ReleaseNotes QUE$TOR - IHS Markitl TheEHTFriserhasnowaunitratedependentonnumberofEHTF...

Release Notes

QUE$TOR

2019 Q1 Release

May 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 Q1 12

Steam injection 12

Drilling updates 15

Electrically heat traced flowline (EHTF) enhancements 18

Sulphur quantity in production facility 20

Erosional velocity constant in regional technical databases 20

Editable number and design capacity of dehydration trains 21

Platform xmas trees included in Topsides weight 24

Selected other technical revisions 25

Cost Data Sources and Accuracy 26

Cost data sources 27

Accuracy 28

Cost database update 29

General 29

Oil price trend 30

Currencymarket 31

Steel 34

Equipment 35

IHS Markit May 2019 Page 1

QUE$TOR 2019 Q1 Release Notes

Bulks 37

Offshore rigs 38

Offshore vessels 41

Subsea equipment 43

Labour 45

Land rigs 47

Page 2 May 2019 IHS Markit


IntroductionWe are pleased to provide the 2019 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 2019 prices.

The main technical enhancements made to QUE$TOR 2019 Q1 are:

l Steam injection

l Drilling updates

l Electrically heat traced flowline (EHTF) enhancement

l Sulphur quantity in production facility

l Erosional velocity constant in regional technical databases

l Editable number and design capacity of dehydration trains

l Platform xmas trees included in Topsides weight

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 Q1. However, projects created or saved in QUE$TOR2019 Q1 cannot be opened in earlier versions.

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

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

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



What’s on the CD-ROMThe QUE$TOR 2019 Q1 CD-ROM contains the following:

l QUE$TOR 2019 Q1 installation files.l An ‘Application’ folder containing QUE$TOR 2019 Q1 program files.l A ‘Documents’ folder containing a copy of the licensing notes, fullhelp file, quick start guide and a copy of the full and short releasenotes in portable document format (.pdf).

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

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

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

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

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



System requirements

QUE$TOR 2019 Q1

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

Application disk space 275 MB

Disk space / project ~1 MB

Disk space / procurement strategy ~3 MB

Minimum monitor resolution 1024 x 768

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



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$TOR 2019 Q1 run the file ‘setup.exe’ in the rootfolder of the QUE$TOR 2019 Q1 CD-ROM.

l Once installed, an icon for QUE$TOR 2019 Q1 will appear on yourdesktop. A group will also appear on the start menu under AllPrograms\IHS Markit\QUE$TOR 2019 Q1 containing shortcuts forthe Database editor, the Project editor, the Project viewer, themain QUE$TOR application and the Unit editor.

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

Note: You may receive an 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$TOR 2019 Q1 > QUE$TOR 2019 Q1 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.



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

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$TOR 2019 Q1In response to feedback the following features have been implementedin QUE$TOR 2019 Q1.

l Steam injection

l Drilling updates

l Electrically heat traced flowline (EHTF) enhancement

l Sulphur quantity in production facility

l Erosional velocity constant in regional technical databases

l Editable number and design capacity of dehydration trains

l Platform xmas trees included in Topsides weight

Steam injectionEstimation of onshore wells with thermal recovery is now possible.CAPEX estimations are made for the steam transportation andwellhead designs. The required demand on the OPEX can now bedirectly determined from the wells.

Enhanced thermal recovery with steam injection can be enabled at thefield level or in individual wellpad or drilling components. This featurebuilds on the steam generation equipment that was added in theprevious release where the equipment and OPEX demands to generatethe thermal recovery steam were added.

When steam injection is enabled in the Miscellaneous > Field level datascreen (Figure 6), this will add the steam injection equipment on alldrilling components in the project. This then cascades to the linkedwellpad group components and then any linked production facilities. Sothese components will have the steam injection equipment addedautomatically.



Figure 6 - Steam injection selection in Field level data

When steam injection is enabled in a drilling component (Figure 7),steam injection valves are added to production wells. The steaminjection valves control the flow of saturated steam into the productionwells. One valve is assumed for every production xmas tree andmultilateral host well. Steam injection is done in a cyclic operationwhere production is periodically stopped while steam is injected downthe production well. No extra injection wells are required as the samewells are being used for both production and steam injection. Includingsteam injection equipment will also add extra design and projectmanagement man hours.



Figure 7 - Steam injection selection in drilling input sheet

A drilling component with steam injection enabled will by default causeequipment to be added to any linked wellpads (Figure 8). The extrasteam injection equipment for a wellpad group mainly consists of theinsulated flowlines carrying the steam from the steam generationfacility to the wellheads. Extra equipment costs are also added for thesteam manifolding, utilities and safety equipment.

Figure 8 - Steam injection selection in wellpad editor

Steam generation in the production facility will now be on if any linkedwellpad groups have steam injection turned on. The steam generationsizing is now based on the total oil flowrate from any linked wellpadgroups requiring steam injection. The wellpad groups estimate thesteam pressure drop over the flowlines and take this into account whenthe steam generation equipment is sized. This means the steamgeneration sizing will match the demand from the steam injection wellsonly, resulting in more accurate sizing estimates.



Drilling updatesThe onshore and offshore drilling input user interface has changed(Figure 9 shows the offshore drilling input form). The controls in theinput sheet are now organised within different tabs (Primary, Drillingdetails, EOR and Environment). Also, the green hyperlinked buttonsused for viewing the details on drilling curves and profiles have beenswapped over and renamed. The term “Profile type” has been renamed“Geometry”.

Figure 9 - Offshore drilling inputs

For onshore drilling, a power per pump is now enabled and editable onthe drilling input sheet for pumped wells (Figure 10). 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. The regional databases for downhole electric anddownhole hydraulic pumps now have expanded data points allowing theuser to estimate costs when specifying the use of higher duty downholepumps.



Figure 10 - Onshore power per pump

For offshore drilling, a waiting on weather allowance has been added tothe installation cost sheet for different rig types. The amount ofallowance is configured on the environment tab for each of the rig types(Figure 11). This results in a waiting on weather cost sheet line item(Figure 12) for each of the used rig types. The allowance is calculated asan incremental number of days for the installation time. The unit rateapplied is the sum of the bare rig charter, drill crew, marine crew,consumables, support vessels times a rig type factor and supply baseunit rates.



