SLB Schlumberger Ltd

According to reports, oilfield service provider Baker Hughes Inc. (BHI) has clinched a contract worth $640 million to drill 60 wells in Iraq’s southern Zubair oil field.

Per market sources, the Iraqi cabinet and a consortium led by Italy’s Eni SpA (E) had accepted the Oil Ministry’s request to award the three-year contract to the U.S. company.

Other firms that were competing with Baker Hughes for the deal were Schlumberger Limited (SLB), Weatherford International Ltd. (WFT) and Halliburton Co. (HAL).

The Zubair field is among the largest oil fields in Iraq with a proven reserve of 4.5 billion barrels. It was producing around 195,000 barrels a day prior to being awarded to the Eni-led group. Since then, production has reached nearly 300,000 barrels a day. As the full field-development is expected to conclude by 2016, production is estimated to peak at 1.125 million barrels a day.

With plans to quadruple its oil output, Iraq has signed a string of development contracts with global oil giants. Iraq aims to take the field’s output to nearly 12 million barrels a day. This massive output would be equally beneficial for oil service companies.

The Eni-led consortium had won a 20-year Zubair service contract at an Iraqi licensing auction held in 2009. The Eni consortium comprises Occidental Petroleum Corporation (OXY), Korea Gas Corp., or Kogas and Iraq’s state run Missan Oil Company. Eni has a 32.81% interest while Occidental, Kogas and Missan have a 23.44%, 18.75% and 25% interest, respectively.

We expect Baker Hughes to boost its international spending as worldwide demand shows an improvement, particularly in China, India, developing Asia and the Middle East. Since the Middle East holds immense potential for oil field development, the company’s expansion in this market bodes well for its future.

Baker Hughes holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.

 
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