利安德巴塞爾 (LYB) 2012 Q4 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'd now like to turn the conference over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Gwen. Hello and welcome to LyondellBasell's fourth-quarter 2012 teleconference. I'm joined today by Jim Gallogly, our CEO; Karyn Ovelmen, our CFO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions.

And before we begin the business discussion, I'd like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com. I'd also like for you to note that statements made in this call relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon assumptions of management which are believed to be reasonable at the time made, and are subject to significant risks and uncertainties. Actual results could differ materially from those forward-looking statements.

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 at our website -- www.lyondellbasell.com.

And, finally, I'd 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 March 1, by calling 866-454-2134 in the United States, and 203-369-1248 outside the United States. And the pass code for both numbers is 7068.

During today's call, we will focus on fourth-quarter and full-year 2012 performance; the current environment; and near-term outlook.

With that being said, I'd now like to turn the call over to Jim.

Thank you for joining our earnings call. As Doug mentioned, a set of presentation slides accompanies this call and is available on our website. Let's take a look at slide number 4, and review a few financial highlights. The fourth quarter of 2012 was generally a solid quarter impacted by typical seasonal trends, as well as some specific items such as European restructuring costs, year-end bonus accruals, and the Wesseling cracker turnaround.

In total, these items impacted the quarter by more than $100 million. Together with seasonality impacts these, items led to a decline versus the third quarter -- $276 million. However, our results were significantly stronger than the fourth quarter of 2011. For the year, our income from continuing operations was $2.9 billion, or $4.96 per share. The charts on the bottom of the page provide a good perspective of the quarter and the year, relative to recent history.

Within our portfolio, the drivers of strength were consistent during the quarter and the year. The Olefins & Polyolefins - Americas segment continued to benefit from the revolution in natural gas and natural gas liquids. Intermediate and derivatives also had strong performance as they continued to benefit from steady propane oxide results, and its own natural gas-based advantage in products such as acetyls and oxyfuels. This advantage, coupled with strong operations, has been a consistent theme in both segments.

Karyn and I will discuss some of the details later in the call, but first I want to discuss some of our 2012 accomplishments. If you turn to slide number 5 of the presentation, I'll begin with our 2012 environmental, health, and safety performance.

I am extremely proud of our accomplishments in this area. The trends on the charts speak for themselves. But to understand them, you need to consider that our historic results were already good. Today, we may well be the industry leader. I know that many of you wonder why we place so much emphasis in this area. It's really quite simple. We care deeply about our people and the communities in which we operate. Good environmental health and safety performance aligns with reliable, efficient operations.

On page number 6, we outline some of our key accomplishments. In the interest of time, I will highlight just a few of the many achievements. First, profits reached a record level. Our total annual shareholder return was 89%. Those of you that have followed us over the past several years know that we always emphasize cost control. I'm proud that, for the fourth consecutive year, we offset inflation and maintained flat underlying costs while improving our safety, operating, and financial results.

In the finance area, our strong cash flow enabled us to further improve our balance sheet. Moody's elevated the Company's credit rating to investment grade. We were also able to reduce our interest expense and pay $2.4 billion in dividends. This equates to a 13% yield on our 2012 opening share price, and greater than a 7% yield on the end-of-year price.

In US manufacturing, we raised our percentage of ethylene produced from NGLs, averaging close to 85% during 2012 versus 75% during 2011. We also continued refurbishing our assets, completing maintenance turnarounds at two of our larger sites, Channelview and Wesseling. These investments are paying off in a reliability and production metrics. Commercially we define new expansion options at our Channelview and Corpus Christi sites. In addition, the permitting process for a methanol plant restart and La Porte ethylene expansion projects recently moved into their final stages. Throughout the year, our NGL and condensate supply programs provided a competitive edge, contributing to what I believe was industry-leading performance.

Beyond the US olefins area, our Chinese propylene oxide project advanced to the memorandum of understanding stage. In Europe, our butadiene expansion at Wesseling is well into construction, with an estimated completion date of mid-year 2013. We have also restructured our European commercial organization to better reflect the market environment. We are consulting with their works council on additional actions in European manufacturing and R&D, to further improve our cost structure and competitiveness in the region.

Overall, 2012 was a very successful year, both in terms of our annual results and our progress on growth initiatives. On the bottom of the page, we show EBITDA results by segment. As I mentioned, the O&P - Americas and Intermediates & Derivatives segments were standouts. The O&P - EAI segment remains in trough conditions, necessitating a focus on improving cost structure and market segmentation. Our refinery performed in line with other large heavy sour crude Gulf Coast refineries.

Let's turn to slide number 7 and look at some of the metrics that drove our performance. Across the top of the page, we have plotted our key volumes. I want to focus your attention on US ethylene production. Our cracker operations have been rock-solid. We exceeded nameplate capacity in both the third and fourth quarters of 2012. Ethylene margins have been excellent during this period. Our reliable operations have allowed us to capitalize fully on the opportunities presented. US polyethylene spreads have been relatively consistent. European olefins and polyolefin margins have been under pressure in 2012. Oxyfuel margins have been excellent, as you can see on the bottom right-hand part of the page. The natural gas to Brent oil ratio has been an important driver of this trend.

