Advisory opinion about whether the manufacturing of polypropylene using propylene as a feedstock constitutes "petrochemical processing" and is an "oil and gas related asset" within the meaning of the Consent Order issued against respondent

ADVISORY OPINION 	1097
Manufacturing of polypropylene using propylene as a feed-
stock constitutes "petrochemical processing" and is an "oil
and gas related asset" within the meaning of the Consent
Order issued against respondent. (104 F.T.C. 597 (1984))
[ Gulf Oil Corporation, Dkt. C-3147]
Nov. 8, 1984
Dear Mr. Whitman:
The Commission has considered your request for advice as to wheth-
er the proposed sale of Gulfs Cedar Bayou, Texas, polypropylene
plant to Amoco Chemical Company, a subsidiary of Standard Oil
Company (Indiana), is subject to the prior approval of the Commission
under the order in this case, issued October 24, 1984.
The order requires Chevron and Gulf to obtain the prior approval
of the Commission before selling any of Gulfs "oil and gas related
assets," until the properties identified in Schedule A of the order have
been divested. As defined in the order, "oil and gas related assets"
include, among other things, assets and operations relating to "pe-
troleum and petrochemical processing."
According to Gulfs request for advice, Gulfs Cedar Bayou plant
produces polypropylene, a plastic. Polypropylene is made by polymer-
izing propylene, a petrochemical, into solid form.
On the basis of the information submitted and other relevant infor-
mation, the Commission has determined that because the Cedar
Bayou plant manufactures polypropylene using propylene as a feed-
stock, the plant is engaged in ''petrochemical processing" and is an
"oil and gas related asset" within the meaning of the order. Accord-
ingly, the Commission has determined that the proposed sale of Gulfs
Cedar Bayou polypropylene plant is subject to the prior approval of
the Commission under the terms of the order.
Gulfs request was placed on the public record on October 25, 1984,
and will be on the public record for thirty days until November 26,
1984. After the public comment period has ended, the Commission
will consider the request, the comments received and other informa-
tion, and will determine whether to approve the proposed sale.
By direction of the Commission.

1098 	FEDERAL TRADE COMMISSION DECISIONS
Letter of Request
GULF OIL CORPORATION'S REQUEST FOR ADVICE AS TO COMPLIANCE
WITH A COMMISSION ORDER OR, IN THE ALTERNATIVE, APPLICATION
FOR APPROVAL TO DIVEST POLYPROPYLENE ASSETS
Parties and Jurisdiction
1. Gulf Oil Corporation (hereinafter "Gulf') is a wholly-owned sub-
sidiary of Chevron Corporation (hereinafter "Chevron"), formerly
Standard Oil Company of California (hereinafter ''Socal").
2. On March 5, 1984, Gulfs then 100% parent, Gulf Corporation,
and Socal entered into a Merger Agreement whereby Socal would
acquire Gulf Corp. and its subsidiary, Gulf. A copy of the Merger
Agreement is contained in the Appendix as Exhibit A.*
3. The Merger Agreement was amended on May 15, 1984 by a First
Amendment which changed none of the substance of the Merger
Agreement, but did correct minor errors i_n form. A copy of the First
Amendment is contained in the Appendix as Exhibit B.
4. The Federal Trade Commission (hereinafter "the FTC" or "the
Commission") initially approved the merger-subject to certain con-
ditions-in an April 26, 1984 Agreement Containing Consent Order
(hereinafter "the Consent Order"). A copy of the Consent Order is
contained in the Appendix as Exhibit C.
5. The Consent Order incorporated in Paragraph II(C) a distinct
Agreement to Hold Separate (hereinafter ''the Hold Separate Agree-
ment") affecting principally Gulfs domestic oil and gas assets. A copy
of the Hold Separate Agreement is contained in the Appendix as
Exhibit D.
6. Gulf wishes to proceed with its agreement to sell its polypropy-
lene business, including the plant located in Gulfs Cedar Bayou facili-
ty approximately thirty (30) miles east of Houston, Texas, to Amoco
Chemicals Company (hereinafter "Amocon), a subsidiary of Standard
Oil Company (Indiana). A copy of the December 19, 1983 letter of
intent is contained in the Appendix as Exhibit E. A copy of the Inven-
tory Sale and Interim Manufacturing Arrangements dated Septem-
ber 10, 1984 is contained in the Appendix as Exhibit F. A copy of the
September 10, 1984 definitive agreement of sale (minus attached ex-
hibits and schedules) is contained in the Appendix as Exhibit G.
7. Gulf and Amoco have previously made Hart-Scott-Rodino pre-
merger notification filings with the Commission, including responses
to second requests for information. The Commission staff has advised
Gulf, however, that even if the proposed sale were to be found accepta-
ble under Section Seven of the Clayton Act, 15 U .S.C. § 18, a second
• Not reproduced herein. Copies of all Exhibits are available for inspection in Room 130, Public Reference
Branch, Federal Trade Commission, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

