Doing Business in the Middle East

An Energy Perspective …

INSEAD Abu Dhabi – 1st March 2017

The big picture

• Oil & Gas Prices: OPEC v US Shale and the LNG Glut

• Impact of Debt and Deficits: finance, consolidation & belt tightening

• Trump, Brexit & The EU: Impact on Iran

• Technology: Cost Reduction & Recovery Rates - International Oil Company (IOC) + National Oil Company (NOC) Partnerships (Chinese)

• Strength of the $ and local currency pegs

• Regional conflict and perceptions around security

• Local Content – IKTVA (In Kingdom Total Value Add)

Saudi to launch $30-50 billion renewable energy program. UAE 50% non CO2 energy by 2050

The Opportunity: Forces at Work• Demographic & Industrial growth

– Power (Gas, Nuclear & Renewable, Water) & LNG

– Offshore– Petrochemicals– Refined product

• Fiscal reserves under pressure– Defence– Education– Subsidies & VAT introduction

• Privatisation of Aramco – Economic & energy diversification

• Restructuring – A’OPCO/Zadco; Qatargas/Rasgas; NGSCO/ADNATCO

• Leadership change in ADNOC, KPC, QP and Saudi Aramco

• Award delays and existing projects moving slowly, budget squeeze and discounts – but turning the corner

• World cup, Shams Dubai, Expo 2020 & Vision 2050 Source: SNC Lavalin

oil price @ $40

The Lessons Learned

• Lump sum turn key where low price always wins

• Monopolistic behavior by NOCs and rigid supply chain

• Spotting gaps in the Market/Differentiation/Technology is the key

• Market Connectivity/Local Presence/Local Partnerships

• Cash Flow & Defensive Credit Control and Payment Security

• Onerous T&Cs passed down the food chain by experienced Engineering Procurement Contractors (EPC)

• One size does not fit all - Territory by Territory

• Compliance– Business Ethics and Anti-Corruption

• Hanging onto the A team …

Projects

Future Projects - $374 billion

• Raising oil production in Kuwait, Abu Dhabi and Oman. Maintaining in KSA & Qatar

• Increasing refining & petrochemical capacity for domestic demand and jobs

• Increase gas production everywhere except Qatar

• Unconventional (tight gas) & renewable energy

• Focus on offshore in KSA, Abu Dhabi, Qatar

Capital Projects (including construction)

Iran

• Large market– Greenfield– Brownfield

• Post sanctions gap filled by Korea, China and GCC

• Sanctions◦ Banks ◦ Germany and France◦ Marketing◦ Relationships

• Visas and infrastructure• Annual International Oil

Show• Choosing a partner

• Free Zones vs Onshore• Abu Dhabi vs Dubai and other 5

Emirates …– Liberal regional safe haven– Diversified economy

• Economist Intelligence Unit basket 30-40% less expensive than London

• Facilities – cycling, swimming, sailing, boating etc (6 months …)

• Restaurants & malls: Shopping is also leisure, sport and hobby

Energy Business Catalyst

The small stuff …• 95% of the workforce are expat,

but extremes– Employment legislation ?

• Volatility in house prices and rents– Boom & bust credit bubbles

• Unscrupulous landlords & sharp practice (rents are rising)– 100% upfront and repairing

leases– Hidden Costs

• Pensions own provision• School fees & healthcare• Lot of paperwork