USACE unveils tender for Iraqi oil restoration work

July 28, 2003
Soliciting proposals for work to restore the Iraqi oil and natural gas industry, the US Army Corps of Engineers (USACE) estimates that funding requirements might reach $1.68 billion.

Soliciting proposals for work to restore the Iraqi oil and natural gas industry, the US Army Corps of Engineers (USACE) estimates that funding requirements might reach $1.68 billion.

And it says looting through the end of May had cost the Iraqi industry twice as much as damage from the war to expel former President Saddam Hussein.

The restoration total represents what USACE calls "a budget-quality estimate (conceptual level) for the work necessary to restore the Iraqi oil industry to a prewar level" of operation.

Central to that effort, USACE says, are:

• Restoring LPG production capacity to levels able to meet domestic needs of about 5,000 tonnes/day by yearend.

• Returning oil production capacity to the prewar level of 3 million b/d.

• Restoring refining capacity to levels needed to meet domestic demand for oil products and LPG.

• Restoring gas production enough to fill fuel and feedstock needs.

• Reestablishing export capacity.

The cost estimate includes work done since Mar. 10. Under a bridge contract to be replaced by two contracts let under the new solicitation, Dallas-based Halliburton Co. unit KBR has performed work totaling about $235 million (OGJ, July 7, 2003, p. 30).

The new, geographically distinct contracts, proposals for which are due Aug. 14, will support work by Iraq's North Oil Co. (NOC) and South Oil Co. (SOC).

Information on the solicitation appears at this web site: https://ebs.swf. usace.army.mil.

The cost estimate, based on projections of crude oil production of 1.1 million b/d by mid-June and 3 million b/d by yearend, already is dated. Because of damage to transportation facilities and looting, oil production at the end of June was only 700,000 b/d, of which 250,000 b/d had to be reinjected.

The estimate nevertheless indicates the scope of work needed to get the Iraqi oil and gas industry back to its prewar condition and shows where work will be concentrated.

What's covered

Work covered by the assessment excludes upgrades and expansions other than those occurring incidentally with restoration. It also excludes labor costs of Oil Ministry employees, building and fixture repairs, restoration of Oil Ministry data, nonoil ministry activities, service stations, and LPG bottles.

The Oil Ministry will provide most of the labor for repairs and operations. USACE stresses that contractors will provide technical and logistics support but won't operate facilities.

USACE's overall cost estimate, "based on the best current information available from limited damage estimates," is $1.4 billion, plus or minus 40%. Addition of a 20% "contingency" pushes the total to $1.68 billion.

That figure includes:

• $980 million for systems restoration.

• $21 million for system maintenance and operating equipment.

• $65 million for vehicles and heavy equipment.

• $70 million for security, safety, and environment.

• $43 million for communications.

• $499 million for "other" uses, mainly costs of benzene for gasoline production and LPG.

Within those categories, the highest subcategory estimates other than benzene and LPG, with no contingency adjustments, are $128 million for pump stations, $116 million for gas plants, $114 million for gas-oil separation plants (GOSPs), $110 million for water plants, $73 million for natural gas and oil product pipelines, and $64 million for LPG pipelines.

Excluding contingencies, the largest individual cost items in the estimate are $225 million for benzene and LPG supply, $62 million for temporary and permanent repair of water treatment plants, $50 million for temporary and permanent repair of pump stations, $28 million for security fencing, and $11 million for buses.

USACE estimates the costs of war damage at $457 million and of looting during Mar. 20-May 31 at $943 million.

The war damage total, with no contingency, includes $225 million for benzene and LPG costs, $50 million for water treatment, $45 million for product pipeline damage, $39 million for wells, $35 million for GOSPs, $13 million for crude oil pipeline damage, and $50 million miscellaneous.

The cost assessment covers work that began in March and is assumed to last through about the middle of next year.

First phase

An initial phase of the work will involve repairs needed to restore oil production to prewar levels of less than 2.5 million b/d. A second phase will push oil production capacity to 3 million b/d.

USACE describes work under the first phase as "initial repairs," to regain control over facilities, and "temporary replacement," to enable facilities quickly to meet production and other operating targets.

Temporary replacements have begun in some places and will be complete by second quarter 2004. USACE said the work will involve purchase and lease of new, used, or rehabilitated equipment.

Examples of this type of procurement are treatment equipment to restore water supply for oil processing and injection, export pump packages for temporary replacement of pump stations, temporary bridge bypass pipelines at a damaged crossing of the Al Fathah River, and temporary LPG import facilities.

Second phase

The second phase of restoration will cover what USACE calls "sustainment repairs," requiring more-detailed engineering and longer times for procurement, manufacture and assembly, shipping, construction, and installation. Sustainment repairs will fill critical facility needs.

Examples are drilling and workover rigs to replace stolen equipment, pump and compressor station facilities, pipeline rehabilitation replacements, processing plant and terminal restoration, refining, buildings, and related utility needs.

In the "systems restoration" category of the USACE cost estimate, $605.5 million is for upstream work and $211.8 million downstream.

The upstream costs include $236.6 million for NOC, $326.9 million for SOC, and $42 million for Iraq Drilling Co.

The NOC total includes $5 million for wells, $46 million for GOSPs, $49 million for gas plants, $7 million for stabilization, $20 million for water plants, $91 million for pump stations, and $18.6 million for pipelines.

The SOC breakout: wells $34 million, GOSPs $68 million, gas plants $67 million, water plants $90 million, pump stations $37 million, offshore terminal $11 million, and pipelines $19.92 million.

Estimated downstream system-restoration costs include $25.5 million for North Refining Co., which operates the 150,000 b/cd refinery at Baiji north of Baghdad.

Also in the downstream category are $7 million for South Refining Co., which operates the 140,000 b/cd Basra facility, and $6 million for Central Refining Co., which operates the 100,000 b/cd plant at Daura outside of Baghdad.