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Tuesday, August 11, 1998 Published at 22:43 GMT 23:43 UK

Business: The Economy

Black gold

BP shares soared when news of its merger with Amoco broke

BBC North America correspondent Richard Quest casts an eye over the latest oil mega-merger.

It's hard to feel sorry for an oil company - even more so for two oil companies who made profits last year of seven billion dollars.

[ image: Amoco and BP - who will merge next?]
Amoco and BP - who will merge next?
But 'relative' poverty is the cry of the hour......or more accurately that they are not being able to make as much money as they would like.

The recent fall in oil prices in the last year from a high of around 19 dollars a barrel to around 12 last night has taken a very sharp toll on corporate earnings.

In BP's case it costs nearly twelve dollars a barrel just to get the stuff out of the inhospitable Alaskan northern slopes.

And BP has been rather weak in petrochemicals, hence the need to find a merger partner.

On its side Amoco needs the vast oil resources that BP has underground and its refinery abilities.

Unable to be a true competitor with Exxon and Shell on its own, some tie-up became inevitable.

[ image: BBC business correspondent: Richard Quest]
BBC business correspondent: Richard Quest
The new company has set an ambitious target to see savings from costs.

$2bn is set to be raised by the year 2000.

Since the history of mega mergers is that they often end up failing to realise anything like the projections, one can only assume jobs are to go and fast.

BP's 1,000 staff in Cleveland are vulnerable as are many at BP's filling stations in America (which incidentally will be renamed Amoco sites).

For its part Amoco will turn large parts of its exploration over to BP with its vastly increased resources in the field.

Who will be next?

[ image: The oil companies are hoping for huge cost savings]
The oil companies are hoping for huge cost savings
The move to merge has now received the starting gun.

It cannot be long before Mobil and other also rans feel they need to become bigger to compete.

The trend well documented in the defence industry, followed rapidly by the banking sector, then the telecoms sector is now underway in the oil companies.

Few doubt that the phones are buzzing between chief executives to see who can do business with who next.

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