利安德巴塞爾 (LYB) 2008 Q2 法說會逐字稿

Hello and welcome to the LyondellBasell second-quarter 2008 earnings teleconference.

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

I'd now like to turn the conference over to Mr. Doug Pike, Vice President-Investor Relations. Sir, you may begin.

Thank you. Hello and welcome to LyondellBasell's teleconference.

I'm joined today by Volker Trautz, our CEO, and Alan Bigman, our CFO. I'd like to point out to everyone that a slide presentation accompanies today's call. It is available on LyondellBasell.com on the Investor Presentations page.

Now, before we 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. Actual results could differ materially from those forward-looking statements. For more detailed information about the factors that could cause our actual results to differ materially, please refer to LyondellBasell's consolidated financial statements for the year ended December 31, 2007 and the quarter ended June 30, 2008, which are available on the Investor Relations page of our Web site, www.LyondellBasell.com/investorrelations.

Please also refer to LyondellBasell's, Equistar's and Millennium's annual report on Form 10-K for the year ended December 31, 2007 and quarterly reports on Form 10-Q for the quarter ended June 30, 2008, which were filed with the SEC during August 2008 and each of which is available on the Investor Relations page of our Web site at www.LyondellBasell.com/investorrelations.

I'd also like to point out that a recording of this call will be available until 4:30 p.m. Eastern Time on September 20, and a Web replay can also be accessed at the Investor Relations page of our Web site, again at www.LyondellBasell.com/investorpresentations.

Now, I'd like to turn the call over to Alan for a discussion of our second-quarter results.

Thank you, Doug.

Please turn to Slide 3 and we will begin our discussion of second-quarter results with our safety record. As you can see, the Company has had a strong and improving safety record this year. Unfortunately, early in the third quarter, a tragic crane accident involving a contractor company occurred at our Houston refinery. 11 contractors were injured in the collapse of the 30-story crane, 4 fatally. We are cooperating with OSHA and our contractors to investigate the cause of this accident. However, it will be some time before we have a conclusive determination. Later in the call, we will discuss the event's impact on our turnaround work at the refinery, but most importantly, this incident reminds us all why the safety of our employees and contractors must always remain our first concern.

Now, let's turn to Slide 4 and look at the second-quarter financial results. For comparative purposes, we've included the second quarter of 2007 for the legacy companies.

As you can see, our EBITDA for the full company was $905 million based on the underlying US GAAP financial information and our reported inventory accounting basis. When using FIFO inventory accounting for the entire company, this increases to $1.5 billion, essentially equivalent to the combined EBITDA generated by Basell and Lyondell individually or during the second quarter of 2007.

As compared to the prior quarter, EBITDA increased by approximately $575 million with our Fuel segment demonstrating particular strength. You'll also note that the difference between FIFO and LIFO inventory accounting was very significant for this quarter due to the rapidly increasing feedstock costs that we had during the quarter.

The second quarter saw a spectacular run-up in hydrocarbon prices. Crude oil prices started the quarter at approximately $100 a barrel and finished over $140 a barrel. Similarly, natural gas and ethane, which are also important in our cost structure, increased by about 40% during the quarter. Later in the call, Doug will discuss how each of the key businesses performed under this cost pressure, and I will discuss the impact on working capital and liquidity.

As we did last quarter, on the bottom portion of this slide, we have highlighted some items that contribute to an adjusted EBITDA value. Among these, items such as the JV dividends and accounts receivables facility yield, will be recurring factors. However, the other item is unique to the period.

During the second quarter, operational issues at the Houston refinery impacted results by an estimated $118 million. This captures the lost opportunity cost related to the FCC mechanical issue, as well as the impact of a lightning strike that temporarily reduced crude processing rates late in the second quarter. After accounting for these items, the quarterly adjusted EBITDA is approximately $1.65 billion, slightly stronger than second-quarter 2007 performance of the combined legacy entities and approximately $575 million stronger than our first-quarter results.

If you now turn to Slide 5, we've summarized our first-half results. Adjusted EBITDA totals approximately $2.7 billion, which is essentially the same as the prior year's first-half combined legacy company results.

So what's behind these results? In summary, the business portfolio is working much as we had expected, with the commodity products performing in opposition to each other while the more specialized and niche products produce stable results.

Our fuels business has performed extraordinarily well, and this quarter benefited from strong results at our recently acquired French refinery. However, elevated raw material costs have pressured our olefins business and during the second quarter commodity polymer margins declined under pressure created by monomer cost increases. The less-commoditized businesses, including propylene oxide products, polyolefin solutions, advanced polyolefins in the technology business, have maintained relatively strong and stable results.

