Anthony E' Paul

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Oil and Gas Where is the Value Added?How Do You
Get it?
Extracting from an Extractive
Industry Maximising Local Value in the Trinidad
Tobago Energy Sector

• Anthony E. Paul
• Managing Director,
• Caribbean Energy Specialists
• tony1paul_at_gmail.com
• Dakar, 7th Feb, 2008

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Contents

• CONTEXT
• The Premise
• Where we started
• The Vision
• Energy Vision 2020
• Energy Sectors role in national development
• Policy Development
• Strategies
• Current Status
• Summary Lessons Learnt

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Trinidad Tobago - Location
4
Oil Gas Production History A Conservative
Forecast - 2023
ALNG IV
Ministry of Energy Energy Industries
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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
• EP
• Big natural gas discoveries (1990s)
• Major field developments
• Increasing production and operations
• Downstream
• Natural gas industry growth
• LNG
• Chemicals
• Services Growth

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Leverage Upstream Opportunity
Sustained and Continuous Upstream Growth ,
underpinned by great exploration success story
Natural Gas is DIFFERENT
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Major Upstream Third Party Service sub-sectors
spend - Some Services enable transfer to other
sub-sectors and industries
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Contents

• CONTEXT
• The Premise
• Where we started
• The Vision
• Energy Vision 2020
• Energy Sectors role in national development
• Policy Development
• Strategies
• Current Status
• Summary Lessons Learnt

10
The Energy Sector Plays a Major Role in TTs
Development
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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

Source A.E. Paul 2003
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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.

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Vision 2020 Energy Sector Goals

• Optimise exploration and production (pace
  volume)
• Maximise wealth creation, capture and
  distribution
• Development of human capital
• Robust respected institutions and regulatory
  framework
• Transparent governance
• Competitive and sustainable local energy
  companies
• Industrial development and diversification to
  high value-add service industries
• Protection and enhancement of the natural
  environment
• Sustainable investment in social capital

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LOCAL CONTENT POLICY - Value Maximization

• Government Country can Maximize Value from
  Resources through
• Fiscal Measures
• Taxation and Royalty Policies
• Government Expenditure
• Non Fiscal Measures
• Local Participation
• Local Content
• 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)

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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
• Identifies WHERE to enable local value added
  opportunity capture, by
• selecting specific goods and services for
  focusing efforts
• Determines HOW to enable delivery of maximum
  local value-added by
• Managing the pace and scheduling of the programme
  of sectors 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 TTs aspirations and
  vision
• Focusing on improving local skills, business
  know-how, technology, financing, capital market
  development and wealth capture and distribution,
• 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
• .

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Contents

• CONTEXT
• The Premise
• Where we started
• The Vision
• Energy Vision 2020
• Energy Sectors role in national development
• Policy Development
• Strategies
• Current Status
• Summary Lessons Learnt

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Managing The Resource To Maximise value
Roles Responsibilities of Stakeholders
(Illustrative)

• FIRMS
• Ministers Ministries
• CEOs

• LEADERS
• Parliament
• Cabinet

• SUPPORTING AGENCIES
• Regulators
• Capacity Development Institutions
• Service Companies

• OWNERS
• Country
• People

• MANAGERS State Companies
• Private Companies

• POLICIES
• Legislation
• OBJECTIVES
• Development
• Poverty Reduction
• Sustainability
• Wealth Creation

• Terms of Engagement
• Contracts
• Regulations

• VISION

• ACTION PLANS
• OPERATING
• REPORTING
• IMPROVING

• STRATEGIES
• Priorities

CIVIL SOCIETY
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Training and Skills Development Programmes and
Institutions - From the bottom up
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Some upstream activities are better positioned
than others in their ability to achieve SDs
multiple strategic aims
Deep Analysis of the value chain to identify
sources of value
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Fabrication, engineering and construction and
drilling/well services are upstream activities
which have high potential for broadly achieving
LCP multiple aims
MAINTENANCE
Innovation potential
High
Moderate
Low
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Contents

• CONTEXT
• The Premise
• Where we started
• The Vision
• Energy Vision 2020
• Energy Sectors role in national development
• Policy Development
• Strategies
• Current Status
• Summary Lessons Learnt

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Current Status

• Whats 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
  EP (Tax Royalty) Licences) align with
  value-added policies and include
• local content and participation policy
• Training and development Research and
  development requirements

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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 TT
• Maximise Revenue to State
• Increase Local Value-Add
• Government participation in the full value
  chain
• Contract Re-opener Clauses

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Contract Terms

• Availability of Supplies for Domestic and Export
  Markets
• GOVT to advise of its preferred marketing
  arrangements
• GOVT 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.

Source MEEI, Nov 06
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What Are We Doing?Local Value-Added Building
Blocks- Institutions, Policies Procedures

• 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
• 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

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

• Have a very high level champion
• 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.
• 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?
• ID current capability and gaps
• Set Targets
• Build capability
• strengthen or build institutions,
• set and maintain high standards

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Socio-Economic Scenarios