releasenotes que$tortor-files/release-notes.pdf · versioncompatibility...

Release Notes

QUE$TOR

2016 Q3 Release

November 2016

QUE$TOR is a registered trademark of IHS.

Windows is a registered trademark of MicrosoftCorporation.

Contents

Introduction 2

Version compatibility 3

What’s on the CD-ROM 3

System requirements 4

Application execution 5

General upgrades in QUE$TOR 2016 Q3 6

Carbon steel X52 material option for onshore pipelines andflowlines 6

Tanker and Topsides leasing 6

Commingling manifold subsea distribution unit 8

Equipment in Subsea component 8

Addition of comments on locked values 9

Selected other technical revisions 11

Cost database update 12

General 12

Oil Price Trend and Currency Market 13

Steel 17

Equipment 18

Bulks 19

Offshore rigs 21

Offshore vessels 24

Subsea 26

Labour 28

Land rigs 30

Contacting customer support 32

IHS November 2016 Page 1

QUE$TOR 2016 Q3 Release Notes

IntroductionWe are pleased to provide the 2016 Q3 release of the QUE$TOR costestimating software.

All cost databases have been reviewed and updated to incorporatecurrent unit rates, exchange rates and man hour costs for all regions toreflect third quarter 2016 prices.

The main technical enhancements made to QUE$TOR 2016 Q3 are:

l Carbon steel X52 material option for onshore pipeline andflowlines.

l A leasing option on the OPEX cost sheet for tankers and topsides.l Subsea distribution unit on commingling manifolds.l User definable subsea equipment.l Addition of comments on locked values.

The above changes as well as numerous other improvements andminor bug fixes have been made at the request of users and throughinternal review. We actively encourage feedback from users as ameans of improving the accuracy and ease of use of the program.

Page 2 November 2016 IHS


Version compatibilityProjects created in QUE$TOR v8.0 and later are compatible withQUE$TOR 2016 Q3. However, projects created or saved in QUE$TOR2016 Q3 cannot be opened in earlier versions.

Opening a project created in an earlier version of QUE$TOR will result inthe costs and technical calculations automatically being updated, exceptwhere unit rates or results have been ‘locked’ when creating the originalproject. Changes will be made permanent when the project is savedand the case will no longer open in the earlier version. It is thereforeadvisable to make a copy of your project file before opening it in thenew version.

QUE$TOR allowsmultiple versions of the program to be installed side byside in order to view projects created using earlier databases.

What’s on the CD-ROMThe QUE$TOR 2016 Q3 CD-ROM contains the following:

l QUE$TOR (2016 Q3) installation files.l An ‘Application’ directory containing QUE$TOR (2016 Q3) programfiles.

l A ‘Documents’ directory containing a copy of the full help file, thequick start guide and a copy of the full and short release notes inportable document format (.pdf).

l A ‘dotNET Framework’ directory containing the executable toinstall the required .NET Framework on your machine if it is notalready installed.

l A ‘FlexNet’ directory containing the executables and installationinstructions necessary to set-up and manage a network licenceserver.

l A ‘Sentinel SuperPro Driver’ directory containing the executable toinstall the licence security key (dongle) driver (for single userlicence dongles) on your machine if it is not already installed .

l A ‘Utils’ directory containing a set of utilities to assist IHS supportstaff with troubleshooting should any problems arise whilstinstalling or running the application.



System requirements

QUE$TOR 2016 Q3

Operating system Windows 7 SP1 / Windows 8 /Windows 8.1 / Windows 10 [1]

Application disk space 275 MB

Disk space / project ~1 MB

Disk space / procurement strategy ~3 MB

Minimum monitor resolution 1024 x 768

Licensing Network or USB port

[1] The 32-bit (x86) and 64-bit (x64) versions of these operatingsystems are supported.

Installing the software from the QUE$TOR installation CD-ROM

l The software on the QUE$TOR CD-ROM can only be run if you havea valid security key (dongle) or access to a network licence butthese are not required when installing the software.

l Load the CD-ROM into your CD drive.

l The setup program will automatically detect if you don’t have therequired Microsoft .NET Framework version already installed andprovide a warning. It can be downloaded from Microsoft’s websiteby clicking on the ‘Yes’ option. Alternatively, run the file located inthe ‘dotNET Framework’ sub-folder of the QUE$TOR CD-ROM.

l To install the Sentinel SuperPro dongle driver (if not alreadyinstalled) run the ‘Sentinel System Driver Installer 7.5.7.msi’located in the ‘Sentinel SuperPro Driver’ sub- folder of theQUE$TOR CD- ROM. Reboot your machine to complete theinstallation of the Sentinel driver. Note, this step is only requiredfor single user / standalone licensing.



l To install QUE$TOR 2016 Q3 run the file ‘setup.exe’ in the rootfolder of the QUE$TOR 2016 Q3 CD-ROM.

l Once installed, an icon for QUE$TOR 2016 Q3 will appear on yourdesktop. A group will also appear on the start menu under AllPrograms\IHS\QUE$TOR 2016 Q3 containing shortcuts for theDatabase editor, the Project editor, the Project viewer, the mainQUE$TOR application and the Unit editor.

l If you get any warnings during the installation then please contactthe QUE$TOR support desk, [email protected].

l You are now ready to run QUE$TOR providing your dongle ornetwork licence has been updated to run QUE$TOR Offshore orOnshore 2016 Q1.

Note: QUE$TOR 2016 Q3 supersedes previous versions but can beinstalled alongside them. You should install the Sentinel security keysoftware before the dongle is plugged in. If your dongle has not beenupdated to run QUE$TOR 2016 Q1/Q3, contact the QUE$TOR licensingdesk ([email protected]) to get an email update for yourdongle licence. If you use a network licence please ask your licenceadministrator to contact the QUE$TOR licensing desk.

Application executionl To run the software click Start and follow All Programs > IHS >QUE$TOR 2016 Q3 > QUE$TOR 2016 Q3 or double-click theicon created on your desktop.



