BP Amoco, striking its second major deal in eight months, said yesterday it had agreed a $26.8 billion (#24.8 billion) allshare takeover of Atlantic Richfield Co (Arco) of the US, creating the world's biggest non-OPEC oil producer.
The enlarged company will be the second biggest quoted oil company by value in the world, worth around $190 billion, ahead of Royal Dutch/Shell and behind only Exxon which is merging with Mobil.
The deal comes just three months after BP completed the ground-breaking purchase of Amoco for $55 billion - a deal which moved restructuring across the industry up a gear.
BP Amoco will exchange 0.82 American Depositary Shares, equivalent to 4.92 BP Amoco shares, for each Arco share.
BP Amoco's dynamic chief executive, Sir John Browne, described his new empire which will cover 3.5 per cent of the world's crude oil output as "a compelling strategic and geographic fit of quality assets".
"This is the first step by a new company, a strategic step driven by the determination to combine performance and growth," Sir John told a news conference. "It means we come of age in two key business areas - gas and the US downstream," he added.
Sir John said the integration with BP Amoco was running well ahead of schedule.
"The transition process will be managed with the greatest care because we'll do nothing to jeopardise the commitments we've already made," he said of this latest deal.
BP Amoco said it would dispose of around $3 billion of assets following the takeover, most in the upstream sector.
The combination's 70 per cent domination of production in Alaska offers extensive cost cutting opportunities and Sir John predicted the enlarged company would save 80 cents a barrel in producing oil there. At the same time, Arco's US west coast refining and retail activities fill a gap in BP Amoco's portfolio. North Sea assets can also be consolidated and Arco brings with it a feast of Far East gas and oil exposure.
Sir John expects to extract $1 billion of annual cost savings by 2001 on top of the $500 million already targeted by Arco itself, adding to the $2.5 billion cost cuts the Amoco deal is set to deliver.
Around 2,000 jobs will go on top of the 10,000 that the BPAmoco merger cost. Some 9,000 jobs are to go in the Exxon-Mobil merger that followed the BP Amoco deal last year. Most of the industry cuts will be in the US, and BP Amoco-Arco and Exxon-Mobil will together still employ about 220,000 people worldwide.
Analysts hailed the deal as a coup for Britain's biggest company and expressed confidence in Sir John's ability to extract the cost savings. That confidence has already raised the value of BP Amoco to more than $160 billion compared with a combined market value of $110 billion last August ahead of BP's Amoco buy.
The Amoco takeover announced last August, in the worst oil price environment for 22 years, sparked a string of industry deals as the sector sought cost savings. The Arco move is seen as the first of a second wave of bargain-hunting consolidations as the oil market recovers.
In the US, Texaco, the world number eight by value, is said to be stalking exploration and production group Burlington Resources. European companies ENI and Elf are linked to some of the British exploration and productions groups.
Meanwhile, analysts said the deal increased the pressure on Shell, now world number three by most industry measures, and seen as a poor performer in terms of return on capital.
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