利安德巴塞爾 (LYB) 2010 Q1 法說會逐字稿

Hello, and welcome to the LyondellBasell 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 would now like to turn the conference over Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Hello, and welcome to everyone to Lyondell's first-quarter 2010 teleconference. I'm joined today by Jim Gallogly, our CEO; and Kent Potter, our CFO.

I'd like to point out that a slide presentation accompanies today's call and is available on our website, www.LyondellBasell.com.

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. These forward-looking statements are based on assumptions of management which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. Actual results could differ materially from those forward-looking statements.

Now, for more detailed information about the factors that could cause our actual results to differ materially, please refer to the disclaimer notice of the presentation slides and our financial reports, which are available on www.LyondellBasell.com, Investor relations.

I'd also like to come point out that a recording of this call will be available by telephone beginning at 2.30 p.m. Eastern Time today until 11 p.m. Eastern Time on June 7 by calling 800-677-9149 in the US and 203-369-3408 outside the United States. The pass code for both numbers is 6345.

I'd like to thank you for joining us today in our first quarterly earnings review following emergence from Chapter 11, and clearly these are exciting times for LyondellBasell, and we look forward to a new beginning as a public company.

But given that our company was still in bankruptcy during the first quarter, we will use a transitional format as we evolve from our previous monthly calls, which were targeted towards our DIP lenders and debt holders. On today's call we'll focus on the first-quarter performance of each of our five business segments and the trends that we are seeing for our businesses.

And the reporting schedule dictates that our results reflect the company's financial statements prior to emergence, and therefore they will not reflect the impacts of fresh start accounting or our new debt structure. Nevertheless, today we can convey the status of the business and our industry views, as well as key elements of the new company.

Now I would like to turn the call over to Jim.

Thank you for joining us today for the first of our regular quarterly calls. These are exciting times for LyondellBasell, and we look forward to a new relationship with the financial community.

I hope that you've had an opportunity to visit our website, where we have posted an overview presentation and other disclosure items. These documents, coupled with today's call, will help equity investors become familiar with their company and the many actions we have taken over the past year to improve its performance in preparation for emergence.

We won't have time to present the full story of this transformation today, but we do want to highlight certain items to provide a framework for your consideration of the new LyondellBasell.

If you turn to page 3 of today's presentation, I'll try to quickly orient you and perhaps pique your interest in the company.

Beginning on the top of the slide, we provide some visibility of our scale and diversity. We are the third largest chemical company in terms of revenue, and our operations offer significant diversity in terms of product lines, market, technologies and geography.

We also are a market leader in a number of our product lines, with outstanding positions in industry league tables.

Although we largely participate in commodity businesses, we also have segments which benefit from a degree of differentiation with steadier earnings profiles. Over the past several years these differentiated businesses have delivered close to $1 billion of annual EBITDA, regardless of economic climate.

While our restructuring did not significantly alter our business mix or geographic footprint, we have been actively restructuring the company on a number of fronts, and we speak to you today as a very different entity. I'll quickly summarize a few of the key points of our transformation.

First, we have rationalized approximately 4 billion pounds of capacity. These are typically fourth quartile assets and product areas for which we have multiple facilities and can prove our results by shifting production to more efficient assets.

Second, we have reduced our fixed costs by about $1 billion by eliminating layers in our organization, reducing headcount by close to 15%, and taking other cost curbing actions.

Third, we emerged from Chapter 11 process with significantly reduced legal and environmental exposures.

Fourth, our balance sheet has greatly improved following emergence, with net debt of approximately $4.4 billion.

And finally, we have a new management team and a new performance culture. We are a company that is advantaged by its strong technologies, quality assets and skilled workforce. We are certain that this will be evident to you as we become better acquainted over the coming quarters.

If you would now turn to page 4, let's look at first-quarter results.

You'll see that we began our new corporate life on a positive note. First quarter results were very good, as we generated $640 million of EBITDAR.

While almost all of our segments exceeded expectations, the true strength of the quarter came from our US ethylene business. This was complemented by strong results in propylene oxide and our global polypropylene compounding business. We also saw improvement in our refining and oxyfuels segment as the quarter progressed. In fact, looking across the quarter, March represented close to half of the EBITDA.

The trends that continued to -- that contributed to a strong March performance generally continued through April.

If you will now turn to page 5, you will see our year-to-date safety metric.

Our personal management style centers on accountability, constant performance improvement, measurement and benchmarking. Safety is no exception. No employee should be injured while doing his or her job. And we have found that excellent reliability and safety go hand in hand to create industry-leading results.

This slide shows that while we have not yet achieved our targeted year on year improvement, we have maintained top quartile performance.

We believe that our focus will ultimately lead us to achieve a goal of zero incidents and zero injuries.

I should also mention that this metric is a key factor in our companywide annual bonus program. Our targets under the program focus on safety, cost reduction and profitability benchmarks.

I've used a similar program in the past, and I am confident that measurement focus and reward will lead to excellent performance.

At this time I'm going to turn the call over to Kent to provide an overview of our results and some of our key financial metrics. I'll return after that for a brief review of each segment and to answer your questions.

Thanks Jim. Thank you all for joining us today.

Before I begin, I'd also like to personally thank all of you for your support over the past months. The company certainly has been given a second life through the support of the financial community, and we intend to seize this opportunity to reward your patience and confidence.

Let's begin the financial review on page 6, which summarizes our first-quarter EBITDAR results by segment.

As Jim mentioned, we posted a strong first quarter, with most of the strength attributed to our chemical and polyolefin results. However, as you will hear during Jim's discussion, there's quite a bit more behind the results.

For example, when you begin to peel back the layers of detail, you will see how performance strengthened over the course of the quarter, and profitability shifted from polyolefins to olefins.

Before I go any further, I'd like to address the inventory methodology reflected in these results. Throughout our time in Chapter 11 we reported on an inventory basis that we referred to as current cost. In general this is similar to LIFO inventory reporting, which we will use for all future reporting. Both methodologies attempt to match current revenue with current cost and eliminate gains during periods of rising raw material costs, such as would be seen under FIFO accounting. Essentially our product cost increases are expensed rather than reflected as increased inventory value on the balance sheet.

I also want to point out that the operating income report in this panel does not include the fresh start accounting. This -- I raise this because going forward our income statement will be significantly different.

For example, our current pro forma estimates show that depreciation will decline by about $200 million to $250 million quarterly. With those reminders, let's move to page 7 and our first-quarter cash flow.

