<PAGE>

                                  UNITED STATES
                       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 for the Fiscal Year Ended December 31, 2001

[ ]  Transition Report Pursuant to Section 13 or 15(D) of the Securities
     Exchange Act of 1934

                          Commission File No. 333-76473

                             EQUISTAR CHEMICALS, LP
             (Exact name of Registrant as specified in its charter)


                   Delaware                             76-0550481
       (State or other jurisdiction of      (I.R.S. Employee Identification No.)
        incorporation or organization)

             1221 McKinney Street,
           Suite 700, Houston, Texas                       77010
   (Address of principal executive offices)             (Zip Code)

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

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

                                      None

           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 Regulation S-K is not contained herein, and will not be contained,
to the best of the 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]
<PAGE>

                                          TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                    Page
                                                                                                    ----
<S>                                                                                                   <C>
PART I................................................................................................ 2
  Items 1 and 2.  Business and Properties............................................................. 2
  Item 3.  Legal Proceedings......................................................................... 15
  Item 4.  Submission of Matters to a Vote of Security Holders....................................... 16
PART II.............................................................................................. 16
  Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters..................... 16
  Item 6.  Selected Financial Data................................................................... 16
  Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..... 16
  Item 7a.  Disclosure of Market and Regulatory Risk................................................. 26
  Item 8.  Financial Statements and Supplementary Data............................................... 28
  Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 52
PART III............................................................................................. 52
  Item 10.  Members of the Partnership Governance Committee and Executive Officers of Equistar....... 52
  Item 11.  Executive Compensation................................................................... 63
  Item 12.  Security Ownership of Certain Beneficial Owners and Management........................... 70
  Item 13.  Certain Relationships and Related Transactions........................................... 73
PART IV.............................................................................................. 79
  Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 79
</TABLE>
<PAGE>

                                     PART I

ITEMS 1 AND 2.  BUSINESS AND PROPERTIES

OVERVIEW

     Equistar Chemicals, LP ("Equistar") is one of the largest chemical
producers in the world with total 2001 revenues of $5.9 billion, and assets of
$6.3 billion at the end of 2001. It currently is the world's third largest and
North America's second largest producer of ethylene, the world's most widely
used petrochemical. Equistar currently is also the third largest producer of
polyethylene in North America.

     Equistar's petrochemicals segment manufactures and markets olefins,
oxygenated products, aromatics and specialty products. Equistar's olefins
products are primarily ethylene, propylene and butadiene. Olefins and their
co-products are basic building blocks used to create a wide variety of products.
Equistar's oxygenated products include ethylene oxide ("EO") and its
derivatives, ethylene glycol ("EG"), ethanol and methyl tertiary butyl ether
("MTBE"). Oxygenated products have uses ranging from paint to cleaners to
polyester fibers to gasoline additives. Equistar's aromatics are benzene and
toluene.

     Equistar's polymers segment manufactures and markets polyolefins, including
high-density polyethylene, low-density polyethylene, linear low-density
polyethylene, polypropylene and performance polymers. Polyethylene is used to
produce packaging film, trash bags and lightweight high-strength plastic bottles
for milk, juices, shampoos and detergents. Polypropylene is used in a variety of
products including plastic caps and other closures, rigid packaging, automotive
components, and carpet facing and backing. Equistar's performance polymers
include enhanced grades of polyethylene such as wire and cable insulating resins
and polymeric powders. For additional segment information, see Note 17 of Notes
to Consolidated Financial Statements.

     Equistar was formed in December 1997 as a Delaware limited partnership
owned by Lyondell Chemical Company ("Lyondell") and Millennium Chemicals Inc.
("Millennium"). Lyondell contributed substantially all of the assets of its
petrochemicals and polymers business segments. Millennium contributed
substantially all of the assets of Millennium Petrochemicals Inc.'s ethylene,
polyethylene and related products, performance polymers and ethanol businesses.
In May 1998, Lyondell, Millennium, Equistar and Occidental Petroleum Corporation
("Occidental") consummated a series of transactions to expand Equistar through
the addition of Occidental's petrochemical assets (the "Occidental Contributed
Business"). Since the May 1998 transactions, Lyondell has owned a 41% aggregate
interest in Equistar, and each of Millennium and Occidental have owned a 29.5%
aggregate interest in Equistar.

     Early in 2002, Lyondell and Occidental agreed in principle for Lyondell's
acquisition of Occidental's 29.5% interest in Equistar and for Occidental's
acquisition of an equity interest in Lyondell. Upon consummation of these
transactions, Occidental would receive the following from Lyondell:

     .  30 to 34 million shares of newly issued Lyondell Series B Common Stock,
        with the final number to be determined at closing of this transaction.
        These shares would have the same rights as Lyondell's regular common
        stock with the exception of the dividend. The Series B Common Stock
        would pay a dividend at the same rate as the regular common stock but,
        at Lyondell's option, the dividend may be paid in additional shares of
        Series B Common Stock or in cash.  These new Series B shares also would
        include provisions for conversion to regular common stock three years
        after issuance or earlier in certain circumstances;

     .  five-year warrants to acquire five million shares of Lyondell regular
        common stock at $25 per share, subject to adjustment upon the
        occurrence of certain events; and

     .  a contingent payment equivalent in value to 7.38% of Equistar's cash
        distributions for 2002 and 2003, up to a total of $35 million, payable
        in cash, Series B Common Stock or regular common stock, as determined
        by Lyondell.

                                      2
<PAGE>

     In addition, it is anticipated that two Occidental executives, Dr. Ray R.
Irani, Chairman and Chief Executive Officer, and Stephen I. Chazen, Chief
Financial Officer and Executive Vice President, would become members of
Lyondell's Board of Directors so long as Occidental continues to own specified
amounts of Lyondell's equity. These transactions are subject to negotiation,
completion and execution of definitive documentation, compliance with the
applicable provisions of the partnership agreement and the parent agreement,
approval by the Boards of Directors of Lyondell and Occidental, approval by
Lyondell's stockholders and other customary conditions. There can be no
assurance that the proposed transactions will be completed. See "Item 10.
Members of the Partnership Governance Committee and Executive Officers of
Equistar - The Partnership Agreement - Transfers and Pledges of a Partner's
Interest in Equistar" and "Item 10. Members of the Partnership Governance
Committee and Executive Officers of Equistar - The Parent Agreement -
Restrictions on Transfer of Partner Sub Stock."

     Equistar's principal executive offices are located at 1221 McKinney Street,
Suite 700, Houston, Texas 77010 and its telephone number is (713) 652-7200.

PETROCHEMICALS SEGMENT

OVERVIEW

     Petrochemicals are fundamental to many segments of the economy, including
the production of consumer products, housing and automotive components and other
durable and nondurable goods. Equistar produces a variety of petrochemicals,
including olefins, oxygenated products, aromatics and specialty products, at
twelve facilities located in six states. Olefins include ethylene, propylene and
butadiene. Oxygenated products include EO and derivatives, EG, ethanol and MTBE.
Aromatics produced are benzene and toluene. Equistar's petrochemical products
are used to manufacture polymers and intermediate chemicals, which are used in a
variety of consumer and industrial products. Ethylene is the most significant
petrochemical in terms of worldwide production volume and is the key building
block for polyethylene and a large number of other chemicals, plastics and
synthetics.

     The Chocolate Bayou, Corpus Christi and two Channelview, Texas olefins
plants use petroleum liquids, including naphtha, condensates and gas oils
(collectively "Petroleum Liquids"), to produce ethylene. Assuming the
co-products are recovered and sold, the cost of ethylene production from
Petroleum Liquids historically has been less than the cost of producing ethylene
from natural gas liquids, including ethane, propane and butane (collectively,
"NGLs"). The use of Petroleum Liquids results in the production of a significant
amount of co-products such as propylene, butadiene, benzene and toluene, and
specialty products, such as dicyclopentadiene ("DCPD"), isoprene, resin oil, and
piperylenes. Based upon independent third-party surveys, management believes
that its Channelview facility is one of the lowest cash production cost olefins
facilities in the United States. Equistar's Morris, Illinois; Clinton, Iowa;
Lake Charles, Louisiana; and LaPorte, Texas plants are designed to consume
primarily NGLs to produce ethylene with some co-products such as propylene. A
comprehensive pipeline system connects the Gulf Coast plants with major olefins
customers. Raw materials are sourced both internationally and domestically and
are shipped via vessel and pipeline. Equistar's Lake Charles, Louisiana facility
has been idled since the first quarter of 2001.

     Equistar produces EO and its primary derivative, EG, at facilities located
in Bayport (Pasadena), Texas and through a 50/50 joint venture with E.I. DuPont
de Nemours and Company ("DuPont") in Beaumont, Texas. The Bayport facility also
produces other derivatives of EO, principally ethers and ethanolamines. EG is
used in antifreeze, polyester fibers, resins and films. EO and its derivatives
are used in many consumer and industrial end uses, such as detergents and
surfactants, brake fluids and polyurethane seating and bedding foams.

     Equistar produces synthetic ethanol at its Tuscola, Illinois plant by a
direct hydration process that combines water and ethylene. Equistar also owns
and operates facilities in Newark, New Jersey and Anaheim, California for
denaturing ethanol by the addition of certain chemicals. In addition, it
produces small volumes of diethyl ether, a by-product of its ethanol production,
at its Tuscola facility. These ethanol products are ingredients in various
consumer and industrial products as described more fully in the table below.
Equistar is outsourcing the operations of its Anaheim, California facility and
anticipates shutting down the facility in the second quarter of 2002.

                                      3
<PAGE>

     The following table outlines Equistar's primary petrochemical products,
annual processing capacity as of January 1, 2002, and the primary uses for such
products. Unless otherwise specified, annual processing capacity was 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 raw material mix. Because the
processing capacity of a production unit is an estimated amount, actual
production volumes may be more or less than the capacities set forth below.

<TABLE>
<CAPTION>
      Product                  Annual Capacity                                    Primary Uses
--------------------  ----------------------------  ----------------------------------------------------------------------------
OLEFINS:
--------
<S>                      <C>                            <C>
Ethylene                 11.6 billion pounds (a)        Ethylene is used as a raw material to manufacture
                                                        polyethylene, EO, ethanol, ethylene dichloride and ethylbenzene.
Propylene                5.0 billion pounds (a)(b)      Propylene is used to produce polypropylene, acrylonitrile and
                                                        propylene oxide.
Butadiene                1.2 billion pounds             Butadiene is used to manufacture styrene-butadiene rubber and
                                                        polybutadiene rubber, which are used in the manufacture of tires,
                                                        hoses, gaskets and other rubber products. Butadiene is also used in
                                                        the production of paints, adhesives, nylon clothing, carpets and
                                                        engineered plastics.
OXYGENATED PRODUCTS:
--------------------
Ethylene Oxide (EO)      1.1 billion pounds ethylene    EO is used to produce surfactants, industrial cleaners, cosmetics,
                         oxide equivalents; 400         emulsifiers, paint, heat transfer fluids and ethylene glycol.
                         million pounds as pure
                         ethylene oxide
Ethylene Glycol (EG)     1 billion pounds               EG is used to produce polyester fibers and film, polyethylene
                                                        terephthalate ("PET") resin, heat transfer fluids and automobile
                                                        antifreeze.
Ethylene Oxide           225 million pounds             EO derivatives are used to produce paint and coatings, polishes,
Derivatives                                             solvents and chemical intermediates.
Ethanol                  50 million gallons             Ethanol is used in the production of solvents as well as
                                                        household, medicinal and personal care products.
MTBE                     284 million gallons            MTBE is a gasoline component for reducing emissions in
                         (18,500 barrels/day) (c)       reformulated gasolines and enhancing octane value.
AROMATICS:
----------
Benzene                  310 million gallons            Benzene is used to produce styrene, phenol and cyclohexane. These
                                                        products are used in the production of nylon, plastics, rubber and
                                                        polystyrene. Polystyrene is used in insulation, packaging and drink cups.
Toluene                  66 million gallons             Toluene is used as an octane enhancer in gasoline, as a chemical
                                                        feedstock for benzene and/or paraxylene production, and a core ingredient
                                                        in TDI, a compound used in urethane production.
SPECIALTY PRODUCTS:
-------------------
Dicyclopentadiene        130 million pounds             DCPD is a component of inks, adhesives and polyester resins for molded
(DCPD)                                                  parts such as tub and shower stalls and boat hulls.
Isoprene                 145 million pounds             Isoprene is a component of premium tires, adhesive sealants and other
                                                        rubber products.
Resin Oil                150 million pounds             Resin oil is used in the production of hot-melt-adhesives, inks,
                                                        sealants, paints and varnishes.
Piperylenes              100 million pounds             Piperylenes are used in the production of adhesives, inks and
                                                        sealants.
Alkylate                 337 million gallons (d)        Alkylate is a premium gasoline blending component used by refiners to
                                                        meet Clean Air Act standards for reformulated gasoline.
Diethyl Ether            5 million gallons              Diethyl ether is used in laboratory reagents, gasoline and diesel
                                                        engine starting fluid, liniments, analgesics and smokeless gunpowder.
</TABLE>
-------------

                                      4
<PAGE>

(a)  Includes 850 million pounds/year of ethylene capacity and 200 million
     pounds/year of propylene capacity at Equistar's Lake Charles, Louisiana
     facility. Equistar's Lake Charles facility has been idled since the first
     quarter of 2001.
(b)  Does not include refinery-grade material or production from the product
     flexibility unit at Equistar's Channelview facility, which can convert
     ethylene and other light petrochemicals into propylene. This facility has
     an annual processing capacity of one billion pounds per year of propylene.
(c)  Includes up to 44 million gallons/year of capacity operated for the benefit
     of LYONDELL-CITGO Refining LP.
(d)  Includes up to 172 million gallons/year of capacity operated for the
     benefit of LYONDELL-CITGO Refining LP.

RAW MATERIALS AND ETHYLENE PURCHASES

     The raw materials cost for olefins production is generally the largest
component of total cost for the petrochemicals business. Olefins plants with the
flexibility to consume a wide range of raw materials historically have had lower
variable costs than olefins plants that are restricted in their raw material
processing capability to NGLs. The primary raw materials used in the production
of olefins are Petroleum Liquids (also referred to as "heavy raw materials") and
NGLs (also referred to as "light raw materials"). Petroleum Liquids generally
are delivered by ship or barge. NGLs are delivered to Equistar's facilities
primarily via pipeline. Petroleum Liquids have had a historical cost advantage
over NGLs such as ethane and propane, assuming the co-products were recovered
and sold. For example, facilities using Petroleum Liquids historically generated
approximately four cents additional variable margin on average per pound of
ethylene produced compared to using ethane. This margin advantage is based on an
average of historical data over a period of years and is subject to short-term
fluctuations, which can be significant. The recent advantage has been less than
the historical average. Equistar has the capability to realize this margin
advantage due to its ability to process Petroleum Liquids at the Channelview,
Corpus Christi and Chocolate Bayou, Texas facilities.

     The Channelview facility is particularly flexible because it can process
100% Petroleum Liquids or up to 80% NGLs. The Corpus Christi plant can process
up to 70% Petroleum Liquids or up to 70% NGLs. The Chocolate Bayou facility
processes 100% Petroleum Liquids. Equistar's LaPorte facility can process
natural gasoline and NGLs, including heavier ones such as butane. Equistar's
three other olefins facilities currently process only NGLs.

     The majority of Equistar's Petroleum Liquids requirements are purchased via
contractual arrangement from a variety of third-party domestic and foreign
sources. Equistar also purchases Petroleum Liquids on the spot market from
third-party domestic and foreign sources. Equistar purchases a majority of its
NGLs requirements via contractual arrangements from a variety of third-party
sources. Equistar also purchases NGLs on the spot market from third-party
sources. Equistar obtains a portion of its Petroleum Liquids requirements from
LYONDELL-CITGO Refining LP ("LCR") at market-related prices. In addition to
producing its own ethylene, Equistar purchases ethylene via contractual
arrangements from Gulf Coast producers at market-based prices.

     In addition, Equistar purchases large amounts of natural gas to be used as
energy for consumption in its business via contractual arrangements with a
variety of third-party sources, typically with a term of 12 to 18 months.

MARKETING AND SALES

     Ethylene produced by the Clinton and Morris facilities generally is
consumed as a raw material by the polymers operations at those sites, or is
transferred to Tuscola from Morris by pipeline for the production of ethanol.
Ethylene produced by Equistar's LaPorte facility is consumed as a raw material
by Equistar's polymers operations and Millennium's vinyl acetate operations in
LaPorte and also is distributed by pipeline for other internal uses and to third
parties. Ethylene and propylene produced at the Channelview, Chocolate Bayou,
Corpus Christi and Lake Charles olefins plants are generally distributed by
pipeline or via exchange agreements to Equistar's Gulf Coast polymer and EO and
EG facilities as well as to Equistar's affiliates and third parties. Equistar's
Lake Charles facility has been idled since the first quarter of 2001. For the
year ended December 31, 2001, approximately 85% of Equistar's ethylene
production, based on sales dollars, was consumed by Equistar's polymers or
oxygenated products businesses or sold to Equistar's owners and their affiliates
at market-related prices.

                                      5
<PAGE>

     With respect to sales to third parties, Equistar sells a majority of its
olefins products to customers with whom it has had long-standing relationships.
Sales to third parties generally are made under written agreements that
typically provide for monthly negotiation of price; customer purchases of a
specified minimum quantity; and three- to six-year terms with automatic one- or
two-year term extension provisions. Some contracts may be terminated early if
deliveries have been suspended for several months. No single customer accounted
for 10% or more of Equistar's total revenues in 2001.

     EO and EG are sold under three- to five-year contracts to third party
customers, with pricing negotiated on a quarterly basis to reflect market
conditions. Glycol ethers are sold primarily into the solvent and distributor
markets under one-year contracts at market prices, as are ethanolamines and
brake fluids. Ethanol and ethers primarily are sold to third-party customers
under one-year contracts at market prices.

     Equistar licenses MTBE technology under a license from an affiliate of
Lyondell and sells a significant portion of MTBE produced at one of its two
Channelview units to Lyondell at market-related prices. The production from the
second unit is sold to and consumed by LCR for gasoline blending. MTBE produced
at Chocolate Bayou is sold at market-related prices to Lyondell for resale.

     Equistar sells most of its aromatics production under contracts that have
initial terms ranging from one to three years and that typically contain
automatic one-year term extension provisions. These contracts generally provide
for monthly price adjustments based upon current market prices. Benzene produced
by LCR is sold directly to Equistar at market-related prices. In accordance with
a marketing services agreement currently being extended from month to month,
Equistar currently serves as LCR's sole agent to market aromatics products
produced by LCR, other than benzene.

     Most of the ethylene and propylene production of the Channelview, Chocolate
Bayou, Corpus Christi and Lake Charles facilities is shipped via a 1,430-mile
pipeline system which has connections to numerous Gulf Coast ethylene and
propylene consumers. This pipeline system, some of which is owned and some of
which is leased by Equistar, extends from Corpus Christi to Mont Belvieu to Port
Arthur, Texas as well as around the Lake Charles, Louisiana area. In addition,
exchange agreements with other olefins producers allow access to customers who
are not directly connected to Equistar's pipeline system. Some ethylene is
shipped by railcar from Clinton, Iowa to Morris, Illinois. A pipeline owned and
operated by Williams Pipeline Company is used to transport ethylene from Morris,
Illinois to Tuscola, Illinois. Some propylene is shipped by ocean-going vessel.
Ethylene oxide is shipped by railcar, and its derivatives are shipped by
railcar, truck, isotank or ocean-going vessel. Butadiene, aromatics and other
petrochemicals are distributed by pipeline, railcar, truck, barge or ocean-going
vessel.

COMPETITION AND INDUSTRY CONDITIONS

     The bases for competition in Equistar's petrochemicals products are price,
product quality, product deliverability and customer service. Equistar competes
with other large domestic producers of petrochemicals, including BP p.l.c.
("BP"), Chevron Phillips Chemical Company LP ("Chevron Phillips"), The Dow
Chemical Company ("Dow"), ExxonMobil Corporation ("ExxonMobil"), Huntsman
Chemical Company, NOVA Chemicals Corporation ("NOVA Chemicals") and Shell
Chemical Company. Industry consolidation, including the combinations of British
Petroleum and Amoco, Exxon and Mobil, and Dow and Union Carbide Corporation and
the formation of Chevron Phillips, has brought North American production
capacity under control of fewer, although larger and stronger, competitors.

     Equistar's combined rated ethylene capacity at January 1, 2002 was
approximately 11.6 billion pounds of ethylene per year or approximately 16% of
total North American production capacity. Based on published rated production
capacities, Equistar believes it is currently the second largest producer of
ethylene in North America. North American ethylene rated capacity at January 1,
2002 was approximately 72 billion pounds per year. Of the total ethylene
production capacity in North America, approximately 85% is located along the
Gulf Coast.

                                      6
<PAGE>

     Petrochemicals profitability is affected by raw materials costs and the
level of demand for petrochemicals and derivatives, along with vigorous price
competition among producers which may intensify due to, among other things, the
addition of new capacity. In general, demand is a function of economic growth in
the United States and elsewhere in the world, which fluctuates. Capacity
additions in excess of annual growth also put pressure on margins. It is not
possible to predict accurately the changes in raw material costs, market
conditions and other factors that will affect petrochemical industry margins in
the future.

     The petrochemicals industry historically has experienced significant
volatility in profitability due to fluctuations in capacity utilization.
Producers of olefins primarily for merchant supply to unaffiliated customers
typically experience greater variations in their sales volumes and profitability
when industry supply and demand relationships are not balanced in comparison to
more integrated competitors, i.e., those with a higher proportion of captive
demand for olefins derivatives production. For the year ended December 31, 2001,
approximately 85% of Equistar's ethylene production, based on sales dollars, was
consumed by Equistar's polymers or oxygenated products businesses or sold to
Equistar's owners and their affiliates. This has the effect of reducing sales
volume volatility.

     Equistar's other major commodity chemical products also experience cyclical
market conditions similar to, although not necessarily coincident with, those of
ethylene.

POLYMERS SEGMENT

OVERVIEW

     Through facilities located at ten plant sites in five states, Equistar's
polymers segment manufactures a wide variety of polyolefins, including
polyethylene, polypropylene and various performance polymers. Polyolefins are
used in a variety of consumer and industrial products, including packaging film,
trash bags, automotive parts, plastic bottles and caps and compounds for wire
and cable insulation.

     Equistar currently manufactures polyethylene using a variety of
technologies at five facilities in Texas and at its Morris, Illinois and
Clinton, Iowa facilities. The Morris and Clinton facilities are located in the
U.S. Midwest and enjoy a freight cost advantage over Gulf Coast producers in
delivering products to customers in the U.S. Midwest and on the East Coast of
the United States. Equistar produces performance polymer products, which include
enhanced grades of polyethylene and polypropylene, at several of its polymers
facilities. The Company believes that, over a business cycle, average selling
prices and profit margins for performance polymers tend to be higher than
average selling prices and profit margins for higher-volume commodity
polyethylenes. Equistar also produces wire and cable insulating resins and
compounds at LaPorte, Texas; and Morris, Illinois, and wire and cable insulating
compounds at Fairport Harbor, Ohio; Peachtree City, Georgia; and Tuscola,
Illinois. Wire and cable insulating resins and compounds are used to insulate
copper and fiber optic wiring in power, telecommunication, computer and
automobile applications. Equistar's Morris, Illinois and Bayport (Pasadena),
Texas facilities manufacture polypropylene using propylene produced as a
co-product of Equistar's ethylene production as well as propylene purchased from
third parties. Polypropylene is sold for various applications in the automotive,
housewares and appliance industries.

     The following table outlines Equistar's polymers and performance polymers
products, annual processing capacity at January 1, 2002, and the primary uses
for such products. Unless otherwise specified, annual processing capacity was
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 raw material mix. Because the
processing capacity of a production unit is an estimated amount, actual
production volumes may be more or less than the capacities set forth below.

                                      7
<PAGE>

<TABLE>
<CAPTION>
         Product                     Annual Capacity                      Primary Uses
----------------------------------- --------------------    ------------------------------------------------------------
POLYETHYLENE:
<S>                                 <C>                    <C>
High density polyethylene (HDPE)    3.1 billion pounds     HDPE is used to manufacture grocery, merchandise and trash
                                                           bags; food containers for items from frozen desserts to margarine;
                                                           plastic caps and closures; liners for boxes of cereal and crackers;
                                                           plastic drink cups and toys; dairy crates; bread trays and pails for
                                                           items from paint to fresh fruits and vegetables; safety equipment
                                                           such as hard hats; house wrap for insulation; bottles for
                                                           household/industrial chemicals and motor oil; milk/water/juice
                                                           bottles; and large (rotomolded) tanks for storing liquids like
                                                           agricultural and lawn care chemicals.
Low density polyethylene (LDPE)     1.5 billion pounds     LDPE is used to manufacture food packaging films; plastic
                                                           bottles for packaging food and personal care items; dry cleaning
                                                           bags; ice bags; pallet shrink wrap; heavy-duty bags for mulch and
                                                           potting soil; boil-in-bag bags; coatings on flexible packaging
                                                           products; and coatings on paper board such as milk cartons.
                                                           Specialized forms of LDPE are ethyl methyl acrylate, which
                                                           provides adhesion in a variety of applications, and ethylene vinyl
                                                           acetate, which is used in foamed sheets, bag-in-box bags, vacuum
                                                           cleaner hoses, medical tubing, clear sheet protectors and
                                                           flexible binders.
Linear low density polyethylene     1.1 billion pounds     LLDPE is used to manufacture garbage and lawn-leaf bags;
(LLDPE)                                                    housewares; lids for coffee cans and margarine tubs; and large
                                                           (rotomolded) toys like outdoor gym sets.
POLYPROPYLENE:
--------------
Polypropylene                       680 million pounds     Polypropylene is used to manufacture fibers for carpets, rugs and
                                                           upholstery; housewares; automotive battery cases; automotive
                                                           fascia, running boards and bumpers; grid-type flooring for sports
                                                           facilities; fishing tackle boxes; and bottle caps and closures.
PERFORMANCE POLYMERS:
---------------------
Wire and Cable Insulating           (a)                    Wire and cable insulating resins and compounds are used to
Resins and Compounds                                       insulate copper and fiber optic wiring in power,
                                                           telecommunication, computer and automobile applications.
Polymeric Powders                   (a)                    Polymeric powders are component products in structural and bulk
                                                           molding compounds, parting agents and filters for appliance,
                                                           automotive and plastics processing industries.
Polymers for Adhesives, Sealants    (a)                    Polymers are components in hot-melt-adhesive formulations for
and Coatings                                               case, carton and beverage package sealing, glue sticks,
                                                           automotive sealants, carpet backing and adhesive labels.
Reactive Polyolefins                (a)                    Reactive polyolefins are functionalized polymers used to bond
                                                           non-polar and polar substrates in barrier food packaging, wire
                                                           and cable insulation and jacketing, automotive gas tanks and
                                                           metal coating applications.
Liquid Polyolefins                  (a)                    Liquid polyolefins are a diesel fuel additive to inhibit freezing.
</TABLE>

---------------
(a)  These are enhanced grades of polyethylene and are included in the capacity
     figures for HDPE, LDPE and LLDPE above, as appropriate.

                                      8
<PAGE>

RAW MATERIALS

     The primary raw materials for Equistar's polymers segment are ethylene and
propylene. With the exception of the Chocolate Bayou polyethylene plant,
Equistar's polyethylene and polypropylene production facilities can receive
their ethylene and propylene directly from Equistar's petrochemical facilities
via Equistar's olefins pipeline system, third-party pipelines or from on-site
production. Most of the raw materials consumed by Equistar's polymers segment
are produced internally by Equistar's petrochemicals segment. The polyethylene
plants at Chocolate Bayou, LaPorte and Bayport, Texas are pipeline-connected to
third parties and can receive ethylene via exchanges or purchases. The
polypropylene facility at Morris, Illinois also receives propylene from third
parties.

MARKETING AND SALES

     Equistar's polymers products are primarily sold to an extensive base of
established customers. Approximately 50% of Equistar's polymers products volumes
are sold to customers under term contracts, typically having a duration of one
to three years. The remainder is generally sold without contractual term
commitments. In either case, in most of the continuous supply relationships,
prices are subject to change upon mutual agreement between Equistar and the
customer. No single customer accounted for 10% or more of Equistar's total
revenues in 2001.

     Polymers are primarily distributed via railcar. Equistar owns or leases,
pursuant to long-term lease arrangements, approximately 7,870 railcars for use
in its polymers business. Equistar sells the vast majority of its polymers
products in the United States and Canada, and such sales primarily are through
its own sales organization. It generally engages sales agents to market its
polymers in the rest of the world.

COMPETITION AND INDUSTRY CONDITIONS

     The bases for competition in Equistar's polymers products are price,
product performance, product quality, product deliverability and customer
service. Equistar competes with other large producers of polymers, including
Atofina, BP Solvay Polyethylene, Chevron Phillips, Dow, Eastman Chemical
Company, ExxonMobil, Formosa Plastics, Huntsman Chemical Company, NOVA Chemicals
and Westlake Polymers. Industry consolidation, including the combinations of
British Petroleum and Amoco, Exxon and Mobil, and Dow and Union Carbide
Corporation, the formation of Chevron Phillips, and the polymers business
combinations between BP and Solvay, has brought North American production
capacity under control of fewer, although larger and stronger, competitors.

     Based on published rated industry capacities, Equistar is the third largest
producer of polyethylene in North America and is a leading domestic producer of
polyolefins powders, compounds, wire and cable insulating resins, and polymers
for adhesives. The combined rated capacity of Equistar's polyethylene units as
of January 1, 2002 was approximately 5.7 billion pounds per year or
approximately 13% of total industry capacity in North America. There are
approximately 15 other North American producers of polyethylene, including BP
Solvay Polyethylene, Chevron Phillips, Dow, ExxonMobil and NOVA Chemicals.
Equistar's polypropylene capacity, 680 million pounds per year as of January 1,
2002, represents approximately 4% of the total North American polypropylene
capacity. There are approximately 15 other North American competitors in the
polypropylene business, including Atofina, Basell, BP, Chevron Phillips, Dow and
ExxonMobil.

     Polymers profitability is affected by raw material costs and the worldwide
level of demand for polymers, along with vigorous price competition among
producers which may intensify due to, among other things, the addition of new
capacity. In general, demand is a function of economic growth in the United
States and elsewhere in the world, which fluctuates. Capacity additions in
excess of annual growth also put pressure on margins. It is not possible to
predict accurately the changes in raw material costs, market conditions and
other factors, which will affect polymers industry margins in the future.

                                      9
<PAGE>

PROPERTIES OWNED OR LEASED BY EQUISTAR

     Equistar's principal manufacturing facilities and principal products are
set forth below. All of these facilities are wholly owned by Equistar unless
otherwise noted.

