Gulf oil spill bigger than estimated

Supportive comments from the UK government lifted BP Plc's battered shares today, outweighing news that the British oil company…

Supportive comments from the UK government lifted BP Plc's battered shares today, outweighing news that the British oil company's Gulf of Mexico spill is much bigger than previously estimated.

In response to moves by US officials to grab more BP cash for the cleanup, ministers heeded calls to defend the company, Britain's biggest payer of dividends to the investment community.

"We are all concerned about the human and environmental impact and as the Prime Minister has said we understand the concerns of the US administration," Chancellor of the Exchequer George Osborne said after speaking to BP chief executive Tony Hayward by telephone.

"The Prime Minister is also clear that we need constructive solutions and that we remember the economic value BP brings to people in Britain and America," Osborne added after calls from business leaders, politicians and newspapers to defend BP.

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News that the flow rate may be as high 40,000 barrels (6.36 million litres) per day - twice as much as previously thought - came after the US market closed yesterday.

Shares in BP, which has lost tens of billions of dollars in value since the well exploded on April 20th, gained 6.4 per cent to 389 pence, rebounding from yesterday's 13-year low.

Worries over BP's dividend payments have also contributed to severe pressure on the company's stock. US politicians have called on BP to suspend it and divert cash to cover the cost of cleaning up the spill as efforts to plug the blown-out undersea well failed.

Today's share rise does little to mend damage done to BP shares over the last two months -the company is currently worth just over £70 billion versus over £120 billion when the spill hit in April.

And the spill, already the worst in US history, may be much bigger than many had thought.

US scientists said yesterday that between 20,000 and 40,000 barrels per day (3.2 million and 6.4 million litres) of oil flowed from the well before June 3rd, when BP's remotely operated robots sawed through an underwater pipe to clear the way for a capping procedure.

That is twice the level of previously estimated - although many experts had predicted a sharp incresae in the estimate.

US Interior Secretary Ken Salazar told a congressional panel on Wednesday that the cut itself may have increased the rate by a further 4 to 5 per cent.

Based on a rate of 40,000 barrels per day, the stricken well could have spewed as much as 2 million barrels (317 million of litres) of oil since it ruptured on April 20th - eight times the amount that the Exxon Valdez spilled into Prince William Sound in Alaska in 1989.

BP says it has collected 73,324 barrels (11.7 million litres) of oil since installing the capping system.

The new estimates, in which BP had no input, could have huge financial implications.

Under the Clean Water Act, BP and others could be exposed to fines up to $4,300 for every barrel leaked into the gulf, according to legal experts and official documents.

The wide variation in the estimates in the flow rate points to the difficulty in estimating a flow that is 1.6km beneath the surface and reachable only by remotely operated robots.

BP says it is capturing more of the torrent of oil that has gushed from the sea bottom since the April 20th rig explosion that killed 11 workers and set the disaster in motion.

But the almost 16,000 barrels it said yesterday it had collected in the previous 24 hours was triple its initial estimates of the leak's flow rate, a point that will not be lost on critics as US public and political anger mount.

As the spill spread, heavier concentrations of oil began washing up on Florida seashores late on Wednesday. Until then, debris from the spill had been limited in the state to relatively small tar balls.

The spill has soiled 190km of coastline and threatens lucrative fishing and tourist industries.

Images of oiled pelicans and other wildlife is further stoking public anger with both the government and BP.

Reuters