[Federal Register Volume 65, Number 78 (Friday, April 21, 2000)]
[Notices]
[Pages 21434-21441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10008]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 991 0192]


BP Amoco p.l.c., et al.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before May 15, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Parker or Phillip Broyles, 
FTC/H-374, 600 Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-
2574 or 326-2805.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for April 13, 2000), on the World Wide Web, at ``http://www.ftc.gov.ftc.formal.htm.'' A paper copy can be obtained from the FTC 
Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 
Washington, DC 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of the Proposed Consent Order and Draft Complaint to Aid 
Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from BP Amoco p.l.c. (``BP Amoco'') and Atlantic 
Richfield Company (``ARCO'') (collectively, ``Proposed Respondents'') 
an Agreement Containing Consent Orders (``Proposed Consent Order''). 
The Proposed Respondents have also reviewed a draft complaint that the 
Commission contemplates issuing. The Commission and BP Amoco and ARCO 
have also agreed to an Order to Hold Separate and Maintain Assets 
(``Hold Separate Order'') that requires the Proposed Respondents to 
hold separate and maintain certain divested assets. The Proposed 
Consent Order is designed to remedy the likely anticompetitive effects 
arising from BP Amoco's proposed acquisition of ARCO.

II. The Parties and the Transaction

    BP Amoco is a United Kingdom corporation with headquarters in 
London, England. It is the world's third largest oil company, with 
total worldwide revenues of more than $91 billion in 1999. BP Amoco is 
engaged in exploration, development, and production of crude oil on the 
Alaskan North Slope (``ANS crude oil''), which it sells to refineries 
on the West Coast of the United States, Hawaii, and Alaska, and in 
markets abroad. It also owns capacity on the Trans-Alaska Pipeline 
System (``TAPS'') and leasehold interests in Jones Act tankers. These 
specialized tankers are used by BP Amoco to transport ANS crude oil 
from the North Slope production fields to its refinery customers.
    ARCO is a Delaware corporation with headquarters in Los Angeles, 
California. In 1999, ARCO had total revenues of more than $12 billion. 
ARCO is also engaged in the exploration, development, and production of 
ANS crude. ARCO also owns capacity on TAPS, and it owns its own Jones 
Act tankers, which it uses to transport ANS crude oil to the West 
Coast. ARCO also owns and operates two refineries on the West Coast 
that refine ANS crude oil.
    BP Amoco and ARCO were the pioneers in developing the Alaska North 
Slope, and today are the two most important oil companies doing 
business there. They account for more than half of all ANS crude oil 
discovered over the last decade, and currently produce about 74% of all 
ANS crude oil. BP Amoco and ARCO are the only two operators of ANS 
crude oil fields, they each own more proven ANS crude oil reserves than 
any other oil company, they have the largest leaseholds of exploration 
and production acres, and they have drilled the largest number of 
exploration wells on the North Slope. Individually, each has won more 
exploration tracts than any other company in the last decade.
    The Alaska North Slope is a major oil-producing region of the 
United States. ANS crude oil is used to supply refineries in Alaska, 
Hawaii, the West Coast of the United States, and Asia. Approximately 
90% of all ANS crude oil is refined on the United States West Coast, 
and approximately 45% of all crude oil refined on the United States 
West Coast is ANS crude oil.
    BP Amoco and ARCO entered into an agreement on March 31, 1999, to 
merge their companies. The size of the transaction, based upon the 
value of the deal when it was announced, was about $26 billion.

III. The Proposed Complaint and Consent Order

    The proposed complaint alleges that merger of BP Amoco and ARCO 
would

[[Page 21435]]

violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and 
Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 
45. The proposed complaint alleges that the merger will lessen 
competition in each of the following markets: (1) The production, sale, 
and delivery of ANS crude oil; (2) the production, sale, and delivery 
of crude oil used by targeted West Coast refiners; (3) the production, 
sale, and delivery of all crude oil used on the West Coast; (4) the 
purchase of exploration rights on the Alaskan North Slope; (5) the sale 
of crude oil transportation on TAPS; (6) the development for commercial 
sale of natural gas on the Alaskan North Slope; and (7) the supply of 
crude oil pipeline transportation to, and crude oil storage in, 
Cushing, Oklahoma. The competitive concerns underlying the allegations 
in the draft complaint are discussed in Part V of this analysis.

