ReleaseNotes QUE$TORproductdownloads.ihs.com/private/release/Que$tor/Release-Notes.pdf ·...

Release Notes

QUE$TOR

2019 Q3 Release

Nov 2019

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 2019 Q3 12

Sulphur plant selection in production facility 12

Mercury removal in gas processing 14

Subsea steel flowline diameter increased up to 36 inches 16

Adjustment of offshore manifolding bulk factors 17

Firefighting utilities for production facility 19

Offshore drilling ESPs power per pump 21

Selected other technical revisions 22

Cost Data Sources and Accuracy 23

Cost data sources 23

Accuracy 24

Cost database update 26

General 26

Oil price trend 27

Currencymarket 29

Steel 31

Equipment 33

Bulks 34

IHS Markit Nov 2019 Page 1

QUE$TOR 2019 Q3 Release Notes

Offshore rigs 36

Offshore vessels 40

Subsea equipment 43

Labour 45

Land rigs 46

Page 2 Nov 2019 IHS Markit


IntroductionWe are pleased to provide the 2019 Q3 release of the QUE$TOR costestimating software.

All cost databases have been reviewed and updated to incorporatecurrent unit rates, exchange rates and man hour costs for all regions toreflect third quarter 2019 prices.

The main technical enhancements made to QUE$TOR 2019 Q3 are:

l Sulphur plant selection in production facility

l Mercury removal in gas processing

l Subsea steel flowline diameter increased up to 36 inches

l Adjustment of offshore manifolding bulk factors

l Firefighting utilities for production facility

l Offshore drilling ESPs power per pump

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

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 2019 Q3. However, projects created or saved in QUE$TOR2019 Q3 cannot be opened in earlier versions.

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

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

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 2019 Q3 CD-ROM contains the following:

l QUE$TOR 2019 Q3 installation files.l An ‘Application’ folder containing QUE$TOR 2019 Q3 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 2019 Q3 install 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 2019 Q3

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$TOR 2019 Q3 run the file ‘setup.exe’ in the rootfolder of the QUE$TOR 2019 Q3 CD-ROM.

l Once installed, an icon for QUE$TOR 2019 Q3 will appear on yourdesktop. A group will also appear on the start menu under AllPrograms\IHS Markit\QUE$TOR 2019 Q3 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 e-mail from IHS Markit Customer Carecontaining an Entitlement ID for activating your QUE$TOR licenses.

Application executionl To run the software click Start and follow All Programs >IHS Markit > QUE$TOR 2019 Q3 > QUE$TOR 2019 Q3 ordouble-click the 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, or for a network configuration locate the license serverwithin their own network. Obtaining the license is described in thefollowing sections, for more information about setting up the networkserver please refer to the licensing guide that is available on the CD, viathe 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 Entitlement Idinput 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 on OKbutton.

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



General upgrades in QUE$TOR 2019 Q3In response to feedback the following features have been implementedin QUE$TOR 2019 Q3.

l Sulphur plant selection in production facility

l Mercury removal in gas processing

l Subsea steel flowline diameter increased up to 36 inches

l Adjustment of offshore manifolding bulk factors

l Firefighting utilities for production facility

l Offshore drilling ESPs power per pump

Sulphur plant selection in production facilityThe ability to process the sulphur produced as a result of the sulphurremoval operation has been included in production facility gasprocessing. It is shown at the bottom of the box for sulphur removaloptions in gas processing (Figure 6). Sulphur plant selection is based onthe cut-off sulphur quantity of 5 te/day.

Figure 6 - Sulphur plant option in production facility

The breakdown of the equipment related to sulphur plant can be seen inthe equipment list for the production facility (Figure 7).



Figure 7 - Sulphur plant equipment breakdown

The weight and cost breakdown for sulphur solidification and storageand handling is shown in the cost sheet of production facility (Figure 8).

Figure 8 - Sulphur plant costs

The sulphur production profile is displayed in the operating costsummary report within tariffs (Figure 9). The sulphur transportationtariffs are also shown here (Figure 10).



Figure 9 - Sulphur production profile

Figure 10 - Sulphur transportation tariff

In addition to these changes the inclusion of sulphur plant also impactsthe weights of process utilities, power demand, civils and constructionarea, weight of materials and other cost centres within productionfacility.

Mercury removal in gas processingMercury removal has been added to the gas processing section, bothoffshore and onshore.

Elemental and compounded mercury is present in many gas fieldsworldwide. Presence of mercury may lead to corrosion of productionequipment, as well as being a concern to worker safety and theenvironment. Complete removal is needed to avoid catalyst poisoningor catastrophic failures in cryogenic equipment.

For mercury removal, an operator may use regenerable or non-regenerable adsorbents. QUE$TOR assumes non- regenerableadsorbents, packed in adsorption columns (also called guard beds)placed before the acid gas removal and dehydration units. This isdistinct from traditional mercury removal units that use sulphur-impregnated activated carbon beds which can only be placed after thedehydration. Both offshore and onshore gas processing schematicshave been modified in a similar way to include the additional mercuryremoval, placed just after the cooling unit, as shown below in Figure 11.



Figure 11 - Mercury removal in onshore gas processingschematic

Depending on the reservoir conditions (i.e. temperature, pressure andpresence of H2S) the inlet mercury content in the mercury removal willbe populated by an indicative average value for the selected region.Mercury levels in gas may vary significantly between reservoirs withinthe same region and often also within different fields on the samereservoir. The inlet concentration can be adjusted to ensure it isrelevant to the specific field being modelled.

The mercury removal unit is automatically selected only when thereservoir is at high pressure, high temperature and contains hydrogensulphide as these are the most common conditions for mercury to bepresent in a natural gas stream. When all these conditions are met,then mercury removal will be selected, provided the inlet mercuryconcentration is above the specification. The mercury specification isdetermined by the selected gas production specification. Figure 12shows the inputs available in the mercury removal user interface.



Figure 12 - Mercury removal user interface

Mercury removal can be manually selected, and concentrationsadjusted to meet the specific conditions of the field being modelled.When mercury removal is selected, either automatically or manually,the downstream pressure will vary with some effect on size and cost ofdownstream equipment. The size of the non- regenerable mercuryadsorption columns also depend on the assumed life cycle duration.This data has a default value of five years but can be edited in theregional technical database.

The weight and cost of the mercury removal system are calculated andshown on the cost sheet in the topsides and production facilitycomponents, along with the knock-on effects on utility systems, civilsand bulk materials. The replacement and disposal of the non-regenerable bed are assumed to be included in the maintenance cost inOPEX.

Subsea steel flowline diameter increased up to36 inchesThe ability to model flowlines up to a diameter of 36 inches has beenadded to subsea. Previously, the maximum diameter for a flowline insubsea was 24 inches. Subsea flowlines will estimate up to a maximumdiameter of 24 inches, however the user now has the ability to adjustthe model up to the maximum of 36 inches as needed.

