Summary of Senate Hearing on Proposed Merger of BP/Amoco and ARCO

Senate Energy and Natural Resources Committee
June 24, 1999

The Bottom Line
Fast on the heels of the announced BP-Amoco and Exxon-Mobil mergers, Congress finds itself looking at another joining of giants.  The planned merger between BP-Amoco and ARCO has raised a number of questions that members of the Senate Energy and Natural Resources Committee addressed at the June 24th hearing, such as what are the global circumstances creating this merger environment, and what is the impact on oil security, downstream consumers, and upstream production?  This merger was touted as a perfect fit, with virtually no overlap in terms of refinery capabilities or gasoline markets.  All parties involved, however, recognized that the merger would have a unique impact on Alaska, with ARCO and BP-Amoco accounting for 69% of total oil production in that state. While many of the committee members expressed mild concerns about the impact a BP-Amoco-ARCO merger would have on independent producers and refiners, they also recognized the changing global market that was leading to these mergers. Sen Ron Wyden (D-OR) was particularly outspoken and vehemently against a merger on the grounds that the new company would have a "stranglehold on the delivery system" of crude to the west coast.  He believed this would result in higher prices at the pump and the death of independents, particularly in the Northwest.

Senators Present
Chairman Frank Murkowski (R-AK) Ranking Member Jeff Bingaman (D-NM)
Craig Thomas (R-WY) Ron Wyden (D-OR)
Larry Craig (R-ID) Evan Bayh (D-IN)
Ben Nighthorse Campbell (R-CO)
Slade Gorton (R-WA)
Conrad Burns (R-MT) 
Peter Fitzgerald (R-IL)

Introductory Remarks
Murkowski started the day off with an analogy that was carried throughout the rest of the hearing.  The Chairman compared the proposed merger to a wedding between ARCO, the loving child of Alaska, and BP, the suitor come to ask for her hand.  As any good father would scrutinize his daughter's dates, Murkowski was holding this hearing to check out BP. But beyond his role as Dad, Murkowski brought up several specific questions to be addressed: What are the global circumstances creating the environment of this merger? What will be the impacts on oil security? What will be the impacts on downstream consumers and upstream production?  Murkowski mentioned that the merger will have a special impact on his home state of Alaska, affecting every aspect of the state's economy.  He also stated that he was not yet taking a stand on the proposed merger, but was waiting for a full review.

Most of the other members present offered short opening statements, expressing some concern that the merger may have a negative impact on independent producers and refiners.  Wyden was the only other senator to speak at any length, and he left little question of his opposition to a combined BP-Amoco-ARCO.  Wyden talked about unprecedented gas price increases that have occurred in Oregon and California, an area that is largely dependent on Alaskan North Slope crude.  His belief was a new company would have a "stranglehold on the delivery system" to the west coast, leaving refiners no choice from whom to buy.  He stated uncategorically that he was against the merger.

Panel 1:
Jay Hakes, Administrator, Energy Information Administration, Department of Energy
Mike R. Bowlin, Chairman and Chief Executive Officer, Atlantic Richfield Company
Richard L. Olver, Group Managing Director and Chief Executive of Exploration and Production,
    BP Amoco
John H. Lichtblau, Chairman, Petroleum Industry Research Foundation, Inc.

Hakes pointed out changes that have occurred in global crude markets over the last several decades, with a large portion of the world's production now nationalized.  Most of the mergers today are small in terms of world production (after all, everything is relative), but Hakes recognized that there is still concern over regional overlap.  After showing a number of charts to the committee, Hakes concluded, "the proposed merger between BP Amoco and ARCO promises no overlap in their downstream segments, the business area usually of most concern to the public in petroleum company mergers.  However, the merger reveals a more complicated picture in U.S. upstream activities."  BP Amoco and ARCO together combine for 69% of Alaskan crude oil and natural gas production.  Alaskan crude provides 45% of the crude used in West Coast refineries.  "Thus," Hakes continued, "BP Amoco and ARCO are supplying nearly one third of that market through their Alaskan production."