Now, I will turn the call over to Doug, and he will discuss these factors in more depth.

Thanks, Alan. Let's start by turning to Slide 6 and take a look at the Fuels segment. Now, as a reminder, this segment consists primarily of our refining and oxygenated fuels results. As Alan mentioned, beginning in the second quarter, results include the acquisition of the Berre l'Etang refinery at our large integrated site in the south of France.

During the second quarter, adjusted EBITDA reached $933 million, and each of the principal assets in the segment performed well. To provide perspective, the Houston refinery's adjusted EBITDA was approximately $630 million when including the opportunity cost related to facility downtime, or approximately $510 million without this.

Meanwhile, the French refinery contributed EBITDA of approximately $110 million, and oxyfuels EBITDA was approximately $185 million. Clearly, this is strong performance, which was countered to refinery industry trends.

Let's look at the areas individually. The Houston refinery benefited from strong spreads, as the Maya 211 benchmark averaged close to $36 a barrel, an increase of approximately $10 a barrel versus the first quarter and close to $5 better than the second quarter of 2007.

As you can see in the top bar chart, performance was driven by the strength of the heavy light and distillate spreads, both areas that differentiate our refinery from a typical light refiner. Additionally, you can see from the chart that, despite being in the driving season, gasoline spreads continue to be depressed. However, this impacts our refinery somewhat less than it does a typical light crude refiner.

Although its configuration is quite different than the Houston refinery, the Berre refinery was also well-positioned during the quarter. It's probably best to explain by considering an industry benchmark spread for the Berre refinery, and for this, we suggest that you monitor the Urals 4121 Spread. The digits in this formula relate as follows -- 4 barrels of crude are processed to produce 1 barrel of gasoline, 2 barrels of diesel, 1 of heavy fuel oil, hence the 4-1-2-1 nomenclature. The typical crude consumed by this refinery is the light-to-medium crude sulfur crude typical of refineries located on the Mediterranean. On the graph, we've provided a history of this spread, which averaged approximately $13.80 during the second quarter.

Now, to provide further perspective, during 2006 and 2007, this benchmark averaged approximately $8.50 per barrel. When modeling the refinery, I would suggest that you model the crude consumption to average 100,000 to 150,000 barrels per day, which is consistent with our second-quarter operation.

Now, the third key component of our Fuel segment, oxyfuels, also benefited from strong margins as plotted on the bottom chart. Oxyfuels margins are typically strong in the second quarter and this year was no exception. During the quarter, European ETBE raw material margins averaged $0.90 per gallon, an increase of approximately $0.45 per gallon versus the first quarter.

Looking forward to the third quarter, there are a couple of items that I'd like to discuss. First, specific to the Houston refinery, as we have started the scheduled turnaround of one crude train and coking unit. The work on the crude still is estimated to last approximately 7 weeks, while the work on a coker was originally scheduled for approximately 60 days. However, as a result of the crane incident, we currently believe the coker work will be extended to approximately 90 days. While the crude still is undergoing maintenance, our crude processing rates are planned to average approximately 150,000 barrels per day, and our current plan is to increase crude rates to full capacity once the crude unit returns to operation. We currently estimate the cumulative downtime to impact quarterly EBITDA by $100 million to $150 million.

The other item I'd like to mention has been a decline in crude price and refining spreads. For example, through August 8, the Maya 2-1-1 spread has averaged $23.25 per barrel, versus nearly $36 per barrel during the second quarter. However, refining spreads are seasonal, and this spread is consistent with the third quarter of 2007.

Now, let's turn to Slide 7 to discuss the Chemicals segment. Remember this segment includes our ethylene business, as well as our other chemicals, which include propylene oxide and its derivatives, acetyls, ethylene oxygenates and styrene.

Adjusted EBITDA in this segment improved by $65 million to $324 million in the second quarter versus the first. In the pie charts, you can see that the mix between olefins and the other chemicals shifted significantly between the quarters with approximately 60% of the EBITDA generated but olefins, versus approximately one-third in the third quarter.

