Oil spill sparks criminal probe

VENICE, La./LONDON Tue Jun 1, 2010 7:31pm EDT

1 of 33. Louisiana National Guardsmen unravel support straps far a Tiger Dam, to protect the Grand Isle from encroaching oil coming in with the high tide in Grand Isle, Louisiana May 31, 2010.

Credit: Reuters/Sean Gardner

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VENICE, La./LONDON (Reuters) - BP Plc faced a grim future on Tuesday as its failure to stop a Gulf of Mexico oil spill prompted a plunge in the energy giant's shares and the Obama administration said it opened a criminal investigation.

President Barack Obama, struggling to get on top of the worst oil spill in U.S. history, vowed an overhaul of U.S. laws and regulations needed to prevent a repeat of the April 20 rig explosion that killed 11 people and triggered the spill.

A mile below the ocean surface, BP began a new strategy to tackle the six-week-old drama, using underwater robots to cut away extraneous pipes before trying to contain the leaking oil and channel it to a ship on the surface.

After meeting co-chairs of a commission that will investigate the accident, Obama raised the prospect of criminal prosecutions.

"If our laws were broken leading to this death and destruction, my solemn pledge is that we will bring those responsible to justice on behalf of the victims of this catastrophe and the people of the Gulf region," Obama said.

U.S. Attorney General Eric Holder said in New Orleans that the U.S. government has launched a criminal probe and that federal agencies, including the FBI, are participating.

"We will not rest until justice is done," Holder told reporters.

The Justice Department will look for violations of the Clean Water Act, the Endangered Species Act, the Migratory Bird Treaty Act and the Oil Pollution Act of 1990, which can be used to hold violators liable for cleanup costs and reimbursement for government efforts.

SHARES PLUNGE

The oil giant's shares in London closed down 13 percent on Tuesday, at 430 pence, after falling by as much as 17 percent. In New York, BP's American Depositary Receipts lost nearly 15 percent to close at $36.52.

The shares were hit hard by weekend news that its latest attempt to plug its blown-out seabed well had not worked, sparking fears oil could leak into the Gulf until August.

BP shares have lost more than a third of their value, or about 46 billion pounds ($67 billion), since the leak started. The cost of dealing with the crisis now totals $990 million, and is rising.

Shares of other companies with stakes in the well were also down between 10 and 19 percent, including Anadarko, Transocean, Cameron and Halliburton.

At the same time, the cost of protecting the debt of what was once Britain's biggest company against default rose sharply. The five-year BP credit default swap widened by 71 basis points to 173 basis points, CDS monitor Markit said.

The cost to protect Anadarko, Transocean and Halliburton debt also soared.

Analysts were increasingly gloomy about BP as an investment, with one issuing a sell order and saying he thinks the company will be broken by the crisis.

A poll by CNBC, a Wall Street news channel watched by many savvy U.S. investors, said that 63 percent of those surveyed say BP will be fine in a year, while 25 percent believe the company will be under bankruptcy protection and 12 percent think BP would go under.

But the White House said BP had the resources to cover the financial costs of the disaster.

"You've got a company with the type of market capitalization that can and will fully pay for the damage caused by the disaster they are responsible for," spokesman Robert Gibbs said when asked at a briefing if the Obama administration was concerned the spill could ruin BP financially.

In the next attempt to contain the leak, robotic equipment will use giant shears and a diamond saw to cut a pipe 35 feet above the wellhead that will allow BP to sit a dome on top of it and funnel oil to a tanker on the surface.

"We are intent on minimizing the flow of the oil into the Gulf and we've begun a series of operations to ensure just that," BP managing director Bob Dudley told CNN.

It could take up to 72 hours to get the containment device operational, said Coast Guard Admiral Thad Allen, the top U.S. official overseeing the cleanup.

If this attempt fails, it is possible that up to 19,000 barrels of oil (800,000 gallons/3 million liters) a day will leak into the Gulf until relief wells, due in August, are completed.

The leak is a financial and public relations nightmare for BP and its problems are just beginning.

Holder, the U.S. attorney general, and top Justice Department officials met state and federal prosecutors from Louisiana, Alabama and Mississippi and afterward announced that the criminal probe was under way.

"We have begun both a criminal as well as a civil investigation as is our obligation under the law," Holder told reporters. "Our environmental laws are very clear."

OBAMA VOWS LAWS, REGULATION OVERHAUL

Obama, who is fighting accusations that he has not reacted swiftly enough to a disaster that threatens Louisiana's multibillion-dollar seafood industry, sat down with the heads of a commission looking into the leak -- former Senator Bob Graham and former Environmental Protection Agency chief William Reilly.

"If the laws on our books are insufficient to prevent such a spill, the laws must change. If oversight was inadequate to enforce these laws, oversight has to be reformed," Obama said.

The commission will be similar to those that examined two previous unprecedented U.S. catastrophes -- the explosion of the space shuttle Challenger in 1986 and the Three Mile Island nuclear accident in 1979.

The fate of BP's shares weighed on investors but was of little concern to residents of Louisiana's coast, who have suffered crippling losses because of the closure of some Gulf waters to fishing.

"I really don't care much about it," Kimberly Mertz, who works at a marina in rural Venice, Louisiana, said of the share price. "We want to get everything cleaned up."

The slick has spread over 100 miles of Louisiana's coast, but Mississippi and Alabama have escaped so far with only scattered tar balls and oil debris reaching their coasts.

That could change. National Oceanic and Atmospheric Administration said moderate southerly and southwesterly winds this week may start moving oil closer to the Mississippi and Alabama coasts.

The forecast was a reminder that oil from the unchecked spill, broken up and carried by winds and ocean currents, could threaten tourist attraction Florida, and Cuba and Mexico.

Commercial boats recruited to the oil spill response were being deployed to increase monitoring of the Alabama coastline, and skimming vessels were responding to confirmed reports of oil. Beach support teams were also being mobilized in anticipation of oil coming ashore.

Raising the stakes still further, Tuesday was the official start of the 2010 Atlantic hurricane season, which forecasters predict may be the most intense since 2005.

That year Hurricane Katrina ravaged the region and disrupted offshore oil and gas output.

Experts fear a big storm could drive more oil ashore and force BP and the U.S. government to suspend cleanup efforts.

(Additional reporting by Jeremy Pelofsky and Matt Spetalnick in Washington; writing by Steve Holland; editing by Mohammad Zargham)