Benchmarking Report QUE$TOR 2016 Q3 Release November 2016 QUE$TOR is a registered trademark of IHS.
Contents Introduction 1 Technical Benchmarking 3 Onshore 4 Offshore 5 Cost Benchmarking 6 Onshore 8 Offshore 10 Release Benchmarking 12 Software Support Contacts 14 Sales and Commercial Contacts 15
Number of projects QUE$TOR 2016 Q3 Benchmarking Introduction We are pleased to announce the release of IHS QUE$TOR 2016 Q3. As with previous updates, this version contains both product enhancements and cost updates. This benchmarking report has been prepared to provide an understanding of the effects the changes between QUE$TOR 2016 Q3 and the previous version QUE$TOR 2016 Q1, had on capital costs estimations when a QUE$TOR project is updated. The method of analysis is to run projects using three versions of QUE$TOR. Projects are run in the previous version (QUE$TOR 2016 Q1), the updated version (QUE$TOR 2016 Q3), and an intermediate version that only incorporates the technical changes and feature additions made to the latest release of the software. The difference between the previous and the updated version quantifies the combined cost and technical changes. The change in results from the previous to the intermediate version describes technical changes and the difference between the results of the intermediate build and those of the updated version reveals the change in costs that stem from market movements. To make the analysis as meaningful and realistic as possible a large sample of projects (approximately 450) are used which are based on real assets and potential developments around the world. The projects have been selected to give a diverse international portfolio (Figure 1). Offshore Onshore 80 70 60 50 40 30 20 10 0 Africa Australasia Europe Far East Latin America Middle East North America Figure 1: Breakdown of benchmarking portfolio by region and project type IHS November 2016 Page 1
QUE$TOR 2016 Q3 Benchmarking The portfolio of projects to be analyzed is roughly split into 250 offshore and 200 onshore developments. Every region contains both project types, although the overall portfolio is not intended to include all possible projects but to be a representative sample. As a result some projects or regions may be more or less represented than others. The benchmarking analysis serves multiple purposes. Internally, this analysis enables the team to check whether the new capital cost estimations are consistent with the changes as described in the Release Notes by highlighting how technical changes to the application have been included and their potential to mask other cost changes that occur in the application. As a communication to our users, the analysis provides a comparison of cost change effects by region, type and cost category. This report is meant to supplement the market changes discussions contained in the QUE$TOR 2016 Q3 Release Notes. Page 2 November 2016 IHS
Percentage of projects QUE$TOR 2016 Q1 Benchmarking Technical Benchmarking Technical benchmarking is used to distinguish between the effects of new technical definitions on project costs in QUE$TOR and the effects of cost database changes. Technical benchmarking is a process that allows the comparison of the costs of developments run in different builds of QUE$TOR based on the same cost database, with the aim of isolating the effects of the new technical specifications. This provides an understanding for the reasons behind the changes and helps validate QUE$TOR as new features are developed. Most technical changes made to QUE$TOR this release have improved the product by giving users more options when modelling projects (addition of grade X52 Carbon steel linepipe option onshore, tanker and topsides leasing, and userdefined subsea equipment to name a few) and as such had no impact on project costs by default. After reviewing the technical benchmarking results, five changes were observed to have an effect on costs: a) Manifold weight calculations (in Topsides and Production facilities) now rely on the oil / condensate capacity and associated gas. b) Correction to the calculation of dehydrators in oil processing. c) Changes to offshore loading defaults when exporting oil ship to ship. d) Default operating pressure of water injection pumps fixed at 55% of the reservoir pressure. e) Onshore construction civils costs unit rates are now reproduced from the civils sub cost sheet onto the main cost sheet. These changes have had a very limited impact on project costs both onshore and offshore, as can be seen in Figure 2. The effects on project costs are analyzed more closely in the following subsections. 100% Offshore Onshore 80% 60% 40% 20% 0% -2% -1% 0% 1% Change in project cost Figure 2: Distribution of cost changes due to new technical definitions in QUE$TOR 2016 Q3 IHS November 2016 Page 3
