ReleaseNotes QUE$TORproductdownloads.ihs.com/private/release/Que$tor/QUE$TOR... · 2020-05-11 · l...

Release Notes

QUE$TOR

2020 Q1 Release

May 2020

QUE$TOR is a registered trademark of IHS Markit.

Windows is a registered trademark of MicrosoftCorporation.

Contents

Introduction 3

Version compatibility 4

What’s on the CD-ROM 5

System requirements 6

Installation procedure 7

Application execution 7

Licensing system 8

Activating standalone licenses 8

Setting network license location 10

General upgrades in QUE$TOR 2020 Q1 12

Multiple streams in oil processing 12

Addition of a mixer in oil processing 12

Mixer pressure 15

Example of oil processing mixers 16

Simple node in Subsea to aid in layout design 17

Non-productive time (NPT) factor for drilling 19

Offshore drilling durations data update 20

Design flowrates include water/oil percentage 21

Conversion tanker selection by age and condition 22

Lay vessel selection for subsea links and umbilicals 27

Move pipelines in field development schematic 30

Offshore installation vessel definition 31

Firefighting utilities for topside facilities 32

Lifeboat utilities for topside facilities 33

Selected other technical revisions 34

Cost data sources and accuracy 35

Cost data sources 35

IHS Markit May 2020 Page 1

QUE$TOR 2020 Q1 Release Notes

Accuracy 37

Cost database update 38

General 39

Oil price trend 40

Currencymarket 42

Steel 46

Equipment 49

Bulks 51

Offshore rigs 53

Offshore vessels 57

Subsea equipment 59

Labour 61

Land rigs 63

Page 2 May 2020 IHS Markit


IntroductionWe are pleased to provide the 2020 Q1 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 first quarter 2020 prices.

The main technical enhancements made to QUE$TOR 2020 Q1 are:

l Multiple streams in oil processing

l Simple node in Subsea to aid in layout design

l Non-productive time factor for drilling

l Offshore drilling durations data update

l Design flowrates include water / oil percentage

l Conversion tanker selection by age and condition

l Lay vessel selection for subsea links and umbilicals

l Move pipelines in field development schematic

l Offshore installation vessel definition

l Firefighting utilities for topsides facilities

l Lifeboat utilities for topsides facilities

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 functionality, accuracy, and ease of use of theprogram.

This version of QUE$TOR uses the IHS Markit Common Licensingsystem. This was first used in the 2018 Q1 release. Please read theInstallation procedure and licensing section in this document prior toinstallation of QUE$TOR.



Version compatibilityProjects created in QUE$TOR v8.0 and later are compatible withQUE$TOR 2020 Q1. However, projects created or saved in QUE$TOR2020 Q1 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.

In order to run the latest version of QUE$TOR alongside older versionsthat use the previous licensing system, both the new and previouslicensing systems will have to be setup on the machine runningQUE$TOR.



What’s on the CD-ROMThe QUE$TOR 2020 Q1 CD-ROM contains the following:

l QUE$TOR 2020 Q1 installation files.l An ‘Application’ folder containing QUE$TOR 2020 Q1 program files.l A ‘Documents’ folder containing a copy of the licensing notes, fullhelp file, quick start guide and a copy of the full and short releasenotes in portable document format (.pdf).

l A ‘Licensing’ folder containing an 'IHS Markit Common' sub-folderfor setting up and managing network licenses.

l A ‘Prerequisites’ folder containing the following two folders:

l A ‘dotNET Framework’ folder containing the executable toinstall the required .NET Framework on your machine if it isnot already installed.

l A ‘Microsoft Visual C++ Redistributable for Visual Studio2017’ folder containing the executable for installing filesrequired for the licensing system.

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

The QUE$TOR 2020 Q1 installation files along with the documentation,licensing, and prerequisites are also available directly from thedownload site.



https://ihsmarkit.com/Info/0316/questor-software-resources.html

System requirements

QUE$TOR 2020 Q1

Operating system Windows 7 SP1 / Windows 8.1 / Windows10 [v1607][1]

Application disk space 275 MB

Disk space / project ~1 MBDisk space / procurementstrategy ~3 MB

Minimum monitor resolution 1024 x 768

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

Note: Windows 8 is no longer a supported OS but Windows 7 SP1and Windows 8.1 are.



Installation procedureInstalling the software from the QUE$TOR installation CD-ROM

l The software can only be run if you have a valid license but this isnot 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 ‘Prerequisites\dotNET Framework’ sub-folder of the QUE$TORCD-ROM.

l Run the VC_redist.x86.exe in the 'Prerequisites\Microsoft VisualC++ Redistributable for Visual Studio 2017' folder. This requiresadministrator privileges like the QUE$TOR setup.

l To install QUE$TOR 2020 Q1 run the file ‘setup.exe’ in the rootfolder of the QUE$TOR 2020 Q1 CD-ROM.

l Once installed, an icon for QUE$TOR 2020 Q1 will appear on yourdesktop. A group will also appear on the start menu under AllPrograms\IHS Markit\QUE$TOR 2020 Q1 containing shortcuts forthe Database editor, the Project editor, the Project viewer, themain QUE$TOR application and the Unit editor.

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

Note: You may receive an email from IHS Markit Customer Carecontaining an Entitlement Id for activating your QUE$TOR licenses.

Application executionl Windows 7 SP1

To run the software click the Startmenu and follow All Programs> IHS Markit > QUE$TOR 2020 Q1 > QUE$TOR 2020 Q1 ordouble- click the QUE$TOR 2020 Q1 icon created on yourdesktop.



mailto:[email protected]

l Windows 8.1

To run the software click the Start menu and browse the startscreen to find QUE$TOR 2020 Q1 or double-click the QUE$TOR2020 Q1 icon created on your desktop.

l Windows 10

To run the software click the Startmenu and browse the programlist to find IHS Markit > QUE$TOR 2020 Q1 or double-click theQUE$TOR 2020 Q1 icon created on your desktop.

Licensing systemIn order to run QUE$TOR a valid license will be required. Dependingupon the license type that has been purchased this can either be in astandalone or a network configuration. For standalone configurationsusers will have to obtain a license by using the standalone onlineactivation tool, whilst for a network configuration locate the licenseserver within their own network. Obtaining the license is described inthe following sections, for more information about setting up thenetwork server please refer to the licensing guide that is available onthe CD, via the download site and is also available in the help file.

Activating standalone licensesTo activate a standalone license you will need to have QUE$TORinstalled and you will need to have your Entitlement Id (EID). This EIDwill be emailed to the primary license contact at each company.

When QUE$TOR is run and a feature is selected, without access to avalid license, as would typically be the case when QUE$TOR is firstinstalled, an error will be shown that is similar to the one shown below(Figure 1).

Figure 1 - Unable to retrieve license

To activate a standalone license click on the Find license… button.




Figure 2 - Set QUE$TOR license

When the Set QUE$TOR license form (Figure 2) appears click on theActivate standalone license button. This will open the IHS MarkitStandalone Online Activation tool.

First, you will need to copy/paste or type your EID into the EntitlementId input at the top of the form (Figure 3) and click Connect.

Figure 3 - Standalone Online Activation

Next select the product(s) you would like to activate. Holding the Ctrlkey while selecting will allow selection of multiple products. Then click onthe Activate button.



Once complete the IHS Markit Standalone Online Activation tool can beclosed and OK can be clicked on the Set QUE$TOR license form.QUE$TOR will now run the feature licensed.

Standalone licenses will not allow QUE$TOR to work in a shared useenvironment such as Remote desktop or Citrix. Shared useenvironments require network licenses.

Setting network license locationTo connect a client machine to a network license service you will need tohave QUE$TOR installed, you will also need to have the location of theQUE$TOR license service on your internal network.

When QUE$TOR is run and a feature is selected, without access to avalid license, as would typically be the case when QUE$TOR is firstinstalled, an error will be shown similar to the one shown below (Figure4).

Figure 4 - Unable to retrieve license

To connect to a License Service click on the Find license… button.



Figure 5 - Set QUE$TOR license

When the Set QUE$TOR license form appears (Figure 5), type thelicense server name in the Server name input box, then click the OKbutton.

Once complete, QUE$TOR will be able to run the feature(s) available onthe license server if a valid license is available.



General upgrades in QUE$TOR 2020 Q1In response to feedback the following features have been implementedin QUE$TOR 2020 Q1.

l Multiple streams in oil processing

l Simple node in Subsea to aid in layout design

l Non-productive time factor for drilling

l Offshore drilling durations data update

l Design flowrates include water / oil percentage

l Conversion tanker selection by age and condition

l Lay vessel selection for subsea links and umbilicals

l Move pipelines in field development schematic

l Offshore installation vessel definition

l Firefighting utilities for topsides facilities

l Lifeboat utilities for topsides facilities

Multiple streams in oil processingThe oil processing in topsides and production facilities has been updatedto allow for the consideration of multiple streams. Mixers can now beadded into the oil processing train allowing alternative trains ofseparation to be modeled. It has been assumed that the design willincorporate a main stream, which is the same as the existingconfiguration, and secondary streams which can be added to theoriginal main stream.

Addition of a mixer in oil processing

The initial oil processing configuration of separators, which creates themain stream, is defined from the drop down option in the toolbar. Thecapacity of this main stream is linked to the fluid capacities on theprimary tab in the main component and is considered to be the one thatthe facility is primarily designed for. Into this main stream it is possibleto add mixers and define the composition of secondary streams. Amixer can be inserted on a green oil stream by right clicking on thestream and selecting the insert mixer option or by selecting the stream



and adding the mixer from the toolbar icon. Once the mixer has beenadded secondary streams will then be available to configure (Figure 6).Any redefinition of the dropdown configuration will redraw theschematic and any secondary stream configurations will be lost.

Figure 6 - Oil processing configuration

The capacity for the secondary stream coming into the mixer can bedefined by clicking on the upstream input coming into the mixer. The oil,gas, and water flows can be specified along with the temperature andpressure of the stream as shown in Figure 7. As the fluids are defined attemperature and pressure when the stream is edited a flash calculationwill be performed on the stream input and the tooltip will show thestandard oil, gas and water flows of the stream.



