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CASE STUDY: BP AMOCO (A): POLICY STATEMENT ON THE USE OF PROJECT FINANCE

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Mazen Labban

Dennis Tourish

Tuncay BABALI, Ph.D

The Caspian region is considered to be one of the next oil and gas frontiers. Along with the re-distribution of political power and the emergence of new balances after the collapse of the Soviet Union, the continuous waves of change also have had significant effects on the prospects for development of energy resources in the region. The objective of this study is to develop a model in order to understand and predict the outcome of the policies of the major actors (governments and companies) in the development and marketing of Caspian Sea energy resources. More specifically, the purpose is to identify the principal factors and their interactions in selecting export routes for the energy resources of the Caspian Basin. My hypothesis in this study is that political factors are dominant in the region. In the final analysis, the political process is more important than economics in determining which pipeline is to be built. The principal inputs to the development of the model will be detailed analyses of; (1) the development of the Baku-Tbilisi-Ceyhan (BTC) pipeline project, and (2) the determination of the export route for Kazakhstan’s giant Kashagan offshore oil field. Such a predictive model can then be applied to other countries in the region, or other similar resource-rich regions of the world. After studying the developments leading to BTC’s success, the promising oil and gas developments in Kazakhstan shall be examined. How will the Kashagan oil field be developed? What alternatives are available to the Kazakh government other than the Russian oil pipeline network? With regard to this question, I put forward the most likely outcome. My methodology will modify Bruce Bueno de Mesquita’s (BDM) model of predicting political events in an attempt to find an answer to the abovementioned central question. Applicability of the BDM model will be tested in the context of energy development, which is different from the original and traditional fields of application for this model.

Vugar Gojayev

Third World Quarterly

Edoardo Bertinelli

Samuel Lussac

In 1993, Azerbaijan was a country at war, suffering heavy human and economic losses. It was then the very example of a failing country in the post-soviet in the aftermath of the collapse of the USSR. More than 15 years after, it is one of the main energy partners of the European Union and is a leading actor in the Eurasian oil sector. How did such a change happen? How can Azerbaijan have become so important in the South Caucasian region in such a short notice? This paper will focus on the Azerbaijani oil transportation network. It will investigate how the Azerbaijani oil company SOCAR and the Azerbaijani presidency are progressively taking over this network, perceived as the main tool of the foreign policy of Azerbaijan. Dealing with the inner dynamics of the network, this paper will highlight the role of clanic and crony capitalist structures in the makings of a foreign policy and in the diversification of an emerging oil company.

Witold Olejnik

This article outlines the principles of energy diplomacy and power of balance in main directions of country's foreign policy. The first section of this article demonstrates the way in Azerbaijan derived many habits from the Azerbaijan Democratic Republic, the first Muslim democracy in the world. Even though world is differentiated nowadays, some of today's tendencies are acquired from those stated by Fatali Khan Khoyski, the first prime minister of ADR. The study examines principles and main directions of Azerbaijan foreign policy demonstrated by National Security Concept of the Republic of Azerbaijan, adopted in 2007, and Statement made by H.E. Mr. Elmar Mammadyarov, the Minister of Foreign Affairs of the Republic of Azerbaijan at the General debate of the Sixty-Ninth Session of the United Nations General Assembly. The second section of this article shows the directions Azerbaijan evolved from struggling for independence and territorial integrity to act as a relatively strong international actor today. This section studies tendencies in  country's Western-oriented foreign policy associated with oil diplomacy and contracting some multinational oil companies, showing that some of strategic economic steps were not only pure business-wise, but also pivotal for reaching country's political goals.

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BP Amoco (A): Policy Statement on the Use of Project Finance

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BP Amoco (B): Financing Development of the Caspian Oil Fields

• BP Amoco (B): Financing Development of the Caspian Oil Fields  By: Benjamin C. Esty and Michael Kane

British Petroleum Merger with Amoco

• First Online: 30 November 2018

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• B. Rajesh Kumar 2  

Part of the book series: Management for Professionals ((MANAGPROF))

