The Federal Trade Commission finally smiled upon the merger ofBP Amoco and ARCO yesterday, accepting sweeping divestitures inAlaska as assurance the companies’ pairing will not beanti-competitive. The merger was first announced just over a yearago (see Daily GPI, April 5, 1999).

“The sweeping wholesale divestitures called for by the consentorder resolve the competitive concerns that initially led thecommission to seek a preliminary injunction to block the proposedtransaction,” said Richard Parker, director of the FTC’s Bureau ofCompetition. “Through productive negotiations with the defendants,the commission achieved complete relief in this complex,multifaceted merger without the need for continued litigation.”

BP Amoco agreed to divest all of ARCO’s Alaskan North Slope oilproduction assets to Phillips Petroleum Co. for $7 billion oranother commission-approved buyer. With limited exceptions, thedivestitures must happen within 30 days. Further, BP Amoco has fourmonths to divest all of ARCO’s assets related to its Cushing, OK,crude oil business. Washington state, Oregon and California alsogave their approval of the merger. The states had feared the mergerwould lead to higher consumer prices for gasoline.

“We are very pleased to have received FTC approval,” said BPAmoco CEO John Browne. “We will now close the deal and rapidlyimplement the plans we have in place to integrate our operationsworldwide. We intend to move quickly to deliver the significantvalue of this union to the shareholders of the new group.”

Without the divestments, the FTC said the merger would beanti-competitive in a number of areas. The combination would lessencompetition in the production, sale and delivery of Alaska NorthSlope crude, as well as crude used by targeted West Coast refiners.The FTC also feared the deal would lessen competition with regardto crude oil used on the West Coast; purchase and explorationrights on the Alaskan North Slope; sale of oil transportation onthe Trans-Alaska Pipeline System; development for commercial saleof gas on the Alaskan North Slope; and the supply of crude oilpipeline transportation to and crude storage in Cushing.

Specifically, among what BP Amoco is required to divest are ARCOAlaska Inc.; ARCO Transportation Alaska Inc.; ARCO Marine Inc.;ARCO Marine Spill Resource Co.; Union Texas assets of Union TexasPetroleum Holdings Inc.; Union Texas Alaska LLC; Kuparuk PipelineCo.; Oliktok Pipeline Co.; Alpine Pipeline Co.; Cook Inlet PipelineCo.; all Alaska oil and gas leases; AMI Leasing Inc.; ARCO BelugaInc.; and ARCO’s Anchorage offices.

The agreement with the FTC also says BP Amoco may not solicitany ARCO employee for employment unless the employee was terminatedby Phillips. BP Amoco must also vest all current and future pensionbenefits as well as pay a bonus of at least 35% of the base salaryfor certain key ARCO employees. For 10 years after the consentorder becomes final, the companies are prohibited from reacquiring,either directly or indirectly, any interests in the assets they arerequired to divest without first giving notice to the FTC.

In related news, Exxon Mobil, BP Amoco and Phillips got togetherto resolve issues relating to ownership and operation of thePrudhoe Bay Unit (PBU) and the Point Thomson Unit (PTU) in Alaska.The agreement is said to optimize operations, cut costs and allowfor new oil and gas development. The agreement is subject tocompletion of the merger and assumes Phillips’ acquisition ofARCO’s Alaskan assets. It aligns the respective equity interests ofExxonMobil, BP Amoco and Phillips in the Prudhoe Bay Unit andprovides for a single operator at BPU. The aligned interests amongthe major owners will be 36.8% for ExxonMobil, 36.5% for Phillips,and 26.7% for BP Amoco. BP Amoco, which is the current operator ofthe Western Operating Area in the Prudhoe Bay Unit, will become thesingle operator. The agreement also aligns interests betweenExxonMobil and BP in the Point Thomson field area at 55% and 45%,respectively.

The deal with ExxonMobil also resolves the suit brought by thecompany regarding North Slope preferential rights and fieldoperatorship. ExxonMobil had sued the merger partners for apreliminary injunction against the deal (see Daily GPI, March 28). “Agreements relating to thePrudhoe Bay field are complex and provide for a unique split in equityownership between the ‘oil rim’ equity owners, represented primarilyby BP Amoco, which owns most of the oil, and the ‘gas rim’ group,represented by ExxonMobil and ARCO, which own most of the gas,”ExxonMobil said at the time it filed the suit.

There will now be three major working-interest owners in thePBU, ExxonMobil, BP Amoco and Phillips. It makes Phillips a majornew operator of the North Slope Kuparuk and Alpine fields followingFTC review and closing of the ARCO Alaska acquisition.

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