NGI The Weekly Gas Market Report
Alaska Gov. Tony Knowles and BP Amoco signed a major agreementlast week that clears the way in the state for the oil giant’sproposed acquisition of Atlantic Richfield Co. But still awaitingBP Amoco is its biggest nemesis — the Federal Trade Commission(FTC), where the merger reportedly has run into a serious snag overantitrust concerns. BP Amoco is hoping the Alaska deal, which callsfor the largest divestiture of production assets in the state’shistory, 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, and620,000 undeveloped acres on state and federal lands; divestcontrolling interest in the nation’s second largest oil field,Kuparuk, and in the Alpine field, the largest oil field discoveredin the past decade; supply “sufficient quantities” of gas at a”fair market price” to support a new gas treatment facility and gaspipeline in the state; and sell a share of the Trans-Alaska oilpipeline system to other North Slope producers. Even with theseconcessions, a combined BP Amoco and Arco still would control closeto 60% of Alaska’s production.
“We believe this [agreement] will provide us with the foundationfor more focused and productive discussions with the Federal TradeCommission. Our aim is now to progress those discussions quicklyand constructively, so that we can get on with bringing BP Amocoand Arco together…..,” said BP Amoco CEO Sir John Browne.
He believes the Alaska agreement, combined with a deal reachedwith California last month, are “critical” to winning FTC approvalof BP Amoco’s $26 billion purchase of Arco. The California pactaddressed minor issues, such as philanthropic funding, but did notresolve the key antitrust concerns of the state.
One industry analyst remarked that BP Amoco has spent more timedealing with the “mouse,” Alaska, than with the “elephant” — theFTC. “There are, indeed, much bigger concerns that BP has toresolve now. They’re hoping that this [Alaska] agreement will helpthem in their negotiations” with the FTC, an informed source said.
Industry observers believe BP Amoco is going to do whatever ittakes to win Arco. “I think that’s true. But that means they’regoing to have to sit down and start dealing with the FTC reallyhard. Up until now they’ve taken a more confrontational approach,”the source noted.
Some reports last week indicated the FTC staff had recommendedthat the merger be rejected because it believes the combinedcompany would exert too much control over Alaska crude oilproduction and, as a result, could drive up gasoline prices on theU.S. West Coast. Neither the FTC nor BP Amoco officials wouldcomment on the progress of the merger talks.
One source believes the reason the FTC had been “anonymouslyleaking” hints last week suggesting there were serious problemswith the proposed merger was to get BP Amoco to the negotiatingtable. If needed, he said it’s entirely possible the FTC may resortto 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’spotential impact on their retail gasoline markets. They haven’truled out the possibility of a lawsuit to block the merger ifconcessions aren’t made.
Oregon believes reduced competition in the upstream sector —exploration, production, transportation and the sale of AlaskaNorth Slope (ANS) crude oil — will trickle down to the retailgasoline market. The gasoline consumed in the state is supplied byrefineries using ANS crude, according to Jan Margosian, aspokeswoman for the state’s Attorney General’s Office. “So that’swhy we want to look at the merger closely.”
The Attorney General’s Office in Washington is reviewing themerger to ensure it complies with state and federal antitrustlaws. “We have several options that are available to us….. Alawsuit is one of them. But that doesn’t necessarily mean thatthat’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 bythe merger in the western U.S. states, an official in Alaska noted.Whatever happens, “Alaska is hoping that its concerns — becausethey are so different than those of the FTC’s — will be at thetable when they finally cut a deal.”
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