================================================================================

1993

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
-----------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1993

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

Commission file number 1-10145

LYONDELL PETROCHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
------------------------
Delaware 95-4160558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1221 McKinney Street, 77010
Suite 1600, Houston, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (713) 652-7200

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock ($1.00 par value) New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
---

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations-S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
X
---

There were 80,000,000 shares of the registrant's common stock
outstanding on December 31, 1993. The aggregate market value of the voting
stock held by non-affiliates of the registrant on March 1, 1994 based on the
closing price on the New York Stock Exchange composite tape on that date, was
$909,464,465.

DOCUMENTS INCORPORATED BY REFERENCE

None

================================================================================

TABLE OF CONTENTS
PART I

ITEM PAGE
---- ----

1. and 2. Business and Properties........................................ 1
The Company's Business......................................... 1
Summary Description of Business Segments....................... 2
Petrochemical Segment.......................................... 2
Overview....................................................... 2
Feedstocks..................................................... 3
Marketing and Sales............................................ 4
Competition and Industry Conditions............................ 4
Properties..................................................... 5
Capital Program................................................ 5
Employee Relations............................................. 6
Refining Segment............................................... 6
Overview....................................................... 6
Upgrade Project................................................ 7
Management of LYONDELL-CITGO Refining.......................... 8
Feedstocks..................................................... 9
Marketing and Sales............................................ 9
Competition and Industry Conditions............................ 9
Properties..................................................... 10
Capital Program................................................ 10
Employee Relations............................................. 11
Research and Technology; Patents and Trademarks................ 11
Finance Matters................................................ 11
Long-Term Debt and Financing Arrangements...................... 12
Environmental Matters.......................................... 13
3. Legal Proceedings.............................................. 14
4. Submission of Matters to a Vote of Security Holders............ 19
Executive Officers of the Registrant........................... 19
Description of Capital Stock................................... 22

PART II

5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 23
6. Selected Financial Data........................................ 25
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 25
8. Financial Statements and Supplementary Data.................... 33
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 55

PART III

10. Directors and Executive Officers of the Registrant............. 55
11. Executive Compensation......................................... 58
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 63
13. Certain Relationships and Related Transactions................. 65

PART IV

14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 69

PART I

Items 1 and 2. Business and Properties

THE COMPANY'S BUSINESS

Lyondell Petrochemical Company and LYONDELL-CITGO Refining Company Ltd. (LCR)
operate in two business segments: petrochemicals and refining. The Company
manufactures a wide variety of petrochemicals, including olefins (ethylene,
propylene, butadiene, butylenes and certain specialty products), polyolefins
(polypropylene and low density polyethylene), methanol, methyl tertiary butyl
ether (MTBE), and aromatics and, through LCR, a Texas limited liability company,
refined petroleum products, including gasoline, heating oil, jet fuel, fuel oil,
aromatics and lubricants (lube oils). The Company generally sells its
petrochemical products to customers for use primarily in the manufacture of
other chemicals and products, which in turn are used in the production of a wide
variety of consumer and industrial products. LCR sells its principal refined
products primarily to CITGO Petroleum Corporation (CITGO) and to a lesser
extent, to other marketers of petroleum products.

As the context may require, all references hereafter to the "Company" or
"Lyondell" include Lyondell Petrochemical Company and its wholly-owned
subsidiaries.

Development of Business

The Company was incorporated under the laws of the State of Delaware in 1985.
Atlantic Richfield Company (ARCO) originally created a separate division
(Lyondell Division) by the combination of the operations of the Channelview,
Texas petrochemical complex (Channelview Complex), and the full conversion
Houston, Texas refinery (Refinery).

Effective July 1, 1988, ARCO transferred substantially all the assets and
liabilities relating to the integrated petrochemical and petroleum processing
business of the Lyondell Division to the Company. In addition, certain pipeline
assets that were not formerly a part of the Lyondell Division were transferred
to Lyondell. In exchange for the transfer of such assets and liabilities,
Lyondell issued ARCO additional shares of its common stock. On January 25,
1989, ARCO completed an initial public offering of 43,000,000 shares of
Lyondell's common stock.

In February, 1990, the Company acquired a polypropylene plant and a low density
polyethylene plant located in Pasadena, Texas (Polymers Facility).

In July, 1993, pursuant to agreements between the Company and CITGO (and its
affiliates), the Company contributed its refining business (including the lube
oil blending and packaging plant in Birmingport, Alabama) and refining working
capital to LCR and retained an initial 95% participation interest in LCR. At
December 31, 1993, the Company had an approximate 90% interest in LCR. The
results of LCR currently are consolidated into Lyondell's financial statements.
For further discussion of this transaction, see "REFINING SEGMENT - Overview".

LCR is undertaking a major upgrade project at the Refinery to enable the
facility to process substantial additional volumes of very heavy crude oil. LCR
also has entered into a long-term crude supply contract (Crude Supply Contract)
with Lagoven, S.A. (LAGOVEN), an affiliate of CITGO. In addition, under the
terms of a long-term product sales agreement (Products Agreement), CITGO
purchases from LCR a majority of the refined products produced at the Refinery.
Both LAGOVEN and CITGO are direct or indirect wholly-owned subsidiaries of
Petroleos de Venezuela, S.A. (PDVSA), the national oil company of Venezuela.
See "REFINING SEGMENT".

At March 1, 1994, ARCO owned 39,921,400 shares of Lyondell common stock, which
represent 49.9 percent of the issued and outstanding common stock of the
Company. ARCO officers and directors currently hold five of the eleven
directorships on the Company's Board of Directors. Although officers and
directors of ARCO do not constitute a majority of the Board of Directors, for
certain federal and state securities laws purposes, ARCO could be deemed to be a
"control" person or an "affiliate" of Lyondell.

For additional information relating to certain continuing relationships and
potential conflicts of interest among Lyondell, LCR, ARCO and ARCO Chemical
Company (ARCO Chemical), an 83.3 percent owned subsidiary of ARCO, including
their respective subsidiaries, see Item 13 -- "Certain Relationships and Related
Transactions" included herein.

See Note 19 - Segment Information of Notes to Consolidated Financial Statements.

SUMMARY DESCRIPTION OF BUSINESS SEGMENTS

PETROCHEMICAL SEGMENT

Overview

Channelview Complex -- Lyondell's Channelview Complex, located in Channelview,
Texas, 20 miles east of Houston, includes two large olefins plants, a methanol
plant, a butadiene recovery unit, a product flexibility unit (which has the
capability to convert ethylene and other light hydrocarbon streams into
propylene), an aromatics (benzene and toluene) recovery unit, two MTBE units, an
isoprene recovery unit and other petrochemical processing units. The
Channelview Complex is connected by multiple pipelines to the Refinery, which is
approximately 16 miles away. The Channelview Complex also is connected by a
comprehensive pipeline system to the Company's Mont Belvieu, Texas storage
facility, to leased storage terminals and to Gulf Coast customers. Ethylene and
propylene are shipped or exchanged via this pipeline system. See "Properties".

The Company's olefins plants and related processing units produce ethylene,
propylene, butadiene, butylenes, benzene, toluene, hydrogen and certain
specialty products, such as isoprene, dicyclopentadiene, resin oils and
piperylenes, along with gasoline blendstocks and heavy liquid fuels. The Company
also produces methanol and MTBE. The Company's petrochemical products are used
by its customers to manufacture intermediate chemicals, which are used in a
variety of consumer and industrial products.

Ethylene is used to manufacture polyethylene, which is used in products such as
trash bags, housewares and milk containers. Ethylene also is used to produce
ethylene oxide (used to produce ethylene glycol which is used to produce
antifreeze and polyester fibers), ethylene dichloride (used to produce polyvinyl
chloride for pipe and other vinyl products), ethylbenzene (used to produce
styrene, which in turn is used to produce polystyrene for packaging and
containers) and alpha olefins (used in the manufacture of detergents, as well as
other intermediate chemicals).

Propylene is used to manufacture polypropylene, which is used in products such
as carpets, food packaging, upholstery, automobile parts and plastic bottles.
Propylene is also used to manufacture acrylonitrile (used in clothing and high
impact plastics), propylene oxide (used in polyurethane foams for furniture and
insulation) and oxo products (used in industrial solvents, as well as other
intermediate chemicals).

Butadiene is used to manufacture styrene butadiene rubber and polybutadiene
rubber, both of which are used in the manufacture of tires and other rubber
products. Butadiene is also used in the production of nylon and acrylonitrile-
butadiene-styrene plastics.

Methanol is used to produce MTBE and a variety of chemical intermediates,
including formaldehyde, acetic acid and methyl methacrylate. These
intermediates are used to produce bonding adhesives for plywood, polyester
fibers and plastics. Other end uses include solvents and antifreeze
applications.

MTBE is an octane enhancer and clean fuel additive in reformulated gasoline.
All MTBE produced at the Channelview Complex and not blended at the Refinery is
sold to a single customer. See "Properties" and Item 13 - "Certain
Relationships and Related Transactions".

The following table shows the current annual rated capacity for certain of the
Company's principal petrochemical products:

Rated Capacity(a)
at December 31,
1993
-----------------
(Millions)

Petrochemical Product
Ethylene (pounds).................................... 3,600
Propylene (pounds)................................... 2,100 (b)
Butadiene (pounds)................................... 615
Methanol (gallons)................................... 233 (c)
MTBE (gallons)....................................... 167
Aromatics (gallons).................................. 130

- --------------

(a) The term "rated capacity," as used in this table and throughout this
report, is calculated by estimating the number of days in a typical year
that a production unit of a plant is expected to operate, after allowing
for downtime for regular maintenance, and multiplying that number by an
amount equal to the unit's optimal daily output based on the design
feedstock mix. Because the rated capacity of a production unit is an
estimated amount, the actual production volumes may be more or less than
rated capacity.

(b) Does not include refinery grade material or production from the product
flexibility unit, which has a current rated capacity of 1 billion pounds per
year of propylene. In 1993, the Company completed an expansion project that
more than doubled propylene capacity of the product flexibility unit.

(c) Capacity as shown includes equivalent methanol that could be produced from
reformed gas, an intermediate in the production of methanol.

Bayport Polymers Facility -- The Polymers Facility converts propylene and
ethylene supplied by the Channelview Complex into polypropylene and low density
polyethylene that is sold into the derivative markets and transported by railcar
and truck. The Polymers Facility is connected by pipeline to the Company's Mont
Belvieu, Texas storage facility for feedstock supply. The following table shows
the current annual rated capacity for each of the Company's principal
polyolefins products.

Rated Capacity
at December 31,
1993
---------------
(Millions)

Polyolefins Product
Polypropylene (pounds)................................ 300
Low density polyethylene (pounds)..................... 140

Feedstocks

The Company's olefins plants can process 100 percent heavy petroleum liquids
(naphtha, condensates and gas oils) or up to 90 percent natural gas liquids
(ethane, propane, butane and natural gasoline; collectively, "NGL") feedstocks.
The Company's olefins plants use approximately 125,000 to 160,000 barrels per
day of NGLs and/or heavy liquids feedstocks. The Company obtains a portion of
its olefins feedstock requirements from LCR (NGLs, naphtha and gas oil) and
additional olefins feedstock in the form of petroleum condensates pursuant to a
contract with a producing country. The remainder of its heavy liquids
requirements are obtained under short-term

contracts or on the spot market from a variety of foreign and domestic
sources. The Company purchases NGLs from a wide variety of domestic sources,
many of which have pipeline connections to the Company's facilities.

The Company's methanol plant generally processes natural gas feedstocks but also
has the ability to process NGL feedstocks (other than natural gasoline). The
Company purchases natural gas from a variety of domestic sources for use as fuel
at its facilities and as feedstock for the methanol plant.

The Channelview Complex is currently the sole supplier of propylene and ethylene
feedstocks to the Polymers Facility, which uses them to make polypropylene and
low density polyethylene.

Marketing and Sales

Lyondell sells a majority of its olefins products to customers with whom it has
long-standing relationships. Sales generally are made pursuant to written
agreements, which typically provide for monthly negotiation of price based upon
current market prices for products sold under contract. The parties are
contractually committed to use their best efforts to agree monthly on price
terms. Nonetheless, if the parties fail to agree on a monthly price, in some
cases deliveries may be suspended for the month. The term of these contracts is
typically three to five years with automatic one year term extension provisions
which cause the contract to remain in effect after the initial term unless
expressly terminated by one of the parties. Some of these contracts are subject
to early termination if deliveries have been suspended for several months. The
contracts typically require the customer to purchase a specified minimum
quantity while establishing a quantity range whereby the customer has the right
to purchase additional quantities up to a specified maximum.

The Company sells substantially all of its methanol output and most of its
aromatics output under contracts that have initial terms ranging from two to
three years and that typically contain automatic one year term extension
provisions which cause the contracts to remain in effect after the initial term
expires unless expressly terminated by one of the parties. These contracts
generally provide for monthly or quarterly price adjustments based upon current
market prices. Aromatics produced at the Refinery are marketed by Lyondell for
LCR under contracts with similar terms to its own with the exception of benzene
which is sold directly to Lyondell at market-related prices.

Competition and Industry Conditions

The basis for competition in all of Lyondell's petrochemical products is price,
product quality and product deliverability. Lyondell competes with other large
domestic producers of olefins, including, but not limited to, Amoco Chemical
Company, Chevron Chemical Company, Exxon Chemical Company, Occidental Chemical
Corporation, Phillips Petroleum Company, Shell Chemical Company and Texaco
Chemical Company.

The combined rated capacity of the Company's olefins units at January 1, 1994
was approximately 3.6 billion pounds of ethylene per year or approximately 7.7
percent of total domestic production capacity. Based on published rated
production capacities, the Company believes it is one of the five largest
producers of ethylene in the United States. Of the total ethylene production
capacity in the United States, approximately 93 percent is located along the
Gulf Coast, and approximately 77 percent is owned by ten manufacturers.

During the period from January 1, 1991 to December 31, 1993, domestic industry
ethylene capacity increased by approximately 4.9 billion pounds. This increase
significantly outpaced demand and resulted in declining product margins.
Domestic industry ethylene rated capacity at January 1, 1994 was approximately
46.6 billion pounds per year. New plants coming on-line and debottlenecking of
existing plants are expected to add an additional 2.5 billion pounds of capacity
in 1994 and an additional 1.5 billion pounds of capacity in 1995, which
additional capacity is expected to be relatively in balance with domestic demand
growth. There are no additional capacity expansions currently announced for the
U. S. after 1995. Although the demand for ethylene is expected to continue
growing during the 1990's, there is no assurance that recent and anticipated
ethylene capacity increases, or other factors, will not adversely affect the
industry's supply and demand balance.

The Company's principal competitors in polypropylene production include Amoco
Chemical Company, Aristech Chemical Corporation, Texas Eastman Division of
Eastman Chemical, FINA Oil & Chemical Company, and Himont Incorporated. The
Company's principal competitors in low density polyethylene production include

Chevron Corporation, Dow Chemical Company, Mobil Chemical Company, Quantum
Chemical Corporation and Westlake Polymers Corporation.

The provisions of the Clean Air Act Amendments of 1990 will require the
manufacture and sale of alternative fuels, including reformulated gasoline.
Management believes the Company is well positioned currently to respond to
increased demand for reformulated gasoline due to its ability to manufacture
MTBE (and its primary ingredients) and its ability to extract aromatics.
Lyondell has entered into a joint development and licensing arrangement to
accelerate commercialization of two isomerization processes that produce
feedstocks for MTBE and tertiary amyl methyl ether (TAME) which are blending
components for reformulated gasoline. Proposed regulations by the EPA could
mandate that 30 percent of the gasoline sold in the reformulated gasoline
program be derived from renewable sources such as ethanol by 1995. These
regulations may have a negative impact on the market for MTBE and methanol.

Historically, petrochemical industry profitability has been heavily influenced
by price competition, which may intensify due to, among other things, new
domestic and foreign industry capacity. In general, weak economic conditions
either in the United States or in world markets also tend to reduce demand and
put pressure on margins. Petrochemical profitability also is expected to be
affected by reduced derivative exports as a result of weak worldwide economic
conditions and more balanced regional production throughout the world. Because
of the uncertainties inherent in these businesses, it is not possible to predict
accurately how changes in feedstock costs, market conditions or other factors
will affect petrochemical industry margins in the future.

Properties

The Company owns all of the plant and equipment that comprise its two olefins
plants at its Channelview Complex and owns the approximately 2,875 acre parcel
on which the complex is situated. The Company also owns the methanol plant and
other petrochemical processing units which are located at the Channelview
Complex. These include the product flexibility unit, two MTBE units, the benzene
and toluene recovery unit, the butadiene recovery unit, the isoprene recovery
unit and an isopropyl alcohol unit. One of the MTBE units and the isopropyl
alcohol unit are used exclusively to process products for ARCO Chemical. The
Company also operates a styrene maleic anhydride unit (SMA) and a polybutadiene
unit which are owned by a third party and are located on property leased from
the Company within the Channelview Complex. A third party owns and operates a
facility on land leased from the Company that is used to upgrade hydrogen from
the Company's methanol plant. The Company owns the real property, plant and
equipment which comprise the Polymers Facility, located on approximately 187
acres in Pasadena, Texas. Lyondell owns several pipelines connecting the
Channelview Complex, the Refinery and the Mont Belvieu storage facility,
including six lines used to transport heavy liquid feedstocks, butylenes,
benzene, hydrogen, butane, MTBE and unfinished gasolines between the Channelview
Complex and the Refinery.

Lyondell also owns a storage facility, a brine pond facility and a tract of
vacant land at Mont Belvieu, Texas, located approximately 15 miles east of the
Channelview Complex. Storage capacity for up to 10 million barrels of NGL
feedstocks, ethylene and propylene is provided in salt domes at the Mont Belvieu
facility. The Company also owns an approximate 10 percent undivided joint
interest in much of the real property surrounding the Mont Belvieu site. This
property, which is owned jointly with several other companies that operate
storage or processing facilities at Mont Belvieu, is maintained as a greenbelt
for these facilities. The Company has a long-term lease on product pipelines
from Mont Belvieu to most olefins customers.

Lyondell leases its executive offices and corporate headquarters in downtown
Houston. In addition, the Company leases storage facilities for the handling of
its products from various third parties, primarily in the Gulf Coast area.

Capital Program

The petrochemical segment's fixed asset capital expenditures totaled $15 million
in 1993. The petrochemical segment's capital budget for 1994 is $30 million, of
which approximately $3 million is for environmentally-

related capital projects. See "ENVIRONMENTAL MATTERS" for a discussion of
these environmentally-related capital projects.

As part of its ongoing operations, the Company periodically conducts maintenance
turnarounds on its facilities. When conducting a maintenance turnaround on a
principal facility, capital expenditures and maintenance expenses as well as
lost operating income are typically incurred. Unscheduled shutdowns were
necessary on the two olefins units at the Channelview Complex during 1993. In
addition to the required repairs, other work was performed during the shutdowns
which is expected to postpone the next scheduled turnaround on the olefins
units. Although turnarounds on principal facilities are usually scheduled well
in advance, the timing of such turnarounds can be accelerated or delayed because
of numerous factors, many of which are beyond the Company's control.

Effective January 1, 1993, the Company changed its method of accounting for
turnarounds. Under the new method, repair and maintenance expenses associated
with turnarounds exceeding $5 million are capitalized when incurred and
amortized on a straight-line basis until the next planned turnaround, generally
four to six years. In prior years, all repair and maintenance expenses
associated with turnarounds were expensed as incurred. The Company believes
that the new method of accounting is preferable in that it provides for a better
matching of repair and maintenance expenses associated with turnarounds with
future product revenues. See Note 4 of "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS".

In the last several years, there have been several mergers, acquisitions and
spin-offs in the chemical industry. The Company believes that the end result of
this activity will be an industry with fewer, but more competitive,
participants. The Company further believes that the current industry economic
environment creates potential opportunities for expansion or diversification by
the Company. The Company continually evaluates opportunities that are intended
to enhance cash flow and total return to stockholders. This ongoing evaluation
process involves both potential expansion and debottlenecking projects for the
Company's existing facilities, as well as potential acquisition, joint venture
and other opportunities involving third parties. The Company expects that its
efficient, low-cost operation of petrochemical assets could be a leveraging
factor in enhancing the value to the Company of any external opportunities.

Potential funding sources for long-term capital projects, whether involving
transactions with third parties or otherwise, could include, without limitation,
the Company's current financial resources, potential earnings growth, future
borrowings and future issuance of equity securities, as well as possible
contractual arrangements such as joint ventures or partnerships. Both the
Company's ability to undertake and fund the particular strategies described
above, and the general level of the Company's capital commitments and
expenditures from period to period, will be affected by a variety of factors
including, without limitation, the general business environment, as well as
changes in applicable government regulations and tax laws.

Employee Relations

At year end, Lyondell employed 1,083 full-time employees. The Company also uses
the services of approximately 443 employees of independent contractors in the
routine conduct of its business.

REFINING SEGMENT

Overview

LCR's Refinery, located adjacent to the Houston Ship Channel, includes a coker,
a fluid catalytic cracking unit, three reformers, four crude distillation units,
two sulfur recovery plants and several hydrodesulfurization units, as well as
lube oil manufacturing and packaging facilities and an aromatics recovery unit.
It is connected by multiple pipelines to the Channelview Complex and provides
feedstocks to and receives by-products from that facility.

Products manufactured at the Refinery include gasoline, heating oil, jet fuel,
aromatics (benzene, toluene, paraxylene and orthoxylene), lubricants (industrial
lubricants, motor oils, white oils, process oils and base oils) carbon black
oil, sulfur and petroleum coke. The aromatics recovery unit at the Refinery
produces benzene, toluene, paraxylene and orthoxylene. Aromatics are used to
manufacture a variety of intermediate chemicals,

including ethylbenzene, cumene, urethane foam components and polyester
intermediates for films, fibers and resins. End uses of these products include
packaging and containers, furniture, apparel and flooring.

Although the Refinery is currently processing primarily heavy Venezuelan crude
oil, the Refinery does have the capability (known as "full conversion") to
process West Texas Sour (WTS) - type crude oil feedstocks into a product output
mix that consists of a significant percentage of high value products, such as
gasoline, heating oil, jet fuel, aromatics and lube oils and olefins feedstocks
(which are used by the Channelview Complex). It currently has a capacity rating
of 265,000 barrels per day of crude oil and related feedstocks which is based on
running WTS or equivalent crude oil in a full conversion mode. The actual
operating capability varies with the type of crude oil it processes. See
"Feedstocks".

On July 1, 1993, the Company contributed its refining assets (including the lube
oil blending and packaging plant in Birmingport, Alabama) and refining working
capital to LCR and retained an approximate 95 percent interest in LCR. CITGO
contributed $50 million for future capital projects of LCR and in exchange
received an approximate five percent interest in LCR. CITGO also made an
additional $50 million contribution for future capital projects of LCR on
December 31, 1993. As a result of this additional contribution, CITGO had an
approximate 10 percent interest in LCR at December 31, 1993. In addition to the
funding related to the upgrade project described below, CITGO has one additional
contribution commitment of $30 million to be made upon completion of the upgrade
project and it has an option to make an additional equity contribution
sufficient to increase its interest in LCR to 50 percent.

The Company believes that the principal benefit from its participation in LCR
will be stabilized earnings and cash flow from the refining business. The
expected stabilization of earnings and cash flows resulting from the agreement
with CITGO will not be fully realized until the projected completion of the
Refinery upgrade project described below. During 1993, the Refinery increased
the volumes of heavy Venezuelan crude oil processed and it is anticipated that
the Refinery will continue to achieve increased benefits from processing heavy
Venezuelan crude oil as it achieves improved operating efficiency. The
Refinery also has obtained a long-term crude oil supply. See "Feedstocks" and
"Marketing and Sales" for further discussion of the Crude Supply Contract and
Product Agreement.

Effective July 1, 1993, LCR and Lyondell entered into multiple agreements for
feedstock and product sales designed to preserve much of the synergy between the
Refinery and the Company's petrochemical business. Under the terms of these
agreements, various feedstock and product streams will be transferred between
the Refinery and Lyondell's Channelview Complex at market-related prices. LCR
and Lyondell also have entered into tolling agreements, pursuant to which
alkylate and MTBE attributable to Refinery feedstocks will be produced for LCR
at Lyondell's Channelview Complex.

Also effective July 1, 1993, the majority of the employees formerly employed by
Lyondell in its refining business became employees of LCR. Pursuant to the
terms of a number of service agreements, Lyondell has contracted with LCR to
continue to perform services in certain areas, including employee services,
administrative services and marketing services. Lyondell and LCR also have
entered into a variety of contracts providing for the assignment or licensing of
intellectual property rights associated with the refining business.

