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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 11, 1994.
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LYONDELL PETROCHEMICAL COMPANY
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-10145 95-4160558
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1221 MCKINNEY STREET, SUITE 1600, HOUSTON, TEXAS 77010
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 652-7200
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NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
RECENT DEVELOPMENTS
General
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Management is currently considering additional capital projects that could
result in a moderate increase in 1994 capital expenditures.
On May 4, 1994, the Board of Directors declared a quarterly dividend in
the amount of $0.225 per share of common stock that was paid on June 15, 1994 to
stockholders of record on May 20, 1994.
The cost of the LCR Refinery upgrade project, based on the detailed
engineering completed to date, currently is estimated to be approximately $830
million. In addition, LCR has estimated a 15 percent ($125 million) allowance
for contingency costs, which would increase the total project cost estimate to
approximately $955 million. In exchange for CITGO's upgrade project
contributions and additional cash contributions at the in-service date, CITGO's
interest in LCR is expected to increase to approximately 40 percent effective as
of the in-service date.
In the second quarter of 1994, the Refinery processed an average of
140,000 barrels per day of heavy Venezuelan crude oil, with crude oil run in a
coking mode limited to 115,000 barrels per day because of coker mechanical
problems.
Effective July 1, 1994, LCR elected to replace its $100 million revolving
credit facility with a $70 million revolving credit facility on substantially
the same terms. No amounts were outstanding under the previous facility as of
June 30, 1994. The new credit facility may be extended at the request of LCR
upon consent of the bank group.
Environmental Matters-Audit Committee Report Regarding Alleged Violations of
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Certain Environmental Laws
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From April 1993 to June 1994, two process waste water streams at the
Channelview Complex were not in compliance with applicable Benzene National
Emissions Standard for Hazardous Air Pollutants ("NESHAPS") regulations. In
response to an employee's allegations, described further below, regarding this
situation, the Board of Directors directed the Audit Committee of the Board (the
"Audit Committee"), which is composed of the four directors of the Company who
are not affiliated with either the Company or ARCO, to conduct an independent
investigation regarding the compliance status of the process waste water streams
and the issues raised by the employee's statements. The investigation by the
Audit Committee and its independent legal counsel was conducted during the month
of June and involved interviews of over 50 Company employees and the review of
more than 10,000 document pages. The Audit Committee has issued a report to the
Board concerning the results of its investigation.
The investigation highlighted the following events:
* As of April 7, 1993 two process waste water streams at the Channelview
Complex were not in compliance with applicable Benzene NESHAPS regulations which
generally require that process waste water streams
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containing concentrations of
benzene in excess of 10 parts per million be "controlled" -- i.e., treated,
recycled, deep well injected or otherwise isolated from the open air;
* On April 7, 1993 the Company submitted a report to the Texas Natural
Resources Conservation Commission (the "TNRCC") that affirmatively and
incorrectly indicated that the streams were controlled in accordance with the
Benzene NESHAPS regulations. The Company also filed a subsequent report with the
TNRCC on April 7, 1994. While the April 1994 report did not repeat the assertion
that the streams were controlled in compliance with the Benzene NESHAPS
regulations, it also did not specifically state that the streams were out of
compliance;
* After learning that the process waste water streams were not controlled
in accordance with the Benzene NESHAPS regulations, Company employees determined
that the streams did not create a discernible impact on health or safety and
began working on compliance solutions;
* After the development of compliance solutions was substantially
underway, on and after May 20, 1994, a senior employee in the Company's legal
department made several written and oral statements to the Company's executive
management and the Board with respect to the compliance status of the process
waste water streams and the accuracy of the related reports. The employee also
made a number of statements regarding alleged conduct by the Company's
management with respect to compliance with environmental laws, allegations
regarding the commitment of the Company's management to compliance with
applicable environmental laws and the general effectiveness of the Company's
environmental processes;
* On May 20, 1994, the Company notified the TNRCC that the two streams were
not controlled in accordance with the Benzene NESHAPS regulations, and shortly
thereafter the Company also notified the Environmental Protection Agency, which
has oversight of the Clean Air Act compliance program supervised by the TNRCC,
and the Department of Justice; and
* After May 20, 1994, efforts to implement a compliance solution for the
two process waste water streams were expedited. Compliance was achieved for
both streams by June 7, 1994 using an interim solution.
The Company estimates that the capital costs incurred in achieving a permanent
compliance solution will be approximately $1,000,000.
The Audit Committee's report to the Board and the results of the
investigation include the following conclusions:
* Treating the Company's Benzene NESHAPS experience as a test of the
Company's environmental commitment, the overall record evidences the Company's
willingness to incur substantial cost and inconvenience in order to meet its
stated goal of wholehearted compliance with environmental laws;
* The Company intended all waste water streams to be controlled in
compliance with the Benzene NESHAPS regulations, and the omission of the two
waste water streams was an oversight due to a series of miscommunications and
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organizational failures and not a deliberate violation;
* According to the Company's routine monitoring of employees, the fact
that the streams were not controlled in accordance with the Benzene NESHAPS
regulations did not result in employee exposures above the health and safety
standards for benzene exposure set by the Occupational Safety and Health
Administration. Furthermore, there is no evidence that the process waste water
streams at issue caused exposure of the general public to benzene concentrations
which were in excess of levels established by applicable regulations. In fact,
both monitoring by Lyondell and an independent third party showed benzene levels
far below maximum permissible levels;
* Once the compliance issue with respect to the two process waste water
streams had been clearly defined, the Company's actions were consistent with an
intent to find and implement a permanent solution as quickly as it reasonably
could. The problem was neither ignored nor covered up;
* There is no evidence that anyone was aware that the April 1993 report
was incorrect as filed. Although certain lower and middle management employees
became aware that the process waste water streams were not controlled just prior
to the submission of the April 1994 report, that fact was not understood by the
officer signing the April 1994 report; and
* There is no basis to support a generalized allegation that the Company's
senior management knowingly conceals or tolerates environmental compliance
problems.
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In connection with its report to the Board, the Audit Committee has recommended
that the Company's senior management address certain organizational and
managerial issues to ensure that there is no recurrence of the kinds of
oversights that occurred in connection with the Benzene NESHAPS situation.
On June 6, 1994, the Company received a Notice of Violation from TNRCC
regarding the two uncontrolled process waste water streams. In an initial
enforcement conference the TNRCC has indicated that it intends to proceed with
an administrative enforcement action, and the Company expects that the TNRCC
will impose an administrative fine. Noncompliance with the Benzene NESHAPS
regulations and the related reporting requirements can result in civil penalties
and, under certain circumstances, substantial civil and, potentially, criminal
penalties. However, the Company does not believe that any of the matters
described above are likely to subject the Company to criminal liability or will
have a material adverse effect on the Company's business or financial condition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 8, 1994 LYONDELL PETROCHEMICAL COMPANY
By: /s/ Joseph M. Putz
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Joseph M. Putz
Vice President and Controller
