BP was scheduled in 2011 to increase production at the offshore Liberty oil field to 40,000 barrels of oil per day. The field is situated 8 miles off the coast of Alaska in the Beaufort Sea.
Safety regulations enacted after the 2010 oil spill in the Gulf of Mexico set the project's cost at more than $1.5 billion. The company said it has decided not to go ahead with the project because of the regulations.
"We have always said that we will not proceed with the project unless we can do it safely and meet all of our standards," the company was quoted by The Daily Telegraph in London as saying. "In the end, the project as currently designed does not meet our test."
BP had estimated Liberty could hold as much as 100 million barrels of recoverable oil. It was discovered in 1997 and approved for development in 2008.
Oil production in Alaska peaked in 1988 with slightly more than 2 million barrels of oil produced per day.