Figure 11 - Offshore drilling waiting on weather



Figure 12 - Offshore drilling waiting on weather

Electrically heat traced flowline (EHTF)enhancementsThe following modifications have been implemented to improve theEHTF model:

l In the umbilicals section of the subsea link cost sheet, the “EHTFdynamic power cables" have been renamed as "EHTF powerumbilical cables". These cables are assumed to run in parallel tothe subsea links with EHTF flowlines. In previous releases, thesecables were assumed to be per EHTF flowline; this changeassumes that they are now per link with EHTF flowlines.

l Daisy-chained links with EHTF flowlines will share the same EHTFpower umbilical cable which is assumed to be a three-phase powercable.

l If a daisy- chained configuration has each interconnecting linkshorter than 20 km, but with a combined length of over 20 km,there will be an additional umbilical termination assembly (UTA)and subsea transformer skid to ensure that the high voltage powerumbilical cable, required to bring power from further away, will bestepped down to the voltage of the flowline wiring.

l As a result of the above adjustment, in the production flowlinesection of the subsea link cost sheet, the “EHTF midpointconnection UTA” has been renamed as “EHTF UTA” because it nolonger refers exclusively to midpoint connection UTAs, but also toUTAs required when the distance from the tie-back is more than20 km.



l The EHTF riser has now a unit rate dependent on number of EHTFpower umbilical cables feeding the links with electrically heattraced flowlines within the same subsea component. For example,if a tie-back is connected to two links with multiple heat tracedflowlines, there will be two EHTF power umbilical cables within theEHTF riser in that specific subsea component.

l The number of bend stiffeners is now per EHTF riser and not perEHTF power umbilical cable.

Figure 13 illustrates a case of a subsea component with four links; onlytwo of them (link 1 and link 4) have EHTF flowlines. The EHTF riser ismade of two EHTF power umbilical cables: one runs along link 1 and oneruns along interconnected links 2, 3 and 4. These last three links aredaisy-chained and the distance of link 4 from the riser base is furtherthan 20 km, which is the assumed limit to take power down to the linefrom the source with reasonable losses. The blue squares represent theUTAs and subsea transformer skids required to step down the power tothe voltage required by the flowline wiring and supply it to the EHTFflowlines.

Figure 13 - Illustration of EHTF UTA inclusion in subsea

The section of the EHTF power umbilical cable from the tie- back(labelled “Riser base” in the schematic) to link 4, which runs alongsidelinks 2 and 3, is not currently included into the total EHTF system costsas the layout of the flowlines can be varied and may involve a shorterdistance. Therefore, the user is advised to adjust the correct length of



the cable, by varying the quantity value in the umbilicals section of thelink cost sheet, to have a more accurate estimation of the specificproject costs.

The largest change over the previous version of QUE$TOR is when a linkcontains multiple parallel flowlines. The implemented enhancementsenable a common power cable to deliver all the required power to thesubsea flowlines.

Sulphur quantity in production facilityThe quantity of sulphur produced as a result of the sulphur removaloperation is displayed in production facility gas processing. It is shownat the bottom of the box for sulphur removal options in gas processing(Figure 14). The sulphur quantity is based on the inlet gas flow, H2Sconcentration and sulphur removal process. It can be used as the basisfor sizing a sulphur plant.

Figure 14 - Sulphur removal options in production facility

Erosional velocity constant in regionaltechnical databasesThe erosional velocity constant’s value of 100 lb^(0.5) /ft^(0.5).s isused in pipeline sizing calculations for offshore and onshore pipelines.This value can now be edited in the Offshore and Onshore regionaltechnical databases allowing more control and confidence over thepipeline sizing (Figure 15).



Figure 15 - Pipeline erosional velocity constant in databaseeditor

Editable number and design capacity ofdehydration trainsThe number of trains and the design capacity per train are now editableparameters ( Figure 16 ). These are visible in the dehydrator anddesalter units in oil processing both in onshore and offshore modules.This change means that the dehydrator is now consistent with the inputsfor the other oil processing units. These inputs are persistent and so willremain locked even if the dehydrator type is changed.



Figure 16 - Dehydrator properties form

Changing the number of trains will result in the default design capacitybeing adjusted such that 100% capacity is to be processed. Thecalculated weight per train is also multiplied by the number of trainsparameter to produce the total weight of the system.

Changing the design capacity per train will result in the throughputbeing multiplied by this factor to determine the flow for sizing of eachtrain. For some dehydrator types there are a limited number of possiblesizes known. If the train design capacity exceeds these values a warningicon is displayed alerting the user. This also gives the maximumpercentage value that can be designed for with the known sizes.

The number of trains and design capacity per train is also now visible inthe dehydrator properties form for the desalter as shown in Figure 17below.



Figure 17 - Desalter properties form

In both the above forms the results are displayed as previously in theresults area, now named results per train.

The calculations were adjusted as part of the above changes to includethe number of trains and design capacity per train inputs. Thesechanges were in part needed to separate previous calculations ofnumber of trains from the sizing calculations. The changes were alsomade in part to correct some errors. Most of the changes will have asmall impact on the results in projects that use dehydrators; although,in some cases there may be a more significant change when heatertreaters are required. When there is a change it is likely that projectswill show an increase in weight as some tanks type dehydrators willdefault to two trains at a larger size than previously. If projects have asingle tank dehydrator there is also likely to be a small increase in sizedue to an increase in height to allow for dead space.



Platform xmas trees included in TopsidesweightA new line item has been added to the Topsides cost sheet in themanifolding section (Figure 18); this new line item adds a weight for theplatform xmas trees and spools to the topsides weight. The line item onthe cost sheet has no unit rate or total cost as the cost of the platformxmas trees and spools continues to be included in the Drillingcomponent.

Figure 18 - Topsides platform xmas trees and spools weight

The weight of the xmas trees and spools applies to all production, waterinjection, and gas injection trees as specified on the manifolding form;the weight is also impacted by the design pressure of each of the treetypes and is categorized into four xmas tree pressure ratings.

In addition to the equipment weight the weight of the associated bulkmaterials is also accounted for along with the impact on the primaryand secondary steel weights.

Overall the weight increase will affect both the dry and operating weightof the Topsides, which in turn could impact the weight of thesubstructure. The impact on a process platform with limited wells orsignificant other facilities will be relatively small; however, on wellheadplatforms or those with greater well counts will produce a more notableincrease in the weight.



