利安德巴塞爾 (LYB) 2013 Q1 法說會逐字稿

Hello, and welcome to the LyondellBasell teleconference. At the request of LyondellBasell, this conference is being recorded for instant-replay purposes. (Operator Instructions). I'd now like to turn the call over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Corey. Welcome to LyondellBasell's first-quarter 2013 teleconference. And I am joined today by Jim Gallogly, our CEO; Karyn Ovelmen, our CFO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions.

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, 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, and 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.

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

Finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2.00 PM Eastern time today until 11.00 PM Eastern time on May 26 by calling 800-469-5439 in the United States and 203-369-3805 outside the United States. And the passcode for both numbers is 3102.

During today's call, we will focus on first-quarter 2013 performance, the current environment, and the near-term outlook. And 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.

Overall, the first quarter of 2013 was a good start to the year as we generated nearly $1.6 billion of EBITDA. This led to income from continuing operations of $906 million and record diluted earnings per share of $1.56.

The fundamentals that have benefited us over the past several years continue to drive our success. Carriers of strength were North American ethylene margins and production and continued steady performance from the intermediates and derivatives segment.

Along with strong earnings, we passed several important milestones during the quarter. Our credit rating was raised to investment grade. We received environmental permits and began construction of our methanol plant restart at Channelview and the ethylene expansion project at La Porte. We also completed a major turnaround at the Houston refinery.

If you turn to slide number 5, you will see that our safety results for the first quarter were best ever. Performance in this area continued our positive trend. Our recordable injury rate declined to 0.12, perhaps the best in our industry.

Environmental and process safety results were also very good during the quarter. We understand that great safety performance is not realized on a quarterly basis. It must be top of mind for all our employees and contractors every day. We will continue to stay focused on improving our safety environmental performance.

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

Thanks, Jim. Before I begin my discussion of results, I want to remind you that we have modified our presentation of EBITDA and we have issued reconciliations of historic results to help your modeling. These can be found on our website.

Please turn to slide 6, which shows our first-quarter EBITDA by segment. The quarter generally reflected the trends and conditions that prevailed throughout 2012.

O&P Americas generated record EBITDA of $898 million. The combination of continued strong ethylene margins and production drove these results.

O&P EAI EBITDA was $225 million. This was a significant improvement versus late 2012; however, the improvement was predominantly driven by raw material cost variability, rather than underlying fundamentals.

The Intermediates & Derivatives segment generated EBITDA of $373 million, reflecting steady chemical and oxyfuel results.

Refining segment EBITDA, $20 million, was negatively impacted by the turnaround of a coker and a crude unit. This significant planned maintenance effort spanned almost two months and reduced the average quarterly crude oil throughput by approximately 85,000 barrels per day. While this impacted the first quarter, it positions the refinery well for the future.

On the right side of this slide, we have plotted segment EBITDA for the last 12 months. Generally, trends were quite consistent across the period. O&P Americas and Intermediates & Derivatives were areas of strength. Both areas benefit from US shale gas development and its effect on advantaged natural gas and natural gas liquids prices.

Our O&P EAI results experienced some volatility across the period, but in general were depressed by the European economic environment, coupled with high naphtha raw material costs. In refining, margins were negatively impacted by the value of co-products, while volumes were impacted by the recent turnaround.

Now let's turn to slide 7 and see how we deployed the cash. First-quarter operations generated $1.1 billion cash, exclusive of working capital changes. Use of the funds, including a temporary $280 million increase in working capital, primarily due to an inventory increase. We anticipate that working capital will decline over the next quarter.

Capital spending increased to approximately $390 million as we invested in our growth projects and the refinery turnaround. During the quarter, we paid our normal interim dividend of $229 million. Our cash balance increased by $147 million. This is consistent with our expectations, as the quarter included several annual payments, such as property taxes, customer rebates, and employee bonuses, which together totaled approximately $460 million.

On the right side of this slide, you see similar metrics for the last 12 months. I want to highlight a few items.

First, operations generated $4.8 billion, exclusive of minor working capital changes. We paid dividends of $2.5 billion, invested $1.2 billion in capital projects, and our cash balance increased by $1.2 billion.

On slide 8, we provide some further detail of working capital and metrics that we tracked. I've covered most of these, so now I'll turn the call back to Jim.

Thanks, Karyn.

Let's discuss segment performance, beginning on slide number 9 with Olefins & Polyolefins Americas. First-quarter EBITDA was $898 million, a $121 million increase versus the fourth quarter of 2012. This was a record performance for this segment.