ADVISORY OPINION
Commission approval would be needed under the terms of the Con
sent Order and Hold Separate Agreement. All efforts to resolve the
matter informally at the Staff level have been unavailing, and Gulf
now applies to the full Commission pursuant to FTC Rule of Practice
2.41(d) for an expedited order advising that neither Commission ap
proval of the sale under the Consent Order and Hold Separate Agree
ment nor a 	period for public comment is needed. Should the
Commission advise that the agreement of sale is one covered by the
Consent Order and Hold Separate Agreement, then Gulf applies
under FTC Rule of Practice§ 2.41(f) for approval to divest its polypro
pylene business, subject only to a favorable decision on Section Seven
grounds.
The Product and Its Uses
8. Polypropylene is one polymer in the polyolefin family of thermo
plastic resins. All thermoplastic resins are derived by polymerizing
petrochemicals into solid form. All thermoplastic resins are capable
of being resoftened, usually by the application of heat and pressure.
Typically, polypropylene is used in fiber, film, wire insulation,
housewares, medical wares, and molded parts. A specific example is
the plastic casing of an automobile battery.
History of Gulf's Polypropylene Business
9. Gulfs Cedar Bayou chemical plant produces ethylene, propylene,
several ethylene derivatives, and polypropylene, a propylene deriva
tive. Gulf entered the polypropylene business in the mid-1970's as
part of a plan to integrate downstream into another polyolefin and to
utilize propylene produced as a by-product in the manufacture of
ethylene. In 1975 Gulf licensed the necessary technology, began con
struction of a polypropylene plant at the Cedar Bayou complex, and
started buying polypropylene for resale. Gulf continued to purchase
polypropylene manufactured by others even after late 1978 when its
own plant began commercial production. Gulfs gross investment in
the plant is over $120,000,000.
10. Unfortunately, Gulf has never earned a return on that invest
ment. Indeed, it has lost substantial sums every year of its operation.
A chart showing those losses is contained in the Appendix as Exhibit
H. Operating losses for 1984 are projected, and the end is not in sight.
Several million dollars in additional investments in technology,
plant, and equipment would be necessary to improve the chances for
profitability, and Gulfs Board of Directors decided in 1983 to cut its
losses and to withdraw from the polypropylene business. While the
execution of that decision was left to others, the message was clear.
The plant was to be sold or closed by the end of 1984.

1100 	FEDERAL TRADE COMMISSION DECISIONS
The Search for a Buyer
11. Gulf then identified companies whose existing businesses might
fit well with Gulfs or foreign companies which might be interested
in a toe-hold acquisition in the United States. All fifteen companies
so identified were approached by Gulf with offers. Some received
offers to sell all Gulfs olefin and olefin derivatives business. Others
were offered polypropylene. Only Amoco gave a positive response. No
other potential buyer exists.
The Agreement with Amoco
12. Gulf and Amoco entered into the letter of intent dated Decem-
ber 19, 1983 (Exhibit E, above). The Board of Directors of Gulf ap-
proved the sale to Amoco at a February 14, 1984, board meeting.
Somewhat later, Amoco's board appr.oved the transaction, and an
interim agreement (Exhibit F, above) was signed on September 10,
1984. A final agreement (Exhibit G, above) was signed September 10,
1984 calling for the sale by Gulf of
(a) the polypropylene production facilities at Gulfs Cedar Bayou,
Texas complex,
(b) approximately nine million pounds of polypropylene invento-
ries,
(c) a warehouse and four shop buildings,
(d) a license for the technology used in the plant,
(e) polypropylene patents (none of which are used in production)
and incidental know-how,
(f) leases for 398 hopper cars,
(g) polypropylene marketing records, and
(h) certain of Gulfs polypropylene contract obligations.
On October 1, 1984, Gulf would have commenced to dedicate the
output of its polypropylene plant to Amoco under a toll processing
arrangement. A closing for the sale of the plant facilities, i.e., the
"hardware," is scheduled for January 1, 1985.
The Commission Was Advised of the Proposed Sale
13. Gulf has kept the Commission fully informed of Gulfs intent to
sell its polypropylene business to Amoco. Treating the sale as the
separate transaction that it is, Gulf made its first Hart-Scott-Rodino
filing as to this polypropylene transaction on February 1, 1984. A
second Gulf filing in response to a request for additional information
about the proposed sale was made on September 4, 1984. GulCalso
notified the Commission during the course of the Socal/Gulf merger
proceedings. Documents relating to the impending sale of the polypro-
pylene business were produced by April 2, 1984, in response to specifi-

