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OIL & GAS COMPANIES SOCIAL CONTENT (CONTRIBUTION) FOR CYPRUS

Frixos Thalassetis MBA Oil & Gas Management M.A. Management e-mail: frixosthalassetis@hotmail.co.uk Tel: +357 99488165

With the assistance and support of Mr Harry Theocharous (CEO) Crudex (Cy) Enterprises Ltd (Mentor to Frixos Thalassetis in his MBA dissertation Cluster Logistics in Oil and Gas Midstream Sector: Planning Cyprus Supply Chain

Social Content of oil & Gas Companies


This study aims to demonstrate how and why oil companies operating in a country undertake social contribution programmes which benefit local societies while at the same time those companies benefit. In the second part of this study an analysis of the social contribution of the licensed to operate in Cyprus EEZ companies will be performed. In the third part, social content programs suitable for Cyprus will be suggested.

Part One

International oil companies usually have to operate in places remote from their headquarters. Their performance or activities are often criticized for mistakes or omissions. As a result, organized opposition groups form to hold- off unwanted activities. Those groups consisting of stakeholders, non-government organizations (NGOs), environmental organizations and local organized groups cause huge loses to oil companies. In order oil companies avoid oppositions from the above groups they adapt strategies and programmes towards the development of local societies which are applied in co operation with the organized groups. Oil companies are recently effecting a variety of social content and contribution programmes for local societies since their realization of the great benefits they enjoy too. A successful social content strategy involves: Analysis of all factors and local distinctiveness Programming, coordination and long-term application Set realistic and achievable goals that aspire to long-term benefits It is vital that the company understands the great benefits that will be gained

Successful strategy can help the company better respond to legal obligations to the country of operation and protect its own commercial interests. Make proper information management and contribute to transparency for the benefit of local population. The benefits to the oil company can be summarized as follows: Sustainable development and sustainability of company Priority for further cooperation Rightful exploitation of achievements Better cooperation with all interested parties Good reputation and trust Huge savings in labor costs with local employment Save time by purchasing local products and services and saving money by appointing local companies in executing sub contracts Social contribution programs usually target to: 1. Training local people in professions related to the exploitation of hydrocarbons. 2. Local employment in occupations relating to the exploitation of hydrocarbons 3. Contracting with local companies 4. Buy local goods and services 5. Exploit reserves in the most productive for the country and the local community way (using facilities of the host country if available or planned) 6. Create projects of social and cultural character.

Part Two

Social Contribution of Companies Licensed to Operate in Cyprus EEZ

The American interests company is licensed for exploration and exploitation of natural gas in Block 12 of Cyprus EEZ . The company aims to improve the countries in which it operates by providing training to employees and fostering relationships with local contracting companies and the government. Noble grants financial support to programs to improve local communities and invests millions each year in projects related to the development of local infrastructure, environmental protection, education, health, improving human labor and quality of local peoples life . International Social Content Equatorial Guinea Noble Energy has contributed $ 10.4 million to the co-financed project of $ 44 million made in the country to reduce the parasite that causes malaria. The company offers annually $ 1,500,000 worth scholarships. In addition, provide financial assistance to schools and libraries. The company has funded the construction of a dam for drinking water to a small community of 350 people who had an urgent need. Noble organized a geology program in cooperation with the University of Southern Carolina.

Israel The Noble commenced its activity in Israel in 1998. From the initial stage, the company aimed to invest in the country offering to the local community. In cooperation with the Israeli company 'Marom P & B Group' which is a public relations and organizer of charitable projects and programs firm, has established its corporate social responsibility program in the country. The program elaborated to offer long-term social service includes: 1. Creation of long-term strategic partnerships 2. Funding various events 3. Organize internal initiative and volunteer programs. In 2011 the company created a scientific theme park near Haifa, of four hectares area, dedicated to humanity's greatest scientists and their inventions. The part includes amphitheater and fountains. Noble funds a training program providing support to marginalized and troubled children and their families, offering counseling and other assistance to improve their school achievements and their adaptation to society. The company contributes to many social events agencies in the country every year. Company employees in the country are encouraged to participate in voluntary community service events. Cyprus The company reported that social offerings were also granted to Cyprus society as follows: $ 289.000 in 2009 and $ 386,000 in 2010 without specifying the purpose. Further Offer is not reported by the company.

(Sea plots 10 and 11 for exploration of oil) The French interest company, defines social service as a series of activities which include the employment and specialization of locals, purchases from local market products and services, designed to develop the industrial infrastructure and skills of people in the countries hosting projects of oil gas'. The social contribution is measured as a percentage of investment, labour-hours, local quantities of local markets and the number of jobs that will be offered to the local population.