The final plot shows the key industry metric for a refinery. While the Maya 2-1-1 one spread has increased with time, it only tells part of the story. Byproduct values such as petroleum, coke, and LPGs have negatively impacted our results. Overall, these charts provide a reasonable perspective of the margin and volume factors that have contributed to our success over the past several years.

I'd like to now turn the call over to Karyn to discuss our financial performance.

Thanks, Jim. Please turn to slide 8, which charts our fourth-quarter and full-year segment EBITDA. The fourth quarter generally reflected the trends and conditions that prevailed throughout 2012, with the overlay of typical seasonal items. The O&P segment results reflect the contrast between North America benefiting from low NGL base costs; while EAI results tend to reflect the impact of Brent crude pricing; a weak regional economy; and weak industry supply demand balances.

In Intermediates and Derivatives, the chemical products led by PO and PO derivatives have continued to realize good, steady results. Oxyfuels posted seasonally good results, but declined relative to the third quarter. In contrast to the Shell-related benefits enjoyed by the O&P - Americas and I&D segments, the Refining segment margins were negatively impacted by low byproduct values. Jim will cover details a little later. The bar chart on the right side of the page shows relatively similar trends across the segments for the full-year data.

Now let's turn to slide 9 and see how we deployed the cash during 2012 and over the past 2.5 years. Operations generated approximately $4.8 billion of cash during 2012. We invested $1.1 billion in CapEx, with slightly more than one-third of it devoted to our growth program. Cash income taxes were $260 million, and $640 million was incurred in financing costs and interest. During the year we paid slightly more than $2.4 billion to our shareholders through dividends, while exiting the year with slightly more than $2.7 billion in cash on the balance sheet.

On the right, you can see the disposition of cash since our emergence. Most notably, you can see that in the last 2.5 years we have returned cash of approximately $5.3 billion in dividends to our shareholders, while reducing our debt by $2.8 billion. Regarding future use of discretionary cash, as of the first of the year, the Dutch tax constraint that limited our share repurchase flexibility expired. Dutch law requires shareholder authorization for share repurchases. We are discussing our options with the Supervisory Board regarding going to shareholders for authorization at the May annual meeting of shareholders. If we do seek and receive shareholder authorization in May, the number of shares that ultimately may be repurchased, if any, and the timing and manner of any repurchases would be determined by management with the prior approval of the Supervisory Board, in light of prevailing market conditions or available resources and other factors.

Let's turn to slide 10 and review the history around some of the key cash flow items. The charts are generally self-explanatory. On the top left chart, consistent with the Company's philosophy of flat to down costs, our underlying cash fixed costs have essentially been unchanged since 2009 despite inflationary pressures. Our capital program has increased as we invest in growth opportunities. Working capital has remained flat. And the chart on the bottom right brings it all together, showing increasing free cash flow.

Since this is the beginning of a new year, I expect that some of you may have some modeling questions. Regarding capital, we are planning to spend approximately $1.5 billion during 2013. Approximately half of this is targeted toward our growth program. We expect cash interest expense to be approximately $260 million, based on $4.4 billion of total debt at an average interest rate of approximately 5.6%. Additionally, there should be an estimated $5 million per quarter to amortize financing fees. Annual book depreciation and amortization should be slightly higher than the $983 million incurred during 2012.

We plan to make regular contributions that total approximately $210 million to our pension programs, and estimate an expense of approximately $70 million. We currently do not anticipate any additional special pension contributions.

Regarding taxes, we currently expect a book rate of approximately 31%. Cash taxes are expected to increase from 2012 to around 29%. Our anticipated cash tax rate is higher due to the high percentage of US earnings, coupled with relatively low depreciation and interest reductions. Unlike 2012, the current year will not benefit from an accelerated depreciation under the US Jobs Act, a prior-year refund, or a prior-year interest deduction carryforward.

With that, I'll turn things back to Jim for a further discussion of our business results.

Thanks, Karyn. Let's discuss segment performance, beginning on slide number 11, with Olefins & Polyolefins - Americas. Fourth-quarter EBITDA was $769 million, a decline of $51 million versus the third quarter. However, excluding the impact of a third-quarter lower of cost or market inventory credit, underlying EBITDA increased by $20 million. For the full year, our segment EBITDA was $2.96 billion, an outstanding year.

Let's discuss a few specifics that put the quarterly results in perspective. First, relative to the third quarter, our ethylene results improved. For the second consecutive quarter, our production exceeded nameplate capacity. Ethylene margin expanded, as the sale price increased by approximately $0.02 per pound.

In polyolefins, our average polyethylene price increased by approximately $0.01 per pound versus the third quarter, while polypropylene price increased by approximately $0.03 per pound. Compared to the third quarter, polyethylene volumes were unchanged, while the polypropylene volumes declined by 6%.

Within polyethylene, exports were approximately 20% of sales. For the full year, results surpassed 2011 by $823 million, primarily due to higher ethylene margins of $0.08 per pound, and strong ethylene production. Polyolefin results also improved versus 2011, contributing approximately 15% of the segment EBITDA.

