利安德巴塞爾 (LYB) 2006 Q2 法說會逐字稿

Hello and welcome to the Lyondell Chemical second-quarter 2006 earnings teleconference.

At the request of Lyondell Chemical, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

I would now like to turn the meeting over to today's host, Mr. Doug Pike, Vice President of Investor Relations. Sir, you may begin.

Thank you, Barry. Good morning, and this is Doug Pike, and I am joined today by Dan Smith, our President and Chief Executive Officer; Morris Gelb, our Chief Operating Officer; and Kevin DeNicola, our Chief Financial Officer.

Today, the agenda for the call will be as follows -- I will review our second-quarter performance and some financial metrics and activities. Then we will open the call up to your questions. However, due to the status of our negotiations related to the LCR joint venture, during this call, we'll only discuss current operations and I will not discuss any potential strategic matters or any ongoing discussions between the partners. Our call today is scheduled to last 60 minutes.

Before we begin, I'd like for you to note that statements made in this teleconference relating to matters that are not historical facts are forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from those forward-looking statements. For more detailed information about the factors that could cause our actual results to differ materially, please refer to our earnings release issued this morning and please also refer to Lyondell's, Equistar's and Millennium's annual reports on Form 10-K for the year ended December 31, 2005 and the quarterly reports on Form 10-Q for the quarter ended June 30, 2006, which will be filed with the SEC in August of 2006.

I would also like to point out that a replay of today's call will be available from 1:30 PM Eastern time today until 6 PM Eastern time on August 4. The replay can be accessed by calling 888-402-3767 or 203-369-0554. And the access code at both numbers is 5549. The replay can also be accessed beginning at 2:30 p.m. Eastern time today at the Investor Relations page of our Web site at www.Lyondell.com/earnings.

Reconciliations of non-GAAP financial measures to GAAP financial measures, together with any other applicable disclosures, including the earnings release, are currently available on our Web site at www.Lyondell.com/earnings.

Now, let's proceed to a discussion of our earnings. During the second quarter of 2006, Lyondell had net income of $160 million, or $0.62 per share on a fully diluted basis. This compares with net income of $290 million in the first quarter of 2006.

Now, for purposes of comparison, I would like to remind you that the first quarter included a $5 million charge related to an industry mutual insurance consortium and a $70 million pretax income from the settlement of various LCR-related matters. Combined, these contributed $0.16 per share to first-quarter earnings.

Compared to the first quarter, the underlying second-quarter earnings reflect comparable performance in two segments, refining and propylene oxide, and declines in the ethylene and inorganic segments. Our overall underlying second-quarter 2006 results were relatively unchanged versus the second quarter of 2005. However, within the portfolio, the mix was somewhat different as refining segment improvements offset moderate declines in each of the chemical segments. Additionally, the second quarter of 2006 benefited from $30 million lower interest expense.

Lyondell's estimated books tax rate for 2006 is unchanged at 38% and looking forward, we believe it will be reasonable to estimate cash taxes at an equivalent rate.

Finally, our second-quarter average outstanding share count was approximately 247 million shares, and the corresponding share count in the diluted earnings calculation is 260 million shares.

Now, let's turn our attention to our ethylene co-products and derivatives business. As most of you know, the primary products of this segment are ethylene, ethylene co-products, including propylene, butadiene and benzene, and derivatives of ethylene, which include polyethylene, ethylene oxygenates, and vinyl acetate monomer, or VAM.

Second-quarter segment EBITDA was $279 million, down from 397 million during the first quarter of 2006. The decrease was primarily due to lower average product prices, which led to lower margins, particularly early in the quarter. However, as the quarter progressed, prices and margins improved and profitability finished the quarter at a level similar to the first-quarter rate. Ethylene and ethylene derivative sales increased by approximately 2% or 60 million pounds versus the first quarter, but given historic customer order patterns, we consider an increase of this magnitude to fall within the range of typical volatility.

