利安德巴塞爾 (LYB) 2008 Q1 法說會逐字稿

Hello. And welcome to your LyondellBasell first quarter 2008 earnings teleconference. At the request of LyondellBasell this conference is being recorded for instant replay purposes. (OPERATOR INSTRUCTIONS). I'd now like to turn the conference over Mr. Doug Pike, Vice President Investor Relations. Sir, you may begin.

Thank you, Shelley. Well, hello, and welcome to LyondellBasell teleconference. And this is Doug Pike, LyondellBasell's Vice President of Investor Relations. And I'm joined today by Alan Bigman, our CFO.

Now, before I begin, I'd like to point out that a slide presentation accompanies today's call and it is available on LyondellBasell.com on the Investor Presentations page.

But before we can begin the business discussion, I'd like for you to note that statements made in this call relating to matters that are not historical facts are forward-looking statements that are subject to risks and uncertainties, and 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 LyondellBasell's consolidated financial statements for the year ended December 31st 2007 and quarter ended March 31st, 2008, which are available on the Investor Relations page of our website, www.LyondellBasell.com/investorrelations.

Please also refer to Lyondell's, Equistar's and Millennium's annual reports on form 10K for the year ended December 31, 2007 and quarterly reports on form 10Q for the quarter ended March 31, 2008, which were filed with the SEC in May, 2008, and each of which is available on the Investor Relations page of our website at www.Lyondell.com/investor relations.

I'd also like to point out that a recording of this call will be available until 4:30 p.m. Eastern Time on June 17th, and a web replay can also be accessed at the Investor Presentations page of our website at www.LyondellBasell.com/InvestorPresentations.

Well, now I'd like to turn the call over to Alan for a discussion of our first quarter results.

Thank you, Doug. And good morning to our colleagues in North America, and good afternoon to our colleagues in Europe. Please turn to slide 3 and we'll begin our discussion of first quarter results.

Internally, we begin all discussions of results with our safety metric so we'd like to do the same with you. We do this because safety is the prerequisite to successful operations.

As you can see, the Company has a strong and improving safety record and this trend continued into the first quarter. Our safety results place us near the top of the industry and we continue to work to improve our performance.

Now let's turn to slide 4 and look at the first quarter financial results. For comparison purposes, we've included the first quarter of 2007 for the legacy companies.

As you can see, our EBITDA for the full company was $857 million based on the underlying US GAAP financial information and our reported inventory accounting basis. This increase is to $917 million when utilizing FIFO inventory accounting for the entire company. This is essentially equivalent to the combined EBITDA generated by Basell and Lyondell individually during the first quarter of 2007.

We believe that it is often helpful to look at adjusted EBITDA, and have included a few factors that help create a consistent comparison across the periods. First, in both periods we have added back the cash dividends received from our joint ventures. During the first quarter of 2008 we received $15 million in dividends, somewhat stronger than the first quarter of last year.

The second item that we have highlighted is the impact that purchase accounting had on inventory valuation. When accounting for the acquisition, inventories were written up to market prices. Therefore, when that inventory is sold there is generally minimal or no profit associated with the sale. In our situation this negatively impacted first quarter results by $107 million for accounting purposes.

The third item represents the yield related to our accounts receivable securitization program. This financing instrument is structured such that the sale of receivables results in a charge to EBITDA instead of an interest charge. You should expect that this will be a recurring item; however, we believe that business results are better reflecting by adding this back to EBITDA.

The final item highlights the impact of the mechanical issue that affected the Houston refinery's FCC during the quarter. Had this not occurred, we estimate that results would have been approximately $40 million stronger than realized. The resulting adjusted EBITDA for the first quarter 2008 was therefore approximately $1.1 billion.

In order to facilitate a comparison to prior year results, we've provided the corresponding adjustments for the legacy companies. As you can see, the magnitude of the adjustments in each period is relatively equivalent and the combined legacy company adjusted EBITDA was also approximately $1.1 billion.

Overall, the portfolio performed well in the first three months of the year. But the quarter certainly presented its challenges since the price of hydrocarbons continue to rise. This pressure was particularly apparent in our US ethylene plants that process naphtha.

Similar to the final quarters of 2007, it seems that product pricing was not able to catch up and move ahead of crude oil prices, which averaged $98 a barrel during the first quarter, approximately a $7 a barrel increase over the fourth quarter of 2007. However, in the majority of our portfolio increasing costs were offset by price increases and our Fuels, Polymers, and the other chemical segments combined to produce good results. In our Technology business, the year started well with continued strong catalyst sales and licensing activity driving results.

I'm going to turn it back to Doug now to discuss the individual business segments in more depth.

Well, thanks, Alan. Well, let's turn to slide 5 and take a look at the Fuels segment. And as a reminder, this segment consists primarily of our refining and oxygenated Fuels results.

And in this segment the first quarter adjusted EBITDA was $437 million, with the bulk of this being generated at the Houston refinery. And I expect you might find the strength of these results to be somewhat surprising following some of the comments that have appeared in media regarding other refiners' results. And we attribute our strength to the type of crude that we process at the Houston refinery and the product mix that we produce.

And the chart on the right in your slide provide some perspective. The bottom section of each period's bar is the price differential between WTI and Maya crude. And as a heavy crude refiner, we benefit from a similar advantage while the typical light crude refinery does not realize this spread.

Now, the lighter colored sections of the bars show spreads that are more consistent with typical refinery spreads. However, since our product mix is typically made up of relatively equal volumes of gasoline and distillate, we're less impacted by the weakness in gasoline spreads while benefiting from expanding distillate spreads. And the latter is represented by the difference in heating oil and WTI crude oil price.

So in summary, the Houston refinery is well positioned and, as you can see, the April spreads were very strong. And they've recently averaged more than $35 a barrel.

Now, the other major products within our Fuels business are the oxygenated Fuels, which consist of ETBE and MTBE. And these products are high octane, low vapor pressure gasoline blending components.

Now, given the weakness in refining gasoline spreads, you might expect weakness in these products. However, quite to the contrary, first quarter results were atypically strong and the bottom chart provides some perspective of industry ETBE raw material margins.

Now, typically, fourth and first quarter margins are near zero and profits are nearly all generated during the second and third quarters. However, this year first quarter results were quite strong as high gasoline prices contributed to good margins. And during April margins expanded further, which follows typical seasonal patters in increased gasoline prices.

Now, to wrap up the discussion of the Fuels segment, I'd like to point out that the fluid unit at the Houston refinery returned to operation on April 29th. And we expect the downtime to impact second quarter results by approximately $60 million.

Now, if you'd turn to slide number 6, I'd turn your attention to the Chemical segment. And this segment includes our ethylene business, as well as our other Chemicals, which include propylene oxide and its derivatives, acetyls, ethylene oxygenates, styrene and TDI. And adjusted EBITDA in this segment was $279 million during the first quarter of 2008.

