press release

Chevron Press Release - Chevron and Phillips to Form Joint Venture Creating World-Class Chemical Company

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SAN FRANCISCO, Feb. 7, 2000 -- Chevron and Phillips today announced the signing of a letter of intent and exclusivity agreement to combine their worldwide chemicals operations into a 50/50 joint venture with more than $6 billion in assets that will be a world-scale competitor in the petrochemicals industry.

The new company, based in Houston, will combine the olefins, polymers and aromatics businesses of Chevron and Phillips. The transaction is expected to close by mid-year, following final approval by the companies' boards, the signing of definitive agreements and regulatory review.

"Our two petrochemicals operations are a great fit," said Dave O'Reilly, chairman and CEO of Chevron Corp. "This combination will draw complementary products and technology along with outstanding employees from both organizations to create a formidable company, able to compete with the best in this expanding industry.

"We expect synergy from the combined operations to reduce annual costs by $150 million and to improve the effectiveness of capital spending," O'Reilly said.

"Phillips and Chevron are strong companies with excellent chemicals assets and a shared vision of growth for their chemicals businesses," said Jim Mulva, chairman, president and chief executive officer of Phillips Petroleum Co. "This joint venture creates one of the world's leading chemicals producers, with a global market presence, excellent growth prospects and a strong financial position."

The new company will be one of the world's top five producers of olefins and polyolefins, which are used in the manufacture of basic chemicals and plastics. Annual ethylene gross capacity will be 8.2 billion pounds, while annual polyethylene gross capacity will be 5.5 billion pounds. The venture will also be a global top-five competitor in the aromatics and styrene businesses.

In the next few months, the joint-venture company will arrange $1.6 billion of debt financing, and will make one-time cash payments of $800 million to each parent at or shortly after closing.

The transaction will be accretive to the net incomes and net cash flows of both Chevron and Phillips after implementation. Revenues of the combined chemical businesses for 1999 were nearly $6 billion.

The new venture's annual cost reduction target of $150 million can be achieved by tapping efficiencies in purchasing and logistics, enhancing feedstock flexibility, optimizing production scheduling, improving organizational efficiency and reducing staffing. Approximately 600 positions are expected to be reduced from the combined staffs of 6,000 for Chevron Chemical Co. and Phillips Chemical Co.

The new company, to be named later, will be governed by a six-member board of directors consisting of two Chevron-appointed directors, two Phillips-appointed directors and the joint venture's CEO and CFO, who will be non-voting members.

Darry Callahan, president of Chevron Chemical Co., will be one of the Chevron-appointed directors and will lead Chevron's integration team. Marty Klitten, Chevron Corp. CFO, will be the other Chevron-appointed director.

Phillips has appointed Jim Mulva, Phillips' chairman, president and CEO, and Bill Parker, Phillips' executive vice president of downstream, to the board of directors.

Jim Gallogly, Phillips' senior vice president of chemicals, has been named president and chief executive officer, and Kent Potter, vice president of finance for Chevron Overseas Petroleum Inc., has been named chief financial officer. Chevron and Phillips will each make two more appointments to the senior management team. Management compensation will be tied to achievement of the cost-savings and other synergies expected of the new combination.

"This new joint-venture company will have the people, assets and technology to create one of the premier chemicals companies of the world," said Gallogly. "I'm excited about the opportunities this will provide for the future growth of our new business, and our customers and employees."

Not included in the new combination is Chevron's Oronite additives business, which holds a global leadership position in development, manufacture and marketing of fuel and lubricant additives. Oronite, which will remain an important part of Chevron's chemical portfolio, did not provide strong synergies with Phillips' operations.

Chevron Corp., headquartered in San Francisco, is a leading energy and chemical company, operating in about 90 countries through 500 subsidiaries, partnerships, affiliates, and other entities. Chevron, which employs 31,000 people worldwide, has about $40 billion in assets. Total revenue in 1999 was $36.6 billion.

Chevron Chemical Co. produces commodity petrochemicals, plastics and additives in plants in nine U.S. states and in Brazil, France, Japan, Mexico, Saudi Arabia and Singapore.

Phillips Petroleum is an integrated petroleum company engaged in oil and gas exploration and production worldwide; gas gathering, processing and marketing in the United States; refining, marketing and transportation operations primarily in the United States; chemicals and plastics manufacturing and sales around the globe; and technology development.

Founded in Bartlesville, Okla., in 1917, the company had 15,900 employees and $15 billion of assets at the end of 1999, and $14 billion of revenues for the year.

Lehman Brothers Inc. is acting as financial advisor to Chevron in this transaction, while Goldman Sachs & Co. is acting as financial advisor to Phillips.

Cautionary Statement Relevant to Forward-Looking Information for the Purpose of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995.

Some of the items discussed in this press release are forward-looking statements relating to Chevron's operations that are based on management's current expectations, estimates and projections about the petroleum, chemical and other industries in which the company operates. The statements included in this release are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. These include potential changes in crude oil, natural gas and other commodity prices and potential delays or other changes in work and repairs schedules. Actual results could differ materially from management's estimates.

Updated: February 2000