Upgrade Project

LCR is undertaking a major upgrade project at the Refinery to enable the
facility to process substantial additional volumes of very heavy crude oil.
CITGO will provide a major portion of the funds for the upgrade project, as well
as funds for certain capital projects. Project engineering for the upgrade is
currently underway and at the present time, LCR management anticipates the cost
over the next three to four years will be approximately $800 million. The
upgrade project is subject to regulatory approvals and resolution of certain
other matters. The upgrade project is intended to increase the heavy crude oil
processing capability of the Refinery from 130,000 barrels per day of 22 degree
API gravity crude oil to 200,000 barrels per day of 17 degree API gravity
Venezuelan BCF-17 crude oil. The upgrade is not intended to increase the total
throughput of the Refinery, but rather its ability to process heavier, higher
margin, crude oils. The project also will include expansion of the Refinery's

reformulated gasoline and low sulfur diesel production capability. Major
components of the upgrade include new coking, hydrotreating and sulfur recovery
units; a new crude distillation unit and modifications to the Refinery's largest
existing crude distillation unit and various hydrodesulfurization units.

Funding for the upgrade project will occur in three phases. The first phase,
the initial $300 million, will be funded by CITGO. The second phase will be
funded by an LCR borrowing of approximately $200 million. The third phase,
which is expected to occur toward the end of the upgrade project, will be a
combination of LCR borrowing and contributions from CITGO and the Company.
Prior to completion of the upgrade project, the financing costs for the upgrade
project loans will be funded by CITGO. The timing of the third phase and the
level of contributions from the Company and CITGO will be dependent upon the
total cost of the upgrade project. The Company will contribute, in the form of a
subordinated loan, 25 percent of the cost of the upgrade project in excess of
$500 million. Following completion of the upgrade project, CITGO's participation
interest is expected to be approximately 35 percent. Following the upgrade
project, CITGO has a one-time option to make an additional equity contribution
sufficient to increase its participation interest in LCR to 50 percent.

Following the upgrade, the earnings potential of the Refinery is expected to be
improved, because of the higher margins expected to be associated with the
resulting heavier crude oil mix, increased coking capability and other yield
improvements.

Management of LYONDELL-CITGO Refining

LCR is a limited liability company organized under the laws of the state of
Texas. The Company owns its interest in LCR through a wholly-owned subsidiary,
Lyondell Refining Company. CITGO holds its interest through CITGO Refining
Investment Company, a wholly-owned subsidiary of CITGO (together with Lyondell
Refining Company, Owners). The operative agreement with respect to the rights of
each of the Owners and their parent companies is the Amended and Restated
Limited Liability Company Regulations (Regulations) of LCR. The Regulations
govern ownership and cash distribution rights. CITGO has committed to reinvest
its share of operating cash flow during the upgrade project which will increase
its participation percentage, while the Company has unrestricted access to its
share of operating cash flow from LCR. The initial term of the Regulations is 25
years, although they may be terminated under certain circumstances, including
insolvency of LCR or either Owner, uncured material breaches by either Owner and
failure to obtain permits for the upgrade project. Under the terms of a
reciprocal "Performance Guarantee and Control Agreement" (Performance
Guarantee), Lyondell and CITGO each unconditionally guarantee the obligations
and performance of their respective subsidiary-Owner under the terms of the
Regulations.

There are risks associated with enforcing the provisions of contracts with an
affiliate of a foreign government such as LAGOVEN, including the risks
associated with enforcing judgments of United States courts against entities
whose assets may be located outside of the United States and whose management
are not residents of the United States. However, the Company believes that this
transaction holds substantial economic and other incentives for all parties to
perform their obligations, including the obligations of LAGOVEN pursuant to the
Crude Supply Contract. Lyondell believes that PDVSA has a strategic interest in
expanding its crude oil refining operations in the United States in order to
increase the markets for its heavy, sour crude oil. Depending on then current
market conditions, breach or termination of the Crude Supply Contract could
adversely affect the Company; provided, however, that the impact of any such
event is likely to be less significant for Lyondell after the completion of the
upgrade project. In addition, the financial commitments of CITGO should provide
an economic incentive for all PDVSA affiliates to perform their obligations
under the various agreements. The parties have negotiated alternative
arrangements in the event of certain force majeure conditions, including
governmental or other actions restricting or otherwise limiting LAGOVEN's
ability to perform. However, LCR bears the risk that such alternative
arrangements will not fully provide LCR with the benefits of the Crude Supply
Contract.

The Regulations provide that LCR is managed by an Owners Committee, which has
three representatives (Representatives) from each Owner. Certain actions
require unanimous consent of the Representatives, including, without limitation,
amendment of the Regulations, borrowing money in excess of LCR's existing credit
facility, delegation of authority to committees, certain purchase commitments
and capital expenditures in excess of designated amounts and budgetary approval.
All actions not requiring unanimous consent can be determined by

Lyondell as majority owner. The day-to-day operations of the Refinery are
managed by the executive officers of LCR, including former Lyondell officers
with responsibility for manufacturing and refining operations and refined
products marketing. The results of LCR's operations are consolidated into
Lyondell's financial statements.

Feedstocks

The following table sets forth the Refinery's runs of blended crude oils (which
include crude oil and other petroleum liquids, unfinished oils and other
hydrocarbons) and unfinished stock.

Year Ended December 31
----------------------
1993 1992 1991
---- ---- ----
(Thousand barrels per day)

Refinery Runs
Blended crude oils.............. 234 236 255
Unfinished stock................ 50 50 50
--- --- ---
Total............................. 284 286 305
=== === ===

The Refinery can process a wide variety of domestic and foreign crude oil
feedstocks, including heavy (low API gravity, high viscosity) and sour (high
sulfur content) crude oils. The Refinery can process up to approximately
220,000 barrels per day (83 percent of rated capacity) of light sour crude
oils, or approximately 130,000 barrels per day of heavy sour crude oils
(22(degrees) API gravity) plus 80,000 barrels per day of light sour crude oil.
The upgrade project is intended to increase the Refinery's processing
capability to 200,000 barrels per day of very heavy Venezuelan crude oil
(17(degrees) API gravity).

The Crude Supply Contract requires LAGOVEN to supply and LCR to purchase minimum
quantities of crude oil for 25 years. The contract incorporates a formula price
based on the market value of a slate of refined products deemed to be produced
from each particular crude oil or feedstock, less: (i) certain deemed refining
costs, including crude transportation costs, adjustable for inflation; (ii)
certain actual costs, including import duties and taxes; and (iii) a deemed
margin, which varies according to the grade of crude oil or other feedstock
delivered and which is adjustable for inflation. Because deemed operating costs
and the slate of refined products deemed to be produced for a given barrel of
crude oil or other feedstock do not necessarily reflect the actual costs and
yields in any period, the actual refining margin earned by LCR under the
contract will vary depending on, among other things, the efficiency with which
LCR conducts its operations during such period. The contract is designed to
reduce the inherent earnings and cash flow volatility of the refining
operations of LCR.

The Refinery began processing Venezuelan crude oil in the third quarter of 1992.
Since that time, the Company and LCR have identified and overcome obstacles
inherent in processing high rates of heavy Venezuelan crude oil, including
making modifications to the coker and one of the crude distillation units. The
improved unit reliability and increased unit processing capability has increased
the Refinery's capability of running high volumes of heavy Venezuelan crude oil
and raised the capacity to 130,000 barrels per day. The remainder of the
Refinery's capacity is used to process lighter crude oils and feedstocks.

LCR utilizes its Select Refinery Feedstock program to recycle used lubricating
oil purchased from third parties by processing it into gasoline and other
refined products. During 1993 approximately 3 million gallons of used oil were
processed by the Refinery. When the program is fully implemented, the Refinery
will have the capability to process significantly more used oil.

Marketing and Sales

Lyondell was formerly a merchant marketer of gasoline, heating oil and jet fuel.
LCR currently sells a majority of these light refined products to CITGO under
the Products Agreement and sells the remainder into the merchant market. Lube
oils are manufactured and sold by LCR directly to industrial consumers and to
distributors throughout the United States and international markets. LCR's
branded lubricants include both paraffinic and naphthenic oils, rubber process
oils, base oils used to blend into finished lubricant products, food-grade white
oils and an extensive variety of engine oils and industrial lubricants. Lyondell
is the sole marketing agent for LCR's aromatics (see "PETROCHEMICAL SEGMENT -
Marketing and Sales") with the exception of benzene which is sold directly to
Lyondell at market-related prices.

Competition and Industry Conditions

The Company formerly competed with many other refiners for sales of gasoline,
heating oil, and jet fuel in the domestic and international merchant market.
With the formation of LCR, the majority of these products are sold to CITGO
under the Products Agreement. LCR continues to sell lube oils directly to major
industrial consumers and through several hundred distributors in domestic and
international markets.

Many of the domestic refiners are owned by or affiliated with major integrated
oil companies. Based on published industry data, as of January 1, 1993, there
were 177 crude oil refineries in operation in the United States and total
domestic refinery capacity was approximately 15.1 million barrels per day.
During 1993, Lyondell and LCR processed an average of 234,000 barrels per day of
crude oil and other petroleum liquids, or less than two percent of domestic
capacity.

Profitability of the refining industry is affected by, among other things,
market conditions, volatility in world oil markets, capital expenditures
required to meet increasing environmental standards, repair and maintenance
costs and downtime of manufacturing units. However, management believes that
the combination of the Crude Supply Contract and the Products Agreement will
stabilize future earnings and cash flows and reduce the market driven aspects of
such volatility.

Prior to the completion of the upgrade, the keys to operational success for LCR
will be to maximize the amount of heavy Venezuelan crude oil processed in the
coking mode, to optimize the efficient utilization of the remaining cracking
capacity, and to maintain an overall focus on low cost operations.

In 1992, the U.S. Coast Guard proposed rules to implement the Oil Pollution Act
of 1990. Although Lyondell or LCR neither owns nor operates vessels covered by
the proposed regulations, Lyondell and LCR are major users of charter services
to deliver petroleum feedstocks to their facilities. The financial
responsibility requirements imposed by the proposed rules will limit the choice
of potential carriers and are expected to increase costs for transporting
feedstock and refined products.

Properties

LCR owns the real property, plant and equipment which comprise the Refinery,
located on an approximately 700-acre site in Houston, Texas. Units include the
fluid catalytic cracking unit, the coker, three reformers, four crude
distillation units, two sulfur recovery plants, several hydrodesulfurization
units, as well as lube oil manufacturing and packaging facilities and an
aromatics recovery unit. LCR also owns the real property, plant and equipment
which comprise a lube oil blending and packaging plant in Birmingport, Alabama.

Lyondell owns several pipelines connecting the Channelview Complex, the Refinery
and the Mont Belvieu storage facility, including six lines used to transport
heavy liquid feedstocks, butylenes, benzene, hydrogen, butane, MTBE and
unfinished gasolines between the Channelview Complex and the Refinery. LCR owns
a pipeline used to transport refined products (gasoline, kerosene, and heating
oil) from the Refinery to the GATX Terminal to interconnect with common carrier
pipelines.

Capital Program

The refining segment's capital expenditures for additions to fixed assets
(excluding spending on the upgrade project) totaled $45 million in 1993. The
refining segment's capital budget (excluding the upgrade project) for 1994 is
approximately $60 million. Of the total 1994 capital budget, approximately $48
million is expected to be spent on environmentally-related capital projects. The
funds contributed by CITGO (see "Overview") are required to be used for capital
spending by LCR and other expenditures as determined by the Owners, and will
substantially reduce the total capital spending that the Company otherwise would
be required to make in connection with Refinery operations over approximately
the next three to four years. See "ENVIRONMENTAL MATTERS" for further
discussion of these capital projects.

As part of its ongoing operations, LCR periodically conducts maintenance
turnarounds on its facilities. When conducting a maintenance turnaround on a
principal facility, capital expenditures as well as maintenance expenses and
lost operating income are typically incurred. Although turnarounds on principal
facilities are usually scheduled well in advance, the timing of such turnarounds
can be accelerated or delayed because of numerous factors, many of which are
beyond LCR's control. Unscheduled shutdowns were necessary on two principal
units at the Refinery during the year. Turnarounds on two principal units at the
Refinery are currently scheduled for late 1994, although it is possible that
they may be delayed.

The Company remains obligated to fund certain Refinery environmental projects
initiated prior to the creation of LCR as well as its share of a base level of
Refinery capital improvements; the total of these obligations is estimated to be
$50-75 million through the completion of the upgrade project. The level and
timing of these anticipated capital commitments and expenditures will be
affected by changes in applicable governmental regulations, including
environmental and tax laws.

Employee Relations

At year end, LCR employed 1,200 full time employees. LCR also uses the services
of approximately 200 employees of independent contractors in the routine conduct
of its business. Certain hourly workers at the Refinery are covered by
collective bargaining agreements between LCR and the Oil, Chemical and Atomic
Workers Union (approximately 700 employees).

RESEARCH AND TECHNOLOGY; PATENTS AND TRADEMARKS

The Company, including LCR, uses numerous patents in its operations, many of
which are licensed from third parties, including ARCO. See Item 13 -- "Certain
Relationships and Related Transactions". Although the Company's licenses from
ARCO and others are significant to its operations, the Company is not dependent
upon any particular patent, trade secret or the like, and it believes that the
loss of any individual patent, trade secret, or similar proprietary right would
not have a material adverse effect on the operations of the Company. The
Company submitted several new patent applications during 1993 to protect new
processes it developed.

Lyondell Licensing, Inc., a wholly-owned subsidiary of the Company, has entered
into a joint development and licensing relationship with CDTECH, a leading
supplier of ethers technologies used in reformulated fuels production, to
commercialize two isomerization processes that produce blending agents for
cleaner burning gasolines. This alliance is aimed at improving these
technologies through a joint development effort. If successful, the alliance is
expected to accelerate worldwide commercialization of Lyondell's butene
isomerization process and Lyondell's or CDTECH's pentene isomerization process.

The Company, including LCR, uses numerous trademarks in its marketing
operations, a portion of which are licensed from third parties, including ARCO.
The Company is not dependent upon any particular trademark, and it believes the
loss of any individual trademark would not have a material adverse effect on its
operations. The Company submitted several new trademark applications during
1993 to protect product line names and to foster its marketing position.

FINANCE MATTERS

The Company generally intends to use its cash position and cash flows to enhance
total return to stockholders. In addition, the Company's strategy is to
maintain a suitable rating on its debt securities. Any proposed action
affecting the Company's cash position or cash flow is evaluated in competition
with other available investments and other alternatives. This allows the
Company to take advantage of opportunities intended to maximize total return to
stockholders. See "PETROCHEMICAL SEGMENT - Capital Program" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".

Long-Term Debt and Financing Arrangements

As of December 31, 1993, the Company had $725 million of long-term debt
consisting of $300 million of notes due 1996 and 1999, $200 million of notes due
1997 and 2002 and $225 million of medium-term notes due from 1994 to 2005.

The Notes due 1996 and 1999 and the medium-term notes contain provisions that
would allow the holders to require the Company to repurchase the debt upon the
occurrence of certain events combined with specified declines in public ratings
on the Notes due 1996 and 1999 (Put Rights). Events which may trigger the Put
Rights include, among other things, acquisitions by persons other than ARCO or
the Company of more than 20 percent of the Company's common stock, any merger or
transfer of substantially all of the Company's assets in connection with which
the Company's common stock is changed into or exchanged for cash, securities or
other property and payment of "special" dividends. See Item 5 - Market for
Registrant's Common Equity and Related Stockholder Matters. The foregoing
summary of the Put Rights is not intended to be complete and it is subject to,
and qualified in its entirety by reference to, the terms of the Indenture for
the Notes due 1996 and 1999 which has been filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989 and incorporated
herein by reference.

LYONDELL-CITGO Unsecured Revolving Credit Facility- Effective July 1, 1993, LCR
entered into a 364 day unsecured $100 million revolving credit facility with a
group of banks with Continental Bank, N.A., as agent. Under terms of the credit
facility, LCR may borrow with interest based on prime, LIBOR or CD rates at
LCR's option or have letters of credit issued on its behalf. The credit
facility may be extended at the request of LCR upon consent of the bank group.
The credit facility contains covenants that limit LCR's ability to modify
certain significant contracts, dispose of assets or merge or consolidate with
other entities. At December 31, 1993, no amounts were outstanding under this
credit facility.

Company Unsecured Revolving Credit Facility- During December, 1993, the Company
finalized a five year, $400 million unsecured revolving credit facility
(Facility) which replaced its existing $300 million credit facility which was
due to expire in July, 1994. At December 31, 1993, no amounts were outstanding
under the Facility. At the present time the Company views the Facility as a
back-up source of liquidity. The Company does not believe that the covenants or
the other terms of the Facility described below are reasonably likely to
materially affect or restrict the future operation of the Company's business or
its ability to pay dividends on its common stock.

Under the terms of the Facility, the interest rate for borrowings is based on
Euro-Dollar or CD rates, at the Company's option, and also is dependent upon the
Facility utilization rate and the Company's debt ratings. The Facility contains
restrictive covenants regarding the incurrence of additional debt, the
maintenance of certain fixed charge coverage and leverage ratios and the making
of contributions to LCR, as well as the payment of dividends to the extent that
the Company's net income after January 1, 1994 generally does not exceed, over
time, dividends declared or paid after that date.

The Facility's debt incurrence covenant restricts the incurrence by the Company
of additional debt, including debt under the Facility, unless, immediately after
giving effect to the additional borrowing, the ratio of earnings before
depreciation, amortization, interest and income taxes, to interest expense
exceeds the limits set forth in the Facility. However, the debt incurrence
covenant does not become applicable until the debt incurred by the Company after
December 31, 1993 exceeds $75 million.

In addition to other customary events of default, the Facility provides that an
event of default will occur (i) if the Company fails to pay when due (whether by
scheduled maturity, acceleration or otherwise) an aggregate amount of
indebtedness or interest thereon (other than with respect to loans under the
Facility) in excess of $15 million, or (ii) if the Company is determined (upon
exhaustion of all appeals and expiration of all cure periods) to be in default
of a material obligation under the LCR Regulations. The forgoing summary of the
Facility is not intended to be complete and it is subject to, and qualified in
its entirety by reference to, the terms of the Facility which has been filed as
an exhibit to this Annual Report on Form 10-K and incorporated herein by this
reference.

For a further discussion of the Company's long-term debt and financing
arrangements, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- FINANCIAL CONDITION" and Note 11 of "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS".

ENVIRONMENTAL MATTERS

The Company's production facilities are generally required to have permits and
licenses regulating air emissions, discharges to water and generation, storage,
treatment and disposal of hazardous wastes. Companies that are permitted to
treat, store or dispose of hazardous waste and maintain underground storage
tanks pursuant to the Resource Conservation and Recovery Act (RCRA) also are
required to meet certain financial responsibility requirements. The Company
believes that it has all permits and licenses generally necessary to conduct its
business or, where necessary, is applying for additional, amended or modified
permits, and that it meets applicable financial responsibility requirements.

The Company's policy is to be in compliance with all applicable environmental
laws. The Company is committed to Responsible Care(R), a chemical industry
initiative to enhance the industry's responsible management of chemicals. The
Company (together with the industry in which it operates) is subject to
extensive federal, state and local environmental laws and regulations concerning
emissions to the air, discharges onto land or waters and the generation,
handling, storage, transportation, treatment and disposal of waste materials.
Some of these laws and regulations are subject to varying and conflicting
interpretations. In addition, the Company cannot accurately predict future
developments, such as increasingly strict requirements of environmental laws,
inspection and enforcement policies and compliance costs therefrom, which might
affect the handling, manufacture, use, emission or disposal of products, other
materials or hazardous and non-hazardous waste. For example, a revised testing
procedure under RCRA, the toxicity characteristic leachate procedure (TCLP),
resulted in the reclassification of some wastes at the Company's facilities
which has required changes in the Company's waste management practices. These
changes have caused the Company to make expenditures in 1993 and will cause the
Company to make substantial additional expenditures in 1994. Some risk of
environmental costs and liabilities is inherent in particular operations and
products of the Company, as it is with other companies engaged in similar
businesses, and there is no assurance that material costs and liabilities will
not be incurred. In general, however, with respect to the capital expenditures
and risks described above, the Company does not expect that it will be affected
differentially from the rest of the domestic petrochemical and refining
industry.

In some cases, compliance with environmental, health and safety laws and
regulations can only be achieved by capital expenditures. In the years ended
December 31, 1992 and 1993, the Company spent approximately $57 million and $38
million, respectively, for environmentally related capital expenditures at
existing facilities. For 1994 and 1995, the Company currently estimates that
environmentally related capital expenditures at existing facilities (including
LCR's) will be approximately $51 million and $50 million, respectively. The
timing and amount of these expenditures are subject to the regulatory and other
uncertainties described above as well as obtaining of the necessary permits and
approvals. The Company's 1994 capital budget includes the following
environmentally related projects: (1) work on installation of a wet gas scrubber
that will reduce sulfur dioxide and particulate emissions from the Refinery's
fluid catalytic cracking unit; (2) TCLP-related projects at the Refinery,
including closure of some surface impoundments, source reductions and rerouting
of streams; (3) completion of a number of projects to reduce benzene emissions
in compliance with federal regulations; (4) a marine vapor recovery project at
the Refinery; and (5) compliance costs at the Channelview Complex and the
Refinery related to nitrogen oxide emissions from combustion sources. Additional
projects may be required as a result of various enforcement orders that the
Company is negotiating. For periods beyond 1995, additional environmentally
related capital expenditures will be required, although the Company cannot
accurately predict the levels of such expenditures at this time.

The Refinery contains on-site solid-waste landfills which were used in the past
to dispose of waste generated at these facilities. It is anticipated that
corrective actions will be necessary to comply with federal and state
requirements with respect to this facility. In addition, the Company negotiated
an order with the Texas Water Commission, now the Texas Natural Resource
Conservation Commission (TNRCC), for assessment and remediation of groundwater
and soil contamination at the Refinery. The Company has reserved an amount

(without regard to potential insurance recoveries or other third party
reimbursements) it believes to be sufficient to cover current estimates of the
cost for remedial measures at its manufacturing facilities based upon its
interpretation of current environmental standards. Based on the establishment
of such reserves, and the status of discussions with regulatory agencies
described in the preceding paragraph, and although the reserves are subject to
increase, the Company does not anticipate any material adverse effect upon its
earnings, operations or competitive position as a result of compliance with the
laws and regulations described in this or the preceding paragraphs. See also
Item 3 -- "Claims Relating To Waste Disposal Sites".

Item 3. Legal Proceedings

General

In connection with the transfer of assets and liabilities from ARCO to Lyondell,
Lyondell agreed to assume certain liabilities arising out of the operation of
the Company's integrated petrochemical and petroleum processing business prior
to July 1, 1988. At that time, the Company and ARCO entered into an agreement
(Cross-Indemnity Agreement) whereby the Company agreed to defend and indemnify
ARCO against certain uninsured claims and liabilities which ARCO may incur
relating to the operation of the business of the Company prior to July 1, 1988,
including liabilities which may arise out of certain of the legal proceedings
described in this Item 3. See Item 13 -- "Certain Relationships and Related
Transactions". Prior to November 20, 1990, ARCO's insurance carriers had
assumed the defense of most of the lawsuits described in this Item 3. Since
that date, ARCO's insurance carriers have refused to advance defense costs in
those lawsuits relating to certain of the waste disposal sites. See "Claims
Relating To Waste Disposal Sites - ARCO Insurance Litigation".

In addition to the proceedings specifically described in this Item 3, ARCO, the
Company and its subsidiaries are defendants in other suits, some of which are
not covered by insurance. Many of these additional suits involve smaller
amounts than the matters described herein, or make no specific claim for relief.
Although final determination of legal liability and the resulting financial
impact with respect to the litigation described in this Item 3, as well as the
other litigation affecting the Company, cannot be ascertained with any degree of
certainty, the Company does not believe that any ultimate uninsured liability
resulting from the legal proceedings in which it currently is involved (directly
or indirectly) will individually, or in the aggregate, have a material adverse
effect on the business or financial condition of the Company. See Note 18 of
"NOTES TO CONSOLIDATED FINANCIAL STATEMENTS".

Although Lyondell is involved in numerous and varied legal proceedings, a
significant portion of its litigation arises in three contexts: (1) claims for
personal injury or death allegedly arising out of exposure to the Company's
products; (2) claims for personal injury or death, and/or property damage
allegedly arising out of the generation and disposal of chemical wastes at
Superfund and other waste disposal sites; and (3) claims for personal injury
and/or property damage and air and noise pollution allegedly arising out of the
operation of the Company's facilities. The following sections of this Item 3
describe these types of pending proceedings. Lyondell (either directly or
through ARCO as its indemnitee) is the real party at interest in these
proceedings.