Ethylene and ethylene-derivative product prices declined in April, continuing a trend that began in December. However, this trend reversed itself in May, and prices increased for the balance of the quarter. On average, the positive upward movement did not fully offset the earlier declines and as a result, ethylene prices averaged approximately $0.015 per pound lower in the second quarter than the first, while the corresponding decreases in polyethylene and ethylene glycol were $0.06 and $0.02 per pound, respectively.

On the cost side, our cost of ethylene production metric increased by approximately $0.01 per pound versus the first quarter. The increase was attributed to higher natural gas-based raw material costs. The absolute costs of crude-based raw materials also increased significantly versus the first quarter. However, co-product price increases were sufficient to offset these increases.

During the quarter, the optimum raw material mix changed significantly. Early in the quarter, ethane was preferred, but by the end of the quarter, crude-based materials were favored, and we've been adjusting our raw material mix accordingly.

Let me give -- provide a few data points to give you an appreciation of the changes that occurred in our raw material mix over the past year. During the latter half of 2005, less than 40% of our ethylene production was from natural gas-based raw materials. However, in reaction to market changes during the first quarter, we shifted the mix to 50 to 55% from NGLs, and adjustments continued to be made during the second quarter as NGLs were maximized early in the quarter but reduced as the quarter progressed. On average, the ethylene production from NGLs declined slightly versus the first quarter.

Changes have continued into this quarter. At this time, our favorite raw materials are the crude-oil-based liquids and butane. Our near-term outlook is to produce approximately 45% of our ethylene from NGLs. Importantly, less than 20% of the ethylene production is from ethane.

Now, acetyls results improved by approximately $10 million versus the first quarter, and this was due to increased sales volumes and margins.

So looking forward, the positive trends established in the second quarter have continued, although raw material costs have increased and volatility continues. Sales volumes have been steady, and in most products, prices have been strong.

At this time, our ethylene plant operating rates are in the mid to upper 90s, and I'd like to point out that during the third quarter, we have a scheduled three-week outage at one of our Midwest ethylene plants, and it's estimated this will impact the quarter by approximately $10 million.

Now, let's turn our attention to the propylene oxide and related products segment. This segment includes propylene oxide, derivatives of propylene oxide, (indiscernible), MTBE and styrene. During the second quarter of 2006, EBITDA for this segment was $170 million, which is really relatively unchanged from the first quarter. Within the segment, the mix of contributions varied by products as seasonal trends led to stronger MTBE margins but PO and derivative results declined.

Despite the quarter-to-quarter decline, overall propylene oxide and PO derivative products continued to be quite strong. However, as would be expected, higher raw material costs, the seasonality of aircraft deicer sales, and increased costs related to scheduled maintenance activity at European plants, led to lower results.

With respect to the raw materials, it typically takes one to three months to pass the impact of increased raw materials through the PO chain, and propylene costs increased late in the second quarter. Consequently, second-quarter margins were negatively impacted.

Now, combined, MTB and ETBE results improved by approximately $45 million versus the first quarter, as margins increased following typical seasonal patterns. Since the use of MTBE in the U.S. gasoline pool was essentially eliminated by the end of the first quarter, we exported our second-quarter production. This resulted in increased costs which were more than offset by tight conditions in the global gasoline market, ultimately leading to a $0.30 per gallon increase in MTBE raw material margins.

Now, MTBE is quite seasonal and due to the seasonality, it's generally more representative to compare MTBE performance to prior-year results. On this basis, our MTBE and ETBE results were generally unchanged, as raw material margins increased by approximately $0.03 per gallon.

While I am speaking about MTBE, I'd also want to address the question of isooctane versus MTBE production. During the second quarter, we estimate that our economics of isooctane production, coupled with sales into the U.S. market, would have been comparable to the economics of MTBE exports. Our project to convert the 30,000 barrel-per-day MTBE planned channel via isooctane has continued, and our current plans are to make a transition to isooctane during the fourth quarter. Now, that's assuming that market conditions continue to support this move. During the transition, we will inventory TBA, the raw material for both processes, and therefore propylene oxide production will not be impacted by the transition. After the transition of this unit, we will continue to produce MTBE at the remaining 18,500 barrels per day of U.S. MTBE capacity. In Europe, we will remain flexible and produce either MTBE or ETBE as the market and economics dictate.