Overall, 2012 was an excellent year. The fundamentals that supported the segment performance last year have remained intact, but the global cost advantage has expanded. Our efforts to increase NGL cracking in the United States have positioned us to further exploit this advantage.

Looking to the first quarter, ethylene margins have been strong. Ethane and propane costs are low, and spot ethylene prices have increased. We are also seeing recovery in propylene and polyethylene prices.

Let's turn to slide number 12 and review performance in the Olefins & Polyolefins - Europe, Asia, and International segment. Conditions in this segment have been difficult. During the fourth quarter, exclusive of a $50 million joint venture dividend, EBITDA was breakeven. For the full year, EBITDA was $561 million. During the quarter, our results were negatively impacted by several items, including the $35 million restructuring charge, and approximately $20 million related to the Wesseling cracker turnaround. These negative items more than offset a credit related to a raw material contract renegotiation.

Within the business, underlying olefin margins improved by approximately $0.04 per pound, contributing to an approximately $30 million increase in EBITDA. In polyolefins, we experienced a typical year-end slowdown. Polypropylene volume declined by 4% versus the third quarter. As a result, our underlying polyolefins EBITDA declined slightly. Our combined polypropylene compounds and Polybutene-1 results declined by approximately $40 million following a strong third quarter. Most of the decline is related to the typical December slowdown, while the balance relates to timing differences between raw material and product price movements.

For the full-year segment, EBITDA declined by approximately $333 million from 2011, reflecting weak European economic and industry conditions. The decline reflects lower volumes and margins in commodity olefins and polyolefins, while our differentiated product results were relatively unchanged. Additional contributors to the decline were the turnaround activity at the Wesseling cracker and lower joint-venture dividends.

2012 was a difficult year for our European olefins business. Through January, we have not seen a significant change in this environment. European olefin operating rates have been in the mid-80% range. Consistent with these conditions, we are consulting with work councils to further reduce costs at some of our facilities, and within R&D. The fourth-quarter restructuring charge is related to these efforts.

Now, please turn to slide number 13 for a discussion of our Intermediates & Derivatives segment. Fourth-quarter EBITDA was $305 million, a $170 million decline from the prior quarter. For the full year, the segment generated record EBITDA of $1.65 billion, exceeding 2011 by $261 million. A majority of the quarterly decline is attributable to typical seasonal trends in oxyfuels. This accounted for approximately $100 million of the decline versus the third quarter.

Propylene oxide and derivatives also experienced some seasonal volume decline. This is normally offset by increased sales into aircraft de-icers. However, warm weather in certain areas caused de-icer demand to be weaker than normal. Intermediate chemical results declined by approximately $20 million, also primarily due to seasonal factors.

For 2012, the $261 million EBITDA increase was primarily attributable to increased oxyfuel margins. Oxyfuels represented slightly more than one-third of the 2012 segment EBITDA. Results for some PO derivatives declined versus a very strong 2011, but 2012 was still a solid year. Most products within our intermediate chemicals posted improved results, although ethylene glycol margins declined. During 2012, the segment benefited from the first dividend from our Chinese joint venture, and a payment from a prior-year hurricane-related insurance claim.

Thus far in 2013, propylene oxide and derivatives have experienced a seasonal rebound, but aircraft de-icing sales have remained subdued. During the quarter, we had maintenance turnarounds at two propylene oxide plants and our ethylene oxide facility. In the chart on the bottom right, you can see that oxyfuel margins have improved during January. This improvement is earlier than typical. We believe this is partially related to issues at a competitor's facility, and strong demand from South America.

Let's move to slide number 14 for a discussion of the Refining segment. Fourth-quarter EBITDA was $122 million. For the full year, the segment generated $481 million of EBITDA, a decline of $496 million versus 2011. Compared to the third quarter, underlying refining results were relatively unchanged. However, the third quarter benefited from a $24 million legal recovery. During the fourth quarter, the Maya 2-1-1 spread averaged $24.36 per barrel, and crude throughput averaged 255,000 barrels per day. The value of byproducts such as petroleum, coke, and LPGs continued to negatively impact refinery margins. Thus far in 2013, the Maya 2-1-1 spread has averaged approximately $21 per barrel.

First-quarter operations will be impacted by a scheduled turnaround maintenance at one of the refinery's cokers and a crude unit. This is currently estimated to impact first-quarter crude throughput by 80,000 barrels per day.

Let's step back from the details and think about the quarter and near-term outlook a little more broadly. Overall, fourth-quarter results were good. Our North American ethylene assets operated extremely well, and raw materials remain favorable. Conditions in Europe were difficult and we are pursuing actions consistent with this environment.

Across the Company, we experienced typical seasonality. January activity has rebounded. 2013 is starting well. with similar themes dominating the business environment. NGL prices are favorable, and we are benefiting from olefin and polyolefin price increases. Oxyfuel spreads have moved off their winter loads, and the Maya 2-1-1 spread has been in the low $20 per barrel range.

Overall, with the exception of European olefins and polyolefins, conditions seem to be improving, and our people are working hard to build on our strong 2012 performance. Our growth projects are progressing. We're in the final stages of permitting our methanol restart project and La Porte olefin expansion. We have announced additional high-return growth projects at Channelview and Corpus Christi.

