Oslo18th February

Localcontent
ByWillyHOlsen,senioradviserINTSOK willy.olsen@intsok.com willyh8@yahoo.no

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Thenewglobal economicpowerhouse

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BP/CNPC Exxon/Shell Lukoil/Statoil Shell/Petronas ENI

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We'rethe newkidson theblock,"

StephenBull, Statoil
Marcellusisoneoftheshalegasplays,transformingUSgasproduction. StatoilhasbeenattheheartoftheplaysinceNovember2008 Acquireda32.5%interestintheAppalachianacreagefromChesapeake Anambitiousdrillingprogramwith13,50017,000horizontalwells

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Thelargestglobaloffshoremarkets

Expectedexpenditure201013
BillionUSD
Source: INTSOKs annual market report

Aglobaldriveforlocalcontent
Oldtimers Newcomers

Norway UK Algeria Libya Mexico Ecuador T&T Venezuela Ghana Nigeria Angola

Russia

Canada

Kazakhstan Azerbaijan Iraq Iran Saudi Tanzania Indonesia Malaysia TimorLeste PNG Australia

Bolivia Brazil

Source:WillyHOlsen

Oilpricewillinfluencelocalcontentstrategies

Localcontent

NOCsmoreassertive Localcontentimportant

Efficiencydrive Industrystructurechange Nolocalcontent

Localcontentshouldaddvalue
Keydefinitionfeatures Basicpremises

ValueCreation ValueAdded Knowledgeretention Economicmultiplier effect EconomicallySound

EqualorBetter Quality Cost Delivery Safety&Environment NurturenotSubsidize

What is the extra mile that you need to take?

Local content definition and criteria but notcreate alarge bureaucracy

Thequantumofcomposite valueaddedorcreatedin theGhanaianeconomy throughtheutilizationof Ghanaianhumanand materialresourcesforthe provisionofgoodsand servicestothepetroleum industrywithinacceptable quality,health,safetyand environmentalstandardss tostimulatethe developmentofindigenous capabilities
Source:GNPClocalcontentgroup

%ofGhanaianmanagementinservice companies %ofGhanaianownership %ofGhanaianEmployees %valueofservicesprovidedbyGhanaians; %valueofGhanaianrawmaterials %valueofGhanaianFinishedGoods Infrastructuralinvestments TechnologyTransfer/Capacity Development Newemploymentopportunities Ghanaianparticipationintheprocurement ofimportedgoods

Neverforgetour ownexperiences

Apartnershipapproach
Legislationfrom1972to1995 Useofcarrotsandstick Stimulatingcompetitionand cooperation Activegovernmentinvolvement Technologytransfer agreements TaxincentivesforR&D BackingjointR&Dinitiatives Threeproactiveoilcompanies Statoil,Hydro,Saga Solidindustrybaseandcompetence

Operators

Trolloil atestbedfornewsolutions

Hydroasoperatorusedsomeoftheworldsmostadvancedtechnology companiesintheTrollOilproject Theprojectwasnotfornewcomerswithlackofexperience Theinternationalheavyweightsweremobilized

BakerHughes Halliburton Schlumberger

Theoutcomewasamajortechnologicalsuccessstoryandtransfer of technologytoHydroandseveralsmallerNorwegiansubcontractors.
Source:EconreportforHydro

FieldsthatliftedNorwaystechnologybasis
Kristin Tyrihans Tordis IOR

High pressure High temperature Advanced wells

Record long pipeline heating Subsea raw seawater injection

Subsea separation boosting and injection system

Thelocalcontentimpactonthecluster

BillionNOK
Source:OED/Menonreport,WHOanalysis

Whocandeliver?

