OGJ Senior Writer
HOUSTON, Aug. 30 -- Conoco Inc., Houston, and Phillips Petroleum Co., Bartlesville, Okla., completed their $15 billion merger into the third largest US-based integrated oil firm Friday just hours after the Federal Trade Commission approved that move.
Under the consent decree unanimously approved by FTC commissioners, the new ConocoPhillips must divest some assets. "Especially noteworthy is our action in the Rocky Mountain region where divestitures will maintain competition in the gasoline refining market," said Joe Simons, head of the FTC's competition bureau.
Among the divestitures will be Phillips's 25,000 b/d Woods Cross Refinery just north of Salt Lake City and Conoco's 60,000 b/d refinery in Commerce City, Colo.
Woods Cross, purchased by Phillips in 1947, receives crude via pipeline from Colorado and southern Wyoming, and by truck from southern Utah. It distributes refined products to customers throughout Utah and Idaho via pipeline, truck, and railcar. Woods Cross supplies about 13% of the retail market in its market area, with sales to some 225 branded and company-owned stores in Utah and Idaho.
Phillips will have to dispose of additional gasoline outlets in eastern Colorado; a propane and butane storage plant in Spokane, Wash.; and propane facilities in Jefferson City, Mo., and East St. Louis, Ill.
Conoco also will be putting on the block some of its natural gas production in New Mexico and Texas, gas-gathering facilities in three New Mexico counties, and a Texas gas-processing plant, officials said.
The original merger proposal would have reduced competition, allowing ConocoPhillips to raise prices, said FTC officials.
In a telephone press conference late Friday, ConocoPhillips Chairman Archie W. Dunham and President and CEO James J. Mulva indicated that other nonessential assets likely would be sold to reduce the new company's $20 billion debt.
The overall compatibility of Conoco and Phillips assets, both upstream and downstream, was a major factor in the "merger of equals" that the two companies proposed last November, said Mulva, former chairman and CEO of Phillips (OGJ Online, Nov. 19, 2002). "Our portfolio fits like a glove around the world," he said Friday. However, he said executives of the new company will "take a hard look" at "high-grading our assets and our portfolio of opportunities for capital-spending."
Dunham, former chief executive of Conoco, said the new company will retain all of the current Conoco and Phillips brands and "will use each in the areas where it is strongest."
Conoco sells gasoline, diesel fuel, and other petroleum products at 5,000 US outlets, while Phillips markets fuel and other products at more than 12,000 stations under the Phillips 66, Circle K, and 76 brands.
Shareholders of both companies approved the proposed merger in March. Since the merger was proposed last year, the management of the new company has had 10 months to develop plans and policies and is now "ready to operate," said Mulva.
He and Dunham said more details of company plans and personnel changes will be revealed in the next few months.
In announcing the proposed merger last fall, Dunham said the combined company would be "a tough new competitor to the larger global majors," by significantly enhancing its capability and growth prospects on five continents and generating major synergies, along with "a very strong balance sheet, more capital for upstream investment, and greater operational efficiency downstream."
He and Mulva reiterated that same outlook Friday. "What we've created is better than either (Conoco or Phillips) had in the past," Dunham said. Oil and gas production by the combined company is expected to average 1.7 million b/d, and it will have the capacity to process 2.6 million b/d at its refineries.
The companies have set a goal at $750 million in annual cost savings from the deal, and plans call for oil and gas production to rise by 4%/year.
Company executives previously said ConocoPhillips would continue Phillips's equity participation in the natural gas gathering and processing joint venture, Duke Energy Field Services LLC, and in the chemicals and plastics joint venture, Chevron Phillips Chemical Co. LLC.
Under the merger agreement, Conoco shareholders will get 0.4677 shares of the new company for each Conoco share they own. Phillips stockholders will swap each of their shares for one share in ConocoPhillips.
Conoco stock closed up 60¢ at $24.55/share Friday, while Phillips stock was up $1.03 to $52.58/share on the New York Stock Exchange.
Financial analysts generally have approved the proposed merger, although at the time of the initial announcement, one described it as a maneuver "to survive, not thrive" in the current downturn.
Contact Sam Fletcher at [email protected]