BP overcomes snag in bid to curb spill

VENICE, Louisiana (Reuters) - BP Plc overcame a snag in its latest effort to curb the Gulf of Mexico oil spill as the British energy giant's shares stabilized on Wednesday and parts of the huge oil slick threatened Florida.

The company's latest plan is to siphon off some of the oil but first robot submarines must cut away what is left of the ruined offshore well's leaking riser pipe. Then a containment cap can be lowered over the remaining wellhead assembly, enabling BP to funnel crude to the surface.

But the diamond-tipped saw being used to cut through the pipe became stuck. BP employed robotic equipment and struggled for hours to free the saw but finally completed the task, a source familiar with the operation told Reuters.

If the saw cuts off remaining pieces of the pipe and provides a smooth surface at the top, BP aims to place a containment cap with a rubber seal over the gushing opening to funnel most of the oil. All this is a difficult task one mile deep.

As the desperate effort to contain the gusher proceeded, the slick stretched farther.

Tar balls and other oil debris from the giant, fragmented slick reached Alabama's Dauphin Island, parts of Mississippi and were less than 10 miles from Florida's northwest Panhandle coast. The region's vital seafood and tourism industries were at risk from America's biggest oil spill ever.

Florida, entering the busy beach season, is ramping up reconnaissance efforts and preparing to deploy more booms and conduct coastal cleanups. Officials prepared for landfall that could come as early as Friday.

BP, now facing an Obama administration criminal investigation, has lost one-third of its market value or about $67 billion (46 billion pounds) since the April 20 rig explosion that killed 11 and triggered the gusher.

The company's latest plan to curb the oil flow after the "top kill" strategy failed could represent the last best hope before August, when the company expects to have two relief wells it is drilling to be operational.

This latest attempted fix may actually increase the flow of oil, at least temporarily, before the leak can be controlled.

President Barack Obama, facing one of the biggest challenges to his presidency, is under relentless pressure to stop the leak.

Vice President Joe Biden rejected criticism of the administration's handling of the disaster.

"From my perspective, I think if there's any mistake made (it is) that we haven't communicated clearly enough what the president has done on this oil spill from the beginning," Biden told PBS' "Charlie Rose" show.

In a speech in Pittsburgh, Obama said it is time for the United States to embrace a clean energy future because of the inherent risks of drilling deep into the earth for oil.

"The catastrophe unfolding in the Gulf right now may prove to be a result of human error -- or corporations taking dangerous short-cuts that compromised safety," Obama said.

BP shares recovered from an earlier dip to close nearly unchanged in London on Wednesday, while BP American depositary receipts rose more than a point in New York; both equities plunged over 10 percent on Tuesday.

Some investors see this as a rare buying opportunity. Others said the stocks could underperform for years despite reduced valuations, and warned the uncertain outcome of the oil spill and risk to profits means investors should expect a bumpy ride in coming months.

The cost of insuring the debt of BP, rig operator Transocean and Anadarko Petroleum Corp, which owns a 25 percent stake in the well, hit fresh highs on Wednesday as concerns grew about the companies' exposure to the spill.

Credit default swaps protecting BP's debt jumped 87 basis points to a record 255 basis points, or $255,000 per year to insure $10 million for five years, according to Markit Intraday. The swaps have jumped from around 100 basis points last Friday and 42 basis points in April.

BP will seek to patch up its battered share price by reassuring investors the cost of cleaning up the spill is manageable and will not affect dividends, British media reported on Wednesday.

BP Chief Executive Tony Hayward told the Financial Times that he believed the industry could reform itself to justify continued drilling in challenging areas.

In a statement, Hayward apologized for saying on Sunday that "I want my life back," a comment that stirred anger in the Gulf region where the spill is destroying livelihoods. "Those words don't represent how I feel about this tragedy," he said.

A section of Dauphin Island beach well known for its white sand was covered with patches of black and an orange sheen. Hundreds of workers and around 150 boats set out to lay more protective booms around the island, though they were delayed by a squall that passed over the tourist haven off Alabama's Gulf Coast.

"It is so depressing. It is really happening. It really won't go away. And the American people really don't know what has hit them," said Dauphin Island homeowner Caroline Graves.

DEEP-SEA SURGERY

The containment cap is intended to capture a large portion of the billowing oil and channel it through a hose to a ship on the surface.

BP must make two cuts on the riser pipe, with the second cut key to ensuring that BP gets a clean seal between the pipe and the containment cap.

The cap also is equipped with valves to allow operators to inject methanol or warm water that would prevent the buildup of slushy gas hydrates that thwarted an earlier siphoning effort.

But sawing off the end of the damaged riser pipe through which oil has been pouring non-stop could increase the flow of crude by 20 percent until the cap is in place.

It could take 72 hours to get the cap operational.

As much as 19,000 barrels of oil (800,000 gallons or 3 million liters) a day has been pouring into the Gulf off the coast of Louisiana since the rig explosion.

The accident ranks as the worst oil spill in U.S. history, surpassing the 1989 Exxon Valdez tanker disaster in Alaska.

The spreading slick coincided with the official start of the Atlantic hurricane season, which forecasters say could be the stormiest since 2005, when Katrina and Rita wreaked havoc on the Gulf Coast.

Commercial fishing, shrimping and oyster harvests have been shut down for weeks along much of the Gulf Coast, home to a $6.5 billion seafood industry.

While cleanup crews have attacked the oil slick on the surface with skimmers, dispersants and controlled burns, shoreline-protection teams have scurried to block the spread of oil with containment booms, sandbags and other barriers.

Scientists and Gulf residents are most concerned about the encroachment of oil into bayous and marshes teeming with shrimp, oysters, crabs, fish, birds and other wildlife.

(Additional reporting by Kristen Hays and Chris Baltimore in Houston, Michael Peltier in Tallahassee, Jeremy Pelofsky in Washington, Verna Gates on Dauphin Island, and Joanne Frearson in London; writing by Steve Holland; editing by Eric Beech)