Doing Busines s in. Oil & Gas/Subsea Focus

Transcription

1 Doing Busines s in Australia Oil & Gas/Subsea Focus

2 Doing Business in Australia Contents GLOSSARY 4 1. INTRODUCTION 5 Subsea Sector 5 2. GENERAL OVERVIEW OF AUSTRALIA 6 Political Overview 6 Government Strategies 7 Key Facts 7 2 Incentives 8 Trade Between UK and Australia 9 The Market ENERGY INDUSTRY ACTIVITIES 11 Oil & Gas Activity 11 Natural Gas 12 Liquefied Natural Gas SUBSEA ACTIVITY 25 Comparison with UK Projects 27 Project Overviews SUBSEA SUPPLY CHAIN 31 Supply Chain Networks MARKET ENTRY 36 Market Entry Options 38 Establishing an Australian Company 38 Exporting 40

3 7. LEGAL AND CORPORATE 43 Corporate Regulation Bodies 44 Banking 44 Tax 44 Employment Regulation Overview 46 Visas and Permits 48 Intellectual Property Rights 50 Patents CONDUCTING BUSINESS IN AUSTRALIA 52 3 Best Practice Regulation 52 Culture 53 Day-to-day Communications CASE STUDIES 55 Bowtech 56 Sonomatic 58 TRAC Oil & Gas Ltd QUICK REFERENCE GUIDE SUMMARY USEFUL SOURCES OF INFORMATION 65

4 Doing Business in Australia Glossary Boe: barrels of oil equivalent CAGR: Compound Annual Growth Rate Capex: Capital expenditure (US$) Deepwater: Water depths of 500 metres and more E&P: Exploration and Production EPC: Engineering, Procurement and Construction EPCM: Engineering, Procurement, Construction and Manufacturing 4 EPIC: Engineering, Procurement, Installation and Commissioning FPSO: Floating, Production Storage and Off-loading vessel IOC: International Oil Company. Fully integrated company. LNG: Liquid Natural Gas 2P Reserves: Proven + Probable Reserves Shallow Water: Water depths of less than 500 metres Ultra Deep Water: Water depths of 1,500 metres and more Water depth: Units are given in metres and refer to the deepest part of the control line, pipeline or other offshore infrastructure

5 1. Introduction Following the launch of the industry Oil & Gas Strategy Maximising Our Future in May 2012, this report has been produced to provide information to companies, in line with the strategic priority Supply Chain International which aims to increase the rate of internationalisation of the Scottish supply chain. The strategy, which is led by the Oil & Gas Industry Leadership Group (O&G ILG), will be delivered by working in collaboration with both industry and the public sector. Scottish Enterprise and Scottish Development International are committed to helping companies capitalise on the global opportunities by exporting their skills, technology, expertise and experience to key emerging oil and gas provinces. As part of our support, we have worked with Subsea UK to produce this guide, which focuses on the Australian market and in particular on the subsea sector. It provides an easy to read and use reference tool that is aimed at helping your company take its first successful steps into the Australian market to make your journey as smooth and successful as possible. It is not intended to be a definitive guide but to provide market intelligence and cover the main things you need to know, the challenges you may face and steps to take to get started on your market entry strategy. Subsea Sector With annual revenues of 6 billion and employing 50,000 people, the UK s subsea industry is one of the most successful, highly performing and fast-growing sectors of the country s economy. Recognised as a global centre of excellence, the UK subsea sector leads in innovation and technology. Having a well-established supply chain with a proven track-record throughout the world, over 50% of the annual output is attributable to exports. From its current 20 billion value, the annual global subsea market is predicted to double to 40 billion by 2017, therefore providing the UK with significant potential for international growth. 5 This publication contains general information only. Nothing in this publication constitutes legal or other professional advice. You should consult a suitably qualified professional on any specific issues or matters referred to in or arising from this publication. Neither Scottish Enterprise nor Subsea UK, or their principals, members, staff and agents and in all cases any predecessor, successor or assignees shall be liable for losses, damages, costs or expenses arising from or in any way connected with the use of this publication. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Scottish Enterprise.

6 Doing Business in Australia 2. General Overview of Australia Australia boasts an outstanding economic track record. As the fifth largest economy in the Asia-Pacific region, and the 13th largest economy in the world, the country is viewed as a dynamic and dependable market, particularly in times of economic uncertainty. 6 Add to this a technology-hungry and sophisticated business and consumer base, very similar language, culture, history and business practices, and it is clear that the business environment provides outstanding opportunities for Scottish and UK companies to do business in Australia. The Australian economy has been ranked as the world s most resilient economy for six out of the last eight years and is currently one of the best performing economies in the OECD (Organisation for Economic Co-operation and Development). According to the World Bank s Doing Business Report 2013, Australia is the tenth easiest country in which to do business and the second easiest in which to start a business. A new business can be established in Australia in two days. Australia s proximity to the world s fastest growing region, the Asia-Pacific, also provides a distinct advantage for Scottish and UK companies as a potential gateway for expansion into this region. Australia s growing orientation towards its Asian neighbours is reflected in its economic policy. It is a key member of the Asia Pacific Economic Cooperation forum (APEC) and in the process of establishing free trade agreements with China and the Association of Southeast Asian Nations (ASEAN). The UK and Australia have a close and long-standing political and economic relationship, cooperating closely on international affairs, sharing common legal systems, language and societal structure. Trade has always been an important part of the UK- Australia relationship, with the commercial environment in Australia regarded as exceptionally friendly and attractive to business, with room for growth. Australian willingness to give new products and ideas a try commends the country as a good market to test the international appeal of a product or service. Against the backdrop of Australia s robust economy, the UK s strong association and similarities in business practices, there has never been a better time to do business with Australia. Political Overview Australia s political and regulatory environment is stable, open and progressive, providing business with a high degree of confidence and certainty. The political system is highly effective in responding to economic challenges and policy direction. The adaptability of Australian government policy to changes in the economy has been ranked in the top four countries 1 in the Asia-Pacific. Similarly, the transparency and effectiveness of Government are also rated highly. The current federal Government, led by Prime Minister Julia Gillard, has shown a strong commitment to providing businesses with the right conditions for growth and trade. In recent years, trade liberalisation and reductions in tariff barriers such as import tax, have resulted in strong productivity and enabled businesses to be highly responsive to economic conditions.

7 The Australian Government is committed to the provision of adequate, reliable and affordable energy to meet future energy consumption needs and to underpin strong economic growth, consistent with the principles of environmental responsibility and sustainable development. Australian Government, Department of Resources, Energy and Tourism Government Strategies Australia is a mature oil and gas province, yet considered to be underexplored. Vast onshore and offshore basins, potentially containing enormous untapped resources, remain undrilled. According to the Australian Petroleum Production & Exploration Association Ltd (APPEA), the national body representing Australia s upstream oil and gas exploration and production industry, the country s petroleum trade deficit will grow to around AUD$30 billion per annum by 2015 without major new discoveries. Addressing this deficit requires major exploration programmes. The Federal and State Governments are therefore looking at incentives to attract exploration investment and secure Australia s energy supply. A 2009 Productivity Commission report (Review of the Regulatory Burden on the Upstream Petroleum Sector) found that current regulatory arrangements for the industry were overly complex, imposing unnecessary regulatory burdens, increasing costs, and therefore detracting companies from investing in Australia. This report made several recommendations to improve the system in Australia. In November 2010, the Montara Commission found Australia s offshore oil and gas regulatory regime to be seriously wanting in its oversight of safety and environmental management. This reinforced the findings of the Productivity Commission and made a compelling case for setting up a single integrated offshore regulatory authority for these critical operational areas. The Australian oil and gas industry has welcomed the Australian Government s May 2011 responses to the Productivity Commission and Montara Commission of Inquiry reports. In 2012 the Government announced it would introduce legislation to establish the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) and the National Offshore Petroleum Titles Administrator (NOPTA). Key Facts Population GDP Land Mass Natural Resources Main Economic Drivers 22.6 million $ Trillion 2.9 million square miles Aluminium Iron Ore Lead Natural Gas Oil Uranium Official Language Spoken English Financial services Mining and minerals Oil and gas ICT Biotechnology Agribusiness Over the same period, in 2010 the Australian Government shifted its federal policy away from its reliance on fossil fuels, creating for the first time a national, co-ordinated strategy looking at investing in and developing clean energy with an announcement of a national mandatory renewable energy target of 20% of electricity supply in Australia by The Australian Government established the Australian Centre for Renewable Energy (ACRE) in 2010 as a key component of its AUD$5 billion Clean Energy Initiative to promote the development, commercialisation and deployment of renewable energy and enabling technologies and to improve their competitiveness in Australia. 7

8 Doing Business in Australia 8 Incentives To address the energy challenge, the Australian Federal Government is exploring possible incentives to encourage oil and gas industry exploration whilst adhering to its clean energy strategy. Current initiatives include the introduction of the Australian Government s Petroleum Resource Rent Tax (PRRT) to encourage exploration in Australia, whilst the Government of Western Australia, Department of Mines and Petroleum (DMP) has implemented the Exploration Incentive Scheme (EIS). Petroleum Resource Rent Tax The Petroleum Resource Rent Tax (PRRT) is a profit-based tax which is levied on a petroleum project. Since 1986, PRRT applies to all petroleum projects in offshore areas (or Commonwealth adjacent areas) under the Offshore Petroleum and Greenhouse Gas Storage Act Certain production licences derived from the North West Shelf exploration permits are exempt. The tax ensures that the Australian community receives an appropriate share of the large returns that can follow the development of rich petroleum deposits. At the same time, PRRT provides companies with adequate rewards in return for the risks they accept in undertaking offshore exploration and development. For further information on the PPRT visit: Exploration Incentive Scheme The Exploration Incentive Scheme (EIS) is a State Government six point programme that aims to encourage exploration in Western Australia for the long-term sustainability of the State s resources sector. The AUD$80 million initiative, funded by Royalties for Regions over five years, will stimulate increased private sector resource exploration and ultimately lead to new mineral and energy discoveries. Most of the activities in the EIS are focused in under-explored greenfield regions. New mineral and energy discoveries in these areas will also significantly increase knowledge of the State s geology and resources, and help increase employment opportunities. The EIS will be managed by the Department of Mines and Petroleum (DMP), the State s lead agency dedicated to servicing the future development of Western Australia s resources industry. DMP has worked alongside the Department of Local Government and Regional Development in developing and approving the initiative s six programs. The EIS is made up of the following six programs. Program 1 Exploration and Environmental Coordination AUD$1.5 million Improving online mineral and petroleum tenement application processes. Program 2 Innovative Drilling AUD$26.9 million Supporting innovative drilling in greenfield areas. Program 3 Geophysical and Geochemical Surveys AUD$32.5 million Providing new data through airborne geophysics, seismic, gravity and geochemical surveys. Program 4 3D Geological Mapping AUD$13.8 million Developing a system that allows all geoscience databases to be accessed seamlessly online. Program 5 Promoting Strategic Research with Industry AUD$2.3 million Supporting the rapid transfer of new geoscience concepts, skills and technologies into the minerals exploration industry. Program 6 Sustainable Relations with Indigenous Communities AUD$3 million Providing initiatives designed to assist indigenous and environmental approvals for exploration production. For further information on EIS visit:

9 Trade between UK and Australia The economic and trade relationship between Australia and the UK remains immensely important to both countries. Many UK firms see Australia as an excellent trading partner. According to Austrade (The Australian Trade Commission, the UK is Australia s eighth largest two-way trading partner. In 2011/12, two-way merchandise trade was valued at around AUD$14.9 billion, with exports to the UK ranked 7th at AUD$8 billion, while imports from the UK ranked 10th at AUD$6.9 billion. These figures do however show a decrease in trade from 2010/11 data which recorded exports at AUD$10.5 billion and imports of AUD$10.9 billion. Trade in Services is also important to the UK-Australian bilateral trade relationship. Australia s services exports to the UK in were valued at AUD$3.9 billion and services imports from the UK were valued AUD$4.9 billion. In relation to oil and gas activity, Australia is the third most significant market for Scottish based supply chain companies, with international sales to the country reaching 725 million in 2011/12. This represents a 9.4% increase on the 663 million recorded in 2010/11, which in turn revealed considerable growth of 31% compared to 504 million in 2009/10 2. This upward trend demonstrates the growing scale of activity and in particular the presence of Scottish supply chain companies with subsidiaries now operating in Australia. Investment Australia s continuing outstanding economic track record has served to raise its international profile as an attractive destination for many companies. UK Investment in Australia In 2011, total UK investment in Australia was valued at AUD$470.8 billion, with foreign direct investment of AUD$69.7 billion, behind only the US. British businesses have traditionally viewed Australia as an attractive base for regional operations and have invested in a wide range of industries, including energy, infrastructure, pharmaceuticals and travel. Approximately a third of all regional headquarters operations in Australia are European, and of these almost half are British. Major UK investors in Australia include Shell, BP, British Aerospace, BT and Vodafone. Australian Investment in the UK Total Australian investment in the UK was AUD$192.9 billion making the UK Australia s second most important foreign investment destination. Approximately 1,500 Australian companies are active in the UK, with a large number using the UK as a base for continental Europe. Key Australian investors in the UK include: Macquarie, National Australia Group (with Clydesdale Bank, Yorkshire Bank and Northern Bank), AMCOR, Lend Lease, Mayne Nickless, Westpac, The Commonwealth Bank, ANZ, Cochlear, ResMed, CSL, Boral, and dual listed companies GKN Brambles, Rio Tinto, and BHP Billiton. 9

10 Doing Business in Australia 10 The Market Former Australian Prime Minister Kevin Rudd once described Australia to be a nation whose origins lie firmly in the west, but whose geo-political and geoeconomic circumstances are shaped in large part by our location in the east this is the inescapable expression of the Australian condition. Today, Australia s economy truly reflects this condition. Before the 1970s much of Australia s trade was with European and North American markets. During this period, Australia was internationally considered as a relatively closed and protectionist economy. However, as key economic reforms were gradually introduced by the Australian government, the Australian economy started to focus its attention on trade within the Asia Pacific region. This shift has turned Australia into one of the fastest growing advanced economies in the world. Australia is the 13th largest economy in the world according to nominal Gross Domestic Product (GDP current prices) and the 17th largest according to GDP Purchasing Power Parity (PPP). The GDP per capita in Australia when adjusted by PPP was recorded in 2012 as US$36,728. Historically, from 1980 until 2011, this averaged US$22,951.3 reaching an all-time high of US$39,465 in December of 2011 and a record low of US$9,164.6 in December of So, over the past two decades, Australia has enjoyed a period of uninterrupted economic growth with an average of 3.3% in real GDP growth annually, and the IMF forecasting real GDP growth of 3% for Australia possesses a well-diversified economy boosted by the strength of its services and resources industries. Before considering doing business in Australia you will need to research the market fully. Your initial research should identify: The market demand for your product or service Whether you should target particular niches and which those are Whether you can be competitive in Australia Whether you need to be based in Australia to do business there Alongside this you will also need to consider the cost of doing business in Australia as wages are often at least twice that of those employed in the same role in the UK. There is also a high cost of living in Australia as well as a large skills shortage creating a high demand market as a result. Australia presents enormous business potential but you must be willing to invest time and money. Although there are many similarities with the UK, to do business successfully in Australia you need to understand the culture, politics and laws. 1 IMD World Competitiveness Yearbook Scottish Enterprise/SCDI Survey of International Activity in the Oil & Gas Sector

11 3. Energy Industry Activities Australia is a member of the Organisation for Economic Cooperation and Development (OECD) group which promotes policies to improve the economic and social well-being of people around the world. Australia is one of only three net hydrocarbon exporting nations in the OECD and is the largest net exporter of coal. Australia also exports natural gas but is a net importer of oil. With large resources in natural gas, coal and uranium the energy industry is a major contributor to the Australian economy. KPMG Econtech s economic modelling stated that: the Australian petroleum industry contributed AUD$6.2 billion per annum to the GDP. This is two-thirds the contribution of the textiles, clothing and footwear industries and twice the forestry and fishing industries. Oil & Gas Activity Australia has more than 50 sedimentary basins. Of these, only 12 are producing oil and gas and only four are known to have non-commercial reserves. There has been very little exploration of the remaining 34 basins, which means that many regions have yet to be explored to any significant extent. These could potentially contain enormous untapped resources. 11 Australia has invested heavily in the oil, gas and other energy industries and with continued population growth and the ever-increasing need for energy, future economic growth is certain. Vast areas of the country remain to be fully explored or exploited for oil and gas reserves, which presents strong growth potential to expand production and increase energy exports. New LNG projects are a tangible sign of confidence in Australia as an investment destination. Coal seam gas has great potential for development, and between October 2010 and January 2011 there has been over AUD$31 billion in new investment committed across two projects to export LNG from coal seam gas. Australia has proven to be a reliable and competitive country with its operations across the energy sectors and also strongly supports corporate responsibility programmes, environmental conservation, restoration projects and community development programmes. Australia s current oil and gas producing provinces were all found to be hydrocarbon-bearing before Since then exploration has been focused on the full potential of these basins. The oil-producing regions of Australia include Western Australia, Bass Strait, the Northern Territory, the Timor Sea, South Australia and Queensland, which have proven oil reserves of 3.9 billion barrels. This is however a decline of 22% on the 2010 total. Given these figures and the maturity of the oil-producing areas, only the discovery of a significant new oil province can arrest the long-term decline in Australian oil production. However, whilst oil production is declining, Australia s conventional gas reserves are estimated at 157 trillion cubic feet (Tcf), a 52% increase from 2010 levels of 103.1Tcf. This provides Australia with the potential to develop a large export market.

12 Doing Business in Australia 12 Natural Gas Australia has large natural gas reserves; the largest in the Asia-Pacific region with 2.9 trillion cubic metres of estimated reserves enough to power a city of 1 million people for 8000 years. Production is currently greater than consumption and geologists are optimistic that with new reserves being discovered and further exploration activity to come, more gas reserves will be added to this base. The data below shows recent production trends and the significant growth of gas for export purposes. Western Australia has the largest natural gas producing basin in the country. Other producing states are Victoria, Northern Territory (serving local usage only) and Central Australia. Due to Australia s location in relation to other countries, conventional gas pipelines cannot be used to transport the gas produced, therefore it is mostly transported as liquid natural gas. Liquefied Natural Gas Liquefied Natural Gas (LNG) is the fastest growing energy sector. Australia is currently the world s fifth largest LNG exporter and the Australian petroleum industry is aiming to be the world s first or second largest LNG exporter by The industry is targeting production of at least 60 million tonnes per annum (mtpa) by 2020, up from 2009 production of 16.71mtpa. Australia has three producing LNG developments and several other confirmed LNG projects. More than a dozen such projects are either under construction or at various stages of planning. The country s first LNG project the North West Shelf Venture (NWSV) began shipping LNG in The project has since grown to include five production units (or trains) and now produces up to 16.3mtpa of LNG. The country s second LNG development Darwin LNG began production in This one-train project produces up to 3.5mtpa. Australia s third LNG project Pluto started production in April It has one 4.3mtpa production train and at least one additional train is being planned. Seven large Australian LNG schemes are currently under construction. Four draw from gas fields in northern Western Australia (Gorgon, Prelude, Wheatstone and Ichthys) and three are in Queensland (Queensland Curtis LNG, Gladstone LNG and Australia Pacific LNG). Gorgon will have three trains producing 15mpta from Wheatstone will produce an initial 8.9mpta from Prelude will produce 3.5mtpa, starting from 2016 or Ichthys will pipe gas to a liquefaction plant near Darwin. It will produce 8.4mtpa of LNG and is expected to start production in late Australian Total Gas Production and Exports (Billion Cubic Metres) YEAR Total Production Export Source: BP Statistical Review of World Energy 2012

13 In Queensland, Queensland Curtis LNG, Gladstone LNG and Australia Pacific LNG have each made final investment decisions for two production trains. Queensland Curtis will produce around 8.4mtpa of LNG with the first train to start production in Gladstone LNG will produce up to 7.8mtpa and Australia Pacific LNG will produce up to 9mtpa; both of these projects are targeting first production in In total, Australia currently has about AUD$200 billion worth of LNG projects on the drawing board. Innovations: CSG-LNG and floating LNG According to APPEA, Australia is a world leader in LNG innovation. The world s first coal seam gas-to-lng projects are being developed in Queensland. Major Current and Future Oil & Gas Fields 13

14 Doing Business in Australia Australia also seems likely to become the first country in the world to host a floating LNG project. Shell Development Australia will use a specially designed ship, known as Prelude FLNG the largest floating structure ever built with LNG production facilities to develop its Prelude gas field mentioned above. LNG for road transport and gas storage A small proportion of LNG is used as a diesel replacement fuel for heavy vehicles. Trucks that run on LNG require a special cryogenic fuel tank to keep the fuel chilled. LNG is highly compatible with diesel engines and is a clean-burning fuel. Its use in road Major Existing Oil & Gas Fields and Operators Licenses 14

15 transport is growing but because large fuel tanks are needed, LNG is not suitable for smaller vehicles and it is expected to remain a niche fuel. LNG for road transport is usually produced in small plants located near regional transport hubs. LNG can also be used as a way of storing gas for use in periods of high demand or interrupted supply. Major Future Oil & Gas Fields and Operators Licenses 15