Bowlin testified in order to provide some of the rationale for the merger.  The driving forces mentioned by Bowlin were the shifting dynamics of the international energy industry, the cost-competitiveness that a merger would provide both companies, and the current oil price environment favoring larger companies with diverse revenue sources and strong financial bases.  Bowlin was also impressed with the compatibility of the two companies in terms of personality and outlook.  In terms of the effect of a BP-ARCO merger on Alaska, Bowlin acknowledged that there would be some job losses in the short term, but went on to say, "the long-term result will be a stronger and more resilient U.S. and Alaskan energy industry."

Representing BP, the other key player in the merger and a foreign (British) owned corporation, Olver started his testimony by pointing out that over half of the new company's assets and shareholders will reside in the U.S..  He went on to touch on many of the same points that Bowlin addressed, namely that a merger would be cost effective. Lower costs would make more production possible in high-cost areas like Alaska, benefiting the U.S. oil consumer and economy.  Olver spent a fair bit of time addressing Alaska directly, and he talked about specific plans to increase spending in the state.

John Lichtblau started his testimony by once again emphasizing that the two companies have "virtually no overlap in the areas of refining and marketing, the two business segments that traditionally are scrutinized for effects on competition."  Lichtblau, like everyone else, recognized that there were other impacts in Alaska, and his testimony focused mainly on these.  He spoke about the significant costs of moving oil 800 miles across Alaska to Valdez and then south by ship to market, and how a combined company would allow for "lower operating costs while enhancing the capital and technological base supporting production in Alaska."  Lichtblau also did not find that Sen. Wyden's concerns carried much weight. "There may be a concern regarding changes in supply patterns for West Coast refineries but the issue can be dealt with by requiring the new company to offer to continue supply arrangements to third parties for a transition period."  Lichtblau finished his testimony by expressing his belief that the biggest issue facing Alaska is not the current merger of the state's two largest players, but a declining Alaskan resource base.  As such, Lichtblau made a plea for opening the Arctic National Wildlife Refuge (ANWR) to production.  This is Murkowski's pet issue and resonated well with the chairman, who also took the opportunity to encourage his colleagues to open ANWR.

There were a number of questions from members of the committee.  Wyden started things off directing questions about past price increases in Oregon to Bowlin, and Wyden continued throughout the hearing to express his concerns that the merger would have an overwhelmingly negative impact on the Northwest.  Bowlin answered that prices have always, and will continue to be, based on competitive prices.  An interesting area of questioning came from Sen. Craig on ARCO's and BP's position on the Kyoto protocols.  Craig has been an opponent of the treaty, and he has stated his belief that the Administration is trying to force implementation by winning the support of large industries through an offer of emission credits for early compliance.  Bowlin answered that ARCO has been against Kyoto since it excludes emerging nations.  Olver announced that BP is in general agreement with Kyoto and has already taken several voluntary measures to reduce greenhouse gas emissions.

Panel 2
Bruce Botelho, Attorney General of the State of Alaska
Drue Pearce, Senate President, Alaska Legislature
Dale Lindsey, Vice-President, Petersburg Energy, LLC
Bill Allen, Chairman and Chief Executive Officer, VECO Corporation, Alaska
James W. Winters, President, United Energy Inc., Portland, Oregon
Andrew Aubertine, Assistant Attorney General, Oregon Department of Justice

By the time the second panel was up to testify, the hearing had been going on for several hours.  The only remaining members were Murkowski and Wyden, the two Senators with witnesses on the second panel.  The Alaska group spoke first, offering the opinions of the executive and legislative branches of the State government, as well as that of an independent producer and a contractor working on the North Slope.  Both officials of the State explained that they were in the middle of reviewing the merger and had spoken with the Federal Trade Commission (FTC) to ensure that Alaska's interests were not compromised.  Lindsey, representing an independent petroleum producer, was not against the merger in principle, but wanted to see provisions put in place by the FTC in order to preserve competition and allow independents access to North Slope production facilities at fair market value.  Allen was perhaps the most enthusiastic proponent of the merger, positing that a merger will create a more stable production environment, translating to more consistent and stable work for contractors.  The Oregon witnesses echoed some of Wyden's concerns that the merger may result in higher gas prices to the Oregon consumer and less competition and opportunity for independent petroleum distributors.

Sources:  Hearing Testimony

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Contributed by AGI/AIPG Geoscience Policy Intern Scott Broadwell

Last updated July 8, 1999

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