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Local content workshop: DEVELOPING A HIGHLY SUCCESSFUL NATIONAL CONTENT STRATEGY

Willy H Olsen Accra, Ghana 22nd March 2010

www.thecwcgroup.com

My own background
Economist of education Journalist and editor in broadcasting and newspapers Employed by Statoil in 1980 Government affairs, Managing director in UK, Senior Vice President for Exploration and Production in Russia and the Caspian, Senior Vice President Corporate Strategic Development, Senior Advisor to the President and Executive Board Retired in from Statoil 2003. Engaged by INTSOK, the Norwegian oil and gas partners Engaged in local content issues since mid 1970s Advising NOCs and Governments Member of Norways national EITI committee Board member Revenue Watch Institute

My e-mails: willy.olsen@intsok.com willyh8@yahoo.no Do not hesitate to get in touch we me!

Ghana Summit workshop


The theme Developing a successful national content strategy Ghana opportunities and challenges What have we learned from successful countries? The strategic approach and the stakeholders Lessons from countries with local content

The most successful tools

WHAT WILL BE THE FOOTPRINTS LEFT BY THE OIL INDUSTRY CURSE OR BENEFIT? - ENVIRONMENTAL IMPACT?

Ghana can do it right!

Photo: Thanks to Flickr

Manage expectation is crucial


The discovery of oil and gas can herald an era of economic opportunity Will take time to filter through to the man on the street Something can filter through quickly with the right policies! The challenge
High-tech industry with large capital investments Not a big job generator compared to the money that is spend

Government must use revenues to revitalize other sectors and add jobs Local companies must co-operate Oil companies and Government have to get their act together, but also manage expectations to gain peoples trust

Your Presidents ambitions.


We are positioning Ghana for a major industrial take-off. Laying the foundation for: an integrated aluminium industry a petrochemical industry a fertilizer industry to give impetus to agro development consumer products and exports based on oil and gas Dependence on traditional raw material exports of cocoa, gold and timber should be a thing of the past in 2016

President John Atta-Mills outlined his ambitions in the State of the Nation Address 2010

Your challenge Building a sustainable industry

A new exciting oil and gas province

The oil industry has high expectations for making new and major oil and gas discoveries in the four countries Oil companies battling for new licenses
Illustration: Anadarko

Ghana is big and getting bigger


Reserves can reach more than 4 billion barrels oe
1,5 Billion barrels

0,5

0 Jubilee unit Southeast Jubilee Tweneboa Risked upside

Quote: Anadarko 4th quarter 2009 presentation, Source: Tullow 4th quarter presentation

An exploration success story


Fields discovered since 2007 Jubilee, Odum and Tweneboa Mahogany Deep Vanco/Lukoil High quality reservoirs High exploration and appraisal activity ongoing More discoveries to come! Tweneboa - as large as Jubilee? Owo important for scale of development

Illustration: Anadarko 4th quarter 2009 presentation

Oil production potential for three FPSOs


500

400 300 200

Exploration & Appraisal

Jubilee
100

Jubilee phase 1

2000

2010

2020

2030

Source: PFC Energy

A great way to celebrate the Jubilee

First oil on schedule for Q4 2010 120,000 bopd within 6 months First cargo late 2010/ early 2011 Costs within budget of $3.1bn FPSO conversion within 20 months Subsea equipment fabrication in 18 months

In-country organization over 200 personnel Project installation team integrated into organization Ghanaian nationalization >80% Final target of 90%+ on track

Source: Tullow 4th quarter report, Illustration: Anadarko

The FPSO is a long term market


The FPSO, named Kwame Nkrumah, is converted in a shipyard in Singapore Cost $875 million IFCs equity investment financing bridged the financing gap Owned by a special purpose company in the Netherlands MODEC, Marubeni, IFC, Socite Gnrale, Jubilee partners and other investors MODEC is one of the worlds largest FPSO companies

Four football fields long Weighs ~180,000 Tons Accommodates 120 People 250 Miles of electrical cables 7+ million man-hours to make the FPSO ready for Ghana

The local content plan


MODEC is preparing the implementation of a Ghana Local Content Plan Plans to hire Ghanaian nationals for the majority of onshore staff and a certain number of offshore positions. A preliminary plan indicate 85 staff will be hired by MODEC in Ghana 88 % of the staff are expected to be nationals after five years. MODEC is finalizing a human resources policy that will recognize the rights of workers under Ghanaian law

