Local Content Strategy on Implementing Construction Plans

THOMAS DOUGLAS NIGERIA LIMITEDA R C H I T E C T U R E • E N G I N E E R I N G ▪ C O N S T RU C T I O N

LAGOS ▪ PORT HARCOURT

www.thomas-douglas.com

- Nigeria as case study

NIMI GODFREY EREKOSIMA PRINCIPAL PARTNER

THOMAS DOUGLAS

Once upon a time there was a couple who had been

married for 30 years without a child...

THOMAS DOUGLAS

Then one day the man left his wife and went on a sojourn

across Africa looking for answers...

THOMAS DOUGLAS

...After a few years he came back with a love child and asked

his beloved wife to take care of the child as she would her

own... The child’s name was Local Content

THOMAS DOUGLAS

THOMAS DOUGLAS

LOCAL CONTENT STRATEGY ON IMPLEMENTING CONSTRUCTION PLANS

• Understanding the content rules involved in offshore construction

• Capabilities needed and required

• Cost management and critical aspects of the project

THOMAS DOUGLASLEARNING GOALS

Introduce offshore construction

Define Nigerian Local Content Policy

Learn a Brief History of the Nigerian Local Content Policy

Identify the NC Strategies Applicable in the Nigerian Offshore Construction Industry

View Critical Aspects of the Project Through the Concept of Value Addition

Appreciate the impact of NC in the Nigerian Offshore Construction Industry

We will:

THOMAS DOUGLASCATEGORIES OF OFFSHORE CONSTRUCTION

OFFSHORE PLATFORM CONSTRUCTION

- RISER INSTALLATION

- TOPSIDE INSTALLATION

- MODULAR UNITS

OFFSHORE PIPE LAYING

- SUBSEA PIPING

- PIPE BURIAL

- PIPELINE TESTING

MAJOR OFFSHORE MAINTENANCE

- ADDITIONAL WELL INSTALLATION

- TOPSIDE MODIFICATION

- PIPELINE REPLACEMENT

O F F S H O R E S U P P O R T V E S S E L S

CONSTRUCTION OF SUPPORT FACILITIES

– LOGISTICS BASES – INDUSTRIAL PARKS FOR OEMs – SUPPORT VESSELS– MAINTENANCE WORKSHOPS

THOMAS DOUGLASINTRINSICS OF OFFSHORE CONSTRUCTION

• not for the faint heartedCAPITAL INTENSIVE

• the oceans could be very deep and coldHIGH PREMIUM ON QHSE

• makes senseMOST FABRICATION WORK DONE ONSHORE

• it better be for that cost!HIGHLY SPECIALIZED

• Water and air benders neededINSTALLATION DEPENDENT ON WEATHER WINDOW

• no new friendsDEVELOPED SUPPLY CHAIN

• If you survive all of the aboveHIGHLY REWARDING

THOMAS DOUGLASDEFINE NIGERIAN LOCAL CONTENT POLICY

“Nigerian Content in the Petroleum sector is defined as the quantum

of composite value added or created in the Nigerian economy

through the deliberate utilization of Nigerian human and material

resources in the provision of goods and services without

compromising quality, health, safety and environmental standards”.

Add value to local economy through

Capacity development of Individuals, businesses, and

institutions

Retention of spend to stimulate local economy

Encourage sustainability through responsible use of

resources

THOMAS DOUGLAS

1969• First

Petroleum Act

• Regulation 26 Advocates Indigenization of the Industry

1971 - 1977• Establishment of

Nigerian National Oil Corporation (NOC)

• Merger of NOC and Petroleum Ministry

• Nigerian National Petroleum Corporation (NNPC) formed

• Acquisition of National Interests

• Domiciliation of significant portions of Oil & Gas derivatives

2010 - 2014•Establishes a new body NCMB outside

NNPC

•Sets out specific targets for LC

•50% of Multi national coy Assets to be vested in Nigerian subsidiary

•Nigerian indigenous company defined to be 51% owned by indigenes.

• Indigenous Companies have first consideration for licenses, Oil blocks, Contracts

• Indigenous companies have exclusivity on land and swamp activities

•Creates Opportunities for Indigene’s employment and training

•Power of the Minister to approve 3-year waiver for areas of insufficient capacity

•Fines for non-compliance

BRIEF HISTORY

THOMAS DOUGLASBRIEF HISTORY

1969• First

Petroleum Act

• Regulation 26 Advocates Indigenization of the Industry

1971 - 1977• Establishment of

Nigerian National Oil Corporation (NOC)

• Merger of NOC and Mines and Steel Ministry

• Nigerian National Petroleum Corporation (NNPC) formed

• Acquisition of National Interests

• Domiciliation of significant portions of Oil & Gas derivatives

2010 - 2014•Establishes a new body NCMB outside

NNPC

•Sets out specific targets for LC

•50% of Multi national coy Assets to be vested in Nigerian subsidiary

•Nigerian indigenous company defined to be 51% owned by indigenes.