Figure 7 - Secondary stream input form

Heat exchangers and separators (up to three stages of separation) canbe added on the secondary stream coming into the mixer by rightclicking on the green oil streams (Figure 8). Multiple mixers can beadded to oil processing to enable multiple streams to be processed.

Figure 8 - Oil processing with mixer

A mixer, and its associated equipment, can be moved to a new locationin the main processing stream using the right click menu option of themixer.



To aid with identification, mixers can also be renamed by using the rightclick menu option. In the example in Figure 9 the separators on a lowpressure stream, that feeds into Sep 2, can be identified by the name ofthe mixer on the equipment list and input report.

Figure 9 - Oil processing with renamed mixer

A mixer can only be added to the main processing stream. Dehydrationand desalter are only available on the main processing stream and anysignificant change to components on the main stream (such as theremoval of a reboiled stabiliser) may redraw part of the configuration.Default pressure of a mixer is set from the main stream so that it ispossible to blend fluids together at a similar pressure.

Mixer pressure

Pressure of flow coming into a mixer is set by the main stream;pressure of any secondary streams upstream of a mixer is adjusted soas to have a declining pressure profile. Table 1 shows how pressure ineach of the secondary stream separators is set.



Number ofStages First Stage Second Stage Third Stage

1 Mixer pressure N/A N/A2 Inlet pressure Mixer pressure N/A

3 Inlet pressure Weighted averagepressure Mixer pressure

Table 1 - Separator stage pressures

The second stage weighted average pressure is between first and thirdstage pressure with a bias towards a stabilized pressure. If an upstreampressure is less than the mixer pressure then the pressure will not bereduced.

Example of oil processing mixers

An example using mixers in oil processing is shown in Figure 10. Threeextra feeds are coming onto the processing facility and need to beblended at the appropriate point. The first feed comes from a twophase pipeline (stream 13) and like the main processing feed it requiresheating, allowing it to be blended in at the same separator. The secondfeed (stream 15) may come from a different facility and containsdifferent oil, gas and water flows and therefore requires a stage ofseparation before mixing with the main stream. A third feed (stream20) is used to add more flow to the final stage of separation so that anover design of the final separator can be considered.



Figure 10 - Oil processing with multiple mixers

This feature provides the user with more flexibility in the equipmentrequired for the design of oil processing. The oil processing will providea flow of oil and gas that is capable of being handled through theseparation phases and can then be used to determine if anysupplementary downstream equipment is required.

Simple node in Subsea to aid in layout designA new item, called Simple node, has been added in the toolbar at thetop of the subsea schematic (Figure 11). The simple node is designed asa way to allow subsea links to be connected directly together therebypassing flow or other properties directly from one to another. It hasalso been designed to have no equipment, materials, or installationassociated with it.



Figure 11 - Simple node on the subsea schematic

The simple node has relatively simple input and controls (Figure 12).This only allows for the editing of water depth which is used for pipelinesizing and installation calculations.

Figure 12 - Simple node properties form

The simple node was initially envisioned as a way to allow segmentedflowlines to be included in the subsea layout, allowing changes in waterdepth, linepipe size, or lay vessel selection to vary along the length of agiven flowline. As well as this it can also be used as an aid in modellingthe fluid handling of inline tees and wyes, independent umbilical paths,



etc. As there is no cost associated with the simple node any additionalequipment or installation cost required can be added using theEquipment item for user defined costs.

By connecting links using a simple node, each link is treated as aseparate flowline and will appear on the cost sheet as a hyperlink;segmented flowlines can be renamed to show the associated nature ofthe separate links. When links are connected using the Simple node,PLETs, which are usually included at the connected end of each link, areexcluded from the estimate, although they can be re-selected in the linkproperties form; only one umbilical UTA will be included in a givenumbilical path.

Simple node operates much like a commingling manifold whenconnecting multiple links together, with flow being combined andpressure profiles being maintained through the simple node item. Whileany number of links can be connected upstream of a simple node, it willonly allow a single path downstream. In the case of tees and wyes, thelack of associated components will have minimal effect on the finalestimate but commingling multiple streams in a simple node mayrequire manually accounting for the extra equipment costs.

Users can utilise the simple node to model other subsea layouts.Feedback on their specific schematic designs is highly encouraged toensure that the use of this new functionality is well supported.

Non-productive time (NPT) factor for drillingNon-productive time (NPT) factors have been added to offshore andonshore drilling components. These can be found on the drilling curvesform (Figure 13) accessed through the drilling inputs form. The NPTfactor in drilling and completion captures the downtime on a rig due tounplanned events (downhole equipment failure, rig repairs, holestability issues, etc). NPT represents a substantial part of total well costsin drilling and completion.

The NPT factor enables the inclusion of extra days for drilling,completion, and exploration activities, by adding extra time to thedurations that are stored in the database. The drilling, completion, andexploration/appraisal durations are then multiplied by their respectivefactors. The result for the selected profile is shown in the plot and tableon the drilling curves form and applied to the durations on the drillingprofiles. The impact of the NPT factor is to increase the drilling durationsand therefore the offshore and onshore drilling costs.



Figure 13 - NPT factor on the drilling curves (offshore example)

Offshore drilling durations data updateThe Offshore drilling component duration data has been updated toreflect a more current data set. The updated data has different effectson the drilling duration, dependent on the region and well details.

Drilling durations for a given well are calculated based upon the welltype, rig type, and measured depth along with a set of time vs depthcurves. Following user feedback the regional time vs depth curve datahas been updated to reflect recent drilling activity and adjusted basedon the newly added non-productive time factor. These changes areregional and well detail specific. Therefore any given well drillingduration in a project may change in this release based on the welldetails. In some cases there will be no change or some small decreases.In many cases this will result in the well drilling duration increasing andconsequently drive the well costs up.

Due to the nature of the changes in the regional technical databases,any values manually entered in the database will be overwritten.However, any drilling durations modified within a given project willremain.



Design flowrates include water/oil percentageA design water / oil percentage input has been added to the designflowrates form (Figure 14). This input is used to display or set thepercentage of water in oil at peak production; the total gross liquids arethen shown as a sum of the calculated water flowrate and the oilproduction flowrate. The value is used to calculate the flowrate ofassociated water in the production fluid; this does not impact themaximum produced water flowrate used in produced water treatment.The new design water / oil percentage input is similar to the existingwater cut input in the field level data form, however, the new valueconsiders and uses edits made in the production profile.



Figure 14 - Design flowrates input form

Conversion tanker selection by age andconditionThe Tanker component now has options to select the age and conditionof a conversion tanker, as shown in Figure 15.

When the selected tanker type is “Conversion”, the hull part of the FPSOis provided by converting an existing crude oil tanker. In previousversions, the purchase price of a conversion tanker was assumed to bethe price of a resale tanker. This is not always the case as there aremany examples of older tankers being converted into FPSOs. Resaletankers can have a premium price, compared to new build ship shape



vessels, due to their quick delivery time. Selecting an older tanker willimply a cheaper purchase price, but higher materials, fabrication, anddesign and project management costs.

The selection of hull tankers for a conversion project is driven by thebalance between the purchase cost of the hull and the requiredrefurbishment work. Factors influencing this balance are the age andprevious maintenance of the vessel, the availability and market costtrends of second-hand hulls, and the cost differential between differentage hull purchase prices and new build scheduling time and costs. Oldertankers can come with an additional risk: they can be procured at adiscounted price, although the conversion work can be more complexand expensive than first estimated during feasibility stages.



Figure 15 - Primary input tab changes in Tanker component

For each tanker size (i.e. Panamax, Aframax, Suezmax, and VLCC) theage options available for selection are Resale, 5 years, 10 years, and15+ years. The tanker condition can be either "Good" or "Fair". Theresale option does not offer a condition selection as resale tankers arenew tankers assumed to require only refurbishment work toaccommodate new mooring systems but not structural reinforcementnor steel renewal to solve corrosion or fatigue issues. Only double hulltankers are assumed to be tanker candidates for conversions. Singlehull tankers have not been included in this model as most of the vesselsbuilt after 1996 are double hull tankers, and single hull tankers areconsidered unsuitable for conversion purposes as they fail to meetinternational standards.



In general, a tanker conversion has the objective to refurbish and applya design life of 20 years with uninterrupted service on offshore location,without dry-docking. Purchase prices for the different tanker agecategories have been collected from broker reports. The tonnagerequired for general and marine upgrade depends on the tanker age.The tanker strengthening materials and fabrication now includeadjustments for the additional steel renewal required for tankers olderand in poorer condition than resale. Design and project managementtime has also been increased for older tankers. Selecting a tanker ageolder than resale and in poorer condition (i.e. fair instead of good) mayincrease the scheduling duration.

Many of the vessel marine systems and equipment will be retained tosupport the new tanker service; however, the hull condition may impactsignificantly the amount of steel and work required. The selection of thehull condition is mainly related to the amount of steel replacement andlevel of inspection needed by the existing hull to convert the candidatevessel into an FPSO unit. In both cases it is assumed that the candidatevessel already holds a valid class certificate from a recognizedclassification society. The description in Table 2 is intended as a broadoutline of the conditions rather than a prescriptive list and, therefore,should not be considered exhaustive.



Tankercondition Description

Good

l Hull structural strength assessment: some steelrenewal is required due to corrosion and hulldegradation; some fatigue cracks and fatigueaccumulated damages are detected; some steel repairrequired for pitted or grooved plating.

l Classification society’s inspection results: some hullreinforcement will be applied to comply with society’sclass requirements.

l Previous inspection / repairs report available.

l Corrosion protection: external hull corrosion protectioncoating; anodes replacement; re-welding of crackedwelds.

l Small amount of structures, piping, machinery andelectrical equipment found in unsatisfactory conditions.

l Remaining life assessment: good.

