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* Cites project costs as reason for withdrawal
* Decision in line with move away from risky drilling -RBC
* BP's move welcomed by environmental groups
* Other oil companies also hold exploration permits (Adds analyst, share price, background)
By Sonali Paul and Karolin Schaps
MELBOURNE/LONDON, Oct 11 (Reuters) - Oil major BP hasscrapped plans to drill for oil and gas off the southern coastof Australia because it is too expensive in the face of low oilprices that have prompted heavy cost-cutting across the sector.
The Great Australian Bight project has been condemned byenvironmental groups who say it would damage whale and sea lionbreeding grounds, but BP's withdrawal can only be viewed as apartial victory for campaigners because the company and a numberof others still hold exploration permits for the area.
BP said the project, in which it is partnered by Norway'sStatoil, would not be able to compete for capitalinvestment with other opportunities in its global portfolio forthe foreseeable future.
"This decision isn't a result of a change in our view of theprospectivity of the region, nor of the ongoing regulatoryprocess," BP's head of exploration and production in Australia,Claire Fitzpatrick, said in a statement.
"It is an outcome of our strategy and the relativecompetitiveness of this project in our portfolio."
BP has cut its investment budget drastically this year toless than $17 billion, compared with $23 billion two years ago.Exploration activities have been hit particularly hard and areshuffling of operations led to the departure of itsexploration chief four months ago.
Analysts at RBC Capital Markets estimate that BP'sexploration spending will fall to $1 billion this year, comparedwith about $5 billion in 2013.
"This decision continues the trend in the sector, with themajors moving away from frontier drilling and towardslower-risk, nearer-return prospects," RBC Capital Marketsanalyst Biraj Borkhataria said.
BP did not disclose how much the project would have cost orwhat oil price it needs to make the project viable. BenchmarkBrent crude prices were trading at less than $53 a barrel onTuesday, compared with more than $90 two years ago.
Shares in BP were virtually unchanged at 1055 GMT, slightlyoutperforming a 0.1 percent decline for the sector index.
BP was forced to revise its Bight plans late last year andwas awaiting decisions by the National Offshore Petroleum Safetyand Environmental Management Authority on two wells this monthand a broader environmental plan by the end of the year.
MULTIPLE PERMITS
The agency said on Tuesday that it had yet to receive arequest from BP to withdraw its application.
The Wilderness Society, which has long fought to stopdrilling in the Great Australian Bight area that also contains aprotected marine park, on Tuesday urged the federal governmentto terminate BP's leases and cancel all exploration permits inthe basin.
"We should not be expanding the fossil fuel industry intopristine treacherous seas where the risk of spills is fargreater than we've seen before," the society's nationaldirector, Lyndon Schneiders, said in a statement.
Others with exploration permits include Chevron Corp, Karoon Gas Australia and Murphy Oil inconjunction with Santos.
Karoon, which won an exploration permit only last week,described the Bight as Australia's "most active and prospectivefrontier oil exploration province".
Industry consultant Wood Mackenzie has estimated that thearea could hold 1.9 billion barrels of oil equivalent, making ita potentially major resource.
BP said that Statoil, a 30 percent partner in theexploration licences for four blocks in the Bight, had acceptedits decision to withdraw.($1 = 1.3187 Australian dollars)
(Editing by Richard Pullin; Editing by David Goodman)
