BP relief well weeks away, hurricane hurts cleanup

HOUSTON/WASHINGTON Wed Jun 30, 2010 7:28pm EDT

1 of 33. Hurricane Alex is seen in a satellite image taken June 29, 2010.

Credit: Reuters/NOAA

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HOUSTON/WASHINGTON (Reuters) - A relief well that might divert the gushing Gulf of Mexico oil leak is still weeks from completion, a top U.S. official said on Wednesday, as the season's first Atlantic hurricane disrupted cleanup efforts.

U.S. lawmakers also took a step toward making oil companies face unlimited liabilities from offshore spills like the one devastating the Gulf coast.

Hurricane Alex was delaying BP Plc's plans to boost containment capacity at its leaking undersea well and threatening to push more oil-polluted water onto U.S. shores.

A relief well, one of two being drilled, is less than 1,000 feet from its target but will still take several weeks to reach the spewing oil pipe, U.S. Interior Secretary Ken Salazar told U.S. lawmakers.

Salazar's timetable was in line with BP's own statements, but there had been speculation earlier this week that the relief well link could be established earlier.

The Gulf oil spill disaster is in its 72nd day, with environmental and economic costs to tourism, wildlife, fishing and other industries mounting and the future of BP, the London-based energy giant, far from clear.

Salazar said he is working hard to finalize a new offshore drilling moratorium after a federal court struck down the administration's initial six-month ban, but he would not say when the new moratorium would be issued.

"We believe the moratorium was correct when we put it in place. We believe it is still correct," he said, and suggested drilling would be allowed in well-known offshore fields.

Gulf residents braced for heavy rains and flooding from Alex, which strengthened into a Category 1 hurricane late on Tuesday and could become a more powerful Category 2 on Wednesday. The storm was on track to make landfall near the Texas-Mexico border.

INTERNATIONAL HELP

With strong winds and waves as high as 12 feet on the way, officials said controlled burns of oil on the ocean, spraying of dispersant chemicals and booming operations were on hold.

The State Department said it would accept offers of help from a dozen countries and international agencies to contain and clean up the spill, including two high-speed skimmers and a fire containment boom from Japan.

A U.S. Senate committee voted on Wednesday to eliminate limits on liability that oil companies would face for oil spill damages. Companies currently enjoy a $75 million cap for compensating local communities for economic losses and cleaning up environmental damage.

The change, if approved and enacted into law, would apply retroactively to BP. Democrats in both the Senate and House of Representatives have made the legislation a top priority.

But some Republicans say it will stop small U.S. companies from drilling and open the door to more big foreign operators.

The Gulf of Mexico holds the most promising untapped crude oil reserves in the United States, and a string of major discoveries over the past decade by companies including BP have rejuvenated investment in deeper and more difficult waters.

BP has said it will cover all costs of its Gulf oil spill. It has agreed to establish a $20 billion fund, but claims are expected to easily eclipse that sum.

Separately, the new head of the U.S. agency overseeing offshore drilling told lawmakers a record of "bad performance, deadly performance" by an oil company should be considered relevant when the government decides on drilling lease awards.

"It is simply unacceptable for companies to repeatedly misreport production, particularly when it interferes with the auditing process," said Michael Bromwich, who heads the Interior Department's Bureau of Ocean Energy Management, Regulation and Enforcement.

It was formerly known as the Minerals Management Service.

In what may signal a generally tougher approach to BP and other oil companies, the Interior Department said on Wednesday it fined BP a civil penalty of $5.2 million for submitting "false, inaccurate, or misleading" reports for energy output on Native American tribal lands in Colorado.

BP's market capitalization has shrunk by about $100 billion since its Deepwater Horizon drilling rig sank in 5,000 feet of water on April 22, two days after an explosion and fire killed 11 workers.

The company's shares have lost more than half their value since the spill but were up about 4 percent in New York afternoon trade on Wednesday, following sharp gains in London.

The PHLX Oil Services Sector index rose on the day as well, but is down nearly 19 percent since the start of the spill.

"The stock prices had really discounted a very negative scenario ... the reality is not as bad as what the market has priced in," said Eric Marshall, director of research at Hodges Capital Management in Dallas, Texas.

That "has probably created a window of opportunity in a lot of these areas," he said.

ALEX HITS CLEANUP

On the Gulf coast, rough weather linked to Hurricane Alex had not only stopped some cleanup work but threatened to force evacuation of workers and vessels such as vacuum barges.

"If you have to move all this equipment out and then back in again, how much time is lost there?" said Phil Ramon, a disaster management consultant in Belle Chasse, La.

Plaquemines Parish President Billy Nungesser has warned coastal workers they may not be able to take everything with them. "You might just have to nail it down and then get out," he told Reuters.

A flood watch put in place by the National Weather Service remained in effect for much of the region on Wednesday.

Winds out of the southeast are forecast through Friday, a development expected to push oil farther into Barataria Bay, on the west side of the Mississippi River. Winds may also push oil closer to barrier islands around Mississippi and Alabama.

(Additional reporting by Cyntia Barrera Diaz in Mexico City, Ernest Scheyder in Belle Chasse, Louisiana, Mississippi; Richard Cowan in Washington; Chuck Mikolajczak in New York; Writing by Jerry Norton; Editing by Paul Simao)

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