Fair

l Hull structural strength assessment: significant steelrenewal is required due to corrosion and hulldegradation; significant fatigue cracks and fatigueaccumulated damages are detected; significant steelrepair required for pitted or grooved plating.

l Classification society’s inspection results: significanthull reinforcement will be applied to comply withsociety’s class requirements.

l Previous inspection / repairs report available.

l Corrosion protection: external hull corrosion protectioncoating; anodes replacement; rewelding of crackedwelds; local inserts for pitting and fatigue crackrepairs; renewal and / or fitting of structural elements.

l Large amount of structures, piping, machinery andelectrical equipment found in unsatisfactory conditions.

l Remaining life assessment: satisfactory.

Table 2 - Tanker condition options and description



Lay vessel selection for subsea links andumbilicalsAs part of the enhancement to allow modeling of longer subseatie-backs, lay vessel selection is now available for each subsea link andumbilical. This allows all flowlines within a link to be installed by any typeof lay vessel. Similarly, any lay vessel can now be selected to installumbilicals. This feature has resulted in the changes described below.

The lay vessel drop-down selection is available in the subsea linkproperties form (Figure 16). It is located adjacent to the umbilicalproperties button. The available options are: Reel-lay, S-lay withoutDP, S-lay with DP, J-lay and Ultra-deep. The default vessel is chosenbased on the lay vessel selected in the Flowlines form. Selection of analternative type of vessel can be made from the drop-down list for thislink. The selected lay vessel is independent of the changes made to linkproperties.

Figure 16 - Lay vessel in subsea link properties form

Umbilical lay vessel can be selected using the drop-down menu in thesubsea umbilicals form (Figure 17) and this vessel is used to installumbilicals. The available options are: Reel-lay, S-lay without DP, S-lay



with DP, J-lay and Ultra-deep. By default, Reel-lay vessel is alwaysselected. The calculations for transit and loadout duration have beenupdated to include umbilicals that were previously excluded. As a result,an increase in the transit and loadout duration will be observed whenumbilicals are included in the subsea schematic.

Figure 17 - Lay vessel selection in subsea umblicals form

The subsea installation duration form has been extended to displaydurations for all types of pipelay vessels i.e. Reel-lay, S-lay without DP,S-lay with DP, J-lay and Ultra-deep (Figure 18). Previously, durationsfor a single type of lay vessel were reported under the column forPipelay spread. Durations for vessels are automatically populatedbased on lay vessel selections within link properties and subseaumbilicals forms.



Figure 18 - Installation durations for each subsea pipelay vessel

The installation section of the subsea cost sheet now includes all typesof vessels required to install templates, manifolds, flowlines and risersand to make all connections between components. The cost estimatedisplays a summary of durations for a Reel-lay, S-lay without DP, S-laywith DP, J-lay and Ultra-deep pipelay vessels (Figure 19). Previously thecost and quantity for only a single lay vessel was displayed for the typeof pipelay vessel selected in the subsea flowlines form.



Figure 19 - Breakdown of pipelay vessels in subsea installationcost sheet

Move pipelines in field development schematicIn the field development schematic, it is now possible to reroute links.This removes the requirement to delete a link and its contents, add anew link and redefine the contents with any value locking reapplied. Inorder to make this change right click on the link, select the link end’sconnectivity you wish to change from the menu (Figure 20), then clickon the item the link is to be connected to, e.g. Topsides 1 if Change linkend (Topsides 1) was selected. If valid, the link will then be redrawn tothe selected item with all the pipelines and power cables in it, with theirlocked values, and the project costing updated accordingly.



Figure 20 - Context menu for the link

Offshore installation vessel definitionThe installation section of the cost sheets for the semi-submersible,tanker, GBS, and cylindrical hull components have been updated toinclude the individual vessel types used in the installation activities, asshown in Figure 21.

Figure 21 - Installation section for semi-submersible cost sheet

The unit rates for each vessel type are based on a single vessel and areconsidered typical rates for the activities undertaken. The quantities arethe number of vessel-days required and therefore, implicitly include thenumber of vessels being used during the installation activities. Thenumber of vessels assumed for each activity is specified in the Help File



for each component. The durations of the mobilization anddemobilization activity by vessel type are editable in the regionaltechnical databases and include the number of vessels in use.

In previous releases, the installation section for these componentscontained an assumed composite of vessels for each type of activitythat was not visible within the application. This enhancementincorporates these assumptions, with additional small changesregarding the type and number of vessels performing certain activities,such as transport to installation site and anchoring and mooring. Thesechanges will result in modified cost estimates for installation activitieswithin these components.

Due to the significant change in format and meaning of the values, anyuser-specified changes will be lost when an old project is opened in thelatest release.

Similar installation enhancements are expected to be implemented inother components in future releases.

Firefighting utilities for topside facilitiesThe firefighting utilities calculation and unit rate have been updated toallow for a more up to date estimate of the topsides firefighting utilitiescost. This changes both the weight and the unit rate of the firefightingutilities. The changes made include a revision of the assumptionsaround the firefighting systems for topsides.

The new firefighting equipment includes an increase in the firefightingequipment throughout the facility such as fire hydrants, hose cabinets,and fireman outfits. There has been a corresponding increase in theauxiliary firefighting components used to support these systemsincluding increasing capacity assumptions of firewater pumps to reflectmodern dispersion rate requirements. As part of the review, thefirewater ring main and supporting small bore pipework includingsprinkler systems have been moved from the bulk factors intofirefighting utilities. The associated bulks have also been adjusted toreflect the firefighting changes.

The unit rate for the firefighting utility has also been adjusted toaccount for the change in assumptions and addition of new equipmentto the firefighting systems. These changes will result in some increasesin firefighting costs when run in the latest release although the extent ofthe increase is dependent upon the specific project.



Lifeboat utilities for topside facilitiesThe lifeboat utilities have been updated to give a more inclusiveestimation of the topside lifeboat utilities cost. This changes both theweight and the unit rate of the lifeboat utilities.

The lifeboats and lifeboat davits have been upgraded to account for alifeboat with a capacity to carry 47 people. Lifeboat capacity has beenincreased to accommodate the total number of persons on board with a20% excess capacity based on the required number of beds.

Additional lifesaving capacity has been added in the form of life rafts.This provides a minimum number of life rafts per facility based on therequired number of beds with a minimum allowance being introducedon facilities without quarters. The changes will mean better alignmentwith International Maritime Organization (IMO) InternationalConvention for the Safety of Life at Sea (SOLAS) and Life SavingAppliances Regulations.

To support these enhancements, there has been a correspondingincrease in the lifeboat support systems including electricalinstrumentation, primary, and secondary steel. These changes willresult in increases in topside lifeboat utility weights and costs when runin the latest release.



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

l The pressure in the oil processing separators has been adjusted.The exit pressure from oil processing depends upon the oilstabilization requirement, the number of stages, and the fluid typethat is being processed. In a three stage separation system, thesecond stage now uses a weighted average pressure between thefirst and third stages. The main difference that will be seen fromthe previous release is in the operating pressure of the secondstage separator and the knock on effects of this change.

l The mercury removal model has been enhanced to limit theadsorption columns to a maximum size. For relatively high inletmercury content (usually higher than 500-700 μg/Nm3, dependingon the operating conditions), each train may have more than onevessel in series. The mercury removal life cycle duration, with avalue of 5 years in the technical database, can be changed in orderto control the total number of vessels.

l The marine transport section included in the primary input form ofthe Tanker component has been moved to a new Installation tab.This is located between the Primary and the Mooring system tab.The format of this section and the algorithms used to generate theduration and cost of the transport from fabrication yard haveremained the same. This change was in support of theimplementation of the conversion tanker selection based on ageand condition.

l A new drilling summary report is available with the onshore drillingcomponent, when printing or exporting the component's costsheet report. The new summary report appears after the costsheet and includes the number of wells by type, drilling andcompletion activity durations by rig class, separate drilling andcompletion costs for all cost elements of the drilling component,drilling and completion metrics, general rig costs, total costs andmetrics.



l The offshore drilling summary report has been expanded toinclude separate drilling and completion costs for the costelements of the drilling component. The expansion of the reportalso includes drilling and completion metrics, general rig costs,total costs and metrics.

l The calculation of power cable riser installation duration has beenupdated. This change results in a significant decrease in the cablelay spread quantity, thereby lowering the installation cost. Theseare reported in the Installation section of cost sheet for powercable.

l The stream input form in Oil processing shown in both Topsidesand Production facilities has been updated and now operates in amanner more consistent other forms in QUE$TOR. This means theform now has an OK button to accept the user made changes anda Cancel button to exit the form without accepting changes. Thestream values update automatically as changes are made.

Cost data sources and accuracyThe QUE$TOR cost databases available within the program areregional, and together, in total, provide worldwide coverage. Eachregional cost database contains a full set of cost data for that region,from equipment costs to labour rates and operating assumptions.When a new procurement strategy is created, the most appropriateregional database for each cost centre can be selected from theavailable list.

The costs within each cost database are updated on a six-month basis,with the Spring release representing costs from the first quarter (Q1)and the Autumn release representing costs from the third quarter (Q3)of the year.

Cost data sourcesA dedicated team of costs analysts research cost data throughout theyear from a large variety of sources.

l A main source of information is regular interaction with vendors,suppliers, manufacturers and contractors. A solid network ofequipment manufacturers and service providers has been



established to constantly gather Free on Board (FOB) quotationsand market trends.

l New information and data are provided quarterly by the IHSMarkit Global Insight, Petrodata and CERA teams. These teamsare responsible for quarterly reports and indices of the main oiland gas market sectors – such as Offshore Rigs, OffshoreInstallation Vessels, Land Rigs, Engineering and ProjectManagement, Steel, Yards and Fabrication, Equipment, BulkMaterials, and Labour.

l Information exchange with current users is also crucial to thecompleteness and accuracy of QUE$TOR cost data. The number ofcost estimators and field development engineers who are willing toshare cost data and industry insights with the QUE$TOR team isincreasing every year. Sharing information ultimately meansmaking QUE$TOR a better tool for project estimates.

l Publications and technical literature are used as additional datasources. These are sometimes oil and gas specific and sometimesmore generic and suitable weighting is applied to the most reliableand appropriate sources.

l Government statistics (e.g. US Bureau of Labor Statistics, UKStatistics Authority, Eurostat, Australian Bureau of Statistics,Russian Federal State Statistics Service, etc.).

l Cost indices, e.g. the IHS Markit CERA Upstream Capital CostsService Index (UCCI), the US Department of Labor Producer PriceIndex and Consumer Price Index, the IHS Markit Global InsightPrice Index and the ENR’s Construction Cost Index. These aremore aggregate and so are not used directly but can helpgenerally inform the direction other industry analysts see themarket moving.

l In-house cost models for more QUE$TOR specific items, e.g.secondary steel and tanker turrets. Models are also used to trackthe cost movements of the market demand for other items e.g.pressure vessels and heat exchangers.

