BP Amoco concerns

Patrick Crow
Washington, D.C.
[email protected]

The British Petroleum Co. plc and Amoco Corp. megamerger may be logical from an operations standpoint, but such economics matter little to politicians.

That's why Sen. Mike DeWine (R-Ohio), who chairs a Senate antitrust subcommittee, held a hearing on the merger last week.

Various things were discussed, but DeWine's primary concern was the 1,000 jobs or so that Cleveland will lose when BP's U.S. refining and marketing headquarters are moved to Amoco's worldwide headquarters in Chicago (OGJ, Aug. 17, 1998, p. 34).

DeWine said, "If BP follows through on its plans, Cleveland will lose jobs, and the move may diminish the strong relationship that the Cleveland community has enjoyed with BP in the years since BP purchased Standard Oil Co. of Ohio."

He added, "Many experts have said that they consider the BP/Amoco deal to be only one step in a process that will lead to significant consolidation in the petroleum industry."

Companies respond

Steven Percy, BP America Inc. chairman and CEO, said the merger will not be anticompetitive, because most of the two firms' operations complement rather than compete with each other.

Percy, a Cleveland native who has spent most of his career in that city, said it was not easy to decide to shift the headquarters to Chicago.

He said BP is establishing a $1 million economic development fund for Cleveland, will contribute $2 million/year for community activities through 2000, and is donating $1 million to a fund for the Cleveland City School District.

George Spindler, Amoco senior vice-president for law and corporate affairs, said, "Some have speculated that low oil prices have precipitated this merger. That is not true. Certainly, lower oil prices over the past dozen years have focused our minds on the need to be more efficient in this industry and to improve our productivity. But I believe this is a merger that both sides would have embraced at any oil price.

"Thus I do not view the BP-Amoco merger as the starting bell for a round of broad-based industry consolidation. We may see some smaller transactions, but a wave of merger mania in the oil and gas arena appears unlikely to me."

More mergers

Philip Verleger, an analyst with the Brattle Group, disagreed.

He said about 20 oil and gas companies each have market capitalization of more than $20 billion, and if governments do not intervene, "this number is likely to be cut in half over the next 5 years."

He said, "In addition, between half and three quarters of the independent oil and gas developers, such as Anadarko Petroleum Corp. and Burlington Resources Inc., are likely to be acquired or liquidated."

Verleger said the BP-Amoco union is in the public interest because larger oil companies can take larger exploration risks and their investments are less sensitive to fluctuations in oil prices.

Despite the testimony, DeWine and Sen. Herb Kohl (D-Wis.) immediately wrote the Federal Trade Commission, urging it to examine the merger's effect on gasoline prices and U.S. national security (because BP is a non-U.S.-based company).

Oddly enough, BP America's foreign roots weren't an issue before it decided to leave Cleveland.