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

l The OPEX Logistics and Consumables section now differentiatesbetween the costs of the specific diesel fuel type used by personneltransport vessels and supply boats, and that used by emergencypower generators. “Marine diesel rate” denotes the use of thehigher graded and priced Marine Gas Oil (MGO) used in supplyboats and personnel transport vessels, while “Diesel” refers to thelower graded Heavy Fuel Oil (HFO) commonly used for emergencypower generators.

l The well gas lift flowrate per well can now be seen and edited onthe Subsea component Primary tab. This allows an easier way tomodify the downhole gas lift flow to better model the required gaslift system. The well gas lift flowrate per well value is used todetermine sizing of the gas lift supply (flowlines, risers etc.) andthe production lines to account for the return of the gas lift flow;calculations assume that all wells with gas lift selected require thesame gas lift flow and the full gas lift flow is produced with theproduced fluids. The flowrate per well is calculated by multiplyingthe total liquid flow per well (rather than the previously used oilflow per well) by the well gas lift ratio.

l A correction has been made to the onshore Wellpad group wellpadmanifold weights. This change is likely to produce a reduction inwellpad manifold weights. The more wells there are on a wellpad,the more significant the reduction in the manifold weight will be.

l A correction has been made to the method for calculating theWellpad group water injection manifold weight. Typically theminimum size manifold was being selected. In most cases thischange will result in a weight increase for the wellpad waterinjection manifold only.



l For onshore projects that have been created with a metric unitsystem, a correction has been made to the wellpad flowline bundlediameter. This correction will generally result in a smaller bundlediameter being selected which will have an impact on construction,design and project management, and dependent cost items. Thiscorrection will bring metric projects into line with those in otherunit sets.

l In the Materials section of the Onshore pipeline and Wellpad groupcost sheets, the cost item “Coatings” has been split into twoseparate cost items, “Coating” and “Insulation”. In previousversions, the item “Coatings” was the sum of the coating +wrapping cost and the pipeline insulation cost. This has causedsome confusion to users while reviewing cost estimates;deselecting the coating + wrapping option was still generating aCoatings cost as insulation was selected and included in this costitem. Previous projects that had the cost for these items locked onthe cost sheet will revert back to the unlocked values.

l The unit rate cost data and calculation for pipelines and flowlinesmade from carbon steel clad in alloy 825 have been updated toreflect a cost per mass approach rather than the previouscombination of cost per mass and cost per length. This change wasmade to better populate the cost data and to better align withother similar pipeline material selections. This also helped toensure that the weight of the clad pipeline was appropriatelydetermined for installation purposes. With this change, costs for allalloy 825 clad pipelines and flowlines are expected to show somemoderate increases, although projects with line sizes on the largerand smaller end of the size range will exhibit the most notableincreases in cost.

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 first quarter 2019 costs.

Note: On saving the project, the QUE$TOR 2019 Q1 cost estimate willoverwrite earlier costs except where those costs were ‘locked’ on thecost sheet or in the database. Therefore if you wish to retain a copy ofyour original estimate you should first create a duplicate of the projectbefore opening and saving it in QUE$TOR 2019 Q1.

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

GeneralWith the end of 2018, it can be said that the year met the positiveexpectations most market players had after four years of continuouschallenge for the oil and gas upstream industry. The fact that anincreasing number of oil and gas projects emerged during 2018 allowedfor optimism in several market sectors. Additionally, the commitmentof the Organization of the Petroleum Exporting Countries (OPEC) andnon-OPEC producers to support crude oil prices through production cutsalso reinforced hopes for steadier oil prices, giving more confidence tothe market.

In general, expectations for the next year remain relatively positive. Anincrease in oil and gas production is likely to occur in the Asia-Pacific andAfrica regions where intense exploration activity has been witnessedcompared to previous years. At the same time, Europe remains animportant market for offshore projects and offshore vessel demand.Even though we are still at the beginning of 2019, it appears clear thatthis will be another interesting and possibly challenging year. Thisdoesn’t mean that there are no positive prospects for the comingmonths. In fact, a number of upstream projects are expected to comeon line and activity in some regions is anticipated to remain healthy.

However, forecasts of weaker global growth, the trade dispute betweenthe US and China, and the slowdown in the Chinese economy are someof the key events which will affect oil prices. While some progressseems to have been made in the first quarter 2019 between the US andChina, uncertainty persists as to how the negotiations will evolve. Someof the underlying tension is unlikely to be resolved easily given that theUS and China are ultimately competing in several key industries. In



addition, even if an ongoing settlement can be agreed between the twocountries, concerns remain of a more confrontational trade policybetween the US and Europe.

Oil price trendThe energy sector recovered somewhat over the first three months of2019, after the decline in price in the oil markets in the fourth quarter2018. The crude oil price trend is a natural reflection of the globaleconomic and geopolitical landscape. Crude oil prices have been volatilesince August, showing the effect of supply influences, US policy onIranian oil exports, and fears of softening global demand. TheUS-China trade dispute has surely been a concern for the commoditiesmarket, having lowered global economic growth and limited oildemand. In addition, the US Dollar (USD) has recovered sinceDecember last year. With a stronger dollar working to reduce oildemand in other regions, the dollar and oil price have moved inopposite directions given their inverse relationship. The oil price chart inFigure 19 illustrates the fall in the fourth quarter 2018 and pricerecovery in the first quarter 2019.

The US is now the largest producer of crude oil in the world. Fewerregulations under the Trump administration and a more favourablecorporate tax policy have improved the economics for US producers.Trade issues between the US and China continue to threaten the overallhealth of the global economy. The failure to reach a clear agreement atthe end of the first quarter has caused some concern anddisappointment. The trade issue is heavily impacting the Chineseeconomy which in turn influences the world's most populous nation'sdemand for crude oil. A trade deal is seen to be a positive factor for theenergymarket in the second quarter.



Figure 19 - WTI and Brent crude oil prices

Currency marketMarkets whose currency strengthened against the USD benefitted fromincreased buying power for dollar denominated goods. This was apositive opportunity only for a few markets in the first quarter of 2019,such as some Southeast Asian countries and Brazil, where weakcurrency performance in recent years added to inflation.

The USD has remained relatively strong against most of the majorforeign currencies since the third quarter 2018. In broad terms,however, it is showing little directional momentum. Markets remainsceptical that gains can extend significantly beyond the short term, dueto a number of headwinds for the US currency in the longer term.

