BP struggles to stop Gulf of Mexico oil leak

GOLDEN MEADOW, Louisiana (Reuters) - BP <:BP.LO:>Plc pressed ahead with efforts to stop oil from continuing to spew from an offshore well that ruptured almost two weeks ago in the Gulf of Mexico off the U.S. coast as the British energy giant's shares fell further on Tuesday.

The oil company, under pressure from Washington to limit the damage, said it will try containing the crude with a massive metal, funnel-like structure. BP said it has offered the U.S. Gulf Coast states whose shores could be soiled with oil millions of dollars to move ahead with recovery projects.

Shares in London-based BP continued to fall on Tuesday, on growing fears about the massive oil slick caused by the accident. BP shares traded down 4.7 percent at 548.7 pence, lagging a 1.5 percent fall in the STOXX Europe 600 Oil and Gas index.

The stock has fallen around 17 percent since the company announced two weeks ago a fire on the Deepwater Horizon drilling rig, which subsequently sank, unleashing a massive oil flow into the sea.

U.S. crude oil fell more than $1 to around $85 a barrel on Tuesday, retreating from 19-month highs, depressed by an expected rise in U.S. crude and fuel stocks and a stronger dollar.

Dealers said oil prices received some support from worries that the giant slick in the Gulf of Mexico could disrupt crude oil supplies in the United States.

The accident, which threatens an ecological and economic disaster along the Gulf Coast, has brought into sharp focus the thorny politics of balancing U.S. energy security with protecting the environment and industries that depend on it, like fishing.

The accident has started to fuel high-level opposition to the Obama administration's push to open more waters to offshore drilling to bolster energy security. The White House has said the spill could force President Barack Obama to rethink plans to open more waters.

California Governor Arnold Schwarzenegger pulled his support for expanded drilling off his state's coast, citing the Gulf spill. His about-face came after he had called for more oil drilling off California's coast to raise money for the state government, which faces a $20 billion budget shortfall.

The slick is estimated to be at least 130 miles by 70 miles, or about the size of the U.S. state of Delaware. It threatens shipping, wildlife, beaches and one of the most fertile U.S. fishing grounds.

Royal Dutch Shell has not been directed to stop Gulf of Mexico oil drillings and it is too early to say what the U.S. government will do about future drillings after the BP offshore well ruptured, Shell's chief executive said on Tuesday.

CEO Peter Voser said investigations on the spill are continuing, and the leak will not have much impact on crude prices and production.

The looming disaster in the Gulf threatens to eclipse the 1989 Exxon Valdez catastrophe in Alaska, the worst previous U.S. oil spill to date.

"People are pretty devastated," said Bill Butler, co-owner of the marina in the town of Venice, Louisiana, known for commercial and recreational fishing. "It's looking grim if you look at the TV, but you have to have optimism about the future."

Efforts to prevent the slow-moving mass from washing ashore in parts of four states have been hampered for days by choppy seas and high waves in the Gulf, but forecasts suggest calmer conditions in the next few days.

BP has been working to plug a leak nearly a mile under the water's surface as oil escapes at a rate estimated at 5,000 barrels a day.

The company said it expects to transport a 98-tonne, 40-foot iron box, and associated equipment, to the well site this week. It is designed to channel oil through a pipe to the surface where it can be collected on a barge.

In theory, the system should collect 85 percent of the oil gushing from the sea floor, but BP has never deployed the structure at a depth of 5,000 feet and cannot guarantee that the effort will pay off.

Company officials also said BP is releasing $25 million each in block grants to Louisiana, Mississippi, Alabama and Florida to jump-start recovery projects. The funding can be used for numerous expenses such as vessels for hire.

BP has spent several years working to burnish its environmental image. It now faces a public relations nightmare as well as intense pressure from the Obama administration to get the situation under control.

Tony Hayward, BP's chief executive, and Lamar McKay, BP America president, met on Monday with top Obama administration officials including the energy, interior and homeland security secretaries and the head of the U.S. Environmental Protection Agency, to discuss coordinated response efforts.

On the weekend it started a relief well that could cap the well, it said. Still, this operation is expected to take two to three months to complete.

(Additional reporting by Kelli Dugan in Mobile, Chis Baltimore, Anna Driver and Kristen Hays in Houston; Matt Daily and Tom Bergin in London, Pascal Fletcher in Miami, Jeremy Pelofsky in London; Writing by Jeffrey Jones, Pascal Fletcher and Ros Krasny; Editing by Will Dunham)

WhatsAppFacebookTwitterLinkedinBeloudBluesky