The larger flowline diameters, 26 inches to 36 inches, are available foruser selection only. Due to lack of availability in the market, this changeis only applicable to non-flexible materials; flexible lines continue tohave a maximum size of 16 inches.

The larger nominal diameters can be selected from the Link propertiesform as shown in Figure 13.



Figure 13 - 30 Inch selected in Link properties form

The inclusion of the larger flowline diameters also impacts the weightand cost of other associated items including pigging loops, valves, directelectrical heating anodes and pipeline end termination’s valves andconnectors; all of which have been updated in line with the largerdiameters. As there are relatively few of certain components in this sizerange currently in use, some assumptions were necessary to includethese costs and so future adjustment may be needed. As a result of thischange there may also be some changes to the associated items in thesmaller sizes.

Adjustment of offshore manifolding bulkfactorsFeedback from users has highlighted that for some wellhead platforms,especially those with many wells, the topsides weight may beunderestimated. In order to better understand this feedback abenchmarking study was carried out comparing real and calculatedtopsides weights to the number of slots present. This study coveredproduction platforms, wellhead platforms and floating structures. Theresults show that calculated weights for production platforms and



floating structures match real data reasonably well. However, forwellhead platforms there is a greater variance in the results and theQUE$TOR topsides weight estimations appear at the lighter end of thisdistribution. Some of the results from this analysis can be seen in Figure14 where the number of slots is compared against the topsides weight.

Figure 14 - Wellhead number of slots compared against thetopsides weight

Examining the design for these platforms further has shown that this isin part due to insufficient secondary steel and bulk material allowancebeing added to wellhead platforms. We have therefore madeadjustments and will continue the analysis with a view to furtherimprovements in a future release.

To allow for the additional material requirement an adjustment toincrease the bulk factors in the manifolding and wellheads section hasbeen made. This will have the greatest effect on offshore platforms thathave minimal facilities and therefore require extra bulk items toconnect up the wellheads. For each tonne of manifolding weight thischange will add approximately 3.5 te of bulks across the secondarysteel, equipment piping, electrical and instrumentation and other bulk



weights. This will have a subsequent effect on the primary steel andsubstructure, the extent of which depends upon the topsidesconfiguration and type of substructure being used. There was nochange to the operating weight bulk factor for manifolding.

Firefighting utilities for production facilityThe firefighting utilities have been updated to allow for a more up todate, inclusive and accurate calculation of the firefighting utilities cost.This update can be seen in both the weight and unit rate of thefirefighting utilities, as can be seen in Figure 15.



Figure 15 - Process utilities cost sheet

The first of the updates is a general increase in the overall weight of allfirefighting systems. It was determined that the previous calculationand assumptions no longer reflected the current standards and did notinclude sufficient capacity and water dispersion rates required ofmodern facilities. The improvements in assumptions result in anincrease in the size and capacity of the fire pumps, deluge system, firewater ring main and other supporting systems. Similarly, the unit ratefor the firefighting utility was increased to account for the addition ofcomponents and a change in overall composition of the utility system.

The second of the updates provides a more accurate calculation of thefirefighting utility system for larger onshore Production facilities andTerminals. Previously the calculation reached a plateau and producedrelatively small increases for significant growth in facility size. As part ofthe review and update this limitation has been removed resulting in



suitable increases in the firefighting requirement even for very largefacilities. This will likely result in some notable increases in firefightingcosts for very large facilities when run in the new version.

The updates to the firefighting equipment have also affected thefirefighting equipment area and power requirements resulting impactsin civils and power. However, these impacts will be less noticeable thanthe main utility cost.

Offshore drilling ESPs power per pumpA power per pump is now available for Electrical Submersible Pumps(ESPs) and editable on the offshore drilling input sheet, in the EOR tab,when the “Use ESPs” option is selected (Figure 16). The power perpump is calculated as a function of reservoir depth, liquid flow rate,efficiency factor, pump head factor and an assumed produced fluidspecific gravity. Costs for offshore ESPs are now based on power perpump and all regional databases have expanded data points allowingthe user to estimate costs for ESPs with higher duty.

Figure 16 - Offshore ESPs power per pump



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

l For pipelines and flowlines made from carbon steel clad in alloy316, the unit rate calculation has been updated to appropriatelyaccount for the additional weight of the cladding. This change wasmade to better populate the cost data by ensuring the weight ofthe clad pipeline is more precisely determined and moreconsistently aligns with the methodology used for similar pipelinematerial selections.

l In LNG regasification a correction has been made to the stressparameter that is used when sizing LNG vessels. The parameterwas too high and was causing vessels to have the minimum shelland head thickness. This correction means that an increase inweight is likely to be seen in the LNG processing demethaniser,deethaniser, stabiliser and the vapour handling recondenser units.

l A new drilling summary report is available with the offshore 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 and drilling andcompletion activity durations by rig type.

l Along with the updates to larger flowline sizes in subsea the PLETand associated connectors in the pipeline component have alsobeen updated to account for larger pipeline diameters. Thischange will mean that PLETs associated with pipelines up to 36" willnow include suitably sized piping, valves and connectors. As thereare relatively few PLETs in this size range in use, someassumptions were necessary to include these costs and futureadjustment may be needed.

l The subsea chemical injection riser diameters now correctly reflectthe sizes of the associated flowlines.

l When a pipeline end termination (PLET) is present on a subseaflowline connected to a subsea item the required connectors forboth ends of the jumper are included in the PLET cost. Before thisrelease extraneous connectors were also included in the itemcomponents; these additional connectors have now beenremoved. When a PLET is not included, the required connectors



remain associated with the item. In both cases connectors usedwithin the item (such as connectors for well jumpers) remainassociated with the item costs.

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

l Up-to-date information and data are provided quarterly by theIHS Markit Global Insight, Petrodata and CERA teams. Theseteams are responsible for quarterly reports and indices of themain oil and 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 Nelson-Farrar Index (published in theOil & Gas Journal), 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 onspecific 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 third quarter 2019 costs.

Note: On saving the project, the QUE$TOR 2019 Q3 cost estimate willoverwrite earlier costs except where those costs were ‘locked’ on thecost sheet or in the database. Therefore if you wish to retain a copy ofyour original estimate you should first create a duplicate of the projectbefore opening and saving it in QUE$TOR 2019 Q3.

The following sections outline the market trends seen over the past sixmonths, and are the result of research carried out and our insight intothe markets. QUE$TOR cost databases aim to provide accurate andreliable data that is representative of the market today. The low activityin many of the markets lately has made this a challenging task as theavailability of actual purchase prices is low; prices can also be highlyvariable as suppliers are negotiating hard to get business. For thisrelease the cost database updating process has benefitted from anextended number of data sources, with extra effort made to clarify thecurrent state of the market. The main result of this activity was thatsome cost data were tuned to be closer to real project data and werenot necessarily varied in line with the most recent market trends.Therefore, users may see some differences in trends for OCTGs, cladlinepipe, specific types of construction vessels, and subsea equipment.Further detail and explanation of this will be provided in theBenchmarking Report, available via the download site.

