Obama set for big oil spill speech; BP hits snag

WASHINGTON/PENSACOLA, Florida Wed Jun 16, 2010 5:23am IST

1 of 18. Members of the media photograph U.S. oil company executives before they testify on the BP oil spill in the Gulf of Mexico during a House Energy and Commerce hearing on Capitol Hill, June 15, 2010.

Credit: Reuters/Larry Downing

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WASHINGTON/PENSACOLA, Florida (Reuters) - President Barack Obama is expected to outline plans to cut U.S. dependence on fossil fuels when he defends his handling of BP Plc's Gulf of Mexico oil spill in a high-stakes televised speech on Tuesday evening.

Ahead of the televised speech, major oil company executives told a U.S. congressional hearing that BP had not adhered to industry standards in building its deep-sea well that blew out on April 20, unleashing a torrent of crude that has caused the biggest environmental disaster in U.S. history.

But their efforts to distance themselves from BP did not stop Democratic lawmakers from criticizing as "virtually worthless" industry plans to handle deepwater oil disasters.

In his first nationally televised address from the Oval Office, Obama will seek to show that he is on top of the oil spill crisis that has tested his presidency and overshadowed his efforts to reduce U.S. unemployment and reform Wall Street. The speech is set for 8 p.m. EDT (0001 GMT).

Public opinion polls show a majority of Americans believe Obama has been too detached in his handling of the spill, and he has come under intense pressure to show more leadership.

Adding a fresh sense of urgency, a team of U.S. scientists on Tuesday upped their high-end estimate of the amount of crude oil flowing from the well by 50 percent, to a range of 35,000 to 60,000 barrels (1.47 million and 2.52 million gallons/5.57 million and 9.54 million liters) per day.

Tuesday night's address will be closely watched by the oil industry and investors worried about the future of offshore drilling in the United States, in particular the possibility of tighter regulations that could impose new financial costs.

Investors also will be looking for Obama to jump-start alternative energy initiatives such as solar, wind and geothermal that are now stalled in Congress. Shares in U.S. solar companies rose ahead of the speech.

Obama may use the address to revive energy legislation that has been languishing in the Senate amid opposition from Republicans and lawmakers from oil and coal states. The bill aims to curb global warming and increase domestic energy production.

Senate Republican leader Mitch McConnell, however, warned Obama against using "the justifiable public outrage over an explosion that killed 11 people and the oil spill that followed as a tool for pushing a divisive new climate change policy."

LAWMAKERS SLAM BP

Before he spoke, Obama named Michael Bromwich, a former Justice Department official, to lead an overhaul of the Minerals Management Service, the oil-drilling oversight agency that has faced a crescendo of criticism since the spill. Obama vowed that a "cozy relationship" between oil companies and their regulators would no longer be tolerated.

At Tuesday's congressional hearing, executives from Exxon Mobil, Chevron, ConocoPhillips and Royal Dutch Shell declined to answer when one lawmaker asked whether they would disagree that BP had made mistakes in constructing its ill-fated Macondo well in the Gulf of Mexico.

Representative Edward Markey pushed BP's U.S. boss, Lamar McKay, to apologize for not being able to accurately estimate the amount of oil spilling into the Gulf of Mexico.

Millions of gallons have poured into the Gulf, fouling 120 miles of U.S. coastline, imperiling multibillion-dollar fishing and tourism industries and killing birds, sea turtles and dolphins.

Oil gushed unchecked for several hours from the well on Tuesday after a small fire onboard an oil-collecting ship forced a suspension of siphoning operation, but the operation resumed before Obama spoke.

"We are sorry for everything the Gulf Coast is going through, we are sorry for that and the spill," a drawn-looking McKay said, adding that the company did not have the technology to measure the amount of spilled oil.

Laying out the steps that his company was taking to contain the spill, he said BP soon would have up to six ships on the scene to deal with oil siphoned from the spewing well.

BP STOCK PRICE

As McKay was speaking, BP's U.S.-listed shares jumped and trading volumes spiked. They rose 4 percent at one point in afternoon trading before closing up 2.35 percent. They had plunged 9 percent on Monday. In London, shares of BP, which could face billions of dollars in damage claims from the spill, closed down 3.78 percent on Tuesday.

Rating agency Fitch smacked BP with a hefty six-notch downgrade on its debt rating. That puts BP's debt just two notches above junk, which would mean a significant boost in the company's cost of borrowing. BP has lost about half of its market value since the spill began two months ago.

Bank of America Merrill Lynch has ordered its traders not to enter into oil trades with BP that extend beyond June 2011, a market source familiar with the directive told Reuters on Tuesday.

Ahead of his speech, Obama was in Florida on the second day of a two-day tour of Gulf Coast communities hit by the 57-day-old spill.

"This is an assault on our shores and we're going to fight back with everything that we've got," Obama said in a speech at the Pensacola Naval Air Station.

BP said its new containment cap system had captured 15,420 barrels from its Gulf of Mexico well on Monday. The system has collected 149,900 barrels since it was installed on June 3. One oil barrel equals 42 U.S. gallons (160 liters).

But thousands of gallons of oil are still pouring into the Gulf every day and a definitive solution is not expected until August, when BP is due to complete drilling two relief wells.

It is a critical week for the company -- top executives are due to meet Obama at the White House on Wednesday, when the president will press them to set up a special fund to pay damage claims to victims of the spill.

Chief Executive Tony Hayward, the public face of BP's response to the spill, is due to testify for the first time at a U.S. congressional hearing on Thursday.

(Additional reporting by Jeffrey Jones in Louisiana, Tom Bergin; Steven Phillips and Steve Holland on the Gulf coast, Kristen Hays and Chris Baltimore in Houston, Tom Doggett, Timothy Gardner, Matt Daily, Deborah Charles, David Alexander and Patricia Zengerle, Thomas Ferraro in Washington; Writing by Ross Colvin; Editing by Eric Walsh)

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