BP Plc (NYSE: 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 company said Oct. 11.
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 ASA (NYSE: STO), would not be able to compete for capital investment with other opportunities in its global portfolio for the foreseeable future.
RELATED: Interest In Great Australian Bight Picks Up
"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 E&P 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," Fitzpatrick added.
Oil major 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 Oct. 11, compared with more than $90 two years ago.
Shares in BP were virtually unchanged at 5:55 a.m. CT (10:55 GMT), slightly outperforming a 0.1% 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.
Multiple Permits
The agency said on Oct. 11 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 Oct. 11 urged the federal government to terminate BP's leases and cancel all exploration permits in the basin.
"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. (NYSE: CVX), Karoon Gas Australia Ltd. and Murphy Oil Corp. (NYSE: MUR) 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% partner in the exploration licenses for four blocks in the Bight, had accepted its decision to withdraw. (US$1 = 1.3187 Australian dollars)
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