Lackofalignmentofinterests
Governmentpriorities Fairshareofrevenues Localcapabilitydevelopment Jobandskillcreation Improvedinfrastructure Diversifiedanddeveloped nation Sustainable future Oilcompanypriorities Reserveandproductiongrowth Competitiveprofitability Supplierchaincostefficiency Costeffectivelocalcontent compliance Licensetooperate Shareholder value

NOCsarethenationscustodians

Morethan100NOCsaroundtheworld Theycontrolmostofthereserves Theyareverydifferent Manyhavebecomecommercialized Manyareindireneedofreforms MostNOCswerecreatedwithamandateto implementgovernmentenergypolicies Theoverallmissionwastoincreasestaterevenues andactasaneconomicengine Theywillbethelocalcontentdriver

Petronas,PetrobrasandStatoil successstories SaudiAramco,Sonangol,NNPC,KMGdrivingtheagenda

17

Theoilindustrystructurehaschanged

Operationand maintenance

Development

Geologyand geophysics

Prospect generation

1970& 1980s

Oilcompaniescoulddolocalcontent

Engineering

Exploration

Operationand maintenance

Development

Geologyand geophysics

Oilcompaniesneedhelptodolocalcontent
Oilcompanies
Source:WillyHOlsen

Contractors

Drilling

Now

Both

Wellservices

Specialist maintenance

Prospect generation

Engineering

Exploration

Wellservices

Specialist maintenance

Drilling

ThecaseofBrazil

Largepotentialfor ouradvanced technological solutions

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Everything whichcanbe doneinBrazil shouldbedone inBrazil

Heistheleadingthe worldsmostaggressive oilcompany

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Thestrategicapproach
Challenge Maximizelocal content Strategicissues

Qualification
Technology qualification Professional qualification Supplier development Industry capacity

Industrialpolicy
Financing Taxpolicy Regulation Fostermicro andSMEs

Industryperformance
Sustainable Competitive HSE Initiativeson competitiveness

Funding initiatives

Source:BasedonPetrobrasinformation

CENPES anislandofknowledge
R&DManagement

R&DExploration

R&DProduction Basic Engineering

R&DRefining Technology Management

R&DGas&Energy

CenpeswasthesourceoftheinnovativesolutionsthatmadePetrobras therecognizedworldleaderindeepwaterandultradeepwater Cenpeshas227laboratoriesasaresultofrecentexpansion Near2,000workfortheinstitutiondirectly Cenpesisthemostvisiblefeatureinagiantnetworkofinvestmentsthat Petrobrashasmadeintheareaoftechnology InvestedclosetoUS$700millioninR&D2008

Needsubstantialgrowthinlocalcapacity

imports

5.Incentiveforsettlingdown internationalcompaniesin Brazil 4.Incentiveforassociation betweennationaland internationalcompanies 3.Incentivefornewnational entrants 2.Developcompetitionamong mediumcompetitivesectors 1.Increaseproductivitycapacityof highlycompetitivesectors

Increasein NationalSupply CapacityofG&S imports

Current Demand

Future Demand

Aker

Sevan

Acergy Petrobras

Seadrill

Siemens

Marintek AGR

FMC

It is not necessary for a Norwegian company that has ambition to gain a contract to be present in Brazil, but it is an advantage. All the Norwegian companies I do business with are represented in Rio
Jose Formigli Petrobras, Vice President, Presalt Development
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ThecaseofAngola

WehavetocreateconditionstoenablemoreAngolan citizenstoplayapartintheeconomy. TherewillnotbeaconsolidatedsocietyinAngolaifthe minoritycanttakepartinit. Untilnowbeenleaningtowardsforeigndomination Itsnecessarythatlittlebylittlethistrendbereversed.

