ReleaseNotes QUE$TORVersioncompatibility ProjectscreatedinQUE$TORv8.0andlaterarecompatiblewith QUE$TOR2016Q1.However,projectscreatedorsavedinQUE$TOR 2016Q1cannotbeopenedinearlierversions

Release Notes

QUE$TOR

2016 Q1 Release

May 2016

QUE$TOR is a registered trademark of IHS.

Windows is a registered trademark of MicrosoftCorporation.

Contents

Introduction 3

Version compatibility 4

What’s on the CD-ROM 4

System requirements 5

Application execution 6

General upgrades in QUE$TOR 2016 Q1 7

Expanded offshore pipeline installation form 7

High strength steel material options for offshore pipeline and sub-sea flowlines 9

Equation for buckling 9

Tanker turret improvement 10

Topsides dry oil tank 11

Offshore tubing material selection 11

New turbines and a review of existing turbines 12

Addition of comments on locked values 13

Onshore pipeline schematic 13

New defaults for offshore and onshore Russian and offshoreUkrainian procurement strategies 14

Newmetrics for topsides and subsea components 16

Selected other technical revisions 17

Cost database update 18

General 18

Oil Price Trend and Currency Market 20

Steel 25

Equipment 26

Bulks 27

Offshore rigs 29

Offshore vessels 32

IHS May 2016 Page 1

QUE$TOR 2016 Q1 Release Notes

Subsea 34

Labour 35

Land rigs 37

Contacting customer support 39

Page 2 May 2016 IHS


IntroductionWe are pleased to provide the 2016 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 2016 prices.

The main technical enhancements made to QUE$TOR 2016 Q1 are:

l Expansion of offshore pipeline installation form and inclusion ofsupply vessel durations.

l New high grade steel options for offshore pipelines, along with anupdate of the wall thickness calculation.

l Improvements to tanker turret sizing.l Dry oil tanks have been added to oil export in topsides.l Ability to select tubing material in offshore drilling.l Update of turbine powers and addition of two high output units.l Ability to add a user comment to a locked value.l Charting of the pressure profile in the onshore pipeline schematic.l New defaults for offshore and onshore Russian procurementstrategies.

l Newmetrics for topsides and subsea components.

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.

IHS May 2016 Page 3


Version compatibilityProjects created in QUE$TOR v8.0 and later are compatible withQUE$TOR 2016 Q1. However, projects created or saved in QUE$TOR2016 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.

What’s on the CD-ROMThe QUE$TOR 2016 Q1 CD-ROM contains the following:

l QUE$TOR (2016 Q1) installation files.l An ‘Application’ directory containing QUE$TOR (2016 Q1) programfiles

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

l A ‘dotNET Framework 4’ directory containing the executable toinstall .NET Framework version 4 on your machine if it is notalready installed

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

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

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

Page 4 May 2016 IHS


System requirements

QUE$TOR 2016 Q1

Operating system Windows Vista / Windows 7 / Windows 8and 8.1 / Windows 10 [1]

Application disk space 250 MB

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

Minimum monitorresolution 1024 x 768

Licensing Network or USB port

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

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

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

l Load the CD-ROM into your CD drive.

l The setup program will automatically detect if you don’t haveMicrosoft .NET Framework 4.0 already installed and provide awarning. It can be downloaded from Microsoft’s website by clickingon the ‘Yes’ option. Alternatively run the file ‘dotNetFx40_Full_x86_x64.exe’ located in the ‘dotNET Framework 4’ sub-folder ofthe QUE$TOR CD-ROM.

Note: The Client Profile version of the .NET framework 4 is notsufficient for QUE$TOR to run. The full profile install is suppliedon the QUE$TOR CD, and can be installed in addition to the ClientProfile.

l To install the Sentinel SuperPro dongle driver (if not alreadyinstalled) run the ‘Sentinel System Driver Installer 7.5.7.msi’located in the ‘Sentinel SuperPro Driver’ sub- folder of theQUE$TOR CD- ROM. Reboot your machine to complete the

IHS May 2016 Page 5


installation of the Sentinel driver. Note, this step is only requiredfor single user / standalone licensing.

Note: You should install the Sentinel security key softwarebefore the dongle is plugged in.

l To install QUE$TOR 2016 Q1 run the file ‘setup.exe’ in the rootfolder of the QUE$TOR 2016 Q1 CD-ROM.

l Once installed, an icon for QUE$TOR 2016 Q1 will appear on yourdesktop. A group will also appear on the start menu under AllPrograms\IHS\QUE$TOR 2016 Q1 containing shortcuts for theDatabase editor, the Project editor, the Project viewer, the mainQUE$TOR application and the Unit editor.

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

Note: QUE$TOR 2016 Q1 supersedes previous versions but can beinstalled alongside them.

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

Note: If your dongle has not been updated to run QUE$TOR 2016Q1 (and Q3), contact the QUE$TOR licensing desk ([email protected]) to get an email update for your donglelicence. If you use a network licence please ask your licenceadministrator to contact the QUE$TOR licensing desk.

Application executionl To run the software click Start and follow All Programs > IHS >QUE$TOR 2016 Q1 > QUE$TOR 2016 Q1 or double-click theicon created on your desktop.

Page 6 May 2016 IHS


General upgrades in QUE$TOR 2016 Q1In response to feedback the following features have been implementedin QUE$TOR 2016 Q1.

l Expansion of offshore pipeline installation form and inclusion ofsupply vessel durations.

l New high grade steel options for offshore pipelines, along with anupdate of the wall thickness calculation.

l Improvements to tanker turret sizing.l Dry oil tanks have been added to oil export in topsides.l Ability to select tubing material in offshore drilling.l Update of turbine powers and addition of two high output units.l Ability to add a user comment to a locked value.l Charting of the pressure profile in the onshore pipeline schematic.l New defaults for offshore and onshore Russian procurementstrategies.

l Newmetrics for topsides and subsea components.

Expanded offshore pipeline installation formThe installation form in the Offshore pipeline component has beenexpanded to account for weather downtime and distance to supply baseinputs. This new form is similar in style to the existing subsea installationform with the common inputs separated out in a box at the top of theform.

IHS May 2016 Page 7


Figure 1 - Offshore Pipeline Installation Form

In Figure 1 the offshore pipeline installation form shows a new line itemhas been added to account explicitly for transit loadout, this accountsfor the time it takes to loadout all the pipe and otherequipment/supplies onto the vessel at the dockside along with the timeto travel from the dockside to the field. The distance to supply base hasalso been added to modify transport distances and better define thetime required for transit between the supply base and the field.

A new supply vessel duration entry is now available for each pipelineinstallation activity. It is intended that this value is used for transitloadout activities that supply pipe to the pipe lay vessels in the field(excluding reelship) during the installation activity. A reelship isassumed to return to the laydown yard in order to reel up. The supplyvessel durations for all other installation activities are editable but arenot included by default.

