NIGERIAN CONTENT IMPLEMENTATION Roadmap for Industrialization

by Engr. E.C. Nwapa (FNSE), Executive Secretary, NCDMB

November 2012

HISTORIC TREND OF NIGERIAN OIL & GAS SECTOR

PERIOD 1960s – 1970s 1980s – 1990s 2000s – 2010s 2020

POPULATION 63 million 100 million 165 million 195 million

EDUCATED EMPLOYABLE ADULTS

<5% 10% 30% >50%

COMMUNITY DEMANDS

Insignificant Basic Amenities InfrastructureParticipation

Equity ownership

REVENUE 20% 50% 80% > 60%

GDP IMPACT (Contribution)

<10% <20% >20%

LAWS & POLICIES

Petroleum Act JOAs, PSCs NOGICD/ PIB

A Threat to Oil will threaten National Survival

Oil & Gas Industry is repositioning to Promote Utilization of Local goods & Services

Building capacity on the back of mega Projects and Operations

Other Linkage sectors need to be mobilized

NATIONAL REVENUE PROFILEOver Dependence on Oil

PETROLEUM ECONOMICS VS NATIONAL DEVELOPMENT

PETROLEUM ECONOMICS

NATIONALDEVELOPMENTECONOMICSBALANCE

• Dollar per barrel?

• Profit for shareholders?

• How fast to first oil?

• Government take, taxes, royalties?

•How many jobs?

• In country Value creation

•Legacy, spinoffs, infrastructure?

• Sustainability, Safety, Environment

Operators seek cheapest fastest route to first oil. Govt uses Taxes & Royalties for DevelopmentLittle attention to value addition from operations

Promotes import of Goods & Services

Revenue - Focussed

Operators consider long term value Govt takes lower revenue for higher ICVGreater attention to life cycle support for ops

Promotes development & use of local capacity

In-Country Value - Focussed

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Two Strategic Development Options

$14b

Defining the Roadmap for Change

Technical Services

$78b

$20b$39b

$20b

$39b

$107b$214b

$7b$9b

Fabrication

Engineering

Procurement

2006- 2020 Nigerian Content Implementation

Bringing Nigerian Jobs BackHub for oil and gas services Estimated $191 billion could be retained 300,000 new direct job opportunities -(Engineering, Sciences, Technicians etc)

Pre-Nigerian Content Implementation Buying rather than selling. Exporting Nigerian JobsEstimated capital flight $380 billion Estimated lost job opportunities 2 million

10yrs30yrs

Research & Development

Changing the Pre – NOGICD Act FootprintBringing Nigerian Jobs Back

Over 95% of industry spend Abroad

Over 65% of industry spend domiciled

A robust supply chain

What makes a great oil producing Nation?

Facilities Asset ownership Manufacturing

Local service coys Drilling Rigs

Marine VesselsDrilling Tools

IndustrialistsPipemills& Machine shops

Fabyards & workshopsShip/dockyardsLogistics bases

OEM Reps & SMEsValves &' Pumps

Spares & componentsSwitchgear & control

panelsChemicals & fluids

Machinery & equipment

Human Capital - skilled workforce

In country training and certifying bodiesPupilage programs in local companies

We need to maximize value from these activities

Drilling Value out of the O & G Chain

Thrust of the NOGIC Act 2010

Nigerian Content aspiration derived from the thrust of the NOGIC Act are focused on ensuring that companies benefitting from our natural resources also contribute to economic development of Nigeria .

•Develop local capacity in key areas such as manufacturing fabrication, engineering etc•Promote indigenous ownership of assets and utilization of indigenous assets in oil and gas operations

•Develop indigenous skills pool across oil and gas value chain•Provides mandatory training requirements on the back of projects•Creates JQS to manage and track available skills

•Promote establishment of support industries that will sustain oil and gas industry operations •Enhance multiplier effect of oil and gas investments in economy

•Develop pool of competitive supply chain rooted in oil bearing communities •Create customized training and sustainable employment opportunities • structured awareness and enlightment campaigns

•Institutionalize inter-agency collaboration on local content development•Integrate NCDMB into planning and contracting process to ensure Nigerian Content COUNTS•Dedicated NCDF for capacity building

Maximize utilization of Nigerian made goods

Maximize utilization of Nigerian human resources

Link the oil and gas industry with other sectors of the Economy

Focus on community participation in the supply chain

Foster institutional collaboration

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Distribution of Oil and Gas Assets. Foreign Vs Indigenous

Snapshot of reserves: Oil-36.22 billion barrels (2.92% of world reserves)Gas- 178 TCF(2.98% of the world reserves) 1.6 Majors

•Addax, Chevron, Eni-Agip, Exxon Mobil, Shell and Total •Control 98% of reserves and production assets

•Indigenous companies •Over 30 operators (Afren, Oando, Seplat etc)•Over 30 independents and local operators ( Summit, Conoil etc)•Own 2% of reserves

DPR: Oil blocks in Nigeria

1.Combined daily production capacity of 80,000 bpd2.With aggressive equity participation indigenous players will increase market share

3.NPDC making significant progress , hitting the 100 barrels per day equivalent mark.