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During 1998, BP merged with Amoco in a deal valued at $48.2 billion. At that time, it was billed as the largest oil industry merger ever. The deal was also the largest takeover of an American company by a foreign company. After the merger, BP Amoco became the largest company in Britain with more than $140 billion in market capitalization and one of the world’s top three oil majors. The merger deal was a share swap deal whereby Amoco shareholders were offered 3.97 BP shares for each share of Amoco common stock. The deal involved exchange of American depository receipts equivalent to 3.97 of its shares for each Amoco share. There were a lot of operational synergies from the deal as a result of complementary strengths. BP’s strength lays in its exploration skills, while the company was weak in the business of refining oil into products and chemicals as well as in areas of marketing and distribution. Amoco had strong marketing and distribution network. The merger consolidated the combined company’s spending on exploration which exceeded that of Exxon and Royal Dutch Shell. The combined entity obtained oil leadership position in Alaska, the Gulf of Mexico, the North Sea, and the Caspian Sea. The merger was a strategic fit as both BP and Amoco operations were purely complementary in nature. It made Amoco less sensitive to natural gas and chemicals and BP less sensitive to crude oil. Though the deal was stated as merger, in fact it had been a friendly acquisition whereby BP controlled 60% of the new merged company. The cumulative returns for BP during the 253-day merger period (−10 to +242) interval were approximately 39%.

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BBC News (1998) Business: the company file BP and Amoco in oil mega merger. http://news.bbc.co.uk/2/hi/business/149139.stm . Accessed 22 January 2018

Ibrahim Y (1998) British Petroleum is buying Amoco in a $48.2 billion deal. https://www.nytimes.com/1998/08/12/business/british-petroleum-is-buying-amoco-in-48.2-billion-deal.html . Accessed 22 January 2018

Oil and Gas Journal (1998) BP Amoco merger creates third supermajor. https://www.ogj.com/articles/print/volume-96/issue-33/in-this-issue/general-interest/bp-amoco-merger-creates-third-39supermajor39.html . Accessed 22 January 2018

Oil and Gas Journal (1999) BP Amoco finish merger after FTC approval. https://www.ogj.com/articles/print/volume-97/issue-2/in-this-issue/general-interest/bp-amoco-finish-merger-after-ftc-approval.html . Accessed 22 January 2018

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Kumar, B.R. (2019). British Petroleum Merger with Amoco. In: Wealth Creation in the World’s Largest Mergers and Acquisitions. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-030-02363-8_24

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BP Amoco (A): Policy Statement on the Use of Project Finance

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Following the BP/Amoco merger in December 1998, CFO David Watson asked Bill Young to recommend when and under what circumstances the firm should use external project finance instead of internal corporate funds to finance new capital investments. As part of this assignment, Young and his team must review each firm's current policy regarding project finance and evaluate the various rationales used to justify its use. Following this review, his team created a new policy statement recommending that BP Amoco finance capital expenditures using corporate funds except in three special circumstances: mega projects, projects in politically volatile areas, and joint ventures with heterogeneous partners. Whether the general rule of using corporate funds and whether the specific exceptions to the rule are appropriate for the merged entity are subjects for class discussion.

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The BP Amoco/ARCO Merger: Alaskan Crude Oil

The merger of British Petroleum and Atlantic Richfield as proposed would have made BP the sole operator and 70 percent owner of Alaskas oil fields. The Federal Trade Commission challenged the merger partly out of concern for higher West Coast gasoline prices, and required a divestiture ARCOs entire Alaskan business. However, West Coast crude prices are governed by the cost of the marginal source of supply to the region, imported oil. Because any cutback in sales of Alaskan oil on the West Coast could be offset with higher imports, with minimal impact on the import price, the merger would have raised crude prices by tenths of a penny per gallon at the most. The impact on consumer prices was even more tenuous. More serious concerns, which were given less attention, were that BP might gain monopsony power in bidding for oil leases and perhaps in negotiating with suppliers.

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Bp amoco (b): financing development of the caspian oil fields case study memo, case study recommendation memo assignment.

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Finance & accounting case study | authors :: benjamin c. esty, michael kane.

British Petroleum and Amoco were the two largest members of the Azerbaijan International Oil Consortium (AIOC), an 11-firm consortium that was spending $10 billion to develop oil fields in the Caspian Sea. As of March 1999, AIOC had completed a $1.9 billion development project known as Early Oil. The two companies, however, had financed their shares of this project in different ways: BP used internal funds (traditional, on-balance sheet corporate finance), whereas Amoco was one of five AIOC partners that raised $400 million of project finance. Following the BP/Amoco merger in December 1998, managers in the combined firm's finance group had to reassess the Early Oil financing strategy and determine the best way to finance its share of the $8 billion Full Field Development Project. Should it use internal funds, project finance, or a mixture of the two?

Costs, Mergers & acquisitions, Project management, Risk management

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• The details of what, when and how. NO 'why'.
• This section should be very specific (100% clear). It must be actionable (How much will it cost, when, how, who). The reader should be able to read this and know how to carry out this recommendation.
• Some cases will require more than one recommendation. It often happens that the firm will require more than one recommendations as there are numerous unknown in the market place.

