ExxonMobil sues to block ARCO-Phillips deal

April 3, 2000
ExxonMobil Corp. has filed suit in a Los Angeles court to block the sale of ARCO's Alaska assets to Phillips Petroleum Co.

ExxonMobil Corp. has filed suit in a Los Angeles court to block the sale of ARCO's Alaska assets to Phillips Petroleum Co.

ARCO and Phillips struck the $7 billion deal in mid-March (OGJ, Mar. 27, 2000, p. 32). But ExxonMobil has stepped forward, claiming that the deal violates contracts and agreements dating back to 1964 that were signed by several Alaska North Slope operators.

Essentially, ExxonMobil is arguing that the ARCO-Phillips deal violates ExxonMobil's right of first refusal on the acquisition. It has filed an injunction against ARCO, Phillips, and BP Amoco PLC, with whom ARCO is planning to merge following the Alaska divestiture.

ExxonMobil released a statement saying: "Agreements relating to the Prudhoe Bay field are complex and provide for a unique split in equity ownership between the 'oil rim' equity owners, represented primarily by BP Amoco, which owns most of the oil, and the 'gas rim' group, represented by ExxonMobil and ARCO, which own most of the gas. Historically, ExxonMobil's and ARCO's interests have been aligned and have worked to balance and promote sound development and operational decisions between the oil rim and gas rim equity owners, who may sometimes have differing views. The elimination of ARCO and selection of a new partner by BP Amoco-on terms we are not aware of-devalues ExxonMobil's interests."

The company added, "ExxonMobil feels strongly that the issue of operatorship must be carefully and thoroughly addressed. Our company has invested billions of dollars in the development of the North Slope resources, and we believe it is essential that an operator in this challenging environment demonstrate both a broad, worldwide experience and a continuous investment in technology in order to provide prudent management of those resources."

When asked about ExxonMobil's claim to a right of first refusal after his speech at the National Petrochemical & Refiners Association meeting in San Antonio last week, BP Amoco Chief Executive John Browne said "[We] don't believe such rights exist." Browne said BP Amoco was still formulating its response to the claim.

In another move related to the BP Amoco-ARCO merger, Vastar Resources Inc.-an independent exploration and production firm, 81.9% of which is owned by ARCO-has formed a committee of independent directors to evaluate BP Amoco's offer of $71/ share for the 17.6 million shares, or 18.1%, of Vastar common stock that are publicly traded (OGJ, Mar. 27, 2000, p. 32).

Vastar also announced that, in connection with the BP Amoco proposal, six lawsuits purporting to be class actions have been filed in the Delaware Chancery Court against Vastar, its directors, ARCO, and BP Amoco.

"Vastar believes that these lawsuits are without merit," it said.

Other deals

Meanwhile, the oil industry's two biggest recently merged firms are forging ahead with deals that either satisfy the regulatory requirements of their mergers or strengthen their post-merger positions in key regions. ExxonMobil has finalized three agreements to sell most of the former Mobil Corp.'s Texas products marketing assets and supply agreements, as required by the US Federal Trade Commission.

The megamajor will sell to Tetco Inc. Mobil's 49% stake in and supply contracts related to 318 service stations in Austin, Dallas, and San Antonio. It also will sell Mobil's interests in seven Dallas-area stations, plus three in Fort Worth, to Southland Corp., with which it had jointly operated the retail outlets. And finally, ExxonMobil has assigned Mobil supply contracts in Houston and Bryan-College Station, involving about 120 stations, to Petroleum Wholesale Inc.

In a bold move, BP Amoco has formed a major natural gas marketing joint venture with PetroChina Ltd., China National Petroleum Co.'s new holding company. The JV is aimed at supplying natural gas to eastern China's rapidly growing energy markets. It is designed to take advantage of BP Amoco's growing gas reserves, in light of its pending merger with ARCO, which is well-placed in the region.

BP Amoco intend to invest in China's gas infrastructure, potentially including an LNG terminal, and to supply imported and domestic gas to the Shanghai and Yangtze River Delta areas. Gas meets just 2% of China's energy needs now, but the government intends to increase this share to 7-8% by 2010, says BP Amoco.

The gas project is part of a strategic alliance between BP Amoco and PetroChina that includes a preliminary agreement to build a fuels marketing business in China's coastal provinces, with a view toward expanding into other regions. The companies aim to build or acquire as many as 150 service stations in the first year of operation.

The alliance also allows BP Amoco involvement in the planned west-east China gas pipeline and, in the longer term, the potential to market gas from East Siberia, where BP Amoco has an interest in the giant Kovyktinskoye field. These options are subject to feasibility studies and approvals.

Separately, BP Amoco said it plans to acquire 20% of the PetroChina shares to be offered in its planned initial public offering.