A new line item has been added to explicitly define duration associatedwith weather downtime. This is calculated as a percentage of the subtotal duration for the given vessel, weather downtime percentageshave also been added to allow easy adjustment of the calculationparameters when specific weather downtime allowances are to bespecified.

Page 8 May 2016 IHS


High strength steel material options foroffshore pipeline and subsea flowlinesThe number of steel options for offshore pipelines and subsea flowlineshas been increased. There are now three new high strength steelmaterials available:

l Carbon steel X65: API 5L Grade X65 carbon steel (density 7850kg/m3 [490 lb/ft3], Specified Minimum Yield Strength 450 MPa[65300 psi], corrosion allowance 3 mm).



The original Carbon steel option has been re-named as Carbon steelX60.

The addition of the three new steel materials has required a moreaccurate calculation of the pipeline wall thickness based on externalpressure criterion. In previous versions, this calculation was based on alogarithmic relationship between the water depth and the diameter towall thickness (D/t) ratio. Although correct, this function wasindependent of the material type and therefore unable to capture thedifferentiation in wall thickness between various grades of steelmaterials. The original equation has been replaced by a tablecontaining wall thickness to diameter (t/D) ratios for different materialsat different water depth and, therefore, at different external pressures.These new ratios were generated by using Timoshenko and Gere’sequation.

Equation for buckling

Equation to be used in the buckling formula:

p p p p p p− + 1 + 1.5 . . + . = 0c p

f D

t el c p el2 .o

where

IHS May 2016 Page 9


p

p

f

D

t

p

= characteristic collapse pressure (MPa)

{which corresponds to the external pressure}

= plastic buckling pressure (MPa)

= inital out−of−roundness {assumed to be 0.015}

= average outside diameter (mm)

= wall thickness (mm)

= eleastic buckling pressure (MPa)

c

p

o

el

and

( )p SMYS= 2. .p

t

D

SMYS N mm= specified minimum yield strength ( / )2

and

( )p = .el

E

v

t

D

2.

(1− )

3

2

E N mm

v

= Young′s modulus ( / )

= Poisson's ratio

2

This equation is a function of the material selection as it depends on thematerial Specified Minimum Yield Strength (SMYS). The wall thicknessto diameter ratio (t/D) calculated using Timoshenko and Gere’sequation normally is on the safe side as it uses a characteristic collapsepressure which is lower than the actual collapse pressure of the pipe.

The differentiation of the wall thickness will impact the material cost ofthe pipeline, the installation speed of the lay vessel and the requireddiving support vessel (DSV) days for any tie- ins. For a fixed wallthickness, the welding time for all these steel grade materials is thesame. Higher grade steels that have smaller wall thickness will havereduced welding time but there is a higher chance to produce weldingdefects that can affect the schedule, but this is not quantified inQUE$TOR.

Tanker turret improvementSeveral changes have been made to the turret sizing algorithms toenable estimations of large turrets for deepwater development andwhen there are a large number of riser connections.

Page 10 May 2016 IHS


The improvements include; inclusion of additional swivels for utilityservice (hydraulics and chemicals to subsea systems), electrical/fibreoptic swivels, plus 6" toroidal swivels for test and seawater lift service.The number of disconnects required has also been updated to accountfor the increase in the number of swivels. The calculation of thematerials required for the chain table/buoy has been reviewed andupdated to ensure it is sized to support the load of the mooring andnumber of risers attached. The calculation of the materials required forthe riser / turret has been reviewed and updated to allow for variationbased on the size of the tanker, the specific number of risers passingthrough, the environmental conditions, the loading due to water depth,plus the extent of facilities added directly to the turret.

The effect of using more variables in the calculation of the turret hasboth improved the estimate for turrets and enables larger and morecomplex turrets to be estimated which were previously inadequatelyaccounted for.

Topsides dry oil tankThe option to add a dry oil tank to topsides has been included on the oilexport form. A dry oil tank can be included to act as a buffer betweenthe production and the oil export pump so that there is always a netpositive suction head (NPSH) on the pump. The dry oil tank can alsoprovide a source of dry oil for pigging/purging of subsea flowlines. A dryoil tank will automatically be selected for all substructures except forones where storage can be assumed to be available in the substructure(Cylindrical hull, Tanker, and GBS). As the operating weight includes theinventory of oil, including a dry oil tank has the potential of a significantincrease in overall operating weight.

Offshore tubing material selectionThe option to select the tubing material to be used in Offshore drillinghas now been added. The selection is available for all offshore wells.

IHS May 2016 Page 11


Figure 2 - Tubing material selection

The selection of tubing material is made on the drilling primary inputform (Figure 2). The options for tubing material selection are carbonsteel, alloy 625, alloy 825 or titanium. The material selected willdetermine the $/m unit rate applied on the cost sheet.

For wells that are below the high temperature high pressure region(HPHT) with a reservoir pressure less than 10000 psia or temperatureless than 300°F then carbon steel is selected as the default option. Forwells above this that are in the HPHT region then alloy 825 is chosen bydefault.

The existing tubing definitions in the procurement databases have beenrenamed to carbon steel tubing.

When a higher grade steel is required for wells the default selection is touse steel grades that are similar to 825 alloy for the tubing materialselection. Alloy 625 has been included as a selection option but as this isan uncommon choice it will currently incur a bespoke premium price.

New turbines and a review of existing turbinesTwo new high output turbines have been added to QUE$TOR. The newturbines are GE LM 6000-PF+ and Siemens Trent 60. The turbines areavailable for use as either mechanical or generator turbines. AsGenerators they can deliver 52MW and 54MW of power respectively.

Turbines that were previously supplied by Rolls Royce are now beingsupplied by Siemens and the names have been changed from RR Avon2648 to Siemens 2648 and RR RB211 to Siemens RB211.



Turbines powers have also been updated to reflect the changes in thedesign and efficiency for both mechanical drive and generator sets. Anyuser edited changes to the turbine powers in the procurement strategywill still be preserved along with the associated turbine name.

Addition of comments on locked valuesIt is now possible to add a user comment to a locked input value whichwill be reported in the locked values report.

A user comment can now be attached to locked text boxes, checkboxes, radio buttons and combo boxes. Editing a comment is done byright clicking on the value to reveal the context menu with the menuoptions "Locked", "Insert comment", "Edit comment" and "Deletecomment" if a comment is present.

Comments on a locked value can be identified through a red triangleabove the lock symbol. The comments on locked values are reported inthe locked values report and the text can also be seen on the tooltipswhen hovering over the value. In addition the tool tip shows the loginidentifier of the commenter, the date and time comment wasmodified,and the precision of the number displayed.