Claims Related To Company Products

ARCO and the Company are involved in numerous suits arising in whole or in part
from the operation of the Company's, including LCR, petrochemical and petroleum
processing businesses and the assets related thereto in which the plaintiffs
allege damages arising from exposure to allegedly toxic chemical products, such
as benzene and butadiene. Plaintiffs in these cases usually worked at a
manufacturing facility as employees of one of Lyondell's customers, were
employees of the Company's contractors, or were employees of companies involved
in the transportation of the Company's products to its customers. These suits
allege toxic effects of exposure to chemicals sold in the ordinary course of
business to third parties by various industrial concerns, including ARCO or the
Company, or allege toxic chemical exposures at the Company's manufacturing
facilities. Issues common to these cases include: (1) whether the plaintiff can
identify a specific product to which he was allegedly exposed; (2) whether the
Company supplied the identified product to which plaintiff claims he was
exposed; (3) whether the plaintiff has a medical condition which, based upon
competent scientific and medical evidence, is causally related to the identified
product; (4) whether, and under what conditions, the plaintiff was exposed to
the

identified product; and (5) if the plaintiff was exposed, whether the
Company has any legal defenses to the plaintiff's claims and whether there are
other parties or defendants to whom the Company can turn for contribution or
indemnification. The Company believes that it has always followed a policy of
not only complying with all mandated standards related to product warnings and
exposure levels but also of complying with Company specific standards that were
more strict than those imposed by the law. As a result, the Company believes
that it has a basis to avail itself of legal defenses against claims regarding
its products due to exposures by employees and by claims of exposures from third
parties to whom the Company sold its products.

The vast majority of chemical exposure cases name a large number of industrial
concerns, in addition to the Company, as defendants and are at various stages of
discovery. Although the Company does not believe that the pending chemical
exposure cases will have a material adverse effect on its business or financial
condition, it is difficult to determine the potential outcome of this type of
case. The majority of the plaintiffs in chemical exposure legal proceedings
request relief in the form of unspecified monetary damages. Furthermore, when
specific amounts are requested they often bear no objective relation to the
merits of the case. Notwithstanding the foregoing, it is possible that if one
or more of the presently pending chemical exposure cases were resolved against
ARCO or the Company, the resulting damage award could be material to the Company
without giving effect to contribution or indemnification obligations of co-
defendants or others, or to the effect of any insurance coverage that may be
available to offset the effects of any such award.

Claims Relating To Waste Disposal Sites

Wastes generated from products produced by facilities transferred from ARCO and
now owned by the Company or LCR have, from time to time, been disposed of at
third-party landfills. Two of these facilities, known as the "French Ltd." and
the "Brio" Sites, both of which are located near Houston, Texas, have been
classified as "Superfund" sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). The Environmental Protection
Agency (EPA) has named many potentially responsible parties (PRPs) at each site
from whom wastes were allegedly received. Based on the current law, the Company
does not believe that its obligation to ARCO related to ARCO's share of clean-up
costs at either of these sites will result in a liability that will have,
individually or in the aggregate, a material adverse effect on the business or
financial condition of the Company. It is possible, however, that the Company
may be involved in future CERCLA and comparable state law investigations and
clean-ups. The current presidential administration recently proposed a plan to
significantly revise the Superfund law which is scheduled for reauthorization
this year. Because the proposal is so recent and because it is expected to
generate strong reactions from business, insurance companies, lenders,
municipalities and environmentalists, the Company is not able to predict whether
the administration's plan will be enacted or to determine with specificity what
the impact would be on the Company.

French Ltd. Site Remediation -- At the French Ltd. site, ARCO and the other PRPs
have entered into a settlement agreement relating to the allocation of clean-up
costs. The EPA approved the clean-up plan and a Consent Decree was entered in
the Federal District Court for the Southern District of Texas in the first
quarter of 1990. An amendment to the Consent Decree relating to natural
resource damage has been negotiated and submitted to the court for approval.
The total costs associated with the Consent Decree are currently estimated to be
approximately $90 million. The Company believes that its share of clean-up
costs (as allocated pursuant to the Cross-Indemnity Agreement) will be no more
than five percent of total costs recovered without giving effect to any
insurance coverage which may be available to offset these costs.

French Ltd. Site Litigation -- Approximately 2,500 plaintiffs have made claims
related to wastes in the French Ltd. Superfund site. In each of these cases,
ARCO is one of many defendants. These suits generally allege that unspecified
chemical waste sent to the site by the defendants caused a decrease in property
value, a decrease in plaintiffs' ability to enjoy their property, and
unspecified adverse effects on plaintiffs' health. Although some of the
lawsuits request relief in the form of unspecified monetary damages, the
aggregate amount of actual damages sought in those cases where damages are
specified exceeds $5 billion. The aggregate amount of punitive damages sought
in those cases where damages are specified exceeds $20 billion. In December,
1992, after mediation, ARCO, along with several other defendants, entered into a
preliminary agreement to settle claims of approximately 2,200 plaintiffs. The
remaining claims are in pretrial discovery. The Company's obligation to
reimburse ARCO for defense costs and settlements related to French Ltd. has not
been determined.

Brio Site Remediation -- At the Brio site, a definitive agreement allocating
these remedial costs among ARCO and other PRPs has been reached. The EPA
approved the plan and a Consent Decree between the Department of Justice and a
group of PRPs (including ARCO on behalf of its former divisions and
subsidiaries) was entered in Federal District Court for the Southern District of
Texas, in April, 1991 and remediation work is ongoing. In 1991, various parties
filed an appeal to the entering of the Consent Decree after the denial of their
motions to intervene in the proceedings. This appeal was denied in December,
1991. The total clean-up cost is currently estimated to be approximately $60
million. The Company believes that its share of the clean-up costs (as
allocated pursuant to the Cross-Indemnity Agreement) will be no more than one
percent of total costs without giving effect to any insurance coverage which may
be available to offset these costs.

Brio Site Litigation -- There currently are eight separate pending legal
proceedings filed against ARCO or its affiliates and numerous others in
connection with the Brio Superfund site. In these proceedings, there are
approximately 600 plaintiffs, many of whom are suing in their capacity as next
friend of minor children. In each of these cases, ARCO is one of many
defendants. Plaintiffs allege personal injury as a result of exposure to
various substances that were disposed of or stored at the Brio site. These
suits generally allege that defendants were negligent in sending chemical
substances to the site and also contain allegations of nuisance and strict
liability. The suits involve: a school district alleging damages as a result of
the closing of Weber Elementary; employees of the various entities who operated
the refining and reprocessing facilities at Brio; and other plaintiffs. All of
the lawsuits request relief in the form of unspecified compensatory and
exemplary damages. These suits are in pretrial discovery.

ARCO (or its affiliate) is the named defendant in the above proceedings. Under
the provisions of the Cross-Indemnity Agreement, Lyondell is not obligated to
indemnify ARCO for costs arising out of this litigation for which ARCO is
insured. Although ARCO is currently litigating the nature and extent of its
coverage with its insurance carriers (see "ARCO Insurance Litigation"), Lyondell
believes that the ultimate resolution of the above described lawsuits, ARCO's
insurance litigation and related issues will not result in any material
obligation on the part of Lyondell to ARCO with respect to the Brio and the
French Ltd. Superfund Sites.

Other Waste Disposal Site Litigation -- The Company and ARCO are named
defendants in three of four presently pending lawsuits filed on behalf of 73
plaintiffs in the state district court in Galveston County, Texas involving the
alleged release of toxic and hazardous substances from the Hall's Bayou Ranch.
LCR sends and, prior to July 1, 1993, Lyondell and its predecessor sent surface
water runoff and process waste water from the Refinery to Gulf Coast Waste
Disposal Authority (GCWDA) and a portion of the solids output from GCWDA is sent
for storage to the Hall's Bayou Ranch site. Plaintiffs claim personal injury,
diminution of property value and loss of use and enjoyment of the property.
They are seeking $7 billion in actual damages and $28 billion in punitive
damages. In March 1993, the Company and ARCO entered a preliminary settlement
agreement to resolve these proceedings with all plaintiffs. The proposed
settlement is not expected to have a material adverse effect on the Company's
financial position.

ARCO Insurance Litigation -- On November 21, 1990, ARCO filed suit against
certain of its insurers with respect to insurance policies in effect at times
during past years. This litigation involves claims for reimbursement of defense
costs and environmental expenses incurred by ARCO in connection with ARCO's
activities at sites and locations throughout the United States. ARCO's insurers
had been participating in the defense of the Company and ARCO for the Mont
Belvieu proceedings (see "Claims Related To Company Operations -- Mont Belvieu
Litigation") as well as the litigation involving the French Ltd. and the Brio
Superfund sites; however, subsequent to the filing of ARCO's lawsuit, the
insurers have refused to advance defense costs for these proceedings (and
certain other proceedings relating to the Company's products) until the coverage
dispute has been resolved. ARCO is currently paying the defense costs in these
proceedings, as well as other waste disposal site litigation, pending the
resolution of the coverage dispute. It has not been determined whether or not
the Company has an obligation to reimburse ARCO for defense costs related to the
coverage dispute.

Claims Related To Company Operations

Mont Belvieu Litigation -- Several organizations and groups of citizens who own
property in the vicinity of Mont Belvieu, Texas, have instituted suits for
monetary damages and injunctive relief against ARCO and others who own
underground storage and transportation facilities in the city of Mont Belvieu.

In September, 1980, Warren Petroleum Company (Warren) experienced a leak in one
of its underground hydrocarbon storage wells in Mont Belvieu. On March 18,
1983, suit was brought by 34 plaintiffs, naming

Warren, ARCO and other companies with operations in Mont Belvieu as
defendants. These plaintiffs claimed property damage, and, in some instances,
personal injuries allegedly resulting from storage operations in Mont Belvieu.
Later, 83 additional plaintiffs joined the suit. Because of the number of
plaintiffs, the court divided this lawsuit into three separate lawsuits. In
February, 1986, ARCO was granted a directed verdict as to all of the claims of
the plaintiffs in the first of the three lawsuits to be tried which had the
effect of dismissing all the pending claims without the ability to refile.
Thereafter, the plaintiffs in the two remaining cases dropped their claims
against ARCO. ARCO remains in these two cases as a result of cross claims for
contribution filed by other defendants. These suits have not been set for
trial.

In 1986, a number of companies that operated facilities in Mont Belvieu,
including ARCO, instituted a program to make offers to purchase certain
properties in Mont Belvieu. The purpose of the purchase program was to give
persons within a certain area the opportunity to move, if they so desired. A
number of residents and litigants participated in the program.

The implementation of the purchase program described above led to the filing of
a new set of lawsuits. There are two separate legal proceedings which have
resulted from eight lawsuits filed against ARCO, the Company, and a number of
other companies that operate facilities in Mont Belvieu. These claims are made
by persons outside of the area designated by the purchase program and are
pending in state and federal court. The lawsuits name ARCO and the Company as
well as every other company that participated in the purchase program as
defendants. In six of the cases, which involve a total of 94 plaintiffs, the
city of Mont Belvieu also is named as a defendant. These plaintiffs claim that
industry operations, together with incidents that occurred at certain
facilities, and the publicity surrounding those incidents, destroyed the value
of their property. The plaintiffs also assert that they were discriminated
against by the purchase program and that their civil rights were violated since
they did not receive an offer to buy their property. The plaintiffs further
claim that the purchase violated antitrust provisions of state law, and that the
defendants were negligent in their operations and trespassed onto plaintiffs'
properties.

In December, 1991, the trial court in the lawsuit pending in state district
court entered a take nothing summary judgment in favor of ARCO, the Company and
other companies who were named as defendants in that lawsuit. The plaintiff
sought injunctive relief, recovery of more than $9 million in actual damages and
more than $28 million in punitive damages in this case. The plaintiff appealed
the adverse ruling. In July, 1992, the state court of appeals in Houston
reversed and remanded the case for retrial in a different county based on its
interpretation of proper venue. In September, 1993, a summary judgment in the
state district court in the new county was granted in favor of all defendants in
this matter. An appeal is pending.

All other Mont Belvieu cases were consolidated in the Federal District Court in
the Southern District of Texas. In addition to unspecified damages, the
aggregate amount of actual damages sought from all defendants in all of these
Mont Belvieu cases exceeds $241 million. The aggregate amount of punitive
damages sought exceeds $675 million. These lawsuits went to trial on December
1, 1992. On January 11, 1993, after the plaintiffs concluded their offer of
evidence, the trial court granted the defendants' motion for directed verdict
which dismissed plaintiffs' claims without the ability to refile. An appeal is
pending.

ARCO is paying all defense costs in all of the Mont Belvieu litigation and the
Company does not expect that a claim will be made under the Cross-Indemnity
Agreement.

Channelview Nuisance Litigation -- In 1992 and 1993, the Company, together with
two other corporate defendants, was named as a defendant in two separate
lawsuits that were filed in two state district courts in Harris County, Texas.
In the first suit, the 15 plaintiffs allege that one or all of the named
defendants' facilities emit loud noises, bright lights and noxious fumes in
proximity to the plaintiffs' homes. The 15 plaintiffs in the second lawsuit
make these same allegations. Some of these latter plaintiffs also allege a
diminished quality of the water in their water wells. The two lawsuits have
been consolidated. The plaintiffs are claiming, among other things, diminution
in property value, interference with the use and enjoyment of their property and
personal injuries. The consolidated lawsuits seek unspecified actual damages in
excess of $5 million and punitive damages in excess of $20 million.

Arceneaux Litigation -- In November, 1993, multiple lawsuits were filed in state
district court on behalf of approximately 70,000 plaintiffs residing or doing
business in the vicinity of the lower San Jacinto River against hundreds of
named businesses, including the Company, owning or operating facilities situated
in the vicinity of the Houston Ship Channel alleging, among other things,
pollution to the San Jacinto River watershed below the Ship Channel and
requesting damages in the aggregate in excess of $1.5 trillion. In January,
1994, one of the suits against a single defendant was non-suited and the three
remaining suits were dismissed on the defendants' motion without the ability to
refile.

Other Matters

In April, 1993 the City of Houston, Texas (joining the Texas Air Control Board
as a necessary party) filed suit in the state district court of Harris County,
Texas against the Company, alleging violations of the Texas Clean Air Act and
the Texas Administrative Code and seeking maximum civil penalties and
appropriate injunctive relief. In July, 1993 the City of Houston filed an
amended and restated petition which added as causes of action certain
allegations made by the Texas Air Control Board, now the TNRCC, following its
April, 1993 state inspection plan (SIP) inspection. The Company filed a general
denial to all allegations of the lawsuit in July, 1993 and is engaged in
settlement negotiations with the City and the State. In the fourth quarter of
1992, the Refinery underwent an EPA multi-media inspection and an Occupational
Safety and Health Administration (OSHA) Process Quality Verification Audit. The
OSHA inspection of the Refinery was resolved in an informal settlement agreement
in April, 1993. At this time, the EPA has not formally notified the Company of
the enforcement action to be taken, if any.

In addition to the matters reported herein, from time to time the Company
receives notices from federal, state or local governmental entities of alleged
violations of environmental laws and regulations pertaining to, among other
things, the disposal, emission and storage of chemical and petroleum substances,
including hazardous wastes. Although the Company has not been the subject of
significant penalties to date, such alleged violations may become the subject of
enforcement actions or other legal proceedings and may (individually or in the
aggregate) involve monetary sanctions of $100,000 or more (exclusive of interest
and costs).

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of 1993.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the executive officers of Registrant as of March 1, 1994.

Name, Age and Present Business Experience During Past
Position with Lyondell Five Years and Period Served as Officer(s)
- ---------------------- ------------------------------------------

John R. Beard, 41................. Mr. Beard became Vice President Quality,
Vice President, Supply and Planning on July 1, 1993.
Quality, Supply and Planning Mr. Beard was appointed Vice President,
Planning and Evaluations in May, 1992.
He served as the Site Manager of Lyondell's
Houston Refinery from 1988 until April,
1992. From 1985 until 1988, he served in
management assignments in evaluations,
marketing and manufacturing. Prior to 1985,
he served in various management positions
for ARCO Products Company and the ARCO
Chemical Division. He originally joined
ARCO in 1974.

Bob G. Gower, 56.................. Mr. Gower was elected Chief Executive Officer
Chief Executive Officer, of the Company on October 24, 1988 and
President and Director Director and President of the Company on
June 27, 1988. He has been President of
Lyondell and its predecessor, the Lyondell
Division, since formation of the Lyondell
Division in April, 1985. Mr. Gower was a
Senior Vice President of ARCO from June, 1984
until his resignation as an officer of ARCO
in January, 1989. Prior to 1984, he served in
various capacities with the then ARCO
Chemical Division. He originally joined ARCO
in 1963.

Robert H. Ise, 59................. Mr. Ise was appointed Vice President,
Vice President, Marketing, Supply and Evaluations of
Lyondell Petrochemical Company LYONDELL-CITGO Refining Company Ltd. on
Vice President, July 1, 1993. He previously served Lyondell
Marketing, Supply and Evaluations as Vice President, Marketing and Sales,
LYONDELL-CITGO Refining Polymers and Petroleum Products from April,
Company Ltd. 1992 until June, 1993 and continues to
serve as a Vice President of Lyondell. He
served as Vice President, Marketing and
Sales, Petroleum Products, from December,
1988 until April, 1992. He served as Vice
President of Industrial Products Marketing
of the Lyondell Division from June, 1987 to
December, 1988. From May, 1985 to June,
1987 he served as Director, Industrial
Products Marketing for the Lyondell
Division. Prior thereto, he served in
various marketing capacities for the ARCO
Products Division. He originally joined
ARCO in 1959.

Richard W. Park, 54............... Mr. Park was elected Vice President, Human
Vice President, Resources on June 27, 1988. He previously
Human Resources served as Vice President of Employee
Relations of the Lyondell Division since
February, 1987. From 1985 to 1987 he served
as Manager of Personnel for the then ARCO
Chemical Division's Specialty Chemicals and
International Units. Prior to 1985 he held
other employee relations positions with
divisions of ARCO. He originally joined
ARCO in 1965.
19

Name, Age and Present Business Experience During Past
Position with Lyondell Five Years and Period Served as Officer(s)
- ---------------------- ------------------------------------------

Jeffrey R. Pendergraft, 45........ Mr. Pendergraft was named Senior Vice
Senior Vice President, President on May 6, 1993. Mr. Pendergraft
Secretary and General Counsel was elected Vice President and General
Counsel on June 27, 1988 and Secretary on
October 24, 1988. From September, 1985 to
June, 1988, he served as General Attorney
of the Lyondell Division. Prior to
September, 1985, he served as an attorney
for various operating divisions and
corporate units of ARCO at increasing
levels of responsibility. He originally
joined ARCO in 1972.

W. Norman Phillips, Jr., 39....... Mr. Phillips was elected Vice President,
Vice President, Channelview Operations on May 6, 1993. From
Channelview Operations May 22, 1992 until May 6, 1993, he served
as Site Manager of Channelview Operations.
He previously served as Manager, Planning
from August, 1991 until May, 1992. Prior to
August, 1991, he served in various
positions in manufacturing and marketing
for ARCO and Lyondell, including Sales
Manager in the Petroleum Products Marketing
Department from September, 1987 until
August, 1991. He originally joined ARCO in
1977.

Joseph M. Putz, 53................ Mr. Putz was elected Vice President and
Vice President Controller on October 24, 1988. Previously
and Controller he was Vice President, Control and
Administration of Lyondell, and its
predecessor, the Lyondell Division, from
June, 1987 to October, 1988. From 1986 to
1987 he served as Director, Internal
Control of ARCO. From 1985 to 1986 he
served as Manager of Special Projects for
ARCO. Prior to 1985, he held various
financial positions with divisions of ARCO.
He originally joined ARCO in 1965.

Dan F. Smith, 47.................. Mr. Smith was elected a Director of the
Executive Vice President and Company on October 24, 1988. He was elected
Chief Operating Officer Executive Vice President and Chief
Operating Officer on May 6, 1993. He served
as Vice President Corporate Planning of
ARCO from October, 1991 until May, 1993. He
previously served as Executive Vice
President and Chief Financial Officer of
the Company from October, 1988 to October,
1991 and as Senior Vice President of
Manufacturing of Lyondell, and its
predecessor, the Lyondell Division, from
June, 1986 to October 1988. From August,
1985 to June, 1986, Mr. Smith served as
Vice President of Manufacturing for the
Lyondell Division. He joined the Lyondell
division in April, 1985 as Vice President,
Control and Administration. Prior to 1985,
he served in various financial, planning
and manufacturing positions with ARCO. He
originally joined ARCO in 1968.

Name, Age and Present Business Experience During Past
Position with Lyondell Five Years and Period Served as Officer(s)
---------------------- ------------------------------------------

Debra L. Starnes, 41.............. Ms. Starnes was appointed Vice President,
Vice President, Petrochemicals Business Management and
Petrochemicals Business Management Marketing on July 1, 1993. She previously
and Marketing served as Vice President, Petrochemicals
Business Management from May 22, 1992 to
July, 1993. She served as Vice President,
Corporate Planning from September, 1991
until May, 1992. From January, 1989 to
September, 1991, she served as Director,
Planning. Prior to 1989, she held various
manufacturing, marketing and planning
positions with ARCO and Lyondell. She
originally joined ARCO in 1975.

Russell S. Young, 45.............. Mr. Young was elected Senior Vice President,
Senior Vice President, Chief Financial Officer and Treasurer on
Chief Financial Officer May 7, 1992. He previously served as Vice
and Treasurer President and Treasurer from November, 1988
until May, 1992. Mr. Young served as
Controller of the ARCO Products Division
from September, 1986 to January, 1989. From
July, 1984 to September, 1986 he served as
Assistant Treasurer of ARCO. Prior thereto
he served in corporate finance positions for
ARCO. He originally joined ARCO in 1980.

(a) The By-Laws of the Company provide that each officer shall hold office
until the officer's successor is elected or appointed and qualified or
until the officer's death, resignation or removal by the Board of
Directors.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company currently consists of 250,000,000
shares of common stock, par value $1 per share. The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Certificate of Incorporation and By-Laws of the Company, copies
of which are filed as exhibits to the Company's Registration Statement on Form
S-1 (No. 33-25407) and incorporated herein by reference.

Common Stock

The Company is currently authorized to issue 250,000,000 shares of common stock,
of which 80,000,000 shares of common stock are outstanding at the date hereof.

Holders of common stock (Stockholders) are entitled (i) to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company; (ii) to one vote per share on all matters on which the Stockholders are
entitled to vote; (iii) to act by written consent in lieu of voting at a meeting
of stockholders; and (iv) to share ratably in all assets of the Company
available for distribution to the Stockholders, in the event of liquidation,
dissolution or winding up of the Company. For additional information regarding
the Company's dividend policy, see Item 5 of this Annual Report on Form 10-K.
The holders of a majority of the shares of Common Stock represented at a meeting
can elect all of the directors. See Item 12 -- "Security Ownership of Certain
Beneficial Owners and Management" which is included herein.

Shares of common stock are not liable to further calls or assessments by the
Company for any liabilities of the Company that may be imposed on its
stockholders under the laws of the State of Delaware, the state of incorporation
of the Company. There are no preemptive rights for the common stock in the
Certificate of Incorporation.

The Transfer Agent, Registrar and Dividend Disbursing Agent for the common stock
is The Bank of New York.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The common stock is listed on the New York Stock Exchange. ARCO has advised the
Company that, as of March 1, 1994, ARCO owned 39,921,400 shares of the common
stock, which represented 49.9 percent of the outstanding shares.

The reported high and low sale prices of the common stock on the New York Stock
Exchange (New York Stock Exchange Composite Tape) for each quarter from January
1, 1992 through December 31, 1993, inclusive, were:

Period High Low
------ ---- ---

1992
First Quarter 25-3/4 22-1/8
Second Quarter 25-7/8 21-1/8
Third Quarter 25-5/8 21-3/8
Fourth Quarter 25-1/2 23-1/8

1993
First Quarter 29-1/2 23-3/4
Second Quarter 26-5/8 19
Third Quarter 21-5/8 16-3/4
Fourth Quarter 21-1/2 18-3/8

On March 1, 1994 the closing price of the common stock was $22-3/4 and there
were 2,976 record holders of the common stock.

On January 21, 1994 the Board of Directors declared a quarterly dividend in the
amount of $0.225 per share payable on March 15, 1994 to stockholders of record
on February 18, 1994. During the last two years, Lyondell has declared per share
quarterly cash dividends (which were paid in the subsequent quarter) as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------

1992................. $0.45 $0.45 $0.45 $ 0.45
1993................. $0.45 $0.225* $0.225 $0.225

* On July 23, 1993, the Board of Directors decreased the amount of the
regular quarterly dividend from $0.45 to $0.225 per share.

The declaration and payment of dividends is at the discretion of the Board of
Directors of the Company. The future declaration and payment of dividends and
the amount thereof will be dependent upon the Company's results of operations,
financial condition, cash position and requirements, investment opportunities,
future prospects and other factors deemed relevant by the Board of Directors.

