利安德巴塞爾 (LYB) 2010 Q2 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 to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Debbie. Welcome to the LyondellBasell second-quarter 2010 teleconference. I am joined today by Jim Gallogly, our CEO and Kent Potter, our CFO. And I also want to welcome Sergey Vasnetsov, our new Senior Vice President of Strategic Planning and Transactions, to LyondellBasell and Sergey is with us today on his first day of work, so thanks for joining us. We look forward to working with you, Sergey.

Finally, I would 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 would 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 upon 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 and notice on the presentation slides and our financial reports, which are available on www.LyondellBasell.com/investor relations.

I would also like to point out that a recording of this call will be available by telephone beginning at 3 p.m. Eastern time today until 1 a.m. Eastern time September 17 by calling 800-934-9468 in the US and 203-369-3394 outside of the United States. And the passcode for both numbers is 3692.

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

During today's call, we will focus on the second-quarter performance of each of our five business segments and the trends that we are seeing for our businesses. With that being said, I would now like to turn the call over to Jim.

Thank you, Doug. We appreciate you joining us today for our second-quarter earnings call. As Doug mentioned, a set of presentation slides accompany this call and are available on our website.

The Company has gotten off to a strong start since emerging from bankruptcy on April 30. Our story this quarter is an exciting one, so let's get right to it. If you turn to page 3 of our presentation, you'll see that, during the second quarter, we generated net income of $203 million, exclusive of a gain on the discharge of liabilities and fresh start accounting adjustments and EBITDAR of $1.403 billion exclusive of a $333 million non-cash inventory charge that is uniquely related to our emergence accounting. Our EBITDAR more than doubled from an already strong first quarter.

The excellent performance that we experienced at the end of the first quarter continued into the second quarter. We saw generally good business conditions across almost all of our segments during the quarter with the US ethylene business turning in particularly strong results. Improved performance in our Europe, Asia and international olefins and polyolefins segment and our refining and oxyfuels segment also helped to make this a very good quarter for us.

As a result of this performance, we generated significant cash from operations, which Kent will discuss later. Over the last 12 months, we have generated nearly $3.4 billion of EBITDAR, excluding the LCM charge. This results in a net debt to last 12 months EBITDAR ratio of approximately 1.1 to 1.

I would like to point out that, as a result of our emergence from bankruptcy, our financial statements now reflect the effects of our bankruptcy court-approved reorganization. They also reflect the effects of our emergence financing and fresh start accounting. Again, Kent will speak to these topics in more detail in a few minutes.

If you'll now turn to page 4, you will see our year-to-date safety metrics. This chart displays the injuries per 200,000 man hours worked for both employees and contractors. We have changed our reporting of this safety metric to align with the standard in the United States so that you can see more easily how we compare to our peers.

If you examine the chart, you can see that, thus far this year, our safety performance is consistent with last year. It is interesting to note that when we look at the details underlying our global performance, we see that the safety performance of our employees has actually improved 35% versus last year. Our Goal Zero campaign seems to be working and this is another area where our employees have stepped up to the challenge. However, the performance of our contractors has declined this year. We are working actively to address this situation. We remain one of the safest companies in our industry, but our work is never finished until we work incident-free.

At this time, I am going to turn the call over to Kent to provide an overview of our results and some of our key financial metrics. I will later return for a brief review of each business segment and we will follow that up with a question-and-answer session. Kent?

Thanks, Jim and thank you all for joining us on this call. Let's begin the financial review on page 5. It summarizes our second-quarter EBITDAR results by segment. As Jim mentioned, we had a very good quarter, generating more than $1.4 billion of EBITDAR after excluding the non-cash inventory charge on generally strong business conditions. You can see on this slide the contribution from each of the different business segments and the general strength across our portfolio.

Before I go any further, I'd like to comment on the shaded areas that you see on top of some of the bars on the slide. These shaded areas represent the inventory adjustments that Jim mentioned and I will explain those now. As you may recall from our first-quarter earnings call, we said that, upon emergence from bankruptcy, we would be adopting last in/ first out or LIFO inventory accounting methodology. In addition, as part of fresh start accounting associated with our emergence, we were required to write up our inventories by approximately $1.3 billion to estimated fair market values as of April 30. At April 30, crude oil was selling for approximately $85 a barrel and benchmark US ethylene and propylene prices were approximately $0.55 and $0.75 per pound respectively. By June 30, the end of the quarter, crude prices had fallen to approximately $75 a barrel and US ethylene and propylene benchmark prices had fallen to approximately $0.35 and $0.55 respectively.

It became necessary, due to the fall in the market value of our inventory, to make a lower of cost or market adjustment, also known as an LCM adjustment, to the book values of our inventory. It is these LCM adjustments, $333 million in total, that are depicted as shaded areas on top of several of the bars of the chart. I would like to emphasize that all of these LCM adjustments are non-cash charges that arose from the timing of the inventory write-up on emergence and the subsequent fall in market prices.

