Local Content: Lessons Learnt AOG March 2015

Local Content: Lessons Learnt
AOG March 2015
Bernadette Cullinane
By the Numbers
The potential to harness the benefits of capital projects for economic
development
> 48
<20
~40
>20
~8
2/3
Source: IEA: World Energy Investment Outlook Factsheet.
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2
Frontier Markets
Performance in frontier markets has become an increasingly
important differentiator for IOCs and their investors
70%
National Development Needs
(Human Development Index, Infrastructure
Rating, Electrification Rate )
Sudan
Mozambique
Angola
Uganda
Yemen
60%
Nigeria
Congo, Rep.
50%
40%
Pakistan
India
Indonesia
Vietnam
Gabon
Chad
Venezuela
Bolivia
Ecuador
Algeria
Syria Colombia
Peru
30%
Brazil
Argentina
Egypt
Ukraine China
Russia
Iran
Thailand
Mexico
20%
Malaysia
Australia
Qatar
UK
Norway
10% USA
Netherlands Canada
UAE
Denmark
0%
0%
10%
20%
Iraq
Equatorial Guinea
Turkmenistan
Kazakhstan
Azerbaijan
Trinidad &
Tobago
Libya
Kuwait
Brunei
Oman Saudi
30%
40%
50%
60%
70%
80%
Resource Dependence (Oil & Gas Rents as % of GDP)
Bubble size = risk weighted reserves ($ Oil & Gas reserves x political risk rating)
Valued @ Dec-14 prices: $54.23 / barrel; $3.74 / ‘000 cubic feet; Greater value and low er political risk = more attractive for
IOCs and larger bubble
Source: UNDP HDI, WEF Infrastructure, WEO Energy Access, PRS Political Risk, EIA Oil & Gas
Reserves, World Bank Oil & Gas Rents
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Developed markets
High risk markets
Frontier markets
3
Local Content
Many countries have already established local content requirements
NON EXHAUSTIVE
Norway
Denmark
Russia
Canada
UK
Azerbaijan
Kazakhstan
Libya
Egypt
Trinidad and
Tobago
China
Nigeria
Oman
Mexico
Malaysia
Brunei
Yemen
Colombia
Brazil
Ghana
Congo
Uganda
Indonesia
Tanzania
Venezuela
Angola
South Africa
Source: Accenture Research
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Mozambique
Australia
Countries with local content requirements or actions in progress or to be implemented
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Local Content Examples
The definition and implementation of local content strategies varies
Norway
United Kingdom
Development is driven by international
R&D partnerships and the focus on
knowledge transfer to local companies
Implementation of discretionary licensing,
audits of IOC purchases and financial
assistance to domestic companies
Nigeria
Tanzania
The Nigerian Content Development
Fund is used for training and
infrastructure development
At least 25% state participation in
production sharing agreements
Brazil
Oman
A local content requirement of 37-55%
during exploration and 55-65% during
development
90% Manpower target requirements in
production and operations
Ghana
Angola
Petroleum licensing and agreement
requires a 5% equity participation of a
local company
Angolanization policy seeks a 70%
management and local contractors in
operating IOC’s
Source: Accenture Research and global Local Content Council
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5
Evolution of Local Content
Evolution and multi-faceted nature of local content
Government & State Entity Relations
Strong
Standards
(compliance,
legal, HSE,
transparency)
Public
Relations &
Communications
National Supplier & NOC
Development
National Workforce &
Development
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Community
& Social
Development
Financial,
Economic
& Industrial
Development
6
Maturity levels
Maturity levels differ by country yielding varying results
Outcome
Local Content Policy
Maturity Level
• Small regional gains
• Small increase in
employment of local
labour
• Small increase in local
supply of goods and
services by small
enterprises
• Expansion of the
number of suppliers in
the chain
Basic Local
Content Model
Isolated
initiatives for
local industry
• Increased local supply of
goods and services by
medium / large enterprises
• Government incentives to
develop new business in
country and increase local
competitiveness
Emerging Local
Content Model
Level I
Level II
Level III
• Isolated actions to promote
local industry
