Putting locals on the map in EGApril 16, 2018
Alfredo Jones, managing director of Alduco Engineering Services, talks to TOGY about the benefits of hiring local services providers, access to financing and local talent development. Established in 2002, Alduco Engineering Services provides oil and gas companies with engineering and asset integrity management services in Equatorial Guinea. It has also worked in Nigeria, the Democratic Republic of Congo and Benin.
• On using local labour: “If international oil companies are really serious about reducing costs, they should look at the local market. It is not only cheaper to use competent local companies than to bring in companies from outside because of all the costs involved, but it’s also a legal requirement from host governments that IOCs use the services of local companies.”
• On fixing financing: “We have EcoBank, which has experience with oil and gas operations in other countries. I am hoping that as things pick up, other banks will start looking into the oil and gas sector. Maybe the Ministry of Mines and Hydrocarbons needs to intervene. I think the private sector oil companies, government and banks need to get together to see what can be done.”
Most TOGY interviews are published exclusively on our business intelligence platform, TOGYiN, but you can find the full interview with Alfredo Jones below.
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How has the local market developed in recent years?
The price of oil went as low as USD 35 per barrel in 2015, leading to a global downturn in the oil and gas industry and causing a lot of companies to lay off people. Some pulled out of Equatorial Guinea. The local market picked up in 2017 because ExxonMobil started a drilling campaign, which meant that a lot of subcontractors returned to the country, the market was also helped by the increase in crude prices, which were around USD 70 per barrel as of January 2018.
It is looking positive and we are hopeful that with the stabilisation of the price of oil, there will be increased activity, which will in return create opportunities for local companies.
How can IOCs benefit from hiring local services companies?
If international oil companies are really serious about reducing costs, they should look at the local market. It is not only cheaper to use competent local companies than to bring in companies from outside because of all the costs involved, but it’s also a legal requirement from host governments that IOCs use the services of local companies.
If I have to provide a local engineer to ExxonMobil, I do not have to pay for an airplane ticket to bring him in and I do not have to pay to house him in a hotel. The local engineer lives in-country, is as qualified as his expatriate counterpart and is immediately available and at a much cheaper price than an engineer that has to be brought in from another country.
Local services providers are able to provide local technical staff and services without compromising on safety, quality and the international standards that IOCs expect. If we were not up to standard, we would not be providing services to IOCs. Quite a few local companies with good track records are competent and able to provide a lot of services that oil companies need, either on their own or in conjunction with international partners.
What kind of services are local providers capable of offering at high standards?
It’s very unfortunate that the IOCs in Equatorial Guinea shy away from the use of local services providers when it comes to contracting technical services and that they would rather use foreign companies, using the excuse that local companies are not competent enough.
Local services providers tend to be used more for the provision of unskilled labour in the sector, ignoring the fact that local companies with highly skilled Equatoguinean workforces exist and can provide various technical services including but not limited to engineering, fabrication, cathodic protection, NDT [non-destructive testing], rope access, lifting inspections and RBI [risk-based inspection] services.
Is it difficult for local companies to find international partners?
Yes; we have tried and we keep trying. The problem we find is that a lot of international companies are able to come in and get work without complying with local content requirements, even though this is not legal.
When I approach companies in Houston, I say that I am from a local company and that the law says that international companies should partner with locals. We have experience, contacts and skilled people, and you comply with the law by partnering with us. They respond that they can come in as a foreign company and get contracts without partnering with a local company or registering one, so they are not interested in talking to us.
This is true, as a lot of contracts are awarded in Houston. When the IOCs sign contracts, they don’t oblige international services companies to respect local regulations by making sure they partner with local companies or that they register local companies with national participation for the execution of their in-country projects.
What can be done to remedy this situation?
The government has realised that, left on their own, most of the international companies will not respect local laws. We are seeing this in Equatorial Guinea. We believe that the government has taken note and is going to start taking very strict measures against services companies that don’t comply with local laws, as well as the IOCs that keep awarding them contracts.
