Discover accurate cost projections

for all of your E&P projects

Let’s start with a basic question

• How do you currently estimate project costs?

• How important is the project lifecycle cost in your development
considerations?
• How are you currently managing estimation in the dynamic cost
market? How do you adapt estimates in the changing cost
market?
• How extensive is your cost estimation team/resource?
• How much time do you spend generating a project cost estimate?
• Lack of experience in the workforce and limited pool of
resources?
 The IHS family of Costs and Strategic Sourcing

• Upstream Capital and • Market Survey System

Operating Costs Services • Category Management MI
• Supplier/vendor actual costs • Detailed category
• Scenario forecasts demand/supply analysis
• Foundation of project escalation • Supplier assessment/tracking
• Project activity model based • Category cost models
Upstream
Costs MSS
”benchmarking project Services ”making better
cost trends” sourcing decision”

”early phase
cost estimation” ”assessing input prices”
QUE$TOR P&P

• QUE$TOR • Pricing and Purchasing

• Industry estimating tool • Generic construction data
• Data base of regional • Consistently forecasted
itemized cost data • Gov. industry data sources
• Day rates $/t or manhour • Internal provider of raw data
QUE$TOR
QUE$TOR: Cost Estimation Software

QUE$TOR is an upstream early stage cost estimation tool

QUE$TOR is a project modelling, Project Schematics

evaluation and decision support tool
for global application in the
upstream oil and gas industry.
It provides a quick and consistent
methodology to generate current
cost estimates based on standard
engineering algorithms and up to
QUE$TOR enables users to build project
date cost data. schematics to match their requirements
Allowing users to optimise early
phase development plans for oil and
gas projects.
QUE$TOR: Leading the industry

• QUE$TOR is used by cost estimators in

at least 52 countries throughout the
world

• QUE$TOR is used by over 160 parent

companies

• QUE$TOR is used by 90% of the top 25

largest oil and gas companies

• QUE$TOR contains and updated 60,000 80% of Global Cost Estimators use
cost data items QUE$TOR as their industry standard
QUE$TOR: Reliable Cost Estimation

QUE$TOR provides its users a

streamlined process for cost estimation
that is:
• Simple, quick and consistent
• Reliable and know accuracy
• Easy to run scenarios and
optimization
• Based on current costs
• Complex yet simple
 Bottom-up Estimates for All Field Architecture

• Shallow and deepwater offshore field developments

• Dry and wet tree based systems

• Subsea gathering systems and risers

• Fixed and floating structures

• Surface processing facilities

• Offshore storage and export pipelines

• Conventional onshore field developments

• Well drilling and completion

• Gathering networks

• Processing facilities

• Storage and export terminals

• Infield and export pipelines
Typical Applications

• Prospect evaluation
• Quickly generate lifecycle cost estimates to assist with prospect screening

• Concept screening
• Compare multiple concepts ensuring a consistent estimate basis

• Conceptual engineering
• Develop a preliminary design

• Project benchmarking
• Produce regional cost benchmarks

• Asset evaluation
• To aid asset acquisition and divestiture
Estimate Scope - CAPEX

• Targeting “Middle of the Road” EPC contract cost

• Pre-sanction can be optionally added
• (FEED study, Environmental studies )
• Owner’s project management can be optionally added
Workflow

Select databases • Cost database – regional costs by cost centre

• Technical database – local technical inputs

• Reservoir properties – recoverable reserves, production profiles, well counts

Input field data
• Select concept – field architecture and export options

• Change field architecture – Add and remove components

Modify concept
• Adjust individual components – Processing options, pipeline diameters

Calculate OPEX • Adjust operating costs - manning, inspection & maintenance, consumables,
well work-over, insurance, project costs and tariffs

Schedule CAPEX • Total CAPEX to CAPEX forecast

Generate • Forecasts – production, CAPEX, OPEX, decommissioning

investment profile • Exported and used for economic analysis

11
QUE$TOR – Cost Summary & Field Development
Schematic

• Automatically calculates all component costs and populates the

cost tree using QUE$TOR defaults in seconds

12
Outputs: Annual Expenditure and Production
Component Listing - Offshore

14
Component Listing – Offshore

15
Component listing - Onshore

16
 Upstream Capital Costs Index (UCCI)

• Cost inflation has become a significant project risk within the upstream O&G
• Inflation levels from 2005 to mid 2008 were running at circ 25% p/a
• The UCCI tracks the change in CAPEX for a typical upstream portfolio
• Index is based to January 2000 and is updated on a quarterly basis

