(Reuters) – Drilling of a relief well to halt the BP oil spill in the Gulf of Mexico is a week ahead of schedule, the U.S. official overseeing the response to the disaster said on Tuesday.
The prospect of an earlier completion of the well, seen as the most promising way to plug the oil leaking from BP’s blown-out undersea well, could help bolster the energy giant’s battered shares, which rose about 9 percent in New York trade.
But Retired Coast Guard Admiral Thad Allen told reporters in Houston that crews were still aiming to finish drilling two relief wells in mid-August, and he shot down speculation that the first of the two wells could plug the leak in July.
BP shares continued a recent rally after the British energy giant said it could cover the costs of the spill without selling new shares, despite reports it was talking to government-owned funds in the Middle East about buying a stake to ward off takeover attempts.
“Any positive news as far as expediting what they’ve been trying for a long time now will be a further catalyst for buyers to get in,” said Alan Lancz, president at Alan B. Lancz & Associates Inc in Toledo, Ohio.
“… anything that would speed up the process or any kind of success at all as far as capping it would be a welcome relief. Then you can get down to a definitive range of liability. While it’s spilling, it’s very difficult to ascertain what the total costs will be,” he said.
Allen, who spoke minutes after markets had closed in New York, also said a third vessel at the leak site that will nearly double BP’s oil-capture capacity to 53,000 barrels a day from around 25,000 now was partially hooked up on Tuesday, but rough seas hampered efforts to finish the job.
Estimates of the leak’s severity vary widely and run as high as a 100,000 barrels per day.
BP is already committed to but not ultimately restricted to a $20 billion fund for clean-up and other costs stemming from the largest offshore oil spill in U.S. history. Its costs to date have topped $3 billion and are rising steeply.
But the ultimate costs may well depend on how much crude is determined to have leaked from the well that blew when a rig exploded on April 20, killing 11 workers. Investors are keenly eyeing containment efforts.
Analysts said that barring other negative news, the stock may have found a floor with its New York closing price of $26.97 on June 25. Shares are up 16 percent since the close on that day.
“All the negative news on the stock has had its impact,” said Kurt Wulff, president at McDep LLC, an oil and gas research firm in Needham, Massachusetts.
“We’re optimistic that the news can get better from there. The talk about sovereign buyers may not lead to anything, but it certainly means that value-orientated investors are seeing opportunity.” At one stage during the spill, BP had lost $100 billion in market value.
The spill is wreaking havoc on coastal ecosystems, fishing communities and a tourist industry seen as especially important during a time of high unemployment. It has also thrust itself to the top of President Barack Obama’s crowded domestic agenda and presented a tough test for his leadership.
Talks With Sovereign Funds
A source in the United Arab Emirates said on Tuesday that BP executives held talks with sovereign wealth funds in Abu Dhabi, Kuwait and Qatar, as well as one in Singapore, to find a partner who might help it avoid being taken over.
“BP is seeking a strategic partner so it doesn’t get taken over by other major oil companies such as Exxon and Total,” the source said.
BP declined to comment on talk of a stake sale. It did say there were no plans to issue new equity to anyone, allaying some investors’ fears of a share issue to help pay for a spill expected to cost tens of billions of dollars.
“We’re always happy to welcome new shareholders or existing shareholders who wish to increase their holdings, but there’s no plans to issue new equity to anyone,” a BP spokesman said.
A top 10 shareholder said any move to issue shares would be viewed extremely negatively.
“It will be a kind of suicide note — people will turn up with flamethrowers at management,” the shareholder said.
Several sovereign funds already hold BP stakes. Norway and Kuwait control about 1.8 percent each, China has 1.1 percent and Singapore 0.7 percent, according to Thomson Reuters data.
Royal Bank of Scotland upgraded BP to “buy” from “hold.”
“Our base case scenario is significantly less pessimistic and in our view, the risk/reward profile of the shares is currently favorable,” it said in a note.
Just two out of 37 brokers have an “underperform” or “sell” rating on BP’s stock, and over two-thirds rate it “buy” or “strong buy,” according to Thomson Reuters data.
The stock’s 12-month forward price-to-earnings ratio makes it easily the cheapest among the major oil companies.
Britain’s The Times newspaper reported the British government was drafting contingency plans for a possible BP collapse. The British government declined to comment.
Tests showed tar balls washed up on the Texas coast were from the spill, meaning every U.S. Gulf state — Louisiana, Mississippi, Alabama, Florida and now Texas — has been soiled by the largest offshore oil spill in the country’s history.
Texas asked BP for a $25 million block grant to help fund its cleanup. BP has provided similar funds to other states that have had crude wash ashore, and the credit rating agency Standard & Poor’s said that money was keeping the spill damage from affecting the credit ratings of affected states.
There was a chance disturbed weather over the southern Gulf of Mexico could strengthen into a tropical storm this week, the U.S. National Hurricane Center said.
Although it was not expected to travel over the site of the blown-out BP well, it could come closer than Hurricane Alex, which interrupted the cleanup operations last week.
Article by Kristen Hays and Leah Schnurr; additional reporting by Matthew Bigg in Bay Jimmy, La., Raji Menon, Joel Dimmock, Tessa Walsh, David Brett and Sarah Young in London, Amena Bakr and Nicolas Parasie in Dubai, Tom Brown in Miami, Anna Driver in Houston and Ryan Vlastelica in New York; writing by Ed Stoddard and Patricia Zengerle; edited by Paul Simao; appearing courtesy Reuters.
photo: Deepwater Horizon Response