<TABLE>
<CAPTION>

                Location                                                 Principal Products
-------------------------------------------         --------------------------------------------------------------

<S>                                                 <C>
Beaumont, Texas (a)*.....................           EG
Channelview, Texas (b)*..................           Ethylene, Propylene, Butadiene,   Benzene,  Toluene,  DCPD,
                                                    Isoprene, Resin Oil, Piperylenes, Alkylate and MTBE
Corpus Christi, Texas*...................           Ethylene, Propylene, Butadiene and Benzene
Chocolate Bayou, Texas (c)...............           HDPE
Chocolate Bayou, Texas (c)(d)*...........           Ethylene, Propylene, Butadiene,   Benzene,  Toluene,  DCPD,
                                                    Isoprene, Resin Oil and MTBE
LaPorte, Texas*..........................           Ethylene,  Propylene, LDPE, LLDPE, Liquid Polyolefins, Wire and
                                                    Cable Insulating Resins and Polymers for Adhesives,  Sealants
                                                    and Coatings
Matagorda, Texas*........................           HDPE
Bayport (Pasadena), Texas (e)*...........           EO, EG and Other EO Derivatives
Bayport (Pasadena), Texas (e)*...........           Polypropylene and LDPE
Victoria, Texas (d)*.....................           HDPE
Peachtree City, Georgia..................           Wire and Cable Insulating Compounds
Lake Charles, Louisiana (f)*.............           Ethylene and Propylene
Morris, Illinois*........................           Ethylene, Propylene, LDPE, LLDPE and Polypropylene
Tuscola, Illinois*.......................           Ethanol,  Diethyl Ether,  Wire and Cable Insulating Compounds
                                                    and Polymeric Powders
Clinton, Iowa............................           Ethylene, Propylene, LDPE, HDPE and Reactive Polyolefins
Fairport Harbor, Ohio (g)................           Wire and Cable Insulating Compounds
Anaheim, California (h)..................           Denatured Alcohol
Newark, New Jersey.......................           Denatured Alcohol
</TABLE>

------------------
*Facilities which received the OSHA Star Certification, which is the highest
safety designation issued by the U.S. Department of Labor.
(a)  The Beaumont facility is owned by PD Glycol, a partnership owned 50% by
     Equistar and 50% by DuPont.
(b)  The Channelview facility has two ethylene processing units.  Lyondell
     Methanol Company, L.P. owns a methanol plant located within the Channelview
     facility on property Lyondell Methanol Company, L.P. leases from Equistar.
     A third party owns and operates a facility on land leased from Equistar
     that is used to purify hydrogen from Lyondell Methanol Company, L.P.'s
     methanol plant. Equistar also operates a styrene maleic anhydride unit and
     a polybutadiene unit, which are owned by a third party and are located on
     property leased from Equistar within the Channelview facility.
(c)  Millennium and Occidental each contributed a facility located in Chocolate
     Bayou.  These facilities are not on contiguous property.
(d)  The land is leased, and the facility is owned.
(e)  Occidental and Lyondell each contributed facilities located in Pasadena.
     These facilities are nearly contiguous, and Equistar operates them as one
     site to the extent practicable. These facilities are operated in
     conjunction with the LaPorte facility.
(f)  The Lake Charles facility has been idled since the first quarter of 2001.
     The facilities and land are leased from an affiliate of Occidental under a
     lease, which expires in May 2003.
(g)  The building and land are leased.
(h)  Equistar is outsourcing the operations of its Anaheim, California facility
     and anticipates shutting down the facility in the second quarter of 2002.

     In February 2001, Equistar discontinued production at its Port Arthur,
Texas polyethylene facility and shut down the facility. Closed production units
included a 240 million pounds per year HDPE reactor and an LDPE reactor with
annual capacity of 160 million pounds. These units and a 300 million pounds per
year HDPE reactor mothballed in 1999 have been permanently shut down and are
being dismantled.

                                      10
<PAGE>

     Equistar owns a storage facility, a brine pond and a tract of vacant land
in Mont Belvieu, Texas, located approximately 15 miles east of the Channelview
facility. Storage capacity for up to approximately 13 million barrels of NGLs,
ethylene, propylene and other hydrocarbons is provided in salt domes at the Mont
Belvieu facility. There are an additional 3 million barrels of ethylene and
propylene storage operated by Equistar on leased property in Markham, Texas.

     Equistar uses an extensive olefins pipeline system, some of which it owns
and some of which it leases, extending from Corpus Christi to Mont Belvieu to
Port Arthur and around the Lake Charles area. Equistar owns other pipelines in
connection with its Chocolate Bayou, Matagorda, Victoria, Corpus Christi and
LaPorte facilities. Equistar uses a pipeline owned and operated by Williams
Pipeline Company to transport ethylene from its Morris facility to its Tuscola
facility. Equistar owns and leases several pipelines connecting the Channelview
facility, the LCR refinery and the Mont Belvieu storage facility. These
pipelines are used to transport feedstocks, butylenes, hydrogen, butane, MTBE
and unfinished gasolines. Equistar also owns a barge docking facility near the
Channelview facility capable of berthing eight barges and related terminal
equipment for loading and unloading raw materials and products. Equistar owns or
leases pursuant to long-term lease arrangements approximately 9,440 railcars for
use in its business.

     Equistar sub-leases its executive offices and corporate headquarters from
Lyondell in downtown Houston. In addition, Equistar owns facilities which house
the Morris, Cincinnati and Chocolate Bayou research operations. Equistar also
leases sales facilities and leases storage facilities, primarily in the Gulf
Coast area, from various third parties for the handling of products.

RESEARCH AND TECHNOLOGY; PATENTS AND TRADEMARKS

     Equistar conducts research and development principally at its Cincinnati,
Ohio technical center, with additional facilities located in Morris, Illinois
and Chocolate Bayou, Texas. Equistar's research and development expenditures
were $39 million for 2001, $38 million for 2000 and $42 million for 1999, all of
which were expensed as incurred.

     Equistar maintains a growing patent portfolio that is continuously
supplemented by new patent applications related to its petrochemicals and
polymers businesses. As of December 31, 2001, Equistar owned 220 United States
patents and 343 worldwide patents. Equistar has numerous trademark and trademark
registrations in the United States and other countries, including the Equistar
logo. Equistar does not regard its business as being materially dependent upon
any single patent or trademark.

EMPLOYEE RELATIONS

     As of December 31, 2001, Equistar employed approximately 3,400 full-time
employees. Equistar uses the services of Lyondell employees pursuant to a Shared
Services Agreement and also uses the services of independent contractors in the
routine conduct of its business. Approximately 105 hourly workers are covered by
collective bargaining agreements. Equistar believes that its relations with its
employees are good. See "Item 13. Certain Relationships and Related
Transactions--Services and Shared-Site Agreements with Lyondell and Affiliates
of Millennium and Occidental."

CYCLICALITY AND OVERCAPACITY IN THE PETROCHEMICAL AND POLYMER INDUSTRIES

     Equistar's historical operating results reflect the cyclical and volatile
nature of the supply-demand balance in the petrochemical and polymer industries.
These industries historically have experienced alternating periods of inadequate
capacity and tight supply, causing prices and profit margins to increase,
followed by periods when substantial capacity is added, resulting in oversupply
and declining capacity utilization rates and declining prices and profit
margins. In particular, the markets for ethylene and polyethylene are highly
cyclical, resulting in volatile profits and cash flow over the business cycle.

                                      11
<PAGE>

     Currently, there is overcapacity in the petrochemical and polymer
industries. Moreover, a number of Equistar's competitors in various segments of
the petrochemical and polymer industries have added or are expected to add
capacity. There can be no assurance that future growth in product demand will be
sufficient to utilize this additional, or even current, capacity. Excess
industry capacity has depressed and may continue to depress Equistar's volumes
and margins.

RAW MATERIALS AND ENERGY COSTS

     Equistar purchases large amounts of raw materials and energy for its
businesses. The cost of these raw materials and energy, in the aggregate,
represent a substantial portion of Equistar's operating expenses. The prices of
raw materials and energy generally follow price trends of, and vary with the
market conditions for, crude oil and natural gas, which may be highly volatile
and cyclical. Results of operations for Equistar have at times in the past and
could in the future be significantly affected by increases in these costs.

     In addition, higher natural gas prices early in 2001 adversely affected the
ability of many domestic chemicals producers to compete internationally since
U.S. producers are disproportionately reliant on natural gas as a feedstock and
energy source. In addition to the impact that this has had on Equistar's
exports, reduced competitiveness of U.S. producers also has in the past
increased the availability of chemicals in North America, as U.S. production
that would otherwise have been sold overseas was instead offered for sale
domestically.

GENERAL ECONOMIC CONDITIONS AND OTHER EXTERNAL FACTORS

     External factors beyond Equistar's control, such as general economic
conditions, competitor actions, international events and circumstances, and
governmental regulation in the United States and abroad, can cause volatility in
the price of raw materials and other operating costs, as well as significant
fluctuations in demand for Equistar's products, and can magnify the impact of
economic cycles on Equistar's businesses. Furthermore, a number of Equistar's
products are highly dependent on durable goods markets, such as the housing and
automotive markets, that are themselves particularly cyclical.

     Equistar may reduce production at or idle a facility for an extended period
of time or exit a business because of high raw material prices, an oversupply of
a particular product and/or a lack of demand for that particular product, which
makes production uneconomical. These temporary outages sometimes last for
several quarters and cause Equistar to incur costs, including the expenses of
the outages and the restart of these facilities. It is possible that factors
like increases in raw material costs or lower demand in the future will cause
Equistar to further reduce operating rates or idle facilities or exit
uncompetitive businesses.

COMMODITY PRODUCTS

     Equistar sells its products in highly competitive markets. Due to the
commodity nature of most of Equistar's products, it generally is not able to
protect its market position by product differentiation or pass on cost increases
to its customers. Accordingly, increases in raw material and other costs do not
necessarily correlate with changes in prices for these products, either in the
direction of the price change or in magnitude. Specifically, timing differences
in pricing between raw material prices, which may change daily, and contract
product prices, which in many cases are negotiated only monthly, sometimes with
an additional lag in effective dates for increases, can have a negative effect
on profitability.

OPERATING HAZARDS

     The occurrence of material operating problems, including, but not limited
to, the events described below, may have a material adverse effect on the
productivity and profitability of a particular manufacturing facility, or on
Equistar as a whole, during and after the period of such operational
difficulties. Equistar's income and cash flow are dependent on the continued
operation of its various production facilities and the ability to complete
construction projects on schedule.

                                      12
<PAGE>

     Although Equistar takes precautions to enhance the safety of its operations
and minimize the risk of disruptions, Equistar's operations, along with those of
other members of the chemical industry, are subject to hazards inherent in
chemical manufacturing and the related storage and transportation of raw
materials, products and wastes. These hazards include: pipeline leaks and
ruptures; explosions; fires; inclement weather and natural disasters; mechanical
failure; unscheduled downtime; labor difficulties; transportation interruptions;
remediation complications; chemical spills; discharges or releases of toxic or
hazardous substances or gases; storage tank leaks; and other environmental
risks. Some of these hazards can cause personal injury and loss of life, severe
damage to or destruction of property and equipment and environmental damage, and
may result in suspension of operations and the imposition of civil or criminal
penalties.

     Furthermore, Equistar is also subject to present and future claims with
respect to workplace exposure, workers' compensation and other matters. Equistar
maintains property, business interruption and casualty insurance which it
believes is in accordance with customary industry practices, but it is not fully
insured against all potential hazards incident to its business and certain
losses, including losses resulting from terrorist acts, may be either
uninsurable or not economically insurable, in whole or in part.

ENVIRONMENTAL MATTERS

     Equistar cannot predict with certainty the extent of its future liabilities
and costs under environmental, health and safety laws and regulations and
Equistar cannot guarantee that they will not be material. In addition, Equistar
may face liability for alleged personal injury or property damage due to
exposure to chemicals and other hazardous substances at its facilities or
chemicals that it otherwise manufactures, handles or owns. Although these claims
have not historically had a material impact on Equistar's operations, a
significant increase in the number or success of these claims could materially
adversely affect Equistar's business, financial condition, operating results or
cash flow.

     The production facilities of Equistar are generally required to have
permits and licenses regulating air emissions, discharges to land or water and
storage, treatment and disposal of hazardous wastes. Companies such as Equistar
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. Equistar 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.

     Equistar's policy is to be in compliance with all applicable environmental
laws. Equistar also is committed to Responsible Care/R/, an international
chemical industry initiative to enhance the industry's responsible management of
chemicals. Equistar (together with the industries in which it operates) is
subject to extensive national, 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. Many of these laws and regulations provide for substantial
fines and potential criminal sanctions for violations. Some of these laws and
regulations are subject to varying and conflicting interpretations. In addition,
Equistar cannot accurately predict future developments, such as increasingly
strict environmental laws, and inspection and enforcement policies, as well as
higher compliance costs therefrom, which might affect the handling, manufacture,
use, emission or disposal of products, other materials or hazardous and
non-hazardous waste. Some risk of environmental costs and liabilities is
inherent in particular operations and products of Equistar, 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, Equistar does not expect
that it will be affected differently than the rest of the chemicals industry
where its facilities are located.

     Environmental laws may have a significant effect on the nature and scope of
cleanup of contamination at current and former operating facilities, the costs
of transportation and storage of raw materials and finished products and the
costs of the storage and disposal of wastewater. Also, U.S. "Superfund" statutes
may impose joint and several liability for the costs of remedial investigations
and actions on the entities that generated waste, arranged for disposal of the
wastes, transported to or selected the disposal sites and the past and present
owners and operators of such sites. All such responsible parties (or any one of
them, including Equistar) may be required to bear all of such costs regardless
of fault, legality of the original disposal or ownership of the disposed site.

                                      13
<PAGE>

     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, 2001, 2000 and 1999, Equistar spent approximately $16 million, $6
million and $3 million, respectively, for environmentally related capital
expenditures at existing facilities. Equistar currently estimates that
environmentally related capital expenditures at its existing facilities will be
approximately $29 million for 2002 and approximately $85 million for 2003. The
increased level of such expenditures for 2001, 2002 and 2003 is a result of,
among other things, implementation of a plan for the Houston/Galveston region to
comply with the ozone standard, as discussed below. Estimated costs for future
environmental compliance and remediation are necessarily imprecise due to such
factors as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, the identification
of presently unknown remediation sites and the allocation of costs among the
responsible parties under applicable statutes. Lyondell, Millennium
Petrochemicals and certain subsidiaries of Occidental have each agreed to
provide certain indemnifications to Equistar with respect to the petrochemicals
and polymers businesses contributed by the partners. In addition, Equistar has
agreed to assume third party claims that are related to certain pre-closing
contingent liabilities. See "Item 13. Certain Relationships and Related
Transactions-Asset Contributions by Lyondell and Affiliates of Millennium and
Occidental" for more information regarding these indemnification obligations.

     The eight-county Houston/Galveston region has been designated a severe
non-attainment area for ozone by the U.S. Environmental Protection Agency
("EPA"). As a result, in December 2000, the Texas Natural Resource Conservation
Commission ("TNRCC") submitted a plan to the EPA to reach and demonstrate
compliance with the ozone standard by November 2007. Ozone is a product of the
reaction between volatile organic compounds and nitrogen oxides ("NOx") in the
presence of sunlight, and is a principal component of smog. The proposed plans
for meeting the ozone standard focus on significant reductions in NOx emissions.
NOx emission reduction controls must be installed at each of Equistar's six
facilities located in the Houston/Galveston region during the next several
years, well in advance of the 2007 deadline. Compliance with the provisions of
the plan will result in increased capital investment, which is currently
estimated to be between $200 million and $260 million before the 2007 deadline,
as well as higher annual operating costs for Equistar. The timing and amount of
the expenditures are subject to regulatory and other uncertainties, as well as
obtaining the necessary permits and approvals. See "Item 3. Legal Proceedings."

     Equistar has been actively involved with a number of organizations to help
solve the ozone problem in the most cost-effective manner and, in January 2001,
Equistar and the BCCA Appeal Group (a group of industry participants) filed a
lawsuit against the TNRCC to encourage adoption of their alternative plan to
achieve the same air quality improvement with less negative economic impact on
the region. In June 2001, the parties entered into a consent order with respect
to the lawsuit. Pursuant to the consent order, the TNRCC agreed to review, by
June 2002, the scientific data for ozone formation in the Houston/Galveston
region. In October 2001, the EPA approved the TNRCC plan, and the BCCA Appeal
Group filed a timely petition for judicial review of that action on January 11,
2002. If the TNRCC scientific review supports the industry group proposal, the
TNRCC has agreed to revise the NOx emission reduction requirements set forth in
its original plan. Any revisions will have to be approved by the EPA. Such
revisions of the NOx emission reduction requirements are expected to reduce
Equistar's estimated capital investments for NOx reductions required to comply
with the plans for meeting the ozone standard. However, there can be no
guarantee as to the ultimate capital cost of implementing any final plan
developed to ensure ozone attainment by the 2007 deadline.

     In the United States, the Clean Air Act Amendments of 1990 set minimum
levels for oxygenates, such as MTBE, in gasoline sold in areas not meeting
specified air quality standards. However, while studies by federal and state
agencies and other world organizations have shown that MTBE is safe for use in
gasoline, is not carcinogenic and is effective in reducing automotive emissions,
the presence of MTBE in some water supplies in California and other states due
to gasoline leaking from underground storage tanks and in surface water from
recreational water craft has led to public concern that MTBE may, in certain
limited circumstances, affect the taste and odor of drinking water supplies.

                                      14
<PAGE>

     Certain federal and state governmental initiatives have sought either to
rescind the oxygenate requirement for reformulated gasoline or to restrict or
ban the use of MTBE. Such actions, to be effective, would require (1) a waiver
of the state's oxygenate mandate, (2) Congressional action in the form of an
amendment to the Clean Air Act or (3) replacement of MTBE with another oxygenate
such as ethanol, a more costly, untested, and less widely available additive.
The initiatives mentioned above or other governmental actions could result in a
significant reduction in Equistar's MTBE sales, which represented approximately
4% of its total 2001 revenues. Equistar has developed technologies to convert
its process to produce alternate gasoline blending components should it be
necessary to reduce MTBE production in the future. However, implementation of
such technologies would require additional capital investment. The profit
margins on such alternate gasoline blending components could differ from those
historically realized on MTBE.

ITEM 3.  LEGAL PROCEEDINGS

     On January 19, 2001, Equistar and LCR, individually, and Lyondell,
individually and as part of the BCCA Appeal Group (a group of industry
participants), filed a lawsuit against the TNRCC in State District Court in
Travis County, Texas to encourage the adoption of the plaintiffs' alternative
plan to achieve the same air quality improvement as the TNRCC plan, with less
negative economic impact on the region. In June 2001, the parties entered into a
consent order with respect to the lawsuit. Pursuant to the consent order, the
TNRCC agreed to review, by June 2002, the scientific data for ozone formation in
the Houston/Galveston region. In October 2001, the EPA approved the TNRCC plan,
and the BCCA Appeal Group filed a timely petition for judicial review of that
action on January 11, 2002. If the TNRCC scientific review supports the industry
group proposal, the TNRCC has agreed to revise the NOx emission reduction
requirements set forth in its original plan. Any revisions will have to be
approved by the EPA.

     In addition, Equistar is, from time to time, a defendant in lawsuits, some
of which are not covered by insurance. Many of these suits make no specific
claim for relief. Although final determination of legal liability and the
resulting financial impact with respect to any such litigation cannot be
ascertained with any degree of certainty, Equistar 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 its business or financial
condition.

     From time to time Equistar 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 Equistar 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).

     In April 1997, the Illinois Attorney General's Office filed a complaint in
Grundy County, Illinois Circuit Court seeking monetary sanctions for releases
into the environment at Millennium's Morris, Illinois plant in alleged violation
of state regulations. The Morris, Illinois plant was contributed to Equistar on
December 1, 1997 in connection with the formation of Equistar. Equistar now
believes that a civil penalty in excess of $100,000 could result, without giving
effect to contribution or indemnification obligations of others. Equistar does
not believe that the ultimate resolution of this complaint will have a material
adverse effect on the business or financial condition of Equistar.

     Lyondell, Millennium Petrochemicals and certain subsidiaries of Occidental
have each agreed to provide certain indemnifications to Equistar with respect to
the petrochemicals and polymers businesses contributed by the partners. In
addition, Equistar has agreed to assume third party claims that are related to
certain pre-closing contingent liabilities. See "Item 13. Certain Relationships
and Related Transactions-Asset Contributions by Lyondell and Affiliates of
Millennium and Occidental" for more information regarding these indemnification
obligations.

                                      15
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                      PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     There is no established public trading market for the partnership interests
of Equistar. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management" for a listing of the holders of Equistar's partnership interests.

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
the Consolidated Financial Statements, including the related notes, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

<TABLE>
<CAPTION>

                                                                                                For the period
                                                                                                    from
                                                                                                 December 1,
                                                                                                    1997
                                                                                                (inception) to
                                                  For the year ended December 31,                December 31,
                                      --------------------------------------------------------  --------------
Millions of dollars                      2001           2000           1999          1998(a)         1997
-------------------                   ---------      ---------      ---------      -----------  --------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Results of Operations Data:
  Sales and other
   operating revenues                  $ 5,909        $ 7,495        $ 5,594        $ 4,524        $   365
  Net income (loss)                       (283)           153             32            143              7
Balance Sheet Data:
  Total assets                           6,308          6,582          6,736          6,665          4,600
  Obligations under capital leases          --             --             --            205             --
  Long-term debt                         2,233          2,158          2,169          1,865          1,512

</TABLE>

------------
(a)  The financial information for 1998 includes the operating results of the
     businesses contributed by Occidental Petroleum Corporation ("Occidental")
     prospectively from May 15, 1998, the date of contribution. The business
     contributed by Occidental was accounted for using the purchase method of
     accounting.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

     This discussion should be read in conjunction with information contained in
the Consolidated Financial Statements and the notes thereto.

                                      16
<PAGE>

RESULTS OF OPERATIONS

OVERVIEW

     General--The three-year period from 1999 to 2001 was marked by considerable
volatility in the chemical industry. The fourth quarter of 1998 marked a trough
in the commodity petrochemical cycle due to a combination of new capacity, high
inventory levels and the Asian financial crisis. In 1999, ethylene and
derivatives prices rebounded from year end 1998 lows as domestic ethylene demand
grew by more than 6.5%, while the industry experienced both planned and
unplanned outages. As a result, benchmark ethylene prices increased every
quarter from the end of 1998, peaking in mid-2000. Raw material costs also began
increasing during 1999 due to higher crude oil and natural gas prices, which
affect raw material and energy costs in the production of chemicals. These cost
increases continued through 1999 into 2000 and remained at high levels during
2000. From the end of 1998 to the end of 2000, the weighted-average cost of raw
materials for the industry rose 150%. Surging natural gas costs late in 2000
increased the costs of natural gas liquids ("NGL"), primarily ethane, as well as
the cost of utilities. In response, some U.S.-based producers, including
Equistar, idled plants using NGL-based raw materials. Demand began to weaken in
the third quarter 2000 due to an industrial recession that included the chemical
sector. Domestic ethylene demand for all of 2000 contracted nearly 1%.
Meanwhile, total worldwide ethylene-industry capacity increased by 3% as a
result of new plants added during 2000.

     During 2001, the industry was negatively affected by weak demand and new
capacity. Domestic ethylene demand decreased nearly 10% in 2001 as the
industrial recession spread to other segments of the economy. Customer inventory
reductions contributed to the decrease. Due to the continuing weak demand,
Equistar further reduced the state of readiness of its previously idled Lake
Charles, Louisiana plant in the second quarter 2001. The idled plant represents
7% of Equistar's ethylene capacity. Meanwhile, the industry added an estimated
16.4 billion pounds of annual ethylene capacity, or 7.6% of worldwide capacity,
in 2001.

     In addition to the weak demand, high NGL costs early in 2001 had a
significant impact in reducing the competitive position of North American
exports, such as polyethylene, to other regions of the world. Natural gas costs
spiked to nearly $10 per million BTUs in January 2001. This compared to a price
range of $1.50 to $2.50 per million BTUs in the period from 1991 to 1999. After
the January 2001 spike, natural gas prices decreased steadily to historical
price levels, but still averaged $4.28 per million BTUs, or 10% higher than in
2000. As a result of the decreases in natural gas prices, North American exports
returned to their historical competitive cost position. The high NGL costs also
caused producers to switch to crude oil based raw materials. This resulted in an
increased supply of co-products such as propylene, butadiene and benzene,
putting downward pressure on the prices of those co-products for most of 2001.

     The decreased demand in 2001 combined with increased industry capacity put
downward pressure on product sales prices. Although crude oil and natural gas
prices also decreased during 2001, product sales prices declined at a faster
rate. These combined factors resulted in lower product margins for the industry
and for Equistar during 2001 compared to 2000.

     Net Income (Loss)--Equistar had a net loss in 2001 of $283 million compared
to net income of $153 million for 2000. The significant decrease of $436 million
primarily reflected lower petrochemicals segment margins as well as lower
volumes for both the petrochemicals and polymers segments. The lower
petrochemicals margins were due to lower sales prices, which decreased more than
raw material costs, in 2001 compared to 2000. Petrochemical margins were also
negatively affected by decreases in co-product prices during 2001. The lower
sales prices and volumes reflected weaker demand in 2001. Polymers segment 2001
operating results were comparable to 2000. Results for 2001 also included $22
million of costs associated with the shutdown of the Port Arthur, Texas
polyethylene facility in the first quarter 2001.

                                      17
<PAGE>

     Equistar's 2000 net income of $153 million increased $71 million from net
income, excluding unusual items, of $82 million in 1999. The increase reflected
the benefits of higher petrochemicals segment margins and lower selling, general
and administrative expenses partly offset by lower polymers segment margins and
lower sales volumes in both segments. The unusual items in 1999 included
restructuring and other unusual charges of $96 million and gains on asset sales
of $46 million. Petrochemicals margins improved in 2000 as average sales prices
increased more than raw material costs. However, polymers sales price increases
in 2000 lagged behind raw material cost increases, leading to reduced margins.
Lower 2000 volumes in both segments primarily reflected a slow down in demand in
the latter half of 2000.

FOURTH QUARTER 2001 COMPARED TO THIRD QUARTER 2001

     Equistar's net loss of $94 million in the fourth quarter 2001 increased
from a net loss of $82 million in the third quarter 2001. Improvements in
petrochemicals segment operating results were more than offset by lower polymers
segment results.

     Equistar's petrochemicals segment had operating income of $50 million in
the fourth quarter of 2001 compared to $29 million in the third quarter. The
increase primarily was due to higher margins and was partially offset by lower
sales volumes. Ethylene margins in the fourth quarter 2001 increased from the
third quarter 2001 as prices for ethylene decreased less than raw material and
energy costs. The fourth quarter 2001 benchmark price for ethylene was 20.9
cents per pound compared to 23.9 cents per pound in the third quarter 2001.
However, costs decreased due to lower raw material prices as well as higher
co-product propylene prices. Benchmark propylene prices increased an estimated
2.3 cents per pound in the fourth quarter 2001. Sales volumes for petrochemical
products decreased 2% in the fourth quarter 2001 compared to the third quarter
2001 as customers reduced inventory levels in late December 2001.

     The impact of certain fixed price natural gas and NGL supply contracts
reduced the potential benefit from the decreases in energy and raw material
costs. These contracts were entered into during 2001, while natural gas costs
were at relatively high levels. The market prices of these commodities
subsequently trended downwards with the result that the fixed prices were
significantly in excess of market prices by the fourth quarter 2001. In the
fourth quarter 2001, Equistar's costs under the fixed price contracts were
approximately $23 million higher than they would have been under market-based
contracts.
     Equistar's polymers segment had a fourth quarter 2001 operating loss of
$48 million compared to a loss of $26 million in the third quarter 2001. Results
for the polymers segment deteriorated in the fourth quarter 2001 due to both
lower margins and volumes. Margins were lower as polyethylene price decreases
exceeded decreases in ethylene prices. In comparison to the third quarter 2001,
average benchmark polyethylene prices decreased an estimated 3.8 cents per pound
in the fourth quarter 2001 compared to an estimated decrease of 3 cents per
pound for ethylene. Equistar's polymer volumes in the fourth quarter 2001
decreased nearly 7% compared to the third quarter 2001. Polymer volumes were
affected by reduced U.S. demand in December 2001 as customers sought to further
reduce inventories.

                                      18
<PAGE>

SEGMENT DATA

     The following tables reflect selected sales volume data, including
intersegment sales volumes, and summarized financial information for Equistar's
business segments.

                                                For the year ended December 31,
                                          --------------------------------------
In millions                                    2001         2000         1999
-----------                               ------------   ----------   ----------
Selected petrochemicals products:
   Olefins (pounds)                            16,236       18,490       18,574
   Aromatics (gallons)                            366          397          367
Polymers products (pounds)                      5,862        6,281        6,388

Millions of dollars
-------------------
Sales and other operating revenues:
Petrochemicals segment                        $ 5,384      $ 7,031     $  4,759
Polymers segment                                1,980        2,351        2,159
Intersegment eliminations                      (1,455)      (1,887)      (1,324)
                                            ----------   ----------   ----------
    Total                                     $ 5,909      $ 7,495     $  5,594
                                            ==========   ==========   ==========
Cost of sales:
Petrochemicals segment                        $ 5,100      $ 6,330     $  4,298
Polymers segment                                2,088        2,465        2,028
Intersegment eliminations                      (1,455)      (1,887)      (1,324)
                                            ----------   ----------   ----------
    Total                                     $ 5,733      $ 6,908     $  5,002
                                            ==========   ==========   ==========
Other operating expenses:
Petrochemicals segment                        $     9      $     7     $     14
Polymers segment                                   78           71           80
Unallocated                                       166          175          240
Unusual charges                                    22           --           96
                                            ----------   ----------   ----------
    Total                                     $   275      $   253     $    430
                                            ==========   ==========   ==========
Operating income (loss):
Petrochemicals segment                        $   275      $   694     $    447
Polymers segment                                 (186)        (185)          51
Unallocated                                      (188)        (175)        (336)
                                            ----------   ----------   ----------
    Total                                     $   (99)     $   334     $    162
                                            ==========   ==========   ==========

PETROCHEMICALS SEGMENT

     Revenues--Revenues of $5.4 billion in 2001 decreased 23% compared to
revenues of $7.0 billion for 2000 as a result of lower average sales prices and
lower sales volumes in 2001. Benchmark ethylene prices averaged 13% lower in
2001 compared to 2000. Sales volumes decreased 12% due to weaker business
conditions in 2001.

     Revenues of $7.0 billion in 2000 increased 48% from $4.8 billion in 1999.
The increase primarily was due to higher average sales prices, as sales volumes
were comparable to 1999. Sales prices rose rapidly in 1999, and remained at
higher levels throughout 2000, resulting in higher average prices for 2000.
Average benchmark ethylene prices were 37% higher in 2000 than in 1999. Volumes
were flat due to a slow down in demand in the latter half of 2000, reflecting
the industrial recession in the U.S. As a result of the slower demand and the
adverse effects of the rapid fourth quarter 2000 increase in natural gas costs,
Equistar idled its Lake Charles, Louisiana plant, which uses NGL-based raw
materials, early in 2001.