4. Full Field Development by indigenous companies being promoted

NDPR

IOCs CONTROL OVER 90% PRODUCTION

NOC/INDIGENOUS BUILDING FOR MID-TERM GROWTH OF PRODUCTION SHARE TO 20%

New developments in Nigeria for Energy Utilization

GAS DEVELOPMENT

•Nigeria Gas Master Plan

•Domestic Supply Obligations

•New IPPs

•BrassLNG, NLNG Train 7, OKLNG

REFINING

•Greenfield refinery projects – 3 new refineries + 1 Petrochemicals Plant

UPSTREAM

•Deep offshore – EGINA, ERHA North, OPL245, Bonga SW, BONGA NW

Stakeholder Collaboration Implementation Model

Government Government

Oil companiesOil companies

Service providers Service providers

Investment policy Contracts approval Bid rounds NCDF Capacity development NC regulationInterministerial InterfaceLegislation on Local contentLegislation on favourable fiscal regime

Nigerian content scope on projects (NCCC) Capacity development1% remittance to NCDF

Nigerian Content Consultative Forum (NCCF) Capacity developmentNigerian Content Equipment Certificate (NCEC) 1% remittance to NCDF

Foreign Direct Investment Benchmark models (learning from others)

International International partners partners

NCDMB act as facilitator, bringing together a broad array of stakeholders

Various Initiatives in:i) R&Dii) Human Capital Developmentiii) Steel Pipemills and associated industriesiv) Manufacturing and Component Assemblyv) Marine Vessel and Rig Ownershipvi) New facilities and Upgrade of existing infrastructurevii) Dry Docks and Shipyards

Dry dock/shipyard Manufacturing/ AssyRig/vessel ownerHuman Capital DevSteel mills Facility / upgradesR&D Manufacturing/assembly

A MULTI LANE HIGHWAY TOWARDS INDUSTRIALISATION

Nigerian Content Road Map

NC VALUE (70% - 85%)

Based on proportion of value of contracts awarded to Nigerian

Companies

NC VALUE (12% - 18%)

Based on proportion of contract sums spent on Nigerian

made goods

Real NCPartial NC

•There is marked increase in contract award to Nigerian companies •Spend proportion in Nigeria has peaked •Without manufacturing, no further NC Growth – steel products major input in manufacturing •No employment growth•We need power to “power” Local Content

Nigerian Content Measurement

100

80

60

40

20

0

Fabrication ManufacturingEngineering

90%

50%

7%

Current Performance levels

NCDMB as facilitator of growth

Sub-optimal utilization of locally made goods by industry

case for strong linkage between manufacturing and oil and gas industry

Nigerian Content Roadmap developed to manage challenges , deepen capacity and maximise utilisation of Nigerian goods and

services

Implementation challenges

•Strict compliance without disrupting industry activities – Capacity Gaps

•Handling increased cost + schedule

•Transparent effective model for NCDF Management

•Ensuring Quality of delivery

•Absence of manufacturing capability and confidence to use local goods-

•Extending implementation to Downstream

•Growing new organization to meet wide responsibility

•Funding the Boards operations from appropriation

•Policy inconsistencies - require legislative streamlining

•Exposure to frequent litigation

Impact of Implementation Programs

UTILIZATION OF LOCAL FACILITIES AND ASSETS -

•Indigenous Companies acquiring and deploying rigs

•Major rig operators have complied – Seawolf, Oando, Transocean, Pidwal

•Existing fabrication yards upgrading to accommodate increased workloads –

Nigerdock, Saipem, Aveon .

•New yards being developed – Samsung , HHI, Daewoo

•Existing pipe mill over 50% capacity utilization.

•Indigenous marine vessel replacing hitherto foreign

Impact of Implementation Programs

Before 2010 – Only $200k of over $2Bn spend domiciledNow – 50% of about $3.5Bn spend domiciled

Impact of Implementation Programs

Nigerian Made Security Vessel Nigerian Owned DP2 Vessel Naming of MV Osayame

STRATEGIC INTERVENTIONSTraining & Employment

Compared to rising prices of oil, the capacity of operating companies to employ nationals has been on the decline since 2008

PUBLIC SECTOR(Regulator)

~30,000 jobs

SERVICE PROVIDERS (Services, equipmt)

<1 million jobs

OPERATOR(Opportunities and finance)

~25,000 jobs

LINKAGE INDUSTRIES(Manufactrg)

>2 million jobs

INTERVENTIONS:

1.(NOGETTS) Project Based Training and Attachment -

•Over 8,000 candidates captured on JQS Platform

•Over 1,500 attached to O & G Projects

•Sponsoring geosciences Training for 1,000 Nigerians

•Sponsoring environmental remediation training for 3,000

Nigerians

2.Institutional Development -

•Established OGTAN

•Establish Engineering Academy with PPP

•NIW Welding Technology Complex (NIW/NCDMB/Shell)

