Objective

To Present

PDO Experience & Success in Developing Local Community Contractors (LCCs)

2

Local Community Contractors

What is LCC?

3

Local communities contractors are companies owned by the tribal communities, group of people or individuals that live in PDO’s concession area (Block 6)

PDO Objective

To maintain sustainable development of

the Local communities residing in PDO concession area by engaging their companies in PDO business activities through contract works

4

Background • The LCCs programme was launched in 1998. It is the most successful sustainable development program

for the locals who are domicile in the concession area

• Registered more than 700 companies owned by individuals or families from different areas of the concession area, however only 204 are active

• Difficult to allocate works to all companies. Therefore, PDO requested the owners of these companies to form shareholding companies owned by the tribes or as many people living in the same area

• Only 11 LCCs opened up their companies for others to join in as shareholders. Called Al Ahliya or class A LCCs and allocated the work for them

• Remaining LCCs who refused to join the shareholding and preferred to own self or family companies became to be known as class B LCCs, are not allocated work but provided opportunities to inter bid between themselves for specified scope of work from main contracts as subcontractors

• 2006 PDO jointly with Government launched the study on “LCC Scheme Improvement”

• 2010 Established 4 Super LCCs out of 5 planned

• 2013 Established the fifth Super LCC

• PDO committed to support Super LCCs

• Class A & B LCCs are encouraged to merge with the 5 Super LCCs to benefit from the support and growth

• Total accumulative LCCs contract spending till end 2012 is + 800 USD Millions

Local Community Contractors (LCC)

5

LCC Scope Ring-fence Process

New Contract

CH & CE Capital Works/ Service contract

Complete C7 document with

agreed value/ scope of work

CH/CE

Supply of Material

• Propose value/scope to be ring fenced for

LCCs

• Nominate SLCC name within the project location

LCC Team

Is it a Service or Capital Work Construction or

Material Contract?

No LCC requirement

Send the following details to LCC team

• Contract number

• Contract title

• Contract duration

• Estimated ACV excluding procurement and design

• Expected Contract Award Date

• Location (North/ south)

CH & CE

6

0

5

10

15

20

25

30

35

40

45

2007 2008 2009 2010 2011 2012

16 15

12 12 10

15

13 13

23 22

30

42

0.385

Class A Class B SLCCs

LCC Contract Spending (2007-2012) O

MR

Millio

n

LCC Scheme Achievements

• More than $ 800 millions value of work awarded till end 2012.

• More than 2500 jobs created for locals.

• Some LCCs managed to compete with other well established companies and won contracts.

• Some LCCs are confidence enough to participate in big value contracts.

• Raised standards of living of locals in the concession area.

• Locals developed to understand business acumen

7

Success Examples

• Shaleem Petroleum Services: Developed from LCC and now provides well pulling hoist services in Block 3. They won the contract competitively through on-line bidding

• HADCO: Developed from LCC providing transport under PDO main contractor is now

providing Well Engineering services. • AlGhalbi company: Developed from LCC and now provides pipeline integrity services. They

won the contract competitively through on-line bidding.

• Saih AL Sariya: Developed from LCC and now provides ODC services and employing more than 1000 employees. They won the contract competitively with other Oil Operators.

• Douhat Al Khaleej: Developed from LCC and established the first gaskets manufacturing in

Oman at Nizwa Industrial Area.

• Saih Nahaida: Developed from LCC and expanded their business to purified drinking water bottling at their village in Adam

• Maqshan : Developed from LCC and now investing in different areas including desert

agriculture.

8

PDO LCCs Strategy

9

PDO will continue to support the following two LCCs categories:

1. 5 Super LCCs

2. Al Ahliya LCCs

Super LCCs (SLCC) Definition: • Closed shareholding local companies established by PDO and Government to support

communities in the concession areas. • Shares were sold only to people reside in the concession areas under certain terms and

conditions. • 5 SLCCs have been established so far.

Al Ahliya LCCs Definition: • SMEs companies ( LCCs class A & B) from the concession area • Subcontract relation with PDO main contractors under SLCC management via inter bidding

process • Working within their geographical area (North/ South) • Must comply with HSE and maintain good performance • Create employment opportunities for Omanis & develop a skilled Omani workforce • Expected to provide quality service at competitive rates

Super LCCs Strategy

10

Super LCCs strategy is driven by government. Formation of 5 closed shareholding companies (Super LCC) in oil and

gas concession area as follows:-

Two shareholding companies in north concession area One shareholding company in central concession area Two shareholding companies in south concession area

Strategy objectives:-

SLCCs to acquire skills in oilfield core businesses Significant numbers of shareholders from concession area Provide employment for Omanis

Oil producing companies i.e. PDO, Oxy etc will allocate works and

support for a period of ten years as follows:-

The first five years period meant for the development of the shareholding companies. During this period oil producing companies will provide one or more contracts through direct negotiation as per market prices.