For clarity, I will also point out that the EBITDAR and operating income report on this slide are combinations of one month performance before our emergence and the period we refer to in our financial statements as the predecessor period and two months of performance after our emergence from bankruptcy, the period we refer to as the successor period.

With all of that being said, the most important point on this slide is that the Company generated approximately $1.4 billion of EBITDAR during last quarter, taking into account the non-cash, lower of cost or market inventory adjustment of $333 million.

Now let's move forward to page 6 and our cash flow since emergence. As you can see from this slide, we generated significant cash during May and June. Our cash balance increased over $1 billion during this period. There are a couple of items in this chart that I want to draw to your attention. First, cash flow from operations, excluding working capital, was approximately $700 million. Our strong performance across the segments, as depicted on the previous slide, was the major driver here. We also generated approximately $400 million of cash from working capital since emergence.

I want to remind everyone that, upon emergence, we also added a significant amount of liquidity through our emergence financing and our revised capital structure. Given the volatility in feedstock prices and general economic conditions that we have experienced in our recent history, we required significant liquidity. Given our credit status on emergence, this was really only achievable by maintaining adequate cash reserves supplemented by access to our asset-backed blending facilities. This liquidity now provides a buffer for dealing with all these uncertainties. Our emergence financing was clearly designed to achieve this result.

Finally, I would like to follow up on an item we mentioned in our last call. As of June 30, approximately $100 million of unresolved or unpaid claims from the bankruptcy remain. This is down from the approximately $400 million figure that I mentioned during our call in May.

If you will now turn to page 7, you can see the components of our working capital on our liquidity. Please note, on the working capital chart, on the left-hand side of the page, that the second-quarter 2010 working capital figures reflect two new items -- the impact of fresh start accounting adjustments and our conversion to LIFO inventory reporting on a worldwide basis. For these reasons, it is difficult to directly compare second quarter of 2010 versus prior period. But to see the cash impact of working capital changes, please refer to the prior slide.

Last quarter, we discussed our program to reestablish trade credit terms with our vendors and suppliers. I am pleased to report that our efforts are bearing fruit. We estimate, through the second quarter, we reestablished approximately $140 million of trade credit and during the third quarter, our recovery trade credit has accelerated. Current estimates are that, by the end of third quarter, we expect to reestablish an additional $400 million worth of trade credit.

On the right-hand side of this page, you can see the positive impacts that our strong second-quarter performance and our emergence from bankruptcy have had on our liquidity. We have finished the quarter with approximately $5 billion of liquidity, including nearly $3.8 billion of cash. This means that we ended June with net debt of approximately $3.6 billion.

To update you further, since the end of the quarter, our cash position has grown to $4.4 billion with the resulting decline in net debt to approximately $3 billion.

Please turn to page 8 as I would like to highlight a few additional financial parameters and add a few comments regarding corporate items of interest. With respect to capital spending, our annual plan included approximately $1 billion of spending during 2010. This figure included the costs for our major plant maintenance turnarounds. Spending in the second quarter was nearly flat with that of the first and we are still targeting to spend less than the budget amount for this year.

On the cost reduction control front, we continue our efforts to build on the gains of last year and the first quarter. For example, during the second quarter, we further reduced headcount by another 160 employees. This reduction has moved us closer to our previously announced target of a reduction of 3015 since mid-2008. But it is now clear that we will exceed our previous target as we implement further efficiency plans, efficiency improvement plans. Spending on cash fixed costs through [June] remains below the aggressive target we set for ourselves at the beginning of this year.

Now I would like to take a few moments to comment on some of the changes that you will see in our financial statements related to our emergence from bankruptcy and our adoption of fresh start accounting. First, our new capital structure has reduced debt to approximately $7.3 billion. Associated with this new lower debt figure is lower cash expense estimated on average to be about $170 million a quarter.

Second, fresh start accounting rules required us to revalue our assets and liabilities to their estimated fair values as of April 30, our date of emergence from bankruptcy. This revaluation had to be consistent with the bankruptcy court-approved total reorganized enterprise value of approximately $15.2 billion. In addition to the effects on inventories that I mentioned earlier, this revaluation resulted in three key changes you should be aware of as they may create challenges when you try to compare financial performance pre and post-bankruptcy.

These changes were, first, a decrease in the book value of our property plant and equipment of approximately $7.5 billion; second, the recognition of goodwill of approximately $1.1 billion; and finally, a decrease in annual book depreciation/amortization expense of approximately $1 billion a year.

It is also worth mentioning, especially for those of you joining us for the first time, that, from a cash tax standpoint, the impact of bankruptcy will be that we will lose the majority of our US attributes such as our net operating losses and our depreciable asset bases. However, this won't occur until the beginning of 2011 and we don't expect to be a significant cash taxpayer during 2010.

Now addressing a couple of other housekeeping items, our effective tax rate since emergence was 7.5% and at June 30, we had 566 million basic shares, 570 million diluted shares outstanding. I hope this information helps you as you look at our financials going forward.