Cash flow for the quarter was limited by several factors, some related to the markets and others to the timing of payments and our Chapter 11 costs. From a market perspective we experienced an increase in working capital, as our receivables increased with increasing prices. This was not significantly offset by an increase in payables, because during Chapter 11 our access to trade credit was severely limited. Also inventory volumes increased late in the quarter, principally due to the timing of some crude receipts and oxyfuel product shipments.

First-quarter cash flow was also impacted by our Chapter 11 filing, as we continued to pay restructuring costs, primarily related to legal expenses.

Finally, our first-quarter cash flow includes typical annual payments for several items, including property taxes, annual employee bonuses, customer rebate payments and the like. These totaled approximately $250 million during the quarter.

Let's move forward to page 8 and take a closer look at the components of working capital and our liquidity.

In working capital you can see the $270 million increase in the receivable payable balance, driven by the lack of trade credit or an increasing cost environment. Inventory data reflects the increase in volumes related primarily to the previously mentioned shipments.

On the right-hand side of the page you can see the impact on liquidity, as we finished the quarter with approximately $1.8 billion of available liquidity. Of course following emergence we have completely restructured the balance sheet and have significantly more liquidity.

Please turn to page 9, as I'd like to highlight a few additional financial parameters, summarize some of the points I've mentioned, and add a few comments regarding our future accounting.

With respect to capital spending, our annual plan includes approximately $1 billion of spending during 2010. This includes costs for our major plant maintenance turnarounds.

During the fourth quarter our spending fell somewhat short of this pace, but we expect capital spending to be close to our plan levels for this year. But we will continue to look at every opportunity to improve on both the effectiveness and the efficiency of our capital spending.

Cost reduction and control is fundamental in our new company. We've made tremendous progress during 2009, and we will continue to advance this effort this year. For example, during the first quarter we further reduced headcount by 220 employees, bringing total reduction since mid-2008 to over 2,500, versus an ultimate target of more than 3,000.

Jim previously mentioned that we have rationalized significant capacity. During the first quarter our efforts continued, as we announced our intention to discontinue propylene production at our facility in Terni, Italy.

Additionally, we continue to reduce costs throughout the corporate support functions.

Looking to the future, I'd like to make a few comments that I think will help you evaluate the company.

First, beginning this month our interest expense will decline remarkable as our capital structure includes materially less debt, about $7.2 billion versus the more than $25 billion immediately prior to emergence.

A quick estimate of our quarterly interest expense is about $160 million, versus the $411 million during the first quarter.

Another charge will be the depreciation expense, as I previously mentioned.

From a tax standpoint, the impact of bankruptcy will be to lose the majority of our US tax attributes, such as our NOLs and our depreciable asset basis. However, this will not occur until 2011, and we don't expect to be a large tax -- cash taxpayer in 2010. In fact we have significant refunds, which we hope to receive either during the latter half of this year or early 2011.

In Europe our tax position will not change, as the bankruptcy did not impact our European tax attributes.

Finally, we have emerged from bankruptcy with more than $3.5 billion of available liquidity, including more than $2.7 billion of cash at present. And we are aggressively pursuing efforts to reestablish our trade credit, which when achieved should add approximately $600 million to our liquidity.

I hope these comments will help you assess our post-emergent position. And with that I'll turn the call back to Jim.

Let's quickly step through a summary of first-quarter results for each of our businesses, beginning with pages 10 and 11, which address the key results for the olefins and polyolefins Americas segment.

As I believe most of you already know, the key strength in this segment was in the olefins area late in the quarter. This strength was largely driven by industry supply disruptions, both planned and unplanned. Fortunately our operations were strong throughout the quarter, and exclusive of the impact from our planned Corpus Christi plant turnaround, which occurred early in the quarter, we were the beneficiary of the temporarily tight market conditions.

However, I don't want you to think that we just relied on market improvements. We very actively managed our portfolio, significantly shifting both our raw material and sales mix to take advantage of opportunities wherever possible.

Overall, compared to the fourth quarter, our cost of ethylene production metric increased by $0.01 per pound, while our as ethylene sales price averaged $0.04 per pound higher than the fourth quarter. Given our volume leverage with close to 10 billion pounds capacity, this was obviously a substantial driver of our profitability.

Of course when monomer prices increase rapidly, polyolefin margins are pressured. The first quarter was no exception. Despite implementing $0.18 per pound and announced price increases, polyethylene margins were squeezed throughout the quarter. While demand was solid, we elected to step away from incremental polyethylene export opportunities in favor of domestic ethylene sales.

In polypropylene, prices tended upward as propylene price increases were passed through.

Early second-quarter conditions were consistent with the strong March environment, but we now have seen spot olefin prices soften as competitor capacity has come back online and the markets are beginning to balance.

As monomer prices moderate, we have seen some shifting in margins from olefins to polyolefins products. Within our own operations, we now have our Morris, Illinois operations down, continuing into June, for scheduled maintenance activities.

Please shift your attention to pages 12 and 13 and our Europe, Asia and international olefins and polyolefins segment.

First-quarter results were better than expected. However, the distribution of earnings across the product chain was very different than in the Americas segment. In general, profits were realized further down the chain than in the Americas.

For example, the olefins products operated near breakeven, with butadiene being the key positive contributor. Polyethylene and polypropylene product lines were able to pass through monomer prices increases, posting reasonable results.

Our global polypropylene compounding business was able to also pass polymer price increases through to the market and had very strong volumes.

Looking to the second quarter, the industry has experienced moderate olefin price increases in ethylene and propylene. This has provided some margin expansion, and polymer price increases have slightly exceeded the monomer increases.

Our sales volumes have generally held stable, near March levels.

If you now shift your attention to page 14, I'll briefly address performance in our intermediates and derivatives segment.

The results in this segment were good during the first quarter, led by strength in the propylene oxide chain.

A number of factors contributed to improving sales volumes. Among these were increased demand in durable product end uses, seasonal de-icer demands, and planned and unplanned downtimes at competitors' facilities.

Our C4 chemical products benefited from a combination of strong volumes and margins.

Conversely our acetyl results were pressured during the quarter as a result of both raw material price pressure and poor reliability early in the quarter.

As we progress through the second quarter, we anticipate that some of the volume strength will moderate due to the absence of seasonal de-icer demand and the return of competitor production to the market. Having said this, growing durable goods demand will likely moderate the impact, and we expect continued good results.

If you now turn to pages 15 and 16, we will discuss our refining and oxyfuel segment.

This segment operated with near breakeven EBITDA during the quarter, which was little change versus the fourth quarter. However, as the quarter progressed, the Maya 2-1-1 crack, which is the key publicly available metric that we monitor to predict Houston refinery margins, increased from $14 per barrel during January to $20 per barrel in March. This general trend has continued into May.

