ARCO Chemical Company History

Company History:

The ARCO Chemical Company manufactures intermediate chemicals used in a broad range of consumer and industrial products. Major chemicals include propylene oxide, used in a variety of plastics, foams, and paints; tertiary butyl alcohol, used in the production of oxygenated fuels that are blended with gasoline to reduce emissions and improve octane; and styrene, used in the production of insulation, foam cups, and engineering resins.

By the middle 1990s, ARCO was a worldwide company with chemical plants in the U.S., the Netherlands, France, Belgium, Taiwan, Indonesia, China, and Japan. International sales accounted for about half the company's revenues of $3.1 billion in 1993. Company headquarters were in Newtown Square, Pennsylvania.

ARCO Chemical originated in 1966 as a division of the Atlantic Richfield Company, one of the largest and oldest oil companies in the United States. Atlantic Richfield was founded in 1865 as the Atlantic Refining Company, and established the first refinery in the United States in Philadelphia, Pennsylvania that same year. Atlantic Refining was swallowed by the Standard Oil Company in 1874, but reemerged as an independent company in 1911, when the Standard Oil Trust was broken up by the U.S. Supreme Court under the Sherman Antitrust Act.

The Rio Grande Oil Company, which would become the Richfield Oil Company, was founded in 1915 at El Paso, Texas. The company grew rapidly, in part by supplying the U.S. Army during its pursuit of Pancho Villa after the Mexican guerrilla's raid on Columbus, New Mexico in 1916. However, the company fell on hard times during the Great Depression, and was forced to merge with several other companies in 1936 in the California-based Richfield Oil Co.

In 1957, Richfield, which had become a major producer of high-octane aviation fuel during World War II, became the first company to strike oil in Alaska, and eventually acquired leases on 2.5 million acres of federal land. However, by the mid-1960s, Richfield still was producing only 50 percent of its own crude for refining, and in 1966, the company merged with Atlantic Refining to form Atlantic Richfield. Two years later when the largest oil field in the Western Hemisphere was discovered at Prudhoe Bay, Alaska, the newly formed Atlantic Richfield was the largest federal leaseholder in the state.

At the time of the merger, Atlantic Richfield formed ARCO Chemical as a wholly owned subsidiary with the goal of developing a petrochemical business to complement its oil refineries. Robert D. Bent, former vice president of manufacturing for Atlantic Refining, was named president of ARCO Chemical, and would serve in that capacity until his retirement in 1977.

Initially, ARCO Chemical produced a modest line of waxes, ammonia, aromatics, and detergents. Then, in 1967, Atlantic Richfield and Halcon International formed the Oxirane Chemical Company, an engineering design and consulting company that also engaged in research and development. In 1969, Oxirane moved into manufacturing and built a $30 million plant at Bayport, Texas to produce propylene oxide, an intermediate chemical used in a broad range of consumer products, including production of urethane foam. The demand for propylene oxide grew rapidly--by the late 1970s, Oxirane was a $1 billion company in annual sales. In 1980, Atlantic Richfield purchased Halcon's share of Oxirane for $270 million and the assumption of $380 million in debt. Oxirane became part of ARCO Chemical, which became the world's leading producer of propylene oxide.

In 1969, the Department of Justice dropped its opposition to a merger between Atlantic Richfield and the Sinclair Oil & Refining Company. Richfield Oil had actually acquired Sinclair almost 30 years earlier, but continued to operate the company as a separate entity while the Department of Justice contested the merger as a violation of antitrust laws.

After the merger was finally allowed, Atlantic Richfield melded Sinclair Petrochemicals, Inc., a wholly owned subsidiary of Sinclair Oil, with ARCO Chemical. Among the assets ARCO Chemical acquired in the deal were intermediate chemical facilities on the former Lyondell Country Club property at Channelview, Texas. ARCO Chemical also launched a $1 billion expansion, which included opening petrochemical plants in Rotterdam, the Netherlands, and Ciba, Japan.

In 1979, ARCO Chemical built the world's first chemical plant designed specifically to produce methyl tertiary butyl ether (MTBE), an additive used to replace lead and enhance the octane of oxygenated fuels. In 1994, the Channelview plant was the largest MTBE facility in the world, and ARCO Chemical supplied MTBE to most of the major gasoline manufacturers in the United States.

Atlantic Richfield spun off part of ARCO Chemical in 1985 to create the Lyondell Petrochemical Corporation, another wholly owned subsidiary. Lyondell focused on developing commercial uses for olefins, a class of hydrocarbons that includes propylene, ethelyne, and butylenes, which had been a drain on ARCO Chemical's earnings. Lyondell grew dramatically in the late 1980s, and in 1989, Atlantic Richfield decided to sell 50 percent of the company in a public offering that brought in $1.4 billion.