As you are probably aware, four very distinguished and highly respected business leaders have recently joined our supervisory board. Milton Carroll, Bruce Smith, Rudy van der Meer and Stephen Cooper each bring a wealth of knowledge and experience that is sure to serve us well as we work to become the premier chemical company. I know I speak for Jim when I say we are very happy to have them as our Board members and we look forward to working with them.

Finally, with regard to the listing of our stock on the New York Stock Exchange, I can tell you that we are continuing to pursue our goal of listing with all due diligence. We will be filing an amendment to our Form 10 to incorporate our second-quarter financials and in parallel, we have been working with the New York Stock Exchange to have our shares listed. We expect SEC registration listing on the NYSE to go hand in hand and we hope to have some good news to report soon. Okay, with that, let me turn the call back to Jim.

Thanks, Kent. Let's step through a summary of second-quarter results for each of our businesses. Page 9 and 10 address the key results for the olefins and polyolefins America segment. The second quarter for O&P Americas was excellent. The strength that we saw late in the first quarter in ethylene, propylene and butadiene pricing continued into the second quarter. This strength was largely driven by both planned and unplanned industry shutdowns and our ability to capitalize on the opportunity these outages presented.

We ran reliably during this time. We shifted to a lighter feedstock and reduced polyethylene exports to take advantage of these conditions. Our average cost of ethylene production metric declined by $0.09 per pound during the quarter, while our average ethylene sales price declined by only $0.05 per pound. This margin expansion, combined with our volume leverage of nearly 10 billion pounds of annual nameplate capacity, resulted in a significant increase in earnings.

The reduced monomer prices coming from the olefins plants helped our downstream polyolefins operations as margins expanded by several cents a pound due to the lower feedstock prices. Polyethylene volumes were down slightly from the first quarter, partly due to the turnaround at our Morris, Illinois facility and partly due to reduced exports during the quarter as we shifted sales toward the domestic spot ethylene market when ethylene prices were elevated. Overall, polymers profitability improved during the quarter.

Looking forward to the second half of the year, we expect US olefin and polyolefin supply and demand to be better balanced as competitors have returned to facilities to service.

Please shift your attention to pages 11 and 12 and our Europe, Asia and international olefins and polyolefins segment. Second-quarter results improved. This improvement was primarily driven by strong butadiene prices and moderate supply/demand tightness due to several unplanned outages. Rising prices in the low density polyethylene market and improved automotive sector demand for poly-propylene, our Catalloy line of resins and poly-propylene compounds also boosted results in the segment. Additionally, we saw an increase in dividends from our joint ventures of approximately $30 million.

On the asset front, I want to point out that we have successfully started up our new 550 million pound per year high-density polyethylene plant in Munchmunster, Germany. This plant was built partly from funds received from insurance settlement from previous years. It employs our own state-of-the-art technology and will play a part in portfolio optimization efforts currently underway in the region. The plant will run at reduced rates until a third-party pipeline is completed, hopefully in the second half of next year.

I also want to mention that the Terni, Italy poly-propylene plant that we spoke about during our last call has ceased production. Midway through the third quarter, business conditions in the region have held up well as trends from the second quarter have generally continued.

If you would now shift your attention to page 13, I will briefly address performance in our intermediates and derivative segment. Results in this segment remain strong this quarter. Propylene oxide and derivative margins were nearly unchanged from the first quarter; although sales volumes dropped slightly with the seasonal decrease in deicer demand and a return of competitor production following planned and unplanned downtime. In the intermediate product group, return to reliable operations and lower ethylene and natural gas prices led to improved acetyl results.

At the end of the quarter, our joint venture propylene oxide styrene monomer plant in Ningbo, China was successfully commissioned. This plant will be providing product to the local market in cooperation with our partner, Sinopec Zhenhai Refining & Chemical Company.

Segment results have remained steady through the first half of the third quarter. We will conduct a turnaround at one of our US propylene oxide plants in this quarter but pre-turnaround planning should help to mitigate the financial impact.

Please now turn to pages 14 and 15 for a refining and oxyfuels segment. Financially, this segment performed significantly better in the second quarter versus the first quarter. The Maya 211 spread, the key publicly available metric that we monitor to gauge Houston refinery margins, averaged $20 per barrel during the quarter, a $4 per barrel increase from the first-quarter average.

Unfortunately, as you are aware, we did have a fire at one of our crude units during the quarter. We estimate that the direct and opportunity cost of crude unit downtime was approximately $75 million. The loss could have been greater, but we were able to mitigate the impact of the loss crude processing capacity by purchasing intermediate product streams to keep downstream units running closer to capacity.

Additionally, we are also able to take advantage of volatility in the buying and selling patterns of various intermediates and crudes to improve our realized margins.

At our Berre refinery in France, a reduction in the maintenance activities in the first quarter and an expansion of the benchmark margin of about $1 per barrel resulted in improved financial performance. Our oxyfuels business also benefited from improved margins during the second quarter. Typically, oxyfuel margins are stronger in the second quarter and this year was no exception as you can see by the chart at the bottom of the page.

Industry European ETBE raw material margins averaged $0.72 per gallon for the quarter, an increase of approximately $0.23 per gallon versus the first quarter. Looking ahead, during the latter part of the third quarter, we expect to see the typical seasonal declines in refining and oxyfuels margins that come with the end of the driving season in the United States.