• Indigenous Companies have first consideration for licenses, Oil blocks, Contracts

• Indigenous companies have exclusivity on land and swamp activities

•Creates Opportunities for Indigene’s employment and training

•Power of the Minister to approve 3-year waiver for areas of insufficient capacity

•Fines for non-compliance

THOMAS DOUGLASBRIEF HISTORY

1969• First

Petroleum Act

• Regulation 26 Advocates Indigenization of the Industry

1971 - 1977• Establishment of

Nigerian National Oil Corporation (NOC)

• Merger of NOC and Petroleum Ministry

• Nigerian National Petroleum Corporation (NNPC) formed

• Acquisition of National Interests

• Domiciliation of significant portions of Oil & Gas derivatives

2010 - 2014•Establishes a new body NCDMB

outside NNPC

•Sets out specific targets for LC

•50% of Multi national coy deployed assets to be vested in Nigerian subsidiary

•Nigerian indigenous company defined to be 51% owned by indigenes.

• Indigenous Companies have first consideration for licenses, Oil blocks, Contracts

• Indigenous companies have exclusivity on land and swamp activities

•Creates Opportunities for Indigene’s employment and training

•Power of the Minister to approve 3-year waiver for areas of insufficient capacity

•Fines for non-compliance

THOMAS DOUGLASSTRATEGIC MANAGEMENT CYCLE

Strategic Planning APPRAISAL /ACTION PLAN

Strategic ImplementationCAPACITY BUILDING/ EVALUATION

Value added to Nigerian economy

A

B

THOMAS DOUGLASSTRATEGIC MANAGEMENT – NOGIC JQS

THOMAS DOUGLAS

Nigeria Oil and Gas Industry Content Joint Qualification System (NOGIC JQS)

• Marine Vessels Ownership Data

• Contract Processing Data

• Equipment Ownership

• Nigerian Content Compliance Certificate Data

• Skill Base Tracking

• Training and Employment Data

• Nigerian Content Plans and Reports Archive

• Expatriate Quota Utilization and Succession Data

STRATEGIC MANAGEMENT – NOGIC JQS

DATA CAPTURE DATA MANAGEMENT

• Categorization of oil and gas service companies

• Industry data base for skills verification.

• Verification of available in-country capacity

• Effective information exchange across stakeholders

• Compliance Monitoring

• Test data uploaded

• Launch Q2 2012

Adapted From Nigerian Content Implementation Model, 2013

THOMAS DOUGLASSTRATEGIC MANAGEMENT – TARGET vs. CAPABILITIES

0

10

20

30

40

50

60

70

80

90

100

100 100 100 10090

55

15

25

% TARGET % CAPABILITIES

ACTIVITYNC TARGET RANGE (%)

UNIT OF MEASUREMENT

ENGINEERING OF OFFSHORE FACILITIES

50 - 90 MAN-HOUR

FABRICATION AND CONSTRUCTION

50 - 100 TONNAGE

MAINTENANCE/ MODIFICATION

45 - 70 SPEND/ TON/VOL

SUPPORT VESSELS 45 - 100 SPEND

Adapted From 7E Nigerian Content Development – Presentation by Ernest Nwapa, ES NCDMB

Source: NOGIC Act, 2010

THOMAS DOUGLASSTRATEGIC MANAGEMENT

COLLABORATIVE IMPLEMENTATION MODEL

Regulator

Operator

Indigenous Service

Provider

Foreign Partner

• Training and employment of Nigerians;

• Promoting indigenous ownership of marine vessels, offshore drilling rigs, etc;

• Establishment of critical facilities such as pipe mills, dry docking and marine facilities, pipe coating facilities;

STRATEGY FOCUS

Adapted From 7E Nigerian Content Development – Presentation by Ernest Nwapa, ES NCDMB

THOMAS DOUGLAS

STRATEGIC MANAGEMENT – TRAINING AND EMPLOYMENT

Project Based Training and Attachment

JQS as staff sourcing platform

NCDMB + PETAN

= NCEmI

NCDMB Direct Training

Programs

Community Environmental

Remediation Training

Construction Skills Training

Institutional Development

Upgrade Identified

institutions into O&G TCEs

Establish Subsea

Academy

Establish Engineering

Academy

Facilitate International Certification

Expatriate Quota

ManagementMonitor Quota

Monitor Succession Planning

Nigerian Content Employment Initiative (NCEmI); Joint Qualification System (JQS); Petroleum Technology Association of Nigeria (PETAN);Oil and Gas Training Centre of Excellence (OG TCE)