                                      19
<PAGE>

     Cost of Sales--Cost of sales of $5.1 billion in 2001 decreased 19% compared
to $6.3 billion in 2000. The effect of the 12% decrease in sales volumes and
lower average raw material costs was partly offset by decreases in co-product
prices. Benchmark crude oil prices, which affect the cost of raw materials,
averaged 14% lower in 2001 compared to 2000, while benchmark prices for
co-product propylene averaged 23% lower in 2001 compared to 2000. Although cost
of sales in 2001 benefited from a reduction in the levels of inventories carried
under the last-in, first-out ("LIFO") method of accounting (see Notes 2 and 8),
the LIFO benefit of approximately $10 million was more than offset by the $23
million negative effect of the above-market purchase contracts.

     Cost of sales of $6.3 billion in 2000 increased 47% compared to cost of
sales of $4.3 billion in 1999. The increase was primarily due to increases in
raw material costs, which were affected by higher average crude oil and natural
gas costs in 2000. Benchmark crude oil prices averaged 65% higher, while the
benchmark natural gas prices averaged 40% higher in 2000 compared to 1999. The
fourth quarter 2000 average price of natural gas was 80% higher than the full
year 1999 average, reflecting the rapid increase late in that year.

     Operating Income--Operating income of $275 million in 2001 decreased 60%
from $694 million in 2000. The decrease primarily was due to lower margins and,
to a lesser extent, lower sales volumes. The lower margins primarily reflected
lower prices for ethylene and for co-products such as propylene and benzene in
2001 compared to 2000. The lower prices and volumes were due to weaker demand in
2001 compared to 2000.

     Operating income of $694 million in 2000 increased 55% compared to $447
million in 1999 on higher margins. Margins improved as Equistar generally was
able to increase sales prices more than the increases in raw material costs,
primarily in the first half of the year.

POLYMERS SEGMENT

     Revenues--Revenues of $2.0 billion in 2001 decreased 16% compared to
revenues of $2.4 billion in 2000 due to a decrease in average sales prices and a
7% decrease in sales volumes. The decreases in sales prices and volumes were
both due to weaker demand in 2001.

     Revenues of $2.4 billion in 2000 increased 9% compared to revenues of $2.2
billion in 1999 due to higher sales prices partly offset by lower sales volumes.
Average sales prices were 9% higher, primarily in response to higher raw
material costs for ethylene and propylene. Sales volumes declined 2% due to a
combination of a planned maintenance turnaround at the Morris, Illinois plant in
the second quarter 2000 and a slow down in demand in the latter half of 2000,
reflecting the industrial recession in the U.S.

     Cost of Sales--Cost of sales of $2.1 billion in 2001 decreased 15% compared
to $2.5 billion in 2000 due to lower raw material costs in 2001 and the 7%
decrease in sales volumes. Benchmark prices of ethylene and propylene, the
principal raw materials for polymers, averaged 13% and 23% lower, respectively,
in 2001 than in 2000.

     Cost of sales of $2.5 billion in 2000 increased 22% compared to $2.0
billion in 1999. Higher 2000 average prices for ethylene and propylene were
partly offset by lower sales volumes. Average 2000 benchmark prices for ethylene
and propylene were higher by 37% and 70%, respectively, than in 1999.

     Operating Income--The 2001 operating loss of $186 million was comparable to
the operating loss of $185 million in 2000 as the effect of lower polymers
prices was offset by lower raw material costs.

     The operating loss of $185 million in 2000 decreased $236 million from
operating income of $51 million in 1999. The decrease was primarily due to
substantially lower margins for 2000 compared to 1999 as raw material cost
increases outpaced sales price increases.

                                      20
<PAGE>

UNALLOCATED ITEMS

     The following discusses expenses that were not allocated to the
petrochemicals and polymers segments.

     Other Operating Expenses--These include unallocated general and
administrative expenses and goodwill amortization. Unallocated expenses were
$166 million in 2001, $175 million in 2000, and $240 million in 1999. The
decrease from 2000 to 2001 was due to cost reduction efforts and a lower level
of business activity in 2001. The decrease from 1999 to 2000 reflected a
reduction in compensation and employee benefit expenses and Year 2000 costs, as
well as savings realized from the consolidation of certain administrative
functions under the Shared Services Agreement with Lyondell beginning January 1,
2000.

     Unusual Charges--Unusual charges were $22 million in 2001 and $96 million
in 1999. In 2001, Equistar discontinued production at its higher-cost Port
Arthur, Texas polyethylene facility in February and shut down the facility.
Closed production units included a 240 million pounds per year high-density
polyethylene ("HDPE") reactor and a low-density polyethylene ("LDPE") reactor
with annual capacity of 160 million pounds. These units and a 300 million pounds
per year HDPE reactor mothballed in the fourth quarter of 1999 have been
permanently shut down and are being dismantled. The asset values of these
production units were previously adjusted as part of the $96 million
restructuring charge recognized in 1999, as discussed below. In 2001, Equistar
recorded the $22 million charge which included environmental remediation
liabilities of $7 million, other exit costs of $3 million and severance and
pension benefits of $7 million for approximately 125 people employed at the Port
Arthur facility. The remaining $5 million balance primarily related to the write
down of certain assets.

     During 1999, Equistar recorded a charge of $96 million for costs associated
with a decision to shut down several polyethylene reactors, including a Port
Arthur HDPE reactor and two LaPorte, Texas LDPE reactors, and severance costs.
The severance costs were primarily related to the consolidation of certain
administrative functions between Lyondell and Equistar. Approximately $72
million of the total charge was an adjustment of the asset carrying values of
the reactors. The remaining $24 million represented severance and other
employee-related costs for approximately 500 employee positions that were
eliminated. The eliminated positions, primarily administrative functions,
resulted from opportunities to consolidate such services among Lyondell and
Equistar.

     Other Income, Net--Other income of $46 million in 1999 primarily consisted
of net gains on asset sales, including the sale of the concentrates and
compounds business in April 1999.

     Extraordinary Loss--As part of a 2001 refinancing, Equistar wrote off
unamortized debt issuance costs and amendment fees of $3 million related to the
early repayment of the $1.25 billion bank credit facility and reported the
charge as an extraordinary loss on early extinguishment of debt.

FINANCIAL CONDITION

     Operating Activities--Operating activities provided cash of $230 million in
2001 compared to $339 million in 2000. The $109 million decrease primarily
reflected a $283 million net loss in 2001 compared to net income of $153 million
in 2000. This was partly offset by a $220 million net reduction in receivables,
which occurred despite the termination of a $130 million receivables
securitization program in August 2001. The net reduction in receivables
reflected the effects of lower sales prices as well as improved collection
efficiency in 2001.

     Investing Activities--Equistar's capital expenditures were $110 million in
2001 and $131 million in 2000. Capital expenditures in both years primarily
included low-cost, incremental capacity expansions for product lines whose
current capacity is fully utilized, regulatory compliance and reliability
improvement projects. The 2001 capital expenditures were reduced by
approximately 40% from amounts originally budgeted due to the poor current
business environment. During the second quarter 2001, Equistar purchased the
low- and medium-voltage power cable materials business of AT Plastics, Inc. for
$7 million. Equistar's capital budget for 2002 is $94 million, primarily to
improve plant efficiency and to ensure regulatory and environmental compliance.

                                      21
<PAGE>

     Financing Activities--In August 2001, Equistar completed a $1.5 billion
debt refinancing. The refinancing included an amended and restated bank credit
facility consisting of a $500 million secured revolving credit facility maturing
in August 2006 and a $300 million secured term loan maturing in August 2007. The
refinancing also included the issuance of $700 million of new unsecured 10.125%
senior notes maturing in August 2008. The refinancing replaced a $1.25 billion
bank credit facility, $820 million of which was outstanding. A portion of the
net proceeds was also used to repay $90 million of Equistar's medium-term notes
that matured on August 30, 2001. The remaining net proceeds are being used for
general business purposes. The amended and restated bank credit facility also
made certain financial ratio requirements less restrictive. Equistar previously
had amended its credit facility in March 2001, easing certain financial ratio
requirements. In addition, during the third quarter 2001, Equistar terminated a
$130 million receivables securitization program originally entered into in
December 1998. There were no distributions to partners by Equistar in 2001.

     Liquidity and Capital Resources--The August 2001 $1.5 billion debt
refinancing, described in the preceding section, significantly extended
Equistar's debt maturity schedule and eased the financial ratio requirements in
the bank credit facility. This provided Equistar with additional liquidity and
financial flexibility. At December 31, 2001, Equistar had cash on hand of $202
million. The $500 million revolving credit facility, which matures in August
2006, was undrawn at December 31, 2001. Amounts available under the $500 million
revolving credit facility are reduced to the extent of outstanding letters of
credit, which were minimal as of December 31, 2001. Early in 2002, Equistar's
credit rating was lowered by two major rating agencies, which could affect
Equistar's borrowing costs in the future.

     Management believes that conditions will be such that cash balances, cash
flow from operations and funding under the credit facility will be adequate to
meet anticipated future cash requirements, including scheduled debt repayments,
other contractual obligations, necessary capital expenditures and ongoing
operations.

     In addition to Equistar's long-term debt, the partnership is obligated to
make payments relating to various types of obligations, some of which were
incurred in lieu of financing to obtain the rights to use certain assets. The
following table summarizes Equistar's minimum payments relating to long-term
debt, purchase obligations and operating leases, and residual value guarantees
for the next five years and thereafter.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                       Payments Due By Period
                                               ---------------------------------------------------------------------

Millions of dollars                   Total     2002       2003       2004        2005       2006     Thereafter
-------------------                  -------   -------   --------    -------    -------    -------   ------------
<S>                                  <C>        <C>         <C>        <C>       <C>         <C>       <C>
Contractual obligations:
 Long-term debt                      $ 2,337    $  104      $  32      $ 303     $    8      $ 153     $  1,737
 Purchase obligations                  2,339       109        132        135        137        138        1,688
 Operating leases                        605        95         78         67         43         35          287
 Residual value guarantees               225        39         --        186         --         --           --
                                     -------   -------    -------    -------    -------    -------   ------------
Total contractual obligations        $ 5,506    $  347      $ 242      $ 691     $  188      $ 326     $  3,712
                                     =======   =======    =======    =======    =======    =======   ============
--------------------------------------------------------------------------------------------------------------------
</TABLE>

     Long-Term Debt--The bank credit facility and the indenture governing
Equistar's senior notes contain covenants that, subject to certain exceptions,
restrict sale and leaseback transactions, lien incurrence, debt incurrence,
sales of assets, investments, certain payments, and mergers and consolidations.
In addition, the bank credit facility requires Equistar to maintain specified
financial ratios. The breach of these covenants could permit the lenders under
Equistar's credit facility and the indenture governing the senior notes to
declare the loans immediately payable and could permit the lenders under
Equistar's credit facility to terminate future lending commitments. Equistar was
in compliance with all covenants under its debt instruments as of December 31,
2001.

     As a result of the continued poor current business environment, Equistar is
seeking an amendment to its credit facility to provide additional financial
flexibility by easing certain financial ratio requirements. Such an amendment
will require the payment of additional fees. Equistar anticipates that the
amendment will become effective prior to March 31, 2002. See Note 11 to the
Consolidated Financial Statements for additional information on Equistar's
long-term debt and credit facility.

                                      22
<PAGE>

     Purchase Obligations--Equistar is party to various unconditional purchase
obligations to purchase products and services, as summarized in the above table.
These primarily include commitments for steam and power from a new co-generation
facility, which is expected to reach full capacity in mid-2002. These
commitments are designed to assure sources of supply and are not expected to be
in excess of normal requirements. See Note 15 to the Consolidated Financial
Statements for a description of various commitments and contingencies, including
these purchase obligations.

     Operating Leases--Equistar leases various facilities and equipment,
including railcars, under noncancelable operating lease arrangements for various
periods. Certain of Equistar's railcar leases contain financial and other
covenants that are substantially the same as those contained in Equistar's
credit facility. The breach of these covenants would permit the early
termination by the lessors of these railcar leases. Equistar was in compliance
with those covenants as of December 31, 2001. However, as a result of the
continued poor current business environment, Equistar is seeking an amendment to
these railcar leases. Such amendments will require the payment of additional
fees. Equistar anticipates that the amendments will become effective prior to
March 31, 2002.

     In addition, the credit rating downgrade in 2002 permits the early
termination of one of Equistar's railcar leases by the lessor, which would
accelerate the payment of $126 million of minimum lease payments due under the
lease. Equistar has reached agreement in principle with the lessor to
renegotiate the lease. See Note 12 to the Consolidated Financial Statements for
related operating lease disclosures.

     Residual Value Guarantees--The operating leases discussed above include
railcars leased from unaffiliated entities established for the purpose of
serving as lessors with respect to these leases. The leases include options for
Equistar to purchase the railcars covered by the leases during a lease term. If
Equistar does not exercise a purchase option, the affected railcars will be sold
upon termination of the lease. In the event the sales proceeds are less than the
related guaranteed residual value, Equistar will pay the difference to the
lessor. The total guaranteed residual value under these leases was approximately
$225 million at December 31, 2001, which is not included in the minimum
operating leases payments in the table above. Operating leases are discussed in
Note 12 to the Consolidated Financial Statements.

RECENT DEVELOPMENTS

     Early in 2002, Lyondell and Occidental agreed in principle for Lyondell's
acquisition of Occidental's 29.5% share of Equistar and Occidental's purchase of
an equity interest in Lyondell. Upon completion of these transactions,
Lyondell's ownership interest in Equistar would increase to 70.5%. Millennium
holds the remaining 29.5% interest in Equistar. There can be no assurance that
the proposed transactions will be completed.

RELATED PARTY TRANSACTIONS

     Equistar makes significant sales of product to Lyondell, Occidental
Chemical ("Occidental Chemical"), LYONDELL-CITGO Refining LP ("LCR"), Millennium
Chemicals Inc ("Millennium"), Oxy Vinyls, LP ("Oxy Vinyls") and Lyondell
Methanol Company, L.P. ("LMC"). In turn, Equistar makes significant purchases of
raw materials and products from LCR, LMC, and Millennium and receives
significant administrative services from Lyondell. Equistar believes that such
related party transactions are effected on terms substantially no more or less
favorable than those that would have been agreed upon by third parties on an
arm's-length basis. See "Item 13. Certain Relationships and Related
Transactions" and Note 5 to the Consolidated Financial Statements for a
description of related party transactions.

                                      23
<PAGE>

CRITICAL ACCOUNTING POLICIES

     Equistar applies those accounting policies that management believes best
reflect the underlying business and economic events, consistent with generally
accepted accounting principles. Equistar's more significant accounting policies
include those related to long-lived assets, major turnaround maintenance and
repair costs, and accruals for long-term employee benefit costs such as pension,
postretirement, and other postemployment costs. Inherent in such policies are
certain key assumptions and estimates made by management. Equistar's significant
accounting policies are summarized in Note 2 to the Consolidated Financial
Statements.

     With respect to long-lived assets, key assumptions include estimates of
useful lives and the recoverability of carrying values of fixed assets, goodwill
and other intangible assets. Such estimates could be significantly modified
and/or the carrying values of the assets could be impaired by such factors as
new technological developments, new chemical industry entrants with significant
raw material cost advantages, uncertainties associated with the United States
and world economies, the cyclical nature of the chemical industry, and
uncertainties associated with government regulatory actions. See also
"Forward-Looking Statements."

     Equistar defers the costs of turnaround maintenance and repair activities
in excess of $5 million, amortizing such costs over the period until the next
expected major turnaround of the affected unit. During 2001, expenditures of $15
million were deferred, and are being amortized over an average of 5 years.

     Additional information on long-lived assets appears in Note 9 to the
Consolidated Financial Statements.

     With respect to long-term employee benefit costs, key assumptions include
the long-term rate of return on pension assets, the annual rate of inflation of
health care costs and the general interest rate environment. The key assumptions
underlying these benefit costs are discussed in Note 14 to the Consolidated
Financial Statements.

     Management periodically updates its estimates used in the preparation of
the financial statements based on its latest assessment of the current and
projected business and general economic environment.

CURRENT BUSINESS OUTLOOK

     Weak business conditions in the chemical industry have continued through
February 2002. There has been no evidence to date of solid demand growth in
Equistar's markets that would cause management to expect a dramatic change.
Equistar expects continued trough conditions in the first quarter 2002 for the
global chemical markets that it serves. Pricing pressures are expected to
continue for the petrochemicals and polymers businesses.

ENVIRONMENTAL MATTERS

     Various environmental laws and regulations impose substantial requirements
upon the operations of Equistar. Equistar's policy is to be in compliance with
such laws and regulations, which include, among others, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund")
as amended, the Resource Conservation and Recovery Act ("RCRA") and the Clean
Air Act Amendments. Equistar does not specifically track all recurring costs
associated with managing hazardous substances and pollution in ongoing
operations. Such costs are included in cost of sales. Equistar also makes
capital expenditures to comply with environmental regulations. Such capital
expenditures totaled approximately $16 million, $6 million and $3 million for
2001, 2000 and 1999, respectively. Capital expenditures increased in 2001 as a
result of new emission reduction rules, discussed below, and Equistar currently
estimates that these rules will result in further increases in expenditures to
approximately $29 million in 2002 and $85 million in 2003.

                                      24
<PAGE>

     The eight-county Houston/Galveston region has been designated a severe
non-attainment area for ozone by the EPA. Emission reduction controls for
nitrogen oxides ("NOx") must be installed at each of Equistar's six plants
located in the Houston/Galveston region during the next several years.
Compliance with the provisions of the plan will result in increased capital
investment during the next several years and higher annual operating costs for
Equistar. The capital expenditures related to this matter alone could total
between $200 million and $260 million before the 2007 deadline. The timing and
amount of these expenditures are subject to regulatory and other uncertainties,
as well as obtaining the necessary permits and approvals. In January 2001,
Equistar and an organization composed of industry participants filed a lawsuit
to encourage adoption of their alternative plan to achieve the same air quality
improvement with less negative economic impact on the region. Adoption of the
alternative plan, as sought by the lawsuit, is expected to reduce Equistar's
estimated capital investments for NOx reductions required to comply with the
plans for meeting the ozone standard. However, there can be no guarantee as to
the ultimate capital cost of implementing any final plan developed to ensure
ozone attainment by the 2007 deadline.

     In the United States, the Clean Air Act Amendments of 1990 set minimum
levels for oxygenates, such as methyl tertiary butyl ether ("MTBE"), in gasoline
sold in areas not meeting specified air quality standards. The presence of MTBE
in some water supplies in California and other states due to gasoline leaking
from underground storage tanks and in surface water from recreational water
craft has led to public concern about the use of MTBE. Certain federal and state
governmental initiatives have sought either to rescind the oxygenate requirement
for reformulated gasoline or to restrict or ban the use of MTBE. The initiatives
mentioned above or other governmental actions could result in a significant
reduction in Equistar's MTBE sales, which represented approximately 4% of its
total 2001 revenues. Equistar has developed technologies to convert its process
to produce alternate gasoline blending components should it be necessary to
reduce MTBE production in the future. However, implementation of such
technologies would require additional capital investment. See "Items 1 and 2.
Business and Properties - Environmental Matters."

     Equistar's accrued liability for environmental matters as of December 31,
2001 was $6 million and related to the Port Arthur facility, which was
permanently shut down on February 28, 2001. In the opinion of management, there
is currently no material estimable range of loss in excess of the liability
recorded for environmental matters.

RECENT ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective
January 1, 2002. SFAS No. 141 is effective for business combinations initiated
after June 30, 2001 and is not expected to have a material effect on intangible
assets acquired in business combinations effected prior to July 1, 2001. SFAS
No. 142 prescribes the discontinuance of amortization of goodwill as well as
annual review of goodwill for impairment. Equistar expects the implementation of
SFAS No. 142 to result in the impairment of the entire balance of goodwill,
resulting in a $1.1 billion charge that will be reported as the cumulative
effect of a change in accounting principle as of January 1, 2002. Earnings in
2002 and subsequent years will be favorably affected by $33 million annually
because of the elimination of goodwill amortization.

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations.  In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.  Adoption of
SFAS No. 143 and SFAS No. 144 in calendar years 2003 and 2002, respectively, is
not expected to have a material effect on the consolidated financial statements
of Equistar.

     As of January 1, 2001, Equistar adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No.  138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities.
Implementation of SFAS No. 133 and SFAS No. 138 did not have a material effect
on the consolidated financial statements of Equistar.

                                      25
<PAGE>

FORWARD-LOOKING STATEMENTS

     Certain of the statements contained in this report are "forward-looking
statements" within the meaning of the federal securities laws. Although Equistar
believes the expectations reflected in such forward-looking statements are
reasonable, they do involve certain assumptions, risks and uncertainties, and
Equistar can give no assurance that such expectations will prove to have been
correct. Equistar's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including:

..  the cyclical nature of the chemical industry,
..  uncertainties associated with the economy,
..  substantial chemical industry capacity additions resulting in oversupply and
   declining prices and margins,
..  the availability and cost of raw materials and utilities,
..  access to capital markets,
..  technological developments,
..  current and potential governmental regulatory actions,
..  potential terrorist acts,
..  operating interruptions (including leaks, explosions, fires, mechanical
   failure, unscheduled downtime, labor difficulties, transportation
   interruptions, spills and releases and other environmental risks), and
..  Equistar's ability to implement its business strategies, including cost
   reductions.

     Many of such factors are beyond Equistar's ability to control or predict.
Any of the factors, or a combination of these factors, could materially affect
Equistar's future results of operations and the ultimate accuracy of the
forward-looking statements. These forward-looking statements are not guarantees
of Equistar's future performance, and Equistar's actual results and future
developments may differ materially from those projected in the forward-looking
statements. Management cautions against putting undue reliance on
forward-looking statements or projecting any future results based on such
statements or present or prior earnings levels.

     All forward-looking statements in this Form 10-K are qualified in their
entirety by the cautionary statements contained in this section and in this
report.

ITEM 7A.  DISCLOSURE OF MARKET AND REGULATORY RISK

COMMODITY PRICE RISK

     A substantial portion of Equistar's products and raw materials are
commodities whose prices fluctuate as market supply and demand fundamentals
change. Accordingly, product margins and the level of Equistar's profitability
tend to fluctuate with changes in the business cycle. Equistar tries to protect
against such instability through various business strategies. These include
increasing the olefins plants' raw material flexibility, entering into
multi-year processing and sales agreements, and moving downstream into olefins
derivatives products whose pricing is more stable.

     Equistar, from time to time, enters into over-the-counter derivatives,
primarily price swap contracts, related to crude oil to help manage its exposure
to commodity price risk with respect to crude oil-related raw material
purchases. These hedging arrangements have the effect of locking in, at
predetermined prices or ranges of prices and for a specified period of time, the
prices that Equistar will pay for the volumes to which the hedge relates. As a
result, while these hedging arrangements are structured to reduce its exposure
to increases in price associated with the hedged commodity, they also limit the
benefit Equistar might otherwise receive from any price decreases associated
with the hedged commodity. As of December 31, 2001, there were no outstanding
derivatives.

                                      26
<PAGE>

     During 2001, while raw material market prices were at relatively high
levels, Equistar entered into fixed price contracts for some of its natural gas
and NGL requirements. The market prices of these commodities subsequently
trended downwards with the result that the fixed prices under these contracts
were significantly in excess of market prices at December 31, 2001. Using
December 31, 2001 spot market prices for these products the negative impact on
first quarter 2002 operating results would be approximately $30 million. Since
December 31, 2001, natural gas prices have further declined. These fixed-price
contracts substantially terminate by the end of the first quarter 2002.

INTEREST RATE RISK

     Equistar is exposed to interest rate risk with respect to the $299 million
outstanding balance of its variable-rate term loan due 2007. Assuming a
hypothetical 10% increase in interest rates from those in effect at year end,
the increase in annual interest expense on the variable-rate debt would be
approximately $2 million. Sensitivity analysis was used for this purpose.

REGULATORY RISK

     Certain federal and state governmental initiatives in the U.S. have sought
either to rescind the oxygenate requirement for reformulated gasoline or to
restrict or ban the use of MTBE. Equistar does not expect the proposals to have
a significant impact on MTBE margins and volumes in the near term. In Europe,
MTBE demand has benefited from new legislation in the European Union. Should it
become necessary to reduce MTBE production over the longer term, Equistar would
need to make capital expenditures to convert its process to produce alternative
gasoline blending components. The profit margins on such alternate gasoline
blending components could differ from those historically realized on MTBE. See
"Items 1 and 2. Business and Properties-Environmental Matters."

     New air pollution standards promulgated by federal and state regulatory
agencies in the U.S., including those specifically targeting the eight-county
Houston/Galveston region, will affect a substantial portion of the operating
facilities of Equistar. Compliance with these standards will result in increased
capital investment during the next several years and higher annual operating
costs for Equistar. See "Items 1 and 2. Business and Properties-Environmental
Matters."

                                      27
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                          Page
                                                                          ----
EQUISTAR CHEMICALS, LP

Report of Independent Accountants...........................................29

Consolidated Financial Statements:

     Consolidated Statements of Income......................................30
     Consolidated Balance Sheets............................................31
     Consolidated Statements of Cash Flows..................................32
     Consolidated Statements of Partners' Capital...........................33
     Notes to Consolidated Financial Statements.............................34

                                      28
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Partnership Governance Committee
of Equistar Chemicals, LP

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of partners' capital and of cash flows
present fairly, in all material respects, the financial position of Equistar
Chemicals, LP (the "Partnership") and its subsidiaries at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/s/  PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 8, 2002

                                       29
<PAGE>

                              EQUISTAR CHEMICALS, LP

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                              For the year ended December 31,
                                                   ----------------------------------------------
Millions of dollars                                    2001             2000              1999
-------------------                                ------------     ------------     ------------
<S>                                                  <C>              <C>               <C>
Sales and other operating revenues:
   Unrelated parties                                 $ 4,583          $ 5,770           $ 4,506
   Related parties                                     1,326            1,725             1,088
                                                   ------------     ------------     ------------
                                                       5,909            7,495             5,594
                                                   ------------     ------------     ------------

Operating costs and expenses:
   Cost of sales                                       5,733            6,908             5,002
   Selling, general and administrative expenses          181              182               259
   Research and development expense                       39               38                42
   Amortization of goodwill                               33               33                33
   Unusual charges                                        22               --                96
                                                   ------------     ------------     ------------
                                                       6,008            7,161             5,432
                                                   ------------     ------------     ------------

   Operating income (loss)                               (99)             334               162

Interest expense                                        (192)            (185)             (182)
Interest income                                            3                4                 6
Other income, net                                          8               --                46
                                                   ------------     ------------     ------------

   Income (loss) before extraordinary item              (280)             153                32

Extraordinary loss on extinguishment of debt              (3)              --                --
                                                   ------------     ------------     ------------

Net income (loss)                                    $  (283)         $   153           $    32
                                                   ============     ============     ============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       30
<PAGE>

                             EQUISTAR CHEMICALS, LP

                           CONSOLIDATED BALANCE SHEETS

                                                            December 31,
                                                      -------------------------
Millions of dollars                                      2001          2000
-------------------                                   -----------   -----------

ASSETS
Current assets:
   Cash and cash equivalents                           $   202       $    18
   Accounts receivable:
     Trade, net                                            440           568
     Related parties                                       100           190
   Inventories                                             448           506
   Prepaid expenses and other current assets                36            50
                                                      -----------   -----------
      Total current assets                               1,226         1,332

Property, plant and equipment, net                       3,705         3,819
Investment in PD Glycol                                     47            53
Goodwill, net                                            1,053         1,086
Other assets, net                                          277           292
                                                      -----------   -----------

Total assets                                           $ 6,308       $ 6,582
                                                      ===========   ===========

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
   Accounts payable:
     Trade                                             $   331       $   426
     Related parties                                        29            61
   Current maturities of long-term debt                    104            90
   Accrued liabilities                                     197           166
                                                      -----------   -----------
     Total current liabilities                             661           743

Long-term debt                                           2,233         2,158
Other liabilities                                          177           141
Commitments and contingencies                               --            --
Partners' capital:
   Partners' accounts                                    3,257         3,540
   Accumulated other comprehensive income (loss)           (20)           --
                                                      -----------   -----------
      Total partners' capital                            3,237         3,540
                                                      -----------   -----------

Total liabilities and partners' capital                $ 6,308       $ 6,582
                                                      ===========   ===========

                 See Notes to Consolidated Financial Statements.