More Jubilee work in the years to come


Continuous development in the Jubilee Unit Area over the next few years Partners plan to sanction five new wells with production from 2011 Next step could be to expand production capacity from 2012 More subsea infrastructure Up to 20 new producing wells Upgrade FPSO capacity Gas developments in parallel

Source: Tullow 4th quarter report

Delivering significant value


Revenues of some US$900 million/year at peak production in phase 1 Enabling government to finance much needed development programs Providing development opportunities along the energy sector value chain Construction of onshore gas processing facility to process the associated gas from Jubilee Development of gas distribution infrastructure, Development of gas-to-power projects, etc. Direct development impacts like local employment and training of Ghanaian nationals for the oil and gas industry
Source: IFC March 2010

Jubilee can create an energy value chain


Gas and power markets

Pipelines LNG CNG Gas from Jubilee

Gas for Heating

Methanol

Petrochemicals

Gas to Liquids

Transport fuels

The benefits of natural gas

Reducing the negative environmental impact through reduced emissions Contributing to national earnings with a steady long term income stream enabling stability Creating direct and indirect employment Enabling development of local companies in supply and distribution Training and skill development Local community development programs

What can be done in country?


Substantial work can be done locally with quick wins and impact Most is low-tech with many jobs
Catering, logistics Roads & location preparations Materials handling Dredging Scaffolding HSE/ Security equipment Data processing

Technologically simpler jobs Technologically advanced jobs Technology core Organizationally advanced jobs Organizationally simpler jobs

May take 15-20 years to get to technology core

The national policy agenda


Managing revenues Managing revenues and opportunities and opportunities
Supply chain Employment Training Skills Equipment Technology Capital Use the feedstock Power Industry Petrochem Jobs Add value

Governments oil and gas policies

Impact on local communities

What is the best way of spending?

Which is economically the most efficient way to transform oil revenues into growth? A dollar spent by an oil company to

procure services in the local economy?


Or A dollar passed through the public financial system?

Many are looking for more benefits

Norway UK Algeria Libya Mexico Ecuador T&T Venezuela Ghana Nigeria Angola

Russia

Canada

Azerbaijan

Kazakhstan Iran

Saudi Tanzania

Indonesia Malaysia Timor Leste PNG Australia

Bolivia Brazil

Old timers

New initiatives

Create an enabling environment


Ghana is ranked no 92 on the World Banks Doing Business 16 reforms 2008/09 Easier to start a business
Peace & security

Skilled people

Macro economy

Enabling environment

Infrastructure

Institutions & legislation

Successful countries follow a long-term strategy to make their firms and economy more competitive

Predictability

Impacts beyond the oil and gas sector

Local content

Oil related jobs Business expansion Income generation

Non-oil impact Multiplier effect

Human capital Natural capital Financial capital Social capital

Time

From muscles to brainpower


1970ies 40 years later

FlyterFlyterFloater FlyterFlyterFlyterteknologi Flyterteknologi Flytertechnology Flyterteknologi teknologi teknologi teknologi teknologi


teknologi

BetongBetongConcrete BetongBetongteknologi Betongteknologi Betongtechnology Betongteknologi teknologi teknologi teknologi teknologi


teknologi

Lsninger Lsningerfor for Arctic Lsninger for Lsninger for Lsninger ekstremt klima Lsninger for ekstremt klima Lsninger for solutions Lsninger for ekstremt klima ekstremt klima ekstremt ekstremt klima ekstremt klima
ekstremt klima

ReservoarReservoarReservoarteknologi Reservoir teknologi ReservoarReservoarReservoarteknologi teknologi teknologi technology teknologi teknologi

ReservoarReservoar-

LNG lagring LNGstorage lagringog og LNG regassifisering LNG regassifisering LNG lagring LNG lagringog og LNG lagring og regassifisering regassifisering regassifisering and regas regassifisering regassifisering

LNG lagring og LNG lagring og

Automatisert Automatisert Automatisert boring Automated boring Automatisert Automatisert Automatisert boring boring boring drilling boring boring