We look forward to providing more details on our exciting plans at our Investor Day conference, which is scheduled for March 13 in New York City. We hope that you will be able to join either in person or via webcast.

We're now pleased to take questions, Gwen.

(Operator Instructions). Chris Nocella, RBC Capital Markets.

Good morning. There's been some polyolefins price increases recently, but, broadly, prices have kind of trended in line with olefins. So I'm just wondering what type of demand operating environment would you need to see for your resin prices to move a little bit higher than the olefins prices, and as you capture some margin in that part of the chain.

Chris, we are seeing a nickel looks like in January there is more price increases on the table for later months. One of the things that we're seeing very clearly in the market right now is due to the beginning of the turnaround season, and some operating issues at a couple of our competitors; spot prices are really very, very strong right now. In certain instances, that causes us not to turn that ethylene into polyethylene. We sell that into spot at a premium. That's causing there to be a bit of a shortage in resin supply. And because of that we are able to push price increases. So, all of these things have a balancing effect. And we are seeing prices increased in both olefins and polyethylene at this moment; good margins.

Great, thank you. And can you just walk through the puts and takes of the recent large increase in propylene price, as it flows through your portfolio? I imagine you'd be able to pass it through the derivatives. But just how do you look at that?

Yes. Propylene prices have been coming up. As you know, we do make a fair amount of propylene, and that's been good for us. That puts some pressure on our polypropylene business. There's usually a lag in getting that pushed through the market. In our propylene oxide business, there is also a bit of a lag. But remember that a lot of those are contracts that are indexed. And so, we'll pick that up in fairly short order again on those contracts. So there is some impact on this. Generally, it's a pretty neutral thing.

Great, thanks.

Robert Koort, Goldman Sachs.

Thanks. Jim, I think in the past you've talked about some skepticism about build rates of some of the new capacity in the US, and as -- in your role as a licensor, you have a good look. Can you give us an update on what you've seen there?

Yes. At this point in time, you don't see a lot of people out there trying to license polyolefin plants. We've heard of a few things that are out there on the horizon, but they're out there in the distance a bit. They're usually related to a PDH unit in the polypropylene. We'll see if all of those projects happen. I'm a bit more skeptical than most on this propane advantage. It's very, very strong right now; but as you know, propane, unlike ethane, can be put on a boat. And over time, there will be more propane export here in the United States. You see people putting those export facilities in place even this year, with some expected expansion over the next couple of years.

The E&P guys simply are not going to sit there and let propane prices advantage downstream users so much without taking action. So I think some of those projects won't go forward that have been announced.

On the ethylene side, you know, there have been a lot of announcements. I think there is a reasonable number of those projects that will go forward. But we'll see about some of the more recently announced ones, whether they will actually happen. We continue to study a condo cracker, but our strategy has been pretty clear. We're going to work cheaper de-bottlenecks and get that capacity up very, very soon. As you know we're talking 2014 for La Porte. We'll talk more at Investor Day about Channelview and Corpus Christi assets. But I think you'll see some very, very interesting strong return projects there. We'll beat the competition getting that ethylene to market.

And have you sensed any willingness, increased willingness, of the midstream guys to sell you fixed-price ethane? I know they've started selling fixed-price gas deals. Is there any chance that could happen?

You know, right now, there seems to be no reason for us to look at that. The prompt barrels are readily available. Inventories are very high on ethane. And so we're feeling very good about our position at this point in time.

Thank you.

Andy Cash, SunTrust.

Hi. Good morning, Jim. I was curious if you could give us your perspective on your naphtha-based assets, in light of the natural gas environment here in the US. On the one hand, maybe it makes sense to try and spin them off or somehow exit. On the other hand, maybe there's good reason to keep them. Maybe there's not a good choice right now. So I'm just curious if you could give us your perspective on that.

Most of our naphtha-based assets are in Europe. We are looking at alternative feedstocks. There will be some NGLs available, maybe a little more; some condensates pricing a little differently than they used to, because South Texas is providing a lot of material into the Gulf Coast now. And some of the Algerian condensates and feedstocks like that are now going into Europe. So that's a bit helpful to us.

We are looking at our other supply dynamics; but, simply put, Europe is a tough environment right now, and so we're doing what we can about that. And that's taking cost out. But you know we are extremely disciplined on that. And we've already achieved a lot, and we're in the process of doing more. So these assets will get better.

Remember, we are in a trough environment. And as the world economies come up, those assets will improve. And China is showing signs of improving. And when that happens, some of the Middle East product that's flowing into southern Europe will begin flowing more into China, and we should see an uptick in Europe.

Okay, and if I could ask another question -- you mentioned China. I think the last couple of MTO plants that were built there are based on imported gas-based methanol. And I'm curious, how do you view the outlook for MTO plants over there, and how they may impact China's appetite for polyolefin imports?