•Establish Subsea Academy

•Expatriate Quota Management -

•EQ allocation supported by robust succession planning

•Monitor utilization of EQ slots

Productive Employment

Social Employment

Environmental remediation training sponsored by the Board to create a pool of Nigerians with adequate environmental management skills ,to address reoccurring environmental degradation

Oil and Gas Training Centre of Excellence Model

INDUSTRY

PETROFAC + OGTAN

NIW+ OTHER OGTAN COYS

IPS, SITP

IADC

SCHLUM TECH

CENTRE

AKER SUBSEA

ACAD

GOVERNMENT

PTI MAN ORON CPSK

Nigerian Content Employment Initiative (NCEmI)

Pupilage program- Job categories- Criteria for selection- positions to train for- Skills required- Duration of training - Certification

Nomination of Candidates - - - Minimum qualification- Age- Skills

OGTAN and PETROFACTraining Center-Training curriculum-Training Duration- Types of Certifications- Job categories- facility incountry for training

PrequalificatioQualificationList

Technical Provisional employment letter- Update Nigeriancontent plan section

Commercial Employee costs included in commercial template ,Show actual position to be

ܫ� ܥܧܯAcknowledgementQualification List

publish candidates for specific service areas

Select TCE for NCEMI

Employment

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ORAS – Offshore Rig Acquisition and Utilization

Key elements of ORAS Strategy:

1. Using a Nigerian Operating Company for Contracting

2. Putting equipment and technology in the Company

3. Phased increase in indigenous equity to meet Acts requirement of 50%

4. Assisting with long term funding and equity Financing

TopsideIntegration capability

Training & Certifying Academy

Equipment Manufacturing Capability

Heavy Industry Fabrication Yard

EPCPROJECT

TYPICAL PROJECT SPINOFFS

•Consolidate existing Mill

•3 new Pipe mills

•Start Production by 2015

•Cost of $150m each

• Generate 15000 Jobs

•3000 training opportunities

•NLNG, BLNG focus

•LNG carrier size Dockyard

•Complete by 2015

•Cost of $250m

• Generate 55000 Jobs

•20 000 training opportunities

FPSO Topside Integration Facility

Pipe Mills Dock Yards

•TUPNI committed to EGINA topside integration

•Integration Facility set by 2014

•Cost of $150m to $200m

•Generate 30000 jobs

•Training opportunities

•Erha North/ Egina

•Umbilical facility & Tree assy

•Start Production by 2015

•Cost of $250m each

• Generate 5000 Jobs

•2000 training opportunities

Subsea Equipment Manufacturing

Complex

Legacy Programs. EGINA/GAS MP/ BONGASW/ERHA NORTH/BRASS LNG

•Guidelines issued to the industry makes

NCECs a requirement in tenders

• Over 300 applications being processed

• Attributes of certificates issued to date:

•Establishment of equipment assembly plants

•Manufacture of equipment parts for

repairs/maintenance

• Manufacture of equipment components

•Investment commitment of over $600m

•IOCs are taking initiatives to support OEM

presence in Nigeria - Shell

•Investors supported by Government general

and specific incentives

STRATEGIC INTERVENTIONS Nigerian Content Equipment Certificate (NCEC)

1.Categorization of oil and gas service companies

2.Industry data base for skills verification.

3.Verification of available in-country capacity

4.Effective information exchange across stakeholders

5.Compliance Monitoring

1.Test data uploaded

•Launch Q2 2012

NOGIC JQS

STRATEGIC INTERVENTIONS Nigeria Oil & Gas Industry Content Joint Qualification System

•Expatriate Quota Utilization and

Succession data

•Marine Vessels data

•Contract Processing data

•Equipment Ownership

•Nigerian Content Compliance

Certificate Data

•Skill Base Tracking

•Training and Employment data

•Nigerian Content Plans and reports

repository

Direct Capacity Development intervention by the Board

Equity Participation to stimulateInvestments in Critical facilities

Skills Development & Job Creation interventions

Provide Guarantees for low interest lending

Industry Advisory committee & SPV to strengthen Governance

Fund will not be depleted

NCDF1% Upstream contract sums

30%Direct Intervention Lte

70%Guarantee Ltd

Industry Advisory

Committee

Fund Managers(BGL/UBA

global)

Other Participating Commercial

Banks

Nigerian Content Development Fund Model(Clause 104 of the Act) Letter on NCDF implementation

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COMPLIANCE MONITORING & ENFORCEMENT STRATEGY ( COMES)

Nigerian Content Governance on Monitoring ….COMES

THIRD PARTY INSPECTION TASK FORCE

Section 68 – Prescribes fine or cancellation of the project for non compliance

Compliance monitoring activities of the Board has brought about : 1.Reversal of contracts hitherto awarded in contravention of the NOGICD Act 2.EPC contractors and operators taking extra effort to build local capacity for their critical input needs

3.

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