The December 19, 1983 letter agreement in particular bears produc-
tion numbers GC 00110023-56 and should be located in FTC Box 24.
The Commission Staff's Position
14. By letter dated September 21, 1984, the Commission staff
advised that "Although the Commission has not decided the is-
sue .- .. ," Gulfs proposed sale of its polypropylene plant might well
be the sale of an "oil and gas asset" under Paragraph 2(h) of the
Agreement to Hold Separate that would require specific Commission
approval prior to sale. A copy of the Staff's letter is contained in the
Appendix as Exhibit I.
The Polypropylene Business Sale Is Not Covered
by the Consent Order
15. The Commission should advise that the proposed sale of the
polypropylene business without prior FTC approval is in compliance
with th_e Consent Order, i.e., does not violate the Consent Order,
because the proposed sale is not covered by the Consent Order. The
Consent Order clearly covers the sale of the properties listed in
Schedule A of the Order. Those properties must be divested as part
of the agreement with the Commission. The FTC Staff is notcontend
ing that the sale of the polypropylene business is a sale of a Schedule
A property.
16. Rather, the Staff is contending that the agreement to sell the
polypropylene plant may be an agreement to sell an asset that re-
quires prior Commission approval under Paragraph 2(h) of the Hold
Separate Agreement. Paragraph 2(h) reads as follows:
Nothing herein shall prevent the current Gulf Board or the New Board from negotiat-
ing or entering into agreements to dispose of Gulfs assets, provided that any such
agreements with respect to oil and gas related assets and businesses are conditioned
on and not consummated prior to final approval by the Commission.
The term "oil and gas related assets and businesses" is defined in
Paragraph l(b) of the Consent Order which states:
"Oil and gas assets and businesses" means all Gulfs domestic crude oil and gas, and
assets and operations relating to oil and gas exploration, production and transporta-
tion, as well as petroleum and petrochemical processing, refining, transportation and
marketing activities, and any similar foreign activities to the extent involved in im-
ports into the United States.
The Staff seems to have focused its attention only on seeking a deter-
mination from the Commission whether the polypropylene business
is an oil and gas related asset or business. Whether it is or not becomes
irrelevant if the agreement to sell is not covered by Paragraph 2(h)
of the Hold Separate Agreement.

1102 	FEDERAL TRADE COMMISSION DECISIONS
17. The language used in Paragraph 2(h) shows that the parties to
the Hold Separate Agreement all contemplated a prospective applica-
tion of the restrictive proviso of Paragraph 2(h). The words "negotiat-
ing 	or 	entering 	into 	agreements" 	clearly 	contemplate 	new
agreements from the date of the Consent Order forward in time until
the provisions of the Consent Order have been satisfied. Just as clear-
ly, the language does not apply retrospectively to a proposed sale of
assets already negotiated and approved by the Gulf Board of Direc-
tors. There is no question that the proposed sale to Amoco to dispose
of the po!ypropylene business pre-dated the Consent Order and Agree-
ment to Hold Separate. There is equally no doubt that the Federal
Trade Commission was fully aware of the agreement to sell the busi-
ness. As noted above in Paragraph 12, the December 19, 1983 letter
of intent with Amoco wa~ signed before the Merger Agreement with
Socal. Gulfs first Hart-Scott-Rodino filing regarding this polypropy-
lene sale had been made before the Merger Agreement with Socal.
Gulfs Board of Directors had approved the sale to Amoco before the
merger agreement. The proposed sale was brought to the Commis-
sion's attention a second time within the _responses to specifications
requesting additional information. All this occurred before the Com-
mission entered its Consent Order and Hold Separate Agreement.
18. Equally important, the polypropylene business is not and should
not be considered an oil and gas related asset or business. After the
decision was made to sell the business, it could not reasonably be
considered to be part of Gulfs ongoing operations. See the September
21, 1984 letter and memorandum from Bernard J. McNamee to Gor-
don Youngwood contained in the Appendix as Exhibit J. The polypro-
pylene business was an asset only in the sense that it represented
potential sale proceeds. It was a claim against a proposed buyer's
cash. It was not considered an oil and gas related asset or business,
but rather an account receivable.
19. Finally, the definition of "oil and gas related assets and busi-
nesses" does not include polypropylene. The only conceivable argu-
ment to the contrary apparently arises from the inclusion in the
definition of the term ... "petrochemical processing." Polypropylene
is a thermoplastic polymer, produced in solid pellet form. It is the ·
result of polymerizing propylene with or without monomers. It is
categorized under Standard Industrial Classification 2821-351. Petro-
chemicals, on the other hand, are classified under Standard Industri-
al 	Classification 	Numbers 	2869 	and 	2911. 	Petrochemicals 	are
generally thought of as the refinery processing streams resulting in
the primary olefins such as ethylene, propylene, and butadiene, and
in aromatics, such as benzene, toluene, and xylenes. These products
are liquids or gases, not solids. Derivatives of these products, such as
hie:h and low density polyethylene, polypropylene, polystyrene, and

