Blackstone Group LP (BX) has agreed to a multibillion-dollar partnership with one of the largest closely held offshore oil producers in the U.S., in a tie-up that extends private equity’s dive into the Gulf of Mexico.

Blackstone and LLOG Exploration Company LLC said they have formed a joint venture that will develop the Covington, La., company’s recent offshore discoveries and a portfolio of deep-water ocean-bottom prospects, investing a combined $1.2 billion to start.

“This is a real vote of confidence in the Gulf,” said Angelo Acconcia, a Blackstone managing director.

Deep-water drilling is a high-risk, high-reward business. Such wells are drilled miles beneath the ocean’s surface and can cost more than $100 million apiece, and their success rate hovers around 50%. But if drilling hits its target, such wells can yield hundreds of millions of barrels of oil.

LLOG and Blackstone envision future equity investments in the joint venture, which also will be able to tap debt markets for future funding.

By Ryan Dezember. (c) 2012 Dow Jones & Company, Inc.

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