Editor's column All eyes in the upstream continue to be on the growth in unconventional production, particularly in the US. But the offshore arena may be making a quiet comeback, at least in the near term. The US Gulf of Mexico, North Sea, Latin America, and other spots have seen renewed interest of late, as operators enforce capital discipline to make these expensive projects feasible given the current price climate. Many offshore megaprojects were cut or scaled back when oil prices began to drop sharply in 2014 and, while global offshore output has been steady, it has not grabbed the head-lines that surging shale production has. World offshore output has remained about 27 million B/D over the past decade. US Gulf of Mexico production, which is rising, made up a quarter of US output in the early 2000s but captures only 16% of the total now with the rise in unconventionals. US Gulf of Mexico production in 2017 rose to 1.65 million B/D, the highest annual level on record, according to the US Energy Information Administration (EIA). It is expected to increase this year and in 2019, maintaining record highs. Output will creep to 1.7 million B/D in 2018 and then to 1.8 million B/D in 2018, according to the EIA. This is due mainly to projects that were sanctioned before the price downturn and went forward in 2016 and 2017. The EIA says that seven deepwater fields will start production this year and another three will start up the following year. Shell will begin production from three fields over the period—Gotcha, Rydberg, and Kaikias. Hess and LLOG both will start up two fields, and Stone Energy and Apache will bring one field each online. An offshore auction by the US government in March, the largest for drilling prospects off the US Gulf Coast in history, attracted only modest interest from operators, proving that they are still wary of market conditions. The bidding was for 77 million acres of deep- and shallow-water tracts. Interest offshore Mexico and Brazil remains high. Brazil’s offshore auction in late March brought winning bids from ExxonMobil, Wintershall, Chevron, Shell, BP, Statoil, and Qatar Petroleum. Several operators said their break-even price for offshore projects is now under $50/bbl, well below where prices were trading in mid-April. The success of Brazil’s auction was not only because of rising oil prices and better capital discipline among operators, but also changes in Brazil regulatory laws that made the projects more attractive. That followed a deepwater auction in Mexico earlier this year that saw aggressive winning bids from Shell, which snatched up nine blocks, as well as Petronas and Qatar Petroleum. But offshore production will not catch US onshore output, which continues to outpace expectations despite fears of infrastructure bottlenecks and people shortages. Total US production will reach 11 million B/D this year, a whole year earlier than projected in March, the EIA said in April. Output is averaging 10.2 million B/D so far this year. The EIA expects US production to reach 11.18 million B/D next year.
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