AFPM ’15: Gallogly reminisces tenure at LyondellBasell

Interview article by Al Greenwood

SAN ANTONIO, Texas (ICIS)–Former LyondellBasell CEO Jim Gallogly discussed on Sunday his tenure at LyondellBasell, which started while the company was still operating under bankruptcy protection and ended with a remarkable turnaround.

Gallogly is the recipient of this year’s Petrochemical Heritage Award, to be given during the American Fuel & Petrochemical Manufacturers (AFPM) International Petrochemical Conference (IPC).

Under Gallogly, LyondellBasell emerged from bankruptcy protection, and its shares began trading on the New York Stock Exchange (NYSE). They are now trading more than three times higher.

Meanwhile, Gallogly steered the company as LyondellBasell and the rest of the US chemical industry dealt with a momentous shift in the nation’s petrochemical industry, made possible by the advent of shale gas and the subsequent increase in production of natural gas liquids (NGL).

Gallogly has since retired from LyondellBasell, and the company is now headed by Bob Patel.

The following are Gallogly’s answers to list of questions sent by ICIS.

Q: After the bankruptcy, what were some key steps LyondellBasell took to make it the company it is today?

A: I joined LyondellBasell in 2009 to help a dedicated group of employees save their company. The company had excellent assets and wonderful people but had taken on too much debt and its previous management team had the wrong strategy for the time. With renewed focus, we righted the ship quickly. 

From the first day I arrived at the company, I asked my fellow employees to help me build the greatest petrochemical company in the world. I asked our creditors to give us a second chance, and we promised we would not disappoint. 

LyondellBasell employees took their company back, delivered on their promises and have been part of perhaps the greatest turnaround story of all time. I love a challenge and enjoyed every moment of working shoulder to shoulder with this fine group of people. 

Q: Looking back, what were the three most significant changes you made to LyondellBasell during your first months with the company?

A: The three most significant changes made during the first months of bankruptcy were a new sense of purpose and culture for our employees; a new strategy built around operational excellence and cost reduction; and a new balance sheet so we could have the opportunity to be successful. 

While we changed a number of high level managers, that was less than twenty people.  Twenty people can’t save a company the size of LyondellBasell – but as we proved, 13,000 rededicated people can!

Key steps leading to success were improving our safety and reliability to industry leading levels; taking a billions dollars out of the cost structure and not letting such creep back in; getting everyone focused on understanding our relative strengths and weaknesses and then moving with speed to become the best; putting in place a cost effective growth plan that could be quickly executed; and with improving execution and markets, quickly fixing our balance sheet. 

Early victories led to a belief that we could truly be the best. Wins led to more wins and a stunning performance.

Q: During your tenure, LyondellBasell made no major acquisitions and divestments. Why was that?

A: The company reviewed all relevant assets that were for sale. We did not make any significant acquisitions during my tenure as CEO as the available assets would only make us bigger, not better. 

We maintained a steadfast dedication to capital discipline and outstanding returns to our shareholders.  Having said that, you will recall that we repurchased a significant number of our own shares. We felt the best acquisition available was more of ourselves. 

Q: LyondellBasell was an exception among the other major chemical companies in that it did not build any new plants. Instead, it expanded existing ones. In the past, you talked about this as a fast, low-cost way to add more capacity. Looking back, do you still feel that was the case or could an argument be made for building new plants?

A: LyondellBasell was uniquely positioned to benefit from previous underinvestment. The company had a poor balance sheet for many years prior to the emergence of the “New LyondellBasell” post-bankruptcy.   

As a result, it did not do the debottlenecks that many other competitors had already executed. 

We began engineering some of these debottlenecks even while in bankruptcy, recognising that if the shale advantage emerged as some were beginning to predict, we would have a great opportunity to beat our competition to market with significant new capacity at a fraction of the cost of new builds. 

This in fact happened and is continuing to happen. We have been very busy with these projects and likely could not have taken on additional greenfield capacity.    

As you may have read, several of these projects are now operating or nearing completion and thus we have announced a new PO/TBA [propylene oxide/tertiary butyl alcohol] plant that will be the single largest project the company has undertaken in many years. 

Q: What is going to happen to the US feedstock advantage given the fall in oil prices and the strengthening of the US dollar?

A: The current fall in oil prices will reduce the cost of naphtha based products. Some of this cost reduction will be passed on to downstream users, thus causing worldwide prices of ethylene and propylene and their derivatives to fall. The severity of such fall will depend on then relevant supply/demand fundamentals. 

The fall in worldwide prices will indirectly cause some contraction in US margins, including for NGL based products.The strengthening US dollar will also erode some of the current US cost advantage, although less than most anticipate given energy is generally priced in dollars around the globe.   

The longer term impact of the current fall in oil prices on new projects remains to be seen as many of these projects will come on line in a couple of years. 

There are conflicting views on how long the lower oil prices will last. A prolonged oil price downturn will compress project economics for new US crackers and may delay the construction of new projects not already permitted and underway. 

Q: Looking ahead, what do you think will be the biggest trends affecting the US petrochemical industry?

A: The single largest trend in US petrochemicals will be increased exports of NGL and natural-gas-based products. The US market cannot grow fast enough to absorb all the new capacity being added by competitors. 

US competitors are likely to continue to have a significant cost advantage to all competitors other than Middle East producers, although, as previously noted above, that advantage could erode somewhat if oil prices remain low for a prolonged period.

The IPC takes place from 29-31 March in San Antonio, Texas.