利安德巴塞爾 (LYB) 2011 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. (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, Vicky. Well, hello, and welcome to LyondellBasell's first-quarter 2011 teleconference. I'm joined today by Jim Gallogly, our CEO; Kent Potter, our CFO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions.

Before we begin the business discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website, www.lyondellbasell.com.

I would also like for you to note 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 cautionary statements in the presentation slides and our financial reports, which are available at www.lyondellbasell.com Investor Relations. And 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.

Now, finally, I would like to point out that a recording of this call will be available by telephone beginning at 2 PM Eastern time today until 8 AM Eastern time on June 2 by calling 800-964-3620 in the United States and 203-369-3425 outside the United States. And the passcode for both numbers is 5674.

Now during today's call, we will focus on first-quarter 2011 performance, the current environment and the near-term outlook.

With that being said, I would like to turn the call over to Jim.

Thank you for joining our earnings call. As Doug mentioned, a set of presentation slides accompany this call and are available on our website. Let's begin by turning to page four to review a few financial highlights.

The first quarter was a strong start to the year, demonstrating significant improvement over the seasonally slower fourth quarter.

During the quarter, we generated $1.4 billion of EBITDA, a $640 million increase versus the fourth quarter and more than doubling the first quarter of 2010. Net income for the quarter was $660 million or $1.15 per share. Every segment showed improved financial performance over the fourth quarter.

Improved margins in our olefins and polyolefins products, as well as in the Refining & Oxyfuel areas, were the principal drivers. We will discuss this in greater detail later in the call.

Before moving on to the next slide, I want to call your attention to the graph on the bottom of the page, which visually indicates both the overall board trend in our performance, as well as the typical seasonality in our results. The fourth and first quarters are normally seasonally weaker than the second and third quarters.

The first quarter of this year was stronger than expected. Dspite rising energy prices, margins and volumes are generally unseasonably strong. As we will comment later, this trend continued into April.

Let's now turn to page five and speak to our safety performance.

As you can see, our safety statistics are excellent and continued the improving trend demonstrated in the latter portion of last year. I'm proud to say that this performance is recognized within the industry as evidenced by our Bayport polypropylene plant being the sole recipient of the coveted 2010 NPRA Distinguished Safety Award. This was the only chemical plant or refinery in the United States to be so honored.

While speaking of progress and accomplishments, I would like to expand the conversation beyond safety. We have been very active in further improving our overall performance and planning for our future.

I would like to present a few highlights to highlight our progress. Over half of our plants have set new production records in the last year. Given the advantages of ethane cracking in the United States, we have also pushed hard to expand our ability to crack lighter feeds. Over the last couple of years, we more than doubled our ethane cracking at both our Channelview and Corpus Christi crackers, the heavy crackers in our US systems. The modest capital that was spent had extremely good payouts.

Our Morris, Illinois and Clinton, Iowa plants are among the assets setting new production records. This is important as both crackers benefit from recent Midwest ethane/propane blend prices that average $0.15 per gallon less than Gulf Coast prices. We continue to actively work on other opportunities to expand both ethane supply, consumption and ethylene production. At Channelview we are working on projects which would further lighten the plant's feed slate over the next 18 months. We should be able to shift the mix toward producing an additional 500 million pounds of ethylene from ethane.

Additionally we are exploring opportunities to further increase capacity at Channelview and La Porte. While engineering is at the early stages, it appears that we could increase our ethane-based ethylene production by 500 million pounds or more. These are opportunities that would require several years to realize, but are expected to have robust economics.

We are also setting records in our polyolefin facilities. For example, we have increased dramatic order and Victoria site production capabilities by approximately 10%. This has been accomplished through attention to details and implementation of small capital projects.

Our ethylene oxide operations represent another success story. During fourth-quarter maintenance, we upgraded the catalysts and have benefited from increased production. We achieved a daily rate increase of 10%, also a new record. You will hear later that our timing was excellent as the market for these products is strong.

A new joint venture propylene oxide styrene monomer plant in China is running impeccably. It is time for us to ask -- what is next in the propylene oxide business as the market continues to grow?

Progress at the Houston refinery also has been good. Upgrades implemented during the recent fluid catalytic cracking unit turnaround have increased unit throughput by approximately 10%. At expected market conditions, this should increase EBITDA by $25 million annually, a very nice payout project.

By the way, we have recently run our crude units at approximately 280,000 barrels a day against a nameplate of 268,000 barrels per day.

Our international operations are also progressing. The significant dividend from our Saudi/SEPC joint venture and recent strong operations at the Al-Waha joint venture are two examples. We expect our dividend flow from our joint ventures to continue to improved as world markets improve.

Finally, I want to mention energy efficiency, which has been another success story across the Company. Over the past five years, we have reduced energy consumption by approximately 2% per annum. This equates to more than $150 million in annual savings.

The projects that we are working on today can double the savings over the next five years. Most of the savings will come from projects with better than a two-year pay back. We continue to find ways to improve our cost structure and efficiencies throughout our system. All of these accomplishments are not often visible by themselves, but as we review our financials, you see they add to our bottom line quickly. We are a company that works every detail from safety performance to cost reduction, production growth to value enhancements to our customers and our shareholders.

