If acquisition talks between BP Amoco and Atlantic Richfield Co.(Arco) do lead to a deal, BP Amoco also would acquire the 82% ofVastar Resources held by Arco. What could or would happen afterthat 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’sreserves exceeded 3.7 Tcfe. Vastar daily production in 1998averaged 1,289 MMcfe.

Parry suggested two potential outcomes for Vastar in a pairingof BP Amoco and Arco. The roughly 80 million shares of Vastar heldby Arco could be sold to garner a potential $4 billion. On theother 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 VastarShares, BP Amoco would have to decide whether the bird in the handis worth more than potentially more in the Gulf. Vastar recentlyannounced two oil discoveries in the Gulf. “I’m just asking thequestion rhetorically. Is $4 billion cash up front better thanhaving the forward prospects of those discoveries?”

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

Monday, BP Amoco and Arco confirmed they are in talks concerninga possible combination. They said no agreement has been reached anddeclined further comment. An Arco acquisition would follow quick onthe heals of the closing of BP’s acquisition of Amoco, which wasannounced in August (see Daily GPI Aug. 12, 1998). Adding Arcowould put BP Amoco slightly ahead of a combined Exxon-Mobil withregard to daily crude oil production. The addition of Arco to BPAmoco also would give the combined company the world’s thirdlargest gas holdings. Both companies are players in Alaska, whereBP Amoco is said to be at work on technology to aid the economicdevelopment of gas reserves there, according to a Wall StreetJournal report.

Yesterday BP Amoco shares closed up 4 9/16 (4.54%) at 105; Arcoclosed 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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