240

220
Upstream Capital Cost Index (2000 = 100)

200

180

160

140

120

100

80
2000 2002 2004 2006 2008 2010 2012 2014
 UCCI vs. Brent Crude Price
• Oil price is a key driver for upstream markets
• Increasing oil price leads to profits, which pays for E&P investment, which produces demand

• A wide range of variables are used to forecast cost inflation scenarios

• IHS Global Scenarios form the basis of the forecasts

240 160

Average monthly Brent crude price ($/BBL)

220 140
Upstream Capital Cost Index (2000 = 100)

200 120

180 100

160 80

140 60

120 40

100 20

80 0
2000 2002 2004 2006 2008 2010 2012 2014
 Release Process for Cost Data
• A new version of QUE$TOR is released twice per year, cost database updates
are included in every release to reflect current prices
• May release – Q1 prices

• November release – Q3 prices

• For each release, we provide updates to all of the regional cost databases
• 17 Offshore regional databases

• 11 Onshore regional databases

Data Project
Benchmarking Benchmarking
• Continuous, year • Generation of
round process average unit costs
• Single data-input • 24 “Benchmark”
• Focus driven by • Update of main
review projects are run
market changes exchange rates
• Compare with • Compared against
expectations and previous release
market trends
Data Database
Collection Updates

19
 Cost Data Sourcing for QUE$TOR

• QUE$TOR cost analysts collect data year round

• Understanding the dynamics of key upstream markets
• Improving our regional cost networks
• Researching emerging technology costs

Leverage IHS expertise

Maximize public domain sources

Subscribe to 3rd party data

Relationships with vendors

Relationships with operators

20
Understanding Upstream Costs

21
RigPoint: Indonesia rig availability
QUE$TOR: Developments in 2013

Our teams are constantly working to keep

QUE$TOR updated with the latest cost data.
In 2013 additional capabilities included:
Global Data Collection
• HIPPS (High Integrity Pressure Protection
System)
• Bulk CO2 Membrane separation
• Windows 8 support
• Hull transportation costs added
Internal Expert Reviews
• Electrical buildings
• Included editable weather downtime factors
• Ability to set flow line design pressure in
subsea
• Improved acid gas removal system
Developing Latest Models
estimation
QUE$TOR: Planned developments for 2014
Our teams are constantly working to keep QUE$TOR
updated with the latest cost data. Additions in 2014 will
include:
• Introducing QUE$TOR technical committees. The
first to be organized in February 2014
• LNG module
• HPHT
• Circular FPSO
• ‘Copy/Paste’ duplication
Shell is building world’s largest
• Sulphate removal Offshore floating facility ever made
at an estimated cost of $13 Billion*
• Heavy oil enhancements
• Metrics reporting
CERA Cost Forums
IHS CERA Methodology

The IHS CERA Costs Forums are designed to help clients address a dynamic
costing environment against shifts in industry fundamentals and geopolitical shocks.

Identify Fundamental Costs Drivers

Measure Performance

Conduct Root Cause Analysis

Determine Costs Outlooks

 27

Cost Drivers – Market Indices

UOCS UCCS DCCS

Operations Offshore Rigs Labor
Land Rigs
Maintenance Installation Vessels Steel
Yards & Fabrication
Logistics
Facilities
Well I&M
Services Equipment
Equipment
Logistics Subsea
Civils
Bulk Materials
Steel Engineering & PM
Construction Labor
Engineering & PM Electricals
 28

Performance

Measuring Performance

UOCI

• The portfolio index collectively monitors costs UCCI

Portfolio Index for a virtual portfolio around the world and is
indexed to the year 2000 (2000 = 100).
DCCI

• Each of the primary markets related to each OPEX Markets

cost forum are measured individually and
independently and indexed against the year
Market Indices 2000 (2000 = 100). These markets evaluate
Upstream CAPEX
current and historic trends related to rates and Markets
prices and provide the foundation for root
cause analysis.
Downstream CAPEX
Markets
 29

Example Upstream Portfolio

Russia Deepwater
North Sea – Shallow Russia Onshore Gas
North Sea – Deepwater (2) Kazakhstan Onshore Oil
Azerbaijan Shallow Water (2)
Canada Offshore
US Onshore Gas
Alaska Onshore Oil
GOM Deepwater (2)
China Onshore Oil
Malaysia Onshore Gas
Indonesia Deepwater
Australia Shallow Water
India Onshore Gas
Trinidad & Tobago Onshore Gas
Columbia Onshore Oil
Brazil Onshore Gas
Brazil Deepwater (2)
Libya Onshore Gas
Saudi Arabia Onshore Oil
Oman Onshore Gas
Nigeria Onshore Oil
Nigeria Deepwater
Angola Offshore
Angola Deepwater
South Africa Onshore Gas
Root Cause