Figure 3 - Comments on locked values

Unlocking a value removes any user comment that is associated with it.

Onshore pipeline schematicThe pipeline schematic has been updated to show the elevations andpressure in the pipeline.



Figure 4 - Pipeline Schematic

Figure 4 shows an example of the onshore pipeline schematic. As withprevious versions of QUE$TOR the x axis shows the length of thepipeline. The primary y axis shows the elevation of the pipeline at anypoint along its length with the colour under the chart showing the terrainupon which the pipe is being laid.

With this release a new secondary y axis has been added that shows thepressure in the pipe along its length accounting for hydrostatic head andpresence of boosters and reducing stations.

The units of measurement shown on the schematic are now set to bethe same as the relevant input parameters.

New defaults for offshore and onshore Russianand offshore Ukrainian procurement strategiesAs a result of the recent geo-political turmoil and subsequent Westernsanctions applied to the Russian oil and gas industry, QUE$TOR 2016 Q1proposes a revised default selection of cost centres when an onshoreC.I.S. Average or Russia or offshore C.I.S. Average, Russia or Ukraineprocurement strategy is selected.



The new proposed defaults for Russia and C.I.S. Average are:

Cost Centre Onshore OffshoreContingency Russia Russia (Arctic)Equipment Russia S.E AsiaMaterials Russia Russia (Arctic)Fabrication Russia S.E AsiaLinepipe Russia S.E AsiaConstruction (Installation) Russia Russia (Arctic)Design + Project Management Russia N. North Sea (UK)Insurance + Certification Russia Russia (Arctic)OPEX Russia Russia (Arctic)Freight - Russia (Arctic)

The new proposed defaults for offshore Ukraine are:

Cost Centre OffshoreContingency EuropeanEquipment EuropeanMaterials EuropeanFabrication EuropeanLinepipe EuropeanInstallation EuropeanDesign + Project Management EuropeanInsurance + Certification EuropeanOPEX EuropeanFreight European

The suggested defaults have been identified using both internalintelligence and data provided by external sources. An importantchange is that for Russian and C.I.S. Average offshore developmentsfour important cost centres will now be sourced from S.E Asia andWestern Europe rather than Russia as Russia has limited offshoreexperience and therefore will tend to rely on foreign expertise andgoods. The revised default offshore Ukraine procurement strategyreflects the recent issues between Russia and Ukraine and Ukraine'sincreasing alignment with Europe.

Previously, the offshore defaults were all set as Russia (Arctic) althoughprices of some offshore equipment and services which were consideredto be globally sourced were aligned with prices in the assumed sourcingregions. In this way, for example, prices of specialized subseaequipment sourced from outside Russia were consistent with their pricein the supply regions.



New metrics for topsides and subseacomponentsNew metrics have been added to the metrics reports. For the topsidesthere are three new metrics that enable a better understanding of thecost in relation to the capacity and processing throughput. The metricsreported for multiple and individual topsides are:

1. Cost/BPD processing capacity1: This metric enables comparison ofthe facility cost in relation to its capacity to process fluids.

2. Weight/BOE/day hydrocarbon processing capacity 2: This metricprovides a comparison of the weight of the facility required toprocess a unit of hydrocarbons.

3. Weight/BPD processing capacity: This metric compares the weightof the facility required against a unit of process fluids.

New subsea metrics have also been included and are reported for thetotal subsea system cost and individual subsea component costs. Thefollowing subsea metrics are now included:

1. Cost/BPD processing capacity3: This metric enables comparison ofthe subsea cost in relation to its capacity to process fluids. It isreported together for all the subsea components and for individualsubsea components.

2. Cost/Well/[Water depth unit]: This metric enables the subseasystem cost to be compared using two key indicators: the totalnumber of wells and the maximum water depth. It is reportedtogether for all the subsea components and for individual subseacomponents.

3. Cost/[Water depth unit]: This enables comparison of the cost ofthe subsea system against the maximum water depth. It isreported together for all the subsea components and for individualsubsea components.

4. Cost/ [Tieback length unit] / [Water depth unit]: This enablescomparison of the cost of the subsea system against the maximumtieback length and the maximum water depth. It is reportedtogether for all the subsea components and for individual subseacomponents.

1Topsides BPD processing capacity: This is the total design capacity of oil, gas produced, gas injection, gas lift and maximum ofwater injection and produced water processed by the facility in BPD.2BOE/day hydrocarbon processing capacity: This is the total design oil, condensate and gas produced, gas injection, gas liftprocessed by the facility in BOE/day.3Subsea BPD processing capacity: Total cost / total design capacity of produced oil, gas, and water, plus gas injection, gas lift andwater injection in BPD.



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

l In order to more accurately communicate our regionaldelineation, offshore Latin American databases have now beenrenamed "Central and S. America".

l It is now possible to insulate the receiving and export end riser ofan offshore pipeline using either wet or pipe-in-pipe insulation.

l Bare rig charter rig rates for any reservoirs in the HPHT region arenow increased by a factor to account for the special equipmentneeded.

l Appraisal/exploration wells drilled in reservoirs within the HPHTregion will now automatically have the cost of specialist servicetesting increased by a factor. This is to account for the moreexpensive equipment and longer durations of testing.

l The hub half of a complete connector is now included in the cost ofthe cluster manifold when spare slots are specified, this applies toproduction and injection flow connectors, Hydraulic/Chemicalflying lead connectors, and Electrical connectors.

l The subsea component design and project management durationsnow automatically increase for high pressure situations.

l When ESPs are being used in drilling then the interval and cost forESP replacements can be adjusted in the operating expenditureanalysis – Well Costs.

l The chemical injection pump suction filter has now been added asan included item in the topsides and production facility equipmentlist.



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

Note: On saving the project, the QUE$TOR 2016 Q1 cost estimate willoverwrite earlier costs except where those costs were ‘locked’ on thecost sheet or in the database. Therefore if you wish to retain a copy ofyour original estimate you should first create a duplicate of the projectbefore opening and saving it in QUE$TOR 2016 Q1.

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

GeneralThe oil industry is currently facing one of its deepest recessions everexperienced, with most oil and gas operators struggling withprofitability and earnings at unsustainable levels. This in turn is causingan equally severe situation for the service industry.

The cause is the persistent depressed price of a barrel of oil, which hasmarginally recovered a few times over the last year, but in Q1 2016sunk to levels not seen since 2003.

Despite the exceptional nature of this downturn, most operators havereacted by applying the usual measures adopted for previous similarsituations. These have involved reducing or even stopping investment inexploration, limiting development activity and consistently pushing forlower service industry prices.