AUVli:'.>U.l\I vr.1n.1V.L'I
nylon are regarded not as chemicals or petrochemicals, but as plas-
tics.
Sale of the Polypropylene Plant Is Consistent
with the Co1J,Sent Order
20. Even assuming that the Consent Order applies to the agree-
ment to sell the polypi:opylene business, the sale of that business is
perfectly consistent with the purpose of the Order. The seventh
WHEREAS clause in the premises of the Agreement to Hold Separate
reads:
Whereas, the purpose of this Agreement and the Consent Order is to preserve Gulf as
a viable, integrated petroleum company pending the divestiture of the Schedule A
properties as viable, ongoing enterprises, in order to remedy any anticompetitive ef-
fects of the Acquisition and to preserve Gulf as a viable, integrated petroleum company
in the event that divestiture is not achieved; .. · ..
Gulfs viability is enhanced, not diminished, by the sale of the polypro-
pylene business. Gulfs polypropylene business has been a consistent
money loser. Selling the operation will stop those losses. If the Con-
sent Order applies, Commission approval of that sale is needed. With-
holding Commission approval of the sale would be directly contrary
to the purpose of the Consent Order and Agreement to Hold Separate.
They would have been interpreted in a way that makes Gulf less
viable than it was.
21. Likewise, the fifth WHEREAS clause in the premises begins
with the following language:
Whereas, the Commission is concerned that if an understanding is not reached preserv-
ing the status quo ante of Gulfs oil and gas assets and businesses during the period
prior to the divestiture of the properties described on Schedule A of the Consent Order
Clearly, the status quo ante with regard to the polypropylene busi-
ness was that it was going to be sold or closed. Approving the sale is
consistent with preserving the status quo ante because it preserves a
decision made before the Consent Order and Agreement to Hold Sepa-
rate. Withholding approval of the sale is contrary to preserving the
status quo ante because it will reverse a prior decision.
The Polypropylene Business Is Not Needed ·To Aid
the Saleability of Schedule A Properties
22. It was thought at the time the Agreement to Hold Separate and
Consent Order were entered that it might be necessary or desirable
to divest some or all of Gulfs oil and gas related assets and businesses
in addition to the Schedule A properties. Both the sixth WHEREAS
clause of the Agreement to Hold Separate and Paragraph II(A) of the
Consent Order reflect this. Whatever the likelihood at the time that

