Legal issues continue to dog BP plc, but the Gulf of Mexico (GOM) deepwater remains the biggest go-to spot for the oil major following one of its most successful exploration years in nearly a decade.

The massive oil spill caused by the Macondo well blowout undoubtedly will bring more headlines for BP in 2014 as the courts weigh how big the Clean Water Act penalty should be, jury trials continue and the claims settlement process is litigated. However, BP remains committed to exploit new GOM targets. The program grew to nine rigs in November, the biggest fleet by any operator today.

"Exploration is at the heart of BP's upstream strategy," said Upstream CEO Lamar McKay. "The successes and opportunities now being delivered through our increased exploration activity confirm our confidence in our ability to sustain BP's resource base. This success is being mirrored in improved operating performance delivery across BP's upstream business."

BP continues to be the largest natural gas marketer in North America, and it also remains the second biggest oil and gas producer. While the onshore of late has taken the headlines by others, the GOM drove most of BP's U.S. growth between July and September (see Daily GPI, Oct. 29). Next year promises to be even better with the startup of Na Kika 3 and mega-platform Mars B. In addition, the Gila exploration well in the hot Keathley Canyon (KC) area in the Lower Tertiary Trend hit oil and gas earlier this month.

Gila is the third significant discovery by BP in the Paleogene play, following Kaskida in 2006 and Tiber in 2009 (see Daily GPI, Sept. 3, 2009). Gila, about 25 miles west of Tiber, is operated by BP (80%) with ConocoPhillips holding a 20% stake. It's in KC Block 93, about 300 miles southwest of New Orleans in 4,900 feet of water.

The well, which penetrated multiple Paleogene-aged reservoir sands, was drilled to a total depth of 29,221 feet. (Paleogene describes geological formations dating from about 66-23 million years ago.) Appraisal drilling, including completion drilling through the Paleocene section, is going to be needed to determine the size and potential commerciality of the discovery. As reference, Tiber and Kaskida alone may increase BP's GOM output by more than half to 650,000 boe/d over the next 10-plus years.

"The Gila discovery is a further sign that momentum is returning to BP's drilling operations and well execution in the Gulf of Mexico," said GOM Regional President Richard Morrison.

There's no doubt BP needs to maintain its winning streak in U.S. exploration and production. Following Macondo, BP pledged an overriding royalty interest in production from its GOM fields as collateral for the Deepwater Horizon Oil Spill Trust, a $20 billion fund to pay disaster claims (see Daily GPI, Oct. 4, 2010).

The investments worldwide since then appear to have been fruitful. This year BP participated in 15 completed wildcat exploration wells, seven with commercial potential, giving it a newfield exploration success rate of more than 40% -- not great, but considering the high costs to drill wildcats, particularly offshore, not too shabby.

"The exploration results that BP has seen in the fourth quarter alone include a new play opener in a frontier basin offshore Brazil, together with discoveries in emerging plays in our production heartlands of Angola and the Gulf of Mexico," said Executive Vice President of Exploration Mike Daly. The frontier and core portfolios "are starting to deliver and anticipate leaving the year with nine further wells operational, sustaining our recent momentum into 2014."

BP and predecessor companies have been working the GOM since the 1950s and exploring the deepwater for about 25 years. The oil major claims to be the largest investor in the GOM over the past decade with ownership in more than 65- leases. BP directly employs more than 2,300 people in GOM activities, just more than 10% of its entire U.S. workforce (20,000).

The Gila discovery also bolsters ConocoPhillips' portfolio. The super independent today is pouring a lot of its cash into the U.S. onshore, but Gila is the fourth deepwater GOM discovery in which it has a stake. The producer also has an 18% stake in Tiber, along with interests in Walker Ridge prospects Chevron Corp.'s Coronado (35%) and Anadarko Petroleum Corp.'s Shenandoah (30%). Walker Ridge also is in the Lower Tertiary.

ConocoPhillips now holds an interest in 454 GOM deepwater blocks, mostly in the Lower Tertiary. Exploration drilling is under way at the Deep Nansen prospect in East Breaks Block 602 (12.5% interest). In 2014 ConocoPhillips expects to initiate a multi-well operated drilling program.

"Much of Big Oil has stated they will start to wind down some of their major capital spending after this year, but another Gulf of Mexico discovery from BP could signal that those cuts will not come from this part of the world," said Motley Fool's Tyler Crowe. He said on Tuesday that aside from the Gila discovery "adding reserves to a region already littered with major players like ExxonMobil Corp., the GOM has several advantages for producers that want to produce more oil but don't want to spend as much money.

"One handy aspect of the Gulf is that the chances of hitting oil and gas is much more likely than in some of the more exotic locations Big Oil has explored over the last few years, which is very helpful when you are trying to maintain a strong return on invested capital," said Crowe.

Motley Fool's Matt DiLallo added that the GOM discoveries validate big investments in the GOM. ConocoPhillips "has been very actively leasing in the Gulf over the past few years, and has now amassed a 2.2 million net acre position. That gives the company a lot of opportunities to continue drilling, and, with four finds already on the books, the Gulf will be a big part of ConocoPhillips' future production."

Investors shouldn't expect all the deepwater news to be rosy, but "the rewards of a big find are enough to continue to lure producers," DiLallo said. "The fact that this year was a great one for many in the Gulf of Mexico will likely keep capital flowing to the region.

“While shale oil gets a lot of the credit for America's changing energy landscape, the rebirth of the Gulf is just as critical to helping us achieve our dreams of energy independence."