IV. The Proposed Consent Order

    To remedy the alleged anticompetitive effects of the merger, the 
Proposed Consent Order requires Proposed Respondents to divest: (1) All 
of ARCO's assets and interests related to and primarily used with or in 
connection with ARCO's Alaska businesses; and (2) all of ARCO's assets 
related to its Cushing, Oklahoma crude oil business. Proposed 
Respondents will divest all of ARCO's Alaska assets to Phillips 
Petroleum Company (``Phillips''), an approved up-front buyer. The vast 
majority of these assets must be divested to Phillips within 30 days of 
the signing of the Proposed Consent Order. Some of the ARCO Alaska 
assets require third-party or governmental approvals and Proposed 
Respondents have up to six (6) months to divest those particular 
assets. Proposed Respondents will divest the Cushing assets to an 
acquirer or acquirers that receive the prior approval of the Commission 
and in a manner approved by the Commission. They must divest the 
Cushing assets within four (4) months of signing the Proposed Consent 
order.
    For a period of ten (10) years from the date the Proposed Consent 
Order becomes final, the Proposed Consent Order prohibits the Proposed 
Respondents from acquiring, directly or indirectly, any ownership, 
leasehold or other interests in any of the assets they are required to 
divest without giving prior notice to the Commission.
    The Proposed Consent Order also requires the Proposed Respondents 
to provide the Commission with a report of compliance with the terms of 
the Proposed Consent Order within thirty (30) days after the Order 
becomes final, and every sixty (60) days thereafter, until the Proposed 
Respondents have fully complied with the divestiture requirements under 
the Proposed Consent Order. The Proposed Respondents must also file 
annual compliance reports detailing their compliance with the notice 
provisions under the Proposed Consent Order.
    Proposed Respondents have also agreed to a Hold Separate Order. The 
purpose of the Hold Separate Order is (a) to preserve the competitive 
viability of the assets required to be divested under the Proposed 
Consent Order, pending their actual divestiture, (b) to assure that no 
material confidential information is exchanged between BP Amoco and the 
held-separate businesses, and (c) to prevent interim harm to 
competition pending the divestitures. The Commission may immediately 
appoint an asset maintenance trustee to monitor both the ARCO Alaska 
businesses and the ARCO Cushing Assets which are to be divested, and, 
in the case of the Alaska assets, to monitor whether the necessary 
waivers and regulatory approvals are being expeditiously pursued.
    Under the terms of the Hold Separate Order, if the Proposed 
Respondents have not completed the divestiture of the ARCO Alaska 
assets that do not require third party or regulatory approvals within 
thirty (30) days of consummating the merger of BP Amoco and ARCO, they 
must maintain the relevant ARCO Alaska businesses as separate, 
competitively viable businesses, and not combine them with BP Amoco's 
operations. A trustee may be appointed to oversee the held separate 
businesses.
    Under the terms of Hold Separate Order, until the divestiture of 
the ARCO Cushing Assets has been completed, Proposed Respondents must 
maintain the ARCO Pipeline Company as a separate, competitively viable 
business, and not combine it with BP Amoco's operations. The Proposed 
Consent Order also requires the Proposed Respondents to maintain the 
assets to be divested in a manner that will preserve their viability, 
competitiveness and marketability, to avoid causing their wasting or 
deterioration. Pending divestiture, Proposed Respondents are prohibited 
from selling, transferring, or otherwise impairing the marketability or 
viability of the assets to be divested.
    Under the terms of the Proposed Consent Order, in the event that BP 
Amoco and ARCO do not divest the assets required to be divested under 
the terms and time constraints of the Proposed Consent Order, the 
Commission may appoint a trustee to divest those assets, expeditiously, 
and at no minimum price. Also, in the event the assets requiring third-
party or governmental regulatory approvals are not divested within the 
allowed time, a trustee may be appointed to oversee the divestiture of 
those assets to Phillips.

V. The Competitive Concerns

    The merger of BP Amoco and ARCO gives rise to competitive concerns 
in seven relevant markets, each of which is discussed below.
A. Production and Sale of ANS Crude Oil
    BP Amoco currently has about a 44% share of all ANS crude oil 
production and ARCO has about 30% share. BP Amoco owns no refineries 
that it supplies with ANS crude oil. As a consequence, all of its ANS 
crude oil sales are to third party customers. ARCO, on the other hand, 
owns two refiners that use ANS crude oil. One is located in the Los 
Angeles area (at Carson) and the second is in the Seattle area (at 
Cherry Point). Because ARCO supplies its West Coast refineries with ANS 
crude oil, ARCO now sells only relatively small amount of ANS crude oil 
to third parties.
    According to the complaint the Commission intends to issue, BP 
Amoco already exercises market power in the sale of ANS crude oil to 
refineries on the West Coast. The evidence of this market power is the 
fact that BP Amoco engages in price discrimination on two fronts: 
First, BP Amoco sells ANS crude to West Coast refinery customers at 
different prices, net of transportation (``netbacks''). Second, BP 
sells ANS crude to the West Coast refineries at higher netbacks than to 
refineries in the Far East. The Commission's draft complaint alleges 
the existence of three relevant markets implicated by BP Amoco's ANS 
crude oil pricing: (1) The production, sale, and delivery of ANS crude 
oil; (2) the production, sale, and delivery of crude oil used by 
targeted West Coast refiners; and (3) the production, sale, and 
delivery of all crude oil used by refiners on the West Coast.
    According to the Commission's draft complaint, for several reasons, 
ARCO is the firm most likely to be able to constrain BP Amoco's future 
exercise of market power. First, with the opening of the Alpine oil 
field, ARCO has new production that is about to commence. Second, with 
a new and increased ability to substitute away from ANS crude oil to 
other types of crude oil at its Los Angeles refinery, ARCO will have 
incentives to substitute cheaper

[[Page 21436]]

