利安德巴塞爾 (LYB) 2012 Q3 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 call over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Gwen. Welcome to LyondellBasell's third-quarter of 2012 teleconference. I am joined today by Jim Gallogly, our CEO; Karyn Ovelmen, our CFO; and Sergey Vasnetsov, 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 at www.LyondellBasell.com. I would also like for you to note that statements made in this call relating to matters that are not historical facts are forward-looking statements and 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. 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 LyondellBasell.com/investorrelations.

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

Finally, I would like to point out that a recording of this call will be available by telephone beginning at 2 p.m. Eastern Time today until 11 p.m. Eastern Time on November 26 by calling 800-839-5569 in the United States and 402-998-1150 outside the United States. The pass code for both numbers is 9511.

During today's call we will focus on the third quarter of 2012 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 taking a look at page four and reviewing a few financial highlights.

Income from continuing operations was $851 million and EBITDA was $1.57 billion. The quarter included some items that are not reflective of the underlying business, and exclusive of these, income from continuing operations was $791 million. Our earnings per share were $1.47, or $1.36 exclusive of the items that I referenced.

I also want to highlight that we announced both a $2.75 per share special dividend as well as our regular $0.40 per share interim dividend. Overall it was another very good quarter. The fundamentals that have benefited us over the past couple of years continued to drive our success.

Key areas of strength were North American ethylene margins and production above our nameplate capacity, as well as record profitability for the Intermediates & Derivatives segment. Karyn and I will delve into more details during the call, but before doing that I want to highlight another bright spot, our safety performance.

On slide number five you can see that our safety performance continues to be excellent, reflecting our focus on the details of our operations. I believe that our safety record is very near to best-in-class with a current recordable incident rate of 0.26.

Now I would like to turn the call over to Karyn to discuss some key elements of our financial performance.

Thanks, Jim. Please turn to slide six which shows our first quarter and last 12 month's segment EBITDA. The $1.57 billion of EBITDA reflects a $209 million decrease from the second quarter, the majority of which occurred in our European olefins operations. Year-to-date we have generated approximately $4.6 billion of EBITDA.

From a segment perspective, during the third quarter O&P Americas continued to generate very strong results with EBITDA of $820 million. As Jim mentioned, this excellent performance was driven by continued strong ethylene margins and operations. However, versus the second quarter, underlying business results declined, primarily due to lower ethylene and ethylene co- product prices.

O&P EAI produced $75 million of EBITDA. Results from the European olefins and commodity polyolefins were approximately breakeven, reflecting poor economic and industry conditions. The segment EBITDA was generated from the differentiated polyolefin products.

The Intermediates & Derivatives segment generated record EBITDA of $475 million. The chemical products results were relatively unchanged, representing approximately 55% to 60% of the segment EBITDA. Oxyfuels results increased significantly benefiting from the strength in gasoline prices and octane value versus feedstock costs.

The Refinery segment generated $150 million of EBITDA, underlying results benefited from strength in margins as the Maya 2-1-1 benchmark spread increased to $26.65 per barrel. However, by-product values remained weak and operating constraints reduced crude throughput to approximately 240,000 barrels per day. The Technology segment performance remained steady with EBITDA of $48 million.

The bar chart on the right depicts the last 12 months EBITDA by segment. Over the period total EBITDA was approximately $5.3 billion. Approximately 50% was generated from O&P Americas while the Intermediate & Derivatives segment generated $1.58 billion, or approximately 30%. As you can see from the relative heights of the bars, the trends over the past quarter are relatively consistent with the past 12 months.

Let's turn to slide number seven and take a look at the key elements of our strong cash flow. During the third quarter cash balances increased by approximately $1.6 billion closing the quarter over $3.5 billion. As you can see on the chart, in addition to the cash generated from our earnings the quarter benefited from a decline in inventories. As you might recall, we mentioned this inventory reduction during the second-quarter earnings release call.

On the right side of the chart you can see that over the last 12 months our cash balances declined from $5.9 billion to $3.5 billion. Operations, including working capital, generated over $3.5 billion of cash while usage included approximately $1 billion for CapEx, $1.5 billion of debt repayment, and $3.3 billion in dividends.

Last quarter I provided guidance regarding our capital spending and interest expense. Our capital spending outlook for the year remains unchanged at approximately $1.2 billion. You should expect that this will increase to approximately $1.5 billion next year and in 2014.

In terms of interest payments, we are now running at a quarterly pace of approximately $65 million.

You probably noted that our third-quarter tax rate increased by approximately 3% versus the first half of the year rate. The increase results from the strength of the US business profitability relative to the rest of the world. Versus the first half of the year, the higher tax rate impacted third-quarter earnings by approximately $0.07 per share.

On slide eight we have included our working capital chart and a few key statistics. I won't go through each item, but I do want to highlight our free cash flow.

Year-to-date we have generated $2.8 billion. This enables us to return a significant amount of cash to our shareholders. Inclusive of the dividends announced today, our 2012 dividend payments are anticipated to be $4.20 per share, approximately $2.4 billion, resulting in a dividend yield of almost 8% at the current stock price.