QUE$TOR cost databases currently have almost 100,000 data points,the amount of which is destined to increase as new technologies arecontinuously added to the software. Given the significant number ofinputs to be updated every release, usually budgetary quotations on



specific equipment and services are gathered periodically and asneeded, but then cost data are escalated or deflated on a six-monthbasis based on market analysis.

AccuracyQUE$TOR provides an estimate based on the costs within the marketstoday. No allowance for inflation or deflation of costs is made over theproject life.

All costs within QUE$TOR are specific to a particular point in time(depending on the version). No tax, inflation or discounting is applied tothe estimate to costs incurred over the project life.

QUE$TOR is designed for use early in the project cycle. Therefore, theaccuracy level that can be attained by using the program is typicallywithin the range of +/- 25% to 40%. This corresponds to AACEInternational Class 5/4.



Cost database updateSubstantial effort has gone into reviewing all cost databases to bringthem in line with first quarter 2020 costs.

Note: On saving the project, the QUE$TOR 2020 Q1 cost estimate willoverwrite earlier costs except where those costs were ‘locked’ on thecost sheet or in the database. Therefore if you wish to retain a copy ofyour original estimate you should first create a duplicate of the projectbefore opening and saving it in QUE$TOR 2020 Q1.

The following sections, outlining the market trends seen over the pastsix months, are the result of IHS Markit research and insight. QUE$TORcost databases aim to provide accurate and reliable data that isrepresentative of current market conditions.

The global oil and gas market had showed signs of recovery throughoutthe second half of 2019 based on an increasing oil price. Overallmaterial, labour, equipment costs, and vessel rates were increasing.Concerns at the start of 2020 over slow growth in developed countriescoincided with the outbreak of the coronavirus pandemic (COVID-19)and an oil price collapse.

As the first quarter of 2020 progressed, the growing effects of COVID-19 and the oil price collapse caused cost volatility to increase in severalmarkets towards the end of the quarter. The QUE$TOR teamintroduced additional checks and balances including the use ofadditional cost sources to verify costs in response. However, some costscontinue to experience significant levels of volatility due to geopoliticalevents such as the recently announced deal between Russia, SaudiArabia, and OPEC, to counteract the oil price collapse.

QUE$TOR takes a considered view based on oil and gas developmentcycles. The costs within the databases typically do not account for shortterm volatility. If these costs are sustained over a longer period, thenthey are captured in the following release. This is done to avoid anytransient cost variation and to provide more accurate costs to be usedfor cost estimation purposes. Therefore, users may see somedifferences in trends, especially for commodity prices as compared withthe latest available data. Further detail relating to the impacts on thecost database are provided in the Benchmarking Report, available viathe download site.




GeneralAfter a relatively good start to the first quarter of 2020, with theupstream industry recovering, two recent events have had anextremely disruptive impact on global markets.

l An oil price collapse and the failure of OPEC to agree to acoordinated response with other global producers, notably Russia,resulting in oversupply. This, coupled with a dramatic downturn indemand, has driven the price of crude oil to near 20-year lows,threatening the future viability of high cost base segmentsincluding offshore and shale.

l The global coronavirus pandemic (COVID-19) has resulted in thetemporary closure of large swathes of industrial production, thefurloughing of employees and businesses, and the economichibernation of entire countries reducing GDP and energy demand.

The weak oil market combined with the effects of the COVID-19outbreak has produced an oil price crash unlike those seen before. Thespeed and scale of the oil price collapse combined with the measures tocombat COVID-19 has inflicted significant financial damage across theindustry. Businesses around the world are struggling to quantify andrespond to the effects of COVID-19 as well as the impact of theiremployees and families. The hibernation or complete closure ofbusinesses, along with the layoffs and social distancing, has presentedsignificant challenges to business continuity. There is little doubt thatthe COVID-19 pandemic is a world changing event that will impact theway business is conducted.

An agreement reached in early April between OPEC and other oilproducing countries resulted in one of the largest agreed productioncuts, but despite this intervention prices continued to slide. Asconsumption continues to decrease due to the measures implementedto fight COVID-19 there is little that can be done to limit the oversupply.This is likely to lead to company bankruptcies, large scale layoffs, andthe associated economic and social consequences. The upstreamindustry is facing unprecedented challenges with projects and non-essential work being cancelled or delayed indefinitely. With investorconfidence low and cash conservation increasing, economic decisionmaking continues to be adversely affected. This uncertain environmentis likely to continue despite the significant efforts made by governmentsglobally.



The measures implemented to combat COVID-19 are expected tocontinue for some time although the situation is fluid and the timelineand final effect on the world economy are difficult to predict. Existingmodels are expected to be updated as data becomes available, manyof which currently predict significant consequences for individuals,companies, and countries. Some models anticipate significant socialand economic consequences with a global depression similar to that ofthe 1930s. Although these models are very crude estimates and somerelatively small input modification can produce much more positiveoutcomes. To this end many scientists are working on tests, vaccines,and treatments to help stem the stream of the virus and efforts arebeing made to bolster economies through stimulus packages and theintervention of global financial institutions.

Oil price trendCrude oil prices had been increasing throughout the fourth quarter of2019 as shown in Figure 22.



Figure 22 - WTI and Brent crude oil prices

Coordinated attacks on Saudi Aramco’s oil fields and processing plant inSeptember of 2019 resulted in a near 20% increase in price. This pricespike was short lived as within 2 weeks of the attacks prices were at pre-attack levels. Once the oil markets had digested the news and observedSaudi Aramco’s efforts to repair the damage oil prices continued anupward trajectory throughout the fourth quarter of 2019.

Tensions between Iran and the US, including the bombing of US militaryfacilities in Iraq and the subsequent social unrest, had minimal effect.This was in part as a result of oversupply and the US’s reducing relianceon Middle East oil imports due to expanding domestic production. Areduction in OPEC production quotas had provided additional pricesupport throughout the fourth quarter of 2019.

At the end of 2019 oil prices stalled, regional tensions were overtakenby concerns of weaker growth in industrial nations including China andthe effects of the US’s trade tariffs on imported Chinese goods. Thecumulative effect of the US’s trade tariffs on Chinese goods started toremove oil price support. Weak growth in China coincided with the



outbreak of the coronavirus pandemic (COVID-19) throughout the firstquarter of 2020. As the pandemic spread the effects accumulated,resulting in significant demand reduction.

The COVID-19 outbreak also coincided with an oil price war betweenSaudi Arabia and Russia. This began when Russia refused to backproduction cuts agreed within OPEC. Following the disagreement, whichcoincided with strict lockdown measures, oil prices sank to levels notseen since 2002 as demand for crude collapsed. At one stage, Brentcrude fell to 19.86 USD/bbl, its lowest level since 2002 with US WestTexas Intermediate (WTI) falling below 14 USD/bbl a barrel and closeto a 20-year low.

Following these lows, oil price volatility increased due to confusion as towhether a deal could be reached between Russia, Saudi Arabia andother OPEC members. An initial deal to cut production in response tothe drop in demand collapsed. The impact on the American energysector prompted attempts by the US administration to broker anagreement which coincided with measures by countries across theworld to slow the spread of COVID-19.

After several attempts, a deal was reached that is expected to cut 10%of future global oil supply in the short to medium term. Additionalsupply cuts are expected to come from other oil producing countriesincluding Norway, the US, and Brazil. However, doubts linger as towhether some countries will fully implement the reductions.

There is a high likelihood that oil price volatility will continue in the shortterm until a level of stability is reached. Until economic data emergesand the effects of COVID-19 on global economies is better understood,demand is expected to remain subdued with oil prices remaining wellbelow pre COVID-19 levels in the short term. Longer term demand isexpected to increase to post COVID-19 levels. However, as crudeinventories continue to build in the short term, pre COVID-19 oil pricesare not expected to return for a significant period.

Currency marketThe recent oil price drop and the COVID-19 pandemic have resulted inexceptional volatility of most currency exchange rates since the middleof March 2020.

Through most of 2019, uncertainty over the trade dispute between theUS and China and the threat of a no- deal Brexit in Europe hadnegatively affected the currency markets. The increase in uncertainty



over the future of the global economy had benefitted the US dollar(USD), seen by investors as a safe-haven currency. Most central bankshad stepped in to counteract the slowing growth and risks to theeconomy. As 2019 came to an end, some market optimism startedmaking a comeback thanks to a break in the trade conflict and atemporary mitigation in no- deal Brexit fears. The market wascautiously optimistic that trade negotiations between the US and Chinawould have continued and possibly resulted in additional commitmentsfrom both parties to put the relationship between the two superpowerson a better track.

In Europe, the UK election had provided some political clarity for theBritish pound (GBP) by resulting in a substantial Conservative majorityfor Prime Minister Johnson. While the Brexit path is now clearer with theUK set to exit the existing EU trade deal at the end of 2020, the threat ofa no-deal departure remains real and may push the GBP to a lowervalue.

Progress on Brexit should have also proved somewhat supportive forthe euro (EUR) but investors have struggled to support the currency asgrowth trends continued to be soft. At the beginning of 2020, theweakening in the Eurozone manufacturing sector appeared to havestabilized and policy makers seemed to feel that the worst was over.Then in March the collapse of the oil price and the COVID-19 outbreakchanged everything.

In Norway, much like crude oil prices, the trajectory of the Norwegiankroner (NOK) was in large part determined by macro fundamentalforces like the trade war between the US and China. The NOK, like itsSwedish counterpart, tends to trend badly during times of high marketuncertainty. But its decline at the end of 2019 was unusual in that itoccurred as the Swedish currency strengthened. Despite this, theNorwegian economy looked to be sufficiently robust and expectationswere for a recovery in 2020. The tumultuous and unstable first quarterof the year instead caused the NOK to depreciate about 13% againstthe USD compared to the levels of Q3 2019, and to be the most volatileof the three European currencies (i.e. EUR, GBP and NOK) used inQUE$TOR.