Now, in our US olefins business, the second quarter was characterized by the rebalancing of the raw material mix, coupled with the pass-through of lower-cost inventories in a rapidly rising cost environment. During the quarter, we continued to shift towards a lighter feed slate, ultimately averaging 65% NGLs and 35% naphtha. This shift, coupled with the strength of co-product price increases and some supplier price concessions, helped us keep the increase in the cost of ethylene production metric in line with ethylene price increases, which averaged approximately $0.06 per pound higher in Q2 than in the first quarter. By maintaining our current cost base margins, we've positioned ourselves to benefit from the pass-through of lower-cost inventories and recorded significant improvement in FIFO-based EBITDA.

Now, ethylene -- our European ethylene operations were also subjected to significant cost pressures. As the quarter progressed, naphtha prices increased, while the key product prices were fixed based on quarterly pricing. This resulted in a significant decline in ethylene margins late in the quarter. Accordingly, results from the European operation declined by approximately $40 million versus the first quarter.

Following a very strong first-quarter, results in the other chemical products declined for a variety of reasons. In propylene oxide and PO derivatives, we experienced a moderate decline, driven primarily by the pace of raw material costs pass-through, while in acetyls, EBITDA declined to more typical quarterly levels following record first-quarter results. Although results for these products declined relative to the first quarter, they were essentially consistent with results over the past several years.

I'd also like to point out that our financials reflect PDI results as a discontinued operation. The sale of this business is pending, and we expect the transaction to close during the third quarter.

So looking at the third quarter, thus far, the Chemicals segment has benefited from declining raw material costs, while the majority of product prices have increased. As a result, business has been somewhat better positioned than it was earlier in the year.

Let's move to Slide 8 and take a look at the Polymer segment results. Polymer segment results declined from $327 million to $235 million, primarily due to lower margins. Overall margins declined by approximately $0.02 per pound with the reductions concentrated in the commodity products. This margin contraction occurred while regional ethylene and propylene cost increases ranged from $0.02 to $0.08 a pound versus the first quarter. Although commodity polymer margins declined, in general our polyolefin solutions and advanced polyolefin businesses maintain margins at or near first-quarter levels.

Volumetrically, we benefited from poly-propylene sales increases of approximately 5% over the first quarter, while polyethylene volumes were unchanged and advanced polyolefin volumes grew by approximately 12%. We attribute this sales growth to industry seasonality, our acquisition of the Solvay poly-propylene compounding business, and international sales strength.

Looking at the third quarter, thus far, polymer price increases have offset the significant monomer increases in both the US and European markets.

Now, I'd like to ask you to turn to Slide 9 as we discuss our technology and R&D segment. This segment includes our polyolefin catalyst business as well as our licensing efforts. The results in this segment have continued to be quite strong, realizing $80 million EBITDA in the second quarter.

Catalyst sales continued to account for 50% to 55% of the EBITDA, while licensing continued to show good results and notable among the recent licensing successes, our new polypropylene licenses with SABIC and PetroChina.

I'd now like to turn the call over to Alan to discuss our first-quarter cash flow and working capital before Volker wraps up the prepared comments.

Thanks, Doug.

If you turn to Slide 10, you will see our second and first-quarter cash flow statements. I want to point out a few items that led to a significant improvement in the cash flow versus the first quarter.

First, I would like to point out that cash generated from operating activities was $640 million versus a use of $239 million during the first quarter. To a significant degree, this improvement is driven by the absence of first-quarter, one-time and seasonal items. These consisted of transaction-related payments, as well as some seasonal payments, such as property taxes and customer rebates.

Also, note that cash used in investing activities declined significantly versus the first quarter. The first quarter reflected the impact of the Berre refinery and Solvay PCMA acquisitions, while he second quarter represents a more typical quarter with capital spending at normal levels. As a result, the second quarter represents a more typical spending environment and a good cash flow despite the extraordinary run-up in raw material costs.

Before I move to a discussion of working capital and liquidity, I would like to mention a few nonrecurring items that, in aggregate, may impact third-quarter cash flow. Significant among these items will be after-tax cash receipts of approximately $160 million from the TDI sale and a $65 million payment of from Reliant energy for a resolution of contract disputes, as well as some other possible positive cash items. Offsetting these will be a $375 million payment to Shell to settle Berre refinery inventory valuation adjustments.

Now, I'd like you to turn to the next page of the slide package, Slide 11, as we discuss our working-capital efforts. This slide depicts the key elements of our working capital for the first six months of the year. As we review this, I want to remind you that, excluding the Berre and Solvay acquisition and our cost-control efforts, a $1 per barrel increase in the cost of crude oil would typically increase our working capital by approximately $30 million to $40 million. That's of course on a FIFO basis. Therefore, since crude prices increased by $40 a barrel during the first six months of the year, you would expect to see a $1.2 billion to $1.6 billion increase in working capital requirements, all other things being equal.

