By Chester Dawson 

CALGARY--An oil industry consortium including Exxon Mobil Corp. and BP PLC on Friday suspended its Canadian arctic exploration program in the Beaufort Sea, citing insufficient time to begin test drilling before its lease expires in 2020.

The move represents a setback for oil companies active in Canada's arctic waters and follows a similar decision by Chevron Corp. in December to halt its own exploratory drilling program in the Beaufort Sea. Those projects have been stymied by regulatory hurdles and some of the world's highest extraction costs.

Imperial Oil Ltd., Exxon Mobil's Canadian affiliate, informed federal regulators in Canada of its decision to suspend its Beaufort Sea exploratory program on Friday and said it would seek to have its current lease extended retroactively to 16 years.

"If approved, the extension would provide sufficient time to undertake the necessary technical studies and develop the technology and processes to support responsible development in the Beaufort Sea," Imperial Oil said in a letter to Canada's National Energy Board.

The Arctic holds billions of barrels of untapped oil reserves, but offshore-drilling costs there are among the highest in the world because of its remote location and severe weather. The Imperial-led consortium has been planning to drill a well as deep as 6 miles beneath the floor of the Beaufort Sea, one of the deepest offshore wells in the world and the deepest by far in the Arctic.

The leases where the proposed well would be drilled are located about 110 miles off the coast of the Northwest Territories town of Tuktoyaktuk. Imperial, Exxon Mobil and BP obtained leases for the right to drill in 2007 and 2008. The three companies have since combined their Beaufort programs into an Imperial-led joint venture called Imperial Oil Resources Ventures Ltd.

Imperial and Chevron have asked the NEB, Canada's national energy regulator, to ease rules designed to prevent undersea well blowouts such as the one involved in the 2010 Deepwater Horizon spill in the Gulf of Mexico.

In Canadian Arctic waters, operators must have standby capacity ready to stop a blowout by drilling a relief well within the same season. But wells in the Beaufort Sea need to be drilled so deep it will require multiple seasons to complete, so license holders have sought an exemption allowing alternative measures.

The NEB has said it is reviewing those requests.

The Arctic holds about one-third of the world's untapped natural gas and an estimated 13% of as-yet undiscovered crude, or roughly 90 billion barrels of oil. More than three-quarters of those deposits are offshore, according to U.S. Geological Survey estimates.

Write to Chester Dawson at chester.dawson@wsj.com

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