However, we are not waiting and hoping for the market to drive improvement at this facility. We have been an active purchaser of distressed off-spec cargoes, and our operations have improved of late. We are running close to our stated 268,000 barrel per day capacity at present.

At our French refinery, our benchmark metric increased only about $1 per barrel. This moderate improvement, coupled with maintenance at the site, resulted in a continued loss near the levels that we experienced throughout 2009.

The oxyfuel business typically is a weak performer during the winter months, and the first quarter was no exception, as margins generally followed seasonal trends. Importantly, margins improved significantly during March with the ETBE benchmark raw material margin that we follow increasing from [$0.14] per gallon during January to $0.90 per gallon during March. The positive impact of this was somewhat masked in our results due to a shipping delay of a large cargo from March into April.

Looking forward to the second quarter, during April the key industry benchmarks have remained near or above March levels. This has been accompanied by solid operations. Assuming these solid operations continue, we expect to benefit for the typical seasonal upturn during the summer months.

Our fifth segment is our technology business, which includes our licensing results and catalyst sales. First-quarter results are summarized on page 17 and were driven by relatively strong catalyst sales.

As you might expect, we are currently realizing minimal contribution from our licensing business, as few competitors are building new plants.

Overall our first-quarter results were better than expected, and profitability built as the quarter progressed. Some of this strength was a result of competitor operating problems. However, independent of this, we experienced modestly improved demand in a number of end use markets. Many of our products continued to benefit from improved margins into April, but we expect to experience some moderation as the second quarter progresses. Importantly, our operating reliability has been quite good, and as a result we have been able to take advantage of recent market opportunities.

To conclude, as you begin to follow our company, you will find that our current strategy is very direct and simple. During this point in time, as we have just emerged from bankruptcy, we have adopted a back to basics approach. Our strategy focuses on operating reliability, cost control, and an intense focus on metrics. Internally we will continue to benchmark our position and develop plans to close the gaps with industry leaders.

For the time being we will not focus on growth, as we first need to prove to you that we have earned the right to grow. This is a proven strategy and is already bearing fruit. Current successes include realizing $1 billion of cost reductions during 2009, rationalizing billions of pounds of our least efficient production capacity, streamlining our organization, and during the first quarter realizing the benefits of our operating reliability and demonstrating the financial leverage that can be generated by our asset portfolio when conditions begin to improve.

Thank you for your interest in LyondellBasell.

We are now ready for questions.

(Operator Instructions). Bill Young, ChemSpeak.

What I've noticed sometimes is when there is a steady increase in pricing in petrochemicals or plastics, like in polyethylene or ethylene, customers will typically build inventory, and once they smell a turnaround, like you said ethylene spot prices are starting to go off, once they smell that, inventories are sometimes reduced and you get into a correction period with lower profitability. How do you think that's playing out right now, particularly when you look at industry exports as well as domestic shipments?

Well, I think it's fair to say that at this point in time inventories began at very, very low levels. And this is a point in time when most of our customers in the polymers business have stronger sales. We have differentially sold into the United States in our Americas business and have not been exporting. But we see volumes remaining very good at this moment in time. So we are not seeing the normal trend.

I just want to add one thing to Jim's comments. There's always going to be some volatility when we are seeing this type of pricing volatility and cost volatility. So we will see purchasing patterns going up and down a little bit. That's just a natural event. But overall, as Jim said, we are seeing a pretty good market situation right now.

Just one thing I just want to clarify, just to be certain, in the conference notes, I think as Jim was speaking -- he's been pretty busy and his voice became raspy a little bit there. But I do want to say that our ethylene price movement in the first quarter was $0.14. Some of you may have heard $0.04, but it's $0.14 was the increase there. So I just wanted to clarify that point for people.

And a follow-up there, what's -- with spot ethylene off, what's been the momentum change, if any, in your rate of growth of polyethylene pricing?

Well, some of the polyethylene price increases have slowed down. There's some nominated price increases that have been pushed a month, and as typically happens when ethylene comes down, we just really have to watch how much of that pricing holds. But given the strength in volumes, we think that there will be some of that price that continues to show up in the polyethylene chain.

As Jim said in the call, we've already implemented $0.18 of price increases across polyethylene in North America. And in Europe what we've found is that price increases in the polymers have generally been slightly exceeding the monomer movements -- is what we've been seeing in history. So we will see some shifts of profitability as this transition and volatility occurs, so I think if we see a decline in spot ethylene, we will hold it probably a little bit longer on the polyethylene side. But that's the type of volatility I referred to.

Thanks very much.

Roger Spitz, Bank of America.

How much of the ARCO 2022 debentures are outstanding? And have they been ratably secured by any assets?

The ARCO 2020?

Yes. Have any of these ARCO bonds or Equistar's or Millennium bonds still [outstanding] (multiple speakers)

They've all been converted to equity -- if I can put it that way.

Okay. They were still trading, so I was just unclear.

Looking at page 10, can you help us with the components of this, as the sum looks closer to 375 by my eyeballs, versus the 275.

Yes. The major factor is the suspension of the profit, and it was recognized and shown under the olefins that is a reflection of the large margins we had in olefins, but it's still not realized through third-party sales because it's in the contained ethylene and the derivatives in our inventory. So there's an intra-segment profit elimination for the quarter of about $100 million.

Got it, perfect. Thank you.

Tarek Hamid, JPMorgan.

On the Houston refinery, it looks like you had a huge turnaround in performance in March. Wonder if you could talk a little bit about how much that was driven by the differential versus how much was driven by the cost reduction activities and other activities you've had going on at the refinery the last couple of months.

Well the -- we have been reducing the cost structure at that refinery, but that was occurring throughout last year. And generally we weren't running very well. As a result, you didn't see much pull-through of those cost savings in our final results.

The light/heavy diff has opened up quite a bit, to the point where looking at yesterday's number, the Maya 2-1-1 was a little over $20.

Number two, cracks have been going up. The gasoline cracks have been going up. The diff has actually come down just a little bit over recent days. But we are north of $20 now for over a month in the 2-1-1, so it's showing up in our financial results.

But most importantly, we've been running well. When all the units are running we get the full benefit of the complexity of that refinery, and it's starting to show up in numbers. We weren't able to say that much last year.

Has that continued into April here?

Yes. What we've seen is January and February we saw really spreads, Maya 2-1-1 spreads, as Jim said, in that kind of 14 range. They moved up towards the 20 range in March, continued into April, and as Jim just said, holding around 20 today.

Yes. We are actually making money in refining at present.

And then just one other question from me. On the -- it looks like the net debt number post emergence you're showing as $4.4 billion. That's a lot lower than I think where I was at. Could you walk me through the gross debt and cash numbers?

