Oxy joins Lyondell-Millennium petrochem JV

Equistar production capacities [245,138 bytes]

Occidental Chemical Corp. has signed a definitive agreement to join Equistar Chemicals LP, a joint venture of Lyondell Petrochemical Co. and Millennium Chemicals Inc.

The addition of OxyChem's ethylene, propylene, and ethylene oxide and derivatives businesses will make Equistar the second largest ethylene producer, venture partners say.

The expanded partnership will have ethylene capacity of 11.4 billion lb/year and propylene capacity of almost 5 billion lb/year (see table). Equistar is already the U.S.'s largest polyethylene producer. The deal is the latest divestitute by parent Occidental Petroleum Corp. to help fund its acquisition of Elk Hills field (OGJ, Oct. 13, 1997, p. 35).

Oxy's assets

Equistar was formed last year from the olefins and polymers businesses of Lyondell and Millennium (OGJ, Oct. 20, 1997, p. 45).

Initial ownership was Lyondell 57% and Millennium 43%. The expanded JV will be owned 41% by Lyondell and 29.5% each by Millennium and Oxy.

Occidental Chemical is contributing the following assets to the Equistar JV:

Olefins plants at Corpus Christi and Chocolate Bayou, Tex., and Lake Charles, La. (combined ethylene capacity, 3.65 billion lb/year).
Ethylene oxide (EO), ethylene glycol (EG), and EO derivatives businesses at Bayport and Beaumont, Tex. (includes Occidental's 50% stake in PD Glycol, a joint venture with DuPont Co. that operates EO/EG plants at Beaumont).
A distribution system including more than 950 miles of ethylene/ propylene pipelines on the U.S. Gulf Coast and two storage wells in south Texas.
Associated debt of $200 million.

The partnership will borrow another $500 million upon the addition of OxyChem's assets and distribute $425 million in cash to Oxy and $75 million to Millennium. The transaction includes a long-term supply deal, under which Equistar will fulfill the ethylene requirements of Oxy's chloro vinyl business.

Benefits of the deal

The partners say they have identified potential cost savings in manufacturing, purchasing, transportation, and staffing. Equistar's average cost of ethylene production will decline because more than two thirds of Oxy's ethylene capacity involves flexible crackers, which can process a variety of feedstocks. This enables these plants' operators to take advantage of changing feed prices. The deal will enable Equistar to expand into "less cyclical, higher-margin markets" with the addition of the EO and derivatives businesses.

Dan F. Smith, CEO of Lyondell and Equistar, said, "The proximity of the assets to Equistar's existing Gulf Coast facilities enables us to capture additional cost savings and efficiencies ellipse(that) will enable us to increase annual profit improvement synergies for these combined businesses to more than $275 million in the year 2000."

Oxy Pres. Dale R. Laurance, said, "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."