QUE$TOR 2016 Q3 Benchmarking Onshore It is clear from Figure 2 that the new technical definitions in QUE$TOR have had a very small impact on onshore project capital costs. Over 95% of onshore projects went unchanged, with the remaining projects all varying by less than 2%. Investigating the origin of these changes reveals Production facilities to be the source for the vast majority of projects, with a few showing costs changing in Terminals, Wellpad groups, and Infrastructure. It should be noted that the costs of these components did not change by much, with only one project s Production facility costs falling by over 5%. Of the five changes named in the list on the previous page, four can have an effect on onshore projects, with three of them specifically on Production facilities. Oil flowrates are now being used to drive manifold sizing in order to fix an issue where QUE$TOR would experience difficulties if gas injection flows were appreciable compared to production volumes. This change only had discernable cost consequences when oil flows were locked at near-zero values, which prevented recalculation of the inlet oil and gas flows; unlocking the parameters fixes any sizing issues. A bug that led QUE$TOR to size and cost unnecessary dehydration units was found and addressed, but this had no appreciable impact on costs. Another bug that was similarly minor from a cost perspective was the water injection pressure fix. The QUE$TOR Help file states that water injection pressure should be at 55% of the reservoir pressure by default, but it was discovered that the values produced by QUE$TOR were at a slightly higher 56%. This led to a small change in the power demand of water injection pumps, which led, in some cases, to the selection of a different turbine. Finally, the breakout of the construction civils in the main cost sheet has had an impact on costs whenever the labour rate on the main cost sheet was previously locked. If users had locked unit rates on the sub cost sheet those rates will be maintained, but as the main cost sheet no longer has a civils unit rate (which was calculated as a weighted average of the different civils activities from the sub cost sheet), any value locked at this level will be lost. Page 4 November 2016 IHS
QUE$TOR 2016 Q1 Benchmarking Offshore Referring back to Figure 2 once again, it is clear that offshore projects experienced the same muted levels of change as onshore projects did. Here as well, 95% of projects did not experience any changes in their costs due to technical changes to QUE$TOR, and the projects that did only changed capital costs by up to 1%. Only the Topsides component exhibited some change in costs in offshore projects. As with onshore costs, of the five technical changes listed at the beginning of the Technical Benchmarking section, only four (a, b, c and d) can impact offshore costs, all specifically affecting Topsides. Three of these have been described in the previous section (namely: manifold sizing, dehydration in oil processing, and water injection pressure) and behave identically offshore and onshore. Change c) only affects offshore projects that export oil through offshore loading. Previously it was assumed that offloading flows are equal to production flows, whereas now they have been set to be ten times larger by default. This is because offloading tankers are expected to be filled up within 24 hours once every 10 days when the substructure provides oil storage capability, e.g. when the Topsides is on a tanker or GBS. This change led to offloading pumps requiring more power, occasionally leading to the selection of a larger power generation turbine, which led to increased costs. In conclusion, on average technical changes have had almost no effects on total project costs this update. Users can expect their project estimate changes to stem almost entirely from market developments when updating from QUE$TOR 2016 Q1 to QUE$TOR 2016 Q3. IHS November 2016 Page 5
Percentage of projects QUE$TOR 2016 Q3 Benchmarking Cost Benchmarking Following the technical benchmarking, the portfolio projects were run through the release version of QUE$TOR 2016 Q3, and the results analyzed. The analysis method to get the cost changes compares the new release version with the results generated by the intermediate build in order to focus solely on cost changes stemming from new market conditions. The distribution of project cost changes for all projects in the assembled portfolio can be seen in Figure 3. Offshore Onshore 30% 25% 20% 15% 10% 5% 0% -10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% Change in project costs Figure 3: Distribution of cost changes due to market movements in QUE$TOR 2016 Q3 Over 95% of onshore projects changed by between -2 and 3%, with an average change of 0.5%. Offshore projects saw slightly steeper declines in costs and a wider range of variation; they averaged a fall of 2%. Figure 4 shows the regional breakdown of onshore and offshore project cost changes, revealing that while costs have decreased somewhat uniformly offshore, onshore project costs have exhibited positive change everywhere except in Africa and the Far East, the reasons for which will be investigated a little further on this report. Page 6 November 2016 IHS
Change in costs Change in project costs QUE$TOR 2016 Q1 Benchmarking 2% Africa Australasia Europe Far East Latin America Middle East North America 1% 0% -1% -2% -3% -4% -5% Offshore Onshore Figure 4: Regional breakdown of cost changes Figure 5 shows the change in project costs by cost category. In this graph, prefabrication and fabrication were averaged together. Installation is both the most variable cost category and the most severely impacted by the enduring lack of activity, explaining the differences between onshore and offshore costs observed in Figure 4. A thorough investigation into these changes is presented in the following subsections. 6% Fabrication Materials D&PM Construction Equipment Installation 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% Africa Australasia Europe Far East Latin America Middle East North America Average Figure 5: Breakdown of project cost changes by category IHS November 2016 Page 7
