UK backing lifts BP shares but spill looks worse

Supportive comments from the UK government lifted BP Plc's battered shares on Friday, outweighing news that the British oil company's Gulf of Mexico spill is much bigger than previously estimated.

In response to moves by U.S. officials to grab more BP cash for the cleanup, ministers heeded calls to defend the company, Britain's biggest payer of dividends to the investment community.

"We are all concerned about the human and environmental impact and as the Prime Minister has said we understand the concerns of the U.S. administration," Chancellor of the Exchequer George Osborne said after speaking to BP chief executive Tony Hayward by telephone.

"The Prime Minister is also clear that we need constructive solutions and that we remember the economic value BP brings to people in Britain and America," Osborne added after calls from business leaders, politicians and newspapers to defend BP.

News that the flow rate may be as high 40,000 barrels (1.68 million gallons/6.36 million liters) per day -- twice as much as previously thought -- came after the U.S. market closed on Thursday.

Shares in BP, which has lost tens of billions of dollars in value since the well exploded on April 20, gained 6.4 percent to 389 pence, rebounding from Thursday's 13-year low.

"There may be a sort of feeling that yesterday morning was almost capitulation point in terms of the stock and so possibly people have taken heart from the fact that the political rhetoric is not just one side of the Atlantic," says Barclays Capital analyst Lucy Haskins.

Worries over BP's dividend payments have also contributed to severe pressure on the company's stock. U.S. politicians have called on BP to suspend it and divert cash to cover the cost of cleaning up the spill as efforts to plug the blown-out undersea well failed.

"We are considering all options on the dividend. But no decision has been made," BP Chief Executive Tony Hayward told the Wall Street Journal.

The newspaper said BP may cut or defer the dividend due to be announced on July 27 or offer scrip -- an IOU to shareholders.

Friday's share rise does little to mend damage done to BP shares over the last two months -- the company is currently worth just over 70 billion pounds ($102 billion) versus over 120 billion pounds when the spill hit in April.

Spew Rate Estimate Doubles

And the spill, already the worst in U.S. history, may be much bigger than many had thought.

U.S. scientists said on Thursday that between 20,000 and 40,000 barrels per day (840,000 and 1.7 million gallons/3.2 million and 6.4 million liters) of oil flowed from the well before June 3, when BP's remotely operated robots sawed through an underwater pipe to clear the way for a capping procedure.

That is twice the level of previously estimated -- although many experts had predicted a sharp increase in the estimate.

U.S. Interior Secretary Ken Salazar told a congressional panel on Wednesday that the cut itself may have increased the rate by a further 4 to 5 percent.

"Crisis Just Beginning"

Based on a rate of 40,000 barrels per day, the stricken well could have spewed as much as 2 million barrels (84 million gallons/317 million of liters) of oil since it ruptured on April 20 -- eight times the amount that the Exxon Valdez spilled into Prince William Sound in Alaska in 1989.

BP says it has collected 73,324 barrels (3.1 million gallons/11.7 million liters) of oil since installing the capping system.

"The latest estimates confirm that the BP Deepwater spill is the worst environmental disaster in U.S. history. Even if BP were to shut off the flow today, this crisis is just beginning," said John Hocevar, the Oceans Campaign Director for Greenpeace USA.

The new estimates, in which BP had no input, could have huge financial implications.

"Any EPA (Environmental Protection Agency) fines would be on a per barrel basis, so the new numbers would not be good for any company held responsible," said one oil analyst based in New York who declined to be named.

Under the Clean Water Act, BP and others could be exposed to fines up to $4,300 for every barrel leaked into the gulf, according to legal experts and official documents.

The wide variation in the estimates in the flow rate points to the difficulty in estimating a flow that is 1 mile beneath the surface and reachable only by remotely operated robots.

BP says it is capturing more of the torrent of oil that has gushed from the sea bottom since the April 20 rig explosion that killed 11 workers and set the disaster in motion.

But the almost 16,000 barrels it said on Thursday it had collected in the previous 24 hours was triple its initial estimates of the leak's flow rate, a point that will not be lost on critics as U.S. public and political anger mount.

As the spill spread, heavier concentrations of oil began washing up on Florida seashores late on Wednesday. Until then, debris from the spill had been limited in the state to relatively small tar balls.

The spill has soiled 120 miles of coastline and threatens lucrative fishing and tourist industries.

Images of oiled pelicans and other wildlife is further stoking public anger with both the government and BP.

[Source: By Tom Bergin and Kristen Hays, Reuters, London and Houston, 11Jun10]

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