imports for ANS crude oil if the price of ANS crude oil becomes non-
competitive. Third, ARCO is the firm best positioned and most likely to 
find new sources of ANS crude oil, and bring that oil to market.
    Entry into the crude oil markets implicated by this merger is 
unlikely to occur in a timely or sufficient manner to prevent the 
merger from reducing competition in the relevant markets. Entry has not 
constrained BP Amoco's exercise of market power to date. Nor is it 
likely that producers of other types of crude oils will supply West 
Coast refineries in a manner that would constrain BP Amoco's ability to 
exercise market power. The most compelling evidence is that they have 
not already done so, even as BP Amoco has been exercising market power 
directed at West Coast refineries for many years.
B. Bidding for ANS Crude Oil Exploration Rights
    BP Amoco and ARCO are the two most important competitors in bidding 
for exploration leases for oil and gas on the Alaska North Slope. They 
own or control all exploration, development, and production assets and 
won over 60% of all State of Alaska lease auctions over the last 
decade. During that same period the top four firms won 75%. In the most 
recent North Slope lease sale, BP Amoco and ARCO collectively won more 
than 70% of the tracts bid.
    After the merger, no single firm, or combination of firms, will be 
both large enough and sufficiently well informed with respect to the 
value of individual tracts, to replace the loss of revenues to the 
State of Alaska and the Federal Government, from bidding revenues. 
Moreover, the reduced competition in the bidding for oil and gas 
leaseholds will eventually result in less exploration and development, 
and less production of ANS crude oil.
    New entry will not be timely, likely or sufficient to undermine the 
anticompetitive effects of the merger. Firms that lack the information, 
infrastructure, and interest in North Slope bidding will simply be 
unable to fill the void created by the loss of ARCO as an independent 
bidder for exploration and development acreage.
C. TAPS Pipeline Competition
    Seven companies jointly own the TAPS pipeline, with BP Amoco and 
ARCO the two largest owners. BP has about a 50% interest and ARCO has 
about a 22% interest. Each owner of TAPS has an exclusive right to sell 
space on its ownership-share of TAPS capacity and to set its own 
tariff, and to discount those tariffs, for carriage on that capacity. 
After the merger, BP Amoco would control a 72% interest in TAPS. 
Alyeska Pipeline Service Company operates TAPS.
    The owners of TAPS are entitled to capacity on the pipeline in 
proportion to their ownership interests. Because not all oil producers 
have an interest in TAPS, or an interest in TAPS in proportion to their 
oil production, TAPS owners can and do discount their tariffs in an 
effort to attract additional shippers. According to the Commission's 
draft complaint, the increase in concentration in TAPS ownership may 
cause the TAPS tariffs to increase.
D. Natural Gas Commercialization
    BP Amoco and ARCO are the two largest holders of natural gas 
reserves on the Alaska North Slope. ExxonMobil is the only other 
company that holds sufficiently large volumes of natural gas reserves 
to have the potential to develop those reserves for significant 
commercial use. The merger of BP Amoco and ARCO would reduce the 
potential for future competition in the sale of North Slope natural gas 
from three firms to two firms.
    Although it is unclear at this time when the North Slope gas fields 
will be commercialized, it is likely that this will eventually occur. 
To date, over $1 billion has been spent by various firms in an effort 
to commercialize the North Slope's natural gas reserves. When gas 
commercialization does become a reality, the benefit of three firms 
competing for this business, rather than a market characterized by a 
duopoly, will result in increased competition and lower prices.
E. Crude Transportation and Storage Services in Cushing, Oklahoma
    Efficient functioning of the pipeline and oil storage facilities 
leading into, and in, Cushing, Oklahoma, is critical to the fluid 
operation of both the trading activities in Cushing and the trading of 
crude oil futures contracts on the NYMEX. The restriction of pipeline 
or storage capacity can affect the deliverable supply of crude oil in 
Cushing, and consequently affect both WTI crude oil cash prices and 
NYMEX futures prices.
    The proposed merger would concentrate control of over 43% of 
Cushing storage capacity, 49% of Cushing pipeline delivery capacity, 
and 95% of the trading services provided at Cushing. A firm that 
controls substantial crude oil storage capacity in Cushing, and crude 
oil pipeline capacity leading into Cushing, would be able to manipulate 
NYMEX futures trading markets. This threat of manipulation will cause 
prices to rise and, because WTI crude oil is a benchmark crude oil, 
have ripple effects throughout the oil industry.

VI. Resolution of the Competitive Concerns

    The Proposed Consent Order alleviates the competitive concerns 
arising from the merger as discussed below.
A. The Proposed Order Resolves Competitive Concerns in Alaska by 
Requiring That All of ARCO's Alaska Assets Be Divested to Phillips
    The Proposed Consent Order, if finally issued by the Commission, 
would settle all of the charges alleged in the Commission's complaint. 
Under the terms of the Proposed Consent Order, BP Amoco has agreed to 
divest to Phillips all of the assets, properties, businesses, and 
goodwill, tangible and intangible, that as of March 15, 2000, were 
related to and primarily used with or in connection with ARCO's Alaska 
businesses.
    The ARCO assets and properties that BP Amoco and ARCO are required 
to divest to Phillips include the following: (a) ARCO Alaska, Inc.; (b) 
ARCO Transportation Alaska, Inc., (including any interest in Alyeska 
Pipeline Service Company and Prince William Sound Oil Spill Response 
Company; (c) ARCO Marine, Inc.; (d) ARCO Marine Spill Response Company; 
(e) Union Texas Alaska assets of Union Texas Petroleum Holdings, Inc.; 
(f) Union Texas Alaska, LLC; (g) Kuparuk Pipeline Company, (including 
any interests in Kuparuk Transportation Company and Kuparuk 
Transportation Capital Corporation); (h) Oliktok Pipeline Company; (i) 
Alpine Pipeline Company; (j) Cook Inlet Pipeline Company; (k) All 
Alaska oil and gas leases; (l) AMI Leasing Inc.; (m) ARCO Beluga, Inc. 
(a wholly-owned subsidiary of CH-Twenty, Inc.); (n) ARCO's office 
complex in Anchorage; (o) intellectual property; (p) Patents; (q) 
seismic data; (r) ship construction contracts; (s) customer and vendor 
lists; (t) ARCO records; and (u) long-term supply agreements entered 
between BP Amoco and several West Coast refiners.
    To ensure that key ARCO employees remain with the company, and 
become available to work for Phillips, the Proposed Consent order also 
provides that (a) BP Amoco not solicit for employment any ARCO employee 
unless that employee was terminated by Phillips; (b) vest all current 
and future pension benefits; and (c) pay a bonus of not less than 35% 
of the base salary for certain key ARCO employees.

