LONDON -- Only months after buying a large American oil company, Britain's BP Amoco is holding merger talks with Atlantic Richfield Co., which has significant gasoline refining operations on the West Coast of the U.S.
The two companies confirmed today that they were discussing a "possible combination transaction" following news reports of the talks on Sunday.The Financial Times and The Wall Street Journal reported today that BP Amoco is discussing buying Arco for about $25 billion. The newspapers said the deal is expected to be announced later this week after the boards of the two companies vote.
The companies said in today's statements issued separately that no definitive agreement had been reached nor was one assured.
If completed, the merger would be the latest integration in a rapidly consolidating oil industry and the second major acquisition for the former British Petroleum Co., which completed its $57.6 billion purchase of Chicago-based Amoco Corp. in December.
Any deal would have to be approved by U.S. regulators.
A potential advantage of the linkup is cost savings to be gained by uniting the two companies' production operations in Alaska. Spokesmen for the ARCO and BP Amoco operations in Alaska said separately that they could not comment on rumors.
"Obviously, they want to spread costs over a wider base," said Leo Drollas, chief economist at the London-based Center for Global Energy Studies. "ARCO is another good fit. . . . It's another example of BP Amoco moving cleverly."
Los Angeles-based ARCO's exploration activities would enable the combined company to improve production efficiency, while its refining and marketing businesses would not conflict with BP Amoco's operations, Drollas said.
"But there's a danger because there comes a point where it's so big that you lose track of what's going on in the empire."
The merged company would produce 2.53 million barrels of crude a day, according to 1997 output figures, putting it into a tie with Exxon Corp. as the world's largest non-government oil producer, Drollas said.
In Alaska, BP Amoco and Arco jointly operate the 13-billion barrel Prudhoe Bay field, the 800-pound gorilla of U.S. oil discoveries. But from a peak in 1988 of 2.1 million barrels a day, production has fallen off to about 1.2 million barrels daily.
While BP Amoco now produces more oil than Arco in Alaska, it's Arco that has the best future prospects. The company expects to have its 360-million barrel Alpine field operating in about two years, and it also is eyeing acreage in the vast National Petroleum Reserve-Alaska west of Prudhoe for additional opportunities.
Arco is the seventh-largest U.S. oil company, earning $452 million in 1998 on revenue of $10.3 billion. It has more than 1,700 gas stations in the Western U.S. and British Columbia.
BP Amoco, the world's third-largest oil company, sells its products through a network of about 27,000 stations.
Since the BP-Amoco deal was completed, the new company has announced 10,000 in merger-related cuts, roughly 10 percent of the combined company's work force.
Overall, the combined BP Amoco earned $4.65 billion on revenue of $83.7 billion in 1998.
Oil companies worldwide have been devastated by the low cost of oil, causing them to lay off employees and find other ways of savings -- including entering into mergers.