GeneralDecelerations in international trade and manufacturing, along with oilmarket disruptions have increased the risk of a global recession. Thethird quarter of 2019 saw a further intensification of the trade conflictbetween the United States (US) and China, whilst the attack on theSaudi Arabian oil production facilities resulted in an oil price spike. Bothevents had a damaging effect on the global economy at a time whengrowth was already beginning to slow. In Europe, exports and capitalinvestment have reduced as political risks, including the UK’s withdrawalfrom the EU and political turmoil in Italy, have increased caution.Persistent uncertainty has negatively affected investment levels andindustry sentiment.




In North America, the announcement of new tariffs on additional goodsimported from China and of a rate increase on imports already subjectto tariffs, are expected to boost consumer prices and GDP. The policy ofactively encouraging the reshoring of jobs previously outsourced willtake time to come into effect and is expected to have a limited effect ongrowth in the short term.

In Asia, China’s economic growth has continued to slow, as governmentincentives seem unable to counterbalance the limitations generated bythe US trade restrictions. The threat of further tariffs is heavilyimpacting industrial product exporters and a devaluation of thecurrency has also intensified tensions with the US. The Chinesegovernment has changed its economic policy to support internal organicgrowth to counteract the effects of both a slowing economy andrecently introduced tariffs. It is expected that the recently announcedstimulus package will reduce some of the impact of the newly imposedtariffs but not in their entirety. Additional regional tensions, includingpolitical issues in Hong Kong, have also impacted short term growthprospects.

In Europe, the uncertainty surrounding Brexit continues to negativelyaffect short to medium term investment decisions, which keep movingfurther into the future. This situation is expected to persist until theuncertainty surrounding the UK’s exit from the European Union (EU)reduces. Once a clear path and timetable has been defined, then thereis the potential of an increase in growth as a result of constrainedinvestment in the current market. Efforts by the European Central Bankto avoid a Eurozone recession have increased, although they will takesome time to come into effect. The EU could also see an increase inmembership post UK departure with several applications to join the EUcurrently under consideration.

In general, the global economy remains undermined by significant riskswhich include escalating US- China tensions, new trade conflicts,ongoing regional issues in the Middle East, the UK’s exit from the EU andrising debt levels.

Oil price trendCrude oil prices have been fluctuating in the range of 50 to 70 USD/bblduring the third quarter 2019 as shown in Figure 17.



Figure 17 - WTI and Brent crude oil prices

Coordinated attacks on Saudi Aramco’s oil field and processing plantcreated chaos in the oil markets in September 2019. The attacks tookroughly 7% of global output offline. The resulting impact on volumes,spare capacity, and the perception of risk have shifted crude oil pricesup from the 50–60 USD/bbl price range towards 65–70 USD/bbl. At theend of the quarter, the movement in oil price has slowed down despiteglobal events. This is because the current market is well supplied,inventories are full, and flexibility of supply has radically changed withthe introduction of shale oil. An investment decision taken today on atraditional oil project must often wait five to ten years for payoff. Shalecan reach payoff in a matter of months, giving the market the ability toreact much more quickly to any changes in oil prices.

Potential for further price fluctuations are on the horizon depending onthe magnitude of future disruptions and possible retaliations. On oneside, conflict in the Middle East poses risks of military escalation anddisruption of oil transit, pushing prices higher. On the other side,weaker growth in the major economies could amplify concerns about oildemand, sending prices lower.



Currency marketMost foreign currencies have depreciated against the US dollar since Q12019, as shown in Table 1 by the positive variation in the percentagechange column.

In North America, the US economy was largely stable over the past sixmonths, with low unemployment levels and strong wage growth.Despite the initial optimism over a trade war resolution, any concreteplans to solve the ongoing US- China dispute remained vague.Increasing speculation over possible impeachment proceedings forPresident Trump have increased uncertainty. Canadian growthprospects have improved from a weak start to the year making theCanadian dollar (CAD) appreciate slightly against the US dollar.

The Eurozone economy has made some gains in the third quarter.Speculation over the possibility of further stimulus from the EuropeanCentral Bank dominated the summer. Italian politics was back in thespotlight as the governing coalition of the right-wing League andpopulist Five Star broke up. Instead, Five Star formed a new coalitionwith the Democratic Party, which is expected to be less confrontationalover EU budget rules. Spain will hold a general election on 10November, the fourth in four years, after the last election in April failedto produce a governing coalition.

In the UK, Brexit and domestic political uncertainty remained elevatedas Boris Johnson took over as the UK’s new Prime Minister on a “do ordie” pledge to achieve Brexit, saying he’d rather be “dead in a ditch”than ask the EU for an extension to the departure date. However, the“no deal” exit on 31 October has been averted and a snap generalelection agreed for the 12 December.

In Asia, the Japanese yen (JPY) strengthened at the start of Q3 2019after the cut in US interest rates, but subsequently weakened to endalmost flat. Most of the other Asian currencies lost value against the USdollar in Q3 amid renewed intensification of US-China trade tensionsand rising concerns over global growth.

Those markets more sensitive to a stronger US dollar came underpressure, notably South Africa but also Saudi Arabia and Colombiawhich underperformed with crude oil price becoming weaker. TheArgentinean peso (ARS) was the weakest currency as result of surpriseprimary election results.



Global economic data continued to show a slowdown in activity. The USservices sector and labour market remained resilient despite acontinued downturn in manufacturing. US economic growth and lowunemployment will likely keep the dollar in a strong position throughmost of 2019.

Table 1 lists the exchange rates, averaged over the last two weeksbefore the end of each quarter, of the major local currencies expressedequivalent to 1 USD, and the percentage change between Q3 2019 andQ1 2019.

Region Country Localcurrency Q1 2019 Q3 2019 Percentage

changeNorth America Canada CAD 1.338 1.326 -0.90%

South and CentralAmerica

Argentina ARS 41.980 56.865 35.5%Brazil BRL 3.870 4.144 7.08%Chile CLP 675 721 6.81%

Colombia COP 3,131 3,407 8.82%Mexico MXN 19.143 19.518 1.96%Peru PEN 3.295 3.352 1.73%

West EuropeEurozone EUR 0.885 0.910 2.82%Norway NOK 8.559 9.029 5.49%UK GBP 0.759 0.806 6.19%

East Europe

Czech Republic CZK 22.769 23.519 3.29%Kazakhstan KZT 378 386 2.12%Poland PLN 3.800 3.973 4.55%Russia RUB 64.630 64.207 -0.65%Turkey TRY 5.553 5.691 2.49%Ukraine UAH 26.957 24.113 -10.6%

Asia

Australia AUD 1.409 1.474 4.61%China CNY 6.711 7.109 5.93%India INR 69.0 70.8 2.61%