Conduct Root Cause Analysis

Supply/Demand

Natural Gas $ GDP

IHS CERA
Oil $ Cost FX
Forum
 31

Outlook

Determine Costs Outlooks

Outlooks
• Time Period: 1 to 20 years

• What: Portfolio Index and Market Indices

• Approach: Outlooks leverage the materials, frameworks, and processes developed by

the IHS CERA Global Scenario Study. In this study, three separate scenarios (Base,
High, and Low) help navigate the assumptions necessary to support the long-term
outlooks. Key inputs are oil price, natural gas price, GDP, oil supply, oil demand, gas
supply, and gas demand as well as supporting story lines that paint the energy picture.
 IHS Global Scenarios

EXPANSION OF GLOBALIZATION
• Growing global trade and investment
• Tension related to greenhouse gas (GHG) policy and nuclear
weapons proliferation
Global Redesign • Global institutions adapt to crisis and new balance of power
• Evolutionary changes in energy demand and supply

PAIN AND FEAR

• Pain and fear drive innovation and environmental policy
• Revolutionary increase in electrification of vehicle fleet
• Growth in global greenhouse gas (GHG) emissions slows
Meta
dramatically

ECONOMIC VOLATILITY
• Second Great Recession
• Protectionism leads to a “Long Slowdown”
Vortex • Little change in energy demand, supply, and technology

32
 Long-Term Oil and Gas Price Outlook

Brent Price Outlook Henry Hub Price outlook

Source: IHS CERA.

33
Example deliverable: UCCS
Portfolio Index

IHS Upstream Capital Costs Index UCCI

Data in this table is for Global Redesign only

Notes: Year Index YOY % Chg.

1. Historical indices include escalation, inflation and currency exchange (USD)
2. Forecasts include escalation and inflation but no FX movements 2012 240 (Q4) Up 5% (Q1-Q4)
2013 261 Up 8%
2014 279 Up 7%
Index
Q4 2011—220 2015 293 Up 5%
Q1 2012—227

Up 3.3%

Source: IHS CERA.

34
Example deliverable: UCCS
Market Index – Scenarios

Market Overview Q4 2011 to Q1 2012

Offshore Land Installation Yards & Subsea Steel Bulk Construction Engineering
Equipment
Rigs Rigs Vessels Fabrication Equipment Products Materials Labor & PM

Cost Changes
Steel Products Index
• Global steel costs were relatively flat in
the 1Q 2012
Index
• Buying has resumed in Asia after the Q4 2011— 292
Chinese New Year holiday Q1 2012— 291

• US prices were flat. Import prices from

Asia increased, but remained lower than
domestic US pricing, keeping prices in
check
• European prices increased by 0.2% in
the quarter in US$ terms (2.6% in €)
• OCTG costs increased globally by 0.5%,
with pricing flat in the US but increasing Down 0.1%
slightly in Europe and Asia, driven by
drilling activity and imports to the North
America
• Alloy seamless casing OCTG prices
increased globally, while tubing
decreased
• Linepipe costs decreased by 1.3%, with Notes:
overcapacity and more mills coming 1. Historical indices include escalation, inflation and currency exchange (USD)
onstream in the next few years 2. Forecasts include escalation and inflation but no FX movements

35
Example deliverable: UCCS
Market Index – Regional Breakout

Breakout Indices
Offshore Land Installation Yards & Subsea Steel Bulk Construction Engineering
Equipment
Rigs Rigs Vessels Fabrication Equipment Products Materials Labor & PM

Raw Materials Regional Indices

Q4 2011 to Q1 2012 Price Changes (USD)

Market Changes
• Iron ore prices have decreased, driven by decreased
steel production in Europe and flat Chinese demand
• Coal shipments from Australia to China are
increasingly being replaced by inland shipments from
Mongolia
• Transportation costs increased on higher fuel costs
• Structural steel prices declined in Asia and Europe,
reflecting regional slowdowns in construction activity
• Overcapacity kept linepipe prices in check in all
regions
• Rebar prices were up primarily due to speculation of
higher scrap prices in upcoming months

36
Example deliverable: UCCS
Market Index – Regional Forecast

Market Trends
Offshore Land Installation Yards & Subsea Steel Bulk Construction Engineering
Equipment
Rigs Rigs Vessels Fabrication Equipment Products Materials Labor & PM

