Unlocking value through IOC, NOC collaboration
In June, Abdalla el-Badri, the new secretary-general of OPEC, called for increased investment from Western international oil companies (IOCs), saying that $500 billion would be needed by 2020 to meet world demand. This, he said, would help national oil companies (NOCs) unlock the potential that currently exists within their oil fields and would promote the working relationship between the two.
The most effective way of ensuring that long-term value can be derived from these fields is by IOCs implementing nationalization programs that transfer skills and knowledge to the local workforce.
Yet, as anyone who has worked in the oil industry knows, this solution is not a simple one to deliver, with both the IOC and NOC facing a number of challenges - operational issues included - that need to be overcome for the skills and knowledge transfer to be successful, such that the local workforce embraces and owns the means to successfully address the same challenges in the future. NOCs, which may or may not realize they need the guidance and help of IOCs, have traditionally been somewhat reluctant to open their markets and facilities to IOCs. This does not necessarily map with OPEC’s wishes for collaboration and investment.
Not all OPEC nations are explicit in their desire for international investment, and those that do are not always the safest destinations to send workers. A critical ingredient to making any change last is the active engagement of the local workforce. This active engagement can only happen through spending time on the ground with the local workforce in question. This cannot be achieved in every circumstance. Before sending expatriate workers into a country, rigorous checks must be carried out to ensure the safety of staff in areas that are perceived to be “at risk.”
Even if NOCs do accept foreign help, there is a raft of problems that the IOC most likely will need to overcome before a successful working partnership can be created. British-born oil workers who find themselves in the Middle East on a long-term project naturally take a certain period of time to adapt to the new surroundings. Experience has shown that there can be a clash of working practices and conflicting social cultures that can hinder rather than help productivity and operational efficiency if they are not carefully and sensitively addressed.
NOCs also have an ever-present fear that supermajor IOCs will outstay their welcome. They worry that Westerners will take away jobs from the local workforce and dilute their influence at government level. If left unchecked, these sentiments foster further dislike and mistrust of such companies and have the potential to sour further relations between the two parties. With well-structured localization schemes, however, such issues are not a problem.
One major operational concern for Western firms is the logistical challenge of training non-skilled locals as effective oil field workers, which is more often than not one of the prerequisites for the IOC operating license. Many expat workers are of the opinion that the local workforce is lacking in terms of skills and ability to do the work. And NOCs can sometimes be blind to the limitations of their own staff. They may also be unaware of operational risks being taken in the name of national pride.
IOCs should be brought in on a fixed contract with targets to deliver a predetermined set of objectives regarding local workforce numbers and knowledge transfer. This permits the IOC to exit after a set period of time, leaving the new workforce equipped with the necessary skills to maximize the potential of assets at their disposal.
This approach creates mutual benefits. The IOC is perceived as providing a sustainable solution for the upstream sector in the host country. Meanwhile, the NOC - and its sponsor government - benefits from the perception that it has created jobs, thereby helping to solve the unemployment problem that is common in many oil producing nations. This approach not only raises morale, it ensures a vital source of revenue for the long term.
Nationalization of oil fields is becoming an increasingly popular and strategically important choice for governments the world over. An established workforce localization program enables the oil firm to handle similar schemes in other NOCs.
Successful programs also have a knock-on benefit on the international labor market. Expats can return home after a relatively short time, most probably to a context of a shrinking talent pool. In a climate of restricted labor availability, this not only cuts costs and aids retention, but enhances the reputation of the IOC in the eyes of the market and NOC host country alike.
The answer to the OPEC secretary general’s challenge is not a win-lose scenario as some have feared.
Nationalization is a mutually beneficial opportunity that should be embraced by both IOCs and NOCs.
David Smith
Vice President, Energy Sector, Celerant Consulting
www.celerantconsulting.com
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