In Europe, the British pound (GBP) had a difficult time due to theuncertainty deriving from the Brexit negotiations. The risks of acalamitous departure from the European Union at the end of Marchimpacted the currency for the whole first quarter. These risks are likelyto continue as they have not been removed entirely. A smooth divorceis currently seen as the most likely outcome but the politicalcomplexities of the situation seem to be insurmountable. The agreed



delay until the end of October has triggered a modest relief rally for thepound but, without any long-term resolution to the Brexit situation, theUK economy is likely to remain in slow growth mode indefinitely.

The euro (EUR) has not been the centre of attention in the recentmonths, but it is still affected by the developments of the Brexit talksand the poor performance of some member states such as Italy andGermany. The Eurozone economy slowed last year and while someeconomic data has indicated that growth may be stabilizing, the latestprojections of the European Central Bank suggest soft growth andpersistent inflation trends. A smooth resolution to the Brexit impassewould boost business investment, lift the housing market, and increasewages.

In the Asia-Pacific region, China’s new foreign investment law waspassed, with the aim of further opening the nation’s markets andresponding to international criticism. The Chinese yuan (CNY) receiveda boost on the hopes for the US and China to sign a trade deal in lateMarch, although this was then postponed.

The new year started with a more stable exchange rate for the Indianrupee (INR), erasing memories of sharp variations that occurred in theprevious year. The Indian market though remains susceptible tochanges in the geopolitical situation, oil prices, and the general electiondue by May. Easing in trade tensions will have a supportive impact onthe stability of the currency, with a potential surge of foreign investors.

In Latin America, the Brazilian real (BRL) has been the fourth bestperforming emerging market currency since the presidential election,but there are fears that the outlook will become uncertain, as thedifficult political hurdles faced by reforms are becoming more evident.The Mexican peso (MXN) is moving slowly behind the performance ofthe other regional currencies so far this year. The peso is still firmeryear-to-date but has traded steadily lower from the high seen inJanuary due to trade uncertainties and more specifically domesticconcerns related to the reforms imposed on PEMEX. The Chilean peso(CLP) has outperformed expectations on the back of a strong rally incopper prices this year; this strengthening effect may pause as marketsreassess global supply and demand balances. The firmer crude oil pricehas likewise supported the Colombian peso (COP), which rose to itshighest level since October through the end of February.

In general, for overseas investors, construction was cheaper inlocations where the local currency fell relative to the currency in whichthey hold their capital. USD denominated investors such as those from



Hong Kong, the Middle East, and the Norwegian sovereign wealth fundshave been in a strong position in this first quarter 2019 due to thedollar’s relative strength, even though returns on existing investmentshave fallen in value from exchange rate movements.

Table 1 lists 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 2019 and Q3 2018.

Region Country Localcurrency Q3 2018 Q1 2019 Percentage

changeNorth America Canada CAD 1.295 1.338 3.32%

South and CentralAmerica

Argentina ARS 38.964 41.980 7.74%Brazil BRL 4.076 3.870 -5.05%Chile CLP 669 675 0.90%

Colombia COP 2,995 3,131 4.54%Mexico MXN 18.820 19.143 1.72%Peru PEN 3.291 3.295 0.12%

West EuropeEurozone EUR 0.855 0.885 3.51%Norway NOK 8.144 8.559 5.10%UK GBP 0.762 0.759 -0.39%

East Europe

Czech Republic CZK 21.871 22.769 4.11%Kazakhstan KZT 360 378 5.00%Poland PLN 3.663 3.800 3.74%Russia RUB 66.330 64.630 -2.56%Turkey TRY 6.186 5.553 -10.23%Ukraine UAH 28.006 26.957 -3.75%

Asia

Australia AUD 1.380 1.409 2.10%China CNY 6.861 6.711 -2.19%India INR 72.3 69.0 -4.56%

Indonesia IDR 14,872 14,209 -4.46%Japan JPY 113 111 -1.77%

South Korea KRW 1,116 1,133 1.52%Malaysia MYR 4.135 4.070 -1.57%Singapore SGD 1.367 1.352 -1.10%Taiwan TWD 30.640 30.830 0.62%Thailand THB 32.360 31.650 -2.19%Vietnam VND 23,246 23,159 -0.37%

Africa

Algeria DZD 117.490 118.640 0.98%Nigeria NGN 361.4 358.5 -0.80%Angola AOA 289.3 315.7 9.13%

South Africa ZAR 14.370 14.440 0.49%

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



SteelAfter an extremely turbulent twelve-month period as protectionistmeasures artificially inflated the market, steel has finally stabilized.Prices have been steadily decreasing as 2018 ended and 2019 began.In January 2019, the market experienced a shock following acatastrophic and fatal dam failure at the Vale iron ore mining facility inBrazil. This caused the closure of all mines utilizing similar dams and theiron ore market to tighten significantly. Demand has softened slightlyyet remains mostly stable and is anticipated to remain so into the thirdquarter 2019. Overall this has resulted in some moderate effects onprice. Globally, with the continuation of protectionist measures in theUS and Europe and the tightening of the market due to the iron oremining disaster earlier this year, marginal increases in prices areanticipated as the year progresses.

In the US market, after a marked escalation in prices in the first half of2018, due to the implementation of Section 232 tariffs, steel costs havedecreased. Domestic mills have increased production to accommodatea steady demand and fill the gap created by the new premium onimports. Production has continued to remain strong, demonstrating a6.2% year-on-year increase. However, waning demand has helpedrebalance the market as prices have fallen near minimum levels due tooversupply. With little indication that the tariffs will be removed,combined with tightening in the global market, prices are expected toincrease marginally through 2019 but are not anticipated to reach thelevel triggered by the protectionist measures of the previous year.

In the Asian market, there was a sharp decrease in the fourth quarterof 2018. Prices stabilized early in 2019 following an announcement ofgovernment stimulus to stem declines. Prices are expected to continueto rise into the second quarter of the year. Despite governmentalmeasures to improve profitability and control pollution, productionlevels crested following a 6.6% year-on-year increase in October 2018.After which prices tapered down in the fourth quarter 2018 and into thebeginning of 2019. However, pollution controls are anticipated tocontinue through the year which may catalyze declining production insome regions. Prices are expected to peak at the end of the secondquarter, barring an unexpected announcement of another round ofgovernment stimulus measures.

In Europe, steel production decreased in the first quarter, directedprimarily by declining German production coupled with slowing demandgrowth and increased imports into the Eurozone. After a temporary risein prices in the first half of 2018, costs in US dollar terms trended



downward through the fourth quarter, with a sharp decline into the firstquarter of 2019. Following the implementation by the EuropeanCommission of protectionist safeguard tariffs in July of 2018, domesticprices fell due to declining import prices due largely to Turkish mills andsluggish trade. Steel costs are expected to flatten or continuedownward as trade tensions and political uncertainty decelerateindustrial production.

