Canada’s oilfield services exporters need to be aware of local content rules when targeting new markets

Image: Joey Podlubny/JWN

With capital investment in Canada’s upstream oil and gas industry stalled while awaiting new export capacity, oilfield service companies are looking for global opportunities to grow their operations.

But to successfully enter many international markets, Canadians need to take account of local content rules when creating their export strategies.

Local content rules require companies operating in a foreign country to obtain a certain percentage of its materials and components from local suppliers. Increasingly, oil producing countries are putting stringent local content rules in place in an effort to build out their service industries and provide work for their own populations. Saudi Arabia and Iran are two examples of this trend.


To learn more about how local content rules are changing the export market download Going Global, a new report from the Alberta government, Export Development Canada, the Petroleum Services Association of Canada, the Canadian Global Export Forum, and JWN.


There is a major push in Saudi Arabia to further develop its domestic oilfield services industry, including through partnerships with foreign companies. Called the In Kingdom Total Value Add (IKTVA) program, its aim is to drive growth in small to medium sized energy related services. In December 2017, a forum took place promoting over 140 investment opportunities in localization valued at over $16 billion in several industrial and business sectors across the Saudi Arabian energy sector. In remarks before an audience of over 2,300 delegates from 30 countries, Saudi Armco CEO Amin Nasser highlighted the IKTVA program and the opportunities it offers for a localized supply chain. Nasser said that IKTVA aims to deliver a world-class, locally sourced supply chain in the country with an overarching objective of achieving 70 per cent locally-supplied content by 2021. Nasser said the two-day forum provided a platform for companies interested in establishing operations in Saudi Arabia to engage with the country’s energy sector stakeholders and their key suppliers. He highlighted the important role of small and medium-sized enterprises (SMEs) in driving value creation and innovation in the localization process. SMEs currently contribute just 20 per cent to the country’s GDP, which is less than half of industrialised economies. The initial Saudi target is to increase that number to 35 per cent. Schlumberger already has plans to develop an industrial manufacturing centre within the King Salman Energy Park in Saudi Arabia. Multinational companies operating in Saudi Arabia are increasingly seeking ways to add local manufacturing capacity in order to align with economic diversification goals aimed at creating more jobs for Saudis and making the country less reliant on oil. The new centre will manufacture products for drilling, exploration and production, as well as midstream, Schlumberger said in a statement. The industrial manufacturing centre will be developed over 500,000 square metres on land allocated for energy-related industries. The first phase will bring Schlumberger land rig manufacturing to the country.

Iran is working towards localizing almost its entire oilfield supply chain. Oil Minister Bijan Namdar Zanganeh recently announced over $6 billion worth of contracts to manufacture much-needed equipment in oil and gas sectors. The contracts are aimed at supporting private sector growth in the local oilfield equipment industry. The minister added that the government has called for allocating major projects to local EPC (engineering, procurement, and construction) and EPD (engineering, procurement and drilling) contractors. The ministry has produced a list of locally produced items that domestic contractors will be required to use. A government report said that currently domestic manufacturers meet two-thirds of demand for oil and gas equipment and the current push will bring that number up to 85 per cent. The ministry has taken measures to boost the domestic manufacture of oil equipment to stem the outflow of capital. In 2014, a committee was set up to pursue the production of 10 major categories of equipment for the key oil and gas sector, including turbines and compressors. Iran also wants to expand the production of other pieces of equipment, such as control valves, pipes, rotating machines (turbines and compressors), smart pigs used in cleaning the pipes, oil and gas measurement tools as well as equipment associated with health and safety.


To learn more about how local content rules are changing the export market download Going Global, a new report from the Alberta government, Export Development Canada, the Petroleum Services Association of Canada, the Canadian Global Export Forum, and JWN.