Regarding dividends, we currently expect that for US taxpayers at least two-thirds of our anticipated 2012 dividend payments will qualify for dividend treatment under the IRS criteria. The balance would be treated as a return of capital. Of course, this is subject to change in refinement. We felt that we should provide early guidance to assist your year-end tax planning.

Now I will turn things back to the Jim for a further discussion of our business results.

Thanks, Karyn. Let's discuss segment performance beginning on slide number nine with Olefins & Polyolefins Americas.

Third-quarter EBITDA was $820 million, an increase of $44 million versus the second quarter. However, these results include a lower cost of market inventory credit while the second quarter included a charge and an insurance settlement. Exclusive of these items, underlying EBITDA declined by $69 million versus the second quarter.

Underlying olefins EBITDA declined by approximately $45 million from the second quarter. Ethylene production volumes increased significantly as there were no turnaround activity. Our plants ran very well, exceeding design rates.

Margins declined both due to lower prices and increased costs of ethylene production. On average ethylene price declined by approximately $0.025 per pound versus the second quarter 2012. However, the price decline was reversed earlier in the third quarter as gradual price increases were realized throughout the quarter.

Our cost of ethylene production increased, but the increase was generally limited to naphtha cracking as coke product prices declined. Gulf Coast ethane prices declined by approximately $0.08 per gallon while Midwest ethane increased by $0.03 per gallon.

During the quarter 85% of our ethylene was produced from natural gas liquids with ethane accounting for approximately 65% of the ethylene production. Propane accounted for approximately 18%.

Polyolefin results declined by approximately $25 million versus the second quarter. Sales volumes in both polyethylene and polypropylene increased. Polyethylene spreads declined by approximately $0.02 per pound, while polypropylene spreads were relatively unchanged. Overall, it was another very good quarter for this segment.

As we look to the fourth quarter thus far, the underlying fundamentals that have benefited us remain intact. Ethane and propane prices have remained low and olefins production has been strong. However, it is typical to experience a moderate slowdown as we approach the end of the year.

Let's shift our focus to slide number 10 and the Olefins & Polyolefins Europe, Asia, and International segment.

Third-quarter EBITDA was $75 million, a $260 million decline from the second quarter which benefited from falling naphtha prices. During the third quarter our differentiated products, such as polypropylene compounds and Catalloy resins continued to perform well generating results consistent with prior quarters. We did not receive any dividends from our joint ventures, but they generated equity income generally consistent with the second quarter.

Within Europe underlying business conditions were weak. Olefins and commodity polyolefin margins were near breakeven throughout the quarter. Our olefin production volumes declined due to a turnaround at our largest European cracker.

The polyolefin sales volume exceeded weak second-quarter sales by approximately 17%. Despite the volume increase, combined polyolefin results only improved by approximately $10 million. Polypropylene compound and polybutene-1 results improved by approximately $20 million as volumes remained steady and margins increased slightly.

During October the environment for European olefins and polyolefins have remained difficult. Our ethylene plant turnaround has continued into October as planned, but we anticipate that the impact on our financials will be minor. Although we expect continued good performance from our differentiated products, a seasonal slowdown is typical.

Now please turn to slide number 11 for a discussion of the Intermediates & Derivatives segment which had record EBITDA of $475 million. EBITDA exceeded the second quarter by $20 million. Underlying improvement was actually stronger as the second quarter included an insurance settlement and JV dividends which totaled $32 million.

Within the segment, underlying results for the propylene oxide and derivative products, as well as the intermediate chemicals, were relatively unchanged. Propylene oxide and derivative volumes increased slightly while prices declined. The other chemical products generally followed a similar trend.

Oxyfuels EBITDA increased by approximately $60 million as it benefited from both increased margins and volumes. The chart on the lower right provides a perspective on industry margins. Our results generally follow this trend.

We typically expect a slight fourth-quarter slowdown of the chemical products within the I&D segment. We expect Oxyfuel results to decline more, both due to seasonally lower margins and the impact of a turnaround at one of our US PO/TBA plants.

Let's move to slide number 12 for a discussion of the Refining segment.

Third-quarter EBITDA was $150 million, a decline of $11 million versus the second quarter. Exclusive of second-quarter insurance settlement and third-quarter legal restitution related to a former employee's fraudulent activities, underlying Refining results improved by approximately $20 million.

Throughput at the refinery was approximately 240,000 barrels per day as we experienced some operating issues in our gas plant and coking process. These were addressed during the quarter, but resulted in lower throughput. The industry benchmark Maya 2-1-1 spread increased by approximately $3.50 per barrel to average $26.65 per barrel. Our spreads generally follow this trend.

The refinery continued to realize lower than historical yield on the benchmark as a value of byproducts, such as petroleum coke and various natural gas-based products, remained depressed. We estimate that this impact on our margin impacted our margin by approximately $2 to $3 per barrel versus historic trends.