For the Canadian dollar (CAD), the new United States-Mexico-CanadaAgreement (USMCA) was welcome but factored into the currency rates,while relief from trade tensions between China and the US was seen tobe positive. Canadian growth had shown signs of stalling sharply in the



last quarter of 2019, increasing calls for additional monetary stimulus.Then, in March 2020, the COVID-19 outbreak unleashed an oil demandshock, forcing Canada’s economy into recession.

Despite timely and aggressive COVID-19 virus mitigation measurestaken by central banks and fiscal authorities, recession appearsunavoidable in several countries, especially Spain and Italy. The globaleconomy is expected to fall in percentage terms probably at levels notseen since the Great Depression of the 1930s. While the virus will takedifferent paths in different countries, the global peak of the virus isexpected between May and August 2020. This suggests that economiesmay begin to re-open in the third quarter of this year. A rebound ingrowth is expected in the second half of 2020 and into 2021, but levelsof economic activity will remain well below those observed in late 2019until probably early 2022. In the absence of an effective treatment andvaccine, populations are at risk of a reactivation of the virus even if thepeak in infection rate may have passed. The current situation is rapidlyevolving and makes it very difficult to formulate any forecasts as futureeconomic risks include a more severe pandemic, Middle East conflicts,trade wars, rising debt levels, and political uncertainty in many parts ofthe world.

Figure 23 shows the trends of the local currencies used in QUE$TORwith the exceptional volatility that occurred in the middle of March 2020.



Figure 23 - Exchange rate trends of the local currencies used inQUE$TOR

Table 3 shows the exchange rates of the major local currencies,expressed equivalent to 1 USD, and the percentage change betweenQ1 2020 and Q3 2019. In the past release the exchange rates wereaveraged over the last two weeks before the end of each quarter. Thistime, they have been averaged over the full month of March to mitigatethe high volatility caused by the combined effect of the oil price crashand the COVID-19 outbreak.



Region Country Localcurrency Q3 2019 Q1 2020 Percentage

changeNorth America Canada CAD 1.326 1.391 4.90%

South and CentralAmerica

Argentina ARS 56.865 63.138 11.03%Brazil BRL 4.144 4.870 17.52%Chile CLP 721 840 16.5%

Colombia COP 3,407 3,878 13.82%Mexico MXN 19.518 22.257 14.03%Peru PEN 3.352 3.460 3.22%

West EuropeEurozone EUR 0.910 0.904 -0.66%Norway NOK 9.029 10.235 13.36%UK GBP 0.806 0.809 0.37%

East Europe

Czech Republic CZK 23.519 23.985 1.98%Kazakhstan KZT 386 415 7.51%Poland PLN 3.973 4.004 0.78%Russia RUB 64.207 74.305 15.73%Turkey TRY 5.691 6.334 11.30%Ukraine UAH 24.113 26.152 8.46%

Asia

Australia AUD 1.474 1.609 9.16%China CNY 7.109 7.023 -1.21%India INR 70.8 74.4 5.08%

Indonesia IDR 14,214 15,197 7.60%Japan JPY 108 108 0.00%

South Korea KRW 1,195 1,217 1.84%Malaysia MYR 4.183 4.295 2.68%Singapore SGD 1.378 1.416 2.76%Taiwan TWD 31.000 30.130 -2.81%Thailand THB 30.480 32.030 5.09%Vietnam VND 23,152 23,197 0.31%

Africa

Algeria DZD 119.860 120.970 0.88%Nigeria NGN 359.4 366.5 1.98%Angola AOA 365.8 502.6 37.4%

South Africa ZAR 14.920 16.640 11.53%

Middle EastSaudi Arabia SAR 3.748 3.753 0.13%

UAE AED 3.673 3.673 0.00%

Table 3 - Exchange rate fluctuations of major local currenciessince Q3 2019

SteelAfter briefly stabilizing at the end of 2019 and into the early weeks of2020, steel markets experienced significant downward pressure asCOVID-19 forced economic disruption worldwide. The far- reachingglobal effects of the virus remain uncertain, but the impact on steelprices and production has been rapid and notable in many regions,particularly Asian and European countries. Weakened demand was



exacerbated by economic uncertainty in principal regions, as well as thesignificant reduction in oil prices due to dissolution of the alliancebetween OPEC and Russia over disputes regarding production cuts.Worldwide, costs for stainless steel showed the most notable decline ofall steel products with a decrease of 7.5%, owing primarily to excesssupply, minimal demand, and low raw materials prices. Oilfield steelcosts are expected to continue decreasing globally as unstable oil pricesand low drilling activity affect demand and as COVID-19 disrupts supply.

Steel prices in the US have weakened in the last 18 months as themarket rebalanced following the steep price escalation after theimplementation of the Section 232 tariffs. While prices were expectedto begin recovering after the first half of 2020, beginning in March,domestic mill production and employment experienced sharp declinesas states began implementing strict “social distancing” measures andissuing stay-at-home orders for nonessential workers due to the spreadof COVID-19. With excessive inventory due to widespread productionincreases in the second half of 2019, consumption fell significantly morethan production in the first quarter of 2020. Continued bans on traveland public gatherings will further inhibit growth, and prices areanticipated to experience additional marked decreases moving into thesecond and third quarters before stabilizing at the end of the year.

In Europe, prices began reacting to the economic impact of COVID-19late in the first quarter. Nearly all steel production in Italy ceased, withactivity not planned to resume until the second quarter of 2020. Asmore cost-effective structural steel imports from Turkey and Indiaexert pressure on the local market, many European suppliers havecontinued holding inventory to avoid selling products at a loss.However, with the exception of Italian mills, facilities in Europe did notappreciably curb output in the first quarter, contributing to furthermarket surplus. Despite initially maintaining higher prices in US dollarterms than other regions, steel prices in most European countriesbegan to fall in March of 2020 and for some products, are anticipated todrop below Chinese levels by the end of the year. However, extremeexchange rate fluctuations in Norway have caused unexpectedincreases in local currency for some steel products, such as carbon steelline pipe and structural steel.

In Asia, as the spread of COVID-19 began to dramatically accelerateand governments implemented mandatory stay-at-home measures,demand for steel products lowered considerably. Accordingly, pricesbegan falling early in the first quarter of 2020, with mainland Chinaimpacted most immediately. Prompt attempts to curb the virus in Japanwere successful; however, Japanese mills still anticipate economic



repercussions due to globally disrupted supply chains. Despite universaloversupply and softening demand for all steel products, Chinesefacilities remained active through the end of 2019, and many suppliersneglected to cut production in accordance with rapidly decliningconsumption in the first quarter of 2020. As a result, Chinese facilitieshave huge amounts of excess inventory, further inhibiting recoveryefforts. Due to increasing domestic access to raw materials and growthin the construction sector, prices in India remained stable through thefirst quarter; however, at the end of March, India implemented some ofthe strictest isolation orders worldwide, which are anticipated to notablyimpact the economy, particularly in construction and manufacturing.With continuing economic uncertainty and falling exports, steel pricesare expected to decrease further throughout the year before beginninga slow and weak recovery.

As the spread of the virus globally halts construction projects, structuralsteel and rebar costs fell by approximately 2% and 1%, respectively.The US noted particularly large decreases in structural steel dueprimarily to the rapidly falling price of scrap. Other regions were lessaffected as steel plate production in Asia and Europe utilizes little scrap;although, despite the declining supply of iron ore through the firstquarter of 2020, the temporary shutdown of Chinese manufacturingfacilities put additional downward pressure on plate prices in Asia.

Continuing the downward pricing trend which began in the fourthquarter of 2018, carbon steel line pipe experienced a global decrease of1.8% in US dollar terms, as production continued to outpace demandand tubular mills focused production on line pipe over OCTG due tolimited well completions. However, some regions, such as India, notedlittle- to-no variation as construction activity and labour costs rose,alongside domestic raw materials becoming more readily available.After surging in the third quarter of 2019, nickel marked steep declinesin the first quarter of 2020, and pipe fabricated from, or clad with, highnickel content alloys have shown notable decreases in most regions,with Europe observing the largest changes. Line pipe prices areexpected to further decrease moving through the third quarter of 2020as input costs diminish and demand stalls due to low oil prices andeconomic instability.

OCTG experienced notable price declines in the fourth quarter of 2019and into the first quarter of 2020, with North America and Asia markingthe largest reductions. The market remains considerably oversuppliedas North American drilling activity continues its sluggish pace andsuppliers continued overproducing through the end of 2019. With the



extreme drop in oil prices in March of 2020, onshore drilling activity isnot expected to improve through the remainder of the year, anddemand for OCTG is anticipated to further wane.

Strict but necessary “social distancing” and isolation measures tocontain the spread of COVID-19 have contributed to significant supplychain disruptions and steeply declining oil prices, resulting in lowdemand for steel products worldwide. Growth in the energy andconstruction sectors is anticipated to further stagnate through theremainder of 2020. As suppliers struggle to adequately matchproduction to demand and as inventory continues to accumulate, pricesare likely to experience sizeable fluctuations.

EquipmentOverall equipment costs have increased for twelve consecutivequarters, but cost growth has reduced since the start of 2020 due to therecent COVID-19 and oil price collapse. The main cost drivers were anincrease in skilled and semi-skilled labour costs and increases to fixedmanufacturing cost bases.

The implementation of advanced technologies has also increasedmanufacturing process efficiencies which has benefited manufacturers.The introduction of new technologies such as increased digitalizationwithin factories and the use of advanced tools (e.g. 3D printing) hasalso contributed to reduced cost momentum. This has been assisted bygreater collaboration between manufacturers and the supply chain tostreamline processes and reduce supply chain costs. However,operating profitability and margins remain low for manufacturers as thecompetition in the equipment market is high.

