利安德巴塞爾 (LYB) 2007 Q2 法說會逐字稿

Hello and welcome to the Lyondell Chemical second quarter 2007 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 conference over to Mr. Doug Pike, Vice President Investor Relations. Sir, you may begin.

Thank you, and good morning and welcome to Lyondell's second quarter 2007 earnings call. I'm joined today by Dan Smith, our Chairman, President, Chief Executive Officer; Morris Gelb, our Chief Operating Officer; and Kevin DeNicola, our Chief Financial Officer. In the agenda for today's call will be as follows. Dan will make a few comments regarding the Basell transaction, I will review our second quarter, and Kevin will address financing activity. After that, we will open the call up to your questions. However, given the pending transaction we will only address questions related to the ongoing business, and we will not be able to address transaction-related questions.

Now, establishing these ground rules enables us to hold our normal call and address the business-related questions. We would ask that you respect our position and limit your questions accordingly. Now 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. And for more detailed information about the factors that could cause our actual results to differ materially, please refer to our earnings repolice 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, 2006, our quarrel reports on Form 10-Q to the quarter ended March 31, 2007, quarterly reports on Form 10-Q for the quarter ended June 30, 2007, which will be filed with the SEC in August 2007, and Lyondell's current report on Form 8-K filed on May 21, 2007.

In addition, as provided in our earnings release issued this morning, please note that Lyondell will file a proxy statement with the SEC in connection with the proposed merger. Investors and security holders are urged to read that document when it becomes available because it will contain important information. The earnings release also contains information regarding how you can obtain a free copy of that document and other documents that we file with the SEC.

Now, Lyondell and its Directors and Officers may be deemed to be participants in the solicitation of proxies from Lyondell's stockholders with respect to the merger. Information about Lyondell's Directors and Executive Officers and their ownership of Lyondell's common stock is available in prior SEC filings of Lyondell. And stockholders may obtain additional information regarding the interests of Lyondell and its Directors and Executive Officers in the merger which may be different than those of Lyondell's stockholders generally by reading the proxy statement and other relevant documents regarding the merger when filed with the SEC.

I'd also like to point out that a replay of the prepared comments from today's call will be available from 1:30 p.m. Eastern time today until 6:00 p.m. Eastern time on August 3. The replay can be accessed by calling (866)513-9969 or (203)369-1996. 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 website at w ww.lyondell.com/earnings. In 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 website at www.lyondell.com/earnings. Now I'll turn the call over to Dan.

Thank you, Doug. We know that you are probably most interested today in hearing about the merger of the Company with Basell, which is owned by access Access Industries, for any of you who may not be aware, our Board of Directors unanimously endorsed a $48 per share offer and we are currently preparing for a shareholder vote later this year. We are working as quickly as possible and expect that barring any issue we will be in a position to complete the sale during the next several months. Clearly, we believe the offer represents excellent value for our shareholders and the ongoing business. Basell and Lyondell complement each other well without having significant overlap that might create any trust concerns. To this point, the waiting period in the U.S. under HartScottRodino has expired.

Let me briefly address the fit as I see it. First, both companies participate in basic materials and, therefore, possess similar manufacturing and marketing skills. Second, Basell's focus tends to be towards polymers. This position is complemented by Lyondellal's basic chemical and refining positions.

Additionally, I have often spoken to you about our future vision of growing both geographically and through the addition of other product groups. Basell's geographic diversity and polypropylene position fit this perfectly. Most importantly the fit also matches access industry's division and they see the value of our assets and personnel. As you can see, I'm excited about Lyondell's future together with Basell as part of Access Industries.

I know that many of our existing debt investors are trying to sort out what this means to them. First, the transaction has fully committed financing. I expect the details of longer term financing plans will come together over the coming months. I want to remind all of our debt holders that we truly appreciate their support and commitment to Lyondell, both during the difficult years of the early 2000's and the more recent years. Our relationship with you has enabled us to build a strong company.

