ARCO and BP Amoco shareholders approved the proposed $27 billioncombination of the two companies last week, but the combinationremains subject to the approval of regulatory authorities,including the US Federal Trade Commission (FTC) and the EuropeanCommission. It’s expected to close later in the year. The all-sharedeal will involve the exchange of 0.82 BP Amoco American DepositoryShares (ADS) for each ARCO share.

As the deal progresses, the future of Vastar Resources, of whichARCO owns 82%, is unclear. Some have speculated BP Amoco would selloff the highly respected, mainly gas producer. Others have saidit’s a keeper. For their part, BP Amoco and Vastar aren’t saying awhole lot. “BP Amoco has stated publicly and privately to us thatthey plan no change to Vastar’s structure,” said Vastar spokesmanJames Bartlett.

“In terms of what Vastar is doing. For us it’s business asusual. We have a highly active drilling program that’s met with afair amount of success this year. We have certainly proven ourcapability to operate independently and profitably.” A BP Amocospokesman would not comment on Vastar, citing its status as apublicly traded company.

“BP Amoco’s scale and financial strength will significantlyenhance the value of ARCO’s assets and allow greater value to berealized than if ARCO remained an independent oil and gas company,”ARCO CEO Mike Bowlin told shareholders. “The new enterprise willhave a stronger strategic position, enhanced efficiencies and costcompetitiveness, and will generate significant growthopportunities.”

The deal was announced in April. Acquiring ARCO would make BPAmoco the biggest non-state owned oil producer with a combinedmarket capitalization of about $190 billion. The merger is theoutcome of negotiations begun in January after ARCO managementapproached the company to consider options for closer co-operation.

Onshore in the United States and the Gulf of Mexico, Arco willadd 360,000 Boe to BP Amoco’s daily output – half of it gas,chiefly from ARCO’s 82% interest in Vastar, one of the mostprofitable operators in the Lower 48. ARCO’s proven gas reservestotal 9.8 Tcf, mainly in the Gulf of Mexico, the UK North Sea andthe South China Sea, but it holds un-booked gas volumes of afurther 15 Tcf, mainly in the Middle and Far East. In 1998 itproduced 2.1 Bcf of gas, mainly from the Gulf of Mexico, the UKNorth Sea and Indonesia.

Joe Fisher, Houston

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