Let me now turn the call over to Kent to discuss our financial performance. Kent?

Thanks, Jim, and thanks to all of you on the phone for joining us this morning.

I will be brief this quarter as our strong results speak for themselves. However, there are a few items that I want to highlight and explain more fully.

First, on page six, we show our segment EBITDA for the quarter and the last 12 months. Combined, our last 12 months' EBITDA was $4.8 billion. The combined Olefins & Polyolefins segment generated $2.9 billion over this period, but all segments performed well. In the Intermediates & Derivatives, we benefit from our proprietary technologies, coupled with improved durable goods demand. Refining in Oxyfuels reflects the strength of our asset position and beneficial raw material situations in both the Houston refinery and Oxyfuels. Overall our businesses are very well positioned in the current environment of high crude oil and low natural gas prices.

Let's page forward to slide seven to see how the cash position is developed. During the first quarter, we increased our cash balance by approximately $160 million. A first glance this may seem less than expected, especially in relation to an EBITDA result of $1.4 billion, but the first quarter is a period of heavy cash demands. Included amongst the annual or one-time payments were property tax payments of approximately $90 million, employee bonus payments of approximately $110 million, customer rebates of approximately $100 million, and $175 million payment to our pension plans.

In total, almost $500 million in payments were made which were unique to the first quarter.

You will also note that working capital was a significant consumer of cash. I will provide additional detail on working capital movements in just a minute, but first I want to summarize the chart on the right by pointing out that in the 11 months since our emergence we have generated nearly $3 billion of excess cash and used approximately $1.2 billion of this to reduce our debt.

Now let's move to slide number eight and take a look at the working capital changes.

Indeed, our working capital and increased materially during the quarter. First, I would like to highlight that our payables increased $400 million more than our receivables, primarily due to the timing of crude oil and other raw material purchases. However, inventory values increased by $900 million, which is especially significant given that we utilized LIFO accounting. The increase was driven by three factors.

First, higher crude oil prices as Brent crude rose by more than $20 per barrel versus the fourth-quarter average. Second, we purposely increased inventory volumes in part as part of our planning for facility maintenance. And finally, dislocations in the crude oil markets enabled us to secure discounted crudes, leading to an inventory volume increase. Our strong balance sheet enabled us to pursue these opportunities, an action which we would not have deemed feasible in the past.

On the chart on the right, you can see that despite these cash uses we held our liquidity at greater than $6 billion while slightly reducing net debt. Given the nature of the working capital increase, we expect that a large portion of the increase will be converted back to cash as we reduce inventories over the coming months.

On the financing front, we are in the process of redeeming 10% of the outstanding 2017 bonds. These are the 8% coupon bonds, and the amount redeemed will be approximately $250 million, bringing the outstanding balance of these notes to near $2.25 billion.

Regarding the balance of our debt, we continue to explore further actions. However, at this time we don't believe that the economics support any action on our part. We will continuously monitor and evaluate opportunities, and we will take action on beneficial shareholder return.

Thanks. I will turn the call back to Jim now.

Thanks, Kent. Let's quickly step through a summary of first-quarter results for each of our businesses. Page nine addresses the key results for the Olefins & Polyolefins Americas segment.

First quarter continued a stream of strong quarterly results. EBITDA of $484 million was approximately $140 million more than the corresponding fourth-quarter result.

Within this segment, olefins EBITDA improved by approximately $70 million. Merchant ethylene sales volumes increased by approximately 75 million pounds, while margins grew by approximately $0.05 per pound, the latter being a combination of increased sales price and lower cost of ethylene production. Coproduct values outpaced raw material cost increases, leading to the lower cost of production. These improvements were achieved despite the disruption caused by the enterprise fire at Mont Belvieu.

The quarter also benefited from improved polyethylene results. EBITDA increased by approximately $30 million as volumes grew by approximately 6%, and the average selling price increased by $0.04 per pound.

Polypropylene EBITDA also increased despite a 4% sales volume decline and significant raw material cost increases. Price increases outpaced raw material costs, but pressured sales in some lower and less sophisticated applications.

Overall the O&P American segment results also benefited from lower fixed costs following the somewhat elevated fourth-quarter spending.

To help you appreciate how far we and the industry have progressed, I want to provide a quick perspective versus the first quarter of 2010. Compared to this period, EBITDA increased by approximately $210 million or 75%. The majority of this increase came from the ethylene chain margin.

Thus far, second-quarter industry conditions have continued to be favorable. However, our second-quarter results will be impacted by turnaround activity at our Channelview site where we have one of the olefins plants in turnaround for approximately half of the quarter and will also perform scheduled maintenance is on some of the related processes there. We estimate that this downtime can negatively impact second-quarter EBITDA by approximately $75 million.

