Elsevier Any senior E&P executive operating internationally soon comes across the local content issue. Right now, the governments of such exciting offshore provinces as Angola, Brazil, Nigeria and Western Australia are all in different ways making it clear that they expect offshore operators to procure a substantial and increasing proportion of what they spend locally within the national jurisdiction. These governments are continuing a trend that began more than 40 years ago in the North Sea when Norway and the UK represented the exciting high-spend frontiers of the day. Of course, operators were spending locally long before being faced with formal requirements for them to do so. Some things just have to be sourced locally. For example, port facilities are local. For many other items, usually unsophisticated products, of the “rope, soap and dope” variety, it is common sense to source these domestically. However, for more complex goods and services the standard operator business model of procuring from tried and tested suppliers, which are almost by definition not initially to be found in a newly opening region, may not be viable. The host country may seek to entice established suppliers to set up locally. If it does, it may well also impose constraints on business freedom like quotas of local employees, training and R&D obligations or the need to create a joint venture with a local partner. With the best will in the world, suppliers cannot respond to every such invitation, particularly if they fear that they may be faced with other local-content competitors, including some that may be perceived as being “more” local than they are. The operator meanwhile is fearful of being faced with only a single-sourcing option. Also, a company may find costs and risks rising as a result of being pressured to use new unproven suppliers rather than the tried and tested companies. Corruption may also need to be monitored. Why is local content seen as such a prize by national governments when they stand to gain so much from tax, royalties and profit shares? It is most immediately about the provision of jobs for their citizens – jobs available in the “here and now” and not in the future after the disbursement of oil and gas revenues. However, there are also more complex reasons. Moving local industry up the value-added chain and creating companies that will outlive the local resource base are prominent among them. It is relatively easy to see what the host nations can gain from local content policies and what service and supply companies have potentially to lose. But, for E&P companies, the short-term costs (essentially part of the price of entering a new province) have to be balanced against subtler, longer-term and easily discounted benefits. The most obvious of these is being seen as a “good citizen” of the host country. However, increased competition in the service and supply sector and enhanced technology must be deemed as potentially greater benefits to E&P companies. These now benefit internationally from the services of such firms as Aker/Kvaener, AMEC, Expro International, Kongsberg and the John Wood Group – all developed under the shelter of Norwegian and UK local content regimes. Both countries also ran R&D programs in parallel with the local-content arrangements. Any analysis of such critical up-and-coming subsea technologies as subsea separation, subsea compression and multiphase pumping/metering will soon recognize that current state-of-the-art depends heavily on earlier work under these programs. Though today’s active, local-content programs are mostly a feature of less-developed economies than Norway and the UK, it would be surprising if somewhere down the line these new players do not generate newer companies and technologies that will take the place of the North Sea countries on the world stage. Given the pervasiveness, surprisingly little has been published on local content and related issues. That is why it is good to report that a new book has just been published by Norman Smith, a former director general of the Offshore Supplies Office (OSO), which is the British government agency that implemented the local content policy and subsequently served as a model elsewhere. Though it is not a handbook on how to run a local-content policy, it is probably the nearest thing to it available today to E&P company executives and government officials. It is titled The Sea of Lost Opportunity: North Sea, Oil and Gas, British Industry and the Offshore Supplies Office. Further details are available from http://www.elsevierdirect.com/product.jsp?isbn=9780444536457. Elsevier
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