Indonesia IDR 14,209 14,124 -0.60%Japan JPY 111 108 -2.70%

South Korea KRW 1,133 1,195 5.47%Malaysia MYR 4.070 4.183 2.78%Singapore SGD 1.352 1.378 1.92%Taiwan TWD 30.830 31.000 0.55%Thailand THB 31.650 30.480 -3.70%Vietnam VND 23,159 23,125 -0.15%

Africa

Algeria DZD 118.640 119.860 1.03%Nigeria NGN 358.5 359.4 0.25%Angola AOA 315.7 365.8 15.9%

South Africa ZAR 14.440 14.920 3.32%

Middle EastSaudi Arabia SAR 3.748 3.748 0.00%

UAE AED 3.673 3.673 0.00%

Table 1 - Exchange rate fluctuations of major local currencies



SteelSteel markets have continued to trend downward; after reaching apeak in July 2018 due to the implementation of the Section 232 tariffs,prices began to retreat, and many products have noted a steep declinein the last six months. While flat steel products in the United Statesremain higher than imports after the surge in pricing following thetariffs, declines are accelerating and will likely reach bottom by the endof the year. Costs for stainless steel show positive movement with aglobal increase of 1.5% due to rising nickel prices in all regions.Globally, oilfield steel costs are expected to flatten or slightly decreasein most regions as ongoing trade tensions disrupt supply, demandwanes due to declining oil prices, and minimal drilling activity.

Steel prices in the US have weakened in the past year as the marketrebalanced following the steep price escalation after theimplementation of the Section 232 tariffs. However, in both the secondand third quarters of 2019, domestic mills continued productionincreases despite diminishing demand for all steel products; thisexerted further downward pressure on prices. Recently, severalfacilities announced modest production cuts to moderate the extremeoversupply in the market. Industry experts do not anticipate removal ofthe tariffs until 2021, and prices are projected to continue retreatingthrough the first quarter of 2020 before stabilizing as the yearprogresses.

In Europe, steel production has continued to decrease in the secondand third quarters, as demand declines and more cost- effectivestructural steel imports from Turkey and India exert pressure on thelocal market. The volume of steel purchased in Europe is declining,propelling domestic mills to evaluate production levels. In recentmonths, many mills have idled facilities as softening demand andcontinued political uncertainty decelerates industrial production.Following a sharp decline in the first quarter of 2019, prices in US dollarterms, while not strong, remain higher than other regions. Moving into2020, steel costs are expected to flatten or continue a slightly negativetrend.

In Asia, prices peaked in the second quarter as expected and have sincecontinued to trend downward. China implemented economic stimuluspackages in the first quarter of 2019 but aside from a brief boost inprices, have done little to stabilize costs. Despite global oversupply andsoftening demand for all steel products, Chinese production facilitiesremain active. To lower unemployment rates, production activity hassteadily increased in the last year. Additionally, India recently



surpassed Japan as the second largest producer of steel productsworldwide. However, construction activity is contracting globally, whileindustrial production slows, resulting in excess inventory for many mills.With the Chinese announcement of additional pollution controlmeasures in the third quarter of 2019 and expected further productioncuts in the first quarter of 2020, steel prices are anticipated to flattenthroughout the year.

With tightening construction activity worldwide, structural steel costs fellby approximately 10%; the US noted particularly large decreases dueprimarily to the falling price of scrap. Other regions were less affectedas steel plate production in Asia and Europe utilizes little scrap, and ironore prices have risen since the first quarter of 2019 following thecatastrophic dam failure of the Vale iron ore mining facility in Brazil.

Continuing the downward pricing trend which began in the fourthquarter of 2018, carbon steel line pipe experienced a global decrease of2.8% in US dollar terms, as production far outpaced demand. However,some regions fluctuated notably, with Asia and Africa experiencinglarge variations. Prices are expected to slightly decrease moving intothe first half of 2020 as input costs decline and tubular mills focusproduction on line pipe over OCTG due to limited well completions.Additionally, the cost of nickel surged in the last six months, and pipefabricated from, or clad with, high nickel content alloys have shownnoted increases in several regions, with Asia observing the largestgrowth.

OCTG has seen negative market movement throughout the second andthird quarters of 2019. Suppliers did not anticipate the decrease inNorth American drilling activity as the year progressed, resulting inconsiderable oversupply; demand is expected to rise in the first quarterof 2020, accompanied by an escalation in prices.

Continuing trade tensions, political uncertainty, and contracting growthin the energy and construction sectors have contributed to globalsoftening of demand as suppliers struggle to moderate productionlevels accordingly. However, as China implements further expectedproduction cuts moving into the first quarter of 2020, marketoversupply is anticipated to ease, and prices should note an associatedincrease after reaching a trough at the end of the year.



EquipmentEquipment costs have increased for 11 consecutive quarters, althoughgrowth has slowed down since the first quarter of 2019. Currencyfluctuations against the US dollar affected overall costs. Despite oil pricevolatility and uncertainty in project prospects, spending and activitycontinue to gradually grow in upstream, midstream, and downstreamsectors. Suppliers have gradually raised the equipment prices tomaintain their position in the market.

The main cost drivers remained unchanged, those being the supply anddemand balance, increased sub-vendor prices, cost inflation affectingraw materials used in manufacturing, labour rate, and engineeringcosts. However, these factors continue to be counterbalanced by lowerdevelopment costs gained through cost efficient practices andinnovation. This was done by simplifying engineering processes,standardization, efficient manufacturing processes, digitalization, andthe development of advanced technologies such as artificial intelligenceand machine learning. Efforts toward collaboration between operatorsand suppliers could also enhance the streamlining of process andcutting the costs of the equipment.

Price increases in US dollar terms were modest for heat exchangers,gas compressors, tanks, and pressure vessels since the first quarter of2019, while gas turbines and generator sets had the lowest pricegrowth. Suppliers have reaped the benefits from the actions taken tolower the development costs as the market rebalances, and it favoursthe sellers’ market. However, risks and uncertainty in the marketpersist as international trade relations remain volatile.

Industrial production of fabricated metal products has slowly declinedcompared to the end of 2018 due to a reduction in orders. Shell andtube heat exchangers are mostly supplied by local producers, althoughthere has been a continued expansion of Asian suppliers to globalmarkets. The plate and frame heat exchanger market is still dominatedby global suppliers, who are mostly based in North America and Europe.In the US, imposition of tariffs on raw materials has lifted the domesticproduction cost for heat exchanger. With the appreciation of the USdollar, imports may become attractive option to buyers. The demandfor heat exchangers is mainly driven by LNG facilities and the strongrefinery market. The price of heat exchangers has increased but withslower price growth compared to 2018. Inflationary pressurecontributed to the price increase, as key growth differences in various



segments of the heat exchanger sector balanced against one another.Reduced industrial investment and lower demand are expected until2021, suggesting that oil-related projects might be postponed.