ManuelVincente,CEOofSonangol,2009

Thelocalcontentchallenge
Thedeepwaterprojectsinthelastdecadehasbeen basedoncomplextechnicalsolution Sonangoldrivinglocalcontentagenda Effortstobuildanindustrialbasebeganinthe1980s SubsidiarieswithTechnip,Saipem,PrideandAcergy Equityinterestsinspecialistandlogisticservices Equityinterestsinyardsandsupplybases Jointventureswithforeignfirmshaveresultedin constructionyards Localcontentcanmeanlongerprojectscheduleand higherrisks andlessrevenuestoAngola MorepressuretouseAngolanstaff

FMCsfabricationexpansioninAngola
Pazflor firstsubsea separation

GreaterPlutonio 45Wells
Girassol/Jasmin 45Wells Nemba 7wells LargestFMCcontractever Furtherexpansion oflocalproduction andsupport Rosa 23Wells

JumperFabrication InvestmentinBase

Jumper+ Manifold Fabrication

Jumper+ ManifoldFabrication XmasTreeAssembly investmentinbase

Graduallocalexpansionsincefirstcontractin1997 22Angolansemployedin2000 now250 80%ofworkforceareAngolans aimtohave97%by2013

ThecaseofRussia

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Inlinewithyourorders,anewbusinesstobuildsea platformshasbeenestablishedatthecityofAstrakhan AllAstrakhansshipyardsaswellastwoshipyardsin Kaliningradandotherfacilitiescanhandletheworkforthe Caspianprojects

VagitAlekperov,LukoilsCEO,inmeetingwithPrimeMinisterPutin 21September2009.

Norwegianconcretesolvinglocalcontent
ExxonMobilandShellhavelocalcontent requirementsinSakhalin
Manhoursandweight

AkerSolutionsGBSatSakhalin2enabled Shelltomeetalllocalcontenttargets Structure biggesteverbuiltinRussia

92%manhours 97%materialsbyweight 700Russianfirmsinvolved

AkerSolutionisnowengagedinthe ExxonMobilprojectatSakhalin1 Firstproductionexpected2015

Oilcompanieshavelargeinternalorganisation
TheRussianoilservicemarketis stillrelativelyundeveloped Oilcompanies 80%internalin 2003beforeoutsourcing Independentdomesticservice companiesemergedinrecentyears Oftenspunofffromoilcompanies likeLukoil,TNKBPandRosneft TNKBPsaletoChinablocked Schlumbergerhasmadeseveral largeacquisitionsandhas14,000 employeesinRussia

Marketshare

Oilcompanies

Lessonslearned

Lessonslearnedfromsuccessfulcountries
Needahighlevelchampion Thinkstrategically,Actpractically Identifycapabilitiesandgaps Buildcapabilitiesandcapacities Strengtheninstitutions Pickpartnersthatsupportyourstrategy Beselectivebasedonstrategicvalue Engageearlyinthelifecycle Disaggregatecontracts DoitinCountry first Doitwithlocals willcomenext

Whathasbeensuccessfultools?
Legislationandregulations,concessionandPSCs Project,procurement&contractstrategies Localcapacitybuilding,trainingandR&Difnecessary throughtaxincentives Technologytransferrequirements SupportforSMEsandentrepreneurs Registryofcompetentandqualifiedlocalvendors Adviceonpotentialsforjointventuresandother mechanismsofcooperationwithforeigncompanies Clusterprograms Mentorprograms Infrastructureinitiatives Supplybasedevelopments Enterprisecenters

Youwillhavetoactearly!

Ability Abilityto to Influence InfluenceCost Cost

Project Project Sanction Sanction

Project Project Expenditures Expenditures

Opportunity appraisal/ Feasibility

ConceptSelection

ConceptDefinition

SystemDefinition

ProjectExecution

Localcontentisnotalwayscostless

Governmentsshouldnotpickwinners andsubsidizeforever Cannotrefrainfromengaginginsomekindofindustrialpolicy Havetocarefullybalancestructuralnecessitiesandthedangers of publiclyinduceddistortions Badlyenforcedlocalcontentpolicymayimpedeeconomicgrowth Consumingwealthratherthancreatingvalue Riskofpermanentprotection Corruptionandredtape

Source: Rodrik, 2004, Hausman & Rodrik, 2006, Per Heum, 2003 & 2008