This Company Is Strongly Committed to the Gulf of Mexico

Despite the negative publicity and financial burdens resulting from its involvement in the infamous 2010 Gulf of Mexico oil spill when the Deepwater Horizon rig exploded and caused the worst accidental oil spill in history, BP (BP -1.62%) remains heavily committed to the Gulf of Mexico.

The British oil giant currently has a multibillion-dollar investment program under way in the Gulf and recently announced the start-up of a major new oil project. Let's take a closer look.

Source: Kris Krug on Flickr.

Start-up of Na Kika Phase 3
BP announced the start-up of Na Kika Phase 3, a major oil project in the U.S. Gulf of Mexico that involves the development of the Na Kika field, located roughly 140 miles southeast of New Orleans. The first well from the project started pumping oil on February 19, and a second well is expected to start producing in the second quarter.

BP serves as the project's operator and holds a 50% working interest, with Shell (RDS.A) owning the remaining 50% stake. Production from Na Kika first began in 2003. According to a BP spokesman, the full Na Kika Phase 3 project has a gross capacity of 40,000 barrels of oil equivalent per day (boe/d), while the field's total production capacity is roughly 130,000 boe/d.

Na Kika Phase 3 is BP's third new major upstream project to start pumping oil so far this year, following recent start-ups at its Chirag Oil project in Azerbaijan and the Mars B project, also located in the Gulf of Mexico. The company expects to bring online three more upstream projects this year, including BP-operated Kinnoull in the U.K. North Sea, Total-operated (TTE -0.89%) CLOV offshore Angola, and Husky Energy-operated (HSE) Sunrise Phase 1 in Canada's oil sands.

BP's strong position in the Gulf
The project's start-up reaffirms BP's commitment to the Gulf of Mexico, where it has discovered more reserves than any of its peers over the past 20 years and remains the largest acreage holder, with ownership in more than 650 leases. It currently has a company record of 10 drilling rigs operating in the Gulf that are involved in exploration, appraisal, and development activities.

BP has been operating in the Gulf since the mid 1980s. Since that time, it has produced over one billion barrels of oil in the region. Last year, the company's net output in the region totaled more than 200,000 boe/d, produced from more than 20 fields including Na Kika, Mad Dog, Atlantis, and Thunder Horse.

Going forward, BP will concentrate primarily on growth opportunities at its four major operated production hubs -- Thunder Horse, Na Kika, Atlantis, and Mad Dog -- as well as on exploration and appraisal opportunities in emerging regions such as the largely uncharted Paleogene, or Lower Tertiary, trend. It will also continue to invest in non-operated projects including Mars, Ursa, and Great White.

A handful of BP's peers are also investing heavily in the Gulf. Chevron (CVX -0.57%), for instance, expects to bring online three major Gulf projects this year, including Chevron-operated Jack/St. Malo and Big Foot and Hess-operated (HES -0.63%) Tubular Bells. Combined, these three projects should boost Chevron's net production from the deepwater Gulf of Mexico by more than 150,000 BOE/d. Hess also sees Tubular Bells as one of its three key near-term drivers of growth, along with North Dakota's Bakken shale and Norway's Valhall field.

Anadarko (APC) is also heavily invested in the Gulf, with its Caesar/Tonga project having achieved first oil in 2012. In the second quarter of this year, the company plans to bring online its Lucius project, which will have a production capacity of 80,000 boe/d. It also expects to begin producing oil from its Heidelberg project, which also has an 80,000 boe/d capacity, in 2016.

Brighter days ahead for BP?
In combination with the five other projects that have already started up or will begin producing later this year, Na Kika moves BP ever closer to meeting its goal of generating $30-$31 billion of operating cash flow this year. This year, it should finally be able to fund its capital spending and dividends through operating cash flow -- a major milestone for a company that has struggled under the weight of spill-related payments.

While BP's long-term outlook has improved considerably, investors should keep a close eye on the outcome of the ongoing spill trial since it will be the single most important short-term catalyst for the company's stock.