BP Amoco-Arco Faces State, Federal Trouble
The merger of BP Amoco and Atlantic Richfield Co. (Arco) became
significantly more complicated last week. Now the companies face
federal and state opposition, but they've added one former
challenger to their camp.
BP Amoco and Arco say they will fight the Federal Trade
Commission in court for their right to merge. Wednesday the FTC
said it would seek a preliminary injunction in federal District
Court to block the merger. Press reports had one analyst
speculating legal wrangling could last six months and cost BP Amoco
as much as $100 million.
Adding to BP Amoco's worries, the states of Washington and Oregon have said
they will sue to block the merger. But the merger partners have one state
in their corner, Alaska, which was previously cool to the deal (see NGI
Nov. 8). Last week Gov. Tony Knowles said he was disappointed by the FTC
challenge to the merger and directed the state's attorney general to intervene
on the companies' behalf. "Competition within Alaska and major investments
for future development are put on hold by the FTC's action," Knowles said
in a press release. "Alaska must be at the table - whether in court or negotiation
- as future decisions critical to Alaska are made."
The FTC said the deal would violate antitrust laws by lessening
competition in the exploration and production of Alaska North Slope
crude oil and its sale to West Coast refineries. The FTC also said
competition would be harmed in the market for pipeline and storage
facilities in Cushing, OK, raising prices for oil used to produce
gasoline and other petroleum products throughout North America.
"We are surprised and disappointed that the FTC has rejected all
efforts for a positive resolution," the companies said last week in
a statement. "We have consistently been open to improvement of our
original proposal. We have addressed the concerns of the State of
Alaska. We have been, and remain, willing to discuss any reasonable
options that might lead to a negotiated settlement
"We regret that the only course now open to us is to resolve the
issue through litigation, but we believe we have a compelling case
in support of our combination which we will argue vigorously in
The FTC voted 3 to 2 to seek the injunction against the merger.
The fate of the deal has been uncertain for months due to FTC
concerns over the Alaskan crude market. "Any suggestion that there
is a special West Coast market for Alaskan crude oil that functions
independently of world crude prices is without foundation," the
companies said. "In fact, the proposed combination of our companies
will drive down Alaskan production costs, making Alaskan crude oil
more competitive in the world market."
The FTC worries the merger would give the combined company too
much control over California gasoline prices. The companies
currently produce 70% of the oil on Alaska's North Slope.
Production there accounts for about 45% of oil refined in
California, Oregon and Washington state.
"We will prove in federal court that BP has market power and
that it has used that market power to maintain higher prices on the
West Coast by exporting crude oil to the Far East," said the
director of the FTC's Bureau of Competition, Richard G. Parker.
"This deal will cement that market power and harm competition by
creating a significant risk that crude oil prices would be higher
on the West Coast than they would be without the deal. In addition,
the merger would enable BP to manipulate trading in crude oil
futures and affect crude oil prices throughout the country."
The FTC said the merger would create the third largest private
petroleum company in the world and the largest U.S. oil producer
The preliminary injunction would prevent the merger from moving
forward until the conclusion of an administrative trial or any
appeals on the legality of the merger. If the court grants the
FTC's motion, the commission will have 20 days to determine whether
to issue an administrative complaint. The complaint would mark the
beginning of the administrative trial process.
The companies announced their intent to merge in April (see NGI April
5). BP Amoco closed down $0.56 at $53.94 Wednesday, the day of the FTC
announcement. Arco shares closed down $2.19 at $72.06.
Joe Fisher, Houston