(Updates share prices starting in 11th paragraph. For more on the Gulf oil spill, see {EXT4 }.)

By Brian Swint and Edward Klump

June 1 (Bloomberg) -- BP Plc fell the most in 18 years in London trading after failing in an effort to plug the leaking offshore well that caused the biggest U.S. oil spill on record.

BP plunged as much as 17 percent and closed with its steepest drop since June 1992, wiping out almost $18 billion of market value. Its bonds traded in line with companies rated as much as five levels lower. Anadarko Petroleum Corp. and other companies tied to the leaking Gulf of Mexico well also fell.

A so-called top kill attempt to plug the leak using heavy fluids failed, London-based BP said May 29. BP started cutting the leaking oil pipe today in an effort to funnel crude up to a vessel at the ocean’s surface. Relief wells, the first of which is scheduled for completion in August, may be the best hope to stanch the leak, Carol Browner, energy adviser to President Barack Obama, said in a Bloomberg television interview.

“Until the flow of oil from this well can be halted, there will remain considerable uncertainty over the potential damages,” said Peter Hitchens, an analyst at Panmure Gordon & Co. in London. “Although we believe that the market has overreacted to the bad news, we feel that there will be little stimulus to the shares whilst this leak continues to pump oil into the sea.”

BP’s latest attempt may temporarily increase the flow before a cap can seal the pipe. The cost of responding to the spill has risen to almost $1 billion, BP said in a statement.

Risk Premium

Investors demand a yield premium of 148 basis points on average to buy BP’s bonds rather than government debt, Bank of America Merrill Lynch’s energy industry index shows. That’s almost double the 77-basis point spread on notes sold by industrial companies with similar credit ratings. The shares closed today at 430 pence, down 13 percent, in London.

Chief Executive Officer Tony Hayward’s effort to stop the leak and clean up the spill is becoming more urgent as the Atlantic Basin hurricane season starts today. Winds from the southwest could spread the spill this week to threaten the coasts of Mississippi and Alabama, the National Oceanic and Atmospheric Administration said.

The company’s survival is at stake, London-based investment bank Arbuthnot Securities Ltd. said today. The cost of the disaster and the share-price drop may make BP a takeover target or force the company to split up, Dougie Youngson, an analyst at Arbuthnot, said in a note.

Anadarko, Transocean

Credit-default swap contracts on BP rose to a record 177.4 basis points from 100.6 basis points on May 28, according to CMA DataVision prices in London. A basis point on a contract protecting 10 million euros ($12.2 million) of debt from default for five years is equivalent to 1,000 euros a year.

The spill began after an April 20 explosion aboard the Deepwater Horizon rig, which BP leased from Transocean Ltd. to drill its Macondo well in the Gulf. The blast killed 11 workers and triggered leaks that, according to an estimate by a government panel, spewed 12,000 barrels to 19,000 barrels of oil a day into the ocean.

The Woodlands, Texas-based Anadarko, which owns a 25 percent stake in the well, plunged 20 percent to $42.10 as of the 4 p.m. close of New York Stock Exchange composite trading, its biggest drop on record. Transocean, based in Geneva, slid 12 percent to $50.04.

Houston-based Halliburton Co., which provided oilfield services on the well, fell 15 percent to $21.15. Cameron International Corp., also based in Houston, dropped 12 percent to $31.89. Cameron provided the so-called blowout preventer for Transocean’s Deepwater Horizon rig.

‘More Rational Heads’

“It’s kind of a baby-being-thrown-out-with-the-bath-water scenario right now,” said Ted Harper, who helps manage about $6.8 billion in assets at Frost Investment Advisors in Houston. “At some point in time, unfortunately it’s probably going to be longer than shorter, more rational heads will prevail.”

Using robots at the mile-deep well, BP plans to shear away most of the damaged pipe that once rose from the well to the Deepwater Horizon. It will then make a more precise cut with a diamond-toothed band saw to make a clean junction for a gasket- lined cap, which is intended to catch most of the oil and route it to the surface through a pipe, BP Managing Director Robert Dudley said in television interviews last weekend.

Government experts estimate the spill will increase over the four to seven days BP needs to fix the cap, White House Energy Adviser Carol Browner said on May 30.

--With assistance from John Glover and Eduard Gismatullin in London and Jim Polson and Deirdre Bolton in New York. Editors: Tony Cox, Susan Warren.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net.

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net. Susan Warren at susanwarren@bloomberg.net.

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