Bonds News

WRAPUP 2-Hurricane Alex to hamper BP's oil spill containment

* Tropical Storm Alex to strengthen into a hurricane

* BP shares fall 1.7 pct, analysts raise M&A potential

* First relief well now 20 feet from blown-out well

* Louisiana coastal flood watch; bracing for high tides (Adds analyst comment, shares, details on storm)

By Kristen Hays and Tom Bergin

HOUSTON/LONDON, June 29 (Reuters) - Tropical Storm Alex is expected to reach hurricane strength on Tuesday, with high winds and vast waves set to hamper BP Plc's BP.LBP.N latest efforts to contain the largest oil spill in U.S. history. Shares in London-based energy giant BP fell a further 1.7 percent a day after sources said the New York Federal Reserve was probing potential systemic risks posed by the company, and after the company had to deny Russian government claims it was planning to sack its chief executive.

Analysts at JPM Morgan Cazenove said the huge fall in its share price, currently languishing at a 14-year low, made it a potential takeover target.

"The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP. We very much doubt that keen-eyed industry players have lost sight of BP's value," JP Morgan Cazenove's Fred Lucas wrote in a research note, citing Exxon Mobil Corp XOM.N and Royal Dutch Shell RDSa.L as the most likely acquirors.

Most analysts have so far said a takeover is unlikely as long as BP’s potential liabilities remain so uncertain.

The Gulf oil crisis is in its 71st day with no firm end in sight. The economic and ecological costs -- to tourism, wildlife, fishing and other industries -- continue to mount for four states along the U.S. Gulf coast.

Alex was forecast to move slowly away from the Yucatan Peninsula over southern Gulf waters and curl northwest away from major oil-extraction facilities to make a second landfall in northern Mexico mid-week.

It is not expected to hurt oil capture systems at the BP oil spill or the company’s plans to drill a pair of relief wells intended to plug the leak by August, a BP executive told reporters in Houston. [ID:nN28258499]

But waves as high as 12 feet (4 metres) would delay this week’s plans to hook up a third system to capture much more oil, said Kent Wells, BP executive vice president.

U.S. government officials estimate that 35,000 to 60,000 barrels are leaking from the blown-out well each day.

BP’s current containment system can handle up to 28,000 barrels daily. The planned addition would have raised that to 53,000 bpd, said Kent Wells, a senior vice president with BP.

Deep below the ocean floor, drilling of a pair of relief wells intended to plug the leak for good by August will continue “unless, unfortunately, a storm heads directly our way,” Wells said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For full spill coverage

How much oil is really gushing? [ID:nN24203958]

Breakingviews [ID:nLDE65R1P7]

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The first relief well is now tantalisingly close to the blown out well -- just 20 feet (6 meters). But BP said on Monday it will be drilled another 900 feet (275 meters) before an attempt is made to intercept the rogue well.

BP’s market capitalisation has shrunk by $100 billion since the Deepwater Horizon drilling rig sunk in 5,000 feet (1,525 meters) of water on April 22, two days after an explosion and fire killed 11 workers.

The company continues to publicly stand behind Tony Hayward, its embattled chief executive. [nLDE65R12K]

On Monday, sources told Reuters the New York Federal Reserve has been monitoring firms’ exposure to BP to ensure that if the oil giant buckles it will not put the global financial system at risk. [nN28255360]

Top U.S. officials continue to beat a path to the Gulf region, responding to criticism that President Barack Obama and his administration responded too slowly to the crisis. Vice President Joe Biden heads to the region on Tuesday.

Polls have given Obama low marks for his handling of the disaster, although not as low as those given to BP.


On Monday, former President Bill Clinton told CNN Obama was getting “a bum rap.” The failed well is a “geological monster” and if efforts to cap the leak should fail, the U.S. Navy might have to blow it up, Clinton added.

As crude oil and dispersants float on the surface of the Gulf, crews are battling to keep filth off beaches and away from wildlife breeding grounds. Rough weather created by Alex would be just the latest blow to the hard-hit region.

Parts of the Louisiana shoreline are under a coastal flood watch through Wednesday evening. High tides could be two to three feet above normal in some locations.

Skippers and deckhands at the public marina in Pointe-a-la-Hache, Louisiana, said they were worried about what impact the water’s already high level will have if Alex pushes foul weather toward them.

“If a storm comes with the tide, then it’s going to be an issue,” said Robert Whittington, who has worked at the marina for 20 years. “We’re just waiting to see what happens.”

In Ocean Springs, Mississippi, residents angry about BP’s slow spill clean-up took it upon themselves to pick up tar balls making landfall. After waiting hours for clean-up crews, young children and their parents began digging up large patches of the oil with sand toys and shovels.

“That is all we had to use and we were not going to sit around and wait for BP to pick this mess up. It is our home,” said area resident Marty Wagoner. (Additional reporting by Jane Sutton and Michael Peltier in Miami, Leigh Coleman in Mississippi, Ernest Scheyder in Nairn, Louisiana, and Joshua Schneyer and Kristina Cooke in New York; writing by Ros Krasny and Louise Heavens; editing by Sitaraman Shankar)