BP Test of New Cap on Gulf Oil Well Could Be Turning Point

By Eric Onstad and | July 13, 2010

BP Plc prepared on Tuesday to test a new cap on its runaway well, arresting the flow of oil which has been gushing into the Gulf of Mexico for the last 12 weeks.

[According to Reuters BP Plc will launch a test to gauge pressure in its gushing Gulf of Mexico oil leak late morning to midday Tuesday after placing a new cap and seal on the wellhead late Monday, a BP executive said.

Kent Wells, senior vice president of exploration and production at BP, told reporters BP and government scientists would monitor the six- to 48-hour test at “very minute intervals.”]

As the oil giant prepared for a potential turning point in the worst offshore oil spill in U.S. history, it also said its plans to sell non-core assets, which will help pay for a $20 billion clean-up fund, were moving forward.

“We are in discussions with a number of companies about a number of assets. Talks are going well,” spokeswoman Sheila Williams said in London, declining to give details.

In Dubai, Abu Dhabi’s Crown Prince Sheikh Mohammed bin Zayed al-Nahayan said the emirate was considering an investment in BP.

“We are still thinking about it,” he was quoted by Bloomberg as saying, when asked about buying a stake in the firm.

BP Chief Executive Tony Hayward visited Abu Dhabi last week and had met with the sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA).

Investors snapped up BP shares again in London on optimism that the new technology would cap the 85-day-old gusher that has caused the spill and hit the U.S. Gulf economy.

A fresh focus on divestments highlighted just how much a pounding BP shares have taken, since the firm’s net asset value is around $80 billion more than its market value, analyst Jason Kenney at ING in Edinburgh said, who is bullish on the shares.

About seven non-core assets — including ones in Alaska, Colombia, Venezuela and Vietnam — could be worth $45-50 billion, he added.

“It just makes absolute nonsense of what the share price has been doing over the past few months,” said Kenney, who has a “buy” rating on the stock and a price target 712 pence, one of the highest among analysts.

The shares climbed as much as 5.5 percent to 420 pence, the highest in five weeks, bringing their gains to 41 percent since touching a low at the end of June.

The potential breakthrough in efforts to fully contain BP’s ruptured wellhead also came as the Obama administration issued a revised moratorium on deep-water oil drilling that critics called a mere repackaging of an earlier ban struck down by the courts.

The prospect of legal battles over the administration’s bid to suspend deep-sea energy exploration in the Gulf already has had a chilling effect on drilling, putting tens of thousands of jobs at risk, industry officials and analysts said.

The drilling moratorium and its toll on the oil and gas industry were expected to highlight the agenda on Tuesday for a second day of hearings by President Barack Obama’s independent oil spill commission, meeting in New Orleans.

Even as the seven-member panel began its investigation into the cause and effects of the spill, BP reported a potential turning point in the crisis.


Hours after starting up a new oil-siphoning system, BP said Monday night it had installed a 40-ton containment cap atop its leaking wellhead a mile (1.6 km) underwater — a device larger and tighter-fitting than the one it removed on Friday.

Crude oil continued to pour into the sea for the time being, but BP said it planned to begin testing the new cap, and the internal pressure of the well, on Tuesday by closing off valves on the device to constrict the flow of oil.

If the test goes as intended, it would mark the first time that the flow of oil from the crippled well has been halted, at least temporarily, since the April 20 explosion and blowout of the Deepwater Horizon drilling rig that killed 11 crewmen.

The test was expected to last six to 48 hours, during which time two smaller siphoning systems, including the one brought online on Monday, will be turned off. But BP warned the outcome was uncertain.

“The sealing cap system never before has been deployed at these depths or under these conditions, and its efficiency and ability to contain the oil and gas cannot be assured,” it said in a statement.

Depending on test results, BP will either keep the cap closed entirely or use it to resume siphoning oil to ships on the surface. If it works effectively, the cap should either hold all the oil in or allow it to be safely captured and funnelled away.

BP said it plans to permanently block the oil flow in August with a relief well being drilled deep beneath the seabed that will intercept the original well and plug it.

In Washington, Interior Secretary Ken Salazar unveiled the administration’s new deep-water oil exploration moratorium in a plan worded differently from an earlier drilling ban struck down by a U.S. appeals court last week.

The new ban would run until Nov. 30 and applies to the same oil and gas rigs as before, though it is defined by the types of drilling technologies used rather than the depth of the offshore operations, as the original plan was.

Obama is under pressure to make offshore drilling safer and hold BP accountable as the spill devastates the multibillion-dollar tourism and fishing industries across all five states along the Gulf of Mexico.

The oil industry reacted to the new drilling ban by saying it would make matters worse.

Analysts said the oil industry was likely to contest the new ban in court, but White House spokesman Robert Gibbs said the administration was confident the new moratorium would withstand legal challenges.

(Additional reporting by Alexandria Sage and Ayesha Rascoe in New Orleans, Tom Doggett, Jeff Mason and Richard Cowan and Jeremy Pelofsky in Washington, Matthew Lynley and Matt Daily in New York; Writing by Steve Gorman and Eric Onstad; Editing by Eric Beech and Louise Heavens)

Topics USA Energy Oil Gas Mexico

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