BP Shares Plunge Following "Top Kill" Failure
Updated at 4:33 p.m. ET
Shares in BP PLC plummeted on Tuesday, wiping billions off the British company's market value, after the failure of its latest attempt to stop the massive Gulf of Mexico oil spill.
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Speculation about the London-based company's future mounted as the share rout - taking the stock to its lowest level in more than a year - was compounded by BP's revelation that its costs relating to the accident are approaching $1 billion.
Some analysts believe that BP's stock will rebound if renewed efforts to contain the spread of oil from the broken Deepwater Horizon well are successful, but others suggest that the company could become a takeover target.
"This situation has now gone far beyond concerns of BP's chief executive Tony Hayward being fired, or shareholder dividend payouts being cut - it's got the real smell of death," said Dougie Youngson, oil analyst at Arbuthnot.
"Given the collapse in the share price and the potential for it to fall further, we expect that it could become a takeover target, particularly if its operating position in the U.S. becomes untenable," he added.
BP shares closed down 13 percent at 429.9 pence ($6.31) on the London Stock Exchange on Tuesday - making it the biggest fall on the exchange on the first day of trading since the company's unsuccessful attempts at a "top kill" operation, shooting mud and other debris into the leaking well, over the weekend. The London bourse was closed on Monday for a public holiday.
On the New York Stock Exchange, BP closed down $6.43, or almost 15 percent, at $36.52.
BP said the $990 million costs so far related to spill containment, relief well drilling, grants to Gulf states, claims already paid and federal costs.
The company said it has received 30,000 claims and made more than 15,000 payments, totaling some $40 million. It added it was too early to quantify other costs and liabilities.
Raymond James analyst Pavel Molchanov said that costs had spiraled dramatically higher from earlier estimates, leading the stockbroker to raise its cost assumptions substantially. It now assumes cash outlays net to BP of $5.2 billion in 2010, compared to its earlier estimate of $1.6 billion, and $2.3 billion in 2011.
Molchanov said much could hinge on BP's current efforts to stem the spill, which has dumped between 18 and 40 million gallons into the Gulf, according to U.S. government estimates.
BP is now attempting to use remote-controlled submarines to cut pipes before placing a containment cap over the leak, a procedure known as a lower marine riser package, or LRMP.
"It's important to underline that halting the oil leak does not mark the end of BP's problems as a result of the oil spill," Molchanov said in a note.
"The specter of a web of litigation - both from the private sector and from governments - and the challenge of cleaning up the oil that has already been spilled should not be underestimated," he added. "However, if the LMRP ultimately proves successful, we believe it's likely that the shares of BP will see a near-term move higher."
Analysts at Killik & Co. stockbrokers in London, highlighted the wider potential implications of the spill on the US oil industry and the oil price, noting that the U.S. government is looking to increase investment to develop domestic reserves.
"Following this spill, it may be more difficult to achieve this aim as environmental groups step up their opposition," they said in a note. "We believe any increased concerns over the supply/demand imbalance will place upward pressure on crude prices and plays well to our long-term theme of being overweight the sector."
The cleanup, relief wells and temporary fixes were being watched closely by President Obama's administration. Mr. Obama planned to meet for the first time Tuesday with the co-chairmen of an independent commission investigating the spill, while Attorney General Eric Holder was headed to the Gulf Coast to meet with state attorneys general.
Mr. Obama's energy czar, Carol Browner, said she doesn't want to guess the prospects for success when BP again tries to use a containment cap to control the oil spill.
Interviewed Tuesday on ABC's "Good Morning America," Browner said, "I don't want to put odds on it. ... We want to get this thing contained."
Browner also said she's concerned about the effect the hurricane season, which began Tuesday, could have on ending the environmental crisis.
To accommodate more than 500 workers hired to clean up the worst oil spill in U.S. history, BP and several subcontractors have set up floating hotels, or "flotels," made up of steel boxes resembling oversized shipping containers and stacked atop barges.
At Port Fourchon, the oil industry's hub on the Gulf , a flotel there is the only way to station workers in a massive shipyard surrounded by ecologically sensitive marshes and beaches.
"There are no permanent residents here on the port," said Dennis Link, a manager from a BP refinery who's handling logistics at the 1,300-acre site that's easily accessible by ship, but reachable on land only by a state road that snakes through the bayous.
On Monday afternoon, the living quarters on the flotel sat empty. Generators pumped in cool air and powered the lights, and at the foot of each bunk sat a towel, washcloth and individually wrapped bar of soap. If necessary, four tents on dry land nearby can house 500 more workers. Workers will likely be trucked in on the two-lane state road.
The accommodations on the barge are Spartan, but comfortable - similar to military barracks. Each pod contains 12 bunks, with a bathroom for every four. Per Coast Guard standards, each resident gets 30 square feet of space in the quarters. The barge has 10 washers, 10 dryers and a kitchen, although food will be served in a tent on land. The quarters are typically floated alongside offshore oil rigs to supplement housing on the drilling operations.
Another flotel sits about 15 miles away, off Grand Isle, and BP plans to establish them elsewhere along the coast.
Cleanup efforts are being ramped up while BP also tries the latest in a series of patchwork fixes, this one a cut-and-cap process to put a lid on the leaking wellhead so oil can be siphoned to the surface. The risky procedure could, at least temporarily, increase the oil flowing from the busted well.
Using robot submarines, BP plans to cut away the riser pipe this week and place a cap-like containment valve over the blowout preventer. On Monday, live video feeds showed robot submarines moving equipment around and using a circular saw-like device to cut small pipes at the bottom of the Gulf.
"We are well into the operation to put this cap on the well now," BP Managing Director Bob Dudley told NBC's "Today" show on Tuesday.
BP failed to plug the leak Saturday with its top kill, which shot mud and pieces of rubber into the well but couldn't beat back the pressure of the oil.
The oil company also announced plans Monday to try attaching another pipe to a separate opening on the blowout preventer with some of the same equipment used to pump in mud during the top kill. The company also wants to build a new freestanding riser to carry oil toward the surface, which would give it more flexibility to disconnect and then reconnect containment pipes if a hurricane passed through.
Neither of those plans would start before mid-June and would supplement the cut-and-cap effort.
But the best chances for sealing off the leak are two relief wells, the first of which won't be ready until August. The spill has already leaked between 19.7 million and 43 million gallons, according to government estimates.
For the relief well to succeed, the bore hole must precisely intersect the damaged well, which experts have compared to hitting a target the size of a dinner plate more than two miles into the earth. If it misses, BP will have to back up its drill, plug the hole it just created, and try again.
"The probability of them hitting it on the very first shot is virtually nil," said David Rensink, incoming president of the American Association of Petroleum Geologists, who spent most of his 39 years in the oil industry in offshore exploration. "If they get it on the first three or four shots they'd be very lucky."
The trial-and-error process could take weeks, but it will eventually work, scientists and BP said. Then engineers will then pump mud and cement through pipes to ultimately seal the well.
On the slim chance the relief well doesn't work, scientists weren't sure exactly how much - or how long - the oil would flow. The gusher would continue until the well bore hole collapsed or pressure in the reservoir dropped to a point where oil was no longer pushed to the surface, said Tad Patzek, chair of the Petroleum and Geosystems Engineering Department at the University of Texas-Austin.
By Associated Press Writers Ben Nuckols and Jane Wardell