The olefins business provided a quarterly improvement as ethylene margins expanded significantly. Our average ethylene price increased by approximately $0.04 per pound, while our cost of ethylene production metric declined. Ethylene co-products, such as propylene, contributed to the lower production cost.

During the quarter, approximately 87% of our ethylene production was from natural gas liquid feedstocks. For the third consecutive quarter, ethylene production exceeded nameplate capacity. This may not be apparent to you in our reported metrics, as we report net ethylene after taking into account the operation of our metathesis unit.

For a portion of the first quarter, propylene prices justified operation of this unit. At other times, we sold spot ethylene to competitors who had operating issues or made polyethylene. We use our flexibility to maximize value.

Polyolefin results declined by approximately $25 million versus the fourth quarter, mostly due to lower polypropylene margins. We attribute this primarily to the volatility of propylene pricing and the timing of price increases. One of our polypropylene plants also experienced some scheduled downtime during the quarter.

Joint-venture equity income was $4 million. We received $10 million of dividends in the first quarter.

During April, raw material costs have been relatively consistent with the first quarter. The propylene benchmark price has declined significantly. We have also seen some weakness in polyolefin export markets. We have no planned ethylene maintenance until the third quarter, but there continues to be significant ongoing industry plant maintenance through the second quarter.

Let's turn to slide number 10 and review performance in the Olefins & Polyolefins Europe, Asia, and International segment.

First-quarter EBITDA was $225 million, an improvement of $198 million versus the fourth quarter. Joint-venture equity income was $54 million, but there were no joint-venture dividends.

The improved quarterly results were in part due to the absence of fourth-quarter charges, which included items such as restructuring charges, compensation accruals, a feedstock contract renegotiation, and the impact of a plant turnaround. Exclusive of these fourth-quarter charges, our underlying ethylene margin improved several cents per pound. We believe this was largely attributable to naphtha raw material cost volatility and timing of polyolefin price changes, rather than improved industry fundamentals.

Excluding the impact of the fourth-quarter feedstock contract renegotiation, polyolefin results improved by approximately $30 million, driven by improved margins.

Combined polypropylene compounds and polybutene-1 EBITDA improved by approximately $20 million. Results returned to a more typical pattern following the normal end-of-the-year holiday slowdown.

Despite the improved first-quarter results, conditions in this segment continue to be difficult. Ethylene plant operating rates in April have been in the mid-80% range. Margins continue to be impacted by weak economic conditions and raw material volatility. During April, performance from our joint ventures and differentiated polyolefins is relatively unchanged.

Now please turn to slide number 11 for a discussion of our Intermediates & Derivatives segment. First-quarter EBITDA was $373 million, a $76 million increase from the prior quarter.

Propylene oxide and derivative results improved primarily due to stronger volumes. Sales improved following the typical year-end slowdown. Sales into aircraft deicers increased. Results in acetyls and ethylene oxide were relatively unchanged. C-4 chemical and styrene results benefited by approximately $25 million from increased margins. Oxyfuel margins increased, in part due to lower butane costs.

During April, trends and conditions within Intermediates & Derivatives have remained relatively consistent with the first quarter.

Let's move to slide number 12 for a discussion of the Refining segment. First-quarter EBITDA was $20 million, a $103 million decline from the fourth quarter. First-quarter results were significantly impacted by the turnaround of the crude unit and the coker. This scheduled maintenance took place during February and March, versus the fourth quarter. We estimate the turnaround impact to be approximately $80 million.

First-quarter crude throughput averaged 173,000 barrels per day, approximately 95,000 barrels per day less than our stated capacity.

Relative to the fourth quarter, the industry benchmark, Maya 2-1-1 spread, declined by approximately $3.40 per barrel. As you can see from this slide, most of the decline was in the heavy/light differential, while the gasoline spread improved. Our overall spread declined less than the decline in the Maya 2-1-1 benchmark.

During the quarter, we saw a significant increase in the cost of RINs, or renewable identification numbers, for renewable fuels. This was driven by a growing imbalance between renewable fuel regulations and the realities of fuel markets. Our cost of RINs increased from less than $10 million in the fourth quarter to $25 million in the first quarter. We expect that increased costs associated with RINs will ultimately be passed through to the market, but it is difficult to predict exactly when.