Now, let's talk a little the about the near term operations. The current plan is that the management team will stay in place for the foreseeable future and operate Lyondell. As soon as legally practical, Lyondell management will work with Access Industries and Basell as plans are developed to integrate the businesses and operations. In the meantime, our people will maintain their focus on operational excellence. I would remind all of our investors and other stakeholders that the vast majority of our staff has always been focused on the daily operation of our plants and business. And for them very little will change.

I realize that these brief comments don't address many of your detailed questions. However, the legal requirements surrounding the transaction make it impossible to address some questions. And the answers to others are simply not known at this time. We expect to be filing a proxy in a few weeks that should provide some additional answers. Before we turn things back to our earnings review, I want to emphasize again how excited I am that Lyondell will be part of a $30 billion-plus company with the support of a committed owner who shares the vision that we have espoused for many years. Now I'll turn the cll back over to Doug for a discussion of our earnings.

Thanks, Dan. During the second quarter of 2007, Lyondell's income from continuation operations was $271 million or $1.02 per share on a fully diluted basis. The second quarter of 2007 earnings reflects strong refining and fuel margins, coupled with ethylene segment price increases that were largely offset by increased raw material costs and some raw material cost pressures within the propylene oxide segment. Regarding taxes, excluding any impact from the say of the inorganics chemical business, Lyondell 2007 booked tax rate is estimated to be approximately 36% and the cash taxes are expected to be less than the book taxes.

Now, let's turn our attention to our ethylene coproducts and derivatives segment. As most of you know, the primary products of this segment are ethylene, ethylene coproducts, including propylene, butadine and benzene and derivatives of, ethylene which include polyethylene, ethylene oxygenates and vinyl acetate monomer, or VAM. In the second quarter, EBITDA was $194 million, and this compares to $177 million of EBITDA during the first quarter of 2007. Margins experienced moderate recovery during the second quarter, however, for the most part, product price increases were offset by increased raw material costs as the typical olefins raw material cost increased by approximately 20% versus the first quarter. Ethylene and ethylene derivative sales volumes increased by approximately 4% or 125 million pounds versus the first quarter, and sales of ethylene increased by approximately 20 million pounds while ethylene derivative sales volumes increased by 105 million pounds.

Versus the first quarter, ethylene and polyethylene prices averaged approximately $0.045 and $0.05 per pound respectively, greater than the first quarter average prices. Ethylene glycol prices increased by approximately $0.015 a pound versus the first quarter. On the cost side, our average cost of ethylene production metric increased, averaging approximately $0.025 per pound higher than the first quarter. And the increase is primarily attributed to increased natural gas liquid raw material c osts. Heavy liquid raw materially costs increased as well but these increases were largely offset by higher co-product prices.

Now, although our olefins raw material mix varied considerably during the quarter, on average approximately 55% of our ethylene was produced from natural gas loss liquids and 45% from heavy liquids. And operations during the quarter were generally smooth with the exception of some downtime in the ethylene oxygenates operations and these negatively impacted the quarter by approximately $10 million. Acetyls results declined by approximately $15 million as lower methanol prices and increased costs more than offset strength in acetic acid and vinyl acetate monomer. Thus far, third quarter conditions are much the same as second quarter with high raw material costs tending to negate the impact of price increases.

Volumetrically, both domestic and export volumes have remained solid, hence operating rates have remained in the mid 90s and specific to Lyondell, I'd like to point out that we will begin a 50-day scheduled turn- around of our La Port plant during late September and the cash spending for the turn around is currently estimated to be approximately $60 million. Efforts are being made to minimize the impact on third and fourth quarter operating results.

Now let's turn our attention to the propylene oxide and related products segment. This segment includes propylene oxide, derivatives of propylene oxide, toluene diisocyanate, styrene, isobutylene, and fuel products which we define as MTBE and ETBE. During the second quarter of 2007, EBITDA for this segment was $195 million which is a $108 million increase versus the first quarter. And the increase is partially attributed to the absence of a $62 million first quarter charge related to the TDI business, while the balance is attributed to strong fuel margins partially offset by lower chemical product results.