As you can see, having the inventories on a FIFO basis and accounting for an Accounts Receivable program, the key elements of working capital did increase by approximately $1.4 billion. However, this includes the additional working capital from the acquisitions, as well as the impact of foreign exchange, which of course is a non-cash item.

On the right-hand side of the chart, we have eliminated the impact of these items. You can see that, on a consistent basis, working capital increased by only $470 million despite the $40 per barrel increase in crude oil. Our people accomplished this primarily through a reduction in receivables and inventory days outstanding. We've continued to work diligently in this area and expect to realize additional benefits during the coming quarters. Obviously, if hydrocarbon prices hold at today's level, or continue to decline, we would likely see a more dramatic reduction in working capital.

Let's wrap up the financial discussion with a quick review of our liquidity and debt positions. In the chart on the left on Slide 12, you can see that we have not only maintained our liquidity but increased it by approximately $700 million over the course of the year. In the chart on the right, you can see there the result of the acquisitions, working capital increases related to the increased hydrocarbon prices, and one-time items, our debt level has increased by approximately $800 million. Exclusive of these extraordinary events and items, net debt would've been reduced despite the unprecedented hydrocarbon price levels we have reached. During the second half of the year, we are focused on continuing to generate cash to reduce debt levels further.

I think that the first six months of operations have demonstrated the quality, flexibility and balance of the assets within our portfolio. We believe that the integration throughout the value chain has in fact reduced volatility in earnings very significantly. Also, this has demonstrated the creativity and skill of our people in a very difficult environment, as you can see with the working capital management that we have achieved, and also the ability of the organizations to come together very quickly to create value.

Now, I will turn the call over to Volker for a discussion of third-quarter business conditions and his thoughts of LyondellBasell's progress through its first two quarters.

Thanks, Alan. Let's finish the quarterly earnings discussion by turning to Slide 13 for a quick review of the first six weeks of the third quarter.

Much as it has all year, raw material volatility remains the dominant story. In Fuels, we have seen margin decline as crude oil has moved off its peak. However, all of the margins have declined relative to the second quarter. They are consistent with margins during the third quarter of last year.

Specific to our operations, work on the Houston refinery turnaround is progressing and as Doug mentioned, we estimate that the scheduled maintenance will reduce quarterly EBITDA by $100 million to $150 million. I want to add to what Alan said about the tragic events surrounding the crane collapse in July, and thank our employees for all that they did in managing the difficult situation. We know that nothing is more important than their health and safety.

Turning to the past six weeks also in our chemical business, the olefin area is finally benefiting from some cost relief, but I should remind you that, while the price of crude has declined, it still remains quite high. In fact, it is still above the April price. Polyolefins is benefiting from some cost relief. Our other chemicals and polymers are passing through the recent ethylene and propylene price increases. In propylene oxide, we expect the normal lag in the timing of raw material cost pass-through by polymers price increase (inaudible) generally offsets the monomer increases maintaining margins at or near second-quarter levels. Finally, our technology area has continued its strong performance.

Now, I would like to step back a little and reflect on our first few quarters as LyondellBasell as a new company. It certainly has turned out to be an interesting time to form a new company. Think about it for a moment. Who amongst us would forecast that we would achieve flat year-on-year results given the global economic environment and increased price of crude oil? In some ways, these external pressures have heightened our intensity and focus, and they have also demonstrated the value of our broadened portfolio, geographic reach and vertical integration. In other words, the rationale of our merger has already been proven in the first couple of weeks and months.

Internally during our first month, together we have accelerated the integration process and we have continued to identify and capture synergies as it brings the legacy companies together as a stronger, integrated global company. Given the environment, I'm very pleased with the results that we have achieved during our first six months.

Let's take just a few minutes to revisit the factors that drove the merger and see how they've played out so far. First, let's consider our desire to advance the portfolio's integration and balance while participating up and down the vertical value chain. Given the performance of the Fuel segment over the past two quarters, I think that it is quite clear that we are benefiting from the portfolio additions. When you contrast the pressures experienced by the olefins business to the strength we've seen in the Fuel area, the value balance we see in our portfolio is very evident. We have also continued to benefit from our position in less commoditized products such as propylene oxide, advanced polyolefins, where results have been quite steady in an otherwise volatile market.

We also saw improved geographic balance in our portfolio. It is quite evident that we already have been the beneficiary of strength in developing regions, which has helped offset weakness in developed regions.