Their traditional ‘wait-and-see’ approach had in the past allowed the oilindustry to go through shorter-term demand downturns while waitingfor conditions to improve. This time, however, there is a substantialdifference in the current industry situation. It appears unlikely that oilprices will be returning to the $100 per barrel level in the short tomedium term.

Operators still have a lot of adapting to do in order to cope with this newsituation. The majority of them are pursuing strict operating and capitalcost discipline and looking to simplify their organisation and processesevery way they can.



The cost reductions seen by the upstream operators over the past yearare not the result of improvements in efficiency in the service industry,but instead are due to pricing concessions caused by the significant drop(almost 40-50%) in activity levels. Most service companies have beenforced to reduce their prices as they are fighting for survival with bothnegative earnings and cash flow. This unsustainable financial situationfaced by the service industry implies that these cost reductions fromlower service pricing should largely be reversed when activity levelsstart picking up again.

We have entered a new era for the oil and gas industry, in which someoil producers can react very quickly to increases in the price of oil,bringing production online quickly and hence creating more volatility.Key contributors to the rise of this new era are the onshoreunconventional producers that have proven their ability to deliver largevolumes.

It seems that overcoming the current severe situation requires newways of thinking and doing business. A prevalent opinion in the industryis that an earlier involvement with service providers is necessary toeffectively reduce the total cost of developments. The choice ofequipment and field layout has a significant influence on both capitalexpenditures and long- term operating costs. The way to proceedseems to be to leverage suppliers’ expertise and finding ways ofconcept and design phase collaboration between the operators and theservice industry to increase the efficiency and reduce the cost ofprojects. This includes adopting DMADV (Define, Measure, Analyse,Design and Verify) methods and is assisted through the use of pre-construction service agreements, standards and pre-design frameworkagreements.

The oil industry needs to focus on challenging the “status quo” andincorporate new approaches and new technologies that can reduceboth capital investments and operating costs.

This time the ‘wait-and-see’ approach of the oil and gas operators willbe unable to bring the oil market to normality. Only the combinedcapabilities of the operators and the leading service companies havethe potential to fully understand the required performanceenhancement for the industry.

When the price of oil eventually recovers to the $50–60 per barrel level,the reaction of the industry will be different: onshore producers will beexpected to ramp up production ahead of their colleagues in theoffshore sector. The offshore industry needs higher prices for a longer



period of time to stimulate investment. Most offshore exploration andproduction projects in the deepwater sector have high capital costs andlong lead times. This is what has sustained much of the ongoingdeepwater activity even in the face of low oil prices. As a result offshoreactivity will need a longer time to recover than onshore in this newsituation, and many players in the offshore service industry areforecasting a prolonged depression in demand for their services.

While the recovery period for the majority of the upstream serviceproviders might be long, the best indicator of a start to the oil industryrecovery will be increases in the upstream spending budgets ofexploration and production companies. Until that happens, the industryis challenged by tough times, and some companies may not survive.

Oil Price Trend and Currency MarketCrude oil prices have continued relentlessly their downhill trend in thelast six months, with only a marginal recovery in February, as shown inthe graph below (Figure 5).



Figure 5 - WTI and Brent crude oil prices

In Q1 2016 oil prices went below the $30/bbl level and showed somevolatility in the $26-41/bbl range with similar variations for both the WTIand Brent price (Table 1).

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

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

Table 1 - Crude oil price spread

Iran's return to the international oil market contributed to furtherdepression, after sanctions were lifted under an internationalagreement with major world powers to restrict its nuclear work inJanuary 2016.

But why has the oil price continued to fall? This is a complicatedquestion, even if it might be reduced to the simple economic balance ofsupply and demand. Oil production has significantly increased over the



last several years, especially from countries that were usually oilimporters. Oil produced by Saudi Arabia and West African countries, inthe past sold to the United States, is now suddenly competing for Asianmarkets, which are experiencing lower growth than expected. All thishas forced producers to drop their prices. On the demand side, theeconomies of Europe and developing countries are weak and thereforedemand for fuel is decreasing. There are a few signs that productionmight drop because of the recent halting in exploration investments andcancellation of projects. However, this drop in production is nothappening fast enough to counterbalance the weaker demand.

The currency market has shown a mix of depreciation and appreciationof foreign currencies versus the US dollar (USD), with the Euro (EUR)holding strongly whilst the British pound (GBP) lost almost 8%compared to Q3 2015, in advance of the June 23rd European Union(EU) membership referendum. The USD is ending the first quarter of2016 on a weak note, despite its improved economic strength. On theother side, the strength of the Euro seems unsustainable. The trend ofthe Norwegian kroner (NOK) has remained highly dependent on oil, andlost around 2% of its strength against USD since the third quarter of2015.

Sharp volatility in the GBP remains a concern ahead of the UKreferendum on EU membership. If the UK electorate choose to remainin the EU, an “in” vote should generate stability feelings and a large GBPrelief recovery. The GBP is the only G-10 currency to have lost strengthagainst the USD in the year-to-date as investors value the risk of a“Brexit”; uncertainty is responsible for keeping the GBP under pressurein the period prior to the vote. An “out” vote to leave the EU will mean asignificant negative development for the UK economy and the GBP, butit may also have negative implications for the EUR. A withdrawal wouldprobably lead to further uncertainty with potential threats to EUstructures and concerns about a eurozone breakup.

Developing market currencies have performed quite strongly overall.Improvements have been influenced by stable local policies and therecent frail rebound in crude oil prices especially for currencies like theBrazilian real and the Malaysian ringgit, which have outpaced gains inthe major currencies versus the USD.

In Latin America, the Mexican peso (MXN) has changed a little andimproved its international market conditions after recentunprecedented round of fiscal and monetary support measures for thecurrency. The Argentinian peso (ARS) showed an exceptional volatilityas it fell 55% since Q3 2015.



The Chinese yuan (CNY) has slightly weakened versus the USD showingcontained movements in the exchange rate and reflecting the Chinesegovernment’s desire to keep the CNY stable.

In the last few years the depreciation of the Russian rouble (RUB) hasbeen exceptional as the Russian economy is extremely sensitive to oilprice shifts and to the political turmoil. Although recently it hasexperienced some recovery against the USD, it seems to be short-livedgiven the still depressed oil price environment and the country’songoing economic and political challenges.

Table 2 gives the exchange rates, averaged over the last two weeksbefore the end of each quarter, of the major local currencies expressedas local currency equivalent to 1 USD, and the percentage changebetween Q1 2016 and Q3 2015.