Let's page forward to slide 10 and turn our attention to Olefins & Polyolefins Europe, Asia and international. Fourth-quarter EBITDA was $333 million, a $218 million increase versus the fourth quarter. Included in these results are JV dividends of $96 million, the majority of which come from our Saudi Arabian ethylene/polyethylene joint venture.

The situation in European olefins reversed itself versus the fourth quarter, and margins were squeezed by increased raw material costs. Price increases were implemented throughout the quarter, while the cost of ethylene production remained relatively unchanged. Coproduct price increases offset raw material cost increases.

As a result, margins expanded by approximately $0.10 per pound of ethylene, leading to an EBITDA improvement of approximately $100 million as compared to the loss incurred in the fourth quarter. Our polyethylene and polypropylene results were relatively unchanged versus the fourth quarter. Polypropylene compounding results remain strong as EBITDA increased by approximately $10 million, benefiting from a 7% sales volume increase. This segment also benefited from lower fixed costs.

The second quarter has started out quite well as March industry conditions generally continued into April. The benchmark margins plotted on the bottom of the page provide a perspective into industry conditions.

Please turn to page 11 for a discussion of the Intermediates & Derivatives segment. First-quarter EBITDA was $270 million, $59 million greater than the fourth-quarter results, which included a year-end LIFO inventory charge.

Within this segment, the propylene oxide and derivatives area represented slightly less than half of the improvement. Substantial propylene cost increases were passed through to the market with some delay, but lower variable and fixed costs more than offset this pressure. Strong demand, partially related to aircraft deicer sales, lead to an increase in volumes.

EBITDA increased for all of the major intermediate chemical products. Ethylene oxide results were particularly strong due to both favorable industry conditions and improvements implemented during the late 2010 turnaround. The latter enables us to set production records during the quarter and is a good example of the opportunities we are realizing within our system.

TBA intermediates improved on previous strong results as both volumes and margins increased. As you know, this segment has been a strong, steady performer and is expected to remain so in the near future.

Moving forward to page 12, I would like to begin to discuss the Refining & Oxyfuels segment. First-quarter EBITDA was $210 million, a $131 million increase versus the fourth quarter. The Houston refinery benefited from both increased industry margins and throughput, which together more than offset an estimated $75 million EBITDA impact related to the fluid catalytic cracker turnaround.

The Maya 211 benchmark spread improved by $5 per barrel, and our corresponding spread improved it somewhat more. First-quarter crude throughput averaged 258,000 barrels per day, despite having the cat cracker unit down for turnaround.

During the maintenance, we were able to profitably sell cat cracker unit feedstock, enabling us to maximize crude throughput. The refinery also benefited from a $34 million insurance claim. In total, refinery EBITDA improved by approximately $80 million.

The Berre refinery continued to post a loss as results declined by approximately $10 million. Naphtha prices lagged increased crude costs placing pressure on margins. Oxyfuels results improved by approximately $40 million this quarter. This is attributed to improved margins as a benchmark that we follow and report and improve by approximately $0.30 per gallon. This is consistent with normal seasonal trends, but is somewhat more pronounced due to higher gasoline prices relative to natural gas-based raw materials we use in production.

I would also like to mention that our shipments of ETBE to Japan have not been interrupted by the earthquake and subsequent events.

As you can see from the industry benchmarks on the slide, conditions in this segment remains strong. The Houston refinery has been operating at full capacity, and we believe that we are well-positioned to take advantage of the environment.

Let's move to slide 13 in the technology segment. This segment posted first-quarter EBITDA of $91 million, essentially doubling fourth-quarter results. Catalyst results improved by approximately $25 million, of which approximately $10 million represented underlying business improvement, while the balance relates to a fourth-quarter LIFO inventory charge. Licensing results also improved by approximately $10 million. Ongoing payments from earlier activities represented the bulk of the licensing income as new opportunities remain subdued.

Let's step back from the details and summarize the environment on page 14. Overall the first quarter was very strong as businesses recovered from the seasonably slower fourth quarter. Despite significant raw material cost pressures, most product margins expanded.

We generally operated reliably, and our financial results reflect this. The second quarter is shaping up well.

In our slide package, we plotted a number of industry benchmarks, which indicates generally strong April industry conditions. Remember, however, that we will be conducting maintenance activity at our Channelview site, another step toward improving our assets and positioning ourselves for what we believe is a very bright future.

Later this week we will hold our annual shareholder meeting, the outcome of which we believe will result in an expanded and balanced board with six independent directors, and we hope to receive shareholder endorsement to begin paying dividends. This first step is modest, but you should regard this as the beginning of a process. We intend to return cash to our shareholders through a competitive dividend.

We have also taken another step toward improving our capital structure as we're paying down 10% of our 2017 bonds. Today we celebrated our one year anniversary, ringing the opening bell of the New York Stock Exchange.

Through March 31, our last 12 months' EBITDA was $4.8 billion, and since becoming a public company, we have generated $2.9 billion of cash. Our stock has responded, more than doubling from $17.61 per share to a recent high over $45, and today, of course, the price is higher yet.

