BP stock hit as safety issues arise

Fitch slashes the oil giant's credit rating as US lawmakers raise concerns over cost-cutting measures that may have raised the risk of an oil spill.

Lamar McKay, third from left, the president and chairman of BP America, testifies in Washington during a hearing on the Gulf of Mexico oil spill.

Investors were dumping BP stock yesterday following a six-notch downgrade to the company's credit rating as US politicians aired fresh concerns about its safety practices. The downgrade followed the release by congressional investigators of documents appearing to show that BP made a series of money-saving shortcuts that may have increased the danger of an oil spill, while ignoring warning signs that should have alerted it to heightened risks.

"Time after time, it appears that BP made decisions that increased the risk of a blowout to save the company time or expense. If this is what happened, BP's carelessness and complacency have inflicted a heavy toll on the Gulf, its inhabitants and the workers on the rig," said Henry Waxman and Bart Stupak, both Democratic representatives, in a letter to BP. Fitch Ratings cut BP's credit rating to "BBB" from "AA" yesterday, setting its rating watch to "evolving" due to uncertainties related to the Deepwater Horizon oil spill, which now ranks as the worst ever in US waters.

"The scale of today's rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near term than previously anticipated," the ratings agency said. Of particular concern was a call by US Democratic senators for BP to set up a US$20 billion (Dh73.4bn) fund to clean up the massive oil spill from its damaged Macondo well in the Gulf of Mexico. In a letter to Tony Hayward, the chief executive of BP, Harry Reid, the Democratic leader in the Senate, said the creation of such a fund would serve as an "act of good faith" and would be an important first step in ensuring the company did not evade its responsibilities. The House energy and commerce committee, which has been investigating the disaster, released dozens of internal documents yesterday outlining problems at the deep-sea rig during the days and weeks leading up to the explosion.

According to the congressmen, an April 16 exchange of e-mails between BP staff and the oilfield service company Halliburton, which was working on the rig, suggests that BP ignored Halliburton's advice on a crucial safety precaution. As a result, only six instead of the recommended 21 "centralisers" were installed to stabilise the steel casing that lined the well, increasing the risk of a blowout. In one e-mail, a BP employee acknowledged that it would be difficult to cement the centre of the piping to prevent oil and gas escaping. "But, who cares, it's done, end of story, will probably be fine and we'll get a good cement job," he added in the e-mail. Mr Waxman and Mr Stupak raised five specific areas of concern in the letter: a well design that did not include additional barriers to gas flow if the cement job failed; the centralisers, which could have reduced the blowout risk after BP had been warned of a "severe gas flow problem"; BP's failure to run a "cement-bond log" to test the integrity of the seal, despite Halliburton's gas-flow warnings; a skipped "mud circulation procedure" that could have allowed testing for gas influxes; failure to employ a "lockdown sleeve" that would have prevented the cement seal from being blown out from below. "The common feature of these five decisions is that they posed a trade-off between cost and well safety," the letter said.

A BP spokesman said: "It would be inappropriate to comment on these matters in advance; no doubt they will raise these matters during the hearing." On Monday, BP's shares fell 9 per cent to 355.5 pence on the London Stock Exchange, their lowest in 13 years, and continued falling yesterday. The company's market capitalisation has shrunk by about 40 per cent since the Deepwater Horizon well exploded on April 20 and subsequently sank. Yesterday, BP won permission to start burning oil and gas piped from the wellhead about 1,500 metres underwater in an attempt to triple the amount of crude it is capturing. The company said it hoped to trap as much as 8.3 million litres of escaping oil a day by the end of this month as it deployed additional containment equipment. Barack Obama, the US president, visited Mississippi and Alabama on Monday as he sought to assure residents of coastal regions affected by the oil spill that the government would "leave the Gulf Coast in better shape than it was before". Yesterday, he flew to Florida as the spreading slick threatened the state's west coast. The breached well may have spilled as much as 432 million litres of oil into the Gulf of Mexico, according to scientists' worst-case estimates. @Email:[e-mail]