Our fifth segment, technology, includes our licensing and catalyst businesses. Second-quarter results are summarized on page 16. Catalyst sales remain good and continue to provide the bulk of the EBITDAR in this segment.

In summary, our new Company has gotten off to an excellent start. The performance reported today is a result of a tremendous amount of work across the organization both during Chapter 11 and since emergence. For example, we have rationalized more than 4 billion pounds of capacity and positioned ourselves for improved results by shifting production to more efficient assets. We have reduced our fixed costs by about $1 billion by eliminating layers in our organization, improving plant efficiencies and taking other cost-cutting actions.

We have emerged from Chapter 11 process with significantly reduced legal and environmental exposures and we have a new management team and a new performance culture within the Company.

In addition, during the second quarter, we demonstrated the upside potential that our size affords. Given the number of pounds that we produce, an uptick in margins results in significantly improved earnings. We ran reliably and acted swiftly to seize opportunities. We achieved our second-quarter results while completing two large olefin plant turnarounds during the quarter. This brings to three the number of billion pound plus olefin plants we have overhauled this year in order to return them to a normal six to seven-year turnaround schedule.

During this quarter, we also added new members to our supervisory board and held our first shareholder meeting. We prepared ourselves for listing on the New York Stock Exchange and we continue to work hard to improve our cost structure. These are but a few of the many things that we have been doing to position ourselves to be the premier company in our industry. The future of LyondellBasell is bright and I thank you for taking an interest in us. Debbie, we would be happy to take questions now.

(Operator Instructions). Joe Stauff, Susquehanna.

Good afternoon. Thank you. A couple questions, please. Fundamentally, the outlook with respect to capacity additions in this industry on a global basis is generally widely known, especially in the Middle East and China. Can you, given the fact that you own 25% of that capacity coming online, especially in the Middle East, can you give us some flavor in terms of your view about how it could affect the European market and just the industry's capacity again to absorb that additional capacity relative to demand right now?

Yes, I would be happy to answer that. Obviously, some of those plants have come on slower than we originally predicted, both in the Middle East and in Asia. That has provided some breathing room, particularly in Europe. The margins have held up pretty well, as I mentioned a moment ago. As we look at things at this moment in time, they are about as they were in the second quarter. We do expect some softening though as we finish this quarter and get into the fourth quarter and do expect it to have some impact into next year. At that point in time, I think we are beginning to see a couple years out things start to tick up. But we have not generally changed our overall forecast. The fact that some of these plants have come on a bit slower has provided us some running room in the near term.

And your position, like you said, about -- how long do you think the industry or how long do you think it will take for the industry to kind of absorb this and then for supply and demand levels to kind of level off?

A lot of that depends on your view of the world economy. I have seen some economists predicting more strength, a little bit stronger growth rates around the world, not so much the end of this year, a little bit into next year, but in the following years after that, generally the numbers have improved. We think the next peak is still four or five years out, but the good news is we have been able to take advantage of the markets today and improve our cash position, and we are much better prepared for next year given our stronger cost position in the Company and our competitiveness.

And two follow-ups if I can. LyondellBasell specifically, what can you do from a Company perspective to be able to position yourself and manage through obviously this additional capacity coming online, specifically your capacity shifts? Are you shifting capacity out of Europe into possibly the Middle East capacity, which obviously you own 25% and how do you think about the strength of your North American business in the context of obviously continued low natural gas prices?

Yes, kind of starting at the back and working my way in your series of questions, ethane has been significantly advantaged in the United States. We are hopeful that that trend continues as a result of these shale plays. So far so good. The drilling rates continue to be strong and we are optimistic that that will continue to help us in our US competitiveness.

Having said that, we are not waiting on feedstock costs to carry us. We are operating much better than we ever have. We have done things at our plants to lighten up the feeds that we can use and through the process of bankruptcy, we have changed some of our contracts so that we are no longer forced to run heavier supplies to meet firm contracts on deliveries of propylene, butadiene. So the flexibility we gained in North America through the bankruptcy process was powerful. Our volume is large. It is nice to have this light feedstock advantage that we are enjoying.

In Europe, what we are doing is, as you know, we shut down a variety of assets that were underperforming. We have been working our cost structure hard. We will be in more dialogue with Europe about continuing to improve that cost structure and we are looking at the segments in which we sell product. I have spent considerable time with the European team over the last few months now that we are out of Chapter 11 looking at who we sell to, trying to improve the margins, trying to go more specialty. And as you know, we are very, very well-known for our technology. The plants that remain on the ground and are running are very, very capable, high-tech plants and so we will work that segmentation hard.

In terms of the Middle East, we do have a position there. You saw that we had a nice dividend stream from one of the plants that has been running for a few years. The newest plant at Al-Waha won't be providing dividends for a while. We have had some issues getting that up and lined out as nicely as we would like it to have, but it has got our concentrated effort. We will continue to look at the Middle East and the opportunities there.

