BP scraps plan to drill off Australia's south coast

* Cites project costs as reason for withdrawal

* Decision in line with move away from risky drilling -RBC (Other OTC: RBCI - news)

* 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 (HKSE: 3366-OL.HK - news) 11 (Reuters) - Oil major BP has scrapped plans to drill for oil and gas off the southern coast of Australia because it is too expensive in the face of low oil prices that have prompted heavy cost-cutting across the sector.

The Great Australian Bight project has been condemned by environmental groups who say it would damage whale and sea lion breeding grounds, but BP's withdrawal can only be viewed as a partial victory for campaigners because the company and a number of others still hold exploration permits for the area.

BP said the project, in which it is partnered by Norway's Statoil (LSE: 0M2Z.L - news) , would not be able to compete for capital investment with other opportunities in its global portfolio for the foreseeable future.

"This decision isn't a result of a change in our view of the prospectivity of the region, nor of the ongoing regulatory process," BP's head of exploration and production in Australia, Claire Fitzpatrick, said in a statement.

"It is an outcome of our strategy and the relative competitiveness of this project in our portfolio."

BP has cut its investment budget drastically this year to less than $17 billion, compared with $23 billion two years ago. Exploration activities have been hit particularly hard and a reshuffling of operations led to the departure of its exploration chief four months ago.

Analysts at RBC Capital Markets estimate that BP's exploration spending will fall to $1 billion this year, compared with about $5 billion in 2013.

"This decision continues the trend in the sector, with the majors moving away from frontier drilling and towards lower-risk, nearer-return prospects," RBC Capital Markets analyst Biraj Borkhataria said.

BP did not disclose how much the project would have cost or what oil price it needs to make the project viable. Benchmark Brent crude prices were trading at less than $53 a barrel on Tuesday, compared with more than $90 two years ago.

Shares (Berlin: DI6.BE - news) in BP were virtually unchanged at 1055 GMT, slightly outperforming a 0.1 percent decline for the sector index.

BP was forced to revise its Bight plans late last year and was awaiting decisions by the National Offshore Petroleum Safety and Environmental Management Authority on two wells this month and a broader environmental plan by the end of the year.

MULTIPLE PERMITS

The agency said on Tuesday that it had yet to receive a request from BP to withdraw its application.

The Wilderness Society, which has long fought to stop drilling in the Great Australian Bight area that also contains a protected marine park, on Tuesday urged the federal government to terminate BP's leases and cancel all exploration permits in the basin.

"We should not be expanding the fossil fuel industry into pristine treacherous seas where the risk of spills is far greater than we've seen before," the society's national director, Lyndon Schneiders, said in a statement.

Others with exploration permits include Chevron Corp , Karoon Gas Australia (Other OTC: KRNGF - news) and Murphy Oil (Stuttgart: MUQ.SG - news) in conjunction with Santos (Dusseldorf: STS1.DU - news) .

Karoon, which won an exploration permit only last week, described the Bight as Australia's "most active and prospective frontier oil exploration province".

Industry consultant Wood Mackenzie has estimated that the area could hold 1.9 billion barrels of oil equivalent, making it a potentially major resource.

BP said that Statoil, a 30 percent partner in the exploration licences for four blocks in the Bight, had accepted its decision to withdraw. ($1 = 1.3187 Australian dollars)

(Editing by Richard Pullin; Editing by David Goodman)