                                       31
<PAGE>

                             EQUISTAR CHEMICALS, LP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        For the year ended December 31,
                                                              -----------------------------------------------------
Millions of dollars                                                2001                2000              1999
-------------------                                           ----------------    --------------     --------------
<S>                                                             <C>                <C>                 <C>
Cash flows from operating activities:
  Net income (loss)                                             $   (283)          $     153           $     32
  Adjustments to reconcile net income (loss) to
   cash provided by operating activities:
     Depreciation and amortization                                   321                 310                300
     Net (gain) loss on disposition of assets                         (3)                  5                 35
     Extraordinary loss on extinguishment of debt                      3                  --                 --
  Changes in assets and liabilities that provided (used)
   cash:
     Accounts receivable                                             220                 (58)              (213)
     Inventories                                                      61                  14                 17
     Accounts payable                                               (129)                 28                119
     Accrued liabilities                                              30                 (65)                82
     Other assets and liabilities                                     10                 (48)               (28)
                                                              ----------------    --------------     --------------
        Cash provided by operating activities                        230                 339                344
                                                              ----------------    --------------     --------------

Cash flows from investing activities:
  Expenditures for property, plant and equipment                    (110)               (131)              (157)
  Proceeds from sales of assets                                       10                   4                 75
  Purchase of business from AT Plastics, Inc.                         (7)                 --                 --
                                                              ----------------    --------------     --------------
       Cash used in investing activities                            (107)               (127)               (82)
                                                              ----------------    --------------     --------------

Cash flows from financing activities:
  Net borrowing (payments) under lines of credit                    (820)                 20               (502)
  Proceeds from issuance of long-term debt                         1,000                  --                898
  Repayment of other long-term debt                                  (91)                (42)              (150)
  Repayment of obligations under capital leases                       --                  --               (205)
  Distributions to partners                                           --                (280)              (255)
  Other                                                              (28)                 --                 (6)
                                                              ----------------    --------------     --------------
       Cash provided by (used in)
         financing activities                                         61                (302)              (220)
                                                              ----------------    --------------     --------------

Increase (decrease) in cash and cash equivalents                     184                 (90)                42
Cash and cash equivalents at beginning of period                      18                 108                 66
                                                              ----------------    --------------     --------------
Cash and cash equivalents at end of period                      $    202           $      18           $    108
                                                              ================    ==============     ==============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       32
<PAGE>

                             EQUISTAR CHEMICALS, LP

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>

                                                                                          Accumulated
                                                  Partners' Accounts                         Other
                                 -----------------------------------------------------   Comprehensive     Comprehensive
Millions of dollars               Lyondell     Millennium    Occidental       Total       Income (loss)     Income (loss)
-------------------              ------------  ------------  ------------  -----------  ----------------  ----------------
<S>                                <C>          <C>          <C>            <C>            <C>                <C>
Balance at January 1, 1999         $   613      $ 1,621      $ 1,651        $ 3,885        $      --          $      -
 Net income                             14            9            9             32               --                32
 Distributions to partners            (105)         (75)         (75)          (255)              --                --
                                 ------------  ------------  ------------  -----------  ----------------  ----------------

 Comprehensive income                                                                                         $     32
                                                                                                          ================

Balance at December 31, 1999           522        1,555        1,585          3,662               --                --

 Net income                             63           45           45            153               --               153
 Distributions to partners            (114)         (83)         (83)          (280)              --                --
 Other                                   5           --           --              5               --                --
                                 ------------  ------------  ------------  -----------  ----------------  ----------------

 Comprehensive income                                                                                         $    153
                                                                                                          ================

Balance at December 31, 2000           476        1,517        1,547          3,540               --                --

 Net loss                             (115)         (84)         (84)          (283)              --              (283)
 Other comprehensive income:
  Unrealized loss on securities         --           --           --             --               (1)               (1)
  Minimum pension liability             --           --           --             --              (19)              (19)
                                 ------------  ------------  ------------  -----------  ----------------  ----------------

 Comprehensive loss                                                                                           $   (303)
                                                                                                          ================

Balance at December 31, 2001       $   361      $ 1,433      $ 1,463        $ 3,257        $     (20)
                                 ============  ============  ============  ===========  ================
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       33
<PAGE>

                             EQUISTAR CHEMICALS, LP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  FORMATION OF THE PARTNERSHIP AND OPERATIONS

Lyondell Chemical Company ("Lyondell") and Millennium Chemicals Inc.
("Millennium") formed Equistar Chemicals, LP ("Equistar" or "the Partnership"),
a Delaware limited partnership, which commenced operations on December 1, 1997.
On May 15, 1998, Equistar was expanded with the contribution of certain assets
from Occidental Petroleum Corporation ("Occidental"). Equistar is currently
owned 41% by Lyondell, 29.5% by Millennium and 29.5% by Occidental, all through
wholly owned subsidiaries (see also Note 18).

Equistar owns and operates the petrochemicals and polymers businesses
contributed by Lyondell, Millennium and Occidental, which consist of 18
manufacturing facilities primarily on the U.S. Gulf Coast and in the U.S.
Midwest. The petrochemicals segment manufactures and markets olefins,
oxygenated products, aromatics and specialty products. Olefins include
ethylene, propylene and butadiene, and oxygenated products include ethylene
oxide, ethylene glycol, ethanol and methyl tertiary butyl ether ("MTBE"). The
petrochemicals segment also includes the production and sale of aromatics,
including benzene and toluene. The polymers segment manufactures and markets
polyolefins, including high-density polyethylene ("HDPE"), low-density
polyethylene ("LDPE"), linear low-density polyethylene ("LLDPE"),
polypropylene, and performance polymers, all of which are used in the
production of a wide variety of consumer and industrial products. The
performance polymers include enhanced grades of polyethylene, including wire
and cable insulating resins, and polymeric powders.

Equistar is governed by a Partnership Governance Committee consisting of nine
representatives, three appointed by each general partner. Most of the
significant decisions of the Partnership Governance Committee require unanimous
consent, including approval of the Partnership's strategic plan and annual
updates thereof. Distributions are made to the partners based upon their
percentage ownership of Equistar. Additional cash contributions required by the
Partnership are also based upon the partners' percentage ownership of Equistar.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The consolidated financial statements include the
accounts of Equistar and its wholly owned subsidiaries.

Revenue Recognition--Revenue from product sales is recognized as risk and title
to the product transfer to the customer, which usually occurs when shipment is
made.

Cash and Cash Equivalents--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. Cash
equivalents are stated at cost, which approximates fair value. Equistar's
policy is to invest cash in conservative, highly rated instruments and limit
the amount of credit exposure to any one institution. Equistar performs
periodic evaluations of the relative credit standing of these financial
institutions which are considered in Equistar's investment strategy.

Equistar has no requirements for compensating balances in a specific amount at
a specific point in time. The Partnership does maintain compensating balances
for some of its banking services and products. Such balances are maintained on
an average basis and are solely at Equistar's discretion. As a result, none of
Equistar's cash is restricted.

                                       34
<PAGE>

                             EQUISTAR CHEMICALS, LP

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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. Inventory exchange transactions,
which involve homogeneous commodities in the same line of business and 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.

Property, Plant and Equipment--Property, plant and equipment are recorded at
cost. Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the related assets,
generally 25 years for major manufacturing equipment, 30 years for buildings,
10 to 15 years for light equipment and instrumentation, 15 years for office
furniture and 3 to 5 years for information systems equipment. Upon retirement
or sale, Equistar removes the cost of the assets and the related accumulated
depreciation from the accounts and reflects any resulting gains or losses in
the Consolidated Statement of Income. Equistar's policy is to capitalize
interest cost incurred on debt during the construction of major projects
exceeding one year.

Long-Lived Asset Impairment--Equistar evaluates long-lived assets, including
identifiable intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When it is probable that undiscounted future cash flows will not
be sufficient to recover an asset's carrying amount, the asset is written down
to its fair value. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell. Beginning in 2002, as
discussed below, goodwill will be reviewed for impairment under SFAS No. 142
based on fair values.

Investment in PD Glycol--Equistar holds a 50% interest in a joint venture with
E.I. DuPont de Nemours and Company that owns an ethylene glycol facility in
Beaumont, Texas. This investment was contributed by Occidental in 1998. The
investment in PD Glycol is accounted for using the equity method of accounting.
At December 31, 2001 and 2000, Equistar's underlying equity in the net assets
of PD Glycol exceeded the cost of the investment by $7 million. The excess is
being accreted into income on a straight-line basis over a period of 25 years.

Goodwill--Goodwill includes goodwill contributed by Millennium and goodwill
recorded in connection with the contribution of Occidental's assets. Goodwill
is being amortized using the straight-line method over 40 years, the estimated
useful life. Amortization of goodwill will cease as of January 1, 2002 as
described below under Recent Accounting Standards.

Turnaround Maintenance and Repairs Costs--Cost of maintenance and repairs
incurred in connection with turnarounds of major units at Equistar's
manufacturing facilities exceeding $5 million are deferred and amortized using
the straight-line method until the next planned turnaround, generally four to
six years. These costs are maintenance, repair and replacement costs that are
necessary to maintain, extend and improve the operating capacity and efficiency
rates of the production units.

Deferred Software Costs--Costs to purchase and to develop software for internal
use are deferred and amortized on a straight-line basis over a range of 3 to 10
years.

Environmental Remediation Costs--Anticipated expenditures related to
investigation and remediation of contaminated sites, which include operating
facilities and waste disposal sites, are accrued when it is probable a
liability has been incurred and the amount of the liability can be reasonably
estimated. The estimated liabilities have not been discounted to present value.

Income Taxes--The Partnership is not subject to federal income taxes as income
is reportable directly by the individual partners; therefore, there is no
provision for income taxes in the accompanying financial statements.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

                                       35
<PAGE>

                             EQUISTAR CHEMICALS, LP

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Accounting Changes Adopted in 2001--As of January 1, 2001, Equistar adopted
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities.
Under SFAS No. 133, all derivative instruments are recorded on the balance
sheet at fair value. Gains or losses from changes in the fair value of
derivatives used as cash flow hedges are deferred in accumulated other
comprehensive income, to the extent the hedge is effective, and subsequently
reclassified to earnings to offset the impact of the related forecasted
transaction. Implementation of SFAS No. 133 and SFAS No. 138 did not have a
material effect on the consolidated financial statements of Equistar.

Recent Accounting Standards--In June 2001, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets, effective January 1, 2002. SFAS No. 141
is effective for business combinations initiated after June 30, 2001 and is not
expected to have a material effect on intangible assets acquired in business
combinations effected prior to July 1, 2001. SFAS No. 142 prescribed the
discontinuance of amortization of goodwill as well as annual review of goodwill
for impairment. Equistar expects the implementation of SFAS No. 142 to result
in the impairment of the entire balance of goodwill, resulting in a $1.1
billion charge that will be reported as the cumulative effect of a change in
accounting principle as of January 1, 2002. Earnings in 2002 and subsequent
years will be favorably affected by $33 million annually because of the
elimination of goodwill amortization.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Adoption of SFAS No. 143 and SFAS
No. 144 in calendar years 2003 and 2002, respectively, is not expected to have
a material effect on the consolidated financial statements of Equistar.

Reclassifications--Certain previously reported amounts have been reclassified
to conform to classifications adopted in 2001.

3.  UNUSUAL CHARGES

Equistar shut down its Port Arthur, Texas polyethylene facility in February
2001. The asset values of the Port Arthur production units were previously
adjusted as part of a $96 million restructuring charge recognized in 1999, as
discussed below. During the first quarter 2001, Equistar recorded an additional
$22 million charge, which included environmental remediation liabilities of $7
million (see Note 15), severance benefits of $5 million, pension benefits of $2
million, and other exit costs of $3 million. The severance and pension benefits
covered approximately 125 people employed at the Port Arthur facility. The
remaining $5 million of the charge related primarily to the write down of
certain assets. Payments of $4 million for severance, $3 million for exit costs
and $1 million for environmental remediation were made through December 31,
2001. The pension benefits of $2 million will be paid from the assets of the
pension plans. As of December 31, 2001, the remaining liability included $6
million for environmental remediation costs and $1 million for severance
benefits.

During 1999, Equistar recorded a charge of $96 million associated with
decisions to shut down certain polymer reactors and to consolidate certain
administrative functions between Lyondell and Equistar. Accordingly, Equistar
recorded a charge of $72 million to adjust the asset carrying values. The
remaining $24 million of the total charge represented severance and other
employee-related costs for approximately 500 employee positions that were
eliminated. The eliminated positions, primarily administrative functions,
resulted from opportunities to share such services between Lyondell and
Equistar. Through December 31, 2001, approximately $19 million of severance and
other employee-related costs had been paid and charged against the accrued
liability. As of December 31, 2001, all of the employee terminations had been
completed and the remaining liability of $5 million was eliminated.

                                       36
<PAGE>

4.  EXTRAORDINARY ITEM

As part of the third quarter 2001 refinancing (see Note 11), Equistar wrote off
unamortized debt issuance costs and amendment fees of $3 million related to the
early repayment of the $1.25 billion bank credit facility and reported the
charge as an extraordinary loss on extinguishment of debt.

5.  RELATED PARTY TRANSACTIONS

Product Transactions with Lyondell--Lyondell purchases ethylene, propylene and
benzene at market-related prices from Equistar under various agreements
expiring in 2013 and 2014. Under the agreements, Lyondell is required to
purchase 100% of its ethylene, propylene and benzene requirements for its
Channelview and Bayport, Texas facilities, with the exception of quantities of
one product that Lyondell is obligated to purchase under a supply agreement
with an unrelated third party entered into prior to 1999 and expiring in 2015.
In addition, a wholly owned subsidiary of Lyondell licenses MTBE technology to
Equistar. Lyondell also purchases a significant portion of the MTBE produced by
Equistar at one of its two Channelview units at market-related prices.

Product Transactions with Occidental Chemical--In connection with the
contribution of Occidental Chemical assets to Equistar, Equistar and Occidental
Chemical entered into a long-term agreement for Equistar to supply 100% of the
ethylene requirements for Occidental Chemical's U.S. manufacturing plants. The
pricing terms under the agreement between Equistar and Occidental Chemical are
similar to the pricing terms under the ethylene sales agreement between
Equistar and Lyondell. The ethylene raw material is exclusively for internal
use in production at these plants, less any quantities up to 250 million pounds
per year tolled in accordance with the provisions of the agreement. Upon three
years notice from either party to the other, sales may be "phased down" over a
period not less than five years. No phase down may commence before January 1,
2009. Therefore, the annual required minimum cannot decline to zero prior to
December 31, 2013, unless certain specified force majeure events occur. In
addition to ethylene, Equistar sells methanol, ethers, and glycols to
Occidental Chemical. Equistar also enters into over-the-counter derivatives,
primarily price swap contracts, for crude oil with Occidental Energy Marketing,
Inc., a subsidiary of Occidental Chemical, to help manage its exposure to
commodity price risk with respect to crude oil-related raw material purchases
(see Note 13). Equistar also purchases various products from Occidental
Chemical at market-related prices.

Product Transactions with Millennium Petrochemicals--Equistar sells ethylene to
Millennium Petrochemicals at market-related prices pursuant to an agreement
entered into in connection with the formation of Equistar. Under this
agreement, Millennium Petrochemicals is required to purchase 100% of its
ethylene requirements for its LaPorte, Texas facility from Equistar. The
contract expires December 1, 2002 and, thereafter, renews annually. Either
party may terminate on one year's notice. The pricing terms of this agreement
are similar to the pricing terms of the ethylene sales agreements with Lyondell
and Occidental Chemical.

Under an agreement entered into in connection with the formation of Equistar,
Equistar is required to purchase 100% of its vinyl acetate monomer ("VAM") raw
material requirements at market-related prices from Millennium Petrochemicals
for its LaPorte, Texas, Clinton, Iowa and Morris, Illinois plants for the
production of ethylene vinyl acetate products at those locations. The contract
expires December 31, 2002 and, thereafter, renews annually.

Product Transactions with Oxy Vinyls, LP--Occidental Chemical owns 76% of Oxy
Vinyls, LP ("Oxy Vinyls"), a joint venture partnership. Equistar sells ethylene
to Oxy Vinyls for Oxy Vinyls' LaPorte, Texas facility at market-related prices
pursuant to an agreement which expires on December 31, 2003.

                                       37
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Transactions with LYONDELL-CITGO Refining LP--Lyondell's rights and obligations
under the terms of its product sales and raw material purchase agreements with
LYONDELL-CITGO Refining LP ("LCR"), a joint venture investment of Lyondell, have
been assigned to Equistar. Accordingly, certain olefins by-products are sold by
Equistar to LCR for processing into gasoline and certain refinery products are
sold by LCR to Equistar as raw materials. Equistar also has assumed certain
processing arrangements as well as storage obligations between Lyondell and LCR
and provides certain marketing services for LCR. All of the agreements between
LCR and Equistar are on terms generally representative of prevailing market
prices.

Transactions with LMC--Lyondell Methanol Company, L.P. ("LMC") sells all of its
products to Equistar at market-related prices. The natural gas for LMC's plant
is purchased by Equistar as agent for LMC under Equistar master agreements with
various third party suppliers. Equistar provides operating and other services
for LMC under the terms of existing agreements that were assumed by Equistar
from Lyondell, including the lease to LMC by Equistar of the real property on
which LMC's methanol plant is located. Pursuant to the terms of those
agreements, LMC pays Equistar a management fee and reimburses certain expenses
of Equistar at cost.

Shared Services Agreement with Lyondell--During 1999, Lyondell provided certain
administrative services to Equistar, including legal, risk management, treasury,
tax and employee benefit plan administrative services, while Equistar provided
services to Lyondell in the areas of health, safety and environment, human
resources, information technology and legal. Effective January 1, 2000, Lyondell
and Equistar implemented a revised agreement to utilize shared services more
broadly. Lyondell now provides services to Equistar including information
technology, human resources, raw material supply, supply chain, health, safety
and environmental, engineering, research and development, facility services,
legal, accounting, treasury, internal audit and tax. Lyondell charges Equistar
for its share of the cost of such services. Direct third party costs, if
incurred exclusively for Equistar, are charged directly to Equistar.

Shared Services and Shared-Site Agreements with Millennium
Petrochemicals--Equistar and Millennium Petrochemicals have agreements under
which Equistar provides utilities, fuel streams and office space to Millennium
Petrochemicals. In addition, Millennium Petrochemicals provides Equistar certain
operational services, including utilities as well as barge dock access and
related services.

Transition Services Agreement with Occidental Chemical--On June 1, 1998,
Occidental Chemical and Equistar entered into a transition services agreement.
Under the terms of the agreement, Occidental Chemical provided Equistar certain
services in connection with the businesses contributed by Occidental Chemical,
including services related to accounting, payroll, office administration,
marketing, transportation, purchasing and procurement, management, human
resources, customer service, technical services and others. Most of these
services ceased in June 1999. Health, safety, and environmental services were
extended until December 31, 1999.

                                       38
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Related party transactions are summarized as follows:

<TABLE>
<CAPTION>
                                                                For the year ended December 31,
                                                           ----------------------------------------
Millions of dollars                                           2001            2000        1999
-------------------                                        -------------  ------------  -----------
<S>                                                        <C>             <C>         <C>
Equistar billed related parties for:
-----------------------------------
  Sales of products and processing services:
     Lyondell                                              $   405         $   572     $   246
     Occidental Chemical                                       441             558         435
     LCR                                                       377             438         260
     Millennium Petrochemicals                                  55              90          54
     Oxy Vinyls                                                 48              67          93

  Shared services and shared site agreements:
     LCR                                                         3               2           3
     LMC                                                         6               6           6
     Millennium Petrochemicals                                  17              24          21
     Lyondell                                                   --              --           8

  Gas purchased for LMC                                         86              85          46

Related parties billed Equistar for:
-----------------------------------
  Purchases of products:
     LCR                                                   $   203         $   264     $   190
     LMC                                                       151             165          95
     Millennium Petrochemicals                                  15              16          12
     Lyondell                                                    4               2           6
     Occidental Chemical                                         1               2           2

  Shared services and transition agreements:
     Lyondell                                                  147             133           9
     Millennium Petrochemicals                                  19              22          24
     LCR                                                         2              --          --
     Occidental Chemical                                        --              --           2

</TABLE>

6.  PURCHASE AND SALE OF BUSINESSES

Effective June 1, 2001, Equistar expanded its wire and cable business through
the acquisition of the low- and medium-voltage power cable materials business of
AT Plastics, Inc. Equistar accounted for the acquisition as a purchase,
allocating the $7 million purchase price to property, plant and equipment and
inventory.

Effective April 30, 1999, Equistar completed the sale of its concentrates and
compounds business. The transaction included two manufacturing facilities,
located in Heath, Ohio and Crockett, Texas, and related inventories. Equistar's
proceeds from the sale were approximately $75 million.

7.  ACCOUNTS RECEIVABLE

Equistar sells its products primarily to other chemical manufacturers in the
petrochemicals and polymers industries. Equistar performs ongoing credit
evaluations of its customers' financial condition and, in certain circumstances,
requires letters of credit from them. The Partnership's allowance for doubtful
accounts, which is reflected in the accompanying Consolidated Balance Sheets as
a reduction of accounts receivable, totaled $14 million and $9 million at
December 31, 2001 and 2000, respectively.

                                       39
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During 2001, Equistar terminated an agreement with an independent issuer of
receivables-backed commercial paper. Previously, Equistar sold, on an ongoing
basis and without recourse, designated accounts receivable, maintaining the
balance of the accounts receivable sold by selling new receivables as existing
receivables were collected. At December 31, 2000 and 1999, the balance of
Equistar's accounts receivable sold was $130 million. Increases and decreases in
the amount sold were reported as operating cash flows in the Consolidated
Statement of Cash Flows. Costs related to the sales were included in "Selling,
general and administrative expenses" in the Consolidated Statement of Income.

8.  INVENTORIES

Inventories were as follows at December 31:

Millions of dollars               2001                2000
-------------------          -----------------   -----------------
Finished goods                    $ 243               $ 273
Work-in-process                      12                  16
Raw materials                       104                 123
Materials and supplies               89                  94
                             -----------------   -----------------
  Total inventories               $ 448               $ 506
                             =================   =================

Income in 2001 benefited from a reduction in the levels of raw material and
product inventories, which are carried under the LIFO method of accounting. The
charges to cost of sales associated with the inventory reductions were valued
based on relatively low LIFO inventory values. If these charges had been valued
based on average 2001 costs, cost of sales for 2001 would have been higher by
approximately $10 million. The excess of the current cost of inventories over
book value was approximately $28 million at December 31, 2001.

9.  PROPERTY, PLANT AND EQUIPMENT AND OTHER ASSETS

The components of property, plant and equipment, at cost, and the related
accumulated depreciation were as follows at December 31:

Millions of dollars                              2001               2000
-------------------                        -----------------   ----------------
Land                                             $   79           $   78
Manufacturing facilities and equipment            5,929            5,769
Construction in progress                             92              134
                                           ------------------  ----------------
  Total property, plant and equipment              6,100            5,981
Less accumulated depreciation                      2,395            2,162
                                           ------------------  ----------------
  Property, plant and equipment, net             $ 3,705          $ 3,819
                                           ==================   ===============

Equistar did not capitalize any interest during 2001, 2000 and 1999 with respect
to construction projects.

Goodwill, at cost, and the related accumulated amortization were as follows at
December 31:

Millions of dollars                   2001                2000
-------------------               ---------------    ---------------

Goodwill                            $ 1,318            $ 1,318
Less accumulated amortization           265                232
                                  ---------------    ---------------
  Goodwill, net                     $ 1,053            $ 1,086
                                  ===============    ===============

                                       40
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The unamortized balances of deferred turnaround, software and debt issuance
costs included in "Other assets, net" were as follows at December 31:

Millions of dollars         2001               2000
-------------------    ---------------      -------------
Turnaround costs             $  70              $  75
Software costs                  97                104
Debt issuance costs             34                  9

Depreciation and amortization is summarized as follows for the periods
presented:

                                       For the year ended December 31,

                                ------------------------------------------------
Millions of dollars                 2001             2000              1999
-------------------             -------------    --------------    -------------
Property, plant and equipment       $ 237             $ 229            $ 221
Goodwill                               33                33              33
Turnaround expense                     20                24              25
Software costs                         12                13              12
Other                                  17                11               9
Debt issuance costs                     2                --              --
                                -------------    --------------    -------------
                                    $ 321             $ 310            $ 300
                                =============    ==============    =============

10.  ACCRUED LIABILITIES

Accrued liabilities were as follows at December 31:

Millions of dollars                     2001                2000
-------------------               -----------------   ---------------
Property taxes                      $      68           $      73
Interest                                   68                  52
Payroll and benefits                       49                  38
Other                                      12                   3
                                  -----------------   ---------------
    Total accrued liabilities       $     197           $     166
                                  =================   ===============

11.  LONG-TERM DEBT

In August 2001, Equistar completed a $1.5 billion debt refinancing. The
refinancing included a bank credit facility consisting of a $500 million secured
revolving credit facility maturing in August 2006 and a $300 million secured
term loan, maturing in August 2007, with scheduled quarterly amortization
payments, beginning December 31, 2001. The revolving credit facility was undrawn
at December 31, 2001. Borrowing under the revolving credit facility generally
bears interest based on a margin over, at Equistar's option, LIBOR or a base
rate. The sum of the applicable margin plus a facility fee varies between 1.5%
and 2.5%, in the case of LIBOR loans, and 0.5% and 1.5%, in the case of base
rate loans, depending on Equistar's ratio of debt to EBITDA. The term loan
generally bears interest at a rate equal to LIBOR plus 3% or the base rate plus
2%, at Equistar's option. Borrowing under the

                                       41
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

term loan had a weighted average interest rate of 6.26% during 2001. Certain
financial ratio requirements were modified in the refinancing to make them less
restrictive. The bank credit facility is secured by a lien on Equistar's
accounts receivable, inventory, other personal property and certain fixed
assets. The refinancing also included the issuance of $700 million of new
unsecured 10.125% senior notes maturing in August 2008. The 10.125% senior
notes rank pari passu with existing Equistar notes.

The August 2001 refinancing replaced a five-year, $1.25 billion credit facility
with a group of banks that would have expired November 2002. Borrowing under
the facility at December 31, 2000 was $820 million and had a weighted average
interest rate of 7.13% at December 31, 2000. Millennium America Inc., a
subsidiary of Millennium, provided limited guarantees with respect to the
payment of principal and interest on a total of $750 million principal amount
of indebtedness under the $1.25 billion revolving credit facility. As a result
of the refinancing, the related guarantees have been terminated.

In March 2001, Equistar amended the previous $1.25 billion credit facility
making certain financial ratio requirements less restrictive. As a result of
the amendment, the interest rate on the previous credit facility was increased
from LIBOR plus 5/8 of 1% to LIBOR plus 8/10 of 1%.

In February 1999, Equistar issued $900 million of debt securities. The debt
securities included $300 million of 8.50% Notes, which mature on February 15,
2004, and $600 million of 8.75% Notes, which mature on February 15, 2009.
Equistar used the net proceeds from this offering (i) to repay $205 million
outstanding under a capitalized lease obligation relating to Equistar's Corpus
Christi facility, (ii) to repay the outstanding balance under a $500 million
credit agreement, after which the $500 million credit agreement was terminated,
(iii) to repay $150 million of 10.00% Notes due in June 1999, and (iv) to the
extent of the remaining net proceeds, to reduce outstanding borrowing under the
revolving credit facility and for Partnership working capital purposes.

The bank credit facility and the indenture governing Equistar's 10.125% senior
notes contain covenants that, subject to certain exceptions, restrict sale and
leaseback transactions, lien incurrence, debt incurrence, sales of assets and
mergers and consolidations. In addition, the bank credit facility requires
Equistar to maintain specified financial ratios. The breach of these covenants
could permit the lenders to declare the loans immediately payable and could
permit the lenders under Equistar's credit facility to terminate future lending
commitments.

As a result of the continued poor current business environment, Equistar is
seeking an amendment to its credit facility that would increase its financial
flexibility by easing certain financial ratio requirements. Such an amendment
will require the payment of additional fees. Equistar anticipates that the
amendment will become effective prior to March 31, 2002.

                                       42
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-term debt consisted of the following at December 31:

Millions of dollars                                   2001             2000
-------------------                                ----------       ----------
Bank credit facilities:
  Revolving credit facility due 2006               $    --           $   820
  Term loan due 2007                                   299                --
Other debt obligations:
  Medium-term notes due 2002-2005                       31               121
  9.125% Notes due 2002                                100               100
  8.50% Notes due 2004                                 300               300
  6.50% Notes due 2006                                 150               150
  10.125% Senior Notes due 2008                        700               - -
  8.75% Notes due 2009                                 598               598
  7.55% Debentures due 2026                            150               150
  Other                                                  9                 9
                                                   ----------       -----------
    Total long-term debt                             2,337             2,248
Less current maturities                                104                90
                                                   ----------       -----------
    Total long-term debt, net                      $ 2,233           $ 2,158
                                                   ==========       ===========

The 8.75% notes have a face amount of $600 million and are shown net of
unamortized discount. The medium-term notes had a weighted average interest rate
of 9.8% and 9.6% at December 31, 2001 and 2000, respectively.

The medium-term notes, the 9.125% notes, the 6.5% notes and the 7.55% debentures
were assumed by Equistar from Lyondell when Equistar was formed in 1997. As
between Equistar and Lyondell, Equistar is primarily liable for this debt.
Lyondell remains a co-obligor for the medium-term notes and certain events
involving only Lyondell could give rise to events of default under those notes,
permitting the obligations to be accelerated. Under certain limited
circumstances, the holders of the medium-term notes have the right to require
repurchase of the notes. Following amendments to the indentures for the 9.125%
notes and 6.5% notes and the 7.55% debentures in November 2000, Lyondell remains
a guarantor of that debt but not a co-obligor. The consolidated financial
statements of Lyondell are filed as an exhibit to Equistar's Annual Report on
Form 10-K for the year ended December 31, 2001.

Aggregate maturities of long-term debt during the next five years are $104
million in 2002, $32 million in 2003; $303 million in 2004; $8 million in 2005;
$153 million in 2006 and $1.8 billion thereafter.

12.  LEASE COMMITMENTS

Equistar leases various facilities and equipment under noncancelable lease
arrangements for various periods.

Operating leases include leases of railcars used in the distribution of products
in Equistar's business. Equistar leases the railcars from unaffiliated entities
established for the purpose of serving as lessors with respect to these leases.
The leases include options for Equistar to purchase the railcars during a lease
term. If Equistar does not exercise a purchase option, the affected railcars
will be sold upon termination of the lease. In the event the sales proceeds are
less than the related guaranteed residual value, Equistar will pay the
difference to the lessor. The total guaranteed residual value under these leases
was approximately $225 million at December 31, 2001.

                                       43
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Certain of Equistar's railcar operating leases contain financial and other
covenants that are substantially the same as those contained in the credit
facility discussed in Note 11 above. A breach of these covenants would permit
the early termination of those leases. As a result of the continued poor current
business environment, Equistar is seeking an amendment to these railcar leases.
Such amendments will require the payment of additional fees. Equistar
anticipates that the amendments will become effective prior to March 31, 2002.

In addition, the credit rating downgrade in 2002 permits the early termination
of one of Equistar's railcar leases by the lessor, which would accelerate the
payment of $126 million of minimum lease payments. Equistar has reached an
agreement in principal with the lessor to renegotiate the lease.

At December 31, 2001, future minimum lease payments and residual value
guarantees relating to noncancelable operating leases with lease terms in excess
of one year were as follows:

                                                 Minimum            Residual
                                                  Lease              Value
                                                 Payments          Guarantees
                                               ------------      --------------
Millions of dollars
-------------------
2002                                             $  95              $  39
2003                                                78                - -
2004                                                67                186
2005                                                43                - -
2006                                                35                - -
Thereafter                                         287                - -
                                               ---------------   --------------
    Total minimum lease payments                 $ 605              $ 225
                                               ===============   ==============

Operating lease net rental expense was $110 million, $115 million and $112
million for the years ending December 31, 2001, 2000 and 1999, respectively.

13.  FINANCIAL INSTRUMENTS AND DERIVATIVES

Equistar enters into over-the-counter derivatives, primarily price swap
contracts, related to crude oil with Occidental Energy Marketing, Inc., a
subsidiary of Occidental Chemical, to help manage its exposure to commodity
price risk with respect to crude oil-related raw material purchases. At December
31, 2000, price swap contracts covering 5.1 million barrels of crude oil were
outstanding. The carrying value and fair market value of these derivative
instruments at December 31, 2000 represented a liability of $13 million, which
was based on quoted market prices. The resulting loss from these hedges of
anticipated raw material purchases was deferred on the consolidated balance
sheet. On January 1, 2001, in accordance with the transition provisions of SFAS
No. 133, Equistar reclassified the deferred loss of $13 million to accumulated
other comprehensive income as a transition adjustment, representing the
cumulative effect of a change in accounting principle. The transition adjustment
was reclassified to the Consolidated Statement of Income during the period
January through July 2001 as the related raw material purchases occurred.