Automatisert Automatisert

On-/offshore Havbunnsproduksjon Elektro og On-/offshore Havbunnsproduksjon Elektro og og On-/offshore Elektro On-/offshore Havbunnsproduksjon Havbunnsproduksjon Elektro gassprosessering og prosessering instrumentering On-/offshore Havbunnsproduksjon Elektro og gassprosessering og prosessering instrumentering gassprosessering og prosessering instrumentering On-/offshore Havbunnsproduksjon Elektro gassprosessering og prosessering instrumentering gassprosessering instrumentering On-/offshore Havbunnsproduksjon Elektroog og Onshore and Subsea gassprosessering og prosessering Electro, instrumentering gassprosessering instrumentering gassprosessering og og prosessering prosessering instrumentering

offshore gas processing

solutions

instrumentation

Stakeholders that must play its part


Government

Financial sector

Oil companies

Local content
Education sector Oil service companies

Local private sector

28

Local firms must jump high hurdles


Domestic capture of expenditure will depend on Available skills often limited Lack of technological capabilities Management systems and HSE standards Access and affordability of finance Most local firms lack experience, financial track record and the quality systems required High minimum capital requirements a challenge Breaking into the global supply chain is difficult Believe that their greatest deficiencies are technical International companies have identified business and management practices as the main challenge

Why is local content such a challenge?

The oil industry is a volatile business


$150

Cyclical industry Volatile prices & volumes Long investment lead time

$100

Capital intensive
High variable costs

$50

Many new NOCs Local $0 content


1980

Efficiency drive Industry structure change


1990 2000

NOCs more assertive Local content

Difficult to plan for the future


US Department of Energys view on need for LNG import to the US

200 180 160 140

2002 view

120
BCM

100 80 60 40 20 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

2010 view

The different priorities


Government priorities Fair share of revenues Local capability development Job and skill creation Improved infrastructure Diversified and developed nation Sustainable future Oil company priorities Reserve and production growth Competitive profitability Supplier chain cost efficiency

Cost effective local content compliance


License to operate Shareholder value

Agreeing on a local content definition


Key definition features Basic premises

Value Creation

Value Added Knowledge retention Economic multiplier effect Economically Sound

Equal or Better Quality

Cost Delivery Safety & Environment Nurture not Subsidize

What is the extra mile that you need to take?

Strategies

The strategic approach


Challenge Maximize local content Strategic issues

Qualification
Technology qualification Professional qualification Supplier development Industry capacity

Industrial policy
Financing Tax policy Regulation Foster SMEs

Industry performance
Sustainable Competitive HSE Initiatives on competitiveness

Funding initiatives

Identify and address gaps


Human resources Facilities and infrastructure Materials and manufacture Institutions and systems

Improving local competitiveness


100
Import share

75

50
%

25

Locally based firms growing their competitiveness


0
Time

Source: Willy H Olsen

What is most important?

Project on time and budget

High local content

Quality & Safety

Priorities have to be made when technologically challenging projects take place in new operating environments May be also sacrifices.

Life cycle focus


Project development

Operations

Lasting 3-5 years

Lasting 15-40 years

Local content is not always costless

Governments should not pick winners and subsidize forever Cannot refrain from engaging in some kind of industrial policy Have to carefully balance structural necessities and the dangers of publicly induced distortions Badly enforced local content policy may impede economic growth Consuming wealth rather than creating value Undermine other economic activities in non-oil sector Risk of permanent protection Corruption and red tape
Source: Rodrik, 2004, Hausman & Rodrik, 2006, Per Heum, 2003 & 2008

1970& 1980s

Geology and geophysics

The oil industry structure has changed

Oil companies
Prospect generation Prospect generation Exploration Exploration

Oil companies could do local content

Oil companies need help to do local content


Contractors
Drilling Engineering Development

Now
Geology and geophysics Drilling Engineering Development

Both

Operation and maintenance Specialist maintenance

Operation and maintenance Specialist maintenance

Well services

Well services

The Chinese do it the Chinese way

Total
EXXON

BP

Tullow
SHELL SLB

Andarko

Oil company

SINOPEC

BAKER

Technip

HAL

Engineering Service company Equipment supplier

CNOOC COSL COOEC

FMC

Modec

Source: COSL chairman

Will they contribute to local content?

