Local Content: Lessons Learnt

AOG March 2015

Bernadette Cullinane

Copyright © 2015 Accenture All rights reserved. 2

By the Numbers

Source: IEA: World Energy Investment Outlook Factsheet.

> 48 <20

~40 >20

~8 2/3

The potential to harness the benefits of capital projects for economic

development

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Frontier Markets

Resource Dependence (Oil & Gas Rents as % of GDP)

Nat

ion

al D

evel

op

me

nt

Nee

ds

(Hu

ma

n D

evel

op

men

t In

dex

, In

fra

stru

ctu

re

Ra

tin

g, E

lect

rifi

cati

on

Ra

te )

Venezuela

Saudi

Iran Russia

Canada

Iraq

UAE

Qatar

Kuwait

USA

Libya

Nigeria

Kazakhstan China

Algeria Turkmenistan Brazil

Indonesia

Mexico

Angola

Norway

Malaysia

Egypt

Azerbaijan

India

Ecuador

Oman

Vietnam

Sudan

Australia

Yemen

UK

Argentina

Netherlands

Ukraine

Syria Colombia

Uganda

Brunei

Pakistan Gabon

Congo, Rep.

Trinidad & Tobago

Peru

Chad

Thailand

Equatorial Guinea Bolivia

Denmark

Mozambique

0%

10%

20%

30%

40%

50%

60%

70%

0% 10% 20% 30% 40% 50% 60% 70% 80%

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

Developed markets

High risk markets

Frontier markets

Performance in frontier markets has become an increasingly

important differentiator for IOCs and their investors

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Local Content

Countries with local content requirements or actions in progress or to be implemented

NON EXHAUSTIVE

Indonesia

Venezuela

Australia

Tanzania

Malaysia

Norway

Angola

Mexico

Brazil Colombia

Trinidad and

Tobago

Uganda

South Africa

Congo

Oman

Kazakhstan

Nigeria

UK

Ghana

Yemen

Denmark

China

Egypt

Azerbaijan

Libya

Russia

Canada

Mozambique

Brunei

Source: Accenture Research

Many countries have already established local content requirements

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Local Content Examples

Source: Accenture Research and global Local Content Council

Brazil

A local content requirement of 37-55% during exploration and 55-65% during

development

Oman

90% Manpower target requirements in production and operations

Nigeria

The Nigerian Content Development Fund is used for training and

infrastructure development

Tanzania

At least 25% state participation in production sharing agreements

Ghana

Petroleum licensing and agreement requires a 5% equity participation of a

local company

Angola

Angolanization policy seeks a 70% management and local contractors in

operating IOC’s

The definition and implementation of local content strategies varies

Norway

Development is driven by international R&D partnerships and the focus on

knowledge transfer to local companies

United Kingdom

Implementation of discretionary licensing, audits of IOC purchases and financial

assistance to domestic companies

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Evolution and multi-faceted nature of local content

Evolution of Local Content

Government & State Entity Relations

National Supplier & NOC Development

National Workforce & Development

Strong Standards (compliance, legal, HSE, transparency)

Community & Social Development

Financial, Economic & Industrial Development

Public Relations & Communications

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Maturity levels

Isolated initiatives for local industry

Basic Local Content Model

Emerging Local Content Model

Excellence in National

Industrial Development

• 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

• Supplier industry at world-

class Level (competitive to

export goods and services)

• Reduced need for

maintenance of Local

Content requirements

• Employment generation

and maximized income

Loca

l Con

tent

Pol

icy

Mat

urit

y Le

vel

Level I Level II Level III Level IV

• 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

• Increased local supply of

goods and services by

medium / large enterprises

• Government incentives to

develop new business in

country and increase local

competitiveness

• Local industry

internationalization

• Competitive industry

encourages development

of pioneer technologies

Outcome Maturity levels differ by country yielding varying results

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Local Content and infrastructure accounted for over half of all non-

technical issues a recent global study

Challenges in Capital Projects

42%

11% 8%

8%

7%

6%

6%

4% 3% 3% 2%

Non-technical

Technological

Geophysical

Talent

Financial volatility

Supplier availability / quality

Forecasting

Control / management

Engineering quality

Scope change

FEL

28%

22% 12%

11%

11%

6%

5% 4% 3%

Local content

Infrastructure

Enviro. regulation / lobby

Legislation

Political / social

Environmental incident

Ownership / rights

Security

Corruption

100 $1bn+

projects

$362bn

overruns

90.5 years

overruns

Root cause analysis

% of issues causing cost and schedule overruns by category

Source: Accenture Research

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2. Tactical

A Framework for Local Content

1. Strategic Strategic Planning

Operating Models

Policies & Strategies

3. Operational Planning, Monitoring & Reporting tools

Corporate Systems KPIs

Demand & Supply Planning

Internal Processes

Development Programs

CAPEX

OPEX

A broad framework for safeguarding value

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Australian Local Content Initiatives

Project Opportunities: Comprehensive

online system with listing of projects and

suppliers

Supplier Opportunities: Identifies over 1,100 sub-tier operations and

maintenance opportunities that can be

targeted by SMEs

Project Opportunities: listing of projects

with corresponding tenders

Supplier Directories: listing of suppliers’ profile by geography and industry

Examples of existing Local Content initiatives

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New

Projects

Operating

Projects

AUD$ 16.5 Billion

AUD$ 14.1 Billion

48%

52%

2009

Australia Other

80%

20%

2009

Australia Other

77%

23%

2013

Australia Other

74%

26%

2013

Australia Other

Australian Local Content Outcomes

Source: Department of Western Australia; Department of Commerce Local Content

Report May 2011 & Local Content Report May 2014

Local content in Australia for new projects increased whilst local

content in operating projects is close to 80%

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Impact of the Industry Participation Framework

Total value of majorcontracts (AUD $M)

Round 1 $182.5

Round 2* $14.2

0

50

100

150

200

Monetary Impact

New StaffNew

Apprentices

Round 2* 16.5 2

Round 1 292 26

0

100

200

300

400

Labour Impact

$0

$25

$50

$75

$100

Round 1 Round 2*

ROI of $1

Source: Department of Western Australia; Department of Commerce Local Content

Report May 2014

*Round 2 results are for regional contracts only. Round 1 results included all contracts.

State and company related funding created a measureable impact

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Local Content in Action

“The first Native Title

Agreement for

onshore oil

production in the

Kimberley”

March 2015 The West Australian

“The fibre optic cable

will Onslow, Barrow

Island, Gnoorea and

Wheatstone”

October 2014

Australian EPA

“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”

February 2014

Shell Press Release

Opportunities are increasingly prevalent as we transition to

operations