Region Country ExchangeRate

Q32015

Q12016 %

NorthAmerica Canada USD / CAD 1.33 1.32 -0.8%

South andCentralAmerica

Argentina USD / ARS 9.40 14.6 55.3%Brazil USD / BRL 3.90 3.66 -6.2%Chile USD / CLP 691 669 -3.2%

Colombia USD / COP 3020 3060 1.2%Mexico USD / MXN 16.8 17.5 4.2%Peru USD / PEN 3.17 3.32 4.8%

Venezuela USD / VEF 6.29 6.29 -0.1%

West EuropeEurozone USD / EUR 0.889 0.892 0.3%Norway USD / NOK 8.26 8.44 2.1%UK USD / GBP 0.650 0.701 7.8%

East Europe

CzechRepublic USD / CZK 24.1 24.1 -0.1%

Kazakhstan USD / KZT 270 343 27.0%Poland USD / PLN 3.75 3.80 1.7%Russia USD / RUB 66.9 68.5 2.4%Turkey USD / TRY 3.02 2.87 -5.0%Ukraine USD / UAH 21.4 26.2 22.1%

Asia

Australia USD / AUD 1.42 1.32 -6.6%China USD / CNY 6.37 6.50 2.0%India USD / INR 66.0 66.7 1.1%

Indonesia USD / IDR 14500 13100 -9.4%Japan USD / JPY 120 112 -6.7%SouthKorea USD / KRW 1180 1170 -1.3%

Malaysia USD / MYR 4.31 4.04 -6.3%Singapore USD / SGD 1.41 1.37 -3.3%Taiwan USD / TWD 32.8 32.5 -0.9%Thailand USD / THB 35.9 35.0 -2.6%Vietnam USD / VND 22200 22100 -0.3%

AfricaNigeria USD / NGN 198 197 -0.3%Angola USD / AOA 134 159 18.1%



SouthAfrica USD / ZAR 13.6 15.4 13.2%

Middle EastSaudiArabia USD / SAR 3.75 3.75 0.0%

UAE USD / AED 3.67 3.67 0.0%

Table 2 - Exchange rate fluctuations of major local currencies

SteelSteel prices have fallen further in the past six months despite a modestrecovery in the first quarter of the year. The significant mismatchbetween supply and demand remains a fundamental weakness in themarket, one that will undermine any positive pressure on prices as longas it persists. Although sentiment in this market is no longer as negativeas it had been in 2015, there is no reason to expect a meaningfulrecovery anytime soon.

In the fourth quarter of last year, prices fell further than expected asChinese demand slowed significantly without a comparable drop inChinese supply. It is difficult to appreciate China’s central role in thismarket without keeping in mind that the country produces more thanhalf the world’s steel, and until its transition away from constructiongrowth in mid- 2014 consumed almost the same proportion. Theeconomy’s shift into a more consumer-based model has resulted in thebuild-up of excess inventory, with producers seeking to exhaust allalternatives before cutting production. This has led to more vigorousattempts at exporting the excess production, which in turn have had theeffect of lowering steel prices globally. Chinese mills remain reluctant tocut production, choosing instead to absorb losses through profitableoperations in other sectors and relying on financing offered by theChinese governments, both local and national. The government viewsthis as a more favourable alternative to allowing unemployment togrow during the current slowdown in growth. Some Chinese millshowever have had to close this year: in February Chinese steelproduction was down 7% month-on-month, a drop of more than 4million metric tons.

The flow of heavily subsidized Chinese steel has in turn promptedantidumping cases to be filed, particularly in the Western hemisphere.A slew of cases were brought about by European and North American



steel producers, mostly targeting a variety of Chinese, Russian andTurkish products. This reaction has already taken shape in NorthAmerica where recent rulings have helped prices rebound slightly. Weexpect European cases to take a few months longer to conclude buteventually have a similar impact on prices there.

Demand has no meaningful way of having an impact on prices while it isso outstripped by supply. US demand has been particularly strong asthe country’s economy continues to expand at a faster rate than thoseof other regions. European demand has been less vigorous, with strongperformance in the auto industry being the brightest spot there. NorthEuropean construction grew as well, but performance in the south ofthe region was negative, making the total demand for the sector onlyslightly positive. Asian steel prices rose sharply in early March inanticipation of increased construction in China as spring began andstronger iron ore prices, but the market fundamentals cannot supportthe price rally for long, and iron ore prices have already receded onceagain.

The modest recovery in steel prices seen in the first quarter of this yearcan be expected to hold, and even slowly continue. Prices fell too far inlate 2015, and as more Chinese mills shut down supply should begin toebb to manageable volumes, though the Chinese government will likelycontinue to subsidize mills to help keep them open. Rebalancing ofsupply and demand will take a long time to occur as excess supply is stillbuilding up and global demand continues to disappoint.

EquipmentEquipment prices have continued to fall in the past six months. Whileinitially buoyed by increased demand in the downstream sector in early2015, as the downturn continues this market is beginning to behave asothers in the upstream sector. Lacklustre demand, negative (or, atbest, mixed) sentiment in regards to commodity prices, andincreasingly competitive low cost suppliers are all factors exertingnegative pressure on costs and pushing prices down.

It should be noted that while price drops were observed across allproducts, there was a difference in behaviour between items that arerelatively easy to manufacture and those that required more technicalcompetency to produce. Storage tanks, pressure vessels, and heatexchangers showed marked declines, while turbines, pumps, andcompressors fell by less. This is because simpler products face more



competition as they tend to have more manufacturers competing in amarket with limited demand. Companies looking to cut costs whereverpossible are more likely to purchase cheaper equipment that isperceived to be easier to manufacture properly than equipment that isnot.

Low commodity prices depress equipment costs in two ways. Mostimportantly, low oil prices coupled with negative sentiment in the short-and medium-term ensure that demand will stay low, which serves toincrease competition among equipment suppliers. Secondly, this periodof high competition pushes savings from low metal prices through thesupply chain faster than would have otherwise been the case asmanufacturers prioritize holding on to market share over revenue. Astheir backlogs shrink, this behaviour can be expected to continue, assuppliers struggle to refill their order books. Lead times for almost allproducts have fallen significantly, with the exception being turbines thathave a much smaller pool of suppliers.

Although the drop in equipment prices since the beginning of thedownturn has been steep, they are likely to continue falling as morecompanies eager to cut expenditures buy from low-cost Asian suppliers.Over time, this will enable the suppliers to form new relationships with amore global clientele and improve their track records. This willundermine the reputational advantage that manufacturers from otherregions have, forcing them to compete with their Asian counterparts onprice more fully.

BulksThe upstream bulk market is strongly correlated with constructionspending as activities in both markets share their items of largestexpenditures (i.e. concrete and cement, insulation, wiring, etc.). Thishas meant that costs in this market have declined globally, with somesignificant regional differences. As bulks are relatively straightforwardto produce, they are available for purchase from many differentregions, each with a supply chain dominated by its local currency, thusincreasing the divergence in regional costs.

