Bp Amoco
9-201-054
REV : M A Y 4, 2010
B ENJA M IN E ST Y M ICHA EL K A NE
BP Amoco (A): Policy Statement on the Use of Project Finance
As two of the largest oil and gas firms in the world, The British Petroleum Company p.l.c. (BP) and Amoco Corporation (Amoco) had a long history of competitive encounters. This rivalry continued into the 1990s in a variety of locations ranging from the United States to the North Sea to, more recently, the Caspian Sea—a region that had opened up to exploration by Western oil companies following the breakup of the Soviet Union in 1991. In describing this rivalry, one analyst wrote:
Azerbaijan was an early battleground for BP and Amoco as these two companies competed for the oil riches of this newly independent country. During the period from 1990 until 1994, BP and Amoco were the two major players in the Azerbaijan oil rush. This competition extended to their respective governments, each of which was trying to support its country’s commercial interests via BP and Amoco.1
Despite their historic rivalry, BP and Amoco agreed to a $48 billion merger in August 1998. Following shareholder approvals in December, they began the process of integration, which involved placement decisions for hundreds of executives and creation of a new organizational structure. Within the Finance Group, BP’s John Buchanan and David Watson retained their positions as chief financial officer and treasurer, respectively. Bill Young, a 20-year Amoco veteran, became head of a unit known as Specialized Finance with responsibility for advising the company’s business units on project structuring, project finance, leasing, and other asset-backed transactions. Shortly after the merger, in March 1999, Da vid Watson asked Bill Young to prepare a recommendation on when and in what circumstances the firm should use external project finance instead of its own internal, corporate funds to finance new investments. One challenging aspect of this assignment was the perception
REV : M A Y 4, 2010
B ENJA M IN E ST Y M ICHA EL K A NE
BP Amoco (A): Policy Statement on the Use of Project Finance
As two of the largest oil and gas firms in the world, The British Petroleum Company p.l.c. (BP) and Amoco Corporation (Amoco) had a long history of competitive encounters. This rivalry continued into the 1990s in a variety of locations ranging from the United States to the North Sea to, more recently, the Caspian Sea—a region that had opened up to exploration by Western oil companies following the breakup of the Soviet Union in 1991. In describing this rivalry, one analyst wrote:
Azerbaijan was an early battleground for BP and Amoco as these two companies competed for the oil riches of this newly independent country. During the period from 1990 until 1994, BP and Amoco were the two major players in the Azerbaijan oil rush. This competition extended to their respective governments, each of which was trying to support its country’s commercial interests via BP and Amoco.1
Despite their historic rivalry, BP and Amoco agreed to a $48 billion merger in August 1998. Following shareholder approvals in December, they began the process of integration, which involved placement decisions for hundreds of executives and creation of a new organizational structure. Within the Finance Group, BP’s John Buchanan and David Watson retained their positions as chief financial officer and treasurer, respectively. Bill Young, a 20-year Amoco veteran, became head of a unit known as Specialized Finance with responsibility for advising the company’s business units on project structuring, project finance, leasing, and other asset-backed transactions. Shortly after the merger, in March 1999, Da vid Watson asked Bill Young to prepare a recommendation on when and in what circumstances the firm should use external project finance instead of its own internal, corporate funds to finance new investments. One challenging aspect of this assignment was the perception