Looking to the fourth quarter, their operating issues have been addressed and we expect to run the refinery at full rates. Industry benchmark margins typically decline by several dollars during the fourth quarter. Earlier this week the Maya 2-1-1 spread averaged approximately $21 per barrel.

Let's step back from the details to summarize the business environment on slide number 13.

Third-quarter results were strong and the factors that have shaped our results remain largely unchanged. The US olefins business continued to benefit from shale gas opportunities and our plants operated very well. In Europe, the weak economy and high cost of ethylene production resulted in near breakeven EBITDA but the differentiated products within O&P EAI generated good results.

Intermediates & Derivatives had record profits from steady chemical results coupled with record Oxyfuel EBITDA. Refining crack spreads were good, but low byproduct prices depressed our realized margins. We also encountered some operating problems which reduced throughput at the Houston refinery.

The fourth quarter has started with similar drivers across most business areas. However, as I mentioned, we typically expect some slowing during the fourth quarter. Thus far, we have not seen significant slowing and we don't expect to experience a decline as severe as we saw last December.

Before we take your questions I want to address a few other points beginning with our growth programs.

First, the announced projects remain on schedule, and although we have not yet received our environmental permits, the process is proceeding as planned. Today I would like to introduce the next projects that we are developing. The first project is a Channelview ethylene expansion.

Engineering has progressed and we have applied for the required environmental permits. The project is expected to have excellent economics, similar to the look the La Porte expansion. Details are being finalized, but we expect to add another 250 million pounds of capacity during 2015.

We are also developing a plan for a Corpus Christi expansion. It is premature to discuss this project other than to say that it is larger than the Channelview expansion and looks very promising.

I also want to shed some additional light on the $2.75 per share special dividend that we announced this morning. Over the past several months Karyn, the Board, and I have been defining this payment and our future plans. The philosophy that we have discussed with you on many occasions has not changed. This special dividend supports our commitment to return value to our shareholders.

Assuming that our results remain strong and we are fully funding our growth plans, we intend to return cash to our shareholders in a periodic fashion, perhaps in varied amounts and more frequent intervals. We will also consider share repurchases as appropriate.

Management will continuously assess our situation and pursue specific actions within the framework of this philosophy. At this time I won't delve into specifics, but I hope this helps clarify our intentions.

Finally, I want to discuss MLPs and our current thoughts. First, it is our responsibility to consider the risks and rewards around any opportunity to increase shareholder value. This is no exception.

We have done some work around the MLP concept but it is preliminary. There are many complexities to consider in this area, so we will take some time to develop a firm opinion as to whether this opportunity can be executed by us to the benefit of shareholders.

Those of you who have come to know our new company appreciate that our style is not to lightly make projections and commitments. Rather, we prefer to bring forward our plans and actions when they are concrete and we are convinced that we can be successful. We will follow the same course here in considering the merits of an MLP structure for certain assets. We will be thoughtful in our deliberations and bring forward a plan at the appropriate time.

We are now pleased to take questions, Gwen.

(Operator Instructions) Jeff Zekauskas, JPMorgan.

Hi, good morning. Can you talk about your beliefs concerning European olefin and polyolefin capacity over the next four or five years? That is, do you think that capacity will be similar to where we are now? Do you think there will be material rationalizations, or something in the middle, or you can't tell?

Jeff, I think there will be some rationalization. As you know, we have shut down some capacity that was fairly expensive a couple of years ago and we continue to monitor our assets. I think there will be some industry capacity rationalization, but I don't think it will be anything extreme. I think that has been the history of Europe.

At this point in time, margins are basically breakeven. There is obviously some pain in the industry, but everybody is working hard to reduce their costs and try to address the issues that way.

Okay. Then, finally, when you chose your $2.75 special dividend, why didn't you choose $3.75 or $1.75? Why was $2.75 the appropriate number?

Well, if you look at our balance sheet we have tried to be very conservative. It is a fairly difficult economic environment. We want to be a bit cautious, but as we said, we will also look at perhaps more frequent and smaller special dividends as we go forward. Also look at share repurchases.

Okay, thank you very much.

P.J. Juvekar, Citi.

Thank you. Jim, you mentioned your round two of debottlenecking and I was surprised to see that Midwest crackers were not included in that. So just can you comment about that?

And then this cracker advantage in the Midwest; once the pipeline gets built from Conway to Mont Belvieu do you think that advantage could potentially go down next year?

P.J., first on the Middle East cracker expansion, we don't have the same opportunities to expand there that we do here.

The first question that always has to be asked -- is there an additional ethane feedstock available? And at this point in time that doesn't exist. If it did, we would be very happy to expand those crackers, but it simply doesn't exist at this moment in time at the kind of pricing that was previously available.

In terms of --

P.J., I just want to clarify for you, because I think we have a little trouble hearing you, were you asking about our Middle East crackers or our Midwest US crackers?

Sorry, Midwest crackers.

I am sorry, I misunderstood. The Midwest crackers, we have got slight debottlenecking that has happened after our turnarounds. There is still a pretty significant ethane advantage, but we have already seen that erode a bit with pipeline take away capacity.

