British Petroleum and Amoco Corp. have found a way to avoid therecent downward spiral of energy stock prices while boosting theirreserves and production during a tough time in the oil patch. Thetwo companies announced one of the largest ever industrial mergersyesterday, creating North America’s biggest oil and gas producerand the third largest petroleum company in the world behind RoyalDutch Shell and Exxon. The deal is expected to be complete by yearsend.

“International competition in the industry is already fierce andwill grow more acute as new players emerge,” officials of thecompanies said in a statement. “In such a climate the bestinvestment opportunities will go increasingly to companies thathave the size and financial strength to take on those large-scaleprojects that offer a truly distinctive return.”

The new company, BP Amoco p.l.c., will have a marketcapitalization of $110 billion, combined reserves of around 14.8billion boe and three million barrels of daily oil and gasproduction, including 3.2 Bcf/d in North American gas productionand 31.5 Tcf of proven gas reserves worldwide.

The deal marks a major turning point in Amoco’s effort torefocus its assets overseas. The company last year sold aboutone-third of its domestic oil and natural gas properties. And forthe first six months of this year, its profits fell by nearly halfto $673 million.

U.S. oil company stocks have taken a beating this year becauseof depressed oil prices due to overproduction and declining demandfrom Asia. Amoco’s stock, which was split earlier this year, hadbeen down 13% from last year prior to the announcement.

Amoco’s office in Chicago would be headquarters for the group’sNorth American refining, marketing and transportation business andits worldwide chemicals business. In the U.S., BP gasoline stationswould be renamed Amoco.

According to the merger agreement, BP plans to exchange 3.97shares for each Amoco share outstanding, which puts the value ofthe transaction at $48 billion. Amoco stock closed Monday at $40.88a share and BP’s American Depository Receipts, which represent sixshares, closed at $76. By mid-day Tuesday, Amoco stock had soared$6.56 to $47.56 and BP depository shares were up $2.38 to $78.38,breaking a recent downtrend.

The agreement calls for an equity split of 60% to BP and 40% toAmoco and includes a target increase of at least $2 billion toannual pre-tax earnings by year end 2000. The combined company isexpected to slash 6,000 of its 56,450 employees, with most of thecuts coming from operations in Cleveland, Ohio, and Houston.

The board of the new company will include 13 directors from BP,of whom six will be executive directors, and nine directors fromAmoco, of whom two will be executive directors. BP’s Sir JohnBrowne will be CEO and chairman of the management committee.Amoco’s Larry Fuller will be his deputy.

©Copyright 1998 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.