In Asia, we see it as a very, very key market for us. We have an internal study underway at the moment on how to optimize our position there and improve the way that we face that market and hopefully, you'll see some improvement there as well.

The last comment I will make, it is all about operational excellence. Run reliably, run safely, do it right environmentally, work our costs, manage our capital right. We have a very, very disciplined approach going forward and you are seeing some of the benefits of that in the results this quarter.

Great. Final question. I mean you have a huge cash buffer. How much of that cash do you think you need to effectively replace the lack of revolvers out there? Do you need $2.5 billion, do you need $3 billion?

When we spoke to equity offers during the emergence process, we said we felt like we needed $3 billion worth of liquidity. And so clearly we have more than that now and I think we are going to be evaluating options, but I think right now we are very comfortable with our position.

Thanks very much. Best of luck.

Thanks, Joe.

Bill Young, ChemSpeak.

Thank you. And congratulations, Sergey, on your new spot.

Thank you.

First of all, I would like to know about oxyfuels. I hear there is some expansions or more product being available in the marketplace. So what has been your experience on this particular subject?

There has been some addition to MTBE by a competitor to soften the North America market. I should say more South America market a bit because there is not much North America sales. It has had some impact, but we had a decent second quarter. It is usually the stronger markets. The ETB, MTBE kind of trendline, if you look at those margins, they are fairly similar and we expect it to weaken in the third quarter, fourth quarter. But this has been a good business for us. It is got a nice earnings profile and it is a business we like.

Great. Now on the refining outlook, if you had a crystal ball and you say, well, let's look at the seasonally strong period in the second quarter, third quarter and fast-forward ahead to a similar period in 2011, what trends do you expect here, particularly including the idea of some incremental expansions in refining worldwide?

I don't have a crystal ball, but I have been a part of the refining business now in a very big way for several years. What it does prove is that very few of us ever get it right. Margins have been good in the second quarter, as we explained. We had $20 Maya 211 cracks here in the United States. It has been better in history, but that wasn't bad. And despite having one of our crude units down, I think we turned in reasonably good results.

We do see it weakening today. Next year, I actually think there is still a fair amount of pressure in the refining business, but we, as a competitor, are getting a lot better. If this would have been the same company last year running a refinery the same unreliable way with all the issues and the way that we market, we would not have turned in these results.

So I am pleased to say that it isn't so much what the market is going to bring, but what we as a competitor are going to do. And just as an example, we are looking at expanding the crudes that we crack to optimize our hydro-treating, a little less sulfur here and there, opportunistically buying cargoes that has had a pretty nice impact. We are actually beginning to sell just a little bit direct downstream where previously we sold none. We are working this very, very hard with the new team and I can tell you we are making good progress and more to come.

And that brought up my next question. The availability of Venezuelan crude for your Houston refinery, we have heard all sorts of noises from Hugo Chavez down there. Just wondering what your view was and how you could handle a situation with maybe a lower availability?

As many people are aware, some of the fields in Venezuela are not as reliable as they were a couple years ago and so there may be less overall capacity. We still think the United States is a good market for those crudes, shorter distance to haul, the refineries are set up to take the crude and we think the best netbacks for Venezuela. We do talk to the Venezuelans on a very regular basis about availability. We are in negotiations for future supplies as we speak.

As I also mentioned, we are looking at other crudes that are available from Canadian crudes to various other crudes. I don't like to mention them because it is a very competitive world out there, but we are getting in place contracts to broaden the suite of crudes that we crack to optimize that refinery's performance.

Okay, great. Last question please. There has been some slowdown in growth in China and maybe some of the other Asian areas. What has this done to your polyethylene exports and how important is this overall for Lyondell right now?

Well, China remains a very big market for everybody in this industry. I will tell you, in the second quarter, we reduced our exports significantly. Part of that was the ability of our team to react very quickly to the ethylene shortage. We were selling some ethylene at $0.70 a pound and it makes a lot more sense to do that on a spot basis than to turn it into polyethylene and sell it into Asia. We responded very rapidly. You see it in the O&P Americas results. We have on purpose cut back some of the exports.

One of the nice things is I think the industry sees this as a much stronger competitor and some of the customers that are very large, very competitive may not have looked at us in the past as a potential supplier, but we are a brand-new company and we are expanding our US presence. And if we can do that and we see better margins here, we will move more product into the US and maybe less into Asia.

So again, we are looking at every element of the revenue stream and improving our overall netbacks. I am pleased with the results of the team so far. We brought in Bob Patel to run that business and he has had a good start so far.

Okay, great. Thanks for taking my questions.

Bill Hoffmann, RBC Capital Markets.

Hi, thank you. Just a further question on the export side. Jim, I just wonder if you could give us a little bit more detail about -- you said you dropped exports in the second quarter. Just wondering sort of how you are running export-wise in the third quarter and maybe if you can just give us some color, like what the status of the export markets are, like how competitive they are out of North America?

