* Cites project costs as reason for withdrawal
* Decision in line with move away from risky drilling -RBC
* BP's move welcomed by environmental groups
* Other oil companies also hold exploration permits
(Adds analyst, share price, background)
By Sonali Paul and Karolin Schaps
MELBOURNE/LONDON, Oct 11 Oil major BP has
scrapped plans to drill for oil and gas off the southern coast
of Australia because it is too expensive in the face of low oil
prices that have prompted heavy cost-cutting across the sector.
The Great Australian Bight project has been condemned by
environmental groups who say it would damage whale and sea lion
breeding grounds, but BP's withdrawal can only be viewed as a
partial victory for campaigners because the company and a number
of others still hold exploration permits for the area.
BP said the project, in which it is partnered by Norway's
Statoil, would not be able to compete for capital
investment with other opportunities in its global portfolio for
the foreseeable future.
"This decision isn't a result of a change in our view of the
prospectivity of the region, nor of the ongoing regulatory
process," BP's head of exploration and production in Australia,
Claire Fitzpatrick, said in a statement.
"It is an outcome of our strategy and the relative
competitiveness of this project in our portfolio."
BP has cut its investment budget drastically this year to
less than $17 billion, compared with $23 billion two years ago.
Exploration activities have been hit particularly hard and a
reshuffling of operations led to the departure of its
exploration chief four months ago.
Analysts at RBC Capital Markets estimate that BP's
exploration spending will fall to $1 billion this year, compared
with about $5 billion in 2013.
"This decision continues the trend in the sector, with the
majors moving away from frontier drilling and towards
lower-risk, nearer-return prospects," RBC Capital Markets
analyst Biraj Borkhataria said.
BP did not disclose how much the project would have cost or
what oil price it needs to make the project viable. Benchmark
Brent crude prices were trading at less than $53 a barrel on
Tuesday, compared with more than $90 two years ago.
Shares in BP were virtually unchanged at 1055 GMT, slightly
outperforming a 0.1 percent decline for the sector index.
BP was forced to revise its Bight plans late last year and
was awaiting decisions by the National Offshore Petroleum Safety
and Environmental Management Authority on two wells this month
and a broader environmental plan by the end of the year.
The agency said on Tuesday that it had yet to receive a
request from BP to withdraw its application.
The Wilderness Society, which has long fought to stop
drilling in the Great Australian Bight area that also contains a
protected marine park, on Tuesday urged the federal government
to terminate BP's leases and cancel all exploration permits in
"We should not be expanding the fossil fuel industry into
pristine treacherous seas where the risk of spills is far
greater than we've seen before," the society's national
director, Lyndon Schneiders, said in a statement.
Others with exploration permits include Chevron Corp
, Karoon Gas Australia and Murphy Oil in
conjunction with Santos.
Karoon, which won an exploration permit only last week,
described the Bight as Australia's "most active and prospective
frontier oil exploration province".
Industry consultant Wood Mackenzie has estimated that the
area could hold 1.9 billion barrels of oil equivalent, making it
a potentially major resource.
BP said that Statoil, a 30 percent partner in the
exploration licences for four blocks in the Bight, had accepted
its decision to withdraw.
($1 = 1.3187 Australian dollars)
(Editing by Richard Pullin; Editing by David Goodman)