General upgrades in QUE$TOR 2016 Q3In response to feedback the following features have been implementedin QUE$TOR 2016 Q3.

l Carbon steel X52 material option for onshore pipeline andflowlines.

l A leasing option on the OPEX cost sheet for tankers and topsides.l Subsea distribution unit on commingling manifolds.l User definable subsea equipment.l Addition of comments on locked values.

Carbon steel X52 material option for onshorepipelines and flowlinesCarbon steel X52 has been added as a material option for onshorepipelines and flowlines. This is in addition to the current Carbon steelX60, Clad 316 stainless, Duplex, CRA and GRP options.

The new Carbon steel X52 material is in many ways similar to Carbonsteel X60 although is a cheaper alternative when yield stress is not adetermining factor in pipeline sizing. In lower pressure scenariosQUE$TOR will often default to a minimum wall thickness for a given linesize based on industry standards. In some of these scenarios a cheapermaterial with a lower yield strength can be selected with no increase inthe pipeline wall thickness resulting in a cheaper overall pipeline. Thenew Carbon steel X52 has no other changes in installation durations orancillary costs as compared with the default Carbon steel X60. The newCarbon steel X52 is never selected by default but can be chosen by theuser.

Tanker and Topsides leasingThe option to evaluate a lease cost for the tanker and topsides has beenincluded. When a tanker or topsides is added to the main schematic theoption to lease is available on the component Lease tab. When theoption is active a lease calculation is added to the OPEX/Leases sheet.The leasing calculation will convert the CAPEX amount into an annualleased amount.

The calculated CAPEX cost can be split between the lease company andthe operating company with the lease company CAPEX being convertedinto an annual operating cost. The leasing option can be configured



depending upon the amount of capital being leased and the economicenvironment of the leasing company by adjusting the amount ofcorporation tax and expected discount rate for the lease company.

Figure 1 - Tanker and Topsides leases

The lease calculation can be modified depending upon the terms of thelease.

The model assumes that the asset will be leased for its entire useful lifewhich is the same as the project field life.

The calculation for the lease cost is performed on a quarterly basissolving to give a Net Present Value (NPV) of zero for the leasingcompany.

The following formula is used:

∑NPVC

r

C C=(1 + )

− +t

Tt

t T

=10

Where

t= Time interval (with T equal to the field life)



Ct= Net Cash Flow at time t. ($)

Income – OPEX – Tax Rate( Income –OPEX –Depreciation amount in year t)

r= Real discount rate. (%)

C0= Initial CAPEX amount.($)

(1- Tax rate) * Upfront costs – CAPEX outlay

CT = Residual CAPEX amount.($)

The leasing rates are editable on the leases sheet in OPEX andmodifications can be made to allow for:

l Projects where the asset life is greater than the field lifel Using an asset that has been previously deployedl Lease purchase (fixed percentage or remaining book value)l Joint asset ownership

Commingling manifold subsea distribution unitThe option to add a subsea distribution unit to commingling manifoldshas been included. This can enable individual wells or templates andclusters to be controlled from a distribution unit connected to thecommingling manifold. The size of the distribution unit is dependentupon the number of umbilical connections that are being made to theunit. It is assumed that the distribution unit will not be automaticallyenabled but can be selected if the design requires it.

Equipment in Subsea componentThe option to add bespoke equipment in the subsea schematic is nowavailable which will create an equipment line on the subsea cost sheetwhere the unit rate can be entered.



Figure 2 - Subsea equipment input form

The equipment form shown in figure 2 allows for the DSV installation,design and project management durations to be configured. The DSVinstallation duration for each subsea equipment item is determinedbased on the water depth and type of equipment the custom equipmentitem is ‘treated’ as. The design and project management manhours arebased on the ‘treat as’ equipment type only.

Addition of comments on locked valuesThe option to add comments to locked values has been extended overthe last release to allow users to attach comments to all locked costsheet and sub cost sheet values – both quantities and unit rates pluseditable values on the OPEX and Investment and Production Profile(IPP) sheets.

Editing a comment is done by right clicking on the value to reveal thecontext menu with the menu options "Locked", "Insert comment", "Editcomment" and "Delete comment" if a comment is present. Commentson a locked value can be identified through a red triangle above the locksymbol. The comments on locked values are reported in the lockedvalues report and the text can also be seen on the tooltip when hoveringover the locked value. In addition the tooltip shows the login identifier ofthe commenter, the date and time comment was modified. For inputvalues the precision of the number is also displayed.



Figure 3 - Comments on locked cost sheet values

Note: Unlocking a value removes any user comment that isassociated with it.



Selected other technical revisionsA number of other technical revisions have been made to theapplication.

l When there are living quarters on topsides unit, the input reportnow has a manning breakdown list by type and shift rotation, alongwith the total number of beds required.

l The ghosted status of a component (CAPEX & OPEX) now appearsin the locked values report when the component is ghosted tomake the ghosted status of the component clearer.

l Onshore construction civils costs (General, Foundations, Roadsand Buildings) unit rates are now reproduced from the civils subcost sheet onto the main cost sheet. This change applies to wellpadgroups, production facilities, terminals, pipeline booster stationsand LNG regasification components.

l Oil export now includes an export rate input box; this allows forexplicit specification of the export rate used in sizing the exportpumps. By default, this equals the pipeline oil flowrate whenexport is via pipeline or ten times the Topsides oil capacity whenexport is via offshore loading/ship to ship.

Note: A previously locked Civils or Civils construction unit rate orquantity on the main cost sheet will be lost when upgrading to the latestrelease.



Cost database updateSubstantial effort has gone into reviewing all cost databases to bringthem in line with third quarter 2016 costs.

Note: On saving the project, the QUE$TOR 2016 Q3 cost estimate willoverwrite earlier costs except where those costs were ‘locked’ on thecost sheet or in the database. Therefore if you wish to retain a copy ofyour original estimate you should first create a duplicate of the projectbefore opening and saving it in QUE$TOR 2016 Q3.

The following sections outline where the most significant changes to theregional cost databases have been made.