We are a new company, and I hope that we have been able to convey a sense of our progress, potential and commitment. The cover of our annual report suggests that we may be the busiest chemical company on the planet. I personally believe that we are, and we promise to maintain that level of intensity. We have much to prove as we advance the Company's performance and explore internal and external opportunities.

We have completed a strong first year, but the best is yet to come. On behalf of 14,000 LyondellBasell employees, I thank you for the past and future support. We would be happy to take questions.

(Operator Instructions). Jeff Zekauskas, JPMC.

Can you assess the current state of the propylene and butadiene market, how you see conditions and inventories now and how you expect these markets to evolve in the course of the year?

Let me take that question. Obviously propylene prices have been very elevated. As a result of that, we have seen sales volume of polypropylene fall somewhat for the less sophisticated applications. I think as a result of that we have also seen propane become more competitive. We expect that trend to continue in the near term. Butadiene prices have continued to rise, have been very positive for our European operations, positive for our US operations, and I think we will continue to demonstrate nice earnings potential.

And then secondly, I think you were interviewed this morning and you spoke of studying possible condo crackers. Can you elaborate on your thoughts there?

As I said in the earnings call a few minutes ago, the first thing that we are studying is a de-bottleneck at La Porte, de-bottleneck at Channelview. We think that makes the most sense. Typically we call those brownfield. De-bottleneck investments have the most significant payouts. We are going to pursue that. We are at the early engineering stage, and so far those projects look very nice.

We think that we could add 0.5 billion pounds of ex-production, potentially more than that. You have seen several announcements from our competitors about new worldscale crackers in the United States thanks to the ethane advantage that we are enjoying at present and expect to continue to enjoy for at least the near-term future.

We also will study that. We are not ready to announce that we will participate in something of that sort, but what we did say is, if a new cracker gets built, if that is something that we decide is a viable part of our future, it might make sense to participate in a joint cracker, and we call that a condo cracker. So that is what that story was about.

Frank Mitsch, BB&T Capital Markets.

Nice job ringing the bell this morning. I was wondering if you could just offer some comments on what you thought the overall impact to the enterprise fire was?

And then also, as you look at your Channelview turnaround, you said it is one line. I guess one line is going to be down for half the quarter. What would your overall volume impact in Q2 be just specifically related to Channelview for the O&P Americas business?

Let me start off with that, Frank. This is Doug. The enterprise impact impacted us in two spots primarily. One at Channelview where we needed to quickly adjust the feed slates and go heavier because of the reduced light feeds. The other was at La Porte where the disrupting caused us to reduce rates significantly and balance between ethane and propane, and therefore, we lost production there. All told, probably the impact of that was in the $10 million, $15 million range is a rough estimate. So really our people were able to quickly react and keep it very much to a minimum.

As far as the turnaround and the impact of the turnaround, the olefins plant that will be down is about a 1.9 billion pound plan. So if you think of the time frame, that will tell you how much ethylene is impacted.

Now it is a significant piece of work our people are doing, and we are also working on some of the downstream units and timing the turnarounds with that. So there will be some impacts there as well.

All right. Great. And then on the Intermediates & Derivatives business, you mentioned it's a strong, steady performer. You talked a little bit about some margin compression in Q1. How did April look in that business in terms of your margins, and what's your expectation in Q2 relative to Q1?

I think we would say that the business continued to be pretty strong. We have had some propylene price pressure, but have been able to move those price increases through to the market in a pretty positive way.

Bob Koort, Goldman Sachs.

Jim, you know we have talked a little bit about a path to a super cycle given the unique conditions here, and then maybe some changes in the Middle East. I'm wondering if you can answer two things for me. First, do you worry at all about availability of ethane as everybody starts planning projects over the next four or five years, and how do you make sure you lock up that volume and/or price?

And then secondly, given your exposure to some of the JVs in the Middle East, can you talk about the threat of Middle East capacity or lesser threat as some of that associated gas starts to go away?

Yes, I think in terms of super cycle, as we see things today, there seems to be a nice balance between natural gas liquid supply and demand. That can change from moment to moment as we experienced during the enterprise fire, but overall there is reasonable balance.

We know that there is additional fractionation capacity coming on. Enterprise has a 40,000 barrel per day extra supply of ethylene online in December, target another 40,000 early Q2, some smaller incremental volumes, and then we expect maybe next year another 100,000 barrels per day of ethane.

As these -- as the shale plays continue to develop, the economics here have been reasonably strong. Extra fractionation capacity comes off. We have had some dialogue with some of these processing companies, and they assure us that the ethane will be available should additional capacity be added. It does not seem to be a concern at this point in time.

Now, in the Middle East, I would comment that in terms of new capacity being added, as we have surveyed opportunities there, we expect that the capacity will be naphtha-based in most locations instead of ethylene and propane. That will change the dynamics and economics of those projects. They will be potentially less competitive.

As we see things today, the Middle East has the best cost structure with assets on the ground today. I'm not talking about the new assets and then the United States with the cheap ethane. Newer projects in the Middle East may not be as competitive as some of the new projects in the US, depending upon the availability of that feed. But --

Can you talk about your plans for propylene? I know Dow has announced a new plant for on purpose propylene. I think you guys have considered that. Is there something on the horizon we can expect there?