The second five years period meant for competitive under

supervision. Oil producing companies will allow Super LCCs to submit their bids for works that have been previously assigned to them. Super LCCs will also be allowed to participate in other tenders like any other contractors.

Engagement Sessions with Local Community

Engagement Sessions with Local Community

13

Number of shareholders

Al Haditha

2507

Al Shawamikh

1150

Al Sahari

1368

Al Baraka

523

Al Khazain

872

Contracts Allocated to SLCCs

14

Company Name Area Share value OMR

Shareholders Contract Scope Initial Contract Value

Al Shawamikh Oilfield Services North 2,450,233 1,150 2 Well Pulling Hoists

Pipeline Integrity

$90 million

$22 million

Al Haditha Oilfield Services North 3,314,188 2,507 Flow line replacement $35million

Al Baraka Oilfield Services South 455,850 523 2 Well Pulling Hoists

Pipeline Integrity Flow line replacement

$90 million

$33 million $40 million

Al Sahari Oilfield Services South 1,244,825 1368 Well Services Intervention (CWI)

$110 million

Al Khazain Oilfield Services

Central 1,994,107 872

Contract Signing with Al Haditha for Flow line replacement

Contract Signing with Al Baraka for Well Pulling Hoists

Contract Signing with Al Shawamikh for Well Pulling Hoists

Contract Signing with Al Sahari for Well Services Intervention

19

Additional Support

Appointed a consultant to coach SLCC s to develop business plans, financial model, understanding contracts management and set up

HSE and HR management systems to industry standards

Seconded PDO experienced engineers to each of the SLCCS to better understand oil and gas operations

Allocating industrial plots and workshops at PDO owned location

Training Omanis living in the concession area to gain suitable skills for employment by SLCCs

Purchasing all initial necessary equipment to execute the assigned work

• Difficult to mange, develop and allocate works to many LCCs

• High expectations from LCCs and Super LCCs

• Significant efforts will be required to mobilize, train the 5 Supper LCCs workforce and develop the required competencies & HSE management system to be able to deliver against PDO core activities

• Create opportunities for the 5 SLCCs companies, from the very beginning, to focus their effort in developing their business in core activities.

• Enough scope of ‘core’ and ‘support’ work available for the newly formed 5 SLCCs and Al Ahliya LCCs respectively

• Maintaining Omanisation percentage

• Main Contractors resistant to allocate work to LCCs & develop them (future

competitors)

• MOG/PDO encourage the merge but LCCs A/B reluctant to merge with SLLCs

• PDO to continue support Al Ahliya LCCs (Class A & B)

SLCCs/LCCs Challenges

20

Expectation from Super LCCs

PDO expects from the Super LCCs to achieve and maintain the target levels of performance set out under the following categories:

• HSE compliance and performance • Business acumen development • Provide employment for Omanis & develop a skilled Omani workforce • Engage Al Ahliya LCCs in subcontracting activities • Managing Al Ahliya LCCs • Facilities and resources to run business smoothly • Become 1st class businesses & maintain high competencies • Provide quality service at competitive rates • Ensure a fair business environment • Social responsibilities

LCC/SLCC Way Forward

22

Super LCC (SLCC)

Lead Contractors

PDO

LCC

Allocated

Core Business

Super LCC (SLCC)

LCC

Allocated

Sept 2012 – June 2013

Super LCC (SLCC)

Lead Contractors

PDO

LCC

Interbid

Core Business

Super LCC (SLCC)

Ring fenced scope

LCC

Interbid (allocated until contract expire)

June 2013 – 2016*

Extra scope

Ring fenced scope

LCC/SLCC Way Forward (Post 2016)

23

Super LCC (SLCC)

Lead Contractors

PDO

Core Business

LCC

Interbid

BS 3

BS 2

BS 1

Civil works

Logistics/ Manpower

Mech./ Eng.

Sub

Sub

Post 2016

Extra scope

Ring fenced scope