In front of the boom

Savvy de­ci­sions at the right time strengthen petro­chem­i­cal gi­ant Lyon­del­lBasell’s hand

Houston Chronicle Sunday - - BUSINESS - By Jor­dan Blum

TEN years ago, Lyon­dell Chem­i­cal was tar­geted by a Soviet-born bil­lion­aire will­ing to vastly over­pay for it as he sought to cre­ate a global petro­chem­i­cal gi­ant by merg­ing the Hous­ton chem­i­cal maker with his own com­pany in Europe.

The $13 bil­lion deal left the com­bined com­pany, Lyon­dell Basell In­dus­tries, bur­dened with debt just as a wors­en­ing U.S. fi­nan­cial cri­sis plunged the global econ­omy into a deep re­ces­sion. Bank­ruptcy fol­lowed in 2009. Plants closed, thou­sands of work­ers lost jobs and share­hold­ers were all but wiped out, prompt­ing plenty of out­rage and law­suits.

To put it mildly, said Hassan Ahmed, a chem­i­cal in­dus­try an­a­lyst, “It didn’t seem like the best deal.”

Fast-for­ward to to­day, and Lyon­dell Basell, which emerged from bank­ruptcy in 2010, is grow­ing rapidly, spend­ing bil­lions to ex­pand its pro­duc­tion along the Gulf Coast and its mar­kets around the world. The com­pany’s stock mar­ket val­u­a­tion has roughly dou­bled in five years to $40 bil­lion, mak­ing Lyon­dell Basell the na­tion’s sec­ond-largest chem­i­cal com­pany be­hind only the re­cently merged Dow DuPont of Midland, Mich., and Wilm­ing­ton, Del.

The turn­around, an­a­lysts say, is the re­sult of a man­age­ment team that guided the com­pany out of bank­ruptcy, trimmed costs and me­thod­i­cally built on its Texas op­er­a­tions, po­si­tion­ing Lyon­dell Basell to ride a shale drilling boom that pro­vided plen­ti­ful and cheap sup­plies of nat­u­ral gas, the feed­stock for chem­i­cals and plas­tics. The com­pany first fo­cused on quickly ex­pand­ing plants in Chan­nelview, La Porte, Vic­to­ria and Cor­pus Christi, re­quir­ing mod­est in­vest­ments that didn’t sad­dle the com­pany with much debt.

As profits have grown into the bil­lions each year— the com­pany on Fri­day re­ported a $1.1 bil­lion profit in the third quar­ter — so have Lyon­dell Basell’s am­bi­tions. Con­struc­tion re­cently be­gan on a $700 mil­lion plant in La Porte to make stronger, thin­ner plas­tics to serve grow­ing Asian mar­kets. A $2.4 bil­lion chem­i­cals com­plex in Chan­nelview and Pasadena, the com­pany’s most ex­pen­sive project ever, was given the green light this sum­mer.

Last week, CEO Bob Pa­tel said he plans to fol­low that project with an­other a $2 bil­lion-plus plant, which would use propane, a byprod­uct of nat­u­ral gas pro­cess­ing, to make chem­i­cals and the plas­tic polypropy­lene for North and South Amer­i­can mar­kets.

“They’ve done a phe­nom­e­nal job,” said Ahmed, who fol­lows the chem­i­cal in­dus­try for the New York fi­nan­cial re­search firm Alem­bic Global Ad­vis­ers. “They didn’t want to do any­thing too spec­tac­u­lar, and they made sure the ship was steady. That’s worked ex­tremely well for them.”

Lyon­dell Basell counts about 13,000 em­ploy­ees world­wide, in­clud­ing 4,800 in greater Hous­ton, where about 1,000 work in the global head­quar­ters down­town.

The com­pany has roots in two con­ti­nents. Lyon­dell was spun out from the oil com­pany At­lantic Rich­field Co., or ARCO, al­most 30 years ago. The Dutch chem­i­cal maker Basell was formed as a joint ven­ture be­tween Royal Dutch Shell and Ger­man multi­na­tional BASF.

The Soviet-born bil­lion­aire Len Blavat­nik (who still con­trols about 15 per­cent of the com­pany) ac­quired Basell in 2005, be­fore gob­bling Lyon­dell in 2007. Pa­tel, then an ex­ec­u­tive at Chevron Phillips Chem­i­cal Co., fol­lowed the merger at a dis­tance, re­call­ing it as a dif­fi­cult and heav­ily debt-fi­nanced deal that didn’t

“At the time I was very ner­vous about join­ing a bank­rupt com­pany, but I be­lieved in the scope of the com­pany and the po­ten­tial.” Bob Pa­tel, Lyon­del­lBasell CEO

seem prac­ti­cal.

After the bank­ruptcy fil­ing, Jim Gal­lo­gly, a vet­eran of Cono­coPhillips and Chevron Phillips, was hired as CEO. He brought in Pa­tel as a se­nior vice pres­i­dent in early 2010, right be­fore Lyon­del­lBasell emerged from bank­ruptcy. Pa­tel took the reins in the be­gin­ning of 2015 when Gal­lo­gly re­tired.