[[Page 21437]]

    Phillips is headquartered in Bartlesville, Oklahoma and is the 
sixth largest United States oil company. In 1999 it had total revenues 
of about $14 billion. Phillips currently has about a one percent 
interest in ANS crude oil production and about a 1.4% interest in TAPS. 
Phillips also owns oil and gas leases in the National Petroleum Reserve 
area of the North Slope.
    The divestiture of ARCO's Alaska Businesses is intended to preserve 
the level of competition that existed before the merger in the 
production, sale and delivery of crude oil to the West Coast, bidding 
for exploration rights on the Alaskan North Slope, and in pipeline 
transportation services for ANS crude oil.
1. The Proposed Respondents Have Thirty (30) Days To Divest Most of the 
ARCO Alaska Assets to Phillips
    Except for those ARCO Alaska assets that require consents, waivers, 
or approvals by regulatory authorities or other third parties before 
they may be transferred to Phillips (e.g., pipelines, oil and gas 
leases, rights of way), the Proposed Respondents must complete the 
required divestitures of the Alaska assets within thirty (30) days of 
the acquisition. The Proposed Respondents must cooperate with Phillips 
and use reasonable best efforts to assist Phillips in securing the 
consent and waivers that may be required from private entities. The 
Proposed Respondents must complete all other divestitures within six 
(6) months of consummating their merger.
2. Transition Services
    The Proposed Consent Order requires that the Proposed Respondents 
enter into a transition services agreement with Phillips. Under this 
agreement, the Proposed Respondents must provide Phillips with the 
transition services it may need in order to conduct the ARCO businesses 
as they are currently being conducted.
3. Licensing Agreements
    The Proposed Consent Order requires that the Proposed Respondents 
enter into various licensing agreements with Phillips for intellectual 
property necessary or related to the ARCO Alaska Assets. These 
agreements are in addition to the absolute transfer of other 
intellectual property.
B. The Proposed Order Resolves Competitive Concerns in Cushing by 
Requiring That All of ARCO's Cushing Assets Be Sold Within 120 Days to 
an Acquirer Approved by the Commission
    Under the terms of the Proposed Consent Order, BP Amoco agreed to 
divest ARCO's assets related to its Cushing, Oklahoma crude oil 
business to an acquirer to be approved by the Commission and in a 
manner approved by the Commission. Those assets include all of ARCO's 
assets, properties, businesses and goodwill, tangible and intangible, 
in the Seaway Crude Oil Pipeline and the Mid-Continent Crude Oil 
Logistics Services Businesses.
    The ARCO assets and properties that BP Amoco and ARCO are required 
to divest include the following: (a) ARCO's crude oil interest in 
Seaway Pipeline Company, a partnership with subsidiaries of Phillips; 
(b) ARCO's crude oil terminal facilities in Cushing, Oklahoma and 
Midland, Texas, including the line transfer and pumpover business at 
each location; (c) ARCO's undivided ownership interest in the Rancho 
Pipeline, a 400-mile, 24-inch diameter crude oil pipeline from West 
Texas to Houston; (d) ARCO's undivided ownership interest in the Basin 
Pipeline, a 416-mile crude oil pipeline running from Jal, NM, to 
Wichita Falls, Texas and then on to Cushing, Oklahoma; and (e) the ARCO 
West Texas Trunk System of receipt and delivery pipelines, which is 
centered around Midland.
    BP Amoco and ARCO must complete the required divestitures of the 
Cushing assets, within 120 days of their singing the Proposed Consent 
Order, to an acquirer or acquirers that receive the prior approval of 
the Commission.

VII. Opportunity for Public Comment

    The Proposed Consent Order has been placed on the public record for 
thirty (30) days fro receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
Proposed Consent Order and the comments received and will decide 
whether it should withdraw from the Proposed Consent Order or make it 
final.
    By accepting the Proposed Consent Order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
complaint will be resolved. The purpose of this analysis is to invite 
public comment on the Proposed Consent Order, including the proposed 
divestitures, to aid the Commission in its determination of whether it 
should make final the Proposed Consent Order. This analysis is not 
intended to constitute an official interpretation of the Proposed 
Consent Order, nor is it intended to modify the terms of the Proposed 
Consent Order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Chairman Robert Pitofsky and Commissioner Mozelle W. 
Thompson, Concurring in Part and Dissenting in Part

    The Commission accepts for public comment today a consent order 
that requires BP Amoco plc (``BP''), as a condition of its acquisition 
of Atlantic Richfield Company (``ARCO''), to divest all of ARCO's crude 
oil exploration and production assets in Alaska and related pipeline 
rights, maritime assets, seismic data and technical information. In 
effect, BP agrees to divest ``all of ARCO'' in Alaska. In addition, the 
consent order requires BP to divest all ARCO pipeline and storage 
facilities in and around the crude oil marketing and trading hub at 
Cushing, Oklahoma to a buyer to be approved by the Commission within 
120 days of the date on which BP and ARCO sign the consent order.
    The consent order provides that the divested Alaska assets will be 
acquired by Phillips Petroleum Co. (``Phillips''). Phillips is an 
integrated petroleum company with oil and gas exploration and 
production interests in several countries and (as of 1999) assets of 
about $15 billion and annual revenues of about $13.9 billion. Phillips 
currently has some Alaska oil and gas exploration and production 
interests of its own, but these are tiny relative to those of BP and 
ARCO. Phillips is engaged in refining and gasoline marketing in several 
of the United States, but not on the West Coast. BP selected Phillips 
as the buyer of ARCO's Alaska assets, and Commission today unanimously 
approves Phillips as the buyer, subject to public comment.
    In most respects, this consent order achieves all the Commission 
sought, and all the relief that would likely have been achieved if the 
Commission prevailed in litigation. We write separately, however, to 
express our concern with the majority's decision not to include in the 
consent order a provision prohibiting BP and Phillips from exporting 
ANS crude oil at a loss for the purpose of maintaining oil prices on 
the West Coast of the United States.\1\
---------------------------------------------------------------------------

    \1\ The provision that we would favor is explained, and its 
terms defined, further below.

