oil and gas where is the value added? how do you get it?

Extracting from

an Extractive IndustryMaximising Local Value in the Trinidad & Tobago Energy Sector

Anthony E. PaulManaging Director,

Caribbean Energy [email protected], 7th Feb, 2008

Oil and Gas Where is the Value Added?

How Do You Get it?

2Anthony E. Paul © February 2008

Contents

• CONTEXT– The Premise

– Where we started

• The Vision– Energy Vision 2020

– Energy Sector’s role in national development

• Policy Development

• Strategies

• Current Status

• Summary & Lessons Learnt


Trinidad & Tobago - Location

GUIANA SHIELD

EASTERN VENEZUELA BASIN

VENEZUELA

TRINIDAD

TOBAG O

GRENADA

R I V E R

O R I ON C O

200 M .USA

Venezuela

T&T

Eastern Venezuela Basin – one of most prolific in the world

Ideally situated for accessing major/high value markets


Oil & Gas ProductionHistory & A Conservative Forecast - 2023

Ministry of Energy & Energy Industries

ALNG IV


Context

• The Premise– Past experiences

• The “Plantation Economy”• “Resource Curse”

– We have another chance to get it right• For ourselves• For future generations


Context

• Where we started– E&P

• Big natural gas discoveries (1990s)• Major field developments• Increasing production and operations

– Downstream• Natural gas industry growth

– LNG

– Chemicals

– Services Growth


Leverage Upstream Opportunity

Sustained and Continuous Upstream Growth , underpinned by great exploration success story – Natural Gas is DIFFERENT

0

500

1000

1500

2000

2500

3000

3500

4000

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

mm

cfd

MDQ + 200 MMCFD Cushion GasFuture Field Developments (Conceptual)


Major Upstream Third Party Service sub-sectors & spend - Some Services enable transfer to other sub-sectors and industries

AC

TIV

ITY

UPSTREAM

Exploration

MIDSTREAM DOWNSTREAM

ProductionDevelopment Power / LNGChemicals, Metals etc.

Engineering, Fabrication & Construction

Drilling, Well Services & Rigs

Subsurface Services

Consulting, Professional Services and Business Office Support

Operations Support & Production

Logistics (marine, water, land, air)

40%

31%15%

6%

2%5%1%

AC

TIV

ITY

UPSTREAM

Exploration

MIDSTREAM DOWNSTREAM

ProductionDevelopment Power / LNGChemicals, Metals etc.

Engineering, Fabrication & ConstructionEngineering, Fabrication & Construction

Drilling, Well Services & RigsDrilling, Well Services & Rigs

Subsurface ServicesSubsurface Services

Consulting, Professional Services and Business Office SupportConsulting, Professional Services and Business Office Support

Operations Support & ProductionOperations Support & Production

Logistics (marine, water, land, air)Logistics (marine, water, land, air)

40%

31%15%

6%

2%5%1%

40%

31%15%

6%

2%

40%

31%15%

6%

2%5%1% 5%1%


Contents






• Strategies

• Current Status



The Energy Sector Plays a Major Role in T&T’s Development

Trinidad and Tobago has embarked on an ambitious and far-reaching programme to achieve widespread and sustainable development by the year 2020.

The energy industry is the primary driver of economic activity in T&T, accounting for an average of 36.6% of the country’s GDP over 2001 to 2005 (based on constant 2000 prices). For 2006, this has risen to 45.1%

Because of its scale and scope, the energy sector will continue to be a major driver for economic development, while providing a platform for significant development of:

People, Enterprises

The Capital market and Innovation and Technology

These are key ingredients in achieving the “Vision 2020” goals.

This allows us an opportunity to use the energy sector as an agent for sustainable development and diversification.


Increasing Local Value-Add – The Trinidad & Tobago Framework

Local Value-Add building blocks: Human Capability – employment, training, development and internationalisation (making globally competitive) of Trinidad and Tobago nationals in:• Operations skills - technical, operational and managerial capability. • Strategic business skills - commercial, analytical, business development and

leadership capability..

Enterprise Capability – improving the value-add, know-how and innovation capability of local businesses and institutions, by developing and enhancing:• governance • access to and adoption of best-in-class business practices, knowledge,

tools, technology, processes and standards• market share and reach (locally and internationally)·• level of local control and ownership• transferability to government, education & other sectors

Capital markets – encouraging the growth of the use of the local capital market through its role as:• A source of debt and equity financing.• A mechanism for:

i. increased levels of in-country profit retention and ii. public trading of Trinidad and Tobago businesses, to: - promote good corporate governance and - wider wealth distribution.

