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Hurricane Alex to hamper BP's oil spill containment

Tropical Storm Alex is expected to reach hurricane strength on Tuesday, with high winds and waves set to hamper BP Plc's efforts to step up containment of the largest spill in US history.

world Updated: Jun 29, 2010 21:42 IST

Tropical Storm Alex is expected to reach hurricane strength on Tuesday, with high winds and waves set to hamper BP Plc's efforts to step up containment of the largest spill in US history.

Shares in British-based energy giant BP fell a further 1.75 per cent in London on Tuesday after sources said the New York Federal Reserve was probing potential systemic risks posed by the company. On Monday, the company had to deny Russian government claims it was planning to sack its chief executive.

JPM Morgan Cazenove analysts said the huge fall in BP's share price, recently languishing around a a 14-year low, made it a potential takeover target.

"The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP. We very much doubt that keen-eyed industry players have lost sight of BP's value," JP Morgan Cazenove's Fred Lucas wrote in a research note, citing Exxon Mobil Corp and Royal Dutch Shell as the most likely bidders.

In early New York trade on Tuesday, after reports on the research note, BP's price was up over 1 per cent despite a sharp fall in the overall market.

The crisis is in its 71st day with no firm end in sight. The economic and ecological costs to tourism, wildlife, fishing and other industries continue to mount for four states along the US Gulf coast.

Alex was forecast to move slowly away from the Yucatan Peninsula over southern Gulf waters and curl northwest away from major oil-extraction facilities to make a second landfall in northern Mexico mid-week.

It is not expected to hurt existing oil capture systems at the BP oil spill or the company's plans to drill a pair of relief wells intended to plug the leak by August.

But waves as high as 12 feet (4 metres) would delay plans to hook up a third system to capture much more oil, said Kent Wells, BP executive vice president. Officials in Florida say the high surf will also likely hamper clean-up efforts.

US government officials estimate 35,000 to 60,000 barrels gush from the blown-out well each day. BP's current containment system can handle up to 28,000 barrels daily. The planned addition would have raised that to 53,000 bpd, said Wells.

BP said on Tuesday that it captured or burned 23,395 barrels the previous day.

Below the ocean floor drilling of two relief wells intended to plug the leak for good by August will continue "unless, unfortunately, a storm heads directly our way," Wells said.

The first relief well is only 20 feet (6 metres) from the blown out well. But BP said on Monday it will drill another 900 feet (275 metres) before trying to intercept the rogue well.

BP's market capitalization has shrunk by $100 billion since the Deepwater Horizon drilling rig sunk in 5,000 feet (1,525 metres) of water on April 22, two days after an explosion and fire killed 11 workers.

Top US officials continue to beat a path to the Gulf region, responding to criticism President Barack Obama and his administration responded too slowly to the crisis. Vice President Joe Biden heads to the area on Tuesday.

Polls have given Obama low marks for his handling of the disaster, although not as low as those given to BP.

BP's failure to grasp political aspects of the crisis has led to gaffes and strategic communications errors that have fanned criticism and contributed to its plunging share price.

"BP's handling of the spill from a crisis management perspective will go down in history as one of the great examples of how to make a situation worse by bad communications," said Michael Gordon, of New York-based crisis PR firm Group Gordon Strategic Communications.

Mistakes include downplaying the potential environmental damage, initially blaming others for the disaster and underestimating the amount of oil leaking, analysts say.

"It was a combination of a lack of transparency, a lack of straight talking and a lack of sensitivity to the victims," Gordon said.

As crude oil and dispersants float on the surface of the Gulf, crews battle to keep filth off beaches and away from wildlife breeding grounds.

Parts of the Louisiana shoreline are under a coastal flood watch through Wednesday evening. Skippers and deckhands at the public marina in Pointe-a-la-Hache, Louisiana, said they were worried about what impact the water's already high level will have if Alex pushes foul weather toward them.

"If a storm comes with the tide, then it's going to be an issue," said Robert Whittington, who has worked at the marina for 20 years.

"We're just waiting to see what happens."

First Published: Jun 29, 2010 21:39 IST