More than four decades after inventing high density polyethylene, Phillips Petroleum Co. has retaken the top spot in the North American HDPE market, thanks to a merger of Phillips' chemicals business with that of Chevron Corp. The combination allows fourth-ranked Phillips and sixth-ranked Chevron to swoop ahead of the proposed Dow Chemical-Union Carbide merger, Exxon Mobil Corp. and Equistar Chemicals LP.
The new Houston-based venture also will rank among the top five in low density PE and polystyrene and top 10 in polypropylene and linear LDPE.
The deal must be approved by the Federal Trade Commission. Phillips officials said the only possible objection might come from the combining of the firms' HDPE pipe operations — Phillips Driscopipe and Chevron's Plexco Division. (See related story, Page 1.)
"This is an opportunity to create a chemical company that can really grow," said Jim Gallogly, Phillips' vice president of olefins and polyolefins, who will serve as chief executive officer of the joint venture. "We have outstanding people and ambitions."
The 50-50 venture between the well-established oil firms will have annual sales of about $6 billion and also will be one of the world's top producers of olefins, aromatics and styrenics.
Phillips, of Bartlesville, Okla., produces HDPE and PP in Pasadena, Texas, and HDPE at joint venture plants in Shanghai and Singapore. A third HDPE venture plant is under construction in Qatar.
Chevron, based in San Francisco, makes HDPE in Orange, Texas; HDPE, LDPE and LLDPE in Cedar Bayou, Texas; and PS in Marietta, Ohio.
The new venture expects annual savings of at least $150 million and will cut about 600 of 6,000 jobs from the combined operations, a Phillips news release said. Most of these cuts will come from overlaps in corporate staff.
Industry analysts said Phillips could benefit by gaining access to LLDPE markets that Chevron currently sells into. Phillips has patented technology for making metallocene LLDPE in its traditional loop-slurry HDPE plant in Pasadena, as well as at the plant being built in Qatar.
"We're producing metallocene film resins, but we're more known for high density PE," Gallogly said by telephone Feb. 10. "This will open us up to a variety of customers we haven't served before. With our combined technical support, we'll know what the film customer needs at the end of the day."
"Phillips' metallocene catalysts allow it to go after flexible applications, but they have no market experience," said Balaji Singh of Houston's Chemical Market Resources consulting firm. "Now they can be a full-service polyethylene company."
Surinder Bahl, a consultant with Houston-based TownsendTarnell Inc., said the deal could rejuvenate Phillips' technology licensing efforts by applying its widely licensed loop-slurry technology to LLDPE production.
Rumors of a total Phillips-Chevron merger have circulated for several months, as the firms have looked for the best way to compete with larger rivals like Exxon Mobil and BP Amoco Corp. Singh and Bahl each said the delays in those megamergers may have led Phillips and Chevron instead to split their pertrochemicals units off into a joint venture.
But Gallogly said that's not the case. "We were looking for partners and each came out at the top of the other's list. What the oil companies are doing is a different story."
Both Phillips and Chevron have a big piece of the HDPE pipe and blow molding markets. Rising demand for HDPE pipe resin could lead the venture to dedicate a reactor solely to producing that material, Gallogly said.
He added that the venture has no plans to sell Chevron's PS holdings or Phillips' K-Resin styrene butadiene copolymer or Ryton polyphenylene sulfide product lines. The possibility of such sales was raised by several industry sources who said those businesses might not fit the venture's polyolefins/olefins focus.
The venture will be governed by a six-member board of directors, including its CEO and chief financial officer.