I think, at this point in time, it depends on your availability to sell into other markets and right now, we are not selling much into Asia. We see better netbacks in the United States and obviously, we weren't exporting much poly-propylene. We were exporting a lot of polyethylene last year. That has fallen off significantly. We find better markets in the US at this moment.

Depending upon your cost structure, people would say that the export window is closed or not closed, but it isn't as good as it was last year. I think that is clear to everybody and we are differentially keeping product in the Americas at this moment.

Thanks. And then I wonder if you could just comment on -- one of the things that we are all looking at is just the slowdown in growth, both North America and Europe, as well as Asia obviously, but just wondered if you could sort of talk on a month-by-month basis what the current trends look like to you and whether you -- what kind of sense you have from the downstream change and this is mostly olefins, polyolefins North America and Europe, what the demand trends are right now and how much inventory is down chain?

Yes, the American Chemistry Council just came out with some inventory numbers and said inventory had actually fallen a bit on the processor side. Our order books remain pretty good right now, both in Europe and the Americas, so things are holding up at this moment. Now as the quarter progresses, as we get into the fourth quarter, as I mentioned, I really don't have a crystal ball, but our forecasts are generally that the markets would be tougher then and that utilization rates would fall.

So much depends on the strength of the economies around the world as to whether that will hold true or not and obviously, as I mentioned earlier in the call with a previous question, some of that depends on how some of these Middle East and Asian assets come on or don't come on. There has been some significant delay and then even when they start, some operating issues. So we are going to have to get more transparency both in the economy and the way those assets run.

Would it be fair to say that, at least at the moment, you haven't seen any significant drops in demand? Everything seems to be at least leveling off and not dropping at this point?

I think that is generally true and it seems to be that -- for instance, I will just pick a segment -- automotive has been exceptionally strong, surprisingly so and seems to be holding up. We are very, very pleased to see that on the polypropylene side, on the compounding side. It has been very nice and something we are just really pleased to have happen.

People talk about some of the durables falling off. It seems like our orders are holding up. I would love to think that, us as a competitor and the products we sell into the market, but the good news is order books are holding up and we'll just see how it progresses later in the year.

Thank you. And then just one final question. With the obviously very strong excess liquidity you have got at this point in time, can you just sort of prioritize uses of some of that cash?

As Kent said, we are in early discussions with our Board on what to do with this very positive development. We didn't predict that we would have this much cash at this point in time. We really did take advantage of some market situations in the second quarter. We ran well when we needed to run well, and I think we have a new team performing in a new way. So we are very pleased to see the Company's performance in the second quarter.

We won't change our strategy of back to basics. One of the reasons that we performed so well is reliability is a key and if you can make the product when others aren't making the product, it shows up in the revenue line and profitability for our shareholders. So that will still be the cornerstone of how we go forward. You won't see us change the culture that we are developing on costs because we have some newfound wealth. That will not change.

We have begun to talk to the Board about debt levels and all those kinds of things, but it is very early in the process. We do want to maintain significant liquidity given that the economies of the world are so uncertain. We don't have a lot of flexibility because of debt covenants to buy back our own shares to issue dividends. So we are having early discussions with our Board on what to do with this very nice issue.

Thank you and good luck.

Thank you.

Don Carson, Susquehanna.

Yes, a couple questions. First on the volume outlook for Q3, obviously you were very successful in diverting volumes in the merchant ethylene market to take advantage of outages by competitors. As you say that becomes more balanced this quarter, can you -- is the polyethylene, domestic polyethylene market sufficiently tight that it could absorb more volume or do you just anticipate on your Gulf Coast units that you will have to ramp back volume a bit?

And then secondly just a question on the near-term propylene outlook, obviously, a light feedstock slate keeps propylene supplies pretty tight. Does this Petrologistics startup loosen the propylene market at all? Just be interested in your thoughts there.

Yes, in terms of ramping back volumes as we go, as I mentioned, the order books are staying in good shape and we continue to run at nice utilization rates at our crackers around the US Gulf Coast and obviously into the Midwest. We do expect some softening toward the end of the third quarter and into the fourth quarter. And so we will just have to see how all that holds up. We do sell some third-party product and we are hopeful that our customers' volumes hold up too because they have mins and maxes. We expect softening as the year progresses as I mentioned.

In terms of the Petrologistics PDH unit, that does come on fairly soon. Those units, from our experience, are pretty tough to start up. Over time, it may provide some volume into a very tight market. That is -- the propylene molecule is short right now, as you properly point out, Don, as a result of us running light feeds. And I think that volume is needed in the marketplace right now and it may soften the ultimate chain margin a little bit, but it is not that big of a kick, a couple percent, something, 4% in terms of the overall supply picture I think, and the molecule has been short.

Thank you.

Kevin McCarthy, Bank of America-Merrill Lynch.

Yes, good afternoon. On slide 10 you indicate that you are producing 65% of your US ethylene from NGLs. And I think you also made a comment that you have taken steps to crack a bit lighter. Was that comment relative to last year or is that an ongoing process to move toward the light end of the spectrum, number one? And then number two, can you give us a feel for how the 65% might break down among ethane/propane/butane? Thanks.