Source: A.E. Paul 2003

OPERATIONS SKILLSOPERATIONS SKILLS

STRATEGIC SKILLSSTRATEGIC SKILLS

OWNERSHIP & OWNERSHIP & CONTROLCONTROL

Technical Managerial Operational

EN

TER

PR

ISE

DE

VE

LO

PM

EN

T

LOCAL LOCAL CAPITAL & CAPITAL &

PUBLIC PUBLIC TRADINGTRADING

Commercial Business DevHU

MA

N

CA

PA

BIL

ITY

CA

PIT

AL

MA

RK

ETS

Leadership Analytical

Technology tfr. Innovation

Alliances & Collaboration

“Knowledge” skills

Moving up the pyramid enhances sustainability through the creation of transferable capability

OPERATIONS SKILLSOPERATIONS SKILLS

STRATEGIC SKILLSSTRATEGIC SKILLS

OWNERSHIP & OWNERSHIP & CONTROLCONTROL

Technical Managerial Operational

EN

TER

PR

ISE

DE

VE

LO

PM

EN

T

LOCAL LOCAL CAPITAL & CAPITAL &

PUBLIC PUBLIC TRADINGTRADING

Commercial Business DevHU

MA

N

CA

PA

BIL

ITY

CA

PIT

AL

MA

RK

ETS

Leadership Analytical

Technology tfr. Innovation

Alliances & Collaboration

“Knowledge” skills

Moving up the pyramid enhances sustainability through the creation of transferable capability


Vision

To be an integrated and fully developed energy sector that is a key driver of a sustainable and flourishing local and regional economy while attaining global competitiveness in all of its sub-sectors by 2020.

• sustainable, operating transparently with the full support of the government, through effective governance

• will include locally owned and managed energy-based companies … throughout the complete value chain … both local and global

• Trinidad and Tobago will :– become the regional financial and energy trading centre, supported by

a strong and vibrant capital market world-renowned educational institutions a technology hub that stimulates innovation and entrepreneurship a strong public-private sector partnership.


Vision 2020 – Energy Sector Goals

1. Optimise exploration and production (pace & volume)

2. Maximise wealth creation, capture and distribution

3. Development of human capital

4. Robust & respected institutions and regulatory framework

5. Transparent governance

6. Competitive and sustainable local energy companies

7. Industrial development and diversification to high value-add service industries

8. Protection and enhancement of the natural environment

9. Sustainable investment in social capital


LOCAL CONTENT POLICY - Value Maximization

Government & Country can Maximize Value from Resources through:

1.Fiscal Measures Taxation and Royalty Policies Government Expenditure

2.Non Fiscal Measures Local Participation Local Content

3.Local Capability Development transfer of technology and know-how form international partners capabilities that can be transferred to other sectors cluster developments with other industries that have a natural synergy with

the energy sector (e.g. ITC, Education & Maritime)


Local Content and Participation Policy Statement

To achieve the goal of maximum local content and participation in the energy sector, all participants will be

selected, engaged and managed in a manner that:

1. Identifies WHERE to enable local value added opportunity capture, by selecting specific goods and services for focusing efforts

2. Determines HOW to enable delivery of maximum local value-added by: Managing the pace and scheduling of the programme of sector’s activities Targeting local capability development by increasing in-country activities Giving preference,

firstly, to locally owned, controlled and financed enterprises, then to those that demonstrate a clear culture, commitment and capacity

for maximizing local value-added, participation and capability development consistent with T&T’s aspirations and vision

Focusing on improving local skills, business know-how, technology, financing, capital market development and wealth capture and distribution,

3. Ensures DELIVERY of Maximum Local Value Added by: Setting targets Measuring and reporting Establishing benchmarks, targets and opportunities for improvement and the transfer of best practices.


