Gulf tropical storm puts BP spill work on hold

HOUSTON/LONDON (Reuters) - The approach of a major storm on Friday forced BP Plc to halt efforts to permanently plug a gushing oil leak in the Gulf of Mexico, sending ships and workers retreating to safety.

Two rigs stopped drilling the relief wells intended to halt the leak for good and prepared to move out of the storm's path. Tropical Storm Bonnie weakened to a tropical depression after moving across Florida on Friday, but was on track to bring heavy seas and rain to the spill area as early as Saturday.

Many non-essential workers abandoned the spill site, and officials said key ships would likely pull out later on Friday and be gone about two days.

Ships collecting seismic and acoustic data on the capped well and those operating underwater robots that provide a live feed of the wellhead would be the last to leave, and could stay if seas do not become too rough, officials said.

"If we have to evacuate the scene we're probably looking at a very limited window -- probably 48 hours," said retired Coast Guard Admiral Thad Allen, the top U.S. spill official.

BP sealed the leak last week with a tight-fitting containment cap, choking off the flow of oil for the first time since an April 20 rig explosion killed 11 workers and sent crude spewing into the Gulf, soiling coastlines in five states and devastating tourism and fishery industries.

The evacuation may push back BP's mid-August target date for completing a relief well that would permanently plug the leak to late August. But the ruptured well will remain capped, easing fears the flow would resume.

The evacuation also delayed another potential solution, the launch of a "static kill" operation to pump heavy drilling mud and possibly cement into the well.

BP said it was shutting down production at its eight company-operated platforms in the Gulf in preparation for a full evacuation of workers.

The U.S. government said 28.3 percent of Gulf oil production and 10.4 percent of Gulf gas output by all companies had been shut ahead of the fast-moving storm.

STORM IMPACT MIXED

The Miami-based U.S. National Hurricane Center said the storm could strengthen again, but the Gulf environment made that unlikely. It was on track to move over the spill area before it hit the Gulf coast early on Sunday.

Allen said the storm could have benefits and drawbacks for containment efforts. Heavy waves and tidal churn could help break up the oil, but high winds and waves could drive it deeper into wetlands and coastal areas.

"In some scenarios it might actually be good for cleansing the system, but in other circumstances it might cause even more problems if it blows a lot of the oil directly onshore," said Chuck Kennicutt, a professor at Texas A&M University who studied the 1989 Exxon Valdez spill in Alaska.

BP's spill, the worst in U.S. history, is believed to have spewed more than five million barrels of oil into the Gulf. Officials say the growing environmental disaster has killed or injured more than 700 sea turtles and 66 dolphins.

BP's containment efforts have been watched closely by investors because its ultimate costs may hinge on how much oil is determined to have flowed into the Gulf.

Company shares closed up 1.7 percent in New York while the broader market rose. BP shares closed relatively flat in London, down 0.3 percent.

The company's second-quarter results are due out on Tuesday. Analysts at Barclays bank said BP could report a loss for the second quarter of $13 billion as it makes provisions of up to $25 billion for the cost of the oil spill -- far outweighing an expected 77 percent jump in underlying profits.

The administrator of a $20 billion fund set up by BP to help compensate spill victims said the fund would not prevent future lawsuits against the company that exceeded that amount.

"The notion that the fund is there simply to insulate BP from lawsuits I think is very unfair," Kenneth Feinberg told reporters. [nWALNIE6E8]

In response to the spill, Senate Democratic leaders could unveil legislation focused on reforming offshore oil drilling as early as Monday, a congressional aide said.

The bill is expected to include provisions to force companies to pay more money to cover costs associated with spills, including raising the current $75 million cap on the amount companies must pay for damages.

BP's response to the spill has been marked by a series of public relations gaffes by top management. Calls have grown for the ouster of Chief Executive Tony Hayward.

On Friday, BP said it had removed doctored photographs of its oil spill response effort from its website, blaming a "simple error" that analysts said would further damage its already battered credibility.

BP published a photograph of a helicopter near the spill site that had been altered to give the impression the aircraft was in flight and to give a clearer view of vessels working on the relief effort.

Two BP managers have been named as subjects of a U.S. federal investigation into the explosion of the Deepwater Horizon oil rig, the Wall Street Journal said.

An emergency alarm that could have warned workers aboard the doomed rig was intentionally disabled, a rig engineer told U.S. investigators on Friday. [nN23177300]

Mike Williams, chief engineer technician aboard Swiss-based Transocean Ltd's rig, said the general alarm that could have detected the cloud of flammable methane gas that enveloped the rig's deck on April 20 was "inhibited."

(Additional reporting by Tom Brown in Miami, Alyson Zepeda and Chris Baltimore in Houston, Pedro Nicolaci da Costa in Washington; Writing by John Whitesides and Ed Stoddard; editing by Todd Eastham)