Now, within this segment the ethylene business has been significantly pressured by increasing crude oil costs which the other products in the group have generally kept pace with the rising cost pressure. In the pie chart at the bottom right you can see that approximately 70% of the segment results were generated by the other products, such as propylene oxide and its derivatives.

And the pressure in ethylene has primarily been in the operations that process naphtha, a raw material that derived from crude oil. Additionally, the bulk of the pressure has been within the US market versus Europe.

And the top chart on the right side of this slide utilizes data from CMAI to help demonstrate the pressure on US ethylene margins. The bars represent the cost of ethylene production metric, or COE, from each of naphtha and Ethane. And the line represents the market price of ethylene.

Now, looking back to the first quarter of 2007, you can see that naphtha raw materials enjoyed a relative advantage to Ethane. And this has been the normal situation over the past decades. However, during the fourth quarter of 2007 you can see that the relationship reversed itself as crude prices rose rapidly. Consequently, the margin realized from the naphtha declined to the point that CMAI estimated it would be near zero during the first quarter of 2008. And we've been able to partially mitigate this pressure by shifting our raw material slate from its typical 60-plus percent naphtha to approximately 50% naphtha and we're reviewing actions to further shift the mix away from naphtha.

Additionally, prices of ethylene crude oil-products, such as propylene, butadiene and benzene, have responded to increased crude oil prices. But thus far, these price increases have only helped offset the continued increases in raw material costs.

Now, elsewhere in this segment results have held up much better and generally have been quite good. Within the propylene oxide products results have been relatively consistent across recent quarters, while the first quarter results for acetyls and ethylene oxygenates benefited from competitors operating disruptions.

Well, now let's move on to slide 7 and the Polymers segment. And this segment includes our polypropylene and polyethylene businesses, as well as advanced polyolefins and the majority of our global JVs. And the results have continued to be quite strong and first quarter 2008 adjusted EBITDA was $327 million.

Within this segment results tended to follow general economic trends, showing strength in the European and other non-US regions, while benefiting from strong US polyethylene exports and steady, strong results in advanced polyolefins.

And looking more specifically at the products that make up this segment, our polypropylene product spreads and volumes were relatively unchanged versus the fourth quarter of 2007. And in polyethylene, our first quarter sales volumes exceeded the combined legacy company's fourth quarter sales while product spreads declined slightly versus the fourth quarter of 2007. And in our advanced polyolefins business, sales volumes held steady while margins where somewhat stronger than the fourth quarter of 2007.

So, looking to the second quarter, April industry data as reported by CMAI indicates a slight decline in product spreads relative to their estimated first quarter product spreads.

Well, now I'd ask you to turn to slide 8 as we discuss our Technology and R&D segment. And this segment includes our polyolefins catalyst business, as well as our licensing efforts. And first quarter of EBITDA was $108 million -- of $108 million was a very strong start to the year. And in general, catalyst sales remained steady while our licensing efforts remain strong, resulting in licenses for close to 1 billion pounds of capacity. And these efforts were highlighted by the realization of the 10th license for our Spherizone polypropylene technology, the technology that we believe is becoming a new industry standard.

I'd now like to turn the call back over to Alan to discuss our first quarter cash flow and working capital, as well as to wrap up the prepared comments with a quick review of our second quarter outlook.

Thanks, Doug. If you turn to slide 9 you'll see our first quarter cash flow statement. I'm not going to step you through it in detail, but you can see that our operating and investing activity resulted in a negative cash flow for the quarter. This can be attributed to a number of one-time and seasonal events, coupled with increasing hydrocarbon prices.

If you turn your attention to the information on the right of the chart, we have highlighted some of the key items that impacted the quarter. First, there were two transactions that either closed in the quarter or, in the case of the Berre Tunnel Refinery, immediately following the quarter on April 1st.

Combined, these acquisitions, which were both in the works before the LyondellBasell transaction was announced last year, represented $672 million of cash during the first quarter. We expect that, combined, these acquisitions will generate approximately $125 million of EBITDA annually going forward.

Seasonal items that impacted the quarter included approximately $470 million of payments for items such as customer rebates, property taxes and employee bonuses, items which are accrued throughout the year but paid out in the first quarter. Additionally, there were some merger related items as we completed the purchase of the Millennium convertible bonds.

In total, the acquisitions and other items represented more than $1.35 billion in cash use during the quarter.

A final item that I would like to discuss is working capital and its relationship to hydrocarbon prices. To provide some perspective, we estimate that every $1 per barrel change in crude prices results in a change in our working capital of something between $30 million to $40 million. Given this relationship and the volatility of hydrocarbon prices, we've been very proactive in enhancing our liquidity, initiating several actions during the quarter.

First, we implemented an internal program targeted to reduce our structural working capital needs by hundreds of millions of dollars. We also put in place a new $750 million senior unsecured revolver with our owner, Access Industries. And in early April we funded the accordion on our asset-backed revolver facility, increasing availability by $600 million. Although our liquidity position would have been adequate without these actions, we felt that it was prudent to be conservative and prepared should crude oil prices continue to increase.

Our internal working capital program has been effective and helped mitigate the impact of increasing first quarter crude prices. This was done primarily through a combination of accelerating receivables payments and inventory reductions. Together, these actions, and other actions, served to reduce first quarter working capital by approximately $200 million.

As a result of the financing and operating actions, we finished the quarter with available liquidity of approximately $1.5 billion, relatively unchanged versus the start of the year. And of course we increased the available liquidity when we increased the asset-based revolver facility during early April. So, pro forma available liquidity was about $2.2 billion at the end of the quarter.

Now, let's move to the final slide, 10, and wrap up the prepared comments so we can address your questions.

We've already discussed some of the elements of this slide, but as this quick look toward the second quarter shows, we've continued to be challenged by rising raw material costs as both crude oil and US natural gas prices have increased significantly during the first half of the second quarter.

In Fuels, product prices have responded and spreads have increased significantly, following typical seasonal patterns.

In Chemicals, despite significant increases in crude oil-product prices, the approximately one-third of our ethylene production that is based on naphtha in the United States continues to be severely pressured. Our European production has also remained pressured but less severely than that in the United States. In general, our other Chemicals have reacted favorably to the cost pressure and results have continued to be reasonably good.

The supply/demand situation in acetyls and ethylene oxygenates is somewhat more balanced than the very tight supply/demand conditions that we enjoyed in the first quarter.

In Polymers, there has been some softening in the European polyolefins market, but we continue to benefit from the strong euro and steady specialty and advanced polyolefin results.

Our Technology results remain on track and very strong.

So in summary, the overall environment has been similar to that of the first quarter

Thank you for your attention. Operator, we will now take questions.

Thank you. (OPERATOR INSTRUCTIONS.) Our first question comes from Bo Hunt, Banc of America.

Hey, guys. How are you?

Good morning, Bo.

Hey, I was wondering, how much more flexibility do you have to crack NGLs as opposed to naphtha? And when do you anticipate you're going to reach your maximum gas-based mix?