Well, there is some added capacity that's coming on. Some of that is fairly -- well, they are expensive capital projects. I can -- we'll have to see how the returns are. But I think that will keep a bit of a lid on how much more of that goes forward. The United States should become a much larger exporter. We are at 20% in the fourth quarter. But we are typically more 15%. But as new capacity comes online, it will not just be the Middle East bringing low-cost capacity into Asia. It will also be the United States. So, that should put a bit of a lid on some of the expansions that are announced there. Simply put, they won't have the competitive price advantage that we have in these lower-cost environments.

Thank you very much, Jim.

P.J. Juvekar, Citi.

Yes. Hi, Jim. As the midstream guys are adding capacity all over the place -- and first question is on shale oil from Bakken. When that begins to come down to the Gulf Coast, how do you see your crack spread changing? And would you go lighter on your refinery?

Some of that product is getting to the Gulf Coast right now, and we are lightening up our crack some. You know we typically talk about the advantage of heavy, deeply discounted sour type of barrels. But right now, as you know the WTI/WTS barrels are very, very competitively cracked. We can crack those barrels, too, and we are starting to bring more of that product into our refinery.

I won't be real specific about it, because it's competitive information; but, we do recognize that advantage. There are pipelines in place, moving some of that product down right now. And one of the things that's happening in our turnaround is, we're doing some work on our smaller crude unit to open up some of the flexibility there to crack even more efficiently some of these lighter barrels.

I do want to mention, though, that over time, heavy Canadian oil is going to be extremely important to this refinery. It's not all getting down here today. But as time goes on, that will become more and more powerful to an asset like we have.

Okay. And then, secondly, on ethane pipelines; we've seen this Conway-to-Mont Belvieu spread on ethane has narrowed recently. Where do you see that going in 2013, and what's the impact on you?

Yes, I think this is a good news story on all accounts. It was -- ethane was very, very cheap in the Midwest. And now it's also very, very cheap in the Gulf Coast. And the differential between the two is really a transportation differential. So we are able to source feedstocks competitively priced up in the Midwest as well as in the United States. So it's a good news story on both fronts. We don't have the same variant discount that we had last year in 2012. It's rejection kind of value economics. But now we have rejection kind of value economics in the Gulf Coast too.

Nils Wallin, CLSA.

Thanks for taking my question, and good morning. Building on the past question with ethane rejection, I was curious as to what you thought the kind of max limit there would be in terms of ethane rejection going forward given the pipeline limits. People have been talking about 200,000 barrels a day. But, of course, there is additional ethane capacity coming online. So I was wondering if you had a view -- what you thought ethane rejection might be this year.

It's a bit hard to say, but that 200,000 barrel is in line with what we are seeing. Inventories are very high. And all of that is putting downward pressure on ethane. And at some point there is -- you can't reject a certain amount if you have a burner tip spec. So, it all feels good.

Got you on that one. And then, just on your polyethylene and polypropylene sales sequentially, it looks like polyethylene was probably flat sequentially. But this is, obviously, versus -- the industry which was down, whereas polypropylene was down sequentially, but a lot more than the industry. So, was there something that you were able to do in your own plants to preferentially move more polyethylene? Or did you take some share? Or was this just a better export opportunity for you?

Well, we've been running our polyethylene assets hard all the time. And so I don't know that we increased our share; but, good solid operations. We had a bottle or two in polypropylene, and that's why that's down a bit. I think the good news is, is the assets that were making us a lot of money -- olefins, we set quarter-after-quarter plant records in more full places, so running above nameplate. We made money where the money could be made. Polypropylene didn't have a very good margin. We did have a bottle or two, and so it had very limited impact, but it did affect our volume.

Thanks very much.

Hassan Ahmed, Alembic Global.

A question about returning cash to shareholders -- I know, a couple of moving parts here, particularly with regards to the share buybacks; as Karyn mentioned, the Supervisory Board approval and the like. But just wanted your internal sort of thought process with regards to the balance between special dividends and share buybacks. And I mean said differently, is there a particular sort of special dividend payout ratio you guys are thinking about internally, beyond which you'd sort of indulge in buybacks as well?

Let me make a couple of comments, and then I'll let Karyn add to it. First, I think it's extremely important to recognize how disciplined we've been in a couple of different areas, first on costs. As I mentioned in the earlier remarks, we've maintained costs flat. We took $1 billion out of the cost structure in 2009, and then have eaten inflation in the last several years. We operate with 13,000 people, so we are extremely disciplined.

On the capital side, we underspent our capital budget for 2012 by several hundred million dollars. We've done everything we can to make sure that we are spending the money efficiently, and not spending -- just because it's in the budget doesn't mean we want to spend it. We had $2.4 billion of dividends in 2012. And we said we would return discretionary cash. Our philosophy has been that we said we'd do that either in terms of special dividends or share repurchases.

Up until this year, we really couldn't do share repurchases because of tax issues and because of market concentration issues. I think what we just described to you in our earlier comments was, we have to go to shareholders under Dutch law. We have to talk to the Supervisory Board first. And we have a shareholders' meeting in May. And it could be the possibility we have both of those options available to us, depending upon votes, those kinds of things -- in 2013 compared to 2012.

But I want to be very, very clear on one point. We return discretionary cash to our shareholders. And we have growth projects. They're very, very high return; but what we've done over the last couple of years speaks for itself.