In terms of specific equipment segments, some segments haveoutperformed others. Until recent events this trend looked set tocontinue where it had left off at the end of 2019. Heat exchanger andgas turbine costs were increasing, albeit at a reduced rate withcompressor, pump, and pressure vessel costs experiencing a modestdecline or remaining static.

The COVID-19 had initially forced manufacturers in Asia Pacific to scaleback manufacturing operations. This was closely followed by Europeanand then North American manufacturers. Large swathes ofmanufacturing capacity are expected to remain in a hibernated state asa response with this expected to continue throughout 2020.



Until the COVID-19 lifts it is going to be extremely difficult to determinethe future effects on the equipment market. The longer the pandemiclasts the more significant the effects will be on manufacturers anddemand moving forward into 2020 and beyond.

Globally fourth quarter 2019, heat exchanger prices were relatively flatwith North America and Asia Pacific leading overall heat exchangersspend globally. In North America, increased spending on oil sands andLNG facilities drove spending, whilst in Asia Pacific the refinery segmentwas identified as the key demand driver. High demand for refinedproducts in Asia Pacific had been a key driver for increased investmentby some Middle East National Oil Companies to increase refinerycapacity in Asia Pacific which resulted in increased heat exchangerdemand.

Europe experienced the lowest regional spending for heat exchangers,the main driver being the refinery segment. Lower investments in therefinery segment within Europe had been identified as a key driver forreduced spending and this trend is expected to continue in the nearterm notwithstanding the effects of the COVID-19 and reduced oil price.Until recent events, globally manufacturers had reported increases inbacklogs over several quarters as a result of higher overall spending.Increased activity levels coupled with increasing demand had providedmanufacturers with a stronger negotiation base.

Gas turbine costs remained static in the fourth quarter 2019 with onlythe growth in demand for heavy-duty gas turbines for LNG processingplants being an area of note. Asia Pacific experienced the largestregional expansion with increased levels of gas turbine spending. InVietnam for example, a consortium who are proposing to buildVietnam’s first LNG regasification terminal is of interest as this couldprovide medium term demand. European and North America demandhas declined due to low onshore and offshore activity levels.

There is also a high degree of uncertainty surrounding several plannedfloating production projects in the Gulf of Mexico which have yet to besanctioned. The investment decisions regarding these facilities isexpected to be affected initially by the COVID-19 and in the longer termas a result of the reduced oil price. Longer term and notwithstandingcurrent events, it is expected that demand from LNG processing willincrease. Underpinning this growth is an increasing shift towards moreenvironmentally focused energy sources which is also translating intoincreased spending in this area.



Globally, gas compressor costs experienced a modest reduction in thefourth quarter of 2019. Contract awards had until recently beendominated by LNG processing. Megawatt capacity based on knowncompressor contract awards increased in 2019 which was as a result ofincreased demand for large- capacity compression trains used inrefrigeration processes in LNG processing. Compressor manufacturercapacity has increased resulting in an improved book- to- bill ratioamong key gas compressor manufacturers. This was supported by anincrease in demand for gas compressors. On a regional basis, demandfor gas compressors in Asia Pacific had remained strong and wasexpected to grow. Demand in Europe and North America was expectedto reduce due to a reduction in onshore gas pipeline demand.

Tank and pressure vessel costs declined in the fourth quarter 2019mainly as a result of low global demand. Large price increases in thefirst half of 2019 coupled with an increasing inventory resulted in thefourth quarter cost decline. North America and Europe are the mainconsumption regions that are focusing to expand capabilities ofpressure vessels due to the demand of downstream applications.However, it is not expected to see any upward trend in the market asbuyers will wait before making a purchase decision and anticipate somediscounts from suppliers. The weaker global demand outlook indicatesthat it is unlikely the prices for tanks and pressure vessels to increase inthe near term.

BulksBulk materials consist of a variety of products including concrete andcement, wire and cables, electrical components, instrumentation,valves, paint, asphalt, and insulation. The bulk materials marketdepends on several factors. Industrial demand is mostly influenced byconstruction in the residential and commercial sectors, which in turn isdependent upon economic conditions. The demand for bulk materialstherefore tends to vary from region to region and is subject to localeconomic development.

Weak economic data emerged from China in early 2020 which coincidedwith the COVID-19 outbreak and oil price collapse. This year wasexpected to see a reduction in most bulk prices. The COVID- 19outbreak is expected to amplify the price reduction of most bulks in theshort term.



As Q1 2020 progressed, the measures to limit the spread of COVID-19led to a significant number of manufacturing facility shutdowns. Theseshutdowns started to resonate through supply chains towards the endof Q1 2020. Recently announced data suggests new orders areplummeting with activity levels falling at their fastest rate since thefinancial crisis of 2008.

The impact of COVID-19 on bulk material production was expected tobe less severe compared to other sectors as most governmentsdeemed them essential, meaning business activity could continue. Thiswas expected to provide some protection from the worst effects of thepandemic. The cumulative effects of the containment restrictions haveresulted in equipment and material availability issues, and significantsupply chain disruption which has limited any protection provided underthis status.

Supply chain reviews are expected to increase as the pandemiccontinues as companies look to quantify the effects and identitycapacity constraints in first, second and third-tier suppliers. A secondaryeffect of the pandemic will be for cost reduction programs to be initiatedas companies try to identify cost savings through supply chainefficiencies.

However, there is an increased risk of shortages as suppliers useexisting inventories to meet current demand which may not berestocked due to supply chain and availability issues in the short term.Whilst the demand for specific bulks is expected to collapse in the shortterm resulting in lower prices, longer term availability could become anissue if manufacturers go out of business.

There is a risk that weak demand could cause global cementmanufacturing facilities to become idle. If these facilities shut,significant production restart costs are expected which could result insome facilities closing permanently. This could also affect globalproduction levels resulting in some temporary shortages that couldprovide the basis for increased costs longer term.

Further down the supply chain, the risk of shortages increases for somebulk items including insulation, control valves, switchgear,transformers, wires, and cables. The implementation of US tariffs onChinese goods in 2019 resulted in large swathes of the US supply chainreducing its exposure to Chinese imports of electrical, iron, steel, glass,insulation, and other bulks. These measures were introduced tomitigate the effects of these and future planned tariffs on US basedcompanies and their subsidiaries in other regions that source bulkproducts from the US.



Manufacturers’ efforts to find locally produced items and integratethese into supply chains takes time. Short term this strategy is expectedto have limited effect. Given time, a critical mass could be reached thatcould reduce the reliance on globally outsourced bulks in the longerterm. Outside the US, there are growing efforts by some countries toreduce the number of supply chain stages and the damage to localmanufacturing as a result of disruptions. These efforts also supportincreased local content manufacturing in Africa, Asia Pacific and SouthAmerica.

Supply chain issues are expected to increase in the short term asmanufacturing activity struggles to restart with buyers likely toexperience delivery delays, cancelled orders, and contract terminationsthrough force majeure notices because of bulk manufacturingindustries being shut. Some manufacturers could face additional costpressures due to the increasing appreciation of the US dollar againstmany local currencies which could result in an increase in import costs inthe short term.

Offshore rigsA definite upturn was detected in the global offshore rig market at theend of 2019. Demand and utilization had stopped falling and started tostabilize, with the jackup sector showing the greatest increase incontracted marketed utilization over the past few years. Tender activitywas also healthy with several long-term contracts awarded in bothfloater and jackup sectors as result of a rise in demand driven by majorspending and production commitments of Middle East national oilcompanies. However, due to the volatility of the oil price, most tendersonly covered the minimum requirement and there was still nosignificant rebound in day rates despite the increased utilization rate.

In March 2020, the oil price collapsed to levels which were not seensince the 2008 global financial crisis. In addition, the COVID- 19pandemic disease has caused companies to suffer logistical andoperational upsets with rig crews to be changed, onshore stafftransitioned to work from home, and an increase in sickness cases.These two simultaneous events have had a significant impact on boththe demand and supply sides of the offshore rig market. At thismoment, many operators have outlined an action plan in response tothe oil price crash. Most operators have announced they will reducecapital expenditure immediately. The incremental gains made by



operators’ spending plans since 2016 are set to be reversed at thispoint, and the fragile recovery of the rig market is now lookingextremely uncertain.

In Asia-Pacific, early 2020 has been quiet for awards with only one newfloater requirement reaching the market at the end of 2019. InSoutheast Asia, several deepwater semi-submersibles are available forcharter with only a small number currently working in the region. Somefloaters will leave in the coming months for contracts elsewhere in theAsia-Pacific region. In China, offshore activity remains active even ifmany shipyards have closed and reduced operations due to thelockdown. The jackup market remains active with a lot of awards issuedand multiple new requirements. Several newbuilds from Asianshipyards were awarded their first contract out of the region, in theMiddle East and Mexico. The recent outbreak of COVID-19 has causedthe handover of bareboat units to be delayed until second quarter 2020due to travel restrictions and limited manpower issues.

In the Indian Ocean, significant movement activity happened in thefloater market with few awards issued but no new rig requirement.Some floaters are getting ready to mobilize into Myanmar to continuethe drilling campaigns after first quarter 2020. Operators have startedto tender against floaters that are rolling off contract this year fordrilling campaigns in late 2020. A similar trend is seen for the jackupmarket, where there have not been many changes, with no new rigrequirement, nor chartering activity in recent months. However, theutilization rate remains high for most of the jackups older than 30years. A number of rigs are rolling off contracts in second quarter 2020and expected to return to their region of origin upon completion.

In West Africa, the floater market has been slowing since the beginningof 2020 with no issued awards and only a few changes to the status quo.While most of the drillships are warm stacked or under contract, threeremain cold stacked in yards. Besides, the semi-submersible market inWest Africa depleted further following the recent departure of a semi-submersible rig out of the region. The remaining rigs are still active infirst quarter 2020 with only one cold stacked. In the jackup sector,there has been a slight decrease in the number of rigs with no awardsannounced and several new requirements reaching the market in early2020. Currently, most of the jackups are operating and the number ofcold stacked jackups has not varied since third quarter 2019.