In the fuel products area, high margins and sale volumes led to $105 million increase in quarterly results. Raw material margins followed typical seasonal trends increasing by approximately $0.40 per gallon versus the first quarter, while sales volumes were very strong. Versus the first quarter, PO and PO derivative product results declined by approximately $45 million. These products experienced 9% lower sales volumes, primarily due to lower de-icer market sales and lower margins due to higher propylene raw material costs. Additionally, as mentioned in our earnings release, the quarter was negatively impacted by $10 million related to commercial disputes.

And exclusive of the previously mentioned first quarter charge, TDI results declined by approximately $10 million, primarily due to scheduled maintains, and in styrene, second quarter results were relatively unchanged versus the first quarter. So thus far, third quarter business conditions for the chemical products are relatively unchanged versus the second quarter. In general, there's been some margin improvement as price increases catch up with earlier raw material ifncreases. July fuel product margins have continued to be strong as reported industry margins have averaged approximately $0.90 per gallon, moderately stronger than second quarter average. And although it will not be a third quarter event, I'd like to point out that during October we'll begin a scheduled maintenance turnaround at one of the Bayport, Texas PO plants.

Now let me turn your focus to the refining segment. EBITDA for the refining segment was $451 million versus $133 million during the first quarter. I'd like to remind you that first quarter results were negatively impacted by approximately $140 million related to scheduled maintenance activity. While the second quarter was impacted by approximately $25 million due to approximately 10 days of fluid cat cracker downtime.

The second quarter reported industry margins were very strong and the MYA-211 spread increased by $9.50 per barrel, from approximately 22 b arrels -- excuse me from approximately $22 per barrel in the first quarter, to approximately $31.50 per barrel in the second quarter. In addition to the absence of a turnaround impact, Houston refinery margins increased by approximately $160 million, or approximately $6.50 per barrel versus the first quarter. Additionally, results improved by approximately $20 million versus first quarter as a result of strong arrowmatic and lube operations. Looking forward towards the third quarter, the market continues to be strong. Thus far, the reported industry MIAD-211 spread increased by $9.50 per barrel from approximately 22 barrels -- excuse me, from approximately $22 per barrel in the first quarter to approximately $31.50 per barrel in the second quarter. In addition to the absence of the turnaround impacts Houston refinery margins increased by approximately $160 million, or approximately $6.50 per barrel versus the first quarter. Additionally, results improved by approximately $20 million versus first quarter as a result of strong arromatic and luber operations. [End edited portion of the transcript.] $27 per barrel and the MYAWTI spreads are approximately $10.50 per barrel, and the name metrics, the September WTI 211 approximately $11.25 per barrel. Our operations have been strong, however, I would like to point out that the third quarter is expected to be negatively impacted by approximately $25 million related to some scheduled catalyst changes at two desulfurization units. The final area I'd like to mention is inorganic c hemicals. In this business was sold on May 15th, netting approximately $1.05 billion after taxes of approximately $90 million. And the area is accounted for as a discontinued operation. Well, that concludes the review of the businesses. So I'll turn the call over to Kevin to discuss some financial factors.

Okay, thanks, Doug. Well, today I'll briefly review some second quarter cash and debt items. Through a combination of the sale of the inorganic chemicals business and operating cash flow regenerated significant cash that was devoted towards debt repayment. In summary, at Millennium we repaid the Australian term loan and other financing activity fats that were directly related to the inorganic chemicals o perations. We repaid $373 million of other Millennium debt. The malof the proceeds from loan to Equistar through a $500 million intercompany loan, Equistar used this and other cash to repay $600 million of debt. We also repaid $274 million of Lyondell debt and refinanced $500 million, which was repaid in July. In total, debt reduction equaled approximately $1.3 billion and the $500 million was refinanced at 4% below the previous coupon rate. Across our business lines, quarterly operating close were somewhat -- cash flows were somewhat mixed, refinery was strong while Equistar was somewhat below expectations as higher selling prices caused working capital prices to increase. Expect this situation to moderate during the third quarter resulting in increased cash flow. Now, with that, we'll turn this call over to Q&A.

Thank you. [Operator Instructions ] Our first question comes from Edlain Rodriguez and sir, please give your company name.

