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By Kristen Hays and Andrew Callus
HOUSTON/LONDON, Sept 19 (Reuters) - BP Plc hascancelled contracts to build a costly, bespoke extension to itsMad Dog oil project in the Gulf of Mexico that has been underreview since April due to cost inflation and uncertain futureoil prices.
BP's decision to rein in its ambitions on the project, inthe same region as its 2010 Macondo oil spill disaster, willaffect its output growth prospects and shows the increasing costpressures on big oil projects worldwide.
Three industry sources familiar with the decision said FrontEnd Engineering Design contracts signed in 2012 by contractorsAMEC and Technip with BP, the holderof the largest number of Gulf leases, had been cancelled.
The sources would not say whether that meant the go-aheadfor a smaller, less innovative, cheaper Mad Dog extension thatdoes not require a bespoke design - flagged as a possibility byBP in July - or that the whole project is in limbo, or evenwhether BP might strike new deals with AMEC and Technip.
Before the April review decision, construction of Mad DogPhase 2 had been due to start by the end of this year and itscost had been estimated at more than $10 billion.
In a July analysts briefing, Lamar McKay, head of BP's upstream oil and gas division, said the group was considering a"slimmer, repeatable design that's been built before, ratherthan a brand new design ... and that we will back off the sizejust a tad probably to, in effect, get 90 percent of the benefitwith maybe quite a bit less of that cost".
He said the group was in "good conversations" withcontractors and partners about that.
Chief Executive Bob Dudley told the same briefing that farfrom delaying the new project, which had been slated to come onstream in 2018, a less ambitious design "might actuallyaccelerate production".
BP has sold many of its Gulf of Mexico leases to help paythe tens of billions of dollars of fines, as well ascompensation and clean-up costs, after the 2010 Macondo spillthat killed 11 men and wrecked marine and shore environments.
In all, BP has sold assets equivalent to about a fifth ofits pre-spill earning power to pay that bill.
Its criminal conviction for Macondo meant a ban on acquiringnew Gulf of Mexico leases and it has also sold several older,smaller oil and gas platforms to focus on bigger fields: MadDog, Thunder Horse, Atlantis and Na Kika.
Technip, AMEC and BP - the world's No. 4 investor-controlledoil company by value - all declined to comment on the status ofthe contracts, the value of which were not disclosed at the timethey were announced.
Technip's contract centred on the single circular spar hulland mooring system for the new platform. AMEC's was for theso-called "topsides", or multiple decks that would be placed ontop of the spar and house production infrastructure, drillingand monitoring systems and living quarters for workers.
BP's Mad Dog platform, with capacity to produce up to 80,000barrels per day of oil, has been producing since 2005 for 60.5percent-owner and operator BP and its partners, BHP Billiton and Chevron Corp.
Two years ago an appraisal well in an undeveloped part ofthe Mad Dog field indicated it contained much more crude thanpreviously thought - up to 4 billion barrels of oil equivalent.
The find prompted BP to make plans to build the second,bigger Mad Dog platform able to handle up to 130,000 bpd of oil.
One of the sources said Mad Dog 2 may now end up as asmaller spar platform like the original Mad Dog, or it could bea floating tension leg platform that generally has four smallerhulls, similar to BP's other three platforms in the Gulf.
Mad Dog is just one of a series of oil and gas projectsbeing reconsidered worldwide. The main factor has been costinflation, running at between 5 and 10 percent a year and morein some of the most actively developing regions, but a moreuncertain outlook for prices has also been a factor.
Cost over-runs prompted Woodside Petroleum toconsider a different plan for its $45 billion Browse liquefiednatural gas project in Western Australia. France's Total said in March it was abandoning a multibillion-dollaroil sands project in Canada. Statoil has delayed its$15 billion Johan Castberg project in Norway's Arctic.