Two years earlier, Atlantic Richfield, believing that ARCO Chemical could not reach its potential for growth as a wholly owned subsidiary, had also sold 17 percent of the company in a public offering that netted $591 million. All assets and liabilities of the ARCO Chemical division were transferred to the ARCO Chemical Company, which was officially incorporated in October 1987, with Atlantic Richfield retaining 83 percent of the stock. Earlier that year, ARCO Chemical had also acquired a chemical plant in Belgium. The following year, the company acquired majority interest in the Chiunglong Petrochemical Company in Taiwan and opened a chemical plant in Fos-sur-Mer, France.

In July 1990, an explosion at ARCO Chemical's petrochemical plant in Channelview, Texas, on the Houston Ship Channel, killed 17 workers and injured five others. An investigation by the Occupational Safety and Health Administration (OSHA) indicated that the nighttime explosion occurred when flammable vapors built up inside an empty 900,000 gallon tank used to hold chemicals and wastewater for treatment. The tank was being repaired and the vapors apparently were ignited by a spark from equipment being used by maintenance workers. Eleven of those killed were maintenance workers.

OSHA cited ARCO Chemical with 347 'willful' safety violations--one for each worker at the site--for failing to protect employees against the hazards of an explosive atmosphere and using improper electrical devices in a hazardous area. OSHA also cited the company for 16 'serious' violations, including providing inadequate employee training on handling hazardous wastes, failing to adequately maintain fire-fighting equipment, and failing to develop an emergency's response plan in conjunction with local, state, or federal agencies. The plant was shut down after the explosion and was not fully back in operation until January 1991--six months later.

In 1991, ARCO Chemical agreed to pay a record fine of $3.48 million. At the time, the company said it did 'not agree with all of the OSHA citations, but ... feels its interests are better served by focusing on improving work place safety' than challenging the charges.

Harold A. Sorgenti, who had become president of ARCO Chemical in 1979, took early retirement in 1991, a move many industry analysts ascribed to the Channelview explosion. He was succeeded by Alan R. Hirsig, who had been president of ARCO Chemical Europe. In 1992, Hirsig told the Philadelphia Business Journal, '[The explosion] was a shock to the company. [We] had always prided ourselves on our technological expertise, which we certainly had. But we had expanded so rapidly in the middle to late 80s that I think the Channelview tragedy really made us stand back and say, 'We need to slow down our expansion, our building of new plants.'

Hirsig instituted a quality control program. He also announced that ARCO Chemical would begin placing greater emphasis on foreign opportunities, especially in Europe, where governments were expected to implement air-quality standards that would create expanded markets for the company's gasoline additives.

However, despite the strong prospects for growth, ARCO Chemical failed to earn its dividend in 1993 for the third straight year. With a net income of $214 million on sales of $3.2 billion, the company earned $2.23 per common share while paying out a dividend of $2.50. In the annual report for 1993, Hirsig and Lodwrick M. Cook, chairman of the board, blamed lower gasoline prices in the United States for driving down the price of MTBE, one of the company's leading products. ARCO Chemical also took a $56 million charge in 1993 to divest itself of a poorly performing joint venture in Korea.

In 1993, the company introduced ethyl tertiary butyl ether (ETBE), a gasoline additive made from corn-based ethanol. ARCO Chemical expects ETBE to be a key ingredient in reformulated gasolines when stricter U.S. automobile emission standards go into effect in 1995. MTBE has been used primarily to reduce carbon monoxide during cold weather. The new standards will require the use of reformulated gasolines year-round in high-pollution urban areas.

The 1993 annual report quotes marketing manager Alex Blagojevic: 'We now have the ability to serve as a regular, large volume supplier of ETBE nearly two years before the (reformulated gasoline) requirement. This strongly differentiates us from the competition. With these two products (MTBE and ETBE), we also can provide customers with excellent options for both winter and summer air quality programs.'

Principal Subsidiaries: ARCO Chemical Americas Company, Newtown Square, Pennsylvania; ARCO Chemical Europe, Inc. (England); ARCO Chemical Asia Pacific, Ltd. (Hong Kong).

Further Reading:

• '1966-1991: 25 Years of Excellence,' ARCO Chemical Company, Newtown Square, PA, 1991.
• 'ARCO Paying Record Safety Fine,' Business Insurance, January 7, 1991.
• Roberts, William L., 'Arco Chemical CEO Hirsig: New Initiatives or the Future,' Philadelphia Business Journal, June 29, 1992.
• Suro, Roberto, 'Explosion Kills 17 at Petrochemical Plant in Texas,' The New York Times, July 7, 1990.

Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.

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