Goldman Sachs. Good morning, guys. Good morning, Edlain. When you look at the ethylene business, what does the next few months look like in terms of polyethylene in terms of pricing? It seems like this quarter there was a lot of pressure in terms of cost. Do you expect to see margin -- Let's talk about the shape of the business then we'll overlay the volatility. The volumes are very strong, there's a lot of momentum on the volumes, and indeed it looks like the price increases are all going in on schedule. But the volatility on the feed stock side has been extreme. You've watched as we have, we've seen crude prices move as much as $2 in one day and clearly at 77 or so for both Brent and WTI this morning, that's still a concern. The feed stocks we actually use tend to price off of derivatives of this, so we're suffering those same kinds of things. That's why Doug talked about we switched to a much lighter slate because there really is no real advantage except for some small amounts of the liquids over the NGLs. NGLs then are being pulled up and higher than natural gas pricing simply from the chemical demand. But it's a strange situation. Very strong business conditions, but the feed stock volatility is still impacting. And I don't really think it would be wise of us to think that's suddenly going to stabilize. So I think we have to keep doing what we've been doing, and that's be aggressive on the pricing side to try to recover this volatility that we continue to see. But the business continues are very good. Okay. Thank you. And good luck. Thank you.

Sergey van net so far, your line is open.

Good morning, Lehman Brothers. Congratulations on your transaction. Thank you. I want to ask you about La Port of turnaround, I understand $60 million is the CapEx impact, the P&L you said would be minimal because of the (indiscernible) inventory, right way to think? That's right, we'll do everything we can to minimize the impact through i nventories. Mostly, you know, we have a number of these olefin plants so we can move product around across them. You're thinking of the cost of the turnaround itself, correctly, and that will be amortized typically over approximately a seven-year period. Okay. And so your propylene oxide results have been quite good this quarter, better than expectations. What explains that and what's your outlook for the second half? Well, shall we first go to, are you referring to the segment itself or propylene oxide in the chemical side? EC abdomen D, sorry. EC abdomen D? Yeah. I'm sorry, Sergey, you're asking about EC and D. The propylene oxide and derivative segments. Okay. I think you know the strength you saw was driven primarily by the fuel side. We have a very strong results on the fuel side, strong gasoline markets and spreads were up around $0.90. PO's also been very strong. What you saw in the second quarter and you see it t ypically, is when raw material propylene moves up, it takes some time for derivatives to move them through. So we benefit on EC & D from the propylene increases, we now beginning to catch up on the PO side is coming, where margins were squeezed a bit in the second quarter, we would hope to see that open up in the third. It's a similar situation to what I was describing on ethylene, the volumetric side of the business looks very good, although it's not as uniform around the world, but the PO volumes are moving very well, the PO business looks good and of course the fuel overlay and the strong part of the fuel season is clearly benefiting. But you've got this volatility in propylene prices that washes through the results over a quarter or two. Okay. Thank you. You're welcome.

Mark Connelly, your line is open and please state your company name.

Thank you, Credit Suisse First Boston. Hi, Mark. Hi. Just two questions, first within the ethylene segment, last quarter crude oil increased costs this time we're talking more about net loss liquids. Can you talk to us generally about -- natural gas l iquids -- how we should be thinking about that in terms of the opportunity and the constraints to actually shift? We have a very flexible system and I think we've told everyone before that we can get up as high as 65, 70% heavy liquid feeds. Currently we're operating less than 50% heavy liquid feeds in the second quarter, I believe, we averaged around 45%. So that's an indication of the kind of flexibility we've got. Okay. Okay. So 45%, that's helpful, thank you. And just one last question. On MTBE, is there any particular place where the export opportunities were better? We export to South America and to Europe, and both markets have been very strong. Very robust, yes. Thanks very much. Mark, I want to make sure one thing's clear on the flexibility, we can go down to about 35%, about a third of our capacity is flexible to move back and forth. But what that's telling you also is that the economics of those liquids are good relative to the NGLs. Exactly. Thanks very much. You're welcome.

Vijay Juvekar, your line is open, please state your company name.