Well, Bo, I think we've always talked to overall we look at a flexibility of about one-third of our capacity being flexible and a third each being fixed. Now of course, then you have to take into consideration the specifics of your raw material costs and the specifics of the market situation to do that. So, what we're looking at now is how we can gradually move that shift further.

But I think what you -- one thing you have to keep in mind, and we've spoken about this regarding these US crackers in the past, that naphtha's a pretty broad term. So, you're seeing some of these liquids which remain competitive, some of these liquids which we've removed from the slate and adjusted rates accordingly.

So, it's a mix and it's one we're just going to have to keep working on. And we'll look towards further shifts in these -- in the mix at the crackers and how we can optimize this. And as always, we tend to run these programs like on a weekly basis to get the optimal feedslate into the plants.

Okay. Well, now you kind of interest me there. So, you said naphtha's an awfully broad term. Should we not then assume that the CMAI margins that are shown in the presentation are necessarily indicative of what's happening at LyondellBasell? I mean, are you seeing -- are naphtha base margins going -- I'm sorry, whatever you want to call them -- base margins going negative in the second quarter?

No. I think you can use that as a benchmark, Bo. But when you think about it, you run things like condensates, you run materials from all over the world. And there's going to be -- there can be different prices and different yields on all of these materials. So, you're going to see a mix. And of course, we've got some that are more favorable than others and some that we're removing from the slate because they're just not economical at this point in time.

Okay.

That's just something we always have to work on in this. But it's good to use the CMAI data to benchmark because it'll show you the general direction and change from period to period.

Okay. That's fair enough. And then on the advanced polyolefins business, you mentioned in the slides that you were seeing some margin expansion in that business. Could you comment on what's driving that?

In polyolefins?

Advanced polyolefins.

Advanced polyolefins. Well, this has basically been something where the legacy Basell has worked very hard to make sure that the pricing did have a basis in hydrocarbon prices. Before, as a specialty business, there were sort of fixed prices for the year. We've been able to pass those costs on to customers pretty effectively. So, we've been getting very nice margins in advanced polyolefins and those margins have been holding up well.

I see. So, you're able to get those price increases ahead of the run-up on the cost side?

That's right, or sort of simultaneous with them so that it's not impacting our profitability.

Okay. Great. And then I'll ask one last question before I get back in line here. Just given -- I've asked you this before, but given your insight into the global polyolefins market through Polymers and also your technology business, I was hoping you could give us what you're seeing in terms of new capacity coming online over the next couple of years. What are you seeing on delays? What's on time?

I think it's a story that we talk about a lot and everyone's focused on that. There obviously have been delays and we're seeing that EPC costs have just been incredibly high, even with the global slowdown that people are talking about.

On the other hand, we're not really baking into our own forecast and our own budgeting that there are going to be very significant delays. We find that a lot of stuff in Saudi is on time. Our own JVs in Saudi are on time and on budget. In Iran you're seeing continuing delays, but some of those delayed projects are now starting to come on-stream.

So, we're assuming that in 2009, even starting at the beginning of this year, there will be significant new capacity coming on. The real question is whether demand holds up and is able to absorb that new supply. In some scenarios, because it has been delayed and because demand growth has been pretty robust over the last few years, there may be the ability for the market to take up a lot of that new supply.

I see. And you're not seeing any ne softness on the demand side outside of the States right now? Everything else remains on track?

I think we're reasonably concerned that, in Europe, at some point you will see softening. So far Europe has been performing reasonably well this year. And last year was a record year for polyolefins for us in Europe and this year is shaping up pretty similar to that. But of course there is the -- there are some new projects coming on-stream at the end of the year. So, we are sort of cautiously anticipating some softening toward the end of the year.

I got you. Okay. And I'm assuming there you're talking mostly Western Europe given the fact that I think Eastern Europe was supposed to be above GDP level growth. Maybe I'm wrong, though.

We have a lot of presence in Eastern Europe through our joint venture in Poland that we have a 50% stake in. And I think that we look at it as an overall European softening. Again, we haven't seen it yet, but we are certainly keeping that in mind and making sure we're planning for that.

Alright. Thanks a lot, guys.

Our next question comes from William Matthews, Canyon Capital.

Can you walk us through the first quarter working capital? I can see the investment in inventory's obviously driven by the crude going up. The accounts receivable was generated cash at $30 million and I assume that that's netting off a use of investment in accounts receivable versus selling some receivables. So, could you just walk us through that?

Bill, this is Doug. When you look at the working capital and the differences, one thing you have to remember to think about is FX here, particularly when you're looking at the cash flow statement. So, we're seeing a couple different impacts there, one which you mentioned which is correct is the sales of receivable. The other is, in FX, you had about a 7% change in the value of the euro to the dollar. So, that's coming through and that's roughly about a $150 million impact in that number.

Also, of course, on the balance sheet you're seeing the impact of the Solvay acquisition. That's in the acquisitions, obviously. That's about $20 million or so. So, a combination of those things is what's driving -- and the internal programs -- is what's driving the receivables in the direction that it has.

It's also always difficult to look over just a three-month period because there are year-end effects there as well and other things like that.

I mean, I think that if you're sort of trying to understand what the impact of hydrocarbon prices are on our working capital, over the long run you can use what we discussed earlier, the $30 million to $40 million per dollar of crude as a rough guide. And then we will also explain to you what activities we've done in terms of reducing structural working capital and how we've counteracted that. So, I don't think that you can quite back-out exactly those numbers from the first quarter results.

Okay. And so the figure, the 30 to 40 dollar number, that encompasses investment in inventory, investment in accounts receivable, and nets off any benefit you get--.

--Yes, it does--.

--That's correct.

Okay.

And that's also under FIFO. Obviously, under LIFO you're going to get a lesser effect.

Great. Thank you.

Thanks, Bill.

Our next question comes from Maryana Kushnir with Nomura Asset Management.

Hi. I have a number of questions. Maybe I'll try to at least ask a few. First of all, I was wondering if it's possible to break out some product-specific EBITDA. For instance, in the Fuels segment, is it possible to break out [LCI] EBITDA versus oxy fuel. And in the Chemical sector, is it possible to at least break out ethylene and polyethylene as the main products in that segment?

Sure, Maryana. This is Doug. To go to the first question, the Fuels piece, when you look at that $437 million of adjusted EBITDA, approximately $50 million or so would be generated from the oxy Fuels. And of course, as I mentioned, we typically would expect a first quarter to actually generate essentially no EBITDA.

Now, in the Chemical section, I think that pie chart really helped you split out what can be attributed to ethylene versus the other Chemicals. And of course, under the segment accounting now, there is no polymer impact within that Chemicals. All of the Polymers and polymer EBITDA is in that polymer segment. So, everything's transferred at market from one segment to the other.

So, does that help you out?

Yes. Could you quantify PO, though? Because--.

--Well, I didn't break out PO from that 70%. But as I said, PO's been relatively steady and it typically has run in a rate of over 400 and some annually, is kind of a rate for it.

Okay. Can I ask a few more, if you don't mind?

Sure.

