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BP share price fear over latest setback

The Sunday Telegraph

BP’s share price is likely to take another battering this week as the company last night admitted it was failing in its latest attempts to stop the Gulf of Mexico oil leak.

By Angela Monaghan Sunday 30 MAY 2010

Since the explosion of the Deepwater Horizon oil rig on April 20, BP shares have lost a quarter of their value, however with the latest failure of efforts to stem the flow of oil the stock is likely to continue its fall when the London market opens on Tuesday.

Speaking last night at a news conference in Louisiana, Doug Suttles, BP’s chief operating officer, said a “top kill” operation to stop the leak was having no effect. “I don’t think the amount of oil coming out has changed,” said Mr Suttles.

The repercussions of the spill have broadened with operations at four Royal Dutch Shell deepwater drilling rigs under threat from the moratorium imposed by the US government.

Work at the Shell rigs was continuing over the weekend, as the company awaited further guidance and clarification from the US Department of the Interior. However, along with other companies with operations in the region, Shell is expected to be ordered to halt work.

Referring to the moratorium, a spokesman for Shell said: “We respect and understand the decision, in the context of the tragic spill in the Gulf of Mexico, but we remain confident in our drilling expertise, which is built upon a foundation of [robust] safety systems and company global standards.

“We are currently evaluating the implications of the announcement on our business plans and current activities.”

Analysts have been weighing up the implications of the Deepwater Horizon disaster – which Tony Hayward, BP chief executive, has described as “an environmental catastrophe” – on the wider energy industry.

“The spill is like the 1,000-year flood: it’s the worst-case scenario,” said Brian Youngberg, an analyst with Edward Jones. “It’s hard to prepare for those extreme situations.”

US President Barack Obama said a deep-water drilling ban in the Gulf of Mexico would be extended by six months, with work on a total of 33 drilling rigs to be stopped. The US government said it wanted to halt operations until it was clear that this type of disaster could not happen again.

However, it is not entirely clear when work will stop altogether, as Ken Salazar, the Interior Secretary, said that where drilling had begun, operations would be allowed to continue until they had reached a stage when it was safe to stop. If drilling had not yet begun, it would not be allowed to start, he said.

President Obama has also delayed planned exploration off Alaska, and shelved plans to search for oil and gas off the Virginia coast, following the Gulf of Mexico explosion. The accident has prompted what will be a widespread investigation and is expected to have a major impact on safety rules for the energy industry. “Immediately we undertook proactive steps to reinforce our top priority, safety, by conducting a comprehensive review of operating practices, testing frequencies and training protocols,” the Shell spokesman added.

He said that Shell’s drilling plans in Alaska had undergone an unprecedented level of review and scrutiny from the courts, regulators and stakeholders.

The disaster has so far cost BP $930m (£643m). Work to stop the oil spillage was continuing over the weekend.

The likely failure of the “top kill” will force BP to move onto another technique designed to stop the flow of oil. The next attempt will start within the next couple of days and will involve a containment cap operation aimed at siphoning off the oil.

Planning for a containment cap had been undertaken in parallel with the “top kill” and Mr Suttles told reporters that BP could “do it as quickly as possible”.

A spokesman for BP said yesterday that it was impossible to tell at this stage what the impact of the moratorium would be, but said “lessons would be learnt that will change the industry”.


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