Yes. I think what you're seeing is significantly more cash than we envisioned upon emergence. We advertised I think about 2.2. We've got closer to 2.8, largely because some of the stuff we still have to pay on emergence, that will come down some. Offsetting that of course is our -- is the cash flow we expect from our rather surprisingly good results of the last couple of months. So we may end up the year, depending on where we see the forward months go, with more liquidity than we've advertised during say the road show.

Thank you.

To comment on part of the reason that's true, you remember we have seen extremely strong olefins margin for a couple of months. You saw the impact of that in our results, so a pleasant surprise there.

To be clear, during this month we are still paying a fair amount of that emergence requirement. I think we are estimating something in the course of May bordering on $400 million.

Robin Russell, Jefferies.

You mentioned a substantial tax refund. Could you quantify that a little bit and tell us the expected timing?

Yes, I wish I could. (multiple speakers) It's both in the US and in France (multiple speakers) got the exact amounts for the US. I don't know if we should really quote the exact amounts here.

Yes. We wouldn't want to say the exact amounts, but (technical difficulty) we've got some noise in the background -- excuse me. But we have (technical difficulty) refunds that will approach $200 million if all are achieved, and the timing of course is going to be a question mark across the balance of the year and possibly into early 2011.

Quite possibly into early 2011, and our estimates we temper with the reality of knowing how many people we have to argue to get this stuff.

Right. And then when I think about the net debt number, I think we all had 5.2 in our model. But if we kind of adjust it for the $400 million that you just suggested, your -- probably net debt is really 4.8 on kind of a -- is that how we should think about it?

Yes. I think so.

That's the way I would look at it.

Thank you.

Michael Lipsky, BlackRock.

I apologize in advance, I'm actually new to the credit, but as previous callers have alluded to, this net debt number is lower than expected. That is in conjunction with what appears to be a working capital build in the quarter. If you could just bridge us through the change in cash and how much of that is the -- what we will call the timing of payments on the restructuring versus incremental cash build that was unexpected in the quarter, if you could just give us a little more granularity on that, that would really be appreciated.

Sure. I think in all the sources and uses application or charts we've shown you in the past, we did envision about 2.2 on emergence, $2.2 billion on emergence. We are saying $2.8 billion, but remember that $2.8 billion is at that point in time. We've got our cash flow forecast for this month -- indicate about $400 million of emergence cash flow requirements. So that's just a delay of $400 million. The other $400 million is -- what we are seeing is improved cash flow.

Okay. Well look, I appreciate the breakout. That's all the questions I had. Thank you.

Actually I should correct myself. I said the other $400 million. Really we are $2.2 billion to $2.8 billion. That's $600 million. The additional $200 million would've been improved cash flow through collection of February and March money.

Oh, I'm sorry, sir, is it only 200? And taking into account the change in working capital?

Oh, I'm sorry. I didn't -- yes, we did put a lot of money into working capital at the end of March, primarily because of the timing of some crude oil from Venezuela. So we got -- I guess pushed -- our inventories at the end of March are quite a bit higher than they will be. They actually went up in volume, so even on our balance sheet you'll see an increased inventory value, even under LIFO because of the volumetric gain. And that was a couple, $300 million.

Yes. There is -- we mentioned in the (technical difficulty) [June] call comments that (multiple speakers) where we saw some inventory builds, it's all timing related due to bringing in some crude cargoes, also bringing the sale of some of our oxyfuel shipments.

Now, if you think about the business and the scope and scale of this business, a crude cargo is typically 500,000 barrels. Well, a shipment of oxyfuels can be 200,000 to 250,000 barrels. So you can see when you start to delineate at an end of month, a shift just a few days can move the statistics around a lot. But that's a very temporary working capital move, and it's really just timing-related.

Yes. And you will recall that we did have an oxyfuel cargo that got pushed into April. So that was part of it as well.

I understand. So when not working capital normalizes, that should release cash; correct?

Yes.

Correct.

Yes.

Thank you for the clarification.

[Philip Berbara], Royal Bank of Scotland.

Can you give us the effect of LIFO inventory accounting on your EBITA?

Yes. We -- I mean, I'll give you an estimate of the range. It was about -- versus our reported numbers, about $180 million in the quarter.

Okay. And this delayed shipments in your oxyfuels business, is there an EBITDA impact related to that?

Sure.

Can you give us the guidance to that?

Well, I think what we mentioned was a raw material margin of about $0.90 in the month and a shipment of about 200,000 to 250,000 barrels.

That's $0.90 though per gallon?

Per gallon, yes (multiple speakers) -- margin.

Right. And in the technology segment, is there a -- the lower licensing revenue, is part of that a timing issue? Or is that just kind of like the new run rate on licensing?

Actually in this situation we've been regularly forecasting to you that there are fewer licenses sold, this year, next year, and the year after as a result of less building of polypropylene plants in particular and some polyethylene plants. So it's just actually pure (technical difficulty) licenses, because it's a bottom of the cycle and people aren't building. It's very typical and it's something that was put in our emergence plan and been very critical.

There are some timing issues within the course of a year. It's a bit lumpy. Sometimes all of it shows up in one month versus the next, but we don't expect any changes to what we forecast in the year, just it's not in the first quarter.

Let me just add, in terms of our accounting treatment, we largely recognize revenue as cash arrives because we get paid when we meet certain requirements of the licenses. So our revenue recognition was largely following cash. However, we do have some deferred revenue on the balance sheet that will be eliminated in fresh start accounting, so we will see a modest effect. But generally this has nothing to do with accounting, it's really the drop of the business that Jim was talking about.

Okay. Also, can you quantify the impact of the [Bear] turnaround on the OMP Europe business?

I don't have a good -- real good off the top of my head value for it, but I think what I can say we've done is we've done -- we've shifted production of course to our German assets, we've planned for this with an inventory build, so we've taken action such as that to minimize any impact there. In the European market, what we have had is you've had a -- you can see in the results, ethylene profitability itself has been quite low, somewhat pressured. Butadiene has been better. So we've probably given up some profitability on some butadiene, but not of any significant magnitude.

The ethylene cracker results would've been near breakeven. The low-density plant we have there, those margins have been pressured in particular. And then of course you have the polypropylene plant, and we would've lost some value there because that has been okay in Europe.

Just one more question. On your -- can you give us an update on your JVs and if there will be any change in the value of that when you go to fresh start accounting?

I think as you may recall, at the end of the year we impaired -- because we had some data from our valuation we are going on, we had to impair a couple -- actually four of our JVs at year end. Under fresh start accounting we anticipate no more impairments, possibly a couple of significant increases in value on a couple of them.

