Merger morass

Some disagreements are too deep for compromise, as BP Amoco PLC and ARCO have discovered in seeking US Federal Trade Commission approval of their $26.8 billion merger.

Some disagreements are too deep for compromise, as BP Amoco PLC and ARCO have discovered in seeking US Federal Trade Commission approval of their $26.8 billion merger.

Last week, FTC was considering filing a lawsuit to block the merger. BP Amoco had forced FTC's hand Jan. 15 by triggering a law that requires FTC to allow the merger or seek an injunction by Feb. 3.

The companies announced BP Amoco's acquisition of ARCO last Apr. 1, saying merged operations would save them $1 billion/year.

Despite lengthy negotiations, the companies and FTC have been unable to agree what divestitures are needed to maintain competition.

FTC has won some major lawsuits in recent years, but this one would be tougher, because US crude oil prices are determined by the world market.

ARCO Chairman Mike Bowlin said, "Clearly, BP [Amoco] and ARCO are ready to go the distance in litigation, and we believe we have a very strong case."

At OGJ presstime, a last-minute compromise seemed unlikely.

Alaska issue

FTC mainly is concerned the merger would reduce competition in Alaskan production and thus in the West Coast gasoline market.

Between them, BP Amoco and ARCO produce 70% of the 1 million b/d of Alaskan North Slope (ANS) oil. The West Coast draws about 40% of its crude supplies from Alaska.

FTC recently offered to okay the merger if the merged firm sold ARCO's 350,000 b/d of Alaskan production to a third party. It was the first time FTC had given the companies its bottom line.

BP Amoco and ARCO were willing to divest 350,000 b/d of their overall Alaskan properties, as long as they could keep ARCO's Prudhoe Bay interests. They expected to save $140 million/year by consolidating their ANS operations.

The companies made FTC a counteroffer. In addition to their pledge to the state that they would sell fields producing 175,000 b/d, they offered to sell another 210,000 b/d of production to third parties under long-term contracts.

That would leave them with 400,000 b/d of ANS oil, just enough to supply ARCO's West Coast refineries. FTC declined the deal.

State hearings

The companies defended their merger plan at recent Alaska legislative hearings.

BP Exploration Alaska Inc. says the $140 million/year of savings at Prudhoe Bay is down from the initial $200 million estimate because of the pledge to sell oil interests producing 175,000 b/d.

ARCO Alaska Inc. says uncertainty over the acquisition has hampered its North Slope activities.

David Boies, an antitrust attorney advising the governor's office, said an antitrust lawsuit wouldn't help Alaska achieve its goals of maximizing oil revenues.

He observed, "The antitrust laws are not designed to get a good, or even fair, return for producers. The antitrust laws are designed to get consumers the lowest possible price."

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