“The stock is starting to price in the fact that they are eventually going to get this leak stopped,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates. “They seem to be a little ahead of schedule with that.”
The sentiment in other markets toward BP was mixed Thursday. BP’s London shares rose just 0.2%, and the cost to insure the company’s debt rose slightly. The cost was recently at $370,000 annually to cover $10 million of bonds for five years, up from $359,000 as of Wednesday’s close, according to Market. In the options market, investors leaned toward BP call contracts conveying the right to purchase shares versus puts giving the right to sell.
The action came as BP fixed a leaking line that had been delaying a key test of a recently placed cap on a damaged well in the U.S. Gulf of Mexico. The U.K. oil giant is ready to begin testing again, retired U.S. Coast Guard Adm. On Thursday, Thad Allen said in a teleconference, “noting the test could last up to 48 hours and if all goes well, the cap could eventually seal off the well.”
Citigroup Global Markets analysts said in a note to clients, “Controlling the well and stemming the oil flow is critical in giving some closure on the extent of the spill and should allow the assessment of costs to begin.”
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BP says that no oil is flowing out of a broken well into the Gulf of Mexico as the company tests the well with a new cap.
Shares in the oil giant jumped this morning on the news, with BP’s American depositary shares closing 7.6 per cent higher at $US38.92 the stock’s highest level since June 4.
The stock hit a 14-year low in late June at $US26.75 but has since recovered 36 per cent since the April 20 explosion of the Deepwater Horizon rig.
“BP is testing the ability of the well to withstand pressure and remain sealed, without oil leaking out. The test could take anywhere from six hours to two days,” BP said.
“It’s good not to see any oil going into the Gulf of Mexico,” BP Senior Vice President Kent Wells said during a teleconference. “I’m trying to maintain my emotions.”
President Barack Obama said it was a “positive sign” that oil appears to have stopped gushing out of the well.
Mr Wells cautioned that the test had just begun, Thursday afternoon US time, and that there were still many milestones yet to reach before the company would be able to conclude that the cap could seal off the well and keep oil from flowing into the ocean, or alternatively, that the company would have to restart containment operations to collect oil from the well.
Mr Wells emphasised that the purpose of the test is to find out how strong the well is.
The company is hoping that the well is strong enough to keep oil sealed in underneath the cap. However, if the well isn’t strong enough for that, the test should yield more detailed information about the well, Mr Wells said.
“We’d all like the result that there’s perfect integrity, but the purpose of the test is to see what the integrity is,” he said.
The company said, “Two containment vessels that have been collecting oil from the well have ceased operations.”
The start of test has been eagerly awaited as BP has worked around the clock for three months to contain the spill, which has brought economic and environmental devastation to several coastal states. The test was originally scheduled to begin Tuesday but was delayed for further review and then by an equipment problem.
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