Few international oil companies have had a clear local content strategy Often addressed as part of the corporate social responsibility agenda They increasingly view local content as a central value proposition to the host country Important that company strategies are aligned with government policies Human capital development Employment generation Technology transfer

What can they do?

Most leading oil companies go beyond the projects to encourage development of local enterprises
create jobs, use local suppliers, share business skills, support training and promote further investment.

They may set up Enterprise Centers They may establish supplier forum They may enter into mentor programs to SMEs They may train local entrepreneurs to bid electronically They may be willing to assist in providing seed capital to local entrepreneurs

Prefer to deal with the supply chain

National Oil Companies

Multinational oil companies

Technology suppliers

46

NOCs are the nations custodians


More than 100 NOCs around the world They control most of the reserves They are very different Many have become commercialized Many are in dire need of reforms Most NOCs were created with a mandate to implement government energy policies The overall mission was to increase state revenues and act as an economic engine They have been local content drivers Petronas, Petrobras, Statoil, Sonatrach Saudi Aramco, Sonangol, NNPC, KMG

GNPC will have to take a lead in Ghana


47

Country lessons

Everything which can be done in Brazil should be done in Brazil

He is the leading the worlds most aggressive oil company

The move to the top technology league


Petrobras has over the last 30 years moved from the periphery to the major league The third largest oil company in market capitalization in 2009 up from no 23 in 2000 The strategy has been to Explore geological opportunity Create in-house technological capability Cooperation with IOC and suppliers Innovation management Customer oriented Financial freedom

CENPES an island of knowledge


R&D Management

R&D Exploration

R&D Production

R&D Refining

R&D Gas & Energy

Basic Engineering

Technology Management

Cenpes was the source of the innovative solutions that made Petrobras the recognized world leader in deep-water and ultra-deep water Cenpes has 227 laboratories as a result of recent expansion Near 2,000 work for the institution directly Cenpes is the most visible feature in a giant network of investments that Petrobras has made in the area of technology Invested close to US$ 700 million in R&D 2008

Local content will benefit Brazil and Petrobras


Local content More equipment availability

Increased flexibility
Lower prices

55 65 %

Expand supply capacity

New suppliers

Strenghten Brazilian economy

Create jobs and income

Reinforce internal market

Petrobras giant shopping list


New vessels to be contracted: 196 supply boats 40 drilling rigs and drill ships 10 FPSO 44 super tankers for oil transport US$ 28.9 billion in capex through 2013 related to pre-salt development.

Brazils new shipyards


Developing 12 shipyards, either new or expanded capacity Atlantico Sul Shipyard with Samsung Heavy Industries Oderbrecht and Daewoo Shipbuilding & Marine Engineering Andrade Gutierrez and Hyundai Heavy Industries Keppel Fels with SBM Offshore Brazilian yards foresee to take the full scope of work A few Brazilian yards are considered to be ready for rig building Limited availability of Brazilian Equipment Suppliers Vendors need to be represented in Brazil Vendors will have to seek alliances with local engineering and construction companies

SME sector is an economic force


The SME sector is an economic force in Brazil 98% of industrial, commercial and service undertakings Represents more than 60% of urban jobs Provides 21% of GDP More than 14.000.000 entrepreneurs Petrobras has set up two funds to help SMEs Offering certified suppliers pre-approved credit Paying them in advance up to 50% of contract value Lenders will get an advance on future revenues Benefiting from tax exemption

Petrobras work with small suppliers


Petrobras demands high quality Helps local firms to achieve necessary standards Agreement with the Government Agency Sebrae to include SMEs in the supply chain Qualification of Micro and Small companies to be potential suppliers Networking and cooperation between local companies and Oil & Gas Companies
2300 small and micro companies participate 50% Petrobras funding and 50% Sebrae More than $700 mill used to assist companies 200 local oil service companies qualified in 2000 Reached near 1800 qualified suppliers in 2008

Involving the whole education sector


Engineering
5967

Civil construction
15020
Basic 15020

Construction & assembly


84576
Basic 54476 High school 19386 Technicians 2196 Graduates 4290 Inspectors 4228

Operations & maintenance


7062
Basic 3744 High school 3542 Technicians 320

High school 2927 Technicians 460 Graduates 2580

Need substantial growth in local capacity

imports

5. Incentive for settling down international companies in Brazil 4. Incentive for association between national and international companies 3. Incentive for new national entrants 2. Develop competition among medium competitive sectors 1. Increase productivity capacity of highly competitive sectors