Styrene results declined versus the first quarter as raw material cost increases were not passed through to the market as quickly as they increased. TDI results were relatively unchanged versus the first quarter.

So thus far in the third quarter, business conditions for the chemical products are relatively unchanged from the second quarter. Globally, MTBE and ETBE margins have increased, following typical seasonal trends, and currently our PO plant operating rates are in the mid 90s and we have no major maintenance scheduled in the third quarter. However, one U.S. PO facility will go into turnaround in October.

Now, the next segment that I'd like to review is inorganic chemicals, and the primary product of this segment is titanium dioxide. Second-quarter EBITDA was $33 million, an $11 million decrease versus the first quarter of 2006. Sales volumes increased by 7000 tons versus the first quarter but were limited by production problems at the UK plant. Overall prices were relatively unchanged versus the first quarter.

Thus far in the third quarter, product demand has continued to be strong. However, due to continuing production problems at the UK plant, we have not been able to take full advantage of this. Taking all plants into consideration, we anticipate third-quarter operating rates to be approximately 90%, slightly higher than the second-quarter operating rate.

Now, let me turn your focus to the Refining segment, which consists of our 58.75% ownership in LCR. LCR had net income of $143 million in the second quarter, and this translates to EBITDA of $194 million, essentially unchanged versus the first quarter. The strong results are attributed to strong margins and operating rates that exceeded their refinery's nameplate capacity. Now, a portion of the margin benefit came from the production of premium-priced gasoline blends, while the balance was from generally strong market conditions. The operating rates and margin improvements combined to offset estimated $35 million impact of catalyst changes and $20 million in charges related to property, taxes and a midyear change in Texas tax law. It's important for you to remember that the CSA contract remains in force and the first-half results reflect margins under this contract.

Now, thus far in the third quarter, refining operations and industry conditions have continued to be strong.

That concludes the review of the business segments. Now, I'd like to discuss a few financial factors. First, let's talk about the uses of cash. You may have noticed that we did not make any voluntary debt reductions during the quarter. However, we did make a $50 million voluntary contribution to the pension funds and we made approximately $170 million of net income tax payments. Additionally, our cash interest payments during the quarter were approximately $180 million, almost double the first-quarter interest payment. So year-to-date, our debt reduction payments have averaged approximately $75 million per month, which is slightly below last year's pace, but the difference can be explained by current-year tax payments.

Another item that I'd like to point out that you may have noticed is there is a difference between Millennium and Lyondell taxes. For purposes of the Millennium stand-alone financials, a $54 million tax reserve accrued in prior periods was reversed during the second quarter. This reserve was primarily related to an historic UK audit that was successfully closed during the quarter. For purposes of the Millennium stand-alone financials, this benefit flows through the income statement. However, at the consolidated Lyondell level, it does not impact the income statement due to the effects of purchase accounting.

In other cash items, our overall dollars of working capital were essentially unchanged during the quarter, despite the significant increase in crude oil prices. There were no other significant second-quarter financing or cash items that should be highlighted.

From a litigation standpoint, there was no significant change in the status of MTBE or the Millennium Holdings Rhode Island lead paint litigation. The only item I'd like to point out is that we have neither collected nor booked the buyer arbitration award that we mentioned last quarter. The legal process simply takes time to run its course, and interest accrues as it does.

Now, the final item that there's a quick comment is that we have not yet received any significant amounts from our hurricane or other insurance claims. However, these are proceeding without major issues and we expect them to be settled and paid during 2006.

So in summary, during the second quarter, business conditions were good, ethylene chain pricing turned positive, liquid raw materials re-established an advantage, and refining and gasoline component products were strong.