GeneralGlobal upstream activity has been slowing uninterruptedly since thecrude oil price crashed at the end of 2014. Despite oil prices recoveringfrom a twelve-year low in January 2016 of below $30/bbl and nowstabilising at about $50/bbl, spending and activity levels in the industryremain suppressed. The number of visible Front End EngineeringDesign (FEED) awards has increased compared with 2015, although itremains below 2014 levels.

Suppliers and contractors have continued to respond to the challengingmarket situation by cutting costs, reducing supply capacity, workforce,and capital commitments. Costs have seen massive declines,significantly lowering breakeven prices of new project developments.Operators have continued to cut internal costs, renegotiate prices withcontractors, rethink projects and in general to place a high focus on costreduction, which has yielded huge results. Breakeven project priceshave fallen dramatically as the downturn has progressed, creatingsome optimism despite oil prices having remained relatively low.

Workforce reductions among the largest service contractors have beenmassive in all regions and further layoffs are expected as the downturncontinues and activity levels remain weak. In addition, responding tothe current oversupply, contractors have cancelled or postponed newbuild programmes in order to reduce future capital commitments andnot flood the market with additional capacity.



With this current downturn being “lower for longer”, service companiesare encountering further financial challenges, most likely resulting in amajor restructuring of the service industry. As a result, the operatorsshould be prepared to face a completely different service sector oncethe downturn ends.

After two years of deflation, upstream costs have started to trendupwards in the second quarter of 2016, essentially on higher materialprices, most notably higher steel prices. Although the rise in materialprices is likely to fluctuate in the short-term, with adjustments expectedin the remaining part of this year, some project costs have started toincrease. Annual cost escalations are expected from 2017 onwards, onboth industry recovery and stronger fundamentals in the globaleconomy, likely pushing material and labour costs up.

Oil Price Trend and Currency MarketCrude oil has shown a slow rebound in prices after reaching the bottomin Q1 2016 when oil prices went below the $30/bbl mark, as shown inthe graph below (Figure 4).

Figure 4 - WTI and Brent crude oil prices

In Q3 2016 oil prices almost reached the $50/bbl level (exceeded inOctober), showing some volatility and similar variations for both theWest Texas intermediate (WTI) and Brent price. Table 1 shows how theminimum and maximum oil prices have varied in the last two years.



Time periodWTI (USD/bbl) Brent (USD/bbl)Min Max Min Max

Q1 2015 43.4 53.6 45.1 61.9Q3 2015 38.2 56.9 41.6 61.7Q1 2016 26.2 41.5 26.0 40.5Q3 2016 39.5 49.0 40.0 49.7

Table 1 - Crude oil price spread

At the end of September 2016, at an informal meeting in Algeria, theOrganization of the Petroleum Exporting Countries (OPEC) reached apreliminary agreement to cut oil production, the first time since thefinancial crisis hit the global economy in 2009. The decision causedglobal oil prices to jump only six percent, not as much as expected, dueto the fact that there are still a few obstacles to overcome. Amongthese, the lack of guidelines on how the output reduction will be splitamong members and procedures to ensure that all parties respect thedeal seem to put at risk the accomplishment of the final agreement,scheduled for end of November 2016. Other factors, which will likelyplay an important role in the negotiations, include whether or not Russiatakes part in the accord; the expected increase in oil production in Libyaand Nigeria following severe supply disruptions; and the ongoing rivalrybetween two major producers - Saudi Arabia and Iran.

OPEC’s attempt to curtail oil production, if it materialises at theNovember meeting, could boost crude prices and bolster oil revenues.However, Iran’s intention to keep pumping oil to reach pre-sanctionlevels threatens to pose a serious barrier to reaching a final agreement.At the moment industry experts have no other option than adopting await-and-see approach as the positive impact of the preliminary oil dealin September has been overshadowed by doubts about its effectiveimplementation.

The currency market has shown a mix of depreciation and appreciationof foreign currencies versus the US dollar (USD), with the Euro (EUR)holding strongly whilst the British pound (GBP) lost almost 10%compared to Q1 2016, as result of the Brexit decision. The USD isending the third quarter of 2016 on a strong note, despite theuncertainty related to the imminent presidential elections. On the otherside, the strength of the Euro seems destined to fade given theforthcoming election cycle involving several of the major EU players.



The Norwegian kroner (NOK) exchange rate has remained highlydependent on oil, and gained around 3% of its strength against USDsince the first quarter of 2016.

The GBP is extremely vulnerable as uncertainty stemming from theBrexit vote will continue to deter investment. The initial Brexit shock onbusiness and consumer confidence was slowly fading at the end of thesummer, after a weak pound helped to boost British exports; but therecent declaration by the UK Prime Minister that the UK will triggerArticle 50 in March 2017 has generated further instability. However,chances are high that negotiations will not start any time soon since theUK government has ruled out the initiation of the formal negotiationsthis year and progress will likely be limited at least until after generalelections in France in 2017. At the moment of writing, the GBP has lost afurther 5% compared to the rate used as representative of Q3 2016 inTable 2; however the financial market seems to be considering thepossibility of a further depreciation in sterling in the short-term.

Emerging-market currencies enjoyed a steady rally since late February,with the exception of the Chinese yuan renminbi (CNY) which weakenedbroadly. The Russian rouble (RUB), primarily influenced by energy pricedynamics and European growth prospects, seems to have found aperiod of stabilization after a steady six-month rally. The Brazilian real(BRL), influenced bymore stable industrial production as a result of thenew government’s fiscal austerity, has recovered well, up by 11%between Q1 and Q3 2016.

Latin America’s economy remained weak, with the Argentinian peso(ARS), Venezuelan bolivar (VEF) and Mexican peso (MXN) all weakeningagainst the USD since Q1 2016. The outlook for Mexico has an addeddegree of uncertainty, due to its important ties to the USA and thelatter's impending presidential election.

Table 2 gives the exchange rates, averaged over the last two weeksbefore the end of each quarter, of the major local currencies expressedas local currency equivalent to 1 USD, and the percentage changebetween Q3 2016 and Q1 2016.



