BP is aiming to plug its leaking Gulf of Mexico well by July 27, weeks sooner than forecast, according to a newspaper report on Thursday, while a battle between the U.S. government and the oil industry over a deepwater drilling ban heads to court.

BP officials are aiming to complete a relief well to halt the worst oil spill in U.S. history by as early as July 27 in an effort to cap the company's growing financial liabilities, the Wall Street Journal reported in its online edition, citing company officials.

The British oil giant was also preparing a series of backup plans in case its current operations fail, including connecting the leaking well to existing pipelines in two adjacent gas and oil fields, the Journal reported, citing company and government officials.

The July 27 target date is the day the company is due to report second-quarter earnings and will speak to investors, the Journal said.

In a perfect world with no interruptions, it is possible to be ready to stop the well between July 20 and July 27, the head of BP's Gulf Coast restoration unit Bob Dudley told the newspaper in an interview.

However, Dudley said this perfect case is threatened by the hurricane season and is unlikely, the Journal reported.

BP could not immediately be reached for comment by Reuters outside regular U.S. business hours.

BP shares have fallen by half since its well blew out in April, spewing crude oil into the Gulf of Mexico and soiling the shores of every U.S. Gulf Coast state.

But its stock on the New York Stock Exchange closed up almost 4 percent on Wednesday, buoyed by relief among investors the company had said it does not plan to issue new equity, and speculation the worst is behind for what they see as an underpriced energy giant.

This was also partly due to progress on the relief well, seen as the best hope for finally stopping the 80-day-old disaster. The U.S. official overseeing the spill cleanup said it was 15 feet from the side of the leaking well, although still not expected to be finished before mid-August.

Also on Thursday, the oil drilling industry was set to go head-to-head with the Obama administration in court over the White House effort to suspend deepwater oil drilling in the Gulf of Mexico for six months in the wake of the catastrophic well blowout.

Given the business and environmental stakes, the U.S. Court of Appeals for the Fifth Circuit in New Orleans is expected to rule quickly, after a rare one-hour oral argument, on whether deepwater drilling should be temporarily halted again.

A federal judge, also in New Orleans, lifted the moratorium last month after Hornbeck Offshore Services Inc argued it was arbitrary because it was a blanket ban on all new drilling in depths below 500 feet.

The Obama administration appealed the decision, defending the suspension as needed to provide time to probe the BP oil spill's cause and ensure other drilling rigs operate safely.

It is seeking a stay of the judge's ruling at the hearing, slated for 3 p.m. local time on Thursday.

The U.S. Energy Information Administration said the ban would reduce crude output by an average of 82,000 barrels a day, more than previously estimated.

A successful court challenge could give some of these (drillers') stocks a lift in the near term, said Channing Smith, co-portfolio manager of Tulsa, Oklahoma-based Capital Advisors Growth Fund.

The European Union's energy chief said on Wednesday the bloc should consider its own moratorium on new deepwater oil drilling until after a probe into the BP spill.

POLITICAL CHALLENGE

The spill is wreaking havoc on coastal ecosystems, killing birds, sea turtles and dolphins and risking multibillion-dollar fishing and tourist industries at a time of high unemployment.

As a result, it sits atop U.S. President Barack Obama's crowded domestic agenda and has sternly tested his leadership.

Estimates of the leak's severity vary widely, to as high as 100,000 barrels per day. A new collection vessel that should more than double BP's oil-capture capacity to 53,000 barrels a day from around 25,000 is projected to take three more days to hook up, as rough seas hamper efforts to finish the job.

With the region settling into the six-month hurricane season, U.S. forecasters reported late on Wednesday that a tropical depression had formed over the southern Gulf and was set to slam into the Gulf Coast near the Texas-Mexico border on Thursday.

Another serious storm in the Gulf of Mexico could further disrupt efforts to contain the massive oil spill.

The region is still recovering from Hurricane Alex, the first named cyclone of the season, which battered northern Mexico last week, dumping heavy rains and flooding the Mexican city of Monterrey, killing 12 people.

Alex, a Category 2 storm when it hit, shuttered some oil and gas production in the Gulf of Mexico as a precaution and delayed efforts to capture oil gushing from the damaged well.

Pushed by the Obama administration, BP has committed to a $20 billion fund for clean-up and other costs stemming from the spill. Its costs to date have topped $3 billion.

The final bill may depend on how much crude pours from the well, which blew when a rig exploded on April 20.

FIGHT OVER ASSET SALE REQUEST

The Wall Street Journal reported on Wednesday that BP plans to push back against a request from the U.S. government for advance notice of any asset sales or other large transactions in the wake of the spill.

Asset sales could be used to help cover spill costs.

The report cited a person with knowledge of BP's thinking as saying the company would examine how to address concerns without having to give advance notice of market-sensitive information and transactions.

The U.S. Justice Department had requested that all the companies involved in the Gulf of Mexico oil spill, including BP, advise the department about its plans for transactions such as asset sales, divestments or other major financial dealings.

A BP spokesman would only confirm that the company had received the request and that it had not yet responded.

(Additional reporting by Jeremy Pelofsky in Washington, Martinne Geller in New York, Kristen Hays in Houston, Rodrigo Campos in New York, Pete Harrison in Brussels, Yereth Rosen in Anchorage, Stanley Carvalho in Abu Dhabi and Shaheen Pasha in Dubai; Sakthi Prasad in Bangalore; Writing by Eric Walsh; Editing by Jeremy Laurence)

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