Despite the supply uncertainty following the iron ore mining disaster,the steel market is expected to remain relatively flat. A slight decline inprice of 1% is anticipated globally, as prices stabilize following thesignificant decreases in the latter half of 2018. Weakened demand andexcess supply in all regions will likely continue to exert downward pricingpressure on the market, bringing costs down to pre-tariff levels. Thesteel market has adjusted to the shifts driven by the tariffs enacted bythe US and Europe. Continuing trade tensions, political uncertainty, andcontracting growth in the energymarket are anticipated to contribute tofurther softening of demand as suppliers struggle to moderateproduction levels accordingly.

EquipmentEquipment costs have increased steadily in the last 12 months,continuing their gradual recovery that started at the end of 2016. Thefirst quarter of 2019 registered a strong 1.5% equipment cost increasein US dollar terms, marking the tenth consecutive quarter of pricegrowth. This is largely driven by local currency fluctuations against theUS dollar, affecting global costs overall.

Throughout 2018 and continuing into 2019, manufacturers haveconcentrated on developing more efficient processes to betterstandardize parts and acquire them more cheaply. Companies continueto pursue joint ventures with local suppliers to comply with localizationquotas. Additionally, many are eliminating unnecessary customizationto achieve cost savings without compromising reliability, availability, orsafety. Research and Development (R&D) spending will continue toincrease as companies work to implement new technologies, such asadditive manufacturing, digitalization, and artificial intelligence, in aneffort to maintain market share.

After a brief retraction in the fourth quarter of 2018, oil prices rose inthe first quarter of 2019, and with them, suppliers’ optimism returnedfor a sustained recovery of the market. Turbines, heat exchangers, and



pressure vessels registered modest increases in US dollar terms for allregions in the last six months, while pumps and compressors registeredthe highest increases of all equipment tracked. Policy adjustments andshifts in best practices allowed suppliers to mitigate fiscal riskthroughout the downturn, and with growing demand, suppliers areraising prices incrementally to offset reduced profit margins andmaintain market share.

Higher demand for heat exchangers and an incremental increase inspending, primarily driven by the refinery market, resulted in a slighttightening of the market and a moderate increase in price over the pastsix months. Inflationary pressure also contributed to increases, as keygrowth differences in various segments of the heat exchanger sectorbalanced against one another. The value of new orders rose throughout2018, as did the value of yet-unfilled orders. Raw materials costs,principally steel, have flattened since the fourth quarter. However,prolonged disagreements between the United States and its tradingpartners are anticipated to facilitate anti-dumping duties on fabricatedmaterial and impact the heat exchanger market through 2019. Leadtimes for both plate and frame exchangers along with cryogenic heatexchangers remain relatively stable, but are expected to increaseslightly as 2019 progresses.

Despite new technologies increasing the production efficiency ofmanufacturers, lead times for both gas compressors and gas turbineshave risen in the past six months due to increased demand in the firstquarter of 2019. In addition to increased lead times, a moderatecorrection in prices to better align with the current market contributedto a noticeable rise in costs for turbines and compressors. A weak fourthquarter due to persistent market overcapacity exerted increasedpressure on suppliers, and several announced temporary or permanentclosures of some of their manufacturing facilities. However, suppliersremain focused on further developing and refining R&D activities, andadvancements in the refinery segment are accelerating, contributing tothe overall demand growth for gas turbines.

Globally, the cost of tanks and pressure vessels rose minimally in thefirst quarter due to tightened supply and stable demand. Volatile rawmaterial prices in 2018, particularly steel, exerted upward pricingpressure on the market early in the first quarter. Nevertheless, overallproduction capacity remains sufficient to satisfy market demand in theshort term, which, paired with import competition, is anticipated tomoderate prices through the third quarter of 2019.



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 onsustainability, 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 of cement and concrete have remained mostly flat or had slightincreases since the third quarter 2018, although the first quarter of2019 saw a rise in prices in almost all countries. Economic growth in Asiawas the main reason for prices to rise in the region, with the Indiangovernment increasing their spending on construction andinfrastructure projects. In Russia, a sharp reduction in constructionactivity in the last few years has caused cement and concreteproduction to decline; this will result in a probable price increase whenactivity level will improve again. In the US, construction activity in the oiland gas sector is expected to grow through the rest of 2019 and favouran increase in cement and concrete prices.

Prices of control valves, switchgear, transformers, wires, and cablesincreased marginally. Demand for these items is usually supported bygrowth in the oil and gas economy. The construction level in the oil andgas sector was stable enough to keep a constant demand for thesematerials without putting too much pressure on prices. Wire and cableprices did not vary significantly as the softness in copper prices since thethird quarter of 2018 continued to filter through the supply chain.

Paint prices fell slightly overall, although recovered somewhat in thefirst quarter of 2019 because of the rise in crude oil prices. In Europe,the paint and coating industry’s hope of a healthy growth in demandwas dashed with forecasts of a continued slowdown this year. Themajor Western European economies of Germany, France, Italy, andthe UK are weakening, affecting the industrial construction,automobiles and machinery sectors, causing a large reduction in paintdemand.

Asphalt is a peculiar petroleum derivative product with many variablesinfluencing its supply/demand balance and final price. The crude oilprice is one of the dominant factors as well as economics,



transportation costs and global market demand. Overall, asphalt priceshave risen since third quarter of 2018 and are likely to be furtheraffected if crude oil prices maintain their upward trend, assuming boththe global paving and industrial sectors will improve.

Insulation demand is primarily driven by rising construction andindustrial activities along with the trend of improving energy efficiency.The Asia-Pacific region is currently the biggest market and expected tocontinue leading the demand in the near term. The global market forthermal insulation materials did not experience notable variations inprice as it was mainly driven by the residential and commercialconstruction sectors which were relatively steady. Industries related topower, oil and gas, chemicals, automotive, etc. also affected thedemand of thermal insulation materials. Global initiatives to reducecarbon emissions by improving energy efficiency are expected to boostthe demand of thermal insulation materials through 2019.