Uhm, City. Hi P.J. How are you? Congratulations. You're going out with a bang, Dan. I'm sorry? I said you're going out with a bang. I'm not planning on going out. Well, maybe you stay. I got to work for a living, P.J. Well, the U.S. chemistry has been exporting significant amount of plastics from the Gulf coast. Has that amount been growing or been flat or declining? And then if you talk -- think about lower natural gas prices in the U.S., how does that play into the exports? First, on the first part of it, the export markets have been very strong, and I think the way to look at that is the economic situation in Western Europe and Asia has been stronger than the economic situation in North America. So this is not pushing e xports, it's basically the other markets are strong enough to pulling the product with better margins. And that, I think, is part of the world economy we live in today. It's going to move back and forth, it has several times offer the last couple years. I think as we look forward, one would expect that you'll see some stabilization of t hat. But those export markets are continuing to be very strong at this point in time. Now, the relative pricing of natural gas, I still don't think we've got bearings on natural gas here, what we have is extreme volatility, more so in the liquid feed stocks over the past six months than we've actually seen in the natural gas. So that that noise in the system is overlapping the two types of feed stock so that there's no real strong compelling advantage for any length of time on one feed stock type or the other and you simply have to be able to switch back and forth to try and capture what you can capture on the differences. How much of your plastics or polyethylene did you export? 20%. 20%. And do you see that sort of remaining in that range for a while? I think it will for a while, yes. And as Dan said, we think the export opportunities are going to be there for quite a while. Thank you. You're welcome.

Jeff (indiscernible) your line is open, please state your company name.

JP Morgan. Commodity chemical b usinesses have a lot of play in their earnings performance, and this quarter, at least, versus street expectations, Lyondell came in low, and of course on the refinery side, there's volatility as well. And so I was wondering whether any negative volatility in either the chemical or the refinery operations would affect the deal that you have in place? Or does it turn out that it wouldn't affect the deal? I think we said that we were not going to talk about deal-related Jeff, we went through this. I think we need to stay with that view. I'll come back again and tell you that volatility is part of all commodities. We've handled this for many, many years, we understand it. We think the best way you deal with volatility is keep a very flexible outlook, run your business as flexibly with a cash bottom line focus and that's what we do. And I think that's served us well and will serve us well going into the future. I guess my second question is conceptually, when one puts together polymer businesses, whether it be yours or anybody elses, I'm not asking in particular about your deal, when you put together tens of billions of pounds of p olymers, how does one conceptualize possible cost savings? And are there relatively accurate ways of measuring that? That sounds like another deal question to me, Jeff. I think we'll defer that, I think, all will be known and seen in future months. So I think we're just safest to stay in that season. Okay. Thank you very much, Dan. You're welcome.

Dave Schuman, your line is open. And he's from New Vernon associates.

Well, thank you. Congratulations. I just wanted to follow up on some longer term issues, particularly on PO in the derivatives business. We're seeing a lot of other companies come out with new glycerin-based PG and I imagine that ethers are probably down the road. Could you sort of talk about the long-term viability of the petrochemical based PO business versus some of the other areas you were looking at? Yeah, I think you're going to see this sort of development occur anytime you get to crude prices in the high 70s. It hadn't had any significant impact to this point, and we don't see any really significant impact in the near term. Eventually, I think that some of these alternate routes and alternate feed systems are going to have an impact, but I think it's going to be relatively modest. Just to take the example that you've given, the quality of the product you get from the processes based on glycerin leave something to be desired, a lot of technical issues with that. I don't see it just as a major factor, but certainly something we have to take into account as we look to the future. I think we're not Polly A nn/ish about this, I think if you have the high energy price that is many of these natural materials come into the mix, once they're built they're going to be in there, they'll have the aspect of shaving some growth off, but by the same toke enas we're starting to see with the ethanol, there are rebound effects elsewhere in the food chain, et cetera that take years to play out. It's not clear-cut one way or the other, but we would not sit here and tell you we don't think there will be any impact on growth from these kinds of things. Indeed we continue to monitor this and see if there's anything that we ought to be doing in some of these areas as well. And then along the same vein, Dow's announced an ethanol based polyethylene facility, have you guys looked at that and sort of what's your feeling on economics? Is this sort of a green-washing if you will? No, I don't think that we feel qualified to really comment on it at this point in time. It's one of the areas that we watch but I'm not fully up to speed. All right, thank you. I think you've seen a lot of activity around ethanol, as Dan pointed out, it's not exactly clear that the b enefits that are being touted for it are actually there. I agree with that in the U.S. but obviously their deal is in Brazil, based on sugar cane, much more economical than U.S. corn-based ethanol. That's definitely true, whether or not it gets into the category of being a bonanza or not might be another matter, but you're exactly right. Indeed if we were really serious in this country about energy policy and we thought ethanol was the answer, I do not understand why we have to have a mandate, a subsidy, and a tariff to keep the Brazilian ethanol out, it sounds a little stupid to me. Are you comfortable with your MTBE and ETBE ability to switch back and forth right now? Obviously, MTBE's been very strong, and people including yourself, I believe, have backed offen ETBE. No, no, we're going the other way. You got that wrong, we're ramping up ETBE capability in Europe, for example, right at the first of the year, we converted our Dutch plant to 100% ETBE, and our French plant is probably running about 50% ETBE today, soon to be at 100%. And in the states we've got the flexibility to go between MTBE and ice ookay teen and we're also looking at ETB as a real possibility here. Actually, I think that maybe in the mean term, the best opportunity to use the U.S. capacity in the ETBE, but it probably would be with imported ethanol. Do you see any additional CapEx or work to increase your ability to switch back and forth? No, the CapEx to go from MTB to ETB is very, very minimal, mainly a few instruments in your system. So no. That's a very easy -- market development and logistics that you have to get set up. All right. Thank you. You're welcome.