Thank you.

Don Carson, UBS.

Just a couple questions actually pertaining to Americas olefins. In Q1 you mentioned you took advantage of some spot ethylene sales opportunities. Just wondering what the spot contract mix was on your ethylene sales and how that compares to normal.

And were you doing the same thing on propylene as well, just deemphasizing polypro sales just so you could sell propylene at these high prices?

And then what's your view of the second half of the year? Clearly spot price are coming down this quarter, which will affect profitability. But we've seen some new Mid East plants start up this week. Just wondering what you are expecting in terms of prices and margins in all the second half of the year as new capacity comes online.

In terms of the spot volumes in olefins, I can't quote the exact number, but what we were doing is actually not turning ethylene into polyethylene so that we could sell the product on the spot market. We had some pounds sold in excess of $0.70 a pound, so it was very, very robust for about a week and a half to two weeks. And so we differentially moved those spot volumes in a very, very profitable way.

In terms of the propylene, no, there was not anything significant going on there. Of course we were running very, very light at that point in time, making less propylene because every pound we could make of ethylene had a very nice margin. So we lightened up to the full extent that we could, something probably in excess of 75% at that moment.

In terms of the second half of the year, we have basically said that we expect the second half of the year to be much more difficult. There is some capacity coming on in the Middle East, there is some capacity coming on in Asia. And the plan that we put together reflected that.

We said 2010 overall margins could be less than 2009. Of course we got a bump kind of ending the first quarter and into the early part of the second quarter with olefin prices blowing out because of operating issues. Europe has been a little better than we expect so far year-to-date, but that's really been some delay of some of those plants. Those continued delays allow us to sell at a little better margins at this point.

Second half will be tougher than the first half if everything comes as we expect.

Thank you.

[Joe South], Susquehanna.

Could you help me understand to the extent you do, given your exposure to the Euro, are there any other natural hedges I guess operationally in your business that can protect you obviously in terms of what's going on in Europe and the currency risk implied?

We have -- we probably have a net -- apart for our margins, of course, if we have positive margins in Euros and the Euro is going down, we're going to have less dollar profit. That's a fact. But in terms of our main exposures, they are largely dollar exposures in our Euro-based companies in Europe from their having to acquire many oil-based feedstocks on a dollar basis and sell into Euros.

And likewise we have certain -- a lot of our dollar debt is sitting in Euro-based companies. So we manage that exposure by netting it all, and then we will be implementing a policy to essentially hedge our net cash flow exposure so it will have negligible exposure except to the true underlying profitability in our Euro margins.

When does that hedging strategy begin?

As soon as I can sell it to our risk management committee.

Fair enough. A couple of other questions please. You had mentioned regarding the difference in I guess LIFO accounting, $180 million in the quarter. Does that mean that the 640 EBITDAR print in the quarter would have been higher by 180 or lower after fresh start accounting?

That 180 is the difference between what our financial statements will have on them as a combination of LIFO and FIFO accounting and what we are describing as our current cost EBITDAR. In other words, we have still -- we still, prior to emergence used FIFO for some of our European operations. When we adjust that to current cost, that's a $180 million decrease that we've built into our EBITDAR. So our EBITDAR is lower than our recorded income by that difference. Going forward we will all be on LIFO, so it will be a current cost to current revenue match across the group.

Fair enough. And then when do you expect I guess to file your fresh start accounting? Obviously that's a pretty big hurdle with respect to your ability to be listed, that is, your stock on the New York Stock Exchange.

Well, we have submitted our Form 10 -- our filing about two weeks ago I believe, and we are anticipating having the review process hopefully wrapped up in three months. We are currently engaged, as you'll appreciate, in April close that forms the basis or the left-hand column on our fresh start work. We hope to have essentially all that wrapped up by the end of -- let me just say the end of June.

One final question please -- and I appreciate it. Obviously the market generally has been getting smoke in the last several days, and I just wanted to see if you could share with us more details with respect to the interest that you guys receive from strategic competitors, especially prior to emergence from Reliance, if you could share anything else other than what's being discussed out there regarding either that bid or any other strategic interest that you may have come into.

Yes. Let me handle that. Obviously the Reliance bid was not the favored bid. I can tell you that what was in the press was generally not accurate in terms of what that bid was. We do have a confidentiality agreement, so I can't specifically talk about the exact number.

But I will tell you that the creditors had experts that reviewed that bid. It was obviously in their best interest to take a higher bid if it was available. We as a company had retained experts. They had evaluated the bid, and of course the company internally evaluated the bid.

All three groups came up with the same answer, that the Reliance bid was inferior to the bid that we ultimately accepted. And that's about as much as I can say subject to confidentiality.

In terms of other strategic type buyers, we had a very robust program in place to touch base with all sorts of early potential bidders. In our process we talked to private equity types, we talked to Strategics, we made the opportunity known to many, many, many parties. But frankly it really got down to two financial groups in the early stage, and then of course the Reliance bid came in late in the process.

By the way, Reliance was also a contact early on, so we had made the fact that we were interested in strategic offers known at the very beginning of the process.

Our responsibility was to get the highest bid, the highest value for our creditors, and we took that responsibility very seriously and tried to poll anybody and everybody that may have an interest in bidding on the company.

Just to be clear, when you describe earlier in the process, you landed there basically in mid-2009 such that -- are we talking kind of an August timeframe, again, in the context of your original POR?

I actually joined the company in May of last year, and you may remember that the first thing I did was say the plan that we were about ready to submit was not the plan that we wanted to submit. So we took an extra couple of months to find more cost savings. That was the biggest thing that we changed about the plan was making sure that our creditors understood that we recognized the cost structure was too high and needed to do something about that internally. That was the $1 billion I spoke about earlier.

We also looked at whether we needed to close certain of the assets that were never going to be profitable in a tough environment and made those hard decisions.

We did submit the plan, kind of summertime, and -- but of course all along there we were -- our bankers, Evercore, were in contact with Strategics as well as other investment groups, letting them know where we are, what they were likely to see, so that everybody would be prepared to move very quickly to make offers.

Then we had a couple months worth of heavy due diligence.

I think just to summarize, it was a very open, transparent process. It was pretty clear to everybody where we were and where we were going.

Fair enough, thanks a lot.

Nick Capuano, B. Riley & Co.

I just wanted to clarify a few points around your fixed cost reduction initiatives. Are the production rationalizations that you discussed on the call, is that all already incorporated in the $1 billion in fixed cost reductions that you discussed in the presentation?

I'll let Jim answer in a couple of minutes, but let's remind ourselves that the $1 billion we took out was the difference -- it's on our income statements, it's the difference between 2008 and 2009 fixed costs. Some of that, and I think the estimate I've used is $200 million of that $1 billion were one-time effects that we enjoyed only because of bankruptcy in last year.