Subject to these considerations and to the legal considerations discussed in the
following paragraph, the Company currently intends to distribute to its
stockholders cash dividends on its common stock at a quarterly rate of $0.225
per share.

In order to declare and pay dividends in the future, the Company's Board of
Directors will have to make the determination that for purposes of the General
Corporation Law of the State of Delaware (Delaware Law) there is a sufficient
amount of surplus (the amount by which its assets exceed its liabilities and
capital) at that time or sufficient net profits. In determining the amount of
surplus of the Company for purposes of Delaware Law, the Company's assets,
including the stock of any of its subsidiaries, may be valued by the Board of
Directors at their

current market value. If prior to or as a result of any future dividend the
Company had a negative stockholders' equity, the Company's Board of Directors
would have to make the determination that, based upon its familiarity with the
Company's business, prospects and financial condition, the Company's recent
earnings history and forecast, an appraisal of the Company's assets and
discussions with the Company's executive officers, legal department and
accountants, the dividend was a permitted dividend under Delaware Law.

As detailed on page 12 herein, certain of the Company's debt instruments contain
provisions that generally provide that the holders of such debt may, under
certain limited circumstances, require the Company to repurchase the debt (Put
Rights). In addition to the occurrences described on page 12 herein, the Put
Rights may be triggered by the making of certain unearned distributions to
stockholders, other than regular dividends, that are followed by a specified
decline in public ratings on such debt. Regular dividends are those quarterly
cash dividends determined in good faith by the Company's Board of Directors
(whose determination is conclusive) to be appropriate in light of the Company's
results of operations and capable of being sustained.

The determinations described in the paragraphs above were made prior to the
declaration of $0.225 per share dividend to be made on March 15, 1994.

The Company's $400 million Facility also could limit the Company's ability to
pay dividends under certain circumstances. See "Items 1 and 2 -- Finance
Matters".

During 1993, the Company paid $108 million in dividends. Total dividends paid
during the year exceeded cumulative earnings and profits, as computed for
federal income tax purposes. Subject to final determination by the Internal
Revenue Service, 100 percent of each of the 1993 quarterly dividend payments was
considered a return of capital.

The operation of certain of the Company's employee benefit plans may result in
the issuance of common stock upon the exercise of options granted to employees
of the Company, including its officers. Although the terms of these plans
provide that additional shares may be issued to satisfy the Company's
obligations under the options, the Company from time to time may cause common
stock to be repurchased in the market in order to satisfy these obligations.

Item 6. Selected Financial Data

The following table sets forth selected financial information for the Company:

For the year ended December 31
------------------------------------
Millions of dollars, except per share amounts 1993 1992 1991 1990 1989
- --------------------------------------------- ---- ---- ---- ---- ----

Sales and other operating revenues..................... $3,850 $4,809 $5,735 $6,499 $5,361
Income before cumulative effect of accounting
changes............................................... 4 26 222 356 374
Net income (1)......................................... 26 16 222 356 374
Earnings per share before cumulative effect of
accounting changes.................................... .06 .32 2.78 4.45 4.67
Earnings per share..................................... .33 .20 2.78 4.45 4.67
Distributions to ARCO (2).............................. -- -- -- -- 500
Dividends per share.................................... 1.35 1.80 1.75 4.10 1.20
Total assets........................................... 1,231 1,215 1,479 1,372 1,267
Capitalized lease obligations, less current portion.... -- -- 156 187 214
Long-term debt, less current portion................... 717 725 554 471 500

(1) The 1993 increase in net income from the cumulative effect of the
accounting change for turnarounds was $22 million, or $0.27 per share. See
Note 4 to Notes to Consolidated Financial Statements. The 1992 reduction
in net income from the cumulative effect of the accounting change for
postretirement benefits other than pensions was $18 million, or $.22 per
share. See Notes 4 and 16 of Notes to Consolidated Financial Statements.
The 1992 increase in net income from the cumulative effect of the
accounting change for income taxes was $8 million, or $.10 per share. See
Notes 4 and 17 of Notes to Consolidated Financial Statements.

(2) Distributions to ARCO were made prior to the initial public offering of the
Company's common stock on January 25, 1989.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

General

As discussed in Note 3 of Notes to Consolidated Financial Statements, on July 1,
1993, the Company and CITGO Petroleum Corporation (CITGO) announced the
commencement of operations of LYONDELL-CITGO Refining Company Ltd. (LCR), a new
entity owned by subsidiaries of the Company and CITGO. LCR owns and operates
the refining business, formerly owned by the Company, including the full-
conversion refinery (Refinery). LCR is undertaking a major upgrade project at
the Refinery to enable the facility to process substantial additional volumes of
very heavy crude oil. CITGO will provide a major portion of the funds for the
upgrade project as well as the funding of certain capital projects.

On July 1, 1993, LCR entered into a long-term crude oil supply contract (Crude
Supply Contract) with LAGOVEN, S.A., an affiliate of CITGO. In addition, under
terms of a long-term product sales agreement (Products Agreement), CITGO will
purchase a substantial portion of the refined products produced at the Refinery.
Both LAGOVEN and CITGO are subsidiaries of Petroleos de Venezuela, S.A., the
national oil company of Venezuela.

The Company believes that the principal benefit from its participation in LCR
will be stabilized earnings and cash flow from the refining business. During
1993, the Refinery increased the volumes of heavy Venezuelan crude oil processed
and it is anticipated that the Refinery will continue to achieve increased
benefits from processing heavy Venezuelan crude oil as it achieves improved
operating efficiency.

Prior to July 1, 1993, the petrochemical and refining operations of the Company
were considered to be a single segment due to the integrated nature of their
operations. However, these operations are now considered to be

separate segments due to the formation of LCR and the related separate
management and operations of that entity. See Note 19 - Segment Information, of
Notes to Consolidated Financial Statements.

The Petrochemical segment consists of olefins, including ethylene, propylene,
butadiene, butylenes and specialty products; polyolefins, including
polypropylene and low density polyethylene; aromatics produced at the
Channelview Petrochemical Complex, including benzene and toluene; methanol and
refinery blending stocks.

The Refining segment consists of refined petroleum products, including gasoline,
heating oil and jet fuel; aromatics produced at the Refinery, including benzene,
toluene, paraxylene and orthoxylene; lubricants; olefins feedstocks and crude
oil resales.

The following table sets forth sales volumes for the Company's major products,
excluding intersegment sales volumes, for the periods indicated. Sales volumes
include production, purchases of products for resale, propylene production from
the product flexibility unit and draws from inventory.

For the year ended December 31
------------------------------
1993 1992 1991
---- ---- ----

Selected petrochemical products (millions):
Ethylene, propylene and polymers (pounds).............................. 5,366 5,785 6,000
Other olefins (pounds)................................................. 1,150 1,158 1,112
Methanol (gallons)..................................................... 225 212 224
Aromatics (gallons).................................................... 125 112 108

Refinery products (thousand barrels per day):
Gasoline............................................................... 120 125 131
Heating oil (no. 2 distillate)......................................... 62 60 74
Jet fuel............................................................... 30 38 33
Aromatics.............................................................. 10 11 11
Other refinery products................................................ 41 43 39
----- ----- -----
Total refinery products volumes...................................... 263 277 288
===== ===== =====

The following table sets forth the Company's sales and other revenues, excluding
intersegment sales, for the periods indicated:

For the year ended December 31
------------------------------
Millions of dollars 1993 1992 1991
- ------------------- ---- ---- ----

Petrochemical products:
Ethylene, propylene and polymers....................................... $ 808 $ 939 $1,135
Other olefins.......................................................... 169 177 171
Methanol............................................................... 89 77 100
Aromatics.............................................................. 120 121 130
Other petrochemical products and other revenues........................ 140 95 130
------ ------ ------
Total petrochemical products sales.................................. 1,326 1,409 1,666
------ ------ ------
Refinery products:
Gasoline............................................................... 950 1,123 1,289
Heating oil (no. 2 distillate)......................................... 481 510 667
Jet fuel............................................................... 245 342 316
Aromatics.............................................................. 167 193 195
Other refinery products and other revenues............................. 280 339 294
------ ------ ------
Total refinery products sales....................................... 2,123 2,507 2,761
------ ------ ------
Crude oil resales (*).................................................... 401 893 1,308
------ ------ ------
Total............................................................... $3,850 $4,809 $5,735
====== ====== ======

(*) Crude oil resales consist of revenues from the resale of previously
purchased crude oil and from locational exchanges of crude oil that are
settled on a cash basis. Crude oil exchanges and resales facilitate the
operation of the Company's petroleum processing business by allowing the
Company to optimize the crude oil feedstock mix in response to market
conditions and refinery maintenance turnarounds and also to reduce
transportation costs.

RESULTS OF OPERATIONS

Overview

Net income for 1993 was $26 million or $.33 per share compared with $16 million
or $.20 per share in 1992 and $222 million or $2.78 per share in 1991. Earnings
for 1993 included a net $13 million after-tax benefit associated with a change
in accounting for major maintenance turnarounds consisting of a $22 million
favorable adjustment for the cumulative effect related to prior periods,
partially offset by a $9 million charge to current operations. Earnings for
1992 reflect a net after-tax charge of $10 million for the cumulative effect
related to prior periods of adopting Financial Accounting Standards Board
mandated accounting standards for postretirement benefits and income taxes.
Excluding the effect of these accounting changes, the earnings decline was
primarily due to lower ethylene sales volumes and lower polyolefins margins,
partially offset by higher refined products margins. The decrease in 1992
versus 1991 resulted primarily from lower refining and ethylene margins as well
as higher maintenance expenses for scheduled and unscheduled downtime at the
Refinery.

The 1993 results included after-tax charges of $11 million consisting of the
cancellation of a capital project, an increase in the environmental reserve and
a workforce reduction and realignment and an additional charge of $3 million for
an adjustment to deferred income taxes associated with an increase in the
federal income tax rate. These charges were partially offset by a benefit of $7
million due to a contract adjustment and LIFO inventory profits. Net income in
1992 included a benefit of $3 million due to an insurance recovery. This
compares to a benefit of $25 million in 1991 primarily associated with insurance
and litigation settlements and LIFO inventory profits.

Refining Segment

Revenues Sales and other operating revenues, including intersegment sales, were
$2.8 billion in 1993 compared to $3.7 billion in 1992 and $4.5 billion in 1991.
The 1993 decrease of $973 million compared to 1992 was due to lower crude oil
resale volumes, lower sales prices for refined products and lower resale volumes
of purchased

light products. Crude oil resale volumes were lower due to reduced
logistical purchases required to meet refinery feedstock requirements which were
impacted by higher Venezuelan crude oil volumes purchased under the Crude Supply
Contract. Refined products sales prices were lower as additional industry
supply exceeded demand growth due to additions of oxygenates, primarily MTBE, to
meet stricter environmental standards, as well as new industry conversion
capacity. The purchase and resale activity for light refined products conducted
for logistic and other reasons was curtailed during the current period because,
effective with the beginning of LCR operations on July 1, 1993, a majority of
the refined products produced at the Refinery are now sold to CITGO under the
Products Agreement.

The 1992 decrease in sales and other operating revenues of $790 million versus
1991 was primarily due to lower crude oil resales and to lower sales prices and
volumes for refined products. The price premium that existed for refined
products during 1991 that was caused by the 1990-1991 Gulf War dissipated in
1992 resulting in lower prices. Refined products sales volumes were lower
primarily due to lower production resulting from scheduled and unscheduled
downtime of major units.

Cost of Sales Cost of sales was $2.6 billion in 1993, compared to $3.6 billion
in 1992 and $4.2 billion in 1991. The 1993 decrease compared to 1992 of $1,010
million was principally due to lower quantities of crude oil purchased, lower
light refined products purchased and lower crude oil prices. Crude oil
purchases were lower due to the reduced logistical purchases. Purchases of
light refined products were lower primarily due to lower purchases for resale
activity. Lower crude oil prices were due to generally lower industry-wide
crude oil prices and to the processing of higher volumes of lower priced, heavy
Venezuelan crude oil purchased under the Crude Supply Contract.

The 1992 decrease compared to 1991 of $605 million was principally due to lower
crude oil purchases that were resold and to lower refining feedstock costs.
Refining feedstock costs were lower primarily due to lower production resulting
from the scheduled and unscheduled downtime and a reduction in crude oil runs
due to unfavorable margins. Partially offsetting this decrease were higher
maintenance expenses related to the scheduled and unscheduled downtime. Cost of
sales was reduced in 1991 by $8 million relating to LIFO inventory profits.

Selling, General and Administrative Expenses Selling, general and
administrative expenses were $48 million in 1993, compared to $43 million in
1992 and $42 million in 1991. The increase in 1993 compared to 1992 of $5
million resulted primarily from higher personnel and realignment expenses
associated with ongoing operations of LCR starting on July 1, 1993.

Operating Income Operating income amounted to $81 million in 1993, compared to
$49 million in 1992 and $235 million in 1991. The $32 million increase in 1993
compared to 1992 was primarily due to improved refined products margins,
partially offset by higher selling, general and administrative expenses.
Refined products margins were higher due to processing higher volumes of heavy,
low cost Venezuelan crude oil purchased under the Crude Supply Contract.

The decrease in operating income of $186 million in 1992 compared to 1991
resulted primarily from lower refined products margins and to higher maintenance
expenses. Refined products margins were lower primarily because decreasing
product prices more than offset reductions in crude oil costs. Product prices
were lower due to the dissipation during 1992 of the Gulf War related price
premium created in 1990 and 1991. Higher maintenance expenses and the reduced
ability to process higher margin heavy crude oils which resulted from the
scheduled and unscheduled downtime of major units during 1992 contributed to
lower operating profits. Also contributing to the decrease in operating income
during 1992 compared to 1991 was a net reduction in benefits of $11 million from
insurance settlements and lower LIFO inventory profits of $8 million.

Petrochemical Segment

Revenues Sales and other operating revenues, including intersegment sales, were
$1.5 billion in 1993 compared to $1.7 billion in 1992 and $2.0 billion in 1991.
The 1993 decrease of $169 million compared to 1992 was primarily due to lower
olefins and polyolefins sales volumes and prices caused by continued weak demand
associated with poor worldwide industry conditions and higher industry
production due to reduced maintenance downtime during 1993.

The 1992 decrease in sales and other operating revenues of $284 million versus
1991 was primarily due to lower sales prices for olefins and methanol. Olefins
sales prices were negatively affected by the continued weak worldwide economy
and by additional industry production capability due to capacity additions.

Cost of Sales Cost of sales was $1.4 billion in 1993 compared to $1.5 billion
in 1992 and $1.7 billion in 1991. The 1993 decrease of $124 million compared
to 1992 and the 1992 decrease of $175 million compared to 1991 were principally
due to lower olefins feedstock costs due to the curtailment of production
resulting from the poor economic conditions and to a lesser extent to lower
feedstock prices.

Cost of sales was reduced in 1993 and 1992 by $5 million and $2 million,
respectively, and was increased $2 million in 1991 relating to LIFO inventory
adjustments.

Operating Income Operating income amounted to $57 million in 1993 compared to
$102 million in 1992 and $213 million in 1991. The decrease of $45 million in
operating income in 1993 compared to 1992 was primarily due to lower ethylene
sales volumes and lower polyolefins margins. Ethylene sales volumes and
polyolefins margins were lower primarily due to poor industry and economic
conditions.

The decrease of $111 million in operating income in 1992 compared to 1991 was
primarily due to lower ethylene and methanol margins. Ethylene margins were
negatively affected by the continued weak worldwide economy and by industry
capacity additions. Methanol sales prices were lower due to the dissipation
during 1992 of the Gulf War related price premium created during 1990 and 1991.
Contributing to the decrease in operating income was the absence of a $12
million one-time gain recorded in 1991 for proceeds received from an out-of-
period settlement of litigation.

Unallocated and Headquarters

Selling, General and Administrative General and administrative expenses were
$45 million in 1993, $47 million in 1992 and $49 million in 1991. The reduction
of $2 million in general and administrative expenses in 1993 compared to 1992
and in 1992 compared to 1991 primarily resulted from lower personnel related
costs.

Interest Expense and Interest Income Interest expense was $74 million in 1993
compared to $79 million in 1992 and $74 million in 1991. The $5 million
reduction in interest expense in 1993 compared to 1992 was primarily caused by a
reduction of outstanding debt due to the prepayment of amounts due under
capitalized leases during April, 1992. The $5 million increase in 1992 compared
to 1991 resulted from higher average debt outstanding in 1992 which more than
offset lower interest rates.

Interest income was $2 million in 1993 compared to $10 million in 1992 and $14
million in 1991. The $8 million decrease in 1993 versus 1992 was primarily due
to lower amounts of cash available for investment. The $4 million decrease in
1992 versus 1991 was primarily due to lower interest rates and to a lesser
extent to lower amounts of cash available for investment.

Minority Interest in LYONDELL-CITGO Refining Company Ltd. Minority interest was
$5 million in 1993 representing CITGO's allocation of LCR's income.

Income Tax The effective income tax rate during 1993 from continuing operations
was 73.1 percent compared to 27.3 percent for 1992 and 34.6 percent for 1991.
The difference for 1993, between the effective tax rate and the federal
statutory rate was primarily due to a charge to state deferred taxes related to
Texas franchise taxes and the unfavorable impact on federal deferred taxes of
the increase in the federal tax rate. The difference for 1992 was primarily due
to a state income tax adjustment, tax exempt income related to company owned
life insurance and tax exempt interest.

FINANCIAL CONDITION

Investing Activities Cash flows associated with investing activities during
1993 included capital expenditures of $60 million, excluding $9 million related
to the Refinery upgrade project, of which $38 million was for environmentally
related projects at the Refinery and the Channelview Complex. During 1992,
capital expenditures were $97 million, of which $57 million was for
environmentally related projects. The 1994 capital expenditures budget,
excluding the Refinery upgrade project, has been set at $90 million. The budget
provides $60 million for refinery projects, $26 million of which are to be
funded by Lyondell according to the terms of the agreement with LCR and $34
million to be funded from the restricted cash balance which was created by
CITGO's 1993 contributions to LCR. The remaining $30 million is for
petrochemical projects at the Channelview Complex. In addition to the capital
expenditures budget, $150 million of spending, funded by CITGO, is planned for
the Refinery upgrade project designed to increase the Refinery's ability to
process larger volumes of very heavy Venezuelan crude oil.

As of December 31, 1993, $73 million of cash and $6 million of short-term
investments were restricted for use in LCR capital projects, including the
Refinery upgrade project and other expenditures as determined by the LCR owners.

Financing Activities Cash flows associated with financing activities during
1993 included $108 million of dividend payments, $29 million for scheduled
repayments of Medium-Term Notes and $4 million of net proceeds from short-term
debt.

In December 1993, the Company completed a five-year, $400 million revolving
credit facility with a group of banks, representing an increase in amount and
term compared to the Company's previous $300 million bank credit facility, which
was scheduled to terminate in July, 1994. Borrowings under the new credit
facility bear interest based on Euro-Dollar, CD or Prime rates, at the Company's
option. The facility is available for working capital and general corporate
purposes as needed. This credit facility contains covenants relating to dividend
payments, debt incurrence, liens, disposition of assets, mergers and
consolidations, fixed charge and leverage ratios and certain payments to LCR.
At December 31, 1993, no amounts were outstanding under this credit facility.
See Note 11 of Notes to Consolidated Financial Statements.

Effective July 1, 1993, LCR entered into a 364 day unsecured $100 million
revolving credit facility with a group of banks. Under terms of the credit
facility, LCR may borrow with interest based on prime, LIBOR or CD rates at
LCR's option or have letters of credit issued on its behalf. The facility is
available for working capital and general corporate purposes as needed. At
December 31, 1993, no amounts were outstanding under this credit facility. See
Note 11 of Notes to Consolidated Financial Statements.

On January 21, 1994, the Board of Directors declared a quarterly dividend in the
amount of $.225 per share of common stock, payable March 15, 1994 to
stockholders of record on February 18, 1994.

During 1993, all of the $108 million of dividend payments exceeded cumulative
earnings and profits in 1993, as computed for federal income tax purposes
subject to final determination by the Internal Revenue Service, and will be
considered a return of capital to all stockholders. See Note 13 of Notes to
Consolidated Financial Statements.

Environmental Matters

Various environmental laws and regulations impose substantial requirements upon
the operations of the Company. The Company's policy is to be in compliance with
such laws and regulations, which include, among others, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended, the Resource Conservation and Recovery Act (RCRA) and the Clean Air Act
and Clean Air Act Amendments of 1990. ARCO, along with many other companies,
has been named a potentially responsible party (PRP) under CERCLA in connection
with the past disposal of waste at third party waste sites. The Company may have
an obligation to reimburse ARCO for a portion of the remediation costs for two
of those sites pursuant to the Cross-Indemnity Agreement.

The Company reserves for contingencies, including those based upon unasserted
claims, that are probable and reasonably estimable. In connection with
environmental matters, the Company established reserves based upon known facts
and circumstances. Based on current environmental laws and regulations, the
Company believes that it has adequately reserved for the matters described above
and, based upon such reserves, does not anticipate any material adverse effect
upon its earnings, operations or competitive position, although the resolution
in any reporting period of one or more of these matters could have a material
impact on the Company's results of operations for that period.

The environmental reserve on December 31, 1993 was $24 million. The
environmental reserve includes $0.5 million of estimated advances to ARCO for
remediation costs associated with CERCLA waste disposal sites and $23.5 million
of estimated remediation costs related to waste disposal sites located within
the Company's facilities associated with RCRA. The Company spent $627,000,
$593,000 and $1 million in 1993, 1992 and 1991, respectively, relating to CERCLA
matters. The Company also spent $2 million, $158,000 and $224,000 in 1993, 1992
and 1991, respectively, in conjunction with RCRA matters. The Company estimates
it will incur approximately $7 million of costs in conjunction with CERCLA and
RCRA matters in 1994 which is included in the December 31, 1993 environmental
reserve.

Current Business Outlook

The year 1993 was difficult for the petrochemical and refining industries which
are sensitive to economic cycles. Downward pressure on petrochemical sales
prices continued during 1993 due to significant increases in manufacturing
capacity, which has occurred since early 1991, coupled with weak worldwide
demand growth. Profitability and cash flows for the petrochemical and refining
businesses are affected by market conditions, feedstock cost volatility, capital
expenditures required to meet increasing environmental standards, repair and
maintenance costs, and downtime of production units due to turnarounds.
Turnarounds on major units can have significant financial impacts due to the
repair and maintenance costs incurred as well as loss of production, ultimately
resulting in lower profitability. Turnarounds on certain of the Company's major
production units are scheduled for 1994; however, the timing of such turnarounds
can be accelerated or delayed because of numerous factors, many of which are
beyond the Company's control.

In view of the above factors, the Company, during 1993, took actions to improve
near-term earnings and cash flows and to position the Company for better results
as the business environment improves. Those actions included the completion of
the refining venture with CITGO, a significant reduction in capital expenditures
from the budgeted amount, implementation of a cost reduction program which the
Company expects will reduce overhead costs by approximately $30 to $50 million
on an annual basis and the reduction of regular quarterly dividends from $.45
per share to $.225 per share beginning with the dividend paid in the third
quarter of 1993. The Company's Board of Directors' decision to reduce the
dividend reflects the Company's belief that payment of quarterly dividends at
the previous level was no longer appropriate in light of current business
conditions. The actions taken to conserve cash, including the dividend
reduction, were consistent with the Company's objective of maximizing total
return to stockholders. The Company believes that its ability to maintain
suitable debt ratings, to fund a capital program appropriate to its asset base
and to position the Company to benefit from an upturn in the business cycle are
critical factors in maintaining and increasing future stockholder value.
Progress was made during 1993 in achieving the cost reduction targets, which are
reflected primarily within the operating incomes of the Refining and
Petrochemical segments. Continued efforts are planned during 1994 to fully
achieve these savings.

Although future industry conditions cannot be known with certainty, the Company
believes that the business climate necessary for improved profitability within
its petrochemical segment has begun to stabilize. U.S. ethylene demand grew
approximately three percent during 1993 and was particularly strong in the
fourth quarter. The rapid increase in world capacity in recent years, which
caused a contraction of U.S. exports, has slowed. Domestically, new capacity
over the next two years is expected to be relatively in balance with demand
growth and there are no additional capacity expansions currently announced for
the U. S. after 1995.

The Company significantly improved the performance and outlook for its refining
business in 1993 with the completion of the refining venture with CITGO. This
agreement has stabilized refining margins and improved

cash flows. The refining segment began to see the economic benefits from the
venture in 1993 and results should further improve through increased utilization
of heavy Venezuelan crude oil and recent efficiency improvements.