In bringing our organizations together, we also believed that we would benefit from the broader, more global experience and skill of our diverse employee population. Again, I believe that this is working. Certainly, our US experience in fuels and refining is helping as we integrate the Berre refinery. Our scale and product breadth, coupled with the expertise and relationship of our technology group, has opened doors to opportunities that may not otherwise have been available.

It is obvious too early to determine how this will play out, but opportunities are developing, should we elect to pursue them.

I know you also want to hear about the integration process, and I'm very pleased that it is progressing well. As such, a few weeks (inaudible) we have already consolidated some office locations and rationalized some high-cost polymer capacity. We also are capturing value by identifying, pursuing additional synergy opportunities. We have more than 20 teams pursuing the opportunities and we recently extended the initiative to advance an energy savings program across the organization. Examples of our early success include savings approximately $15 million annually by moving production of several products from Europe to US polyethylene facilities.

As another example, within our financial and IT areas, we will save approximately $35 million annually by combining outside service contracts and insurance coverage.

Overall, we are well ahead of our 2008 net savings target of $45 million, and I expect that we will more than double the target before the year is finished. Additionally, personally, I'm confident that we will exceed our long-term target of $420 million annually, substantially.

Investors have also been very interested in our licensing and joint venture efforts. Progress has been great. We have recently brought the Michigan expansion online, and late this year and early next year will highlight by the new Saudi adventures. Our partners' employees have worked very hard and successfully to manage the project spending and schedules in a very difficult Middle East construction market.

Additionally, as you heard earlier in this call, we continue to win new licenses and are very excited about the recent SABIC and PetroChina contracts.

So to summarize, while the external events have created significant challenges, I'm very proud of our results and progress. Like most executives, I always want things to move faster. However, I also realize that the Company is progressing very well.

With that perspective, I would like to thank you for your attention and support. Operator, we will now take questions.

Thank you. We are now ready to begin the question-and-answer session. (Operator Instructions) Bo Hunt, Banc of America Securities.

By the way, thanks for the detail on this presentation; it's pretty helpful.

You mentioned that results at PO and derivatives business was negatively effect during the quarter by rising raw material costs and some maintenance. So I guess my question is two parts, if that's all right. First of all, should we expect to see that raw materials spike is going to be offset by price increases in the third quarter, and that therefore your propylene oxide results might be similar to first-quarter levels?

Bo, this is Doug. I think propylene oxide acted as it typically does, where, as propylene moves up, it will passed it through with -- typically and sometimes contractually with a one-month delay or so. But I think really what I wanted you to understand is that trend is continuing, and I would expect it will into the third quarter. There's no reason to think it won't. So as propylene moves up, you'll see margins temporarily decline a little bit. On the other side, though, if propylene moves down, you'll see the propylene oxide business hold that for a time.

Okay. Then is it possible to quantify the EBITDA impact of the maintenance you discussed, or is that not material?

It was really just in the $10 million sort of range.

Okay, that's helpful. Then just to touch down on Berre a little bit more, obviously I guess the results looked much stronger than I thought they were going to be for the second quarter, given the fact that I think you mentioned they did about 100 million of EBITDA last year. You know, refining margins of the Urals 4-1-2-1 remains at current levels, a little down from Q2 but still strong. Should we anticipate that Berre would post an operating income similar to what it did in the second quarter? A little low, but --?

This is Alan. The Berre results have been quite gratifying, and sometimes you are surprised of the upside in an acquisition.

Obviously, the refining margins have been particularly strong in the 4-1-2-1 spread. There were also some benefits from the working capital that we had acquired from Shell at March prices that were sold at second-quarter prices, which was quite beneficial.

But the $100 million run rate that we had originally discussed does seem a bit conservative now that we have the refinery and are more into the details, so I think we do have a bit of a surprise to the upside on that.

Great, it's good news. Then in terms of your ability to continue to ship your North American olefins feedstock fleet towards NGLs and away from NAFTA, where does that top out?

You know, our guys -- I don't know if we can say where it tops out. Our guys continue to find new ways to put more flexibility into the system, so we are continuing to work on that. But you know, we've always said before, about two thirds naphtha or two thirds NGLs is kind of the range. I think we will be able to push that a little bit further beyond that with time. Of course, the key is to be flexible there, because olefins raw materials in the US and which is the favored material has been moving around pretty quickly here.

I think the key word here is clearly "flexibility", because if you look back a few years ago, everybody was on (inaudible) the name of the game in North America is heavy feed dragging. Now everybody is convinced light feet dragging is the order of the day, so what is in reality is required is flexibility. And we are hard working to increase this flexibility.

