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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 continued litigation."
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%, respectively.
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
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