Trends Regional Forecasts—Global Redesign

• Raw steel prices will vary depending on region and
type of steel
• Demand growth in 2012 will be positive in the
United States and Asia but will decline in Europe
• Supply is ample and lead times are normal
• China has ramped up production after the New
Year celebrations, and restocking has begun
• Imports are flowing to the United States due to
steep discounts, keeping US prices in check
• Traditional trade flows will shift, exports will flow
from Asia to Europe, as the dollar weakens and
more European mills close
• Pipe pricing is as low as it will be for 2012, and will
likely rise for the rest of the year
Projected Trends
• OCTG demand is expected to grow on high oil
prices which will offset a decline gas drilling Market Q4 2012 2013 2014
Drivers Global Redesign 6% 14% 5%
• Supply, demand, GDP are the main drivers for this Metamorphosis 3% 6% 14%
market
Vortex -6% -8% -13%
• Changes in exchange rates can lead to shifts in Note: Forecasts include escalation and inflation but no FX movements.
trade patterns

37
Six-month review

October
May 2012 May 2012 July 2012 MSS and Aug/Sept Ongoing 2012 – 15th Q3 2012
Houston Q1 Market Q2 Market CCAF Cost New Excel Forecast CCAF Market
Forum Update Update Alignment Workbook Work London Update
Forum

Houston Workshop Items:

• Consistent Work Book Format
• Update Regional Forecasts
• Review Portfolio
• Portfolio Recommendation
• Chinese’s Contractors
• Local Content Review
• MSS and CCAF Overlap Review
• Details behind Cost of Oil 38
Cost of Oil
Cost of Oil

• The methodology calculates regional costs through the following

steps

• Determine the cost of exploration, including appraisal wells but excluding

license, lease, or purchase costs.
• Determine the cost of development, including any relevant risk premiums.
• Determine the cost of operations.
• Apply the fiscal model to determine the oil and gas price required for a 15%
IRR and highlight the areas where project development is viable at current oil
and gas prices
Current cost of oil for selected new projects
—Breakeven price at 10% & 15% IRR
Equivalent Brent Equivalent Brent
Capex Opex Exploration
Q1 2014 price ($/bbl) price ($/bbl)
($/bbl) ($/bbl) ($/bbl)
10% IRR 15% IRR
Saudi Arabia 21.07 22.77 3.73 2.15 0.04
Iran 27.07 29.77 4.63 3.15 0.04
Libya (current situation
Uncertain Uncertain Uncertain Uncertain Uncertain
makes costs uncertain)
Egypt 40.06 43.81 19.48 11.31 0.37
Mexico 44.71 48.95 5.94 4.64 0.32
China 47.23 52.61 18.08 8.93 0.41
Argentina 49.91 51.34 6.84 5.64 0.32
Russia 48.08 54.14 11.24 6.46 0.07
with export tax and tariff 86.67 92.69
US Tight Oil 50.02 60.19 18.65 11.45 0.10
UK North Sea (shallow 51.51 60.04 11.52 12.53 0.40
water)
Brazil 54.16 63.28 12.88 12.50 0.27
US GOM (deepwater) 55.40 63.96 17.29 13.61 0.54
Norway 61.21 67.29 14.07 15.34 0.46
Angola 64.00 74.20 17.28 13.52 0.55
Nigeria 67.86 78.57 20.88 13.92 0.10
SAGD 72.24
Mine 108.34

41
 Current cost of gas for selected new projects
—Breakeven price at 15% IRR

Natural gas price

Capex Opex Exploration
Q1 2014 for 15% rate of
($/Mscf) ($/Mscf) ($/Mscf)
return ($/Mcf)
Iran (uncertain for new
3.12 1.50 1.02 0.02
projects)
Oman 3.80 1.70 1.12 0.01
Russia 4.04 1.80 1.14 0.04
Peru 5.39 2.41 2.04 0.05
Algeria 4.67 1.95 1.75 0.05
Egypt 5.05 2.20 1.95 0.04
Argentina 5.75 2.83 2.03 0.04
Australia 5.83 3.19 1.47 0.07
Norway 5.56 3.00 2.37 0.09
Azerbaijan 5.70 1.97 2.14 0.03
Thailand 5.86 2.66 2.05 0.04
Nigeria 6.45 3.13 1.76 0.03

42
Global breakeven cost stack

The range of full cycle break

even prices is very wide for
US tight oil and deep water
projects, although some
projects’ costs are highly
skewed

43
Proof of our commitment

1,200
world-class experts
1,400
industry analysts
and researchers

140 +
global offices
800
software developers