Okay, great. Then sorry, I'm going to ask you one last question. Doug, I know you and I have talked about this before but I might as well take advantage and ask everybody. It looks like the spread between WTI crude oil and Maya crude oil has tightened recently with the fall in oil prices, just as it expanded when oil was rising. You know, is there anything just besides the movement in crude oil prices that you see causing that relationship to tighten?

I think you have that movement, and you have heavy fuel oils in their price, you always have a component of heavy fuel in the pricing for the crude, so you've seen some movement up in Number Six.

Also, when you look at this whole Maya 2-1-1, you've also recently seen some adjustments where gasoline has improved, diesel has come off a little bit. But when you pull back from all of it and you look at $23 Maya 2-1-1, that's a pretty good spot to be in at this time of year. So we feel pretty good about where we are and the way it's working out.

Understood, thanks.

Laurence Jollon, Lehman Brothers.

Good morning. On the last call, you had said, I believe, if my notes are correct, that you're not interested in sizable acquisitions at this point. I know acquisitions are always challenging to discuss on a public call. You know, there have been some rumors in the press, whether right or wrong, that Lyondell is looking at some captive businesses of larger chemical businesses.

Can you just provide us an update on your thoughts around acquisitions and if you did find the right opportunity, how you would think about leverage pro forma if you're comfortable with leverage levels now or you are willing to go higher and if access would be willing to put in equity for the right acquisition?

We don't comment rumors, but what we always said, we are not going for a major acquisition at this moment. So if there are rumors around, we don't comment them but probably you refer to rumors that our shareholder was involved, but rumors are rumors. We have no intention to go for a major acquisition at this point.

That's right. I think I would just also comment that the Company is focused on integrating the businesses that we have now. We very much like the asset footprint, and really the key focus is to concentrate on the balance sheet and to bring down debt levels at this point.

Just as a reminder, the two acquisitions Alan referred to and Doug referred to, Berre refinery and the Solvay compounding business, they were already underway for more than a year before we merged the two companies, so it simply coincided with the third quarter but it was not something we triggered after we brought two companies together. It's only something we finished after we brought the two companies together. As I said, it was more coincidence.

Thanks very much.

Edison Wong, Trust Company of the West.

I had a quick question on your shutdown with the coker being down this past quarter. Was that correlated in some ways to the crane incident and sort of what provisions you have in terms of insurance on sort of what -- the event that occurred?

Hi, Edison, this is Doug. I will start with we had a scheduled turnaround maintenance, which is the units that are down as an event that takes place about every five years.

Right, I remember that.

(multiple speakers) one train in the crude still and one of our two cookers. So that was all scheduled and underway; that's why the crane was there.

With the crane incident, though, we are going to have to approach the coker in a slightly different way. That's why we said we were extending the turnaround and maintenance time for the coker from an originally planned 60 days to a 90 day time frame.

The work on the crude still is continuing, as originally planned, so we will move forward with that under the original schedule.

I believe, as Doug had mentioned, the opportunity cost of having the coker down for longer than we expected for the turnaround, simply because of the different way we are going to have to handle that turnaround without having a crane, the issue simply being that there are very few cranes like that in the world and losing this crane -- we have to do a different way, is going to be the tens of millions of dollars.

It's probably not easy to talk in this way about the incident, but first of all, as I already mentioned before, our team had an outstanding performance, but we have to recognize that we are lucky with the incident. First of all, we had considered already beforehand two different ways how to go through the maintenance with the coker, so we had already two alternatives and only the one with the crane looked initially a little bit cheaper and better. Unfortunately, we had now, due to the tragic incident, going in a different direction, but fortunately -- sorry to say "fortunately" -- we have a fallback position. It costs a little bit more money, it takes a little bit more time, but at least we are able to proceed as originally planned and only the difference is the one Alan mentioned before.

Thanks, I appreciate it. Sort of in terms of -- is there an insurance value you guys have against this as well?

The opportunity cost of having the coker down a little longer will not be covered by insurance, so that's a (inaudible) we are going to have to bear.

(Operator Instructions). David Troyer, Credit Suisse.

I was wondering if you had some of the numbers for the third quarter of 2007. We have Basell and Lyondell. Of course, the merger wasn't completed by then. We have Basell and Lyondell reported EBITDA numbers. I was wondering if you had some of the items that go into the adjustments.

For the third quarter?

