In a deal that will nearly double its reserves, Phillips Petroleum Co. is buying Atlantic Richfield Co.'s Alaskan upstream and transportation holdings for $7 billion, continuing Phillips' transition into an integrated oil company that primarily emphasizes exploration and production. The Bartlesville, Okla., major will book reserves totaling 1.9 billion BOE from the transaction. Its total reserve base will jump from 2.2 billion to 4.1 billion BOE as a result. At Prudhoe Bay, Phillips will obtain a 42.6% interest in the natural gas cap and a 21.9% interest in the oil rim, as well as a range of interested in related fields. The deal also brings it a 55% interest in the greater Kuparuk area and a 78% stake in the Alpine Field. The assets also include 1.1 million net exploration acres, a 21.3% interest in the Trans Alaska Pipeline System and the assets of Arco Marine. The transaction, which the companies expected to close in early April, is contingent upon Arco and BP Amoco completing their merger. At press time, the Federal Trade Commision had given the deal clearance. Phillips expects the acquisition to be accretive to its 2000 earnings and cash flow by $1.28 and $2.94 per share, respectively. It anticipates that its return on capital employed from the purchase will be about 12% for 2000 and that it will remain above the cost of capital going forward. Phillips will finance the purchase initially with debt that it has arranged with Bank of America, Chase Manhattan Bank, J.P. Morgan & Co. and Merrill Lynch & Co. It expects cash flow from the acquisition, after exploration and development outlays, will average $500 million per year. The company will use the net cash flow, along with approximately $2 billion of proceeds from its midstream natural gas joint venture with Duke Energy Corp. and its chemicals joint venture with Chevron Corp., to reduce debt. It plans to keep its year-end net ratio of debt-to-total-capital in the 60% range. -Nick Snow
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