|
Phillips Petroleum buys ARCO Alaska Bartlesville, Okla., based company to take over operating business, including employees, Anchorage headquarters; signs on to charter with state Kristen Nelson PNA News Editor
After a state-brokered plan for partial divestiture of Atlantic Richfield Co.’s Alaska assets and offers to divest barrels equivalent to ARCO’s North Slope production failed to satisfy the Federal Trade Commission’s antitrust concerns, BP Amoco and ARCO said March 15 that all of ARCO’s Alaska assets would be sold to Phillips Petroleum Co. of Bartlesville, Okla., for $7 billion.
Jim Mulva, president and CEO of Phillips Petroleum, said March 15 in Anchorage that Phillips would acquire ARCO’s Alaska businesses and welcomed the employees of ARCO Alaska into the Phillips Petroleum family.
Phillips will pay $6.5 billion in cash upon closing, up to an additional $500 million based on a formula tied to the price of oil and some $150 million for crude oil inventories. The transaction is expected to close early in the second quarter and will be effective retroactive to Jan. 1.
BP Amoco’s chief executive Sir John Browne said in a March 16 statement that an agreement has also been reached to sell ARCO’s interests in the Cushing, Okla., storage terminal, together with various pipeline interests, to Teppco Partners of Houston for $355 million and that BP Amoco was at an advanced state in “constructive” discussions with the FTC and was hopeful of a successful outcome “within a matter of weeks.”
“With these major disposals,” Browne said, “we believe we have addressed the antitrust concerns of the FTC. We now hope we can move forward in the coming weeks towards obtaining a consent order allowing us to close the ARCO combination and deliver the significant synergies of the deal to the shareholders of the combined company.”
In Anchorage, Gov. Tony Knowles, Phillips Petroleum’s Mulva and Rodney Chase, BP Amoco deputy chief executive officer, signed an addendum to the “Charter for Development of the Alaskan North Slope” signed by BP Amoco, ARCO and the state in December. In the addendum, the parties agreed that the sale of ARCO Alaska “as a going concern” will satisfy the commitments made by ARCO and BP Amoco in the charter to divest portions of operating and exploration acreage on the North Slope to ensure competition. Phillips agreed to the other commitments in the charter, which range from cleanup of orphan drill sites on the North Slope to an endowment for the University of Alaska.
Major commitment by Phillips “It’s been a long-term objective of Phillips to significantly increase our presence and our investments in Alaska,” Mulva said in Anchorage. “And through this transaction we certainly have achieved that objective.” Mulva said that Phillips made the investment decision based on “oil prices in the range of $18-$19 a barrel and we also test our investments … at a $15 oil price.”
Phillips said it will book reserves of 1.9 billion barrels of oil equivalent in 2000 from this transaction, immediately increasing the company’s reserves base from 2.2 billion BOE to 4.1 billion BOE. Phillips acquires a 21.9 percent working interest in the Prudhoe Bay oil rim, a 42.6 percent working interest in the Prudhoe Bay gas cap, various working interests in Prudhoe satellites, a 55 percent working interest in the greater Kuparuk area, a 78 percent interest in the Alpine field (scheduled to begin production this fall), 21.3 percent of the trans-Alaska pipeline system, 1.1 million exploration acres (state and National Petroleum Reserve-Alaska) and the assets of ARCO Marine. Excluding the pipeline, tankers and other non-exploration and production assets, Phillips said, the acquisition cost is approximately $3 per barrel of oil equivalent.
Mulva said that Phillips agrees with the way ARCO Alaska has run the business and will continue forward with ARCO Alaska’s plans on the North Slope.
Phillips’ technical expertise will be combined with that of ARCO in developing the Alpine field, continuing development of the Kuparuk field and its satellites and developing Prudhoe Bay satellites, in addition to implementing enhanced oil recovery at related fields. These projects, the company said, “provide about 700 million barrels of upside reserve potential.”