Although the future economic environment cannot be known with certainty, the
Company believes that the cash flow management, cost reduction and other steps
recently taken have positioned it to capitalize on the anticipated improvement
in the business environment. Further, the Company believes that business
conditions will be such that cash balances, cash generated from operating
activities and existing lines of credit will be adequate to meet future cash
requirements for scheduled debt repayments, necessary capital expenditures and
to sustain for the reasonably foreseeable future the revised regular quarterly
dividend. However, the Company continually evaluates its cash requirements and
allocates cash in order to maximize stockholder returns.

---------------------

Management cautions against projecting any future results based on present or
prior earnings levels because of the cyclical nature of the refining and
petrochemical industries and uncertainties associated with the United States and
worldwide economies and United States governmental regulatory actions.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Financial Statement Schedules

Schedule
Number Page
- -------- ----

Report of Independent Accountants................................................ 34

Financial Statements

Consolidated Statement of Income and Accumulated Deficit..................... 35

Consolidated Balance Sheet................................................... 36

Consolidated Statement of Cash Flows......................................... 37

Notes to Consolidated Financial Statements................................... 38

Supporting Financial Statement Schedules Covered by the Foregoing Report of
Independent Accountants:

V Property, Plant and Equipment.................................................... 74

VI Accumulated Depreciation and Amortization of Property, Plant and
Equipment...................................................................... 75

IX Short-Term Borrowings............................................................ 76

X Supplementary Income Statement Information....................................... 77

Financial statement schedules other than those listed above have been omitted
because they are either not applicable or the required information is shown in
the financial statements or related notes.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Lyondell Petrochemical Company

We have audited the accompanying consolidated balance sheet of Lyondell
Petrochemical Company as of December 31, 1993 and 1992, and the related
consolidated statements of income and accumulated deficit and cash flows for
each of the three years in the period ended December 31, 1993, and the related
financial statement schedules. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lyondell Petrochemical Company as of December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.

As discussed in Note 4 to the consolidated financial statements, during
1993 the Company changed its method of accounting for the cost of repairs and
maintenance incurred in connection with turnarounds of major units at its
manufacturing facilities, and in 1992, the Company changed its method of
accounting for income taxes and for postretirement benefits other than
pensions.

COOPERS & LYBRAND

Houston, Texas
February 11, 1994

LYONDELL PETROCHEMICAL COMPANY

CONSOLIDATED STATEMENT OF INCOME AND ACCUMULATED DEFICIT

For the year ended December 31
----------------------------------------
Millions of dollars except per share amounts 1993 1992 1991
- -------------------------------------------- ---------- ---------- ----------

Sales and other operating revenues:
Unrelated parties $ 3,572 $ 4,480 $ 5,209
Related parties 278 329 526
---------- ---------- ----------

3,850 4,809 5,735
Operating costs and expenses:
Cost of sales:
Unrelated parties 3,359 4,283 4,801
Related parties 268 295 409
Selling, general and administrative expenses 130 127 126
---------- ---------- ----------

3,757 4,705 5,336
---------- ---------- ----------

Operating income 93 104 399

Interest expense (74) (79) (74)
Interest income 2 10 14
Minority interest in LYONDELL-CITGO Refining Company Ltd. (5) --- ---
---------- ---------- ----------

Income before income taxes and
cumulative effect of accounting changes 16 35 339

Provision for income taxes 12 9 117
---------- ---------- ----------

Income before cumulative effect of accounting changes 4 26 222

Cumulative effect on prior years of accounting changes, net of tax 22 (10) ---
---------- ---------- ----------

Net income $ 26 $ 16 $ 222
========== ========== ==========

Earnings (loss) per share:
Income before cumulative effect of accounting changes $ .06 $ .32 $ 2.78
Cumulative effect on prior years of accounting changes .27 (.12) ---
---------- ---------- ----------

Net income $ .33 $ .20 $ 2.78
========== ========== ==========

Pro forma amounts, assuming retroactive application
of new accounting method for turnarounds:

Income before cumulative effect of accounting changes $ 31 $ 216
========== ==========
Income per share before cumulative effect of accounting changes $ .39 $ 2.70
========== ==========
Net income $ 4 $ 22 $ 216
========== ========== ==========

Net income per share $ .06 $ .27 $ 2.70
========== ========== ==========

Accumulated deficit at beginning of year $ (244) $ (116) $ (200)
Net income 26 16 222
Cash dividends (108) (144) (140)
Other --- --- 2
---------- ---------- ----------

Accumulated deficit at end of year $ (326) $ (244) $ (116)
========== ========== ==========

See notes to consolidated financial statements.
35

LYONDELL PETROCHEMICAL COMPANY

CONSOLIDATED BALANCE SHEET

December 31
----------------------------
Millions of dollars 1993 1992
- ------------------- ---------- ----------

ASSETS
Current assets:
Cash and cash equivalents $ 40 $ 108
Restricted cash (Note 3) 73 ---
Short-term investments 6 13
Accounts receivable:
Trade 179 227
Related parties 25 26
Inventories 191 180
Prepaid expenses and other current assets 9 14
---------- ----------
Total current assets 523 568
---------- ----------

Fixed assets:
Property, plant and equipment 2,545 2,470
Less accumulated depreciation and amortization 1,890 1,847
---------- ----------
655 623
Deferred charges and other assets 53 24
---------- ----------
Total assets $ 1,231 $ 1,215
========== ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable:
Trade $ 203 $ 234
Related parties 4 9
Notes payable 4 ---
Current maturities of long-term debt 8 29
Other accrued liabilities 80 73
---------- ----------
Total current liabilities 299 345
---------- ----------

Long-term debt 717 725
Other liabilities and deferred credits 78 72
Deferred income taxes 101 79
Commitments and contingencies (Note 18)
Minority interest 124 ---
Stockholders' equity (deficit):
Common stock, $1 par value, 250,000,000 shares
authorized, 80,000,000 issued and outstanding 80 80
Additional paid-in capital 158 158
Accumulated deficit (326) (244)
---------- ----------
Total stockholders' deficit (88) (6)
---------- ----------

Total liabilities and stockholders' deficit $ 1,231 $ 1,215
========== ==========

See notes to consolidated financial statements.

LYONDELL PETROCHEMICAL COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended December 31
-------------------------------------------------------
Millions of dollars 1993 1992 1991
- ------------------- ---------------- ---------------- ---------------

Cash flows from operating activities:
Net income $ 26 $ 16 $ 222
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes, net of tax (22) 10 ---
Depreciation and amortization 58 39 39
Deferred taxes 7 2 18
Net change in accounts receivable, inventories
and accounts payable (11) 54 (1)
Net change in other working capital accounts 16 (20) 3
Minority interest 5 --- ---
Other 5 7 (11)
---------------- ---------------- ---------------
Net cash provided by operating activities 84 108 270
---------------- ---------------- ---------------

Cash flows from investing activities:
Minority owner contribution 116 --- ---
Additions to fixed assets (69) (97) (43)
Purchases of short-term investments (9) --- (104)
Proceeds from sales of short-term investments 16 88 3
---------------- ---------------- ---------------
Net cash provided by (used in) investing activities 54 (9) (144)
---------------- ---------------- ---------------

Cash flows from financing activities:
Proceeds from short-term debt 16 --- ---
Repayments of short-term debt (12) --- ---
Proceeds from long-term debt --- 200 150
Repayments of long-term debt (29) (67) (29)
Repayments of capitalized lease obligations --- (186) (28)
Dividends paid (108) (144) (140)
---------------- ---------------- ---------------
Net cash used in financing activities (133) (197) (47)
---------------- ---------------- ---------------

Increase (decrease) in cash, restricted cash and cash equivalents 5 (98) 79
Cash and cash equivalents at beginning of period 108 206 127
---------------- ---------------- ---------------
Cash, restricted cash and cash equivalents at end of period $ 113 $ 108 $ 206
================ ================ ===============

See notes to consolidated financial statements.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Formation of the Company and Operations

In 1985, Atlantic Richfield Company (ARCO) established the Lyondell
Petrochemical Company as a division of ARCO (Lyondell Division). Lyondell
Petrochemical Corporation, a wholly-owned subsidiary of ARCO, was incorporated
in the state of Delaware in 1985 and subsequently changed its name to Lyondell
Petrochemical Company (Company). Effective July 1, 1988, ARCO transferred
substantially all the assets and liabilities relating to the integrated
petrochemical and petroleum processing business of the Lyondell Division to the
Company. In addition, certain pipeline assets were transferred to the Company.
For financial reporting purposes, the transfer of these assets and liabilities
was recorded at the historical net book value of $127 million as of July 1,
1988.

On January 25, 1989, ARCO completed an initial public offering of 43,000,000
shares of the Company's 80,000,000 shares of common stock owned by ARCO. The
Company received none of the proceeds from the sale. As of December 31, 1993,
ARCO owned 39,921,400 shares, which represents 49.9 percent of the outstanding
common stock.

The Company and LYONDELL-CITGO Refining Company Ltd. (LCR) operate in two
business segments: petrochemicals and refining. The Company generally sells its
petrochemical products to customers for use primarily in the manufacture of
other chemicals and products, which in turn are used in the production of a wide
variety of consumer and end-use products. LCR sells its principal refined
products primarily to CITGO Petroleum Corporation (CITGO) and to a lesser
extent, other marketers of petroleum products. See Note 3.

2. Summary of Significant Accounting Policies

Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant transactions
between the entities of the Company have been eliminated from the consolidated
financial statements. Certain amounts from prior years have been reclassified
to conform to current year presentation.

Cash, Cash Equivalents and Short-Term Investments - Cash equivalents consist of
highly liquid debt instruments such as certificates of deposit, commercial paper
and money market accounts purchased with an original maturity date of three
months or less. Short-term investments consist of similar investments maturing
in more than three months from purchase. The Company's policy is to invest cash
in conservative, highly rated instruments and limit the amount of credit
exposure to any one institution. The Company performs periodic evaluations of
the relative credit standing of these financial institutions which are
considered in the Company's investment strategy. Cash equivalents and short-
term investments are stated at cost which approximates market value because of
the short maturity of these instruments.

The Company has no requirements for compensating balances in a specific amount
at a specific point in time. The Company does maintain compensating balances
for some of its banking services and products. Such balances are maintained on
an average basis and are solely at the Company's discretion, so that effectively
on any given date, none of the Company's cash is restricted with the exception
of cash held for use in connection with LCR capital projects and other
expenditures as determined by the LCR owners (see Note 3).

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. Summary of Significant Accounting Policies - (continued)

Accounts Receivable - The Company sells its products primarily to companies in
the petrochemical and refining industries. The Company performs ongoing credit
evaluations of its customers' financial condition and in certain circumstances
requires letters of credit from them. The Company's allowance for doubtful
accounts receivable, which is reflected in the consolidated balance sheet as a
reduction in accounts receivable, totaled $2 million at December 31, 1993 and
1992.

Inventories - Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out (LIFO) basis except for materials and
supplies, which are valued at average cost.

Fixed Assets - Fixed assets are recorded at cost. Depreciation of fixed assets
is computed using the straight-line method over the estimated useful lives of
the related assets as follows:

Manufacturing facilities and equipment - 5 to 30 years
Leased assets and improvements - 5 to 20 years

Upon retirement or sale, the Company removes the cost of the assets and the
related accumulated depreciation from the accounts and reflects any resulting
gains or losses in income.

Environmental Remediation Costs - Expenditures related to investigation and
remediation of contaminated sites which include operating facilities and waste
disposal sites, are accrued when it is probable that a liability has been
incurred and the amount of that liability can reasonably be estimated. These
costs are expensed or capitalized in accordance with generally accepted
accounting principles.

Futures Contracts - The Company executes futures contracts primarily to hedge
fluctuations in product prices and feedstock costs. Changes in the market value
of hedging contracts are reported as an adjustment to cost of sales upon
completion of the hedged transaction.

Exchanges - Crude oil and finished product exchange transactions, which are of a
homogeneous nature of commodities in the same line of business, that do not
involve the payment or receipt of cash, are not accounted for as purchases and
sales. Any resulting volumetric exchange balances are accounted for as
inventory in accordance with the normal LIFO valuation policy. Exchanges that
are settled through payment and receipt of cash are accounted for as purchases
and sales.

Income Taxes - Deferred taxes result from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes
and are calculated, effective in 1992 with the adoption of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
based upon cumulative book/tax differences in the balance sheet.

3. Formation of LYONDELL-CITGO Refining Company Ltd.

On July 1, 1993, the Company and CITGO announced the commencement of operations
of LCR, a new entity formed and owned by the Company and CITGO in order to own
and operate the Company's refining business, including the full-conversion
Houston refinery (Refinery). LCR is undertaking a major upgrade project at the
Refinery to enable the facility to process substantial additional volumes of
very heavy crude oil.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. Formation of LYONDELL-CITGO Refining Company Ltd. - (continued)

Under the terms of the transaction, CITGO will provide a major portion of the
funds for the upgrade project, as well as certain funds for general refinery
capital projects. Project engineering for the upgrade is currently underway and
at the present time, LCR management anticipates the cost over the next three to
four years to be approximately $800 million.

Funding for the upgrade project will occur in three phases. The first phase,
the initial $300 million, will be funded by CITGO. The second phase will be
funded by an LCR borrowing of $200 million. The third phase, which is expected
to occur toward the end of the upgrade project, will be a combination of LCR
borrowing and contributions from CITGO and the Company. Prior to completion of
the upgrade project, the financing costs for the upgrade project loans will be
funded by CITGO. The timing of the third phase and the level of contributions
from the Company and CITGO will be dependent upon the total cost of the upgrade
project. It is currently anticipated that the Company will contribute, in the
form of a subordinated loan, 25 percent of the cost of the upgrade project in
excess of $500 million ($75 million if the cost of the upgrade project equals
$800 million).

On July 1, 1993, the Company contributed its refining assets (including the lube
oil blending and packaging plant in Birmingport, Alabama) and refining working
capital to LCR and retained an approximate 95 percent interest in LCR. CITGO
contributed $50 million for future capital projects of LCR and in exchange
received an approximate five percent interest in LCR. CITGO also made an
additional $50 million contribution for future capital projects of LCR on
December 31, 1993. At December 31, 1993, CITGO had an approximate 10 percent
interest in LCR. In addition to the funding related to the upgrade project
described in the prior paragraph, CITGO has one additional contribution
commitment of $30 million to be made upon completion of the upgrade project and
it has an option to make an additional equity contribution sufficient to
increase its interest to 50 percent.

On July 1, 1993, LCR entered into a long-term crude oil supply agreement with
LAGOVEN, S.A., an affiliate of CITGO. In addition, under the terms of a long-
term product sales agreement, CITGO will purchase a majority of the refined
products produced at the Refinery. Both LAGOVEN and CITGO are subsidiaries of
Petroleos de Venezuela, S.A., the national oil company of Venezuela.

Also effective July 1, 1993, the parties entered into multiple agreements for
feedstock and product sales between LCR and the Company. These agreements
generally are aimed at preserving much of the synergy that previously existed
between the Company's refining and petrochemical businesses. LCR and the
Company also have entered into a tolling agreement, pursuant to which alkylate
and MTBE will be produced at the Channelview Complex for LCR, and various
administrative services agreements.

With respect to liabilities associated with LCR, the Company generally has
retained liability for events that occurred prior to July 1, 1993 and certain
on-going environmental projects at the Refinery. LCR generally is responsible
for liabilities associated with events occurring after June 30, 1993 and on-
going environmental compliance inherent to the operation of the Refinery.

At December 31, 1993, $73 million of cash and $6 million of short-term
investments were restricted for use in connection with LCR capital projects,
including the Refinery upgrade project and other expenditures as determined by
the LCR owners.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Accounting Changes

In the first quarter of 1993, effective January 1, 1993, the Company changed its
method of accounting for the cost of repairs and maintenance incurred in
connection with turnarounds of major units at its manufacturing facilities.
Under the new method, turnaround costs exceeding $5 million are deferred and
amortized on a straight-line basis until the next planned turnaround, generally
four to six years. In prior years, all turnaround costs were expensed as
incurred. The Company believes that the new method of accounting is preferable
in that it provides for a better matching of turnaround costs with future
product revenues. The cumulative effect of this accounting change for years
prior to 1993 resulted in a benefit of $33 million ($22 million or $.27 per
share after income taxes), and was included in first quarter income. The change
resulted in $9 million after-tax (or $.11 per share) of additional amortization
expenses during the year ended December 31, 1993.

In the fourth quarter of 1992, the Company adopted, effective January 1, 1992,
the provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", requiring the accrual of postretirement benefits.
The applicable postretirement benefits include medical and life benefit plans.
In prior years, expenses for these plans were recognized on a pay-as-you-go
basis. The change resulted in a decrease of 1992 net income before cumulative
effect of accounting changes of approximately $3 million (or $.04 per share).
The unfavorable effect of this accounting change through December 31, 1991
amounted to $28 million before taxes or $18 million (or $.22 per share) net of
tax and was charged against 1992 income.

In the fourth quarter of 1992, the Company adopted, effective January 1, 1992,
the provisions of SFAS No. 109, "Accounting for Income Taxes". The Statement
requires, among other things, a change from the deferred to the liability method
of computing deferred income taxes. The favorable cumulative effect of this
accounting change on years prior to 1992 was an $8 million (or $.10 per share)
reduction in the Company's deferred tax liability and was included in 1992
income. The favorable effect of the change on 1992 net income, excluding the
cumulative effect upon adoption, was $2 million (or $.02 per share).

Effective January 1, 1992, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The standard requires companies to
accrue the cost of postemployment (prior to retirement) benefits either during
the years that the employee renders the necessary service or at the date of the
event giving rise to the benefit, depending upon whether certain conditions are
met. The effect of adoption did not have a material impact on 1992 net income.

5. Related Party Transactions

Related party transactions with ARCO are summarized as follows:

Millions of dollars 1993 1992 1991
------------------- ---- ---- ----

Costs
Crude oil purchases $ 53 $140 $299
Product purchases 3 9 13
Transportation fees 27 24 24
Other, net 2 2 2
---- ---- ----
Total $ 85 $175 $338
==== ==== ====
Sales of crude oil and products $ 15 $ 33 $171
==== ==== ====

In addition, sales to an affiliate, ARCO Chemical Company, consisting of
benzene, ethylene, propylene, butylene, methanol and other products and
services, were $263 million, $296 million and $355 million for the years ended
December 31, 1993, 1992 and 1991, respectively.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6. Supplemental Cash Flow Information

Supplemental cash flow information is summarized as follows:

Millions of dollars 1993 1992 1991
------------------- ---- ---- ----

Cash paid during the year for:
Interest $ 76 $ 77 $ 72
Income taxes $ 7 $ 23 $ 98

As of December 31, 1993, fixed assets included $16 million of non-cash additions
of which $14 million related to accounts payable accruals.

7. Inventories

The categories of inventory and their book values at December 31, 1993 and 1992,
were as follows:

Millions of dollars 1993 1992
------------------- ---- ----

Crude oil $ 68 $ 51
Refined products 29 26
Petrochemicals 57 68
Materials and supplies 37 35
---- ----
$191 $180
==== ====

For the years ended December 31, 1993, 1992 and 1991, the Company reduced cost
of sales by approximately $6 million, $1 million and $6 million, respectively,
associated with the reduction in LIFO inventories. The excess of the current
cost of inventories over book value was approximately $56 million and $135
million at December 31, 1993 and 1992, respectively.

8. Fixed Assets

The components of fixed assets at December 31, 1993 and 1992, were as follows:

Millions of dollars 1993 1992
------------------- ---- ----

Manufacturing facilities
and equipment $ 2,516 $ 2,441
Land 26 26
Leased assets and improvements 3 3
------- ------
$ 2,545 $2,470
======= ======

9. Deferred Charges and Other Assets

Deferred charges and other assets at December 31, 1993 and 1992, was
comprised of the following:

Millions of dollars 1993 1992
------------------- ---- ----

Deferred turnaround costs (Note 4) $ 18 $ --
Company owned life insurance 17 12
Other 18 12
----- ----
$ 53 $ 24
===== ====

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. Other Accrued Liabilities

Other accrued liabilities at December 31, 1993 and 1992, were as follows:

Millions of dollars 1993 1992
------------------- ---- ----

Income taxes $ -- $ 5
Accrued taxes other than income 29 26
Accrued interest 11 11
Accrued payroll 20 19
Other 20 12
---- ----
$ 80 $ 73
==== ====

11. Long-Term Debt and Financing Arrangements

Long-term debt at December 31, 1993 and 1992, was comprised of the following:

Millions of dollars 1993 1992
------------------- ----- -----

9.95% Notes due in 1996 $ 150 $ 150
10.00% Notes due in 1999 150 150
8.25% Notes due in 1997 100 100
9.125% Notes due in 2002 100 100
Medium-Term Notes 225 254
--- ---
725 754
Less current portion 8 29
----- -----
Total long-term debt $ 717 $ 725
===== =====

Aggregate maturities of long-term debt during the five years subsequent to
December 31, 1993 are as follows: 1994-$8 million; 1995-$10 million; 1996-$150
million; 1997-$112 million; 1998-$32 million.

Effective July 1, 1993, LCR entered into a 364 day unsecured revolving credit
facility with a group of banks with Continental Bank, N.A., as agent. Under
terms of the credit facility, LCR may borrow a maximum of $100 million in the
form of cash or letters of credit with interest based on prime, LIBOR or CD
rates at LCR's option. The credit facility may be extended at the request of
LCR upon consent of the bank group. The credit facility contains covenants that
limit LCR's ability to modify certain significant contracts, dispose of assets
or merge or consolidate with other entities. At December 31, 1993, no amounts
were outstanding under this credit facility.

During December, 1993, the Company finalized a five year, $400 million unsecured
revolving credit facility (Credit Facility) which replaced its existing $300
million credit facility which was due to expire in July, 1994. In connection
with the Credit Facility, the Company paid administrative, arrangement and
commitment fees totaling $3.2 million. At December 31, 1993, no amounts were
outstanding under the Credit Facility.

Under the terms of the Credit Facility, the interest rate is based on Euro-
Dollar or CD rates, at the Company's option, and also is dependent upon the
Credit Facility utilization rate and the Company's debt ratings. The Credit
Facility contains restrictive covenants regarding the incurrence of additional
debt, the maintenance of certain fixed charge coverage and leverage ratios and
the making of contributions to LCR, as well as the payment of dividends to the
extent that the Company's net income after January 1, 1994 generally does not
exceed, over time, dividends declared or paid after that date.

The Credit Facility's debt incurrence covenant restricts the incurrence by the
Company of additional debt, including debt under the Credit Facility, unless,
immediately after giving effect to the additional borrowing, the ratio of
earnings before depreciation, amortization, interest and income taxes, to
interest expense exceeds the limits set forth in the Credit Facility. However,
the debt incurrence covenant does not become applicable until the debt incurred
by the Company after December 31, 1993 exceeds $75 million.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. Long-Term Debt and Financing Arrangements- (continued)

During March, 1992, the Company completed the placement of $200 million of Notes
consisting of $100 million of 8.25 percent Notes due 1997 and $100 million of
9.125 percent Notes due 2002. A majority of the proceeds was used in April,
1992 to prepay amounts due under capitalized leases relating to the olefins
plants, which allowed the Company to terminate the leases and acquire ownership
of the plants.

The Company's Medium-Term Notes mature at various dates from 1994 to 2005 and
have a weighted average interest rate at December 31, 1993 and 1992 of 9.85
percent.

The Notes due 1996 and 1999, and the Medium-Term Notes contain provisions that
would allow the holders to require the Company to repurchase the debt upon the
occurrence of certain events together with specified declines in public ratings
on the Notes due 1996 and 1999. Certain events include acquisitions by persons
other than ARCO or the Company of more than 20 percent of the Company's common
stock, any merger or transfer of substantially all of the Company's assets, in
connection with which the Company's common stock is changed into or exchanged
for cash, securities or other property and payment of certain "special"
dividends.

At December 31, 1993, the Company had letters of credit outstanding totaling
$33.8 million.

Based on the borrowing rates currently available to the Company for debt with
terms and average maturities similar to the Company's debt portfolio, the fair
value of long-term debt is $776 million.

12. Earnings Per Share

Earnings per share were computed based on the weighted average number of shares
outstanding of 80,000,000 for the years ended December 31, 1993, 1992 and 1991.

13. Stockholders' Equity (Deficit)

Dividends - During 1993, the Company paid a regular dividend to stockholders in
the amount of $.45 per share during the first and second quarters and a regular
dividend to stockholders in the amount of $.225 per share during each of the
remaining two quarters. During 1992, the Company paid regular quarterly
dividends of $.45 per share. During 1991, the Company paid a regular dividend
to stockholders in the amount of $.40 per share during the first quarter and
$.45 per share during each of the remaining three quarters.