The gas turbine bill-to-book ratios have increased due to increasingcontracting activities in the third quarter of 2019. Most of the gasturbines are used onshore, mainly in power generation projects. In2019, most of the visible new orders have been placed in the LNGprocessing sector. Asia Pacific ranks as the largest market for gasturbines, whilst Europe is likely to see a decline in gas turbineexpenditure due to high cost projects being postponed or shelved in theuncertain oil price climate.

The gas compressor market has stabilized, and demand is on the rise inthe upstream and midstream sectors. The utilization rate ofcompressor manufacturing capacity has been improving, shown by thebook-to-bill ratio among the key gas compressor suppliers. The totalmegawatt capacity of visible contracts increased, with most awardedfor LNG liquefaction projects, which require large compressor capacity.Although suppliers have reduced spare manufacturing capacity throughvarious restructuring actions, the market is still competitive. This ismainly because suppliers have implemented more flexible andsimplified manufacturing processes which provide better response todemand fluctuations, as well as better cost control and improved leadtimes.

The US metal tank and pressure vessel manufacturers have pushedlarge price increases and the market appears well supplied in the firsthalf of 2019. Major players in North America and Europe regions arefocusing to expand capabilities of pressure vessels. However,inventories of fabricated metal products have declined since thebeginning of the year due to slow order growth, reduced output, anddisruptions from tariffs. Globally, demand for metal tanks and pressurevessels have weakened with GDP growth slowing down in some regions.The weaker global demand outlook indicates that it is unlikely to putupward pressure on prices in the near term.

BulksBulk materials consist of a variety of products including concrete andcement, wire and cables, electrical components, instrumentation,valves, paint, asphalt, and insulation. In the current dynamic,globalized world with increasing energy consumption, shifting views on



sustainability, and ever-changing market conditions, the bulk materialsmarket depends on several factors. Industrial demand is mostlyinfluenced by construction in the residential and commercial sectors,which in turn is dependent on the state of the economy. The demandfor bulk materials therefore tends to vary from region to region, beingsubject to specific market conditions and local economic development.

Prices in US dollar terms of cement and concrete remained flat in thelast six months, although the second quarter of 2019 saw a marginalrise in prices in almost all countries. Globally, construction activityweakened throughout 2019. Slowing government construction anddelayed projects, primarily facilitated by shortages of skilled andunskilled labour, resulted in a third quarter decrease for cement in Asia,particularly in India. However, Chinese infrastructure investment grewin the second quarter as new projects began construction, providing ameasure of balance to the region. In Europe, companies facegovernmental pressure to reduce CO2 emissions and are utilizing newtechnologies in the cement and concrete industry to reduce itsemissions-heavy impact. As companies attempt to make theirprocesses more efficient, costs are anticipated to rise. In the US,construction activity in the oil and gas sector is expected to growthrough the end of 2019, likely impacting cement and concrete prices.

Prices of insulation, control valves, switchgear, transformers, wires,and cables decreased marginally or stayed flat throughout the secondand third quarters of 2019. Demand for these items is usuallysupported by growth in the oil and gas economy and constructionactivity. The insulation market contracted moderately due mostly towaning demand in the Middle East. Prices for control valves, wires, andcables decreased in the third quarter due primarily to falling oil pricesand the decline of copper prices in the United States. Regionally,inflation contributed to increases observed in the second quarter fortransformers and switchgears, particularly in the Russia, Asia, and theMiddle East. Construction activity is anticipated to further softenthrough the end of 2019, and with it, demand for materials.

Paint and asphalt prices remained mostly flat in the last six months,falling globally after experiencing a moderate rise in the second quarterof 2019. Asphalt prices are especially sensitive to the fluctuations ofcrude oil prices, and the volatility of the market in 2019 has recorded anegative overall impact on costs. The effects of the drone attack on theSaudi Arabian processing facilities were temporary as production andprocessing were restored within weeks, and costs for asphalt decreasedafter the associated spike in prices. Construction activity wanedthroughout 2019, and coupled with notable depreciation of local



currencies against the US dollar, marked significant price decreases inboth Europe and Africa. Additionally, the amount of paint soldworldwide, especially in Asia, rose in the second quarter. However,global economic slowdown due to the trade dispute between the US andChina impacted growth for both paint and asphalt. Demand for bothpaint and asphalt is anticipated to remain stable, unless furtherimpacted by a change in oil price.

Construction activity is anticipated to stagnate through the end of 2019,particularly in the US, China, and India, which is expected to exertfurther downward pressure on the market. However, global economicgrowth has stabilized, and bulk material costs are estimated to remainflat.

Offshore rigsDemand in the global offshore rig market has slowly emerged from itsprolonged downturn and is expected to increase in the short term.Different segments of the offshore drilling rig market are recovering atdifferent rates. The largest increase in demand is expected for jackups,followed by semis and drillships. However, it is likely that a number ofplanned drilling campaigns maybe delayed or cancelled, which wouldlower the demand. This might happen if the price of oil remains low andrelatively unstable, especially in the face of cheap onshore alternativesand general disruptions due to trade and geopolitical disputes.

During the downturn, both marketed and total utilization rates wererelatively low. Since late 2017, the marketed contracted utilization ratehas been recovering at a gradual rate with this upward trajectory set tocontinue in the short term. Supply shrinkage has been a majorcontributor to the higher utilization rate as a number of units werepermanently removed from the active fleet via retirement, scrapping,or conversion to a non-drilling unit.

In the Asia-Pacific region, the third quarter of 2019 has been quiet forthe floater market with no new awards after a busy first half of theyear. Some floaters completed their charters in Japan and Indonesiawhich contributed to an increase in the number of available units. Thejackup market remains active with several awards issued and multiplenew requirements. The market has tightened as most units in theexisting fleet have been taken up and several newbuilds have departedthe region to the Middle East. While rig availability is limited for aworking unit with a near-term end date, there are alternative rigs in the



region that could be considered such as newbuilds or cold stacked rigs.There have been several newbuilds at Asian yards securing workoutside of the region.

In the Indian Ocean, day rates have increased, achieving rates up toUSD 45,000, compared with USD 27,000 seen in Q1 2019. This marketis known for its low cost base, aged and low specification units, most ofwhich are owned by Indian contractors; however, some internationalcontractors are offering rigs for some limited higher- specificationopportunities with independent oil companies within the region.

In West Africa, some significant movements happened in the floatermarket with new rigs requirements during the third quarter 2019. Mostof the drillships are under contract or hot stacked throughout theregion. There has been a slight decrease in the number of rigs in thejackup sector with no new requirements reaching the market duringJuly and August. Currently, most of the jackups are operating and thenumber of cold stacked units has not varied since Q1 2019.

In the Middle East, the rig market remains the strongest market forjackup segment as it seems to be the region with the most openings forthe distressed newbuild assets and for the niche of shallow draft units.Multi-rig requirements are providing a high degree of confidence to rigcontractors with demand continuing to be driven by national oilcompanies. Due to this momentum, the region is predicted to absorbmany of the surplus units still in the Chinese shipyards over the comingyears. Marketed contracted utilization recovered in August whichprovided support to increase day rates compared to last year.