---------------------------------------------------------------------------

[[Page 21438]]

    BP currently has the largest share--about 40%--of all crude oil 
produced on the Alaska North Slope (``ANS''); has the largest 
interest--about 50%--in the Trans-Alaska Pipeline System (``TAPS'') 
that is used to transport crude oil to port at Valdez, Alaska; and has 
the largest fleet that is available for transporting ANS crude oil from 
Alaska to refineries in the rest of the United States. ARCO is its 
largest rival in each of these respects, with a share of over 30% of 
ANS crude production; a 22% stake in TAPS; and the second largest 
available fleet. BP and ARCO's dominance of the market is even greater 
when measured in terms of exploration assets and operatorships in 
Alaska. BP, which does not own any West Coast refineries, currently 
sells all of its ANS crude in the merchant market. ARCO, which owns two 
of the largest refineries on the West Coast, consumers the bulk of its 
ANS production internally. However, ARCO also sells on the merchant 
market, thereby according to the Commission's complaint, serving as 
``the firm most likely to constrain BP's exercise of monopoly power,'' 
a constraint that ``likely would increase'' over time but for the 
merger.\2\
---------------------------------------------------------------------------

    \2\ See FTC v. BP Amoco plc, Civ. No. 00-0416-SI (N.D. Cal. 
filed Feb. 4, 2000), Compl. para. 18.
---------------------------------------------------------------------------

    Because Phillips will acquire all of ARCO's assets in Alaska, the 
consent order is likely to restore competition on the Alaska North 
Slope. In the market for the supply of ANS crude oil to targeted 
refineries on the West Coast, Phillips will be in a different position 
from ARCO because, unlike ARCO, Phillips is neither a refiner nor a 
gasoline marketer on the West Coast. This difference should leave 
Phillips with more crude oil to sell on the open market than ARCO 
currently has after supplying its own refineries, and, if not 
undermined by private conduct, may actually improve upon the level of 
competition in that market. In Cushing, a clean sweep of ARCO's 
pipeline and storage assets to a buyer to be approved by the Commission 
should also suffice to restore competition.
    Negotiations leading to this settlement have been extensive and 
complicated. Nevertheless, once the outline of a settlement was agreed 
upon--that is, divestiture of ``all of ARCO'' in Alaska and in and 
around Cushing--BP, ARCO and Commission staff worked out the details 
with dispatch.
    In one respect, however, the Commission's action in this matter is 
disappointing. In its original complaint and in its memorandum 
supporting the complaint, the Commission alleged that BP systematically 
and over an extended period of time exported ANS crude at a loss in 
Asia and to other regions in the United States in order to curtail or 
tighten supply to refiners on the U.S. West Coast and to maintain crude 
oil prices in that market.\3\ The Commission was prepared to 
substantiate its charge with a series of documents, cited in its 
memorandum supporting the complaint but currently under seal in the 
United States District Court.\4\ The Commission alleged that the 
pattern of exports reflected BP's market power, and that such market 
power would increase as a result of the proposed merger.
---------------------------------------------------------------------------

    \3\ See FTC v. BP Amoco plc, Compl. Paras. 18, 23; Points and 
Authorities in Support of FTC Motion for a Preliminary Injunction at 
7, 9-11.
    \4\ See id. at 7, n.13, 9-10 & nn. 16-18. (The public version of 
the FTC's Points and Authorities, with the parties' confidential 
information redacted, is available at /http://www.ftc.gov/os/bpamoco/index.htm. All references in this concurrence to the 
memorandum supporting the complaint are to that version.)
---------------------------------------------------------------------------

    When litigation was suspended for settlement negotiations, the 
issue of exports designed to raise price was addressed. BP and Phillips 
reportedly stated publicly that they would not export U.S. crude 
resources out of PADD V (the technical term for the U.S. West Coast 
market, specifically, the States of Alaska, Arizona, California, 
Hawaii, Nevada, Oregon and Washington).\5\
---------------------------------------------------------------------------

    \5\ See, e.g., H. Josef Hebert, ``Company ties offer to halt 
exporting Alaska crude to merger'' (Associated Press, March 24, 
2000) (citing a letter from BP to U.S. Representative Don Young of 
Alaska); Associated Press, ``BP Amoco Would End Alaska Exports'' 
(March 24, 2000); Reuters, ``BP Amoco, Phillips to halt Alaskan oil 
exports'' (March 24, 2000) (citing a letter from BP to U.S. 
Representative George Miller of California).
---------------------------------------------------------------------------

    We believe that the Commission should follow the logic of its own 
complaint and require BP and Phillips to affirm their public statements 
in our consent agreement in this matter. That would require the 
following provision in the order:

    BP and Phillips shall not knowingly and intentionally Sell for 
Export \6\ ANS crude oil for the purpose of increasing the Spot 
Price \7\ of ANS crude oil in PADD V, PROVIDED, however, that a Sale 
for Export at a price reasonably anticipated to produce a higher 
profit than a contemporaneous sale in PADD V shall be presumed not 
to violate this Order.

    \6\ ``Sell for Export'' and ``Sale for Export'' would be defined 
terms, referring to the sale, exchange, delivery or transfer of ANS 
crude oil for refining at a refinery located outside of PADD V, 
PROVIDED, however, that they would not include any sale, exchange, 
delivery or transfer of ANS crude oil in return for which ANS crude 
oil from another person is tendered or delivered to Respondents at a 
location in PADD V.
    \7\ ``Spot Price'' would be a defined term, referring to the 
amount paid for a single delivery of crude oil as part of an arms-
length transaction as reported by Reuters, Telerate or Platts.
---------------------------------------------------------------------------

This provision is narrower than the parties' public statements, thereby 
assuring that it would in no way affect normal, competitive business 
conduct, such as exporting oil abroad when the price offered abroad 
(net of transportation and other costs) is higher than on the West 
Coast. Instead, it would target the systematic export of United States' 
crude oil to Asia or elsewhere at a loss (relative to the profit that 
could have been obtained on the same crude oil within PADD V) for the 
purpose of raising U.S. West Coast Prices--a practice that we consider 
an extraordinary exercise of market power. If engaged in through 
coordinated action--and the Commission's memorandum alleges that BP 
``mop[ped] up `excess' supplies of ANS'' crude from others \8\--such 
conduct would be illegal per se. See United States v. Socony-Vacuum Oil 
Co., 310 U.S. 150, 190-91, 216, 218-28 (1940)(holding illegal per se 
agreements to purchase ``distress gasoline'' in order to raise prices 
or prevent price decreases). Regardless of its legality, exporting at a 
loss in order to raise West Coast prices plainly threatens competition 
in a market where this agency has a duty to ensure that competition is 
fully restored. see, e.g., Ford Motor Co. v. United States, 405 U.S. 
562, 573 (1972); United States v. E.I. du Point de Nemours & Co., 366 
U.S. 316, 326 (1961).
---------------------------------------------------------------------------

