infrastructure availability for different kinds of industriesand be covered by the privileges of Law 13 regarding the protectionof investors and investment projects.” A similar concept to these

INFRASTRUCTURE

Infrastructure InitiativesSignificant efforts are under way to remove obstacles to development of the country’s vast resources.

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economic zones, although a private initiative, isPetronor’s Iraq Energy City. Located on ZubairField, with 300,000 square meters of land, thiscamp will provide accommodations, officespace, workshops and security to a host of com-panies, aiming to lower the high barrier toentry caused by the lack of infrastructure andsecurity costs.

Although still a secure location, Iraq EnergyCity is trying to respect and work within thelocal community. “It is vital to make sure thatthe Iraqi oil industry is an integrated oil indus-try between Iraqis and foreigners,” says HansHoiskar. “We want to build permanent struc-tures, live together with our Iraqi colleagues assoon as the security situation allows it, and lower the perceived ag-gressiveness of foreigners. It is very difficult, when you live in tem-porary accommodation camps surrounded by armed guards, todisabuse Iraqis of the idea that you are just there to steal their oil.”

SolutionsA range of companies that provide transportation and logistics

services have the expertise to efficiently navigate the current in-frastructure. Smaller players, of the type discussed earlier in this re-port, initially developed their logistical and transportationcapabilities to meet their own companies’ requirements, and noware some of the most reliable providers of these services to othercompanies.

RPSG, for example, in addition to its standard capabilities, al-ready has the means to transport drilling rigs. ABCO offers door-to-door service from anywhere in the world, consolidating items at itsfacilities in Dubai before shipping them on to Iraq. AISG is a par-ticularly impressive example of companies that have developedtheir transportation capabilities as a secondary service. It has com-pleted more than 22,000 logistical moves in the past six years, bothfrom abroad and from within the country.

SKA Air & Logistics has cemented its role as the market leader.Having been involved in almost every major project carried out inthe country, from the elections to the reconstruction efforts, andhaving flown 35,000 flight missions without a single incident in thepast two and a half years, its logistical experience in Iraq is withoutequal.

WaterOne of the major issues that currently faces the oil and gas com-

munity is the availability of water. The amount of water comingfrom the Tigris and Euphrates rivers has fallen to almost a third of

its previous 30 billion cubic meters, due to Syrian and Turkishwater projects and two winters of sparse rainfall. Even without thisshortage, the quantities of water required by the oil and gas industrycould not be supplied by Iraq’s existing facilities.

Charles Ellinas, managing director for oil, gas and petrochemi-cals for Mott MacDonald, which is conducting a feasibility studyfor ExxonMobil on a common seawater line from the Gulf to anas-yet undetermined location in Basra, explains the problem’sscale: “This is a top-priority project in Iraq as all the oil fields re-quire water injection to maintain production. The estimate is thatover the next six to 10 years, over 10 million barrels of water aday will be needed to be injected into the fields to maintain pro-duction.

“Without this there is no point in continuing further develop-ment, because you will simply not be able to increase production.Our involvement in the Iraq water sector dates back to the 1940s,so as a group Mott MacDonald has a tremendous amount of infor-mation and experience in this area.”

The proposed seawater line is part of a multibillion-dollar (US)water-injection project involving a collaboration of many of theIOCs operating in the fields south of Baghdad. Project-leaderExxonMobil is carrying out engineering, analysis and pre-scoping ofthe project, which will be designed to handle the 10- to 15 millionbarrels per day of water these fields will require.

James Adams, of ExxonMobil, explains the collaborative con-cept behind the project: “The oil ministry and IOCs recognize thecritical need to provide a large-scale saline water-supply facility tothe southern Iraq oil fields to maintain reservoir pressure and buildproduction levels. The idea to manage this as a common facility,rather than each IOC developing its own facilities, was suggestedby the Ministry of Oil. This will result in, by far, the best solutionfor the country.” ▪

Petronor’s Iraq Energy City will provide accommodations, office space, workshops and securityto a host of companies. (Photo courtesy Petronor)


n addition to the physical challenges confronting investors in theIraq oil industry, they must work within an abstract legal frame-work. The rules and regulations in Iraq constitute a complex and

continually developing maze that must be carefully navigated. Still,foreign companies are not entering an anarchic state.

According to David Laurence, a partner at law firm HerbertSmith, “Iraq’s legal system is a civil code system, based on the Egyp-tian civil code system, which is in turn based on the French civilcode system. There are issues in the way the laws currently existthat could and should be addressed, but there is also a sophisticatedfoundation which you would find in any civil code jurisdiction.”

