BP Amoco Buys ARCO, Changes Name to BP

The further reshaping of the petroleum industry will have little immediate impact on the downstream side. But within a few years, the convenience store industry could find a rejuvenated BP Amoco Plc. and the absence of Phillips Petroleum Co.

The fallout of the recent triangular trade involving BP Amoco, Atlantic Richfield Co. (ARCO) and Phillips will take months to sort out. In the end, BP Amoco acquired ARCO's refining and marketing assets on the West Coast for an estimated $30 billion, giving the British company coast-to-coast market presence.

To win the federal government's blessings, BP Amoco sold ARCO's Alaskan assets to Phillips for $7 billion, transforming the Bartlesville, Okla.-based company into a significant player in the upstream business. Phillips' oil capacity suddenly jumped from 220,000 barrels a day to 670,000 barrels a day, according to industry analysts.

BP Amoco also sold ARCO's interests in the Cushing, Okla., storage terminal, along with various pipeline interests, to Houston-based TEPPCO Partners for $355 million.

The impact of these maneuvers is substantial. Consider:

BP Facelift. The British company has not only fattened its ever-expanding portfolio, it is also undergoing a corporate facelift. In a move appealing to Wall Street, BP Amoco will shorten its name to BP, relegating the 78-year-old Chicago oil company name Amoco to a gasoline brand and bidding farewell to the shield logo.

C-Store Splash. Already boasting BP Express and Split Second in its arsenal, BP plans to erect new units measuring 4,500 square feet and featuring 12 multipump dispensers. The units, analysts say, will be fashioned much like ARCO's high-performing am/pm mini markets. "There will be a lot of redesign," said Youssef Ibrahim, BP's vice president of U.S. media. "It's still in the process but there will be e-commerce in the gasoline stations. It will be very user-friendly."

Lubricants. At the same time as the ARCO deal, BP took over Castrol, a major lubricants brand, through its acquisition of Burmah Castrol.

Phillips Repositions. Perhaps the busiest industry player in recent months is Phillips, which completely altered its portfolio, undertaking substantial debt to bolster its position in the oil industry. Prior to growing its upstream portfolio, Phillips entered into a joint venture with San Francisco-based Chevron Corp. for its chemicals businesses and announced it was shopping for a partner for its refining and marketing operations. "It's a phenomenally substantial deal for Phillips," said Matthew Warburton, analyst at Warburg Dillon & Read. "It gives them a massive production base in Alaska."

Phillips' Retail Future. The company's moves prompted some to speculate that Phillips is following in the footsteps of Unocal Corp., the El Segundo, Calif., company that sold off its marketing and refining divisions in 1997 to Tosco Corp. in order to concentrate on exploration and production.

"This is just my opinion," cautioned Bob Bassman, general counsel for the Petroleum Marketers Association of America (PMAA). "But Phillips may just sell the downstream. They have built up a lot of debt [with the $7- billion acquisition] and they've already said they want a partner for their marketing. The combination makes me believe they may shop the refinery and marketing."

Phillips operates 300 stores and has said it plans to complete a joint venture for its marketing division by early next year. In the same breath, the company has talked about expanding its overseas exploration business, eyeing opportunities in the Middle East, particularly Saudi Arabia and Kuwait.



Soap Opera Over

BP's acquisition of ARCO ended a year-long saga that ran into a knee-deep pothole when the Federal Trade Commission (FTC) announced in December it would oppose the deal under its original construction. The FTC feared the merger would give BP a virtual monopoly of the Alaskan production fields ? which feeds much of California's retail gasoline market ? and thus further threaten the already high retail prices on the West Coast.

By selling off ARCO's Alaskan assets, such concerns have been allayed. Furthermore, BP Amoco has made assurances it will maintain ARCO's niche as a value-branded gasoline with a strong retailing and marketing niche. "We intend to keep ARCO's low-cost competitive position intact," BP Chief Executive John Browne said in a news conference. "It's part of the brand. It's part of the appeal."

BP spokesman Ibrahim elaborated that the pledge to preserve ARCO's retail power includes its am/pm mini markets. "They have probably the best gasoline situation in the West Coast," he said. "They're very Californian and they're brand is very popular. There would be no reason to change it."

The acquisition also will strengthen BP's positioning in world markets. In addition to assuming control of 1,700 gasoline stations and two refineries, BP increased its oil and gas reserves and grew its presence in Southeast Asia.