Oil company BP has announced a major oil discovery at its Gila prospect in the deepwater US Gulf of Mexico on Wednesday along with a $1.08 billion writedown on a failed exploration well offshore Brazil.

"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 Richard Morrison, Regional President of BP's Gulf of Mexico business.

Since the completion this year of a massive $40 billion asset sale program to pay for the costs of its 2010 oil spill, BP has made exploration a priority.

BP, which co-owns the Gila prospect with ConocoPhillips, said appraisal drilling would be required to determine the size and potential commerciality of the discovery.

BP said it was the third significant discovery it had made in the Paleogene play in the Gulf of Mexico in recent years, following Kaskida in 2006 and Tiber in 2009.

The writedown - flagged in the same fourth quarter exploration update - will be taken as part of fourth quarter results due to be released on Feb 4, a spokesman said.

It relates to news that the Pitanga well on Block BM-CAL-13 in the Camamu-Almada basin offshore Brazil, encountered oil shows but no commercial quantities of oil or gas, BP said.

Some $850 million of the writedown will be taken as a non-operating item because the well was part of a $7 billion acquisition of a package of assets from Devon Energy in 2010.

The Brazilian part of that package was valued at the time at $3.2 billion. The remaining $230 million of the writedown - which relates to exploration costs - will be taken as an operating item. BP will relinquish the block.-Reuters