Looking ahead, we expect a continuation of current trends and look forward to reporting positive third-quarter results.

Now, let's turn the call over to your questions, but please keep in mind that due to the status of our negotiations related to the LCR joint venture, we will only discuss current operations. Thanks for your appreciation on this matter.

Barry, I'll now turn the call over to questions.

Thank you, sir. At this time, we will begin the question-and-answer portion of the call. (OPERATOR INSTRUCTIONS). Mike Judd, Greenwich Consultants.

A question about propylene prices -- what is your outlook for propylene prices in the third quarter? What impact did higher propylene prices have on the PO business in the first quarter? Sorry, the second quarter?

Second quarter, yes. It looks to us like propylene is strengthening currently. Certainly, spot prices are up and we would expect that trend to continue in the third quarter. The impact, as Doug described, was negative in the second quarter on our PO business.

Mike, that was probably about $15 million in the second quarter. The PO business (indiscernible) consumer about 500 million pounds of propylene, and of course we produced the propylene at Equistar in our (indiscernible) so it's a trade-off between the segments.

Would you expect that trend to continue into the third quarter?

No, I think, as you see propylene strengthening, you will see PO prices generally will pass it through but they do pass it through as a delay, as I said, so you just have to factor that into you thinking.

Thank you.

Don Carson, Merrill Lynch.

Yes, I just had a question on some of the feedstock trade-offs. You know, ethane has been very strong not only because of demand but some supply issues. What's kind of your outlook for ethane relative to its natural gas value?

I think -- Don, this is Dan. When you look at what's going on, natural gas has been sort of weird this year, probably will continue to be weird through the balance of the year. But it looks like there is pretty good demand for ethane that is holding it up. We think you are going to continue to see ethane fairly expensive and you're going to continue to see the liquid advantage for the foreseeable future here. But the swing back has been pretty significant, and we really expect that's going to continue -- hence, what Doug was talking about.

When it was the other way around, we moved to fit the layer slate and we've been continually moved to get to the heavier slate again now. We are not totally converted, but we are most of the way back to coal liquids slate to the extent we can do it.

Is the strong demand really driven by a need to maximize ethylene production, given the -- (multiple speakers)?

Yes I think you are really seeing -- ethylene is strong. It's pulling and the capacity to produce ethylene is largely based on ethane and NGLs in this country, so I think is a good part of the impact. It's going to be interesting to see as we fill up natural gas storage, and then through the winter start living off that storage; you've got those impacts as well. Because if you think about it, you are producing more gas right now, and as you get into the period of time when storage is full and you start living off that, you're going to change some of the dynamics a little bit there as well. But continued strong ethylene demand I think is going to keep pressure on.

So, Dan, you don't see any supply issues from some of these fractionators that have been down from time to time?

There have been some, yes, but again, for us, Don, is not as significant as it is for some other people, so I don't feel as qualified to speak to the dynamics of it as some of them might be.

Okay, thank you.

Edlain Rodriquez, Goldman Sachs.

Given the demand trends you've seen in ethylene/polyethylene, what's your take on the implementation of the price increases in July and in August, on time?

We are optimistic. Certainly, the ethylene prices are looking very, very solid now. Spot prices have moved up, and we are certainly out with a significant price increase for August. That next price increase in polymers we are hoping to implement in the third quarter.

So in terms of the July price, do you expect that to be delayed into August or do you expect to get it in July?

Ethylene prices in July have settled $0.02 up. I think you are probably aware of that. The polymer price is moving up somewhat in July but we expect more of it to come in August.

Okay, thank you.

Steve Schuman, Prudential Equity Group.

A question actually about the LCR deal -- I think it's fair to ask. What was the determining factors that changed your mind? You know, you probably had 20-plus refineries bidding on this thing. What information do you have that they didn't, where you feel it's worth more to keep it and/or to buy out your partner, as opposed to sell it? Is it an issue of the after-tax proceeds, the large tax bite being offset -- maybe they have some synergies that you would not get from having multiple refineries?

