Managing Use of Local Content in Upstream Oil and Gas

Abstract

This article, written by Senior Technology Editor Dennis Denney, contains highlights of paper SPE 140870, ’Managing Use of Local Content in Upstream Oil and Gas,’ by Jessica M. Marshall and Mark A. Serwinowski, SPE, MetaVu, prepared for the 2011 SPE European Health, Safety, and Environmental Conference in Oil and Gas Exploration and Production, Vienna, Austria, 22-24 February. The paper has not been peer reviewed. As new markets develop and host countries develop local-content policies and performance expectations, oil and gas development companies face increasing complexities in supply-chain integration of local content. In many instances, performance assurance with local-content-performance expectations is becoming a threshold for obtaining and/or maintaining a company’s social license to operate. This paper chronicles one company’s approach to leverage local content as part of their supply-chain-management strategy to grow capacity while managing and fulfilling stakeholder expectations. Introduction Supply-chain management is becoming increasingly vital for ongoing operations in the upstream oil and gas sector. How individual organizations manage and train their suppliers can result in dramatic differences in performance. Given that, on average, upstream operators more-heavily leverage their suppliers, who these individuals are, what screening criteria they must meet, how they are managed, and how their performance is tracked are critically important questions. In certain circumstances, use of local content to fulfill demanding schedules is not only encouraged from a social-responsibility perspective, but is a requirement for meeting deadlines. However, use of local content should be managed with a very specific engagement strategy to ensure that health, safety, and environmental performance expectations are not compromised. Background The use of local content (i.e., indigenous companies that conduct manufacturing or production services in the oil business), while required in cases of remote operations, can have positive benefits for the organization and for the host country/region. Effective use and training can result in transfer of knowledge, economic diversification, and long-term viability for the host region. But benefits also can be realized by the company. While there are tangible benefits for the host country/region and for the organization, the use of local content should be managed proactively and be part of an overall supply-chain-management strategy. Five criteria have been established as key success factors. Policy expectations and targets must be realistic and go hand in hand with capacity building Content development must be based on global competitiveness, rather than preference Contracting strategies are critical channels of content transfer and development Content development must involve risk assessment regarding health, safety, and environmental standards, and regarding business risks including supply capacity, quality, delivery schedule, cost effectiveness, and profit generation