Contents






• Strategies

• Current Status



Managing The Resource To Maximise value

LEADERS•Parliament

•Cabinet

• POLICIES•Legislation

• OBJECTIVES

•Development

• Poverty Reduction

• Sustainability

• Wealth Creation

SUPPORTING AGENCIES•Regulators

• Capacity Development Institutions

• Service Companies

• Terms of Engagement

• Contracts

• Regulations

OWNERS•Country

•People

• VISION

MANAGERS State Companies

•Private Companies

• ACTION PLANS• OPERATING

• REPORTING

• IMPROVING

FIRMSMinisters & Ministries

CEOs

Roles & Responsibilities of Stakeholders (Illustrative)

CIVIL SOCIETY

• STRATEGIES

• Priorities


Training and Skills Development Programmes and Institutions - From the bottom up

SUPPLIERS INSTITUTIONS

Brechin CastleBrechin CastlePoint LisasPoint Lisas

NATIONALENERGY

SKILLS CENTER

FOCUS

•POINT LISAS

•POINT FORTIN

•MACOYA

•STE. MADELEINE

•BARRACKPORE

NESC - TTIT•2-Year Diploma in Technology•4-Year B.Tech Degree•Continuous Professional Development •Customised Short Courses for Industry

NESC CRAFT CENTERS•Welders & Pipe Fitters•Electricians•Instrument Fitters•Millwrights, etc.

UWI / UTT

ENERGY SECTOR / INDUSTRY NEEDSENERGY SECTOR / INDUSTRY NEEDS

ENGINEERENGINEER

TECHNOLOGISTTECHNOLOGIST

MASTER CRAFTSMANMASTER CRAFTSMANTECHNICIANTECHNICIAN

MULTIMULTI--SKILLED CRAFTSMANSKILLED CRAFTSMAN(JOURNEYMAN) (JOURNEYMAN) -- CERTIFIEDCERTIFIED

SKILLED CRAFTSMAN SKILLED CRAFTSMAN -- CERTIFIEDCERTIFIED

CRAFTSMAN HELPERCRAFTSMAN HELPER

M IC / NSDP•Community College•SFTI / JDTI

M IC/NSDP

•YTEPP•Secondary Schools

SUPPLIERS INSTITUTIONS


NATIONALENERGY

SKILLS CENTER

FOCUS

•POINT LISAS

•POINT FORTIN

•MACOYA

•STE. MADELEINE

•BARRACKPORE




NATIONALENERGY

SKILLS CENTER

FOCUS

•POINT LISAS

•POINT FORTIN

•MACOYA

•STE. MADELEINE

•BARRACKPORE


NATIONALENERGY

SKILLS CENTER

FOCUS

•POINT LISAS

•POINT FORTIN

•MACOYA

•STE. MADELEINE

•BARRACKPORE



UWI / UTT

ENERGY SECTOR / INDUSTRY NEEDSENERGY SECTOR / INDUSTRY NEEDS

ENGINEERENGINEER

TECHNOLOGISTTECHNOLOGIST

MASTER CRAFTSMANMASTER CRAFTSMANTECHNICIANTECHNICIAN

MULTIMULTI--SKILLED CRAFTSMANSKILLED CRAFTSMAN(JOURNEYMAN) (JOURNEYMAN) -- CERTIFIEDCERTIFIED

SKILLED CRAFTSMAN SKILLED CRAFTSMAN -- CERTIFIEDCERTIFIED

CRAFTSMAN HELPERCRAFTSMAN HELPER

M IC / NSDP•Community College•SFTI / JDTI

M IC/NSDP

•YTEPP•Secondary Schools


UPSTREAM ACTIVITIES

High Moderate Low

FABRICATION

RIGS/W

ELLS

MAINTENANCE

LOGISTICS –B

OATS

SUBSURFACE

SERVICES

ENG. & C

ONS.

$ upstream spend

Job creation potential

Value-added skill content

Cyclical nature

Gas/Oil price sensitivity

Innovation potential

Knowledge transferability

Non-energy transferability

CHARACTERISTICS

Technology potential

JV attractiveness

Some upstream activities are better positioned than others in their ability to achieve SD’s multiple strategic aims

Deep Analysis of the value chain to identify sources of value


UPSTREAM SUB-SECTORS

FABRICATION

RIGS/W

ELLS

LOGISTICS –B

OATS

SUBSURFACE

SERVICES

ENG. & C

ONS.