Return of Capital - During 1993, the Company paid $108 million in dividends.
Total dividends paid during the year exceeded cumulative earnings and profits,
as computed for federal income tax purposes. Subject to final determination by
the Internal Revenue Service, 100 percent of each of the 1993 quarterly dividend
payments was considered a return of capital.

Stock Options - The Company's Executive Long-Term Incentive Plan (LTI Plan),
became effective November 7, 1988. The LTI Plan provides, among other things,
for the granting to officers and other key management employees of non-qualified
stock options for the purchase of up to 1,295,000 shares of the Company's common
stock. The number of options exercisable each year is equal to 25 percent of
the number granted after each year of continuous service starting one year from
the date of grant. The LTI Plan provides that the option price per share will
not be less than 100 percent of the fair market value of the stock on the
effective date of the grant. As of December 31, 1993, options covering 761,732
shares were outstanding under the LTI Plan of which 283,056 were exercisable at
a weighted average price of $22.10 per share.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

13. Stockholders' Equity (Deficit) - (continued)

Option Price
Number of Average
Shares Per Share Total
------------ ------------ ------------

Balance, December 31, 1991 373,560 $ 21.42 $ 8,002,196
Granted 222,290 23.00 5,112,670
Exercised (12,115) 18.67 (226,205)
Canceled (7,433) 22.84 (169,768)
---------- ------------
Balance, December 31, 1992 576,302 22.07 $ 12,718,893
---------- ------------
Granted 259,490 26.00 6,746,740
Exercised (1,808) 21.01 (37,984)
Canceled (72,252) 22.29 (1,610,782)
---------- ------------
Balance, December 31, 1993 761,732 23.39 $ 17,816,867
========== ============

The Company's Incentive Stock Option Plan (ISO Plan) became effective January
12, 1989. The ISO Plan is a qualified plan which provides for the granting of
stock options for the purchase of up to 550,000 shares of the Company's common
stock. All employees of the Company who are not on the executive payroll are
eligible to participate in the ISO Plan, subject to certain restrictions.
Various restrictions apply as to when and to the number of stock options that
may be exercised during any year. In no event, however, may a stock option be
exercised prior to the first anniversary of the date the stock option was
granted. As of December 31, 1993, options covering 476,665 shares were
outstanding at an average exercise price of $29.35 per share. These options
were held by 2,053 eligible employees. At December 31, 1993, no stock options
were exercisable. The following summarizes stock option activity for the ISO
Plan:

Option Price
Number Average
of Shares Per Share Total
------------ ------------ ------------

Balance, December 31, 1991 528,614 $ 29.06 $ 15,362,755
Granted 8,729 30.00 261,870
Exercised (5,614) 19.44 (109,136)
Canceled (27,710) 26.80 (742,649)
---------- ------------
Balance, December 31, 1992 504,019 29.31 $ 14,772,840
---------- ------------
Granted -- -- --
Exercised -- -- --
Canceled (27,354) 28.59 (782,034)
---------- ------------
Balance, December 31, 1993 476,665 29.35 $ 13,990,806
========== ============

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

14. Leases

At December 31, 1993, future minimum rental payments for operating leases with
noncancelable lease terms in excess of one year were as follows:

Millions of dollars Amount
------------------- ------

1994 $ 36
1995 30
1996 22
1997 20
1998 19
Thereafter 17
-----
Total minimum lease payments $ 144
=====

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

14. Leases-(Continued)

Operating lease net rental expenses for 1993, 1992 and 1991 were $43 million,
$35 million and $33 million, respectively.

15. Retirement Plans

All Lyondell and LCR employees are covered by defined benefit pension plans.
Retirement benefits are based on years of service and the employee's
compensation primarily during the last three years of service. The funding
policy for these plans is to make periodic contributions as required by
applicable regulations. Lyondell and LCR accrue pension costs based on an
actuarial valuation and fund the plans through contributions to separate trust
funds that are kept apart from Lyondell or LCR's funds. Lyondell and LCR also
have unfunded supplemental nonqualified retirement plans which provide pension
benefits for certain employees in excess of the qualified plans' limits.

The following table sets forth the funded status of Lyondell and LCR's
retirement plans and the amounts recognized in the Company's consolidated
balance sheet at December 31, 1993 and 1992:

1993 1992
------------------------ ------------------------
Plans with Plans with Plans with Plans with
assets in ABO in assets in ABO in
excess of excess of excess of excess of
ABO assets ABO assets
---------- ---------- ---------- ----------

Millions of dollars
- -------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 53 $ 21 $ 46 $ 2
========== ========== ========== ==========
Accumulated benefit obligation
(ABO) $ 54 $ 25 $ 49 $ 2
========== ========== ========== ==========
Projected benefit obligation $ 84 $ 42 $ 78 $
Plan assets at fair value,
primarily stocks and bonds 62 18 69 --
---------- ---------- ---------- ----------
Projected benefit obligation in
excess of plan assets (22) (24) (9) (4)
Unrecognized net loss 22 14 10 1
Prior service cost not yet
recognized in pension cost (2) 3 (1) --
Remaining unrecognized net asset (4) -- (5) 1
---------- ---------- ---------- ----------
Net pension liability $ (6) $ (7) $ (5) $ (2)
========== ========== ========== ==========

The Company's net pension cost for 1993, 1992 and 1991 included the following
components:

Millions of dollars 1993 1992 1991
------------------- ---- ---- ----

Service cost-benefits
earned during the period $ 5 $ 4 $ 4
Interest cost on projected
benefit obligations 8 6 5
Actual (gain) loss on plan
assets (14) (4) (10)
Net amortization and deferral 7 (2) 5
---- ---- ----
Net periodic pension cost $ 6 $ 4 $ 4
==== ==== ====

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15. RETIREMENT PLANS - (CONTINUED)

The assumptions used as of December 31, 1993, 1992 and 1991, in determining the
pension costs and pension liability shown above were as follows:

PERCENT 1993 1992 1991
------- ---- ---- ----

Discount rate 7.25 8.75 8.95
Rate of salary progression 5.00 5.00 5.00
Long-term rate of return on assets 9.50 9.50 9.50

Lyondell and LCR also maintain voluntary defined contribution Capital
Accumulation and Savings plans for eligible employees. Under provisions of the
plans, Lyondell and LCR contribute an amount equal to 150 percent of employee
contributions up to a maximum Lyondell or LCR contribution of 6 percent of the
employee's base salary for the Capital Accumulation plans and 200 percent of
employee contributions up to a maximum Lyondell or LCR contribution of 2 percent
of the employee's base salary for the Savings plans. Lyondell and LCR
contributions to these plans totaled $8 million in 1993, $7 million in 1992 and
$7 million in 1991.

16. Postretirement Benefits Other Than Pensions

Lyondell and LCR sponsor unfunded defined benefit postretirement plans other
than pensions that cover both salaried and non-salaried employees which provide
medical and life insurance benefits. The postretirement health care plans are
contributory while the life insurance plans are non-contributory. Currently,
Lyondell and LCR pay approximately 80 percent of the cost of the health care
plans, but reserve the right to modify the cost-sharing provisions at any time.

The following table sets forth the plans' separate postretirement benefit
liabilities as of December 31, 1993 and 1992:

1993 1992
------------------ ------------------
MILLIONS OF DOLLARS MEDICAL LIFE MEDICAL LIFE
- ------------------- ------- ------- ------- -------

Accumulated postretirement
benefit obligation:
Retirees $ (2) $ (1) $ (2)
Fully eligible active plan
participants (5) (1) (3) $ (1)
Other active plan
participants (37) (6) (23) (4)
------- ------- ------- -------
(44) (8) (28) (5)

Unrecognized net loss 12 2 -- --
------- ------- ------- -------
Accrued postretirement
benefit liability $ (32) $ (6) $ (28) $ (5)
======= ======= ======= =======

Net periodic postretirement benefit costs for 1993 and 1992 included the
following components:

1993 1992
----------------- -----------------
MILLIONS OF DOLLARS MEDICAL LIFE MEDICAL LIFE
- ------------------- ------- ------- ------- -------

Service cost - benefits
attributed to service during
the period $ 2 $ 2
Interest cost on accumulated
postretirement benefit
obligation 3 $ 1 2 $ 1
------- ------- ------- -------
Net periodic postretirement
benefit cost $ 5 $ 1 $ 4 $ 1
======= ======= ======= =======

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - (continued)

For measurement purposes, the assumed annual rate of increase in the per capita
cost of covered health care benefits was 13 percent for 1993-1996, 9 percent for
1997-2001, and 6 percent thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit liability as of December 31,
1993 by $10 million and the net periodic postretirement benefit cost for the
year then ended by $1 million.

The accumulated postretirement benefit obligation was calculated utilizing a
weighted-average discount rate of 7.25 percent and 8.75 percent at December 31,
1993 and 1992, respectively, and an average rate of salary progression of 5
percent in each year. Lyondell and LCR's current policy is to fund the
postretirement health care and life insurance plans on a pay-as-you-go basis.

17. INCOME TAXES

Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
No. 109, "Accounting for Income Taxes" (see Note 4). As permitted under the new
standard, prior years' financial statements have not been restated.

During 1993, the Company increased its provision for deferred income taxes by $3
million due to an increase in the federal corporate income tax rate from 34
percent to 35 percent effective January 1, 1993. Significant components of the
Company's provision for income taxes attributable to continuing operations
follows:

LIABILITY METHOD DEFERRED METHOD
----------------- ---------------
MILLIONS OF DOLLARS 1993 1992 1991
- ------------------- ---- ---- ----

Current
Federal $ 5 $ 6 $ 89
State - 1 10
---- ---- ----
Total current 5 7 99
Deferred
Federal 2 4 17
State 5 (2) 1
---- ---- ----
Total deferred 7 2 18
---- ---- ----
$ 12 $ 9 $117
==== ==== ====

Prior to the change in accounting methods, the components of the Company's
provision for deferred income taxes for the year ended December 31, 1991 were as
follows (millions of dollars):

Depreciation and amortization $ 19
Other (1)
----
$ 18
====

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

17. INCOME TAXES - (continued)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1993 and
1992 are as follows:

MILLIONS OF DOLLARS 1993 1992
------------------- ---- ----

Deferred tax liabilities:
Tax over book depreciation $126 $106
Change in accounting method for
turnarounds 6 --
LIFO inventory 8 3
---- ----
Total deferred tax
liabilities 140 109
---- ----
Deferred tax assets:
OPEB obligation 13 12
Environmental and other long-
term liabilities 12 10
Alternative minimum tax credit
receivable 7 2
Other 11 6
---- ----
Total deferred tax assets 43 30
---- ----
Net deferred tax liabilities $ 97 $ 79
==== ====

Pretax income from continuing operations for the years ended December 31, 1993,
1992 and 1991 was taxed under domestic jurisdictions only.

The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to the Company's effective tax rates
follows:

LIABILITY METHOD DEFERRED METHOD
-------------------- ---------------
DESCRIPTION 1993 1992 1991
----------- ------ ------ ------

U.S. statutory income tax rates 35.0% 34.0% 34.0%
State income taxes, net of federal 19.3 (1.5) 2.3
Company owned life insurance 3.8 (2.1) --
Deferred tax liability rate change 15.6 -- --
Other, net (0.6) (3.1) (1.7)
----- ----- -----
Effective income tax rate 73.1% 27.3% 34.6%
===== ===== =====

18. COMMITMENTS AND CONTINGENCIES

The Company has various purchase commitments for materials, supplies and
services incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of current market.

In connection with the transfer of assets and liabilities from ARCO to the
Company, the Company agreed to assume certain liabilities arising out of the
operation of the Company's integrated petrochemical and petroleum processing
business prior to July 1, 1988. In connection with the transfer of such
liabilities, the Company and ARCO entered into an agreement (Cross-Indemnity
Agreement) whereby the Company has agreed to defend and indemnify ARCO against
certain uninsured claims and liabilities which ARCO may incur relating to the
operation of the business of the Company prior to July 1, 1988, including
certain liabilities which may arise out of pending and future lawsuits.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18. COMMITMENTS AND CONTINGENCIES - (CONTINUED)

ARCO indemnified the Company under the Cross-Indemnity Agreement with respect to
other claims or liabilities and other matters of litigation not related to the
assets or business included in the consolidated financial statements. ARCO has
also indemnified the Company for all federal taxes which might be assessed upon
audit of the operations of the Company included in the consolidated financial
statements prior to January 12, 1989, and for all state and local taxes for the
period prior to July 1, 1988.

In addition to lawsuits for which the Company has indemnified ARCO, the Company
is also subject to various lawsuits and proceedings. Subject to the uncertainty
inherent in all litigation, management believes the resolution of these
proceedings will not have a material adverse effect upon the Company's
operations.

The Company's policy is to be in compliance with all applicable environmental
laws. The Company is subject to extensive environmental laws and regulations
concerning emissions to the air, discharges to surface and subsurface waters and
the generation, handling, storage, transportation, treatment and disposal of
waste materials. Some of these laws and regulations are subject to varying and
conflicting interpretations. In addition, the Company cannot accurately predict
future developments, such as increasingly strict requirements of environmental
laws, inspection and enforcement policies and compliance costs therefrom which
might affect the handling, manufacture, use, emission or disposal of products,
other materials or hazardous and non-hazardous waste.

Subject to the terms of the Cross-Indemnity Agreement, the Company is currently
contributing funds to the cleanup of two waste sites (French Ltd. and Brio,
both of which are located near Houston, Texas) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) as amended and
the Superfund Amendments and Reauthorization Act of 1986. The Company is also
subject to certain assessment and remedial actions at the Refinery under the
Resource Conservation and Recovery Act (RCRA). In addition, the Company has
negotiated an order with the Texas Water Commission, now the Texas Natural
Resource Conservation Commission (TNRCC), for assessment and remediation of
groundwater and soil contamination at the Refinery.

The Company has accrued $24 million related to future CERCLA, RCRA and TNRCC
assessment and remediation costs, of which $7 million is included in current
liabilities while the remaining amounts are expected to be incurred over the
next three to seven years. However, it is possible that new information about
the sites for which the reserve has been established, or future developments
such as involvement in other CERCLA, RCRA, TNRCC or other comparable state law
investigations could require the Company to reassess its potential exposure
related to environmental matters.

In the opinion of management, any liability arising from these matters will not
have a material adverse effect on the consolidated financial condition of the
Company, although the resolution in any reporting period of one or more of these
matters could have a material impact on the Company's results of operations for
that period.

19. SEGMENT INFORMATION

As discussed in Note 3, the refining operations of the Company were contributed
to LCR effective July 1, 1993. Prior to July 1, 1993, the petrochemical and
refining operations of the Company were considered to be a single segment due to
the integrated nature of their operations. However, these operations are now
considered to be separate segments due to the formation of LCR and the related
separate management and operations of that entity.

The Petrochemical segment consists of olefins, including ethylene, propylene,
butadiene, butylenes and specialty products; polyolefins, including
polypropylene and low density polyethylene; aromatics produced at the
Channelview Complex, including benzene and toluene; methanol and refinery
blending stocks.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

19. SEGMENT INFORMATION - (CONTINUED)

The refining segment is primarily composed of the LCR venture (see Note 3) and
consists of refined petroleum products, including gasoline, heating oil and jet
fuel; aromatics produced at the Refinery, including benzene, toluene, paraxylene
and orthoxylene; lubricants; olefins feedstocks and crude oil resales. Crude
oil resales consist of revenues from the resale of previously purchased crude
oil and from locational exchanges of crude oil that are settled on a cash basis.
Crude oil exchanges and resales facilitate the operation of the Company's
petroleum processing business by allowing the Company to optimize the crude oil
feedstock mix in response to market conditions and refinery maintenance
turnarounds and also to reduce transportation costs. Crude oil resales amounted
to $401 million, $893 million and $1,308 million for years ended December 31,
1993, 1992 and 1991, respectively.

Consolidated sales to CITGO totaled $864 million in 1993, $282 million in 1992
and $181 million in 1991. No other customer accounted for 10 percent or more of
consolidated sales.

Summarized below is the segment data for the Company which includes certain pro
forma adjustments necessary to present the petrochemical and refining operations
as individual segments for periods prior to the formation of LCR. These
adjustments relate principally to allocations of costs and expenses between the
two segments and are based on current operating agreements between the Company
and LCR. Intersegment sales between petrochemical and refining segments include
olefins feedstocks produced at the Refinery and gasoline and fuel oil blending
stocks produced at the Channelview Complex and were made at prices based on
current market values.

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

19. SEGMENT INFORMATION - (CONTINUED)

Petrochemical Refining
MILLIONS OF DOLLARS Segment Segment Unallocated Eliminations Consolidated
------------------- ------------- ------------- ------------- ------------- -------------

1993
----
Sales and other
operating revenues:
Customers $ 1,326 $ 2,524 $ 3,850
Intersegment 180 237 $ (417) --
------------- ------------- -------------- -------------
1,506 2,761 (417) 3,850
------------- ------------- -------------- -------------
Cost of sales 1,412 2,632 (417) 3,627
Selling, general and administrative
expenses 37 48 $ 45 -- 130
------------- ------------- ------------- -------------- -------------
Operating income $ 57 81 $ (45) $ -- $ 93
============= ============= ============= ============== =============
Depreciation and amortization
expense $ 44 $ 13 $ 1 $ 58
============= ============= ============= =============
Capital expenditures $ 14 $ 54 $ 1 $ 69
============= ============= ============= =============
Identifiable assets $ 688 $ 514 $ 68 $ (39) $ 1,231
============= ============= ============= ============== =============
1992
----
Sales and other
operating revenues:
Customers $ 1,409 $ 3,400 $ 4,809
Intersegment 266 334 $ (600) --
------------- ------------- -------------- -------------
1,675 3,734 (600) 4,809
------------- ------------- -------------- -------------
Cost of sales 1,536 3,642 (600) 4,578
Selling, general and
administrative expenses 37 43 $ 47 -- 127
------------- ------------- ------------- -------------- -------------
Operating income $ 102 $ 49 $ (47) $ -- 104
============= ============= ============= ============== =============
Depreciation and
amortization expense $ 33 $ 5 $ 1 $ 39
============= ============= ============= =============
Capital expenditures $ 43 $ 53 $ 1 $ 97
============= ============= ============= =============
Identifiable assets $ 716 $ 346 $ 153 $ 1,215
============= ============= ============= =============
1991
----
Sales and other
operating revenues:
Customers $ 1,666 $ 4,069 $ 5,735
Intersegment 293 455 $ (748) --
------------- ------------- -------------- -------------
1,959 4,524 (748) 5,735
------------- ------------- -------------- -------------
Cost of sales 1,711 4,247 (748) 5,210
Selling, general and
administrative expenses 35 42 $ 49 -- 126
------------- ------------- ------------- -------------- -------------
Operating income $ 213 $ 235 $ (49) $ -- $ 399
============= ============= ============= ============== =============
Depreciation and
amortization expense $ 34 $ 4 $ 1 $ 39
============= ============= ============= =============
Capital expenditures $ 21 $ 21 $ 1 $ 43
============= ============= ============= =============
Identifiable assets $ 754 $ 390 $ 335 $ 1,479
============= ============= ============= =============

LYONDELL PETROCHEMICAL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

20. Unaudited Quarterly Results

Quarter ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------

Millions of dollars except per share amounts
- --------------------------------------------

1993 (*)
- ----
Sales and other operating revenues $ 1,065 $ 1,080 $ 885 $ 820
Operating income 7 5 38 43
Income (loss) before income taxes
and cumulative effect of accounting
changes (10) (14) 18 22
Income (loss) before cumulative
effect of accounting changes (8) (11) 9 14
Cumulative effect of accounting changes,
net of tax 22 -- -- --
Net income (loss) 14 (11) 9 14
Earnings (loss) per share before
cumulative effect of accounting changes (.09) (.14) .12 .17
Earnings (loss) per share .18 (.14) .12 .17

1992 (*)
- ----
Sales and other operating revenues $ 1,029 $ 1,221 $ 1,336 $ 1,223
Operating income (loss) (5) 33 33 43
Income (loss) before income taxes and
cumulative effect of accounting changes (22) 15 17 25
Income (loss) before cumulative effect of
accounting changes (14) 10 12 18
Cumulative effect of accounting changes,
net of tax (10) -- -- --
Net income (loss) (24) 10 12 18
Earnings (loss) per share before
cumulative effect of accounting changes (.17) .13 .15 .22
Earnings (loss) per share (.29) .13 .15 .22

(*) The 1992 quarterly results have been restated to reflect the adoption during
the fourth quarter of 1992, of accounting changes which were effective
January 1, 1992. In addition, the first two quarters of 1993 and all four
quarters of 1992 include certain pro forma adjustments necessary to present
the petrochemical and refining operations as individual segments for periods
prior to the formation of LCR effective July 1, 1993.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the directors of the Registrant as of March 1, 1994. The
executive officers of the Registrant are listed on page 19 herein.

Mike R. Bowlin, 51............ Mr. Bowlin was elected a Director of the
Chairman of the Board Company on July 23, 1993 and Chairman of the
Board on August 13, 1993. He has been
President and Chief Operating Officer of ARCO
since June 1, 1993 and a director of ARCO since
June, 1992. He was an Executive Vice President
of ARCO from June, 1992 to May, 1993. He was a
Senior Vice President of ARCO from August, 1985
to June, 1992 and President of ARCO
International Oil and Gas Company from
November, 1987 to June, 1992. He was Senior
Vice President of International Oil and Gas
Acquisitions from July, 1987 to November, 1987.
He was President of ARCO Coal Company from
August, 1985 to July, 1987. He was a Vice
President of ARCO from October, 1984 to July,
1985. From April, 1981 to December, 1984, he
was Vice President of ARCO Oil and Gas Company.
He has been an officer of ARCO since October,
1984. He originally joined ARCO in 1969.

William T. Butler, 61....... Dr. Butler was elected a Director of the
Company on December 21, 1988, effective as of
January 25, 1989. He has held his current
position as President and Chief Executive
Officer of Baylor College of Medicine
(education and research) since 1979. He is
also a director of First City Bancorporation of
Texas, Inc., C. R. Bard, Inc. and
Browning-Ferris Industries Inc.

Allan L. Comstock, 50........ Mr. Comstock was elected a Director of the
Company on July 23, 1993. He has been a Vice
President and Controller of ARCO since June,
1993. He was a Vice President of ARCO Chemical
from October, 1989 through May, 1993. From
November, 1985 to September, 1989 he was
General Auditor of ARCO. He originally joined
ARCO in 1969.

Terry G. Dallas, 43.......... Mr. Dallas was elected a Director of the
Company on July 23, 1993. He has been a Vice
President of ARCO since June, 1993 and
Treasurer of ARCO since January 24, 1994. He
was Vice President, Corporate Planning of ARCO
from June, 1993 to January, 1994. He served as
Assistant Treasurer for ARCO Corporate Finance
from 1990 to 1993. He was Vice President of
Finance, Control and Planning for ARCO British,
Ltd. from 1988 to 1990 and Manager of
International Acquisitions for ARCO
International Oil and Gas Company from 1986 to
1988. He originally joined ARCO in 1979.

Bob G. Gower, 56............. Mr. Gower was elected Chief Executive Officer
President and Chief of the Company on October 24, 1988 and a
Executive Officer Director and President of the Company on June
27, 1988. He has been President of Lyondell and
its predecessor, the Lyondell Division, since
the formation of the Lyondell Division in
April, 1985. Mr. Gower was a Senior Vice
President of ARCO from June, 1984 until his
resignation as an officer of ARCO in January,
1989. Prior to 1984 he served in various
capacities with the then ARCO Chemical
Division. He originally joined ARCO in 1963.
Mr. Gower is also a director of Texas Commerce
Bank-Houston and Keystone International Inc.

Stephen F. Hinchliffe, Jr. 60. Mr. Hinchliffe was elected a Director of the
Company on March 1, 1991. Since 1988, he has
held his current position of Chairman of the
Board and Chief Executive Officer of BHH
Management, Inc., the managing partner of
Leisure Group, Inc. Previously, he served as
Chairman of the Board of Leisure Group, Inc.
(a manufacturer of consumer products), which he
founded in 1964.

Dudley C. Mecum II, 59....... Mr. Mecum was elected a Director of the
Company on November 28, 1988, effective as of
January 25, 1989. He has held his current
position as a partner with G. L. Ohrstrom &
Company (merchant banking) since August, 1989.
Previously he was Chairman of Mecum Associates,
Inc. (management consulting) from December,
1987 to August, 1989. He served as Group Vice
President and director of Combustion
Engineering Inc. from 1985 to December, 1987,
and as a managing partner of the New York
region of Peat, Marwick, Mitchell & Co. from
1979 to 1985. He is also a director of The
Travelers, Inc., Dyncorp, VICORP Restaurants,
Inc., Fingerhut Companies, Inc. and Roper
Industries, Inc.