The working capital items that you showed on slide 9. So, all of them nonrecurring basically? These things? Just wanted to confirm that.

The working capital items are non-recurring. The working capital--.

--Well, in that blue box on the right-hand side.

Oh, yes. Those -- well, the acquisitions are obviously one--.

--Yes--.

--And those, again, the acquisitions were planned long before the LyondellBasell merger. So, we're not looking to make major acquisitions at this point.

The customer rebates, property tax and bonuses are recurring, but seasonal. So, those take place in the first quarter and that's why you would tend to have a lower operating cash flow in the first quarter than in later quarters. The merger-related items are of course non-recurring.

Okay. And then as you gave us guidance every 25 -- every dollar rise in working capital hits you by $30 million to $40 million of working capital outflows. So, second quarter, I guess should we expect -- or should we take 25 times, 30 or should we divide--?

Well, yes. I mean -- we're taking -- obviously we're taking actions to address that. But clearly, with oil at $127 a barrel we will have eventually an increase in working capital associated with that, which we then need to counter by reducing our structural need for working capital.

We do have to take into account, of course, the volatility as we go through on crude oil and how it's going to affect things.

Yes. It doesn't happen instantly. It takes a couple of months to work its way through.

Okay. And regarding Berre Refining -- Refinery, are there any -- the [provision] price of 538, did that include the purchase of the working capital, inventory there, or is that something extra that you will have to spend money on?

That's something extra and that will come in the coming months. It's not a huge amount, but that will be extra. There are some other things in there as well. I mean, there are things that net down also on that -- in that price.

Is it the magnitude of -- can you give us the magnitude of it or not?

It'll be in the range of a couple hundred million.

Couple of hundred. Okay.

And some of the base working capital is included in that 535 but, as Alan said, there'll be some additional costs with that.

But roughly $200 million additional outflow, correct?

Something like that. Luckily, that was set on the hydrocarbon price that was prevailing at the time of the purchase, not today's hydrocarbon price. So, at least that's fixed for us.

Okay. And one more question then I'll others ask. Regarding dividends from JV, should we expect a kind of similar pattern as last year, dividends that are at the lower rate? And then should they pick up in the second -- later in the year, or what's your outlook for the dividend?

That's right. They should pick up later in the year. Last year was an extraordinary year because we got our first dividends from two of our joint ventures in Poland and our first Saudi JV. But going forward, in future years we're going to have two more Saudi JVs coming on-stream, one late this year and one very early next year. So, that's going to provide additional dividend flow, once those are up and running and once those are able to refinance their project finance debt.

We also have investment cycles ending in Mexico and in Thailand. There are new Spherizone plants going up in both of this and a propane dehydro in Thailand. So, those investment cycles will end and we would hope to see enhanced dividend flows from those JVs in future years also.

Okay. Thank you.

You're welcome.

Thank you. Our next question comes from [Albert Al] with [Elliot Appliances].

I have two questions, if I may. Can you give us a sense of where your net debt stands today versus 31st of March? And the second question is could you give us a breakdown of how the EBITDA in Chemicals and Polymers has changed in Q1 '08 versus that of Q1 '07?

In terms of the first question there, it's not -- as you would expect, the net debt position isn't very different now than it was six weeks ago. The Company is generating cash. Obviously, the challenge is to mitigate the impact on working capital of continuously increasing hydrocarbon prices. But essentially unchanged.

Why don't I address kind of this -- the fourth quarter to first quarter for you a little bit.

Yes. Go ahead, Doug.

If you look at the charts you can see that, in ethylene fourth to first, you kind of have a relatively unchanged situation. Although, if we showed Europe what we'd show is there's some recovery in the European ethylene spreads. So, that would make first a little bit strong.

And then if you go back to my comments, Albert, propylene oxide has been holding very steady. We had a very strong first quarter in acetyls. That's like vinyl acetate monomer. Also in ethylene oxygenate, that's ethylene glycol and products like that. So, those were stronger in the first than in the fourth.

So, to give you kind of a qualitative answer, you have a couple of reasons why the first quarter's a little bit stronger than the fourth quarter there.

Now, in Polymers, when you look across what you see is you had a very strong fourth quarter. You finished the year strongly, as well as starting the year strongly with good results. So, what you see -- and when you look at the spreads across that we showed you, you can see first and fourth again are pretty steady going across and looking at those spreads. So, it's pretty steady performance, up a little bit between the fourth and first.

One thing in Polymers that you see is there is a seasonality between the fourth and the first. And that showed up, particularly in polyethylene where you saw the volume growth from fourth to first. So, that gave you a little more strength again in the first quarter relative to the fourth. So, hope that gives you at least a qualitative picture of one compared to the other.

Thanks. And in terms of that slide 7 where you show the Polymers EBITDA of 327, how does that compare with Q1 '07?

I'm sorry?

On a like for like basis.

I'm sorry, Albert. I missed your question there.

The -- on slide 7 where you show the adjusted EBITDA of 327 for the Polymers business, how does that compare with Q1 '07?

Well, what I would suggest there is, if we looked back, a majority of that income is generated from the legacy Basell side of the business. And if you looked at operating income across the segments year to year, you'd see basically a pretty flat picture. So, I think you have a fairly consistent picture from period to period.

That's right. I think we've seen that, in general, the Polymer business is similar in the first quarter this year to what it was in the first quarter of last year.

Okay. Thanks. And Alan, going back to your answer to the first question with regards to net debt, you mentioned that it's broadly -- that's broadly flat. Is that because of the impact of the rise in oil price hasn't worked through into the financials yet?

Well, it's because -- I mean, eventually, obviously, the business does generate cash from operations as well. So, it would -- there is -- in the six-week period you, first of all, wouldn't see the full impact of the oil prices, but you're also obviously offsetting a lot of that with operating cash flow also. I don't want to give too much direction to this obviously, but the numbers are not entirely going in the wrong way.

Okay. Thanks.

Our next question comes from [Michi Yena] with ECM.

Hi. I'm just sort of following up on the previous question, and probably a couple of other questions asked before. But, is there any way you can actually give us what was the corresponding Q1 '07 number for Chemicals? You mentioned about Polymers was the Basell legacy business, but what's the sort of year-over-year comp base number for 279 adjusted EBITDA you see on the page 6, please?

Well, let's see. I had a little trouble relating that just off the top of my head here, as we're sitting here. What I would have to do, Michi, is you'd have to go back to first quarter, to the Lyondell 10K -- 10Q, excuse me -- and compare that. And that'll show you kind of the bulk of the comparisons.

In Europe the ethylene business is really the business that you added to Chemicals. And it's going to be a little bit down first quarter to first quarter because of that margin compression that you show.

So, without being able to immediately turn to it, I would say if you looked at the first quarter Lyondell 10Q you can see a comparison that'll give you some--.

--Okay. I might have to follow up after the call. Just for future, would it be possible to give us a sort of a -- the bridge. That would be actually quite helpful going forward if you can. Give us sort of either sales or EBITDA bridge relative to previous years equivalent quarters, please.