1104 	FEDERAL TRADE COMMISSION DECISIONS
Gulfs money-losing polypropylene plant would be needed to enhance
the sale of the more desirable Schedule A properties, that likelihood
has totally disappeared in light of subsequent events. Chevron and
Standard Oil Company of Ohio have reached an agreement which, if
approved, will result in the divestiture of the marketing assets in
eight southeastern states and the Alliance refinery. Clearly, this sat-
isfactory solution for the bulk of the Schedule A properties has been
attained without including the polypropylene plant.
23. Moreover, no reasonable· argument can be advanced to support
the proposition that the polypropylen~ plant is needed to aid the sale
of Gulfs interest in the West Texas Gulf Pipeline Company or in the
Colonial Pipeline. West Texas is a crude line. Gulfs polypropylene
plant does not process crude. Colonial is a products pipeline which
transports refined products in liquid form. Gulfs polypropylene plant
produces solid pellets which are shipped in boxes or hopper cars. They
cannot be shipped via the Colonial Pipeline.
There Is No Synergy Between the Polypropylene Plant
and Gulf's Port Arthur Refinery
24. The Staff has suggested that possible synergies between the
polypropylene plant and Gulfs Port Arthur refinery be considered.
Apparently, the Staff reasons that the polypropylene plant ought not
be sold because it might enhance the sale of the Port Arthur refinery.
The obvious counter to this reasoning is that the Port Arthur refinery
need not be sold to satisfy the Consent Order. Sohio has elected to
purchase the Alliance refinery.
25. Moreover, synergy by definition includes combined action or
operation. There simply is no combined action or oper:;ttion between
the polypropylene plant and Port Arthur which can result in a total
effect greater than the sum of the two operations taken independent-
ly. It must be remembered that the Cedar Bayou complex contains a
number of plants consuming different raw materials and functioning
at different levels in the creation of products. The polypropylene
plant cannot be equated with the Cedar Bayou complex as a whole.
That complex produced products other than polypropylene for over
fifteen (15) years before the polypropylene plant was built. Gulfs
Cedar Bayou plant has the capacity to produce sufficient propylene
for the polypropylene plant. However, Gulfs Cedar Bayou plant is not
dependent on the Port Arthur refinery for feed stocks, nor is the Port
Arthur refinery dependent upon Gulfs polypropylene plant as an
outlet for its propylene production. Cedar Bayou buys feed stocks
from Port Arthur only when the economics are favorable to Cedar
Bayou. Other suppliers exist, and for several years Cedar Bayou has
not purchased its major feedstocks from Port Arthur. Thus, there is
no interdeoP.nOP.TIP.P. or romhino~ rma ... of-~n ..... hn.h ............. - +1...~ -~1-·-------

lene plant and Port Arthur. The feed stocks which the Cedar Bayou
plant obtains from time to time from the Port Arthur refinery would
be consumed in the production processes at Cedar Bayou whether or
not Gulf operates the polypropylene facility. Thus,· there is no direct
buy-sell relationship between the polypropylene plant and Port Ar-
thur, and Gulfs polypropylene business does not affect whatever buy-
sell relationship exists from time to time between the Cedar Bayou
plant and the Port Arthur refinery. Selling or closing the polypropy-
lene plant is simply irrelevant to that relationship.
26. It is also true that there are a number of pipelines between Port
Arthur, Texas and the Cedar Bayou complex. A summary description
of those lines is contained in the Appendix as Exhibit K. These pipe-
lines are irrelevant, however, when, as noted above, there is no buy-
sell relationship requiring pipeline transportation.
Time Is of the Essence
27. Amoco and Gulf had set October 1, 1984 as a date for the com-
mencement of the toll processing arrangement. Because the Commis-
sion Staff stated that Amoco's response to the second request for
information was not substantially in compliance, Amoco had to sup-
ply additional materials. As a result, the twenty (20) day period in
which the Commission must indicate whether it will approve the
acquisition now will expire on October 19, 1984. The transaction will
not proceed without the consent of the Federal Trade Commission.
The market place now perceives Gulf as exiting the market, and many
customers have turned to and are being solicited by other suppliers.
The value of the polypropylene business as an ongoing concern with
a stable customer base is obviously greater than that of the plant
hardware alone. If the transaction is canceled by Amoco for want of
prompt approval by the Commission, the result will be a loss to every-
one. Gulf and Amoco will each have lost the benefit of their bargain.
The industry will have lost the productive capacity of the Cedar
Bayou polypropylene plant, and, as a result, the concentration of
industry capacity will be higher than if the plant had been sold to
Amoco.
Conclusion
28. Gulf is before the Commission pursuant to Rule 2.41(d), seeking
an advisory ruling that the proposed sale of the Cedar Bayou polypro-
pylene business is in compliance with and not in violation of the
Consent Order and Agreement to Hold Separate. They do not apply
to the agreement to sell the plant to Amoco for two reasons. First,
they are prospective in their scope, an:d the agreement of sale was
negotiated and entered into before the date of the Consent Order and
Agreement to Hold Separate. Second, the polypropylene business is

1106 	FEDERAL TRADE COMMISSION DECISIONS
not an oil and gas related asset or business in either the financial or
technical sense. Even if the agreement to sell the polypropylene busi
ness were within the scope of those documents, the sale of the business
is perfectly consistent with their purpose. Selling the plant helps to
maintain Gulf as a viable entity and in no way subtracts from the
saleability of the Schedule A assets.
Time is of the essence in this transaction. Therefore an expedited
ruling under Rule 2.41(d) that the transaction is not within the scope
ofthe Order is preferable.because it does not require a thirty (30) day
period to await public comment. Approval of the sale under Rule
2.41(0 would achieve the sanie result, but would delay the transaction
during the thirty (30) day public comment period.
Respectfully submitted,
/ s/Barton D. Whitman
Attorney for Gulf Oil Corporation