Well, we continue to look at de-bottleneck opportunities, and as a result of that, we could have additional propylene supplies available, too. There are some things. As you know, we have a flex unit at Channelview, and we will look at the economics of de-bottlenecking that as we look at the other things that are opportunities in our portfolio.

Don Carson, Susquehanna.

Jim, two questions, one on the refining side. You talked about a $25 million benefit from the FCC turnaround, but at the same time you also mentioned that you have been running at 280,000 barrels a day recently. Are you ready to sort of rewrite that refinery, and what drove the higher production rate? Was it some of the work you did on the FCC unit, or was is it something else?

And then secondly, what is your view on the current high margins that we are seeing in WTI-Maya? How long do you think that might be sustainable?

The first in terms of the capacity of the crude units, those crude units could always do 280,000. We rated the units at 265,000 because we had constraints further downstream. It just makes sense to run that way.

What we are doing now is besides the FCC turnaround that has allowed us to move up the volumes there by about 10%, we are also taking -- we are in a sense de-bottlenecking or -treating running those at less severity. We are moving some of the bottom of the barrel out of the crude unit into someone else's hydrocracker. And, as a result of that, we are seeing the refiner generally perform much better throughout. We are getting a nice margin for that hydrocracker feedstock, and overall the refinery is now getting to be a unit more like it should have been in the past.

The other question on WTI, obviously there has been a significant spread between WTI and Brent. That has happened before. The Midwest refineries benefit from that. The Seaway pipeline could be turned around and could fix that. There has been some discussion by enterprise of a new pipeline. That is several years away probably. It remains to be seen whether Conoco Phillips would reverse that pipeline and flow. But for now, as long as we see all the tankage at Oklahoma toll, we are going to see that spread for a little while.

I would like to point out that the Brent heavy differential remains pretty strong. It is just that differential between WTI and heavy crude seems to be more compressed. Our Company has been opportunistically buying crude, taking advantage of that dislocation in the markets. That is why we built some inventories, and I think you're seeing some nice returns now as a result of those actions we have taken.

Laurence Alexander, Jefferies.

I guess two quick questions. First, any significant operational downtime now anticipated for the back half of the year?

No, not really. We will have normal turnaround and activities in a company this size, but really the olefins turnaround in the second quarter is really the next biggest piece. We will always have some propylene oxide plants, so later in the year we will have a propylene oxide plant, but usually don't see big impacts from those.

And secondly --

POE unit down later in the year in the Netherlands as well.

Thank you. I guess just, secondly, and this is a recurring philosophical issue, as you think about your balance sheet potential leverage targets and you see more competitors moving to lock in access to US ethane supplies, how is that changing your thinking, if any, on the urgency of evaluating potential projects?

Well, I don't think it changes our sense of urgency. We want to be thoughtful in the way that we expand. As I said, the de-bottlenecks seem to have the highest return based on our early engineering. We do study the availability of that thing. As you know, a lot of that ethane clears at Mont Belvieu for the Gulf Coast, and as best we know in discussions with third parties, nobody is taking long-term contracts. They are just expecting to trade going "off the grid."

So we are studying. We are working very hard like everybody else, and we will see how the opportunities shape up.

P.J. Juvekar, Citigroup.

Jim, I'm looking at your propylene, propylene oxide chain. Do you want to go further down the chain into polyurethane or maybe add other propylene derivatives as you try to fully integrate the propylene chain?

Well, one of the things we have been able to do through long-term contracts is make sure that we have the offtake of our units. That has turned out to be a good model for us. As we have expanded, for instance, in Asia, we have been able to put contracts together very nicely given that we are second largest in that market space. I'm pleased to say that the joint venture POSM plant that we started up in Asia was sold out almost immediately, and that is why we are beginning to study what is next.

You know, I would remind people, too, that we are integrated downstream and some other chemicals with the glycol ethers, which have been very strong in the solvent industry and electronics. Butanediol has been a very good business to be in for the past year with demand out of automotive and also on the apparel industries have been very strong.

Right. And Jim, second question on European ethylene margins, there was some improvement in the quarter. What is your outlook for that chain in Europe for the next couple of years?

Well, I think Europe will continue to see some pressure, frankly. Naphtha prices have caused Europe to have very high ethylene and, thus, polyethylene prices. It is one of the highest prices in the world. So far we have been able to push those price increases through to the market, but, as we have said, we expect Europe to be a tougher market place than the US, and we will just how see how the market develops.

I do want to say that our utilization rates are generally lower for most companies, but since we are -- our integration is such that we are long on polymer and short in monomer in Europe that has not been the same pressure on us. Our operating rates in Europe for our crackers has been around 95%, which is very positive.

Over time, as the world economy improves, we expect all places in the world -- Asia, Europe, as well as the United States, Middle East -- to all have better returns going forward. But of those regions, obviously Europe will have more pressure than other places.

Bill Young, ChemSpeak.

