BP WATCH: Containment Cap Testing Continues Amid Concerns About Seeps

19th Jul 2010 17:10

By Stephen Wisnefski and Angel Gonzalez Of DOW JONES NEWSWIRES The U.S. government authorized BP Plc (BP) to keep a tightly sealed cap on the damaged well on the floor of the Gulf of Mexico for an additional 24 hours, as concerns linger about the possibility that oil or methane could be seeping from nearby locations as a result of the procedure. Shares of BP fell sharply in London and New York, while the company's bonds were generally down and the cost of protecting against default rose, amid fears that BP's latest efforts to contain the spill, which started three months ago with the sinking of a BP-leased rig, may falter. Thad Allen, the retired Coast Guard Admiral heading up the federal response to the oil spill, raised concerns with BP on Sunday about the possible seepage of hydrocarbons, demanding that the company closely monitor the situation and keep government authorities apprised of any leaks. In a statement Monday, Allen said he authorized BP to continue the procedure, which since Thursday has stopped the flow of oil from the Macondo well, after the company on Sunday evening provided fresh assurances to the government's science team. "I authorized BP to continue the integrity test for another 24 hours and I restated our firm position that this test will only continue if they continue to meet their obligations to rigorously monitor for any signs that this test could worsen the overall situation," Allen said in a release early Monday. He added that authorities have the ability, at any moment, "to return to the safe containment of the oil on the surface until the time the relief well is completed and the well is permanently killed." The early success of the new containment cap sparked hopes that BP, after several failed attempts, had effectively stopped one of the worst oil spills in U.S. history. The concerns expressed by the government, and the nervous market reaction to the news, highlight the ongoing uncertainty about BP's wherewithal to put an end to the spill and revive concerns that the complex procedures underway could lead to even bigger problems. BP shares fell more than 7% in London and were down 4.5% at $35.43 around midday in New York. The stock, which lost more than half its value over a two-month stretch, has rallied for much of July amid hopes that the spill would be contained. Despite the latest decline, the stock is up about 30% from its lows in late June. In the credit default swaps market, the cost of buying protection against default on $10 million in BP debt over a five-year period rose Monday to $368,500 each year, up from $343,400 on Friday, according to CMA DataVision data. Until last week, BP had been collecting about 25,000 barrels of oil a day through vessels on the water's surface, though oil continued spewing into the water. A team of government scientists estimates that between 35,000 and 60,000 barrels were flowing from the damaged well each day, and BP has plans in place to collect the entire amount if necessary. The drilling of a relief well could be completed by the end of the month. Once the relief well is drilled, the company would flood the leaking well with cement, a process that could be completed by mid-August. Allen said Sunday in a letter to BP's chief managing director, Robert Dudley, that the relief well should remain the foremost option to stop the gusher. The comment came amid talk that BP might use the new containment system to control the leak by flooding the well with drilling mud from the top. The integrity test of the containment cap, originally scheduled to last 48 hours, was extended on Saturday to allow for additional monitoring of the sea floor for signs of new leaks. BP Chief Operating Officer Doug Suttles said Sunday that results so far have been encouraging. Pressure is building slowly, but the readings are lower than expected--a sign that the oil reservoir is partially depleted, Suttles said. Allen, however, said Sunday that the lower-than-expected pressure readings could be a problem. He acknowledged the possibility of reservoir depletion, but also said that the readings could be explained by potential leakage caused by damage to the well. "While we are pleased that no oil is currently being released into the Gulf of Mexico and want to take all appropriate action to keep it that way, it is important that all decisions are driven by the science," said Allen. "Ultimately, we must ensure no irreversible damage is done which could cause uncontrolled leakage from numerous points on the sea floor." -By Stephen Wisnefski and Angel Gonzalez; Dow Jones Newswires; [email protected]; [email protected] (END) Dow Jones Newswires July 19, 2010 12:10 ET (16:10 GMT)