BP Amoco-ARCO Finally Gets FTC Nod
Now that the Federal Trade Commission (FTC) has finally blessed
the merger of BP Amoco and ARCO, what's next? "A lot of
cost-cutting very quickly," said Edward Jones analyst Kate Warne,
who admitted to being stumped for anything else to say about the
deal that was a year in the making (see NGI, April 5, 1999).
It took huge Alaskan asset divestitures to relieve the FTC's
anti-competitive concerns. "The sweeping wholesale divestitures
called for by the consent order resolve the competitive concerns
that initially led the commission to seek a preliminary injunction
to block the proposed transaction," said Richard Parker, director
of the FTC's Bureau of Competition. "Through productive
negotiations with the defendants, the commission achieved complete
relief in this complex, multifaceted merger without the need for
BP Amoco agreed to divest all of ARCO's Alaskan North Slope oil
production assets to Phillips Petroleum Co. for $7 billion or
another commission-approved buyer. With limited exceptions, the
divestitures must happen within 30 days. Further, BP Amoco has four
months to divest all of ARCO's assets related to its Cushing, OK,
crude oil business. Washington state, Oregon and California also
gave their approval of the merger. The states had feared the merger
would lead to higher consumer prices for gasoline.
"We are very pleased to have received FTC approval," said BP
Amoco CEO John Browne. "We will now close the deal and rapidly
implement the plans we have in place to integrate our operations
worldwide. We intend to move quickly to deliver the significant
value of this union to the shareholders of the new group."
Without the divestments, the FTC said the merger would be
anti-competitive in a number of areas. The combination would lessen
competition in the production, sale and delivery of Alaska North
Slope crude, as well as crude used by targeted West Coast refiners.
The FTC also feared the deal would lessen competition with regard
to crude oil used on the West Coast; purchase and exploration
rights on the Alaskan North Slope; sale of oil transportation on
the Trans-Alaska Pipeline System; development for commercial sale
of gas on the Alaskan North Slope; and the supply of crude oil
pipeline transportation to and crude storage in Cushing.
Specifically, among what BP Amoco is required to divest are ARCO
Alaska Inc.; ARCO Transportation Alaska Inc.; ARCO Marine Inc.;
ARCO Marine Spill Resource Co.; Union Texas assets of Union Texas
Petroleum Holdings Inc.; Union Texas Alaska LLC; Kuparuk Pipeline
Co.; Oliktok Pipeline Co.; Alpine Pipeline Co.; Cook Inlet Pipeline
Co.; all Alaska oil and gas leases; AMI Leasing Inc.; ARCO Beluga
Inc.; and ARCO's Anchorage offices.
The agreement with the FTC also says BP Amoco may not solicit
any ARCO employee for employment unless Phillips terminated the
employee. BP Amoco must also vest all current and future pension
benefits as well as pay a bonus of at least 35% of the base salary
for certain key ARCO employees. For 10 years after the consent
order becomes final, the companies are prohibited from reacquiring,
either directly or indirectly, any interests in the assets they are
required to divest without first giving notice to the FTC.
In related news, Exxon Mobil, BP Amoco and Phillips got together
to resolve issues relating to ownership and operation of the
Prudhoe Bay Unit (PBU) and the Point Thomson Unit (PTU) in Alaska.
The agreement is said to optimize operations, cut costs and allow
for new oil and gas development. The agreement is subject to
completion of the merger and assumes Phillips' acquisition of
ARCO's Alaskan assets. It aligns the respective equity interests of
ExxonMobil, BP Amoco and Phillips in the Prudhoe Bay Unit and
provides for a single operator at BPU. The aligned interests among
the major owners will be 36.8% for ExxonMobil, 36.5% for Phillips,
and 26.7% for BP Amoco. BP Amoco, which is the current operator of
the Western Operating Area in the Prudhoe Bay Unit, will become the
single operator. The agreement also aligns interests between
ExxonMobil and BP in the Point Thomson field area at 55% and 45%,
The deal with ExxonMobil also resolves the suit brought by the
company regarding North Slope preferential rights and field
operatorship. ExxonMobil had sued the merger partners for a
preliminary injunction against the deal (see NGI, April 3).
"Agreements relating to the Prudhoe Bay field are complex and
provide for a unique split in equity ownership between the 'oil
rim' equity owners, represented primarily by BP Amoco, which owns
most of the oil, and the 'gas rim' group, represented by ExxonMobil
and ARCO, which own most of the gas," ExxonMobil said at the time
it filed the suit. From a strategic perspective, the ExxonMobil bid
paid off, Warne said. "It looked like they were basically after
additional production from Alaska and they got that. They had a
lever and they used it."
There will now be three major working-interest owners in the
PBU, ExxonMobil, BP Amoco and Phillips. It makes Phillips a major
new operator of the North Slope Kuparuk and Alpine fields following
FTC review and closing of the ARCO Alaska acquisition.
Joe Fisher, Houston