In Latin America, the utilization rate for semis and drillships remains lowas the market in this region had a rocky year. Brazil is expected to drivemore work in the short term based on known rig requirements. Theutilization rate is at the highest level since June 2018 showing a markedimprovement within the market. This may be due to the supplyshrinkage, but also to the several new rigs contracts in the region.Jackup market activity has increased at the end of the third quarter2019, with about half of the fleet working and most under contracts inMexico. A number of operators have recently received approval fromgovernment regulators for exploration and appraisal plans in Mexicowhich could provide long term support to the market resulting in severalnew requirements. Recent discoveries in Guyana could lead to anincrease in exploration activity and more developments in the region.Looking ahead, new programmes are on the horizon that will net morenew charters, both from old players and new ones.



In North America, floater utilization took a small hit in the summer as nonew floater requirements came into the market. A shrinkage in supplyhelped optimize the number of readily available units with a favourableeffect for rig contractors to increase the day rates. However, due to thenumber of idle marketed units worldwide, the possibility for rigs movingto the region remains high. Some units were already added to the USGulf with charters and scheduled to mobilize to eastern Canada earlynext year. The number of contracted jackups decreased slightly with nonew rig requirement reaching the market during June and July. Somerigs are scheduled to roll off contract by the end of the year which couldfurther weigh on utilization and remove upward rig day rate pressure.The average number of rigs under contract decreased in the thirdquarter of 2019. This was due to multiple factors such as lowcommodity prices, lack of available capital financing in the market, andconsolidation of some operators over the past year which leaves fewerplayers in the market.

In Northwest Europe, the floater market is softening as the winterperiod approaches. Most of the marketed standard semis in the UKmarket are currently working. A few rigs were released from contractand completed their charters, which has increased rig availability.Tender activity has been slow, and operators have been keeping a lidon demand requirements in recent months. Some of the available unitswill be bidding on work in the central and northern North Sea that aresuited to standard semis. The jackup segment remains busy withmultiple new requirements and issued awards. There has been nochange in jackup rig number in the Norwegian market since Q1 2019with half of it being under drilling contract.

Table 2 shows the average worldwide day rate change for the differentclasses of offshore rigs used in QUE$TOR since Q1 2019. Deepwaterfloaters up to and above 7500 ft showed the highest increase globallywhilst shallow and midwater floaters remained flat or increased slightly.



Rig classification Average worldwide dayrate change

Floater <= 1500 ft (450 m) 0%Floater <= 3000 ft (900 m) 1%Floater <= 5000 ft (1500 m) 3%Floater <= 7500 ft (2300 m) 9%Floater > 7500 ft (2300 m) 18%

Jackup 6%

Table 2 - Average worldwide offshore rig day rate change sinceQ1 2019

Shortage of recent fixtures in some regions has made the day rateupdate challenging for some of the rig specifications. The spiderdiagram in Figure 18 shows the percent changes implemented inQUE$TOR 2019 Q3 to the offshore rig day rates depending on rig classand region.

Day rates of jackup and floaters above 7500 ft varied the mostregionally, showing the highest increase in the Indian Ocean, Australia,and UK North Sea. Although the number of fixtures have increasedsince Q1 2019, some of the regional rates should not be seen as a realmarket trend but rather more as an adjustment to make them closer tothe most recent marketed contract value. Day rates in QUE$TOR arebased on 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 be private and those rates which dobecome public knowledge will do so on a variable timescale.



Figure 18 - Global average day rates for offshore rigs

Offshore vesselsEfforts to secure charters have remained intense across the globalmarket. Offshore vessel owners continue to focus on increasing fleetutilization and chasing all term and spot contracts at competitive dayrates. Dramatic declines in day rates have stopped and, although theday rates are not as high as in the past, the market looks to havereached a calmer phase for now, depending on oil price movements.Market expectations are for day rates to increase in most regions in2020 but at a slow pace. However, delays on projects and contracts,cancellations of ongoing projects, cost pressure on vessel operators,and day rate renegotiations seem to be inevitable. Offshore vesseloperators continue to face reduced profitability for vessels, which iscausing an increasing availability of vessels for sale, further scrappingof vessels, newbuild cancellations, and cold-stacking.

Following the market crash in late 2014, the number of stacked and idleoffshore vessels increased to levels previously unseen. This surge instacked vessels has allowed owners and managers to keep anypermanent decision on the future of their vessels on hold while makingsome reductions to operating costs and maintaining a certain level of



utilization. Since the start of 2019, however, the stacked fleet size hasreduced in most regions as a result of large vessels returning to themarketplace, following some improvement in market sentiment.

In the Asia-Pacific region, term demand has continued to recover andgenerate positive movements regarding term utilization. The totalnumber of vessels working on term charters has increased and theutilization rate has steadily improved in the third quarter 2019.Exploration and drilling activity in the region increased, improvingdemand for both Platform Support Vessels (PSV) and Anchor HandlingTug Support (AHTS) vessels. Many shipowners have started toreactivate their cold- stacked vessels in order to respond to theincreasing demand for jackup rigs contracted for drilling operations. InAustralia, vessel term utilization for every segment looks set toimprove, influenced by ongoing major projects in the region.

In Latin America, vessel demand in Guyana has continued to increase.A recent oil discovery has caused additional PSV and AHTS support toarrive in the area. An increase in vessel demand, drilling activity, andconstruction operations is expected in the near term for Guyana andnearby waters. In Brazil, the offshore industry has been trending downfor much of 2019, but several deepwater rigs are set to begin long-termcontracts with Petrobras. Mixed signals coming out of Brazil may be aneffect of Petrobras’s long- term contracting structure, which hashistorically been slow to adjust to near- term drops in rig activity.Despite an increase in activity from the International Oil Companies,Petrobras remains the largest employer of offshore vessels in Brazilwith over 80% of term charters. Market sources indicate that vessel dayrates in Brazil have been on the rise. In Mexico, new vessel tenders andfixtures were launched by Pemex in the third quarter 2019 to supportexploration and drilling activities, and several supply vessel contractswere also issued with foreign oil operators to assist in developmentoperations through the remainder of 2019.

In the Mediterranean Sea, term utilization has followed a downwardtrend. Offshore vessel demand in the Mediterranean and the Black Seacontinued to weaken. Vessel demand in the region is heavily driven bydrilling campaigns and this steady decrease can be attributed to thenumber of well programmes reaching completion through the year.The third quarter 2019 saw an increase in the number of vesselsmobilized to other regions, predominantly Africa, contributing to a slightdecline in regional supply. Looking forward, term activity looks morepromising with several drilling campaigns and field developmentprojects scheduled for the fourth quarter. A humanitarian groupchartered the PSV Ocean Viking for migrant rescue. The use of offshore



vessels for rescue missions and other activities may become morecommon in the future as vessel managers try to extend the operationallife of their ageing vessel when the tonnage quality no longer meets thedemand of the oil and gasmarket.