Increase in National Supply Capacity of G&S

imports

Current Demand

Future Demand

They had political will and industrial ambitions

First legislation focused on benefits to Norway

Investing in human capital and technology

A partnership approach
Operators

Local content legislation 1972 - 1994 Solid industry base and competence Active government involvement Stimulating competition and cooperation Use of carrots and stick Technology transfer agreements Tax incentives for R&D Pro-active oil companies Statoil, Hydro, Saga IOCs fast followers

Can local communities get their share?


Oil and finds are associated with great expectations in local communities Believing a discovery will automatically make the local industry flourish and create new much needed jobs The town of Kristiansund is today a success story with 20% of jobs related to oil and gas Took 30 years for the town to celebrate petroleum worker no 1000

Petronas the Malaysian catalyst


Malaysia initiated export oriented industrial policy, welcoming foreign direct investment Invested in infrastructure, education and health The petroleum sector was not allowed to drive up costs and wages in the economy The result has been economic growth, curtailed poverty rates and reduced income inequalities Petronas mission is to contribute to Malaysias Vision of becoming a developed nation by 2020 in terms of: Knowledge economy Global Information Communication Technology hub

Commercial but also instrument


Petronas operates as a commercial enterprise which is to be run along sound economic principles Free to diversify and expand its business But actively used as a policy instrument Petronas has guided more than 2,500 local companies since its establishment 35 years ago Developed local entrepreneurs through a supplier development program Assisted local entrepreneurs expanding into international markets High focus on training and education

Building Malaysian deep water capacity


Deepwater Projects
Key Activities Kikeh FDP / Sub-surface study Engineering pre-FEED FEED Detail Design Gumusut Kakap Malikai Future Projects (Ubah Crest, Pisangan, KBB, etc.) Future Deepwater Projects

Outside Malaysia

Procurement
Fabrication Topside Hull Subsea

Transition To Malaysia

Malaysia

The deep water success


3 000
2 500 2 000
Ultra-Deepwater Deepwater

1 500 1 000

Shallow Water Cabinda

500
0 1990 1995 2000 2005 2010 2015 2020

The catalyst for national development


Sonangol is pushing local content growth Capacity building & technology transfer Transfer of wealth Local employment National Pride Involved throughout the Angolan economy Partnership with international companies Increased pressure to seriously apply the local content legislation and regulations Sonangol knows that it is a risk for negative effects on businesses if this process is driven too far or too rapidly

FMCs fabrication expansion in Angola


Pazflor first subsea separation

Greater Plutonio 45 Wells


Girassol/Jasmin 45 Wells Nemba 7 wells Largest FMC contract ever Further expansion of local production and support Rosa 23 Wells

Jumper Fabrication Investment in Base

Jumper + Manifold Fabrication

Jumper + Manifold Fabrication Xmas Tree Assembly investment in base

Gradual local expansion since first contract in 1997 22 Angolans employed in 2000 now 250 80% of workforce are Angolans aim to have 97% by 2013

We have to create conditions to enable more Angolan citizens to play a part in the economy. There will not be a consolidated society in Angola if the minority cant take part in it. Until now been leaning towards foreign domination Its necessary that little by little this trend be reversed.
Manuel Vincente, CEO of Sonangol, 2009

The Nigerian case

10 Billion Dollars
AVERAGE ANNUAL UPSTREAM SPEND

Local content level was 15-20% in 2002 Reached 39% in 2009

The large Agbami field used more Nigerian based firms

The Nigerian strategic approach


In-country value addition using domiciliation approach - not indigenization Building local capacity on back of ongoing projects and operations Attracting foreign investment for new infrastructure, technology and upgrade of existing facilities Subsidiaries of international companies have to demonstrate in-country assets No room for shell companies /commission agents. Impacts must be measureable in terms of employment, training, infrastructure, well being of host communities etc

Oil companies are now responding


IOCs are more engaged in Nigerian content than ever before Clearer strategies for achieving the objectives More efforts to involve locally based firms Difficult to attract suppliers to do business in Nigeria Global market offers better opportunities Security and safety critical issues Infrastructure challenges Lack of power to support fabrication & manufacturing Poor roads and infrastructure to support growth Lack of funding to execute major contracts

