BP: Gulf Oil Spill Is Not Dead Yet

BP's effort to declare final victory over the oil spill will wait for another day, as the government tells the British oil company it has to move ahead with the relief well.
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NEW YORK (

TheStreet

) -- Hope sprang eternal on Friday morning that a final victory in the BP and federal government effort to stop the Gulf of Mexico oil spill would be declared ... but it didn't happen.

After a review of tests on the BP Macondo well, which has been capped since July 15, the government decided to instruct BP to finish drilling the relief wells and commence with what is known as the bottom-kill operation.

Retired U.S. Coast Guard admiral Thad Allen will have to work at least a few more days as Obama point man on the oil spill crisis. Allen said on Friday afternoon at a press conference that, "The relief well will be finished," but that BP and government scientists were still studying the test results to determine the precise procedures to be followed in completing the relief well. "Everybody is in agreement we need to proceed with the relief well...The question is how to do it," Allen said.

The Coast Guard Admiral added that the tests showed that perhaps as little as 1,000 barrels of oil, according to BP estimates, are still trapped inside the well. The relief well bottom kill effort won't begin immediately, as BP and the government will deliberate on how to proceed. There are concerns that the seal at the top of the well could be negatively affected by mud that will be pumped into the relief well during the bottom kill effort.

What this all means for the BP stock price is another matter entirely.

BP shares finally reached above the $40 mark after the well was capped, and reached even higher this week before the markets sold off, eclipsing the $41 level on Monday. BP shares finished up 1.6% on Friday, to $38.98, the largest gain among major oil stocks.

Anadarko Petroleum

(APC) - Get Report

was the only other oil stock with a gain above 1% on Friday.

However, it hasn't been all onwards and upwards with BP shares since the oil leak stopped, and there is good reason to believe that shares will remain range-bound, regardless of an end to the oil spill being declared by a successful relief well effort.

The rally in BP shares that it received from the successful top kill, or well cap, in mid-July, might represent something akin to a short-term ceiling in shares of BP. It's not that BP doesn't have more room to rally in the long-run, but it's a matter of investment time horizon.

With BP not even agreeing yet to an estimate for the total oil spill flow, it's impossible to gauge any costs from the oil spill beyond the more than $6 billion that BP says it has spent so far in the oil spill containment and cleanup effort.

BP received another bill from the federal government this week, for $169 million, to cover government expenses. BP has previously paid more than $200 million in government bills. However, with federal penalties that could reach into the tens of billions of dollars, based on an oil spill, per barrel of oil formula, this is just the beginning of figuring out the long-term oil spill price tag to BP.

The White House revealed a plan this week under which BP's U.S. oil and gas production assets would be the collateral backing up the $20 billion escrow fund that BP is scheduled to pay into over the next three years.

>>Is Obama Getting Into Bed With BP?

There is the huge legal battle between BP and its partners on the well also, including Anadarko and

Transocean

(RIG) - Get Report

. With the government considering gross negligence charges against BP, and both Transocean and Anadarko using gross negligence as a legal means to refuse paying any part of the BP bill, it's near impossible to see how the liabilities will play out company by company.

Transocean received a rally in early August when the legal language from the oil rig operator made clear that it planned on fighting BP tooth and nail over responsibility for the oil spill.

>>Transocean: Room for Shares to Run

BP, for its part, plans to release its version of oil spill events by the end of this month, according to commentary from outgoing BP CEO Tony Hayward during BP's recent earnings conference call.

>>BP: 5 Burning Questions

In the immediate time horizon, BP could receive a bump from any signals in its interim oil spill report that it has strong grounds to counter the gross negligence claims. Beyond that, BP, Anadarko and Transocean could remain range-bound stocks short of a bigger macroeconomic rally in the markets suggesting the recovery has taken hold, sending oil higher. There were no signs of that rally this week, as oil traded down each day between Tuesday and Friday.

-- Written by Eric Rosenbaum from New York.

RELATED STORIES:

>>Is Obama Getting Into Bed With BP?

>>BP: 5 Burning Questions

>>Will Tony Hayward Please Be Quiet: Outrage

>>Transocean: Room for Shares to Run

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