In the Middle East region, the jackup market remains active and seemsto have the most openings for newbuilds. Marketed utilization in thisregion has continued to increase since the last quarter with multiple



new rig requirements and awards issued. Early 2020 saw the highestmarketed utilization rate and contracted demand since late 2015. Mostdrilling activity is driven by Saudi Arabia, the United Arab Emirates, andQatar. Several rigs have mobilized into the region to commence theircontract with national oil companies, and it is expected that more rigswill arrive within the next months. However, two rigs have left theregion. Day rates have not changed much since the last quarter,although the trend is going up. After the oil price dropped, there werestill no major announcements, and all projects and contracts were stillon track.

In Latin America, the floater market has improved since last year, withcompanies keeping the fleet active in Brazil and Guyana. Explorationprogrammes have added a steady flow of shortterm work in theregion, especially in Mexico and northern South America. The jackupmarket remains busy with multiple new rig requirements and awards,except in South America. Half of the jackups in the region are undercontract, mostly in Mexico, where they are either moving to location oron standby waiting to begin new contracts. Market utilization in SouthAmerica increased significantly until fourth quarter 2019, but thendropped in early 2020. In Central America, market utilization steadilyincreased even though the marketed supply also grew in early 2020.

In North America, the floater market has been trending downwardssince the peak point reached last year. Only a small number of awardswere issued and a few new rig requirements reached the market. Infirst quarter 2020, market utilization in the US and Canada decreasedcompared to last quarter of 2019. This is because a semi-submersiblerolled off contract in December and was then stacked. Severe weatherconditions in December 2019 and January 2020 have caused offshoreactivities to be delayed. Jackup market demand remains flat, with nowork expected to enter the market this year. As the number of rigs oncontract at this moment is less than half of the total fleet, it is difficultfor rig contractors to maintain day rates. With the low oil price and onlya few jackups operating in the region, it is not expected to see any largeupward trend in the near term.

The UK standard semi-submersible market is set to tighten as mostsemi- submersibles are operating under contract whilst the warmstacked semi-submersibles will begin their charters after the winterperiod, leaving limited available capacity for operators after firstquarter 2020. Demand for high- specification semi- submersiblesincreased due to an additional rig needed for drilling and testingactivities during second and third quarter 2020. The Norwegian semi-submersible market had a busy month in February 2020 with new



programmes from different operators. Most semi-submersibles areoperating, and availability of technically advanced sixth- generationsemi-submersible units has reduced, making the market in Norwaytighter.

Table 4 shows the average worldwide day rate change for the differentclasses of offshore rigs used in QUE$TOR since Q3 2019. The averageday rate variation for all floater classes was negative, with deepwaterfloaters up to and above 7500 ft showing the greatest decreaseglobally, whilst jackup average day rates increased.

Rig classification Average worldwide dayrate change

Floater <= 1500 ft (450 m) -1%Floater <= 3000 ft (900 m) -1%Floater <= 5000 ft (1500 m) -3%Floater <= 7500 ft (2300 m) -5%Floater > 7500 ft (2300 m) -5%

Jackup 4%

Table 4 - Average worldwide offshore rig day rate change sinceQ3 2019

The spider diagram in Figure 24 shows the percent changesimplemented in QUE$TOR 2020 Q1 to the offshore rig day ratesdepending on rig class and region.

Shortage of recent fixtures in some of the regions has made the dayrate update challenging for some of the rig specifications. Jackup andfloater day rates have not varied significantly in most regions, exceptfor Norway, where the day rate change should not be seen as a realmarket trend but rather more as an adjustment to make it closer to themost recent marketed contract value. Day rates in QUE$TOR are basedon our best understanding of the market at the time. Often it isextremely hard to identify the most representative day rate for everyoffshore rig class in the current commercial market where variabletransparency makes some rates private and those rates which dobecome public knowledge will do so on a variable timescale.



Figure 24 - Regional offshore rig day rate change sicne Q3 2019

Offshore vesselsOffshore vessel owners continue to suffer from weak demand, oversupply, and depressed vessel day rates. Whilst generally day rates haveincreased over the last 12 months, they have come from historic lows.Nearly 1,200 AHTS and PSVs are laid up or cold stacked globally,representing nearly 35% of the world fleet.

At the end of the Q1 2020 the number of US Gulf of Mexico shallow anddeepwater charters was half that of 2014 levels. The deepwater markethas seen significant changes with smaller PSVs being replaced withlarger PSVs. The smaller PSV market has decreased in size fromrepresenting 35% of the term charters in 2014 to 10% in 2020.However, some medium sized PSVs have re-entered the market withrates around USD 20,000 per day.

The number of smaller PSVs with a dwt of less than 3,000 hasdecreased 50% over the past 5 years and currently stands at 15. Thenumber of operators chartering shallow water PSVs has also decreasedby 50%. Pre COVID-19 and oil price collapse, the US Gulf of Mexico PSVmarket was expected to tighten as a result of some PSVs moving into



the Latin American market. There were 209 cold stacked vessels, 36AHTS and 346 PSVs at the end of Q1 2020 with the region having thelowest term utilization of 24%.

More vessels were expected to move into some of the smaller LatinAmerica markets such as Trinidad and Tobago in the short term tosupport new drilling campaigns. Further demand was expected to bedriven by large drilling campaigns such as ExxonMobil’s Stabroekcampaign. ExxonMobil had chartered 4 drillships and was expected toadd to this count. COVID-19 has coincided with an oil price collapsewhich has seen these, and other commitments, put under review.Several cancellations and reviews have been announced which hasresulted in drilling contracts being cancelled or postponed indefinitely.

AHTS and PSV supply had increased due to the completion of severalcharters that had weighed on Brazilian spot market prices. Q3 of 2020was expected to see Petrobras take delivery of 3 floaters on long termcharter with the potential for further fixtures which could havetranslated into additional AHTS and PSV demand. Latin American termutilization decreased to 58% at the end of Q1 2020 with Latin Americaexperiencing the largest reduction in idle and cold stacked vesselsglobally.

In Asia Pacific, term utilization decreased throughout Q1 2020 to 50%.The number of idle and cold stacked vessels increased by 5%. Drillingand production support charters in the Indian Ocean was the basis for alarge portion of demand. At the end of the first quarter of 2020 severaldrilling campaigns have been cancelled or postponed as a result ofCOVID-19 and the oil price collapse.

Despite recent contract awards, Mediterranean term utilization reducedto 45%with 93 AHTS, 53 PSVs and 41 cold stacked vessels.

Demand in West Africa was expected to improve, largely being drivenby drilling support charters. There were 174 cold stacked vessels with aregional supply of 216 AHTS and 203 PSVs with near term utilizationreducing to 41%. Availability during Q1 of 2020 for AHTS and PSVs inWest Africa remained tight. This was expected to change as a result ofthe number of contracts being terminated early. Whilst rates remainedthe same, the situation was expected to change as tonnage wasstarting to be released into the market because of COVID-19 and the oilprice collapse towards the end Q1 2020. As with other regions, COVID-19 continues to have a negative effect on the African market due toborder closures, crew change issues and travel restrictions.



There were 113 cold stacked vessels in the North Sea, with a regionalsupply of 124 AHTS and 279 PSVs with near term utilization reducing to40% at the end of Q1 2020. Whilst there had been an increase in NorthSea term utilization, rates have remained subdued. The UK rig marketis now becoming more seasonal, PSV and AHTS demand is expected tofollow which has the potential to affect future rates and supply. Futuredemand could be supported by plug and abandonment campaigns anddecommissioning.

The Middle East was the only region to record an increase in termutilization which increased to 56% with a regional supply of 391 AHTS,138 PSVs and 134 idle or cold stacked vessels. Increased contractactivity had carried over from 2019 into 2020 with several new awardsthat looked set to continue before the COVID-19 outbreak and the oilprice collapse. Increased demand within the region had beenunderpinned by off-peak demand compared with similar periods inprevious years. Term activity was being driven by drilling andproduction support requirements in the UAE, Saudi Arabia, and Qatar.

At the onset of COVID-19, rates and availability remained the sameglobally. However, as COVID-19 spread the effects quickly accumulatedresulting in significant consequences including the closing of borders,travel restrictions and vessel outbreaks. The COVID-19 effects continueto present significant challenges to offshore vessel operators with travelrestrictions, vessel outbreaks, crew isolation, medical evacuation ofcrew and the quarantine of vessels for large periods of time.

There has been a growing number of rig contract cancellations andterminations as COVID-19 spread. These terminations have quicklyspread to the offshore vessel market. COVID-19 is expected to presentsome difficult contractual issues for the offshore vessel marketincluding the use of ‘Force Majeure’ to terminate existing contracts.There has been a steady increase in the final half of Q1 2020 that isexpected to lead to a significant increase in litigation and arbitrationcases. An increase in the number of companies seeking refuge fromcreditors and filing for bankruptcy protection within the supply chainincluding offshore vessel owners is also expected which has coincidedwith the oil price collapse.

Subsea equipmentRecent projections of subsea tree awards suggest a significantly lowerdemand than compared with the previous estimate from Q3 of 2019.Subsea equipment benchmarking is becoming more difficult as a result



of the inclusion of subsea installation in contract awards and thereluctance of equipment manufacturers to publish specific informationon contract scopes, equipment technical parameters, and contractvalue.

This difficulty comes from the consolidation in the equipment servicessector and the combining of previously separate business lines (i.e.equipment manufacture and offshore installation), and an increase inthe number of Engineering, Procurement, Construction and Installation(EPCI) contract awards. This has a notable effect on smaller projects oron work carried out under frame agreements, which may not becommunicated publicly because of the size of the award.

Subsea equipment benchmarking used to monitor project technical andeconomic parameters is also becoming more difficult as a result ofincreased customization, making it more difficult to compare on a likefor like basis without detailed knowledge of the parameters beingbenchmarked. The QUE$TOR Project viewer program can helpbenchmark key project metrics.

Overall prices for subsea hardware including subsea trees, wellheads,and manifolds have shown a small increase above inflation for shallowwater developments. Increases have been as a result of contractualobligations where the equipment manufacturer has exercised a priceincrease mechanism under an existing contract.

