Rising Costs Force BP to Re-Evaluate $10 Billion Gulf of Mexico Project

Industry-wide, rising development costs have forced BP to re-evaluate its $10 billion oil project in the Gulf of Mexico.

The Mad Dog 2 development was set to become BP's largest new oil project in the Gulf of Mexico for over a decade. Construction was expected to begin this year with the first oil pumped before 2020, but the rising costs have now made this plan difficult to justify, and the company has had to return to the drawing board to come up with a new plan, which will most likely involve a delay of a year or so.

The oil field at Mad Dog 2 is estimated to contain four billion barrels of oil equivalent. The project will see a second platform constructed on the field, linked to 33 new subsea wells which will extract the oil.

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BP released a statement to explain that "the current development plan for Mad Dog Phase 2 is not as attractive as previously modelled, due largely to market conditions and industry inflation.

BP fully intends to develop the resources at Mad Dog Phase 2 and is committed to moving forward with the right plan. It is too early to speculate when the details of the final plan will be approved by BP and its co-owners."

Increasing costs have also led other companies to abandon projects in the energy sector. Woodside Petroleum has had to rethink initial plans to build a $45 billion liquefied natural gas plant in Western Australia due to large cost over-runs. And France's Total has had to abandon a multibillion dollar oil sands project in Canada after the venture became economically unviable.

By. Charles Kennedy of Oilprice.com