I think it is about where it is going to be for a while. I don't think it will deteriorate too much more over the near term and there will always be a transportation benefit to those crackers.

Then in your Oxyfuels business and MTBE you are seeing some good spreads which is really a spread within oil and natural gas and natural gas liquids prices. Do you think that is sustainable given the advantage here in the US and that business could contribute at current levels? Thank you.

Well, as long as gasoline prices are high and the feedstock costs are low we will see very significant margins. That has been the case so far year-to-date. We have also been able to move more capacity, more volume, and so that has been a benefit.

These commodity prices generally should be favorable going forward because of cheaper natural gas prices, so we are optimistic that Oxyfuels will be a good business for us.

P.J. one thing that -- and you can see it on the charts -- that you do have to consider in the very near term is seasonality, of course. That has always been there in that business because the raw material sees some seasonality.

Right. And we pointed that out previously in our other comments.

Sure, thank you.

Kevin McCarthy, Bank of America Merrill Lynch.

Good morning. Jim, I just wanted to follow up on your comments regarding exploration of an MLP structure. I appreciate you are working on it; must be a very complex endeavor given your level of integration.

But I was wondering if you have reached any preliminary conclusions as to whether it would make sense for any of Lyondell's existing assets or would the scope be principally some of the new projects resident in your pipeline?

Kevin, that could be either new or existing projects. We have to look at things like where we are in our tax basis, a variety of different things. You could always consider unique assets to put into an MLP. We have looked at that somewhat before, but as you know there is a new ruling and we are going to take a much harder look at things going forward. More analysis to come.

Okay, fair enough. Then on polyethylene resin in the United States, would you comment on what you are seeing in terms of demand trends kind of in the wake of Hurricane Isaac dovetailing into your order book for October? What does that look like and do you think it might be strong enough to get polyethylene resin prices higher?

Well, at this point in time inventories in the chain are reasonably low. That is particularly true with polypropylene, somewhat true of polyethylene. Days on hand are fairly low. Whenever you have a weather event that can change things a bit.

But the most important thing we watch is which way our prices going. If customers think prices are going up they try to build a little bit of inventory and if it is going down, of course, they are holding off their sales until -- their buying patterns until a little bit later.

I don't know that that storm will have a significant impact on things. It should be fairly modest. Obviously there is a fair amount of processing up in the Northeast, but we will just see where that goes. I think so far polymer demand has been pretty good and we have been able to move all the product we need to move.

One of the other unique things that has helped our profitability if we look at our olefins chain, as I mentioned, we ran extremely well this last quarter and continue to do so into this quarter. We find it sometimes better to sell spot ethylene than to make polyethylene out of it. And so when we have had those opportunities, when our competitors are having operating issues, we are happy to go into the spot ethylene market.

Then the last question, if I may. I think you have had an objective to extract $200 million of run rate savings out of your European operations by year-end. How much of that has been accomplished and how much is still to come here?

We are working on that very, very hard and we have had a lot of success. That number is going to increase.

When it comes to costs I would like to make a very important point. In our company we generally don't do big cost adjustments at some point in time and announce it in the quarter. I like to tell our leaders within LyondellBasell start on January 1 when we get to the budget season you need to present a package that shows flat to falling costs.

That is a hallmark of how we operate our business. You will see that we honor that in the way we do our business day in and day out. We are in discussions with works councils on various matters within Europe and there will be more to come on that.

But we recognize the economic difficulties within Europe and we are a company that addresses those kind of issues. So you will see a bit more activity in Europe than in other places, but we manage costs everywhere starting January 1 of every year.

Very good. Thanks a lot.

David Begleiter, Deutsche Bank.

Good morning. Jim, you were expanding obviously La Porte Channel, you have Corpus Christi, but you have yet to announce a greenfield cracker. Where is that thought process say on either buy yourself or the potential JV partner?

Well, we have had significant interest in a variety of parties participating in an asset like that. Obviously, these de-bottlenecks have really favorable economics. And if we can bring those up in 2014 and 2015, we will be well in advance of the big capacity waves. I think you have seen, David, that some of the competitors have said now that their schedules are slipping from 2017 into later years.

I personally think you are going to see more of that. We continue to discuss a condo cracker, but our focus in the near term has been getting this other incremental capacity online because it has installed cost as a fraction of the new build. A lot of people are quoting $0.75, $0.80 plus for new build, and our expansions are typically in $0.50 per annual pound range, perhaps a little bit less than that.

So the economics are just very compelling for the de-bottlenecks and as we work the numbers, as you can probably start to add some of the capacities up, we are in essence getting pretty close to putting a cracker together.

And Jim, just on potential buybacks next year, what is the timing of when you would be allowed to buy back stock under Dutch corporate law?

The Dutch law changes on January 1 as it impacts LyondellBasell and its dividend paying history, so that would be the possibility. But as I said, we will look at multiple ways to return value to our shareholders.

