BP Plans Plug Attempt as Gulf Oil Leak Costs Rise

By Eduard Gismatullin and Jim Polson

May 24 (Bloomberg) — BP Plc will try in two days to plug an oil leak off Louisiana’s coast by pumping heavy drilling fluids into the damaged well, as cleanup costs of the monthlong spill accelerate.

BP expects to attempt the “top kill” operation on the morning of May 26, Doug Suttles, chief operating officer for exploration and production, said today in an interview on CNN. It is the second time BP has delayed the measure, and Suttles said he rated its chances of working at “six or seven” on a scale in which 10 was certain success.

The disaster has cost BP about $760 million, or $22 million a day, compared with an initial estimate of $6 million a day, the London-based oil company said in a statement. BP’s net income in 2009 was $16.6 billion, or $45.4 million a day, according to data compiled by Bloomberg. The shares fell to a 10-month low.

“The longer it takes, more costs are going to be incurred,” Greg Smith, managing director of research firm Fat Prophets in London, said in a telephone interview today. The final bill, which may not be known for more than six months and depends on litigation, may be as much as $10 billion, he said.

BP fell 13.7 pence, or 2.7 percent, to 493 pence at 4:35 p.m. in London. The stock is down 25 percent since an April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers.

$500 Million

BP pledged as much as $500 million over 10 years to research the environmental impacts of the spill, including the effects of chemical dispersants used to break up the oil. Louisiana State University will get an initial grant to assemble data that will be compared with later research, the company said.

U.S. government officials stepped up pressure on BP in the face of criticism that they’ve been too lax in their oversight of the company’s response. Oil has washed ashore along more than 65 miles (105 kilometers) of coast lining the Gulf of Mexico, according to Louisiana Governor Bobby Jindal.

Interior Secretary Ken Salazar yesterday threatened to “push them out of the way” if BP doesn’t do enough to halt the leak. Salazar is scheduled to visit Louisiana and fly over the oil slick today, along with Homeland Security Secretary Janet Napolitano and a group of U.S. senators. Environmental Protection Agency Administrator Lisa Jackson went to the region yesterday.

Top Kill

The top kill method requires liquids twice the density of water be pumped into the well using a Helix Energy Solutions Group Inc. rig, Suttles said last week.

“Most of the equipment is on site and preparations continue for this operation, with a view to deployment in a few days,” BP said today. It will be followed by cement to seal the well about 5,000 feet (1,524 meters) underwater.

The company said last week it expected to begin the process as early as May 23, and then delayed that to May 25.

“Frustration is growing all around, with Louisiana authorities blaming both BP and the federal government for dragging their feet, while the feds are expressing increasing anger towards BP for missing various deadlines to get the leak plugged,” Edward Meir, a senior analyst at MF Global Inc., wrote in a report.

BP has been diverting some of the spill for about a week, using a pipe to a drillship on the surface. The average recovery rate was 1,885 barrels of oil a day and 9 million cubic feet per day of natural gas from May 17 to May 24, David Nicholas, a BP spokesman, said today. In the past 24 hours, oil was recovered at a rate of 1,120 barrels a day.

Flow Rate

“The collection rate continues to vary, primarily due to the flow parameters and physical characteristics within the riser,” BP said in its statement today.

A team of government and academic scientists may report this week how much oil is leaking from the well, after independent scientists told Congress the crude was coming out at more than 10 times the 5,000-barrel-a-day estimate BP and the government has given since April 28.

Suttles said today that if the top kill doesn’t work they will try another containment device to divert the oil to the ship. The company also is preparing a “junk shot” to clog the opening of the leak.

BP is drilling two relief wells to shut the leaking well permanently. The wells will be ready in August.

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