16 Doing Business in Australia Western Australia Existing Oil & Gas Fields and Operators Licenses 16

17 Western Australia Future Oil & Gas Fields and Operators Licenses 17

18 Doing Business in Australia Bass Strait Existing Oil & Gas Fields and Operators Licenses 18

19 Bass Strait Future Oil & Gas Fields and Operators Licenses 19

20 Doing Business in Australia Major Offshore Oil & Gas Operators Production and Reserves Australian total production 2000/11 Australian natural gas total reserves (%) ,000 1, Thousands BOE per Day 1,600 1,400 1,200 1, % Coal Seam Gas 38% Conventional Gas Australian total production by resource 2000/11 Australian crude oil total reserves (%) ,000 1,800 Crude Oil & Condensate Natural Gas Liquified Natural Gas 1,600 Thousands BOE per Day 1,400 1,200 1, % Condensate 32% Crude Oil Source: Infield Systems Ltd. 2012

21 Major Offshore Oil & Gas Operators Oil and Gas operators involved in the Australian oil and gas industry can be split between international/ national, oil companies, independent operators, consortia and international subsidiaries (e.g. Inpex) INTERNATIONAL/NATIONAL OTHER (SUBSIDIARIES AND UTILITY) 21 INDEPENDENT MAJORITY FIELDS LICENSE HOLDINGS BY OPERATOR GROUP 2% Others 5% National Oil Company 40% IOCs 53% Independents Source: Infield Systems Ltd All operators with majority fields ownerships in Australia

22 Doing Business in Australia Offshore Field Development Status by Operator Possible Firm Plan Fields Fields Esso Australia Resources Ltd Woodside Energy Ltd Apache Northwest Pty Ltd Other Apache Northwest Pty Ltd Woodside Energy Ltd Origin Australia Resources Ltd Probable Under Development Fields 4 2 Fields Woodside Energy Ltd Apache Northwest Pty Ltd Esso Australia Resources Strike Oil NL Chevron Australia Pty Ltd Woodside Energy Ltd Santos Ltd Other Source: Infield Systems Ltd. 2012

23 Offshore Field Development Status by Water Depth Possible Firm Plan Fields 10 5 Fields shallow deep shallow deep Probable Under Development Fields 2 Fields shallow deep shallow deep Source: Infield Systems Ltd. 2012

24 Doing Business in Australia Major Offshore Projects by Capex (US$) OPERATOR PROJECT MAX WATER DEPTH (M) SUPPLY CHAIN PHASE TOTAL CAPEX (US$M) CAPEX PHASE MARKET SEGMENT Chevron Gorgon 1,499 Engineering, EPC, Installation, Drilling 1, Control Line, Subsea, Pipeline Chevron, Apache Wheatstone 499 Engineering, EPC, Installation, Drilling 2, Subsea, Pipeline, Control Line 24 ConocoPhillips Caldita A 499 Engineering, EPC, Installation ConocoPhillips Poseidon 499 Engineering, EPC, Installation Pipeline, Fixed Platform, Control Line 4, Floating Platform, Pipeline, Subsea ExxonMobil, BHP Billiton Flex LNG/ Minza Scarborough 1,499 Engineering, EPC, Installation Chuditch 499 Engineering, EPC, Installation 2, Control Line, Pipeline, Subsea, Floating Platform Control Line, Pipeline, Subsea, Floating Platform GdF Suez Petrel/Tern 499 Engineering, EPC 1, Floating Platform, Subsea Hess, Chevron, Eni Equus FPS 1,499 Engineering, EPC, Installation 2, Floating Platform, Subsea, Pipeline Inpex Ichthys 499 Engineering, EPC, Installation, Drilling 7, Control Line, Floating Platform, Pipeline, Subsea MEO Australia Tassie Shoal 499 Engineering, EPC 1, Fixed Platform, Subsea PTT Cash FLNG FPSO 499 Engineering, EPC, Installation 1, Control Line, Pipeline, Subsea, Floating Platform Shell Evans Shoal 499 Engineering, EPC, Installation Shell Prelude 499 Engineering, EPC, Installation, Drilling Woodside Calliance 499 Engineering, EPC, Installation Woodside Kimberley 499 Engineering, EPC, Installation Woodside Laverda FPSO 1,499 Engineering, EPC, Installation, Drilling Fixed Platform, Pipeline, Floating Platform 1, Floating Platform, Pipeline, Control Line, Subsea 3, Fixed Platforms, Pipeline, Floating Platform, Control Line 1, Pipeline 1, Floating Platform, Control Line, Pipeline, Subsea Woodside Sunrise 1,499 Engineering, EPC 1, Subsea, Floating Platform, Fixed Platform, Pipeline Source: Infield Systems Ltd. 2012

25 4. Subsea Activity Due to its abundant natural resources and rising demand from emerging economies in Asia, especially China, Australia is very well positioned to become a major player in the global natural gas market. Many of Australia s projects involve natural gas and coal seam gas, both of which will be exported in the form of LNG from existing and newly-constructed liquefaction terminals to Asia Pacific. Over 60% of current subsea production is from natural gas and this is estimated to rise to 80% as major projects are brought onstream. However, the impact of the global economic crisis in and the development of technologies for tapping the shale gas reserves in the US have dampened prospects for the global gas market and led to a delay in investments in key subsea projects by the major operators. As a result, subsea capital expenditure between 2009 and 2011 was below US$500 million, with current levels valued at US$362 million. Whilst investment in major projects in Australia is currently considered to be stable, previous years have seen investment levels fluctuate as can be seen in the graph opposite. Nonetheless post-2013, the development of a significant backlog of major projects (e.g. Ichthys, Prelude and Wheatstone) is expected to boost the market with investments estimated at US$800m per year. The Australian subsea market is expected to be dominated by projects primarily located off the North Subsea Investment by Capex (US$m) 1,800 1,600 1,400 1,200 1, Capex (US$m) Source: Infield Systems Ltd West coast of Western Australia. These include the Gorgon project, in the Greater Gorgon Area, which is one of the world s largest natural gas projects and is the largest single source of natural gas in Australia and the Prelude to Ichthys developments in the Browse Basin. Forecasts estimate that 98% of subsea capital expenditure for the Australasian region will be on Australian subsea projects, totalling over US$3.1 billion. 25

26 Doing Business in Australia 26 More than 50% of the forecast subsea market is expected to relate to subsea tiebacks rather than to fixed, floating or terminal facilities. In addition, projects such as the Gorgon Jansz development 200km offshore the North West coast of Australia, will require significant pipeline infrastructure, along with subsea boosting technology as the natural pressure in the reservoir declines. Major operators in Australia include Woodside, ExxonMobil, Chevron, Inpex and Shell, with the majority of major subsea projects associated with LNG developments. It is anticipated that Woodside s investment in this area will reach US$1 billion in Woodside is developing a series of small projects in fields such as the Goodwyn Greater Western Flank Fields, Laveda and Lady Nora. Additionally, the operator is expanding the gas reserves for the Pluto LNG development, having drilled six additional exploration wells in ExxonMobil is expected to invest US$680 million in developing subsea infrastructure in Jansz, Kipper and other small fields. In 2011 Chevron was given a green light to develop the Wheatstone LNG project with a total investment of US$29 billion to include the construction and installation of the associated export lines. Inpex has the largest single project in Australia Ichthys. The Final Investment Decision was signed in January 2012 with the project estimated to be worth US$34 billion and LNG production due to come on-stream in Although the gas will be transported through an 885km subsea pipeline to the onshore LNG processing plant near Darwin, the Inpex project will be managed from their Perth Office. Shell s Prelude FLNG is the world s first FLNG development. The project reached final investment decision in May 2011, with first production expected The Technip/Samsung Heavy Industries consortium were awarded as the key contractors for the project which will require subsea infrastructure and production systems.

27 Comparison with UK Projects The scale of these Australian projects can be put into perspective when considered against the most notable current large projects underway in the UK, such as the BP Clair Ridge field expansion with an investment of US$7.2 billion and Total s Laggan Tormore development at US$4 billion. While these are undoubtedly large projects in their own right, they are eclipsed by the mammoth Gorgon Project operated by Chevron with an investment of US$43 billion, with Browse, Wheatstone & Ichthys also coming in with budgets around or above the US$30 billion mark. This should demonstrate that the opportunities for Scottish and UK supply chain companies are indeed significant and given that key components of these projects require expertise that has been developed in the North Sea, experienced companies should be in a strong position to offer their products/services to the Australian market. The following projects are examples that highlight some key information, demonstrate requirements and show where UK companies and their expertise are being brought to bear. Project Overviews Gorgon Project Value US$43 Billion Subsea Capex US$475 Million The Gorgon Project is operated by Chevron. It is a joint venture of the Australian subsidiaries of Chevron (approximately 47.3%), ExxonMobil (25%), Shell (25%), Osaka Gas (1.25%), Tokyo Gas (%) and Chubu Electric Power (0.417%). It takes in 2 fields; the Gorgon Field and the Jansz Field. Gorgon is operated by Chevron & Jansz is operated by Exxon Mobil. Main Contracts Awarded: JP Kenny/Technip: Upstream Facilities GE Oil & Gas: Subsea Equipment and Operations Support Subsea 7: Heavy Lift & Tie-ins Subsea 7: Umbilical Installation & Trenching Scope of Supply Includes: 20 subsea structures and foundations trees with subsea control modules 195km pipelines and umbilicals 5 infield umbilicals and 2 associated distribution units manifolds wellheads 15 heavy spools, 48 tie-in spools, 6 off corrosion monitoring spools production control systems systems integration testing, installation and operations support For further contract information and work packages: asp?pid=213 For project information: ourbusinesses/gorgon.aspx 27

28 Doing Business in Australia 28 Wheatstone Project Value US$29 Billion Subsea Capex US$475 Million The Wheatstone Project is operated by Chevron and is a joint venture between Australian subsidiaries of Chevron (64.14%), Apache (13%), Kuwait Foreign Petroleum Exploration Company (KUFPEC, 7%), Shell (6.4%), Kyushu Electric Power Company (1.46%), together with PE Wheatstone Pty Ltd (part owned by TEPCO, 8%). Main Contracts Awarded: Technip: Subsea Installation Contract Intecsea: Subsea and Pipeline FEED Allseas: Installation Services for Trunkline and Flowline Pipes FMC: Supply of Subsea Systems and Equipment Scope of Supply Includes: Subsea Production Trees Production Manifolds Subsea Wellhead Systems In-Line Modules Subsea and Topside Workover Riser System Flow Line and Well Jumper Kits Installation and Workover Control System (IWOCS) For further contract information and work packages: Project_Details.asp?PID=362 For further project information: com/ourbusinesses/wheatstone.aspx Ichthys Project Value US$35.5 Billion Subsea Capex US$476 Million The Ichthys Project is operated by Inpex and is a joint venture between Inpex (66.07%), TOTAL (30%) and other participants Tokyo Gas (1.575%), Osaka Gas (1.2%), Chubu Electric Power (0.735%) and Toho Gas (0.42%). Main Contracts Awarded: AMEC Engineering: Offshore FEED Contract Saipem: Engineering and Installation of the Gas Export Pipeline (GEP) McDermott: Subsea Umbilical, Riser & International Flowlines Aker Solutions: Engineering, Fabrication & Supply of Umbilicals (sub-contract from McDermott) For further project information at:

29 Subsea Capex and Trends Subsea Capex (US$m) by Structure Type Total Subsea Trees Installations (%) by Water Depth , % 1,600 1,400 80% 1,200 1,000 60% % % % Satellite Well Manifold Booster Pump Plem Subsea Compression Subsea Capex (US$m) Awarded to Manufacturer Subsea Capex (US$m) by Water Depth ,800 1,800 1,600 1,400 1,600 1,400 1,200 1,000 1,200 1, Cameron FMC GEOG VetcoGray Other or/and Unawarded >1499 Source: Infield Systems Ltd. 2012

30 Doing Business in Australia Major Subsea Completion Capex (US$) OPERATOR PROJECT MAX WATER DEPTH (M) INFRASTRUCTURE TYPE SUBSEA CAPEX (US$M) CAPEX PHASE MANUFACTURERS Apache Brunello 499 Subsea Tree, Manifold GEOG VetcoGray Apache Coniston 499 Subsea Tree, Manifold GEOG VetcoGray Apache Julimar 499 Subsea Tree, Manifold GEOG VetcoGray BHP Billiton Macedon 499 Subsea Tree, Manifold Cameron Chevron Acme 1,499 Subsea Tree, Manifold Unawarded 30 Chevron Gorgon 1,499 Subsea Tree, Manifold, FMC, GEOG VetcoGray Chevron Io/Eurytion 1,499 Subsea Tree, Manifold Unawarded Chevron, Apache Wheatstone 499 Subsea Tree, Manifold FMC Eni KudaTasi 499 Subsea Tree, Manifold Unawarded ExxonMobil Jansz 1,499 Subsea Tree, Manifold GEOG VetcoGray ExxonMobil Scarborough 1,499 Subsea Tree, Manifold Unawarded Hess Glencoe 1,499 Subsea Tree, Manifold Unawarded Inpex Ichthys 499 Subsea Tree, Manifold GEOG VetcoGray Shell Prelude 1,499 Subsea Tree, Manifold FMC Woodside Browse Basin CO2 Injection 499 Subsea Tree, Manifold Unawarded Woodside Cimatti 1,499 Subsea Tree, Manifold Unawarded Woodside Laverda 1,499 Subsea Tree, Manifold FMC Woodside Opel 1,499 Subsea Tree, Manifold Unawarded Source: Infield Systems Ltd. 2012

31 5. Subsea Supply Chain The growth in gas production, LNG in particular, is expected to make Australia one of the largest, potentially the largest LNG producing country by By contrast, oil exploration and production is relatively small and is expected to decrease. Many of the tier one companies are already established and operating in Australia, but the second and third tier suppliers and much of the supply chain is a long way from being comprehensive. At the time of publication there was not an official subsea supply chain map indicating the strengths and weaknesses for the region but the Australian Government is believed to be considering research to establish such a report. 31 The existing supply chain in Western Australia is focussed more on the Mining sector rather than Oil & Gas. Many companies have done very well working within the Mining sector over a number of years and either do not realise the potential opportunities in Oil & Gas or do not see a need to change or diversify into another market as Mining is still seen as the leading industry. The opportunities for supply chain companies are therefore greatest within the growth gas sector. Consequently, it is advisable to determine whether your current products and services fit into the supply chain and in particular whether they are suited to the LNG market. The current supply chain is still maturing and will take quite some time to develop, but it offers many opportunities for companies willing to invest. While the industry in Australia is in many ways sophisticated, it has a second phase of maturity still to come. The supply chain can broadly be split into two regional areas, Australia (mainly Perth) and Asia (Malaysia / Singapore). Choosing where to locate or fit into the supply chain geographically can be a challenge on its own. The commercial centre for Oil & Gas in Australia is Perth. Some companies have found that having a presence there is essential in order to be on the ground where the decisions are made. However, the cost of setting up operations in Perth can be too costly and often very difficult to attract and afford the skilled personnel required to deliver a quality service or product. Perth is geographically a very long way from the offshore operational fields and many companies are choosing to strategically locate manufacturing or project management offices elsewhere within the Asia Pacific region.

32 Doing Business in Australia 32 Companies such as Aker Solutions have taken the strategic decision to develop one of their main manufacturing facilities in Malaysia to supply the Australasian region. Operators including Shell locate their subsea project teams in Kuala Lumpur, Malaysia supporting the Australian Perth office. Singapore has been a popular destination for UK companies to have an office base to service the Asian market including Australia. However, many companies are now finding they now need a local presence in Australia to engage more directly with commercial decision makers, particularly in Perth, to develop their business. Ports and harbours is also a major consideration for vessel owners when positioning assets (vessels) and deciding where to base project teams in order to support projects and maximise return on asset usage. This also has a bearing on where the supply chain would mobilise from; collecting equipment and supplies for the offshore subsea operations phase of projects.

33 Supply Chain Networks There are opportunities to engage with companies within the Australian supply chain to develop your information and networks. The following provides information and links to such networks. ProjectConnect ProjectConnect is an online service designed to list project opportunities and connect Australian businesses with industry suppliers. It allows businesses of all sizes from prime contractors to small subcontractors to identify new business opportunities across major projects. By publishing contact details of companies that have been awarded work on projects, businesses are enabled to establish contacts and to build new relationships and networks. ProjectConnect is free, so there is no charge to create a company profile, register interest in project opportunities and access contract award information and respective contacts. Further information is available at: First Point Supplybase (FPS) First Point Supplybase (FPS) is the Australian and New Zealand equivalent of the UK s FPAL. It is a supplier management system for the Oil & Gas sector in Australia and New Zealand. Joining FPS as a supplier enables organisations to demonstrate their readiness to do business with major Australian and international buyers. With up-to-date and validated information registered buyers can draw up lists of suppliers for the products and services they want to buy and understand the capabilities of the companies supplying them. FPS supersedes Supplybase VRS, which was developed by APPEA as a means of improving efficiency in the procurement process and to enhance opportunities for Australian suppliers in major projects. The Supplybase VRS data for Gold or Platinum level subscribers is being migrated to the new Achilles system. Further information is available at: en/global/sectors/oil-and-gas/fps Industry Capability Network (ICN) ICN is an independent network organisation financially supported by the state and territory governments of Australia and New Zealand. Their role is to introduce local suppliers and service providers, best suited to meet requirements, to hundreds of projects across Australia and New Zealand. Further information is available at: 33

34 Doing Business in Australia ITF (Industry Technology Facilitator) ITF is the internationally recognised champion for facilitating collaborative development of innovative technologies within oil & gas and related energy industries. Established in in the UK in 1999, ITF, is a not for profit organisation owned by 30 major global operators and service companies. Their key objectives are to identify technology needs, foster innovation and facilitate the development and implementation of new technologies. 34 Following the launch of the 2011 Subsea Challenges Call, ITF instigated an Australian Cluster, based in Perth. The cluster now comprises 11 ITF Member Companies working in a Regional Managers Group format to identify and work on challenges specifically related to the region. This culminated in the first ITF Regional Technology Conference (RTC) in late June Over 50 regional engineers and technical experts took part in the RTC. Two Themes have so far resulted in Calls for Proposals namely: Forecasting Tropical Cyclones Hydrodynamic Modelling for Oil-Spill Response As a separate piece of work, ITF supported Woodside, Chevron and Inpex in developing the establishment of the Pipeline Repair Operator Forum Australasia (PROFA) to formulate an emergency pipeline repair and response facility in the region. Currently PROFA is focused on internal business activities associated with its formation. Further information is available at:

35 Subsea Underwater Technologies (SUT) The SUT is a multi-disciplinary learned Society bringing together individuals and organisations with a common interest in underwater technology, ocean science and offshore engineering. There are two branches; one in Perth and the other in Melbourne, offering good networking opportunities at a number of events. The Perth Branch was formed in 2004, has over 190 individual and 22 corporate members and holds regular underwater technology seminars, courses and technical evenings throughout the year in and around Perth. Further information is available at: Subsea Energy Australia (SEA) SEA is the trade association for the Australian subsea sector and was modelled on and setup in a similar fashion to Subsea UK. SEA is a not-for-profit industry association aimed at championing the Australian subsea industry, developing the Australian subsea supply chain and promoting their capabilities to the wider regional and global markets. Further information is available at: The SUT and SEA are very active and work closely with Subsea UK on a number of initiatives to support the subsea sector. The three organisations work together to deliver the Subsea Australasia Conference programme at the annual Australasian Oil & Gas (AOG) exhibition and conference in Perth, Australia. Further information is available at: 35

36 Doing Business in Australia 6. Market Entry This section focuses on how to approach your market entry strategy and help you decide which market entry option is right for your business. Research is paramount and should involve in-country visits to identify the demand and competition for your products or services. Networking is also an important factor for gathering information and making relevant contacts. 36 The sheer size of Australia needs to be a key consideration when deciding where to be located. It is worth noting that the distance from Sydney to Perth is the same as London to Moscow, and that Brisbane is closer to Melbourne than it is to Cairns (in far north Queensland). Decisions on where to base your business and how to expand should be considered carefully. While transport infrastructure is generally good, distribution should be an important factor in your decision. Whilst it is relatively easy and straight forward to set up a base in Australia, it also has its challenges. Below are a few to be aware of when looking at doing business in Australia. Competitive Market Australia s history, distance from the rest of the world, large land area and relatively small population have led to market dominance by a few large firms in certain sectors. Commercial and Financial Centre Australia is integrated into the world economy and remains a commercial and financial centre for the Australasian region. Scottish and UK companies will find that Australian and third-country competitors in Australia have some long-established brands with strong reputations and existing supplier relationships. Ask yourself if you can offer something new to this established market? If not, this may not be the market for your business. Cost of Living and Wages It is important to consider the cost of doing business in Australia, as living costs and wages are higher than in the UK. If re-locating people from overseas, detailed research should be carried out in terms of the living expenses required for someone to work and live in Australia. Typically food prices are high with around 30% increase in food and clothing compared to UK. Renting property in the Perth area can be very expensive, where typically renting a property would be for a six month term and can vary greatly in cost. Typical costs can be two to three times what would be expected for a similar sized property in the Aberdeen area, therefore the cost of housing is a very important consideration, particularly if this forms part of a relocation package. Due to substantial shortages in the skilled labour market in Australia, the cost of employing the right people can be high. For example a Subsea Engineer in Australia on average will be paid between two to three times more than in the UK. Coupled with the high cost of living, Australia can be an expensive place to build a team.