Several points about the current legal framework are worth not-ing. First, the much discussed Petroleum Law, which has beenawaiting parliamentary ratification for the past three and a halfyears, should not overly concern investors. In its current form, itsimplementation will have primary significance for the state ratherthan the private sector. Although it does recommend authorizationof production-sharing agreements, as opposed to the current totalservice contracts, this should not be viewed as anything other thaninvestor friendly.

Second, foreign companies should be aware that, in certain areas,international law or the laws of another country in which they op-erate may apply. An example of this is bribery legislation. AlthoughIraq has its own bribery legislation as set forward in the Iraqi PenalCode No. 111 of 1969, the general business culture of Iraq oftenstrays dangerously close to what could be prosecuted under theseforeign laws.

Finally, although the laws covering foreign investment are fairlycomprehensive, many of these laws are still new, and liable to be af-fected by the political and bureaucratic framework that surroundsthem. There are articles in Investment Law No. 13 to safeguard in-vestors against retroactive amendments to the law and confiscationor nationalization, except by final court ruling. But companies muststill be prepared to accept a certain amount of risk.

Sean Korney, a partner in the Dubai office of Baker Botts, isquick to point out the legal risks associated with investment in Iraq,but is just as quick to explain how these can be mitigated. “This iswhere a ‘change in law’ clause in an agreement can provide the in-vestor with some comfort,” he says. “This type of clause recognizesthat the government has a right to make whatever laws it wants,but if those laws affect the basis of the agreement, the parties havethe right to negotiate the necessary changes to the agreement inorder to restore the balance of value for both parties so that it is asclose to the original position as possible.’

To ease the way for companies entering the Iraqi business envi-ronment, the National Investment Commission (NIC) is establish-ing a “one-stop shop”. “The one-stop shop,” explains Dr. Sami AlAraji, NIC chairman, “is empowered to follow up with differentministries over different provinces to try to find solutions and an-swers for the investor in the shortest time possible. We are actuallylooking to have offices or representatives from the different min-istries in the one-stop shop of the NIC who are empowered to makethe decisions required so that we can achieve decisions which usedto take months in a few hours.” ▪

LEGAL OUTLOOK

The Legal FrameworkRegulations and laws are complex, but experts agree a comprehensive code is in place.

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ince 2007, Iraq has seen a steady and almost continuous de-crease in violence and threat levels. Records for 2009 show4,673 civilian deaths by the end of the year, compared to

22,586 to 24,159 civilian deaths in 2007. Incidents of bombingshave fallen significantly in the same period and, since a 2004 peakof 229, kidnapping of foreigners has been on the decline.

One cannot afford to take this continued improvement forgranted. As Roger Brown, director of Erinys, explains: “There hasbeen a marked improvement in security conditions since 2007, andpeople can now move around and conduct their business with rela-tive safety. However, it must be recognized that the security situa-tion is subject to constant change and can vary depending ongeographic location and local politics.” Several worries are loomingon the horizon that companies should be aware of.

The uncertainty resulting from the continually delayed forma-tion of a new government, which has only recently been resolved,has presented what is possibly the most serious concern to thecountry and its investors. Previous uncertainty over the outcomehas prevented foreign companies that have been awarded contractsfrom moving ahead as fast as they would like. This is slowing theeconomic growth that many Iraqis expect, causing restlessness andinstability. According to Martin Rudd, vice president of OliveGroup, “The biggest risk will come if Iraqi expectations are not metin terms of employment, infrastructure or economic recovery.”

The withdrawal of the U.S. military also presents a concern, es-

pecially in Baghdad and Basra. However, with the U.S. militarypresence being largely confined to their various military bases, theactual on-the-ground impact that this will make should be minimal.

Indeed, since the “surge” of 2007, the relevance of the U.S. mili-tary presence to the oil and gas community has been not so muchits role in actively improving the security environment, but its abil-ity to offer support to the private security companies on which for-eign companies directly rely. The best of these private securitycompanies have either always operated outside of the support of theU.S. military or have moved their operations in a more self-reliantdirection in anticipation of American withdrawal. Erinys, for exam-ple, a company with a unique experience of Iraq derived from thefact that it set up the Iraq Oil Protection Force in 2003, has movedaway from its reliance on U.S. support.

“Two years ago, 99% of our operations relied on the availabilityof American back-up. Today, we are self-sufficient and require verylittle outside support for our operations. We feel confident that wecan operate in an environment that does not have U.S. military init,” says Roger Brown.

Many security companies are now building upon their knowledgeof the country to offer additional services. Erinys has expanded itsservices to offer what is known as Erinys Bridgehead—a marketentry service for companies interested in Iraq.

