Sir John Browne, BP Amoco’s CEO, gave a peek into the integratedenergy giant’s future Thursday as he told analysts in London of aworldwide three-year plan to cut $4 billion in costs, sell $10billion in non-core assets, and boost capital expenditures $26billion. The company’s overall goal is to add six percentage pointsto its return on capital by the end of the three-year period.Browne also announced plans for a shareholder meeting Sept. 1, whenthe merger with Arco will go to a vote.

“Clearly, absolute profit levels will be determined by actualtrading conditions,” Browne said. “But this very significantimprovement in underlying performance is a target we now believe wecan deliver.”

After the $10 billion in asset sales, Browne said the company’sgas production will increase 5%/year, oil production will be flatfor the near future (a three year span) then grow 8%/year,marketing sales will grow 5%/year and chemical sales will increaseby 6%/year.

Analysts were not shaken by Thursday’s announcement. “Thisreflects the well-known fact that BP Amoco is dedicated to runninga tight ship,” said one analyst who wished to remain anonymous.”The numbers are big, but the company is big as well. They did notbreak any records here. The $26 billion in capital expenditures isright in line with the amount it has spent per year over the past10 years.”

Adam Sieminski, an analyst with Deutsche Banc Alex. Brown,approved of the changes. “This isn’t earth-shattering, but I thinkit’s a positive approach. The time frame and the size of the costcuts and asset sale were bigger than I expected. One potentialdownfall is that selling assets might lead to reduced production,but if they are going for return on capital improvements, this is agood way to go.”

Browne said the company’s gas assets in the United Kingdom’sNorth Sea, Australia’s Northwest Shelf and throughout North Americaare able to sustain production of 4.5 Bcf/d for 10 years. He saidgrowth will come from the company’s LNG interests in Trinidad andAlgeria. The company has interests in multi-billion dollar projectsin each country.

Among the assets targeted for the auction block is BP Amoco’s64% stake in Altrua Energy, an oil and gas producer in Texas andNew Mexico.

“This is a really attractive asset,” said BP Amoco spokesmanJohn Lloyd. “It has 6,300 producing wells in the Permian basin.Each day it puts out 170,000 barrels of oil, 220 MMcf of gas and 20barrels of natural gas liquids. Altrua accounts for 13% of all oilproduction in Texas.”

The company is also selling its oil interests in Canada, whichhave been on the market for some time. In total, $4 billion inasset sales will come from BP Amoco’s worldwide exploration andproduction operations.

While other E&P assets may be headed off BP Amoco’s balancesheet, the company’s Gulf of Mexico (GOM) assets will be bolstered,said Lloyd. “I think its safe to say that a lot of the proceedsfrom other sales will go into expanding our Gulf presence.”

The company’s Gulf presence was bolstered on Thursday by thediscoveries of major oil reserves in four different GOM wells inwhich BP Amoco has major interests. One of these discoveries, atthe Crazy Horse prospect located in 6,000 feet depths 125 milesSoutheast of New Orleans, LA, has estimated recoverable oilreserves of one billion boe, which BP Amoco said was the largestdiscovery ever in Gulf deep water. The other discoveries in theAtlantis, Mad Dog and Holstein properties contribute a total of 600million boe. Lloyd said the Crazy Horse discovery was an all-oilfind, and the company has not released the amount of gas found inthe other discoveries. BP Amoco’s total net reserve base indeep-water gulf has now increased to 2.5 billion boe.

Another $3 billion in sales will be put up for sale from BPAmoco’s downstream interests. Brown said the company’s refiningoperations will be the most likely to be sold as the companyintends to reduce its worldwide refining presence.

“With worldwide refining capacity continuing to grow faster thandemand, our expectation is that the global refining margin willaverage little more than $1 a barrel over the medium term. Our aim,therefore, is to reduce our refining coverage by around a third,which means that the ratio between our own refining supply and thevolumes we market will fall to between 60-70% from today’s level of90%.” He added that the first disposal will be the 250,00 b/dAlliance Refinery in Louisiana.

Chemical asset sales will total a projected $2.5 million, as BPAmoco tries to minimize low value byproduct production.

The potential additions Arco will make once the merger isapproved were not included in these goals. Browne said the mergeris on a pace to be approved by the end of this year. Arco’s meetingwith shareholders is planned to occur in Los Angeles on August 30,the day before Amoco shareholders meet. Browne expects thesynergies created from the merger to result in $1 billion ofpre-tax, cost-savings in the first two years after approval.

“While Arco will represent only 15% of the total marketcapitalization of BP Amoco, it will strengthen the portfolio,particularly in gas and the US downstream. It will also give usgreat new opportunities in Alaska and further potential for futuregrowth in Asia.”

Sieminski said more cuts may be announced after the Arco mergergets approved. “We’re headed for another round once the Arco dealis set,” he said. “They won’t be comparable to the size of thesecuts, but this is definitely not the end of the slashing.”

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.