BP rises on cap news as Cameron set to talk Libya

LONDON/HOUSTON (Reuters) - BP shares rose on Tuesday on confidence that a cap on its Gulf of Mexico well was holding, as Britain's Prime Minister agreed to meet senators probing the oil major's role in the release of a Libyan jailed for bombing a U.S. plane.

BP Plc shares traded up 1.1 percent at 0931 GMT (5:31 a.m. EDT), outperforming a 0.2 percent rise in the STOXX Europe 600 Oil and Gas index, after Thad Allen, the top U.S. oil spill official said a seep detected about 3 km (1.9 miles) from the well was not caused by a pressure test on the well.

The test has stemmed the flow of oil since Thursday, bringing hope to residents in the Gulf region, and to BP investors, that the crisis has turned a corner.

The oil spill remains a major political issue and will loom large when British Prime Minister David Cameron meets President Barack Obama in Washington on Tuesday.

Cameron has also agreed to meet with four U.S. senators from New York and New Jersey who have demanded investigations into the release of Libyan intelligence officer Abdel Basset al-Megrahi, who was convicted of the 1988 bombing of a Pan Am flight over Lockerbie, Scotland.

Al-Megrahi was released from a Scottish prison on compassionate grounds last year on the basis he was terminally ill with cancer and had only a few months to live.

BP has confirmed it lobbied the British government in late 2007 over a prisoner transfer agreement with Libya, which could have paved the way for al-Megrahi's release but it said it was not involved in talks on his final release.

The release was strongly opposed by the Obama administration and by Cameron, who was in opposition at the time.

Jason Kenney, oil analyst at ING in Edinburgh, said the issue was being used as another stick with which to beat BP.

"(Cameron) should tell the senators to calm down," he said.

WELL CAPPED FOR NOW

Officials are monitoring the pressure in the well to gauge whether it is structurally sound. An intact well would help when a relief well now being drilled tries to permanently plug the leak, but damage could complicate that effort.

Concern about potential problems means Allen is giving the London-based oil giant permission to proceed on a daily basis.

Kent Wells, BP's senior vice president of exploration and production, said continuing the test in 24-hour increments "is absolutely the way for us to go forward."

He said the longer the test lasts, and as long as the well shows signs that it is intact, "we'll just gain more confidence that the well has integrity and we have a depleted reservoir."

Wells and Allen mentioned another idea on Monday that scientists are weighing: a so-called "static kill" to help smother and plug the leak.

This would involve pumping heavy drilling mud and possibly cement into the well, much like BP's failed "top kill" in May.

During the top kill process, the well was not shut in at the top, so most of the mud shot out along with crude, BP has said. Wells said with the well enclosed, BP would not have to pump in so much so fast, because crude is not flowing.

As part of an ongoing test of the well, BP choked off the flow a mile under the water's surface with a cap on Thursday, marking the first time oil has not spewed since the April 20 explosion on the offshore rig killed 11 workers.

The worst oil spill in U.S. history has caused an economic and environmental disaster in five states along the Gulf Coast and hurt Obama's approval ratings.

(Additional reporting by Tabassum Zakaria in Washington, Matthew Lynley in New York, and Mary Rickard in Kenner, Louisiana; Writing by Ed Stoddard and Deborah Charles; Editing by Stacey Joyce and Will Waterman)