During 2001, Equistar entered into additional price swap contracts covering 7.2
million barrels of crude oil and primarily maturing from July 2001 through
December 2001. In the third quarter 2001, outstanding price swap contracts,
covering 4.1 million barrels of crude oil and primarily maturing from October
2001 through December 2001, were effectively terminated. The termination
resulted in realization of a gain of nearly $9 million, which was recognized in
the fourth quarter 2001 as the related forecasted transactions occurred. There
were no outstanding price swap contracts at December 31, 2001.

                                       44
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes activity included in accumulated other
comprehensive income ("AOCI") related to the fair value of derivative
instruments for the year ended December 31, 2001:

Millions of dollars                                                    2001
-------------------                                                 ------------
Gain (loss):
  Balance at beginning of period                                      $ --
                                                                    ------------
  January 1, 2001 transition adjustment -
      reclassification of December 31, 2000 deferred loss              (13)
  Net gains on derivative instruments                                   35
  Reclassification of gains on
      derivative instruments to earnings                               (22)
                                                                    ------------
Net change included in AOCI for the period                              --
                                                                    ------------
  Net gain on derivative instruments
      included in AOCI at December 31, 2001                           $ --
                                                                    ============

The fair value of all nonderivative financial instruments included in current
assets and current liabilities, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, approximated their
carrying value due to their short maturity. Based on the borrowing rates
currently available to Equistar for debt with terms and average maturities
similar to Equistar's debt portfolio, the fair value of Equistar's long-term
debt, including amounts due within one year, was approximately $2.3 billion and
$2.1 billion at December 31, 2001 and 2000, respectively.

Equistar is exposed to credit risk related to its financial instruments in the
event of nonperformance by the counterparties. Equistar does not generally
require collateral or other security to support these financial instruments. The
counterparties to these transactions are major institutions deemed creditworthy
by Equistar. Equistar does not anticipate nonperformance by the counterparties.

Equistar accounts for certain investments as "available-for-sale" securities in
accordance with the provisions of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Accordingly, changes in the fair
value of the investments are recognized in the balance sheet and the unrealized
holding gains and losses are recognized in other comprehensive income.

14.  PENSION AND OTHER POSTRETIREMENT BENEFITS

All full-time regular employees of the Partnership are covered by defined
benefit pension plans sponsored by Equistar. In connection with the formation of
Equistar, no pension assets or obligations were contributed to Equistar, with
the exception of union represented plans contributed by Occidental.

Retirement benefits are based upon years of service and the employee's highest
three consecutive years of compensation during the last ten years of service.
Equistar accrues pension costs based upon an actuarial valuation and funds the
plans through periodic contributions to pension trust funds. Equistar also has
unfunded supplemental nonqualified retirement plans, which provide pension
benefits for certain employees in excess of the tax qualified plans' limits. In
addition, Equistar sponsors unfunded postretirement benefit plans other than
pensions, which provide medical and life insurance benefits. The postretirement
medical plans are contributory while the life insurance plans are
noncontributory.

                                       45
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table provides a reconciliation of benefit obligations, plan
assets and the funded status of these plans:

<TABLE>
<CAPTION>

                                                                                                 Other
                                                          Pension Benefits              Postretirement Benefits
                                                   -------------------------------   -------------------------------
Millions of dollars                                    2001             2000            2001             2000
-------------------
                                                   -------------    --------------   --------------    -------------
<S>                                                 <C>               <C>             <C>               <C>
Change in benefit obligation:
  Benefit obligation, January 1                     $    120          $   99          $   92            $   77
  Service cost                                            16              17               2                 2
  Interest cost                                           10               9               6                 6
  Plan amendments                                         --              --              29                --
  Actuarial loss (gain)                                   12               8             (14)               11
  Benefits paid                                          (11)            (12)             (3)               (2)
  Net effect of curtailments, settlements
    and special termination benefits                      --              (1)             --                 1
  Transfer to Lyondell                                    --              --              --                (3)
                                                   -------------    --------------   --------------    -------------
  Benefit obligation, December 31                        147             120             112                92
                                                   -------------    --------------   --------------    -------------
Change in plan assets:
  Fair value of plan assets, January 1                   117             101              --                --
  Actual return on plan assets                            (6)             (3)             --                --
  Partnership contributions                                7              31               3                 2
  Benefits paid                                          (11)            (12)             (3)               (2)
                                                   -------------    --------------   --------------    -------------
  Fair value of plan assets, December 31                 107              117             --                --
                                                   -------------    --------------   --------------    -------------

  Funded status                                          (40)              (3)          (112)              (91)
  Unrecognized actuarial loss                             48               24              5                20
  Unrecognized prior service cost                         --               --             29                --
                                                   -------------    --------------   --------------    -------------
  Net amount recognized                             $      8          $    21         $  (78)           $  (71)
                                                   =============    ==============   ==============    =============

Amounts recognized in the
  Consolidated Balance Sheet consist of:
    Prepaid benefit cost                            $     22          $    35         $   --            $   --
    Accrued benefit liability                            (33)             (14)           (78)              (71)
    Accumulated other comprehensive income                19               --             --                --
                                                   -------------    --------------   --------------    -------------
  Net amount recognized                             $      8          $    21         $  (78)           $  (71)
                                                   =============    ==============   ==============    =============
</TABLE>

The increase in other postretirement benefit obligations in 2001 resulted from
a medical plan amendment that increased Equistar's maximum contribution level
per employee by 25%.

Pension plans with benefit obligations in excess of the fair value of assets
are summarized as follows at December 31:

                                                    2001             2000
                                                -------------    --------------
Benefit obligation                                 $ 129            $  63
Fair value of assets                                  81               40

Pension plans with accumulated benefit obligations in excess of the fair value
of assets are summarized as follows at December 31:

                                                    2001             2000
                                                -------------    --------------
Accumulated benefit obligation                     $ 106            $   9
Fair value of assets                                  81                6

                                         46
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net periodic pension and other postretirement benefit costs included the
following components:

<TABLE>
<CAPTION>
                                                       Pension Benefits                 Other Postretirement Benefits
                                            -----------------------------------     -----------------------------------
Millions of dollars                           2001          2000         1999          2001         2000           1999
-------------------
                                            ---------     ---------     --------     ---------    ---------    ---------
<S>                                         <C>          <C>           <C>          <C>          <C>            <C>
Components of net periodic
     benefit cost:
  Service cost                              $   16       $   17        $   22       $     2      $     2        $     4
  Interest cost                                 10            9             7             6            6              6
  Amortization of actuarial loss                 2           --             1            --            1              1
  Expected return on plan assets               (11)          (8)           (8)           --           --             --
  Net effect of curtailments, settlements
     and special termination benefits            3           (1)           --             2            1             --
                                            ---------    ---------     --------     ---------    ---------    ---------
 Net periodic benefit cost                  $   20       $   17        $   22       $    10      $    10        $    11
                                            =========    =========     ========     =========    =========    =========
</TABLE>

The assumptions used in determining the net pension cost and the net pension
liability were as follows at December 31:

<TABLE>
<CAPTION>
                                                     Pension Benefits                 Other Postretirement Benefits
                                              2001          2000         1999          2001         2000           1999
                                            ---------     ---------     --------     ---------    ---------    ---------
<S>                                            <C>           <C>          <C>           <C>          <C>            <C>
Weighted-average assumptions as of
  December 31:
  Discount rate                                7.00%         7.50%        8.00%         7.00%        7.50%          8.00%
  Expected return on plan assets               9.50%         9.50%        9.50%           --           --             --
  Rate of compensation increase                4.50%         4.50%        4.75%         4.50%        4.50%          4.75%
</TABLE>

The assumed annual rate of increase in the per capita cost of covered health
care benefits as of December 31, 2001 was 7.0% for 2002 through 2004 and 5.0%
thereafter. The health care cost trend rate assumption does not have a
significant effect on the amounts reported due to limits on Equistar's maximum
contribution level under the medical plan. To illustrate, increasing or
decreasing the assumed health care cost trend rates by one percentage point in
each year would change the accumulated postretirement benefit liability as of
December 31, 2001 by less than $1 million and would not have a material effect
on the aggregate service and interest cost components of the net periodic
postretirement benefit cost for the year then ended.

Equistar also maintains voluntary defined contribution savings plans for
eligible employees. Contributions to the plans by Equistar were $16 million,
$17 million and $20 million for the years ended December 31, 2001, 2000 and
1999, respectively.

15.  COMMITMENTS AND CONTINGENCIES

Commitments--Equistar has various purchase commitments for materials, supplies
and services incident to the ordinary conduct of business. At December 31,
2001, Equistar had commitments for natural gas and natural gas liquids at
prices in excess of current market. Using December 31, 2001 spot market prices
for these products the estimated negative impact on first quarter 2002
operating results would be approximately $30 million. Since December 31, 2001,
natural gas prices have further declined. These fixed-price contracts
substantially terminate by the end of the first quarter 2002. See also Note 5,
describing related party commitments.

                                         47
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Equistar is party to various unconditional purchase obligation contracts as a
purchaser for products and services, principally for steam and power. At
December 31, 2001, future minimum payments under these contracts with
noncancelable contract terms in excess of one year were as follows:

Millions of dollars
2002                                                                $   109
2003                                                                    132
2004                                                                    135
2005                                                                    137
2006                                                                    138
Thereafter                                                            1,688
                                                               ----------------
    Total minimum contract payments                                 $ 2,339
                                                               ================

Equistar's total purchases under these agreements were $77 million, $51 million
and $56 million for the years ending December 31, 2001, 2000 and 1999,
respectively. The increases in 2001, 2002 and 2003 are due to commitments for
steam and power from a new co-generation facility, which is expected to reach
full capacity in mid-2002.

Indemnification Arrangements--Lyondell, Millennium Petrochemicals and certain
subsidiaries of Occidental have each agreed to provide certain indemnifications
to Equistar with respect to the petrochemicals and polymers businesses
contributed by the partners. In addition, Equistar agreed to assume third party
claims that are related to certain pre-closing contingent liabilities that are
asserted prior to December 1, 2004 as to Lyondell and Millennium
Petrochemicals, and May 15, 2005 as to certain Occidental subsidiaries, to the
extent the aggregate thereof does not exceed $7 million to each partner,
subject to certain terms of the respective asset contribution agreements. As of
December 31, 2001, Equistar had incurred a total of $17 million for these
uninsured claims and liabilities. Equistar also agreed to assume third party
claims that are related to certain pre-closing contingent liabilities that are
asserted for the first time after December 1, 2004 as to Lyondell and
Millennium Petrochemicals, and for the first time after May 15, 2005 as to
certain Occidental subsidiaries. As of September 30, 2001, Equistar, Lyondell,
Millennium Petrochemicals and certain subsidiaries of Occidental amended the
asset contribution agreements governing these indemnification obligations to
clarify the treatment of, and procedures pertaining to the management of,
certain claims arising under the asset contribution agreements. Equistar
management believes that these amendments do not materially change the asset
contribution agreements.

Environmental Remediation--Equistar's accrued liability for environmental
matters as of December 31, 2001 was $6 million and related to the Port Arthur
facility, which was permanently shut down on February 28, 2001. In the opinion
of management, there is currently no material estimable range of loss in excess
of the amounts recorded for environmental remediation.

Clean Air Act--The eight-county Houston/Galveston region has been designated a
severe non-attainment area for ozone by the U.S. Environmental Protection
Agency ("EPA"). Emission reduction controls for nitrogen oxides ("NOx") must be
installed at each of Equistar's six plants located in the Houston/Galveston
region during the next several years. Compliance with the plan will result in
increased capital investment, which could be between $200 million and $260
million, before the 2007 deadline, as well as higher annual operating costs for
Equistar. The timing and amount of these expenditures are subject to regulatory
and other uncertainties, as well as obtaining the necessary permits and
approvals. In January 2001, Equistar and an organization composed of industry
participants filed a lawsuit against the Texas Natural Resource Conservation
Commission ("TNRCC") to encourage adoption of their alternative plan to achieve
the same air quality improvement with less negative economic impact on the
region. Adoption of the alternative plan, as sought by the lawsuit, is expected
to reduce Equistar's estimated capital investments for NOx reductions required
to comply with the standards. However, there can be no guarantee as to the
ultimate capital cost of implementing any final plan developed to ensure ozone
attainment by the 2007 deadline.

                                         48
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Clean Air Act Amendments of 1990 set minimum levels for oxygenates, such as
MTBE, in gasoline sold in areas not meeting specified air quality standards.
The presence of MTBE in some water supplies in California and other states due
to gasoline leaking from underground storage tanks and in surface water from
recreational water craft has led to public concern about the use of MTBE.
Certain federal and state governmental initiatives have sought either to
rescind the oxygenate requirement for reformulated gasoline or to restrict or
ban the use of MTBE. These initiatives or other governmental actions could
result in a significant reduction in Equistar's MTBE sales, which represented
approximately 4% of its total 2001 revenues. Equistar has developed
technologies to convert its process to produce alternate gasoline blending
components should it be necessary to reduce MTBE production in the future.
However, implementation of such technologies would require additional capital
investment.

General--The Partnership 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 on the
financial position or liquidity of Equistar.

16.  SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is summarized as follows for the periods
presented:

                                      For the year ended December 31,
                               -----------------------------------------------
  Millions of dollars             2001              2000              1999
  -------------------          -------------    -------------    -------------

  Cash paid for interest        $  171            $  180            $  146
                              ==============    =============    =============

                                         49
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

17.  SEGMENT INFORMATION AND RELATED INFORMATION

Equistar operates in two reportable segments, petrochemicals and polymers. The
accounting policies of the segments are the same as those described in "Summary
of Significant Accounting Policies" (see Note 2). No third-party customer
accounted for 10% or more of sales during the three-year period ended December
31, 2001.

Summarized financial information concerning Equistar's reportable segments is
shown in the following table. Intersegment sales between the petrochemicals and
polymers segments were based on current market prices.
<TABLE>
<CAPTION>
Millions of dollars                          Petrochemicals      Polymers       Unallocated     Eliminations    Consolidated
-------------------                         ---------------    ------------    ------------    -------------   -------------
<S>                                             <C>                <C>               <C>          <C>             <C>
For the year ended December 31, 2001:
Sales and other
  operating revenues:
  Customers                                     $ 3,929            $ 1,980           $  --        $    --         $ 5,909
  Intersegment                                    1,455                 --              --         (1,455)             --
                                            ---------------    ------------    ------------    -------------   -------------
                                                  5,384              1,980              --         (1,455)          5,909
Unusual charges                                      --                 --              22             --              22
Operating income (loss)                             275               (186)           (188)            --             (99)
Total assets                                      3,458              1,365           1,485             --           6,308
Capital expenditures                                 84                 24               2             --             110
Depreciation and
  amortization expense                              204                 58              59             --             321

For the year ended December 31, 2000:
Sales and other
  operating revenues:
  Customers                                     $ 5,144            $ 2,351           $  --        $    --         $ 7,495
  Intersegment                                    1,887                 --              --         (1,887)             --
                                            ---------------    ------------    ------------    -------------   -------------
                                                  7,031              2,351              --         (1,887)          7,495
Operating income (loss)                             694               (185)           (175)            --             334
Total assets                                      3,693              1,534           1,355             --           6,582
Capital expenditures                                 79                 46               6             --             131
Depreciation and
  amortization expense                              199                 55              56             --             310

For the year ended December 31, 1999:
Sales and other
  operating revenues:
  Customers                                     $ 3,435            $ 2,159           $  --        $    --         $ 5,594
  Intersegment                                    1,324                 --              --         (1,324)             --
                                            ---------------    ------------    ------------    -------------   -------------
                                                  4,759              2,159              --         (1,324)          5,594
Unusual charges                                      --                 --              96             --              96
Operating income (loss)                             447                 51            (336)            --             162
Total assets                                      3,671              1,551           1,514             --           6,736
Capital expenditures                                 61                 83              13             --             157
Depreciation and
  amortization expense                              194                 53              53             --             300
</TABLE>

                                       50
<PAGE>

                             EQUISTAR CHEMICALS, LP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table presents the details of "Operating income (loss)" as
presented above in the "Unallocated" column for the years ended December 31,
2001, 2000 and 1999.

<TABLE>
<CAPTION>
Millions of dollars                                                         2001           2000          1999
-------------------                                                       ----------     ---------     ----------
<S>                                                                         <C>           <C>           <C>
Expenses not allocated to petrochemicals and polymers:
  Principally general and administrative expenses                           $ (166)       $  (175)      $  (240)
  Unusual charges                                                              (22)            --           (96)
                                                                          ----------     ---------     ----------
    Total--Unallocated                                                      $ (188)       $  (175)      $  (336)
                                                                          ==========     =========     ==========
</TABLE>

The following table presents the details of "Total assets" as presented above in
the "Unallocated" column as of December 31, for the years indicated:

<TABLE>
<CAPTION>
Millions of dollars                                                         2001           2000          1999
-------------------                                                      ----------     ---------     ----------
<S>                                                                        <C>            <C>           <C>
Cash                                                                       $   202        $    18       $   108
Accounts receivable--trade and related parties                                  17             16            18
Prepaids and other current assets                                               20             17            22
Property, plant and equipment, net                                              44             56            58
Goodwill, net                                                                1,053          1,086         1,119
Other assets                                                                   149            162           189
                                                                          ----------     ---------     ----------
                                                                           $ 1,485        $ 1,355       $ 1,514
                                                                          ==========     =========     ==========
</TABLE>

18.  SUBSEQUENT EVENT

Early in 2002, Lyondell and Occidental agreed in principle for Lyondell's
acquisition of Occidental's 29.5% share of Equistar and Occidental's purchase of
an equity interest in Lyondell. Upon completion of these transactions,
Lyondell's ownership interest in Equistar would increase to 70.5%. Millennium
holds the remaining 29.5% interest in Equistar. There can be no assurance that
the proposed transactions will be completed.

                                       51
<PAGE>

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

None.

                                    PART III

ITEM 10.  MEMBERS OF THE PARTNERSHIP GOVERNANCE COMMITTEE AND EXECUTIVE OFFICERS
OF EQUISTAR

PARTNERSHIP GOVERNANCE COMMITTEE

     A Partnership Governance Committee (the "Governance Committee") manages and
controls the business, property and affairs of Equistar, including the
determination and implementation of Equistar's strategic direction. The general
partners exercise their authority to manage and control Equistar only through
the Governance Committee, subject to delegation to the executive officers
discussed below. The Governance Committee consists of nine members, called
representatives, three appointed by each general partner. The participation
rights of any general partner's representatives may be curtailed to the extent
that the general partner or its affiliates cause a default under the partnership
agreement. See "The Partnership Agreement" below.

     Currently, the members of the Governance Committee are:

     .  Dan F. Smith,  President and Chief Executive  Officer of Lyondell and
        Chief Executive  Officer of Equistar and co-chairman of the Governance
        Committee
     .  William M. Landuyt,  Chairman and Chief Executive  Officer of Millennium
        and co-chairman of the Governance Committee
     .  Dr. Ray R. Irani,  Chairman and Chief  Executive  Officer of Occidental
        and  co-chairman of the Governance Committee
     .  Robert T. Blakely, Executive Vice President and Chief Financial Officer
        of Lyondell
     .  Stephen  I.  Chazen,  Executive  Vice  President--Corporate  Development
        and Chief  Financial  Officer  of Occidental
     .  T. Kevin DeNicola, Vice President, Corporate Development of Lyondell
     .  J. Roger Hirl, President and Chief Executive Officer of Occidental
        Chemical Corporation
     .  Robert E. Lee, Executive Vice President, Growth and Development of
        Millennium
     .  John E. Lushefski, Senior Vice President and Chief Financial Officer of
        Millennium

THE PARTNERSHIP AGREEMENT

ACTIONS REQUIRING UNANIMOUS VOTING

     Unless approved by two or more representatives of each of Lyondell,
Millennium and Occidental, the Governance Committee may not take any actions
that would permit or cause Equistar, any of its subsidiaries, or any person
acting in the name of or on behalf of any of them, directly or indirectly,
whether in a single transaction or a series of related transactions, to:

     .  engage, participate or invest in any business outside the scope of
        Equistar's business as described in the partnership agreement;

     .  approve any strategic plan, as well as any amendments or updates to the
        strategic plan, including the annual update described under"--Strategic
        Plans and Preparation of an Annual Budget" below;

     .  authorize any disposition of assets having a fair market value exceeding
        $30 million in any one transaction or a series of related transactions
        not contemplated in an approved strategic plan;

                                       52
<PAGE>

     .  authorize any acquisition of assets or any capital expenditure exceeding
        $30 million that is not contemplated in an approved strategic plan;

     .  require capital contributions to Equistar within any fiscal year if the
        total of contributions required from the partners within that year would
        exceed $100 million, or if the total of contributions required from the
        partners within that year and the immediately preceding four years would
        exceed $300 million, other than contributions (1) contemplated by the
        asset contribution agreements for each of Lyondell, Millennium and
        Occidental, (2) contemplated by an approved strategic plan or (3)
        required to achieve or maintain compliance with health, safety and
        environmental laws;

     .  authorize the incurrence of debt for borrowed money, unless (1) the debt
        is to refinance all or a portion of Equistar's credit facilities as
        contemplated below, (2) after giving effect to the incurrence of the
        debt and any related transactions, Equistar would be expected to have an
        "investment grade" debt rating by Moody's and S&P or (3) the debt is
        incurred to refinance the public or bank debt assumed or incurred by
        Equistar as contemplated by documents relating to Equistar's formation
        and the contribution of the Occidental contributed business or to
        refinance any such refinancing debt; and in the case of each of the
        three exceptions above, the agreement relating to the debt does not
        provide that the transfer by a partner of its partnership interests, or
        a change of control with respect to any partner or any of its
        affiliates, would either (1) constitute a default under the debt
        instruments, (2) otherwise accelerate the maturity of the debt or (3)
        give the lender or holder any "put rights" or similar rights with
        respect to the debt instrument;

     .  make borrowings under one or more of Equistar's bank credit facilities,
        uncommitted lines of credit or any credit facility or debt instruments
        that refinances all or any portion of Equistar's credit facility or
        facilities, at any time, if, as a result of any such borrowing, the
        aggregate principal amount of all borrowings outstanding at that time
        would exceed $1.75 billion;

     .  enter into interest rate protection or other hedging agreements, other
        than hydrocarbon hedging agreements in the ordinary course of business;

     .  enter into any capitalized lease or off-balance sheet financing
        arrangements involving payments, individually or in the aggregate, by
        Equistar in excess of $30 million in any fiscal year;

     .  cause Equistar or any of its subsidiaries to issue, sell, redeem or
        acquire any partnership interests in Equistar or other equity
        securities, or any rights to acquire, or any securities convertible into
        or exchangeable for, partnership interests or other equity securities;

     .  make cash distributions from Equistar in excess of Available Net
        Operating Cash, as defined below under "--Distribution of Available Net
        Operating Cash to Equistar's Partners," or to make non-cash
        distributions, except as provided in the partnership agreement in
        respect of a dissolution or liquidation;

     .  appoint or discharge executive officers, other than the Chief Executive
        Officer, based on the recommendation of the Chief Executive Officer;

     .  approve material compensation and benefit plans and policies, material
        employee policies and material collective bargaining agreements for
        Equistar's employees;

     .  initiate or settle any litigation or governmental proceedings if the
        effect of the litigation or proceedings would be material to Equistar's
        financial condition;

     .  change Equistar's independent accountants;

     .  change Equistar's method of accounting as adopted in the partnership
        agreement or make tax elections under the Internal Revenue Code of 1986,
        as amended, determined to be appropriate by the Governance Committee;

     .  create or change the authority of any auxiliary committee;

     .  merge, consolidate or convert Equistar or any of its subsidiaries with
        or into any other entity, other than a wholly owned subsidiary of
        Equistar;

     .  engage in certain bankruptcy and reorganization actions specified in the
        partnership agreement;

                                       53
<PAGE>

     .  exercise any of the powers or rights described below under
        "--Transactions with Affiliates" with respect to a business conflict
        involving either (1) LCR, its successors or assigns, (2) LMC, its
        successors or assigns or (3) any other affiliate of any of the general
        partners, if the affiliate's actions with respect to the conflict
        circumstance are not controlled by Lyondell, Millennium or Occidental,
        other than a business conflict involving the exercise of any rights and
        remedies with respect to a default under any agreement that is the
        subject of the conflict;

     .  repay any of the Millennium America reference debt before December 1,
        2004, other than through refinancing, or refinance any Millennium
        America reference debt before December 1, 2004, if any of the principal
        of the debt refinancing the Millennium America reference debt would be
        due and payable after December 1, 2004; provided, however, that if the
        Millennium America reference debt continues to be the reference for
        determination of the amount of the obligation of Millennium America or
        its successors pursuant to one or more specified indemnities after
        December 1, 2004, then the term of the debt shall not exceed 365 days;
        or

     .  repay any of the Occidental reference debt before June 14, 2005, other
        than through refinancing, or refinance any Occidental reference debt
        before June 14, 2005, if any of the principal of the debt refinancing
        Occidental reference debt would be due and payable after June 14, 2005;
        provided, however, that if the Occidental reference debt continues to
        be guaranteed by an affiliate of Occidental or its successors or the
        reference for determination of the amount of the obligation of
        Occidental Chemical to contribute to Equistar pursuant to a specified
        indemnity agreement after June 14, 2005, then the term of the debt
        shall not exceed 365 days.

     Although unanimous approval by all nine members of the Governance Committee
is never required, the requirements described above are referred to as
"unanimous voting requirements" because two representatives of each of the
general partners must agree on any action taken in respect of the enumerated
matters.

TRANSACTIONS WITH AFFILIATES

     Except as described above under "--Actions Requiring Unanimous Voting," if
a business conflict caused by any transaction or dealing between Equistar, or
any of its subsidiaries, and one or more of its general partners, or any of
their affiliates, occurs, the other general partners will have sole and
exclusive power, at Equistar's expense, to both (1) control all decisions,
elections, notifications, actions, exercises or non-exercises and waivers of all
rights, privileges and remedies provided to, or possessed by, Equistar with
respect to the conflict and (2) retain and direct legal counsel and to control,
assert, enforce, defend, litigate, mediate, arbitrate, settle, compromise or
waive any and all claims, disputes and actions if any potential, threatened or
asserted claim, dispute or action about a conflict occurs. Any action by the
Governance Committee with respect to such a conflict, except as described above
under "--Actions Requiring Unanimous Voting," will require the approval of at
least two representatives of each of the uninvolved general partners, and the
representatives of the interested general partner will have no votes.

STRATEGIC PLANS AND PREPARATION OF AN ANNUAL BUDGET

     Equistar is managed under a five-year strategic business plan which is
updated annually under the direction of the Chief Executive Officer and
presented for approval by the Governance Committee no later than 90 days before
the start of the first fiscal year covered by the updated plan. The strategic
plan must be approved each year by at least two representatives of each of the
general partners. The strategic plan establishes Equistar's strategic direction,
including: plans relating to capital maintenance and enhancement; geographic
expansion, acquisitions and dispositions; new product lines; technology;
long-term supply and customer arrangements; internal and external financing;
environmental and legal compliance; and plans, programs and policies relating to
compensation and industrial relations.

     In addition, Equistar's executive officers prepare an annual budget for
each fiscal year. Each annual budget includes an operating budget and capital
expenditure budget. Each annual budget must be consistent with the information
for its fiscal year included in the most recently approved strategic plan.
Unless otherwise provided in the most recently approved strategic plan, each
annual budget utilizes a format and provides a level of detail consistent with
Equistar's previous annual budget.

                                       54
<PAGE>

     If for any fiscal year the Governance Committee fails to approve an updated
strategic plan, for that year and each subsequent year before the approval of an
updated strategic plan, Equistar's executive officers will prepare and promptly
furnish to the Governance Committee an annual budget consistent with the
projections and other information for that year included in the strategic plan
most recently approved. The Chief Executive Officer, acting in good faith, shall
be entitled to modify any annual budget (1) to satisfy current contractual and
compliance obligations and/or (2) to account for other changes in circumstances
resulting from the passage of time or the occurrence of events beyond Equistar's
control.

     The Chief Executive Officer is not authorized to cause Equistar to proceed
with capital expenditures to accomplish capital enhancement projects except to
the extent that the expenditures would enable Equistar to continue or complete
any capital project reflected in the last strategic plan that was approved by
the Governance Committee.

     After a strategic plan and an annual budget have been approved by the
Governance Committee, or an annual budget has been developed as described above
in cases where an updated strategic plan has not yet been approved, the Chief
Executive Officer is authorized, without further action by the Governance
Committee, to cause Equistar to make expenditures consistent with the updated
strategic plan and annual budget, provided that all internal control policies
and procedures, including those regarding the required authority for
expenditures, shall have been followed.

GOVERNANCE COMMITTEE DEADLOCK OVER THE STRATEGIC PLAN

     If the Governance Committee has not agreed upon and approved an updated
strategic plan by 12 months after the beginning of the first fiscal year that
would have been covered by the plan, then Equistar's general partners are
required to submit to a non-binding dispute resolution process. The general
partners are required to continue the dispute resolution process until either
(1) agreement is reached by the general partners, acting through their
representatives, on an updated strategic plan or (2) at least 24 months have
elapsed since the beginning of the first fiscal year that was to be covered by
the first updated strategic plan for which agreement was not reached and one
general partner determines and notifies the other general partners in writing
that no agreement resolving the dispute is likely to be reached. Following
receipt of notice described above, any general partner may elect to dissolve
Equistar.

DISTRIBUTION OF AVAILABLE NET OPERATING CASH TO EQUISTAR'S PARTNERS

     The partnership agreement provides that Equistar must distribute to the
partners, as soon as practicable following the end of each month, all Available
Net Operating Cash, as defined below.

     "Available Net Operating Cash" is defined in the partnership agreement, at
the relevant time of determination, as (1) all cash and cash equivalents on hand
as of the most recent month's end, plus the excess, if any, of Equistar's
targeted level of indebtedness over Equistar's actual indebtedness as of that
month's end, less (2) the Projected Cash Requirements, if any, as of that
month's end, as determined by the executive officers. The targeted level of
indebtedness is shown in the most recently updated strategic plan. The actual
indebtedness is determined according to generally accepted accounting principles
and represents all short term and long term debt.

     "Projected Cash Requirements" means, for the 12-month period following any
month's end, the excess, if any, of the sum of Equistar's:

     .  (1) forecast capital expenditures; (2) forecast cash payments for
        taxes, debt service, including principal and interest payment
        requirements and other non-cash credits to income; and (3) forecast
        cash reserves for future operations or other requirements;

                                       55
<PAGE>

over the sum of:

     .  (1) forecast net income; (2) forecast plus depreciation, amortization,
        other non-cash charges to income, interest expense and tax expenses, in
        each case to the extent deducted in determining net income; (3)
        forecast decreases in working capital or minus forecast increases in
        working capital; (4) forecast cash proceeds of disposition of assets,
        net of expenses; and (5) an amount equal to the forecast net proceeds
        of debt financings and capital contributions.

Equistar's Projected Cash Requirements are calculated, subject to changes in
certain circumstances, consistently with the most recently updated strategic
plan.