The importance of a good supply base


Development of supply capacity and capabilities is important to serve offshore fields Creating jobs and competences by serving oil companies and oil field service companies Logging, cementing, drilling fluid services Pipe manufacturing and spool bases Pipe coating, repairs and value add Ship repairs / dry docking Diving companies Helicopter operations Various related manufacturers (e.g. paints and coatings)

Local vendors get more business


Volume of local vendors domestic business has increased Vendors have developed valuable industry experience that enables them to qualify for work for international companies Dorman Long and Nigerdock have secured US$ 80 million contract to fabricate and install wellhead platforms for MPN satellite field Work that previously only was done by foreign firms

Indigenous firms funding challenge


Limited access to international financial markets has constrained the capabilities of local companies to compete with foreign firms Indigenous companies have few financing options Forced to turn to local banks whose funds attract high interest rates which may wipe out profit margins Investor Perception & Realities Policy Uncertainty How well are the local companies structured, legal Questionable project fundamentals Poor track record and lender familiarity

Assisting with funding


The Nigerian Content Support Fund is a virtual $350 million Notes Issuance Facility The fund ambition is to address the funding challenge faced by local service companies in the oil and gas industry NCSF provides working capital in the form of low interest dollar denominated loans to Nigerian oil service providers in need of funds to execute ongoing or new contracts Funding is accomplished through commitments by a consortium of Nigerian Banks. The downside is that this is fraught with bureaucratic bottlenecks which can make the fund inaccessible and defeats the aim of the fund.

There have been attempts to persuade us that the simplest and easiest thing to do would be to sit back, export our oil, export our gas, and just receive revenues and lead a life of luxury at least for some limited period. We have taken the more difficult road of entering the world of steel, aluminium, methanol, fertilizer and petrochemicals, in spite of our smallness and in spite of our existing level of technology.
Eric E Williams, T&Ts first Prime Minister in 1977

Industrialized economy based on gas


Most industrialized economy in the Caribbean 10 ammonia plants, 4 iron and steel mills 7 methanol plants, 4 power generation plants, One oil refinery Largest methanol and ammonia exporter to US market LNG became a real spur to exploration and attracted new oil companies Began in the early 1990s with a small company in Boston has become a major business

USA

T&T
Venezuela

Key success criteria


Use of gas in the economy Strategic location Stable democracy Predictable legal system Competitive gas price Balanced fiscal regime Transparent decisions Liberalized currency Trade liberalization Skilled workforce Strategic alliances
LNG Petrochemicals Power Others

The size of the local industry is a challenge There is a limit to how much activity the local industry can undertake
BP CEO in T&T, Robert Riley August 2007 BP is producing more than 60% of the gas and is the dominating company

The first to introduce local content policies


BPs Canonball project the first to include local content policies in the procurement strategies The local content results
40% overall local content 65% local project management 85 % local fabrication and assembly

First time detailed design engineering was done with nationals fully incorporated in the team Added cost seen as an investment for the future $3 mill added cost on engineering $65 mill on fabrication

A new fabrication site the result

Trinidad Offshore Fabricators is a joint venture company formed in 2003 with Chet Morrison Contractors out of the US and Weldfab from Trinidad. Began producing jackets but are no also deliver deck and modules and are expanding into modification and maintenance work Core of 120 people for Canonball. Since grown to 750 people Engaged in BP, BHP and BG projects

Small can also be beautiful


Government has legislation in place to support local content and training of locals Hurdles are extremely high for local firms A giant project does not match the small industrial base Developers will be required to open a liaison procurement office in the country to provide local firms fair access Get access to information Present their capabilities

Papua New Guinea 6 million people, 600 islands, 950 languages and cultures

Local firms have limited capabilities


Technology and project size is a major hurdle for local suppliers But local firms in Papua New Guinea may have capabilities for substantial work Civil works for pipelines, field facilities etc Erection of facilities Construction of buildings Logistics Camp management, catering, security etc Engineering and consulting for smaller tasks

Papua New Guineas envelop for success

Political stewardship
Robust projects Meeting milestones Financing ahead of time Projects integrated with national development plans