Offshore rigsSince the oil price collapse in 2014, the global offshore rig market hassuffered a fall in rig demand. This, coupled with a large oversupply ofunits, has resulted in low utilization rates and declining day rates. Withconstruction of new rigs starting without securing contracts in place, amassive oversupply of rigs in the market was created. Many contractorsinvolved in newbuild programmes were in a difficult situation, causing asignificant number of units to be left sitting in shipyards for multipleyears.

However, starting from summer 2018, some regions have showedsome signs of utilization improvement, due to a more stable oil price,an uptick in development and exploration and appraisal (E&A) activity,and to a substantial number of older rigs being permanently removedfrom the market.

This trend has continued through the first quarter of 2019 althoughthere was a slow start in terms of tender activity in most regions, withterms and conditions remaining very much in operators’ favour. Ofcourse, not all rigs are equal and some market segments havemanaged better than others. The West European high-specificationharsh environment semi market has been the best performer of theindustry over the last two years, the only one that has seen significant



upward movement in rates. On the other side, the Indian Oceanmarket segment for jackups has proven to be the region with the lowestday rates of less than 30,000 USD per day, due to an acute oversupply.

The floater market in the Indian Ocean has remained dominated byactivity in India, to meet ONGC’s exploration and production targets,and exploration and development campaigns off Myanmar and EastAfrica.

The West African floater market remains significantly oversupplied withdemand yet to pick up. It has been a quiet start to the year in the WestAfrican jackup sector with no requirements hitting the market. Eight ofthe currently contracted units are expected to conclude work by the endof 2019, which helps increasing the availability in the region.

The Middle East rig market has been quiet despite many awardsannounced in January, which were the result of awards that had beennegotiated in the second half of 2018. These are mostly for rigs rollingoff contract, but a handful of new contracts were also announced.

Latin America, like many regions, is full of potential opportunities, butso far, the downturn continues to push out many explorationprogrammes with operators choosing to focus on the areas with theleast risk. The Latin America jackup market is beginning to seeadditional operators enter the region, especially in Mexico. Currently,two rigs are en route to Mexico for work with foreign operators.

The North American floater market demand remains flat, with severalrigs scheduled to roll off contract in 2019. A number of units have beenrelocated to work in South America, Mexico, and Trinidad and Tobago.Meanwhile, Eastern Canadian long-term prospects continue, withplanned work possibly starting over the next 12 months. In the jackupsegment, the fall in commodity prices at the end of 2018 has resulted ina slight weakening of the US Gulf market. While no programmes areknown to have been outright cancelled, a few have been cautiouslydelayed by operators with plans to be revisited in a fewmonths.

The UK standard semi market is set to tighten as most units are likely tobe committed through 2019 leaving limited available capacity over thesecond and third quarters for operators. It is expected that activity willincrease in the Norwegian semi market across 2019 and 2020 with anincrease in demand in the second half of 2019.

Overall, 2019 could see a sizeable number of rigs delivered during thethird and fourth quarters; however, it is more likely that many of theirdelivery dates will be pushed out yet again until the market is able to



absorb the influx. There is also a strong possibility that many of theunits are likely to change ownership as plans change and the marketevolves.

Table 2 shows the average worldwide day rate change for the differentclasses of offshore rigs used in QUE$TOR since the third quarter 2018.Midwater floaters and jackups showed an increase globally whilstdeepwater floaters up to and above 7500 ft declined or remained flat.

Rig classification Average worldwide dayrate change

Floater <= 1500 ft (450 m) 0%Floater <= 3000 ft (900 m) 3%Floater <= 5000 ft (1500 m) 2%Floater <= 7500 ft (2300 m) 0%Floater > 7500 ft (2300 m) -1%

Jackup 1%

Table 2 - Average worldwide offshore rig day rate change sinceQ3 2018

Shortage of recent fixtures in some of the regions has made the dayrate update challenging for some of the rig specifications. The spiderdiagram in Figure 20 shows the percent changes implemented inQUE$TOR 2019 Q1 to the offshore rig day rates depending on rig classand region.

Day rates of jackup and floater up to 3000 ft varied the most regionally,showing the highest increase in the Caspian Sea and Indian Ocean.Again, some of the regional rates should not be seen as a real markettrend but rather more as an adjustment to make them closer to themost recent marketed contract value. Day rates in QUE$TOR are basedon our best understanding of the market at the time. Often it isextremely hard to identify the most representative day rate for everyoffshore rig class in the current commercial market where variabletransparency makes some rates be private and those rates which dobecome public knowledge will do so on a variable timescale.



Figure 20 - Regional offshore rig day rate change since Q3 2018

Offshore vesselsWith the start of a new year the offshore vessel industry is continuing toface challenging times; however, optimism has increased and there isthe expectation that the rest of this year will bring furtherimprovements. Confidence levels are higher than this time last year,the recovery in demand has begun, and many market segments andregions are showing an increased number of vessels fixed on contracts.

In the Asia-Pacific region, demand and utilization have been slowingdown since the end of 2018. Monsoon season has been hitting someareas hard, especially in Southeast Asia and the Far East. This has had anegative seasonal fluctuation effect on drilling operations andconstruction activity, which are normally put on hold or scheduled toend during this time of the year. On the other hand, regional andinter-regional towing and rig move charters have kept the spot marketactive in this area.

In Latin America, the Brazilian offshore vessel and rig markets havebeen on a downward slide. Petrobras announced its new five-yearbusiness plan, which has not changed much in the last few years, and iscontinuing to release vessels and rigs as they roll off contract. Demand



for Anchor Handling Tug Support (AHTS) vessels in Brazil has beenrelatively flat since summer 2017, with most of the vessels workingunder long-term contracts. Requirements for Platform Support Vessels(PSVs) have instead been falling. The Central American sector,including Mexico, is providing some positive inputs to the market. PSVswere required to support Shell’s operations offshore Trinidad andTobago and ExxonMobil’s drilling activity off Guyana. Most Mexicanvessel owners have their tonnage tied to long-term charters withPemex, while additional projects have been announced for the shortand long term which suggest a bright potential for an increase in vesseldemand.

In the Mediterranean sector, term utilization dropped at the end of2018, with several term contracts coming to their conclusion. However,towage fixtures in the region continued to keep several vessels busy onnew deals. News of rig tenders and new contracts in offshore Egypt andIsrael were welcomed by vessel owners. A couple of vessels havedeparted the Mediterranean for potential work commitments in WestAfrica. During the first quarter of 2019, demand remained soft due tothe low seasonal activity and utilization decreased even further with thearrival of several chartered vessels mobilized from the North Sea.

