IMPORTS FROM / EXPORTS TO UK

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2 MILLIONS About the country Population 32,808,496 Language Arabic GDP (USD billions) $646 Currency Riyal Interest rates 2% Inflation -0.4% Imports from the UK (2016) 4,895,231,932 Exports to the UK (2016) 1,542,814,892 Labour cost (Avg. salary) Saudi in oil & gas: $58,400 (1) Expatriate in oil & gas: $76,600 (1) Freedom index 64 of 180 Doing business 94 of 190 Corruption 62 of 176 *As at March 2017 unless stated estimates. Trade / business 6,000 5,000 4,000 3,000 2,000 1,000 IMPORTS FROM / EXPORTS TO UK Imports Exports Business sectors Trade by sector [Top 10 imports from the UK in 2016] Two Digit economic classification Imports from UK ( 000 s) 88 - Aircraft, spacecraft, and parts thereof 1,304, Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 895, Arms and ammunition; parts and accessories thereof 587, Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles 450, Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof 252, Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical 237, Pharmaceutical products 202, Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coin 134, Articles of iron or steel 78, Essential oils and resinoids; perfumery, cosmetic or toilet preparations 53,135

3 1 How to communicate While Arabic is the official language, English is often spoken in business contexts. It is important to use the correct title when addressing elders. In addition, you should avoid discussing politics and religion. Meeting etiquette Handshakes are a common greeting, however, you should wait for the other person to initiate this. Business cards should be given and received with your right hand. Business cards should be translated into Arabic on one side. Safety The country has low crime rates, however, incidents can occur. Take sensible precautions when travelling outside towns and cities. There is a high threat of terrorism. For the most up to date travel advice please visit: Visa requirements All visitors will require a visa to enter the country. Agencies accredited to the Royal Embassy of Saudi Arabia should be contacted. Tax and Local Requirements General Tax Regime: Corporate entities in Saudi Arabia are usually subject to various taxation, including corporate income tax and social insurance tax. The general rate of income tax is 20% of the net adjusted profits, however income from oil and hydrocarbon production is subject to an 85% tax rate. Saudi Arabia cut the income tax rate paid by Saudi Aramco, the state oil producer, from 85% to 50% in March Royalties relating to petroleum concession agreements (PCAs) will be outlined in the PCA. Natural gas investment activities: Companies engaged in natural gas investment field activity (including natural gas, natural gas liquids and gas condensates) are subject to a natural gas investment tax (NGIT). The rate of this taxation ranges from 30% to 85% and includes income tax of 30%. Zakat: Only non-saudi investors are liable for income tax, however Saudi-citizens will generally be liable for Zakat. Zakat is calculated based on the net worth of the entity. Social insurance and payroll tax: Social insurance tax is paid monthly at 2% for non-saudi employees and 22% for Saudi employees (12% from employers, 10% from employees). There is no individual income tax regime. Customs duties: Imports are subject to customs duties based on tariff rates in accordance with Saudi Customs regulations. The price of the imported goods is used to determine the customs duty. Value Added Tax: There is currently no VAT system in Saudi Arabia, however, VAT is set to be introduced on 1 January 2018 at a rate of 5%. This follows the representatives of the Member States of the Gulf Cooperative Council (GCC) confirming the introduction of a formal VAT system across all six member states. Withholding taxes: Non-resident companies without a permanent establishment in Saudi Arabia are subject to a final withholding tax (WHT) (15%-20%). Double Tax treaties: There is a tax treaty in force between Saudi Arabia and the UK which has been effective since Local Content Requirements: Under the countries Nitaqat programme, there is a minimum percentage of nationals that must be employed. Numbers vary depending on sector and company size but are generally 24-29%. Saudi Aramco is now seeking to develop local content wherever possible. The in-kingdom Total Value Add (IKTVA) programme seeks to drive domestic value creation and maximise long-term growth and diversification. IKTVA is included in Saudi Aramco procurement policies, contracts and material purchases. *Tax rates and accounting rules are subject to change so it is recommended that you seek professional advice before embarking on any activity that is likely to result in your incurring any liabilities in this regard. 1 Map provided by Vector Maps

4 Oil and Gas A data snapshot, 2016 (Offshore) Total Total as % Regional* Total as % Global* Rank Regional* Rank Global* Reserves (Mbble) 2 4, of of 50 Capex 2016 (US$m) of of 50 Operational Fields (#) of of 50 *Percentages and rankings are based on the countries within this series of reports and not of all countries. For a full list of the countries included within the series please see the Global report. It is important to note that the above figures are recent offshore estimates. The country s total proved crude oil reserves were estimated at 269 billion barrels in 2016 (2 nd in the world). Natural gas proved reserves were estimated at 8.49 trillion cubic metres in 2016 (5 th in the world). In 2014 Saudi Aramco s CEO Khalid A. Al-Falih stated that the state owned company plan to spend USD40 billion annually for the next decade which would be the highest in the world. Milestones in oil and gas sector 1938 Oil discovery and beginning of production 1960 Saudi Arabia became a founding member of OPEC 1980 Aramco under full government ownership - Saudi Aramco 2014 Discovery of 8 new oil and gas fields Map of production areas 2 P50 Reserves Reserves with a 50% and greater probability of being able to be produced. Figures are for reserves due onstream from 2016 onwards. 3 These are fields that are producing, shut-in or suspended. Shut in and suspended are included as they could potentially be brought back to production.