     Distributions to the partners of cash or property arising from Equistar's
liquidation would be made according to the capital account balances of the
partners. Unless otherwise agreed by the general partners not involved with a
business conflict as described under "--Transactions with Affiliates" above, any
amount otherwise distributable to a partner as described above will be applied
by Equistar to satisfy obligations to Equistar resulting from a partner's or its
affiliate's failure to (1) pay any interest or principal when due on any
indebtedness for borrowed money to Equistar, (2) make any indemnification
payment required by its asset contribution agreement that has been finally
determined to be due or (3) make any capital contribution required by the
partnership agreement, other than as required by the applicable asset
contribution agreement.

INDEMNIFICATION OF EACH PARTNER

     Equistar has agreed, to the fullest extent permitted by applicable law, to
indemnify, defend and hold harmless each partner, its affiliates and its
respective officers, directors and employees. This indemnification is from,
against and in respect of any liability which the indemnified person may
sustain, incur or assume as a result of, or relative to, any third-party claim
arising out of or in connection with Equistar's business, property or affairs.
This indemnification does not apply to the extent that it is finally determined
that the third-party claim arose out of or was related to actions or omissions
of the indemnified partner, its affiliates or any of their respective officers,
directors or employees acting in those capacities constituting a breach of the
partnership agreement or any related agreement. This indemnification obligation
is not intended to, nor will it, affect or take precedence over the indemnity
provisions contained in any related agreement. See "Item 13. Certain
Relationships and Related Transactions--Asset Contributions by Lyondell and
Affiliates of Millennium and Occidental."

TRANSFERS AND PLEDGES OF A PARTNER'S INTEREST IN EQUISTAR

     Without the consent of the general partners, no partner may transfer less
than all of its interest in Equistar, nor can any partner transfer its interest
other than for cash. If one of the limited partners and its affiliated general
partner desire to transfer, via a cash sale, all of their units, they must give
written notice to Equistar and the other partners and the non-selling partners
shall have the option, exercisable by delivering written acceptance notice of
the exercise to the selling partners within 45 days after receiving notice of
the sale, to elect to purchase all of the partnership interests of the selling
partners on the terms described in the initial notice. If all of the other
non-selling partners deliver notice of acceptance, then all of the partnership
interests shall be transferred in proportion to the partners' current percentage
interest unless otherwise agreed. If less than all of the non-selling partners
deliver notice of acceptance, the partner who delivers notice of acceptance will
have the option of purchasing all of the partnership interests up for sale. The
notice of acceptance will set a date for closing the purchase which is not less
than 30 nor more than 90 days after delivery of the notice of acceptance,
subject to extension. The purchase price for the selling partners' partnership
interests will be paid in cash.

     If the non-selling partners do not elect to purchase the selling partners'
partnership interests within 45 days after the receipt of initial notice of
sale, the selling partners will have a further 180 days during which they may
consummate the sale of their units to a third-party purchaser. The sale to a
third-party purchaser must be at a purchase price and on other terms that are no
more favorable to the purchaser than the terms offered to the non-selling
partners. If the sale is not completed within the 180-day period, the initial
notice will be deemed to have expired, and a new notice and offer shall be
required before the selling partners may make any transfer of their partnership
interests.

                                       56
<PAGE>

     Before the selling partners may consummate a transfer of their partnership
interests to a third party under the partnership agreement, the selling partners
must demonstrate that the person willing to serve as the proposed purchaser's
guarantor must have outstanding indebtedness that is rated investment grade by
Moody's and S&P's. If the proposed guarantor has no rated indebtedness
outstanding, it shall provide an opinion from a nationally recognized investment
banking firm that it could be reasonably expected to obtain suitable ratings. In
addition, a partner may transfer its partnership interests only if, together
with satisfying all other requirements (1) the transferee executes an
appropriate agreement to be bound by the partnership agreement, (2) the
transferor and/or the transferee bears all reasonable costs incurred by Equistar
in connection with the transfer and (3) the guarantor of the transferee delivers
an agreement to the ultimate parent entity of the non-selling partners and to
Equistar substantially in the form of the parent agreement.

     A partner will not in any transaction or series of actions, directly or
indirectly, pledge all or any part of its partnership interest. However, a
partner may at any time assign its right to receive distributions from Equistar
so long as the assignment does not purport to assign any (1) right of the
partner to participate in or manage Equistar's affairs, (2) right of the partner
to receive any information or accounting of Equistar's affairs, (3) right of the
partner to inspect Equistar's books or records or (4) any other right of a
partner under the partnership agreement or the Delaware Revised Uniform Limited
Partnership Act.

     In addition, except for any restrictions imposed by the parent agreement
described below under "The Parent Agreement," nothing in Equistar's partnership
agreement will prevent the transfer or pledge by the owner of any capital stock,
equity ownership interests or other security of the partner or any affiliate of
a partner.

BUSINESS OPPORTUNITIES WHICH MUST BE OFFERED TO EQUISTAR

     Except as described below, each partner's affiliates are free to engage in
or possess an interest in any other business of any type and to avail themselves
of any business opportunity available to it without having to offer Equistar or
any partner the opportunity to participate in that business. If a partner's
affiliate desires to initiate or pursue an opportunity to undertake, engage in,
acquire or invest in a "related business," as defined in the partnership
agreement, that partner or its affiliate will offer Equistar the business
opportunity. A related business is any business related to (1) the
manufacturing, marketing and distribution of the types of olefins, polyolefins,
ethyl alcohol, ethyl ether and ethylene oxide, ethylene glycol and derivatives
of ethylene oxide and ethylene glycol that are specified in the partnership
agreement, (2) the purchasing, processing and disposing of raw materials in
connection with the manufacturing, marketing and distributing of the chemicals
identified in clause (1) above and (3) any research and development in
connection with clauses (1) and (2) above.

     When a proposing partner offers a business opportunity to Equistar,
Equistar will elect to do one of the following within a reasonably prompt period
(1) acquire or undertake the business opportunity for its benefit as a whole, at
its cost, expense and benefit or (2) permit the proposing partner to acquire or
undertake the business opportunity for its own benefit and account without any
duty to Equistar or the other partners.

     If the business opportunity is in direct competition with Equistar's
then-existing business and Equistar does not elect to acquire or undertake the
business opportunity for its own benefit, then the proposing partner and
Equistar shall, if either so elects, seek to negotiate and implement an
arrangement whereby Equistar would either (1) acquire or undertake the competing
opportunity at the sole cost, expense and benefit of the proposing partner under
a mutually acceptable arrangement or (2) enter into a management agreement with
the proposing partner to manage the competing opportunity on behalf of the
proposing partner on terms and conditions mutually acceptable to the proposing
partner and Equistar. Under clause (1) above, the competing opportunity will be
treated as a separate business within Equistar.

     If Equistar and the proposing partner do not reach agreement as to an
arrangement, the proposing partner may acquire or undertake the competing
opportunity for its own benefit and account without any duty to Equistar or the
other partners.

                                       57
<PAGE>

     In addition, if the business opportunity constitutes less than 25% of an
acquisition of or investment in assets, activities, operations or businesses
that is not otherwise a related business, then a proposing partner may acquire
or invest in a business opportunity without first offering it to Equistar. The
25% figure is based on annual revenues for the most recently completed fiscal
year. After completion of the above acquisition or investment, the proposing
partner must offer the business opportunity to Equistar under the terms
described above. If Equistar elects to pursue the business opportunity, it will
be acquired by Equistar at its fair market value as of the date of the
acquisition.

     If Equistar is presented with an opportunity to acquire or undertake a
business opportunity that it determines not to acquire or undertake, and the
representatives of one or two general partner or partners, but not the other
general partner or partners, desire that Equistar acquire or undertake the
business opportunity, then Equistar will permit the first general partner or
partners and its or their affiliates to acquire or undertake such business
opportunity, and the business opportunity shall be treated in the same manner as
if the general partner and its affiliates were a proposing partner with respect
to the business opportunity.

AMENDMENT OF PARTNERSHIP AGREEMENT

     All waivers, modifications, amendments or alterations of the partnership
agreement require the written approval of all of the partners in Equistar.

THE PARENT AGREEMENT

     Lyondell, Millennium, Occidental, Occidental Chemical, Oxy CH Corporation,
Occidental Chemical Holding Corporation and Equistar are parties to an amended
and restated parent agreement. The following is a summary of the material
provisions of the parent agreement, as modified by an assignment and assumption
agreement and the first amendment thereto.

GUARANTEE OF OBLIGATIONS UNDER THE PARTNERSHIP AGREEMENT AND RELATED PARTY
AGREEMENTS

     Pursuant to the parent agreement, each of Lyondell, Millennium and
Occidental Chemical Holding (the "Guarantor Parents") has guaranteed, undertaken
and promised to cause the due and punctual payment and the full and prompt
performance of all of the amounts to be paid and all of the terms and provisions
under various agreements, including, without limitation, the partnership
agreement and the asset contribution agreements, to be performed or observed by
or on the part of certain of their respective subsidiaries, including
subsidiaries that are Equistar's partners, and any other direct or indirect
subsidiary of any of the Guarantor Parents that are parties to these agreements.
These subsidiaries collectively are referred to as the "Affiliated Obligors."
The entities that are the limited partners and general partners collectively are
referred to as the "Partner Subs." Insofar as the provisions described in this
subsection apply to agreements other than the partnership agreement and the
parent agreement, the term "Affiliated Obligors" will not include Equistar or
any partner of Equistar in its capacity as a partner. The parent agreement
provides expressly that the parent guarantees inure solely to the benefit of the
beneficiaries specified in the parent agreement, which consist of Equistar,
Lyondell, Millennium, Occidental and the Affiliated Obligors. The parent
agreement also states that nothing in the agreement confers upon any other
person any rights, benefits or remedies by reason of the parent agreement.

CONFLICT CIRCUMSTANCE

     The partnership agreement includes definitions of "Conflict Circumstance,"
"Conflicted General Partner" and "Nonconflicted General Partner" and provides
that the Nonconflicted General Partners have some exclusive rights to control
Equistar with respect to any Conflict Circumstance, generally involving a
transaction between Equistar and an affiliate of one of its partners. The
guarantee provisions described above do not apply to the parents of the general
partners that direct Equistar in connection with these Conflict Circumstances,
so that the parents of a Nonconflicted General Partner are not effectively
guaranteeing Equistar's performance of contracts with other parents. However, a
parent of a Nonconflicted General Partner may have liability for Equistar's
failure to perform in circumstances where that failure was caused by an act or
failure to act of its Partner Sub. Without limiting the rights of the Partner
Subs under the partnership agreement, and without prejudice to any rights,
remedies or defenses Equistar may have in any other agreement or Conflict
Circumstance, each Guarantor Parent has agreed to cause each of its Partner Subs
to both (1) cause Equistar to pay, perform and observe all of the terms and
provisions of other

                                       58
<PAGE>

agreements to be paid, performed or observed by or on the part of Equistar
under the agreements, according to their terms to the extent that the Partner
Sub is a Nonconflicted General Partner and is thereby entitled to cause the
payment, performance and observance of the terms and provisions and (2) except
to the extent inconsistent with its obligations above, abide by its obligations
as a Nonconflicted General Partner with respect to any Conflict Circumstance
arising in connection with any other agreement according to the terms of the
partnership agreement that apply.

     Nothing in the provisions described in this subsection shall require a
Guarantor Parent to make or cause a Partner Sub to either (1) cure or mitigate
Equistar's inability to make any payment or to perform or observe any terms and
provisions under any other agreements, (2) cause Equistar to require from the
Partner Subs any cash contributions in respect of any payment, performance or
observance involving a Conflict Circumstance or (3) make any contribution to
Equistar that the Partner Sub is not otherwise required to make under terms of
the partnership agreement concerning required capital contributions. See "The
Partnership Agreement--Transactions with Affiliates."

RESTRICTIONS ON TRANSFER OF PARTNER SUB STOCK

     Without the consent of each of Lyondell, Millennium, Oxy CH and Occidental
Chemical (the "Ownership Parents"), no Ownership Parent may transfer less than
all of its interests in its Partner Subs (the "Partner Sub Stock") except in
compliance with the following provisions.

     Each Ownership Parent may transfer all, but not less than all, of its
Partner Sub Stock, without the consent of the other Ownership Parents, if the
transfer is in connection with either (1) a merger, consolidation, conversion
or share exchange of the Ownership Parent or (2) a sale or other disposition of
(A) the Partner Sub Stock, plus (B) other assets representing at least 50% of
the book value of the Ownership Parent's assets (or in the case of each of Oxy
CH and Occidental Chemical, 50% of the book value of Oxy CH's assets) excluding
the Partner Sub Stock, as reflected on its most recent audited consolidated or
combined financial statements.

     In addition, any transfer of Partner Sub Stock by any Ownership Parent
described above is only permitted if the acquiring, succeeding or surviving
entity, if any, both (1) succeeds to and is substituted for the transferring
Ownership Parent with the same effect as if it had been named in the parent
agreement and (2) executes an instrument agreeing to be bound by the obligations
of the transferring Ownership Parent under the parent agreement, with the same
effect as if it had been named in the instrument.

     The transferring Ownership Parent may be released from its guarantee
obligations under the parent agreement after the successor parent agrees to be
bound by the Ownership Parent's obligations.

     Unless a transfer is permitted under the provisions described above, any
Ownership Parent desiring to transfer all of its Partner Sub Stock to any
person, including another Ownership Parent or any affiliate of an Ownership
Parent, may only transfer its Partner Sub Stock for cash consideration and will
give a written right of first option to Equistar and each of the other
Ownership Parents. Each offeree parent will have the option to elect to
purchase all of its proportional share, in the case of both the limited partner
and general partner, of all of the Partner Sub Stock of the selling parent, on
the terms described in the right of first offer. If one of the offeree parents,
but not the other, elects to so purchase, the selling parent shall give written
notice thereof to the offeree parent electing to purchase, and that parent
shall have the option to purchase all of the Parent Sub Stock held by the
selling parent, including the Partner Sub Stock it has not previously elected
to purchase. Any election by an offeree parent not to purchase all of the
Partner Sub Stock shall be deemed a rescission of the parent's original notice
of acceptance of the Partner Sub Stock of that selling parent. If one or both
of the offeree parents do not elect to purchase all of the selling parent's
Partner Sub Stock within 45 days after the receipt of the initial notice or
within 15 days after the receipt of the notice to an offeree parent electing to
purchase, if applicable, the selling parent will have a further 180 days during
which it may, subject to the provisions of the following paragraph, consummate
the sale of its Partner Sub Stock to a third-party purchaser at a purchase
price and on other terms that are no more favorable to the purchaser than the
initial terms offered to the offeree parents. If the sale is not completed
within the further 180-day period, the right of first offer will be deemed to
have expired and a new right of first offer shall be required before the
selling parent may make any transfer of its Partner Sub Stock.

                                       59
<PAGE>

     Before the selling parent may consummate a transfer of its Partner Sub
Stock to a third party under the provisions described in the preceding
paragraph, the selling parent shall demonstrate to the other Ownership Parents
that the proposed purchaser, or the person willing to serve as its guarantor as
contemplated by the terms of the parent agreement, has outstanding indebtedness
that is rated investment grade by either Moody's or S&P. If such proposed
purchaser or the other person has no rated indebtedness outstanding, that
person shall provide an opinion from Moody's, S&P or from a nationally
recognized investment banking firm that it could be reasonably expected to
obtain a suitable rating. Moreover, an Ownership Parent may transfer its
Partner Sub Stock, under the previous paragraph, only if all of the following
occur:

     .  the transfer is accomplished in a nonpublic offering in compliance
        with, and exempt from, the registration and qualification requirements
        of all federal and state securities laws and regulations;

     .  the transfer does not cause a default under any material contract
        which has been approved unanimously by the Governance Committee and
        to which Equistar is a party or by which Equistar or any of its
        properties is bound;

     .  the transferee executes an appropriate agreement to be bound by the
        parent agreement;

     .  the transferor and/or transferee bears all reasonable costs incurred
        by Equistar in connection with the transfer;

     .  the transferee, or the guarantor of the obligations of the
        transferee, delivers an agreement to each of the other Ownership
        Parents and Equistar substantially in the form of the parent
        agreement; and

     .  the proposed transferor is not in default in the timely performance
        of any of its material obligations to Equistar.

     In no event may any Ownership Parent transfer the Partner Sub Stock of any
of the subsidiaries that hold the direct interests in Equistar to any person
unless the Ownership Parent simultaneously transfers the Partner Sub Stock of
each of the subsidiaries that hold the direct interests in Equistar to that
person or a wholly owned affiliate of that person or a common parent.

COMPETING BUSINESS BY OWNERS OF EQUISTAR OR THEIR AFFILIATES

     If any of Lyondell, Millennium, Occidental Chemical, Oxy CH or Occidental
Chemical Holding or any of their affiliates desires to initiate or pursue any
opportunity to undertake, engage in, acquire or invest in a business
opportunity of the type described under "The Partnership Agreement--Business
Opportunities Which Must be Offered to Equistar," it shall agree to offer that
business opportunity to Equistar under the terms and conditions in the
partnership agreement as if it were the "proposing partner," as described in
such section. Equistar will have the rights and obligations arising from the
offer of the business opportunity granted by the partnership agreement. See
"The Partnership Agreement--Business Opportunities Which Must be Offered to
Equistar."

EXECUTIVE OFFICERS

     The Governance Committee has delegated responsibility for day-to-day
operations to the executive officers of Equistar. The executive officers
consist of a Chief Executive Officer and others as determined from time to time
by the Governance Committee. Except for the Chief Executive Officer, the
approval of at least two representatives of each of Lyondell, Millennium and
Occidental is required to appoint or discharge executive officers, based upon
the recommendation of the Chief Executive Officer.

     The Chief Executive Officer holds office for a five-year term, assuming he
does not resign or die and is not removed, and need not be an employee of
Equistar. The Chief Executive Officer may be removed at any time by action of
the Governance Committee. Lyondell has the right to designate Equistar's Chief
Executive Officer, provided the person designated is reasonably acceptable to
Millennium and Occidental.

                                       60
<PAGE>

     The following table sets forth the names and ages of the executive
officers of Equistar as of March 1, 2002.

<TABLE>
<CAPTION>
          Name              Age          Partnership Position
------------------------   ----   -----------------------------------------------------
<S>                         <C>   <C>
Dan F. Smith..............  55    Chief Executive Officer
Eugene R. Allspach........  55    President and Chief Operating Officer
James W. Bayer............  46    Senior Vice President, Manufacturing
W. Norman Phillips, Jr....  47    Senior Vice President
Charles L. Hall...........  52    Vice President and Controller
Russell T. Crockett.......  38    Vice President, Responsible Care(R)and Engineering
J. R. Fontenot............  49    Vice President, Research and Development
Jeffrey L. Hemmer.........  44    Vice President, Supply Chain
John A. Hollinshead.......  52    Vice President, Human Resources
Gerald A. O'Brien.........  50    Vice President, General Counsel and Secretary
Jose L. Rodriguez.........  44    Vice President, Supply and Optimization
Robert E. Tolbert.........  59    Vice President and Chief Information Officer
</TABLE>

     Mr. Smith has been Chief Executive Officer of Equistar since December
1997. Mr. Smith has been a director of Lyondell since October 1988. He has been
President of Lyondell since August 1994 and Chief Executive Officer of Lyondell
since December 1996. Mr. Smith was Chief Operating Officer of Lyondell from May
1993 to December 1996. Prior thereto, Mr. Smith held various senior executive
positions with Lyondell and Atlantic Richfield Company ("ARCO"), including
Executive Vice President and Chief Financial Officer of Lyondell, Vice
President, Corporate Planning of ARCO and Senior Vice President in the areas of
management, manufacturing, control and administration for Lyondell and the
Lyondell Division of ARCO. Mr. Smith is a director of Cooper Industries, Inc.
and ChemFirst, Inc. and is a member of the Governance Committee of Equistar.
Mr. Smith is also a member of the Board and the Executive Committee for the
American Chemistry Council and is Chairman of the Operating Board and the
Executive Committee for the American Plastics Council.

     Mr. Allspach has been President and Chief Operating Officer of Equistar
since December 1997. Mr. Allspach served as Group Vice President, Manufacturing
and Technology for Millennium Petrochemicals from 1993 to 1997. Before 1993,
Mr. Allspach held various senior executive positions with Millennium, including
Group Vice President, Manufacturing and Manufacturing Services and Vice
President, Specialty Polymers and Business Development. Mr. Allspach has served
as Executive Vice President of Lyondell since December 2, 1999. Mr. Allspach is
a member of the Board of the American Chemistry Council and the Operating Board
for the American Plastics Council. Mr. Allspach also is a director, a member of
the Executive Committee and the Treasurer for the National Petrochemical and
Refiners Association. Effective March 31, 2002, Mr. Allspach is retiring from
Equistar and Lyondell.

     Mr. Bayer has been Senior Vice President, Manufacturing for Equistar and
Lyondell since October 2000. Prior thereto, Mr. Bayer was the Vice President of
Health, Safety & Environment and Engineering. From December 1997 to July 1999,
he was Director, Gulf Coast Manufacturing for ARCO Chemical. Prior to December
1997, Mr. Bayer served as Channelview Plant Manager for ARCO Chemical. Mr.
Bayer is also a member of the Partnership Governance Committee of LCR.

     Mr. Phillips has been Senior Vice President of Equistar since August 1998.
He was previously Vice President, Petrochemicals of Equistar from December 1997
to August 1998. Mr. Phillips also has served as Senior Vice President of
Lyondell since October 2000. He previously served as Vice President, Polymers
of Lyondell from January 1997 to December 1997, and as Vice President of
Lyondell with responsibilities in the areas of marketing and operations from
1993 to January 1997.

     Mr. Hall was appointed Vice President and Controller of Equistar and
Lyondell in October 2001. Prior thereto, Mr. Hall was with BP (formerly BP
Amoco Corporation) for sixteen years in a variety of financial positions,
including General Manager - Accounting and Reporting for BP's North American
operations, Controller of Amoco Chemical Company and Assistant Controller of
Amoco Corporation. Prior to joining BP, Mr. Hall spent ten years with Arthur
Young & Company.

                                       61
<PAGE>

     Mr. Crockett was named Vice President, Responsible Care(R)and Engineering
for Equistar and Lyondell in October 2000. Prior thereto, he was Equistar's
Channelview Hydrocarbons Plant Manager since March 1999. Mr. Crockett
originally joined Lyondell in 1996 as a Treasury Consultant and, in January
1997, became the Business Manager of Aromatics for Lyondell and LCR.

     Mr. Fontenot has been Vice President, Research and Development of Equistar
since September 1998. Mr. Fontenot has also served as Vice President, Research
and Development for Lyondell since October 2000. Mr. Fontenot previously served
as Vice President, Engineering of Equistar from December 1997 to September
1998, as Vice President, Technology of Lyondell from January 1997 to December
1997 and as Director of Technology of Lyondell from 1995 to January 1997.
Before 1995, Mr. Fontenot held various positions in operations, evaluation and
technology for Lyondell.

     Mr. Hemmer has been Vice President, Supply Chain of Equistar and Lyondell
since February 2001. Prior thereto, he served as Vice President, Customer
Supply Chain of Equistar since May 1999 and Lyondell since October 2000.
Previously he was Vice President, Information Systems and Business Process
Improvement of Equistar from December 1997 to May 1999. Prior to the formation
of Equistar, Mr. Hemmer had been Director, Engineering and Licensing for
Millennium Petrochemicals from October 1996 to December 1997. Before October
1996, he was manager of polyethylene process and engineering technology for
Exxon Chemical.

     Mr. Hollinshead has been Vice President, Human Resources for Equistar and
Lyondell since July 1998. Prior to his appointment he was Director, Human
Resources, Manufacturing and Engineering for Equistar from 1997. Mr. Hollinshead
served as Manager, Human Resources with Lyondell from 1985 to 1997.

     Mr. O'Brien has been Vice President, General Counsel and Secretary of
Equistar since December 1997. Prior to his appointment with Equistar, Mr.
O'Brien served as Associate General Counsel of Lyondell since 1989. Mr. O'Brien
has served as Vice President and Deputy General Counsel of Lyondell since
December 1999.

     Mr. Rodriguez is Vice President, Supply and Optimization for Equistar and
Lyondell. Prior to being named to his current position in March 2000, Mr.
Rodriguez served as Vice President, Planning, Evaluations and Supply for LCR
since 1998. He joined LCR in 1993 as Manager of Planning, Evaluations and
Manufacturing Coordination. He was promoted to Director of Planning, Evaluations
and Supply in 1996.

     Mr. Tolbert was appointed Vice President and Chief Information Officer of
Equistar and Lyondell in May 1999. He was named Vice President, Information
Services for Lyondell in July 1998. He served as General Auditor for ARCO from
1991 to 1995, when he was named Vice President, Information Services for ARCO
Chemical.

                                       62
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The table below provides information regarding the compensation awarded to
or earned by Equistar's Chief Executive Officer and the next four most highly
compensated executive officers (collectively, the "named executive officers")
during the fiscal years ended December 31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                                       Long-Term Compensation
                                                                                      ------------------------
                                                        Annual Compensation             Awards        Payouts
                                                ---------------------------------     ----------     ---------
                                                                                        Securities   Long-term
                                                                                       Underlying     Incentive      All Other
                                                      Bonus ($)    Other Annual        Options (#)   Payouts ($)   Compensation ($)
 Name and Principal Position     Year    Salary ($)     (a)      Compensation ($)(b)      (c)          (d)              (e)
-----------------------------   ------  -----------  ----------  -------------------  ------------  ------------  -----------------
<S>                              <C>      <C>           <C>           <C>               <C>           <C>             <C>
Dan F. Smith (f)..............   2001       --               --         --               --            --             --
   Chief Executive Officer       2000       --               --         --               --            --             --
                                 1999       --               --         --               --            --             --

Eugene R. Allspach (g)........   2001     450,112        17,014       18,589            125,050       608,804         69,611
    President and                2000     450,112       103,031       14,720             --           227,220         68,437
    Chief Operating Officer      1999     413,088       480,300       13,926             --            --             60,737

W. Norman Phillips, Jr........   2001     296,010         9,324       13,945             54,607       307,142         52,233
   Senior Vice President         2000     288,912        56,685       11,489             --          129,948          49,932
                                 1999     278,720       277,800       10,519             --           --              49,047

Brian A. Gittings (h).........   2001     296,010         9,324       13,327             54,607       254,300        620,161
   Senior Vice President         2000     284,310        55,782        7,933             --           67,032          44,219
                                 1999     269,516       268,600        9,259             --           --              50,998

J. R. Fontenot................   2001     287,014       116,097       13,145             56,433       250,818         47,683
   Vice President                2000     270,816        53,134       10,843             --           77,840          50,092
                                 1999     254,592       253,700        6,561             --           --              46,864
</TABLE>

_____________
(a)  Mr. Fontenot provides support to both Lyondell and Equistar pursuant to a
     Shared Services Agreement. As a result, Mr. Fontenot's bonus shown for
     2001 was calculated based on the economic value of the entire Lyondell
     enterprise (including Equistar). The bonus amounts shown for 2001 for
     Messrs. Allspach, Phillips and Gittings were calculated solely with
     reference to Equistar.
(b)  Includes imputed income in respect of Equistar's Long-Term Disability Plan
     and tax gross-ups (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) in respect of financial counseling reimbursements, as set forth
     below:

<TABLE>
<CAPTION>

Imputed Income:               Year      Mr. Allspach     Mr. Phillips   Mr. Gittings   Mr. Fontenot
                              ----      -------------    ------------   ------------   ------------
<S>                           <C>           <C>            <C>             <C>            <C>
                              2001          $10,456        $ 7,285         $ 9,063        $ 7,145
                              2000           10,456          7,225           4,024          6,579
                              1999           10,018          6,255           2,214          2,298

Financial Counseling
Tax Gross-Ups:                Year      Mr. Allspach     Mr. Phillips   Mr. Gittings   Mr. Fontenot
                              ----      -------------    ------------   ------------   ------------
                              2001         $ 8,133         $ 6,660         $ 4,264        $ 6,000
                              2000           4,264           4,264           3,909          4,264
                              1999           3,908           4,264           7,045          4,263

</TABLE>

                                       63
<PAGE>

(c)  Amounts shown represent "Equistar options" and were awarded under the
     Incentive Plan, as described in the Option Grants in 2001 table below.
(d)  Awards have been made to each of Messrs. Allspach, Phillips, Gittings and
     Fontenot under Equistar's Bonus Plan, which awards entitle them to deferred
     cash payments made in three annual installments. The amounts shown for 2001
     represent the initial one third of the amount earned with respect to 1999
     and the second one third of the amount earned with respect to 1998. The
     amounts shown for 2000 represent the initial one third of the amount earned
     with respect to 1998.
(e)  Includes contributions to the Executive Supplementary Savings Plan,
     incremental executive medical plan premiums, financial counseling
     reimbursements and amounts in respect of the Executive Life Insurance Plan,
     as follows:

<TABLE>
<CAPTION>

                                               Year   Mr. Allspach   Mr. Phillips  Mr. Gittings   Mr. Fontenot
                                               ----   -----------    ------------  ------------   ------------
<S>                                            <C>      <C>          <C>          <C>               <C>
Executive Supplementary Savings Plan.........  2001     $36,009      $23,681      $23,681           $22,961
Incremental Medical Plan Premiums............  2001      16,007       16,007       11,857            11,857
Financial Counseling Reimbursement...........  2001      13,555       11,100        7,107            10,000
Executive Life Insurance Plan................  2001       4,040        1,445        1,261             2,865
</TABLE>

     The amount shown for 2001 for Mr. Gittings includes a payment of $576,255
     that Mr. Gittings received pursuant to Equistar's Bonus Plan as a result of
     his retirement. The payment includes: $47,880, representing the final one
     third of the deferred cash payments earned with respect to 1998; $402,867,
     representing the final two thirds of the deferred cash payments earned with
     respect to 1999; and $125,508, representing the entire deferred cash
     payments earned with respect to 2000. In addition, the Equistar options
     granted to Mr. Gittings in 2001 vested upon his retirement. Mr. Gittings
     has one year after his retirement date to exercise these Equistar options.
     Mr. Gittings will receive a prorated payment with respect to the
     performance shares granted to him in 2001, based on the number of days he
     was employed by Equistar during the 2001-2003 performance cycle. Any
     payment made with respect to the performance shares will be made at the
     same time and in the same manner as made to all other holders of
     performance shares.

(f)  Mr. Smith serves as the Chief  Executive  Officer of both Lyondell and
     Equistar. Mr. Smith does not receive any compensation from Equistar.
     Equistar pays a fee to Lyondell in recognition of Mr. Smith's services.
     See "Item 13. Certain Relationships and Related Transactions--Agreement
     Regarding Services of Equistar's Chief Executive Officer."
(g)  Mr. Allspach is retiring effective March 31, 2002.
(h)  Mr. Gittings retired effective December 31, 2001.