$ upstream spend

Job creation potential

Value-added skill content

Cyclical nature

Gas/Oil price sensitivity

Knowledge transferability

Non-energy transferability

CHARACTERISTICS

Technology potential

JV attractiveness

High Sustainability sectors

High impact sectors

High Moderate Low

Innovation potential

MAINTENANCE

Fabrication, engineering and construction and drilling/well services are upstream activities which have high potential for broadly achieving LC&P multiple aims


Contents






• Strategies

• Current Status



Current Status

What’s been happening since– Aggressive Exploration

– Nearshore, including Deep drilling, – Land (deep & shallow), – Deep water– Heavy oil & tar sands

– Major downstream developments• Natural Gas

– Chemicals, Metals, Power, LNG• Oil

– Refining (upgrade/expansion)– Marginal and heavy oil field development

– New Contracts (Production Sharing Contracts and E&P (Tax & Royalty) Licences) align with value-added policies and include:

• local content and participation policy• Training and development & Research and development requirements


New Production Sharing Contracts (2006)Policy Objectives

Encourage greater exploration and development activities Encourage diversification of investors Ensure availability of supplies for domestic and export markets*

Ensure new revenue stream for future generations Maximise Value Capture for T&T

Maximise Revenue to State Increase Local Value-Add * Government participation in the full value chain

Contract Re-opener Clauses


Availability of Supplies for Domestic and Export Markets

GOV’T to advise of its preferred marketing arrangements

GOV’T to develop separate marketing arrangements for its Share

Contractor to include an analysis of marketing options, including supplies to existing or potential projects in the internal market.

Contract Terms

Source: MEEI, Nov 06


What Are We Doing?Local Value-Added Building Blocks- Institutions, Policies & Procedures

1. People Development– Capacity building

• Universities – UWI/UTT• Technical schools• High school programmes• Primary school curriculum• Pre-school

– Community engagement & enhancement• Media training• Civil Society Network

2. Enterprise Development– Local Content & Participation– Business Support – Centre for Energy Enterprise Development

• (www.ceedtt.com)– Diversification

• Deepening & broadening in energy– Downstream vs. LNG– Oil vs. Natural Gas– Other value chain activities (shipping, trading, distribution, etc.)

• Building other sectors– From energy (e.g. services, training)– Clusters alongside energy (e.g. ITC, maritime)

• Innovation & Technology– UTT– eTecK– Downstream Industries w. technology focus

3. Capital Market/ Revenue Stabilisation– Funds –

• Private Equity & Mutual• Stabilisation & Heritage

– Trading & Distribution • TTLNG


Learnings:Setting up a fair and realistic local content policy, adapted to the existing skills base is a necessary, but not sufficient condition.

1. Have a very high level champion 2. Think Strategically, Act Practically

– Analyse, Analyse, Analyse– Focus on services– Disaggregate – Be Selective, based on strategic value– Engage early in the life cycle and contract for it (do not make it optional)– See Capability Development as an investment– Take a business-like & business-friendly approach It should be desirable,but achievable)– “Do it in Country” first. “ Do it with locals”, will come next.

3. The question to be asked:– is not: “what can we do with existing local capability?” – Rather: “what can we build with existing and projected demand, so as to enhance local

capability and allow us to capture more value in the future?4. ID current capability and gaps

– Set Targets– Build capability

• strengthen or build institutions, • set and maintain high standards• Don’t remain static (monitor, change and improve)

5. Regulate local content and knowledge and technology transfer – it doesn’t work if it’s an option to the IOCs and International service companies.

6. Pick partners who support your strategy and will help deliver it7. Measure performance, Report it, Learn from it, Build on it. 8. Involve (Engage & Empower) Civil Society from the Outset.

Anthony E. Paul © February 2008

Export orientated of value-add services Low cost labour provider to high

productive and value provider Diversified economy Leader in energy skills Re-distribution of wealth

PARADISE LOSTPARADISE LOSTPARADISE LOSTPARADISE LOST GOLD RUSHGOLD RUSHGOLD RUSHGOLD RUSH

UTOPIAUTOPIAUTOPIAUTOPIASOCIAL INTERVENTIONSOCIAL INTERVENTIONSOCIAL INTERVENTIONSOCIAL INTERVENTION

Steady growth of basic services only Basic skill sets Few large players dominate all

industries Socio-economic inequality Cheap workshop for other countries

Government re-distribution and intervention

Steady growth of basic services only Basic skill sets and low cost Cheap workshop for other countries

Input-Output Focused

Value-FocusedEconomic

Social

Cohesiveness

Fragmentation

Economic

Social

Business As Usual / Status Quo Extraction from Extraction

Export orientated of value-add services Low cost labour provider to high

productive and value provider Diversified economy Leader in energy skills Wealth not translated through society

Socio-Economic Scenarios

oil and gas where is the value added? how do you get it?

Documents

caribbean energy

energy sectors role

enterprise capability

business development

differentconfidential

major role

managerial capability

leadership capability