Change in component costs QUE$TOR 2016 Q3 Benchmarking Onshore Onshore development costs have increased for the first time since oil prices first crashed in late 2014. While the cost increase appears to be quite muted at just half a percent, it is nonetheless significant that onshore costs have stopped falling in most regions (see Figure 4). Since this uptick comes at a time without any increased optimism in oil markets or overall demand, it has likely been caused by shifting fundamentals in supplier markets. Figure 6 shows the average change in onshore component costs for each region, as well as the overall averages for the portfolio. It is immediately clear that on a component level, only Onshore drilling costs fell over the past 6 months, all other components showed increases in costs. This contrast is best explained by Figure 5 which shows that Materials and Fabrication expenditures were responsible for the biggest increases. The Materials cost category is dominated by spending on steel and bulks in every component except Onshore drilling, where this category contains mainly OCTG, bits, and drilling fluids all of which have seen their costs decrease. Onshore drilling does not involve any fabrication either and therefore cost increases in that category did not boost its costs. 6% Infrastructure Production facilities Pipeline Terminals Wellpads Onshore drilling 5% 4% 3% 2% 1% 0% -1% -2% -3% Africa Australasia Europe Far East Latin America Middle East North America Average Figure 6: Onshore cost changes by component Page 8 November 2016 IHS
QUE$TOR 2016 Q1 Benchmarking Another salient feature of Figure 6 is Africa s costs falling the furthest (or rising the least) consistently across all categories. This was due to the deteriorating economic conditions faced by countries significant to the industry (Egypt, Angola, and Nigeria to name a few). Low oil prices and other factors have led local currencies to lose a great deal of value against the USD, which is the currency this analysis is undertaken in. European and Latin American costs experienced the reverse of that phenomenon, though Figure 6 does not exhibit it as clearly. Currencies in Brazil, Argentina, and Russia experienced a healthy recovery against the USD, and so local expenditures in those countries rose as a result in USD terms. The increase in onshore costs is rather small, a fact that masks the large rise in steel costs over the past 6 months. Steel costs increased by double-digit percentages globally, climbing by over 20% for some products in certain regions. That such a large increase in steel prices only led to an increase of half a percent in overall onshore project costs suggests that other markets are still falling and have not yet bottomed-out. The floor cannot be too far away: activity is already lower than industry analysts expected, and suppliers have already passed on as much savings to customers as they could to survive. Sustained downwards pressure on costs will lead more suppliers to a choice between major restructuring (in the shape of mergers or acquisitions), or bankruptcy. IHS November 2016 Page 9
Change in component costs QUE$TOR 2016 Q3 Benchmarking Offshore Development costs have fallen further offshore than they have onshore, as shown in Figure 4. Analyzing the changes by cost category (Figure 5) reveals that the change in Installation costs is the dominant factor. Compared to the other cost categories, Installation costs fell by more than fourfold the average. While these costs are a part of every offshore component, Installation makes up a relatively small portion of the total costs of Topsides and the various floaters in QUE$TOR, limiting cost movements in those components. Figure 7 shows the average cost change in each offshore component. Jackets, Offshore drilling, and Offshore pipelines all require significant installation expenditures, making them the most affected components. The decrease in Offshore drilling costs came mainly from lower rig and vessel dayrates. Jackets were the component where costs exhibited the biggest drop and the largest range of variability. This is because Jacket costs are dominated by installation costs which have decreased strongly this update. Jacket installation spreads are mainly comprised of Anchor Handling Tug Supply (AHTS) vessels, barges, and heavy-lift vessels. Vessel dayrates have experienced dissimilar changes in different regions. North-West European spot markets helped rates fall quickly early in the downturn (especially AHTS vessels), and has helped them recover relatively quickly more recently. Middle Eastern vessel dayrates had held steady early in the downturn, and so had the most room to fall recently. This applied to both AHTS and lay vessel dayrates. 6% Topsides Floaters Subsea Offshore pipeline Offshore drilling Jacket 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% Africa Australasia Europe Far East Latin America Middle East North America Average Figure 7: Offshore cost changes by component Page 10 November 2016 IHS