William C. Rusnack, 49...... Mr. Rusnack was elected a Director of the
Company on October 24, 1988. He has been a
Senior Vice President of ARCO since July 1990
and President of ARCO Products Company since
June, 1993. He was President of ARCO
Transportation Company from July, 1990 to May,
1993. He was Vice President, Corporate
Planning, of ARCO from July, 1987 to July,
1990. He was Senior Vice President, Marketing
and Employee Relations, of the ARCO Oil and Gas
Division from August, 1985 to July, 1987 and
Vice President, Manufacturing, of the ARCO
Products Division from July, 1984 to August,
1985. From June 1983 to July, 1984 he was Vice
President, Planning and Control, of the ARCO
Products Division. He originally joined ARCO
in 1966. Mr. Rusnack is also a director of
BWIP Holding, Inc.

Dan F. Smith, 47.............. Mr. Smith was elected a Director of the
Executive Vice President Company on October 24, 1988. He was elected
and Chief Operating Officer Executive Vice President and Chief Operating
Officer on May 6, 1993. He served as Vice
President Corporate Planning of ARCO from
October, 1991 until May, 1993. He previously
served as Executive Vice President and Chief
Financial Officer of the Company from October,
1988 to October, 1991 and as Senior Vice
President of Manufacturing of Lyondell, and its
predecessor, the Lyondell Division, from June,
1986 to October, 1988. From August, 1985 to
June, 1986 Mr. Smith served as Vice President
of Manufacturing for the Lyondell Division. He
joined the Lyondell Division in April, 1985 as
Vice President, Control and Administration.
Prior to 1985, he served in various financial,
planning and manufacturing positions with ARCO.
He originally joined ARCO in 1968.

Paul R. Staley, 64........... Mr. Staley was elected a Director of the
Company on November 28, 1988, effective as of
January 25, 1989. He has held his current
position as Chairman of the Executive
Committee of the Board of Directors of P. Q.
Corporation (an industry supplier of
silicates) since January, 1991. He held the
positions of President and Chief Executive
Officer of P.Q. Corporation from 1973 and
1981, respectively, until January, 1991.

William E. Wade, Jr., 51..... Mr. Wade was elected a director of the Company
on August 13, 1993. He has been Executive Vice
President of ARCO since June 1, 1993 and a
director of ARCO since June 1, 1993. He was a
Senior Vice President of ARCO from May, 1987 to
May, 1993 and President of ARCO Oil and Gas
Company from October, 1990 to May, 1993. He
was President of ARCO Alaska, Inc. from July,
1987 to July, 1990. He was a Vice President of
ARCO from 1985 to May, 1987. From 1981 to
1985, he was Vice President of ARCO Exploration
Company. He has been an officer of ARCO since
1985. He originally joined ARCO in 1968.

ITEM 11. Executive Compensation

EXECUTIVE COMPENSATION

The following table sets forth information as to the Chief Executive Officer and
the next four most highly compensated executive officers of the Company.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
------------------------------------------------------------------
SPECIAL OTHER ANNUAL
ANNUAL BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(a) ($)(b)
- --------------------------- ------------ ------------ ------------ ------------ ------------

Bob G. Gower....................... 1993 555,099 220,000 240,000 74,499
President, 1992 527,215 -0- (a) 36,149
Chief Executive Officer 1991 511,781 340,000 -0-

Dan F. Smith (f)................... 1993 247,651 120,000 100,000 4,115
Executive Vice 1992 (f) -0- (a) (f)
President, 1991 207,168 -0- -0-
Chief Operating Officer

Jeffrey R. Pendergraft............. 1993 221,934 60,000 37,500 9,754
Senior Vice President, 1992 213,277 -0- (a) 3,307
General Counsel & 1991 207,951 85,000 -0-
Secretary

Russell S. Young................... 1993 206,338 60,000 37,500 17,347
Senior Vice President, 1992 186,722 -0- (a) 6,988
Chief Financial Officer, 1991 175,829 65,000 -0-
Treasurer

Robert H. Ise (h).................. 1993 204,481 45,000 15,000 12,316
Vice President and 1992 193,519 -0- (a) 9,532
Vice President 1991 188,085 85,000 -0-
LYONDELL-CITGO
Refining Company Ltd.

LONG-TERM COMPENSATION
----------------------------
AWARDS PAYOUTS
---------- ------------
LTIP ALL OTHER
OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION (#)(c) ($)(c) ($)(d)(e)
- --------------------------- ---------- ------------ ------------

Bob G. Gower................... 56,500 964,452 59,262
President, 42,200 829,116 57,553
Chief Executive Officer 37,000 957,719

Dan F. Smith (f)............... (f) (f) 934,449(g)
Executive Vice (f) 423,987 (f)
President, 14,400 298,117
Chief Operating Officer

Jeffrey R. Pendergraft......... 17,200 216,480 26,030
Senior Vice President, 11,700 186,629 22,086
General Counsel & 8,200 129,374
Secretary

Russell S. Young............... 14,500 180,698 28,489
Senior Vice President, 8,200 155,341 19,513
Chief Financial Officer, 6,400 134,537
Treasurer

Robert H. Ise (h).............. 19,000 201,433 26,571
Vice President and 12,900 173,167 25,270
Vice President 8,200 124,328
LYONDELL-CITGO
Refining Company Ltd.

- -----------

In accordance with the transition provisions applicable to the revised proxy
rules covering disclosure of executive compensation adopted under the Securities
Exchange Act of 1934 (the "Proxy Rules"), amounts of other annual compensation
and all other compensation are excluded for the Company's 1991 fiscal year.

(a) Special bonuses were paid in 1993 in recognition of the executive officers'
and other key employees' significant contributions during 1992 and 1993 to
the successful completion of the Company's refining venture with CITGO
Petroleum Corporation and Lagoven S.A.

(b) Includes imputed income in respect of the Long-Term Disability Plan, tax
gross-ups in respect of financial counseling reimbursements and in respect
of other miscellaneous items, and the amount of incremental interest accrued
under the Executive Deferral Plan that exceeds 120 percent of a specified
IRS rate. "Tax gross-ups" refers to the additional reimbursement paid to a
recipient to cover the federal income tax obligations associated with the
underlying benefit, including an additional amount, based on maximum
applicable income tax rates.

(c) Amounts shown in the LTIP Payouts column represent payment of performance
units (including associated dividend share credits) awarded under the
Company's Executive Long-Term Incentive Plan (the "LTIP"). The LTIP
provides for the granting of stock options and the right to receive
performance units under certain circumstances and a cash payment in respect
of dividend share credits as described in this footnote. Dividend

share credits are allocated to an optionee's account whenever dividends are
declared on shares of common stock. The number of dividend share credits to
be allocated on each record date to an optionee's account is computed by
multiplying the dividend rate per share of Common Stock by the sum of (i)
the number of shares subject to outstanding options, (ii) the number of
performance units and (iii) the number of dividend share credits then
credited to the optionee's account and dividing the resulting figure by the
fair market value of a share of Common Stock ("FMV") on such dividend record
date. As future dividends are declared, the participant will receive
dividend share credits not only on the number of shares covered by
unexercised options and the number of performance units but also on the
number of dividend share credits in the participant's account. The dividend
crediting mechanism will continue to operate in this manner (i) with respect
to options, until the participant exercises such options or the options
expire, and (ii) with respect to performance units, until payment is made
(or not made, as the case may be) in respect of performance units. Dividend
share credits do not represent earned compensation and have no definite
value, if any, until the date on which the options or performance units, as
applicable, in respect of which such credits have been allocated, are
exercised or paid. See footnote (b) to the Aggregated Option Exercises and
Fiscal Year-End Option Values Table. Dividend share credits are canceled
upon an optionee's termination of employment under certain specified
circumstances. In addition to the dollar amounts shown in the LTIP Payouts
column, the number of dividend share credits accrued to the accounts of the
named executives during 1993 and 1992, respectively, is as follows: Mr.
Gower: 13,819 and 13,200; Mr. Smith: 2,405 and 4,399; Mr. Pendergraft:
3,414 and 2,885; Mr. Young: 2,625 and 2,311; and Mr. Ise: 3,384 and 2,900.

(d) Includes contributions to the Executive Supplementary Savings Plan,
incremental executive medical plan premiums, financial counseling
reimbursements and certain amounts in respect of the Executive Life
Insurance Plan, as follows:

YEAR MR. GOWER MR. SMITH MR. PENDERGRAFT MR. YOUNG MR. ISE
---- --------- --------- --------------- ----------- ---------------

Executive Supplementary Savings Plan 1993 $ 44,408 $ 19,812 $ 17,754 $ 16,507 $ 16,358
1992 $ 42,177 $ _0_ $ 17,062 $ 14,938 $ 15,481
Incremental Medical Plan Premiums... 1993 $ 4,301 $ 2,867 $ 4,301 $ 4,301 $ 4,301
1992 $ 4,104 $ _0_ $ 4,104 $ 4,104 $ 4,104
Financial Counseling Reimbursement.. 1993 $ 7,735 $ _0_ $ 3,975 $ 7,235 $ 4,645
1992 $ 8,885 $ _0_ $ 920 $ 100 $ 4,646
Executive Life Insurance Plan....... 1993 $ 2,818 $ 1,770 $ _0_ $ 446 $ 1,267
1992 $ 2,387 $ _0_ $ _0_ $ 371 $ 1,039

(e) In 1993 a revised methodology was adopted to calculate certain amounts in
respect of the Executive Life Insurance Plan; accordingly, 1992 amounts have
been restated to reflect this methodology. The effect of this restatement
is not material to the overall figure previously reported.

(f) Mr. Smith was elected Executive Vice President and Chief Operating Officer
on May 6, 1993. The salary figure for 1993 is the amount paid to Mr. Smith
for his service from that date. Prior to that he served as Vice President
Corporate Planning of ARCO from October, 1991. He previously served as
Executive Vice President and Chief Financial Officer of the Company from
October, 1988 to October, 1991. The salary figure for 1991 is the amount
paid to Mr. Smith for that portion of the year he was employed by the
Company.

(g) Includes relocation expenses in connection with his relocation to
Houston of $540,000 for the loss from the sale of a home. Mr. Smith also
received $370,000 as a tax gross-up in connection with that loss, which is
included in this column.

(h) Mr. Ise served as Vice President, Marketing and Sales, Polymers and
Petroleum Products through June 30, 1993. Effective as of July 1, 1993, Mr.
Ise began providing services as a loaned executive as a Vice President of
LYONDELL-CITGO Refining Company Ltd., a limited liability company in which
the Company currently owns an approximate 90% interest and CITGO Petroleum
Corporation owns an approximate 10% interest. LYONDELL-CITGO Refining
Company Ltd. reimburses the Company for the cost of salary and other
compensation paid to Mr. Ise. Mr. Ise continues to serve as a Vice President
of Lyondell.

EXECUTIVE LONG-TERM INCENTIVE PLAN

The LTIP provides for the granting of stock options, the right to receive
performance units under certain circumstances and a cash payment in respect of
dividend share credits. The following table describes the grants to the named
executive officers of stock options and certain other information with respect
to the exercise of stock options. No performance units were granted in 1993.
Additional information with respect to payouts of performance units under the
LTIP is contained in the Summary Compensation Table.

OPTIONS

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information regarding stock options granted
to the named executive officers during 1993. The values assigned to each
reported option are shown using the Black-Scholes option pricing model. In
assessing these values it should be kept in mind that no matter what
theoretical value is placed on a stock option on the date of grant, its
ultimate value will be dependent on the market value of the company's stock at
a future date.

INDIVIDUAL GRANTS(a)
---------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR BASE GRANT DATE PRESENT
NAME OPTIONS GRANTED(#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE VALUE ($)(b)
---- ------------------ ------------------ ------------------ ------------------ ------------------

Mr. Gower........ 56,500 22 $26.00 March 5, 2003 $819,815

Mr. Smith(c)..... 0 -- -- -- --

Mr. Pendergraft.. 17,200 6.7 26.00 March 5, 2003 249,572

Mr. Young........ 14,500 5.6 26.00 March 5, 2003 210,395

Mr. Ise.......... 19,000 7.4 26.00 March 5, 2003 275,690

- -----------

(a) The ten-year options were granted on March 5, 1993 pursuant to the LTIP
at an exercise price equal to the FMV on the date of grant. The options
become exercisable in four equal annual installments beginning March, 1994.
Options and the dividend share credits associated with such options are
canceled upon an optionee's termination of employment under certain
specified circumstances. Stock options also carry eligibility for dividend
share credits as described in footnote (c) to the Summary Compensation
Table.

(b) The values shown reflect a variation of the Black-Scholes pricing model.
The pricing model used by the Company includes the following assumptions:
options are exercised at the end of the 10-year term; no premium for risk is
assigned; the dividend yield is assumed to be the current yield on the date
of grant; and a long-term (200 days) historical volatility rate is applied.
The values relate solely to stock options (and not performance units) and do
not take into account risk factors such as nontransferability and limits on
exercisability. The values do take into account the fact that dividend
share credits are allocated to an optionee's account whenever dividends are
declared on shares of common stock.

(c) Mr. Smith was not an executive officer when options were granted in
1993. See footnote (f) to the Summary Compensation Table.

The following table shows the number of shares of Common Stock represented
by outstanding stock options held by each of the named executive officers as of
December 31, 1993. Also reported are the values for "in-the-money" options which
represent the positive spread between the exercise price of any such existing
stock options and the year end price of common stock.

AGGREGATED OPTION EXERCISES IN 1993
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF VALUE OF UNEXERCISED
SECURITIES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
UNDERLYING OPTIONS AT YEAR-END (#)(a) AT YEAR-END ($)(a)(b)
OPTIONS ----------------------------- -----------------------------
NAME EXERCISED (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- ------------------ ----------- ------------- ----------- -------------

Mr. Gower........ -0- -0- 78,212 106,650 $99,986 $ 18,500

Mr. Smith........ -0- -0- 16,766 7,200 15,354 7,200

Mr. Pendergraft.. -0- -0- 16,110 30,075 22,442 4,100

Mr. Young........ -0- -0- 12,879 24,400 18,467 3,200

Mr. Ise.......... -0- -0- 15,854 32,775 21,119 4,100

- ----------

(a) The FMV of Lyondell Common Stock on December 31, 1993 was $21.25

(b) Each option carries with it the right to dividend share credits, as
described in footnote (c) to the Summary Compensation Table. Set forth
below is a calculation of the value of accrued dividend share credits,
assuming exercise at December 31, 1993, of the in-the-money options. These
hypothetical values have been calculated for illustration purposes only.

EXERCISABLE UNEXERCISABLE
------------- -------------

Mr. Gower........ $413,802 $82,370
Mr. Smith........ $ 65,217 $32,057
Mr. Pendergraft.. $ 92,859 $18,255
Mr. Young........ $ 76,344 $14,248
Mr. Ise.......... $ 87,477 $18,255

ANNUAL PENSION BENEFITS

The following table shows estimated annual pension benefits payable to the
Company's employees, including executive officers of the Company, upon
retirement on January 1, 1994 at age 65 under the provisions of the Lyondell
Retirement Plan and the Executive Supplementary Retirement Plan.

PENSION PLAN TABLE

AVERAGE FINAL EARNINGS
(BASE SALARY PLUS ANNUAL
INCENTIVE PLAN AWARDS)--
HIGHEST THREE CONSECUTIVE APPROXIMATE ANNUAL BENEFIT FOR YEARS
YEARS OUT OF LAST TEN YEARS OF MEMBERSHIP SERVICE INDICATED(a)(b)(c)
- --------------------------- ----------------------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
-------- -------- -------- -------- --------

$1,100,000 253,025 337,367 421,709 506,050 590,392
1,000,000 229,925 306,567 383,209 459,850 536,492
900,000 206,825 275,767 344,709 413,650 482,592
800,000 183,725 244,967 306,209 367,450 428,692
700,000 160,625 214,167 267,709 321,250 374,792
600,000 137,525 183,367 229,209 275,050 320,892
500,000 114,425 152,567 190,709 228,850 266,992
400,000 91,325 121,767 152,209 182,650 213,092
300,000 68,225 90,967 113,709 136,450 159,192
200,000 45,125 60,167 75,209 90,250 105,292

- ---------

(a) The amounts shown in the above table are necessarily based upon certain
assumptions, including retirement of the employee on January 1, 1994 and
payment of the benefit under the basic form of allowance provided under the
Lyondell Retirement Plan (payment for the life of the employee only with a
guaranteed minimum payment period of 60 months). The amounts will change if
the payment is made under any other form of allowance permitted by the
Lyondell Retirement Plan, or if an employee's retirement occurs after
January 1, 1994, since the "annual covered compensation level" of such
employee (one of the factors used in computing the annual retirement
benefits) may change during the employee's subsequent years of membership
service. The benefits shown are not subject to deduction for Social
Security benefits or other offset amounts. The plans, however, provide a
higher level of benefits for the portion of compensation above the
compensation levels on which Social Security benefits are based.

(b) As of December 31, 1993, the credited years of service (rounded to the
nearest whole number) under the Lyondell Retirement Plan for the named
executive officers are: Mr. Gower, 30; Mr. Smith, 17; Mr. Pendergraft, 21;
Mr. Young, 13; and Mr. Ise, 34.

(c) All employees' (including executive officers') years of service with
ARCO prior to the creation of Lyondell have been credited under the
Company's retirement plans.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

The Company's principal stockholder, ARCO, is one of the nation's leading
integrated oil companies and maintains its headquarters at 515 South Flower
Street, Los Angeles, California 90071. At March 1, 1994 ARCO owned 39,921,400
shares of Lyondell's Common Stock, which represent 49.9 percent of the
outstanding stock. ARCO has consistently maintained an ownership position of
just under 50 percent of Lyondell's Common Stock from the date of the Company's
public offering of stock; however, there is no assurance that ARCO will maintain
such ownership position in the future.

ARCO officers and directors do not constitute a majority of the Board of
Directors; however, ARCO officers and directors hold five of eleven
directorships. Beginning in 1989, the Company was not included as a
consolidated subsidiary in ARCO's financial statements; however, for certain
securities laws purposes, ARCO could be deemed to be a "control" person or an
"affiliate" of Lyondell.

The table below sets forth certain information as of December 31, 1993 (the most
recent date as of which the Company has information) regarding the beneficial
ownership of the Common Stock by persons other than ARCO known by the Company to
own beneficially more than five percent of its outstanding shares of Common
Stock.

Percentage
Number of Of Shares
Name Shares Outstanding
---- --------- -----------

Wellington Management Company(a).............. 5,356,300 6.70%
75 State Street, Boston, Massachusetts 02109

- ----------

(a) Wellington Management Company ("WMC") (together with its wholly-owned
subsidiary, Wellington Trust Company, National Association) may be deemed a
beneficial owner of the 5,356,300 shares by virtue of the direct or indirect
investment and/or voting discretion they possess pursuant to the provisions
of investment advisory agreements with clients. WMC has shared dispositive
power over the 5,356,300 shares of Common Stock, including the 5,083,900
shares beneficially owned by Vanguard/Windsor Fund Inc., an investment
advisory client of WMC.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the number of shares of Common Stock owned
beneficially as of March 1, 1994 by each director, each of the executive
officers named on the Summary Compensation Table and by all current directors
and officers as a group. As of March 1, 1994, the percentage of shares of
Common Stock beneficially owned by any director, named executive officers or by
all directors and officers as a group, did not exceed one percent of the issued
and outstanding Common Stock. Unless otherwise noted, each individual has sole
voting and investment power.

Shares of Common Stock
owned beneficially as of
March 1, 1994(a)(b)
------------------------

Mike R. Bowlin...................................... 2,000
William T. Butler................................... 3,001
Allan L. Comstock................................... 0
Terry G. Dallas..................................... 0
Bob G. Gower........................................ 166,717
Stephen F. Hinchliffe, Jr........................... 2,250(c)
Robert H. Ise....................................... 27,776
Dudley C. Mecum II.................................. 700
Jeffrey R. Pendergraft.............................. 25,521
William C. Rusnack.................................. 301
Dan F. Smith........................................ 27,590
Paul R. Staley...................................... 400
William E. Wade, Jr................................. 1,000
Russell S. Young.................................... 33,774(d)
All directors and officers as a group (19 Persons).. 375,521(e)

(a) Includes shares held by the trustees under the Lyondell Capital
Accumulation Plan and the Lyondell Savings Investment Plan for the accounts
of participants as of December 31, 1993.

(b) The amounts shown include shares that may be acquired within 60 days
following March 1, 1994 through the exercise of stock options, as follows:
Mr. Gower, 112,137; Mr. Smith, 20,366; Mr. Pendergraft, 23,285; Mr. Young,
20,704; Mr. Ise, 25,879 and all directors and officers as a group, including
those just named, 272,984.

(c) Does not include 1,000 shares held by a trust of which Mr. Hinchliffe
is a trustee, as to which shares he disclaims beneficial ownership.

(d) Does not include 1,100 shares owned by Mr. Young's spouse, as to which
shares he disclaims beneficial ownership.

(e) Does not include 5,059 shares owned by spouses and a trust, as to which
shares beneficial ownership is disclaimed.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than eleven percent
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common Stock
of the Company. Officers, directors and greater than ten-percent shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that such reports
accurately reflect all reportable transactions and holdings, during the fiscal
year ended December 31, 1993 all Section 16(a) filing requirements applicable to
its officers, directors and greater than ten-percent beneficial owners were
complied with.

ITEM 13. Certain Relationships and Related Transactions

TRANSACTIONS BETWEEN THE COMPANY AND ARCO

In connection with the transfer of assets and liabilities to Lyondell, the
Company and ARCO entered into a number of agreements for the purpose of defining
their ongoing relationships. In addition, in July 1987 the Lyondell Division
and ARCO Chemical Company ("ARCO Chemical"), then a wholly owned subsidiary of
ARCO, entered into a number of agreements in connection with the organization of
ARCO Chemical. None of these agreements was the result of arm's-length
negotiations between independent parties. It was the intention of the Company,
ARCO and ARCO Chemical that such agreements and the transactions provided for
therein, taken as a whole, accommodate the parties' interests in a manner that
was fair to the parties, while continuing certain mutually beneficial joint
arrangements. The Audit Committee of the Board of Directors of the Company,
none of the members of which are affiliated with the Company (including LCR),
ARCO or ARCO Chemical has determined that such agreements, taken as a whole,
were fair to the Company and its stockholders. Because of the complexity of the
various relationships between the Company, ARCO and its direct and indirect
subsidiaries, including ARCO Chemical (together, "ARCO Affiliates"), however,
there can be no assurance that each of such agreements, or the transactions
provided for therein, has been effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties.

The terms and provisions of many of those initial agreements have been
modified subsequently or supplemented and additional or modified agreements,
arrangements and transactions have been and will continue to be entered into
by the Company and ARCO Affiliates. Any such future agreements, arrangements
and transactions will be determined through negotiation between the Company
and ARCO Affiliates and it is possible that conflicts of interest will be
involved. Future contractual relations among the Company and ARCO Affiliates
will be subject to certain provisions of the Company's Certificate of
Incorporation. See "Certificate of Incorporation Provisions Relating to
Corporate Conflicts of Interest." In addition, the Audit Committee of the
Board of Directors has adopted a set of guidelines for the review of all
agreements entered into between the Company and ARCO Affiliates. These
guidelines include a provision that, at least annually, the Audit Committee
will review such agreements, or the transactions provided for therein, to
assure that such agreements are, in its opinion, fair to the Company and its
stockholders.

For the year ended December 31, 1993, Lyondell (including LCR) paid ARCO
Affiliates an aggregate of approximately $80 million. For the year ended
December 31, 1993, Lyondell recorded revenues of approximately $278 million from
sales to ARCO Affiliates, of which $263 million represented sales to ARCO
Chemical.

THE FOLLOWING IS A SUMMARY OF CERTAIN AGREEMENTS, ARRANGEMENTS AND
TRANSACTIONS AMONG THE COMPANY AND ARCO AFFILIATES EFFECTIVE DURING THE PAST
FISCAL YEAR, AS WELL AS CERTAIN AGREEMENTS, ARRANGEMENTS AND TRANSACTIONS THAT
ARE CURRENTLY PROPOSED.

TECHNOLOGY TRANSFERS AND LICENSES

Effective July 1, 1988, ARCO assigned to the Company numerous domestic and
foreign trademarks and certain U.S. and foreign patents and granted the Company
a nonexclusive license to use other trademarks which contain the word "ARCO," to
use ARCO's spark symbol as a logo and to use ARCO's color striping scheme, which
license was royalty-free for a period of four years. The Company paid ARCO
approximately $80,000 under the terms of this license in 1993.

