Sir John Browne, chief executive of BP: "This is a great moment in the history of BP and Amoco."

The deal will place it in the top three of international oil producers but 6,000 people worldwide will lose their jobs as a result.

The new company, to be called BP Amoco, will have its headquarters in London.

The merger should be completed by the end of the year, although it needs the green light from shareholders.

Shares in BP surged 15% after the initial announcement but eased back to close at 795p, up 2.85%.

In New York, Amoco was trading at $46 3/4 at 1530 GMT, up from a Monday close of $40-7/8.

Peter Sutherland, chairman of BP: "From a consumer point of view this deal also has advantages."

The merged company will be held 60% by BP shareholders with the remaining 40% held by Amoco shareholders.

In the proposed deal, Amoco shareholders will get a 25% premium above BP's current market value.

Larry Fuller, chairman of Amoco: "Today I am both proud and excited to see the creation of BP Amoco."

The new company will be run by BP chief executive Sir John Browne and co-chaired by BP chairman Peter Sutherland and Amoco chairman Larry Fuller.

Sir John said he hoped the merger will increase pre-tax profits of the two partners by "at least" two billion dollars by the end of 2000.

Amoco and BP believe the bigger companies will win the best opportunities

He said the deal marked: "a superb alliance of equals with complementary strategic and geographical strengths which effectively creates a new super-major that can better serve our millions of customers worldwide.

"International competition in the industry is already fierce and will grow more acute as new players emerge.

"In such a climate the best investment opportunities will go increasingly to companies that have the size and financial strength to take on those large-scale projects that offer a truly distinctive return."

Amoco spokesman Dan Dietscha explains the benefits of the deal

Amoco's head office will become the headquarters for the company's North American operations.

The merger deal is a share swap whereby Amoco shareholders will be offered 3.97 BP shares for each share of Amoco common stock.

Staff cuts

Most of the job cuts will be in the United States but the company said there would be some scaling back of its 17,000-strong UK workforce.

Between them, the two groups currently employ 99,450 staff, with BP - the bigger of the two - employing 56,450.

Further savings would be made from more focused exploration, streamlining business processes and extra buying power.

The group will have combined reserves of around 14.8bn barrels of oil and gas and daily production of three million barrels, with a prime presence in all main exploration areas.

It will also be a leading company in the areas of chemicals, petrochemicals and solar energy.

BP has 17,900 service stations around the world, while Amoco has 9,300 - all in the US.

Slump in oil prices

Setting the controls for a large oil market share

The merger comes against a backdrop of depressed world oil prices which have fallen to their lowest levels in over a decade.

The price of a barrel of Brent crude oil slipped this morning to $11.8 - in real terms the lowest price in 25 years.

Chicago-based Amoco last month reported a fall of more than 50% in second quarter earnings.

Analysts said Amoco, the fourth largest US oil producer, was hurt by its lack of international refining and said a deal with an oil major was only a question of time.

Jeremy Batstone of NatWest stockbrokers said that BP had emerged as the dominant partner.

"It is billed as a merger because there are accounting reasons why that would be more appropriate, but broadly speaking BP is in the top seat," he said.