ARCO [LOGO] Media Relations
515 South Flower Street
Los Angeles CA 90071-2201
Telephone 213 486 3385
Facsimile 213 486 0169
FOR IMMEDIATE RELEASE May 4, 1998
ARCO ANNOUNCES MERGER AGREEMENT WITH
UNION TEXAS PETROLEUM
$3.3 BILLION DEAL SUBSTANTIALLY INCREASES ARCO'S
INTERNATIONAL PRODUCTION AND RESERVES
KKR, CONTROLLING 25.6% OF UNION TEXAS STOCK, SIGNS
COMMITMENT TO TENDER UNION TEXAS INTEREST TO ARCO
LOS ANGELES AND HOUSTON -- ARCO (NYSE: ARC) and Union
Texas Petroleum (NYSE: UTH) announced today that they have
signed a definitive merger agreement under which ARCO will
acquire for cash all outstanding shares of Union Texas
common stock for $29 per share in a transaction valued at
approximately $3.3 billion, including debt and preferred
stock of Union Texas. The agreement was approved unanimously
by the Boards of Directors of both companies.
In connection with the transaction, ARCO has obtained a
commitment from Kohlberg Kravis Roberts & Co. to tender its
holdings of 25.6 percent of the outstanding Union Texas
common shares pursuant to the tender offer.
ARCO Chairman and Chief Executive Officer Mike R.
Bowlin called the agreement "an important building block"
for the company. "This acquisition is consistent with our
strategy of building scale and presence in 5 to 6 core
producing areas as a means of creating shareholder value,"
Bowlin added. "Over 90 percent of Union Texas' assets are
located in ARCO's core producing areas, specifically Venezuela,
Indonesia, the North Sea and Alaska. The combination of the
two companies solidifies ARCO's position as a
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significant player in those regions and is another step
toward accomplishing our goal of becoming a great global
player."
Bowlin noted that "the transaction is especially
attractive to ARCO because of the exceptional degree of
overlap between the assets of the two companies and the
ability to implement significant cost reductions as a
consequence." Bowlin said he expects the combination to
eventually yield after-tax cost savings of at least $85
million per year.
The transaction is expected to add 140,000 barrels per
day of oil equivalent (BOE) to ARCO's 1998 production.
Union Texas expects strong production growth over the near
term from assets such as the Britannia field in the North
Sea, the Boqueron and DZO concessions in Venezuela, and the
Alpine field in Alaska.
The transaction will also add 573 million barrels of
proved reserves for a gross cost of $5.76 per BOE. ARCO
estimates it is paying approximately $5 per proved BOE
based on costs attributable to producing oil and gas assets.
In addition, probable and possible reserves also have been
identified for future development.
"In addition to strengthening our core areas," Bowlin
noted, "Union Texas offers several new venture options to
ARCO, ranging from its long-established operations in
Pakistan to its growing position in Kazakhstan and
Azerbaijan in the Caspian region. Finally, Union Texas'
long-term experience in Indonesia's LNG business should
prove valuable as we continue development and marketing of
ARCO's Tangguh gas reserves."
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John Whitmire, Chairman and Chief Executive
Officer of Union Texas, said that "ARCO's tender offer
reflects the proven value and potential of Union Texas
Petroleum. Over the past two years, Union Texas' management
team and our employees around the world have made
significant progress in creating exciting growth prospects
for our company in areas such as Venezuela, Kazakhstan,
China and Northern Africa. I believe it was Union Texas'
growth performance that attracted ARCO to our organization."
Bowlin said he expects the acquisition to be accretive
to operating cash flow in the first year and only modestly
dilutive to earnings through next year. He noted that there
is little downside risk in this transaction as Union Texas'
production from known resources is rising and the cost
reductions anticipated are totally within ARCO's control.
ARCO expects the tender offer will be completed by the
end of the company's second quarter. ARCO plans to finance
the transaction using commercial paper and other short-term
borrowings backed by existing and additional bank facilities.
Under the terms of the merger agreement, ARCO will
commence an all-cash tender offer for all of Union Texas'
outstanding common stock on or prior to May 8, 1998. Any
shares not purchased in the tender offer will be acquired
for $29 per share in cash pursuant to a merger after
completion of the tender offer. As of March 31, 1998, Union
Texas had approximately 85.25 million shares outstanding.
The transaction is subject to usual closing conditions,
including regulatory approvals.
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Union Texas Petroleum is a Houston-based oil and gas
company with 1997 sales of $909 million and assets of $2.0
billion. In addition to its Caspian Sea exploration
projects and major operations in Indonesia, the North Sea
and Venezuela, the company also has operations in Pakistan,
where it produces approximately 45 percent of the country's
domestic oil output.
ARCO is a Los Angeles-based integrated oil and gas
company with 1997 earnings of $1.8 billion and global assets
of $25.3 billion. Worldwide operations include all aspects
of exploration, production and marketing of crude oil,
natural gas, and natural gas liquids, as well as refining,
marketing and transportation of petroleum products. ARCO is
also the majority owner of ARCO Chemical Company.
# # #
[Some of the matters discussed in this news release are
forward-looking statements that involve risks and
uncertainties. Actual results could differ materially based
on numerous factors, including the realized level of crude
oil and natural gas production and other risks detailed from
time to time in the company's SEC reports, including the
1997 report on Form 10-K.]
For information call:
ARCO: (Media) Albert Greenstein, 213-486-3384;
(Investors) Dennis Schiffel, 213-486-1511
UTP: (Media) Carol Cox, 713-968-2714;
(Investors) John Zimmerman, 713-968-2740