5 Examples of companies already operating in country Operators Fields / Activity US$m Capex ( ) Saudi Aramco Saudi Amarco, the state-owned oil company, is involved in exploration, production, refining, distribution, shipping and marketing. They have discovered approximately 130 fields and are a top producer and exporter of crude oil. They also rank highly in terms of gas production. Saudi Aramco operates globally and has interests in China, Japan, South Korea and the USA. Within Saudi Arabia, the company dominates oil production and sales. Approximately 12 million barrels per day are produced by the company. In 2016, it was confirmed that Saudi Aramco are considering a share sale. Saudi Aramco signed a $6 billion agreement with PT Pertamina for refinery projects in March ,842 (Offshore only) Contractors Partner in country Activity Amec Foster Local presence Wheeler It was announced in June 2017 that Amec Foster Wheeler was awarded a five-year contract by Saudi Aramco for facilities required as part of the expansion of the Marjan field in the Eastern Province of Saudi Arabia. Wood Group Mustang-HDP In 2015, Saudi Aramco awarded Wood Group a 6-year contract for engineering services, procurement and construction management support in the Arabian Gulf. The contract includes the establishment of an offshore engineering centre of excellence. Petrofac McDermott International Technicas Reunidas Saipem Petrofac Saudi Arabia Local presence Local presence Saudi Arabian Saipem Co Ltd Petrofac was awarded an engineering, procurement and construction contract for the greenfield development in This involved work on a sulphur recovery plant as part of the Kingdom s Fadhili gas programme. Saudi Amarco and McDermott International signed a long term agreement for engineering, procurement, construction and installation opportunities on offshore fields to in Following this they were also awarded a contract for brownfield work on various fields. In 2015, Technicas Reunidas were awarded a contract involving a gas processing unit, utilities and offsites at the Fadhili gas plant. Saudi Aramco awarded Saipem a contract for engineering, procurement, transportation and installation of offshore structures for the Karan development in KBR Local presence In 2015, Saudi Aramco awarded KBR a six-year project management and engineering services contract for their existing and new offshore projects. Aberdeen Drilling School Saudi Petroleum Services Polytechnic (SPSP) Aberdeen Drilling School has conducted safety induction courses for new hires in Saudi Arabia. In 2011, they were contracted to provide drilling instructors for the Rigman program conducted by SPSP. Contractors Partner in country Activity

6 What to consider before entering the market This element of your planning is vital and will vary depending on product, service, general business strategy and the country you are considering entering: Some things to consider: Is registration with an internal Government/Commission required? How do you register with an in-country oil firm to be one of their suppliers? Is pre-qualification required? If so, what is the process for this? Is it worth considering getting an in-country agent? What other options are available to you, for example: exporting, an in-country subsidiary, a joint venture partnership? It may also be worth registering with Achilles. The Achilles procurement portal is used across many countries and will help you be visible to the industry. By registering you are effectively ensuring you pre-qualify to be part of tender processes and this will help match you to potential buyers: For further information and to speak with a Scottish Development International (SDI) representative, please contact SDI via the contact details on the back of this guide. Additional Insight: Saudi Aramco currently have a large amount of onshore production, Scottish oil and gas companies could benefit from this and the USD40bn they plan to spend annually for the next 10 years. Saudi Arabia has many mature fields that are becoming more expensive to produce, and it is possible that Scottish companies could provide new technology in areas such as enhanced oil recovery to help reduce costs. One of the main demands in Saudi Arabia is expertise and experience, this presents an opportunity for Scottish companies. To maximise your potential of securing business, source a local agent or in due course set up local company which you should register with Saudi Aramco. You can do this online via Saudi Aramco s website. To register with Saudi Aramco you will have to provide your location, list of services / materials, contact details and further information as you progress through the process. Unless you have an extremely specialised service or product it is unlikely exporting will allow you to maximise your full sales potential, although it is a lower risk entry model. It is unlikely that you will be able to undertake manufacturing or engineering activity from outside Saudi Arabia as there has been a stated aim to localise this activity for some time. The General Engineering Services Plus initiative set up by Saudi Aramco requires that overseas companies enter into formal Joint Ventures with local companies to secure business. The aim is to transfer knowledge to local companies across the value chain from Pre-front-end engineering design (pre-feed) to procurement and follow up delivery work. It is worth bearing in mind that in some regions give generous tax breaks exist for inward investors, including up to 50% discounts on Saudi employee wages and training and regulatory incentives.

