sagia presentation on energy sector_final

7/23/2019 SAGIA Presentation on Energy Sector_FINAL

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Energy sector in GCCFinancing the change toward an integrated value chain

12th March 2013


2/19

1

2013 World Gas Reserves

GCC Oil & Gas

15

5

9

9

11

18Others

China

2USA 1

Russia

Iraq

Iran

Canada

GCC30

Venezuela

GCC is a major contributor to world economy

~3x

GDP

1.9%

Population

0.7%

7.9

6.5

5.2

4.3

2.3

1.5

China

India

GCC

Brazil

USA

UK

100% = 1638 Bn bbls

100% = 6,793,369 Bcf

21

4 4

17

25

3 3United StatesNigeria

Others

23GCC

Iran

TurkmenistanVenezuela

Russia

2013 World Oil Reserves

SOURCE: Oil & Gas Journal, Tecnon, United Nations, Team analysis

GDP Growth (real),

GCC GDP & Pop. as a % of World GDP & Pop.

%

2011-2016


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2

GCC is also a very competitive and attractive business location

65

115

205

225

560

750KSA

Bahrain

Oman

Kuwait

Qatar

UAE

Kuwait

Lebanon

Oman

Qatar

Saudi Arabia

UAE2

Bahrain

JordanIranIraq

Yemen

Siria

Palestian

Saudi example

Population is distinctly youthful - 30% of Saudis betweenthe ages of 15 and 29

Starting a business used to require 13 procedures in 2006;now it takes only 3

The time to start a business fell from 39 days in 2006 tojust 5 days in 2012

1 Projects that are planned or underway - public spending programs on infrastructure, education, and health

2 Survey from June 2012; http://www.doingbusiness.org/rankings

SOURCE: MEEDProjects, Samba 2012-2016 Report, Team Analysis, World-bank reports

22

22

xx

xx 2013 Ease of doing business rankings2

26

26

40

40

82

82

47

47

42

42

GCC Total Population: ~47 million Public Spending,1 USD Bn

Local Workforce and Reform Facts


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3

Nominal GDP

Percent, 20111Country

Oil Exports

% of Total Govt

Revenue

8080

4040

8080

7070

7070

8484

The energy sector is prime driver of our economy and

competitive advantage

SOURCE: CIA World Factbook; Economist Intelligence Unit

1 Oil/non-oil GDP split based on 2010 data for Saudi Arabia, UAE and Bahrain. Estimates for other countries.

2 Includes oil, gas, and refined products

3 Primarily includes construction, real estate, transportation and communication, and banking sectors

11

12

5

8

10

13

10GCC 10045 38 6

Bahrain 10030 57

Oman 10041 40 9

Qatar 10068 24

Kuwait 10055 40

UAE 10030 43 15

Saudi Arabia 10046 38 5

Hydrocarbon2

Other Non-Hydrocarbon3

Trade Manufacturing

Source of

competitive

advantage

Source of

competitive

advantage


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Regional players have successfully taken initiatives, structured

partnership and even made some acquisitions recently to grow

local content

SOURCE: Press Articles; Team Analysis

Company Successful Initiatives & Partnerships

TAQA in Saudi Arabia has subsidiaries that are partnering withprominent service providers, such as Schlumberger and CCG Veritas

TAQA in Abu Dhabi was founded in 2005 and has made largeacquisitions to get onshore and offshore production assets

However, there are few local significant oilfield service and equipmentproviders in the region and international companies capture >80% of

NOC spend

NOCs focused on training and development of local workforce

Saudi Aramcos General Engineering Services Plus (GES+)initiative requires that the majority of engineering services

requirements to be conducted in KSA

The ADNOC Sustainability Performance Initiative was launched toassure a homogeneous balance between the communitys needs

and Earths resources

Qatar Petroleum is working towards an Oil & Gas Sector National

Workforce Development Initiative to improve skill shortages andgaps that limit performance and business objectives achievement.N

OC

s

OFSEComp

anies


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The energy sector is strong but still young in many aspects

84% of GCC petroleum exports is crude oil (89% for KSA)

Only 25% of basic petrochemicals produced in GCC are exported

Very little engineering activities take place in GCC for example incase of KSA less than 20% of engineering is done locally

Most of the R&D and education capabilities are still in early stagesas the majority of O&G related institutions were established after

