Tuesday, June 1, 2010

BP shares plunge after failure to contain oil spill


By Ed Stoddard and Sarah Young Ed Stoddard And Sarah Young

VENICE, La.,/LONDON (Reuters) – BP shares plunged on Tuesday as markets reacted to the failure of the energy giant's latest effort to contain an oil spill in the Gulf of Mexico rated the worst in U.S. history.

BP fell close to 17 percent in London trading, wiping $23 billion off its market value, on weekend news that its latest attempt to plug its blown-out seabed well had not worked sparked fears oil could leak into the Gulf until August.

The shares have lost more than a third of their value, or about 46 billion pounds ($67 billion), since the leak started six weeks ago. The cost of dealing with the crisis now totals $990 million.

At the same time, the cost of protecting the debt of what was once Britain's biggest company against default rose sharply as the five-year BP credit default swap widened by 71 basis points to 173 basis points, CDS monitor Markit said.

The leak is a financial and public relations nightmare for BP. It has also damaged President Barack Obama, who is fighting accusations that he reacted too slowly to a disaster that threatens Louisiana fishing communities, the state's multibillion dollar seafood industry and Gulf coast ecology.

Obama will meet with the co-chairs of a commission he created to make policy recommendations about offshore drilling in the light of a spill that has sloshed oil onto the fragile wetlands of Louisiana and threatens Mississippi and Alabama.

The commission will be similar to those that looked into the explosion of the space shuttle Challenger in 1986 and the Three Mile Island nuclear accident in 1979.

In its latest bid to contain the spill that has eclipsed the 1989 Exxon Valdez disaster in Alaska, BP is preparing an untested plan to use a dome to funnel oil to a tanker on the surface.

"We are intent on minimizing the flow of the oil into the Gulf and we've begun a series of operations to ensure just that," BP managing director Bob Dudley told CNN.

"Later on this morning we should see ... robots putting giant shears and cutting parts of that pipe about 35 feet away from the wellhead followed by a robot making a clean diamond saw cut across the top of it. That will allow us to put this dome down," he said on CBS's Early Edition show.

If that fails, it is possible that up to 19,000 barrels of oil a day 3 million liters will leak into the Gulf until relief wells, due in August, are completed.

White House advisor Carol Browner described that as a "deeply, deeply troubling" possibility.


In evidence of the slew of litigation the slick will likely generate, U.S. Attorney General Eric Holder will meet with federal prosecutors and state attorneys general in New Orleans.

It will be Holder's first trip to survey the damage before what legal experts believe will be a criminal investigation into the disaster.

The fate of BP's shares weighed on investors but was of little concern to residents of Louisiana's coast half a world away, who have suffered crippling losses because of the closure of some Gulf waters to fishing.

"I really don't care much about it (the share price)," said Kimberly Mertz, who works at a marina in rural Venice, Louisiana. "We want to get everything cleaned up."

The slick has spread over 100 miles of Louisiana's coast but Mississippi and Alabama have escaped so far with only scattered tar balls and oil debris reaching its coasts.

That could change as National Oceanic and Atmospheric Administration said moderate southerly and southwesterly winds this week may start moving oil closer to the Mississippi and Alabama coasts.

The forecast was a reminder that oil from the unchecked spill, broken up and carried by winds and ocean currents, could threaten tourism mecca Florida, as well as Cuba and Mexico.

Raising the stakes still further, Tuesday is the official start of the 2010 Atlantic hurricane season, which forecasters say may be the most intense since 2005.

That year Hurricane Katrina ravaged the region and disrupted offshore oil and gas output. Experts fear a big storm could drive more oil ashore and force BP and the U.S. government to suspend cleanup efforts.

(Additional reporting by Jeremy Pelofsky and Matt Spetalnick in Washington; writing by Matthew Bigg, editing by Philip Barbara)

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