G4S, well-known as the largest security company in the world,has entered into a partnership with Upper Quartile to provide asimilar market entry service. With Upper Quartile specializing inguiding companies through the difficult entry requirements of theIraq market, G4S can concentrate on advising them on their secu-rity requirements.

Alongside these international security companies, local securitycompanies are also trying to make their mark. Mesopotamian Lionsfor Security (MLS), part of the Agfa Jaffar Group, is a local com-pany putting huge amounts of effort into becoming a world-class se-curity provider. Unlike foreign companies, which have spent thebest part of seven years obtaining knowledge and understanding ofthe country, MLS has a distinct natural advantage. To make full useof this advantage, it is working with Western consultants and ex-perts to raise its capabilities and professionalism to a standard thatwill allow it to cater for the international oil and gas industry.When it reaches this, it will be a formidable new player on the mar-ket, having knowledge and relationships quite literally built over alifetime. ▪

RISK MANAGEMENT

Security SolutionsSecurity experts are unanimous, albeit cautious, in their optimism.

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The withdrawal of the U.S. military presents a concern in towns such asBasra; however, security continues to improve and experts are optimistic.


he need to promote the local indus-try should be obvious. Cut off frommodern technology and procedures

for decades and with businesses often frac-tured in an effort to escape the notice ofthe previous regime, Iraqi companies areoften unable to perform work to interna-tional standards.

It is, however, reassuring that local com-panies are the first to recognize both whatthe issue is and the need to correct it. AliJaffar, CEO of Field Energy, a dynamiccompany which, along with MesopotamianLion Security, is part of the Agha JaffarGroup, voices this same concern. “FewIraqi companies can claim that they haveexperience in the oil service industry. AtField Energy, we are trying to overcomethis by forming joint ventures with interna-tional companies. We can gain experienceand knowledge from them and they can useour knowledge to install management tech-niques that the state companies in Iraq canrelate to.’

According to Ali Shamara, chairman ofShamara Holding Group, which with 4,000to 5,000 engineers is one of the largest pri-vate engineering Iraqi companies, “There isa gap between the standards expected byinternational companies and the standardsthat local companies are able to submit.Shamara is nearer the standard it needs tobe than most local companies as we havespent time and effort developing our work-force.”

TrainingAlthough admitting its areas of weak-

ness, the local industry is working to over-come them. Shamara Holding Group sendsits employees to courses in Italy, Franceand the U.S. and incorporates a trainingclause into every contract it signs, ensuringit keeps up-to-date with any new equip-ment it imports or installs. Field Energy,which trains employees on its own coursesas well as those organized by its interna-tional partners, has an innovative system inplace whereby its expatriate employees areshadowed by their Iraqi staff.

Mobilization times are the best way tojudge the advantage the local companiescan bring to international partners. “Thefirst thing that any company needs to dowhen it moves into a new market is mobi-

LOCAL PLAYERS

In-Country ResourcesSignificant training initiatives are under way from both international and Iraqi companies to develop the local workforce.

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lize its people and its resources,” explains Nazar Hindi, CEO of Sun-line Petroleum Services. “In Iraq, this may take months for a foreigncompany. We can do it in a week. After that, it will save time andmoney if you are able to use local resources and set up a local supplychain.”

Local recruitsWhile partnering with local service companies does provide an

important incentive for the development and progression of thelocal industry, once a company begins to establish any kind of directphysical presence and involvement in Iraq it must start recruitinglocal employees for its own operations. The reasons for this aremany, not the least being that many of the contracts awarded by theIraqi government contain clauses requiring a certain percentage ofthe contractor’s employees to be recruited locally.

Far from viewing this as a burden, most IOCs appear to be enthu-siastically embracing this opportunity to develop the local work-force, and they stress the advantages. As James Adams ofExxonMobil says, “We have been very impressed by Iraqis at WestQurna-One taking initiative, rapidly deploying and using new prac-tices and then taking them one step further and building in new ad-vancements. … What ExxonMobil is doing is bringing guidance,technology and industry-leading practices. We will only be success-ful if we can have extremely high levels of Iraqi involvement.”

Foster Wheeler has been participating in various training pro-grams for the Ministry of Oil since it first reentered the country in2004. “Our work for the PCO has involved some 175 projects inIraq, upgrading and revamping facilities and the undertaking of acomplete program of training for the Iraqi workforce,” says JohnMcGregor Smith, manager of oil and gas.

“This training was actually the very first thing we did in the

country; the human resource potential in Iraq is huge and we wantto help develop it.”