Region Country LocalCurrency Q1 2016 Q3 2016 Percentage

ChangeNorth America Canada CAD 1.32 1.32 0.0%

South and Cen-tral America

Argentina ARS 14.6 15.2 4.0%Brazil BRL 3.66 3.24 -11.4%Chile CLP 669 662 -1.0%

Colombia COP 3,058 2,898 -5.2%Mexico MXN 17.5 19.6 12.1%Peru PEN 3.32 3.32 -0.1%

Venezuela VEF 6.29 9.98 58.7%

West EuropeEurozone EUR 0.892 0.893 0.1%Norway NOK 8.44 8.17 -3.2%UK GBP 0.701 0.769 9.7%

East Europe

Czech Republic CZK 24.1 24.1 0.0%Kazakhstan KZT 343 336 -2.0%Poland PLN 3.81 3.84 0.7%Russia RUB 68.5 64.1 -6.4%Turkey TRY 2.87 2.97 3.6%Ukraine UAH 26.2 25.6 -2.0%

Asia

Australia AUD 1.32 1.32 -0.7%China CNY 6.50 6.67 2.7%India INR 66.7 66.7 0.0%

Indonesia IDR 13,142 13,066 -0.6%Japan JPY 112 101 -9.8%

South Korea KRW 1,167 1,106 -5.2%Malaysia MYR 4.04 4.13 2.0%Singapore SGD 1.37 1.36 -0.4%Taiwan TWD 32.5 31.4 -3.4%Thailand THB 35.0 34.6 -1.0%Vietnam VND 22,096 22,073 -0.1%

Africa

Algeria DZD 109.5 108.9 -0.6%Nigeria NGN 197.4 313.3 58.7%Angola AOA 158.7 165.1 4.0%

South Africa ZAR 15.4 13.8 -10.6%

Middle EastSaudi Arabia SAR 3.75 3.75 0.1%

UAE AED 3.67 3.67 0.0%

Table 2 - Exchange rate fluctuations of major local currencies



SteelAfter bottoming-out in the first quarter of 2016, steel prices for allproducts recovered sharply. Prices rallied for months before falteringand falling slightly, undermined by the unchanged fundamentals of themarket. The reality remains that the steel industry grew to its currentproportions in order to supply the Chinese construction sector. Untilmid-2014 China was producing and consuming 50% of the world’s steel.Since its policies shifted towards generating growth through aconsumer economy, China has tried to hold on to as much steelproduction as possible (mainly to stave off mass- unemployment),exporting vigorously to replace its internal consumption. This hasflooded global steel markets, leading to the closure of mills around theworld and the recent enactment of anti-dumping measures to prop uplocal producers.

When iron ore prices spiked early in the second quarter of the year,mills in China raised their prices and passed on their higher costs sincethey were producing at-cost and had no other option; some are onlybreaking even, thanks to government subsidies. Mills around the worldalso took advantage of this rare reprieve to raise their own prices.Products covered by new anti-dumping legislation managed to hold onto their increases and surged even further as mills no longer sawthemselves in competition with cheap Chinese steel. Even though theirprices fell after the rally ended, overall they still increased greatly,some by double-digit percentages.

In order to best understand how steel costs have changed in the past 6months, it is helpful to break the market down by its dominant end-users. As far as upstream development is concerned, the two maincategories are steel products that are impacted greatly by upstreamspending (i.e. Oil Country Tubular Goods [OCTG] and linepipe), andthose that are dominated by construction and automotive spending (i.e.structural steel and reinforcing bars for construction, hot rolled sheetsand coils for automotive). The former has not recovered very much atall over the past 6 months. While linepipe prices in some regions aremodestly higher (especially in Europe), OCTG prices have continued tofall unimpeded as the industry oversupply has been largely leftuntouched due to another year of low upstream spending.

Steel consumption by the construction and automotive industries hasnot been especially strong, but that did not stop prices fromexperiencing a great deal of volatility. The relentless exporting ofChinese steel products for construction has led to protectionistmeasures being taken in North America and Europe, resulting in the



first price hikes in around two years. While construction spending is yetto recover meaningfully, it has been far more stable than upstreamspending and as a result products consumed by its activities have faredbetter and their markets do not suffer from oversupply. This has helpedstructural steel and reinforcing bar maintain more of the rise in theirprices from the second quarter compared to other products, especiallythose in oversupply.

The rally in the second quarter of 2016 was unexpected both in timingand severity. Its collapse later that quarter (and more recently) lendscredence to the idea that market fundamentals have been leftunchanged. While some products will see further declines in theirprices, the bottom hit early this year is unlikely to rematerialize.

EquipmentGlobal equipment costs have not changed much over the last sixmonths. While prices for most product categories were flat, decreaseswere observed in some, especially highly- engineered equipment.Overall this continues the trend of falling equipment prices for upstreamdevelopment.

When the downturn began equipment prices were under much lessdownwards pressure than other categories. This was because lower oilprices encouraged downstream investment, and equipment supplierscould adjust their output thanks to the modular nature of equipmentmanufacturing. This protected suppliers for around a year, and sincethen they have been competing to capture business as projects getcancelled and delayed worldwide. Lead times for a wide variety ofequipment have fallen over the past six months due to anaemicdemand.

Rotating equipment is the category most impacted by the downturnsince the first quarter of 2016. This category had the lowestcombination of demand and backlog activity, leading to a reduction ofover 20% in lead times. Complex pumps and centrifugal compressorswere down the most, while turbine costs increased modestly. Heatexchanger costs fell slightly, again due to competition over limiteddemand. Vessel prices – for both atmospheric and pressurised storage– were down slightly despite strengthening material costs. Metering,control, and communications equipment costs seem to have notexperienced any change.



Drilling equipment costs fell over the past six months as well. Demandfor wellheads and trees can only come from upstream investment, andso suppliers lowered prices once more to attract enough business toweather the downturn. Equipment costs usually track globally, withregional aberrations usually being caused by volatile exchange rates.The only regions to experience significant deviations from the changesdescribed in this section are Russia and Latin America. Both sawcurrencies strengthen versus the USD, leading to higher equivalentcosts for itemsmanufactured locally.

