LONDON -- BP Amoco Corp. is buying Atlantic Richfield Co. for $26.6 billion in stock in a deal that will make it the world's second largest oil company.
The combined company, which would be exceeded in size only by Exxon Corp. once it completes its purchase of Mobil Corp., would be the latest union to take place in the rapidly consolidating oil industry."For BP Amoco, the strategic rationale for this deal is the immense potential it offers for future growth," Sir John Browne, the company's chief executive, said Thursday in announcing the deal.
BP Amoco said 2,000 jobs are expected to be eliminated from a combined work force of 115,000, mainly in the United States outside Alaska.
He said the overlap in business operations would be minimal, but said the company expects to sell some $3 billion in assets. He refused to give details on the assets likely to be sold.
The deal is subject to approval by shareholders in both companies. Browne said he hoped to complete the transaction by the end of the year.
The acquisition would boost BP Amoco's daily oil output by 32 percent to 2.7 million barrels, making it the world's biggest non-government oil producer, he told a news conference.
It also would increase the company's natural gas output by 27 percent and make it the third-biggest gas producer. BP Amoco would get Arco's proven gas reserves of 9.8 trillion cubic feet and an even larger amount of unproven gas reserves, particularly in Indonesia and other Southeast Asian countries.
With global demand for gas expected to grow at twice the rate of demand for oil, Arco's gas holdings were especially attractive, Browne said.
In the retail market for refined products, the acquisition would give BP Amoco a dominant refining and marketing presence in the car-dependent Western United States, where Arco operates 1,760 filling stations.
Browne said combining the two companies' operations in Alaska will greatly increase the competitiveness of the state in the face of uncertain oil prices and provide a strong incentive for significant investment in oil fields.
"The actual assets being acquired are very complementary," said Mark Horn, head of European research for the brokerage T. Hoare and Co.
BP Amoco, Horn said, "has come from being a third-rank player to challenging No. 1 in a short space of time, and it has done so in a way that has not harmed its structure financially. It has improved its assets and given itself a whole new range of choices and opportunities."
Under the terms of the deal, BP Amoco will exchange .82 of its own stock -- worth $82.82 based on Wednesday's closing stock prices -- for each share held by Arco shareholders.
BP Amoco's share price slipped 1.8 percent by mid-afternoon trading on the London stock exchange.
In trading on the New York Stock Exchange Wednesday, shares of BP Amoco fell $2.32 1/4 a share to $101, while shares of Arco lost $1.50 to $73.12 1/2.
As part of the deal, Arco's top management and board will relinquish control of the company.
BP Amoco has been a leading force in the recent wave of consolidation in the oil industry. The former British Petroleum PLC acquired Amoco Corp. of Chicago for $57.6 billion in December.
The BP Amoco-Arco combination is subject to antitrust review and could run into potential problems with Alaska statutes that limit how much exploration acreage companies and their subsidiaries can control in that state.