However, during the course of last year a number of the initiatives we've implemented -- manpower reductions, closures and so on -- have changed our cost structure such that are targets for this year are even less than last year. At this time, not materially, but we continue to work on those.

But -- so we are more than offsetting with the additional initiatives undertaken in the second half of last year, continue to be undertaken, we are offsetting the loss of the one-time benefits such as we are reinstituting our 401(k) contributions for our US employees and so on. But we did close a number of plants, we are still closing, as I mentioned, the Terni plant, so we'll continue to see our cost savings expand. Our fixed cost structure is going down. Certainly we've got significantly more opportunities I believe in our corporate overhead.

Thanks, that's helpful. To your last point, in terms of opportunities beyond overcoming those -- offsetting the one-timers that you're doing, do you see a material reduction in the next 18 months on that $1 billion, given the ongoing programs?

Yes. I think it's fair to say that we are more than making up for the one-time events, like Kent stated. What we like to do is show our numbers versus talk about synergies and make forecasts. Markets change this way, they change that way from time to time, and sales volumes change a bit. But in terms of the fixed costs, I would just say part of that was we didn't have the full run rate last year on all of the things that we came up with. Some of this year of course we'll have that full run rate, and we work these GAAP closure plans extremely hard. I'd say watch our quarterly numbers and you'll see trend lines develop.

I think it's very important, what Ken said. Rather than say here is a -- quote, unquote -- synergy number, we said, look at the end of 2008, compare it to the end of 2009 of fixed costs, you will see roughly $1 billion and change. We like to show you hard numbers versus give you hollow words.

So what we are saying is we are not giving you another target of a reduction, but watch this space. I can assure you that my supervisor is not going to be comfortable if we don't see that number continue to go down.

All right. Understood. Thanks very much.

Barrett Eynon, Brownstone Asset Management.

When do you expect to restore your terms you mentioned, the $600 million or so of cash you could benefit from?

Well, obviously we would like to restore it immediately, but let's be honest. Some of our suppliers and vendors bore some of the brunt of this bankruptcy, and they're going to be less than willing to step forward.

However, we've already seen some positive indications from many of our suppliers, they have recognized that we are incredibly stronger financially now, they look forward to reestablishing very good commercial, beneficial relationships for both parties.

Timing, as I mentioned on the road show, we (technical difficulty) [did] not build much of this in, if any, into our future plans. So this is one that we just want a surprise, ourselves, and we are working very hard to do it. I don't know how soon I could say that that $600 million has been reestablished.

(technical difficulty) obviously a high-priority (technical difficulty) we are telling people that we are a better credit than when we went into Chapter 11, and so we deserve at least the kind of terms we had before.

Right. Do you think that $600 million is sort of a conservative number? Is there more room in there where you can improve sort of your terms in other areas of working capital?

Working capital remains a key focus for us, and all aspects of it. But as to whether or not the $600 million is conservative, I think we've already started to recover some of it. So I'm not sure there's $600 million more. Beyond -- let's say with what we do this quarter, another $600 million after that would be sort of the top end of the range.

(multiple speakers) tell you that we have been running very, very light inventories in almost all of our product lines. And in certain of those product lines, demand has started to pick up a bit. We need to build a little inventory to make sure that we don't short our customers if we have an operating blip.

But we will be able to report on that number accurately going forward. We are tracking it, we are tracking it by vendor and supplier where our terms were changed at the time of bankruptcy, and we are -- [essentially] metrics to reestablish all of that.

Right. And then sort of a question on -- you guys have mentioned the second half is obviously -- you're being conservative about it. But as you sort of look at your order book now, is it pretty -- is your -- and you're saying volumes are still very strong, so is there any reason why you'd think that would trail off in the second half of the year given what you're seeing today?

I think what Jim was referring to is really the supply situation changing. Order book in the chemical industry is not something where there is a six month lead time and that kind of visibility. And we also mentioned volatility around orders and pricing here. So I think really what we want to think about is how supply might have an impact on the overall supply/demand around the globe. Clearly we have been seeing economic-driven improvements. Jim mentioned those earlier.

We have to talk product lines when we start making these comments. The refining margins have been better, the oxyfuel margins are seasonal, and we are seeing the summer strength that we would expect.

In Europe we are a little more worried about the second half because of increased the Middle East supply, and of course there's capacity in Asia that's increasing, and they will see some Middle East pressure as well. That impacts our ability to export from the United States.

As Doug said, this is a month-to-month watch. At the moment the volumes have been fine. But we have continued to forecast and are consistent with other industry experts to say that the second half should see more pound on pound competition.

I guess one thing I was wondering is on the road show you talked about the Middle East capacity and not all of that you really compete against. How much of your business is necessarily impacted by the supply coming online? Is that supply necessarily a cheaper option given that some of the -- what I've been hearing is that some of the ethane over there, the cheap stuff is very scarce, so the balance of the stuff I've heard is more competitive with the stuff you guys are producing or other people are producing.

I think that's right. And we were talking going forward there. Right now we are talking about projects that are being completed, and I think the other thing to remember, we're only talking about ethylene here. As Jim said, there's a broader portfolio. But the plants that have been under construction are coming online, are going to smooth out their operations over time, we will just have to watch it. We've been watching this very closely for a number of quarters, and happily there have been delays beyond which most people in the industries consider.

I would be remiss not to say that the pricing of light feedstock will have a big impact on the United States operations in particular. We have had cheaper ethane of late, and it has allowed us to be very competitive across the world, and we have been able to export when necessary.

I would also say that inventories have been a little bit light with most of the people we sell to, and so that's this a little -- a bit as we look into the coming months. There's not a big inventory build that has to be produced off.

Right. One more question, I guess spot prices have weakened. How does that impact your contracts as you look versus your cash costs of operating as you compare to last year's second half, this year's -- the second half of '09 versus second half of this year? Are you still trending favorably given where your cash costs are and your contract prices are?

Oh, yes. We are -- spot -- and you're talking ethylene here, I just want to remind (multiple speakers) we are continuing to talk ethylene, and we're mostly talking ethylene in the US only.

But no, as spot prices come down, contracts will follow. This is a supply/demand margin driven business. So we will have to watch this. But you also have a situation where ethane has been volatile, so we have pretty good spreads right now over ethane in the industry. And they have been holding in. As Jim mentioned, we've got pretty low gas costs, which makes the US a pretty competitive region around the world. In fact really -- we said before, the second most competitive.

Jim may want to add something, I'm not sure.

