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
3Anthony E. Paul © February 2008
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
4Anthony E. Paul © February 2008
Oil & Gas ProductionHistory & A Conservative Forecast - 2023
Ministry of Energy & Energy Industries
ALNG IV
5Anthony E. Paul © February 2008
Context
• The Premise– Past experiences
• The “Plantation Economy”• “Resource Curse”
– We have another chance to get it right• For ourselves• For future generations
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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
7Anthony E. Paul © February 2008
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)
8Anthony E. Paul © February 2008
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%
9Anthony 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
10Anthony E. Paul © February 2008
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.
11Anthony E. Paul © February 2008
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
12Anthony E. Paul © February 2008
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.
13Anthony E. Paul © February 2008
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
14Anthony E. Paul © February 2008
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)
15Anthony E. Paul © February 2008
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.
16Anthony 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
17Anthony E. Paul © February 2008
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
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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
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.
Brechin CastleBrechin CastlePoint LisasPoint Lisas
NATIONALENERGY
SKILLS CENTER
FOCUS
•POINT LISAS
•POINT FORTIN
•MACOYA
•STE. MADELEINE
•BARRACKPORE
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
19Anthony E. Paul © February 2008
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
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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
21Anthony 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
22Anthony E. Paul © February 2008
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
23Anthony E. Paul © February 2008
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
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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
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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
26Anthony E. Paul © February 2008
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
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