Of 2007, so as we begin to formulate views on third quarter 2008, we can think about how the year-over-year changes.

No, I apologize but I don't have that at my fingertips right now. But what I think, what I refer people to is the earnings releases from both individual companies are available on our Web site, so you could refer back to those and go through there. It won't give you segment-by-segment results because of some of the changes within the segments, but it will give you the historic EBITDA that you can look at for the third quarter. It will also give you a picture of any type of events or special items that may have occurred last year in the third quarter.

Although I think, if you're thinking about modeling the third quarter this year, the most significant thing is going to be, or seems to be at this point, since we aren't done with the third-quarter, that in many ways it's a mirror image of the second quarter with rapidly declining feedstock prices instead of rapidly increasing. So a lot of the impact you saw in the second quarter that were quite extraordinary in some ways will tend to reverse themselves in that kind of a feedstock environment.

Okay. The second question is -- and maybe and you began to address this, Doug -- we've always used Mayan spreads as a proxy because there's not very good transparency on Venezuelan. You know, rapidly changing price environment -- does that relationship still hold or might there be leads and lags in how your actual purchased crude changes?

No, that would still hold. Venezuelan crude relative to Maya crude would hold up and typically the differences are less than $1 or so, so you should be very comfortable using that metric.

And they change real-time to you?

Yes, you are following the same things and the same fuel markets with heavy crude there, so --.

Okay. Then last question is the $2.8 billion of liquidity, do you have a breakdown of the various sources of liquidity, were they come from?

We do have a breakdown. I don't have it right in front of me now, but it consists of undrawn revolver; it consists of undrawn asset-backed facilities; it consists of cash. But it's all readily available.

Okay, that's all I had. Thank you.

[Piresh Shah], Princeton Advisory Group.

Thank you for such a good presentation. I just wanted to understand this change in working capital again a little bit, and also just to understand the increase in the liquidity business result. Do you mind just going over the change in working capital again one more time for me?

Okay, basically what happens is, everything else being equal -- with no FX impact, which obviously is non-cash; it just changes the value of payables, receivables and inventories -- and taking out the acquisitions which added working capital inorganically, we've said that basically since most of our inventories and receivables and payables are denominated in hydrocarbons, in other words we either have hydrocarbon feedstock or finished products whose prices are largely based on hydrocarbons, increases in hydrocarbon prices -- and we use crude as the one that most people monitor -- result in an increase in working capital.

What you've seen here on Slide 11 is we've taken -- you threw that, the Accounts Receivable increased and the inventory increase, and you see the difference between LIFO and FIFO inventory there. And then the accounts payable compensating that, that also tends to increase with the hydrocarbon prices. That's where you get the net increase in working capital.

We've normalized out the additional working capital for the Berre acquisition, which is working capital we got as part of that deal, and the Solvay engineered plastics, a smaller number but still additional working capital. FX impact is simply the increase in value due to the strengthening euro, because European inventory is denominated in euros. That gives you the actual cash change in working capital, normalized out for the acquisitions, of less than $500 million as opposed to what we would've expected, $1.2 billion to $1.6 billion increase with our rule of thumb of $30 to $40 million of working capital per $1 of crude increase.

Now, that of course works the other way around as well. As you see hydrocarbon prices decline, everything else being equal, we should see a reduction in working capital.

Does that answer your question?

Yes, it does, it does. Thank you.

More in different words, when we saw the up-flying oil prices, we really had a couple of groups working extremely hard and creative to smooth down to reduce the impact of working capital. As Alan explained, instead of $1.5 million or $1.6 billion, the impact could be limited to less than $500 million and I think that was really outstanding, and I'm very proud what the teams and specifically the chemicals team, where it was predominately focused, did in a very short period of time. It was great; it was really outstanding, outstanding achievements.

Okay, thank you.

[Sanon Curran], with Barclays Capital.

Good morning. In your financial report, you mentioned that you banks actually had some increased rate under your bridge facilities, 12% per annum, and I don't think that was supposed to be happening right now. So I don't know if you are able to, but can you comment on what is exactly happening with the banks? And in light of these events, any color you can share with us in terms of timing to refi this bridge? Thank you.

That's a good question. We agree with you that the rate shouldn't be 12%, and we've said that in our financial statements.

Basically, what happened is as follows. Normally, the way this would have worked is that we had a bridge financing set up that rolls in the year into exchange notes; that's the standard way you do it in a leveraged finance deal like this.

