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BP Offers $7 Billion for Standard Oil

March 26, 1987|MICHAEL A. HILTZIK | Times Staff Writer

NEW YORK — British Petroleum offered today to pay $7.4 billion for the 45% of Standard Oil of Ohio it does not already own, a move that suggests that the oil industry believes the collapse of world oil prices is over.

The purchase, at $70 per share, would solidify BP's position as the third-largest oil producer in the world, after Royal Dutch-Shell and Exxon. Standard Oil is the 24th-largest industrial corporation in the United States, and ranks as the ninth-biggest oil company in terms of assets.

BP said that no layoffs are contemplated as a result of the merger and that the U.S. company's headquarters will remain in Cleveland, where Standard Oil was founded in 1870 as part of John D. Rockefeller's oil trust.

Oil industry observers treated the offer as a clear signal that BP expects oil prices to stabilize at roughly $18 a barrel or higher--the minimum price at which its offer for Standard's shares seems financially prudent. That suggests that BP believes members of the Organization of Petroleum Exporting Countries, under pressure from Saudi Arabia, have reached a lasting accord to support prices.

OPEC 'Back in Command'

"OPEC has demonstrated that it is back in command," said Sanford L. Margoshes, oil industry analyst for the investment firm of Shearson Lehman Bros. in New York. "We've seen the low for oil prices, and they're likely to go higher."

The price of Standard Oil shares soared to $72.375, a gain of $6.50, in early trading today on the New York Stock Exchange, where the stock was the second most heavily traded. Such strong trading indicates that investors expect BP to "sweeten" its bid slightly, perhaps to about $75 a share, in order to forestall complaints from shareholders who believe that the offer is not high enough.

British Petroleum executives tried today to throw cold water on that expectation.

"We don't see this as a progressive bidding game," said David A. G. Simon, a managing director and chief financial officer of the company. He said BP and its financial advisers at the investment banking firm of Goldman, Sachs & Co., consider the offer "fully valued."

The offer, assuming it is accepted by most of the remaining minority shareholders of Standard Oil, will give BP full control of about 750,000 barrels a day of crude oil from the Prudhoe Bay oil field of Alaska, which is Standard Oil's major producing asset.

Oil Discovery Speculated

Some oil industry sources said, moreover, that the timing of the offer will add to speculation that BP and Standard Oil have made a significant drilling discovery in the Arctic National Wildlife Refuge in Alaska, where they have been quietly exploring with the U.S. government's permission.

BP's attempt to acquire all of Standard Oil has been largely regarded as inevitable since the company gained majority ownership of Standard Oil in 1978. BP first gained a significant ownership of Standard in 1969, when the British company traded its own half-interest in the then-fledgling Prudhoe Bay field for 25% of Standard's stock.

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