The US Federal Trade Co move to block BP Amoco PLC's takeover of Atlantic Richfield Co. should surprise no one in the oil and gas industry.
Citing antitrust concerns, the commission this week decided to seek a court injunction against the $29.2 billion acquisition. BP Amoco and ARCO said they would fight the action, to be filed in a federal District Court.
The FTC alleges that the proposed merger would violate antitrust laws in three areas:
- Control of production of Alaskan North Slope crude and sales to West Coast refiners sufficient to manipulate prices of petroleum products in the large West Coast market. FTC says BP already discriminates in crude sales in the region and exports ANS crude to the Far East at low prices in order to restrict supply and elevate prices on the West Coast.
- Domination of North Slope exploration and production through elimination of ARCO as a competitor in the leasing of federal and state land.
- Market concentration through ownership of pipelines and storage facilities at Cushing, Okla. FTC points out that the pipeline hub at Cushing is the delivery point for settlement of crude oil futures contracts traded on the New York Mercantile Exchange. It worries that the merged company, with control of 40% of that capacity, would gain market control.
It remains to be seen, of course, whether FTC can win in court with these arguments, the merits of which are not the point here.
What the oil and gas industry should recognize is that something like this was inevitable. Politics was not going to stand aside forever while oil and gas companies became commercial gargantuans by feasting on one another.
The argument will be made that the Exxon-Mobil merger forced other companies to crave scale just to stay competitive. It's a valid one.
The Exxon-Mobil marriage didn't just create a new size category in the oil and gas business, however. It also put government antitrust vigilantes on high alert. For BP Amoco and ARCO, the timing was not good.
Furthermore, peculiarities of their deal, by increasing concentration of ownership in narrow but important corners of the oil market, do seem like extra trustbuster bait.
The red-hot question for the industry is whether FTC would have allowed merger of BP Amoco and ARCO if the overlaps in ownership, inevitable as they are in any large combination, had not occurred at such important and visible intersections of the market.
FTC's snub of aggressive antitrust cures proposed by the companies suggests that some measure of resistance to another oil megamerger already was in place. In the wake of the Exxon-Mobil merger, with elevated oil prices raising alarms among lawmakers, and at the start of a presidential election year, why would this not be so?
The intent here is not to bash FTC's motives but rather to highlight the political dimension inescapable in the decision-making of any federal agency.
It's a dimension that a merger-minded industry must never forget.