(Corrects Gulf of Mexico share in fourth paragraph to 'tenth'not 'fifth')
* Company reviews Mad Dog 2 expansion due to cost inflation
* Says too early to speculate when final plan will beapproved
* Construction had been due to start by end of this year
* Analyst says delay of around 12 months is possible
By Peg Mackey and Sarah Young
LONDON, April 19 (Reuters) - BP is reviewing itsbiggest new oil project in the Gulf of Mexico, due to risingdevelopment costs across the industry, and could delay the $10billion scheme.
British oil major BP said on Friday that rising costs madethe current plan, under which construction would start thisyear, difficult to justify, becoming the latest company toreconsider the economics of a major project.
"The current development plan for Mad Dog Phase 2 is not asattractive as previously modelled, due largely to marketconditions and industry inflation," it said in a statement.
The company wants to get its core Gulf of Mexico business,which accounts for around a tenth of its global output, back ontrack after the disastrous 2010 Macondo oil spill, which isstill the subject of a court case in New Orleans.
It classes Mad Dog 2 as a "mega project", meaning itrequires gross investment of more than $10 billion.
Construction of Mad Dog 2, set to become BP's biggest newoil development in the Gulf for a decade, had been scheduled tostart by the end of this year and the company has said oilshould start pumping by the end of the decade.
"BP fully intends to develop the resources at Mad Dog Phase2 and is committed to moving forward with the right plan," itsaid. "It is too early to speculate when the details of thefinal plan will be approved by BP and its co-owners."
Elsewhere in the industry, cost over-runs prompted WoodsidePetroleum to consider a different plan for its $45billion Browse liquefied natural gas project in WesternAustralia in April.
France's Total said in March it was abandoning amultibillion-dollar oil sands project in Canada.
BP, in cooperation with co-owners Union Oil Company ofCalifornia, a wholly owned subsidiary of Chevron Corp.,and BHP Billiton Petroleum , is now evaluatinghow to develop the second phase of Mad Dog.
"I see it as a delay. I think it'll probably push back thefinal investment decision by, I would estimate, about 12months," Macquarie analyst Jason Gammel said.
A tumble in the oil price, which is down nearly $10a barrel since the start of this month, could also be weighingon BP's plans for the deep-water field.
The oilfield could contain up to 4 billion barrels of oilequivalent (boe). Mad Dog 2 involves building a second platformon the field and 33 subsea wells to exploit new discoveries.
Shares in BP traded up 1.1 percent, outperforming theEuropean oil and gas index which was 0.4 percent higher. (Editing by Anthony Barker)