I think the key takeaway is we will look at that more frequent in perhaps smaller -- and see where that takes us. But I think that is the prudent thing to do in line of economic uncertainties. We like a strong balance sheet, but we have shown very clearly that we will return value to our shareholders.

Thank you.

Duffy Fischer, Barclays.

Good morning. When we listened to a couple calls so far this quarter a couple of your competitors look like they are in the mode of kind of ratcheting back a little bit on CapEx.

And so I am just wondering, when you look through the $1.4 billion that you talked about last December are their projects in there that because of where the global economics are today might get pushed out? Or how do you stand on what you guys announced last year?

Duffy, we have a very disciplined capital program. The projects that we are implementing have very strong returns and at this point we don't see ratcheting back any of those.

As we have gone through the budgeting process this year we have looked at how much we spend on basic maintenance. We are trying to get more value for the dollars we spend and have a great deal of emphasis on that. Kevin Brown is in charge of project execution these days and we are doing a very nice job on all of that.

Now if there is potentially one exception that was the [flex] project and expansion there. At this point in time that doesn't look as good as it did in the past, but instead of that what we are looking at is expansions, debottlenecks at both Corpus and at Channelview. And those are actually stronger projects.

So we are feeling great about our capital program; the rate we are spending. It is very, very disciplined compared to the cash that we have generated.

Okay. Then, of those projects some of the larger discrete ones we can monitor -- the methanol restart, the PO JV -- but of the smaller ones, how much of that should we think about actually comes online next year and starts contributing kind of at that, call it, 50% ROIC payback or yield I guess when we think about the investment?

Well, we talked about methanol next year, but when we looked at La Porte that was 2014 and these other ones look like 2015 when they start up. So you probably noticed in our ethane usage that we are up. We have got the debottleneck worked down at Channelview where that was going to happen.

We have done some other work in our other facilities and so you are already seeing some benefit from that. The crackers are running very well, they are running very hard, and we are using more cheap natural gas liquid feedstocks.

And, Duffy, you may have been referring to the spending on the small high return projects. We really started those in 2011 and we typically got kind of a two- to three-year payback. So we are just part way through it and you'll start to see those programs really next year and forward.

Great, thank you.

Don Carson, Susquehanna Financial.

Thank you. Jim, I had two questions on ethane; one is near term in the US. You had correctly called for a growing ethane surplus. We have seen ethane's fuel value premium come down significantly. Do you think we have reached the bottom there in terms of where ethane will trade relative to its fuel values? It will just cycle up and down with gas now.

The related ethane question would be we saw [ENEOS] arrange a deal to potentially take ethane over to Europe. Do you think that there is other opportunities to do that, and how would Lyondell's European assets be positioned to take advantage of any ethane exports from the US?

Don, first on the question of ethane pricing in general, obviously last year in December we saw a real spike in ethane, $0.90-plus a gallon. I commented earlier that we don't think that is going to happen again, things seem to be long.

We expect ethane to stay reasonably cheap for the foreseeable future. Could it go lower than it is today? It has been lower and so I certainly think that is possible.

You get into the question of rejection economics and I know you are quite sophisticated based on reading some of your writing on that. There is always that question in how much they want to reject and how long ethane is. But things are pretty favored right now for us and ethane prices remain pretty cheap.

In terms of the ability to export ethane, I really think that is going to be pretty limited. That is kind of an expensive route. You have to have some facilities to do that. I think the volumes would be pretty small.

One of the things that drove the Middle East ethane advantage was the high cost of trying to export that particular NGL [cut]. And so I think those same dynamics will remain true in the United States and the ethane advantage will be something of a US advantage. It is not something we are looking at in any kind of size or scope over in Europe.

Thank you.

Hassan Ahmed, Alembic Global.

Good morning, Jim. Just wanted to revisit the dividend, special dividend discussion. Just trying to get some sort of guidance as to how we should think about some sort of a minimum dividend payout ratio. What are your thoughts about that?

We have tried very hard not to be specific, Hassan. I think the reason is because we are always watching the economic environment, sources and uses of cash. I think the thing that should give you comfort is that as you looked at what we did last year, late last year and here in this third-quarter announcement, we are returning significant cash to our shareholders.

It was basically an 8% dividend yield and 80% of our free cash flow, so we think we are doing a pretty good job of returning cash to our shareholders. As I mentioned, we will look at perhaps more frequent and smaller in size.

Fair enough. Now on a slightly different topic; again, the ethane side and natural gas prices in particular. I was talking to one of the large methanol producers yesterday within North America. What they are talking about is as they consider new capacity possibly trying to structure long-term contracts with gas processors and the like.

One of the things that they have been talking about is trying to structure contracts which are beneficial to both parties, where indulge in some sort of margin sharing agreement with these gas processors. So what are your thoughts about that?

Well, it is a very dynamic market at this point in time. We are excited to bring up a methanol plant next year that has been shut down for a while, because it will have a nice impact on our earnings. As you can imagine, restarting an idle plant with this kind of cheap natural gas price is a wonderful thing for us. So we are happy to bring it on.