Stephen, this is Doug. I apologize but really at the state of where we are, I think we will have to put that question off. As these advanced further, we will keep everybody -- everyone up to speed on where things are with LCR, but I apologize. Now. we won't answer. I think Dan just wanted to mention one thing.

I think what we said, in our public statement, is the important thing to remember, Steve. What we said was we liked our position where we were better than where we would have been had we sold. I think that's the germane piece here. It is simply a question of value.

David Troyer, Credit Suisse.

Actually, I have a bond guy asking questions about taxes (LAUGHTER) because they are cash taxes now. Because I try to keep the businesses separate, is it fair to tax Equistar at whatever rate and after that has been deducted? And I'm talking about modeling purposes going forward -- tax Equistar at whatever rate you guide us to and pay those taxes and then consider the remaining amount just to distributable cash flow, or will taxation be done at a consolidated level?

No, we are taxed on the consolidated level, because Equistar remains a partnership, David. So we are taxed on the consolidated level there. When we talk about the tax rate, you know, we're talking about the consolidated tax rate.

Okay. So the distributions that come up -- (technical difficulty) -- perform some kind of equity income at Lyondell or (indiscernible) -- (multiple speakers)

Yes -- (multiple speakers) -- impact at Lyondell.

Which is the way it's always been done.

Frank Mitsch, BB&T Capital Markets.

If Lyondell was investment-grade in the next 12 months, what role would share repurchase play in your use of cash?

I think we've still got a lot of debt to pay down, Frank.

So you think that after you become -- if and when you become investment-grade, that would not trigger any movement by the Company to buy the stock at 21.35?

No, trigger is a dangerous word to use. I think, if we are in that zone, we will analyze, on an ongoing basis, the best use of cash. But to speculate on what we might do if we were -- probably not very productive right now, and all I'm saying is that's still a future event. There's still some debt to pay down to get to the points you are talking about. As we approach that and those considerations take place, then I think we will share our thoughts with you as we go along. Certainly, you are sharing your thoughts with us as we go along and we take all of those into consideration. But it's just a little premature to really get words like 'trigger' and what will you do, etc.

Okay. In terms of operations of the refinery, Doug, you made a specific point to point out that the crude supply agreement was still in force. Does that mean to suggest that that may not be the case in the near-term future?

No, I just want to emphasize that we had the strong results with the supply agreement still there, that's all.

You would anticipate that, had the crude supply agreement not been in force, the numbers would have been what?

I think that's one of those areas that we probably shouldn't discuss right now. You saw the results with it, with it in force and the strength in refining is there. We saw further strength from our premium product production and octane was very valuable in the second quarter. And of course the 195 EBITDA, we still had 55 million of other charges and kind of lost the opportunities with the catalyst changes, so it was a very strong quarter for the refinery, and very good operations and a very good market.

Lastly, Doug, you said that you are looking forward to a positive third-quarter result. I mean, whether it's sequential or whether it's year-over-year -- (multiple speakers).

(multiple speakers) -- talking about a positive income (LAUGHTER).

So basically you were talking about something north of 000, or -- (LAUGHTER) -- I assume you were talking about something north of 60 or 62.

(multiple speakers) -- I think we are indicating that we expect it to be better than the second quarter.

All right, terrific. That pretty much puts you on pace for 2006 to be better than '05. That's my comment, not necessarily a question, because I know you are not going to respond to it anyway.

Right. (LAUGHTER)

All right, great. Thank you.

Kevin McCarthy, Banc of America Securities.

Dan, in light of the strategic change on LCR, I thought I would ask you about your longer-term strategy on a different business, titanium dioxide. I think you said publicly in the LCR release that you would at least consider buying out your venture partner. If that were to come to fruition, does it change how you view the Ti02 business as core or non-core, and what options you might explore there?