2000

SOURCE: GPCA 2012, institution websites


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6SOURCE: Team Analysis

Value chain analysis for oil field product categoriesLimited Activity

Reservoir/

Seismic

Oilfield product categories value chain

National OilCompanies

Regional

OFSE

companies

Intl OFSE

companies

with

regional

offices

Intl OFSE

companies

outside of

region

Type

of Company

Drilling Equip

Manufacturing

Downhole &

Well Services

Other Drilling

Services

Field Ops &

Transportation

Strong presence


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Distribution of spend on large CapEx projects

1 Some pre-engineering, engineering, and procurement activities happen in parallel

NOT EXHAUSTIVE

Total

184

GCC

34

Foreign

based in GCC

36

Foreign

114

Weatherford

TPIC

PTT

Daqing

Daelim

Iraqi Drilling

Company

Halliburton

Baker Hughes

China Petroleum

Hyundai -

Snamprogetti

STX

Sonangol

Schlumberger

Global Petro

Kish

SK E&C

Samsung

Petrofac

Foreign GCC

SOURCE: Zawya

Oil and gas and petrochemical project mix among EPC contractors

USD bn, active projects, varying end dates

CCE

MMG

JGC

Al Ahmadiah

Jv of Almeer

and Fluor

Kuwait

Zamil Group

Kharafi

National

Occidental Middle East

JV of Schlumberger and

Iraqi Drilling

Saipem SpA Kuwait

Samsung Saudi Arabia

Company Limited

McDermott International

Middle East JV of Chiyoda - Qatar

and Technip Doha


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Isolated actions to

develop the local

industry, often

leveraged by foreigncapital to boost use

of local workforce

and improve local

infrastructure

Clear view on supply

gaps and programs

initiated to address

the gaps. E.g.,minimum local content

requirements to bid

for exploration and

acquisition of blocks

Clearly defined and

implemented strategies

based on supply gaps.

High-level of professionalqualification, import

substitution and

technology development

initiatives

Supply industry at world-

class level (competitive

to export goods and

services). Achieved highemployment generation,

maximized income and

limited local content

incentives

Local contentmaturity level

National industrialdevelopment

Emerging localcontent model

Basic localcontent model

Isolated initiativesfor the local industry

Compared to other countries with similar natural reserves GCC countries

are lagging behind with regards to local content development

SOURCE: Accenture analysis, Press search

NorwayUK

Tanzania

Indonesia

South Africa

Colombia

Trinidad

& Tobago

Nigeria

Malaysia

Angola

Mexico Brazil

GCC

China1

1 Follows different economic model focused on exporting low-end goods


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9

Active projects in GCC by sector, 2012

USD bn

We must leverage heavy spend on the sector to build local

economy around energy sector

242

124

104

141

Total

611

Power

and water

Pet-chemRefiningOil & gas

upstream

SOURCE: DMS Projects, Source: Rystad Energy

CapEx expected to grow at

~3.6 % p.a till 20201CapEx expected to grow at

~3.6 % p.a till 20201

1 Combination of expected CapEx growth in onshore and offshore spend till 2020


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Some thoughts on actionable localization programs

Themes Description

Structured national /

regional manpower

plan for oil and gas

sector

Regional and/or national level planning exercise to identify andfill skill gaps to meet demand over the next 10 years

Partnership with international institution to train local talent ona wide range of skills over a longer time frame

Enhanced

manufacturing

capabilities

Focus on developing local manufacturing capabilities for oilfield equipment e.g. tubular goods, drilling equipment etc

Develop cluster program and strategy procurement to enableattraction of leading manufactures

Localization policy

mindful of need to

optimize development

Policy guidelines to ensure meaningful share of local contenton manufacturing and services. Examples mandating:

- % of engineering done locally- % of work awarded to locally manufactured materials- % of work to SMEs

