BP Amoco Nears Deal to Address FTC Concerns on West Coast Refining

Strategic Insights -

BP Amoco is in the final stages of negotiating a sale of Atlantic Richfield's Alaska assets to Phillips Petroleum, a move aimed at alleviating Federal Trade Commission (FTC) concerns about the lack of competition in the West Coast refining business. The sale, which could fetch between $5 billion and $7 billion, is being negotiated ahead of a scheduled court hearing in San Francisco next Monday. In conjunction with the sale, BP Amoco is holding talks over the sale of Arco's pipeline and storage facilities at Cushing, Oklahoma. The introduction of Phillips into the deal is expected to address FTC concerns that BP Amoco, by acquiring Arco, would have the leverage to manipulate the price of crude on the West Coast.

Key Takeaways:

  • The sale of Atlantic Richfield's Alaska assets to Phillips Petroleum is being negotiated in advance of the FTC's scheduled court hearing next Monday in San Francisco.
  • The sale, valued between $5 billion and $7 billion, aims to address FTC concerns about the lack of competition in the West Coast refining business.
  • BP Amoco is holding separate talks over the sale of Arco's pipeline and storage facilities at Cushing, Oklahoma.
  • Introducing Phillips into the deal is expected to alleviate FTC concerns about BP Amoco's potential market leverage after acquiring Arco.
  • Phillips has exploration acreage and a liquefied natural gas plant in Alaska but has no refining presence on the West Coast.
  • Analysts have raised concerns about Phillips' ability to finance the deal and maintain Arco's spending level in Alaska.
  • A creative financing package would be required to prevent Phillips' net debt from exceeding 50 per cent.
  • Phillips would need to increase its worldwide exploration and production budget by 40 per cent to maintain Arco's estimated $500 million annual spending level in Alaska.
  • The budget increase alone would push Phillips' annual spending to $1.96 billion, larger than its current worldwide exploration and production budget of $1.4 billion.
  • The deal, if finalized, would see Phillips take on responsibility for Arco's estimated $500 million annual spending in Alaska.
  • Wall Street analysts have expressed skepticism about the deal's feasibility, citing concerns about Phillips' financial backing.

Statistics:

  • Valuation of the sale: $5 billion to $7 billion
  • Market share of Alaska North Slope crude production: 75 per cent by the combined BP Amoco and Arco holdings
  • Phillips' worldwide exploration and production budget: $1.4 billion
  • Estimated annual spending level in Alaska by Arco: $500 million
  • Percentage increase in Phillips' exploration and production budget needed to match Arco's spending level: 40 per cent
  • Phillips' estimated net debt if the deal is finalized: potentially above 50 per cent

Sources:

  • "BP Amoco Nears Deal to Address FTC Concerns on West Coast Refining" (no publication date or author)
  • CIBC World Markets in New York, report by Bruce Lanni (no publication date)