    \8\ FTC v. BP Amoco plc, Points and Authorities in Support of 
FTC Motion for a Preliminary Injunction at 10.
---------------------------------------------------------------------------

    Because the Commission was prepared to prove that intentional 
manipulation of supply on the West Coast occurred in the past, and 
could occur again in the future, the provision would be appropriate 
relief for the Commission to require. See, e.g., FTC v. National Lead 
Co., 352 U.S. 419, 429, 430 (1957)(a remedy is proper if it bears a 
``reasonable relation to the unlawful practices found to exist'' and 
``decrees often suppress a lawful device when it is used to carry out 
an unlawful purpose'') (citations omitted); cf. FTC v. Ruberoid Co., 
343 U.S. 470, 473 (1952) (``[I]f the Commission is to obtain the 
objectives Congress envisioned, it cannot be required to confine its 
road block to the narrow lane the transgressor has traveled; it must be 
allowed effectively to close all roads to the prohibited goal, so that 
its order may not be by-passed with impunity.'')
    Notwithstanding the substantial evidence of manipulation supporting 
the allegations in the complaint and memorandum, a majority of the 
Commission declines to require this

[[Page 21439]]

provision. In omitting any provision concerning exports, we do not 
understand our fellow Commissioners to condone the practices that we 
identified in our complaint. But we see no good reason for the 
omission.
    First, the majority suggests that the divestitures ordered today 
eliminate the competitive overlap that was the central competitive 
concern raised by the proposed merger. While we believe that the 
divestiture to Phillips is effective and appropriate relief, and may 
even improve competition, we would also address directly the 
competitive concerns raised by past and potentially future exporting 
practices aimed at exploiting precisely the market power that the BP-
ARCO merger places at issue. Today's consent permits both a realignment 
of operatorship interests on the Alaska North Slope and a vertical 
realignment, whereby BP's crude supply will now be aligned with what 
were ARCO's downstream assets, and ARCO's successor, Phillips, will 
likely replace BP as the principal supplier to the merchant (i.e., non-
vertically-integrated) market on the West Coast. How those realignments 
will affect the incentives and opportunities of BP and Phillips to 
continue BP's past practice of exporting to maintain West Coast prices 
is uncertain, as are future fluctuations in their production and 
reserves on the Alaska North Slope and their likely effects on those 
incentives and opportunities.
    The majority believes that it is unnecessary to impose any 
restriction on exports \9\ because ``BP likely will need to use most of 
its ANS crude oil production'' in the ARCO refineries it is acquiring 
on the West Coast, and because ``Phillips will have a much smaller 
share of ANS crude oil production than did BP.'' (We understand that 
Phillips' initial share of ANS crude oil production will be between 30 
and 35%.) Even if true today, there is no assurance that in the future 
either company, in an uncertain and evolving marketplace, will not find 
itself in a position to engage in the same conduct BP engaged in 
previously. Any such risk should not be borne by the consumer.
---------------------------------------------------------------------------

    \9\ The provision that we advocate is not, of course, an export 
ban. It is, rather, a narrow restriction, targeted at exports that 
entail an extraordinary exercise of market power.
---------------------------------------------------------------------------

    Second, as noted above, precedent establishes that conduct relief 
ancillary to structural relief may be appropriate in a merger case to 
address related competitive concerns, even when the conduct restriction 
may, in doing so, restrain some lawful conduct.\10\ Such relief is 
especially appropriate where, as in this case, the merger creates 
uncertainties in a market already characterized by exercises of market 
power that may harm consumers and where the relief imposed will 
increase the likelihood that competition will be fully restored. See, 
e.g., Ford Motor Co., 405 U.S. at 578 (approving district court relief 
aimed at ``nurtur[ing]'' lost competition over an objection that the 
forces in the marketplace might suffice to restore it).\11\
---------------------------------------------------------------------------

    \10\ It is well established that the Commission has a broad 
remedial discretion that would, where appropriate, permit 
substantial further relief against conduct that does not 
independently violate the antitrust laws. See, e.g., Ford Motor Co., 
405 U.S. at 575; E.I. du Pont de Nemours, 366 U.S. at 344. Courts 
have approved a variety of remedies against potentially lawful 
conduct as ancillary to structural relief, including future lawful 
participation in a market previously entered by means of unlawful 
merger, Ford Motor Co., 405 U.S. at 575-76, an injunction against 
further acquisitions, United States v. Grinnell Corp., 384 U.S. 563, 
580 (1966), requirements of prior Commission approval for future 
joint ventures, mergers or acquisitions, Yamaha Motor Co. v. FTC, 
657 F.2d 971, 984-85 (8th Cir. 1981); Luria Bros. & Co. v. FTC, 389 
F.2d 847, 865-66 (3d Cir. 1968), and prohibitions of sales between 
joint venture partners, United States v. Alcan Aluminum Ltd., 605 F. 
Supp. 619 (W.D. Ky. 1985).
    \11\ The majority emphasizes that ``it is not the Commission's 
mandate to use merger enforcement as a vehicle for imposing its own 
notions of how competition may be `improved.' '' We of course agree 
that merger enforcement is not an appropriate vehicle for 
``improving'' markets in ways unrelated to the merger. But as the 
precedents cited in footnote 10, above, exemplify, it is equally 
fundamental that mergers must be viewed, and the competitive 
concerns that they raise addressed, in the practical and dynamic 
context of the markets in which they occur. See, e.g., Brown Shoe 
Co. v. United States, 370 U.S. 294, 321-23 (1962).
---------------------------------------------------------------------------