In the National Petroleum Reserve-Alaska, where ARCO is currently drilling an exploration well at the Clover prospect, both companies hold acreage. ARCO, which bid with its Alpine partner Anadarko Petroleum Corp., is the largest leaseholder in NPR-A — its net share is 51.6 percent. Phillips, which bid by itself and in partnership with BP and Chevron, holds a 13.5 percent net share of NPR-A acreage. Combined, the two companies hold 564,335 NPR-A exploration acres. As of December, ARCO Alaska held 1,082,336 acres of state oil and gas leases, exploration and production combined, and Phillips held 81,366 acres. ARCO Alaska has the largest holdings of state oil and gas lease acreage; Phillips ranks eighth.
Single Prudhoe operator? Mulva said that Phillips did not plan to divest any ARCO Alaska assets, but to continue with ARCO’s plans and do more drilling than the companies had planned separately and more than ARCO has done in the last year or two.
He did say, however, that Phillips has had discussions with BP Amoco on a single operator at Prudhoe Bay and “it seems to us that conceptually as you look through time it makes a lot of sense to have one operator for Prudhoe Bay.”
A single operator at Prudhoe Bay was one of the economies which BP Amoco saw from acquiring ARCO Alaska. While the companies have combined many operations at Prudhoe over the years, each still operates half of the field.
Mulva said there wasn’t a time line for a single operator at Prudhoe, “but conceptually moving in that direction makes a lot of sense as the right thing to do in terms of accomplishing efficiency and that creates value not only for the companies but also for the state.”
That sentiment was echoed by Alaska Sen. Rick Halford, chairman of the Alaska Legislature’s Joint Special Committee on Mergers, who said in a statement on the proposed Phillips’ purchase: “Ideally, we would also like to see a single operator in Prudhoe Bay. A single operator could maximize production and efficiencies while substantially reducing costs.”
Knowles also noted the efficiencies which could be gained by a single operatorship, which, he said, would “allow Alaska to be a more attractive place for more investment which will bring more opportunities for development and more jobs.”
Gas sooner rather than later Mulva said that one of the places Phillips will be spending money in Alaska is in commercializing the gas resource, “whether it be in terms of a gas pipeline to the Lower 48…, a gas-to-liquids project or the use of gas in an LNG (project). They’re not exclusive — they can all be done and we have a very open and objective viewpoint with respect to the development of the gas resources.”
Mulva also said the Phillips — one of the original members of the gas sponsor group — has had discussions with BP Amoco about gas development over the last several months, and shares BP’s vision “that commercialization of gas makes sense and it’s probably going to come sooner than later…”
BP Amoco’s Chase said: “The prospects for commercializing North Slope natural gas have never been better and I promise you that BP Amoco will actively pursue all options for moving this great resource to the market.” Chase noted that even without ARCO Alaska, “we still own a significant share of this vast gas resource.”
BP Amoco will continue its participation in the industry LNG sponsor group, Chase said, as well as investigating multiple options for pipeline delivery of gas to the Lower 48 and continue to move forward with plans for a gas-to-liquids pilot project in the state.
Synergies better than estimated Browne told financial analysts March 16 that expected synergies from the acquisition of ARCO are better than the company estimated when the deal was announced last April. “At that time,” Browne said, “we envisaged annualized pre-tax savings and synergies of around $1 billion, of which $200 million would be from Alaska.
“Even after disposing of ARCO’s Alaskan interests, we believe we can still deliver $1 billion in savings. The make-up of the savings have shifted but we are absolutely confident of the total because the work we’ve done since last April has shown the potential from within the continuing ARCO businesses, including Vastar.”
Browne said that, subject to completion of the ARCO deal, BP Amoco has advised the board of Vastar Resources Inc. of the intention to make a tender offer for the minority stockholding of the company at $71 a share. ARCO owns some 82 percent of Vastar, one of the largest independent oil and gas producers in the United States.
BP Amoco sees a good fit “Very carefully,” was Chase’s response when asked how BP Amoco settled on Phillips Petroleum as the buyer of ARCO’s Alaska assets. He said that BP Amoco believes that the company “achieved fair and full value for this transaction” in the sale and believes Phillips “will be, for us, a partner and a competitor with the resources — the human, the technical and the financial resources — to be successful in Alaska with us as well as in competition to us.”
Chase said BP Amoco “put great store by looking at Phillips as a company and the ability that we felt that we would have to work side by side with them with shared strategic goals. It was fortunate that Phillips’ offer and other contractual terms made their selection pretty straight forward for us.”
| 