In the Middle East, robust term activity has continued to produce anincrease in utilization, exceeding the highest vessel utilization since themarket downturn in 2015. The increasing level of activity in the regioncontinues to be driven by the expansion of greenfield developments,mainly gas projects, in Saudi Arabia, Qatar, and the United ArabEmirates. Demand for vessels increased further with new andincremental term requirements, primarily from Saudi Aramco. Severalvessel movements in the Middle East were evident in Q3 2019.Operators with an international base rearranged their working fleet forwork opportunities between markets during the second half of the year.Some vessels made an exit from the Middle East but were offset by themobilization of a similar number of vessels coming from theMediterranean and Southeast Asia.

In the North Sea, some significant chartering activity took place in thethird quarter 2019, with numerous long-term deals agreed. Augustproved to be a decent month of term fixture activity, with several newdeals fixed especially for AHTS vessels. Reduced availability caused thehighest average day rates for large vessels in over a year. Demand interms of rig moves was high, while numerous AHTS vessel departuresfrom the North Sea helped to tighten market conditions. While Q3 2019proved to be a very successful time for AHTS, market conditions werenot as favourable for PSV owners. With the conclusion of severalsummer term projects, PSV availability increased, affecting negativelyday rates for vessels fixed on spot deals. The North Sea offshoremarket remains hugely challenging for several major players, despite arelatively positive summer season.

In West Africa, some vessels have been reactivated from lay-up, themajority of which have immediately begun term charters upon leavingthe shipyard. The rise in the number of reactivations in the region canbe attributed to an improving market and indicates that vessel ownersare willing to invest capital in order to secure term charters in theregion.

In the US Gulf of Mexico, despite the tightening supply in the deepwaterPSV market, low day rates remain a major problem for vessel ownerswho have been operating at a loss for years. Vessels have left for jobsin South America and a few AHTS were scrapped, but vessel demandhas remained largely flat. Although spot day rates for high specification



PSVs are higher due to limited competition, long-term charters can befilled from the warm and cold-stacked fleet from a wide field of playersand at very competitive day rates. AHTS utilization in the US Gulf fell tohistorical lows after 2016; for the last three years the AHTSrequirement in the Gulf has averaged less than three anchor handlersper long term contract.

Globally, the trend of little or no newbuild orders continues as manyvessels from the order book are continuing to be pushed back to futuredates.

The global offshore construction vessel market has yet to fully recoverfrom the downward trend in day rates. However, contractors areproving the ability to withstand the storm, and many remain optimisticthat rates will begin to increase over the coming years. Most vesselsegments have experienced a decrease in rates in the second quarter2019, whilst the third quarter has seen globally more stability, whichcould be considered an encouraging trend. Both utilization and dayrates throughout the global market remained almost flat in the thirdquarter of 2019, showing no significant increase or decrease for anyspecific vessel type. Northwest Europe was the only region whereutilization increased, largely due to the intense decommissioningactivity. With a lot more decommissioning work in the pipeline in theregion, it is likely that the market will continue to see high utilization forvessels working in this sector.

Subsea equipmentIn the first quarter of 2019, awards for subsea equipment continued,albeit at a reduced rate. Forward looking projections of subsea treeawards would suggest a demand between 180 and 230 per yearrespectively for 2020 and 2021. While this is low in comparison to pre2014 years it is significantly better than 2015 and 2016 indicatingtentative signs of a recovery taking place.

Subsea equipment manufacturers have been increasingly reluctant topublish specific contract scope or value, indicating that prices are stillwell below the level they once were with margins incredibly tight onsubsea trees, wellheads and manifolds.

Overall prices for subsea hardware have been relatively flat except forcontrols and some specialized equipment which have experienced somelarger increases.



There has been a notable decrease in steel prices. While this could havesome small effects on hardware prices, this has been offset byincreases in some exotic materials, such as Inconel, used in subseaequipment construction, limiting the final effect on cost.

Increases that have been seen in subsea hardware prices have beenlargely driven by higher labour and base operating costs. Subseaequipment manufacturers have maintained cost discipline of recentyears which has seen lower margins on subsea hardware contractscompared to the years up to 2015. Excess capacity still exists within thesubsea equipment market although this has reduced in the last coupleof years.

As subsea equipment including standard subsea trees have matured,they are now at a point whereby the base technology has beencommoditized suggesting that future price increases will be in line withinflation and material costs.

Unless there is a significant reduction in capacity or an increase indemand the current situation is expected to continue in the near term.It is also expected that equipment margins will gradually increase formanufacturers over time which will contribute to an increase in theresearch and development of new and existing technologies.

Additional price increases above those mentioned are anticipated tocome from differentiating technology introduced by manufacturers toimprove safety, reduce weight and lead to reductions in cost ofownership and installation time. Further price increases may well bedetermined by changes in regulation such as the requirement of asecondary lower master valve on subsea trees or the use of fibre optictechnology within the well. Additional downhole monitoringrequirements may also drive future price increases.

Longer term subsea equipment is expected to incorporateenhancements in digital technologies which have the potential to reduceoperating costs. Other contributing factors that will determine thedirection of future costs are the current wave of consolidations,restructurings and divestments within subsea equipmentmanufacturers.



LabourRisk factors from international and domestic sources have affected theupstream construction labour market in opposing ways. The threat of adeeper trade war between the US and China, Brexit, currency issues,tariffs, and political turmoil have contributed to make this markethesitant in the face of the continuing uncertainty. Wages haveincreased in local currencies in all regions but mainly because of tightlabour market conditions and skill shortages.

In North America, the strong job creation in the last few years in boththe US and Canada has caused labour shortages and kept wagesgrowing. Recent data showed that the number of employees retiring inthe industry is higher than the number of new recruits, highlighting howdifficult finding workers will continue to be over the next several years.

In Europe, conditions have been supportive of wage growth, but therehave been some signs of weakening as we move into 2020. EasternEurope remains an area of strong wage growth due to labour shortagesand minimum wage increases. The UK labour market has shown amixed picture with the terms of the exit from the EU remaining unclearalong with a spreading sense of unpredictability for the potential impacton immigration. In general, the UK economy contracted, driven byreductions in production and construction sectors which were alsodriven by the uncertainty of Brexit.

In the Asia-Pacific region, wage growth has remained on a moderatepath as slowing economic growth and continued uncertainty hastranslated into reduced in job creation. The pressure on wages to risehas eased but relatively tight labour markets and governmentalmeasures are continuing to support some wage growth. The Chinesegovernment has increased stimulus measures to bolster economicgrowth and counterbalance the negative impact of US tariffs.

In South America, Brazil’s construction industry is not growing as fast asexpected, mostly due to slow economic growth in general. Thegovernment delays in approving reform legislation has heavilyimpacted the economy causing capital outflows and a depreciation ofthe local currency. Colombia’s construction industry is also troubled bydelays despite the government’s initiatives to increase oil production.

