accelerating local content in the oil & gas sector

Accelerating Local Content in theOil & Gas Sector

29 November 2018

Presented by:Michael Sackey, Partner

Presentation Outline

1. Local Content Trends in Oil & Gas

2. Local Content Levers

3. Local Content Case Study

4. Deepening Local Content

1 Local Content Trendsin Oil & Gas

Local Content Trends

►The objectives of increasing local content arecommonly to increase share of wealth,increase international competitiveness andcreate jobs and supportive industries.

►Across the world, the oil and gas industry hasbeen at the forefront of the development oflocal content policies.

►Norway is often cited as an early example ofthe development of local content policies.

►Brazil followed a similar path and hasdeveloped world class deep-water expertise.

Local Content Trends (Cont’d)

Mexico

No manpower regulation butlocal content requirement topurchase local goods andservices as long as pricedifference to imports is keptbelow 15%

Saudi Arabia

Manpower quota (Saudi-sation)varies from sector to sector,between 5-20% local and isapplicable to almost everyindustry in the country

Brazil

No direct regulation ofmanpower. Close industry-academic collaboration todevelop local workforce.National level drive to buildlocal manpower in-line withproject pipeline over next5-10 years

UAE

Direct regulation that enforcesminimum local employment. Exceptfor ENOC, most operators said to failto achieve the set targets

Nigeria

Local content regulations(including manpower).Manpower content to achieve75-85% depending on length oftime operator has been in thecountry

Norway

Prior to EEA agreement, Norway hada regulation giving preference tolocal providers. Today, it has builtcore capabilities in advancedoffshore technology through strongsupply side initiatives

Russia

Russian PSC requires 70% localcontent for materials andequipment and 80% formanpower

Australia

West Australia regulationrequires 40-50% local content(incl. manpower cost);government is mulling raisingtarget to 60%

Brunei

Enforces direct local manpowerquota to companies, aimed atincreasing participation.Operates a local vendordevelopment program to boostlocal content

Indonesia

Expat manpower regulatedtowards a ‘soft-target’ of 25%of total personnel cost. All O&Gcompanies compelled toachieve local content of 35% forgoods and services.

Oman

The In-Country Value (ICV) strategyincludes social license to operate,sustainable development and commercialbenefits. Double the number of skilledOmanis employed to 30% & target of 50%of total spending on in-country goods by2020

Ghana

Ghana is aiming at 80% localcontent by 2024 for newdeepwater developments

Kazakhstan

Kazakhstan local contentrequirement is 85% formanpower, 20% for goods, 15%for services

Resource rich nations apply local content policy via their regulators with varying levelsof regulation

2 Local Content Levers

Local Content Levers

LocalContent

Ownership

Taxation

SupplierDev’t

Employmentand

Training

SocialPrograms

► Ghana, like many Africancountries has embarked oncreating its own local contentstrategies, policies andregulations over the last fewyears.

► Taking a broad view of localcontent development is crucial.

Local Content Levers (Cont’d)

Setting minimum requirements for ownership throughequity participation on licenses is a common local contentlever

The structure of fiscal and tax regimes in the oil and gasindustry and use of oil and gas tax revenues is also a leverand necessary for successful local content policies.

Ownership

Taxation

Capital and operating expenditure in the oil and gasindustry is significant and there is opportunity to localizesupply chains in procuring goods and services.

SupplerDevelopment

Local Content Levers (Cont’d)

The industry requires relatively few people with highlyspecialized skills in the upstream and is thus not asignificant employment generator.

Social programs have long been part of industry investmentin the places in which they exist, and varies in terms ofneeds and area of focus.

Employmentand Training

SocialPrograms

3 Case Study &Lessons Learnt

Local Content Case StudyNorway: The 20 year Journey to 60% local content

0% Local Content1960S 60% by 1980s

Sustained at ~80%despite removinglegislation in 1994

Norway today: top 10producer with leading

global OFSE players

Local Content Case StudyNorway: The key take-aways

Resourcelicensing

• Equity participation of Statoil in all developed fields in Norway from anearly stage

Capacitybuilding

• Investment in employees through internal training and secondments• Adapting the education system to cater for the needs of the oil and gas sector• Stimulating students through international scholarships

Infrastructuredevelopment

• Investment in infrastructure to maintain rapid growth (transportation, power,telecoms, gas pipeline)