QUE$TOR 2016 Q1 Benchmarking Topsides costs are the only ones to have increased on average over the last two quarters. This is almost entirely due to higher steel prices, with a small contribution from higher labour rates as well. Floaters and Subsea costs in the Middle East seem to have fallen greatly, but it should be noted that the region has very few developments which utilize these solutions. In our benchmarking portfolio, only two projects in the Middle East contain subsea elements, and another two use floaters to develop offshore resources. Offshore development costs are still falling, but there is a marked difference in their degree of decline compared to previous updates. It is clear that they are nearing bottom despite the great downwards pressure exerted by insufficient enthusiasm in upstream markets. Unless steel prices slip back to the lows seen early this year, it is reasonable to expect offshore costs to begin to rise again in 2017, even without increased upstream activity. IHS November 2016 Page 11
Percentage of projects QUE$TOR 2016 Q3 Benchmarking Release Benchmarking In this section technical and cost changes are brought together to give an idea of what changes in costs users are likely to see as a result of using the latest version of QUE$TOR. Since technical changes had no impact on component costs during this update, the changes detailed in the cost section (Figures 5, 6, and 7) should be considered an accurate representation of what users can expect when updating their project files from QUE$TOR 2016 Q1 to QUE$TOR 2016 Q3. A histogram of the portfolio projects cost changes is shown in Figure 8. The distribution looks very similar to the one depicting only the cost changes stemming from market movements in Figure 3. Given the close resemblance between the two, either one can be considered an accurate representation of what cost changes users can expect to see when updating. Offshore Onshore 35% 30% 25% 20% 15% 10% 5% 0% -10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% Change in project costs Figure 8: Distribution of cost changes when updating from QUE$TOR 2015 Q3 to QUE$TOR 2016 Q1 While on average the difference between onshore (0.5%) and offshore (-2%) cost changes may seem small, Figure 8 shows that certain offshore projects can be expect to achieve more significant savings. Installation activities are especially competitive at the moment, and any development requiring significant expenditure on vessels will likely benefit. On the other hand, projects requiring great amounts of steel can see significant cost increases that overshoot the range shown in the above graph. Page 12 November 2016 IHS
Percentage of projects QUE$TOR 2016 Q1 Benchmarking Figure 9 compares total offshore project cost changes (from Figure 8) with a benchmarking analysis that excludes the costs of all Offshore drilling components. It is clear that excluding Offshore drilling gives the distribution of cost changes a peak at -1%. Without drilling, the variance in the cost distribution decreases, and it shifts slightly towards the right. Complete No drilling 35% 30% 25% 20% 15% 10% 5% 0% -10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% Change in project costs Figure 9: Comparison of change in offshore project costs with and without the costs from Offshore drilling components IHS November 2016 Page 13
QUE$TOR 2016 Q3 Benchmarking Software Support Contacts If you have any problems or questions relating to any of the QUE$TOR suite applications, please contact the Software and Engineering Support Desk. Support e-mail address: support_questor@ihs.com (Note: s rather than $ ) Licensing support e-mail: questor_licensing@ihs.com Support telephone and fax: North & Central America Tel: (+1) 713 840 8282 Fax: (+1) 713 995 8593 South America Tel: (+55) 21 3299 0440 Europe, Africa, Middle East Tel: (+44) 20 3159 3300 Fax: (+44) 20 3159 3299 S.E. Asia & Australia Tel: (+91) 124 454 2699 China Tel: (+86) 10 5633 4567 Fax: (+86) 10 5633 4500 The IHS software support team key contacts are: North, Central & South America Thais Hamilko, Jonathan Stephens, Abhishek Verma, Zayd Wahab e-mail: thaisfrancielle.hamilko@ihs.com, jonathan.stephens@ihs.com, abhishek.verma@ihs.com, zayd.wahab@ihs.com Europe, Africa, Middle East Rita Antonelli, Matthew Butcher, John Helliwell, Greville Williams e-mail: rita.antonelli@ihs.com, matthew.butcher@ihs.com, john.helliwell@ihs.com, greville.williams@ihs.com S.E. Asia & Australia Sanjay Sinha e-mail: sanjay.sinha@ihs.com China Yaxing Wang e-mail: yaxing.wang@ihs.com Page 14 November 2016 IHS
QUE$TOR 2016 Q1 Benchmarking Sales and Commercial Contacts If you have any questions or would like any further information regarding IHS software or services please contact your Account Manager or your local IHS sales office. Beijing Tel: (+86) 10 5633 4567 Fax: (+86) 10 5633 4500 Geneva Tel: (+41) 22 721 1717 Fax: (+41) 22 721 1919 Houston Tel: (+1) 713 840 8282 Fax: (+1) 713 559 9101 London Tel: (+44) 20 3159 3300 Fax: (+44) 20 3159 3299 Moscow Tel: (+7) 495 937 77 24 Fax: (+7) 495 937 77 25 Rio de Janeiro Tel: (+55) 21 3299 0440 Singapore Tel: (+65) 6439 6000 Fax: (+65) 6439 6001 Tetbury Tel: (+44) 1666 501 200 Fax: (+44) 1666 504 704 Tokyo Tel: (+81) 3 5791 9530 Fax: (+81) 3 5791 9662 IHS November 2016 Page 15