Middle East term activity experienced a sluggish seasonal demand inJanuary but started to improve in February ahead of the scheduledcommencement of various work campaigns for the year. After a briefseasonal break, utilization is expected to pick up gradually in the comingmonths as several scheduled construction support fixtures are due tocommence.

In the North Sea sector, several offshore vessel companies saw a busyend to 2018, with a significant number of new and extended deals beingsecured. January ended with a very busy period of fixture activity andday rates on the spot market improved especially for large AHTSvessels. Despite increased operating incomes compared with previousyear, most vessel owners expressed concerns about the current andfuture state of the market. Major causes of concerns were identified inthe issue of oversupply and in the perceived market recovery beingslower than expected.

The West African industry has declined since September 2014 andreached a low point for offshore activity in January 2017; however,offshore vessel demand has been gradually improving since then. WestAfrican exploration and production activity has been almost flat for theprevious year with opposing trends for some of the countries. TheRepublic of the Congo experienced a decline in term charters whilst



Nigeria saw a strong steady rise. The next hotspots in West Africa forexploration appear to be offshore Namibia and the basins offshoreMauritania, Senegal, Gambia-Bissau and Guinea-Conakry, where someexploration wells have been planned over the next one to two years.

The US Gulf of Mexico showed signs of slowing towards the end of 2018,and the outlook for 2019 is uncertain. Some rig contractors, who madeplans to mobilize jackups and floaters to the US Gulf in 2018, aremoving the rigs to the region slower than planned, given the expecteddemand has softened. Short rig programmes have become much morecommon, and multi-year commitments are harder to firm up. Shallowwater demand increased in January and a number of PSVs termcharters were fixed, reducing spot availability which was alreadytightening in 2018. In general, offshore vessel owners in the US Gulfare cautiously optimistic as they look forward to the rest of this year.Volatile oil prices have made most oil service companies anxious aboutthe long-awaited recovery. However, rig contractors are anticipating animprovement in rig demand around the middle of 2019.

As 2019 progresses, further improvements in the global figure for termactivity are expected, with some regions and market segments showingstrong growth. Difficulties are likely to remain in place though withoversupply, weak utilization and low day rates continuing to provide achallenge for all vessel owner and managers.

The global construction vessel market has been hit negatively in the firstquarter of 2019, with most of the vessels having their rates reduced.Almost all vessel types did experience a drop in utilization which couldpartly explain the overall lower rates on a global basis. NorthwestEurope performed solidly as a region in terms of maintainingconstruction vessel day rates at a good level or even increasing them.Despite the less than encouraging drop in rates and relatively lowutilization, reports from all regions suggests that both day rates andvessel activity are anticipated to increase in the coming quarters.

Subsea equipmentThe global market for subsea equipment recovered considerably overthe summer of 2018 with a significant number of subsea trees awardedin the second half of the year. As the main market driver, subsea treecontracts provide a good indicative guide to future trends and activity inthe entire subsea equipment market. The increased number of awardsin 2018 suggested an industry firmly on the right side of a recovery. In



the first quarter of 2019 awards for subsea equipment have continued,but have been slightly lower than expected due to the lower oil priceand the uncertain macro-economic climate. Demand for umbilicals andsubsea control systems continued the rebound seen in 2017 puttingpressure on price, with contracts being awarded and several additionalawards awaiting project sanction. Prices of manifolds, flexible flowlines,and risers were relatively flat.

In general, the subsea equipment supply appears to be strong andsome of the major suppliers have started to ramp up their hiring. Thesubsea equipment industry is intensely experience-driven withengineers typically requiring at least five years of experience beforebeing considered able to work independently. With the low activity andreduced workforce seen since 2015; a gap has developed betweenrequired skills and available workforce and it is expected that theavailability of engineers will be a factor in any future bottleneck.Ongoing restructuring caused by merger and acquisition activity couldalso delay any increased hiring until the restructuring process iscomplete.

The next couple of years will be interesting for the subsea equipmentindustry as it faces a new economic environment and a rather suddenrush of innovative commercial models. The trend for larger projects hasbeen halted, as suggested by no subsea projects with more than tentrees awarded over the first quarter 2019.

Suppliers are still not publishing specific contract scope or contractvalue, indicating that prices are still well below the level they feelcomfortable with to make them public. Additionally, there has been abig variety of commercial models, with all awarded projects eitherhaving a non-disclosed commercial model or using a variant of theEngineering, Procurement and Construction (EPC) or EPCI contract.Front End Engineering Design activity in the subsea equipment marketindicates that both the traditional EPC contracts and various versions ofthe integrated EPCI contracts will continue to be used side by side, withno indication yet on what types of projects are more suited to eitherform of commercial model.

Contract awards are expected to continue the momentum of theprevious year into 2019 with the potential for up to 400 tree awardsover the course of the year, which would surpass even 2013 highs.Future activity is expected to move away from developments in Asiaand instead focus on a resurgent Brazil and emerging deepwatermarkets such as Guyana, Mozambique, and Senegal.



LabourGlobal construction activity improved or remained stable, supportingwage growth across most regions of the world. Negative movements inUSD terms were attributable to currency depreciations in regions suchas Africa, Australia, Caspian and Russia. A resurgence of constructionactivity pushed labour rates higher in Asia. Demand in Europe remainedstable, while conditions slowed down in North America, where tightlabour markets counterbalanced the slowdown in demand. LatinAmerica continued to struggle with fiscal and political turmoil, which hada negative effect on regional activity and wages.

In North America, labour shortages have pushed rates higher in theUnited States despite signs that construction activity is slowing. Strongcompetition for workers supported wage growth, with wage gains moresignificant in lower-paid occupations. In Canada, the surplus of workersreleased by the energy industry in past years has been mostly absorbedby other sectors. General labour rates remained low in 2018, but havestarted to increase in the first quarter of 2019 as a tight labour marketincreased competition for workers.

In Europe, construction activity has regained some strength, providinghealthy demand conditions for construction labour. Sustainedemployment growth and labour shortages caused wages to increasemoving into 2019; but moderating spending and uncertain outlooksslowed growth for some countries like the UK and Italy. Despitemoderating spending, construction growth in Europe has providedhealthy labour conditions and wage growth, in particular in EasternEuropean countries like Poland.

