BP inches ahead in latest bid to control oil spill

VENICE, Louisiana (Reuters) - Robot submarines plying the dark, frigid depths of the Gulf of Mexico made halting progress in BP s latest bid to siphon off oil belching from its ruptured wellhead, but tar balls and other debris from the spill posed new threats to the region's shoreline.

While BP Plc inched ahead with its new plan to contain the undersea gusher, CEO Tony Hayward retreated from yet another public relations gaffe -- apologizing for his widely reported remark that "I want my life back.

The BP oil spill, which began in April, is causing an ecological and economic catastrophe along the U.S. Gulf Coast.

BP's latest attempted fix hit a snag on Wednesday when a diamond-tipped saw got lodged in the deep-sea pipe through which oil is billowing into the Gulf. But BP freed the cutting tool after several hours of tricky manoeuvring of its robot submarines, paving the way for the cutting process to resume, a source familiar with the work told Reuters.

In European trading on Thursday morning, BP shares rose 3 percent. The British energy giant's stock, down by about a third since the accident began, had stabilized on Wednesday after sharp declines in London and Wall Street on Tuesday. BP said it will speak with analysts on Friday.

"People seem to be latching onto some sort of optimism the current operations are going to be successful, really, it's still very early," said Arbuthnot Securities analyst Dougie Youngson. "This procedure is fundamentally very risky and it's not over yet."

Many thousands of fishermen, shrimpers and other seafood workers have been idled for weeks by government-imposed fishing restrictions that were expanded on Wednesday to cover 37 percent of U.S. federal waters in the Gulf.

In the struggle to minimize shoreline encroachment of oil, Louisiana Governor Bobby Jindal won White House approval on Wednesday for a controversial plan to essentially manufacture several new barrier islands off his state with sand dredged from the sea floor. Louisiana has been hardest hit so far by the oil slick.

TOXIC GOO

The fragmented, far-flung oil slick posed a growing threat to several parts of Gulf Coast. Toxic goo from the spill crept to within 10 miles (16 km) of Florida's northwest panhandle, where officials said it could make landfall by Friday.

One of the first populated areas soiled earlier by tar balls from the spill, the popular Alabama resort town and bird sanctuary of Dauphin Island, was hit this week with a new wave of oil blobs that also started washing up in Mississippi.

The spill was unleashed by an April 20 explosion that wrecked the BP-contracted Deepwater Horizon offshore drilling rig and killed 11 crewmen. The last best hope of gaining some control over the worst U.S. oil spill in history was concentrated a mile (1.6 km) beneath the surface of the Gulf.

After a fruitless three-day attempt to plug up the crippled wellhead with drilling mud, BP embarked late on Tuesday on a new strategy to curtail the flow of oil that has been escaping into the Gulf at the rate of up to 19,000 barrels (800,000 gallons/3 million litres) a day.

The latest plan calls for cutting away the leaking riser pipe protruding from the failed blowout preventer, then lowering a containment cap onto the remaining wellhead assembly to trap much of the escaping oil and funnel it to the surface.

The operation was expected to take 72 hours to complete. Officials have warned that the flow of oil could temporarily increase by as much as 20 percent between the time the riser pipe is severed and the containment cap is lowered into place.

BP does not expect to be able to fully choke off the flow until August, when two emergency relief wells are due for completion.

TAX BREAKS

In Pittsburgh, President Barack Obama called for an end to oil company tax breaks in the wake of the spill and pledged to find Senate support for a bill to overhaul U.S. energy policy.

Jindal announced approval by the Obama administration for a plan to build five large offshore berms with sand dredged from the sea floor to help shield Louisiana's fragile coastline.

Jindal, a rising star in the Republican Party, has accused the government of being too slow to respond to the crisis, heightening the political pressure that Democrat Obama has faced in confronting one of the key tests of his presidency.

U.S. Coast Guard Admiral Thad Allen told BP to pay for the five berms in addition to one he approved last week. BP said it will pay the estimated $360 million cost to build them.

The outlook for BP was further clouded as the market barometer of the company's risk of defaulting on its debt hit a new high on Wednesday, reflecting growing concerns about BP's exposure to the mounting costs of the Gulf spill.

Credit default swaps protecting BP's debt jumped 87 basis points to a record 255 basis points, or $255,000 (173,769 pounds) per year to insure $10 million for five years, according to Markit Intraday. By comparison, those swaps stood at about 100 basis points last Friday and 42 basis points in April.

The cost of insuring the debt of rig operator Transocean and Anadarko Petroleum Corp, which owns a 25 percent stake in the blown-out well, also reached record levels on Wednesday.

(Additional reporting by Kristen Hays, Eileen O'Grady and Chris Baltimore in Houston, Michael Peltier in Tallahassee, Jeremy Pelofsky in Washington, Verna Gates on Dauphin Island, and Joanne Frearson in London; writing by Steve Gorman; editing by Eric Beech and Will Dunham)