BP Amoco said it is near an agreement with the FTC on its mergerwith Atlantic Richfield Co. (ARCO). The news comes with theannouncement the companies are selling ARCO’s Alaskan businesses toPhillips Petroleum Co. for $7 billion. BP Amoco also agreed to sellARCO’s interests in the Cushing storage terminal, together withvarious pipeline interests, to TEPPCO Partners of Houston for $355million.
In concert with the ARCO deal, BP Amoco said it will buy theoutstanding stock of ARCO-controlled Vastar Resources (17.6 millionshares) for $71/share. ARCO already owns about 82% of Vastar. BPAmoco said it expects an agreement with the Federal TradeCommission “within a matter of weeks.”
Although Phillips expects to receive about $2 billion from thespin-off of its chemical operations with Chevron and its gasgathering and processing assets in a venture with Duke Energy, someanalysts were pondering how the company could afford to pay so muchfor the ARCO assets. Speculation yesterday was that the companymight spin-off other assets to help pay for the deal.
“With these major disposals we believe we have addressed theanti-trust concerns of the FTC. We now hope we can move forward inthe coming weeks towards obtaining a consent order allowing us toclose the ARCO combination and deliver the significant synergies ofthe deal to the shareholders of the combined company,” said BPAmoco CEO Sir John Browne.
Not everyone is cheering the BP Amoco-ARCO merger. YesterdaySen. Barbara Boxer (D-CA) blamed mergers in the oil industry forcurrently strong gasoline prices. She called on the FTC to blockthe BP Amoco-ARCO deal, saying the merger would further boostgasoline prices.
Provided it gets shareholder approval, BP Amoco plans a rollingprogram of share buy-backs in the US and UK financial marketsbeginning early May. Browne said he expects synergies from ARCO tobe better than originally estimated when the deal was announced inApril 1999. “At the time, we envisaged annualized pre-tax savingsand synergies of around $1 billion, of which $200 million would befrom Alaska. Even after disposing of ARCO’s Alaskan interests, webelieve we can still deliver $1 billion in savings. The make-up ofthe savings have shifted, but we are absolutely confident of thetotal because the work we’ve done since last April has shown thepotential from within the continuing ARCO businesses, includingVastar.”
The sale to Phillips includes a 21.9% interest in the PrudhoeBay oil rim and 42.6% of the gas cap, a 55% interest in the greaterKuparuk area and a 78% stake in the Alpine field. The package alsoincludes 1.1 million net exploration acres, a 22.3% interest in theTrans-Alaska pipeline, and ARCO’s crude oil shipping fleet whichincludes six tankers in service and three under construction. Thebooked reserves being sold total 1.9 billion Boe. The $7 billionprice is made up of $6.5 billion for the field, pipeline andshipping operations and assets, plus a supplemental payment of $500million accruing as the WTI crude price exceeds $25 a barrel,retroactive to Jan. 1. There will also be a payment of some $150million for crude oil inventories.
Based on an early April closing, Phillips expects thetransaction to be accretive to earnings and cash flow in 2000 by$1.28 and $2.94 per share, respectively.
The deal will be financed with debt, and Phillips is confidentit will maintain an investment grade credit rating. Phillipsanticipates the cash flow from the acquisition, after explorationand development capital spending, to average $500 million per year.The company will use this net cash flow, along with the $2 billionin proceeds from its previously announced joint ventures, to reducedebt. Phillips expects its year-end net debt-to-capital ratio to bein the range of 60%.
“The acquisition of ARCO’s Alaskan assets represents asignificant step in our strategy of growing our exploration andproduction business,” said Jim Mulva, Phillips CEO. “We gain asubstantial position in the two largest fields in North America,immediately form a new production center and become a majormerchant supplier of crude oil to the West Coast. We look forwardto working with BP Amoco, our other partners and the State ofAlaska to responsibly and efficiently develop Alaska’s naturalresources.”
Phillips will book reserves of 1.9 billion Boe in 2000 from thetransaction, immediately increasing the company’s reserves basefrom 2.2 billion Boe to 4.1 billion Boe. Excluding the Trans AlaskaPipeline System (TAPS), tankers and other non-exploration andproduction assets, the acquisition cost is $3 per Boe. Averageproduction from these assets is expected to be 348,000 Boe/d in2000, increasing by about 8% to 377,000 Boe/d in 2001.
Phillips also intends to work with its partners to developprojects for the more than 25 Tcf of gas in the Prudhoe Bay gascap. In the National Petroleum Reserve Area (NPRA), Phillips willhold almost a half million net acres, increasing the company’sexposure to additional reserve potential.
Phillips’ current Alaskan operations include a 70% interest inthe Kenai LNG plant, which has exported LNG to Japan for 30 years;a 100% interest in the North Cook Inlet field; a less than 2%interest in the Prudhoe Bay Unit; a 10% interest in the PointThomson field; interests in several of the Prudhoe Bay satellites;a small interest in TAPS; and exploration acreage in NPRA andelsewhere.
TEPPCO’s acquisition of ARCO Pipe Line Co. includes ARCO’sinterests in crude and refined products transportation pipelinesfrom the Texas Gulf Coast to Cushing, OK, Midcontinent crudedistribution services and crude oil terminal facilities. TEPPCOwill acquire ARCO’s 50% interest in crude oil Seaway Pipeline Co.,a partnership with subsidiaries of Phillips Petroleum. TEPPCO alsowill acquire ARCO’s crude oil terminal facilities in Cushing andMidland, TX; as well as interests in other crude pipelines.
©Copyright 2000 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.
© 2022 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |