Document v6O3Z7Bpj1YEZb0O29NpYdXM6

(c noc ) Interoffice Communication To From Distribution D. E. Michels May 18, 1984 Subject 1985 CAPITAL BUDGET PREPARATION Attached are instructions for preparation of the 1985 Capital Budget and 1986 and 1987 Capital Budget projections. The first issue of each plant's Capital Budget is due in Houston at Chemicals' Headquarters by June 26, 1984. Plant Capital Budget reviews will be held and ocnpleted by July 10. The final issue of each plant's Capital Budget is due in Houston by July 25. In addition, final drafts of Headquarters' projects are due by July 25. For the final issue of the budget, we will be requesting each plant to submit capital commitment and expenditure schedules. Particular attention to project scheduling and expenditure forecasting will be required. Format instructions for these two schedules and other required information will be issued in early June. Please read the instructions carefully. Procedures are similar to those used in years past. The primary differences from last year are: 1) The old ncmenclature for project categorization procedures will be followed. We will not use the DuPont categorizations em ployed last year. 2) The 1985 Capital Budget will be for the period of October 1, 1984 to September 30, 1985. All capital projects for which funds will be requested during fiscal 1985 should be described in the 1985 budget submittal. This includes items in the 1984 budget not AFE'd as of October 1, 1984. Schedules concerning the issue of feedstock and product pricing forecasts are discussed in the contents of the instructions. BUDG1/001 CCR 000019360 May 18, 1984 Page 2 Distribution: Plant Managers Jim Gibson-Baltimore Betsy Meyer-Baltimore Dick Frohreich-Aberdeen Rich Gerlach-LOCP Gary Foshee-LCCP Ron Bryan-LCVCM George Hopkins-IC LAB Paul Wamer-Oklahana City Barry Boltcn-Hanmond GWI, DOP, JBC, RJA, WJBV, HRF, WHC, REL, JRB, EAV, WJR, IWT, HWH, JJL, WCK, RDG, JJH, JRP, BRJ, DHS, JDB, JQD, FJE, LLH, CFP, DAK, SKS, ELK, JES CC/? 0q0i 93*1 1985 CAPITAL BUDGET PREPARATION 1. 1985 Capital Budget Items are to be numbered consecutively. Group Into the following categories: A. Plant Expansion and Modernization B. Product Improvement C. Cost Savings - Energy D. Cost Savings - Other E. Pol 1utI on Abatement F. Safety S Health G. Miscellaneous 2. Under each category, list all Items having economic returns first followed by Items with no return. Environmental Items are to be Identified as air, water, or land. A sample listing Is given In Exhibit 1. 3. Each Item is to have a letter and nurtoer designation such as LC-1, A-10, B-3M CM for Memo), etc. Use A for Aberdeen, B for Baltimore, H for Harrmond, LC for Lake Charles Chemical Plant, V for Lake Charles VCM Plant, D for Lake Charles Detergent Alkylate Plant, and OKC for $ , .Oklahoma City. Each Item should be rounded off to the nearest 1 000 4. The "Miscellaneous Projects under $15,000" budget Item will be retained. As was done by each plant at the request of J. R. Pavao In March, 1983, estimate the amount of miscellaneous funds which will fall Into each of the above main categories. In the project listing, include this amount under each category. Insert the total amount under the total budget amount. The format for this is shown In Exhibit 1. The basis for the category breakdown should be discussed in the project writeup for Miscellaneous Projects Clast budget Item as In previous years). 5. Project writeups and economics In support of proposed capital ccrrmltments should be In sufficient detail that the Item needs no further explanation to support the need for capital funds. The writeup must Include: A. The overall rationale or objective of the project. B. The relationship of the proposed project to other Investments or operations. For example.Indicate the relationship of the project or program to the latest Long Range Plan. If a project Is a portion of a program resulting from a major planning study. Indicate the relationship of the project to the study. C. Alternatives that were considered In developing the project. 000019362 CCR D. An analysis of environmental considerations Including an estimate of the time needed to secure required permits. E. Quality of Investment and design. F. Who prepared the estimate and design (l.e., plant, PED, CED, contractor bids, etc.). G. Expected AFE date and startup date. H. Basis of assumptions for operating costs, netbacks and sales volumes. Information on netback assunptlons related to Incre mental sales should be Included. I. Capital related expense requirements connected with the project. J. For projects In the energy savings category. Identify the energy savings In MMM BTU per year and the monetary savings basis per MNW BTU. K. If a project's justification Is partially due to energy savings or has energy savings associated with it Ceven though It may not be categorized as an energy savings project). Identify the savings as In Item J. Also, Identify the amount of capital investment associated withthe energy savings portion of the project. A rough ballpark estimate Is adequate. L. If a project's capital requirement Includes partial funds for environmental concerns. Identify the amount Included. M. An example of a project writeup and associated economics Is gIven In ExhIbIt 7. The computer program %IRR" available on TSO Is to be used to calculate the Internal Rate of Return (IRR) on projects with economic payouts. Use of this program will Insure consistency of calculation and Is Identical to the program used last year. To use the program, follow the Instructions provided by PED In Exhibit 2. The program Is based upon the July 9, 1982, update of theConoco Investment Appraisal Manual and incorporates the following: A. Ordinary Income Is to be taxed at an 48 percent. effective rate of B. For asset depreciation, the schedule shown on Exhibit 11 should be used. C. The same depreciation schedule and Investment tax credit option (Schedule A) Is applicable to transportation capital. However, railroad tank cars are depreciated over a 10 year period while all other forms of transportation Including railroad bulk hopper cars are depreciated over the five year period. To handle this. CCR 000019363 the % IRR" program requests Input concerning the mode of t ransportatIon. D. Year-end discount factors are to be used. E. Purchase of equipment should be used In the evaluation of project economics unless leasing Is the only method of obtaining use of the equipment In question. F. Unless there are unusual considerations, evaluate all Items on a ten year economic life basis. G. The discounted payback period should be calculated using a 15 percent time value for money. CThls figure has been Incor porated Into the % IRR" economics computer program.) H. Incremental corporate overhead (l.e., pre-tax administrative and services expense) should not Included In project economics for the first Issue. Depending upon the nature of Individual projects, this instruclton may be altered for the final Issue. I. The IRR should be rounded off to the nearest one-tenth of on percent. J. The calculation of the Capital Productivity Index (CPI) has been added to the % IRR" program and Is done automatically along with the IRR calculation. The CPI Is the ratio of the present value of cash Inflows to the present value of cash outflows, both discounted at the cost of capital (currently 15 percent). It Is a measurement of the attractiveness of a project In terms of the present value added per dollar Invested and measures the "safety margin" over a project's expected return and the cost of capital. A CPI of 1.00 Is equivalent to an IRR of 15 percent while a CPI of greater than 1.00 would Indicate the relative safety "margin" over the cost of capital. 7. Use project years, not calendar years, as the basis for the economics format. 8. Project year "1" Is the first year of operation. All Investments should be shown In the project year made, l.e., -1, -2, etc. With the use of year-end discount factors, year -1 has a discount factor of 1.0. In some Instances, an Instantaneous Input of capital will occur at startup or at "time zero" with revenues being generated Irrmedlately thereafter. In this case, the weighted average first year revenu s occur six months Instead of one year after the weighted averag capital outlay In year -1, Usually, the effect of this timing upon the IRR will be negligible and th % IRR program can be used to calculate the IRR. Howev r, for some projects with short lives or high first or second year cash flows, the effect could be signi ficant. One method to correct for this Is to use a discount factor CCR 0019364 of 1.0 for year -1 followed by mid-year discount factors thereafter. Examples follow: The project purchases a special truck for hauling waste. Payment Is made when the truck Is delivered. Mid-year discount factors are used beginning In year 1. Project Year 1 Cash Flow, $M (30.0) Discount Factor (at 20% DCF) 1.000 40.0 0.913 60.0 0.761 20.0 0.634 B. The project Is building a new tank which takes one year to construct, but for which the materials must be ordered one year before construction starts, construction does not start befor all materials are delivered and payment for the materials Is evenly divided over the period from date of order to date of del Ivery. Materials cost: $100 M, .construction cost: $50 M Year-end discount factors are used. Project Year zl ;1 l 2 3 Cash Flow, $M (100.0) Discount Factor (at 20% DCF) 1.200 (50.0) 1.000 25.0 0.833 25.0 0.694 40.0 0.580 The IRR calculation for Case A must be done manually or another computer program used. Please contact the writer of these instruc tions for further Information If necessary. 9. Capital related expense should be identified separately on the head ing page of each budget Item writeup. Capital related expense should be Included in the project economics on an after-tax basis. This can be done by either showing the capital related expense as expense offset by a negative Income tax or by entering 52 percent of the capital related expense requirements. For example, when capital related expense is $30 M: CCR 000019365 Prolect Year 2l Revenue, $M Cost, $M Maintenance Depreciation Capital Related Expense Total Cost 30.0 30.0 Taxable Income, $M Income Tax, $M Investment Tax Credit, $M After-Tax Income, $M Depreciation, $M Operating Cash Flow, $M (30.0) (14.4) - (15.6) ____- (15.6) Alternate Operating Cash Flow, $M Investment, $M Construction $M Capital Related Expense $M - (200.0) (15.6) Net Cash Flow, $M (215.6) x 200.0 10.0 30.0 - 40.0 160.0 76.8 20.0 103.2 30.0 133.2 133.2 133.2 2 200.0 10.0 44.0 - 54.0 146.0 70.1 - 75.9 44.0 119.9 3 200.0 10.0 42.0 - 52.0 148.0 71.0 77.0 42.0 119.0 119.9 119.9 119.0 119.0 If the project will create additional product. the project economics must consider the transportation equipment needed to move th product. In seme cases, movements of ,additional product may be by barge or truck. In these cases, conmon carr lers are available and the cost can be Ignored. 1However, freight costs must be 11 nc1uded I n the economics. If the customer location and mode of transportation have not been definitely set. It should be assured that. If we ship the product by rail today. all Incremental product will also move by rail. The Investment Appraisal Manual requlres that project economtes assume that the railcars are purchased. The following Information can be used to determine the number and cost of railcars: PRODUCT 1984 CAR COST TURNAROUND TIME, (DAYS) CAR VOLUME General Purpose Liquids Pressurized Liquids (X-VCM) VCM PVC $52,000 $65,000 $62,000 $58,000 Contact S&T IV II II 23 M Gal 33 M Gal 26 M Gal 5700 Cu. Ft CCR 000019366 Escalate car purchase costs at 7 percent per year and assume less than one year delivery, (I.e., cash out flow for cars Is In year prior to when they are needed). Example: Project makes 150 MM Ibs/yr of detergent alkylate; 39 day average turnaround time. Cars needed: 23 M gal. x 7.5 lb/gal = 173 M Ib/trlp. Each car makes 365/39 =9.4 trips per year, or hauls 9.4 x 173 M = 1.63 MM lb/yr. Therefore, 150 MM/1.63 MM = 92 cars are needed. Total cost would be 92 x $52 M = $4,784M If purchased In 1984. 1986 cost would be 1.07 x 1.07 x $4,784M = $5,477M. Please note that while transportation equipment Is figured In the project economics cash flew, it should not be included In the total budget cash flew surmary or expenditure tables. Railcars generate revenue. The company Is the recipient of this revenue and thus It is appropriate to credit the specific project with the anticipated railcar revenue from the sales carried by new railcars. Chemicals Supply and Transportation should be contacted for details on determining such revenue. TransportatIon equipment Investments should be Identified separately In the budget I tern wrIteup head Ing. Example: 1985 CAPITAL BUDGET Aberdeen PVC Plant A-l $465,000 Construction Capital Plant Dryer Debottlenecking $155,000 Transportation Capital Particular attention should be paid to working capital on projects resulting In new or Increased production. considered under working capital are: |TEM_______________________ VALUE requirements Items to be EQUIVALENT VOLUME 1) Accounts Receivable 2) Accounts Payable (Credit) 3) Feedstock Inventories Supplies, Stores A) Product Inventories 5) Cash Selling Price Variable Cost Delivered Purchase Price Manufacturing Cost Manufacturing Cost less Depreciation Normally 45 days Production Normally 45 days Production Days of Inventory (Plant Experience) Days of Inventory (Plant Experience) Six Days Production CCR 000019367 The manufacturing cost In (4) Includes financial depreciation (straight line) equivalent to a specific percentage of the capital Investment. Use eight percent for all direct manufacturing facil ities, seven percent for technical facilities, and six percent for power, general, and service facilities. For projects with a capital requirement of over $2 MM, call the writer of these Instructions If there Is any question concerning what percentage to use. When uncertain of what percentage to use, use the eight percent figure for smaller Items. ''Cash" is a working capital charge for the cost of doing business and accounts for non-interest bearing "ready cash" funds needed for payroll payments and other operating expenses. Consider each contribution to working capital carefully to see If It Is applicable. The majority of plant Incremental expansion type projects do not result in Increased feedstock or product Inventories. 12. Keep economic calculations, assumptions and sensitivity analyses on Individual separate pages. 13. State any relationship to previous budget Items In the project description. Is the item part of a total program? Will there be any additional related budget Items In upcoming years? 14. In the Project Economic Summary for each capital budget Item, mention should be made of any expected capital related expenses, and care should be taken that these expenses are also Included In the plant's fixed cost budget. 15. A principal part of the project analysis for projects with economic returns Is the Sensitivity Analysis. A sensitivity for capital investment should be Included for all projects with capital require ments of $100M or more. The sensitivity range should reflect the accuracy of the Investment estimate. Sensitivities may be advisable with respect to other key economic factors such as sales forecasts, product margins, raw materials, utility costs, working capital, escalation factors, etc. Particular emphasis should be paid to multiple sensitivities based on the likelihood they might occur. Likely sensitivities resulting In Improved returns should not be Ignored. Commentary on the probability of a combination of factors occurring should be provided where possible. Since base case economics are evaluated using the best estimates of actual and future costs and prices, a sensitivity holding first year factors constant for the life of the project should be Included. 16. All revenues and costs which result from each project should be clearly justified and elaborated upon. This Is especially important when product volumes, netbacks, raw materials costs, and escalation factors are Involved, since these Items are often very subject to change. Complete documentation of the bases will make It easy to adjust the project economics should unforeseen changes In the proj ct economic environment occurbetwe n budget preparation and final corporate budg t approval. CCR 000019368 17. A net return on Investment (NROI) will be shown for each project having an economic return for Its third year of operation. This figure (a percentage) Is simply the after-tax Income In the third year of operation divided by total Investment. As above, financial depreciation Is to be used for calculating the taxable Income. Total Investment equals the project's capital investment plus Its accumu lated working capital through the third year. Type In the NROI on the base case project economics computer printout surrmary sheet under the Capital Productivity Index. An example showing the calculation of an NROI Is given In Exhibit 4. 18. For each plant, the net cash flows of (a) all projects with economic returns, (b) all projects without economic returns, and (c) all projects are to be combined and IRR's computed for them all. Until the final budget Is Issued by the plant, this table can be prepared on a project year basis (see Exhibit 10). The final budget Issu by the plant should also Include this surmatlon on a calendar year basis. Any cash flew attributed to transportation equipment should be eliminated from these surmary tables. Example: Projects sunned by project year. -2 -1 1 2 3 4 A-1 (100.0) (150.0) 20 40 60 60 A-2 (50.0) 12 _5 _6 _6 (100.0) (200.0) 30 45 66 66 Project A-l to start expend Itures I n fourth quarter. arts expenditures In third quarter, 1984. , Is 24 months and A-2 Is 12 months. 1984 1985 1986 1987 1988 A-l (25.0) (187.5) (32.5) 25.0 45.0 A-2 (25.0) (20.0) 7.5 5.5 6.0 (50.0) (207.5) (25.0) 30.5 51.0 19. a memo Item Is a proposed capital project more which has at least a 50 percent probability of comnltment In 1985 but which Is not firm enough to be Included In the regular Capital Budget. Memo Items are to be Included In the budget following the last regular project Item. 20. A substantial amount of pricing Information Is required to properly evaluate capital projects. The following will serve as guidelines: CCR 000019369 A. Selling, raw material, and fuel prices will be Issued by Chemicals' Planning. Their schedule Is as follows: 1) A pricing forecast will be Issued during the week of June 4 for review by Chemicals Headquarters' personnel. Copies will also be sent to the plants. This forecast can be us d as the basis for each plants' preliminary capital budget Issue. If information Is required prior to then, contact Bill Ritter In Chemicals' Planning. 2) Once reviewed and approved, this forecast Cstill preliminary) will be reissued June 18. Unless a change has been made that would significantly change the economics of a specific project, there Is no need to revise any economics for the preliminary issue of the budget. 3) A revision to the forecast will be reissued. If necessary, about July 10. The final Issue of the budget which Is due in Houston on July 25 must be consistent with this forecast unless more accurate Information Is available locally (for Instance, fuel oil prices). You will, be notified If no mid-June reforecast will be Issued. 4) Address specific questions concerning prtclng Bill Ritter of Chemicals Planning at TIrrberway. to B. Contact your local electrical power company to obtain electrical pricing forecasts. Other pricing should also be obtained locally If dictated. For Instance, nitrogen and water pricing can vary substantially throughout the United States, C. Unless specific local Information dictates otherwise, use the following escalation factors (specific questions should be addressed to R. W. Taylor of Chemicals Planning): 1) Taxes and Insurance - 4,8% 2) Wages - 5.5% 3) Maintenance Materials Labor - 6.2% 4) Construction Capital - 6.6% 5) Miscellaneous Chemicals - 3.7% 1986 and 1987 Projects To the extent possible, each plant Is to Identify projects which will be AFE'd In 1986 and 1987 (l.e., budgeted for 1986 and 1987). Also, a brief one paragraph description of each project over $1,000,000 and each environmental and energy savings project over $100,000 will be required. Once this list has been prepared, add an estimated amount for undefined projects for each year. Include the tabulation and conments for the 1986 and 1987 projects at the back of the 1985 Capital Budg t (l.e., behind the last 1985 CCR 000019370 budget project writeup). A separate tabulation and ccnment sheet Is to be Included for each year. For those projects needing a one paragraph project description and which have an economic payout, include an estimated IRR and NROI. If a project less than $1,000,000 but greater than $100,000 has energy savings or environmental (not its primary Justification) associated with It, this paragraph Is also required. In the description, state the MMM BTU/yr energy savings and portion of capital Investment applicable to energy savings or environmental. Examples of the format for presentation of 1986 and 1987 projects are given In Exhibits 5 and 6. 22. In order to keep the writeups for the Proposed 1985 Profit Objective and Capital Budget uniform, the following guidelines have been estab11 shed: A. Use a 12-pttch Artisan element. B. Single space, underlining each main heading. C. Left and right hand margins should allow at least one-Inch area on each side. D. Top and bottom margins should also allow for at least one-inch area on each side. These guidelines must be followed to enable efficient reproduction of the preliminary and actual budget books. Note that tables should be typed or reduced to fit these margins also. The pages will be printed front and back; therefore. It Is necessary to make sure you do not exceed the allowable margins. Included In the appendix (Exhibit 10) Is a page which shows the maximum allowable typing area to be used. Use this page to measur table size and write-up size to keep within these guidelines. 23. Distribution of plant Capital Budgets should be as follows: A. J. D. Bums - Houston B. W. C. Kolar - Houston C. R. E. Lehmkuhl/J. J. Hall - Houston D. R. D. GamblIn - Houston E. J. R. Pavao - Houston F. G. W. Inbody - Houston G. D. E. Michels - Houston H. J. J. Lanford - Houston I. Appropriate Business Area and Product Managers CCR 000019371 EXHIBIT 1 EXAMPLE ONLY CONOCO CHEMICALS 1985 CAPITAL BUDGET ABERDEEN CHEMICAL PLANT C$M) CAPACITY EXPANSION AND MODERNIZATION --------JR- Resin Dryer Debottleneck PRODUCT IMPROVEMENT --T=T Bottle Compound Production A-3 Resin Cel Reduction A-15 Ml seel1aneous TOTAL PRODUCT IMPROVEMENT COST SAVINCS Energy "TPT* Recovery System Improvements A-5 Cold Water Rinse Other "KTO Instrument Air Dryer A-7 Bulk AMS Storage A-15 Ml seel 1aneous TOTAL COST SAVINCS POLLUTION ABATEMENT *TO=5------ EPA VCM Standard compl. |A1r) A-9 Holding Pond Aerators (Water) A-15 Ml seel 1aneous TOTAL POLLUTION ABATEMENT SAFETY AND HEALTH A-10 vOM Exposure Keduct. A-H Vinyl Reactor Interlocks. A-15 Ml seel1aneous TOTAL SAFETY & HEALTH MISCELLANEOUS ~jRr DOP Storage Tank Rep. A-13 Laboratory Equip. A-14 Building Improv. A-15 Miscellaneous TOTAL MISCELLANEOUS TOTAL 1984 CAPITAL BUDGET A-15 Total Miscellaneous Projects Under $15,000 (1) Include only If applicable. CONSTRUCT1 ON CAPITAL $1,500 $1,500 600 300 44 944 147 41 TU? 90 67 ~re7 26 107 50 40 96 37 40 40 20 20 125 371 197 173 205 3.390 275 TRANSPORTATION CAPITAL $200 200 EXPENSE $40 20 TO 10 TO 15 TO 5 TO 90 CCR 000019372 (conoco) Interoffice Communication to D. J. Lorine, Houston, Texas From J. E. Nickerson, Ponca City, Oklahoma o>te April 12, 1983 Subicct IRR PROGRAM REVISIONS EXHIBIT 2 I `' 1 i i C-" Ci JcC ': ~ - Summary ------ A new version of the DCF program, named IRR, has been created to conform to Investment Appraisal techniques. The new program, version number 83-4-5, is accessed as before by typing %PED followed by %IRR. The IRR program has the same options as the DCF program for file or conversa tional input and for sensitivity calculations. Previous data files for use with DCF will have to be slightly modified for use with this new version of IRR. Changes The following changes were made to the DCF program to develop the IRR program. 1. Discount factors were changed from mid-year to end-of-year. 2. A new input section was added to include corporate overhead costs. Additional input parameters must be added to input data files previously run on DCF, before these files can be used as input for the IRR program. (See attached page for explanation of required changes for data input files.) Sensitivities to corporate overhead cost changes can also be run. 3. The interest charge on working capital was removed from the discounted payback calculation. 4. Working capital was included in the total cash outlay for the discounted payback calculation. 5. The working capital input section was removed from the total budget summary. (Changes in the definition of discounted payback make working capital unnecessary for the calculation.) 6. The term "DCF" was changed to "IRR" throughout the program. 7. The IRR output value was rounded to the integer value. 8. The term "discounted payout" was changed to "discounted payback" throughout the program. 9. The transportation capital input section was changed to allow for the entering of two different types of transportation capital. The program requires an input for "tank car" capital and "other CCR 000019373 D. J. Lorine Page 2 EXHIBIT 2 transportation" capital for each year in which transportation capital is spent. This is necessary because the law requires that tank car capital be depreciated with a ten-year schedule while all other transportation capital can be fully depreciated in five years. Program Input The IRR program (like the DCF program) can accept either conversational input where the program asks for each item required or file input where the program reads data from a previously generated data file. The data file can be created by the program from conversational input or can be constructed manually. To change a DCF file to work with the IRR program, the following data has to be added. 1. Transportation capital split into "tank car" and "other trans portation" capital. These two values replace the single value for transportation capital in the old data file on the same line. 2. The corporate overhead option integer and cost data. These values precede the "other fixed costs" input section of the data file. The "other fixed costs" section is the last two lines of the data file except in the case where no "other fixed costs" are input. In that case the section consists of the single integer zero. The basic operation of the IRR program is almost unchanged from that of the DCF program. If there are any questions, please contact me. ORIO'-LSI^'CD CY J. E. Nickerson Chemical Engineer Chemicals Division Process Engineering Department pjc Enc CCR 000019374 I HR - VEHSlON 83-4-5 APRIL 14, 1983 ABERDEEN DRY ULEND DEBOTTLENECKING CALCULATION (lb PHUJECT ECONOMICS (MS) EXHIBIT 3 EXAHPLE ONLY PHOJECT YEAH HEVENUES MARGIN -2 -1 1 2 3 4 5 6 7 8 9 10 296.0 296.0 296.0 296.0 296.0 296.0 296.0 296.0 296.0 296.0 COSTS MAINTENANCE INSURANCE AND TAXES COHPOKATE ovehhead depreciation-construction CAPITAL DEPHECIATION-THANSPURTATION CAPITAL TOTAL COSTS 14.3 5.7 2.9 42.7 16.5 82. 1 14.3 5.7 2.9 62.7 24.2 109.7 14.3 5.7 2.9 59.8 23. 1 1 Ob. 8 14.3 5.7 2.9 S9.8 23.1 IOb.8 14.3 5.7 2.9 59.8 23.1 105.8 14.3 5. 7 2.0 0.0 0.0 22.8 14.3 5.7 2.9 0.0 0.0 22.8 14.3 5.7 2.9 0.0 0.0 22.8 14.3 5.7 2.9 0.0 0.0 22.8 14.3 5.7 2.9 0.0 0.0 22.8 TAXABLE INCOME INCOME TAX INVESTMENT TAX CHEDIT AFTER TAX INCOME 213.9 102.7 39.5 150.7 186.3 yy.4 0.0 96.9 190.2 91.3 0.0 98.9 190.2 91 .3 0.0 98.9 190.2 91.3 0.0 98.9 273.1 1 31.1 0.0 142.0 273.1 131.1 0.0 142.0 273.1 1 31.1 0.0 142.0 273. 1 131.1 0.0 142.0 273.1 131.1 0.0 142.0 OPERATING CASH FLOW 210.0 183.7 1 HI .9 181.9 181.9 142.0 142.0 142.0 142.0 142.0 INVESTMENT CONSTRUCTION CAPITAL ( TRANSPORTATION CAPITAL! CAPITAL HELATD EXPENSE! AFTER TAX STARTUP 0.0) ( 0.0) ( O.OX ( 28b.0) 110.0)( b.2) 7.4) 0.0)! O.OX O.OX O.OX 0.0) ( O.OX . O.OX O.OX O.OX 0.0) NOHKIttG CAPITAL RECOVERED NOHK1NG CAPITAL ( 126.OX O.OX 0.0) ( O.OX O.OX 0.0) ( 0.0) ( O.OX 0.0) ( 0.0) 126.0 NET CASH FLOW ( O.OX 407.0) 84.0 103.7 181.9 181.9 181.9 142.0 142.0 142.0 142.0 268.0 O 5 INTERNAL HATE OI: HETURN= DISCOUNTED PAYBACK PEHIOD, YEARS= CAPITAL PRODUCTIVITY INDEX - 1.79 NET RETURN ON INVESTMENT 2AX 35X 4.7 BASED ON COST OF CAPITAL OF IS.OX 000019375 NROI CALCULATION EXHIBIT b EXAMPLE ONLY PROJECT - ABERDEEN DRY BLEND DEBOTTLENECKING - SEE EXHIBIT 4 TAXABLE INCOME (3RD YEAR) PLUS TAX BASIS DEPRECIATION MINUS FINANCIAL DEPRECIATION Cl) ADJUSTED TAXABLE INCOME INCOME TAX ADJUSTED AFTER TAX INCOME M$ 190.2 82.9 (31.6) 241.5 Cl15.9) 125.6 PERMANENT INVESTMENT CONSTRUCTION CAPITAL TRANSPORTATION CAPITAL TOTAL ACCUMULATED WORKING CAPITAL TOTAL INVESTMENT 285.0 110.0 395.O 126.0 521.O NROI = X100 = 24.1% Cl) Eight Percent of Permanent Investment -13- OCR OOOOM*TM CONOCO CHEMICALS 1985 CAPITAL BUDGET PROJECTION LAKE CHARLES CHEMICAL PLANT ($M) PLANT EXPANSION AND MODERNIZATION --------UM tTU "Novel Catalyst11-------- COST SAVINGS Enerqy LC-2 C- Unit Compressor Efficiency Improvements LC-3 ALFOL^ 201 Turbine Replacement Other LC-4 Methane Offgas Expander LC-8 Miscellaneous TOTAL COST SAVINGS POLLUTION ABATEMENT LC-5 On/Water Sep. (Overs (Air) LC-8 Ml seel 1aneous TOTAL POLLUTION ABATEMENT SAFETY & HEALTH LC-6 Benzene Abatement LC-8 Ml seel 1aneous TOTAL SAFETY & HEALTH MISCELLANEOUS LTT-T Laboratory Instruments LC-8 Ml seel 1aneous TOTAL MISCELLANEOUS TOTAL-DEFINED PROJECTS UNDEFINED PROJECT ALLOWANCE TOTAL 1986 CAPITAL BUDGET CONSTRUCTION CAPITAL $ 400 $ 400 2,500 450 27350 900 225 600 40 150 30 90 105 5,490 2,000 7,490 4,075 640 180 195 LC-8 TOTAL MISCELLANEOUS PROJECTS UNDER $15,000 400 (1) Include only If applicable. EXHIBIT 5 EXAMPLE ONLY TRANSPOR TATION CAPITAL (1) $200 200 200 CCR 000019377 1985 CAPITAL BUDGET COMMENTS LAKE CHARLES CHEMICAL PLANT EXHIBIT 6 EXAMPLE ONLY ITEM LC-2 ETHYLENE UNIT COMPRESSOR EFFICIENCY IMPROVEMENTS C2) Energy will be saved by installing a motor drive to replace an existing turbine and Installing cooling tower improvements to lower the other two compressors' exhaust pressures (38% IRR, 25% NROI) LC-3 ALF0LW 201 TURBINE REPLACEMENT (2) Energy will be saved by replacing the hydro genation reactor charge pump turbines with motor drives (38% IRR, 25% NROI) LC-4 METHANE OFF-GAS EXPANDER A turboexpander will be provided to improve low level refrigeration to recover 3.6MM lb/yr of ethylene (67% IRR, 52% NROI) LC-5 BENZENE ABATEMENT (1) This project involves repacking of the ethylene unit quench water stripping column, replacement of GA-105, an integral part of the quench water stripping system, and the replacement of single mechanical seals with double mechanical seals on the quench water circulation and heavy aromatic distillate pcmps. All items will reduce benzene exposure. LC-6 OIL/WATER SEPARATOR COVERS Covers will be installed on four existing oil/water separation pits to reduce hydro-carbon emissions to meet Louisiana Air Control emission regulations. LC-8 MISCELLANEOUS PROJECTS UNDER $15,000 The $400M capital requirement is the plants historical funding requirement for such projects. $M $2,500 $ 450 $ 900 $ 150 $ 600 $ 400 Cl) This project Is also considered to be a pollution abatement project. Therefore, a brief description Is required since its capital requirement exceeds $100M. (2) Also state In description energy savings In M*M BTU per year. CCR 000019378 EXHIBIT 7 EXAMPLE ONLY 1984 CAPITAL BUDGET Aberdeen PVC Plant A-l Plant Dryer Debottlenecking $150,000 Construction Capital $ 50,000 Transportation Capital Project Description This project will provide funds during 1984 to complete modifications to the existing plant dryers which will be begun during 1983. The modifications will Improve dryer stream factor and drying rates. The improvements will debottleneck plant production by 5MM pounds per year. The specific items Included in this debottlenecking are: 1. Dryer Feed System Improvements 2. V-10 Product Transfer Systems 3. Centrifuge Modifications $165,000 $230,000 $ 70,000 We anticipate funding $315,000 for these modifications during the remainder of 1983 out of unallocated funds. Problem Description With the completion of the Capacity Replacement Project, plant reactor capacity exceeds plant dryer capacity. While reactor capacity is highly dependent upon resin product slate, this capacity is in excess of 335MM pounds per year using the 1984 resin product slate. Dryer capacity is limited to 330MM pounds per year with the present equipment. The production limiting factors on the dryers relate to centrifuge throughput and mechanical stream factor downtime. This project will correct seme of these problems with a resulting dryer productivity improvement of at least 5NM pounds per year. The dryer centrifuges will be modified with a recently developed device which will allow higher centrifuge operating rates without shear pin or gear box failures. This modification will reduce mechanical downtime and potentially improve rates by 10 percent or more. A trial device has been tested in the plant with favorable results. Dryer flameouts result In lost production due to the need for manual relighting. Installation of new control boxes and remote- lighting switches, such as used In Oklahoma City, are proposed. Product transfer from the V-10 dryer Is rate limiting. Air distribution and Instrumentation ar the cause. Failure of equipment at thes dryers often results in several hours of downtime for repair and cleanup. ecu OOOOI9379 A-l Page 2 EXHIBIT 7 Problem Description (Continued) Replacement of the outlet dryer .dryers with systems identical essentially eliminate the major these dryers. screening and transfer systems on these to those used in Oklahoma City wi 11 stream factor penalties associated with Significant production rate and downtime penalties relate to the slurry purping system to the dryers. Small resin shavings plug these punps which reduces their punping capacity. Installation of duplex type suction strainers on these punps will solve this problem. Alternatives Installation of product transfer systems on the five V-ll dryers is desirable. The plant feels the capital required is too excessive results at V--10 are demonstrated. Project Economics Surmary The economics of this project are based upon a 5MM Ib/yr productivity improvement. It is expected the improvement will be in excess of this amount. The economics are shown based upon the total investment that is required to achieve the productivity improvement. The 5MM pounds of additional production will generate first year revenues of $305/000 based upon all incremental product sold are pipe grade. The total capital investment of $465M for construction and $155M for transportation has an IRR of 35 percent and a discounted payback period of 4.7 years. The budget quality cost estimate was developed by CED from definitive and budget quality designs by the plant. Parts of the project will be AFE'd in the last quarter of 1983 out of unallocated funds. We expect to AFE $315M with associated $105M in transportation capital this year. The remaining $150M construction capital with associated $50M transportation capital will be AFE'd in the first quarter of 1984. Project completion Is expected in the first quarter of 1985. 000019390 CCR IkH - VERSION 83-4-5 APRIL 15, 198J PLANT DRYER DEBOTTLENECKING (A-l) CALCULATION OF PROJECT ECONOMICS IMS) PRUJECT YEAH -2 -1 1 2 3 4 5 6 7 a 9 10 REVENUES PRODUCTION RAILCAR TOTAL 305.0 5. 1 310.1 335.3 5. 1 340.4 368.6 5. 1 373. 7 405.2 5.1 410.3 445.4 5. 1 450.5 489.6 5.1 494.7 538.2 5.1 543.3 591 .7 5.1 596.8 650.4 5.1 655.5 715.0 5.1 720.1 COSTS MAINTENANCE INSURANCE AND TAXES CORPORATE OVERHEAD ADD. UTILITIES DEPRECIATION-CONSTRUCTION CAPITAL DEPRECIATION-THANSPORTATlOH CAPITAL TOTAL COSTS II .7 9.3 4.7 4.0 69. 7 23.2 122.6 12.5 10.0 4.9 4.3 102.3 34.1 168. 1 1 3.4 10.6 5.2 4.6 97.6 32.5 164.) 14.3 11.4. 5.5 4.9 97.6 32.5 166.4 15.3 12.2 5.9 5.3 97.6 32.5 168.9 16.4 13.0 6.2 5.6 0.0 0.0 41 .3 17.6 14.0 6.6 6.0 0.0 0.0 44. 1 18.8 14.9 7.0 6.5 0.0 0.0 47.2 20. 