Yes. Well, we don't have that right now available so I'm afraid I can't give you -- wouldn't be able to provide that now. But we do understand the interest in it.

Okay. And on the page 4 about the inventory step-up 1 '07, is this also a one-off item or is this a recurring Q2, Q3--.

--That's a result of the purchase.

Yes. I mean, what happens is when -- purchasing accounting requires that everything be marked up to market value. So what happens is, if say you produced something that cost you $70 to produce but you're going to sell it for $100, after the inventory step-up, after purchase you hold it in your inventory at $100. So when you sell it you make no profit, even though it only cost you $70 to make it.

So, those are one-off purchase accounting impacts that, just because of the way accounting works, you have to basically take the profit out of the existing inventory. So, that's a one-off and there -- certainly for comparison purposes you should absolutely add that back in for the first quarter to understand what the real result was.

Okay. So, we won't see this item for Q2.

No, no. Of course not. But you also won't have -- you may have a little tiny bit still left in the inventories because if there's any inventory that is from before the merger still left -- and there can be some in catalysts and some other--.

--Got you. Yes--.

--Longer moving items -- either be a tiny bit left. But you only see that when you have a purchase. Otherwise, you don't have the impact of the revaluation of inventory in the first place.

Okay. And as for the joint venture dividends, the cash dividends you have, am I correct to assume that -- I guess my recollection is Basell had sort of a mostly same annual. So you have a slight peak in Q2, Q4. So, is Q1, is this -- what's the proper approach? Should we just multiply by four or should we assume it's sequentially increasing or it's sort of a bigger number in certain quarters?

You should assume that -- I mean, it really depends on the joint venture and it dedans on the cycle of how we're doing the dividend payments. They're all different and they depend on different things. I think you're probably better off forecasting sort of over the course of a year. And I think that for -- you could think of 2008 as probably being not quite as good as 2007. That was a special year where we had these two joint ventures coming off of their project finance. But not that different from 2007.

And in future years I would hope that, with the two new Saudi JVs and the investment cycles ending in Thailand and Mexico, that we have significantly enhanced from this year, and even from 2008.

I'm sorry. You said that it's not going to be as high as 2007, but similar.

I would hope much higher than that eventually.

Oh, I'm so sorry. Okay. But for 2008.

Well, for 2008 what Alan is saying is you're probably fairly similar. And if you think of the first quarter dividends in the first quarter of last year were $6 million and then this year $15 million. So really, on a seasonal basis, you're on a track. And we believe they're going to be somewhat I the range -- in a similar range to where they were last year, is the current thinking.

I would avoid though trying to forecast those on a quarterly basis.

Yes.

I mean, think about it on an annual basis. And Doug is right. Usually you don't get the bulk of those in the first quarter. But reading anything into the 6 and the 15 would be a little bit false (inaudible) I would say.

Okay. Thank you very much.

Our next question comes from Roger Spitz of Merrill Lynch.

Good morning, guys.

Hi, Roger.

Can you describe why your ethylene naphtha crackers have been performing financially better than the US naphtha crackers? Is it buying crude with devalued US dollars but selling at strong local currencies? Or is it related to Europe being a net importer and operating at higher rates versus US being a net exporter and operating at lower rates?

One thing I would say, and then I'll turn it over to Doug, is that in the US you have different kind of crackers. You've got some people cracking NGLs. You've got some people cracking heavy liquids, which we call naphtha just as a shorthand.

In Europe, almost all the crackers -- there's one exception -- are naphtha crackers. So, you don't have this competitive tension where some people are real happy with the margins and other people aren't happy. You've got -- everyone's in the same boat. Which is, I think, one reason that drives sort of more uniform performance. You don't have the sort of the winners and the losers in Europe.

No, that's exactly right, Roger. I think the other thing is just the overall balances in the two regions. Europe's a little bit tighter market. Everybody's competing on the same basis, as Alan said. So, you're seeing there a few cents more margins.

Also, a lot of the recent drive in crude oil and these naphtha prices people would relate to FX so you're seeing some drive there, and some balance in there where you haven't seen quite the same degree of pressure and volatility in Europe. So, it's a combination of those things that are brining things forward the way they are.

Okay. Thanks. And what is your average holding inventory time in days on your crude oil? Is it particularly long because it's coming from Venezuela, or--?

--No, no--.

--Just to give us a sense for the working capital, how to adjust--.

--I mean, actually it's a six-day shipment from Venezuela. And typically, we would hold -- and most refiners, I believe would hold -- somewhere in the 10 to 15 day period on inventories.

But if you think of our system, we have got a very nice, efficient system where every other day a ship arrives and unloads for us. So, it's a very smooth kind of continuous, flowing system.

Yes. We're finding it's kind of what drives the working capital issues it's the Chemicals and Polymers businesses.

That's right.

Okay. Got it. And I don't know if you can give us a sense of perhaps Houston refinery's Q4 EBITDA on a LIFO or FIFO basis, excluding oxy Fuels and PO derivatives?

If I recall, you're looking at -- in Q4 -- I'm just going to give you this in a broad -- my own kind of rule of thumb basis. You had a Maya 211 of 26-something. Given yields and things, you probably would expect that to be in the upper 200s, 300 type of range.

Got it. And any sense of sort of oxy Fuels' EBITDA for 2007 full-year on a LIFO or FIFO basis just so we can see -- you say it's very seasonable. Just to get a sense of how much for the full year, what's the full pie look like?

Typically the second and third quarter, and it all depends on of course the gasoline season and that relative to butanes and things. But if typically you've generated between 200 and 300 of EBITDA in that type of a segment, and that's been generated really in the second and third quarters. And really no generation in the first and fourth.

Got it. And--I'm sorry. Did I interrupt you?

Did that help you out, Roger?

Yes, it does. The Poland JV, does it benefit from below market propane propylene or ethylene? Because it was a pretty good dividend back in 2007. I know it's pent -- there was some pent-up (inaudible) to it, but--.

--Normally when we set up joint ventures, there has to be some cost advantage in the feedstock. So, the Polish joint venture does benefit from a good feedstock ratio. Let's put it that way.

Got it. And lastly, how many licenses, if you can tell us, did you sell in Q1 '08?

I don't have -- we usually think about it in tons licensed. I can tell you that we're on track to have a year similar to, or maybe hopefully even a little bit better than, last year. So, things are going quite well.

Okay. Thank you very much, gentlemen.

Thanks, Roger.

Thanks.

Thank you. Our next question comes from [Josh O'Hara] of CIT.

My question's been answered. Thank you.

Thanks, Josh.

Our next question comes from [Kira Kameed] of JPMorgan.

Good morning. Could you talk a little bit more on sort of expected seasonality on working capital? And then also, you talked a little bit about trying to structurally lower your working capital. Sort of give us some examples of what you're trying to accomplish there.