EQUISTAR'S BONUS PLAN

     Prior to 2001, Equistar provided performance-driven, annual and long-term
incentive compensation to selected key employees through the Equistar Bonus
Plan. The Bonus Plan integrated current and deferred (or long-term) components.
Awards were based on whether Equistar reached its performance and financial
goals in critical areas, primarily economic value added. Economic value added
was used to measure Equistar's cash flow performance in excess of a capital
charge, which was calculated by multiplying the capital invested in Equistar by
Equistar's weighted average cost of capital.

     Awards consisted of a combination of annual (or current cash) and long-term
(or deferred cash) compensation. The relative percentages of current cash and
deferred cash components were based on the market value of the Bonus Plan
participant's position, with the percentage of deferred cash compensation
increasing as compared with current cash compensation as the market value of the
Bonus Plan participant's position increased. The current portion of the awards
with respect to 1999 and 2000 is disclosed under the "Bonus" column of the
Summary Compensation Table next to the appropriate year. The deferred cash
portion of each award is paid out over three consecutive years, one-third each
year, beginning approximately one year from the payment of the related annual
cash component. For the awards with respect to 1999 and 2000, the payout amounts
for the deferred compensation component could be

                                       64
<PAGE>

adjusted upward, with no cap, or downward, with an 80% floor, based on
Equistar's ongoing results over the three-year period from 2000 to 2002 (for
awards with respect to 1999) and the three-year period from 2001 to 2003 (for
awards with respect to 2000). The Bonus Plan remains in effect. However, in
2001, Equistar adopted a new Incentive Plan.

EQUISTAR'S INCENTIVE PLAN

     In 2001, Equistar adopted a new Incentive Plan and made the first grants of
incentive awards under this Incentive Plan to executive officers. Equistar
believes that the 2001 grants of incentive awards are comparable in value to
grants of incentive awards in prior years. The 2001 awards were made in three
forms:

     .  Annual cash awards, which reward management for economic value added
        and financial and operational performance based on other measures
        selected by the Compensation Committee of Equistar's Governance
        Committee.

     .  Equistar options, which give participants the right to receive a cash
        payment equal to the increase in the value of a predetermined number of
        units whose value is determined by the composite market values of
        Lyondell, Millennium and Occidental common stock, weighted in
        proportions set by the Compensation Committee of Equistar's Governance
        Committee. The awards have a strike price equal to the weighted
        composite market value of the owner companies, vest in annual one-third
        increments and generally have a term of ten years.

     .  Equistar performance shares, which allow participants to receive a cash
        payment equal to the value of a predetermined number of units whose
        value is determined by the composite market values of Lyondell,
        Millennium and Occidental common stock, weighted in proportions set by
        the Compensation Committee of Equistar's Governance Committee. The cash
        payment actually made to participants will depend on the weighted
        composite total shareholder return for Equistar's owners over a
        three-year period.

     Equistar believes that this Incentive Plan allows the Compensation
Committee of the Governance Committee to make awards that provide appropriate
performance and retention incentives to management.

                                          OPTION GRANTS IN 2001

<TABLE>
<CAPTION>

                                                       Individual Grants
                         --------------------------------------------------------------------------
                           No. of Securities    % of Total Options    Exercise                        Grant Date
                             Underlying            Granted to          Price         Expiration         Present
Name                       Options Granted      Employees in 2001    ($/Unit)          Date           Value ($)
----                       ---------------      -----------------     -------          ----           ---------
<S>                         <C>                    <C>                <C>            <C>              <C>
Mr. Smith(a)                  --                    --                 --              --                --
Mr. Allspach(b)             125,050                14.4               17.21          2/13/11          847,801
Mr. Phillips(b)              54,607                 6.3               17.21          2/13/11          370,219
Mr. Gittings(b)              54,607                 6.3               17.21          2/13/11          370,219
Mr. Fontenot(b)              56,433                 6.5               17.21          2/13/11          382,599
---------------------
</TABLE>

(a)  Mr. Smith serves as the Chief Executive Officer of both Lyondell and
     Equistar. Mr. Smith does not receive any compensation from Equistar.
     Equistar pays a fee to Lyondell in recognition of Mr. Smith's services.
     See "Item 13. Certain Relationships and Related Transactions--Agreement
     Regarding Services of Equistar's Chief Executive Officer."

(b)  Awards to Messrs. Allspach, Phillips, Gittings and Fontenot represent
     "Equistar options" and were made by Equistar pursuant to the Incentive
     Plan. The Equistar options give participants the right to receive a cash
     payment equal to the increase in the value of a predetermined number of
     units whose value is determined by

                                       65
<PAGE>

     the composite market values of Lyondell, Millennium and Occidental
     common stock, weighted in proportions set by the Compensation Committee
     of Equistar. The initial weighting factors set by the Compensation
     Committee are: (1) Lyondell, 45%, (2) Millennium, 45% and (3) Occidental,
     10%. However, the Compensation Committee has discretion to change the
     weighting factors. The Equistar options have an exercise price equal to
     the weighted composite market value of the common stock of the owner
     companies on the grant date, and vest in one-third annual increments,
     with the first third vesting on February 13, 2002. The Equistar options
     are subject to early vesting under certain specified conditions. The
     grant date present value per unit of Equistar options granted was
     estimated using the Black-Scholes option-pricing model, on a three-year
     basis for each of Equistar's owners, and based on certain assumptions for
     each of Equistar's owners. The Black-Scholes values for the owner
     companies were then weighted in accordance with the weighting factors set
     forth above to estimate the grant date present value per unit of Equistar
     options. The following assumptions were used with respect Lyondell: fair
     value per share--$4.60; dividend yield--5.31%; expected
     volatility--49.53%; risk-free interest rate--5.58%; and maturity in
     years--10. The following assumptions were used with respect to
     Millennium: fair value per share--$7.20; dividend yield--3.19%; expected
     volatility--50.21%; risk-free interest rate--5.58%; and maturity in
     years--10. The following assumptions were used with respect to
     Occidental: fair value per share--$6.52; dividend yield--4.74%; expected
     volatility--38.51%; risk-free interest rate--5.58%; and maturity in
     years--10.

     No Equistar options were exercised during 2001 by any named executive
officers. The following table shows the number of composite units represented by
outstanding Equistar options held by each of the named executive officers as of
December 31, 2001, including the value of "in-the-money" Equistar options, which
represents the positive spread between the exercise price of any such Equistar
option and the year end weighted composite market value.

                       OPTION VALUES AT DECEMBER 31, 2001

<TABLE>
<CAPTION>

                                                          Number of Securities
                                                         Underlying Unexercised           Value of Unexercised
                                                          Options at Fiscal             In-The-Money Options at
Name                                                          Year-End (#)                Fiscal Year-End ($)
----                                                  ----------------------------      ------------------------
                                                        Exercisable   Unexercisable    Exercisable  Unexercisable
                                                      -------------   -------------   ------------  --------------
<S>                                                       <C>            <C>              <C>            <C>
Mr. Smith (a)......................................       --               --             --             --
Mr. Allspach (b)...................................       --             125,050          --             --
Mr. Phillips (b)...................................       --              54,607          --             --
Mr. Gittings (b)...................................       --              54,607          --             --
Mr. Fontenot (b)...................................       --              56,433          --             --
</TABLE>

________
(a)  Mr. Smith serves as the Chief Executive Officer of both Lyondell and
     Equistar. Mr. Smith does not receive any compensation from Equistar.
     Equistar pays a fee to Lyondell in recognition of Mr. Smith's services.
     See "Item 13. Certain Relationships and Related Transactions--Agreement
     Regarding Services of Equistar's Chief Executive Officer."

(b)  Equistar options were awarded pursuant to the Incentive Plan. The awards
     have an exercise price of $17.21, which is equal to the composite market
     value on the date of grant of the common stock of Equistar's owner
     companies, as weighted in proportions set by Equistar's Compensation
     Committee. The initial weighting factors set by the Compensation Committee
     are: (1) Lyondell, 45%, (2) Millennium, 45% and (3) Occidental, 10%.
     However, the Compensation Committee has discretion to change the weighting
     factors. The composite market value of the common stock of Equistar's owner
     companies on December 31, 2001, as weighted in proportions set by the
     Compensation Committee, was $14.7715.

                                       66
<PAGE>

                      LONG-TERM INCENTIVE PLANS--AWARDS IN 2001

<TABLE>
<CAPTION>
                                       Number of       Performance
                                        Shares,         or Other
                                       Units or       Period Until      Estimated Future Payouts under
                                        Other         Maturation          Non-Stock Price-Based Plans
                                                                       -----------------------------------------
Name                                  Rights (#)       Or Payout       Threshold (#)  Target (#)   Maximum (#)
----                                  ----------       ---------       -------------  ----------   -------------
<S>                                  <C>             <C>                <C>          <C>           <C>
Mr. Smith (a) ......................      --               --               --.           --            --
Mr. Allspach (b).................... 39,786 units    1/1/01-12/31/03    7,957 units  39,786 units  79,572 units
Mr. Phillips (b).................... 17,374 units    1/1/01-12/31/03    3,474 units  17,374 units  34,748 units
Mr. Gittings (b) ................... 17,374 units    1/1/01-12/31/03    3,474 units  17,374 units  34,748 units
Mr. Fontenot (b) ................... 17,955 units    1/1/01-12/31/03    3,591 units  17,955 units  35,910 units
</TABLE>

---------
(a)  Mr. Smith serves as the Chief Executive Officer of both Lyondell and
     Equistar. Mr. Smith does not receive any compensation from Equistar.
     Equistar pays a fee to Lyondell in recognition of Mr. Smith's services.
     See "Item 13. Certain Relationships and Related Transactions--Agreement
     Regarding Services of Equistar's Chief Executive Officer."

(b)  The awards granted to Messrs. Allspach, Phillips, Gittings and
     Fontenot are performance share awards pursuant to the Incentive Plan.
     Equistar performance share awards allow participants to receive a cash
     payment equal to the value of a predetermined number of units whose value
     is determined by the composite market value of Lyondell, Millennium and
     Occidental common stock, weighted in proportions set by Equistar's
     Compensation Committee. The initial weighting factors set by the
     Compensation Committee are: (1) Lyondell, 45%, (2) Millennium, 45% and
     (3) Occidental, 10%. However, the Compensation Committee has discretion
     to change the weighting factors. Equistar performance share awards may
     only be paid in cash. The cash amount actually paid to participants will
     depend on the weighted composite total shareholder return for the owner
     companies over the 2001-2003 performance cycle. The performance target is
     to achieve total shareholder return (defined as the change in composite
     fair market value of a unit plus composite dividend yield measured over
     the course of the performance cycle) during the performance cycle of at
     least the fiftieth percentile, as compared to the companies in the peer
     group. In order for any performance shares to be earned, a total
     shareholder return ranking of at least the thirtieth percentile (the
     threshold amount) must be achieved; and total shareholder return in the
     eightieth percentile will result in the maximum payment set forth above.
     Shareholder returns between the thirtieth and fiftieth percentile, or
     between the fiftieth and eightieth percentile will be interpolated
     between the values listed above. The companies composing the peer group
     are all chemical or specialty chemical companies.

                                       67
<PAGE>

PENSION BENEFITS

     The following table shows estimated annual pension benefits payable to
Equistar's employees, including the named executive officers (other than Mr.
Smith, who does not receive any compensation from Equistar), upon retirement at
age 65 based on credited service as of January 1, 2002, under the provisions of
the Equistar Retirement Plan and the Equistar Supplementary Executive
Retirement Plan (together, the "Equistar Retirement Plan").

                               PENSION PLAN TABLE

<TABLE>
<CAPTION>
  Average Final Earnings (Base
   Salary plus Annual Bonus)
   Highest Three Consecutive         Approximate Annual Benefit for Years of Membership Service Indicated (a)
                                     ------------------------------------------------------------------------
  Years out of Last 10 Years           15 Years        20 Years      25 Years       30 Years        35 Years
------------------------------         --------        --------      --------       --------        --------
<S>                                   <C>             <C>           <C>            <C>             <C>
$1,200,000                            $ 239,616       $ 319,488     $ 399,360      $ 479,232       $ 559,104
 1,100,000                              219,648         292,864       366,080        439,296         512,512
 1,000,000                              199,680         266,240       332,800        399,360         465,920
   900,000                              179,712         239,616       299,520        359,424         419,328
   800,000                              159,744         212,992       266,240        319,488         372,736
   700,000                              139,776         186,368       232,960        279,552         326,144
   600,000                              119,808         159,744       199,680        239,616         279,552
   500,000                               99,840         133,120       166,400        199,680         232,960
   400,000                               79,872         106,496       133,120        159,744         186,368
   300,000                               59,904          79,872        99,840        119,808         139,776
   200,000                               39,936          53,248        66,560         79,872          93,184
</TABLE>

---------
(a)  As of December 31, 2001, each of Messrs. Allspach, Phillips,
     Gittings and Fontenot had four years of credited service (rounded to the
     nearest whole number) under the Equistar Retirement Plan. Mr. Gittings
     retired effective December 31, 2001 and Mr. Allspach is retiring
     effective March 31, 2002.

     The amounts shown in the above table are necessarily based upon certain
assumptions, including retirement of the employee at age 65, based on credited
services as of January 1, 2002, and payment of the benefit under the basic form
of allowance provided under the Equistar Retirement Plan (payment for the life
of the employee only). The amounts will change if the payment is made under any
other form of allowance permitted by the respective retirement plan, or if an
employee's actual retirement occurred after January 1, 2002, 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 covered compensation for which
retirement benefits are computed under the Equistar Retirement Plan is the
average of the participant's highest three consecutive years out of the last
ten years of base salary plus annual bonus. Base salary and annual bonus
amounts are set forth under the "Salary" and "Bonus" headings in the Summary
Compensation Table. The benefits shown are not subject to deduction for Social
Security benefits or other offset amounts.

EXECUTIVE SEVERANCE ARRANGEMENTS AND CHANGE IN CONTROL

     On March 15, 1999, Lyondell's compensation committee adopted the Lyondell
Chemical Company Executive Severance Pay Plan (the "Severance Plan"), which
generally applies to all executive officers of Lyondell, including Messrs.
Smith and Allspach, and certain other key members of management that are
designated by the Chief Executive Officer of Lyondell. Effective as of October
5, 2000, Lyondell's compensation committee amended and restated the Severance
Plan to cover executive officers and other key members of management (as
designated by the Chief Executive Officer of Lyondell) of Lyondell's
subsidiaries, including Equistar. The Severance Plan provides for the payment
of certain benefits to covered employees upon certain terminations following a
Change in Control of Lyondell. Effective as of January 1, 2002, under the
Severance Plan, a "Change in Control" of Lyondell means any one of the
following events:

                                       68
<PAGE>

     .  the incumbent directors of Lyondell (directors as of February 1, 1999
        or individuals recommended or approved by a majority of the then
        incumbent directors other than as a result of either an actual or
        threatened election contest) cease to constitute at least a majority
        of Lyondell's Board of Directors,

     .  the shareholders of Lyondell approve a merger, consolidation, or
        recapitalization of Lyondell, or a sale of substantially all
        Lyondell's assets, unless immediately after the consummation of the
        transaction, the shareholders of Lyondell immediately prior to the
        transaction would own 80% or more of the then outstanding equity
        interests and combined voting power of the then outstanding voting
        securities of the resulting entity, or the incumbent directors at the
        time of initial approval of the transaction would, immediately after
        the transaction, constitute a majority of the Board of Directors or
        similar managing group of such resulting entity,

     .  the shareholders of Lyondell approve any plan for the liquidation or
        dissolution of Lyondell,

     .  any person shall become the beneficial owner of more than 20% of the
        outstanding common stock of Lyondell or combined voting power of all
        voting securities of Lyondell, unless such person exceeds 20%
        ownership solely as a result of (A) Lyondell acquiring securities and
        correspondingly reducing the number of shares or other voting
        securities outstanding, (B) an acquisition of securities directly from
        Lyondell except for any conversion of a security that was not acquired
        directly from Lyondell or (C) a direct or indirect acquisition by
        Occidental or Millennium (or an affiliate) of beneficial ownership of
        securities representing (x) in the case of Occidental and its
        affiliates, no more than 40%, (y) in the case of Millennium and its
        affiliates, no more than 40%, and (z) in the case of Occidental and
        Millennium and their respective affiliates in the aggregate, no more
        than 49% of either the then outstanding common stock or combined
        voting power of the then outstanding voting securities of Lyondell, as
        contemplated by any agreement between Lyondell and Occidental and/or
        Millennium or their affiliates where, as a result of the transaction
        or series of related transactions, Lyondell or the resulting entity
        owns a greater percentage equity interest in Equistar than Lyondell
        owned immediately prior to the transactions. If a person referred to
        in either (A) or (B) of this clause shall thereafter become the
        beneficial owner of additional shares of Lyondell's common stock or
        other ownership interests representing 1% or more of the outstanding
        shares of Lyondell's common stock or 1% or more of the combined voting
        power of Lyondell (other than by stock split, stock dividend or
        similar transaction or as a result of an event described in (A), (B)
        or (C) of this clause), then a Change in Control will be deemed to
        have occurred.

     A Change in Control will not be deemed to occur under the second bullet
of the paragraph above if each of the following conditions is met: (1) the
transaction is between Lyondell and/or its affiliates and Millennium and/or its
affiliates, (2) Lyondell or an entity that was a wholly owned subsidiary of
Lyondell prior to the transaction has a class of equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended,
immediately after the transaction, (3) Millennium or an entity that was a
wholly owned subsidiary of Millennium prior to the transaction has a class of
equity securities registered under Section 12 of the Securities Exchange Act of
1934, as amended, immediately after the transaction, and (4) as a result of the
transaction, Lyondell or its affiliates own a greater percentage equity
interest in Equistar than Lyondell owned immediately prior to the transaction.

     If an employee covered under the Severance Plan is terminated by his or
her employer without cause or by the employee for good reason (which includes
certain "constructive" terminations) within two years following a Change in
Control, the employee will be entitled to receive from Lyondell a payment equal
to one times to three times annual earnings, depending on the employee's
position with his or her employer. Annual earnings for this purpose is
generally the sum of an employee's base pay plus target annual bonus. Mr. Smith
would receive from Lyondell a payment equal to three times his annual earnings.
Each of Messrs. Phillips and Fontenot would receive from Lyondell a payment
equal to two times his annual earnings. Upon retirement, Messrs. Allspach and
Gittings will no longer be covered by the Severance Plan. Outstanding Lyondell
option awards, if any, to covered employees will be automatically vested.
Covered employees will also receive, at Lyondell's expense: (1) eligibility to
commence vested early retirement benefits under Lyondell's or a subsidiary's
retirement plans, actuarially reduced for early commencement, and retiree
medical coverage; (2) continuation of welfare benefit coverages for a period of
two years following termination; and (3) outplacement services for a period of
one year, at a cost not to exceed $40,000. In addition, covered employees will
receive from Lyondell a gross-up payment for the amount of the excise tax

                                       69
<PAGE>

liability, if any, imposed pursuant to Code Section 4999 with respect to any
benefits paid in connection with the Change in Control. In order to receive
benefits under the Severance Plan, a covered employee must sign a general
release of claims against Lyondell and its affiliates. Upon a Change in
Control, if applicable, Lyondell will also deposit into its Supplemental
Executive Benefit Plans Trust any additional assets necessary to fully fund the
benefits due under its Supplementary Executive Retirement Plan and Executive
Deferral Plan. The Severance Plan may be amended or terminated at any time
prior to a Change in Control or, if earlier, prior to the date that a third
party submits a proposal to the Board of Directors that is reasonably
calculated, in the judgment of Lyondell's compensation committee, to effect a
Change in Control. The Severance Plan may not be amended to deprive a covered
employee of benefits after a Change in Control.

COMPENSATION OF PARTNERSHIP GOVERNANCE COMMITTEE MEMBERS

     Members of the Governance Committee do not receive any compensation from
Equistar for their service.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The members of the Compensation Committee are Robert T. Blakely, Stephen
I. Chazen and John E. Lushefski. Mr. Smith, Equistar's Chief Executive Officer,
is also President, Chief Executive Officer and a director of Lyondell. Mr.
Blakely is Executive Vice President and Chief Financial Officer of Lyondell.
Mr. Chazen is Executive Vice President - Development and Chief Financial
Officer of Occidental, and Mr. Lushefski is Senior Vice President and Chief
Financial Officer of Millennium.

     Lyondell, Millennium and Occidental and their respective affiliates are
parties to various agreements and transactions with Equistar. See "Item
13--Certain Relationships and Related Transactions."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Equistar is a limited partnership wholly owned by Lyondell Petrochemical
L.P. Inc. ("Lyondell LP"), Millennium Petrochemicals LP LLC ("Millennium LP "),
Occidental Petrochem Partner 1, Inc.  ("Occidental LP1") and Occidental
Petrochem Partner 2, Inc.  ("Occidental LP2"), as the limited partners, and
Lyondell Petrochemical G.P. Inc. ("Lyondell GP"), Millennium Petrochemicals GP
LLC ("Millennium GP") and Occidental Petrochem Partner GP, Inc.  ("Occidental
GP"), as the general partners.

                                       70
<PAGE>

     The following information is given with respect to the partners'
interests in Equistar as of March 1, 2002.

                                                                   Percentage
     Name and Address of                          Nature of        Partnership
      Beneficial Owner                      Beneficial Ownership    Interest
      ----------------                      --------------------    --------
Lyondell LP..........................          Limited Partner         40.180%
   300 Delaware Ave.
   Wilmington, DE 19801
Millennium LP........................          Limited Partner         28.910%
   230 Half Mile Road
   Red Bank, NJ 07701
Occidental LP1.......................          Limited Partner          6.623%
   10889 Wilshire Blvd.
   Los Angeles, CA 90024
Occidental LP2.......................          Limited Partner         22.876%
   10889 Wilshire Blvd.
   Los Angeles, CA 90024
Lyondell GP..........................          General Partner          0.820%
   1221 McKinney Street
   Houston, TX 77010
Millennium GP........................          General Partner          0.590%
   230 Half Mile Road
   Red Bank, NJ 07701
Occidental GP........................          General Partner          0.001%
   10889 Wilshire Blvd.
   Los Angeles, CA 90024

     Lyondell owns 100% of the outstanding capital stock of each of Lyondell
LP and Lyondell GP. Lyondell has pledged its interests in each of the Equistar
partners owned by Lyondell under its bank credit facility. Millennium
indirectly owns 100% of the outstanding equity interests of each of Millennium
LP and Millennium GP. Millennium has pledged its interest in each of the
Equistar partners owned by Millennium under its bank credit facility.
Occidental indirectly owns 100% of the outstanding capital stock of each of
Occidental LP1, Occidental LP2 and Occidental GP.

LYONDELL

     Lyondell is a global chemical company with leading market positions in
all of its major products. Lyondell had revenues of approximately $3.2 billion
for the year ended December 31, 2001, and approximately $6.7 billion of assets
at December 31, 2001. Lyondell is vertically integrated into its key raw
materials through its equity ownership in Equistar, LCR and LMC. Lyondell
operates in the following businesses:

     .  Intermediate Chemicals and Derivatives. Lyondell is the world's
        largest producer of propylene oxide, commonly referred to as PO, and a
        leading worldwide producer and marketer of PO derivatives. Lyondell is
        the world's third largest supplier of toluene diisocyanate. Lyondell is
        also a major producer and marketer of styrene monomer and tertiary
        butyl alcohol, co-products of Lyondell's proprietary PO technology.

     .  Petrochemicals and Polymers. Lyondell operates in these businesses
        through its ownership interest in Equistar.

     .  Refining. Lyondell owns 58.75% of LCR, which owns one of the largest
        crude oil refineries in the United States, located in Houston, Texas.
        The refinery is a full conversion refinery with heavy crude oil
        processing capability of approximately 268,000 barrels per day of 17
        degree API gravity crude oil.

     .  Methanol. Lyondell owns 75% of LMC, the third largest producer of
        methanol in the United States.

                                       71
<PAGE>

MILLENNIUM

     Millennium is a major international chemical company, with leading market
positions in a broad range of commodity, industrial, performance and specialty
chemicals. Millennium manufactures products in 14 plants on four continents.
Millennium had revenues of approximately $1.6 billion for the year ended
December 31, 2001, and approximately $3.0 billion of assets at December 31,
2001. In addition to its interest in Equistar, Millennium operates in three
principal business segments:

     .  Titanium Dioxide and Related Products. Millennium is the second
        largest producer of titanium dioxide, or TiO/2/, in the world, with
        manufacturing facilities in the United States, the United Kingdom,
        France, Australia and Brazil. Millennium is also the largest merchant
        seller of titanium tetrachloride in North America and Europe and a
        major producer of zirconia, cadmium/selenium-based pigments and silica
        gel.

     .  Acetyls. Millennium is the second largest producer of acetic acid and
        vinyl acetate monomer in North America.

     .  Specialty Chemicals. Millennium is a leading producer of fragrance
        chemicals.

OCCIDENTAL

     Occidental explores for, develops, produces and markets crude oil and
natural gas. Occidental also manufactures and markets basic chemicals,
including chlorine, caustic soda and ethylene dichloride, vinyls, including
polyvinyl chloride resins and vinyl chloride monomer, through its 76% interest
in Oxy Vinyls, LP, and performance chemicals. Occidental conducts its
operations through various oil and gas and chemical subsidiaries and
affiliates. Occidental also has an interest in petrochemicals through its 29.5%
ownership interest in Equistar, which it intends to sell to Lyondell.

     Occidental had net sales of approximately $14 billion for the year ended
December 31, 2001 and approximately $17.9 billion of assets as of December 31,
2001. Occidental's principal business consists of two industry segments:

     .  Oil and Gas Operations. Occidental conducts oil and gas operations in
        the United States, Colombia, Ecuador, Oman, Pakistan, Qatar, Russia and
        Yemen. At December 31, 2001, Occidental had total reserves of 1,897
        million barrels of oil and 2,068 billion cubic feet of natural gas.

     .  Chemical Operations. Occidental conducts its chemical operations
        through Occidental Chemical Corporation and its various subsidiaries
        and affiliates, including Equistar. Occidental is a chemical
        manufacturer, with interests in basic chemicals, vinyls, petrochemicals
        and performance chemicals.

EFFECT OF ANY POTENTIAL CHANGE IN OWNERSHIP

     Any one or more of Lyondell, Millennium or Occidental may transfer
control of their interests in Equistar or engage in mergers or other business
combination transactions with a third party or with one or more of the other
owners that could result in a change in control of any one of Lyondell,
Millennium, Occidental or Equistar. Because of the unanimous approval
requirements in Equistar's partnership governance structure, any transfer of an
interest in Equistar or change of control of any one of Equistar's owners could
affect the governance of Equistar. Equistar cannot predict how a change of
owners would affect Equistar's operations or business.

     Unless waived by each of Equistar's owners, Equistar's partnership
agreement provides that a direct or indirect transfer of an interest in
Equistar generally may occur only if the other owners are first offered the
opportunity to purchase the interest and, if the transferee is a third party,
the transferee has an "investment grade" debt rating. However, if interests are
transferred in connection with a merger or sale of a majority of the other
assets of Lyondell, Millennium or specified subsidiaries of Occidental, the
other owners do not have a right of first option and the investment grade
requirement is not applicable.

                                       72
<PAGE>

     The types of transactions described above could involve third parties
and/or one or more of Lyondell, Millennium or Occidental. Equistar's owners
have discussed, and from time to time may continue to discuss, whether in
connection with their ordinary course dialogue regarding Equistar's business or
otherwise, transactions which if consummated could result in a transfer or
modification, either directly or indirectly, of their ownership interest in
Equistar.

     Equistar's credit facility provides that an event of default occurs if
any combination of Lyondell, Millennium and Occidental, collectively, cease to
own at least a 50% interest in Equistar. An event of default under Equistar's
credit facility would permit the lenders to declare amounts outstanding under
the credit facility immediately due and payable, which would result in an event
of default under the indenture for the Equistar notes due 2008, and could
permit the lenders under Equistar's credit facility to terminate future
commitments to make revolving loans and acquire participations in letters of
credit or swingline loans. If the lenders accelerated their loans, no assurance
can be given that Equistar's assets would be sufficient to fund the repayment
of indebtedness.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Equistar believes that the related party transactions described below
were obtained on terms substantially no more or less favorable than those that
would have been agreed upon by third parties on an arm's length basis.

ASSET CONTRIBUTIONS BY LYONDELL AND AFFILIATES OF MILLENNIUM AND OCCIDENTAL

     Both Lyondell and Millennium Petrochemicals entered into separate asset
contribution agreements on December 1, 1997, providing for the contribution of
the Lyondell and Millennium contributed businesses. Wholly owned subsidiaries
of Occidental (the "Occidental Subsidiaries") entered into an asset
contribution agreement with Equistar on May 15, 1998, with respect to the
transfer of the Occidental contributed business, a portion of which transfer
was accomplished through a merger of an Occidental Subsidiary with and into
Equistar. Among other things, the asset contribution agreements required
representations and warranties by the contributor regarding the transferred
assets and indemnification of Equistar by the contributor. These agreements
also provide for the assumption by Equistar of, among other things:

     .  third-party claims that are related to preclosing contingent
        liabilities that are asserted before December 1, 2004 as to Lyondell
        and Millennium Petrochemicals, or before May 15, 2005 as to the
        Occidental Subsidiaries, to the extent the aggregate amount does not
        exceed, in the case of each of Lyondell, Millennium and the Occidental
        Subsidiaries, $7 million;

     .  third-party claims related to preclosing contingent liabilities that
        are asserted for the first time after December 1, 2004 as to Lyondell
        and Millennium Petrochemicals, or after May 15, 2005 as to the
        Occidental Subsidiaries;

     .  obligations for $745 million of Lyondell indebtedness, of which $431
        million remains outstanding as of December 31, 2001;

     .  a $750 million intercompany obligation of Millennium Petrochemicals to
        an indirect subsidiary of Millennium, which has been repaid;

     .  the lease intended for security relating to the Corpus Christi
        facility contributed by Occidental, which has been repaid;

     .  liabilities for products sold after December 1, 1997 as to Lyondell
        and Millennium Petrochemicals, or after May 15, 1998 as to the
        Occidental Subsidiaries, regardless of when manufactured;

     .  certain post-retirement benefits related to the applicable contributed
        business or to certain Lyondell employees who became employees of
        Equistar;

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<PAGE>

     .  in the case of the Millennium Petrochemicals asset contribution
        agreement, future maintenance and maintenance turnaround costs related
        to the Millennium contributed business;

     .  in the case of each of the Millennium Petrochemicals and the
        Occidental Subsidiaries asset contribution agreements, obligations
        under railcar leases under which Equistar is the lessee.

     As of September 30, 2001, Equistar, Lyondell, Millennium Petrochemicals
and the Occidental Subsidiaries amended these asset contribution agreements to
clarify the treatment of, and procedures pertaining to the management of,
certain claims arising under the asset contribution agreements. Equistar
believes that these amendments do not materially change the asset contribution
agreements.