In neighbouring countries such as Angola, Ghana and Nigeria, the local laws are strictly enforced. In Ghana, violating national content regulations could land you in jail. We all need to work harder to make sure companies are compliant with local laws and regulations, which will lead to a win-win scenario for all parties involved.
How do international companies view local talent and Equatoguinean firms?
One of the challenges we face is the perception that locals and local companies are not up to standard. This is something we have been trying to change for a long time. The oil and gas industry has been here for 27 years. There is a pool of nationals that have being trained and worked in IOCs and international services companies, and who are now working in local companies. There are also others with varied relevant experience working in local companies. All of this contributes to the existence of competent local companies.
Unfortunately, IOCs have a preference for using international services companies, to the detriment of local companies. For example, a maintenance manager in an IOC might be more comfortable working with an American or British services company that he has worked with in the past from Houston or Aberdeen. He is not even thinking about local content when he engages the services of such companies.
We are hoping that the government will intervene and that competent local companies will be given opportunities. We are not saying we should be given opportunities because we are local, but instead that we should be given opportunities because we are local, work at international standards and because the law says that local companies should be given preference.
The other problem we face is there are two types of local companies: 100% indigenous local companies and companies that comply with Presidential Decree No. 127/2004 in terms of having a minimum of 35% of shares owned by locals, which qualifies them as local companies.
When you look at the local company that complies with Presidential Decree No. 127/2004 and the local indigenous company that is mostly locally owned and employs nationals, but that might also have a few expatriate employees, you will see that IOCs seem to prefer using the services of the so-called local companies with a minimum of 35% local shareholding, but that principally have expatriate staff, technicians and management. In Ghana, this is called “fronting” and it’s illegal, because it doesn’t add any value to the local economy.
How will the services market be impacted by the most recent E&P block awards?
There is a process from when a block is awarded. You start off with the acquisition of seismic data, then drilling. After that, there is engineering, field development and then production. I would like to see local companies involved right from the very beginning, and throughout the value chain, starting with seismic data acquisition and drilling activities.
Right now, we do not have any local companies that participate in the provision of those services. We are hopeful that with more companies coming in and the new PSCs the government is signing, which have stringent local content clauses embedded in them, that there will be local participation across the whole technical value chain of oil and gas activities in EG.
How easy is it for companies to access financing in Equatorial Guinea?
Unfortunately, it is very difficult to raise financing. The banking sector is not as developed here as it is in countries such as Nigeria, Angola or Ghana, where if you have an oil and gas contract with a purchase order, you can go to a bank and raise financing. In those countries, the banks have departments that deal especially with oil and gas activities. We do not really have that here. If you go to a bank, they will ask you for collateral and it is a very lengthy and bureaucratic process to get a loan. When an oil company wants a service, it wants it now; it does not want to wait.
We have EcoBank, which has experience with oil and gas operations in other countries. I am hoping that as things pick up, other banks will start looking into the oil and gas sector.
Maybe the Ministry of Mines and Hydrocarbons needs to intervene. I think the private sector oil companies, government and banks need to get together to see what can be done. Also, the IOCs can do their bit. For example, ExxonMobil in Nigeria has financial arrangements with banks, which has allowed local companies to raise billions of dollars in financing.
What is Alduco’s regional presence and do you have plans to expand into other markets?
We have worked on various projects in the region. For 2018, the plan is to focus on more opportunities outside of Equatorial Guinea. We are also looking at moving into Ghana, as they are a fairly new entrant in the industry.
Ghana is very strict with local content regulations. as a company from Equatorial Guinea, we cannot go into Ghana and work there without partnering with a Ghanaian company. We would bring our expertise and know-how to a Ghanaian partner.
We plan on doing the same in Mozambique and South Sudan. In Nigeria, we already have a registered local company and will be looking at exploiting more opportunities.
What are your goals through 2019?
My goals are to be the national indigenous company of reference not just in Equatorial Guinea, but also in the Gulf of Guinea. This way, when people talk about national companies, they refer to us as a good example, not just with kind words, but also as a company that is executing projects successfully in the region.
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