A transformative decade
The first locally established oilfield services company in the Kurdistan Region of Iraq, Kelkan Contracting Limited began supporting the early operations of Prime Natural Resources, Petoil, DNO and Genel Enerji (today Genel Energy International), at the early explorations areas in Kurdistan in 2004. In 2005 Hiwa Talabani, executive director of Kelkan Contracting, facilitated the transport of the first drilling rig into the Kurdistan Region for Norwegian operator DNO. Here he gives a perspective on the first decade in the development of the local oilfield services sector.
While the Kurdistan Region is still a complex environment for exploration and production, it stands out in the oil and gas industry today as a stable location with balanced production-sharing contracts, reliable fiscal terms, a competent services sector and highly attractive geological prospects. In less than a decade the region’s exploration and production sector has developed from a market that hosted one drilling rig and a handful of small wildcatters, to one with more than 40 rigs and many of the major international oil companies.
In 2004 the Taq Taq oilfield was producing around 1,000 barrels of oil per day (bopd) and the oilfield services sector was almost non-existent. Today capacity at the field is expected to reach 150,000 bopd in 2014. The Ministry of Natural Resources of the KRG is eyeing production targets of more than 1,000,000 bopd in two – four years. Of course building an industry from scratch in such a short time frame to the current level of activity means that operational challenges have and will continue to be encountered.
HUMBLE BEGINNINGS: A decade ago there was almost a complete lack of any regulatory framework for the oil and gas industry in the region. There was no Ministry of Natural Resources, just a Directorate of Fuel Distribution. Any company that wanted to establish operations had to deal with agreements and licences with two distinct governments in Kurdistan, one in Erbil and one in Sulaimanieh, the central government in Baghdad and the government in Turkey, where almost all equipment was imported from via lorry. This was truly a frontier province in every sense of the term.
At this time, when Kelkan was contracted with Prime Natural Resources, Petoil, DNO & Genel Enerji at the various locations, we were the only local company in the market offering construction, logistics, and supporting services to what was an almost non-existent oilfield services sector. Logistics was a nightmare, as customs had no coding for oilfield equipment.
SETTLED MARKET: While it might be hard to imagine today, with the level of oilfield activity and the Kurdistan Region, known globally as one of the prime greenfield exploration basins, 10 years ago government officials were sceptical as to why a drilling rig was needed in the region. Prior to 2004, oilfields in the Kurdistan Region had been neglected during successive Iraqi regimes, and the regional government did not have a clear picture of what sector development would entail. While there are still some challenges with oilfield logistics, operations are increasingly smooth and the Ministry of Natural Resources has reduced red tape, and supported oil and gas sector development with a clear investment framework. To facilitate early operations, sometimes we had convoys of up to 200 trucks with equipment at the Turkish border gate attempting to cross into the region. Turkey was instrumental in facilitating the initial progression of the oil and gas industry in Kurdistan. Without the transit of equipment through the former, the latter would not be functional today.
In the mid-2000s, as oil companies were building their local operations, if equipment or an integral part of a drilling rig, mud pump, pipe or associated piece of material needed to be serviced, it was generally trucked to Turkey because there were no machine shops in Kurdistan. Failing this, planes would be chartered at a cost of $500,000 or more per day to transport bulk equipment, large cement silos, for example, that would in normal circumstances be transported by lorry. On occasion, parts were flown to Dubai for servicing so as to avoid the shut down of drilling operations at an operational cost of $150,000 or more per day.
As can be expected, the opening of machine shops in the Kurdistan Region in the last few years has drastically improved the operating environment. Fortunately, while there can still be bottlenecks at the borders and there are some challenges with equipment import, the process is becoming more streamlined.
NEW FRONTIER: Local companies have a lot to offer the regional exploration and production landscape. While Kurdistan hosts an array of major international services firms, an increasing number of services can be procured domestically. These include construction and civil works, mechanical and electrical works, logistics and transportation, vehicle hire, fuel supply and a whole host of other services and employment opportunities that will continue to be workforce-building opportunities for local communities in Kurdistan.
Many of the exploration blocks are remote and in the mountains. With operations far from the main population centres of Kurdistan, being able to integrate within the local community is key and local companies with a local dominant workforce will be important in building successful exploration and production worksites. In tandem with this, technological advancements in both exploration and drilling worldwide mean that international oilfield services companies operating in the Kurdistan Region are supporting the development of a challenging geology.
The above statement was published in the Kurdistan Oil & Gas Year 2014.