1 16.0 7.4 6.9 0.0 0.0 50.4 21.5 17.1 7.9 7.4 0.0 0.0 5. TAXADLt INCOME INCOME TAX INVESTMENT TAX CREDIT AFTER TAX INCOME 107.4 90.0 62.0 159.5 1 72.3 82.7 0.0 09.6 209.6 100.6 0.0 109.0 243.9 II 7. t 0.0 126.8 281.6 135.2 0.0 146.5 453.4 21 7.6 0.0 235.8 499.2 239.6 0.0 259.6 549.6 263.8 0.0 285.6 605.1 290.5 0.0 314.7 666.2 319.8 0.0 346.4 OPERATING CASH FLOW 252.5 226.0 239.2 257.0 276.7 235.8 259.6 285.8 314.7 346.4 INVESTMENT CONSTRUCTION CAPITAL ( TRANSPORTATION CAPITAL! N0RK1NG CAPITAL RECOVERED WORKING CAPITAL 0.011 O.OX 465.0) 155. OH ( 0.0) ( 37.6)1 0.0 t 0.0)t 2.3 ( 2.4)( 0.0)( 2.5)( 0.0)( 2.7)( 0.0)( 2.8)( 0.0)( 3.011 0.0)( 3.2)( 0.0)( 3.4)( 0.0) 3.6) 63.5 NET CASH FLON ( 0.0)( 620.0) 214.9 223.7 236.8 254.5 274.0 232.9 256.6 282.6 311.3 406.4 INTERNAL HATE (IF RETURN= DISCOUNTED PAYBACK PERIOD, YEARS* CAPITAL PRODUCTIVITT INDEX - 2.01 NET RETURN ON INVESTMENT - 232 37X 4.7 BASED ON C< OF CAPITAL OF 15.OX CCK 0 0 0 0 1 9 3 8 1 PLANT DRYER DEBOTTLENECKING CA-1) PROJECT ECONOMICS SENSITIVITY ANALYSIS Base Case: Construction Capital Transportation Capital $465,000 $155,000 IRR - 37% Possible Variances Minus Plus IRR Impaired To Improved To + 30% - 20% - 15% Construction Capital Cl) + 20% Production Revenues 30% 29% (3) 39% 42% C2) Cl) Corresponds to accuracy range of budget quality estimates. C2) Corresponds to a production increase of 6MM lb/yr. or an improvement is gross margin of 20 percent. C3) Corresponds to a production decrease of 4MM lb/yr on a gross margin penalty of 20 percent. OCR 0000193BZ PLANT DRYER DEBOTTLENECKING (A-l) PROJECT ECONOMICS ASSUMPTIONS R venues (1) This project will result in additional resin production. Project economics .are based upon an additional 5.0 MM Lbs./Yr. of production. %, (2) Revenues from production were determined from gross margin data developed by the Business Area. Margins are based upon all incremental sales as pipe grade 5385. This information is summarized on Table 1. (3) Revenues from railcars are estimated by transportation at $1700 per car per year. Costs (1) Maintenance costs are not going to increase on replacement equipment involved in this project. Maintenance costs were assumed to be 5% of construction capital in the first year for the additional equipment involving certrifuge and dryer feed revisions. Maintenance costs were escalated at 7\ per year. (2) Insurance and taxes were assumed to be 2% of construction capital in the first year and were escalated at 7% per year. (3) This project will result in better utilization of existing operating equipment. Other than additional steam for stripping the incremental 5 MM Lb./Yr., no other utility costs are applicable. Based upon current operation the additional steam costs will be $4000 per year in the first year. This cost was excalated at 7% per year. Other (1) An additional three resin railcars will be required to move the additional resin product. (2) Working capital was assumed equivalent to 45 days of production revenues in the first year. Working capital was escalated at 6i per year. (3) A salvage value of 5% of construction capital was used. CCR 000019383 table 1 PLANT DRYER DEBOTTLENECKINK BASIS OF PRODUCTION REVENUES Project Year 1 2 3 5 6 7 8 9 10 Imcremental Production _______ MM Lb./Vr. ' S S 5 5 S 5 5 5 5 s Product Gross Margin Production Revenue -/Lb._________________ ______$M/Yr. 6.10 6.70 7.40 8.10 8.90 9.90 10.90 11.90 13.10 14.30 305.0 335.0 370.0 405.0 445.0 495.0 545.0 595.0 655.0 715.0 CCR 000019384 1979 CAPITAL BUDGET BALTIMORE PLANT FIRE MONITOR ADDITIONS EXHIBIT 8 EXAMPLE ONLY Item B-12 $17,000 Capital PROJECT DESCRIPTION Install three fire hydrants and monitors at the following locations: 1) North of API Separator $9,000 2) East of Multistage Alkylation Reactor R-6 3) North of S1XS Plant $3,000 $5,000 PROBLEM DESCRIPTION Marsh & MeLennon, fire prevention consultants, have recommended the addition of fire monitors at the above locations. The recomnendations are based upon a study done in late 1977 which revealed insufficient coverage at these locations. PROJECT ALTERNATIVES No alternatives were considered. The monitors are necessary to upgrade our fire fighting capabililities. PROJECT ECONOMICS This is considered to be a non-revenue generating project. The capital requirement is based upon a plant budget estimate. The monitors will be installed during the second quarter of 1979. CCR 000019385 1984 CAPITAL BUDGET NET CASH FLOW SUMMARY ($1000) OKLAHOMA CITY CHEMICAL PLANT PROJECT YEAR -1 1 2 Projects With Economic Returns OKC-1 OKC-2 OKC-3 OKC-6 Subtotal ( 25.0) (135.0) (120.0) ( 80.0) 10.7 58.9 46.8 21.0 (360.0) 137.4 IRR = 37* 10.0 53.9 45.5 -17.1 126.5 3 10.6 57.4 48.2 17.7 133.9 4 11.4 61.5 56.2 19.3 148.4 5 11.8 66.4 60.6 20.4 159-2 6 10.0 57.8 53.4 13.8 135.0 7 10.8 63.6 58.7 15.4 148.5 8 11.6 70.2 64.6 17.0 163.4 9 12.3 76.8 71.7 18.7 179-5 10 13.5 84.2 78.1 20.8 196.6 Projects Without Economic Returns OKC-4 OKC-5 OKC-7 OKC-8 Subtotal ( 80.0) ( 40.0) ( 35.0) (160.0) (315.0) 10.9 5.4 4.8 21.8 42.9 5.3 2.6 2.3 10.6 20.8 4.7 2.4 2.1 '9.4 18.6 4.4 2.2 1-9 8.8 17.3 4.2 2.1 1.8 8.3 16.4 ( 4.2) ( 2.1) ( 1.8) . ( 8.5) (16.6) (4.6) ( 2.3) ( 2.0) ( 9.1) (18.0) ( 5.0) ( 2.5) ( 2.2) ( 9.9) (19.6) ( 5.3) ( 2.6) ( 2.3) (10.6) (20.8) ( 5.8) ( 2.9) ( 2.5) (11.5) (22.7) IRR = 0* o o73 Total (675.0) 180.3 147.3 152.5 165.7 175.6 118.4 130.5 143.8 158.7 173.9 IRR = 19% EXHI S IT 9 EXAMPLE ONLY 000019386 EXHIBIT TO CCR 000019387 EXHIBIT 1 1 TAX DEPRECIATION SCHEDULES SCHEDULE A used with an eight percent Investment tax credlIt: YEAR 3-YEAR PERCENTAGE 5-YEAR 10-YEAR 1 25 15 2 38 22 3 37 21 A 21 5 21 6 7 8 9 10 8 14 12 10 10 10 9 9 9 9 CCR 0000X9388