BP, Government Risk Temporary Increase in Spill to Stem Leak, Browner Says

BP Plc and U.S. government officials have decided to risk accelerating the largest oil spill in the country’s history in a bid to capture more of the crude before BP’s leaking well can be plugged in August, White House Energy Adviser Carol Browner said.

Sometime during the next seven days, BP plans to saw away sections of a damaged pipe so that much of the oil can be diverted to a ship on the surface, Managing Director Robert Dudley said today on NBC’s “Meet the Press.” The step, endorsed by federal officials, risks increasing the leak by 20 percent, Browner said today in a “Face the Nation” interview on CBS.

The joint decision comes after a three-day effort to plug the well by jamming it with drilling mud from the surface, a technique called a “top kill,” failed, Browner said.

“This is war. This is like Dunkirk,” said Jason Kenney, an Edinburg-based analyst for ING Commercial Banking, said today in an interview. “BP and the government have no choice but to proceed,” said Kenney, who rates BP at “buy” and doesn’t own the shares.

Kenney also today raised his estimate of how much the spill may cost BP to $22 billion, if the event persists to August, compared with $5.3 billion if the top kill effort had succeeded. The higher figure reflects escalated litigation costs on the assumption that a prolonged spill will increase damages to fisheries and the Gulf economy, he said.

Undiminished Cash Flow

“BP can digest whatever cost this is going to take,” Kenney said. The Deepwater Horizon well was exploratory, so cash flow from BP’s production is undiminished, he said. Any solutions BP finds to stop or limit the pollution will be the basis for new regulatory standards covering deepwater drilling, Kenney said.

The well has spewed from 12,000 barrels to 19,000 barrels of oil a day, a government panel estimated May 27. The leak began after the Horizon, leased by BP from Transocean Ltd., the largest deepwater driller, exploded April 20 when the well blew out. Eleven workers died in the blast. The rig sank two days later.

Failure of the top kill effort means BP and the government must intensify steps to keep oil from reaching the shoreline, especially tidal marsh in Louisiana that can be killed by crude, Browner said.

“The worst is that we have oil leaking until August” when BP can complete the first of two relief wells intended to plug the damaged well securely from the bottom, Browner said.

‘Assault on the People’

“Every day that this leak continues is an assault on the people of the Gulf Coast region, their livelihoods, and the natural bounty that belongs to all of us,” President Barack Obama said in a statement yesterday after the top kill effort failed. “It is as enraging as it is heartbreaking.”

Probability of the riser cap working is “absolutely better” than the top kill, Dudley said on NBC’s “Meet the Press.” “Success,” he said, is “full containment.”

“Once the cap is on, the question is how snug is that fit,” Browner said. “If it’s a snug fit, there could be very, very little oil” escaping.

Government experts estimate the spill will increase over the four- to seven-day process BP will need to affix the cap, she said.

BP’s Other Options

The effort involves underwater robots shearing away sections of damaged pipe, cutting away pipe from the top of the existing blowout preventer, then installing caps to divert oil through a pipe to waiting ships on the surface, according to a BP illustration posted today on the spill command’s website. That may enable BP to capture as much as 90 percent of the oil and gas escaping from the well, Dudley said on “Face the Nation.” The actual amount can’t yet be estimated, he said.

BP is also looking at other options, including the installation of a second blowout preventer atop the first, Dudley said. The valves of the second piece of equipment would be designed to shut off the pipe.

A proposal to lift the financial liability limit for oil companies such as BP was today endorsed by Representative Edward Markey, a Massachusetts Democrat. It was first suggested by House Speaker Nancy Pelosi during an interview on Bloomberg Television’s “Political Capital With Al Hunt.”

“I do not believe that large energy companies should be able to escape having unlimited liability for the catastrophes which they create,” Markey said on CBS. “If the oil industry wants to drill in ultra-deep waters, we need ultra-safe technologies as well.”

‘Make Them Responsible’

Louisiana Governor Bobby Jindal said the federal government should require BP to pay for 40 miles (64 kilometers) of new, manmade islands to protect his state’s tidal marshes from the spill. If BP is the responsible party for the spill, “make them responsible,” Jindal said.

The U.S. Army Corps of Engineers approved building six of 24 segments of sand barriers the state sought to help block the oil. The approved barriers cover 40 miles out of the 100 miles the state seeks to protect, the governor said. Jindal said the U.S. ordered BP to pay for one segment, or two miles.

BP Chief Executive Officer Tony Hayward has said BP will pay all costs and legitimate damage claims.

BP fell 5 percent to 494.8 pence in London trading on May 28 and has lost 25 percent of its market value since the blast.

To contact the reporter on this story: Steve Geimann in Washington at sgeimann@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net.

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