• Often leveraged by foreign
companies
• Focus on local workforce
employment and local
infrastructure improvement
• Local content concept
defined
• Local content targets
are set
• Main supply
capabilities and gaps
identified
• Local content regulation
established
• Local content initiatives
sponsored by government
and private companies in
place
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• Local industry
internationalization
• Competitive industry
encourages development
of pioneer technologies
Excellence in
National
Industrial
Development
Level IV
• Supplier industry at worldclass Level (competitive to
export goods and services)
• Reduced need for
maintenance of Local
Content requirements
• Employment generation
and maximized income 7
Challenges in Capital Projects
Local Content and infrastructure accounted for over half of all nontechnical issues a recent global study
100 $1bn+
projects
$362bn
overruns
90.5 years
overruns
Root cause analysis
% of issues causing cost and schedule overruns by category
Non-technical
Technological
Geophysical
Talent
Financial volatility
Supplier availability / quality
Forecasting
Control / management
Engineering quality
Scope change
FEL
Local content
3% 3%2%
4%
5%
6%
6%
Infrastructure
4% 3%
28%
Enviro. regulation / lobby
Legislation
6%
42%
Political / social
11%
Environmental incident
7%
Ownership / rights
11%
22%
8%
12%
8%
Security
Corruption
11%
Source: Accenture Research
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A Framework for Local Content
A broad framework for safeguarding value
1. Strategic
Strategic
Planning
Operating
Models
Policies
& Strategies
2. Tactical
Demand &
Supply Planning
Internal
Processes
Development
Programs
Corporate Systems
KPIs
CAPEX
OPEX
3. Operational
Planning, Monitoring
& Reporting tools
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Australian Local Content Initiatives
Examples of existing Local Content initiatives
Project Opportunities: listing of projects Project Opportunities: Comprehensive
with corresponding tenders
online system with listing of projects and
suppliers
Supplier Directories: listing of suppliers’ Supplier Opportunities: Identifies over
profile by geography and industry
1,100 sub-tier operations and
maintenance opportunities that can be
targeted by SMEs
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10
Australian Local Content Outcomes
Local content in Australia for new projects increased whilst local
content in operating projects is close to 80%
2013
2009
New
Projects
26%
Australia
48%
52%
Australia
Other
Other
74%
AUD$ 16.5 Billion
2013
2009
Operating
Projects
23%
20%
Australia
80%
Source: Department of Western Australia; Department of Commerce Local Content
Report May 2011 & Local Content Report May 2014
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Australia
Other
Other
77%
AUD$ 14.1 Billion
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Impact of the Industry Participation Framework
State and company related funding created a measureable impact
ROI of $1
Monetary Impact
$100
200
150
100
$75
50
0
Round 1
Round 2*
$50
Total value of major
contracts (AUD $M)
$182.5
$14.2
Labour Impact
$25
400
300
200
$0
100
Round 1
Round 2*
*Round 2 results are for regional contracts only. Round 1 results included all
contracts.
Source: Department of Western Australia; Department of Commerce Local Content
Report May 2014
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0
New Staff
Round 2*
Round 1
16.5
292
New
Apprentices
2
26
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Local Content in Action
Opportunities are increasingly prevalent as we transition to
operations
“The fibre optic cable
will Onslow, Barrow
Island, Gnoorea and
Wheatstone”
“The first Native Title
Agreement for
onshore oil
production in the
Kimberley”
Octob er 2014
Australian EPA
March 2015
The West Australian
“An opportunity for
EDG to expand their
business and staff in
Australia”
June 2013
GHD Press Release
“The vessels have
been specifically
designed to meet the
FLNG facility’s
unique marine
services”
Feb ruary 2014
Shell Press Release
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