37 37 Skills Due to the major projects taking place in both the Mining and Oil & Gas sectors, the Australian workforce is stretched. This means there is a major shortage of skilled people in Australia at present and companies are finding it difficult to find the right people therefore paying a premium to recruit them. The second challenge is to retain them. With opportunities available within many companies, people have a huge choice of whom they wish to work for and for how long. It is not uncommon for people to double their salaries moving from one job to the next. However generally speaking if you are hiring out specialist services you should also recharge these at a premium so margins are preserved. The Asian Corridor Australia has ready access to Asian and other low-cost producers. UK and Scottish companies must therefore demonstrate sufficient added value to overcome the costs of getting products to market and to compete against lower-cost and well-established producers in the region. It is therefore worth asking key questions, such as: do you need a manufacturing base in Australia to do business, or would an operations office be a suitable and more cost-effective alternative?

38 Doing Business in Australia 38 Market Entry Options There are a number of options to consider when deciding on how to enter the Australian market. Those generally considered are establishing an Australian company, registering as a foreign company, acquiring an existing company, partnerships, joint ventures or by direct export. Each option has its own legal and tax implications and careful consideration should be given to which structure would suit your needs. The two most common forms of operational start-up are to establish an Australian subsidiary by registering an Australian company (which is financially independent from its parent), or by registering as a foreign company. It is strongly advised that you examine at all your options before deciding. A good place to start is the Australian Trade Commission. For further information visit: Invest/Doing-business-in-Australia/Investor-Guide/ Setting-up-a-business Establishing an Australian Company Australian companies fall under the jurisdiction of, and are regulated by, the Corporations Act The two main types of company are: proprietary (private) or public. The proprietary company, similar to that of a UK Limited Company, is the most common form, as with fewer regulatory demands, it is less expensive to administer and easier to manage. A new company needs to be registered with the Australian Securities and Investment Commission (ASIC). The cost of incorporating a new company with full statutory books and registers is c.aud$1,000 1,500 including ASIC filing fees. The establishment of an Australian entity is fairly straightforward and usually done in 48 hours. With the help of a lawyer and accountant, setting up such a business takes about two to three days. Information about the directors, shareholders and registered offices will be required. Registration of a PLC is also usually done with the aid of a lawyer and an accountant who is a registered ASIC Agent. For further information on ASIC:

39 Registering as a Foreign Company A foreign company is an incorporated or an unincorporated body that is formed in an external territory of Australia or outside Australia. Similar to that of establishing an Australian company, foreign companies that intend to conduct business in Australia must be registered with ASIC. ASIC outlines the criteria which define foreign companies and the rights foreign companies hold in Australia and is also responsible for the ongoing regulation of foreign companies. A registered foreign company must always have a local agent. Partnership Partnerships are relatively inexpensive to establish and can be formed quickly. The agreement creating the partnership does not need to be registered. However, if the partnership trades under a name other than the names of the partners, that name must be registered as a business name. The cost of registering a business name for a partnership is less than the cost of incorporating a limited liability company or registering a foreign company. Each partner is jointly and severally liable for all debts and obligations of the partnership incurred while the relevant person or entity is a partner. A partnership must lodge an income tax return in the same way as an ordinary taxpayer but partnerships are not actually assessed for income tax. Instead, the individual partners are assessed on their share of the taxable income of the partnership, even if the partnership income has not been distributed to them. The individual partners may also claim a deduction for any losses that the partnership incurs. Partnerships are usually limited to 20 members but there are exceptions for certain types of professional partnerships. Limited Partnership In most states, the relevant law provides for the creation of limited partnerships in which a general partner will have unlimited liability and a limited partner (often a silent partner ) will have their liability for the debts of the partnership limited to a certain amount. Limited partners cannot be involved in the management of the business of the partnership. If they are, they will become liable for the obligations of the partnership as if they were a general partner. Limited partnerships are required to be registered. Limited partnerships are treated as companies for tax purposes and are taxed at the corporate rate. Unincorporated Joint Ventures and Co-ventures This type of business arrangement should be distinguished from a partnership. A joint or co-venture is created when two separate parties agree to work towards a common goal that is usually a single project rather than an on-going business. This arrangement is often deliberately structured so as not to be classified as a partnership because the parties do not share the profit of the venture and do not wish to be legally liable for each other s acts. These arrangements usually involve the parties receiving a proportionate share of the goods and/ or services produced to sell individually on their own behalf. Each party is then separately taxed on the income it receives from its own sales. Joint ventures are most common in the mining area but are also popular in manufacturing. Careful legal planning is required to achieve the most favourable tax treatment for unincorporated joint ventures and to avoid undesired classification as a partnership. 39

40 Doing Business in Australia 40 Exporting Exporting directly to Australia rather than having a local operation may be suitable for your business and the least costly. However, access to the local market may be limited unless you plan to make regular visits or have local representation through an agent or distributor. Agents and Distributors There is often confusion about the roles of agents and distributors, so it is important to understand the difference between the two before you enter into any discussions. The definition and responsibilities of agents and distributors can also vary depending on the country or industry, so when dealing with prospective overseas representatives it is essential that you always confirm their specific roles and responsibilities. This is general information and the actual role your agent or distributor undertakes will also depend on the individual agreement you have with them, so it is important to confirm the details in a contract and not assume they will take on all activities an agent or distributor may generally undertake. The Role of an Agent Agents do not take ownership of goods but act as a representative of the supplier. They are also engaged by exporters of services to represent them in overseas markets. An agent is generally paid by the exporter based on a commission of sales value generated. The exporter receives orders for customers from the agent but then delivers goods or services directly to customers, invoices the customers, and collects payments from the customers. The exporter is also responsible for setting the selling price, although the agent will likely provide input on local market conditions to help the exporter decide on pricing. Agents are generally based in the export market and often represent several complementary product or service lines. They may operate on an exclusive basis, as the sole agent for a company s goods or services in a specific export market, or as one of a number of agents for the exporter in that market that is, on a non-exclusive basis. See Choosing an agent or distributor below.

41 The Role of a Distributor A distributor buys goods that is, the distributor takes title of the goods and then resells the goods to local end users who may be retailers or consumers. In some cases, the distributor may sell to other wholesalers who then sell to local retailers or end users. Distributors may carry complementary and competing lines and usually offer after-sales service. Distributors are paid fees by adding a margin to products. Their fees are higher than those of agents because a distributor has more responsibilities for selling your product in market, for example they usually carry inventory, extend credit for customers, and are responsible for marketing. This may impact on how you price your product; you will probably need to absorb the distributor margin otherwise your pricing to the end customer will be too high. Some exporters find that they are unable to use a distributor as their profit margin is too small to provide enough margin for the distributor and a competitive price for end users. Choosing an Agent or Distributor Appointing an agent or distributor on an exclusive basis where they have sole rights to sell your product within a defined territory allows the agent or distributor to build their business free of competition in that territory. Many agents and distributors want exclusivity as they will invest effort and financial resources into building brand awareness to create a market for your product. The stronger the brand reputation, the more valuable an exclusive arrangement will be. It is a good idea to think through the issue of exclusivity versus non-exclusivity before entering into negotiations with potential representatives. If you intend to agree to an exclusive arrangement, performance measures will need to be established, as well as a termination clause within the agreement in the event of non-performance. The most important factor in choosing an agent or distributor is that you can establish a close working relationship. You have to be able to build high levels of trust and communicate regularly. Business is much easier if you enjoy working with each other. 41

42 Doing Business in Australia 42 Before choosing an overseas representative you should undertake a rigorous research process and speak with a range of potential agents or distributors perhaps four or five, before narrowing the list. Before making a final decision ask your potential representative for trade references, and also consider using a professional credit checking agency to confirm their financial stability. It is also important that you meet potential representatives in their own geographical market. They should show you the market firsthand, which will not only give you a feel for how well they know the market, but also give you a chance to get to know them better. Exporters who rely only on communication with overseas representatives often have misunderstandings leading to problematic relationships. While is ideal for confirming discussions, meeting in person or even using the telephone or Skype in the early stages can go a long way towards reducing misunderstandings. Remember that you are relying on your representative s local knowledge and contacts to win business in the market. Your chosen representative should have a thorough understanding of competitive products and prices to assist in product modification, advertising requirements or changes. Does this representative have a good network and good contacts? How many years experience does this representative have in your market sector? You may opt for a company that is established and has a good network of contacts but may not be particularly flexible or open to change. Or you may prefer to appoint a young, energetic company that is out to prove itself and is flexible and innovative but perhaps does not offer extensive experience or contacts. Does this representative have good knowledge of the local market? Good representatives should be able to assist you in your marketing program and give you the benefit of their local market knowledge. You may need to meet several times to build a relationship and work through the fundamentals of how you will work together and what should be included in an agreement. Before drafting an agreement you should be in accord as to who does what; then you should engage legal advice in order to have an agreement drawn up. Drafting agreements and making changes when two parties have differing views on core issues can be a waste of time and money, so it is wise to agree on the big issues first, then start the legal work.

43 7. Legal and Corporate The Australian legal system is based on the belief in the rule of law, justice and the independence of the judiciary. All people Australians and non-australians alike are treated equally before the law and safeguards exist to ensure that people are not treated arbitrarily or unfairly by governments or officials. The main feature of the common law system is that judges decisions in pending cases are informed by the decisions of previously settled cases. The Australian Constitution of 1901 established a federal system of government, under which powers are distributed between the federal government and the states. 43 The federal government is invested with the exclusive power to make laws on matters such as trade and commerce, taxation, defence, external affairs, immigration and citizenship, and concurrent powers where both tiers of government are able to enact laws. The states and territories have independent legislative power in all matters not specifically assigned to the federal government. Where there is any inconsistency between federal and state or territory laws, federal laws prevail. Federal laws apply to the whole of Australia. Principles such as procedural fairness, judicial precedent and the separation of powers are fundamental to Australia s legal system. The common law system, as developed in the United Kingdom, forms the basis of Australian jurisprudence. It is distinct from the civil law systems that operate in Europe, South America and Japan. Other countries employing variations of the common law system are the United States, Canada, New Zealand, Malaysia and India. In effect, Australia has nine legal systems the eight state and territory systems and one federal system. It is the state and territory criminal laws that mainly affect the day-to-day lives of most Australians. Each of the federal and state systems incorporates three separate branches of government legislative, executive and judicial. Parliaments make the laws, the executive government administers the laws, and the judiciary independently interprets and applies them.

