What’s in Store for Arco Under BP Amoco’s Wing
Now that BP Amoco officially owns Atlantic Richfield Co., it’s time to look at what the deal is likely to mean for Southern California, for Arco employees in this region and for share owners of BP Amoco--who include many former Arco shareholders in this area.
Quickly stated, there will be little effect on Arco gasoline stations, but the jobs of more than 2,500 Arco employees will be eliminated.
BP Amoco shareholders have already done well out of the deal, as the London-based “supermajor” energy company got a good price in the forced sales of Arco’s Alaska crude oil and natural gas holdings. And future business in China and Asia looks particularly good for BP Amoco, analysts say.
But the effect on philanthropy and community involvement in Southern California, areas in which Los Angeles-based Arco was a standout organizer and contributor, will suffer--not because of anything BP Amoco will do but because of the absence of a local leadership presence.
And community involvement is a matter of some urgency locally, because the California Community Foundation’s latest report shows that charitable giving and volunteering declined sharply in Los Angeles last year, falling well behind the national and statewide averages.
So there will be a mix of good and bad effects from this merger, which at the very least should make Southern Californians think about the effects of losing corporate headquarters, about new ways to raise money and ensure community resources, and about the shifting visions that have drawn investors from far and near to buy assets from local owners who couldn’t or didn’t wish to hold on.
From all outward signs, Arco stations will remain the same--same brand name, same strategy of being the low-price leader in the key California gasoline market.
“It is our judgment that they have had a hugely successful competitive strategy,” says Rodney Chase, BP Amoco deputy group chief executive and head of U.S. operations. And BP Amoco is not going to mess with a good thing.
As to job cuts, BP Amoco will eliminate Arco corporate staff in Southern California, numbering several hundred at this point. But many more jobs will be eliminated as BP Amoco strives to exceed its stated target of $1 billion in cost saving from consolidating the two companies.
Originally BP Amoco estimated that 2,000 Arco jobs would be eliminated, but Chief Executive John Browne said in London last week that the number will be 2,500.
The cuts will be made by “outsourcing” more than “sackings and layoffs,” explains Chase, in town Monday as BP completed the Arco takeover. When BP acquired Chicago-based Amoco in 1998, 16,000 jobs were eliminated, partly by outsourcing information technology and accounting services. Arco’s information and accounting operations will be similarly outsourced.
That BP Amoco already has a good deal is assured because it was forced by the Federal Trade Commission to sell Arco’s Alaska oil and gas properties as a condition of federal approval of the merger. Phillips Petroleum paid $7 billion for the Arco properties--”a good price because there were many bidders,” notes Douglas Terreson, Morgan Stanley’s Houston-based oil analyst.
The result is to reduce BP Amoco’s effective price to roughly $20 billion for Arco’s West Coast refining and marketing operations, for its producing properties in the Gulf of Mexico and, importantly, for its huge holdings of natural gas in Indonesia, plus other natural gas holdings in Malaysia, Thailand and in China.
The value of the Indonesian gas field alone is estimated at more than $50 billion. By acquiring Arco, BP Amoco becomes the largest producer of natural gas in Asia, a region about to expand greatly in energy usage. The company has a particular focus on China.
“As we look at the 21st century, my colleagues and I are convinced that finding ways of doing business with China is going to be very important for global energy firms and their future,” says Chase, 56, an honors graduate in history from the University of Liverpool who went to work for British Petroleum in 1964.
“China will need a lot of energy, and I hope we can be a part of it,” Chase says. In fact, BP Amoco recently bought $1 billion in shares of PetroChina to form a joint venture with one of two companies designated by the state to develop China’s energy market.
“That’s a very important investment,” analyst Terreson says. “China is going to modernize its fuel markets before entering the World Trade Organization, and BP Amoco will be part of the process.”
So Arco clearly has hooked up with an ambitious company, one that has climbed rapidly in recent years through the acquisition of Amoco and now Arco to global status.
To be sure, some analysts question the speed. Brian Eisenbarth, of Collins & Co., a San Francisco-based investment firm, thinks BP Amoco will have trouble for a year or two “absorbing these merged properties.”
Yet nobody doubts that BP Amoco has vision--a quality that has seemed lacking lately in large Southern California companies.
Arco once had vision, when it discovered the oil in Alaska and when it became a philanthropic leader of Southern California and other places where it did business. “I know firsthand how Arco in Alaska forged close relations with the community,” Chase says.
BP Amoco has pledged to continue Arco’s philanthropic and community involvement efforts. But it won’t be easy or automatic. The problem, Chase concedes, will be to continue the involvement without a “high-profile, highly paid” individual to make the connections, as retired Arco Chairman Lodwrick Cook used to do.
It’s the problem of being a branch office, says civic activist David Abel, publisher of the Metro Investment Report newsletter. “We have to come up with new ways to raise money and foster community activities,” he says.
What we have to come up with is vision, both in business and community. Consider: Arco owned the big gas field in Indonesia that is worth $50 billion. It owned a gas field in China. It could be looking at a long and prosperous future. But its vision flagged and now it has passed that future onto a more ambitious firm from outside this region. It is a familiar story these days in Southern California--and one that should concern every one of us.