Why don't I start and then let Jim fill in, Kevin? This is Doug. We were, on NGLs, a little bit lower than we typically have been because we have the Morris turnaround going on and that is an ethane cracker. So we have typically been cracking about 75% or so NGLs with kind of 60% plus ethane-based, filling in periodically otherwise. And we have really been there really throughout this year. If you look back, we have been in 75%, 78% NGLs and that being the favored feed. And some of that is a function of adding to the flexibility of Channelview last year. We made a big step forward at Corpus Christi to access more ethane and flexibility there. So effectively the three big flexible crackers have all had some additional capabilities added to crack ethane. I will turn it back to Jim and let him respond.

Doug properly pointed out that Morris was down during this period, (inaudible) ethane cracker. We also had some supply disruptions down at Corpus from our ethane provider and that made us run a little heavier down there. That has been corrected.

In particular, at Corpus, we are working that very, very hard and setting new records on running that lighter. We are doing some furnace work next year early on at Channelview. So overall we think this ethane advantage is going to be around for a while and we are pressing our engineers to figure out new and better ways to run those units lighter and lighter and we are having some success with that.

When you complete that work, including the furnace work at Corpus, how high would that allow you to move the ethane number?

I think we have pushed up towards 80% at periods and probably could leave us there. And I think most importantly it put us in kind of a window where you can be steady across that as you start to open up these things.

I think that is probably a pretty good number. I shouldn't say that it is not new furnace work at Corpus. I want to clarify that. We completed that turnaround and we took a lot of the back end down. So most of that is done. What we are doing there is, in particular, trying to source new ethane, new light feeds into that location where it previously didn't exist. But the furnace work there and all the turnaround is done. I think the furnace work now that we are working is more Channelview and -- so that has traditionally run a little heavier. In fact, a couple years ago, they were trying to figure out how to run those furnaces heavier, not lighter. So we have given them some new direction.

And then on a separate subject, if I may, do you have a goal with regard to financial leverage relative to the net debt to EBITDA ratio of 1.1 you mentioned earlier in the call?

We have begun the discussions, as Jim mentioned earlier, with the Board. Clearly, our goal is to maintain financial flexibility. We believe this Company needs to be the premier company in the industry. That means flexibility, protection against volatile feedstock movements and so on. So we will be prudent in our leverage, but I am not in a position today to tell you what our target leverage numbers are going to be.

Thank you very much.

He is able to tell you we have significant liquidity to generate a lot of cash and I have to tell you we feel very good about that.

Michael Shrekgast, Longacre Fund Management.

Yes, could you guys just talk about how -- are we going to see the dividends coming through in future quarters at the same rate you came through this quarter?

These are dividends from our joint ventures and the answer is no, they tend to be quite lumpy. We anticipate some dividends in the fourth quarter, I believe, this year coming out of Saudi Arabia, but not -- they have to be approved by the Boards of the joint ventures at the time. And we do not have regular scheduled dividends coming out of these joint ventures.

Okay. And then just on trying to gauge the refining business, if you look at the first quarter, I think it works out, you were doing about 50 million a month and then in the second quarter, on a pro forma basis, with the addbacks, you are doing in the mid-80s. Is it safe to say, even as things slow down, would you go back below that first-quarter level?

It's hard to say. It depends on how the Maya 211 holds up with the Houston refinery. The numbers have come down pretty much at this point in time from the $20 level, but we just have to see how it holds up. There is a lot of gasoline out there in inventory at this point in time. The 211 has been more in the $14 to $15 range of late instead of $20 plus and that is about the range it was in in the first quarter, Mike, if you take it across the quarter. Of course, what it was is it was lower in January and February and then it came up in March as you moved into more of the driving consumption season.

And we are doing some fairly smart purchases of spot cargoes in all, and hopefully some of those will continue to be available. That has helped us a lot on the margins and we are working that extremely hard these days.

Okay, thank you.

Hassan Ahmed, Alembic Global.

Thank you. Hi, Jim. A question about your joint ventures in Saudi Arabia. At least over the last couple of months, the whole question around feedstock availability in Saudi in particular seems to be coming up again and again. And I think the argument goes something like this that typically in order to run the chemical facilities in Saudi at 100% utilization or near enough, you need oil output to be around 10 million barrels a day. Today, that seems to be running closer to around 8.5 million. So the question really is, with clearly the bulk of the gas out there being associated gas, are you either at your facilities or at your competitors' facilities seeing reduced operating rates?

I can't really speak to our competitors, but we have been okay so far in our plants. Having said that, like at Al-Waha, we have not run reliably at this point. That is something we're working very hard. That is propane and it has not been a feedstock issue.

Okay, great. Now a follow-up on the near term side of things. So if I take a look at CMAI's sort of pricing forecast for the second half of the year, it seems that depending on the grade of polyethylene and looking at or even polypropylene, the price declines that they are forecasting and this is H2 versus H1 are anywhere between 3% to 9%. But alongside that, they seem to be forecasting around a 20% price decline as far as ethane goes. So as I sit there thinking about the Americas side of your business, if the pricing regime that I just talked about does actually transpire, is there a case to be made that, on a margin basis, the second half could be equally strong as the first half?