While higher metal prices have been recorded recently (especiallycarbon steel), equipment prices are being driven by supply anddemand. Equipment manufacturers avoided reacting to the lower oilprice environment by maintaining prices and so today they still have alittle further before they bottom out. It is unclear if this will be the casehowever, as stabilizing oil prices are beginning to generate moreoptimism in the industry about the return of investment confidence. Ifmore projects start going through, competition over existing demandmay ebb, halting the fall in equipment prices. Higher material andlabour costs will also contribute to this, though only after supply anddemand balance more closely and suppliers return to the backlogs theyare most comfortable with maintaining.

BulksThe upstream bulk market is strongly correlated with constructionspending as activities in both markets share their items of largestexpenditures (i.e. concrete and cement, insulation, wiring, electricalcomponents, simple valves). This has meant that costs in this markethave declined globally once again, with some significant regionaldifferences. As bulks are relatively straightforward to produce, they areavailable for purchase from many different regions, each with a supplychain dominated by its local currency, thus increasing the divergence inregional costs.

The North American construction sector is the healthiest of all regions,with the US housing sector leading the resurgence in spending,especially after a long summer season. This has kept most bulk costssteady, even asmetal prices fell slightly in the past 6 months. Suppliershave been reluctant to pass on their savings as they anticipate a quick



recovery. This is especially true of wires and cables; on the other hand,valves, switchgears, and transformers all benefited from the fall inmetal prices, leading to slightly higher demand.

Latin American bulk markets are suffering from a number of differentfactors. The end of the Olympics in Brazil has also brought an end to thecountry’s rampant construction spending. Budget constraints nowprohibit governmental spending on public works, and a resurgent localcurrency has made exporting more expensive. Colombia and Argentinahave also had a tough time clearing financial hurdles to regain access tocredit at rates that can sustainably fuel construction activity throughgovernment spending. The fall in metal prices is global and so wasapparent in this region as well, with lower costs for wires and simpleelectrical components.

European construction has been very mixed, and will be quite uncleargoing forward. Before the Brexit vote, construction had been strong inthe UK, but the country’s sudden change in direction has added a doseof uncertainty to many parts of its economy. As a result of the fall invalue of the GBP, all bulk prices have declined. Other parts of WesternEurope have not seen very much construction activity, leading to lowerlocal bulk prices. However, increasing amounts of bulks consumed inEurope are now being bought from Russia. Construction spending inRussia has declined by over 20% in USD terms so far this year, and withthe massive devaluation of the local currency as a result of sanctions,Russia bulks are by far the cheapest on the continent. It should benoted that Eurocement – Russia’s biggest producer – has not beensubject to sanctions. While Russian suppliers are exporting as much aspossible, overall consumption of their products is still down.

Nigeria and Angola have both suffered from lower oil prices. Bothcountries have seen their local currencies lose much of their value overthe course of this downturn. This has led both countries to experienceinflationary increases in costs for a variety of bulks. The situation hasbecome so bad in Angola, that industry officials report that the countrymay not have enough foreign exchange cash to import clinker, one ofthe rawmaterials used for manufacturing cement.

While public spending in the Middle East is still falling, signs ofstabilization are emerging. The fall in oil prices has led to some of thefirst budget deficits in years for oil- rich countries in the region,prompting most of them to review and rationalize their expenses. Thegovernments of oil-rich states tend to play an outsized role in their owneconomies, and so these changes have had wide- rangingconsequences on labour, materials, and bulks. For example, the export



ban on cement might be lifted in Saudi Arabia for the first time since ithas been placed as demand dwindles due to project cancellations. Mostmetal bulks are imported in this region, and so their prices have trackedwith their global counterparts.

In global terms, bulk prices will not rise appreciably until constructiondemand pulls back up. Regional markets may buck these trends asbulks are easy to manufacture and are usually – though not always –locally available. Rising metal or oil prices can contribute significantly tocosts in these markets as they are competitive (i.e. they will pass onsavings from lower input costs quickly and efficiently) due to the largenumber of suppliers.

Offshore rigsGlobal offshore rig demand has remained very low since the last marketupdate, in the first quarter of 2016, as oil and gas companies havecontinued to reduce their spending in the current challenging oil priceenvironment. As a consequence only a few new fixtures have beensigned in the last six months, while a significant number of drillingcontracts have been terminated early or suspended and some havebeen allowed to expire without the exercise of options or renewals.Some rig operators have chosen to accept dayrate discounts instead ofcancelling contracts as this was the only option to keep their unitsemployed in a market environment with a worryingly high idle rig count.

In this environment of low commodity prices and spending cutbacksacross the whole upstream industry, there is not much to report for theoffshore rig market segment worldwide due to the limited numbers ofnew contracts. Table 3 shows the worldwide average changes for thedifferent classes of offshore rigs used in QUE$TOR, again all negative,although the reduction is more moderate than what was experienced inthe first quarter of 2016.



QUE$TOR Rig Classification Worldwide AverageChange

Floater > 7500 ft -11%Floater 5001-7500 ft -10%Floater 3001-5000 ft -10%Floater 1501-3000 ft -6%Floater <1500 ft -5%

Jackup -12%

Table 3 - Floater and jackup dayrates average variations sinceQ1 2016

The most significant fact is that the Middle East has shown to be one ofthe few remaining hotspots in the world where offshore activity has notfallen as much as in other regions. The number of contracted jackupdrilling rigs today is very similar to that recorded two years ago, beforethe oil price crashed in the second half of 2014. The Middle East hasproven to be more resilient than most other regions largely because ofthe high level of state participation in its petroleum industry, particularlyin Saudi Arabia, Iran, UAE, and Qatar. These countries are heavilyreliant on oil and gas revenues and oilfield developments are facilitatedby typically lower project costs compared to places such as offshoreNorthwest Europe and West Africa. However these remain challengingtimes for rig contractors even in this region as they are under costreduction pressure and have to accept operators’ terms and conditions.

