Outlook: Browne heads up Rockefeller Road

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The Independent Online
SIR JOHN Browne makes an unlikely John D Rockefeller. His one nod in the direction of ostentation is the occasional Havana that he likes to puff on. That apart, the diminutive chief executive of BP Amoco is hardly the archtypal oilman, being more at home at the opera than on board an oil rig. Nevertheless, Sir John is beginning to dominate the oil industry in much the same inexorable way as did his illustrious predecessor nearly a century ago.

Provided the board of Atlantic Richfield does not get cold feet, then by the end of this week Sir John will be in charge of the second biggest oil company in the world.

Moreover, he will have re-assembled three of the six businesses that the Rockefeller empire was forcibly broken into in 1911 after US anti- trust busters decided that Standard Oil had become too big for its boots and too dominant for the good of the American economy.

Last year's pounds 80bn BP-Amoco merger brought together Standard Oil of Ohio (today part of BP) and Standard Oil of Indiana ( the forerunner of Amoco). Now Atlantic Refining as Arco was known when it became a secret affiliate of Standard Oil in 1874, is poised to join the Browne family as well.

The Arco deal is certainly opportunistic. Sir John is taking advantage of both the low oil price which has eaten away at oil company valuations and the soaring value of BP Amoco shares since the start of the year to pick up Arco on the cheap using his own paper.

But the line from Britannic House is that this latest merger is not about size for the sake of it. The fact that BP Amoco will leapfrog the accident- prone Royal Dutch Shell and land in second spot behind Exxon-Mobil is mere coincidence. Even with Arco under its belt, BP Amoco will remain only three quarters of the size of Exxon-Mobil. It could bridge that gap by acquiring, say, Chevron but even someone as single-minded and energetic as Sir John needs to take a rest sometime.

The logic of the BP-Amoco deal was hard to fault which was partly why it sailed through the regulators virtually unscathed. There is every prospect that the acquisition of Arco will enjoy a similarly smooth passage since there it involves virtually no concentration of market power. As an added bonus, there is only the remotest of chances of a rival intervening to spoil the party. Any move on Arco by Chevron, Texaco or Shell would run smack bang into anti-trust problems on the US West Coast where they all have big petrol operations.

Arco, with its heavy dependence on Alaska, has looked vulnerable since last autumn's asset write-downs and a belated cost-cutting drive. BP Amoco, which has its own substantial Alaskan operations, looks best placed to capitalise. If the success of the Amoco merger is any guide, Sir John should be able to double the $500m of cost savings that the Arco management is currently trying to wring from the business.

The only question mark is whether he is overstretching himself, given that BP is only just digesting Amoco. The answer is that, in reality, this deal ranks as little more than a bolt-on acquisition. Moreover it is one which might have moved out of range, along with the strengthening oil price, had Sir John hung around too long.