BP Shelves $1 Billion Arctic Project

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July 11, 2012

BP PLC (BP) is shelving its Liberty offshore drilling project in Alaska, after deciding that the current development plan is not up to the stricter standards the company enacted after the Deepwater Horizon incident.

The project, estimated to cost more than $1 billion, was designed to exploit a large offshore Arctic oil reservoir in the Beaufort Sea. The Liberty field was anticipated to produce about 40,000 barrels of oil a day.

But after an 18-month review of the project’s engineering and economics, “BP has decided not to pursue the proposed Liberty project, in its current form,” said BP in a statement Tuesday. The company determined that as it currently stands, Liberty “does not meet our test.”

The move underscores the far-flung impact of the Deepwater Horizon tragedy, not only in the U.S. Gulf of Mexico–but in most areas where the oil industry operates offshore, and in BP’s operations in particular. In 2010, a BP well blowout destroyed the Deepwater Horizon rig, killing 11 and unleashing a massive oil spill that led to an overhaul of drilling regulations and almost brought the U.K. oil giant to its knees.

The incident also raised environmental awareness, especially in places like Alaska, the scenario of the catastrophic Exxon Valdez oil spill in 1989. There the oil industry is making a push to tap rich Arctic reservoirs, but it’s facing delays amid higher scrutiny from regulators and hostility from environmental organizations. Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN) said Tuesday it was facing delays to get a final approval from the Coast Guard for an oil spill containment vessel that’s critical to starting its drilling in Alaska.

BP said that after its review, it determined that to revamp the drilling rig planned for the Liberty project would be too costly. “BP has many opportunities in its global portfolio and projects must compete for resources,” the company said, adding that it was working with regulators to discuss potential ways to move the project forward.

Copyright © 2012 Dow Jones & Company, Inc.

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