In Africa, oil and gas legislation has been changed in Angola to supportthe renewal of investment into the country by international oilcompanies. The governmental efforts to attract more oil and gasactivity is likely to help improve oil and gas sector wages. In Nigeria,kidnapping concerns in the oil sector have continued to limit foreign



investment and growth potential. In South Africa, the economy had aslow start in the first quarter and a lack of skilled labour has continuedto constrain construction industry growth.

Globally, the Engineering and Project Management (E&PM) industry hasseen an increase in new order intake and backlogs, with companieshiring again in anticipation of higher volumes of work. Activity hascontinued in the LNG and unconventionals sectors. A few Engineering,Procurement, Commissioning and Installation (EPCI) contracts wereawarded for LNG and separation plants, as well as to build and installsubsea equipment. With the further consolidation of E&PM companies itis unlikely that costs will be significantly affected in the short term.Backlogs have started to recover but these are far from the levels seenprior to the downturn. As a result oil and gas operators continue toretain the majority of the bargaining power.

Land rigsWhile last year represented a marked recovery in both activity andexpenditure throughout the global onshore sector, the last six monthshave seen a dip in the onshore rig market as commodity pricesstagnated and rig counts declined. Day rates were anticipated to riseglobally through 2019, although rig activity did not perform as drillingoperators expected. Rig utilization still does not support the newbuildscoming into the market, and moving into 2020, investments areexpected to decrease.

Globally, tender activity increased in most regions as long-awaitedcontracts in South America and the Middle East materialized. However,rates were lower than anticipated. Recovery remains uneven;nevertheless, several regions represent strongholds in the market asrig quality increases and average rig rates remain strong. As theutilization rate in North America for super spec rigs is maintained atapproximately 90%, international markets are following suit as manycontractors upgrade their existing fleets to accommodate improved rigspecifications.

North American high spec day rates remained flat as strong termcontract usage protected rates from the recent downward trend indrilling activity. Drilling contractors are continuing to update theirexisting fleets to super spec rigs instead of opting to invest in newbuilds.Ongoing research has indicated that these rigs require less drillingsupport equipment and spares than initially indicated, moderating



mounting operating costs for fleets. North America continues to be astronghold of drilling rig contractors, and in spite of the recent decline inoverall rig count, utilization and day rates for super spec rigs remainsolid. However, rates for other rig classes are decreasing, marking a2% reduction in the second and third quarters. After steadily increasingin 2018, North American day rates have stagnated and are anticipatedto remain so through 2020 as drilling contractors delay newbuilds,pending a rise in oil prices.

In the Middle East, day rates declined through the second and thirdquarters, showing a 1.5% 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. Despite resilient rates and strong drilling activity,new contracts are highly dependent on the fluctuation of oil prices, andrates are expected to flatten through the first quarter of 2020.

Russian rates for all classes showed the only regional increases in thepast six months, primarily driven by improved activity and currencyexchange movement. As in most regions, efforts are being made toimprove the quality of rigs as the intensity of drilling programmesincreases and requirements change to encompass high spec rigs.However, rig fleets still rely heavily on low spec rigs, and day rates forlow spec rigs in Russia are expected to remain strong.

Asia continues to show resilience to the fluctuations of the onshore rigmarket, and while day rates declined by 0.25% in the last six months,drilling activity remains strong. Domestic Chinese demand is negligible,but operators have continued pushing production, in many casesoperating at a loss. Despite day rates growing through 2018, the recentdecline in oil prices is exerting downward pressure on the market; ratesare anticipated to flatten in 2020.

In South America, while rates declined overall through the second andthird quarters of 2019, high spec rates experienced moderate growth inthe third quarter. After a declining rig count in the first quarter of 2019,tender activity in Colombia has increased in the last six months andresulted in growing utilization for several rigs previously off-contract.Nevertheless, rates remain lower than anticipated. As oil pricesflattened, Venezuelan rig movement declined accordingly, andsanctions imposed by the US government have further hindered activityin the region. However, Argentina remains a regional stronghold, andits focus on unconventional drilling programmes and the transition tohigh spec rigs provide opportunities for growth. Similar to the activity in



Russia and the Middle East, South American focus has shifted toupgrading existing local fleets to super spec rigs, and as rig fleetspecifications improve, day rates are anticipated to increase movinginto 2020.

In the last six months, day rates for low spec rigs have decreased in allregions, except Russia, as contractors endeavour to boost utilizationand market share. However, several regions, primarily Asia and Africa,experienced slight growth in the second quarter. While they remainactively relevant in Russia, Africa, Asia and the Middle East, utilization oflow spec rigs is expected to wane as international markets move towardmore high spec rigs to remain competitive. Demand continues todecline in North America, reflected in falling day rates through the endof 2019.



Contacting customer supportAs part of the continuing licensing agreement for QUE$TOR, IHS Markitoffers a full technical support service via its regional offices. Bothcomputing and engineering support relating to the operation andunderstanding of the program are available.

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

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

The IHS Markit software support team key contacts are as follows:



mailto:[email protected]

North America Jonathan Stephens - Product Manager,[email protected] Verma - Senior Field Development Engineer,[email protected] Elick - Senior Data Analyst,[email protected]

1401 Enclave Pkwy, Suite 200HoustonTexas 77077USA

Tel: (+1) 281 752 3200

Central & SouthAmerica

Alan Delgado Valvas - Customer Solution Advisor,[email protected] Sur 800 Piso 11 #3Mexico City03100Mexico

Tel (+52) 55 3067 6458

Thais Hamilko - Product Specialist, E&I Prod Line-LATAM,[email protected] São Bento, 29 - 7o andarCentroRio de JaneiroRJ, CEP 20090-010Brazil

Tel: (+55) 21 3299 0440

Europe, Africa &Middle East

Rita Antonelli - QUE$TOR Product Management Principal,[email protected] Pereira - Senior Field Development Engineer,[email protected] Williams - Engineering Manager,[email protected]

Ropemaker Place25 Ropemaker StreetLondon EC2Y 9LY

Tel: (+44) 1344 328300











Russian Federation Aram Yesayan - Principal Customer Solution Advisor,[email protected]

Entrace B, 4th Floor2 bld. 1, Tsvetnoy BoulevardMoscow 127051Russia

Tel: (+7) 495 733 9512

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

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

Tel: (+91) 124 454 2699

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

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

Tel: (+86) 10 5633 4567






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Windows® is a registered trademark of Microsoft Corporation.

All other trademarks and service marks, including without limitationQUE$TOR® belong to IHS Markit Inc. and its affiliated and subsidiarycompanies, all rights reserved.

This product, including software, data and documentation, is licensed tothe authorized user for its internal business purposes only and no partthereof may be disclosed, disseminated, sold, licensed, copied,reproduced, translated, transmitted or transferred to any third party.All rights reserved.

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