It is really not likely. We get surprised from time to time as does CMAI, but we are really not expecting especially the fourth quarter to have the margins that we saw here in the second quarter.

And that is primarily predicated on the supply coming online and the like?

Yes, and just overall supply demand. If people are not moving product to Asia, then it is competing here in the United States. It all gets back to netbacks. It takes a little bit of time for people to readjust portfolios and move product around to see the competitive pressures, but we are expecting a weaker fourth quarter and later in the third quarter, we will just have to see where things are. But I also have to say so much depends on the economy. The demand side is very, very important and I don't think any of us have very much clarity on that at this moment.

And I would just add, remember, we are talking off of this second quarter where the supply disruptions, which of course weren't predicted, really supported the industry, really tightened up the industry. So you're going on forward on the assumption that everybody runs well. But even so, I mean if I look at the CMAI data and look at the spreads that they are predicting, I mean they are pretty good spreads really. They are not that poor, they are not that bad. So I want make sure people understand the perspective of what you are using as a frame of reference here as we talk forward on this.

Fair enough. Thanks a lot.

A couple things. One thing we never know is hurricane season, but a lot of facilities are in the Gulf Coast and we will see how the season develops. We hope we don't have any obviously, but that is always a wild card and as the economy is a wildcard and so let's just see how it develops.

And one final one. You talked a bit about the supply disruptions. I mean it is quite interesting how many there have been across the globe. What do you really attribute that to? Is it just the demand picture just has been so, so good that everyone seems to be running their facilities harder and harder and hence, we have these sort of unplanned outages?

Actually, I am going to turn this question over to Sergey because he wrote an article about this recently, had a view and I happen to share it. So even though he has only been an employee one day, I would like him to have a chance to give you his view on that one.

Hey, Sergey, congratulations again by the way.

Thank you. The study that was done showed us that, as the age of ethylene crackers globally gets older and older with time, and although new capacity is being replaced in those older crackers, I think it is likely that you will see more frequently outages taking place and in particular times when people do run hard, which they tend to do when the inventory restocking can be done and after the economy is in the recovery stage. So this is something that analysts are I think probably not as much aware of as they should be.

I think that could be a continuing surprise factor. You cannot estimate the size, but you should have some view onto impact the supply demand. Particularly as you move through 2013, 2015, the crackers are not getting any younger and those outages I think will take place theoretically again hopefully without some impact on safety of employees and community.

And obviously we will see more of these in sort of Western Europe and the US?

You will see them probably where the older crackers exist and also when the operating environment is not as focused on keeping them reliable.

So this year, we turned around Morris, Corpus, Berre. We are putting our money back into our crackers to keep the reliability up. Here in the second quarter, that was a big part of the story. We ran really well in certain instances setting production records when capacity was tight and it showed up in the bottom line. We know that maintenance makes a difference, so that is where we are putting our capital at the moment.

Very good. Thank you so much.

Jim Stanley, Heflin.

Hi, good to hear from you guys. Two quick questions really. One, I know we are expecting the second half to show some pressure with capacities coming on in various grades. But at the same time, if I am not mistaken, there might be some price increases that are out there for maybe the September time period or around then. So maybe you could update us on what may or may not be on the table in some of the plastic grades or in ethylene around the globe.

And then secondly just real quickly, I know you referenced the listing. Has there been anything that has caused you to delay your expectations of when you expect to be listed on the New York Stock Exchange over the past month or so?

Okay. I'll handle the first one and then let Kent address the second question on the listing. In terms of the US various grades, the low density, linear low, high density there are some price increases on the table. Certain of the flavors are in short supply. As I said, our order books are pretty good. There are a variety of competitors with price increases on the table. So I know a lot of our customers listen in on this call, so I want to be a little circumspect in my comments. But I will just tell you I think the industry dynamics support the price increases that we have on the table. Otherwise, we wouldn't have proposed those and in particular in a few of those grades, there are some shortages and that would be appropriate that the market reflect the shortages. I will let Kent comment on the second.

I think with regard to the listing, everything is on track. We now, because of the timing, we now are required to put our second-quarter financials, which should appear in the next day or so on our Internet site as well, into our Form 10 and we expect to file that shortly. The dialogue we have had with the SEC has been very fruitful. We see no substantive issues at all. And it is really in their hands now as we go forward, but hopefully we will have some very good news in the next week or two.

Great. Thanks a lot, guys.

At this time, there are no further questions.

Let me conclude then. I think we had an excellent second quarter. We felt good about it in that it was driven in large part because we ran well, we were able to take advantage of market conditions when they presented themselves. Our basic strategy seems to be working well. We've generated a lot of cash. Our financial position has improved significantly. I would like to thank all of our employees for their efforts in making that happen. I am extremely proud of the way that they have taken on the challenges post-bankruptcy. We are pleased to have a second chance having exited Chapter 11 and we are making the most of it. Thank you for your interest in our Company and we will try to continue to do well.

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