Well, Kevin, I don't think we ever go to great lengths to try to describe businesses as core and noncore, etc. You all do a good job of analyzing what you think makes the most sense. We look at the Ti02 business as a business that we all could be able to produce pretty good results, pretty even results over a longer period of time, simply from the way that business runs. So, the value in that business is both what you can extract from the assets, per se, but also the fact that it's not quite as wild and woolly in the ups and downs as some of the other commodities are. So, there's a value to that in the portfolio. I think the way you ought to us is we are value-driven, and it's the value of individual pieces and the way they fit together in the portfolio.

Now, does that mean we wouldn't ever sell anything? No. We would sell anything at the right price. Because if you exceed what you think our value is, then it's in the best interest of the shareholders to sell. But I think, if you're nibbling at, gee, if we do this, then will we do that, no, we haven't gotten to any of that and I think, again, it would be premature even to think about any of those things. It's not on our plate.

Okay. Then a question on another one of your smaller businesses, if I may? I thought I read in your release that acetyls improved 10 million. To clarify, was that year-over-year or sequential, and maybe you can talk about some of the trends you're seeing in that business.

That's sequentially, Kevin, so that's a move up from the first quarter. You know, really, year-over-year, acetyls was a very strong last year at the beginning of the year. It has had a weaker start really to this year. You know, business has been moving forward pretty well. The [acids] are doing pretty well. We've got gas costs versus where we saw $11 and $12 have at least moderated some, but they are still high relative to world prices, so that puts some pressure on some of the products in that area. So you know, we're working through things that we have there and as I said, the business has kind of improved and (indiscernible) pass-through gas costs for the most part.

Okay. Then last question on lead paint -- what are the next mileposts you are focused on?

I think where we are on lead paint in Rhode Island and the next mileposts are -- the Judge is in the process with motion. I think, right now, we've got a little bit of a summer break because of some vacations and things, but basically, you are in the motions process and that will take place once things get going, a little bit later this summer and into September. Then we will see where the judge takes it from there, but that's the next milestone you want to look at is when he comes back and rules on motions and things.

Jeff Zekauskas, JPMorgan.

Good afternoon. You were talking about how the profitability of EC&D really improved towards the end of second quarter, and to such an extent that the second quarter profitability at the end resembles the first quarter. But July was a funny month in the sense that raw materials kept going up and your feedstock slate at the same time I'm sure changed.

Correct.

So in July, how were able to balance your margins versus where they ended up at the very end of June?

Co-products.

Yes? In co-products?

Yes. You know, although you saw high crude prices, of course you are seeing strong gasoline and benzene and butadiene also, so you are seeing those types of impacts.

That's why it's such a challenge to model these businesses -- (technical difficulty) -- because these things are moving constantly. I think the fuel surge, along with resurgence in propylene and some of the other co-products, really carried the day as you move through that. But it's difficult to stay right on top of it. I don't envy you guys trying to do the modeling.

So in rough terms, they offset in July, is that what you are saying?

No, actually I think it was a little better than offset.

A little better than offsets?

Yes. Really, over the quarter, what you saw is the quarter-to-quarter increases in the crude-based raw materials, largely offset on the quarter on the average by the co-products. So if you think you started out in a tougher situation, then you finished with strength on the co-products side.

Okay, so if you get your price increases in August, then you know you are looking reasonably well in that area?

That's correct.

In propylene oxide, you know, you talked about a delay in passing through propylene prices, the effects of propylene prices to customers. Is the delay or the gap worse in the third quarter than in the second so far?

No. These businesses -- you move prices a little bit differently and it does take a little longer, as Doug indicated. But the important thing to remember about the PO business is it's in very good shape; demand is generally strong; operating rates are high. We would expect that the strong margin performance we've seen over some extended period now is going to continue.

Jeff, I would also remind you, when we are talking about propylene oxide, that when you are comparing the first to second quarter, of course you have the deicer season is a first quarter phenomenon; you don't sell any into the second quarter. So you've got a volume impact there, and we also had that maintenance work in Europe where we did two major turnarounds, so that had an impact on the second quarter also. So we feel good about the underlying business there. It's just some seasonal and specific impacts that you are seeing.