We are looking at how we market our methanol, but generally those market-sharing agreements aren't something that we as a company favor. I can't get into the details of exactly how we are going to move that product, but we have a very definitive plan in place already and expect to be able to move the volumes fairly nicely once the plant starts up.

Sure, but I guess what I was trying to get about was that as you also are considering some of your ethylene expansions are you having conversations with the gas processors and the gas companies about structuring some sort of long-term pricing regimens?

No, generally we are not. We generally float with the market on that. We think ethane is going to be quite long and we like the pricing dynamics. I think a few companies started to do some of that and got caught a little on the high side where they thought the prices were going to be. So we will watch the market.

Now, if things look like they are going to change significantly, we may change our mind on that, but at this point in time we are just kind of following the pricing curves as to how ethane moves. Frankly, I think we have been pretty much right on that so far.

Very good. Thanks so much, Jim.

Vincent Andrews, Morgan Stanley.

Jim, could you dimensionalize for us, you are on round two now of brownfield CapEx. Can you just help us understand -- I mean some of it is obvious, but some of the might do a little more nuanced -- why certain projects are in round two versus round one? And should we expect lower returns with round two versus round one, and is there a round three?

Vincent, I think in round one, we were doing fairly small projects that had very high returns, very short payout. I think Doug mentioned that a few minutes ago. That was in part because we were emerging from bankruptcy, had to get our operations cleaned up, work on our cost structure. And so we were trying to improve our balance sheet, and so tried to have a great deal of discipline around our capital.

I use the word chapters instead of rounds, but in chapter two we've started to expand and we have talked about de-bottleneck projects that have very robust economics. We announced La Porte; we talked about the methanol restart. We have now talked about a couple other expansions at existing crackers.

Those have extremely robust economics too, if you think about where olefin margins are today and you start thinking about capital in $0.45, $0.50 an annual pound range, those are very, very nice economics. So we are in that chapter today where we are doing those expansions and improving our execution ability.

As Karyn mentioned, we are talking about a capital budget in the $1.5 billion range next year because of those additions and things. Longer term, we will look at additional growth projects but as we said, one might be a condo cracker but we still continue to assess that based on seeing what our competition is doing.

Our strategy has been to beat them to the marketplace, get the capacity up earlier, get it up cheaper and make money in the interim. More to come on future CapEx.

Okay. Then maybe secondly, just obviously the operating rate over 100% nameplate in the quarter is impressive. Can you just dimensionalize it for us; how much does that help you relative to if you are just running sort of at a very strong 90 -- sort of 90'ish rate, and how sustainable do you think this level is?

This is Doug. We produce about -- well, it was 2.4 billion pounds, a little over 2.4 billion pounds in the quarter. So that is basically our full nameplate capacity.

So if you look at that and you take each percent is worth another 24 billion pounds or so at $0.25, $0.30 a pound. The math is kind of right there. And we have been having good strong operations for a while and as Jim said, that is where we have been putting our focus and our money, making sure these things are running well and that we are capturing that $0.30 a pound every month and every quarter.

So there is nothing incremental in terms of fixed costs or sourcing or anything like that that is not obvious?

Nothing that you are going to see that is not obvious. Of course, there is a fixed cost absorption. You're getting the variable profit on all of the increments, obviously.

I think a couple of important points to think about in terms of our ability to sustain that, generally people can't run crackers at that kind of a rate over a prolonged period of time, but we have spent considerable money in turnarounds over the last couple of years.

We had some catching up to do. But as you know, both big crackers at Channelview have been through turnarounds, Morris, I could go on and on. But we have been freshening up our assets, just finished up a big turnaround of Wesseling. So we have got some assets ready to go and they are showing that they can run in a sustained way.

We really focus on those details. It shows up in our safety record, shows up in our operating rates, and we are very happy to sell spot volumes to our competitors when they are not running.

Great, thanks very much.

Chris Nocella, RBC Capital Markets.

Good morning. The bright spot in your O&P EAI segment has been your polypropylene compounds. Despite the slowdown in Europe, you are still seeing some pretty good growth there. So maybe can you highlight where this strength is coming from in this business?

In polypropylene compounding, we have very nice market shares, particularly in Europe but also in the United States, and to the auto business.

In Europe there has been some softening of auto sales. That has been more with, I call it, the local producers who sell primarily into their local market, country specific, where some of the larger, more global automakers have still had pretty good sales. We have made a maintained a very nice market share there.

We pride ourselves on extremely high quality, great consistency, and the ability to make those premium customers happy and so our volumes have held up pretty nicely. We see good quarter-by-quarter type earnings, so that is a business we are pretty proud of.

Right. And your Technology segment is pretty stable and, frankly, not talked about too much on these calls. Do you see the potential for growth, maybe in your catalyst side or in the polyolefin licensing side, for that business?

We have had a bit more licensing sales these days. There has been some pick up in licensing sales in China. We have great technologies and when people start to add polyolefin capacity we will always get the call and always get a chance to compete. As you know, we have a very nice market share there, so we will expect that -- we will continue to have a very, very competitive licensing business going forward.