Karyn, do you have anything else you'd like to add?

No. Just to reiterate, there's really been no change to our financial policy or practice of returning discretionary cash to shareholders. A potential buyback mechanism would really just be another alternative to returning value to shareholders. So if shareholder authorization is sought, management and the Supervisory Board will assess all those considerations.

Fantastic. And a quick follow-up, if I may. On the regular dividend side of it, obviously it's a nice chunky $1.60 in terms of a regular dividend. But, again, just trying to understand the thought process over there as well -- that, at least historically, the way I think about regular dividends is that a company's sort of relative confidence in trough earnings power of that company. Right now, we clearly are in a capacity utilization trough globally. Yet, this is the second consecutive year, 2012 is, where you've earned north of $4 a share in a trough. So, the question basically is, is there further potential for a regular dividend boost as well?

Yes, so our current regular dividend, where it's set, is reflected today of our investment grade metrics and our strong free cash flow profile. So we've set this at the high end of the yield and payout ratio, as it relates to our chemical peers, as well as, well above the S&P 500.

So, it's reflective of our free cash flow versus our peers, but it also leaves us room for us to grow it over time. So, currently, our policy is to continue to pay the regular dividend; increase it over time; so it's a sustainable, forever growing, regular dividend which, assuming we've exhausted any other near-term positive growth investments, it will continue to potentially supplement this with periodic returning of value directly to shareholders, as we did in 2011; and just recently in December, with the special dividends. But the amount and timing of any future increase -- that's currently being evaluated by management and the Supervisory Board.

Very good. Thanks so much.

Kevin McCarthy, Bank of America.

Yes, good morning. Two questions, Jim, on propylene. First off, in periods like first quarter of 2013, when we get soaring propylene monomer prices, can you comment on whether or not you can run long through feedstock mix adjustment and metathesis; and if so, how long can you run? And then second, can you provide an update on your new metathesis unit at Channelview, and what that timing might look like for the 0.5 billion pounds?

Yes. Kevin, at this point in time, we are running what we call [double-dimer] mode in our metathesis unit. We are turning ethylene into propylene, because propylene prices have really blown out, and it's profitable to us. We think of how wonderful spot values are in ethylene at the moment -- to think of using those volumes and putting in propylene tells you just what where propylene prices are. So we're running double-dimer, or making propylene and selling that into the market.

In terms of the expansion of that metathesis unit, we've basically taken it off the table. I think, given the announcements of these PDH units that multiple companies are suggesting, we don't think that makes sense. And it did at the time, but I think as I mentioned earlier in the call, I think people are bit overreacting to where propane is.

This is not the Middle East, you know, where people by government mandate decide that they'd like to see extra capacity built, using their own natural resources. In the United States, we can export freely. The E&P guys are going to put this product on a boat. And over time, while there will be plenty of propane just like plenty of ethane, propane will start to trade closer to market values. Because it's much easier to export it.

And so, with the announced capacity -- and I think there's a possibility that propylene could go a bit long -- that's a positive for us in some ways because we make a lot of propylene oxide, and obviously have a couple of polypropylene plants. But that made me reevaluate, in cooperation with the rest of the team, that metathesis expansion. I think our money is better spent getting these de-bottlenecks done in our ethylene units.

Very interesting. That's helpful. Second question, if I may, on ethylene monomer -- it seems as though you continue to operate quite well. Can you give us a feel for how much of both nameplate you've been able to run your crackers in the United States, and what that has meant for the amount of volume you've been able to move into the spot market at premium prices, and impact on profit there?

Well, we are always talking a couple of percentage points. Nameplate is hard to exceed. But having said that, simply being able to do that a couple of quarters in a row -- I can't emphasize enough, in the last few years we've spent a lot of money doing massive turnarounds at our crackers. And we've done OP1, OP2 at Channelview. We've gone into almost every one of our units; did Corpus, did Morris. We've got these assets fresh and ready to run when we have the opportunity.

A couple of years ago, when things weren't as good, we said, we're going to get these things repaired to be reliable and make money when the sun starts to shine. And so that's happening. We're delivering on it. And we'll keep trying our best. We put huge emphasis on operations, as you've no doubt seen.

Now, in terms of the spot, we sometimes dial back polyethylene. And we talked about fourth-quarter exports. Well, we can dial back exports and turn that into spot, because there are some people short right now coming into the turnarounds and we are buying a lot of product to cover it.

Appreciate the thoughts. Thank you.

Mike Ritzenthaler, Piper Jaffray.

I just wanted to ask a follow-up on the naphtha-based assets questions that you had addressed earlier. Can you discuss the EBITDA impact of the various puts and takes? You talked about outages and so forth that happened in 4Q. And then, can you give us a sense of the cost saving initiatives in the international O&P segment that have been completed, and how much further you believe that has to go this year?