Adapted From Nigerian Content Human Capacity Development Initiative Implementation Guidelines, 2014

THOMAS DOUGLAS

STRATEGIC MANAGEMENT – MARINE VESSEL OWNERSHIP SCHEME

60% of marine assets in the hands of Nigerians by 2015

Encourage construction of vessels in Nigerian yards

Promote ownership of marine vessels by Nigerian entities

Stimulate flagging & registration of vessels in Nigeria

Deepen Nigerian manning of marine vessels

Inter Agency collaborative enforcement of the Nigeria Coastal and Inland Shipping (CABOTAGE) Act. NIMASA+NCDMB

CABOTAGE Vessel Financing Fund (CVFF)

Nigerian Maritime Administration and Safety Agency (NIMASA)

THOMAS DOUGLAS

STRATEGIC MANAGEMENT – MARINE ASSET OWNERSHIP

Adapted From Nigerian Content Marine Vessel Categorization Procedure, 2013

OFFSHORE RIG ACQUISITION STRATEGY- ORAS

– Establish SPV.

– 50% equity set aside for Nigerian ownership in blocks to be taken up as Nigerian capacity increases.

THOMAS DOUGLAS

Nigerian Content Development Fund (NCDF)

Topside Integration Facilities, Pipe Mills, Dry Docks

Nigeria Oil and Gas Industrial Park Scheme (NOGIPS)

Nigerian Content Equipment Certificate (NCEC)

Offshore Rig Acquisition Strategy (ORAS)

Original Equipment Manufacturer (OEM) Strategy

Equipment Components Manufacturing Initiative (ECMI)

STRATEGIC MANAGEMENT – RELEVANT INITIATIVES

THOMAS DOUGLASVALUE BASED PROJECT MANAGEMENT

EXPLORE AND APPRAISE

DEVELOP PRODUCE TRANSPORT PROCESS DISTRIBUTE

ASSESS,EXPLORE, APPRAISE

DEVELOP VIABLE FIELDS

PRODUCE AND EXTRACT MINERALS

TRANSPORT RAW MATERIALS THROUGH PIPELINES/ SHIP

PROCESS RAW MATERIALS INTO FINISHED PRODUCTS

DISTRIBUTE, MARKET FINISHED PRODUCTS

Business decision to convert an opportunity into an asset whichcreates value to its owners.

VALUE

PROJECT

SCOPE

TIME

QUALITY

COST

PROCUREMENT

RISK

COMMUNICATION

•LEAN CONSTRUCTION

•VALUE FOR MONEY

•LIFE-CYCLE COSTING

•COST OF QUALITY

•VALUE ENGINEERING

•DISCOUNTED CASHFLOW

•NET PRESENT WORTH

•COST BENEFIT

•OPPORTUNITY COST

•UTILIZATION FACTOR

•OPTIMIZATION

•EARNED VALUE

MAXIMISE ASSET VALUE

INCEPTION FEASIBILITYFEED & DETAILED

DESIGNCONSTRUCTION & COMMISIONING

OPERATIONS & MAINTENANCE

VALUE ARTICULATION AND PROJECT DEFINITION

OPTIMIZATION OF BENEFITS AND COSTS LESSONS LEARNT

OIL AND GAS VALUE CHAIN

CONSTRUCTION PROJECT LIFE-CYCLE – PROJECT OBJECTIVES MUST BE CHAMPIONED BY ALL

THOMAS DOUGLASCONSTRUCTION COST MANAGEMENT

Includes the processes involved in Estimating, Budgeting and Controlling costs so that the project objectives are met within the approved budget.

Estimation – Develop approximate monetary resources needed to complete

project activities

Budgeting – Aggregation of costs estimated in order to establish an

authorized cost baseline

Control – Monitoring progress and changes to cost baseline.