Gal­lo­gly and Pa­tel faced tough choices as they worked to re­build the com­pany, clos­ing about 10 plants and slash­ing al­most 5,000 em­ployee and con­trac­tor jobs, es­pe­cially in Europe. With fewer global plants in op­er­a­tion and fewer peo­ple on the pay­roll, the com­pany fo­cused on mak­ing its re­main­ing op­er­a­tions more ef­fi­cient and prof­itable.

Un­like the merger, the tim­ing of the re­or­ga­ni­za­tion could not have been bet­ter. The shale boom was kick­ing in, pro­duc­ing vast quan­ti­ties of the nat­u­ral gas liq­uid eth­ane, which is the feed­stock for the pri­mary build­ing block of most plas­tics, ethy­lene.

The ex­ec­u­tives opted to ex­pand their Texas plants to churn out more ethy­lene and com­pleted those projects much faster than com­peti­tors, who were build­ing fa­cil­i­ties from scratch.

“When the com­bi­na­tion oc­curred, shale gas wasn’t re­ally vis­i­ble yet,” Pa­tel said. “In hind­sight, it’s turned out to be an in­cred­i­ble deal be­cause of the ad­di­tional tail­winds from shale gas.”

Lyon­del­lBasell has be­come a ma­jor player in Gulf Coast’s petro­chem­i­cal boom, fu­eled not only by the flood of nat­u­ral gas, but also ac­cess to for­eign mar­kets through grow­ing ex­port ter­mi­nals at the Port of Hous­ton and other Texas ports. The Amer­i­can Chem­istry Coun­cil, a trade group, es­ti­mated the Texas Gulf Coast ac­counts for about $70 bil­lion of the $185 bil­lion in petro­chem­i­cal plants com­pleted since 2010 or planned through 2023. Still hun­gry

Even though the com­pany is thriv­ing, Pa­tel wants to in­ject a new sense of ur­gency to co­in­cide with the 10-year an­niver­sary of the merger. He hopes to re-cre­ate the same “hunger and en­thu­si­asm” that per­me­ated the or­ga­ni­za­tion when the com­pany was still fight­ing for its life, de­ter­mined to prove to doubters that it could pros­per in a com­pet­i­tive global in­dus­try dom­i­nated by large play­ers such as Dow, DuPont and BASF.

“That’s not easy to do,” Pa­tel said. “You want to have that drive and hunger, but you don’t want peo­ple to feel fear­ful.”

The $2.4 bil­lion ex­pan­sion that will span lo­ca­tions in Chan­nelview and Pasadena is sched­uled to break ground in the spring. The plant will make propy­lene ox­ide, which is used to make bed­ding, carpeting, coat­ings, build­ing ma­te­ri­als and ad­he­sives, and the by-prod­uct ter­tiary butyl al­co­hol, which is re­fined into an ad­di­tive that makes fuels burn cleaner. The plant will have the big­gest pro­duc­tion ca­pac­ity in the world for these chem­i­cals, ca­pa­ble of man­u­fac­tur­ing 1 bil­lion pounds of propy­lene ox­ide and 2.2 bil­lion pounds of ter­tiary butyl al­co­hol a year.

The planned $2 bil­lion project that Pa­tel re­cently dis­closed would likely get built on the Texas Gulf Coast, but a fi­nal de­ci­sion on the in­vest­ment may not come un­til the end of 2018. It could also be one of the com­pany’s last megapro­jects here, Pa­tel said.

The low prices of oil, an­other petro­chem­i­cal feed­stock used by for­eign com­peti­tors, is erod­ing the cost ad­van­tages of nat­u­ral gas-based chem­i­cals. Lo­cal con­struc­tion costs also are ris­ing as tighter com­mod­ity and la­bor mar­kets make ma­te­ri­als and work­ers — es­pe­cially those in skilled trades such as weld­ing — more ex­pen­sive. Soon, Pa­tel said, Lyon­del­lBasell may again look in­ter­na­tion­ally to grow.

“The U.S. still has an ad­van­tage, but it’s not as great as it was,” Pa­tel said. “So I think that’s likely go­ing to dampen the amount of ex­pan­sion in the fu­ture. It’ll be a more paced in­vest­ment.” jor­ twit­­blum23

Yi-Chin Lee / Hous­ton Chron­i­cle

Chief ex­ec­u­tive Bob Pa­tel wants to re-cre­ate the “hunger and en­thu­si­asm” that helped Lyon­del­lBasell suc­ceed in the years after the merger. “That’s not easy to do,” Pa­tel says. “You want to have that drive and hunger, but you don’t want peo­ple to feel fear­ful.”


Lyon­del­lBasell is start­ing con­struc­tion on a $700 mil­lion plas­tics plant at its ex­ist­ing petro­chem­i­cal hub in La Porte.

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