Jim, I have asked this before, but things keep changing. You do hear your competitors, as was mentioned, announcing new olefins projects in North America. How do you think the transportation or utilization of a shale, Marcellus shale, natural gas liquids will ensue over the next few years? Pipelining it, shipping it, using it in the Northeast, I think Saudi has been mentioned. What is your current thinking on that?

That one is a very difficult one to answer. I think, as we studied that, most people expect -- (technical difficulty) those liquids will come down to the Gulf Coast. There could be some move up into Canada. We have heard some discussion of that, and it is even possible there could be a plant in the Northeast.

I would like to point out that, if you have a plant in the Northeast, they don't have the advantage of the grid. If your cracker goes down and if you lose your monomer, you use your polymer or whatever, the derivatives are downstream. And so there is a bit of an advantage to being in the Gulf Coast for all of these facilities. We will look at that possibility there on the East Coast, but my guess at this point in time is that it would be favorable to build in brownfield sites. Existing facilities with all the infrastructure facilities, pipelines, grids and the Gulf Coast versus on the East Coast.

Okay. Great. And as a follow-up, how much threat do you believe the environmental issues related to deep fracturing is in the shale gas areas using those fracing fluids?

I used to (inaudible) some of those wells -- (technical difficulty) years ago, and those wells can be drilled in a very sound environmental fashion. I have a feeling that there's a few operators who may have cut a corner or two, but that should not keep those fields from developing. There is no reason that water should be contaminated if wells are drilled properly. The industry needs to police itself and do a good job of that, and I note that the API is studying recommendations on what to do next to make sure that wells are drilled in an environmentally sound way. I don't think that should derail anything. Those wells can be drilled efficiently.

Hassan Ahmed, Alembic Global.

A question around the earnings strength at your Saudi joint ventures. Obviously margins for both polyethylene and polypropylene improved sequentially. But what I'm trying to get is the sense for is, did you also see improvements in operating rates? Now I do realize that both Al-Waha and SEPC are relatively new facilities. So I'm just trying to get a sense that are these sort of relatively new Saudi facilities now running at optimal operating rates?

Let me first comment on that Al-Waha. When that unit started up, we had some issues with our propane to hydro unit, a little bit of issues in teething problems around the polypropylene unit. We put in the new plant manager from our Company at that site. We have gone down and done some additional training and all, and I am very, very happy to tell you that that unit is running extremely well right now. And so those operational teething issues that we started with, I think, are behind us, and we should see better operations going forward.

SEPC has already been running for a while. You saw a very nice dividend in the first quarter. We expect continued dividends from those sites, and we think the Middle East assets that we have had a very bright future. More to come on that.

I would like to comment that a lot of those assets do not take advantage of being on a grid. And so, again, if you lose a cracker, then you lose your downstream units with a little bit of flexibility here and there in Jebel. One of the things that I think the entire industry is looking at is, how do we cooperate a little better among all of the plants and move product around, and that will be an initiative that I think we will study with the Saudi government and all the other producers there.

Kevin McCarthy, Bank of America/Merrill Lynch.

Jim, when you took over as CEO, you highlighted quite a bit of earnings upside from operating your units more reliability and more efficiently over time. We heard more about that this morning. If I look at the first-quarter results, are you yet at a point where you would consider the operations of LyondellBasell normalized relative to arguably a dislocated state during the bankruptcy, or is there a lot more to go there? How would you characterize that broadly?

Well, we still have work in progress. I think approximately 60% of our plants set new production records last year, and that is something we are very, very proud of. That is the attention to detail I was speaking about.

But we just finished a turnaround at our refinery, and you're seeing that run better. We have a big turnaround at Channelview. We are doing a lot of work on our convection sections to reduce energy, improve yields. I think overall our gap closure plans are progressing as we expect, but we still continue to take cost out of the operations to improve the volumes on the polymer side. We suggested that on some of these plans do very small capital projects but mostly attention to detail. We have been able to increase volumes by 10%. This is an ongoing thing as we get to be a better company, and I think more to come.

The second question if I may, on polypropylene resin given the price premium that that product now commands, I guess I would have expected to see some switching into other polymers. It looks like if I add up Americas and your international results, you are actually up 6% to 7% year over year. Are you seeing that sort of switching?

In the United States there has -- (multiple speakers)

Other factors perhaps?

Yes, there has been some switching in the United States. The polypropylene resin has been more expensive than, say, high density or some of the others potential substitute resins. In some of the lower value applications, we have had some loss to sales. In Europe that has not been as pronounced.

Remember after-based cracking, still a significant amount of propylene being produced, and so the prices there are not that different compared to basis. So I think regardless of which way that goes, we are also very large in the United States in high density. So if there is a switch to that, we are well positioned, and we are a leading polypropylene producer. And so what we tried to do is move our product up into higher value applications.

Understood. And finally, if I may for Kent, what tax rate do you anticipate for the balance of the year, please?

