Gas is flared at the oilfields near Basra. Companies are racing to boost production and begin to recover the massive investment involved in revitalising Iraq's industry. Baghdad faces huge challenges building the capacity to deal with the size of the oil projects under way. Image Credit: Rex features

Dubai: Rumaila, the workhorse of Iraq's oil industry and its biggest oilfield, is buzzing with activity as executives, engineers and drillers begin a massive overhaul to nearly triple its million-barrels-per-day output.

At the airport in Basra, capital of southern Iraq, staff struggled to process the unprecedented numbers of people arriving to join the country's nascent oil boom.

Iraq may be struggling to form a new government almost three months after elections, but oil firms chosen to carry out the biggest oilfield development projects on the planet were ploughing ahead with investments that could take the country into the elite of global oil producers.

And, though the old administration failed to pass a new law to govern an energy sector considered vital to rebuilding the country after years of war and sanctions, Iraq's oil industry is booming.

"The companies are not going to sit back and just wait," said Raad Alkadiri of Washington's PFC Energy.

"Iraq's government has itself encouraged this by saying ‘Keep going and the politics will sort itself out'."

The Rumaila project is the most advanced and was the first Baghdad signed, with BP and China's CNPC taking it on.

Oil service company Weatherford International is already up and running on the ground there.

It was one of the firms that won part of a $500 million deal to drill wells at the field and already employs 300 people.

"It's still very early days," said Alex Munton of Edinburgh's Wood Mackenzie consultancy.

"But the drilling contract's in place and the pace of activity so far is an indicator of them hitting the ground running, as they said they would do."

Iraq sits on the world's third-largest oil reserves and has signed contracts that would boost its output by around 10 million barrels per day by 2017, generating an additional $700 million a day in oil revenues at current prices.

Though it may never reach that target over the next year or so — expected to be much more modest at around 600,000 barrels per day — the contracts themselves have encouraged companies to move ahead as quickly as possible.

To start recuperating investment, oil companies need to boost output at producing fields by 10 per cent.

From Iraq's untapped fields, firms have an early target called first commercial output to trigger cost recovery.

Hitting the targets fast reduces capital investment exposure to Iraq by allowing oil firms to recycle money already invested.

The faster oil firms hit the targets, the faster they can begin recycling investments, reducing the need for new exposure.

Alkadiri said: "The reality is that the quicker you can get to commercial output on these contracts, the quicker you can recover investment and begin receiving remuneration."

While the outgoing government failed to pass a new oil law to provide a framework for investment, it said the deals were legal under existing legislation.

Baghdad's Al Tamimi and Company law firm lawyer Hadeed Hassan said so far, legal uncertainty had done little to discourage investment. Hassan worked on the deals.

"It's not enough to stop them," Hassan said.

"They're already signing subcontracts. They wouldn't be signing such contracts if they weren't ready to go ahead and move down south."

In the political vacuum that has emerged from an inconclusive election, neither leading contender Eyad Allawi nor Prime Minister Nouri Al Maliki has indicated he would embark on what would be a political nightmare for the oil companies.

This would be a full review and overhaul of the deals.

Iraq's take of revenues from the deals is among the highest in the world.

It would be hard for the government to squeeze more out of the contracts, oil industry executives have said.

With so much at stake, a new administration would be reluctant to turn back the tide of activity the contracts has unleashed. Seven years after the US-led invasion, the country is still pumping below pre-war levels.

"Iraq has no choice but to move ahead with these contracts," said Luay Al Khateeb from the Iraq Energy Institute in London.

"Any government will honour them, not because they are perfect, but because they have no choice. They've already wasted too much time."

Iraq faces huge challenges building the capacity to deal with the size of the oil projects underway.

Many of Iraq's most skilled workers and bur-eaucrats left the country during the years of sectarian violence after the war.

That has left its administration and its national oil company with little capacity to deal with the megaprojects at most of its largest oilfields.

Already, oil firms were finding Iraq's South Oil Company a frustrating partner, industry sources said.

"These are some of the biggest projects on the planet," said one source.

"And Iraq's strategic planning capacity is showing the wear and tear of years of decline and brain drain."

Efforts are underway to train bureaucrats to handle the surge of activity ahead.

"There is an unpreced-ented level of activity right now in Basra," said Andrew Doust, of Coffey International Development, which has been involved in training over 100,000 Iraqi public sector workers since the war.