The Gulf of Mexico Is Back in Business

Energy investors remember the 2010 Gulf of Mexico spill all too well, and the resulting fallout. Integrated major BP (BP 1.01%) was nearly brought to its knees by tens of billions of dollars in penalties, with further damage likely as a result of the ongoing civil trial. At the time, it seemed oil production in the Gulf of Mexico would be irreparably harmed. But, in a stunning turn, the Gulf of Mexico isn't just back, it's thriving.

Oil production in the Gulf of Mexico is now proceeding full throttle, which means great things not just for BP, but other big oil players as well.

The Gulf is back
What seemed impossible just a few years ago is turning into reality. The Gulf of Mexico is once again one of the top oil-producing regions in the United States, which could not come at a better time. Quite simply, the Gulf of Mexico is one of the most important regions for energy production in the United States. According to the U.S. Energy Information Administration, offshore oil production in the Gulf of Mexico accounts for nearly a quarter of all U.S. crude oil production.

Furthermore, the Gulf of Mexico is critical in the pursuit of true energy independence for the United States. The U.S. Energy Information Administration expects U.S. crude oil production to rise from an average of 6.5 million barrels per day last year, to 7.5 million barrels per day this year, and 8.5 million barrels per day in 2014. Obviously, if this is to occur, the Gulf will have to play a significant role.

These three energy giants stand to benefit
As the Gulf of Mexico gets back in business, so does BP, to capitalize on the resurgence in deep-water drilling. BP recently brought two rigs online in the Gulf, and in all now has a record nine rigs in operation there. Despite the uproar over the 2010 disaster, BP has remained steadfast in its commitment to Gulf oil production. According to the company, BP is the biggest leaseholder of deep-water acreage in the Gulf, and plans to plow $4 billion each year into the region over the next decade to develop production further.

BP's European peer Royal Dutch Shell (RDS.B) is also staking its claim in the Gulf. Royal Dutch Shell has bid $144 million this year to lease acreage in the Gulf, making it the most active major this year in that regard. In addition, Royal Dutch Shell has won seven permits to drill new wells this year, almost all of which will be in the Gulf of Mexico.

Shell's aim is to build on its already-significant Gulf operations. In all, the company operates six major deep-water and ultra deep-water floating platforms there. And, Shell holds a contracted drilling rig fleet larger than any other operator in the Gulf of Mexico.

Of course, BP and Royal Dutch Shell aren't the only oil majors making a huge commitment to the Gulf. Chevron (CVX 1.20%) recently announced it would invest $12 billion in its future Gulf of Mexico operations, which will include the launching of two deep-water platforms currently under construction. Both are expected to begin producing oil by the end of next year. Chevron management believes total oil production from the two will reach approximately 230,000 barrels of oil per day combined. This will be a strong boost to Chevron's considerable deep-water Gulf production, which stood at 105,000 barrels of oil per day last year.

Bet on a bright future for the Gulf
Three years ago, it would have seemed almost unimaginable that the Gulf of Mexico would be back to producing significant amounts of oil. And yet, that's exactly what has happened, which means great things not just for the energy industry, but for the nation. Getting oil production back to normal in the Gulf of Mexico represents a giant leap in the journey toward U.S. energy independence.

BP, Royal Dutch Shell, and Chevron are devoting billions to exploration and production of deep-water oil off the Gulf coast, and their efforts are likely to pay huge rewards for many years.