Our next question comes from Don Carson of Merrill Lynch. Sir, you -- your line is open.

Thank you. Hi, Don. Hi. Dan, a couple of questions. One on the operations. Supply look at your incremental margins sequentially from Q1 to Q2, in the ethylene chain of b usinesses, I still am somewhat surprised by the level of profitability. Were there other issues besides weak as tills profitability and the ethylene oxide outages that sort of took away from profitability? Don, really when you look at it, our average ethylene product mix was up about $0.4.5 a pound, our cost of ethylene production was up about two and a half cents a pound, you have got about a $0.02 opening up on the m argin. On 2.5 million pounds, roughly $50 million. If you take that, you add $15 million at as teals, you add some operating costs in the ox updates, totalling about 25, that brings you back to in line. I think operations were fine, I think the numbers all come together pretty clearly for i t. It's-- what you found is you were chasing those increasing raw material costs, coproducts kept up. We had record prices in May, you kept up on that side. Kind of quietly, ethylene costs moved up some 20% from the first quarter to the second. And then on the polyethylene shipments we had strong export demand but at least own a year-over-year basis, domestic shipments are showing no growth, negative growth, is that due to a tough comp. because people were building inventories a year ago for hurricanes as one of your glass is always full competitors likes to say or is that reflect a weakness in domestic demonstrate because these high prices? I think that's a factor in it, Don. So I think definitely a factor in it. Demand is -- it's about even demand, so it's been reasonably strong. And you're seeing a lot of things with the volatility of energy costs, high costs in tight markets in Asia, and of course effects FX impacts are starting to come into play in all of these markets. And then Dan, a question, a deal question for you, not your deal but just as you look at the landscape of North American commodity chemicals, do you see additional consolidation coming? Obviously we've seen some hiccups in the high yield markets that can affect private buyers but do you think that's an issue anyway or do you think that there -- [ Simultaneous speakers ] Let me go back over the last 20 years, this industry worldwide has been in consolidation, we've said that often, we said we expected it to continue. Certainly it's not steady state, so I think the tendency will be there, but as far as waves and so forth, I'm not someone who ascribes to -- you've got to go through waves to get there. I think deals come together as they make sense among individual looking at future markets and current s ituations. But clearly in these markets as they continue to g loballize, I think it's more likely that you will see continued consolidation moves. But not necessarily triggered on a particular time frame. Okay. And finally, one fuels question. Do you ever see the opportunity to tell ETB in the U.S., is there any chance at all whether as in Europe. [ Simultaneous speakers ] If we reelect about 535 folks in Washington and the state houses, tens of thousands more and get some people who know something about energy policy, I think there's a possibility. Other than that, I would doubt seriously we'll be telling ETB into the fuel market in the U.S. Dan, we'll miss your quarterly comments as we go forward. Thank you. Thank you. Before our next question, I'd like to remind parties, "star 1" if you have a question. Our question comes from Gregg Goodnight of UBS. Sir, you may proceed. Good morning, all. A question, you're refinery operating rate was pretty strong, 273,000 barrels a day. Does that represent full capacity? Did you have any hiccups at all or is that all show go? Gregg, we have -- we state our capacity at 268, we can run higher than that. We did that that one down time with the catalytic cat c racker, there was a period below full rates, obviously a period above what the average rate was. We've had days and certainly weeks where we average over 280,000 barrels a day. Remind me, was that a 10-day outage or what was the -- The cat cracker was down for about 