Is the recommendation clear and actionable? Does the firm has capability to implement the recommendations or does it needs to hire fresh talent?

4. Basis for the Recommendations

• Here the reader of the case memo will learn WHY each recommendation is the UNIQUE right thing to do.
• 2-3 solid reasons are typical. The reasons should be backed by clear logic, organization’s vision and mission statements, and robust data analysis.
• Orignal recommendation can be backed by few supporting roadmap to actions. In operations cases the Critical Path Method of PERT can be used to illustrate the point.
• Support includes impact on profit, share, and anything else that can affect long-term business goals of the firm.
• Analysis should address applicable quantitative issues such as NPV, break even analysis, pro forma statement of project budget, sensitivity analysis; as well as qualitative issues, such as, technology consistency, architectural conformance, innovation potential, etc.
• Appeals to precedent and anecdotal evidence in absence of data, but only in limited, carefully constrained manner.
• Shows how the recommendation will put the firm at a competitive advantage or is simply acompetitive necessity.
• The goal is to read the basis and conclude the recommendation.
• Is the recommendation an inescapable conclusion of the basis?
• Does the basis for recommendation appropriately consider: 1. Core competencies and consistency with mission? 2. External customers and internal clients? 3. Competitors? 4. Attractiveness – quantitative measures if applicable (e.g., NPV, ROI, break-even, payback)?
• Are all assumptions explicitly stated (e.g., needs, technology trends)?

5. Discussions

• Outline other alternatives not selected and provide brief reasoning for doing so.
• Discuss risks and key assumptions for BP Amoco (B): Financing Development of the Caspian Oil Fields case memo (use full disclosure, reference options grid) of your recommendation.
• When you give a precise number or range, you must support the basis as well.
• Is the analysis thorough with key alternatives fairly considered using options grid?
• Risks associated with recommendation for BP Amoco (B): Financing Development of the Caspian Oil Fields are properly addressed given the present capabilities and future expectations?

6. Next Steps for BP Amoco (B): Financing Development of the Caspian Oil Fields case study memo

• Clearly specify the roadmap of the execution. Provide specific date and action that are required to carry on the next steps.
• Task assignment, objectives, roles and metrics should be mentioned in advance to reduce ambiguity and replication. (what will be done, by whom, and by when)
• Clear follow-up/next steps?
• If appropriate, lay out timeline with key milestones to implement recommendation.

7. Exhibits for BP Amoco (B): Financing Development of the Caspian Oil Fields case memo

• An Exhibit can be a data chart, map, graph, grid, or simple data table.
• While doing the calculations please mention all the assumptions. The reader won’t able to decipher each of the assumption so make them explicit.
• Exhibits should have Title, sources, footnotes to calculation. The point of the Exhibit should be instantly clear to the reader.
• Exhibits should be cited in the proper order (i.e., do not cite Exhibit 4 first in your Memo and then Exhibit 2).

Checklist for BP Amoco (B): Financing Development of the Caspian Oil Fields case study memo exhibit

• Is the analysis presented in the case memo - precise, accurate, and data-based?
• Are the exhibits clearly laid out, titled, and referenced in the case study memo?
• Is every assumption mentioned in the case memo is explicitly listed?

NOTE: Every memo may not include every element described above. The specific case will dictate what must be included. For custom case memo please email us or process the order.

You can order bp amoco (b): financing development of the caspian oil fields case study recommendation memo with us at fern fort university ., next 5 case study recommendation memo.

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British Petroleum Company, The, p.l.c., and Amoco Corporation

• Competition

Case Summary

Consent order in BP Amoco p.1.c. (created by the merger of British Petroleum Company, p.1.c. and Amoco Corporation) requires the divestiture of 134 gas stations in eight markets and nine Light petroleum products terminals settling charges that the merger would substantially reduce competition in certain wholesale gasoline markets.

Case Timeline

Document Complaint (13.82 KB)

Document Decision and Order (45.25 KB)

Document Statement of Commissioner Swindle (11.69 KB)

Document Statement of Chairman Pitofsky and Commissioners Anthony and Thompson (10.5 KB)

PRESS RELEASE: Announced Actions for April 22, 1999

Document Agreement Containing Consent Order (46.13 KB)

Document Complaint (12.68 KB)

Document Analysis of the Proposed Consent Order and Draft Complaint to Aid Public Comment (18.34 KB)

Document Statement of Chairman Pitofsky, Commissioner Anthony, and Commissioner Thompson (9.97 KB)

Document Statement of Commissioner Swindle (11.02 KB)

PRESS RELEASE: BP/AMOCO Agree to Divest Gas Stations and Terminals to Satisfy FTC Antitrust Concerns