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By Jessica Resnick-Ault
LONDON, Dec 1 (Reuters) - Oil major BP has approved a$9-billion investment in its Mad Dog project in the Gulf ofMexico, its first major new platform in the region since a 2010explosion at its Macondo well led to the worst offshore disasterin U.S. history.
The decision shows confidence that the company can safelyoperate in the region and is a bet that oil produced in the deepwater offshore can compete with rival on-shore production.
The project's costs have declined from over $20 billioninitially, to less than half that amount, BP said.
"This announcement shows that big deepwater projects canstill be economic in a low price environment in the U.S. if theyare designed in a smart and cost-effective way," said BobDudley, BP's chief executive officer.
The platform is the first BP-operated project that thecompany has sanctioned in the Gulf of Mexico since the April2010 spill at its Macondo well, the worst offshore oil disasterin U.S. history.
The project comes as a two-year crude price rout has curbedinterest in offshore development.
"Offshore has lagged what we've seen onshore inunconventional oil," said Jim Krane, an energy fellow at RiceUniversity in Houston, Texas.
Companies have been reluctant to invest in costly largeoffshore developments as oil produced from shale formations inthe U.S. has become more economical and created a supply glut.
"It could be an indication that they are optimistic thatprices will recover, but even if not they feel confident enoughto sanction a project when prices around $50 a barrel in thedeepwater," said Mark Tabrett, an analyst at Sanford Bernstein.
"Around two years ago people didn't think that was aneconomic level to sanction anything in deep water, so that seemslike a bullish indicator for the market."
The Mad Dog Phase 2 project will start producing oil in late2021 and have the capacity to pump up to 140,000 barrels per day(bpd) from up to 14 wells, BP said.
A leaner design of the expanded Mad Dog, which is locatedaround 190 miles south of New Orleans, helped to more than halvethe project's costs to $9 billion.
BP said its project partners BHP Billiton and Chevron areexpected to made a final investment decision on the field soon.
The Mad Dog development will be the first new platform thecompany has planned to operate since its Thunderhorse platformcame online in 2008. (Additional Reporting by Karolin Schaps; Editing by AlexandraHudson and Bernadette Baum)