Leading edge

technology

development through

R&D

Development of technology and engineering skills for oil & gassector (e.g. for oil field service equipment) staring with low to

medium complexity engineering

1

2

3

4


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In conclusion,

Energy sector is a key enabler and source of pride forthe region, yet it remains attractive and young for

investors across the value chain. This is an opportune

time for investors to leverage and build on an already

strong foundation


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Back up


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13

GCC countries play a much larger role in the global economy

than their size may indicate

SOURCE: 2011 United Nations data

2011 GDP

USD Bn

GDP

Rank2011 Population

Millions

Population

rank

26

73Oman

KSA

339

597

Kuwait

UAE

161

173Qatar

Bahrain

20

30

51

54

62

93

43

94

132

148

131

1551.3

3.4

3.6

1.9

8.3

28.1

GCC share of global GDP is

~3x share of global population


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We have not built sufficient capacity to leverage our natural

resources; GCC has the lowest refining capacities compared to

leading oil

SOURCE: Oil & Gas Journal , OPEC, 2010 BP Statistical Yearbook

21

34

41

58

168

281

62

52

28

18

Saudi Arabia

UAE

USA

China

Canada

Iran

Russia

Venezuela

Kuwait

Iraq

The GCC countriesare the lowest

among the top

producers in terms

of refining capacity

as compared to oil

produced

Among developingcountries,

Venezuela, Iran,

and China are also

way ahead of the

GCC

Refining Capacity vs. Oil Production

Percent


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1515SOURCE: Press clippings, Tecnon, Team analysis

Downstream3Upstream2

Example ; For hydrocarbon-based petrochemicals, the focus

today is on base chemicals upstream step

1 Based on 65 petrochemical products produced in GCC (excluding speciality chemicals)

2 Basic petrochemical= 2-3 production steps from cracker/aromatics unit

3 Rest of petrochemicals, no converted products

99 98 96

100% =

2015F

112

4

10

87

2

2005

46

1

PETRCOHEMICALS

GCC petrochemicals capacity1

Mtpa

Small capacity

market share in

value chain

steps withhigher margins

Globally,

downstream accounts

for >15% of total

capacity


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We have also not invested enough to build local HR capabilities

in-line with the importance of energy sector; Example on

petrochemicals

SOURCE: Tecnon, Federal statistical office, Team analysis

~10

2 - 3

Despite 3x relative GDP contribution of petrochemical

industry in KSA compared to Germany, KSA will add 12x

Germanys capacity

Additional chemical

engineers between

2013 and 2020

No. of graduates(thousands)

1 Non oil and gas GDP, direct contribution

but only 30% of their

chemical engineers

ESTIMATES

2011 petrochemical

GDP contribution

1

Percent

1.5

4.5

Germany

KSA

~1.5

~15

Petrochemicals

capacity addition

between 2013 and 2020Mtpa


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Brazil, Norway, and China have successfully demonstrated how

local content development can be achieved

SOURCE: Team Analysis

Background

Applicability

Cluster & Technology

Driven Approach

Regulation & Target-Driven

ApproachCreation of Big National

Champions Approach

Major discoveries in pre-

salt basins with significantpetrochemical resources

prompted action to develop

local capabilities

Prominp program launched

to ensure long-term survivalof local O&G industry (25

sectors & 185 employment

categories identified aiming

to deliver 250,000 trained

people by 2015.

No direct regulation ofmanpower, but instead oflocal content (up to 65% of

goods and services used in

the oil industry must be

produced in Brazil).

In 1970s-80s, the

Norwegian governmentdeliberately pushed local

capabilities in the E&P

sector through its prefe-

rence for local companies

Statoil is the NOC, and it

develops new technologyventures. Recent

successes include pipeline

rehab and tong to handle

complex casing operations

Schlumberger invests 12%of R&D in Norway

State owned enterprises

CNOOC and CNPC havebeen acquiring capabilities

and expanding through

smart acquisitions and

innovation investments

CNOOC recently acquired

a Norwegian drillingcompany to get deepwater

equipment and expertise

CNPC invests and recruitsfrom national R&D

institutions as well as

working with foreign

contractors for skills thatthey lack internally


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GCC countries therefore need to make strategic choices by

targeting a set of industries to diversify their industrial base

SOURCE: Hausmann and Klinger (2008), drawn from the 2012 Growth Ventures study:A View from Economic Complexity, prepared for National

Industrial Clusters Development Program

Low

Low economic complexity, with few

nearby opportunities for

diversification

Low economic complexity, but withmany nearby product opportunities

to move into

High economic complexity, andmany products achievable given the

national industrial capabilities

High economic complexity, but with

few remaining opportunities for

diversification

Strategic choices

Parsimonious industrial policy Natural diversification

Competitiveness policy

Proximity of new opportunities to existing

products and capabilities

High

Current level ofcomplexity in

the economyLow

High

sagia presentation on energy sector_final

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