Well, I mean, the seasonality in working capital is often around the Polymers business, where you do see a slowdown sort of toward the end of the year in sales. So, you would tend to build up a bit of inventory in December and January. But, there can also be seasonality -- if you have plants coming down for maintenance, you'll build up inventory in advance of that. But that depends on what year. So, it's not -- there can be movements in that regard. But overall, the working capital isn't tremendously seasonal.

In terms of what measures we're taking, obviously there are the obvious things that you can do such as you look to optimize your inventories. And there are some relatively low cost things you can do. There are other things that do impact to some extent your ability to serve customers so you have to look at the tradeoffs. And sometimes the tradeoffs are different ones at $120 crude than you would make at $40 crude. So, you can certainly reduce inventories that way.

Obviously, another thing to do is to start re-examining your credit terms. And a lot of people in the industry are doing that, not only LyondellBasell. And we've managed to do that. And to some extent you can also encourage that by offering discounts for earlier payments. So, we're looking at all of those different options.

But in the medium to longer term, there are structural changes we can make in the way we do our business. Rather than buying and owning hydrocarbons, processing them and selling them, you can actually do things like, for example, toll processing, where you make a fee for processing and don't hold the working capital.

So, we're really re-examining the business model from beginning to end. Because again, the investment in working capital that makes sense structurally at $30 to $60 a barrel of oil might not make sense at $120 a barrel.

But we've already achieved I would say at this point several hundred of million of working capital improvement structurally, which offsets a nice chunk of oil price increase. And we're looking to do significantly more, not only to offset what's happened, but to make sure that we're hedged against future oil price volatility.

Okay. And then can you talk a little bit about your expectations on European ethylene as some of the Middle Eastern capacity comes online? Sort of your ability to absorb capacity in Europe?

Yes. It's not so much absorb capacity -- I mean, we see that the Middle East production is primarily targeted at the Asian markets. But of course, there is a global market more or less for these products. And you're not really talking so much about selling ethylene from the Middle East into Europe. Obviously, ethylene isn't transported. You'd take the derivatives and you sell those.

So really, we're looking not so much at Europe, although there will be a little bit of import around the margin, especially in the more commoditized grades which will impact pricing. The impact is more on Asia. And of course, that limits North America's ability to export to Asia, which has traditionally been a bit of a pressure valve for the North American market.

So, that's really where we see the impact. We don't see the impact that strongly directly on Europe, but more on the global markets.

Okay. And then finally, just any sort of updates on your CapEx expectations for 2008?

Nothing that different from what we've been discussing. I mean, we do have obviously a large project in Europe which is mostly paid for by property damage insurance. That's our Munchmunster HDPE plant, which is -- the bulk of that spend is this year. Again, most of that is actually paid for by insurance. So, that's a very economically attractive project.

Okay, great. Thank you very much.

You're welcome.

Thank you. Our next question comes from Rajul Aggarwal with Marathon Asset Management.

Hi. Thanks for taking my question. On slide number 5, where you show the Maya 211 spread for Q2 '08 through May 16, could you compare this number to what was the spread for Q2 '07?

Sure. Hang on one second and I'll give you an idea of the second quarter. It wasn't quite this high. I'll tell you that to begin with as I page through and try to locate it. I think we were up around $30 or so for that Maya 211 at that point in time. But if you hang on one second, I'll see if I can put my fingertips on it. It looks like -- well, actually what we had was we had about a 13 -- $10 to $13 spread at that point in time on the heavy/light. And in the second quarter you had the 211, the WTI 211 averaged about 21. So, you were at about $32 last year in that second quarter.

Now, let me frame that a little bit because it's a very different second quarter than the second quarter now. Last year in the second quarter you saw that strength in the basic WTI 321 or 211 spread. It was driven by a fear, really, in the US that the US market was just going to run out of gasoline and might not have adequate supplies to make it through the season. That drove second quarter of last year kind of to a peak which then, once you realized that there was adequate gasoline, you saw it come off a little bit later in the summer.

This year the second quarter strength -- and I think today as I looked before I came into the room, I think we're just under $40 -- is driven primarily by a $23 spread or so, 20-some dollar spread on the Maya WTI. So it's for the heavy refiner side. And then, as you can see from the chart, it's driven by diesel and distillate, not by gasoline. So, it's a very different market situation and we're a little bit above last year's second quarter average right now.

Would that in some ways imply that the second quarter EBITDA would be greater than the second quarter EBITDA for 2007 for--?

--Yes, I think the overall is when you take -- and you have to take into account, of course, the fluid unit situation. But yes, overall our spreads are above where they were a year ago.

Alright. Could you just share us with your thoughts on this WTI Maya spread as to what moves it, either crude oil pricing or the -- I mean, if you could share with us any dynamics on the supply/demand side of the Maya.

Well, I think -- yes, and I think we've got a couple things on our website that you could take a look at that will help. But basically, what you have is a situation where the incremental crude that's available is heavy crude. Well, the processing capabilities in the refineries that exist around the world don't really have the capabilities to process that heavy crude. So, you've got a supply/demand imbalance between production and ability to consume.

You also have a situation where, as you're bidding up crude prices, and light/sweet crudes are getting bid up, driving prices to $127 right now, these heavier crudes are tending to lag a little bit. So, it does open up some with the higher crude price.

But it's a fundamental imbalance between refining capabilities and incremental supply and availability to crude. So, it's something that we believe is going to exist quite some time going out into the future. And we think our refinery, with the conversions that were made years ago, is particularly well positioned to take advantage of it.

Alan?

Yes. I would -- simply as a follow on that when Basell and Access were looking at Lyondell, and Basell and Access looked at the refinery in fact independently when Lyondell was buying it from [Apitavesa]. One of the really interesting things about the refinery is that you're not purely dependent on the crack. You also have this great double WTI Maya differential which we always believed would be very strong. And that logic has been borne out.

It also provides a little bit of a hedge because -- you see the pressure that we have in US ethylene with the high oil prices driving the disadvantage for naphtha cracking. That to some extent gets compensated by the opening up of the WTA Maya. So, you do have a bit of an internal hedge there and we've always felt that that would work this way, and it is indeed working like that.

So what you're saying is, as crude goes up the DTI Maya spread tends to widen up as the naphtha crackers get pressure on the other side.

I mean if can of course go in a different direction in a different set of circumstances. But that is something that we anticipated could happen and provide an internal hedge. So some of what we're losing on the US naphtha crackers you get back in the refinery on the WTI Maya spread.

Got it. As we look at all these contracts that Venezuela had signed and -- I mean, Venezuela Apitavesa, some of -- there's always this risk hanging as to what can happen tomorrow. Could you just help us understand what could be an [ultimate] supply of similar margins if tomorrow something happens to the contract?

Sure. Yes. Let me go into that a little bit. Of course, even as a benchmark we use Maya. But where we sit and where this refinery sits in Houston, it sits on the southern end of pipelines that have been and are being reversed, bringing Canadian crudes down into the Gulf region.