While residential construction spending in the US has increasedmodestly, non-residential and infrastructure spending has remainedsteady. The Canadian counterparts to these markets have fallen furtherthan the increase witnessed in the US, driving the North Americanmarket down as a whole. The sustained fall in oil prices is largely to



blame for the downturn in Canadian spending, with the governmentproviding little support as expenditures on investment decreased aswell.

Latin American bulk markets have experienced a sharper decline,driven in large part by the Argentinean Peso’s loss of value and theongoing corruption probes in Brazil. Not only has Brazilian constructionspending shrunk in all three sectors (i.e. residential, non-residential,and infrastructure) by over 5%, but the local cement manufacturingindustry has come under investigation by the country’s antitrustwatchdog in the last quarter of 2015. The most prominent producershave been accused of colluding on pricing and have been fined almost abillion US dollars.

As with steel, China produces more than half the world’s cement and sothe end of its construction boom has producers there exporting as muchas they can to other markets in order to forestall having to further cutdown on local production. This has had an impact on prices for thecommodity globally, though regional prices were battered further byweakening Indian demand. Russian, Eastern European, and Australianmarkets have all suffered repercussions from China’s vigorousexporting efforts. It is worth noting that overproduction has beenrecognized as a problem in the industry for years now, and severalregions in China have banned the construction of new cement plants, aswell as the expansion of existing ones. However, demand has continuedto drop faster than supply, even with Chinese cement companiesreporting profit declines of almost 25% in 2015.

Finally, while the Middle East has enjoyed stable upstream activity, theconsequences of the fall in oil prices are beginning to impact spendinghabits in the region. The result has been a sharp construction slowdownas multiple projects are postponed or cancelled in order to rationalizegovernment expenditure.

The focus in this section has been on trends in construction spendingbecause of the sector’s strong correlation with bulk markets. As globalconstruction activity slows, the various bulk markets will all face issueswith oversupply, exerting negative pressure on prices for theirproducts.



Offshore rigsThe global offshore rig market is still facing difficult conditions. Oil priceshave reached record lows, decreasing demand for floaters and jackupsaround the world, just as many newly delivered units are searching forwork. Times have been hard for many drilling contractors. Depressedcommodity prices have forced oil and gas companies to take very hardmeasures on their current and planned exploration and developmentactivities. Drilling projects have been cancelled or postponed, andoperators have in some cases cancelled upcoming rig charters,released rigs early, and renegotiated day rates. In addition to theseconditions, drilling contractors have also had to contend with new rigs,which were ordered several years ago when demand and day rateswere stronger, entering an already challenging market and competingfor work.

Numerous rigs have rolled off contract without follow-up jobs in handand most of these remain idle as 2016 began. With so many unitscurrently warm stacked and available for charter, and yet more rigsjoining them this year with few prospects of follow-on work to occupythem, the oversupply issue in the sector is causing serious troubles inthe global rig market, driving dayrates even lower than expected.

Since Q3 2015, jackup and floater dayrates have continued to decreasesignificantly, as shown by the worldwide average variations listed inTable 3

QUE$TOR Rig Classification Worldwide AverageChange

Floater > 7500 ft -18%Floater 5001-7500 ft -23%Floater 3001-5000 ft -24%Floater 1501-3001 ft -26%Floater <1500 ft -24%

Jackup -16%

Table 3 - Floater and jackup dayrates average variations sinceQ3 2015

Demand for midwater floating rigs has been on a flat trend for sometime, partially because of the preference for newer rigs able to operatein deeper waters. As the supply of ultra-deepwater semi-submersiblesand drillships has grown, more and more of these rigs are competingnow for work in shallower water depths.



The regional changes since Q3 2015 for the different types of offshorerigs are illustrated in the following radar chart (Figure 6). The onlyregions which did not register a decrease were Middle East (+1%) andIndian Ocean (0%) for the jackup sector.

Figure 6 - Worldwide offshore rig rate changes

In the US Gulf, the downturn in the offshore rig market is visible withrigs being idled and projects cancelled. The jackup market has had littleactivity and is expected to remain relatively flat for the remaining partof the year. No new contracts have been awarded recently and someoperators are looking to get rid of their US Gulf shelf assets. In thefloater market, utilisation has continued to trend down as units arereleased from their contracts without follow-on assignments. Some rigcontractors have announced a reduction in operations to standby statusto lower expenses and to consider strategic alternatives, including apotential sale of all or part of the company asset.

In the North Sea, the last six months have been relatively busy in thesemi-submersible market with a small number of fixtures and newtenders released. However, programme deferrals and contractcancellations continue as the market remains difficult for contractors.As low oil and gas prices make operators retrench their drilling plansuntil some stability returns, the jackup market remains poor. Althoughsome market activity is ongoing in terms of tenders and enquiries, it



seems that units in all segments – standard, UK North Sea, andNorwegian specification – will continue to be released with fewprogrammes coming into the market to absorb this availability.

In Latin America, the offshore rig market had a mix of good and badnews. In South America, rigs have been contracted to do appraisalwork in Guyana and in Brazil. In Mexico, PEMEX has awarded contractsfor a few jackups, while Mexico is looking to hold its first deepwaterlicensing round in the third quarter of this year. On the downside,depressing news came in the form of early termination of several rigsbeing released in Brazil and Trinidad and Tobago.

The past six months have remained quiet in the West African floaterand jackup sectors. The number of marketed units has fallen followingthe departure of a few units. Both floater and jackup sectors have seena surplus with the number of cold-stacked units remaining unchanged.Few new tenders have been released in the past 12 months and as suchcontracting activity is set to remain quiet over the next months. Thejackup sector remains significantly quieter than the floater sector withyet more units expected to become available over the course of thisyear.

In the Asia-Pacific region, jackup demand has fallen dramatically sinceoil prices plunged in July 2014. In Southeast Asia, the three maincountries using jackups have seen usage more than halve in just slightlyover a year. But not all is negative in the Asia-Pacific region. One areawith some encouraging news is the Indian Ocean, where averagedemand is set to increase as state operator ONGC tendered for 11 rigsat one point in 2015. In the floater segment, the oversupply situationremains serious, although 2015 ended with a handful of fixtures.

The Middle East was the only region registering a little positive increasein the jackup dayrate and the jackup demand in the region is expectedto hold relatively steady in the short term. The idle rig count however israpidly rising and pressure to lower day rates has started to increase ina fiercely competitive market. The opening up of Iran post-sanctionshas yet to generate any significant impact on the general rig market buttendering activity for oil and gas equipment and services appears tohave accelerated and Iranian firms are looking to buy rigs from abroad.

As for other regions, little has changed in the Mediterranean and BlackSea sectors over the past few months, with low marketed utilisationboth for floaters and jackups. The Caspian Sea semi- submersiblemarket maintains its stability with a total marketed utilisation of 100%.