I think you summarized that pretty well. Ethane has been a favored crack, and as a result so far we can export if we need to. We have chosen not to do that because of ethylene tightness, but as I mentioned in the formal remarks, we've seen spot prices fall fairly rapidly of late, and that's because the US industry is rebalancing itself fairly neatly.

Right. But I guess one thing I was just wanting to follow up to make sure I understood is that the way you are operating today and the contract prices you have in place today, are those still more favorable than they were in sort of second half of last year as you look forward? Or is that something that you think (multiple speakers)

Yes, yes, yes, yes. Let me put some numbers to it. The cost of ethylene production from ethane is about $0.25 today. Spot ethylene is still in the mid 40s. Throughout a large part of last year there was minimal spread (multiple speakers) so a $0.20 spread like that is very healthy.

Very healthy. And -- but remember though also last year the money was being made downstream in polyethylene and not on the olefins side. So that's changed pretty remarkably from last year, so it's really not fair to compare the two. You have to look across the chain, and overall across the chain it's better this year than last year at this moment.

I appreciate it.

Mike Shrekgast, Longacre.

I was just wondering if you could talk -- you came on midyear last year, and previously the forecasts that we had that were in the plan, those were made before you got to the company; is that correct?

The plan that we actually submitted was the plan that I helped to put together. We did not submit the plan that was being drafted at the time that I came.

Okay, and then -- your view now that you are exiting bankruptcy, would you say you're taking a differing view as to what was in that plan?

No, I don't think we are saying that all. I want to be very clear about that. What I was saying is, in this first quarter and partially into the second quarter, we had very, very strong ethylene margins in the United States that were primarily driven by supply disruptions. They weren't demand pull, they were supply disruptions.

A number of US crackers are in turnaround, and then a few of the competitors had significant issues on major crackers. So it created a supply gap that allowed margins to push pretty strong.

In terms of polypropylene oxide business, a bit stronger than we said. It seems like the economy maybe is improving slightly better than we had predicted. (multiple speakers) [But the] overall plan -- this is more a question of has the new capacity come on in Asia and the Middle East? The answer is, not as fast as we predicted. And we've had a quarter or two of the benefit from that.

But I am saying that we expect that to fall off later in the year. A little bit of strength (technical difficulty) of our other businesses because durables, the auto business has been a little better than we predicted. But fundamentally what we had in the plan is still basically the way we believe.

Yes. I think that's the key. You're going to get a lot of volatility in this industry, there's -- it's going to be difficult to forecast and predict some of these prices and costs that we see, but the fundamentals that form the basis of the plan remain the fundamentals of thinking.

In the meantime we are enjoying some opportunities, but I can tell you we are also seeing some pressure. We didn't really have $85 crude in some of the thinking across this plan. So -- but the fundamentals across the businesses of supply and demand, as Jim said, are -- seem to be intact, perhaps (multiple speakers) a little bit better or a little bit worse in some areas, that's kind of where we are.

Just one other question, if you -- if the EBITDAR is 640 and then you add up the segments, right, you get to like 673. Just wondering if that -- on a quarterly basis what would fall maybe into that other category of like negative -- what's that going to run? Is that going to be like a negative 30? Or is it going to be more like negative mid teens number?

I wouldn't have thought we anticipate anything in there. Frankly, we've got just a little bit of FX in there, but largely it was unrealized so it's not in EBITDAR. If you look at our income statement, you'll see a fairly large first-quarter unrealized foreign exchange loss. But no, I don't think we anticipate anything in there longer term that's going to be a big other.

Yes, and I wouldn't want to predict that (multiple speakers)

Okay.

(multiple speakers) several more questions in the queue, so I'm afraid we're going to have to --

Thanks.

-- move forward if we can.

Aaron Weitman, Appaloosa.

Hi guys. Could you talk about the European business? Have you seen that I guess start to strengthen? And is that where you expect I guess the brunt of potential weakness in the back half of the year?

Yes. I would say that we had slightly better than we expected results in the first quarter trending into the second quarter, but we expect it to be weaker in the second half. And I think, again, almost all the other industry experts are calling it about the same. And that's again -- I think you're referring to ethylene (multiple speakers) I think that's the context of Jim's answer (multiple speakers)

Yes. We are talking the olefins and polyolefins chain there. Some of the other businesses, there are more world commodity type things with different supply/demand fundamentals. So I'm basically talking olefins chain.

Okay. Do you see a lot of room for that to I guess maybe surprise above your expectations there, in terms of we've seen strength? From what I've heard it sounds like Q2 was even stronger than Q1 in March levels. Do you expect kind of maybe where a moderation is possible there?

Yes. I -- we are not very far into the second quarter yet, and if you look at what's happened in the United States for instance, margins have tumbled very rapidly from where they were. A little bit of stickiness in the polyethylene margin, we hope, as olefins prices come down. That's a unique market. But in Europe it's just that we've been able to sell a little more volume at a little better pricing, but the cracker margin was basically breakeven. So it's not like it's strong. These are still bottom of the cycle type economics. We just have a little letter than we expected.

And typically in Europe you're going to see second quarter be a stronger quarter and third quarter start to come off a little bit with holidays and things. So you're going to see all those kind of impacts that we would anticipate seeing.

Yes. But do remember that we shut down some capacity and that as a result of that we've held some customers, we're just supplying them out of different, more cost effective plants. So we think that's a little bit of our result as well. We are trying to be a little smarter in our business plan.

And in terms of the balance sheet, you've talked about a $4.4 billion net debt. And I guess you said you expect to have 400 of payments I guess lowering the cash from that level. Does that include I guess your buildup of inventory? And that was your I guess at-exit type of net debt?

Well, I think I explained before the movements between that that we forecast and that that we have right now. We do anticipate about $400 million of cash requirements related to the exit that we just didn't pay on April 30. So when we talk about the number being higher on April 30, recognize that $400 million of that delta is just a timing issue. And the other has been good cash flow from operations in some ways offset by working capital needs, especially at the end of March.

Okay, thank you.

Andrew Chan, Barclays.

Most of my questions have been answered, but I think my only question is, you used to show a forecast on a month-to-month basis where you were with the plan. Could you tell us what that number would look like first quarter of 2010?

No, we really haven't -- I'm a little confused -- oh, you're talking -- you're dealing with while we were in the bankruptcy as we compared to the plan and did an operating forecast versus the actual, and I think that's a practice that we won't be following going forward.

But you've seen annual plan, and trends in the business are typically first and fourth are the lower quarters, second and third are the stronger quarters for the business. So I think that probably addresses that.

Fair enough, thank you.

