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BP Signs Pact with Alaska; FTC Still Awaits

BP Signs Pact with Alaska; FTC Still Awaits

Alaska Gov. Tony Knowles and BP Amoco signed a major agreement last week that clears the way in the state for the oil giant's proposed acquisition of Atlantic Richfield Co. But still awaiting BP Amoco is its biggest nemesis --- the Federal Trade Commission (FTC), where the merger reportedly has run into a serious snag over antitrust concerns. BP Amoco is hoping the Alaska deal, which calls for the largest divestiture of production assets in the state's history, will help it score some points with the agency.

Key provisions of the Alaska agreement require BP Amoco to: divest 175,000 barrels per day of North Slope oil production, and 620,000 undeveloped acres on state and federal lands; divest controlling interest in the nation's second largest oil field, Kuparuk, and in the Alpine field, the largest oil field discovered in the past decade; supply "sufficient quantities" of gas at a "fair market price" to support a new gas treatment facility and gas pipeline in the state; and sell a share of the Trans-Alaska oil pipeline system to other North Slope producers. Even with these concessions, a combined BP Amoco and Arco still would control close to 60% of Alaska's production.

"We believe this [agreement] will provide us with the foundation for more focused and productive discussions with the Federal Trade Commission. Our aim is now to progress those discussions quickly and constructively, so that we can get on with bringing BP Amoco and Arco together.....," said BP Amoco CEO Sir John Browne.

He believes the Alaska agreement, combined with a deal reached with California last month, are "critical" to winning FTC approval of BP Amoco's $26 billion purchase of Arco. The California pact addressed minor issues, such as philanthropic funding, but did not resolve the key antitrust concerns of the state.

One industry analyst remarked that BP Amoco has spent more time dealing with the "mouse," Alaska, than with the "elephant" --- the FTC. "There are, indeed, much bigger concerns that BP has to resolve now. They're hoping that this [Alaska] agreement will help them in their negotiations" with the FTC, an informed source said.

Industry observers believe BP Amoco is going to do whatever it takes to win Arco. "I think that's true. But that means they're going to have to sit down and start dealing with the FTC really hard. Up until now they've taken a more confrontational approach," the source noted.

Some reports last week indicated the FTC staff had recommended that the merger be rejected because it believes the combined company would exert too much control over Alaska crude oil production and, as a result, could drive up gasoline prices on the U.S. West Coast. Neither the FTC nor BP Amoco officials would comment on the progress of the merger talks.

One source believes the reason the FTC had been "anonymously leaking" hints last week suggesting there were serious problems with the proposed merger was to get BP Amoco to the negotiating table. If needed, he said it's entirely possible the FTC may resort to a lawsuit to "prompt" negotiations with the oil giant.

In addition to the FTC, three western states --- California, Oregon and Washington --- individually are reviewing the merger's potential impact on their retail gasoline markets. They haven't ruled out the possibility of a lawsuit to block the merger if concessions aren't made.

Oregon believes reduced competition in the upstream sector --- exploration, production, transportation and the sale of Alaska North Slope (ANS) crude oil --- will trickle down to the retail gasoline market. The gasoline consumed in the state is supplied by refineries using ANS crude, according to Jan Margosian, a spokeswoman for the state's Attorney General's Office. "So that's why we want to look at the merger closely."

The Attorney General's Office in Washington is reviewing the merger to ensure it complies with state and federal antitrust laws. "We have several options that are available to us..... A lawsuit is one of them. But that doesn't necessarily mean that that's where we're headed," said spokeswoman Janice Marich.

The FTC may be "looking at additional upstream divestitures [possibly in Alaska] to address the downstream concerns" posed by the merger in the western U.S. states, an official in Alaska noted. Whatever happens, "Alaska is hoping that its concerns --- because they are so different than those of the FTC's --- will be at the table when they finally cut a deal."

Susan Parker

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