Yes. In terms of what we did at Wesseling, we mentioned that was about a $20 million impact for that turnaround. The margins weren't that great. We are able to cover a little bit here and there. But it was about $20 million. There is always an expense side to a turnaround as well, and we don't put those numbers out, typically. In terms of what we've done already, I think you have to recognize, at the time we do the action it takes a couple of years to get a payout in Europe. It's different than the United States. We've already at least saved in the neighborhood of $50 million. We are working on a couple of more pretty significant items. Because we are in discussions with the works council we don't make those numbers public because it's appropriate that we have that dialogue with our employees.

I'm really proud of that group, too, because under the tough conditions that they've had, they are still -- when you look at competitive pricing and the way we run the assets, we are right up there in the top quartile in the values we receive for our products -- it's just a tough environment. And so we're being very respectful to our works council. It's working with them closely. But we've also been very clear the costs have to come down. That's a lever that we can use, and we're going to.

Okay, great. And then on the kind of efficiency in North America as well, I guess it's a similar type of question. But with ethane having hit something of a bit of a floor here, at least in the near-term, what other levers can you pull from an efficiency standpoint? Like, outside of the de-bottlenecking to incur growth, and what -- can you just give us a flavor for what are those types of things you are working on?

Well, I think we continue to increase the amount of ethane that we crack. We said it fairly quickly, but 10% change last year and the amount of NGLs that we crack -- that's very, very strong. That took a lot of hard work and engineering. A few tweaks and things -- a little de-bottleneck here and there to get that done. We have more of that coming. It won't be that order of magnitude, but we are bringing more ethane into certain facilities. Condensates, we're getting from South Texas and that's been a nice strong plus. So we work it every day. We optimize the crack. And I think it's showing up in our financials.

Okay, thanks.

Vincent Andrews, Morgan Stanley.

I had to hop off the call for a moment, so I hope this hasn't been asked. But I don't think it has. Jim, you sounded still a little pessimistic about Europe. So I wanted to ask you, the bottom right-hand corner of that O&P Europe Asia international slide has got some pretty nice improvement in polypropylene margins, and I guess being just a little bit above breakeven isn't so terrific. So I can understand the sentiment. But do you think the move that we've seen so far in January -- how sustainable do you think it is? What do you think is driving it, and what would cause it to reverse?

Well, right now, I would still say that there is excess capacity. We do our best to achieve value in a way that we sell our product. But I wouldn't want to say that we see any kind of a significant upward trend in Europe at this moment in time. I will remind everybody that in the second quarter of last year, when naphtha prices fell fairly rapidly, we had an outstanding quarter in Europe. Those things can happen again.

But I would say that Europe is in trough conditions. What could improve it -- we've seen signs of China picking up. And if that trend continues, that will take some pressure off of Europe. And things will get more like they were in 2010, I hope. And then, as the cycle improves, we'll do even better. But, right now, it's still trough.

But just in terms of where that polypropylene margin is, should we be expecting that sort of through the first half of the year, or no real view?

It's a bit difficult to call. There's moments when it looks a little better; get a few price increases. But before I forget to mention this, we also have some pretty differentiated uses of polypropylene. Remember that we have a compounding business that is very strong. It's always seasonally little off in the fourth quarter, as holidays are taken by auto manufacturers. But that business was super-strong business for us last year, and we hope that we'll see that again in 2013. But overall, consultants calls on polypropylene prices, that can change in 30 days. We just have to see how the market develops.

Okay. And then just as a follow-up, on the last call you talked about MLPs. And you're obviously very specific about -- you'd come to us when you had time to come to us. And I'm just wondering if, in the meantime, you've ruled anything out in terms of what you might be able to do with that structure?

No. We haven't ruled anything out. We're doing an intense study. I think a fair number of competitors are doing the same thing. It is a potential option for us, and we want to do it -- due consideration, discuss it with the Supervisory Board. But we're not at a decision-making point yet.

Okay. Thanks very much.

This is Doug. I'm going to have to apologize. We've got about seven minutes left or so in the allotted time for the call. So we'll take as many calls as we can. So if people would just kind of limit their calls and I will apologize if we can't take all the calls. We still have a pretty long queue. So we just apologize in advance.

Gwen, we'll just take the next question, please.

Duffy Fischer, Barclays.

Yes. Good morning. Jim, you've talked about, at different times, some upside from the JVs, particularly the ones in the Middle East, as those can run a little more efficiently than they have. Where do we stand on that? And how much more upside is there, as those get up to kind of world-class standard running?

Yes. Well, I think our one JV has been returning dividends very nicely. It runs well. The PDH unit in the polypropylene joint venture, also there in Jubail, had some hiccups when it first started. That was the world's largest PDH unit. As you've seen from the unit here in the United States, those aren't the easiest things to run. We seem to have solved the issue that we had. And we are up to rates in the PDH unit now, and hopefully that flows through profits. In an early joint venture like that, you have to pay down some debt and all before you start issuing significant dividends. I think we've made the comment before -- we have good earnings from those joint ventures; we just don't always see the dividends. And that's what we report in our earnings.

So, good operations; improving, highly competitive assets; but unfortunately, dividends are paid kind of in a lumpy fashion and a little hard to predict in our earnings. I can't say much more than that. But the assets are running well now.

