December 15, 1999 --- Vol. 5, No. 55December 1999

Update on BP’s acquisition of ARCO: Shively warns companies with preferential purchase rights

A company with “preferential purchase rights” to North Slope production and exploration acreage could “potentially adversely impact” the state’s attempt to put one or two new operators on the slope to compete with BP Exploration (Alaska) Inc., says a Dec. 13 letter from Alaska Department of Natural Resources Commissioner John Shively to ARCO’s Joe Leone. Vice president for ARCO’s Greater Kuparuk business unit, Leone will be BP's western North Slope business unit leader upon completion of BP Amoco p.l.c.’s acquisition of ARCO and the merger of the two companies’ Alaska oil and gas interests.

State officials fear that companies who are currently partners with BP and ARCO in the North Slope properties that BP and ARCO are being forced to sell will exercise their rights of first option on the sale of these properties, which means they could come in with a low-ball bid on choice pieces. If a higher bid is received from another company, a current partner could exercise preferential purchase rights, match the high bid and win the property.

This possibility could dampen the interest of any company that wanted to come in and buy up majority interest in one or all of the four areas in which BP and ARCO are being forced to sell majority interest — the Kuparuk River unit, the Colville River unit (Alpine field), one of three exploration fairways in the National Petroleum Reserve-Alaska and a total of at least 250,000 acres of undeveloped North Slope state leases. This situation could leave the new player and would-be-operator with prime pieces of production and exploration acreage chopped out of a unit or exploration area

State officials say they are concerned that this will “severely weaken the ability of any new operator to effectively compete with BP” and thus dampen interest in the bidding process.

Apologizing for “raising the matter of preference rights so bluntly,” Shively warned the recipients of his letter that the state had final approval rights on all divestitures. (Copies of his letter to Leone were sent to all working interest owners in the properties marked for divestiture.)

Shively also wrote that “disapproval of lease assignments is another approach” he might use to assure that the charter between BP, ARCO and the state is “faithfully executed.”

The commissioner advised recipients to have their legal departments review a 1990 Texas court decision which involved the Federal Trade Commission’s refusal to approve a buyer who attempted to purchase assets that the FTC required to be divested through the exercise of preferential rights.

Shively invited recipients to call him to discuss his letter.

BP term price up 8 percent for December

BP Amoco's December term price for Alaska North Slope crude oil is $23.61 a barrel, up $1.81 a barrel (8.3 percent) from the November term price of $21.80 a barrel. This is the highest the term price has been since February 1997, when it stood at $23.63 a barrel.

The year-to-date average term price is $16.49 a barrel, up 25.5 percent from the comparable 1998 year-to-date average of $13.14 a barrel. The term price for December 1998 was $11.45 a barrel.

BP is the largest producer of ANS crude and the only producer to post term prices.

November North Slope production down 4.7 percent

Crude oil production under 1 million barrels a day; total ANS liquids average 1.046 million barrels a day

Alaska North Slope liquids production averaged 1,045,625 barrels a day in November -- but that number included 46,164 barrels a day of Prudhoe Bay natural gas liquids. ANS crude production averaged 999,461 barrels a day.

Total monthly production was down 4.7 percent from November.

The Alaska Department of Revenue Division of Oil and Gas Audit said there were several power outages experienced at Prudhoe Bay during the month and an eight-hour shutdown of the trans-Alaska pipeline for work on remote gate valves. Fiscal year-to-date production as of Dec. 6 averaged 1.026 million barrels a day, 0.021 million barrels per day below the spring production estimate released last April.

Prudhoe Bay shows greatest decline

Prudhoe Bay production in November averaged 574,695 barrels a day, down 5.99 percent (36,593 barrels a day) from October's average production of 611,288 barrels a day.

November production from Kuparuk River averaged 254,230 barrels a day, down 2.8 percent (7,333 barrels a day) from October.

The Lisburne production center (Point McIntyre, Niakuk, Lisburne) averaged 117,205 barrels a day in November, down 4.4 percent (5,343 barrels a day) from October's average of 122,548 barrels a day.

Milne Point averaged 53,840 barrels a day in November, down 0.30 percent (162 barrels a day) from October production averaging 54,002 barrels a day.

Endicott averaged 45,655 barrels a day in November, down 4.1 percent (1,929 barrels a day) from October production averaging 47,584 barrels a day.

Cook Inlet production for November averaged 30,411 barrels, up 1.35 percent (405 barrels a day) from October production averaging 30,006 barrels a day.

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