Striking rich
PORTFOLIO JOHN BULL
In the few weeks which have elapsed since I bought British Petroleum for my second, specu- lative, portfolio the shares have shot up from 103s 6d to 128s, a satisfactory if somewhat nerve-racking performance. I based my case for the shares on the simple thesis that the company was well placed to find oil in Alaska and that if it did so profits could rise by many millions of pounds. That widely shared hope had pushed the share price up to around the 115s mark by the middle of last week when the company suddenly announced an ex- tremely good deal with two American oil com- panies which, if it goes through, will give BP its first chain of petrol stations and its first refineries in the United States. And, finally, on Monday night the company announced that its exploration subsidiary is now making final preparations to begin drilling its first well at Prudhoe Bay, on the north slope of Alaska. The location is about three miles south of the Atlantic Richfield/Humble discovery well on the ninety acres held by BP in the same area.
What catches the eye about the American deal are the favourable terms. The story starts with a bid by an American conglomerate (Slater Walker is an example in this country), Gulf and Western, for Sinclair Oil. The board did not welcome the idea and instead proposed a merger with Atlantic Richfield. The snag is that under American anti-trust laws such a
merger is unlikely to be allowed unless the two companies shed certain assets, which is where BP comes in. The hope is that the salt to BP of Sinclair's 5.000 service stations it Maine, New Hampshire, Vermont, Massachu setts and neighbouring eastern states, plus at Atlantic Richfield refinery. for £125 millior altogether will mollify the United State, authorities. This explains why the two Ameri can companies have been willing to concede such easy terms to BP. The idea is that the purchase price should be paid out of operating profits---starting in 1972.
Much of the buying of BP is coming fron American investors. Indeed. the Americans are very excited about Alaska. The Chase Man- hattan Bank, for instance, in its monthly review of the petroleum situation, allows its enthusi asm to bubble over. It points out that there are fewer than two dozen producing oilfields in the whole of the free world that contain more than a billion barrels of oil. The last one found in the United States was in Texas twenty years ago. The Alaskan field may well be the largest discovery ever made on the North American continent. But the Chase also sen- sibly points out the production difficulties facing oil companies with finds in Alaska. The problems boil down to four: Which markets could absorb the very large quantities of oil that Alaska would have to ship if the operation is to have a sound economic base? How could the oil be brought to those markets? What would the transportation costs be? And what selling price would be necessary to compete with oil from other sources?
The share price of Clarkson (Engineers), in which I have a holding in my first portfolio, has
been subdued for some weeks while the com- pany's bid for Tap and Die Corporation has been contested. The final Clarkson offer for Tap and Die is worth some £7.3 million and will Valuations at 20 November 1968 First portfolio 100 Empire Stores at 76s 6d .. • • £382 125 Phoenix Assurance at 37s 9d • • £236 £2,000 War Loan at £441 £892 330 Witan at 23s 3d .. £384 250 E. Scragg at 36s 6d .. £456 50 Barclays Bank at 79s 6d . • • • £199 100 National and Grindlays Bank at
65s 6d £327 500 Clarkson (Engineers) at 18s 4ld £459 60 Rio Tinto Zinc at 136s 6d £410 1,000 Associated British Foods at 12s .. £600 1,000 Jamaica Public Service at 5s 9d .. £288 250 Associated British Picture at 45s 9d £570 100 Lyons 'A' at 87s £435 Cash with local authority at 7 per cent £1,042 £6,680
Deduct: expenses £182
Total Second portfolio £6,498 600 Pillar Holdings at 15s Old .. £452 500 Negretti and Zambra `A' at 12s £300 410 Gallaher at 29s .. f595 15 Kaiser Steel at £36 8s £546 250 Lonrho at 35s .. £437 100 British Petroleum at 123s £615 300 Vosper at 23s 9d .. £356 Cash in hand .. .. £2,104 f5,405
Deduct: expenses £130
Total £5,275
virtually double the size of the group. Clarkson has now got at least 45 per cent of the Tap and Die equity, so victory is within the company's grasp—despite the hostility of the Tap and Die board. Tap and Die is an assets situation and I expect the Clarkson management to reap some substantial benefits from the merger.
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