Subsea equipment price escalations have been limited and have largelybeen based on contractual terms, upstream oil and gas indices,consumer price indices, or more general bulk material indices. Lumpsum EPCI contracts indemnify against future price increases at theexpense of the equipment supplier and installer, who may have limitedcapacity to offset any future increases and, in some instances, may notbe able to pass these costs on.

There have been, however, some notable exceptions. These centrearound customized equipment whereby some suppliers have managedto achieve price growth. Examples include control modules, umbilicaltermination assemblies, and mounting plates.

Subsea equipment costs for deepwater projects have experienced alarger increase compared to those for shallow water projects. The highcost of changing tooling, intervention equipment and support serviceson existing developments is a market barrier to new entrants. This isrelevant to phased developments that would be covered by newcontract awards. Increasing levels of local content have alsocontributed to above inflation price increases.



Some price increases have been identified in the rental equipment,aftermarket and services sector. These sectors can provide anindication of future subsea equipment cost direction. Overall this is amixed picture depending on the segment, with some segmentsperforming better than others with labour rates and increases in fixedoverheads driving current costs.

From an historical perspective, operating margins are still relatively lowfor subsea services and equipment including trees and wellheads.Excess capacity within the supply chain is slowly reducing as subseaequipment manufacturers restructure to meet actual and perceivedfuture demand.

Future price increases are expected to be driven by technology whichhas the potential to reduce ownership costs and improve safety. Pricesmay well be affected by changes in regulatory regime such as therequirement for additional environmental barriers, use of fibre optictechnology, and continuousmonitoring requirements.

LabourThe world economic outlook had improved in the fourth quarter of2019, ending the year with modest growth. The global labour markethad also improved at the end of 2019, with companies increasing hiring.Then, in the space of few weeks, global labour market conditions haveshifted from promising wage growth to a rise in unemployment anddrying up of upstream projects. At the end of the first quarter of 2020,the rapid spread of COVID-19 outside of mainland China, the collapse inoil prices, and the drop in other commodity prices as a response toweaker global demand have rapidly marked a significant change fromthe initial economic conditions seen at the start of the year.

Labour wages were expected to move higher in 2020 in most regions.Instead, many industries have been severely impacted by the oil pricecrash, the spread of COVID-19, and the policies to slow infection rates,often resulting in widespread layoffs and delayed or cancelledinvestment. The decline in oil and other commodity prices is severelyaffecting upstream projects, with oil and gas companies alreadyannouncing cutbacks on drilling operations and delays or cancelledpurchases of new equipment. In some regions, construction andinfrastructure spending as a response to boost economic activity oncethe outbreak is contained will limit the damage. However, in other



areas, construction activity is shrinking fast, crew numbers are beingreduced in the hope of protecting workers from getting sick, and mostprojects are being halted.

In North America, wages were expected to improve in 2020 due to tightlabour market conditions and a shortage of skilled workers. Given therapid spread of the virus and the low oil crude prices, labour marketsare likely to loosen and demand will decline, resulting in layoffs in theindustry.

In Europe, wage growth was already expected to decelerate in 2020 asactivity levels slowed. In late March, the Eurozone became the centre ofthe virus outbreak, resulting in the shutdown of industries across mostmarkets. As restrictions are slowly being eased, economies areexpected to restart much more slowly than they were shut down.

Wage growth in the Asia-Pacific region was moderate due to slowingactivity levels, but labour shortages provided support for wage growth.COVID-19 is reducing the wage growth in the sector, especially withproject closures in India. However, in China, which is recovering fromthe disease, renewed infrastructure pushes combined with labourshortages may mitigate the economic impact of the virus. MainlandChina has begun to restart its economy, but conditions throughout therest of the world are rapidly deteriorating, which will impact the globaldemand for Chinese goods.

Economic fundamentals in Latin America were beginning to improve,but the spread of COVID-19 has disrupted the recovery. Latin Americancountries are facing a recession as they deal with a global economicslowdown, supplychain disruptions, and weakening consumerdemand.

The engineering and project management (E&PM) sector has also beenaffected. A number of Front End Engineering Design (FEED) studieswere awarded at the end of 2019, and backlogs were on the risealthough still lower than historical highs. Onshore activity was strong in2019, especially in the US, with an increasing demand for engineersand project managers. Some major awards in Africa and the MiddleEast had seen the creation of a joint venture and the collaboration ofbig engineering, procurement and construction companies in theregion. Political instability, slow economic growth, and volatile oil priceshad slowed activity in most places in South America. Activity hadcontinued in Russia and Kazakhstan despite fluctuations in oil prices,where production had kept rising from existing and new fields. Australiahad continued to be an active market for front end studies, accounting



for two out of the three contracts awarded in the Asia-Pacific region atthe end of 2019. Despite the recovery in demand for engineeringservices, the market was still far from the 2014 peak.

The recent spread of COVID-19 and the oil price collapse are having astrong impact on the market. E&PM companies are hitting the pausebutton after a few years of strong hiring and are reorganizing theirworkforce. The challenge now is how employers will ramp up theirhiring plans when a new sort of normality will be reached, and projectswill start again.

Land rigsDespite modest recovery of the onshore rig market in the first half of2019, the last six months through March of 2020 saw day ratesdecrease globally by 2.3%, primarily in the first quarter. As expected,low oil prices and economic upheaval resulting from the spread ofCOVID- 19 has dealt an additional blow to the already strugglingonshore sector. Despite contractor optimism in the early part of 2019,stagnant commodity prices at the end of the year marked a noticeabledecline in rig counts. While prices stabilized and began to rise in Januaryof 2020, the dissolution of the agreement between OPEC and Russiaover anticipated production cuts and the associated plunge in oil priceforced operators to slash capital expenditures and prioritize updatingexisting fleets. Furthermore, global “social distancing” measures andcompulsory stay- at- home orders are negatively impacting drillingoperations as companies consider halting activity to avoid relatedadditional crew costs. Rig utilization does not support new- buildscoming into the market, and investments are expected to furtherdecrease through the end of 2020.

Worldwide, tender activity decreased in most regions as contractsshortened from an average of 18 to 24 months down to an average of12 months. Driven primarily by North America, global onshore drillingdemand fell at the end of 2019 and is expected to fall further through2020, and contractors are accepting lower rates to offset decliningutilization. However, rig quality continues to improve as high spec rigsmaintain the highest utilization rates among all rig classes. Contractorsin international markets are prioritizing upgrades to their existing fleetsto accommodate improved rig specifications, with the Middle East andSouth America directing this change.



North American high spec day rates declined markedly in the firstquarter of 2020, after remaining relatively stable throughout 2019 withonly slight decreases concurrent with declining demand. Utilization alsofell considerably in the previous six months, marking an 8% reduction inthe first quarter alone. As the North American land rig market is themost reactive to changes in oil prices, domestic onshore drilling hasexperienced extreme volatility since February as the price of oilplummeted and fears of the COVID-19 forced more stringent safetymeasures. Rig counts continue to fall and are anticipated to decreasefurther as the year progresses, as operators either terminate contractsor allow them to expire. After stalling in the third quarter of 2019, NorthAmerican day rates weakened significantly and are expected tocontinue decreasing through 2020 as drilling contractors delay new-builds and rig counts further decline.

In the Middle East, day rates declined through the end of 2019 and into2020, showing a 2.5% decrease for all rig classes. To remaincompetitive and retain market share, companies have begun upgradingtheir rig fleets. They are also adding super spec rigs to resemble thosecurrently drilling in North America and to pursue more unconventionaldrilling programmes. Increasing economic uncertainty, low oil prices,and delayed drilling activity are causing extreme volatility in the market.Accordingly, rates are expected to further decline through the end ofthe year.

While day rates for all other regions fell, Russian rates for all classesstayed flat in the past six months, primarily driven by the recentexpansion into horizontal drilling. However, imposed sanctions by theUS and the European Union, as well as low commodity prices andobligatory production limits, are anticipated to exert downwardpressure on the market. As in most regions, efforts are being made toimprove the quality of rigs. However, rig fleets still rely heavily on lowspec rigs, and day rates for low spec rigs in Russia are anticipated toremain stable.

In Asia, day rates marked a decrease of 2.8% between October of 2019through March of 2020. The measures to contain the spread of COVID-19 have notably impacted hydrocarbon demand in the region anddisrupted supply lines. However, the wider implications of the virus foronshore drilling remain unclear. While domestic Chinese demand isnegligible, operators continued pushing production, in many casesoperating at a loss. The recent fall in oil prices is exerting downwardpressure on the market; rates are anticipated to continue decreasingthrough 2020.



In the previous six months through the first quarter of 2020, SouthAmerican rates declined overall as the region struggles with lowered rigcounts and declining commodity prices. Colombian onshore drilling hasshown more resilience than that of Venezuela or Brazil, and leaders aretargeting hydraulic fracturing to appreciably expand reserves.However, environmentalist and community led protests have delayedinvestments moving forward. As oil prices continued to decrease,Venezuelan rig movement declined accordingly. Political upheaval hascontributed to significantly low productivity within the country, and forthe remaining rigs, many will be impacted by US sanctions that wereimposed in the last half of 2019. Similar to the activity in Russia and theMiddle East, South American focus has shifted to upgrading existinglocal fleets to super spec rigs. However, most contractors aresuspending upgrades, pending a recovery in oil prices. Despiteimprovements in rig fleet specifications, day rates are anticipated to fallfurther moving through 2020.

In the last quarter of 2019 through the first quarter of 2020, day ratesfor all rig classes have decreased in all regions, most notably NorthAmerica, as operators endeavour to minimize capital expenditures andreduce losses. Globally, day rates experienced downward pressure inthe first quarter due to unprecedented economic events. While theyremain actively relevant in Russia, Africa, Asia and the Middle East,utilization of low spec rigs is expected to further wane as internationalmarkets prioritize upgrading to high spec rigs to remain competitive.Demand continues to decline worldwide, likely reflected in falling dayrates through the end of 2020.



Contacting customer supportRequests for support related to the QUE$TOR application should bedirected to [email protected].

Requests can also be submitted through the IHS Markit website.

Or by phoneAmericas: +1 800 447 2273Europe, Middle East and Africa: +44 (0) 1344 328 300Asia Pacific: +604 291 3600



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