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Single operatorship at Prudhoe by July 1 After 380 days, BP Amoco’s acquisition of ARCO completed; in Alaska, final deal very different than what proposed last March Kristen Nelson PNA News Editor
ABP-Phillips integration team is working now, and there will be a single operator at the fully unitized Prudhoe Bay field by July 1.
That is not a statement anyone could have foreseen April 1, 1999, when BP Amoco announced that it had been approached by ARCO to buy the company and that both boards had agreed to the $27 billion deal, which would have combined ARCO’s Alaska operations with those of BP Exploration (Alaska) Inc.
Yet it was the statement BP Exploration (Alaska)’s Greg Mattson, the company’s new development business unit leader, made to the Alaska Support Industry Alliance April 28, just days after Phillips Petroleum Co. closed its acquisition of ARCO Alaska Inc., a deal mandated by Federal Trade Commission concerns about competition on the North Slope and in the West Coast crude oil market.
State, federal governments concerned In April 1999, BP Amoco talked about synergies from the acquisition, especially on the North Slope, and about the additional investments which would come from one operator at Prudhoe Bay — which would have occurred by virtue of BP acquiring the ARCO Alaska operated side of the Prudhoe Bay field.
State reaction came from the administration, the Legislature and residents. Combining the Alaska assets of BP Exploration (Alaska) and ARCO Alaska would have meant that the majority of Alaska’s North Slope crude was produced and transported by one company. On the exploration end, one very large player would have been pitted against significantly smaller companies in state and federal oil and gas lease sales. North Slope seismic and exploration drilling would be done primarily at the behest of one company.
BP Amoco goals BP Amoco chief executive Sir John Browne said in an April 1, 1999, statement: “For BP Amoco, the strategic rationale for this deal is the immense potential it offers for future growth. In Alaska in particular,” he said, “the synergies we can achieve from combining our operations will greatly increase the competitiveness of the state in the face of uncertain oil prices and provide a strong incentive for significant investment in existing and future fields.”
Richard Olver, managing director and executive vice president of BP Amoco, and Ken Thompson, executive vice president of ARCO, said in Anchorage April 1 that talks which culminated in the buyout were initiated by ARCO. Thompson said the buyout would allow development of opportunities which ARCO has identified worldwide, but which the company didn’t have the cash to develop at low oil prices.
Olver said that BP Amoco had already done a lot of restructuring in the state to improve efficiency and make Alaska operations more competitive worldwide.
“But this deal,” Olver said, “will allow another quantum leap towards making Alaska opportunities competitive on a global scale.” If its assets in Alaska perform as expected, he said, the combined companies “will be able to spend $5 billion over the next five years on new attractive capital investment opportunities” in Alaska.
State wants competition Gov. Tony Knowles appointed a cabinet-level team to look at the merger, but the state’s position didn’t became known until August, when the governor outlined to an Anchorage Chamber of Commerce meeting that the state wanted guarantees that there would be competition — and divestiture to achieve that — and commitments to Alaska hire and the environment.
“My bottom line is this,” Knowles said: “Alaska’s control of our resources requires a competitive free market environment. Monopolistic control of those resources by any outside source, public or private, will inevitably work against Alaska’s long-term interests.”
The state wanted to ensure that there were still multiple players after the BP Amoco acquisition of ARCO was complete, and demanded enough North Slope divestiture to new players competitive stakes. The administration also wanted to ensure the Alaska’s North Slope gas was developed.
After extensive public hearings, the state asked for more divestiture in an attempt to ensure that there would be competition to develop North Slope resources. But even a revised state plan wasn’t enough for the Federal Trade Commission.
Issue contentious in Alaska By November, when public hearings were held in Alaska on the proposed charter agreement, there were two vocal camps: those concerned about the clout BP would wield in Alaska if its assets were combined with those of ARCO Alaska — and those concerned about jobs being lost and work slowed down because of uncertainty caused by the combination. The state heard two things: slow down; speed up. The administration wanted to complete the charter so that the state could take its position to the FTC.
Natural Resources Commissioner John Shively, commenting on the process at an April 7 meeting of the Alaska Support Industry Alliance, said he watched the process with interest, and “what I saw happening which completely flabbergasted me, was basically a large number of people in Alaska deciding that they were going to punish BP for the sins of ARCO. It was not BP that made this decision. It was ARCO. It was Mike Bowlin and the ARCO board of directors. And in addition to talking to BP they talked to at least one other company …maybe more.
“And so this idea that people had that if they just were obnoxious enough that ARCO would rise from the ashes and be reincarnated, to me was false,” Shively said. “And I think that delayed things unnecessarily and in the end, we had a somewhat predictable result. ARCO didn’t re-arise from the ashes. It’s gone. And I think that’s sad.”
Shively, a member of the governor’s merger team, said that in the charter one concern was to leave BP Amoco enough interest in Alaska that the North Slope would still be an important geographic area for the company. That, he said, was why the state tried to stay away from Prudhoe Bay divestitures.
The West Coast refineries and existing North Slope oil production give the company a clear short-term interest in Alaska, Shively said, but after the FTC required divestiture of ARCO Alaska, he asked, “given the size of BP… and their other international interests, what’s left for them in the long run?”
The Legislature also studied the issue. It appointed a joint committee on the acquisition which heard testimony, hired its own experts to analyze the deal and ultimately voted against the charter agreed to by the oil companies and the state administration.
In the end, the state charter called for partial divestiture — enough, the state administration hoped, to ensure continued competition. The state supported the acquisition before the FTC based on the charter and it was the FTC which forced BP Amoco to divest all of ARCO Alaska. And the prime driver was apparently concerns about West Coast crude oil and gasoline prices — not concern about Alaska’s control over development of its natural resources.
BP Amoco selected Phillips Petroleum to purchase ARCO Alaska — and amid rumbles about who might end up as the sole operator of Prudhoe Bay down the road, ExxonMobil, the third major Prudhoe Bay owner, filed suit to halt the sale of ARCO Alaska to Phillips.
It was the negotiations arising out of this suit which produced an alignment of oil and gas interests at Prudhoe Bay and the designation of BP as field operator.
Gas a driver for BP Amoco Sir John Browne told BP Amoco shareholders April 13 that, “after 380 days, we hope to receive clearance from the Federal Trade Commission in the U.S. very, very shortly, and we will close the transaction soon enough.” In fact, the FTC put out a consent decree for public review that same day. The acquisition — minus ARCO Alaska — closed on April 18.
“Our commitment to develop the natural gas business and to establish a worldwide presence was one of the main strategic drivers behind the combination with ARCO,” Browne told shareholders.
“When final approval is secured we can then proceed rapidly with integration — for which we’ve done a great deal of preparation over the last 380 days,” he said.
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