Stakeholder relationship for life Move beyond LNG

Picture: Oil Search

Expectations has to be managed


Manage distractions and expectations is critical The multi-billion dollar LNG project is spurring inter-village war between traditionally nonviolent tribal groups. ExxonMobil has been forced suspend construction in several areas in response to the unrest The tensions and jealousies over the land ownership blew up into a tribal war Men is taking their earnings to the capital, leaving women and children in remote villages

Timor-Leste hoping to benefit

Timor-Leste definition of local content Means work carried out to stimulate the economy of Timor-Leste by implementing sustainable development projects related to the petroleum sector and preferential purchases of Timorese goods and services Current policy is capacity building focused Realizing that direct economic involvement will be small min the coming few years

ConocoPhillips role
ConocoPhillips is operator for the field that supports Timor-Lestes economy Its contract with the main contractor Clough AMEC JV has several specific local content obligations Implement a sub-contractor development program Provide local suppliers with the opportunity and ability to clearly understand the requirements Commit to a realistic program of practical local infrastructure development and sourcing from TimorLeste

The Bayu-Undan field was discovered in 1995. Production from the first phase began in February 2004 It is the money earner for Timor-Leste

Limited local capacity


Timor-Leste has a very low levels of capability for the oil and gas sector Low skills base Poor port facilities and critical physical infrastructure Lack of basic storage facilities, and engineering, fabrication and manufacturing services. Caltech is a Timorese-owned company and a major engineering contractor in Timor-Lest Caltech is Clough AMEC JV satellite office in TimorLeste.

Lessons learned

Lessons learned
Minimize licensing and bureaucracy Stimulate competition between operators and suppliers No room for shell companies Allow freedom to operate; Risk analysis instead of prescriptive standards New technologies & innovation Be selective based on strategic value Invest in training & qualification Invest in Quality assurance and independent assistance Import the best to realize the local potential Ministries, industries, universities must pull in the same direction Take the long term view Be busy but patient and never give up

What has been successful tools?


Legislation and regulations, concession and PSCs Project, procurement & contract strategies Local capacity building, training, technology transfer requirements, R&D Support for SMEs and entrepreneurs Registry of competent and qualified local vendors Advice on joint ventures and other mechanisms of cooperation with foreign companies Cluster programs and mentor programs Infrastructure initiatives Supply base developments Enterprise centers

You will have to act early!

Ability to Influence Cost Project Sanction Project Expenditures

Opportunity appraisal / Feasibility

Concept Selection

Concept Definition

System Definition

Project Execution

Share knowledge and experience


Upstream projects attract leading international expertise Local firm participation in collaboration with international expertise is the best way to develop the competences required Industrial competence and experience develop when challenging tasks have to be solved International firms have to be willing to share knowledge and assist the local firms Size matters in the oil and gas industry consolidation will be required

Integrated in contract strategy

Contract planning

Define contract strategy

Prequalification & contractor selection

Tendering & Award

Post award meeting

Close out

Review local contractor performance

Analyze Market capabilities

Develop Local Content plan for category

Develop capability Scope for opportunities

Define strategies

Long term contract to develop local capacity and competitiveness


Local firms can seldom compete with international firms on short-term contracts They can develop under long term deals, that is 3-5 year contracts with potential extensions if successful Will create more jobs Will add more value in country Will enable local firms to finance its activities in local banks Will secure the basis for training of people and develop competences Life cycle contracts will allow for expanding capacity and develop technologies and people in-country Can enable local firms to become internationally competitive Short term contracts tend to favor international firms with agents incountry

Where is it easy to make an impact?

High
Subsea concepts FPSO construction Shipping Control system dev. Fabrication Engineering Well and drilling services Petr. Engr services Manufacturing/ materials

Impact on economy

Non technical

consulting

ICT support HR Catering

Low

Ease of implementation

High

Source: INTSOK Nigeria study

Engineering and procurement


Engineering and design work moving as early as possible to host country Domestic project management and procurement expertise in host country

Front end engineering create the basis for a project Locally based companies will get easier access Engineers were able to deliver project specifications more suitable for the local capabilities and capacities.

Final words

Maximizing the benefits of local content is not the same as to maximize local content
Impacts must be measureable in terms of employment, training, infrastructure, well being of host communities Not seen as a percentage only