London, September 22, 2014 — Global management consulting firm Strategy& — formerly Booz & Company and now part of the PwC network — has today released a report that highlights the increasing pressure that countries with substantial natural reserves are placing on international oil and gas companies. This pressure specifically relates to requirements for oil and gas companies to invest in local content* — an area that companies have traditionally approached with a compliance mind-set.
Many countries are now increasing their requirements in hopes of encouraging companies to participate more actively in the local economy, train and hire workers, and build local supplier ecosystems for goods and services. To date, most oil and gas companies have done the minimum necessary to meet local requirements while limiting as much as possible the impact on core business operations. Now they find they must gain a clear understanding of the countries in which they are operating, including aspects such as local capabilities, national development agendas, and nongovernmental stakeholders.
Strategy& partner Douwe Tideman, one of the report authors, notes, “This is an old issue that is taking on new urgency for oil and gas companies. Governments in host countries with well-established reserves like Brazil, Uganda, and Kazakhstan are strengthening their local content regulations, and with good reason: They have learnt from experience that often the promised benefits do not surface.”
Many countries, particularly those that have only begun to develop their resources, face high unemployment, large youth populations, and severe capability shortages. They are now starting to raise the ante, demanding increased participation from international companies in the local economy in order to spread the benefits of their activities beyond rents and taxes. Companies are increasingly finding that they must rethink their approach if they are to maintain and improve their relationships with these host governments.
Douwe adds: “Oil and gas companies need to refine their approach if they are to maintain good relations with host governments and reap the business benefits that such relationships can bring. The keys to a successful collaboration are flexibility, transparency, and good faith. Otherwise, neither party is likely to reach its local content goals, or its long-term agenda.”
Companies that embrace these demands and improve their relationships with host governments can look forward to many benefits, including lower costs, greater access to new projects, and the potential to develop a sustainable, long-term partnership.
The full "Local content in oil & gas - Recasting the conversation" report can be downloaded by visiting the Strategy& website.
* Local content is a term used in the oil and gas sector in reference to their commitment to develop the capacity and capability of local people and businesses in support of the long-term development of countries with substantial natural resources.
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