• Diversification of the economy to avoid oil dependency

Research anddevelopment

• Huge investment in research and development to enhance petroleumrecovery and the formulation of more environmentally friendly fuels

• Strategic alliance with IOCs for technology and knowledge transfer

Industrialgrowth

• Prioritisation of sub-sectors to enable commercially effective economies ofscale to be achieved

• Emphasis on transforming existing industries e.g. maritime, mining, steel• Formulation of incentives to attract foreign companies (IOC’s and OFS’s)

4 Deepening LocalContent

Deepening Local ContentRecap: Ghana Local Suppliers Market Assessment

0

1

2

3

4

5

6

7

8

9

10

11

12

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0

R&D

Well drilling services

Materials &Procurement

High

Fabrication &Construction

FEED, Engineering &Engineering Services

High

Exploration,subsurface,Pet Eng & Seismic

Transportation,supply & disposal

HSE

IT andCommunication Services

Marine operations& logistics

Indu

stry

spe

nd (2

014-

2024

)

Capacity of local suppliersLow

Size of spend

High capacity

Moderatecapacity

Low capacity

Deepening Local Content

Financialsupport

• Launch a contractor finance scheme/fund scheme in partnership with the Government of Ghanaand local banks to offer competitive financing options and affordable credit to contractors tofulfill awarded contracts and procurement orders

Technicalsupport

• Provide technical support to contractors to build capability to meet the standard of the oil and gasindustry

• Facilitate the accreditation and certification of local suppliers by independent internationalbodies. Examples include support to acquire HSE certification or ISO certification

Capabilitybuilding

• Provide formal and on the job training support to staff and contractor’s staff• Provide attachment and secondment opportunities to students and staff to deepen capability and

skills• Provide scholarships to undergraduate and postgraduate students in petroleum related courses in

local and foreign universities to develop specific skills in the oil and gas sector• Provide curriculum development support (in specialized fields of study) to relevant higher

institutions in Ghana (e.g., KNUST, University of Mines & Technology, Regional MaritimeUniversity, Takoradi Polytechnic, etc).

Networkingopportunities

• Organize more supplier networking workshops and fora to foster JVs/partnerships formationbetween local and international companies. This can be done with trade and investment arm ofother countries.

Awarenessprogrammes

• Organize contractor awareness programmes for local companies to showcase their capability(goods and services) to serve the oil and gas industry for increased patronage

• Communicate business opportunities to potential suppliers and employees

Oil and Gas companies

1

2

3

4

5

Deepening Local Content (Cont’d)

• Provide funding for infrastructure development such as constant power supply, good roadnetworks, support to steel and iron industrial base, etc. which in turn supports the productionand movement of goods and services thereby stimulating economic development

Enablingbusinessenvironment

• Define and execute pragmatic approaches to create an enabling business environment foroperators and suppliers e.g., reducing the complexity for a business to start-up, lowering barriersto entry (regarding complex regulations), incentivising business growth and expansion, supportingthe development of industry skills, providing tax incentives etc.

1

2

Access tofinance

• Establish a local content fund to facilitate the access of local companies to affordable finance todevelop their businesses and compete effectively with the foreign suppliers

EnterpriseDevelopmentCentre

• Strengthen the Enterprise Development Centre (EDC) to continue to provide support to GhanaianSMEs through:– Provision of adequate funding– Replication of leading practices from other jurisdictions– Establishment of additional centres in Ghana (e.g. at Tema)

Workforcedevelopment

• Establish technical/ vocational education and training institutes for development of oil and gastechnicians and artisans

• Set up petroleum development/ endowment fund to provide bursaries, scholarships and trainingin petroleum related courses in relevant universities in Ghana and abroad

3

4

5

Infrastructuredevelopment

Government

Deepening Local Content (Cont’d)Shared interests of governments and IOCs lead to creation ofshareholder value and in-country value

Diversify national economy

Retain local income

Reduce unemployment

Support local communities

Attract foreign investment

Develop local capabilities

Build local supply chain

Develop local jobs

License to operate

Political stability & strong economy

Government relationshipmanagement

Meet reserve and productiongrowth goal

Reduce costs

Reduce expatriate reliance

Deliver brand commitments

Government Shared Goals Operators

SustainableFuture

SustainableFuture

ShareholderValue

ShareholderValue

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