For Mott MacDonald, 60% to 70% of its in-country employeesare locally recruited and trained, with that figure set to increase dra-matically in the near future. “Mott MacDonald will be aiming tohave at least 90% of our staff in Iraq as Iraqis. This localizationmodel is our standard in most countries in which we operate,” saysCharles Ellinas, of Mott MacDonald. Impressively and importantly,this local content already includes those employees in middle-man-agement positions.

The smaller players have made even more impressive progress.TigrisNet, (www.tigrisnet.net, not to be confused with www.tigris-net.com), the provider of what is probably the most reliable andwidespread internet service in the country, has a local contentreaching an incredible 99% of its workforce. Its decision to operatefrom the “Red Zone,” rather than shelter behind the concrete forti-fications of the U.S. military bases, facilitated its ability to commu-nicate with, recruit and train the local workforce.

American Iraqi Solutions Group (AISG) is a company for whichone of its foundation principles was “Iraqis First.” Christopher (Kif-fer) Andress elaborates: “Our business model has always been to de-velop local talent, from a personnel perspective as well as from avender and sub-contractor perspective. Indeed, the whole focus ofthe company has been to develop the local content and people upto Western standards.” Some 75% of AISG’s 1,000-plus employeesare Iraqi nationals. ▪

Communications UpgradeConventional means of telecommunications are improving,

however, difficulties remain. It is surprising how much progresscertain companies have made towards providing reliable nor-malized services. TigrisNet, against all odds, is making greatleaps forward in providing internet solutions not dissimilar tothose expected in any other country. An Iraqi company backedby Western expertise, it can boast city-wide wireless networkservices, an ability to cover every location in the country and aremarkably reliable track record.

This reliability is built upon TigrisNet’s insistence on excesscapacity between the customer and itself, and between it andthe outside world. “In Basra, for example,” says Mike Labriola,“we have a couple of satellite antennas as well as fiber connec-tivity to our hub; we then provide the wireless link between ourhub and the customer site. We connect to multiple satellite andfiber providers so that our customers don’t have to.”

As Iraq progresses, communications will become cheaper andmore reliable. TigrisNet is already shifting its focus from satel-lite-based provision of internet to fiber optic-based provision ofinternet. This progress will be fueled by a corporate and publicdemand that has seen internet usage increase 10-fold in the pastseven years. In the words of Labriola, “Iraq is the most promis-ing internet market on earth.”

TigrisNet employees assemble a communications dish. The companyprovides internet service with a local content approaching 99% of itsworkforce.

Gas flares in Rumaila oilfield should be lessenedby efforts currentlyunder way by a Shell-ledjoint venture to captureassociated gas fromRumaila, Zubair, WestQurna Phase One andMajnoon oil fields.


he combination of the intricate web of sectarian divides andthe still-volatile nature of Iraq means that a company’s abil-ity to form positive relationships with the local community

takes on an importance beyond that of merely fulfilling its corpo-rate obligations. Petronor’s Hans Hoiskar, a man who has worked inIraq for the past 16 years, sees this very clearly: “Every internationaloil company that was awarded a contract in the first and second bidrounds signed contracts for 20 years. So they are going to be herefor 20 years. They are already an important part of the politics andthe economy of Iraq, but they need to continue to play a part in thesociety as well.

“If you are seen as a foreign element that is, not integrated intosociety and not showing a respect for the culture, then there will al-ways be an excuse for violence and criminal activity towards you.”

For the IOCs, it is understandably too early to have laid downdefinite plans for corporate social responsibility initiatives, how-ever, most have taken pains to demonstrate their commitment tothe country. Petronas plans to continue the focus on education andhuman capital development that it has implemented to great effectin other parts of the world and, right from the beginning, hasdemonstrated a willingness to support the local industry. “Our basecamp in Garraf is currently being constructed by a local Iraqi com-

pany, which demonstrates our com-mitment towards making a differ-ence to the Iraqis in terms ofbusiness and job opportunities, im-provement of economy and liveli-hood,” says Abdul Wahab, ofPetronas.

Shell, having been in Iraqslightly longer because of its SouthIraq Gas Joint Venture, deservessome praise for its efforts to engagethe local community. “It was veryimportant to send the right messagefrom the start,” explains MounirBouaziz of Shell.

“We had the first joint manage-ment committee meeting in Basra,we have visited and refurbished vo-cational training centers and we organized town hall meetings tostart the dialogue with local communities. The result is that thereis a positive established relationship between Shell and the localcommunities.” ▪

BUILDING RELATIONSHIPS

Corporate Social ResponsibilityCompanies must invest in the social equation for long-term success.

T

Mounir Bouaziz, vice president,Middle East and North Africa,Shell Upstream International,stresses the importance ofbuilding relationships.


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