Updated from 12:25 p.m. EST

Phillips Petroleum

(P)

said late Wednesday that it was acquiring

Atlantic Richfield's

(ARC) - Get Report

Alaskan oil fields for up to $7 billion in cash.

The acquisition is likely to pave the way for

BP Amoco

(BPA)

to acquire Arco.

"The acquisition of Arco's Alaskan assets represents a significant step in our strategy of growing our exploration and production business," said Jim Mulva, Phillips' chaiman and chief executive.

Phillips, based in Bartlesville, Okla., said it would pay $6.5 billion in cash at the deal's closing and up to $500 million more based on a formula tied to the price of crude oil. The deal is expected to close early in the second quarter and is subject to approval by the

Federal Trade Commission

.

Earlier Wednesday, the FTC said it had delayed a decision to seek a preliminary injunction that would have prevented the merger of BP Amoco and Arco in order to give BP Amoco a chance to reach an agreement to sell certain assets.

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"We're going to wait to see whether the negotiations and proposals they've put forward would allow us to settle the case," an FTC spokesman said.

The FTC sued in federal court in February to halt BP Amoco's $30 billion acquisition of Arco because of regulatory concerns that a merged company would be the dominant player in the North Slope region of Alaska.

BP Amoco expressed optimism late Wednesday that the sale of Arco's Alaskan oil fields would lead to FTC approval of its acquisition of Arco.

Phillips said the deal would add 1.9 billion barrels to its reserves, nearly doubling them to 4.1 billion barrels. The deal includes Arco's natural gas assets in Alaska, as well as 1.1 million net exploration acres and a 22.3% interest in the Trans-Alaska pipeline. It also includes Arco's shipping fleet, consisting of six tankers in service and three under construction.

The company said the acquisition would add $1.28 a share to its earnings this year and $2.94 a share to its cash flow.

The deal was announced after 6 p.m. EST. Earlier, BP Amoco ended the trading session up 1 5/8, or 3.2%, at 52 3/4, while Arco surged 4 1/4, or 5.4%, to 83 1/4. Phillips closed down 3/8, or 1%, at 39 1/16.

Analysts as well as investors were bearish about Phillips' decision to acquire ARCO's assets.

Matthew Warburton, an analyst with

Warburg Dillon Read

, said the dip in Phillips stock reflected uncertainty about the terms of the deal.

"When you buy assets off BP, you don't get a bargain," said Warburton, noting that a $7 billion price tag could push Phillips' debt to debt plus equity ratio into the low 60's.

"That's quite high," he said. Warburton rates Phillips and BP Amoco each a hold. His firm has an underwriting relationship with BP Amoco but not with Phillips.

Fadel Gheit, an analyst at

Fahnestock

, said he was similarly concerned about the acquisition because it appeared that Phillips might not ultimately be able to derive enough profits from the assets.

"This acquisition will only be attractive if Phillips can demonstrate the upside potential in terms of adding to the acquired reserves or cutting costs," Gheit said. "Arco has been trying to cut costs for the past three years and they have been operating the assets for the last 30 years. They know the quirks of the old car."

Gheit said that based on the implied reserve value, a piece of data used to evaluate the worth of an oil company, Phillips would be paying 50% more than investors, who currently value the company's reserves at less than $2.50 a barrel. Gheit rates Phillips a buy because of a sharp drop in its stock price last summer. He has a hold on BP Amoco and a buy on Arco. His firm does not do any underwriting.