It would be probably the same, Kevin. We've got -- we will say in the Q here in a couple of days, our book or our effective tax rate is slightly below the US 35% range because some operations in lower statutory tax jurisdictions, the untaxed nature of our dividends coming out of our joint ventures. We also -- there are some offsets to that, but I think it will stay just about where it is now. For book purposes, the cash purposes we will see we will be paying taxes this year in the US, but maybe not at the rate we thought because of the change in the tax law.

Andy Cash, UBS.

Happy anniversary, everybody.

Thank you. It is a very proud day for our 14,000 employees.

Congratulations on that. Just a couple of questions. One, if we could maybe compare and contrast your a situation in shale gas and your plans, you know, Dow is trying to create -- they are creating some optionality for ethane by joining hands in a contractual way with Range up in the Marcellus. I'm just curious, if you guys are looking at something like that where you would have a choice of cheap ethane from the Gulf Coast or cheap ethane from Marcellus, is that something that you think you might be following in that direction?

Well, based on the discussions I have had with some of the fractionation companies, I don't think it is necessary to take a position like that at this moment. I think that there will be significant ethane available. One of the things I would point out that, for instance, at Corpus Christi, our geography is exceptionally good. That is down there very close to one of the best plays that's going on right now, the Eagle Ford. And so people are coming to us and saying, could you use more ethane, please?

I would also point out that in Morris, Illinois and in Clinton, Iowa, we are extremely well-positioned being Midwest consumers of that ethane. So we will watch that. But, at this point in time, I don't think you have to do a marriage with a producer like that. If we do need to do that, having grown up in the E&P business, we have lots of friends, and we can get into those discussions very quickly.

Okay. Thanks. Just if I could another question on your exports, could you talk a little bit about how the export markets are doing? Is it a big percentage of your production today, and what have the trends done?

One of the things that we have uniquely done in our polyethylene business is repatriated a lot of the volumes. We find that we can achieve better margins generally in the United States, instead of sending it to Asia right now. And so we are exporting 10% to 15% at any moment in time.

When we do that now, it is generally South America. It's higher value markets. We don't find it necessary to export to Asia at this point. I always talk about selling up. That is an example. We repatriated those volumes, not selling it through traders in the Asian markets, and we are selling it at home for much better margins.

Mike Shrekgast, Longacre.

I was just wondering, if oil was flat for the rest of the year as you guys were looking out -- I know you're not making any forecasts -- but if oil was flat, would you see working capital being much of a use from here?

No, I think the main thing that you have got to recognize with us -- first of all, we are a LIFO. That means if prices go up, we generally expense it. The only reason you are seeing such a large increase in inventories now are the reasons we have talked about. A very, very large amount of opportunistic buying at this time, coupled with our shutdown schedule.

So, as those inventories come off, in some cases they will stay a little higher to support ourselves, especially in our polymer business. But I think oil price, you tell me where oil prices are going, I will tell you what will happen with cash. But we would like to see some of it come out, as I said, as the volumes come down in inventory.

And one other thing. You noted that the cost of ethylene production came down a few cents per pound. Can you talk a little bit about that? Is that internal projects that you guys completed that is making the process more efficient?

No, Mike, this is Doug. I think comments on the costs of ethylene really go to the fact of the strength and the coproducts. That was mentioned earlier and in some questions.

So the strength of coproduct pricing really has offset the movement in the naphtha and crude oil pricing to ultimately lower our cost of ethylene in the quarter. Now, of course, these are things that are always moving around. Prices of all of these raw materials are moving around, so it is a constant optimization for us.

And one last, was there a tax refund of $250 million in the quarter?

No, not yet received. IRS is busy. I guess they were worried about whether or not they were going to take a furlough. So we are still anticipating a significant refund along those lines in the first half as soon as they can get it through their bureaucracy.

Paul Mann, Morgan Stanley.

Could you talk about what you are seeing in terms of inventories in the US, Europe and in Asia? I was just coming back from the Middle East, and a lot of the Middle Eastern companies were a little concerned about high levels of inventory in Asia. And so given they export most of their volumes to Asia, where would you expect them to ship to if they cannot ship them into Asia?

First, let me comment that we are shipping a lot less to Asia as I commented earlier from the United States. Product from the Middle East still goes to Asia. We have not seen any issues in moving any of our polymers.

We also would point out that there was a recent announcement that the Chinese crackers were cut back about 10%, I believe. And so if there was a little length in inventories, we expect that to correct itself fairly soon.

I saw that announcement as well. It is nice to see them being disciplined.

Gregg Goodnight, UBS.

You mentioned that you are anticipating six independent board members after this. Do you see a potential for this triggering a debt upgrade, and what would you think the timing on that might be?

Well, I think as you probably read in S&P's recent announcement there, they are clearly interested in sitting on an independent board. We hope that we will have, I guess, three more independents at this time.

Yes, three more this election period, and then we will add another independent before October (multiple speakers) NYSE requirements, so anticipate having a majority independent board before October.

We are working on that extra board member as we speak. We are being very thoughtful on who we put onto the board, and I think you will see that the board that we have constituted so far is really outstanding. We are very proud of the individuals that have accepted our invitation to join us and one more to come.