     Lyondell, Millennium Petrochemicals and Occidental Chemical entered into
Master Intellectual Property Agreements and other related agreements with
respect to intellectual property with Equistar. These agreements provide for
all of the following:

     .  the transfer of intellectual property of Lyondell, Millennium
        Petrochemicals and Occidental Chemical related to the businesses each
        contributed to Equistar;

     .  the grant of irrevocable, non-exclusive, royalty-free licenses to
        Equistar (without the right to sublicense) with respect to intellectual
        property retained by Lyondell, Millennium Petrochemicals or Occidental
        Chemical that is related to Equistar's business; and

     .  the grant of irrevocable, non-exclusive, royalty-free licenses
        (without the right to sublicense) from Equistar to Lyondell, Millennium
        Petrochemicals and Occidental Chemical with respect to intellectual
        property each contributed to Equistar.

     Lyondell, Millennium Petrochemicals and the Occidental Subsidiaries each
entered into various other conveyance documents with Equistar to effect their
asset contributions as provided for in their respective contribution agreements.

TRANSACTIONS WITH LMC

     Equistar provides operating and other services for LMC under the terms of
existing agreements that were assumed by Equistar from Lyondell, including the
lease to LMC by Equistar of the real property on which LMC's methanol plant is
located. Under the terms of those agreements, LMC pays Equistar a management
fee of $6 million per year and will reimburse certain expenses of Equistar at
cost. The natural gas for LMC's plant is purchased by Equistar as agent for LMC
under Equistar master agreements with various third party suppliers, which
master agreements are administered by Lyondell personnel. These sales of
natural gas to LMC were $86 million in 2001. All of the foregoing arrangements
with LMC are expected to continue on terms similar to those described above.
LMC sells all of its product to Equistar, which amounted to $151 million in
2001.

TRANSACTIONS WITH LCR

     In connection with the formation of Equistar, Lyondell's rights and
obligations under the terms of its product sales and raw material purchase
agreements with LCR were assigned to Equistar. Accordingly, refinery products,
including propane, butane, naphthas, heating oils and gas oils, are sold by LCR
to Equistar as raw materials, and some olefins by-products are sold by Equistar
to LCR for processing into gasoline. LCR paid Equistar $359 million in 2001 in
connection with these product sales and Equistar paid LCR $203 million in 2001
in connection with these raw material purchases.

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     Equistar and LCR are also parties to:

     .  tolling arrangements under which some of LCR's co-products are
        transferred to Equistar and processed by Equistar, with the resulting
        product being returned to LCR,

     .  terminaling and storage obligations, and

     .  an agreement, which is currently being extended from month to month,
        to perform some marketing services for LCR.

Equistar paid LCR $2 million under these agreements in 2001 and LCR paid
Equistar $21 million under these agreements in 2001. All of the agreements
between LCR and Equistar are on terms generally representative of prevailing
market prices.

SERVICES AND SHARED-SITE AGREEMENTS WITH LYONDELL AND AFFILIATES OF MILLENNIUM
AND OCCIDENTAL

     During 1999, Lyondell provided certain administrative services to
Equistar, including certain legal, risk management and treasury services, tax
services and employee benefit plan administration, and Equistar provided
services to Lyondell in the areas of health, safety and environmental, human
resources, information technology and legal. As a consequence of these
services, Equistar made payments to Lyondell as described in Note 5 of Notes to
Consolidated Financial Statements. Effective January 1, 2000, Lyondell and
Equistar implemented a revised Shared Services Agreement to utilize shared
services over a broader range, including information technology, human
resources, raw material supply, supply chain, health, safety and environmental,
engineering and research and development, facility services, legal, accounting,
treasury, internal audit, and tax. Beginning January 1, 2000, employee-related
and indirect costs are allocated between the two companies in the manner
prescribed in the Shared Services Agreement while direct third party costs,
incurred exclusively for either Lyondell or Equistar, are charged directly to
that entity. During the year ended December 31, 2001, Lyondell charged Equistar
$147 million for these shared services. There were no billings from Equistar to
Lyondell for the year ended December 31, 2001 because Equistar did not provide
services under the Shared Services Agreement to Lyondell during this period.

     Equistar and Millennium Petrochemicals entered into a variety of
operating, manufacturing and technical service agreements in 1997 related to
the business of Equistar and the vinyl acetate monomer, acetic acid, synthesis
gas and methanol businesses retained by Millennium Petrochemicals. A number of
these agreements have been modified and/or terminated. Agreements currently in
effect include the provision by Equistar to Millennium Petrochemicals of
utilities, fuel streams, and office space. These agreements also include the
provision by Millennium Petrochemicals to Equistar of operational services,
including utilities as well as barge dock access and related services. As a
consequence of services provided by Equistar to Millennium Petrochemicals,
Millennium Petrochemicals paid Equistar $17 million in 2001. As a consequence
of services provided by Millennium Petrochemicals to Equistar, Equistar paid
Millennium Petrochemicals $19 million in 2001. In the case of services and
utilities, prices usually are based on cost recovery or an allocation of costs
according to anticipated relative usage. In the case of product sales, prices
generally are market-related. Equistar purchases vinyl acetate monomer and
glacial acetic acid from Millennium Petrochemicals pursuant to an agreement
with Millennium Petrochemicals. Under this agreement, Equistar is required to
purchase 100% of its vinyl acetate monomer raw materials requirements for its
LaPorte, Texas; Clinton, Iowa; and Morris, Illinois plants for the production
of ethylene vinyl acetate products at those locations. The initial term of the
contract expired December 31, 2000. The contract automatically renews annually.
Either party may terminate on one year's notice. Neither party has provided
notice of termination of the agreement. During the year ended December 31,
2001, Equistar purchased $15 million of vinyl acetate monomer and glacial
acetic acid from Millennium Petrochemicals. Millennium Petrochemicals purchases
ethylene and hydrogen from Equistar. These service and product sales agreements
are expected to continue on terms similar to those described above.

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     Equistar and Occidental Chemical entered into a toll processing agreement
dated effective as of May 15, 1998, whereby Equistar retained the services of
Occidental Chemical's facilities in Ashtabula, Ohio, for the processing of
Glycol Ether(TM) into Glycol Ether(TM) Borate Ester material for brake or clutch
fluid. During 2001, Equistar paid Occidental Chemical $193,000 under the
agreement. Equistar terminated the agreement effective as of December 31, 2001.
The processing is now provided by an unrelated third party.

OCCIDENTAL ETHYLENE SALES AGREEMENT

     Equistar and Occidental Chemical entered into an ethylene sales agreement
dated effective May 15, 1998. Under the terms of this agreement, Occidental
Chemical and its affiliates have agreed to purchase an amount of ethylene from
Equistar equal to 100% of the ethylene raw material requirements of Occidental
Chemical's U.S. plants. The ethylene raw material is exclusively for internal
use in production at these plants less any quantities up to 250 million pounds
per year tolled according to the provisions of the agreement. Upon three years'
notice from either party to the other, the ethylene sales agreement may be
"phased down" over a period not less than five years. No phase down may commence
before January 1, 2009. The annual minimum requirements set forth in the
agreement must be phased down over at least a five-year period so that the
annual required minimum cannot decline to zero prior to December 31, 2013,
unless specified force majeure events occur. The ethylene sales agreement
provides for sales of ethylene at market-related prices. During 2001, Equistar
received aggregate payments from Occidental Chemical and its affiliates of $441
million under the ethylene sales agreement.

     In addition to ethylene, Equistar sells methanol, ethers and glycols to
Occidental Chemical. Equistar also enters into over-the-counter derivatives,
primarily price swap contracts, related to crude oil with Occidental Energy
Marketing, Inc., a subsidiary of Occidental Chemical, to help manage its
exposure to commodity price risk with respect to crude oil-related raw material
purchases. Equistar also purchases various products from Occidental Chemical at
market-related prices.

ETHYLENE SALES AGREEMENT WITH MILLENNIUM PETROCHEMICALS

     Equistar sells ethylene to Millennium Petrochemicals at market-related
prices under an agreement entered into in connection with the formation of
Equistar. Under this agreement, Millennium Petrochemicals is required to
purchase 100% of its ethylene requirements for its La Porte, Texas facility from
Equistar. The initial term of the contract expired December 1, 2000. The
contract automatically renews annually. Either party may terminate on one year's
notice. Neither party has provided notice of termination of the agreement. The
pricing terms under this agreement between Equistar and Millennium
Petrochemicals are similar to the pricing terms under the ethylene sales
agreement between Equistar and Occidental Chemical. Millennium Petrochemicals
paid $55 million to Equistar for ethylene during 2001.

PRODUCT SALES AGREEMENTS WITH LYONDELL

     Lyondell has purchased benzene, ethylene, propylene and other products at
market-related prices from Equistar since Lyondell's acquisition of ARCO
Chemical Company in July 1998. Currently, Equistar sells ethylene, propylene and
benzene to Lyondell at market-related prices pursuant to agreements dated
effective as of October 1998, August 1999 and January 1999, respectively. Under
the agreements, Lyondell is required to purchase 100% of its benzene, ethylene
and propylene requirements for its Channelview and Bayport, Texas facilities,
with the exception of quantities of one product that Lyondell is obligated to
purchase under a supply agreement with an unrelated third party entered into
prior to 1999 and expiring in 2015. The initial term of each of those agreements
between Equistar and Lyondell expires on December 31, 2013 in the case of the
ethylene sales agreement, and December 31, 2014 in the case of the propylene and
benzene sales agreements. After the initial term, each of the agreements
automatically renews for successive one-year periods and either party may
terminate any of the agreements on notice of one year. The pricing terms under
the agreements between Equistar and Lyondell are similar to the pricing terms
under the ethylene sales agreement between Equistar and Occidental Chemical. In
addition, a wholly owned subsidiary of Lyondell licenses MTBE technology to
Equistar. Lyondell also purchases a significant portion of the MTBE produced by
Equistar at one of its two Channelview units at market-related prices. Product
sales to Lyondell in 2001 were $405 million.

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<PAGE>

PRODUCT TRANSACTIONS WITH OXY VINYLS, LP

     Occidental Chemical owns 76% of Oxy Vinyls, LP ("Oxy Vinyls"), a joint
venture partnership it formed with The Geon Company, now known as PolyOne
Corporation, as co-owner. Equistar sells ethylene to Oxy Vinyls for Oxy Vinyls'
LaPorte, Texas facility at market-related prices pursuant to an agreement, which
expires on December 31, 2003. Equistar made ethylene sales to Oxy Vinyls
totaling $48 million in 2001.

AGREEMENT REGARDING SERVICES OF EQUISTAR'S CHIEF EXECUTIVE OFFICER

     Dan F. Smith serves as the Chief Executive Officer of both Lyondell and
Equistar and is a director of Lyondell. Mr. Smith receives no compensation
from Equistar.  Under an agreement  between  Equistar and Lyondell, Equistar
paid  $989,668 to Lyondell as  compensation  for the services  rendered by Mr.
Smith as part of the shared services provided by Lyondell during 2001. See "Item
11. Executive Compensation."

INDEMNITY AGREEMENT WITH OCCIDENTAL CHEMICAL

     Equistar and Occidental Chemical have entered into an indemnity agreement
pursuant to which Occidental Chemical may be required to contribute to Equistar
an amount equal to up to the lesser of approximately $420 million or the
principal amount of the notes due 2009 then outstanding, together with interest.
Occidental Chemical is only required to pay this amount to Equistar if the
holders of the notes due 2009 have not been able to obtain payment after the
holders of the notes due 2009 have pursued and exhausted all their remedies to
compel payment by Equistar and Equistar Funding, including the liquidation of
assets. The indemnity expressly does not create any right in the holders of the
notes due 2009 or any person other than Occidental Chemical, Equistar and the
partners in Equistar. The indemnity may be amended or terminated at any time by
the agreement of the partners in Equistar without the consent of the holders of
the notes due 2009.

     In addition, at any time after June 14, 2005, Occidental Chemical may,
without the consent of the other partners in Equistar, elect to terminate the
indemnity if all of the following conditions exist:

     .  Equistar's ratio of total indebtedness to total capitalization is, as
        of the most recently completed fiscal quarter, lower than the same
        ratio as of December 31, 1998;

     .  Equistar's ratio of earnings before interest, taxes, depreciation and
        amortization to net interest for the most recent 12-month period is at
        least 105% of the same ratio for the 12-month period ending December
        31, 1998;

     .  Equistar is not then in default in the payment of principal of, or
        interest on, any indebtedness for borrowed money in excess of $15
        million; and

     .  Equistar is not then in default in respect of any covenants, other than
        those relating to payment of principal and/or interest, relating to any
        indebtedness for borrowed money, if the effect of a default shall be to
        accelerate, or to permit the holder or obligee of such indebtedness, or
        any trustee on behalf of a holder or obligee, to accelerate, with or
        without the giving of notice or lapse of time or both, the indebtedness
        in an aggregate amount in excess of $50 million.

     Finally, without the consent of the other partners in Equistar, if
Occidental GP, Occidental LP1 and Occidental LP2 sell all of their respective
interests in Equistar, or if Occidental Chemical Holding Corporation sells all
of its interests in Occidental GP, Occidental LP1 and Occidental LP2, in each
case to an unaffiliated third part at any time, Occidental Chemical may elect to
terminate its indemnity, if, at the time of the sale or termination, Equistar
has an investment grade credit rating or the fair market value of Equistar's
assets is at least 140% of the gross amount of its liabilities.

     Occidental Chemical may assign its rights or obligations under the
indemnity to Occidental at any time without the consent of Equistar. Following
such an assignment, Occidental Chemical may terminate the indemnity at any time
if Equistar ceases to be an affiliate of Occidental.

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INDEMNITY AGREEMENT WITH MILLENNIUM AMERICA

     Equistar and Millennium America have entered into an indemnity agreement
pursuant to which Millennium America may be required to contribute to Equistar
an amount equal to up to the lesser of $750 million or the sum of the principal
amount outstanding under the term loan portion of Equistar's credit facility
(not to exceed $275 million) and of the 10.125% senior notes due 2008 then
outstanding (not to exceed $475 million), in any case together with interest.
Millennium America is only required to pay this amount to Equistar if the
lenders under Equistar's credit facility and the holders of the notes due 2008
have not been able to obtain payment after pursuing and exhausting all their
remedies to compel payment by Equistar and Equistar Funding, including the
liquidation of assets. The indemnity expressly does not create any right in the
lenders or holders of the notes due 2008 or any person other than Millennium
America, Equistar and the partners in Equistar. The indemnity may be amended or
terminated at any time by the agreement of the partners in Equistar without the
consent of the lenders under the credit facility or the holders of the notes due
2008.

     In addition, at any time after December 1, 2004, Millennium America may,
without the consent of the other partners in Equistar, elect to terminate the
indemnity in whole or in part if all of the following conditions exist:

     .  Equistar's ratio of total indebtedness to total capitalization is, as
        of the most recently completed fiscal quarter, lower than the same
        ratio as of December 31, 1998;
     .  Equistar's ratio of earnings before interest, taxes, depreciation and
        amortization to net interest for the most recent 12-month period is at
        least 105% of the same ratio for the 12-month period ending December
        31, 1998;
     .  Equistar is not then in default in the payment of principal of, or
        interest on, any indebtedness for borrowed money in excess of $15
        million; and
     .  Equistar is not then in default in respect of any covenants, other than
        those relating to payment of principal and/or interest, relating to any
        indebtedness for borrowed money, if the effect of a default shall be to
        accelerate, or to permit the holder or obligee of such indebtedness, or
        any trustee on behalf of a holder or obligee, to accelerate, with or
        without the giving of notice or lapse of time or both, the indebtedness
        in an aggregate amount in excess of $50 million.

     Finally, without the consent of the other partners in Equistar, if
Millennium GP and Millennium LP sell all of their respective interests in
Equistar or if Millennium Petrochemicals Inc. sells all of its interests in
Millennium GP and Millennium LP, in each case to an unaffiliated third party at
any time, Millennium America may elect to terminate its indemnity, if, at the
time of the sale or termination, Equistar has an investment grade credit rating
or the fair market value of Equistar's assets is at least 140% of the gross
amount of its liabilities.

DEBT INSTRUMENTS OF LYONDELL ASSUMED BY EQUISTAR

     Upon its formation, Equistar assumed $745 million of Lyondell indebtedness,
of which $431 million remained outstanding as of December 31, 2001. Lyondell was
not released as an obligor at the time of the assumption and, until November
2000, Lyondell remained as a co-obligor on the indebtedness, although as between
Equistar and Lyondell, Equistar was primarily liable. In November 2000, Lyondell
was added as a guarantor on $400 million of the indebtedness and subsequently
the consent of the holders of the indebtedness was obtained to the release of
Lyondell as a primary obligor (but not as a guarantor) on such $400 million of
indebtedness. Lyondell remains a primary obligor on the remaining $31 million of
indebtedness, which matures from 2002 through 2005.

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                                   PART IV

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

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

Exhibits
   Exhibit No. Description
    3.1       Certificate of Limited Partnership of Equistar Chemicals, LP
              dated as of October 17, 1997(1)
    3.2       Certificates of Amendment to the Certificate of Limited
              Partnership of Equistar Chemicals, LP dated as of May 15, 1998(1)
    3.3       Amended and Restated Limited Partnership Agreement of Equistar
              Chemicals, LP dated as of August 24, 2001(2)
    4.1       Indenture among Equistar Chemicals, LP, Equistar Funding
              Corporation and The Bank of New York, as Trustee, dated as of
              January 15, 1999(1)
    4.1(a)    Form of Second Supplemental Indenture among Equistar Chemicals,
              LP, Equistar Funding Corporation and The Bank of New York, as
              Trustee(1)
    4.1(b)    Form of Note (attached as Exhibit A to the Form of Second
              Supplemental Indenture among Equistar Chemicals, LP, Equistar
              Funding Corporation and The Bank of New York, as Trustee, filed
              herewith as Exhibit 4.1(a))(1)
    4.2       Amended and Restated Credit Agreement dated as of August 24, 2001
              among Equistar Chemicals, LP, the lenders from time to time party
              thereto and Citicorp USA, Inc. and Credit Suisse First Boston, as
              co-syndication agents; Bank of America, N.A., as servicing agent
              and as administrative agent and The Chase Manhattan Bank, as
              collateral agent and as administrative agent(2)
    4.3       Indenture between Lyondell Petrochemical Company and Continental
              Bank, National Association, as Trustee, dated as of March 10,
              1992(1)
    4.3(a)    First Supplemental Indenture dated as of March 10, 1992, between
              Lyondell Petrochemical Company and Continental Bank, National
              Association, as Trustee, to the Indenture dated as of March 10,
              1992(1)
    4.3(b)    Second Supplemental Indenture dated as of December 1, 1997, among
              Lyondell Petrochemical Company, Equistar Chemicals, LP and First
              Trust National Association, Trustee, to the Indenture dated as of
              March 10, 1992 (1)
    4.3(c)    Third Supplemental Indenture dated as of November 3, 2000 among
              Lyondell Chemical Company, Equistar Chemicals, LP and U.S. Bank
              Trust, National Association, Trustee, to the Indenture dated as of
              March 10, 1992(3)
    4.3(d)    Fourth Supplemental Indenture dated as of November 17, 2000 among
              Lyondell Chemical Company, Equistar Chemicals, LP and U.S. Bank
              Trust, National Association, Trustee, to the Indenture dated as of
              March 10, 1992(3)
    4.4       Indenture between Lyondell Petrochemical Company and Texas
              Commerce Bank National Association, as Trustee, dated as of
              January 29, 1996(1)
    4.4(a)    First Supplemental Indenture dated as of February 15, 1996,
              between Lyondell Petrochemical Company and Texas Commerce Bank
              National Association, Trustee, to the Indenture dated as of
              January 29, 1996(1)
    4.4(b)    Second Supplemental Indenture dated as of December 1, 1997, among
              Lyondell Petrochemical Company, Equistar Chemicals, LP and Texas
              Commerce Bank National Association, Trustee, to the Indenture
              dated as of January 29, 1996(1)
    4.4(c)    Third Supplemental Indenture dated as of November 3, 2000 among
              Lyondell Chemical Company, Equistar Chemicals, LP and The Chase
              Manhattan Bank, Trustee, to the Indenture dated as of January 29,
              1996(3)
    4.4(d)    Fourth Supplemental Indenture dated as of November 17, 2000 among
              Lyondell Chemical Company, Equistar Chemicals, LP and The Chase
              Manhattan Bank, Trustee, to the Indenture dated as of January 29,
              1996(3)
    4.5       Indenture dated as of August 24, 2001 among Equistar Chemicals,
              LP, Equistar Funding Corporation and The Bank of New York, as
              Trustee(2)

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    4.5(a)    Form of Note dated as of August 24, 2001 (attached as Exhibit A to
              the Indenture dated as of August 24, 2001 among Equistar Chemical,
              LP, Equistar Funding and The Bank of New York, as Trustee, filed
              herewith as Exhibit 4.5)(2)

Equistar is a party to several debt instruments under which the total amount of
securities authorized does not exceed 10% of the total assets of Equistar and
its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of
Item 601(b) of Registration S-K, Equistar agrees to furnish a copy of such
instruments to the Commission upon request.

EXECUTIVE COMPENSATION:
    10.1      Amended and Restated Lyondell Chemical Company Executive Severance
              Pay Plan
    10.2      Amended and Restated Bonus Plan
    10.3      Equistar Chemicals, LP Supplemental Executive Retirement Plan(2)
    10.4      Equistar Chemicals, LP Executive Supplementary Savings Plan(2)
    10.5      Summary Description of Equistar Chemicals, LP Executive Medical
              Plan(1)
    10.6      Equistar Chemicals, LP Executive Deferral Plan(2)
    10.7      Summary Description of Equistar Chemicals, LP Executive Disability
              Plan(1)
    10.8      Summary Description of Equistar Chemicals, LP Executive Life
              Insurance Plan(1)
    10.9      Equistar Chemicals, LP 2001 Incentive Plan(2)

OTHER MATERIAL CONTRACTS:
    10.10     Asset Contribution Agreement among Lyondell Chemical Company,
              Lyondell Petrochemical LP and Equistar Chemicals, LP dated as of
              December 1, 1997(1)
    10.10(a)  First Amendment, dated as of May 15, 1998, to the Asset
              Contribution Agreement among Lyondell Chemicals Company, Lyondell
              Petrochemicals LP and Equistar Chemicals, LP dated as of December
              1, 1997(1)
    10.10(b)  Second Amendment to Lyondell Asset Contribution Agreement, dated
              as of September 30, 2001, among Lyondell Chemical Company,
              Lyondell Petrochemical LP Inc. and Equistar Chemicals, LP(4)
    10.11     Asset Contribution Agreement among Millennium Petrochemicals Inc.,
              Millennium LP and Equistar Chemicals, LP dated as of December 1,
              1997(1)
    10.11(a)  First Amendment, dated as of May 15, 1998, to the Asset
              Contribution Agreement among Millennium Petrochemicals Inc.,
              Millennium LP and Equistar Chemicals, LP dated as of December 1,
              1997(1)
    10.11(b)  Second Amendment to Millennium Asset Contribution Agreement, dated
              as of September 30, 2001, among Millennium Petrochemicals Inc.,
              Millennium Petrochemicals LP LLC and Equistar Chemicals, LP(4)
    10.12     Master Transaction Agreement among Equistar Chemicals, LP,
              Occidental  Petroleum  Corporation, Lyondell Chemical Company
              and Millennium Chemicals Inc. dated as of May 15, 1998(1)
    10.13     Agreement and Plan of Merger and Asset Contribution among
              Occidental Petrochem Partner 1, Inc., Occidental Petrochem
              Partner 2, Inc., Oxy Petrochemicals Inc., PDG Chemical Inc.and
              Equistar Chemicals, LP dated as of May 15, 1998(1)
    10.13(a)  First Amendment to Occidental Asset Contribution Agreement, dated
              as of September 30, 2001, among Occidental Petrochem Partner 1,
              Inc., Occidental Petrochem Partner 2, Inc., PDG Chemical Inc.,
              Occidental Petrochem Partner GP, Inc. and Equistar Chemicals,
              LP(4)
    10.14     Amended and Restated Parent Agreement among Occidental Chemical
              Corporation, Oxy CH Corporation, Occidental Petroleum Corporation,
              Lyondell Petrochemical Company, Millennium Chemicals Inc. and
              Equistar Chemicals, LP dated as of May 15, 1998(1)
    10.14(a)  First Amendment dated as of June 30, 1998, to the Amended and
              Restated Parent Agreement among Occidental Chemical Corporation,
              Oxy CH Corporation, Occidental Petroleum Corporation, Lyondell
              Petrochemical Company, Millennium Chemicals Inc. and Equistar
              Chemicals, LP dated as of May 15, 1998(1)
    10.14(b)  Assignment and Assumption Agreement with respect to the Amended
              and Restated Parent Agreement, executed as of June 19, 1998(1)
    10.15     Ethylene Sales Agreement between Equistar Chemicals, LP and
              Occidental Chemical Corporation dated as of May 15, 1998(1)
    12        Statement Concerning Computation of Ratios

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<PAGE>

    21        Subsidiaries of Equistar Chemicals, LP
    99        Consolidated Financial Statements of Lyondell Chemical Company
-----------
(1)  Filed as an exhibit to Registrant's Registration Statement on Form S-4
     (No. 333-76473) and incorporated herein by reference.
(2)  Filed as an exhibit to Registrant's Registration Statement on Form S-4
     (No. 333-70048) and incorporated herein by reference.
(3)  Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
     ended December 31, 2000 and incorporated herein by reference.
(4)  Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the
     quarter ended September 30, 2001 and incorporated herein by reference.

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

(b)  Consolidated Financial Statements and Financial Statement Schedules

     (1)  Consolidated Financial Statements

          Report of Independent Accountants
          Consolidated Statements of Income
          Consolidated Balance Sheets
          Consolidated Statements of Cash Flows
          Consolidated Statements of Partners' Capital
          Notes to Consolidated Financial Statements

     (2)  Financial Statement Schedules

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

(c)  Reports on Form 8-K

     None

                                     81
<PAGE>

                                       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 this 15th day of March,
2002.

                                 EQUISTAR CHEMICALS, LP, by its General
                                  Partner

                                 LYONDELL PETROCHEMICAL G.P. INC.

                                 By: /s/ MORRIS GELB
                                      --------------
                                        Morris Gelb
                                         President

         Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
Name                                Title (Lyondell Petrochemical G.P. Inc.)             Date
----                                ----------------------------------------             ----

<S>                                             <C>                              <C>
/s/ MORRIS GELB                                 President and Director           March 15, 2002
----------------
Morris Gelb
(Principal Executive Officer)

/s/ KAREN A. TWITCHELL                          Vice President and Treasurer     March 15, 2002
----------------------
Karen A. Twitchell
(Principal Financial and Accounting Officer)

/s/    T. KEVIN DENICOLA                        Director                         March 15, 2002
-------------------------
T. Kevin DeNicola

/s/ ROBERT T. BLAKELY                           Director                         March 15, 2002
---------------------
Robert T. Blakely
</TABLE>
<PAGE>

                                       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 this 15th day of March,
2002.

                                 EQUISTAR CHEMICALS, LP, by its General
                                  Partner

                                 MILLENNIUM PETROCHEMICALS GP LLC
                                 By:      Millennium Petrochemicals Inc.

                                 By: /s/ WILLIAM M. LANDUYT
                                     ----------------------
                                        William M. Landuyt
                                 President and Chief Executive Officer

         Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
Name                                Title (Millennium Petrochemicals Inc.)           Date
----                                --------------------------------------           ----

<S>                                            <C>                           <C>
/s/ WILLIAM M. LANDUYT                         Director, President and       March 15, 2002
----------------------
William M. Landuyt                             Chief Executive Officer
(Principal Executive Officer)

/s/ JOHN E. LUSHEFSKI                          Senior Vice President         March 15, 2002
---------------------
John E. Lushefski
(Principal Financial and Accounting Officer)

/s/ TIMOTHY E. DOWDLE                          Director                      March 15, 2002
---------------------
Timothy E. Dowdle

/s/ DAVID L. VERCOLLONE                        Director                      March 15, 2002
-----------------------
David L. Vercollone
</TABLE>
<PAGE>

                                       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 this 15th day of March,
2002.

                                 EQUISTAR CHEMICALS, LP, by its
                                 General Partner

                                 OCCIDENTAL PETROCHEM PARTNER GP, INC.

                                 By: /s/ SCOTT A. KING
                                     -----------------
                                         Scott A. King
                                 Secretary, Vice President and Director

         Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities indicated.

<TABLE>
<CAPTION>
Name                                Title (Occidental Petrochem Partner GP, Inc.)          Date
----                                ---------------------------------------------          ----

<S>                             <C>                                                 <C>
/s/      RICHARD A. LORRAINE    President, Chief Financial                          March 15, 2002
----------------------------
Richard A. Lorraine             Officer and Director
(Principal Executive Officer
and Principal Financial
and Accounting Officer)

/s/      SCOTT A. KING          Secretary, Vice President and Director              March 15, 2002
----------------------
Scott A. King
</TABLE>
<PAGE>

                                       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 this 15th day of March,
2002.

<TABLE>
<CAPTION>
Name                                                             Title                                        Date
----                                                             -----                                        ----
<S>                                              <C>                                                  <C>

/s/      DAN F. SMITH                            Chief Executive Officer, Equistar Chemicals,         March 15, 2002
---------------------
Dan F. Smith                                     LP, Co-Chairman, Partnership Governance
(Principal Executive Officer)                    Committee

/s/      CHARLES L. HALL                         Vice President and Controller, Equistar              March 15, 2002
------------------------
Charles L. Hall                                          Chemicals, LP
(Principal Financial and Accounting Officer)

/s/ ROBERT T. BLAKELY                            Member, Partnership Governance Committee             March 15, 2002
---------------------
Robert T. Blakely

/s/      T. KEVIN DENICOLA                       Member, Partnership Governance Committee             March 15, 2002
--------------------------
T. Kevin DeNicola

/s/      WILLIAM M. LANDUYT                      Co-Chairman, Partnership Governance                  March 15, 2002
---------------------------
William M. Landuyt                                       Committee

/s/      JOHN E. LUSHEFSKI                       Member, Partnership Governance Committee             March 15, 2002
--------------------------
John E. Lushefski

/s/ ROBERT E. LEE                                Member, Partnership Governance Committee             March 15, 2002
-----------------
Robert E. Lee

/s/      DR. RAY R. IRANI                        Co-Chairman, Partnership Governance                  March 15, 2002
-------------------------
Dr. Ray R. Irani                                         Committee

/s/      STEPHEN I. CHAZEN                       Member, Partnership Governance Committee             March 15, 2002
--------------------------
Stephen I. Chazen

/s/      J. ROGER HIRL                           Member, Partnership Governance Committee             March 15, 2002
----------------------
J. Roger Hirl
</TABLE>