In general, you're finding that your refining margins in July widened out as well?

Yes, refining has been good; MTBE has been good in July.

Okay. Then my last question I guess is a philosophical one. It relates to the refinery but not in any way to your current negotiations or non-negotiations. So, for a Lyondell shareholder over a longer period of time, why would it be advantageous, in theory, to own 100% of the LCR refinery and to take on more debt, obviously, to do it? That is why, in general, might that be a reasonable course for Lyondell to take if --?

(multiple speakers) -- going to answer that question, Jeff, but I will tell you that Lyondell is in the fuel business. We're in the fuel business by virtue of the partial ownership of the refinery, but also very largely from the liquid crackers that we have. We produce a lot of gasoline-type materials, so the fuel market is a market that is very familiar to us, and we believe you are seeing fundamental tightness in fuels around the world but really brought on by U.S. energy policy over a long period of time. We haven't built a refinery in this country in 30-some-odd years, so we have fundamental tightness, which we think is going to support the liquid crackers and the gasoline streams, and we like our positioning there. We expect to be able to participate broadly in that market.

Our materials are high-octane, and what you see is a shortage octane, a shortage of refinings, and it's an advantageous place to be. So we like the liquid cracker position; we like our participation in the fuel market. We think that's of value to the shareholders.

Okay, thank you very much.

Gregg Goodnight, UBS.

You guys seem to crack quite a wide slate of materials on the heavy side with butane and condensates and the like. I'm trying to get a sense for the economics of your particular slate versus, say, straight light (indiscernible) cracking. Have you studied how much of an advantage you might have over the long-term?

Let me answer it by telling you we operate with a very complex LP model, and you are exactly right; the input is not just a few feedstocks but literally dozens of feedstocks all around the world that we are actively pursuing at all times. So, we don't spend much time comparing back to a philosophical straight (indiscernible) or whatever, so I can't really answer that question very well. We simply are optimizing the actual economics day-to-day, and making our buy/sell decisions on feedstocks on that basis. But I think that's the key to having a flexible process -- that you actually use it. We compete against some other people who have more flexibility than they actual use. They fix their slate and run for stability. We foresaw our organization to take more swings than what we actually produce, in order to get the economics on feedstocks because, frankly, that's the big driver in the ethylene business.

Do you think it might be a couple of cents or just -- (multiple speakers)?

(multiple speakers). I think as you go through some periods of time, it's very narrow, other periods of time, it's pretty wide. We try to -- we do a proxy on some of this by comparing our liquid advantage versus ethane periodically in our presentations at analyst conferences, but those are generally quarter-by-quarter and include a lot of ups and downs during the quarter. But I think what Dough told you before is we've seen a swing-back where, in the first quarter, there was really no advantage to a liquid cracker over a gas cracker. We've seen that swing back very strongly to the liquid advantage. If you think about it, that's pretty intuitive. The fuel market has strengthened seasonally. We have a strong gasoline market, and that has surged much higher than other things around it, so it's roughly -- the feedstocks should make gasoline back up, because of the go-product credit. Then the other strength in propylene, which is also a large yield off of liquid feedstocks has also improved that.

So our liquid advantage is probably about as wide as it has been in recent years at this point in time. (multiple speakers) -- that's today. So that's the same thing tomorrow or next month or the month after, who knows? But the fundamentals look pretty good for it to stay pretty good.

Of course, I think we've demonstrated that we go to pretty great lengths to make sure we're trying to get the least expensive raw materials into these plants and we will tend to move pretty quickly on that, so -- (indiscernible) for that optimum and using flexibility, both in purchasing and in sales. (multiple speakers).

If you are on our supply-side or in the optimization group, it's not a pleasant place to be because the rest of us spend full-time "well, why can't you make that change instantly?" They keep reminding us. It takes (indiscernible) ship to and get it here.