    Third, we believe that a narrow export-at-a-loss restriction like 
the one set forth above would effectively protect, and would in no way 
inhibit, free and vigorous competition.\12\ We recognize that in 1995, 
Congress repealed an export ban on ANS crude oil, and we have no 
intention of undermining that repeal. However, as we have noted above, 
a consent agreement provision that narrowly prohibits exports (1) 
reasonably anticipated to be at a loss and (2) made ``knowingly and 
intentionally * * * for the purpose increasing the Spot Price of ANS 
crude oil in PADD V'' is far removed from a general export ban, and 
would leave firms entirely free to engage in normal, competitive export 
activities both within PADD V and elsewhere. Further, although the 
provision that we propose would be narrow, we believe that it would be 
effective. The proviso requiring that sales be reasonably anticipated 
to be at a loss to be suspect would give both the parties and FTC 
enforcement staff an objective benchmark, while the intent and purpose 
requirements--requirements familiar to antitrust law, see, e.g., Aspen 
Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 602 (1985)--
would ensure that normal competitive conduct would be unaffected.
---------------------------------------------------------------------------

    \12\ The majority expresses concern that our provision would not 
``apply equally to all producers'' of ANS crude oil. It is true that 
our provision would place restrictions on the two parties before us, 
who will also be the two largest producers of ANS crude oil, that 
would not apply to smaller competitors. But our narrow restriction 
would not prevent them from competing vigorously--only from engaging 
in a practice that the Commission's complaint identified as an 
exercise of market power that distorted competition. Because the 
mandate of this agency is to protect competition, not the individual 
interests of particular competitors, we are not concerned about 
inhibiting BP and Phillips' ability to exercise market power by 
manipulating West Coast prices.
---------------------------------------------------------------------------

    Under normal circumstances we favor structural rather than 
behavioral remedies. That approach underlies the substantial structural 
relief that the Commission unanimously requires in this case. However, 
we believe that in addition, the above-described export restriction is 
appropriate and warranted by the facts and circumstances of this case. 
Accordingly, we dissent from the majority decision not to include in 
the consent order a provision restraining in the future the 
manipulation of ANS crude supply to the West Coast that we believe 
occurred in the past.

Statement of Commissioners Anthony, Swindle, and Leary

    Alaska's North Slope is one of the largest sources of crude oil in 
the world. Crude oil extracted from Alaska's North Slope (``ANS crude 
oil'') is transported through the Trans-Alaska Pipeline System 
(``TAPS'') to the warm water port of Valdez, Alaska. From Valdez, large 
oil tankers transport ANS crude oil to refineries, most of which are 
located on the West Coast of the United States. The West Coast 
refineries process ANS crude oil and other crude oils to produce 
gasoline that ultimately is sold to consumers located on the West 
Coast.
    The three main producers of ANS crude oil are British Petroleum/
Amoco Oil Co., Inc. (``BP''), Atlantic Richfield Corporation 
(``ARCO''), and ExxonMobil Corporation (``Exxon''). BP produces about 
45% of ANS crude oil, ARCO about 30% and Exxon about 22%. Each of these 
producers owns interests in TAPS and the oil tanker fleet that are 
roughly proportionate to its share of ANS crude oil production. Because 
BP currently does not own any refineries on the West Coast, it sells 
most of its ANS crude oil to other West Coast refiners. In contract, 
ARCO and Exxon use most of

[[Page 21440]]

their ANS crude oil in their own West Coast refineries.
    BP's proposed merger with ARCO would give the merged firm about a 
75% share of exploration, production, and transportation of ANS crude 
oil. The complaint alleges that the proposed merger is likely 
substantially to lessen competition in the market for the sale of ANS 
crude oil to West Coast refineries. The basic theory is that prior to 
the merger BP has been able to exercise market power in sales of ANS 
crude oil to West Coast refineries, i.e., BP has been able to 
profitably maintain prices above competitive levels for a significant 
period of time. BP's acquisition of ARCO would increase BP's ability to 
exercise market power, which could cause West Coast refineries to pay 
more for ANS crude oil. While the case raises complex market definition 
and other issues, we have reason to believe that the proposed merger, 
absent the contemplated relief, is likely substantially to lessen 
competition as alleged in the complaint.
    Traditionally, if a merger raises competitive concerns, the 
Commission requires the merging parties to divest assets to eliminate 
the competitive overlap before allowing the merger to be consummated. 
Consistent with this approach, in this case the Commission has accepted 
a proposed order requiring BP and ARCO to divest all of ARCO's assets 
in Alaska to Phillips Petroleum Company (``Phillips''). We believe that 
this divestiture will remedy the antitrust concerns raised by the 
proposed merger. In fact, as the concurring statement of Chairman 
Pitofsky and Commissioner Thompson points out, the consent agreement 
has the potential to ``actually improve upon the level of competition'' 
in the West Coast market. As a result of the planned divestiture, 
Phillips will have about a 30% share of ANS crude oil exploration, 
production, and transportation, and Phillips will have even more crude 
oil to sell on the open market than ARCO has today. Phillips appears to 
have the financial resources and experience to be a vigorous competitor 
in the exploration, production, and transportation of ANS crude oil.
    In addition to this structural relief, Chairman Pitofsky and 
Commissioner Thompson would favor ``behavioral'' relief that would 
require the Commission to engage in extensive monitoring of ANS crude 
oil exports and prices for the next decade. Specifically, they support 
a provision that would prohibit BP and Phillips, for 10 years, from 
``knowingly and intentionally'' exporting ANS crude oil outside the 
West Coast of the United States ``for the purpose of increasing the 
Spot Price of ANS crude oil'' on the West Coast. The proposed export 
restriction also would include a presumptive safe harbor if an export 
sale were made at a ``price reasonably anticipated to produce of higher 
profit than a contemporaneous sale'' on the West Coast. We believe that 
this over-regulatory exportation restriction would be unnecessary, 
unenforceable, and otherwise inappropriate.\1\
---------------------------------------------------------------------------

