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BP's well-capping effort fuels fresh hope

Oil cleanup crew bags up oiled sand along the Grand Isle beach front, Louisiana, on July 5

SEAN GARDNER

BP aims to finally halt the flow of crude oil into the Gulf of Mexico from its blown-out Macondo well as early as Tuesday after 84 days of the worst environmental crisis in U.S. history.

A senior company executive said, however, it could take 48 hours to determine whether the seal will be effective until BP can complete work on a relief well and permanently stop the blowout.

The company needs to monitor the result of installing the 80-tonne sealing cap to determine whether the well itself has been badly damaged, making it more difficult to stop the flow of crude. The so-called "well integrity test" will determine whether the company can seal the well, or whether it will be forced to resume collecting the spewing oil through its various containment methods.

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Watch live video of the well (provided by BP)

"It's critical we actually do the test, and then we can analyze those results and determine whether we can leave it closed in or we actually need to resume containment operations, which we are prepared to do," BP's chief operating officer, Doug Suttles, said during a conference call on Monday.

Meanwhile, BP will continue to complete the two relief wells, which are needed to permanently kill the blowout some 5,454 metres beneath the ocean surface. BP expects to intercept the original well bore by the end of the month, but it could take several days to two weeks to pump enough drilling mud into the well to plug the flow of crude.

Mr. Suttles refused to rate the odds of success of the sealing-cap operation. BP has embarked on other well kill strategies that have failed.

But the progress with the seal cap strategy fed a broader sense of optimism creeping into the market that fears of BP's bankruptcy and breakup can be avoided.

On the New York Stock Exchange Monday, BP shares surged 8 per cent - or $2.71 (U.S.) - to $36.76 on words the company was approaching an end to the blowout, and on reports that it is considering selling $10-billion worth of assets to Houston-based Apache Corp.

That's up from a low of $26.75 for shares on June 28, when many analysts were speculating whether the company would survive the massive costs of capping the well, cleaning up the Gulf and compensating the economic victims. BP's shares are still 40 per cent below the $60-level where they were trading before the April 20 blowout that killed 11 rig workers.

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Analyst Pavel Molchanov, of Raymond James Financial Inc., said BP shares reflected the worst-case fears of investors in late June, but now reflect a somewhat more optimistic view.

"I think we've probably seen the lows but at the same time, it's important for investors not to get too exuberant," Mr. Molchanov said. "There is still a very difficult, long, hard slog ahead for this company."

The stock was buoyed by speculation about asset sales, and Mr. Molchanov said he believes the company's selloff may reach $20-billion as BP seeks to raise cash to cover the costs of the blowout.

"But the bigger question is when they sell assets, what are the terms going to be," he said. "We know BP is a willing seller and in general when someone is a willing seller, that lends itself to a relatively cheap selling price."

While the environmental damage continues to mount along the Gulf coast, so too does the economic impact of BP's disaster, which has idled much of the offshore drilling fleet in the region.

In Washington Monday, U.S. Interior Secretary Ken Salazar issued new terms for a moratorium on deepwater drilling as part of an effort to overturn a court ruling that invalidated the original ban. The revised policy would narrow the scope of the moratorium and allow some deepwater drilling off fixed-production platforms, but would effectively preclude for up to six months any significant return of exploration activity into the deep water.

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The industry quickly reacted to Mr. Salazar's directive, saying it was "unnecessary and shortsighted."

"The new moratorium threatens enormous harm to the nation and the Gulf region," said Jack Gerard, president of the American Petroleum Institute, the industry's Washington-based lobbying arm.

"The industry has been working extremely hard on all fronts to enhance safety - and will continue to do so," Mr. Gerard said. "And the government has already imposed significant, additional safety requirements that are supported by the industry. A resumption of drilling would proceed only under the most intense and vigilant oversight."

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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