10 days. Okay. Your light-heavy operating rate you mentioned, 55 light, 45 heavy in the second q uarter, that, I assume, you were at 100% operating rates for the entire quarter for ethylene? We were in the high, mid to high 90s, say. Okay. So the maximum light feed, 6 5/35 heavies that you mentioned you could go to, that wouldn't be at full r ates, would it, it would be at reduced rates? That's at full rates. That's at full rates. All these numbers, when we talk to you about them, we're averaging many things moving different directions and averaging them over the course of a quarter, I know you guys analyzing this can't afford to spend the time to analyze it every hour, which is really the way the business runs, so you always end up with extremes being averaged out and then you try to make sense out of the averages, which makes it more difficult here. When we have volatility like we've had for the first half of this year, you end up change aga lot of things frequently and then when you average at the end of the quarter, some of these things cancel out and the averages may look strange to you but on the ongoing day-by-day basis, they were all made on the same basis, cash flow. With respect to that, moving forward with the ethane premium to natural gas moving up significantly, is the hacking slate gone back towards the heavy side? What tends to happen, people like us who can switch as it becomes advantageous to switch, we go into the ethane market, provide more demand in that market, tend to raise the prices. The prices go up far enough, it makes sense for us to switch back to the other way. We're also part of the volatility as other competitors are. So I think what you're seeing here, yes, I do think you're going to see the balance swing back and more advantage going back to liquids over the coming week. It's going to keep going back and forth unless we get she magical stability in the energy markets that I don't see coming. Okay. Could you talk to the differential in margins between light cracking and heavy cracking in the second quarter? I assume that light crackers were favored by a few cents. Could you quantify that, please? Let me talk to the change. Basically, what we said was when you look through those numbers we basically said your costs on the heavy side increased with your coproducts increasing about the same. So you really saw no particular change there. With half of our slate being light and a $0.2.5 change on the overall, basically our light side went up about $0.05 or so. That's kind of what you're looking at quarter-to-quarter. Okay. Again from an analyst point of view, it's nice to think about A heavy. We run a whole bunch of different ones. In all these market, some of them fall out of favor, one or two hang in regardless. When we talk about going down, we're not looking at a choice of ethane or a NAFTA, we're looking at 30 some odd different feed stocks. The other feeds that you have other than NAFTA, how do they compare with respect to like a benchmark NAFTA quoted by either C may or KEM data? (indiscernible). We're quite comfortable with the liquids that we cracked, so some of them state in the slate and we've been very comfortable with those. I think I got my two questions in, so thanks guys. Thank you, Gregg.

Our next question comes from C.J. balance don't knowy from evergreen investments.

Hi. Just a quick question, regarding the intercompany loan from Equistar or -- Equistar to Millennium, could you just review the interest rate and the payment schedule? No. Actually, yank of the actual terms of it right now. Maybe somebody else here has that. I have a a little bit, I don't remember the interest rates, it's a market-based rate, C.J., you can see when you look on the Equistar balance sheet, you can see it's up in the short term. Okay. All right, thank you. You're welcome.

And at this t ime, I'm showing no further questions.

Very good. We certainly appreciate everybody's attention this morning. Again, thank you for your support over many years and look forward to continuing to deal with at least the debt guys going forward. So thank you again. [A fully edited transcript will not be available due to technical difficulties with the audio, both live and replay.]