26 September 2011 09:00 [Source: ICB]
The petrochemical joint venture between US oil majors Chevron and ConocoPhillips garners top accolades based on the company's superb financial performance
Gareth JJ Burgess
CPChem generated most of its $11.2bn (€8.2bn) of external sales in North America, with almost $1.0bn from plants in Belgium. It was the 32nd largest chemical company by sales in 2010 in the latest ICIS Top 100 Chemical Companies listing, having moved up from 36th place in 2009.
The company is a global producer with important, expanding equity-accounted joint ventures in Saudi Arabia and Qatar as well as plants in China.
It has production facilities in Belgium, China, Columbia, Qatar, Saudi Arabia, Singapore, South Korea and the US. In North America, it is the largest producer of high density polyethylene (HDPE) and the fourth-largest producer of ethylene.
ELITE PETROCHEMICAL PLAYERS
CPChem was able to lift sales by a third in 2010. Its operating and net profits more than doubled. The operating margin (operating profit to sales) at a healthy 13.4% was 5.0 percentage points higher than in 2009.
In a year of markedly improved performance sector-wide, Chevron Phillips Chemical was selected the ICIS Company of the Year in an analysis that delves deep into key financial metrics. The analysis looks at overall financial performance of the world's leading chemical players as well as changes in some of the key metrics year on year.
CPChem produced a strong performance in this ratio analysis, recovering solidly from a difficult 2009. It came first in the analysis among a group of elite petrochemical players, including Saudi Arabia's SABIC, Austria-headquartered Borealis, US-based Dow Chemical and Netherlands-based LyondellBasell.
The ICIS Top 100 analysis based on 2010 financial results has already highlighted the renewed growth seen across the sector in what proved to be a strong year. Second-half misgivings were pushed aside as most firms continued to perform strongly in the final two quarters of the year.
Still in recovery mode, the sector produced returns well above expectations on the back of growing demand and higher prices.
CPChem's solid 2010 sales and profits gains underpinned the comparative performance. The company produced sales and profits gains among the top 20 in the industry.
Canada-based fertilizer producer Potash Corp. of Saskatchewan (PotashCorp) showed the strongest sales gain in its latest financial year, followed by the petrochemical segment of Malaysian oil company PETRONAS, Brazil's Braskem, South Korea's Honam Petrochemical and Canada's NOVA Chemicals, which is now owned by the Abu Dhabi investment fund International Petroleum Investment Co. (IPIC).
The most significant increases in operating profits were by Momentive Performance Materials and Huntsman of the US, Switzerland-based Clariant, Borealis and LyondellBasell.
Since the 2008-2009 slump, chemical producers have become adept at managing inventories and costs. Cash generation has improved markedly and cash has begun to be pumped back into new spending on plant, property and equipment and on research and development. Shareholders have been rewarded as money has flowed through to the bottom line.
PotashCorp, Taiwan's Formosa Plastics, Belgium's Solvay and LyondellBasell produced the highest net margins in the industry in 2010. Those with the most significant year-on-year increases in net profit were Rockwood Holdings of the US, Germany's LANXESS, Borealis, Germany's Wacker Chemie, and Japan's largest chemical company, Mitsubishi Chemical.
Only a very few companies - six in total - reported lower net profit in 2010 when compared with 2009. Only three companies - INEOS, Polimeri Europe and the petrochemical business of Mexico's Pemex - reported a net loss for 2010.
The ICIS Company of the Year analysis also looks closely at important efficiency and performance ratios for firms and compares them broadly to the industry segment in which they are most active.
Care needs to be taken, for instance, when comparing employee ratios. Some chemical producers, such as the oil producer subsidiaries, tend to have excellent comparative employee ratios because of the small number of chemical personnel they carry on their books.
CPChem was among a group of companies from very different segments of the industry that produced excellent comparative gains in some of these efficiency ratios in 2010.
Looking at some of these comparisons in more detail, sales per employee numbers increased most strongly in 2010 for NOVA Chemicals, the petrochemical business of China's energy and refining giant Sinopec, Honam Petrochemical, PotashCorp and Italy's Polimeri Europa. Operating profits per employee increased most strongly in 2010 for Huntsman, Borealis, LyondellBasell, Dow Chemical and Norway-based nitrogen fertilizers producer Yara.
Net profits per employee rose most strongly for Rockwood Holdings, LANXESS, Borealis, Mitsubishi Chemical and Dow Chemical, illustrating how broadly in terms of product portfolios the gains were in 2010.
CPChem has two reporting segments - olefins and polyolefins (O&P), and specialties, aromatics and styrenics (SAS).
The olefins it produces in the US are largely consumed internally in the production of polyethylene (PE), normal alpha olefins (NAO) and polypropylene (PP).
The company has five olefins and polyolefins production facilities in Texas alongside PE pipe production and fittings manufacturing units. Joint-venture ethylene, PE and NAO facilities are owned in Qatar, as are PE plants in Singapore and China.
Saudi Chevron Phillips is a 50%-owned aromatics complex in Jubail Industrial City, Saudi Arabia. Jubail Chevron Phillips is a 50%-owned integrated styrene facility.
CPChem also has 49% stakes in two projects in Qatar with state oil company Qatar Petroleum - Qatar Chemical Company (Q-Chem) and Q-Chem II. Q-Chem operates an ethylene, PE and 1-hexene petrochemical complex in Mesaieed. Q-Chem II consists of PE and NAO units adjacent to the Q-Chem complex. Ras Laffan Olefins Co. (RLOC), in which Q-Chem II owns 53.85%, is studying an expansion of its 1.3m tonne/year cracker in Ras Laffan to 1.45m-1.6m tonnes/year.
CPChem's aromatics and styrenics plants are located in Mississippi and Texas in the US, and in Belgium and China.
It has joint-venture styrenics facilities in North and South America as well as interests in important ventures in Saudi Arabia, as well as a styrenics resins plant in South Korea.
Both O&P and SAS benefited greatly from the upturn in 2010. O&P's external sales were 33.9% higher at $7.68bn, while SAS sales gained 32.0% to $3.53bn.
The gains made in the equity income of affiliates was less than perhaps might have been expected, with $104m earned from the O&P and $111m from the SAS venture.
O&P income before interest and tax (EBIT) was $1.30bn in 2010. That figure was up from $606m in 2009. SAS 2010 EBIT was $251m from $156m in 2009.
STRONG PERFORMANCE AGAIN IN 2011
The company has continued to perform strongly in 2011, benefiting from still strong ethylene margins in the US and its joint-venture positions.
Through the first half of 2011, ConocoPhillips reported $392m in net income from its 50% share of CPChem - up 58.1% from the year-ago period. Chevron does not break out earnings from chemicals - instead reporting earnings for downstream operations which includes chemicals.
The company has also announced its intention to capitalize on the expected greater availability of ethane in the US from shale gas extraction, by building a world-scale ethane cracker and ethylene derivatives units at one of its US Gulf Coast locations.
It is evaluating sites and talking to contractors with the aim of completing a feasibility study for the project by the end of this year. The new cracker could add about 4% to US ethylene capacity, some industry sources have suggested.
Meanwhile, ConocoPhillips plans to include its CPChem stake in the spinoff of its downstream businesses. That spinoff will become a new downstream company that will combine three of ConocoPhillips's core businesses - refining, marketing and transportation, chemicals, and midstream (natural gas processing and pipelines). The downstream spin-off is planned to be completed by the second quarter of 2012.
Additional reporting by Joseph Chang in New York and Bobbie Clark in Houston
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