In the US Gulf of Mexico, the makeup of the rigs by type has changeddramatically over the last ten years. This market has changed so much,passing from a net predominance of jackup and barges to havingdrillships as the largest and more important segment in the sector. Thematurity of the shelf has played a big role in the reduced demand forjackups and inland barges, but rig contractors have also been forcedover the years to face a new reality of tighter budgets and reduceddemand, and to adapt to new contracting terms in the region. Semi-submersible rigs are struggling to maintain their place in the US Gulfmarket. The increased preference for drillships is mostly attributable tothe effect of hurricanes on moored units in recent years, pushing themarket to select dynamically positioned rigs, which can move out of astorm’s path very quickly. Deepwater is expected to continue to play abig role in the future of the US Gulf, so drillships and semis are expectedto remain key units in this region, with their capabilities likely to undergoa step change as technology improves and more challenging wellconditions call for higher-specification rigs.



In the North Sea offshore rig market, day rates have remained lowalthough there have been a steady amount of new tenders andrequirements being released with work planned for 2017 and 2018from various operators. In the past months, the Norwegian market hasseen a number of rig contract suspensions and rigs becoming idle whileoperators have no current work to keep them busy. West of Shetlandhas seen a slight upswing in overall activity with arrivals and departures.Meanwhile, the UK standard semi market has seen a relatively quiettime.

The West African floater sector has been relatively busy in terms ofenquiries and requirements compared with past months; however, onlya few fixtures have been made. The situation in the jackup sector ismore dramatic as it continues to stagnate with only deferrals andfurther rigs becoming available in the already oversaturated market.

In Latin America several contracts on semis were terminated in Braziland rigs have continued to leave the region, although at a slower ratethan previously recorded. Only recently there was some news oftendering plans for work in the Falkland Islands and Mexico.

Lack of fixtures has made this update quite challenging. The spiderdiagram in Figure 5 shows the percent changes implemented inQUE$TOR to the offshore rig dayrates depending on rig class andregion. Only Australian deepwater rigs and South American jackupshad a small positive variation in their rates which should not be seen asa real market trend but rather more as an adjustment of the dayratevalue in those regions to be closer to the most recent marketed contractvalue.



Figure 5 - Worldwide offshore rig rate changes

Offshore vesselsTrading conditions for owners and operators of offshore supply vesselsremain extremely challenging worldwide. Demand for offshore vessels,both Platform Supply Vessels (PSVs) and Anchor Handling Tug Supply(AHTS) Vessels, has weakened significantly in all regions, pushingvessel owners into some very hard decisions. In all regions vesselsowners were forced to continue stacking vessels in the hope of reachinga point when they can charge decent day rates again. Nobody thoughcan predict how soon that will be and many vessel owners have startedto be more realistic about the fact that it may still be a long time beforethe market will fully recover. Regionally, the largest number of lay-upswere in the US Gulf of Mexico, followed by Southeast Asia and then byNorthwest Europe.

As in the case of the offshore rigs, the offshore vessel market did notregister a significant number of fixtures to allow a reliable statement ofwhat the market trend is. Therefore the implemented variations shouldbe intended more as adjustments rather than well-defined marketmovements.



The market across Asia-Pacific was characterised by weaker offshoreactivity, lower utilization and falling day rates. Long-term charters werefew and far between, and vessel owners have been competing foroccasional spot jobs in the oversupplied offshore vessel market.

In Latin America, the limited demand for offshore vessels created bysporadic activity has increased competition. Similar to other worldwidemarkets, day rates have remained depressed as vessel owners arefighting to keep tonnage operating under contract. Due to the gradualdecline of the number of contracted rigs in Brazil, vessel owners havebeen laying up idle tonnage as the current stagnation persists. Withouta significant improvement in global oil prices for a sustained period oftime, the Brazilian market will continue to weaken, with lower utilisationfor both rigs and vessels.

In the Mediterranean, the prospects of new term contracts for offshorevessels within the drilling support activity remain limited across theregion. Production support requirements throughout the Mediterraneanand Black Sea region are predominantly covered by existing termcontracts and the spot market. In recent weeks, new term fixtures havelargely centred around a number of long-distance towage contracts forrig mobilizations and vessels destined for the recycling and scrap yards.

Term demand for the Middle East PSV segment fell to historical lows inAugust. The weakness across the offshore sector continues to result intonnage being stacked, and low demand for PSVs in the regionindicates that this will continue over the short to middle term. While newbuild PSVs continue to enter the market, many committed new buildorders from Middle Eastern owners are known to have been deferred orcancelled. Most of these orders are for medium to large sized PSVclasses that were initially planned for fleet expansions some years ago.

The situation in the North Sea for owners and operators of PSVs andAHTS vessels remains unchanged. Most still have vessels laid-up, andseveral have vessels idle and available for immediate charter. Thedownturn shows little sign of easing up in the short term, with manyvessel owners now embarking on strategic and long- term plans toensure that they can remain competitive throughout the rest of thedownturn. Some are looking at employing their vessels for work outsideof the traditional supply vessel sector, some are merging, and othersare going through major debt restructuring to ensure their financialfuture. The summer proved to be a disappointing time for owners ofmedium AHTS vessels on the spot market, with day rates down from



the first quarter. On the PSV side of the market, meanwhile, there wasplenty of activity with dayrates remaining low but slightly picking upquarter to quarter.

In West Africa, there was a small number of term fixtures awardedduring the summer. Looking ahead into the next twelve months,demand for offshore vessels in support of drilling operations is unlikelyto see significant net change in demand.

Offshore vessels utilization in the US Gulf has been more severelyaffected than the other major offshore markets of the world. While thefall in rig activity has flattened out, deepwater day rates havedecreased over the last fewmonths. Demand for large deepwater PSVshad seen a slower fall than the collapse experienced by the shallow-water sector of the market.

In the construction vessel sector, utilization decreased almost across allvessel segments. While some vessels, like accommodation, heavy liftvessels and multiservice, experienced a more drastic decrease, othersegments, like diving support, pipelay and ROV support, went downmore moderately. In some regions and specific sectors, it is believedthat day rates have bottomed out. However, competition in the marketfor any jobs is at a very high level and operators continue to negotiateany new and existing contracts much like how they are re-budgetingtheir project portfolios. The list of confirmed cold- stacked vesselscontinues to grow and vessel owners are being forced to change theirbusiness methods to survive the low oil price environment. Amongthese strategies are company mergers, seeking wind farm orgovernment work, entering the decommissioning market, and financialrestructuring.

