When Saudi Aramco said in 2015 that it would invest $400bn into its In-Kingdom Total Value Add program (IKTVA) over the following decade, oil and gas companies perked up—not many companies would pass up the chance to do business with the world’s largest oil producer. To Baker Hughes, a GE Company (BHGE), which has 10 facilities in Saudi Arabia, localisation has not been a quick reaction to growing regional initiatives—it has been a long-term strategy.
“Localisation has to be sustainable, and it has to make business sense,” says Zaher Ibrahim, president and CEO for Saudi Arabia, the North Gulf and East Mediterranean at BHGE. “Ultimately, we really drive it to the extent of what makes sense. We use the right opportunities, we make the right investments and we follow up closely to make sure we are competitive.”
Localisation initiatives across the region went into full swing following the 2014 crash in oil prices. It was one of many measures that would take hold regionally as the industry tried optimise production and efficiency, and national oil companies (NOCs) found their footing a new, low oil price environment. IKTVA, just one of the region’s many national localisation initiatives, aims to develop a diversified, sustainable and competitive Saudi economy by boosting the local supply chain and workforce.
In an exclusive comment piece submitted to Oil & Gas Middle East in November 2018, Saudi Aramco Vice President of Supply Chain and Procurement Mohammad Al Shammary wrote that IKTVA was “launched in 2015 to create a pro-business ecosystem delivering cost and time efficiencies in a low oil-price environment.” He noted that the program was on track to achieve 70% local content and 30% energy-related goods and services exports for the nation by 2021.
The key for Saudi Aramco to see IKTVA succeed is making localisation a win-win situation for stakeholders. “IKTVA participation is mandatory – but a strong value proposition comes with that requirement,” Al Shammary writes. “We devote $40bn each year to developing mutually rewarding business relationships with key materials and services suppliers.” In the 2018 edition of the IKTVA Forum, Saudi Aramco signed 31 localisation-driven deals worth $27.5bn.
Saudi Aramco offers strong incentives to localise, but Ibrahim asserts that, when done properly, localisation presents its own benefits for partners to NOCs. “Localisation has to be a platform where you drive the right investments into facilities and services, you develop the right people and suppliers, and you find ways to bring new technology to the localisation agenda,” Ibrahim says. “If you combine all of this together, you can deliver better, faster and more efficient solutions because you are in the producer’s backyard.”
Oilfield services companies, collaborative by nature, are complex and involve a range of stakeholders. Localising operations therefore requires large investments across a wide scope. Ibrahim notes a few key focus areas: building a strong supplier ecosystem, developing local talent, creating manufacturing facilities and boosting local research and development. Research and development is an integral part of this strategy for the company to continue to develop relevant solutions to NOCs.
BHGE’s Dhahran Technology Centre is working on 15 local projects, with more than 50 researchers—25% of whom are women. “Promoting gender diversity and knowledge-sharing is part of our comprehensive approach to localisation,” Ibrahim says. He calls the centre an ‘incubator’ for the company’s technology offering in Saudi Arabia and across the region. The centre is the region’s connection to BHGE’s global research and development network, and it focuses on four key areas: digital transformation; reservoir productivity; efficiency products and services; and energy and sustainability. Since its establishment, it has filed more than 30 patents.
Meanwhile, suppliers remain central to the localisation process, and companies like BHGE require a strong supplier base in the country in order to function efficiently. “We partner with suppliers and try to bring them to Saudi Arabia, we help them get qualified and they operate on their own in the country as our sub-supplier,” Ibrahim says. “When you work hard with your suppliers, they will equip you to win. This is the right ecosystem that we need to be successful in terms of localisation.” Its efforts in this area were recognised by Saudi Aramco at the IKTVA Forum in 2018, where BHGE won the IKTVA Excellence Award for Best in Supplier and Small and Medium Enterprise Development.
He is also quick to note the importance of talent development—he says companies should invest in training programmes early on, to develop and retain talent, building the “right talent ecosystem around the company.”
With 1,500 Saudi employees in the country, BHGE is resting its success on local shoulders. Smart localisation is not simply about investing as much as possible into local resources, it is about making the right investments to help the company grow. “Our collaboration with many local institutes in Saudi Arabia feeds into our localisation,” Ibrahim says. “With the Saudi Arabian Drilling Academy, we are helping develop great technicians with the drilling programme and then we bring them to our product line, which helps fulfil our localisation commitment while adding to our success.”
Well-developed research and development, talent and a strong supplier base converge to optimise the manufacturing process. Manufacturing requires its own investment—among BHGE’s 10 facilities in Saudi Arabia are its largest pressure control facility, which manufactures wellheads, a valve manufacturing plant and a polycrystalline diamond compact (PDC) drill bit manufacturing facility. “Localisation requires an efficient, smart approach,” Ibrahim says. “It requires the right investment, making sure to double down properly on manufacturing capability and ultimately drive the right delivery cycle and value chain.”
In November 2018, BHGE inaugurated its 30,000sqm multimodal facility in Second Industrial City, Dammam. The facility was developed to manufacture, assemble, package and test turbomachinery equipment, and works with more than 20 local suppliers.
BHGE also plans to build an oilfield services facility in Saudi Arabia’s King Salman Energy Park (SPARK), which will “support ongoing customer activities for three oilfield service product lines—drilling services, wireline services and pressure pumping,” Ibrahim says. SPARK is one of Saudi Arabia’s largest localisation endeavours, and is expected to generate 100,000 jobs, contributing $6bn to the nation’s GDP annually. Saudi Aramco CEO Amin Nasser said that along with SPARK’s anchor partners, “we are building a world-class energy hub that will accelerate solutions across the value chain for generations.”
Keeping those future generations in mind is key. To succeed at localising, Ibrahim says sustainability and strategy are key. “This cannot just be a one year programme which cannot survive,” he adds. “It has to be a programme that comes, invests, and is very cost competitive. It must be long term driven, not just focused on the short term.”
But the opportunities presented by localisation stretch beyond country borders. Ibrahim says that every country in which BHGE trains locals and develops local facilities ultimately provides products and services for the rest of the region, and in some cases, the world. “The benefit of localisation is that we can serve most of the region from Saudi Arabia, from our technical services facility in Iraq, through our technical training academy in Kuwait,” Ibrahim says. “As of 2010, BHGE’s drill bits are fully produced in the kingdom and 64% of those drill bits are exported to 41 countries across the globe. Drilling in Houston with a drill bit manufactured and produced in Saudi Arabia used to be a dream. Now, it is a reality.”
While localisation, by definition, drives local growth for an NOC’s host country, it can also drive growth for their partners. This could signal the importance of understanding the market—employing locals, working with local entities and developing solutions tailored to their needs.
“Making local investments ultimately helped us drive the right talent development and develop the right solutions for our customers,” Ibrahim says.
“It keeps us ahead of the game.”
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