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With Arco, BP Amoco Also Would Get Vastar

With Arco, BP Amoco Also Would Get Vastar

If acquisition talks between BP Amoco and Atlantic Richfield Co. (Arco) do lead to a deal, BP Amoco also would acquire the 82% of Vastar Resources held by Arco. What could or would happen after that is anybody's guess, said John S. Herold analyst John Parry.

Vastar has a strong position in the deep-water Gulf of Mexico, where BP Amoco also is a player. At the end of 1998, Vastar's reserves exceeded 3.7 Tcfe. Vastar daily production in 1998 averaged 1,289 MMcfe.

Parry suggested two potential outcomes for Vastar in a pairing of BP Amoco and Arco. The roughly 80 million shares of Vastar held by Arco could be sold to garner a potential $4 billion. On the other hand, BP Amoco after acquiring Arco could hold on to Vastar. "Even BP probably would find that decision a challenging one," Parry said. Assuming the market would pony up for the Vastar Shares, BP Amoco would have to decide whether the bird in the hand is worth more than potentially more in the Gulf. Vastar recently announced two oil discoveries in the Gulf. "I'm just asking the question rhetorically. Is $4 billion cash up front better than having the forward prospects of those discoveries?"

If a combination of BP Amoco with Arco is done as an all-stock transaction, then selling Vastar shares probably isn't necessary, Parry said. However, in a cash deal, BP Amoco might look to the Vastar shares as a means of softening the price.

Monday, BP Amoco and Arco confirmed they are in talks concerning a possible combination. They said no agreement has been reached and declined further comment. An Arco acquisition would follow quick on the heals of the closing of BP's acquisition of Amoco, which was announced in August (see Daily GPI Aug. 12, 1998). Adding Arco would put BP Amoco slightly ahead of a combined Exxon-Mobil with regard to daily crude oil production. The addition of Arco to BP Amoco also would give the combined company the world's third largest gas holdings. Both companies are players in Alaska, where BP Amoco is said to be at work on technology to aid the economic development of gas reserves there, according to a Wall Street Journal report.

Yesterday BP Amoco shares closed up 4 9/16 (4.54%) at 105; Arco closed up 8 11/16 (13.29%) at 74 1/16; and Vastar closed up 5 1/8 (11.52%) at 49 5/8. Trading in each company's shares was heavy, particularly Arco, whose volume was nearly six times average.

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