SubseaUpstream developments that require subsea components tend to bequite expensive and as a result have high break-even costs. Theseprojects were some of the first to be cancelled or postponed when oilprices crashed in late 2014. While this did have an effect on suppliers,their long backlogs protected them for over a year, after which sparecapacity had begun to grow to alarming rates. With no end to thedownturn in sight, suppliers began pursuing a number of differentstrategies to survive.



It is difficult to describe the extent of shrinkage the subsea market hasexperienced so far this downturn. While subsea trees are only one ofthe components this market includes, order levels for trees can serve asa useful bellwether of overall subsea activity. Compared against 2015,new orders for this year and total number of trees to be installed aredown by over 65% and 45% respectively. It should be noted that 2015was already a bad year for subsea suppliers, down over 25% from theyear before. The total annual value of the subsea equipment markettoday is down to $2.1 billion.

In reaction to the shrinking market spend, subsea companies haveoffered lowered prices, downsized, and in some cases merged withother service companies. While lower prices do send the right signals topotential customers and make the market more competitive, they donot appreciably impact break-even prices and therefore are ineffectiveat generating demand. Therefore while subsea companies did notofficially lower their prices, buyers can negotiate rates lower than theywould have been able to before the downturn.

However, without more demand to fill order books subsea supplierscannot justify maintaining the capacities they built up to before oilprices fell. As a result, most companies have downsized significantly,with most recent job losses appearing in Norway where Aker Solutionsand FMC Technologies both have a large presence. With low capacityutilization across the market and pessimism surrounding an oil pricerecovery, downsizing is one of the only ways of balancing supply anddemand in order to regain some pricing power. Finally, two big mergerstook place in the subsea market that show how dire things have gottenfor its players. FMC Technologies merged with Technip, and Cameronwas acquired by Schlumberger. While in the long term theseconsolidations will lower costs through standardization, for right nowthey promote further downsizing and the rationalising of capabilities.

After almost two years of contraction, it is unclear that the subseamarket can get any smaller. Now that oil prices have stabilizedsomewhat, subsea suppliers need to be able to operate profitably at thecurrent levels of demand, which are much lower than what the industryhad grown used to since 2010. If oil prices do not fall further over thenext year, demand is expected to grow as projects that were postponedfor fear over lower prices begin to become safe investments again.Having excess capacity when that happens will exert considerabledownwards pressure on prices, so suppliers are already addressing thefundamentals that are holding their market back from recovery.



LabourAs a result of the current global downturn in the oil and gas industry,2016 has proved to be another difficult year for the labour sector. Thenumber of workers laid off or made redundant has continued toincrease globally although recently there have been some positivesignals that maybe the bottom has been reached and the market willstart to strengthen. How quickly the market will recover though is stilluncertain; some analysts believe that the crude oil price is likely to staylow for an extended period whilst some others expect to see a quickerrecovery. Whatever will happen, it is fair to say that the industry willdefinitely face some tough challenges in the coming years. Even whenthe oil crude price does recover, it is likely that a constant pressure toreduce costs and increase efficiency will persist. Up to now, the costreduction activity implemented by employers has resulted in a largenumber of redundancies and layoffs worldwide. These changes in theworkforce, together with early retirements, will leave employers with alarge knowledge gap in their workforce once the industry activity startsto recover.

The drilling market in North America has been hit particularly hard andthe trend of the labour market in this region has been unpredictableover the last two years. Layoffs were announced in both multinationaland small independent companies. In the United States, drilling activityhas seen a considerable slowdown and only in the second half of theyear the rig count has started to go up, recovering marginally from itshistorical lows. It has also been a rough ride for the Canadian oil andgas industry, with several key projects having delays or being cancelled.As in the United States, job cuts have been severe and have resulted inan exodus of talent that will be hard to attract back.

In the UK, the economy was recovering well after the oil price crash atthe end of 2014, but deteriorated due to the political instability followingthe result of the EU referendum. During the summer a rebound in theUK economic data was suggesting that the Brexit shock on business andconsumer confidence was slowly fading out, helped by a weaker poundable to boost local manufactured products. However, pressure frompro-Leave campaigners have forced the Prime Minister, Theresa May,to declare the date when the UK will trigger Article 50 of the LisbonTreaty. This has generated further instability with rumours that majorinternational companies and banks will move their headquarters tocontinental Europe to maintain their access to the European singlemarket once the UK leaves the European Union.



The Eurozone has shown to be more resilient than expected to theBrexit earthquake, with the Euro keeping its value against the US dollar,but this may soon change as it is about to enter a very busy electioncycle. Political deadlock has continued in Spain and the country couldface a third round of general elections in one year. Italy will face acritical referendum on Senate reform on 4 December, which has thepotential to shake up political stability. Looking into 2017, a number ofcountries face key elections, including major players France andGermany. Support for the status quo is fading across the Eurozone andthis could lead to deep instability in many countries’ governments.

In Norway, unemployment hit the highest rate since the middle 1990sas major oil and gas companies were forced to downsize andannounced significant layoffs. As global prices for crude are still low,Norwegian oil companies cannot afford to meet the requests fromworkers for higher wages, which prompted a strike in September.

In the Middle East and North Africa (MENA) regions, economic activityseems to have bottomed out in the second quarter of 2016. Growth inthe region continues to be constrained by subdued commodity prices,weakness in global financial markets, and security threats. The poorpolicy response from governments of the region’s oil- producingcountries has escalated uncertainty and deterred investment. TheNigerian naira (NGN) depreciated drastically in Q3 and a ceasefirebetween the government and the militant group, whose attacks oninfrastructure caused Q2’s drop in oil output, failed to hold in lateSeptember, renewing concerns about production. Angola is currentlyfacing a foreign currency crunch which has hampered banking activity,investment, and output in the non- oil sector. The preliminaryagreement reached by OPECmembers in late September to cut outputcomes as good news for the oil- rich country; nevertheless, doubtsremain as to whether the agreement will provide enough support toimprove the country’s battered finances.