Offshore vesselsDuring the high oil price times, when offshore vessel demand wassustained and availability was tight, operators were not too worriedabout excessive dayrates. Vessel requirements for on-goingmulti-billion dollar exploration and production projects needed to befulfilled and operators were paying no matter what to secure vesselswhen they were in short supply.

All this suddenly changed in late 2014 with the unexpected oil pricecrash. Oil operators’ focus has moved since then to costs and efficiency.In the currently oversupplied market, operators have abundant sparetonnage from numerous providers and have also been reducinglogistics spending by using the contracted fleet more efficiently. Todaythe high availability of offshore supply vessels (OSVs) gives operatorsmore choices in how they can utilize the vessels in their fleets andgreater control over pricing.

Most vessel owners were more than happy to see the end of 2015. Forowners and managers of offshore vessels, the depressed oil price in2015 had resulted in reduced demand for vessels, unstable utilizationand dayrates, and the constant laying-up of Platform Supply Vessels(PSVs) and Anchor Handling Tug Support (AHTS) vessels. Dataextracted from our IHS Petrodata MarineBase database show that, atthe beginning of February 2016, there were at least 650 vesselsworldwide laid up. This number has grown week on week, with ownersbeing faced with little choice but to stack vessels in the effort tominimize losses.

So how have the last six months gone for offshore vessel owners indifferent regions?

In the US Gulf of Mexico, OSV owners have been dealing with fallingutilization and dayrates for over a year now. Operators have used theirmarket control to squeeze even lower dayrates from vessel owners andhave reviewed existing term charters, in some cases soliciting new bidsfrom vessel owners growing more and more desperate for fallingrevenues.

From Q3 2015 to Q1 2016, the working count of floaters has fallen asoperators have idled rigs despite ongoing contracts. Idle rigs need littleor no support, and vessel owners and other service companies sufferthe consequences. While vessels operating in the deepwater markethave suffered less than their shallow-water counterparts, manycompanies are competing for the remaining jobs that rates have beendriven below break-even costs for vessel owners.



Conditions in the West Africa market have remained very tough for localvessel owners, with several challenges being faced. These include a lackof long-term charter opportunities and the continued influx of newbuildvessels to the region. As a result, vessels have left the region to be laidup elsewhere. While challenging market conditions have been the mainfocus of owners, it should not be forgotten that vessel operators stillalso face the very real threat of piracy in the region as in February 2016an AHTS vessel came under attack by pirates.

Similarly to the US Gulf of Mexico, in the Asia-Pacific region, national oilcompanies (NOCs) are cutting their capital expenditure for 2016 as aresult of challenges caused by the lower oil price at a time when severalOSVs were returning to the region, leading to a drop in utilization.

Vessel owners in the North Sea are also facing massive challenges. Alarge number of offshore vessels (over 100) are now laid up in theregion. Term and spot demand have dropped, fleet size has expandedin the past year, and a number of newbuilds are under construction.Several vessels have recently returned to the region from the SouthAmerican region after locally flagged vessels took over in the Brazilianmarket. The number of stacked vessels is likely to grow, not only in theNorth Sea, but also worldwide.

The challenging market has begun to generate some casualties withseveral companies experiencing financial turbulence and announcingrestructuring plans. North Sea vessel owners have taken decisive actionand adjusted strategy to secure their future. Market players have beenleft with little choice but to make cuts, resulting in the reduction ofwages and increased job losses.

In South America, drilling activity has also continued to decline. As withother international oil companies, Petrobras has started to implementsignificant reduction to its long-term spending plans, including cuts inthe number of personnel as well as a reduction of working rigs andterm-chartered vessels. Nevertheless Petrobras has announced in late2015 hiring up to 45 vessels on long-term charters over the comingyear. Although most of these jobs will go to Brazilian-flagged vessels,any significant new work in the OSV sector has to be looked uponfavourably.

In the Middle East, where Iran has now returned to the scene, there issome positive news for the OSV industry. The lifting of economicsanctions against Iran should mean more demand for rigs and offshoresupply vessels in the region. OSV term activity has recently started to



show signs of improvement and utilization levels picked up last monthas short-term charters firmed up with the start of new work scopes andthe resumption of ongoing work programmes.

There is no doubt that 2016 is going to be another very challenging yearfor the global OSV market. There are, however, some hopes that a fewopportunities will arise towards the summer as we are currently still inthe North Sea winter season. Competition for term contracts is verytough and companies will continue to focus on lowering operatingexpenses to maximize cash flow and secure a future. The oversupplywill continue to put stress on the market and weigh on dayrates, and afurther decline in utilization is expected.

SubseaThe subsea market has several advantages that help it weather an oilprice downturn. It has a small number of suppliers protected by strongbarriers to entry due to the highly specialized nature of their productsand their proven track-records. Furthermore, the long backlogs forsubsea items serve to protect their manufacturers by ensuring themenough time to wait for commodity prices to recover. However as thisoil price downturn enters its seventh quarter, subsea companies haveincreasingly felt the need to respond to the newmarket environment.

Last year was not a good one for subsea companies. Visible demand forxmas trees – which serves as a bellwether for the market and futureactivity – and the total number of trees installed were both down in2015, by 15% and 25% respectively. The reaction from themanufacturers has been to shed capacity by laying-off workers anddownsizing production. OneSubsea secured a number of contractawards early in 2015, and FMC Technologies did the same in the lastquarter, keeping both companies at stable utilization. Aker Solutionswas at almost full utilization in previous years, and part of the work willcarry on through 2016, making GE the only manufacturer with excesscapacity. These conditions have kept the companies from announcingprice drops outright, although the buyer’s market means that operatorshave all the negotiating power and can likely extract significant dealsfrom suppliers.

In umbilicals, the market is oversupplied, especially when it comes tolow-end products. New Brazilian plants opened by Technip SA and NOVincreased capacity even as Wellstream cancelled its expansion in the



country and Parker Hannifin shut down production last year. Whilesome of Petrobras’ scheduled activity will go ahead, it seems there willnot be enough demand to relieve the oversupplied market.

Looking at the industry from a regional perspective, only in Africa doesthere seem to be the potential to keep subsea suppliers busy. Petrobrascontracts are in jeopardy due to the probe into corrupt practices whichhave dramatically reduced planned E&P activity. Sanctions on Russiahave frozen all offshore activity there as local companies typically relyon joint ventures with international (overwhelmingly American andEuropean) partners to exploit resources in subsea environments.Activity on both sides of the Gulf of Mexico has been very limited, as hasoffshore activity in the Middle East. All these signs point to further painfor subsea companies, especially considering that subsea projects tendto be the ones that require the highest oil prices to becomeeconomically viable.

