Vastar Resources Inc.’s board of directors last week unanimouslyrecommended approval of a $83/share cash merger offer from BPAmoco. London-based BP Amoco already owns 81.9% of Vastar’s commonstock, acquired through last month’s completed merger with AtlanticRichfield Co. BP Amoco would acquire 18.1%, or 17.7 million shares,of Vastar common stock that is now publicly held.

BP Amoco’s offer of $83 a share for Vastar stock is quite a stepup from its original offer of March 16 for $71 a share. The pricerose following negotiations by a special committee made up ofVastar’s and BP Amoco’s board. In the end, both sides consideredthe price offer a win-win situation.

“The $83/share offer recognizes both Vastar’s historical andprospective ability to create differential shareholder value,” saidVastar’s Robert LeVine, chairman of the special committee. “Thespecial committee is pleased with the outcome of this process andbelieves that fair value for the minority interest shareholders hasbeen achieved.”

Vastar’s James Bartlett believes the shareholders will begetting a “good price” for their stock if they approve the buyout.”They will get a 17% interest on their return,” he said, “and thisis really the icing on the cake.” Bartlett said that Vastar wasproud of what it had achieved so far, and the rate of return andincreases in price on stock for its shareholders.

BP Amoco also was pleased that the merger was moving closer to aconclusion.

“The deal seems to make sense, and we are happy to be able tobring this to a conclusion,” said Hugh Depland, director of publicaffairs for BP Amoco’s Gulf of Mexico business. “Having thiscompleted, we’ll be able to bring in the assets, look at theopportunities available between these two companies, and takeadvantage of the synergies that are already in place.”

Both companies said it was premature to discuss operationalplans for the future. However, Depland said that a merger would addto BP’s acreage, reserves and discoveries. “We’ll be able to dothings jointly, holistically and synergistically,” he said. “On theface of it, we already own 81%, and without owning the rest, wemight have ended up in a position where we were going to have to goto lease-sales and we might have had to bid against ourselves.”

BP Amoco CEO Sir John Browne described the merger as “the finalstep associated with the ARCO union,” and said, “this move allowsBP Amoco to achieve substantial cost-savings and synergies tocreate significant value for shareholders. It also enhances ourleading deepwater Gulf of Mexico portfolio and boosts our positionin natural gas.”

No personnel changes were mentioned either, but Depland saidthat BP Amoco’s Browne is on the record as saying that the company”is always in need of bright, talented managers. It is hisunderstanding that Vastar has a considerable amount of talent onboard. And I’m sure we’ll bring forward all of those opportunitieswhen this is concluded.”

Bartlett could not comment on the future of Vastar’s1,150-member workforce, based primarily in Houston. “We have astellar development program, and there are a lot of reasons we wereconsidered an attractive buy to BP. We are hopeful that BP willrecognize the excellent business force it has in Vastar,” he said.

Before a shareholder vote is taken, Bartlett said a proxystatement has to be completed and mailed to shareholders who thenin turn will vote on the offer. All of this could take up to 75days, but he anticipates no problems and said “we expect theshareholders will accept the offer.”

The acquisition is structured as a merger of a wholly-ownedindirect subsidiary of BP Amoco into Vastar and will not involve atender offer. The merger is contingent on the approval by theholders of at least two-thirds of the Vastar shares not held by BPAmoco at a meeting scheduled for this summer.

Vastar, which has been an independent for nearly six years,explores and produces oil and natural gas, and is heavily focusedon offshore developments in the Gulf of Mexico, where BP Amoco isalready one of the top producers. Vastar is active in more than 100producing fields, with exploration and production activities in theGulf of Mexico shelf and deepwater, Gulf Coast, Rocky Mountains andMid-Continent areas. According to company records, Vastar’sreserves in the past six years increased by 59% to a record ofnearly 4.1 Tcf of gas equivalent at year-end 1999. Annual averagedaily equivalent production increased by 38% in the same timeperiod, reaching a record 1,438 MMcf in 1999.

BP’s merger with Vastar should help it cut costs and shore upits position as a leader in the deepwater Gulf of Mexico. BP hadannounced plans to raise its gas production over the coming years,and the company wants its gas production to rise to 8 Bcf/d by theend of this year, and to 9 Bcf/d by the end of 2001. In 1999, BPproduced about 6 Bcf/d.

Carolyn Davis, Houston

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