Also, what you're finding is of Brazil and Columbia you're finding heavy crudes, or new discoveries are tending to be heavy crudes. But when you have a refinery that can process heavy materials like this, we have tremendous flexibility. We've processed over 20 different crudes in this refinery. We can bring in crude -- heavy Arabian crudes from the Middle East, etc. So, we have a lot of flexibility to move and move forward with different things.

And of course, you think on the other side, as I said earlier, there's not a lot of homes for heavy 17 gravity crudes. So, it's hard to find places to go with that type of material. So, I think we're pretty well positioned for right now with that.

And just one last follow-up. I think I heard on the call that you said in Q4 the Maya 211 spread was around 25 and the EBITDA maybe upwards 200 or 300? Did I hear that correct?

Well, what I said was the Q4, the Maya 211, if I recall, was about 26.50, 26.70. And just using kind of my own general rules of thumb, that would probably put you into a -- say around a 300 plus or minus type of EBITDA range, given gas prices and yields and everything.

Understood. So the difference between the Q1 EBITDA versus Q4 EBITDA, approximately the same (inaudible) would be what?

Well, when you -- with our refinery, when you see the Maya 211 move by $1, you typically would want to apply to that change maybe a 60% - 65% yield factor. And then $1 change in our refining spreads at the Houston refinery alone is worth -- $1 change there is worth about $100 million of EBITDA annually. So, give you a kind of a rule of thumb to calibrate your thinking and models.

Understood.

Okay.

Thank you.

Thank you.

Our next question comes from [Max Strasberg] with (inaudible).

Thanks for taking the question. Just wondering when Munchmunster is up and running how much additional EBITDA we can expect to see from that.

Well, that's a good question. I think we don't want to give too many forward-looking statements on that one. But I would hope that it would be in the high tens of millions.

Well, maybe we should -- it's what, I believe it's 800 million pound--.

Yes. I sort of thinking in tons. 320 KT per annum.

So, that'll give you kind of a benchmark, Max.

Okay. And then just a quick one. The restricted cash, just looking at the restricted cash from structured finance transactions from your Q.

Yes.

Is that always going to be exactly offsetting to the structured finance debt? And was that number a little bit different in the Q than it was in the original bank book from a few weeks ago?

I think -- no, it should -- I mean, it should be the same. The only thing that we've done is we've taken the money that was needed to buy the Berre refinery, and that's also in restricted cash. Because on March 31st we were in the process of paying for the April 1st transaction. So there's additional -- the restricted cash is a mixture of those two things. So, you won't see that restricted cash for Berre obviously. It was just -- it was sort of in the middle of the transaction as the quarter closed.

Okay. So, excluding that, the two -- the debt and the cash will offset?

Yes. Excluding that, the debt and the cash cancel out. And the cash is restricted and can't be used and the debt is exactly offset against it. That's correct.

Our next question comes from [Tran Dang] with BNP Paribas.

Yes. Good afternoon. I just wanted to go back to the calculation of the adjusted EBITDA. On a FIFO basis you reported in the first quarter of '08 $1.93 billion. Can you tell us what is your LTM EBITDA on that basis please?

Well, if you look -- if you recall -- I'm going to refer you back to the other presentation that was posted. Really it's -- we had an EBITDA of about 5.4 on a FIFO basis, about 5.3, 5.4 on a FIFO basis. You added $1.1 billion and basically subtracted $1.1 billion.

Okay.

So, LTM for the recent 12 months is the same really as we'd shown for 2007.

Or to put it an even simpler way, obviously if you swap out an equivalent first quarter for an equivalent first quarter, you keep your LTM exactly in the same level.

Yes. Okay. I just wished to confirm that. And also, for the split between the divisions, for Fuel you reported on a FIFO basis 437. I know that we can find the equivalent for the first quarter '07, but is on LIFO basis. Do you have that number on a FIFO basis -- on a FIFO basis, sorry.

The first quarter of '07. No, we don't have the full number published because we don't have a quarterly pro forma published where everything is -- would mix together. But I think if you look at the first quarter financials you can see the operating income comparisons on an equal basis for each of the segments. So, if you look there, Tran, you'll see a good comparison first quarter to first quarter.

Because--.

--It won't be quite the same. You'll have to then look at the first quarter Lyondell Q--.

--Yes, because I look at that I think your EBITDA is $133 million. So, what kind of adjustment should I make to make it comparable?

What you'll have to do is you'll have to look at the LyondellBasell and you'll have to look at the Lyondell 10Q first quarter as well.

Yes, but--.

--There's not an easy way to make an EBITDA -- a full EBITDA comparison between the quarters.

Okay. But I tried to do that and, basically, it seems to me that the Chemicals EBITDA has quite strongly declined from the--.

--What I would maybe--.

--From the (inaudible) to '08.

Well, I think that's very much true because, as you look at those charts on ethylene, you see the pressure from the raw materials and how that has impacted. That's where you're seeing a quarter to quarter impact across products, or the majority of it, the bulk of it. You can also see when you look at the refining and ETBE charts first quarter to first quarter, you can see the strength of the first quarter of '08 relative to the first quarter of '07. And then if you look at the polymer charts first quarter to first quarter you can see basically a steadiness in the spread. So, I think you're thinking exactly right. Refining is stronger year on year. Chemicals is weaker. You can see, though, it's basically primarily in the ethylene area and primarily US ethylene naphtha. And Polymers is kind of roughly the similar industry market performance year on year.

Okay. So, basically a 50% decline on the Chemicals business adjusted pro -- EBITDA is--.

--Well, I don't know if I have the numbers to say that, but I think you can see that on the Chemicals chart, when you look at the cents per pound different in ethane margins and in naphtha margins. And if you think about it, out of roughly 13.5 billion pounds of annual production, a third is from US naphtha, a third is from US ethane and a third is from European naphtha. So, I think that gives you an idea so you can kind of look in to see where the changes would be.

Okay. Thanks very much. Also, in terms of the acquisition, what is your strategy going forward?

What acquisition?

Your -- any acquisition. What is your--.

--Oh, any acquisition--.

--Policy regarding--.

--Well, I mean, we're really focused at this point on bringing the companies together. As I mentioned before, the Berre acquisition and the Solvay Compounding acquisition in North America, those acquisition were planned a very long time ago and were already in process when we started working on our Lyondell and Basell merger. The plan going forward is really not for acquisitions. The plan going forward is to integrate these two companies and focus on cash flow and paying down some debt.

Okay. Thanks.

Our next question comes from Bo Hunt, Banc of America.

Hi. This is great. I get to get back on a second time. I was hoping you guys could talk about the propylene oxide business over the next three or four years. Are you saying -- are you going to see a wave of capacity additions similar to what you're seeing in for example the ethylene chain? Are you -- do you anticipate that's going to outpace demand?

No, we don't. We don't see a wave of capacity additions in propylene oxide. And we've posted our view of supply/demand and additions. But if you think of propylene oxide, it's an industry that's fairly well structured. There will be some capacity come on. That industry needs a plant -- roughly every 15 months or so it needs world scale capacity to be added. And if you look at the schedule as we know it and understand it, there's a reasonable schedule of additions.