Okay. A second question, if I could? Would you talk about your catalyst change in your refinery? How often is that? Are you going to have another change this year? I assume that was just one of your LCC units, or --.

Yes, we had catalyst changes on an HDS unit, so hydrogen sulfurization unit, and on a reformer. Those are typically things that take place about every 18 months or so. So you know, in a refinery, a big refinery like this, you are often having catalyst changes going on. Sometimes they will have an impact on the quarter; sometimes they won't. This particular one, because of upgrading, did create some opportunity costs for it while it was down.

Okay. Any other changes that are that significant for this year or next?

No. I think, as you go into next year, one of the key things will be that we do have a fluid unit turnaround early next year, and we will upgrade the fluid unit and finish some of the environmental work at that point in time. So that's really the only other one I can think of at this time, Gregg.

What quarter is that?

We're going to do it in the first.

Okay. The last question, if I could sneak one in? The buyer settlement, when might you expect the cash to come in and how much cash?

Well, we -- as far as how much, as we reported in the last quarter, it was -- the settlement plus interest was 146 million, but interest was continuing to accrue on that, so it's above that level I think at this point in time. We just have to go through the process as far as timing. I'm not sure when -- (multiple speakers).

This year, perhaps?

I think that would be reasonable, yes.

Mike [Siegel], Deutsche Bank Securities.

Assuming for now that we keep the refinery, I have a question about your liquidity. I've noticed that you used some of the receivables financing. Given that you have a large maturity coming due next May, I was just wondering what your strategy was in terms of refinancing that and maintaining your liquidity position.

This is Kevin. We continue to look at that. Obviously, it went -- some of those maturities are now in the current piece, so we are well aware that. We keep looking at where the markets are, and what would want to do. We're looking at the cash flow that we are generating out of the businesses and projecting forward and seeing what we see as debt reduction from cash flow. It doesn't really matter right now. Those things are trading at a place where we can pay those as well. So we are really looking at all of those options there. No change in liquidity -- we have the same policies in mind. We understand where that is, but we are generating cash and we will look at the overall markets and decide what we need to do.

Okay. One other question -- could you just remind me? Is the Lake Charles facility still idle, or is that --?

The Lake Charles ethylene facility is still idle, yes.

Any chance of restarting that if the markets stay as strong as they are know, or is that still to remain idle?

The reason it's idle and not destroyed is because we think there's a chance of it running again, and we continue to monitor where the markets are to decide if and when we run it. I think any decision to the contrary, you'll know as soon as we make it.

Okay. Is there an ongoing cost just keeping it in its current state?

Very, very small, which is it's a cheap insurance policy really, if you think about it that way, to be able to bring capacity up relatively quickly if we continue to see the tightness. And you know, what's happening in this market is, because of the hurricanes last year and some odd behavior over the last couple of years, people got very enthusiastic, then they got very negative. But if you really look at '05 and '06, we are about where we expected we would be. We expected that we were going to be in a strong market, but it was not going to just go up and then come right back down; it was a sustained tightness.

Now, we didn't quite expect that we were going to have many cycles every other quarter during that period of time, but if you draw the line through those, we are in a very good market for these products. We continue to believe that the big capacity coming on continues to be slow in coming on. Demand is continuing to go, and the fundamentals look very good. Now, with that, I don't think our position is good enough at this point in time that we can project multiple quarters out any better than anybody else and feel comfortable to make the call on that plant. But certainly, it's something that we look at frequently and we will continue to analyze it to decide whether or not we bring it up at some point in time.

One last question -- (multiple speakers) -- plant or was it flexible?

It's an NGL plant.

Yes.

Which also bears into the decision.

Okay, thank you.

At this time, I show no further questions. I would like to turn the meeting back over to Mr. Pike for any final statements or closing remarks.

Well, thank you all for your participation. Have a nice day.

Thank you.

Thanks for participating in today's teleconference, and have a nice day.