44 Doing Business in Australia 44 Corporate Regulation Bodies There are three major government agencies involved in the regulation of corporations in Australia: The Australian Securities & Investments Commission (ASIC) administers the national Corporations Act 2001 and enforces company and financial services laws to protect consumers, investors and creditors. The Australian Competition & Consumer Commission (ACCC) administers the national Competition and Consumer Act 2010 and seeks to protect consumers and promote fair trading and competition in trade and commerce. The Australian Prudential Regulation Authority (APRA) regulates prudent management of deposit taking institutions, insurance companies, and larger superannuation funds. Banking Australia has a long history of stable and safe banks. The Reserve Bank of Australia (RBA) is Australia s central bank and shares responsibility with other agencies for the efficiency and safety of the payments system, and for the overall stability of the financial system. There are four major Australian retail banks, Westpac Banking Corporation, National Australia Bank (which owns the Clydesdale), Australia and New Zealand Banking Group (ANZ) and Commonwealth Banking Group. A number of investment banks also offer retail banking including Macquarie Group, CitiGroup and HSBC. All are international banks, most of which have HQ or branches in the UK. Tax R&D Tax System New tax legislation provides additional incentives for companies investing in Australian research and development (R&D). The Australian Government s AUD$1.8 billion R&D Tax Incentive provides eligible companies with a tax offset for annual expenditure on eligible R&D activities. It is the government s principle initiative to encourage R&D and underlines the importance of innovation, research and development in driving Australia s competitiveness and productivity. The programme includes a 45% refundable tax offset (equivalent to a 150% deduction) for eligible R&D entities with a turnover of less than AUD$20 million per annum and a non-refundable 40% tax offset (equivalent to 133% deduction) for all other eligible R&D entities. The 45% R&D Tax Incentive is a refundable tax offset, which means that if your tax liability is reduced to zero, you may be entitled to a refund of any unused offset amount. The 40% R&D Tax Incentive is a non-refundable tax offset, however, any excess/unused offsets may be carried forward for use in future income years. Tax offsets are applied directly to a company s income tax liability to reduce the amount of tax you have to pay. Eligible businesses include Australian companies, corporations that are Australian residents for tax purposes, foreign companies resident in a country with which Australia has a double tax agreement (this includes the UK) and who carry out R&D activities through a permanent establishment in Australia, and public trading trusts with a corporation acting as a trustee. R&D activities conducted overseas are also eligible under certain circumstances. For detailed information on the R&D Tax Incentive visit: Pages/default.aspx

45 Goods and Services Tax Goods and Services Tax (GST) is a broad based tax on the supply of most goods and services consumed in Australia. The GST rate is 10%. Once an entity is registered, GST will be payable on most goods and services it sells or supplies in the course of its business. Registered entities will include GST in the price of anything their customers purchase or acquire (acquisitions) for their own businesses. However, their customers may be entitled to claim input tax credits from the Australian Taxation Office (ATO) if they are registered for GST and the acquisitions are for a creditable purpose (these are known as creditable acquisitions). For further information on GST visit: Input tax credits can only be claimed if an entity has an Australian Business Number (ABN), is registered for GST and the supplier they bought supplies from is registered for GST and shows its ABN on tax invoices. Everyone who imports goods has to pay GST on those goods. This includes entities that are registered for GST as well as those that are not registered. The Australian Customs Service collects GST on imported goods. Company Tax A company resident in Australia is currently subject to tax at a rate of 30% of its taxable income. Taxable income is calculated on the basis of assessable business income less allowable business deductions. A company is resident in Australia for income tax purposes if it is incorporated in Australia or, if not incorporated in Australia, it conducts business in Australia and either has its central management and control in Australia, or its voting power is controlled by shareholders who are Australian residents. A non-resident company is taxed on its Australian source income (apart from interest, dividends, royalties and certain distributions by managed funds, which are subject to withholding tax) at the same rate as a resident company. For further information on Company Tax visit: content/44266.htm&mnu=43703&mfp=001/003 45

46 Doing Business in Australia 46 Individual Income Tax An individual may receive various types of income, including salary and wages, pensions, interest, royalties, partnership and trust distributions and company dividends. The income may have a foreign or an Australian source. A resident of Australia will generally be liable to Australian income tax on income and capital gains derived throughout the world (although there are a number of exceptions). Australia has entered into bilateral tax treaties with a number of countries, including the UK, to avoid double taxation and prevent fiscal evasion. These agreements are also referred to as Double Tax Agreements or Double Tax Conventions. The general effect of a tax treaty is to limit Australia s taxing rights in respect of certain types of income derived by a resident of the other country and vice-versa. Under Australian law, there are different tax rates for residents and non-residents. Resident individuals pay tax on their taxable income at progressive rates ranging from 0% to 45%. Non-residents will pay tax on all salary and wage income earned in Australia. For further information on the tax rates for nonresidents: aspx?doc=/content/12333.htm Employment Regulation Overview The Fair Work System From 1 January 2010, sole traders, partnerships, other unincorporated entities and non-trading corporations in New South Wales, Queensland, South Australia and Tasmania are covered by the national system rather than their own specific state system. This is known as The Fair Work system, which started in July 2009 and was created by the Fair Work Act It covers the majority of workplaces in Australia. The Fair Work system works alongside the existing National Employment Standards (NES) and their relevant minimum wage. When looking to employ staff in Australia it is important to ensure you understand and are adhering to the Fair Work system legislation and any other legislation specific to the state regarding employment of staff. Hiring Locally or Re-locating Staff Australia differs slightly from the UK regulations and the costs to both the employee and employers reflect this. For example, hiring someone locally, or even bringing someone from the UK on a 457 Visa could mean paying Superannuation at 9% on top of their wages and also a 5.5% Payroll tax. Until recently, there was also a Tax break for overseas workers called LAFHA (Living Away From Home Allowance). However, this has all but ended for overseas workers and caused serious issues for employers too.

47 For example someone working in Western Australia relocated from the UK on a 457 visa, would have received a LAFHA allowance per month and the company, should they be supplying a house to the worker living away from home, would have received a tax break on this also. It is advisable to keep up to date with the current status. Government of Western Australia Department of Commerce Western Australian Government Local Industry Participation Framework Further details on employment can be found at the following useful reference sites: LAFHA Guidelines: Payroll Tax Guidelines in WA: Superannuation Guidelines in WA: 47 Trade Unions Australia has a much more unionised environment than the UK and it would be wise to research certain aspects of Trade Unions in relation to your type of business operation and workforce as there are a number of differences. An example can be found in the Maritime sector where persons on-board vessels and working time regulations differ. For further information visit: Australian Council of Trade Unions: Maritime Union of Australia: Local Content The Government of Western Australia examines current local content through monitoring a number of major projects on which a reporting system has been implemented. However, there is no current policy for a percentage of local content. The Industry, Science and Innovation Division is part of the Western Australian Department of Commerce portfolio and their purpose is to facilitate strategic investment in industrial, scientific and innovation capacity and capture the benefits for the State. For the latest information and guidance, as well as the division s Strategic Plan for visit: Content/About_Us/Key_focus_areas/Local_industry_ participation.html

48 Doing Business in Australia 48 Visas and Permits The Commonwealth Government manages the entry and settlement of people through the Department of Immigration and Citizenship (DIAC). Australian immigration policy requires all non-citizens wishing to enter Australia to hold a visa. Criteria for applying for a visa are subject to change and at the time of publishing this report the 457 Visa is undergoing some changes which will impact those issued with these visas. It is therefore recommended that you research the visa types available and any new criteria or regulations. Further information can be found at: The visa application process can become complex and it is recommended you seek the help of a migration agent. In Australia, migration agents must be registered with the Office of the Migration Agents Registration Authority (Office of the MARA). You should check to make sure that a migration agent is listed with MARA, which holds a registry of certified agents: If you are using a migration agent outside Australia, DIAC recommends that you consider using an agent registered with MARA and ensure that this agent meets any local laws or registration requirements in the UK. The use of a migration agent to lodge a visa application is not however a legal requirement. Visas for Business and Skilled People Business people have a number of visa options depending on the purpose of their entry into Australia. Business visas are broadly grouped into business visit visas, provisional (temporary) business visas and permanent business visas. Skilled people also have a range of temporary and permanent visa options. For people seeking permanent residence in Australia, temporary visas in both the business and skilled categories provide a pathway to permanent visas. It is important to note that it is becoming increasingly difficult for people over the age of 45 to obtain permanent residence in Australia in both the business and skilled workers visa categories. Business Visit Visas Whether visiting Australia to explore opportunities, conduct business negotiations or attend conferences or seminars, you will require a visa. The Business (Short Stay) visa and the Sponsored Business Visitor (Short Stay) visa allow business people to visit Australia for up to three months. There is also an Electronic Travel Authority (ETA) available to passport holders from certain countries which allow the applicant to stay in Australia for up to three months. The advantage of the ETA (Business Entrant) visa is that it is both faster and easier to obtain. UK passport holders can apply for an ETA through a travel agent, airline, specialist service provider or an Australian visa office outside Australia. European passport holders who are eligible to apply for an ETA through a travel agent, airline or specialist service provider should apply for an evisitor if applying online. For further information on ETA eligibility visit: eligibility.htm

49 There are also provisional business visas for business owners, senior executives, independent executives and investors. These visas are valid for four years, although the holder may be eligible for a permanent visa after two years of satisfactory evidence of a specified level of business or investment activity. All applications for permanent visas must be made in Australia. Temporary Visas for Skilled Workers The Temporary Business (Long Stay) Standard Business Sponsorship visa allows employers to sponsor skilled workers to work in Australia on a temporary basis for a period of between one day and four years. The employer can be either an Australian business or an overseas business. 49 DIAC advises applicants to lodge an application at least two weeks before the proposed date of travel. Australia is one of the 17 APEC economies currently participating in the APEC Business Travel Card Scheme. The APEC Business Travel Card streamlines travel for business people in the Asia Pacific economies by allowing accredited business people to obtain multiple short-term business visitor entries to participating countries. Business Temporary and Permanent Visas Business people may seek permanent residence in Australia via temporary (provisional) business visas, which provide a pathway to permanent visas. However, there is a direct permanent residence visa the Business Talent (Migrant) Visa available for high-calibre business people. There is also a Service Sellers visa available to representatives of overseas suppliers of services who are negotiating, or entering into agreements to supply their services in Australia under the General Agreement on Trade and Services. This visa allows representatives to stay in Australia for between six and 12 months. Skilled Workers Permanent Visas The Employer Nomination Scheme (ENS) allows Australian employers to sponsor highly skilled employees for a permanent visa to work in Australia. The Regional Sponsored Migration Scheme (RSMS) allows employers in regional areas to fill skilled positions which they are unable to fill from the local labour market. For further information on visa s for skilled workers visit:

50 Doing Business in Australia Intellectual Property Rights A strong intellectual property (IP) framework is critical to business success and Australia ranks highly for its enforcement of intellectual property rights. Its modern and effective intellectual property regime is ranked in the top ten in the world ahead of countries such as the UK, Japan, Hong Kong, Sweden and Taiwan. 50 Australia s IP legislation reflects international best practice, so companies operating in Australia have the most comprehensive protection possible and can invest in R&D, transfer technology and develop new products with confidence. Australia is a member of important IP treaties, such as the Madrid Protocol, Paris Convention and Patent Cooperation Treaty, which provide a streamlined process for applicants seeking international protection of their IP. Some IP rights are automatic while others are granted after application and examination against the relevant criteria by government agencies: IP Australia administers patents, trademarks and designs with an examination and registration process The Attorney-General s Department administers the legislation for copyright protection and circuit layout rights where there is no registration process. protection are governed by legislation. The common law also provides remedies against a person passing off goods or services as those of another, as well as protection for confidential information or trade secrets. For further information about Australia s intellectual property right laws: IP Australia: Austrade: ArticleDocuments/1358/Intellectual-Property- Protection-Guide.pdf.aspx Under common law the principal forms of intellectual property protection available in Australia are trademarks, designs, patents and copyright. All of these forms of

51 Patents An Australian patent provides a legal right to stop third parties from manufacturing, using and/or selling an invention in Australia. It may be used to license someone else to manufacture an invention on agreed terms. Patents are regulated under the Patents Act Generally, patents cover any device, substance, method or process which is new, inventive and useful. Artistic creations, mathematical models, or other purely mental processes without a useful application cannot be patented. Australian patents are administered by the Patent Office of IP Australia. The patent holder is responsible for maintaining and enforcing patents. Despite the robust IP legislation, obtaining patents can be complex and you are strongly recommended to consult a qualified patent professional before applying for a patent. A list of qualified patent professionals is available at: There are two types of patents in Australia: A standard patent gives long-term protection and control over an invention for up to 20 years. There are various stages to gain a patent and an applicant can normally expect to receive a reply to a request for examination within about 14 months. If an earlier commencement of examination is required, applicants can ask for expedited examination. An innovation patent is a relatively fast, inexpensive protection option, lasting a maximum of eight years, and is designed to protect inventions that are not sufficiently inventive to meet the threshold required for standard patents. IP Australia usually issues a report on a granted innovation patent within one month of receiving the request for examination. An Australian patent provides protection only within Australia. 51

52 Doing Business in Australia 8. Conducting Business in Australia It is easy to do business in Australia. Australia has one of the most transparent and efficient regulatory environments in the world. Through proactive reforms, the Australian Government has shown a strong commitment to providing businesses with the right conditions for growth and investment. This makes for predictability and certainty in business planning. 52 Best Practice Regulation Australia s business friendly regulatory environment is undisputed. In 2006, the OECD cited Australia s approach to regulation as a best practice benchmark for other OECD countries 3. Australia was identified as having the fewest restrictions on product markets of the 30 OECD countries, the least public ownership of business and the least restrictive impact of business regulation on economic behaviour. Regulatory Standards With regulatory procedures taking just two days, Australia has been ranked by the World Bank s Doing Business Report 2013 as the second fastest place in the world to start a business. According to the IMD World Competitiveness Yearbook 2012, transparency in government policy is considered third best in the region, and Australia s legal and regulatory framework has been rated one of the top twenty economies in the world for encouraging enterprise competition. Capital flows, profit remittances, capital repatriation, transfer of royalties and trade related payments remain largely free from regulation. Unlike many countries in the region, there are no foreign exchange controls in Australia and the currency is fully internationalised. The Australian Government s commitment to continuous improvement in areas such as intellectual property (IP) reform and business immigration ensures a streamlined, business-focused regulatory environment. Recent reforms focus on greater labour market flexibility, trade liberalisation, industry deregulation, reductions in tariff barriers and the development of a better tax system.

53 Culture Although UK businesses operating in Australia enjoy the advantage of a relatively familiar cultural environment, it is still worth noting key cultural issues. Australia has an egalitarian culture where little weight is placed upon differing societal status. Mutual respect, modesty and parity are highly valued. In business this means a down-to-earth attitude where people avoid drawing too much attention to personal achievements or qualifications in case it is perceived as arrogance known as tall poppy syndrome. The inherent value system in the society promotes competitiveness and has been rated fourth most supportive of business competitiveness in the world. 53 Corporate Governance Not only is government policy in tune with business issues, but so too is corporate governance. Australian corporate boards are ranked sixth most effective in the world and second in the region for the supervision of the management of companies. In addition, Australia is ranked seventh in the world and second in the region, after New Zealand, for the implementation of ethical practices in companies. Language English is the first language. Yet the colourful vocabulary, accent, phonetics system and slang ( Strine ) of Australians can take some getting used to. In 1788, there were about 250 separate Aboriginal languages spoken in Australia as well as local dialects. Today, two thirds of these languages survive but only twenty are still strong enough to have a chance of surviving well into the next century. In addition, there are also the languages of immigrants from Europe, the Middle East and Asia.

54 Doing Business in Australia An Oil & Gas/Subsea Focus 54 Day-to-day Communications Business Etiquette In Australia punctuality is valued. Normal working hours are between 9am and 5pm and appointments are necessary. These are relatively easy to schedule but should be made as far in advance as possible. While business meetings are generally relaxed, they are considered serious events and will be treated as such. Australians get down to business quickly with a minimum amount of small talk. Communication is normally direct and open, as well as being open to new ideas and respectful of honest opinions. The same is generally expected in return. When making presentations, avoid hype and exaggerated claims. Present your business case with facts and figures. Emotions and feelings are not important in the Australian business climate. Negotiations proceed quickly and bargaining is not customary so your initial proposal will be expected to have only a small margin for negotiation. High-pressure sales techniques are not well received. Decision-making is concentrated at the top of the company, although decisions are made after consultation with subordinates, which can sometimes lead to the decision process being slow and protracted. Greeting Etiquette Australians are not very formal so greetings are casual and relaxed. A handshake and a smile suffice. While an Australian may say, G day or G day, mate, this may sound patronising from a foreigner. Visitors should simply say, Hello or Hello, how are you? Australians usually prefer to use first names, even at initial meetings. Building Relationships Australians are very matter of fact when it comes to business and therefore do not need long-standing personal relationships before agreeing to do business with you. Personal relationships are however valuable and counterparts quickly establish relationships on a first name basis. If an Australian takes exception to something that you say, they will tell you so. Australians are very direct in the way they communicate but there is often an element of humour which can be self-deprecating. Their use of colourful language can often surprise and would be unthinkable in other countries. 3 OECD Going for Growth, 2006

55 9. Case Studies 55

56 Doing Business in Australia Bowtech is a leader in underwater vision systems and ancillary products. Specialising in the design, manufacture and supply of visual inspection systems, connectors, cabling, fibre optic multiplexers and slip rings for use in hazardous areas or underwater, Bowtech supplies the oil and gas, oceanography, nuclear, broadcast as well as the defence sectors. 56 Head-quartered in Aberdeen, the company exports to Brazil, the Middle-east, Far-east and the US as well as Europe and Scandinavia. What attracted you to Australia? The scale of the oil and gas market which is evolving rapidly. Our initial investigations of the Western Australian oil and gas market revealed that there was a strong demand for our products and services which can be used in water depths of up to 6,000 metres. Through our website and trade shows we were receiving an increasing number of enquiries from this province on which we could capitalise if we had a presence. One factor which should be in our favour we thought, was that over recent years the Australian Dollar has strengthened against Sterling making importing from the UK more attractive. How did you approach this market? The account managed relationship with Scottish Enterprise helped to define our growth strategy and international plan, while SDI support enabled us to identify customers and distributors, and build relationships. In addition to desk-based research, we carried out several visits to Western Australia, meeting with existing and potential customers, to get a feel for the marketplace. It soon became clear that those potential customers were keen to work with us but wanted us to have a local presence. In 2010, we explored all our market entry options and decided to enter into an informal arrangement with an agent. This proved to be unsuccessful and led to us seeking a more formal and exclusive arrangement with our current distributor. In 2011, we signed an agreement with Seatronics, a global leader in the rental and sale of marine electronic equipment with an established operation in Australasia.

57 What challenges did you face and how did you overcome them? Despite the similarities in language and culture, the Australian market is developing differently to the North Sea and elsewhere. There can be an insular mind-set, similar to that experienced by us of the USA market. Australian companies do recognise the need for outside expertise but there is a preference to use indigenous companies. The biggest challenges are the distance and time difference between the UK and Australia. It is much easier to deal with a time zone that is behind the UK, such as the US, rather than being ahead and trying to get things set up or kicked-off at the end of someone s working day. Another issue is that in some quarters there is a real try before you buy culture whereby potential customers are looking to trial our products for free before, if ever, making a commitment to purchase them. It is a challenge to say no, but our products can be highly technical systems which are often too expensive to have out on trials with no income. We are therefore spending considerable time on educating potential customers about our component products and the systems with which they integrate and the benefits of implementing them. A solution to this and to increasing sales has involved helping our distributor Seatronics to build up stock levels for demonstration, sale and support. They also are an approved service centre for Bowtech manufactured products and systems with not only trained technicians but also with exactly the same test and final assembly equipment supplied by us enabling them to provide strong regional support. What would you have done differently? 20:20 rear vision is usually very good, but as we feel that we are still at the early stages of entry to the market, probably to set up a regional branch may have been a faster route to market. Effectively.become Australian! What success have you experienced? To date not much as exports to Australia have not even approached 1% of our turnover yet, but we are making progress and still see this market as a major opportunity for Bowtech. We have tried to raise our profile as part of the Subsea UK delegation to AOG 2012 and have also established a robust relationship with our distributor and are working closely with them to increase sales and co-exhibiting with them in 2013 at AOG too. We are also investigating what assistance may be available to us from the UKTI who have been extremely effective in helping us in Brazil. 57

58 Doing Business in Australia Sonomatic is a global leader in ultrasonic inspection design, development and application, providing advanced inspection and engineering services to the subsea industry. The company is committed to providing accurate proactive inspection solutions that enable clients to manage the integrity of maturing assets, while making informed and cost-effective decisions crucial to the extension and safety of plant life. 58 Having provided specialist inspection services to the oil and gas industry for over twenty years, Sonomatic has developed and proven a range of approaches for subsea inspection of safety critical process equipment, pipework and pipelines. The UK head-quartered business now employs over 120 people across nine offices in Europe, Africa, the Middle-east, the US and Australia. What attracted you to Australia? The scale of the offshore market and the opportunity for subsea technology and services were the main attractions. Timing was also key in that when we first explored the potential, we could see exactly where our North Sea expertise and experience could be exploited. The Australian offshore market is still maturing, relative to the North Sea, and we had identified where the technical offering was fairly poor in comparison to what was going on in the North Sea. We believed that the market would benefit from better technical solutions that would deliver best value for operators offshore Australia and that we could deliver those. How did you approach this market? Our approach was very much based on strategic assessment combined with gut instinct. From our initial research which identified the opportunity, we knew that timing was key. We had to get established early so that we would quickly be in a position to offer the Australian market services which were not readily available locally. We undertook a staged approach to the region. Firstly we had to change the entrenched thinking of potential clients, with respect to how a more sound technical offering and delivery ultimately provides a more effective management tool. Secondly we had to deliver and demonstrate our technical offering and capabilities were more quantitative than what they were used to. A business case was prepared and with full backing from Sonomatic s owners, an experienced employee was

