BP Amoco heads for world domination with Arco

The acquisitions bandwagon rolling from BP Amoco's Britannic House head office shows no sign of slowing. With the ink on the contract joining BP to Amoco barely dry, the company has swooped again to scoop up Los Angeles-based Atlantic Richfield (Arco) in a move that makes it the world's largest non-state oil producer.

Once again, the figures involved almost defy comprehension. The deal is valued at $26.8bn (£16.8bn) and creates a company with a market capitalisation of $190billion. According to chief executive John Browne, the merged company can expect to save $1billion per year in pre-tax synergies over the next two years.

Arco is a fairly small player in the US oil market, ranked at number seven. However, its refining and marketing operation dominates the West Coast; it has two refineries, in Carson, California, and Cherry Point, Washington, and 1760 retail sites spread through the West Coast states.

The main lure for BP Amoco, however, was Arco's oil and gas interests in Alaska. The firm has oil reserves amounting to five Alaskan oilfields (where it already shares interests with BP Amoco), and gas reserves in the Gulf of Mexico, the North Sea and South China Sea; moreover, it has `unbooked' gas reserves in Southeast Asia and the Middle East.

`For BP Amoco, the strategic rationale for this deal is the immense potential it offers for future growth,' Browne explains. `In Alaska in particular, the synergies we can achieve from combining our operations will greatly increase the competitiveness of the state in the face of uncertain oil prices.' Moreover, BP Amoco's existing retail presence in the eastern US now makes the merged company a coast-to-coast player.

The deal was billed as a merger, but there is little doubt that it is in fact a takeover. BP Amoco will not be importing any of Arco's corporate culture; in fact, it will not be importing several of the Arco executives. As part of the deal, all the directors of Arco are to retire as soon as the merger becomes effective, which is scheduled for the end of the year once `due dilligence' has been completed. Moreover, the company has refused to guarantee the future of Amoco executives. The company expects some 2000 job losses, almost entirely involving Arco staff in the `lower 48' US states.