In Latin America, economies remained depressed in the first half of2016 and became even weaker in the third quarter. Weaknesspersisted with Argentina and Venezuela’s currencies showing instabilityat the end of Q3. Brazil’s deep recession showed some signs of recoveryat the end of September although austerity measures, tight creditconditions and high unemployment still put pressure on consumption.The only countries in which economic growth has gained momentumare Mexico, Paraguay, and Uruguay.



In the Commonwealth of Independent States (CIS), lower export andfiscal revenues, following the drop in oil and gas prices, constrainedeconomic activity in the region’s main energy exporters Azerbaijan,Kazakhstan, Russia, Turkmenistan, and Uzbekistan. Russia hasundergone a painful economic adjustment and the contraction appearsto have softened out in Q2 2016. Russian economic activity is seen asstrengthening gradually, although downward risks to the outlookremain in the form of intensified geopolitical tensions between Russiaand Ukraine and prospects that the US dollar will strengthen toward theend of the year, if the Federal Reserve increases interest rates inDecember.

Worldwide major Engineering and Project Management (EPM)companies have continued to implement cost-cutting measures such asstaff reductions and office consolidations whilst some reported anincrease in profitability, although backlogs were down and new ordersdecreased. Due to the high uncertainty in the oil price, most FinalInvestment Decisions (FIDs) were postponed and several projectscancelled or scaled back. Engineering contractors are not optimistic thatbacklogs will recover in the near term and are very focused onheadcount reductions to match current backlogs. Few new projectsanctions are expected in the near term, as the number of projectsentering the FEED stage remains very low.

Land rigsThe global land drilling rig market has shown no signs of substantialrecovery as oil prices remain low and drilling activity continues to bedepressed. The rig count, which reflects the strength and stability of theenergy price markets, showed a small increase towards the end of thethird quarter due to the recent rise in oil price just above the $50/bbllevel. However, the rig count would have to rise significantly beforerates are increased, as contractors are very aware what happened oneyear ago when oil prices were rising after the price crash at the end of2014 and land rig contractors believed that the worst was over. Butafter summer 2015, oil price, rig count, and day rates all fell, with oilprices reaching the $30/bbl mark by the end of 2015. The fear ofrepeating the same cycle is clear and contractors are very cautious ofreturning rigs to active status; therefore, even with oil prices on therise, a large increase in rig count has not yet occurred eliminating anypossibility of dayrate increases in 2016. This was the exacerbated byfurther declines in drilling activity due to the announcements of



additional reductions to capital expenditures as operators continuedtrying to minimise costs and maximise drilling efficiency in this sustainedlow oil price environment.

Dayrates declined in most international markets across all rig classessince first quarter 2016. The greatest reductions were in China, SE Asia,Asia, Africa, and South America, with rates down between 2% and 5%;in the remaining regions dayrates decreased marginally or remainedflat. The oversupplied market and the low utilization rates haveprovided operators with greater bargaining power in negotiatingcontracts for onshore drilling rigs, forcing drilling contractors to eitherreduce dayrates or stack rigs. In some regions, units were removedfrom the active fleet and placed on standby, at a significantly lowerrate, so that they can become active when demand materialises.

Despite differences in rig specification, both high-spec and low-specdayrates declined overall. The declines for low- spec rigs occurredmainly in those markets where a significant number of rigs were drillingshallow vertical wells. The tight margins of low-spec rig dayrates meansthat they have reached their minimum level when compared to thehigh-spec rigs. As the downturn continues, most contractors haveremoved low-spec rigs from service because they are not efficient andprovide only minimal production gains. High-spec rigs, on the otherhand, have remained active for a longer period because they are morecost effective to operate. Drilling contractors have attempted to keephigh-spec rigs working for as long as possible, even under reduceddayrates. When the drilling market recovers, high-spec rigs will be thefirst rigs back to work, while a majority of low-spec rigs will likely neverreturn to service.

Looking into the future, contractors have started to accept the reality ofa reduced labour force. In order to reduce costs, experienced rig crewshave been dismissed, and this is likely to create a shortage ofexperienced workers when the market recovers. Efficiency gains thathave occurred through high- grading rigs will potentially end updisappearing due to less experienced crews entering the workforce.



Contacting customer supportAs part of the continuing licensing agreement for QUE$TOR, IHS offersa full technical support service via its regional offices. Both computingand engineering support relating to the operation and understanding ofthe program are available.

The QUE$TOR support group has a dedicated support email address:[email protected]

Note: There is an 's', not a '$' in questor in the email address.

The IHS software support team key contacts are as follows:



mailto:[email protected]

North & CentralAmerica

Jonathan Stephens - Product Manager,[email protected] Verma - Senior Field Development Engineer,[email protected] Wahab - Cost Analyst, [email protected]

5333 WestheimerHoustonTexas 77056USA

Tel: (+1) 713 840 8282Fax: (+1)713 995 8593

South America Thais Hamilko - Product Specialist, E&I Prod Line-LATAM,[email protected]

Rua São Bento, 29 - 7o andarCentroRio de JaneiroRJ, CEP 20090-010Brazil

Tel: (+55) 21 3299 0440

Europe, Africa &Middle East

Rita Antonelli - Cost Manager, [email protected] Butcher - Field Development Engineer,[email protected] Helliwell - Engineering Advisor,[email protected] Williams - Engineering Manager,[email protected]

133 HoundsditchLondonEC3A 7BXUK

Tel: (+44) 20 3159 3300Fax: (+44) 20 3159 3299











S.E. Asia & Australia Sanjay Sinha - APAC Field Development SME,[email protected]

First Floor, Tower AVatika Business ParkSohan Road, Sec 49Gurgaon 122018 - HaryanaIndia

Tel: (+91) 124 454 2699

China Yaxing Wang - Sr. Customer Solution Advisor,[email protected]

Room 3001China World Office 1No.1, JianGuoMenWai AvenueBeijing100004China

Tel: (+86) 10 5633 4567Fax: (+86) 10 5633 4500