    \1\ It bears noting that in 1995, Congress explicitly repealed 
the then-existing ban on ANS exports. If Congress were to determine 
that the ban should be reinstated, it could so act. In addition, the 
1995 legislation lifting the export ban granted the President, in 
consultation with the Secretary of Energy, the power to reimpose the 
export ban upon a determination by the Secretary of Commerce that 
``exporting oil * * * has caused sustained oil prices significantly 
above world market levels * * *. '' (30 U.S.C. 185(s)(5)). Such a 
ban would apply equally to all producers, and would not leave some 
producers under the restrictions of the Commission's order while 
permitting other producers to export without inhibition.
---------------------------------------------------------------------------

    It is unnecessary to impose the proposed export restriction on BP 
because BP is highly unlikely to engage in exports following the 
merger. There is some evidence that, prior to the merger, BP 
occasionally exported ANS crude oil to the Far East in order to 
increase spot prices for ANS crude oil on the West Coast. It is 
important to emphasize that BP's unilateral actions were not illegal 
under the antitrust laws--and, indeed, the complaint makes no 
allegation that the exports were illegal.\2\ In any event, however, 
BP's incentives to export will change as a result of the proposed 
divestitures. Before the merger, BP sold most of its ANS crude oil to 
other West Coast refiners because it did not own refineries on the West 
Coast. BP benefitted from higher spot prices because of its status as a 
merchant marketer, and also because Alaska's royalty scheme for ANS 
production was tied to ANS spot prices on the West Coast. After the 
merger, BP will acquire two West Coast oil refineries that were part of 
ARCO, and BP likely will need to use most of its ANS crude oil 
production to operate these two refineries. Since BP will be consuming 
most of its ANS production internally, BP will now benefit from lower 
royalty payments to the extent that the ANS spot price drops. 
Therefore, as a result of the new market structure created by the 
proposed divestitures, BP is extremely unlikely to resume exporting ANS 
crude oil to the Far East (or elsewhere) to increase spot prices for 
ANS crude oil on the West Coast.
---------------------------------------------------------------------------

    \2\ Rather, the exports are cited as evidence that pre-merger BP 
had existing market power with respect to ANS sales on the West 
Coast. (Complaint Paras. 24-26) Therefore, the Commission alleges, 
it would be unlawful for BP to acquire its closest competitor in 
this market, and thereby enhance its market power.
    Of course, if two or more producers appeared to engage in such 
exports through coordinated or other illegal action, the Commission 
could initiate an investigation of such unlawful conduct and take 
appropriate enforcement measures.
---------------------------------------------------------------------------

    Nor is it necessary to impose the export restriction on Phillips. 
Phillips is purchasing ARCO's assets in Alaska lock-stock-and-barrel, 
i.e., Phillips is assuming ARCO's position as an explorer, producer, 
and transporter of ANS crude oil. There is no evidence that ARCO ever 
engaged in strategic ANS exports for the purpose of increasing West 
Coast spot prices. Granted, it might appear that Phillips will have a 
greater incentive than ARCO did to increase spot prices for ANS crude 
oil, because Phillips, like the pre-merger BP, will sell its ANS crude 
oil to West Coast refineries on the merchant market (whereas ARCO 
consumed most of its production in its own West Coast refineries). 
However, Phillips will have a much smaller share of ANS crude oil 
production than did BP--approximately 30% for Phillips versus 45% for 
BP--which makes it quite unlikely that Phillips could successfully 
engage in exports to increase spot prices for ANS crude oil on the West 
Coast.
    Not only is the export restriction unnecessary, it also would be 
extremely difficult to enforce because it would require proof of BP's 
or Phillips's knowledge and intent. We cannot rely on the companies to 
create an unambiguously inculpating ``paper trail,'' and in the face of 
ambiguous evidence, the Commission's burden of proof would be very high 
indeed. We do not think that the public interest would be well served 
by including an order provision that is so obviously difficult to 
enforce that it would have little or no practical effect. Moreover, the 
proposed safe harbor would complicate enforcement proceedings even 
further by introducing additional factual issues that would be 
difficult to resolve.
    We do not believe the export restriction is an appropriate measure 
for the Commission to impose in the context of a merger settlement, 
especially when the proposed structural relief fully restores, and may 
even improve upon, the status quo ante. The export restriction would 
address a pre-existing market condition, under which BP allegedly, 
unilaterally, and sporadically exported ANS crude oil with some slight 
effect on West Coast prices.\3\ We acknowledge the public

[[Page 21441]]

concern over the relatively high price of gasoline on the West Coast, 
but people will be cruelly disappointed if they are led to believe that 
the export restriction would have a detectable effect on the situation. 
Moreover, it is not the Commission's mandate to use merger enforcement 
as a vehicle for imposing its own notions of how competition may be 
``improved.'' Instead, Congress has directed the Commission only to 
prevent any harm to competition that is likely to flow from a merger. 
We believe that the planned divestitures already accomplish that goal.
---------------------------------------------------------------------------

    \3\ We have reason to believe that the upward price effects of 
these sporadic sales amounted to no more than one-half cent per 
gallon at the pump.
---------------------------------------------------------------------------

    We acknowledge that the parties are willing to sign an order with 
an export restriction. We need not speculate about whether they were 
induced to do so because of a compelling need to strike a deal 
promptly, or because they believe the restriction in unnecessary or 
unenforceable. Whatever the reason, in light of the structural relief 
the proposed order achieves, we see no need to bind the parties to an 
unnecessary behavioral provision.
    For the reasons set forth above, we do not believe that the export 
restriction should be included in the proposed order.

[FR Doc. 00-10008 Filed 4-20-00; 8:45 am]
BILLING CODE 6750-01-M