LabourDuring the decade preceding the oil crash, activity in the oil and gasindustry soared, fuelled by high natural gas and oil prices. Companiesacross the entire value chain enjoyed the boom in all major upstreamactivities with increased investments in exploration and drilling projects.Today the global oil and gas industry is in the midst of one of the mostsevere downturns in the last 30 years. Recently there have been veryfew commitments to Final Investment Decisions (FID) and the numberof layoffs in the global upstream sector, both offshore and onshore, hasreached record levels.

In this tough climate, engineering and project management companieshave recorded a decline in their backlogs and new orders, blaming thedeclining energy prices for putting on hold or cancelling a large numberof projects. Operating margins are still holding steady, as companieshave begun to implement cost-saving measures such as officeconsolidations and staff reductions, particularly of contract workers whocan be recalled when project work picks up again.

Recruiting has been curtailed and companies are making layoffs but thisdownturn can also be an opportunity to invest some time and money indeveloping the skill set of their existing staff. Companies that do so willfind that when the market recovers, they will have people with greatercapabilities and a greater understanding of the business.



A rash of mergers and acquisitions over the last two years and anumber of bankruptcies is altering the shape of the traditional oil andgas sector. The merger announcement of Halliburton and BakerHughes at the end of 2014 has been followed by others over recentmonths, like Schlumberger’s acquisition of Cameron.

Some firms are bidding on projects in conjunction with other firms totake advantage of different skill sets, technology expertise orgeographical advantages. There is no shortage of qualified engineers tocomplete projects already signed but several companies still expressconcern about the availability of qualified construction workers. Theadoption of modular fabrication is one of the suggested options to cutproject costs by using lower-cost labour especially in South Asiancountries.

The number of upstream projects currently ongoing worldwide is verylimited. The only regions with some activity are Middle East, Malaysiaand Australia. In the North Sea, contracts are mainly fordecommissioning and brownfield projects. Upstream projects in Mexicoand West Africa are expected to start up in 2016. Projects nearingcompletion include coalbed methane in Australia and Canadian oil sandsprojects. However, in reporting new projects, more focus is beingplaced on downstream projects than in recent years.

In general, construction labour rates have decreased worldwide.Labour rates in Russia and the Former Soviet Union countries(Kazakhstan and Azerbaijan) declined significantly in USD terms due toexchange rate volatility. The Russian recession has continued, withdomestic demand squeezed by a credit crunch and renewed inflationdue to current sanctions and weakened currency. The depreciation inKazakhstan and Azerbaijan has been even more severe due tounpopular measures taken by the National Bank and further instabilityin these countries.

Brazil has suffered from a broad recession in 2015 and its economy isexpected to contract further in 2016, with business and consumerconfidence falling to a new low. The crisis caused by political uncertaintyalong with the continued fallout from the Petrobras investigation isproving to be deeper and more protracted than previously expected.The scandal surrounding Petrobras is also affecting constructionactivity, as some of the major developers under investigation arebanned from contracting with the government. The unemployment ratehas increased and job losses are reported across nearly all sectors, withmanufacturing and construction being the hardest hit.



The oil and gas sector in the United States, especially the onshoresegment, has registered an exceptional number of job losses since thecrisis started at the end of 2014. As the current downturn appears to belasting longer than expected, a large number of workers are stilldestined for layoff from the onshore industry because they were hiredduring the boom years. For skilled and unskilled workers still working inthe oil patch, even though direct wages have gone up slightly, chargeout rates have declined as most of the benefits fell.

India and Middle East were the only regions with labour rates resistingthe global decline. The economic situation in India is still quite variablewith swings in its industrial production data. Inflation slightly increased,but falling oil and commodity prices were of help to this country whoseeconomy is largely dependent upon oil imports. In the Middle East, oildemand continued to increase, subject to the performance of variouseconomies in the region, with the impact of lower oil prices naturallyplaying a negative role on expected spending plans. On the upside,Iran’s economy is expected to greatly benefit from its reintegration intothe global economy after years of sanctions.

Land rigsThe lack of upstream activity over the last six months has continued todepress costs in the land rig market. In this low oil price environmentE&P companies have little reason to reschedule postponed projects ordevelop new ones, furthering negative sentiment in this market,particularly because it is so dependent on upstream activity. Onaverage, this update has seen a relatively muted fall in land rig ratescompared to the previous two.

The reason cost declines have been more muted this time around isbecause there has been no movement in the rates of low-spec rigs.Over the course of 2015, a very large proportion of those rigs werestacked, leaving the high-spec rigs to compete for whatever businesswas available. The high-spec rigs have been able to continue due totheir efficiency and drilling duration benefits but their dayrate premiumis much reduced. The attainability and benefit of using a high-spec righas effectively pushed the low-spec rigs out of the market. This has ledto large drops in rig rates as players in an oversupplied marketcompeted for activity. This time around, with low-spec rigs out of thepicture and high-spec rigs already working at low rates, there wasn’t asmuch of a drop.



Since the activity is being undertaken overwhelmingly by high-spec rigs,it was those rigs that have experienced the price changes. From aregional perspective, North American rates seem to have been hit thehardest. Without any bids, the spot market in the region has all butdisappeared. Active drilling contractors have been able to bring theircosts down, but that was largely achieved by focusing their best peopleand equipment on the best plays. These cost savings were alwaysavailable, but only realized in the downturn as contractors have beenforced to focus more narrowly and save all they can to weather thedownturn.

Traditionally, drillers in the Middle East and Latin America have relied onolder heavy-duty rigs, usually castaways from North America. Thetrend towards employing high-spec rigs is changing the market in thoseregions, as more technologically advanced rigs replace the old ones.Rigs equipped with top drives and pad drilling capabilities are nowmorecommon in those regions than ever before. Given the exceptional statethat the market and industry are in, these improved rigs have beenemployed at lower rates than their predecessors. Oil companies inthose regions understand that they are in a buyer’s market and aretrying to cut costs as much as possible, forcing concessions out ofsubcontractors as much as other regions that have suffered a sharperdrop in activity.

A recovery is unlikely in this market without a dramatic change insentiment surrounding oil prices. While stacking older rigs does have apositive impact on utilization, there are too many high-spec rigs for theamount of work available for that to have a real impact. An uptick inactivity could lead to a quick escalation in rig rates as most stacked rigsare receiving minimal maintenance and therefore would not beimmediately ready to return to market.



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

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

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

The IHS software support team key contacts are as follows:



mailto:[email protected]

North & CentralAmerica

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

5333 WestheimerHoustonTexas 77056USA

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

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

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

Tel: (+55) 21 3299 0440

Europe, Africa &Middle East

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

133 HoundsditchLondonEC3A 7BXUK

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











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

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

Tel: (+91) 124 454 2699

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

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

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