Okay, great. And then you had mentioned condensate being a benefit for you, a couple of questions back. And a lot of that's coming off the Eagle Ford. So others are doing several projects. One, to gather condensate a little more efficiently, but also to put a pipeline to kind of get it to the river system. So on one hand, that helps you that you, in that you get a little more condensate. On the other, it may be a little bit of a negative, as they can get it to some of your competitors where you've had a very nice position with your Corpus Christi. Net-net, when you look at the spread you've gotten over competitors on condensate from the Eagle Ford, does that get better or worse for you over the next couple of years?

It's been very good for us today. Remember Corpus Christi is right there in the heart of the Eagle Ford. So there is a transportation advantage. It's been very difficult to get all of that out. Just like the comment I made before on propane -- over time, the E&P guys will figure out how to move this. But it's still a plus, overall. Maybe we won't have as strong a competitive advantage and there will be a pipeline discount. But right now, we are barging into our Channelview side, and we are able to take it almost straight off the local pipes there in Corpus. So today it's a nice advantage. Some of that will be moderated.

Great. Thank you very much, guys.

Don Carson, Susquehanna Financial.

Jim, a question on -- you talked about the turnarounds at OP1 and OP2 in 2012. What kind of a tailwind does that give you going forward into 2013; in terms of additional capacity, you're just not having to buy spot product.

Yes, you know we did OP2 in 2011, and then OP1 in 2012. We had them both down for a little bit because of utilities in 2012. But we have Clinton this year. But we've got our big turnarounds in the rearview mirror. And so we're feeling pretty good about where we're at. That was part of our strategy is, get it done.

And am I correct in recalling that was about $100 million hit or so to 2012 earnings from the OP1 being down?

Yes, Don, I don't remember the precise numbers, but let me give you a kind of a context of a turnaround activity. In 2012, where we had one of the olefin units down for about seven week or so turnaround, and we had the other one down for about three weeks at Channelview. So, you had about that many cumulative weeks of a 1.9 billion pound olefin plant down.

This year what we're going to do is we're going to have a turnaround later in the year at Clinton. Clinton is about a 1 billion pound facility. So about half the size and just the one facility, versus the two. So I think that will give you a pretty good context. And we'll see where the market is for everything.

Okay. Thank you.

I think we're going to try to take -- if I could ask everyone to limit themselves to one question, we'll try to take another two or three questions if we can.

David Begleiter, Deutsche Bank.

Jim, just on ethane, as we hit these rejection limits, would it surprise you if we saw ethane prices drop below $0.20 a gallon for a period of time?

You know, it depends on natural gas prices. Obviously we saw that kind of -- those kind of numbers and even better in the Midwest at one point in time. It's hard to say. I never try to forecast prices but, recently natural gas prices have come down and we are still in the dead of winter.

Thank you very much.

Jeff Zekauskas, JPMC.

Hi. Good morning. Some people think that global ethylene utilization rates are in the very high-80s. And some people think that they are in the mid- to low-80s. Where do you stand on that issue?

In Europe there in the mid- to low-80s. We're in the mid-, because we are short, structurally, ethylene. So we run our crackers a bit harder than other folks. I think in the United States, everybody can run that can run a pound is running a pound full out. But some folks have tripped a little bit on operating results and there is some turnaround that's going on. In Asia, I think mid-80s is probably about right.

And what about in the MidEast?

Middle East, everybody runs full out all the time if they can.

Okay. Thank you very much.

John McNulty, Credit Suisse.

This is Abhi Rajinran calling in for John. Thanks for taking the question. In terms of exporting ethane out of the US, we've seen a few announcements of agreements for moving ethane to Europe. Can you touch on whether this is something you've looked into for some of your European crackers? If you think this will be a meaningful sink for some of the ethane supply coming on over the next couple of years, and any impact to pricing?

There is a very, very limited amount of that being done by one company that had facilities in place. But it's just really not an economical thing to do. If it was, the Middle East ethane would have been moving out many, many years ago. So I don't think that's going to have any measurable impact in the United States.

I think we're going to have to wrap up there. So I apologize to any questions we weren't able to take. I think Jim is going to make a few comments to close the call for us.

Yes, thank you Doug. You know we did have a record 2012 earnings, industry-leading safety performance, and I think operational results. We are a Company with intense discipline on costs. Our 13,000-plus employees who work really hard. If you compare the number of people we have compared to our competitors, we're a very, very efficient group. We've been very disciplined in the way that we spend your capital. We're looking at cheap, quick, but sizable olefin de-bottlenecks at La Porte, Channelview, Corpus Christi. We're trying to beat our competition to the market. We'll talk much more about this at Investor Day in New York City in a couple of months.

We've demonstrated a track record of fiscal discipline. We brought down debt. Moody's now has us as an investment-grade company. We underspent the capital budget by several hundred million dollars last year. We returned $2.4 billion in dividends last year. I think you now understand our balance sheet policy. It hasn't changed over the last few years. We return discretionary cash to our shareholders, even to form special dividends or share repurchases.

One thing that I'd like to close on is when I joined this company in 2009 in the throes of bankruptcy, I said we would turn this into the number-one competitor in our industry. We're not there yet today, but we're getting pretty close. We remain focused on that goal. We will be the top competitor for you. Thank you very much.

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