The US Federal Trade Commission is understood to have received advice from its own staff that the merger, as it stands, should not be allowed. Antitrust officials are thought to be concerned about the impact the takeover would have on petrol prices on the US West coast where BP Amoco would become the dominant supplier of crude oil to refineries.
According to US reports, some FTC officials believe that their objections will be "difficult to impossible to fix" no matter what concessions BP Amoco is prepared to offer.
BP Amoco played down the significance of the interim ruling by FTC officials saying: "We look forward to seeing what objections the FTC has and sitting down with them to consider remedies. We are confident that on that basis the deal will go ahead."
Industry observers suspect that the FTC may have made its objections known in order to strengthen its negotiating position in forthcoming discussions with BP Amoco. The FTC would need a "court-proof" case in order to block the deal outright.
BP Amoco has already offered to make concessions to the Alaskan state authorities to overcome concerns about the Arco takeover. These mainly consist of selling off 175,000 barrels of production capacity of Alaskan crude along with exploration leases. As things stand, the two companies account for 724,000 of the one million barrels pumped each day from the Alaskan fields. Alaska supplies about half the refinery needs of the West Coast, where Arco acts as petrol "discounter" guaranteeing to keep petrolprices as low as possible.
The FTC could demand sales of production assets in Alaska by BP Amoco and an undertaking that Alaskan crude prices are indexed to the price of West Coast Intermediate. BP Amoco could also be required to supply refineries other than its own on terms based on the indexed price.
Analysts calculate that the BP Amoco-Arco merger will yield $1bn of cost savings, of which $200m will come from combining operations in Alaska. The concessions already offered to the Alaskan authorities will knock $60m off these savings.