In connection with the transfer of assets and liabilities relating to the
Lyondell Division from ARCO to the Company, the Company and ARCO, effective July
1, 1988, entered into (i) a License Agreement pursuant to which ARCO licensed to
the Company on a nonexclusive, royalty-free basis certain rights (including
Lyondell's right to sublicense to third parties, in some cases without
accounting to ARCO) to ARCO's technology and intellectual property related to
certain operations or assets of the Company, (ii) a technology assignment
agreement pursuant to which legal title to certain other technology and
intellectual property useful in the Company's business (including, without
limitation, technology relating to olefins, including product flexibility) was
transferred to the Company; provided, however, that except for technology
relating to the product flexibility unit, ARCO retained a nonexclusive license
to use the technology and property rights in ARCO's other operations, and (iii)
an immunity from suit agreement in respect of the Company's right to practice
all remaining technology

in the possession of the Company prior to July 1, 1988. During 1990, the Company
and ARCO entered into a series of amendments to these agreements designed to
clarify the parties' rights under the original technology transfer. In addition,
Lyondell and ARCO executed a patent maintenance agreement pursuant to which ARCO
agreed to maintain certain patents licensed to Lyondell. Lyondell and ARCO also
entered into a letter agreement granting Lyondell the right to obtain additional
licensing rights.

CROSS-INDEMNITY AGREEMENT

In connection with the transfer by ARCO of substantially all of the assets
and liabilities of its Lyondell Division to the Company, the Company and ARCO
executed a Cross-Indemnification Agreement (the "Cross-Indemnity Agreement"). In
the Cross-Indemnity Agreement, the Company agreed generally to indemnify ARCO
against substantially all fixed and contingent liabilities relating to the
integrated petrochemical and petroleum processing business and certain assets of
the Lyondell Division. The liabilities assumed by the Company include the
following, to the extent not covered by ARCO's insurance: (a) all liabilities
and obligations of the Company and its combined subsidiaries, as of July 1,
1988; (b) all liabilities and obligations under contracts and commitments
relating to the business of the Lyondell Division and certain assets relating
thereto; (c) employment and collective bargaining agreements affecting the
Company's employees; (d) specified pending litigation and other proceedings; (e)
federal, state, foreign and local income taxes to the extent provided in the
Cross-Indemnity Agreement; (f) liabilities for other taxes associated with the
Lyondell Division's business and certain assets relating thereto; (g)
liabilities for any past, present or future violations of federal, state or
other laws (including environmental laws), rules, regulations or other
requirements of any governmental authority in connection with the business of
the Lyondell Division and certain assets relating thereto; (h) existing or
future liabilities for claims based on breach of contract, breach of warranty,
personal or other injury or other torts relating to such integrated
petrochemical and petroleum processing businesses and certain assets relating
thereto; and (i) any other liabilities relating to the assets transferred to the
Company or its subsidiaries. ARCO has indemnified the Company with respect to
other claims or liabilities and other matters of litigation not related to the
assets or business transferred by ARCO to the Company.

The Cross-Indemnity Agreement includes procedures for notice and payment of
indemnification claims and provides that a party entitled to indemnification for
a claim or suit brought by a third party may require the other party to assume
the defense of such claim. The Cross-Indemnity Agreement also includes a
defense cost-sharing agreement, whereby the Company will bear its allocated
defense costs for certain lawsuits.

DISPUTE RESOLUTION AGREEMENT

In April 1993, the Company, ARCO and ARCO Chemical entered into a Dispute
Resolution Agreement that mandates a procedure for negotiation and binding
arbitration of significant commercial disputes among any two or more of the
parties.

SERVICES AGREEMENTS

The Company and ARCO entered into an agreement effective January 1, 1991 and
amended as of February, 1992 (the "Administrative Services Agreement") under
which ARCO agreed to continue to provide various transitional services to the
Company that ARCO had been providing pursuant to previous administrative service
agreements. The services which ARCO agreed to provide the Company in the
Administrative Services Agreement included employee benefits administration
services, payroll, telecommunications and certain computer-related services.
The Administrative Services Agreement terminates no later than December 31, 1997
although it may be terminated in its entirety earlier than such date upon the
terminating party providing the other party with at least one year's prior
notice, and a party may elect to terminate some of the services it is receiving
upon 30 days prior notice to the other party. The Administrative Services
Agreement provides for an annual renegotiation of fees. ARCO earned a fee of
approximately $2 million during 1993 for all of the services which it provided
under the Administrative Services Agreement.

Effective January 1, 1991, the Company and ARCO entered into an agreement
(the "Insurance Termination Agreement") which terminated the insurance coverage
previously provided by ARCO and established procedures for the resolution of
pending and future claims that are or will be covered under ARCO's policies in
effect prior to January 1, 1991.

OTHER AGREEMENTS BETWEEN THE COMPANY AND ARCO

Lyondell has purchased and LCR continues to purchase certain of its crude
oil requirements from ARCO Oil and Gas ("AOGC") under short-term arrangements at
prices based on market values at the time of delivery. LCR also purchases crude
oil from AOGC from time to time on the spot market at then-current spot market
prices. The Company and LCR also purchased natural gas and natural gas liquids
from AOGC during 1993 on the spot market at then-current spot market prices.

The Company (including LCR) also sold products to ARCO Affiliates, including
crude oil resales and sales of heating oil and lube oil at market-based prices.

The Company has entered into several contracts with ARCO Pipe Line Company
(ARCO Pipe Line) pursuant to which the Company (i) leased certain pipelines and
pipeline segments from ARCO Pipe Line at annual rental rates which include
recovery of operating costs, return on capital investment and inflation
escalators (ii) acquired the services of ARCO Pipe Line to operate various
groups of pipelines owned by the Company, (iii) entered into a throughput and
deficiency commitment for volumes at tariff rates for transportation of crude
oil and other products. Certain of these contracts that relate to the refining
business were assigned to LCR as of July 1, 1993. The Company and LCR paid ARCO
Pipe Line approximately $20 million during 1993 for rental fees and services
under these contracts. ARCO Pipe Line and LCR have agreed to use jointly a
control room owned by LCR and located at the Houston Refinery. ARCO Pipe Line
also owns various easements and licenses for its pipelines and related equipment
located on the property of the Company or LCR and has performed services
relating to the pipeline systems. The Company (including LCR) also ships
products over common carrier pipelines owned and operated by ARCO Pipe Line
pursuant to filed tariffs on the same basis as other non-affiliated customers.

AGREEMENTS BETWEEN THE COMPANY AND ARCO CHEMICAL COMPANY

Lyondell provides to ARCO Chemical a large portion of the feedstocks
purchased by ARCO Chemical for its manufacturing facilities located at
Channelview, Texas. Pricing arrangements under these contracts are generally
representative of prevailing market prices. Lyondell also provides certain
nominal plant services at the aforementioned plants. ARCO Chemical in turn
provides certain feedstocks and supplies to Lyondell at market-based prices.

The Company processes MTBE (using one of the Company's two MTBE units) for
ARCO Chemical, and ARCO Chemical markets this product for its own account. The
term of this agreement extends through June 30, 1997. ARCO Chemical purchases
certain base feedstocks for this processing agreement from Lyondell at market
based prices. A processing fee is paid by ARCO Chemical to Lyondell to cover
variable and fixed operating costs, as well as capital costs. In addition, the
Company has agreed to sell to ARCO Chemical MTBE produced at the Company's
second MTBE unit that is in excess of the Company's requirements at market-based
prices.

CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO CORPORATE CONFLICTS OF
INTEREST

In order to address certain potential conflicts of interest between the
Company and ARCO (for purposes of this section the term "ARCO" also includes
ARCO's successors and any corporation, partnership or other entity in which ARCO
owns fifty percent or more of the voting securities or other interest), the
Company's Certificate of Incorporation contains provisions regulating and
defining the conduct of certain affairs of the Company as they may involve ARCO
and its officers and directors, and the powers, rights, duties and liabilities
of the Company and its officers, directors and stockholders in connection
therewith. In general, these provisions recognize that from time to time the
Company and ARCO may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities. The
Certificate of Incorporation provides that ARCO has no duty to refrain from (1)
engaging in business activities or lines of business that are the same as or
similar to those of the Company, (2) doing business with any customer of the
Company or (3) employing any officer or employee of the Company. The Certificate
of Incorporation provides that ARCO is not under any duty to present any
corporate opportunity to the Company which may be a corporate opportunity for
both ARCO and the Company, and that ARCO will not be liable to the Company or
its stockholders for breach of any fiduciary duty as a stockholder of the
Company by reason of the fact that ARCO pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person or
does not present the corporate opportunity to the

Company. ARCO currently owns interests in certain chemical companies and
refiners (other than the Company) and has advised the Company that it may
continue to acquire additional interests in chemical companies and refiners.

The Certificate of Incorporation provides that directors and officers of the
Company will not be liable to the Company or its stockholders for breach of any
fiduciary duty if they comply with the following provisions of the Certificate
of Incorporation. When a corporate opportunity is offered in writing to an
officer or an officer and a director of the Company who is also an officer or an
officer and a director of ARCO, solely in his or her designated capacity with
one of the two companies, such opportunity shall be first presented to whichever
company was so designated. No person is currently in this category. Otherwise,
(i) a corporate opportunity offered to any person who is an officer or officer
and director of the Company and who is also a director of ARCO, shall be first
presented to the Company, (ii) a corporate opportunity offered to a person who
is a director of the Company and who is also an officer or officer and director
of ARCO shall be first presented to ARCO, (iii) in all other cases, a corporate
opportunity offered to any person who is an officer and/or a director of both
the Company and ARCO shall be first presented to the Company. Mr. Bowlin, Mr.
Comstock, Mr. Dallas, Mr. Rusnack and Mr. Wade are in category (ii) and no
persons currently are in categories (i) and (iii).

Another section of the Certificate of Incorporation provides that no
contract, agreement, arrangement or transaction between the Company and ARCO or
between the Company and a director or officer of the Company or of ARCO would be
void or voidable for the reason that ARCO or any director or officer of the
Company or of ARCO are parties thereto or because any such director or officer
were present or participated in the meeting of the Board of Directors which
authorized the contract if the material facts about the contract, agreement,
arrangement or transaction were disclosed or known to the Board of Directors or
the stockholders and the Board of Directors in good faith authorizes the
contract by a vote of a majority of the disinterested directors or the majority
of stockholders approves such contract, agreement, arrangement or transaction.

The foregoing Certificate of Incorporation provisions describe the
obligations of officers and directors of the Company with respect to
presentation of corporate opportunities, but do not limit the ability of the
Company or of ARCO to consider and act upon such opportunities whether or not
such provisions have been followed.

CERTAIN OTHER TRANSACTIONS

During the 1993 fiscal year, Dan F. Smith, a director and the Company's
Executive Vice President and Chief Operating Officer, was indebted to the
Company in the amount of $349,000. This interest-free loan, which was repaid
within seven months and was not outstanding at the end of the year, was made in
connection with his relocation to Houston.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:

1 and 2 -- Consolidated Financial Statements and Financial Statement
Schedules: these documents are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules.

Exhibits:

3.1 -- Restated Certificate of Incorporation of the Registrant filed
with the State of Delaware on November 2, 1988.*
3.2 -- By-Laws of the Registrant.*
4.1 -- Indenture, dated as of May 31, 1989, as supplemented by a First
Supplemental Indenture dated as of May 31, 1989, between the
Registrant and Texas Commerce Bank National Association, as
Trustee.**
4.2 -- Indenture, dated as of March 10, 1992, as supplemented by a
First Supplemental Indenture dated as of March 10, 1992,
between the Registrant and Continental Bank, National Association,
as Trustee.*****
4.3 -- Specimen certificate.*
4.4 -- Form of Medium-Term Note.**
10.1 -- Lyondell Petrochemical Company Amended & Restated Annual
Incentive Plan.
10.2 -- Lyondell Petrochemical Company Executive Supplementary Savings
Plan.**
10.3 -- Lyondell Petrochemical Company Executive Long-Term Incentive
Plan as amended and restated as of October 19, 1990.***
10.4 -- Lyondell Petrochemical Company Supplementary Executive
Retirement Plan, effective October 1, 1990.***
10.5 -- Lyondell Petrochemical Company Executive Medical Insurance Plan -
Summary Plan Description.***
10.6 -- Lyondell Petrochemical Company Executive Deferral Plan,
effective October 1, 1990.****
10.7 -- Lyondell Petrochemical Company Executive Long-Term Disability
Plan, effective October 1, 1990.*****
10.8 -- Lyondell Petrochemical Company Executive Life Insurance Plan,
effective October 1, 1990.*****
10.9 -- Lyondell Petrochemical Company Elective Deferral Plan for
Outside Directors.****
10.10 -- Lyondell Petrochemical Company Retirement Plan for Outside
Directors, as amended and restated.****
10.11 -- Lyondell Petrochemical Company Supplemental Executive Benefit
Plans Trust Agreement.****
10.12 -- Form of Registrant's Indemnity Agreement with Officers and
Directors.*
10.13 -- Asset Purchase Agreement (conformed without exhibits), dated as
of December 19, 1989, between the Registrant and Rexene Products
Company.**
10.14 -- Conveyance (conformed without exhibits), dated as of July 1, 1988
between the Registrant and ARCO.*
10.15(a) -- Cross-Indemnification Agreement, dated as of July 1, 1988,
between the Registrant and ARCO and Amendment No. 1 to the Cross-
Indemnification Agreement effective as of July 1, 1988.*
10.15(b) -- Dispute Resolution Agreement, dated as of April, 1993, between
the Registrant, ARCO and ARCO Chemical Company.
10.16(a) -- Administrative Services Agreement, dated as of January 1, 1991,
between the Registrant and ARCO.****
10.16(b) -- Letter Agreement regarding Administrative Services Agreement,
between the Registrant and ARCO dated as of February 26,
1992.*****
10.17 -- Agreements Implementing Transfer of Pipeline Rights from ARCO
Pipe Line Company to Registrant.*
10.18(a) -- Amended and Restated Limited Liability Company Regulations of
LYONDELL-CITGO Refining Company Ltd. dated as of July 1,
1993.******

10.18(b) -- Contribution Agreement between Lyondell Petrochemical Company
and LYONDELL-CITGO Refining Company Ltd. dated as of July 1,
1993.******
10.18(c) -- Crude oil Supply Agreement between LYONDELL-CITGO Refining
Company Ltd. and Lagoven, S.A. dated as of May 5, 1993******
10.19(a) -- Immunity From Suit Agreement, effective July 1, 1988, between
ARCO and the Registrant.*
10.19(b) -- Amendment to Immunity From Suit Agreement, effective July 1,
1988, between ARCO and the Registrant.***
10.20(a) -- License Agreement, effective July 1, 1988, between ARCO and the
Registrant.*
10.20(b) -- License Agreement Amendment, effective July 1, 1988, between
ARCO and the Registrant.***
10.21(a) -- Technology Agreement, effective as of July 1, 1988, between ARCO
and the Registrant, as amended.**
10.21(b) -- Technology Agreement Amendment dated September 14, 1990,
effective July 1, 1988 between ARCO and the Registrant.***
10.22 -- Assignment of Common Law Trademark(s), dated October 3, 1988,
between ARCO and the Registrant.*
10.23 -- Assignment of U.S. Trademark(s), dated October 3, 1988, between
ARCO and the Registrant.*
10.24 -- Crystalline Polymers License and Block Copolymer License dated
February 14, 1990 between Phillips Petroleum Co. and the
Registrant.**
10.25(a) -- Assignment of Foreign Trademarks, dated October 3, 1988, as
amended February 14, 1988, between ARCO and the Registrant.**
10.25(b) -- Assignment of Foreign Trademarks, dated October 24, 1990,
between ARCO and the Registrant.***
10.26 -- Assignment of Patents and Patent Applications, dated December 27,
1988, between ARCO and the Registrant.**
10.27 -- Assignment of Technology Agreement, dated July 1, 1988, as
amended, between ARCO and the Registrant.**
10.28 -- Trademark License Agreement, dated October 7, 1988 between, ARCO
and the Registrant.**
10.29 -- Trademark License Agreement Amendment, dated October 7, 1991,
between ARCO and the Registrant.****
10.30 -- Symbol Agreement dated July 1, 1988 between ARCO and the
Registrant.**
10.31 -- Joint Pipeline Use Agreement, dated July 1, 1987, between ARCO
Chemical Company and the Registrant.*
10.32 -- MTBE Purchase, Transportation & Storage Agreement, dated July 1,
1987, between ARCO Chemical Company and the Registrant.*
10.33(a) -- Isobutylene Purchase and MTBE Tolling Agreement, dated July 1,
1987 and amended May 2, 1988, between the Registrant and ARCO
Chemical Company.*
10.33(b) -- Amendment No. 1 to Isobutylene Purchase and MTBE Tolling
Agreement.*****
10.34 -- LYONDELL-CITGO Refining Company Ltd. $100,000,000 Credit
Agreement dated as of July 1, 1993.
10.35 -- Lyondell Petrochemical Company $400,000,000 Credit Agreement
dated as of December 6, 1993
22 -- Subsidiaries of the Registrant.
24 -- Consent of Coopers & Lybrand.
25 -- Powers of Attorney

* Filed as an exhibit to Registrant's Registration Statement on Form S-1
(No. 33-25407) and incorporated herein by reference.
** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December 31, 1989 and incorporated herein by reference.
*** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December 31, 1990 and incorporated herein by reference.
**** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December, 31, 1991 and incorporated herein by reference.
***** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report for
the year ended December 31, 1992 and incorporated herein by reference.
****** Filed as an exhibit to Registrant's Form 8-K dated as of July 1, 1993 and
incorporated herein by reference.

(b) Consolidated Financial Statements and Financial Statement Schedules

(1) Consolidated Financial Statements

Consolidated Financial Statements and Financial Statement Schedules
filed as part of this Annual Report on Form 10-K are listed in the
Index to Consolidated Financial Statements and Financial Statement
Schedules on page 34.

(2) Financial Statement Schedules

For years ended 1993, 1992, and 1991.

V. -- Property, Plant and Equipment.
VI. -- Accumulated Depreciation and Amortization of Property, Plant
and Equipment.
IX. -- Short-Term Borrowings
X. -- Supplementary Income Statement Information

All other schedules are omitted because they are not applicable or the required
information is contained in the Financial Statements or notes thereto.

Copies of exhibits will be furnished upon prepayment of 25 cents per page.
Requests should be addressed to the Secretary.

No Current Reports on Form 8-K were filed during the quarter ended December 31,
1993 or thereafter through March 16, 1994.

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

LYONDELL PETROCHEMICAL COMPANY

By: BOB G. GOWER
-------------------------------------------
Bob G. Gower
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

MIKE R. BOWLIN * Chairman of the Board and March 16, 1994
----------------------------- Director
(Mike R. Bowlin)

BOB G. GOWER President, Chief Executive Officer March 16, 1994
----------------------------- and Director
(Bob G. Gower, Principal Executive Officer)

WILLIAM T. BUTLER* Director March 16, 1994
-----------------------------
(William T. Butler)

ALLAN L. COMSTOCK* Director March 16, 1994
-----------------------------
(Allan L. Comstock)

TERRY G. DALLAS* Director March 16, 1994
-----------------------------
(Terry G. Dallas)

STEPHEN F. HINCHLIFFE, JR.* Director March 16, 1994
-----------------------------
(Stephen F. Hinchliffe, Jr.)

DUDLEY C. MECUM II* Director March 16, 1994
-----------------------------
(Dudley C. Mecum II)

WILLIAM C. RUSNACK* Director March 16, 1994
-----------------------------
(William C. Rusnack)

DAN F. SMITH Director March 16, 1994
-----------------------------
(Dan F. Smith)

SIGNATURE TITLE DATE
--------- ----- ----

PAUL R. STALEY* Director March 16, 1994
-------------------------------
(Paul R. Staley)

WILLIAM E. WADE, JR.* Director March 16, 1994
-------------------------------
(William E. Wade, Jr.)

RUSSELL S. YOUNG Senior Vice President, Chief March 16, 1994
------------------------------- Financial Officer and Treasurer
(Russell S. Young, Principal Financial Officer)

JOSEPH M. PUTZ Vice President and Controller March 16, 1994
-------------------------------
(Joseph M. Putz, Principal Accounting Officer)

*By: BOB G. GOWER March 16, 1994
-------------------------------
(Bob G. Gower, as Attorney-in-fact)

SCHEDULE V

LYONDELL PETROCHEMICAL COMPANY

PROPERTY, PLANT AND EQUIPMENT

MILLIONS OF DOLLARS

(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
Balance at Other Balance at
Beginning Additions Retirements Changes End
Year Classification of Period at Cost or Sales Add (Deduct) of Period
-------------- --------- ------- -------- ------------ ---------

1993 Manufacturing facilities
and equipment $2,441 $ 85 $ 1 $ (9) $2,516
Land 26 -- -- -- 26
Leased assets and
improvements 3 -- -- -- 3
------- ------ ------ ------ ------
$2,470 $ 85 $ 1 $ (9) $2,545
======= ====== ====== ====== ======

1992 Manufacturing facilities
and equipment $1,838 $ 97 $ 2 $ 508 $2,441
Land 26 -- -- -- 26
Leased assets and
improvements 512 -- -- (509) 3
------- ------ ------ ------ ------
$2,376 $ 97 $ 2 $ (1) $2,470
======= ====== ====== ====== ======

1991 Manufacturing facilities
and equipment $1,799 $ 42 $ 2 $ (1) $1,838
Land 25 1 -- -- 26
Leased assets and
improvements 512 -- -- -- 512
------- ------ ------ ------ ------
$2,336 $ 43 $ 2 $ (1) $2,376
======= ====== ====== ====== ======

SCHEDULE VI

LYONDELL PETROCHEMICAL COMPANY

ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT

MILLIONS OF DOLLARS

(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
Balance at Additions Other Balance at
Beginning Charged to Retirements Changes End
Year Classification of Period P&L or Sales Add (Deduct) of Period
- ---- -------------- --------- ------- -------- ------------ ---------

1993 Manufacturing facilities
and equipment $1,844 $ 44 $ 1 $ -- $1,887
Leased assets and
improvements 3 -- -- -- 3
------- ------ ------ ------ ------
$1,847 $ 44 $ 1 $ -- $1,890
======= ====== ====== ====== ======

1992 Manufacturing facilities
and equipment $1,314 $ 40 $ 1 $ 491 $1,844
Leased assets and
improvements 493 -- -- (490) 3
------- ------ ------ ------ ------
$1,807 $ 40 $ 1 $ 1 $1,847
======= ====== ====== ====== ======

1991 Manufacturing facilities
and equipment $1,276 $ 40 $ 2 $ -- $1,314
Leased assets and
improvements 492 1 -- -- 493
------- ------ ------ ------ ------
$1,768 $ 41 $ 2 $ -- $1,807
======= ====== ====== ====== ======

SCHEDULE IX

LYONDELL PETROCHEMICAL COMPANY

SHORT-TERM BORROWINGS

MILLIONS OF DOLLARS

(Column A) (Column B) (Column C) (Column D) (Column E) (Column F)
Weighted
Average Weighted
Interest Rate Maximum Average Average
of Amounts Amount Amount Interest
Balance at Outstanding Outstanding Outstanding Rate
Category of Aggregate End at End at any During the During the
Year Short-Term Borrowings of Period of Period Month End Period (a) Period (b)
- ---- --------------------- ----------- -------------- ----------- ------------- ------------

1993 Short-term bank loan -- --% 10.0 2.3 3.6%
Financial institutions 4.0 3.4% 6.0 1.3 3.4%

1992 Short-term bank loan -- --% -- -- --%
Financial institutions -- --% -- -- --%

1991 Short-term bank loan -- --% -- -- --%
Financial institutions -- --% -- -- --%

(a) Total of daily outstanding principal divided by the actual number of days in
the period (365 days).

(b) Actual interest expense on short-term borrowing divided by the average
amount outstanding during the period, based upon a 365-day year.

SCHEDULE X

LYONDELL PETROCHEMICAL COMPANY

SUPPLEMENTARY INCOME STATEMENT INFORMATION

MILLIONS OF DOLLARS

(Column A) (Column B)

Amount
Charged
to Costs
Year Description and Expenses
---- ----------- ------------

1993 Maintenance and Repairs (a) $ 101
Taxes (other than income)(b) $ 55

1992 Maintenance and Repairs $ 109
Taxes (other than income)(b) $ 56

1991 Maintenance and Repairs $ 92
Taxes (other than income)(b) $ 54

(a) Includes amortization of deferred turnaround costs. See Note 4 of Notes to
Consolidated Financial Statements.

(b) Includes property, superfund and other taxes.

EXHIBIT INDEX

No. Name Page
- ----- --------- ------

10.1 Amended and Restated Annual Incentive Plan
10.15(b) Dispute Resolution Agreement
10.34 Lyondell Petrochemical Company
$400,000,000 Credit Agreement
10.35 LYONDELL-CITGO Refinery Company Ltd.
$100,000,000 Credit Agreement
22 Subsidiaries
24 Consult of Coopers & Lybrand
25 Power of Attorney