Providing coverage of Alaska and northern Canada's oil and gas industry
July 2009

Vol. 14, No. 28 Week of July 12, 2009

BP in Alaska: Mergers, acquisitions mark transition to new millennium

Frank Baker

For Petroleum News

Positioning itself for a highly competitive, tough global marketplace in the 21st century, BP merged with Amoco on Dec. 30, 1998. With a market capitalization of $143 billion at the time of the merger, BP joined the ranks of the world’s three largest super-major energy companies and became the largest producer of gas in the U.S.

At the time of the merger, Amoco was the largest natural gas producer in North America, with a reach that stretched well beyond its home continent: exploration in 20 countries, production in 14 countries. Amoco produced 13 million tons of chemicals a year and was the world’s largest producer of purified terephthalic acid, or PTA, a chemical used in the production of polyester fibers. Amoco was big in solar power, too, with a 50 percent stake in a leading solar company.

Early in its history Amoco invented a process called thermal cracking, which doubled the amount of gasoline that could be made from a barrel of oil, and also boosted the gasoline’s octane rating.

ARCO approaches BP

Reeling from the impact of low oil prices on its global operations, ARCO approached BP Amoco in late 1998 about a possible buyout. Seeing the attractiveness of ARCO’s assets in upstream oil and gas, as well as downstream operations in the western U.S., and strong gas development position in Asia, BP Amoco decided early in 1999 to pursue the acquisition, valued then at about $26 billion.

The U.S. Federal Trade Commission (FTC) approved the BP Amoco-ARCO combination on April 13, 2000, more than a year after the deal was first proposed. The union created a combined group with more than 100,000 employees and operations in more than 100 countries.

FTC approval came after BP agreed to sell all of ARCO’s Alaska businesses to Phillips Petroleum. It also followed an agreement between the major owners of the Prudhoe Bay field aligning their interest in ownership of all oil and gas resources within the Prudhoe Bay unit. The agreement also established BP as the single operator of the Prudhoe Bay, Point McIntyre and Niakuk fields, and overall improved the competitiveness of the Alaska oil industry.

The interest alignment of the major owners — BP Amoco, Exxon and the new owner, Phillips — was an event heralded by some observers as one of the most significant events in the field’s history.

“It’s a landmark development,” commented Brian Davies, a retired BP executive who lives in Anchorage. “The deal positions BP for a long and successful future in Alaska.”

BP’s $7 billion sale of ARCO’s Alaska businesses to Phillips Petroleum included 1.1 million net exploration acres, a 22.3 percent interest in the trans-Alaska oil pipeline and ARCO’s crude oil shipping fleet, including six tankers in service and three under construction. The booked reserves sold totaled 1.9 billion barrels of oil equivalent.

The properties, by themselves, made Phillips Petroleum one of the top 10 oil and gas companies in the United States.

Charter with State of Alaska

The agreement with the FTC was foreshadowed by a landmark agreement with the State of Alaska called the Charter for the Development of the Alaskan North Slope, which was signed Dec. 3, 1999.

The agreement, negotiated by Alaska Gov. Tony Knowles and key members of his administration, called for the continued presence of two major operators on the North Slope and the sale of reserves, exploration acreage and a portion of the trans-Alaska oil pipeline to that new North Slope operator.

The charter also provided for BP and Phillips to make natural gas available to a gas project at market prices, make significant new expenditures on cleanup of “orphan” contaminated sites on the North Slope (exploration or support sites abandoned by other companies), do new research and development on spill cleanup technology, and commit to ongoing contributions to Alaska charities and the University of Alaska.

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