Oil major BP (NYSE:BP) is suspending its Liberty project in Alaska due to cost overruns and technical setbacks.^[1] The $1.5 billion project was targeted at an offshore field with around 100 million barrels in recoverable oil. According to the plan review, the project would have cost the company ‘a lot more’ than the initial estimate and would have taken several years to begin production. BP originally submitted the plan for regulatory approval five years ago, and the field was expected to begin production in 2011. The company, however, remained open to develop the Liberty project later.

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Setback

According to plans, the Liberty project was expected to produce about 40,000 bbls/day of crude.^[1] BP produced about 992,000 bbls/day of crude oil and natural gas liquids last year. Its liquids output showed a sharp decline since the 2010 Gulf of Mexico disaster.

The suspension of the Liberty project could hamper the company’s revenues from liquids by about 4-5% at its present output levels. Attempts to develop the field have also faced setbacks previously, with a 1998 plan being shelved in 2002 because of safety concerns. The latest proposal was submitted in 2007, but subject to a comprehensive review in 2010 because of rig design problems and tougher scrutiny following the Macondo spill. The latest suspension could delay the project development by several years.

The suspension illustrates the technical and other challenges related to offshore drilling in Alaska. BP and other energy majors are looking to develop reserves in remote regions in the Arctic and deepwater regions in an effort to replace depleting output from aging fields. Growing logistical and technical complexity is expected to add to the cost of exploration. BP is focusing on deepwater fields in the U.S., North Sea and offshore Africa to prop up its declining output.

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