Now on catalyst that somewhat depends on how markets -- how much polyolefins are being sold, particularly primarily polypropylene when you look at our catalyst sales. If volumes are down in Europe that impacts us a little bit, but as you know, we have worldwide sales in catalysts and they have held up reasonably well.

The people who have come to us in the past continue to come to us. We think we have a wonderful offering. People see great mileage and products out of our catalyst, and so it has been a good business.

Great, thanks.

Nils Wallin, CLSA.

Thanks and good morning. Question on the use of cash. Obviously, you have highlighted special dividends and greater frequency as well as your continuing dividend. Does this mean that you have taken acquisitions, whether bolt-on or larger, off the table in terms of capital allocation?

No, Nils, I don't think we have taken it off the table. We are just very selective on what we do. We always look to see does it make us better, not does it make us bigger. There have been a variety of assets that have been for sale and we were happy to let our competitors purchase those. They didn't look like they would help us.

And so we use the word discipline a great deal in our capital strategy. The projects that we do are expected to have very nice returns. We are extremely disciplined, and so M&A is not off the table but we will be selective and always use the word accretive.

Got it. Just to follow on with that, if there were an opportunity is there anything in particular that looks interesting to you in terms of whether it is upstream, downstream, or sort of the adjacent to your existing footprint?

Well, we try not to be very specific about that at this point in time. We have a very active planning group that surveys the horizon all the time. They look at things that might be attractive at the right points in time. We have continued to assess those things, talk with our Board about them, but so far those assets have not become available.

Understood. Thanks very much.

John McNulty, Credit Suisse.

This is [Avi Rajinran] calling in for John. Good morning.

Quick question on some of the new expansions. So given the large number of expansions and greenfields out there in the industry, could you speak to the demand for contractors out there and if you have locked up the people and resources you need to handle the expansions, or if there is any risk tied to labor availability, or increasing project cost inflation generally?

Yes, I think that is a point that everybody is paying a lot more attention to. As a result of that you see, besides the permit questions, you see some people talking about delays and when they might come up.

That could be an issue in the United States, more so than some people expect at this point in time. Our strategy has been to get in early. We are working with specific contractors as we speak on these expansions.

If we are adding a furnace here and a furnace there and doing some debottlenecking, it is a whole lot easier project to execute than a giant greenfield cracker. And so far we have been able to find the resources that we need. We have been able to enter into contracts for La Porte and those are progressing nicely. Contractors performing well so far on that project.

As we look at these other expansions, we are working with specific firms and they will get a chance to bid on that work. So far we have seen we have been okay on what we are doing.

Again, if we are in front of that wave that really helps us. People recognize that our debottleneck projects will bring them work today versus a few years from now when permits are granted.

Before I leave that I do want to be very specific about our -- we have started, we have filed for permits on some of these projects some time ago and are in pretty advanced stages. In fact, at Channelview, while we were just talking about that in more detail today, we previously filed a permit application on that so we are pretty advanced.

Okay, great. Then just a quick follow-up question on the MLP opportunity. Could you touch on whether there are any Dutch legal or tax implications that might complicate the opportunity, or is that too early to tell at this point?

I am not aware of any unique Dutch issues that will complicate that for us.

Okay, great. Thanks very much.

We only have I think about eight minutes or so left. So I will just ask everybody to try to manage our time and we will try to manage the time for you so that we can catch everybody.

Frank Mitsch, Wells Fargo.

Good morning, folks. Wanted to -- Jim, you talked about decent demand in the polyethylene arena. Could you talk about the outlook there domestic versus export? Can you size how those markets are playing out, both for polyethylene and for polypropylene here in the US?

First, in the United States the demand has been reasonably good and we have been able to move the volumes without too much difficulty. When we talk about US polyolefins a very, very important point, a couple years ago we used to export a fairly high percentage of our US polyolefins production to Asia, particularly polyethylene. That has dropped down to under 2% today of our domestic production.

We do take about 12% down to Latin America, South America, because there is some good value there and some very good customers that we have had for a long time. But we are not a US-based export platform to Asia like some of our other competitors. Now, of course, in the old days we would have about 15%-plus, sometimes 20%, to Asia. We just don't market that way today.

The Asian markets have still been fine for our Middle East production because of the significant cost advantage and so we haven't had any issues moving the product out of the Middle East. Now Asian markets are weaker, European markets are weaker, but the United States has held up pretty well.

Great. So about 15% of your polyolefins are being exported today, mostly to Latin America?

A little less than -- yes, about that from the United States, yes.

All right, great. Then could you just quickly size or ballpark the negative impact in the third quarter from the whistling turnaround for the olefins, polyolefins Europe, the refinery limitations? Then also, looking at the fourth quarter in I&D, the PO/TBA turnaround. Just kind of ballpark that for us.

Frank, this is Doug; let me try to do that. I guess first with Wesseling in Europe, we don't think that had much impact, probably under 10. Of course that is consistent with the kind of results you are seeing in the market in Europe right now.