7 Major Fields Al Wasit Gas The Al Wasit gas program includes the development of the Arabiyah and Hasbah fields. These program fields are located offshore in the Arabian Gulf. Estimated production capacity of the project is 2.5 bcfd. Dammam field The Dammam field was discovered in 1938 and was the kingdom s first significant discovery. The field produced into the early eighties. Ghawar oil field The Ghawar onshore oil field is the largest with reserves of approximately billion barrels. The field was discovered in 1948 and has been producing since Output is estimated at 5.8 MBOD. Karan Gas field The Karan gas field was discovered offshore in the Arabian Gulf in Gas production began in 2011 and approximately 1.8 bcf/d of non-associated gas can be produced. Khurais project The Khurais field was discovered in 1957 but oil was not produced until the 1970s. Reserves are estimated at 27 billion barrels of reserves. An expansion of the Kharais oilfield is expected in This is anticipated to increase output at the field by 300,000 barrels per day to 1.5 million bpd and allow it to produce 143 mcfd of associated gas and 34,000 bpd of natural gas liquids. Manifa oil field After first being discovered in the 1950s, the Manifa oil field only began producing in 2013 Safaniya oil field due to the nature of the oil which was contaminated with vanadium. The Safaniya oil field began production in 1951 and estimated reserves are 37 billion barrels. It produces approximately 1.2 million bpd. Shaybah oil field The Shaybah onshore field first produced oil in 1998 and has been estimated to hold 14 billion barrels. An expansion of the Shaybah oilfield is expected in Shaybah s output capacity is anticipated to rise from 75,000 barrels per day to 1 million. Zuluf The Zuluf offshore field was discovered in 1965 and began oil production in Gas from the field is sent to Khursaniyah gas processing plant. Role of Government/Regulator The Petroleum and Mineral Resources Ministry has responsibility for overseeing oil activity in Saudi Arabia. The Ministry was established in 1960 and is responsible for policy relating to oil, gas and minerals. The Council of Ministers review oil and gas contracts in the kingdom. Saudi Aramco is Saudi Arabia s state-owned oil company. In 1980, the government acquired full ownership of Aramco which was a consortium of American oil companies, including Socal, established in the 1940s. Saudi Arabia s oil production and sales are dominated by Saudi Aramco, with the company producing 95% of the kingdom s oil. They employ over 50,000 Saudis and over 10,000 expatriates, including those based at subsidiaries and affiliate companies. In early 2016, it was announced that Saudia Arabia may sell up to 5% of the company to private investors. In April 2017 HSBC was mandated as an advisor on the public offering of Aramco. The state-company may subcontract operations to foreign companies, although local firms may have an advantage. Foreign companies only participate in oil extraction in the Neutral Zone between Kuwait and Saudi Arabia. In 2016 Saudi Arabia agreed to cut production as part of the Organization of Petroleum Exporting countries agreement to curb supplies in order to boost price. The country cut production from approximately 10.5 million barrels a day in December 2016 to 9.87 million in January 2017 and 10 million a day in March.

8 Number of wells/platforms US$M US$M Activity and Opportunities (Offshore) Infrastructure (Units) (KM) Operational (2016) 414 Installations ( ) fixed 0 floating (Units) Operational (2016) 3,395 Installations ( ) 576 (KM) Operational (2016) 0 Installations ( ) 0 Tree awards (2016/2017) 0 Operational (2016) 2,253 Installations ( ) 924 $2,500 $2,000 $1,500 $1,000 Capex by Operator: Historic and Forecast Total Capex: Historic and Forecast $2,500 $2,000 $1,500 $500 $ Saudi Aramco $1,000 $500 $0 Decomissioning Axis Title Technical Notes: Wet Trees Trees deployed subsea. Dry Trees Trees deployed on platforms. Capex Forecasts Infield Systems Capex forecasts are based on bottom up forecasting and as such is a full opportunity set of projects that could see spending over the forecast period. Dry Trees Wet Trees Fixed Platforms

9 Opportunity Hotspots Scale Capability in country Growing / declining Target for Scottish companies Drilling & Wells HIGH HIGH Reservoirs HIGH MEDIUM Platforms & Topsides HIGH MEDIUM Marine, Subsea & Pipelines MEDIUM MEDIUM Integral & Support Services HIGH MEDIUM Decommissioning MEDIUM LOW Ease of accessing opportunities Saudisation or Nitaqat policies mean that businesses must employ a set quota of Saudi nationals. A physical presence is important and investing time in building relationships and trust will be crucial. English is generally spoken in business contexts. DID YOU KNOW? Saudi Aramco is the world s largest oil exporter. It is also aiming to add 100 billion barrels to total reserves by 2025 by increasing recovery rate via new technology. Saudi laws are stricter than those in the UK. Visitors must familiarise themselves with Islamic customs and laws, particularly those relating to alcohol, driving, moral behaviour, mixing with the opposite sex and the practice of religions other than Islam. SE/SDI Contact enquiries@scotent.co.uk Telephone Nearest SDI office Scottish Development International The British Trade Office Oasis Gardens Compound PO Box 3672 Al Khobar Local Embassy British Embassy PO Box Riyadh Saudi Arabia

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