Social contribution of the company is in line with the technical characteristics of the country and the local industry. Based on evaluations of existing industries, the offered skill level and the expected results of the company's investors , aiming at the development of local capacity. Social contribution of the company is taken into account from the beginning of the project in the design phase . It is a criterion used in the screening of design options to meet the needs and requirements of the project with the capacity of local suppliers and skilled labour. The company offerings vary from country to country for the following reasons: Presence or absence of suitably qualified staff and contractor companies. Sufficiently or poorly developed local industrial infrastructure Ability or inability of local construction companies to provide competitive offers and provide quality, safe and flat performance. Examples of community contributions by the company: 1. Yemen Liquefaction station in (Delivery 2009) The company established its own training centre which has provided training to 300 local people who are manning by 80% the liquefaction station. The rate is scheduled to reach 90% of staff. 2. Nigeria In all company activities including refineries, employed locals in 80% of all staff and each year approximately 100 additional locals are recruited after qualifying education. The company strives to provide expertise to local companies which outsource to undertake some construction areas. 3. Angola In 2010 local companies undertook as subcontractors for the maintenance undersea pipeline. 4. Indonesia The projects in the country were divided into small contractors and several of these were given to local companies Total is projected as a company that invests a lot in social contribution with the following objectives: To ensure that the production of oil and gas supply local and peripheral development, participating in the program EITI (Extractive Industries Transparency Initiative) To positively reinforce the hosting countries activities and become involved in development.

Licensed for gas exploration in plots 2,3 and 9. The participation of companies in the consortium is 80% ENI (which has the active role) and 20% Kogas. The Italian interests ENI has worldwide operations and in accordance with the annual report of 2012, has invested internationally more than 90 million in community service projects, especially in countries where is involved with exploration and production of hydrocarbons. Eni evaluates principle capabilities in each country where it operates and then develop partnerships with local communities in order to discern the opportunities for mutual benefit through various types of community contribution. The company in the first stage of presence in a country, is trying to offer local population professional development opportunities and achieve efficient and quality work utilizing local talent and offering equal opportunities and education. The main areas in which the company Eni acts to local development in the countries where it operates are: The consolidation and expansion of social contribution The rural, social and economic development Health promotion Access to water, sewage systems and promote responsible use of natural resources Training Eni has its own corporate university serving the needs of the company in the selection and recruitment of staff, the development of staff and strategies of the company personnel matters, required knowledge and skills, planning staff search or integrated curricula offered in partnership by Italian universities. The corporate university is the vital link between the company and international academic for the development and dissemination of corporate culture. The cooperation of Eni with local universities in the country of activity, offers programs to students who meet the requirements of the company. The company offers several scholarships for monitoring various programs relating to hydrocarbons. scholarships were granted to Cypriots. Two

ENI advocates for trade relations with local companies for direct sourcing of local goods and services, thereby contributing to their development. In this context, in 2011 the company concluded a cooperation with 34,000 suppliers worldwide and purchased goods and services worth in excess of EUR 34 billion, which accounted for 56 % of total supplies internationally. In some countries of operation of Eni as Brazil, the rate of goods and services supply from the country reached 93 %. This way the company strengthens and improves local suppliers increasing their turnover and international recognition, increasing their international competitiveness.

The South Korean interests partner of Eni, Kogas which is state-owned company and is the largest importer of LNG in the world, seeks to raise social contribution in the countries where it operates by contributing to support programs for minorities and the disadvantaged and granting scholarships to educate young people in Korea, in occupations related to natural gas. Through mutually profitable partnerships with local companies brings expertise and improves profitability and competitiveness of local businesses. In East Timor Kogas is funding a new football team and is planning to increase social benefits to local communities.

Part Three

Oil companies form different social contribution programs in each country where they operate because this offer should respond to local conditions and peculiarities. The Cypriot reality: Political: Cyprus is a democratic country with elected President of democracy and parliamentary representatives. Since May 2004 is a member of the European Union and maintains very good relations with all neighbouring countries except Turkey. The government tries in every way to be supportive for any form of direct foreign investment, offering low tax rates and offering incentives such as Cypriot nationality to foreign investors. Economy: Cyprus is plagued by economic crisis, high unemployment, wage cuts, closures and the need for banks consolidation. It has received funding from the troika and an attempt is made by the state to restart the economy, Cyprus has banks which provide high-level financial services, providing quality services in many other areas as higher education, telecommunications, the legal sector, accounting, transportation and other specialized areas. The country's infrastructure is very good. Major contractors Cypriot companies undertake major projects abroad and enjoy international recognition for the quality offered. Society: Cyprus has one of the highest percentages of residents with university education, with the ability to communicate in English. Due to high unemployment in the

country and the level of education of local citizens to acquire specialized training and skills for employment in various professions associated with the hydrocarbons would be of short duration. Environment: Cyprus has a temperate climate, and a clean environment with low emissions. Technology: The technology applications in the country on an incremental and large percentage Cypriots are familiar with the use of computers. Legislation: The legal system of the country is compatible with the EU legislation and European directives.