Wages increased uniformly across the Asia-Pacific region. The demandfor labour was supported by infrastructure spending gains and labourshortages. These factors provided pressure on wages to grow as thenew year started. It is expected that, led by growth in infrastructurespending, the Asia-Pacific region will regain the spotlight for globalconstruction spending, supporting further wage growth starting fromthe middle of 2019. The Chinese government continues to pursueinfrastructure stimulus measures to support the economy as the impactof trade wars takes effect. Previously suspended infrastructure projectsare being reopened, seeing a widening in infrastructure spendingbalancing signs of slowing activity elsewhere in the constructionindustry.



India is set to become the third largest construction market by 2030,with the GDP share of the construction sector estimated to more thandouble in 2020. Growth in the industry and the demand for labour weresupported by several infrastructure projects as the Indian governmentcontinues to concentrate on transport and infrastructure development.

In Australia, construction rates have increased in local currency terms.Although the labour market generally has remained slow-moving, theconstruction sector felt the effects of labour shortages, with shortagesof up to 30% being recorded by the infrastructure sector. Demand forlabour is set to tighten further in 2019; this is driven by an upward swingin mining activities and as large rail infrastructure projects move intothe construction phase.

In Latin America, construction labour markets are moving towardbalance, although risk continues to gather to the downside. Prolongedlow commodity prices have put government budgets under pressureand led to reduced public spending. New administrations in Mexico andBrazil have increased policy uncertainty, which is affectingprivate-sector investment. Meanwhile, a financial crisis and austeritymeasures in Argentina combined with economic meltdown in Venezuelahave continued to act as obstacles to regional construction activity.

The Engineering and Project Management (E&PM) industry hascontinued its gradual recovery in the first quarter of 2019, although it isstill facing considerable hurdles: finding and retaining talent,responding to the volatile international environment created by recenttariffs, and absorbing the rapid pace of technology development.Despite the oil price correction in late 2018, a good proportion of theFEED and other front-end studies awarded in 2017 and 2018 haveprogressed, with some in the tendering or execution stages. This hasstarted to increase the demand for detailed engineering and projectmanagement services for onshore production facilities, topsides, andsubsea infrastructures, especially in the Asia-Pacific and NorthAmerican regions. As oil prices remain uncertain in 2019, activity islikely to continue but a slower rate. Hiring is expected to increase ashigher volumes of work and a promising demand outlook areencouraging engineering contractors to expand their workforce.Competition in the E&PM services market is likely to remain intense,with bargaining power in favour of the buyers.



Land rigsLast year represented a marked recovery in both activity andexpenditure through the global onshore sector. The first quarter of2019 has seen a moderate dip in the onshore rig market as commodityprices experienced slight decreases and a resulting decline in rig count.This, however, has had little associated impact on day rates,particularly for super spec rigs, and recovery of rates remains unevenand highly dependent upon rig class and region.

Like many other segments of the oil and gas industry, the land rigmarket has undergone a radical transformation influenced by the newoil price environment and higher efficiency requirements. The largestshift occurred in North America where drilling contractors have createda new class of “super spec” rigs. These rigs boast increased capabilities,exceptional efficiency, and higher levels of performance, resulting inlower well costs. As the utilization rate in North America for super specrigs climbs above 90%, international markets are following suit as manycontractors upgrade their existing fleets to accommodate improved rigspecifications.

Globally, tender activity is growing moderately in most regions afterexperiencing a marked decline in the fourth quarter of 2018 due tofalling commodity prices and unexpected contract delays. Recoveryremains uneven; however, several regions represent strongholds in themarket as rig quality increases and rig rates rise accordingly.

For the ninth consecutive quarter, North American high spec day ratesexperienced a moderate increase as strong term contract usageprotected rates from the recent downward trend in drilling activity.Drilling contractors are continuing to update their existing fleets tosuper spec rigs instead of opting to invest in new builds, originally doingso in an effort to moderate mounting operating costs. However,operating costs are currently on the rise as super spec rigs requireadditional pipe setback capacity, pumps, and engines compared withprevious rig models. Term contract lengths continue to grow, with someextending as long as 30 months. Many additional extended- lengthcontracts were signed throughout the fourth quarter of 2018, providinga reasonable measure of security for drilling contractors should oilprices experience a prolonged slide. After an uneven recovery, NorthAmerican day rates have stabilized and are anticipated to remain sothrough 2019 as drilling contractors delay new builds.



In the Middle East, day rates remained mostly flat in both the fourthquarter 2018 and first quarter 2019, showing a 0.6% increase in highspec rigs. To remain competitive and retain market share, companieshave begun upgrading their rig fleets and adding super spec rigs topursue more unconventional drilling programmes and resemble thesuper spec rigs currently drilling in North America. As fleets turn overand new rigs are added, day rates are anticipated to rise in an effort toensure timely builds and releases.

Russian rates for all classes increased marginally in the past six months,primarily driven by improved activity and currency exchangemovement. As in most regions, efforts are being made to improve thequality of rigs as the intensity of drilling programmes increases andrequirements change to encompass high spec rigs. However, rig fleetsstill rely heavily on low spec rigs, and day rates for low spec rigs inRussia noted the largest yearly increase in 2018.

Asia has proven especially resilient to the fluctuations of the onshore rigmarket, marking a notable increase in day rates, directed primarily byimproved drilling activity in China. Domestic Chinese demand is strong,and operators have sought to increase production to accommodate theupward pressure of the market. The focus has shifted towardunconventional plays, and suppliers are utilizing higher spec rigs tomaximize horizontal drilling capabilities for both mature andunconventional fields.

In South America, while rates remained flat overall through the fourthquarter of 2018 and into 2019, high spec rates experienced moderategrowth. As oil prices flattened, Colombian rig activity declinedaccordingly, hindering regional expansion. However, Argentina’s focuson unconventional drilling programmes and the minimal rise in highspec rates in the first quarter prevented further weakening of ratesacross the region. Similar to activity in Russia and the Middle East, focushas shifted to upgrading existing local fleets to super spec rigs and withit, an anticipated rise in day rates as rig fleet specifications improve.

Day rates for low spec rigs have continued to incrementally increase inthe last six months with several regions, primarily Russia and Asia,experiencing slight growth in the first quarter. However, while theyremain actively relevant in Russia, South America, and the Middle East,utilization of low spec rigs is expected to decrease as internationalmarkets move toward more high spec rigs to remain competitive.Demand continues to decline in North America, reflected in falling day



rates through the first quarter of 2019. Land rig day rates areanticipated to rise globally through 2019, with a surge in rig activityduring the second quarter after a restrained first quarter.



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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