In terms of the refinery, the run in at 240,000 versus at 268,000 barrels a day, probably around $30 million or so in that third quarter. Of course, we got those -- those issues are corrected now.

The PO/TBA turnaround that one is going to have on a PO side, with the number of plants we have and the system that we have we cover everything that way. We will lose some oxyfuels sales over time because of the TBA production affecting that. Of course that is partially why you time these things into the fourth quarter rather than the strong second and third quarter. So we will just have to see how margins turn out on that.

Terrific. Thank you so much.

Bob Koort, Goldman Sachs.

Thanks. Appreciate your endurance here. Maybe an extension of that last question. Jim, if you look forward for the US industry, maybe to the cusp of the big greenfields or even just after that, do you think we are going to need to increase the export numbers out of the US? Do you think that the downstream markets in the US will grow more prominently? Where it is that polyethylene in five, six, seven years going to go?

Bob, a lot of that capacity has to be being built for export. The United States market will grow, but not to that size. If you think of all of the capacity that was built both in China and the Middle East over the prior years, and you think about what we are talking about in the United States, as an overall amount compared to the total olefins worldwide that is still kind of a 5%, 6%, if I remember, capacity addition and should be absorbed if we get into normal economic conditions.

But to you point, the United States will have to become an exporter of polyolefins. I think everybody is anticipating that; they are putting in place logistics for that and so it should be an orderly transition I would expect.

As you start to consider share repurchase next year as an option for cash flow use how do you think about the concentration of your largest owners? There was some share sales earlier this year but I guess you weren't able to buy that stock. Could you directly buy from your largest owners, and do you have a sense if they would like to participate in any share repurchase ratably?

I really don't know the answer to that at this point in time. I would be speculating and so I choose not to. It is something that we have commented on we have to watch.

What is shareholder concentration? It was fairly high. That has been reduced slightly, but we will just watch that over time and see where it goes.

Very good. Thank you.

Gregg Goodnight, UBS.

Good morning, all. Oil prices being down in the last month that is certainly beneficial for global heavy crackers. Obviously polyethylene prices are also down now in the last month, about $100 a ton or about 7%. My question to you, have you guys thought about if we get into a weaker oil/stronger gas price environment next year what impact that might have on Lyondell in total?

Obviously one of the reasons we are doing so well these days is because that ratio is blown out. We still expect it to be very, very sizable. Oil prices can come down, some gas prices can come up some, and we still have an extremely strong advantage in the United States just on a relative basis compared to naphtha cracking.

Yes, it would hurt the margin but those margins would still remain quite robust, so we feel pretty good about the future. It's always hard to predict oil prices. Been in this business for a long time, in the oil business for a lot of years; they go up, they go down. Right now they are still in pretty strong areas.

So if we are at a 25-to-1 oil to gas ratio instead of where it was earlier in the year of over 50 and it has been over 30 for most of the year, on a percentage basis what impact would you see to your EBITDA?

Greg, the one thing you have to remember in this is you want to look at Brent, and Brent crude has been actually averaged around $110, plus or minus a little bit for over the last year. So you kind of really are sitting in that kind of a range.

Now we have spoken before about ethane and gas and their relationship to the cost of ethylene, so that type of a move. And as Jim has spoken before about gas has some room if it moved up a little bit, ethane has been selling at over BTU value in the past anyway. So I think those are really kind of the core.

You got to remember two-thirds of the world is really driving off of that Brent crude price. That is their naphtha base.

Remember that at this moment in time that Brent to WTI differential is around $22 a barrel, so it's very, very significant.

Okay. I appreciate your insights, gentlemen.

Victoria Lee, Citi.

Our question has been addressed. Thank you.

I think we are just going to take one more question, then we are going to wrap it up.

Bill Young, ChemSpeak.

Thank you. One thing I'm not really clear about on this, your polyethylene versus ethylene spreads are pretty bad. I think you have showed a slight negative on your chart. Why isn't there enough market here for exports of polyethylene to snug things up here in North America and firm out those negative spreads?

Well, those are industry-quoted spreads and obviously, as you heard from our earnings report, we are making some money. The values are, frankly, better here in the United States than exporting to Asia, especially after a transportation costs.

So if we can move the product here at higher values we will continue to do that and there is a positive margin, both polyethylene and polypropylene in the United States at present. Europe is a little more breakeven as we mentioned.

Okay, thanks.

Let me make a couple final comments. We had a very solid quarter. We are executing our plan; we have a great safety record, generally reliable operations. When olefin margins are strong it is nice to run over 100% of your plant capacity.

Our investments are very disciplined. We are increasing those as time goes on and we think the shareholders will significantly benefit from that. We have had great cash generation and thus have been able to continue to reward our shareholders. I think that $2.75 special dividend and $0.40 interim quarterly dividend are examples of that.

We think we have a great future and we very much appreciate your interest in LyondellBasell. Thank you.

This does conclude today's conference. Thank you for attending. You may disconnect at this time.