Source: Project Management Book of Knowledge, 2013

Contracting strategy

•PSC, JOA, SC

Procurement strategy

•Locally sourced, importedProject scope Engineering design

Stakeholder requirements

•Taxes, regulations

Risk management strategy

Resource requirements

•Human, equipment, materials

Operational expenditure

FACTORS THAT IMPACT CONSTRUCTION COST BASELINE

THOMAS DOUGLAS

IMPROVED EMPLOYMENT AND TRAINING OF LOCALSOver 30,862 jobs within first 3 yrs (10,792 in Fabrication, 6,797 Post trainingemployment, 3,000 in Vessel servicing, 1,500 Equipment manufacturing)

INCREASED INDIGENOUS VESSEL OWNERSHIP65% of Vessels – Class AAA and Category A combined45% of Vendors – Category A

MORE NIGERIANS OWNING CRITICAL MARINE ASSETSPipe laying barges, Drilling equipment, Drilling rigs, Dry-docking Logistics bases etc.

RETENTION OF MORE ANNUAL OIL AND GAS SPEND IN-COUNTRYAbout $10Billion of the $20Billion capital flight

MORE ROBUST FORWARD, BACKWARD AND FINANCIAL LINKAGESBanking, Manufacturing, Education, Legal sectors benefit

NEGATIVE IMPACT ON GDP SHORT TERM2009 (pre-NOGICD) was 17.8% compared to 14.4% by 2013(post-NOGICDA era)

IMPACT ON INTERNATIONAL FREE TRADE AGREEMENTSProtectionist in nature

INCREASES CONSTRUCTION COST SHORT TERMContingency, Cost of quality, Interest rate, Inflation

The ayes have it!

NIGERIAN CONTENT IMPACT ON OFFSHORE CONSTRUCTION

THOMAS DOUGLASCONCLUSION

More work for indigenous local contractors such as Thomas Douglas, with the construction of new pipe mills, new industrial parks, new fabrication yards, new vessels, new production platforms, new pipeline projects etc.

Better access to funds through economic linkages to financial institutions, NCDF etc.

Improved project schedule as local manufacturing eliminates time wasted on importation and improves just-in-time deliveries.

Transfer of technology ensures a better trained workforce

The success of this marriage is vital to the implementation of construction plans. It means:

THOMAS DOUGLASRECOMMENDATIONS – T E S T

Timely manner•Already Nigeria has lost 70% of her exports to her biggest market, the USA. And shall loose more due to the latter's embrace of shale oil and other energy sources.

Effective manner•Labour cost amounts only between 10-20% of the Total DC of production as compared to procurement's 54%. Therefore Manufacturing is key.

Strategic manner•Look beyond present hassles. A capacious LC translates to cheaper, faster first oil and gas.

Transparent manner•Unpredictable regulations hamper investment opportunities.

To make the marriage work the Family must collaborate in a(n):

THOMAS DOUGLAS

THOMAS DOUGLAS

• Technical Data Sheets• Utility, Cost And Weight Estimates• Performance Specifications• Code Compliance Analysis• Architectural Shop Drawings• Structural Shop Drawings• Room Data Sheets• Bills Of Materials• Furnishings, Equipment and

Fixture Selection• Mechanical (Piping) Shop

Drawings• Electrical (EIT) Shop Drawings• HVAC Shop Drawings• Fire & Safety Communications

Shop Drawings. • Detailed Design Review

• Bid Package Preparation• Bid Evaluation• Determine Company Procurement

Standards• Utilize Preferred Vendors

Database • Identify Long-lead Time Items and

Place Orders• Incorporate Local Knowledge Of

Approved Offshore Materials• Utilize Knowledge Of NOGICDA

Requirements On Importation Of Materials To Nigeria

• Coordinate Shipment And Customs Clearance Of Imported Materials

• Provide Local Logistics and Transportation

• Fabrication Contract Assistance• Fabrication Inspection• Change Order Review• Payment Request Review• Submittals / Shop Drawing

Review• Lifting Procedures• Integration / Mating Plan• Tie-ins To Utility Systems• Systems Testing In Fabrication

Yard• Systems Testing On-Site• RFI / Site Query Resolution• QHSE Management• Final Acceptance / Punch List

... a multi-disciplinary Engineering, Procurement and Construction Project Management firm 100% Nigerian owned.

CORE VALUES...leading, innovative and reliable player in the provision of premium, sustainable, client-oriented,

cost effective , safe, and timely - bespoke solutions.

THOMAS DOUGLAS IS...

THOMAS DOUGLAS NIGERIA LIMITEDE N G I N E E R I N G • P R O C U R E M E N T ▪ C O N S T R U C T I O N

S&B Floor, Top Notch Building▪ Ajiwe

Km 23 Lekki-Epe Expressway ▪ Lagos, Nigeria

Tel: 01- 7374027, 0703 2240125, 0803 4673729 • E-mail: info@thomas-douglas.com; constarng@gmail.com

Website: www.thomas-douglas.com