We may see some decline. We've also forecast a fairly conservative 3% or so growth in those charts where, typically, growth has been 4.5% to 5% in propylene oxide. So, we may see it come off a percent or twos, but as long as propylene oxide stays around a 90% effective operating rate, plus or minus a percent or two, we feel pretty comfortable that you're in a pretty good zone. And that's what we see going forward, Bo.

Okay. Thanks. And then on the Technology side, I don't know how much detail you can provide, but on an annual basis what percentage do you think is coming from catalyst sales at this point?

Yes. We don't like to give too much of a breakdown on that, but--.

--But certainly it's more than half.

More than half. Okay. And in terms of the competitive dynamics, Doug. I know we've talked about this before, but could you just try and give us an idea of how long is a typical contract for these sorts of things? How much competition is there between various catalyst players?

For catalyst. It's not even so much that the contracts are a long time, it's that switching costs are very high for catalyst. There isn't that much of a third party market for catalyst except in the very commoditized areas.

But what happens is that if you're running your plant and you've got products that you're making to a certain spec, changing the catalyst means that you have to change the recipe and change everything, sometimes recertify the product. So, switching costs have been pretty high and we've been pretty good about not only retaining customers, but also successfully challenging other technology platforms with our catalysts. We believe that we do have a superior offering.

Okay. Thanks. And then I'll just give you one last question here. I don't know how you're going to answer this one. Your long-term plans for capital structure. Obviously, it's a pretty messy org chart right now. Anything you can tell us about your near-term or long-term plans to try and simplify that structure?

I think anything that we've said about that, it would have implications for various securities that are outstanding. So, I would prefer not to comment on that.

Alright. I thought I'd try. Thanks, guys.

Okay.

Thanks, Bo.

Our next question comes from Melinda Newman, Post Advisory Group.

Oh, hi.

Hi, Melinda.

Hi. How are you? A couple of simple -- when I'm comparing the filings that you did for Equistar and Lyondell, I don't see the purchase accounting adjustments in the MD&A. If I am trying to get -- separate US versus -- or Lyondell versus Basell Chemicals and Polymers, can I add the purchase accounting adjustments that you've given in the presentation to the Lyondell and Equistar numbers? Or are they presented pro forma for that? Do you understand the question, or--?

Are you talking about -- you're talking the inventory--?

--I'm talking about when I look at the MD&A and the Equistar and Lyondell 10Q--.

--Yes--.

--There's nothing in there about the effective purchase accounting. But clearly there's an impact--.

--Yes, the inventory write-ups -- now, of course, the adjustments we showed you were all to put it on a FIFO basis so that they all flow through. And I think we showed you what adjustments were in Chemicals. I don't have a split of how much of those Chemicals were in ethylene and therefore Equistar versus in propylene oxide and, therefore, Lyondell. So, I don't--.

--Okay. So the adjustment number that's in the presentation is -- you're showing the EBIT FIFO versus LIFO that I see in the financial statements that you filed. But the adjustment is just supposed to be purchase accounting, right? But I guess--.

--$107 million adjustment on--.

--Yes, yes. The two--.

--Yes, that's just the inventory purchase accounting. That's all that is.

So, if I go back--.

--That's the (inaudible) impact of writing up to market and--.

--Right--.

--And having it flow through in the first quarter.

So, I can assume that, if I'm just doing Equistar financials, I could add that back to -- it's some portion of propylene oxide--.

--(Inaudible) I don't have a percentage.

Okay. But it's -- it should be applied to Lyondell and Equistar.

Yes. You just have to remember that the Lyondell and Equistar--.

--It's FIFO versus LIFO--.

--Financials are LIFO--.

--And this is FIFO. I understand. Okay.

Yes.

Thanks a lot.

Okay. Thanks, Melinda.

(OPERATOR INSTRUCTIONS.) Our next question comes from Maryana Kushnir, Nomura Asset Management.

I'm sorry. I wanted to follow up on the CapEx question. It seems like the -- you started out with a fairly low amount spent in first quarter versus your $1 billion CapEx budget. And maybe you can comment why it's so backend loaded.

That's just sort of the nature of the beast. You wind up spending more in the later quarters of the year as the CapEx is released. It's usually seasonal like that.

Okay. And then regarding the European project, the Munchmunster facility, how much -- I mean is the whole amount spent on that project going to be included in that $1 billion CapEx, or is that just the net amount that is included in the -- the amount of the insurance that is included?

No, the whole amount is included, obviously, in the CapEx. The insurance is shown separately. We also have -- there's a little bit of spend that goes into next year as well. The bulk of it is this year.

And how much is -- are you going to receive in insurance?

I'm not sure if we've actually made that public at this point. But it's a fair amount of the cost.

And the $52 million you received this quarter that -- in proceeds, that's related to--?

--Yes.

Yes. That's related to that.

Okay. And you provided a fairly good outlook in terms of where different segments are going in terms of up or down. But could you kind of maybe talk a little bit more about fundamental reasons. What's going on with demand in Western Europe? In North America? Where do you see it going by different product?

By product. I mean, look -- it's obviously -- looking forward is difficult. And I don't think we have that much more insight in terms of demand. In terms of supply, of course, we do. We have a lot of visibility. In terms of demand, we read the same CMAI forecasts that you do.

We see -- I mean, what we see is similar to what Doug was talking about earlier, which is that you have in Europe pretty robust demand -- despite what people are saying about any possible economic downturn -- pretty robust demand. In North America you are seeing some softness. But again, it's holding up reasonably well, especially if you listen to -- or if you read the newspapers, the gloom and doom. People are still buying the products and you're still seeing the demand. So, we don't have a better crystal ball, though, than the economists and the consultants on that, I don't think.

Doug, you want to add anything on that.

No, I think that's true. We've seen a little bit of the volume metric softness, but that's not new in the US. We've seen it. Over the past couple of quarters Europe holding up. One of the things we're seeing is our advanced polyolefins. A lot of that is where you're positioned. And it's been holding up very well. And refining, of course basically we're a small part of a large industry. So, from our standpoint we'll basically run our refineries full.

But you can you think about operating rates of our products are typically kind of right now in the low 90s, I think. So, I think that gives you an indication of where things are. They've been in the low to mid-90% operating rates and that's kind of held.

Okay. Thank you.

Okay.

Our next question comes from Melinda Newman, Post Advisory Group.

Hi. So, I'm going to sound like a total idiot here and ask a really obtuse question. Can you -- if I just look at Equistar EBITDA, if I add back the purchase accounting it does seem like it was positive. I mean, I'm getting something like 76 for the first quarter of '08.

Yes.

Is that correct?

Yes. I don't know if I can--.

--On a LIFO basis.

Yes. I think you're doing the right -- you're taking the right actions.

Okay. I appreciate it. Thanks.

Okay. Thanks, Melinda.

We have no further questions.

Okay. Good. Well, thank you everyone for your attention and we'll look forward to talking to you next quarter.

This concludes today's conference. You may disconnect at this time. Thank you.