Suggestions for Social Offering of Oil Companies in Cyprus


The design of social contribution of oil companies need to evolve with the design of their business activities in Cyprus. Companies will encounter favourable environment to recruit and specialize Cypriots since many graduates of various disciplines are unemployed and willing to specialize in different occupations on hydrocarbons Large number of private universities, technical universities as well as state universities, offer high level education and have the infrastructure and faculty that could, in cooperation with companies offer specialized training programs. For successful and effective social contribution of companies, strategic planning includes the following: 1. Needs assessment of manpower. 2. Categorization of education and skills. Search and breakdown of the number of concerned requirements for employment in accordance with the discipline or the skills and experience held. 3. Rating Cypriot construction companies 4. Design all ancillary services required by oil companies and review Cyprus companies offer. 5. Distribution of projects to smaller contractor that may be undertaken by Cyprus companies 6. Projects such as theme park (Israel) roads interconnecting cities (Mozambique) allocation in research and technology in Cyprus and others would be welcome and appreciated by Cypriot society.

Conclusions
1. Social content offerings of the oil companies in Cyprus should be contributed the soonest as: a) Training and specialization of manpower takes time to be accomplished, while on the initiation of projects workers must be ready for work. b) Necessary upgrading and coordination is required by local services companies in order those companies put into effect new standards and processes to comply to oil companies requirements c) In Cyprus economic condition today, any financial contribution would be useful as this would give hopes to the people, reduce unemployment and activate business enterprises in stagnation. 2. Co-operation of oil companies in their social contributions in Cyprus Almost all oil companies present convergent social content programs. Any cooperation of oil companies in Cyprus will help them develop and upgrade programs available, earning more experience from large companies and saving money and time, since the workload, design and the financial burden will be shared. It is worth mentioning that some form of customary cooperation between companies operating in country. In Cyprus is already existing as joint venture between companies (Eni Kogas). 3. Studies and research for the elaboration of a coordinated and coherent program of community contribution, should take place and bring up the desired results. Evaluation of human resource needs, as well as specializations, need to be held. Oil companies have to be coordinated with Cypriot educational institutions so as to enable massive workforce education offering the necessary skills. Companies should at least aim at the employment to the range of activities at a rate in excess of 80 % after Cypriot employees. Cypriots are one of the most educated people in the world with diverse skills and the ability to adapt to the new hydrocarbon industry. 4. The government in Cyprus may create conditions for efficient social content of oil companies, by setting incentives (such as exempting companies from paying levy manpower since they would have paid in advance for the training of their Cyprus personnel) or disincentives to import expatriate staff. This can be achieved by the imposition of tax to a company employing foreigners from third countries while national

staff is available. Another disincentive would be obstructed and short-term work permits to foreign nationals of third countries, always if there are no available Cypriots. In case social content programs are not offered in the initial stage by the companies, the effect of introducing foreign personnel in Cyprus will result as there will be no available and sufficiently trained manpower. This will result to an increase in staff costs, unemployment in Cyprus will remain at high levels and leakage after foreign workers exchange send to their countries. In addition Cypriot companies will be unprepared and not compatible with the needs of the hydrocarbon projects, therefore a higher number of projects will be undertaken by overseas companies affecting Cyprus economy and unemployment problem.

Source of all the information regarding social content programs offered by oil companies in the countries where they operate was obtained by their official websites and annual reports.

References
http://www.nobleenergyinc.com/Home-4.html http://total.com/en http://www.eni.com/ http://www.kogas.or.kr/kogas_eng/html/main/main.jsp Ipieca (2011) Local Content Strategy [online] http://www.ipieca.org McPhail K. (2000) How Oil, Gas and Mining Projects Can Contribute to Development Finance and Development quarterly magazine volume 37, no. 4 IMF Peek et al. (2008) Skills Shortages in the Global Oil & Gas Industry: How to Close the Gap [online] Foundation Cres

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