In more normal financial markets, we probably wouldn't have gone into the bridge at all. We would have issued securities in December of 2007 to finance the deal and we would right now have $8 billion of bonds instead of $8 billion of bridge loans.

Yes.

But the provisions have it that there is a 6-month bridge loan where -- actually a 12-month bridge loan with a 6-month security demand holiday, after which the banks can then issue a securities demand and we have to then issue securities if of course there's a market for them.

So what's basically happened was that the banks believe that in June -- and by the way, in our financial projections, the way we thought about it, there is a cap of 12% or 12.5% under certain circumstances. We've modeled that into our projections as we think about it, from June forward, for this reason. However, however, without having actual securities issued and without having issued a securities demand, we do not believe that the banks have the right to reset that to 12%.

They've used a very interesting tranche mechanism to achieve that 12%, which we are disputing. In the meantime of course, we continue to pay the interest because we certainly don't want to be in any kind of a legal dispute on that with the banks, so we are paying that but we are very confident that our position is correct here and that ultimately we will be paying less than that 12% interest.

Does that answer the question?

Yes, thank you very much.

David Rosenberg, Oak Tree Capital Management.

I was wondering if you guys could give me a little more granularity on the $118 million add-back that you have for the downtime at the refinery, as far as what was for I guess more maintenance-related downtime, what was for more I guess unique, one-time type of downtime?

Sure, David, this is Doug. That $118 million is related to unique, one-time downtime. You recall, in the first quarter, towards the end of first quarter, we had a mechanical upset in our fluid unit, which continued into the second quarter. So the majority of that $118 million is related to fluid unit operations and the lost opportunity of having it down throughout the early part of April.

The other piece of that is, late in the quarter when we had a storm here in Houston, lightning did strike our crude pumps, on one of our crude (inaudible). That brought that down for I guess about a week or so, four or five days. So that had an additional impact. The majority of that $118 million is related to the fluid unit, and it was related to a unique mechanical issue.

So none of this is tied to a planned turnaround?

No. The turnaround, the turnaround was planned as a third-quarter event. It did begin at the onset or beginning of the third quarter.

Bo Hunt, Banc of America Securities.

One follow-up -- you already answered most of the other stuff, but regarding your joint ventures, can you provide any guidance on maybe we might see the SEPC and (inaudible) joint ventures work through their project financing and begin to pay dividends? I'm sure I just missed mispronounced (inaudible) but --.

Well, may I start here answering? Most of the joint ventures and most of the activities and most of the investments in the Middle East are slightly more or substantially delayed. In this respect, we had a very fortunate situation that we had a window of opportunity at the time to close our financing and to close contracts, so we are probably one of the few examples which are the exception from the rules.

Our (inaudible) joint venture will come on stream in the next couple of weeks. We will start with a (inaudible) in the next weeks and we will start deliver the first polyethylene material in two months or so from now. So both (inaudible) joint venture are progressing very well. So we basically don't have delay and we also don't have overruns in the budget, which is nearly a miracle at this period of time in the Middle East.

Okay. Maybe I missed it there, but given where margins are currently out of similar assets in the Middle East, could we have an idea on how long it takes to get to dividend payments? (multiple speakers) --

Your question is very correct on that one. It obviously depends on oil prices. The higher the oil price -- because you are dealing with fixed feedstock prices, or not fixed but significantly discounted and the discount increases with the price of oil for some of those materials -- you wind up with much faster repayment of project financing, easier refinancing, the higher the oil price is.

I would think, in this kind of an environment, certainly you're not going to see dividends in 2009; it's too soon. But 2010, if you have this kind of oil price environment, it is possible that you would be able to refinance that project finance.

It also depends a little bit on what financing markets look like in 2010. But I would say 2010 at the earliest, 2011 to be more conservative.

But Alan (multiple speakers) benchmark what happens with SPC. In SPC, we basically got the first dividend after 1 1/2 years, less than 2 years, no?

Yes, that's correct, Volker. That's the benchmark that we're using here. Again, in this kind of oil price environment, you have a very, very strong cash flow and profitability scenario. The only thing that might make it a little bit slower than SPC was -- is what the state of the financing markets will be at the time.

So I would say, again, 2010 on the optimistic side, 2011 I would think at the latest in this kind of an environment.

Obviously, if crude prices drop to $40 or $30, you're going to have a different cash flow scenario, but things will look different in a lot of areas if that happens.

Yes, that would be nice! Thanks, guys.

We have no further questions.

Well, thank you, everybody, for joining us today and we appreciate your support.

Thank you very much.

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