Occidental Joins Lyondell and Millennium in Equistar Partnership

Lyondell Petrochemical Co., Millennium Chemicals Inc. and Occidental Petroleum Corp. announced on March 20 the signing of a definitive agreement to expand Equistar Chemicals, LP with the addition of the ethylene, propylene, ethylene oxide (EO) and derivatives businesses of Occidental Chemical Corp., a subsidiary of Occidental Petroleum.

The addition of the Occidental assets will make Equistar the second-largest producer of ethylene in the world, with more than 11.4 billion lb of annual capacity. It will bring Equistar's total propylene production capacity to almost 5 billion lb, making it the world's third-largest producer. Equistar is currently North America's largest producer of polyethylene.

Launched in December 1997 (See Equistar: A New Star in the Chemical Firmament) as a joint venture of Lyondell and Millennium, Equistar was initially comprised primarily of the olefins and polymers businesses of the two companies.

Following the closing of the agreement, which is expected to occur by midyear 1998, Equistar will be owned 41% by Lyondell Petrochemical. Millennium and Occidental will each have a 29.5% share. Dan F. Smith, President and Chief Executive Officer of Lyondell, will also continue to serve as CEO of Equistar. Eugene R. Allspach will continue to serve as Equistar's President and COO.

As part of the transaction, Occidental is contributing the following:

• Olefins plants at Corpus Christi and Chocolate Bayou, Texas, and Lake Charles, La., producing 3.65 billion lb per year of ethylene.
• Ethylene oxide, ethylene glycol and ethylene oxide derivatives businesses located at Bayport, Texas, and Occidental's 50 percent ownership of PD Glycol, which operates EO/EG plants at Beaumont, Texas. (PD Glycol is a 50/50 joint venture with DuPont.)
• A distribution system consisting of more than 950 miles of ethylene/propylene pipelines in the U.S. Gulf Coast and two storage wells in South Texas.
• $200 million of debt currently associated with these businesses.

The partnership will borrow an additional $500 million upon the addition of Occidental's assets and will distribute cash of $425 million to Occidental Petroleum and $75 million to Millennium. Equistar is expected to maintain its investment-grade debt rating.

The transaction also includes a long-term agreement for Equistar to supply the ethylene requirements for Occidental's chlorovinyl business.

"We believe Equistar sets the industry standard for the most efficient and cost effective method of operating these commodity chemical businesses," said Dan F. Smith, CEO of Lyondell and Equistar. "The addition of Occidental will enable us to increase annual profit improvement synergies for these combined businesses to more than $275 million in the year 2000. This translates into additional earnings that are available to Lyondell and our partners during all parts of the business cycle."

"Occidental is an excellent fit with the existing Equistar operations and can be readily integrated into our synergy-improvement and manufacturing efficiency programs," Smith said. "The proximity of the assets to Equistar's existing Gulf Coast facilities enables us to capture additional cost savings and efficiencies."

"The addition of Occidental's ethylene, propylene, ethylene oxide and derivatives businesses provide added opportunity to drive down even further Equistar's already low-cost structure," said William M. Landuyt, Chairman and CEO of Millennium Chemicals Inc. and co-chairman of Equistar's Owner's Committee. "The cost advantage afforded by the additional synergies and the $75 million cash that will be distributed to Millennium Chemicals combine for an EVA(R)-positive and earnings-accretive result."

"We are pleased to be a part of Equistar," said Dale R. Laurance, President of Occidental Petroleum. "The operating synergies and cost savings from the alliance will improve Occidental's earnings from its petrochemical assets and will significantly increase our return on assets in our petrochemicals segment. In addition, it will contribute $625 million to our previously announced goal of raising $4.7 billion to fund the purchase of the Elk Hills field and our common stock repurchase program."

The benefits of the Occidental addition to the Equistar partnership include:

• Increased total value creation from Equistar through additional synergies generated by leveraging costs over a larger asset base. Cost efficiencies have been identified in areas such as: manufacturing, purchasing, transportation and staffing consolidation.
• Opportunity to expand into less cyclical, higher margin markets, which include a significant specialty product component, through EO derivatives. Ethylene oxide derivatives are used by customers to make detergents, coatings, automotive fluids and cleaning products.
• Reduced average cost of Equistar's ethylene production. More than two-thirds of Occidental's ethylene production is from flexible crackers, meaning that they are able to use a wide variety of feedstocks, making them among the lowest cost producers in the industry.
• Expanded diversification into products that use ethylene as a feedstock with the addition of the EO/EG businesses. Nearly 60 percent of ethylene oxide is used to make ethylene glycol, which goes into PET fibers, film and bottles and antifreeze.
• A significantly improved Gulf Coast olefin distribution system with the combination of complementary pipeline assets that already support Equistar facilities and span from Corpus Christi to Lake Charles.

Two new officer positions will be created at Equistar. Brian Gittings of Occidental will be Vice President, Oxygenated Chemicals, and Clifton B. Currin, Jr. of Lyondell will become Vice President, Supply and Optimization. All other Equistar officer positions remain the same. The Equistar governance committee will be expanded from six to nine members, with three representatives from each of the partner organizations. Joining Dan F. Smith of Lyondell and William M. Landuyt of Millennium as a co-chair will be Dale R. Laurance, President of Occidental Petroleum.

Lyondell Petrochemical Company is a major chemical and refining company, with majority ownership positions in the premier olefins, polymers and refining companies in North America. Lyondell is:

• The largest producer of ethylene, propylene and polyethylene in North America and a leading producer of high value-added specialty polymers, color concentrates and polymeric powder through its interest in Equistar Chemicals, LP.
• One of the largest and most profitable refiners in the United States, processing very heavy Venezuelan crude oil to produce gasoline, low sulfur diesel and jet fuel, through its 58.5 percent interest in LyondellCitgo Refining Company Ltd.
  
• The third-largest methanol producer in the U.S., through its 75 oercebt interest in Lyondell Methanol Company LP.

Millennium Chemicals Inc. is a major international chemical company, with leading market positions in a broad range of commodity, industrial, performance and specialty chemicals. Millennium Chemicals Inc. is:

• The second-largest producer of TiO2 in the world and a leading producer of titanium tetrachloride;
• The second-largest producer of acetic acid and vinyl acetate monomer in the United States;
• A leading producer of fragrance and flavor chemicals and other products, including cadmium/selenium pigments and silica gel; and
• Through its partnership interest in Equistar Chemicals LP, a partner in the largest producer of ethylene, propylene and polyethylene in North America and a leading producer of high value-added specialty polymers, color concentrates and polymeric powders.

Occidental Petroleum Corporation has operations in two main businesses: oil and gas and chemicals. In oil and gas, Occidental has ongoing production and exploration in 19 countries, including the United States. Occidental's OxyChem subsidiary is one of the world's largest commodity chemical producers, with interests in chlorovinyls, specialty businesses and petrochemicals. OxyChem is:

• The largest merchant marketer of chlorine and the third-largest producer of PVC resins in the United States.
• The world's largest producer of potassium hydroxide, chlorinated isocyanurate products and resorcinol.
• The world's largest marketer of EDC.
• The number one U.S. producer of chrome chemicals, phenolic molding compounds, antimony oxide and mercaptan warning agents.
• The number two U.S. producer of VCM and sodium silicates.
• The number three U.S. producer of ethylene oxide and ethylene glycol.

Edited by Nick Basta