59 located in Australia to set up a registered proprietary company in The office quickly grew from an initial 3 to 10 people within 12 months. We opened an office in Malaga, about 30 kilometres from Perth, and now employ 15 people, with a second office in Brisbane. What challenges did you face and how did you overcome them? The first challenge was getting in front of potential customers and convincing them that there is a more sound technical delivery. Indigenous companies are obviously well established with robust client relationships and there is a perception that the marketplace is saturated. With aggressive competition, our approach was to network as much as possible at industry events, with existing contacts and with complementary businesses. We presented papers at industry events and sought introductions from key decision makers in our peer group and other supply companies with whom we had existing relationships. The two and a half years leading up to this point offered its challenges but perseverance and strong technical offering and delivery is the key to our success. It was challenging to convince potential clients that the processes they had followed for many years were either outdated or being delivered technically incorrectly. We focused on a small number of operators, driving technical excellence and strong delivery and whenever we got an opportunity to deliver, we demonstrated better technical offerings were achievable. The higher cost of living in Australia can also be challenging. Salaries and office accommodation are significantly more than in the UK and we had to factor this in. Locating in Malaga has given us the right office and workshop space at the right costs. Recruiting good people has also been challenging. People are cautious about joining a new company that has still to prove itself in the marketplace. You have to demonstrate that you have a sound business with a commitment to the market and are prepared to pay more than in the UK. What would you have done differently? After moving from a home office into our first premises we entered into a partnership with a company that had complementary services. The shared office and resource made sense in the beginning but it soon became clear that it was a distraction and we would have been better off on our own from day one. With such fierce competition, we could have been more aggressive and hard-hitting in our initial marketing approach but thankfully, persistence and determination did pay off for us after the first two years. What success have you experienced? Sonomatic is now a preferred supplier for three major operators in Australia. We have grown to 15 people with the potential for significant growth in the next five years. Getting into the market early has positioned us to capitalise on the current subsea opportunities with the result that Australia is now our second biggest market after the UK. We have seen substantial growth in our engineering services side of the business by delivering new concepts to the market which are now very much in demand. 59

60 Doing Business in Australia TRAC is a market leading provider of engineering support services for the inspection and maintenance of offshore and onshore assets. With established products and services delivered to the highest standards, the company operates from bases in Aberdeen, Lowestoft and now Perth, Australia and has a range of underwater inspection techniques and tools. 60 What attracted you to Australia? With an established reputation and growing client base in the UK, internationalisation was the next step in our growth. When developing our five year business plan, we undertook an assessment of all potential international markets. We identified ten key geographic regions for further exploration. Australia came out top as it met all the criteria we were looking for in a potential new market. The buoyancy of the Australian market with strong growth potential for our company was attractive, but so too was the fact that it is a user-friendly market in terms of business culture and language. While we are now looking at other markets, Australia became our focus for our first steps into overseas business. How did you approach this market? With the support of Scottish Enterprise and Scottish Development International, we began gathering intelligence on the Australian market and logically assessing the options for market entry. Our first step was a trip to AOG, Australia s biggest oil and gas show, followed by an international strategy development workshop led by Scottish Enterprise which enabled us to crystallise our strategy. Armed with six to twelve months of market intelligence and initial sales approaches, we had confidence in our approach and launched our Australian presence at the following year s AOG. In 2011 we reached that tipping point whereby we had built up a profile, good contacts and initial sales in Australia from the UK and made the decision to invest further in the market by opening a base. We established a wholly-owned subsidiary TRAC Oil & Gas Pty Ltd and set up an office in Perth, Australia. After securing all the necessary approvals and accreditations such as joining relevant industry bodies, and the Australian equivalent of FPAL (FPS), we officially opened our office in February 2012 in the Belmont area which is ideally located between the airport and the central business district (CBD).

61 What challenges did you face? Even in local terms, Perth is remote. It is not just far away from the UK but five hours from Sydney and Singapore. This poses challenges in terms of staff travel and recruitment as well as getting equipment there. Given the rapidly expanding local economy, there can be bottlenecks in terms of getting official things done and getting tradesmen and local expertise to deliver basic services involved in setting up the office. This can make the pace of business seem somewhat slower than what we are used to in the UK. The cost of living is much higher than in the UK and can be a real issue when it comes to recruitment and office accommodation. In the two years of setting up our operation, the costs had escalated which meant the financial side of our business plans quickly became out of date. Our recruitment policy is a mix of ex-pats and local workers. The local labour market is tight which has been a challenge but the ex-pat side of things is a positive in terms of offering our UK personnel new challenges and overseas experience. What success have you had? Because we began by piggy-backing on our existing UK customers, we quickly built up an order book for their requirements in Australia. This led to the development of new customers in the region as we established a proven track record in Australia, where we were able to demonstrate that we added something to that market. We now have 10 people onshore and about offshore contractors and some very exciting prospects for 2013 and beyond which will lead to further rapid growth. We are extremely appreciative of the support received from Scottish Enterprise and SDI who were with us every step of the way. It is not just the financial support but more about their local knowledge and contacts and their encouragement. 61 What would you have done differently? Given that we followed a rigorous, methodical and structured approach to our market entry strategy, ably assisted and supported by Scottish Enterprise and SDI, we have had no what if or in hindsight moments and don t think we could have or should have done anything differently.

62 Doing Business in Australia 10. Quick Reference Guide Pros and Cons for Consideration PROS CONS Export Quick to market Low start-up cost Note Consider working with existing UK customers that have Australian clients No local presence or ground support Poor contact with customers Time zone communications 62 Local Representative Agent or Distributor In-country client contact Local support Local knowledge Representative reduces time zone issues Finding the right representative Management control Accountability Costs and reduced margins Joint Venture Partnership All local representative pros Existing client base Trusted if established Local address/base Shared Risk Legal costs Legal liability issues Due-diligence Diluted ownership Acquistion All-joint venture pros Ready-made business Control of company Trusted Company Client base Time spent finding a company match Capital cost Skills and Training Legacy culture New Company Start-up Company specification suited for your business Own brand identity No legacy reputations Relatively quick and easy to set-up Legal and financial costs Property costs Skills and Training Personnel costs

63 11. Summary Due to the scale of development and investment in Australia, the potential for UK based companies is excellent and is among the lowest risk for doing business globally. The local supply chain is still maturing providing great opportunity to enter and capitalise on this growing market. Doing business in Australia is very similar to doing business in the UK. We are culturally aligned and have similar legal systems and if your business is successful in the UK, there is a good chance you will be successful in Australia. Australia has a large land mass covering three time zones with huge distances between main cities - e.g. Perth is almost 3,300km from Sydney. Therefore choosing where you locate your business is an important factor in your strategy when considering your capability to serve the market. Whilst it is relatively easy to set up a base, the costs involved are high. Property is much more costly in comparison to the UK. There is a shortage of skilled personnel and together with the high cost of living and accommodation; the right people come at a premium often two or three times more than the UK equivalent. The opportunities in Australia are available now and if you are prepared to invest the time and money to develop your business, the rewards can be excellent. To do business effectively in Australia you need to have researched the market, have an understanding of the taxation and legal system to allow you to select the right market entry option and invest time in building relationships with the local Oil & Gas community. Top Tips Do your homework research the market and be prepared to visit to really get an understanding of the local market and where you can fit into the supply chain Budget planning depending on your market entry strategy, ensure you have the necessary information to plan your operational costs accurately and realistically Geographical area remember, Australia is a continent as well as a country, so choosing the location of your business is important due to the huge distances involved Build a network of contacts there are some good organisations to help build relationships with the local subsea community that can also help with business introductions Use your existing clients many of the UK based multi-national companies have strong connections with their Australian operations so ensure you tap into this network of contacts Act sooner rather than later the market is currently booming with a supply chain yet to mature where opportunities will be greatest for the early entrants Seek local professional support having local financial and legal professional advisers will help with company formation and taxation issues Be diligent carry out proper due diligence on your potential partners whether an agent, distributor, joint, venture or acquisition Seek advice Use the help around you, Scottish Enterprise, SDI, UKTI and Subsea UK can all provide support for your business in your venture. Details can be found in Section

64 Doing Business in Australia 12. Useful Sources of Information 64 Scottish Development International Scottish Development International (SDI) is a partnership between the Scottish Government, Scottish Enterprise and Highlands and Islands Enterprise, which works to attract inward investment to Scotland and helps Scottish based companies to trade overseas. Scottish Enterprise and Scottish Development International aim to: Increase trade growth by encouraging the expansion of Scotland s portfolio for first class exported goods and services to new markets Seek new channels for forward thinking companies in global markets Attract talent and expand Scotland s people skills Help strike licensing deals between Scottish and overseas companies and universities Scottish Enterprise and Scottish Development International can: Provide expertise, advice and ideas from highly-skilled market specialists Supply in-depth market information and local investment opportunities e for business partners Organise inward and outward investment trade missions Manage Scottish Pavilions at key international exhibitions and trade shows Scottish Development International has also recently opened two offices, one in Sydney and one in Perth, Australia. Scottish Enterprise Scottish Enterprise (SE) is Scotland s main economic development agency and aims to deliver a significant, lasting effect on the Scottish economy by identifying and exploiting the best opportunities for economic growth. Subsea UK Subsea UK is a self-sustaining body that champions the subsea industry. It represents over 250 members and acts as a focal point for all stakeholders to promote the sector and maximise its opportunities at home and abroad. As the national forum for the subsea industry, it supports collaboration, diversification and technology development that will help the sector grow and assist individual companies achieve their potential. Membership of Subsea UK provides companies with opportunities for networking and information sharing, support with overseas development through attendance at and participation in targeted events and exhibitions and through partnership events with SDI and UKTI and market intelligence through surveys, newsletters and briefings. The industry body works closely with other bodies and government agencies to ensure that its members have the best conditions in which to grow and that the industry is profiled at the highest levels.

65 Other Sources of Information Australian Real Estate Property websites: Australian Petroleum Production & Exploration Association Ltd (APPEA) Energy News Bulletin Energy Publications FCO Foreign and Commonwealth Office Export insurance etc. Petroleum Club of Western Australia Petroleum Exploration Society of Australia (PESA) Resource Information Unit (RIU) SCDI Scottish Council for Development and Industry Supplybase VRS UKTI UK Trade & Investment 65

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68 Scottish Enterprise Atrium Court 50 Waterloo Street Glasgow G2 6HQ Helpline: SE/3728/Feb13