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ExxonMobil Enters BP Amoco-ARCO Fray

ExxonMobil Enters BP Amoco-ARCO Fray

The best laid plans of energy titans can often go astray, particularly where mergers are concerned. ExxonMobil tossed a wrench into the BP Amoco-ARCO merger works by suing for a preliminary injunction against the merger partners and Phillips Petroleum. Phillips has agreed to buy ARCO's Alaskan holdings for about $7 billion in a deal intended to win Federal Trade Commission approval of the merger (see NGI March 20).

ExxonMobil maintains it has a right of first refusal to acquire ARCO's Alaskan assets that stems from agreements dating back to 1964. Not so, say the merger partners as ARCO is selling its Alaskan businesses, namely ARCO Alaska Inc. --- not just the Alaskan assets --- and preferential rights do not apply to the sale of the business.

ExxonMobil spelled out in a statement why it cares who winds up with ARCO's Alaskan holdings. "Agreements relating to the Prudhoe Bay field are complex and provide for a unique split in equity ownership between the 'oil rim' equity owners, represented primarily by BP Amoco, which owns most of the oil, and the 'gas rim' group, represented by ExxonMobil and ARCO, which own most of the gas. Historically, ExxonMobil's and ARCO's interests have been aligned and have worked to balance and promote sound development and operational decisions between the oil rim and gas rim equity owners, who may sometimes have differing views. The elimination of ARCO and selection of a new partner by BP Amoco --- on terms we are not aware of --- devalues ExxonMobil's interests."

Citing its multi-billion dollar investment in the North Slope, Exxon Mobil said it "feels strongly that the issue of operatorship must be carefully and thoroughly addressed."

ExxonMobil spokesman Tom Cirigliano said the company is not trying to interfere with or delay the BP Amoco-ARCO merger.

"What we're trying to do is enable a proper and careful analysis of the impact the proposed transaction between ARCO and Phillips would have on ExxonMobil's rights. We have not been informed, despite our efforts, as to the specifics of the various agreements between Amoco, ARCO and Phillips."

Edward Jones senior energy analyst Kate Warne said she was not surprised by ExxonMobil's move from a strategy perspective as it would seem to be in the company's best interest to try to hold up the merger. "I don't think it's likely to be successful, but I do think it's a strategy to delay more than to prevent." Warne said she thought BP Amoco, ARCO and Phillips would have ironed out any potential dispute with ExxonMobil in the course of doing the deal to sell the Alaskan holdings.

Some analyst speculation has been that ExxonMobil might not be trying to hold up the merger but instead maneuvering to sell its own Alaskan holdings. To that, ExxonMobil's Cirigliano said, "We never speculate on future business decisions... This action certainly has nothing to do with that whatsoever."

The sale of all of ARCO's Alaskan businesses to Phillips includes a 21.9% interest in the Prudhoe Bay oil rim and 42.6% of the gas cap, a 55% interest in the greater Kuparuk area and a 78% stake in the Alpine field.

The package also includes 1.1 million net exploration acres, a 22.3% interest in the Trans-Alaska pipeline, and ARCO's crude oil shipping fleet, which includes six tankers in service and three under construction. The booked reserves being sold total 1.9 billion Boe.

Joe Fisher, Houston

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