Andrew, one other thing. You've got to recognize that we're -- we -- as Doug said in his introductory comments, we are evolving in terms of some of the formats and our focuses. So this will be an evolving presentation for the next couple of calls.

[Joe Triklein], Citi Capital.

On the Houston refinery year-to-date EBITDAR, it looks like around $5 million with a Maya 2-1-1 of about $16. As a comparison, in 2004 -- just to pick a year -- the Maya 2-1-1 was about $16, and EBITDA at the refinery was I believe about $600 million. From a broad perspective what has changed in the business between now and then? I just -- I would've expected at these levels, with the Maya 2-1-1, for EBITDA to be significantly higher.

Well, I'm really not going to be able to go back to the 2004 bridge that quickly, but let me just say, the first quarter, what you saw across the first quarter was, you saw $12 to $14 spreads at the beginning of the quarter. You saw operation somewhat below our full capacity at that period. And EBITDAR is, oh, probably slightly negative, somewhat similar to what you saw at the end of last year.

When you moved into March and into this $20 range, you overcame what were those 5 million to 10 million a month negatives and produced the results that we've kind of seen.

So -- but I really -- '04 would have been pre-market contract. I'm afraid there's too much risk of a poor comparison there, because going back in time, there was a differential contract at this facility.

Yes. I think that's a big part of the story. It was -- remember that there was a contract when Citgo was a co-owner of this, that gave a very different result than when you are exposed to the real market. There was also different sales out the back end of the refinery that are very, very different, so you get into the transfer price issues and a variety of other things. Just say that it's an apples to oranges comparison, then to today.

Can you give us a sense as to what your OpEx per barrel may be, so we can look at the spread and then kind of figure out EBITDA on our side?

Kind of a $6 to $8 a barrel range. Of course (multiple speakers) is going to be a big factor in that.

(multiple speakers) And then on the light heavy spreads, any thoughts as to why you think that's going to be widening? Is it Canadian crude coming online?

Well, it has widened as -- part of that is just the basic price of crude moving up from 70 up into the mid-80s is starting to open it up. But the other thing is really we've seen the balance between the heavy fuels, we've seen more crude come on the market, that's created some additional heavies over the recent months, etc. And as you think about recovery going forward and you bring more crude on the market, you'll typically see it open up a little bit.

Yes. I think we have to be careful to understand that the diff isn't the only variable we look at in terms of the profitability. The WTI, the Maya spread started in January in the $8 range and moved up to above $12 in April and has fallen off down there to the $10 range.

So it's at the -- when you look at historic trends from say 2004 to 2008, we are at the bottom of that range. It went all the way up from say $22 plus in the summer months to dropping down -- in that four-year period down -- or actually a five-year period down into the low $8 range.

At the $10 range we are kind of at the low end. And that's probably about where it ought to be.

The -- number two, the WTI spread has been bouncing up into May from a $5 range up to $1.10, and RBOB to WTI spread has been moving in the right direction of late too.

So there's various things, components of the crack that you have to think about, and so it's not just the Maya spread. I will tell you, longer-term, Maya is less available. It's not showing up on the West Coast like it used to. But OPEC quotas and all have a pretty significant impact on the availability of call it medium to heavy crudes.

The Canadian crudes really aren't finding their way down to the Gulf Coast much. That's pretty rare these days. They stay up in a group. Someday that will have an impact, but that someday is multiple years away now.

Got it. And lastly for you, can you give us a sense as to -- I think you see this historically, a $1 change in the differential equates to X million dollars of EBITDA?

$100 million.

What we've typically said is a $1 change at the refinery is $100 million of EBITDA. Now, that's not a $1 change in the Maya 2-1-1, you have to take a percentage of that, a yield of about 2/3 to 3/4.

Okay. Thanks very much.

James Finnerty, Citigroup.

Most of my questions have been answered, but just a bigger picture question. With the capacity in the Middle East, do you view it as being a little bit lower quality in terms of the assets and the people running that capacity? Is that why we've had -- they've had so much problems coming online?

You're asking is the quality of the new assets in the Middle East, and then the current operations quality?

Yes, the management running those assets and the assets themselves, given that the capacity coming on was built at the (multiple speakers) cycle.

I think it's several different things. First, you have to remember that these are generally very new, very large, modern assets, well constructed. But anytime you have new assets like that with new operators and all, you'll typically see teething problems. Those problems can last from months to sometimes, depending upon how complex the operation is, to in excess of a year.

There have been labor shortage issues in certain parts of the Middle East, but you have competent manage your management over there. There's some very, very smart operators. My old company was over there, and actually our Saudi plant was the most reliable plant we had in the whole operation, once we got it lined out.

So competent people doing smart things. I would categorize a lot of these issues as teething problems and educating the new workforce on how to run the plant as well.

Remember, these are multibillion-dollar projects, complicated pieces of equipment here.

And since that -- one of your competitors recently was looking -- when questioned about the Middle East capacity and the Asian capacity coming on, they firstly pointed out a point was made earlier that ethane is not necessarily all low-cost ethane and that the asset quality may be questionable, that they couldn't get their hands on all the top types of pieces of equipment, so they may have used sort of secondary type sources for getting equipment, and that the -- like you said, the lack of talent over there may have impacted -- may have an impact.

I will make a few broad comments, but recognize that they are broad comments. I've been participating in a lot of projects in the Middle East in my former life, and generally speaking, these are extremely large, less complex plants making more commodity grades -- I'm talking polymers. The crackers are generally very simple, on purpose, particularly in places like Qatar, where they are ethane-based chemistry, ethane purity crackers. Some of the Saudi crackers can take variable feeds.

But again, a lot of the early assets built were on purpose made to be simpler because you had long supply lines, particularly targeting Asian assets.

There were -- there was a lot of construction pressure in the Middle East over the last three years. There have been some equipment shortages of different types, compressors, valves, some of those kinds of things.

But I think I would not say that the plants aren't well constructed. My experience is that they generally have been good engineering jobs with high-quality assets.

Great, thank you.

I have walked many of those plants, so --

I think in the interest of time we will need to move forward.

[Ada Kearney], GLG.

Today my question has been answered. Thank you.

Steve [Lehner], [Mount Kelly].

My question has also been answered, thank you.

Robin Russell, Jefferies.

Sorry. Mine have been answered too.

At this time we have no further questions.

Well again, let me say thank you for your interest in LyondellBasell. We did have a better-than-expected quarter. Some of the market trends continued into the second quarter. One of the things I am very proud of is that we operated safely and we also operated quite reliably compared to where we were in the past. That reliability allowed us to take advantage of some market opportunities, and you see those results in our financials. Thank you very much.

This concludes today's conference. Thank you for your participation. And you may disconnect at this time.