BP Amoco merger with ARCO set for Commission approval

Date: 08/04/1999

By Tim Jones

ANTI-trust investigators and market analysts expect the latest mega-merger in the rapidly consolidating oil sector to pose few problems for the European Commission.

The €24-billion take-over of Atlantic Richfield (ARCO), the US' eighth largest oil company, by the world's number-three BP Amoco is likely to cause greater headaches for the Alaskan state government. “The only significant overlap between the two companies is with their Alaskan assets,” said Ranald Wright, an oil sector analyst at Crédit Lyonnais Securities in London.

ARCO exploits and operates the Prudhoe Bay oilfield, the world's largest privately managed field, while BP Amoco runs the Alyeska pipeline between the Alaskan North Slope and the port of Valdez. Of last year's total oil output from the North Slope of 1.2 million barrels a day, BP Amoco and ARCO accounted for 770,000.

” This will make the combined company by far the biggest player in Alaska, and the Alaskan authorities may be concerned that they are relying so heavily on one employer,” said Wright.

The whole point of the merger is to cut costs. ARCO's Prudhoe Bay operation has long been a drain on the company's cash, prompting Atlantic Richfield to implement a fat-reduction plan for the field under the slogan: “No decline after '99”.

BP, which formally merged with US company Amoco only four months ago, has long had a reputation for extracting the most out of its assets. The British company has already announced that the new merger should allow it to accelerate its cost-cutting programme, under which it expects to eliminate 10,000 jobs and save an annual €1.8 billion.

Given the chances of further decline at Prudhoe Bay, analysts believe that the Alaskans might see BP Amoco as the lesser of two evils if it saves the field even through faster job losses.

The overlap between the companies' activities in 'upstream' oil production and supply is unlikely to worry either EU or US regulators, who tend to show serious concern only when petroleum firms duplicate in 'downstream' marketing and gasoline retailing.

In downstream activities, the two firms tend to complement each other. BP Amoco's fuel stations are mostly in the midwest and east of the US, while the combination provides a foothold for the company in California, where ARCO controls one quarter of the petrol retail market.

In Europe, ARCO is a relatively small operator. It is active in the Dutch oil and gas fields and has exploration licences in Italy and Greece. Both BP Amoco and ARCO are operating in the UK sector of the North Sea, where they both produce and supply gas.

But both companies are dwarfed by gas marketing firm Centrica and production company BG plc. ARCO is the UK's eighth largest natural gas producer, supplying 5&percent; of the British gas market, while BP Amoco supplies 12&percent; of business needs.

BP Amoco, which says the deal will be formally notified to the Commission soon, said it was too early to judge whether officials would identify excessive business overlaps.