Second question. In your remarks, I believe you mentioned PO is running hard, getting tight. What are you considering for potential expansion options in propylene oxide, and what technology potentially would be your next plant?

Well, it is a possibility that the next plant could be PO TBA. We are at the early stages of engineering that opportunity. But, as we look at the Oxyfuels market, there looks to be enough opportunity there to move significant Oxyfuels if we decided to go that route. The geography is not yet settled. We have a significant number of people who would like to joint venture with us in propylene oxide. And so we are studying what would be the ideal situation for us there, but this is being worked hard.

And if I could sneak one more question in, your ethane arbitrage you mentioned, Midwest and Mont Belvieu, was $0.15 a gallon in the first quarter, and you mentioned the crackers in the Midwest. What is the probability of an expansion of those crackers, and if it was, what percentage of capacity do you think you could get out of those crackers?

Well, we will look and see what we could do. If we did something, there would probably be a de-bottleneck. But I would like to tell you that both those crackers have set production records last year, and Morris after this de-bottleneck has never run better. I think we are at 1.3 billion pounds a year, and we were monomer short and now we are monomer long. We have a very nice, inexpensive tea-bottleneck we can do at Morris, and so more to come on that story as well.

Roger Spitz, Bank of America/Merrill Lynch.

Jim, regarding the $82 million dividend from SEPC in the quarter, how much was one-time versus makeup dividend versus dividend related to cash actually generated in the quarter or in the recent past?

There was clearly some catch-up. It was I think we talked about that dividend was scheduled to come in earlier. But, as the joint venture settles down now with normal operating rates, depending on their cash generation, which will, of course, fluctuate with their spreads, we anticipate a steady flow. We will have another dividend later this year we believe, but I would like not to talk about the amount at this time.

That is fair. And can you give a sense of how much your Q1 European olefins EBITDA was based on butadiene versus other olefins and coproducts? Just a sense?

I don't think I have a really good split off the top of my head on that. But I think what you can see is, as costs on raw materials move, the coproducts move more so, and that is what lowered the cost of ethylene. Now where the co-product moves? That was propylene, butadiene and those items, so the coproducts remain a key piece of the European profitability.

And butadiene is exceptionally strong right now. So it's just important to the margin.

Brian Maguire, Goldman Sachs.

I was wondering if you could ballpark the timing on some of those de-bottlenecking and brownfield expansions that you mentioned in your prepared remarks? Will we see some additional capacity after the Channelview turnaround this year, or will it be more of a 2012 kind of event?

And then could you also provide an update on your current feed slate and how much capability you have to use ethane and where you think that has the potential to go after these de-bottleneckings and expansions are done?

We are running 70%, 75% US NGLs at this point in time. We have been able to already use more ethane at Corpus Christi. In essence, we have doubled the amount of ethane we are cracking there, and we are running a push test as we speak to see how much more we can run. Channelview over the last couple of years has more than doubled the amount of ethane we are cracking there. We're looking at some de-bottlenecks. Some are near-term. Some are a little longer term.

We are in the engineering stage of the de-bottlenecks. La Porte was made to de-bottleneck. If you look at the configuration of the plant, there was space right next to it for additional furnaces, and the backend, it is ready, set, go on that. We just need to do some engineering.

But remember that in all of this, there have to be permits done. And everybody in the industry will face the question of how quickly you can get permits to expand the production. That remains a question mark for all of us. And so timing is somewhat dependent upon permits, but we are talking at least a couple of years away before we start seeing the benefits of that de-bottleneck. But we are advancing the engineering as quickly as we can.

Okay and just a second question. Can you provide an update on some of the work Bob Patel has been doing over in Europe and trying to improve the operations over there? Was it a good quarter? You mentioned some of the coproduct credits contributed to that, but any early signs or early takeaways from his work over there?

Yes, right now in Europe we are working on a cost structure. We are in discussions with our works councils. We have previously indicated that the cost structure is higher than we would like it to be. A lot of work to be done, and we are at the stage now where we are beginning that dialogue. We would like to advance it as quickly as possible.

In the rest of the operations, I would comment that just like we do everywhere else in our Company, we do studies of best possible and develop gap closure plans around that. Europe has had a number of plant records as well. They have been improving their cost structure, and overall we know that Europe will be a more difficult market than other places. And so our intention is to get our cost structure in a position to be extremely competitive there.

At this time, we have no further questions.

Well, thank you very much, and thanks all of you for listening in. It was an exciting moment for all of us at LyondellBasell today to ring the bell at the New York Stock Exchange. You have seen us pay down some debt. You have seen us generate significant cash over the last year I think more than most people expected. We had a very nice quarter. Typically a seasonally weak quarter, but it was not this year. $1.4 billion of EBITDA generated.

This Company is back. We are extremely competitive. We said on the cover of our Annual Report that we could have been quite possibly the busiest chemical company on the planet. We will keep the pace going. We know that every day is a new day, and our goal is to be the best chemical company on the planet.

Thank you for your attention, and thank you for the interest in our Company.