Thus far during April, we have run the refinery near its full stated capacity. The Maya 2-1-1 benchmark spread has averaged approximately $18 per barrel. Since completion of our turnaround, we have adjusted our crude mix to a lighter slate.

Let's move to slide number 13 for a quick summary. 2013 started with record diluted earnings per share. The businesses that performed well during 2012 have continued to be strong year to date. Conditions within the European olefins and polyolefins markets are difficult, but during the quarter, raw material volatility worked in our favor. Our refinery turnaround is complete, and we are now better positioned to adjust to changes within the US crude oil market.

In general, early April brought a continuation of industry conditions experienced during the first quarter. More recently, we have seen a decline in crude oil prices and a slowing in international polyolefin markets. We often see customers' slow buying patterns when feedstock prices decline. Time will tell if we are again seeing this trend or a more fundamental change.

Regardless, under current conditions we continue to benefit from a significant cost-advantage drive from US shale gas production. We are advancing our cost-reduction efforts in Europe and have demonstrated we can have differential earnings in this geography even during challenging market conditions.

As always, we remain focused everywhere on operational excellence -- safe, reliable, low-cost operations every day. A number of our growth projects are now in construction and our future is bright.

I want to remind shareholders that our proxy has been filed and our annual shareholder meeting will be held on May 22 in Rotterdam. Thank you for your interest in LyondellBasell. We're now pleased to take questions. Corey?

(Operator Instructions). Jeff Zekauskas, JPMC.

A two-part question. You have been running your North American ethylene units at close to 100% for three quarters now. Does that place undue stress on your assets or is that a new normal?

And then, the second question is, you mentioned in your prepared comments that you had lightened your crude slate at your Houston refinery. Can you be a little bit more explicit as to how much you have lightened it?

Yes, Jeff, first on the question of ethylene production and our US operations, we've actually operated above nameplate the last three quarters.

Yes.

We are cracking a lighter slate. That improves our ethylene yield. It's a little higher furnace temperatures and all.

But we don't expect that to have a long-term impact. We already normally do our decoking operations and things are pretty typical. So that's very, very unusual. I think exemplary performance by our people and I couldn't be prouder of that kind of a record. I haven't seen that for a long time in our industry, and I personally think we are showing very differential performance in our ethylene operation at a time when margins are great.

In terms of our crude slate at the Houston refinery, we just came out of that turnaround. One of the reasons we were working on that crude unit for a couple months is we basically re-plumbed it so that we could take some of the lighter crudes. I think depending upon how we blend and all, we could probably run about 20% light-type crudes, but there's a lot of factors that go into how we operate, blending rates and all of that. But I think that is a reasonable rule of thumb.

Okay, thank you very much.

Robert Koort, Goldman Sachs.

Jim, I was just curious and sensing from some investors some angst about the cadence of operating rates globally for ethylene. I think in your guys' model, you used something like 3.5% to 4% over the next several years. You think there's any need to revise that, given the lethargic global economy at the moment?

Well, right now we are running, obviously, better than 100% in the United States. And every pound we make, we've been able to sell. So we see no reason to think differently about that.

In terms of our global operating rates, we have been operating in the mid-80% range. Remember that we are structurally a bit short in Europe, and so we can differentially run our assets a bit harder, depending upon which one of the pods we are in, so to speak, within the geographies that are in Europe.

But I don't see a reason to change anything at this point in time. Market conditions in Europe are reasonably stressed, as we indicated, and Asia has been reasonably flat for a bit. So we hope that there is some upside at some point in time, but that will depend on the economy.

All right. Thank you.

Chris Nocella, RBC Capital Markets.

Just on the European side, can you split the earnings improvement in the first quarter between naphtha being lower and the benefits of your restructuring there?

And one of your competitors in Europe announced a shutdown of their polypropylene assets, so is that enough to firm the market or is there some additional actions you need to take?

Well, I think we had differential performance in Europe. I haven't had a chance to review everybody's numbers yet because not all of those are out. But if I look at where we stand versus some of our competitors, I think we ran reasonably well, and we pride ourselves on chasing value, not volume. And I think our results look pretty good.

We did benefit from some of the timing issues during the quarter, but hopefully we surprised everybody with better-than-expected numbers in Europe.

We do have continued restructuring efforts underway. We are in discussions with the works councils and we are going to be pressing very, very hard to get that cost structure even further improved in Europe.

Chris, I would just add, I think -- to that, I think as you see the quarter, you saw the volatility in naphtha. We saw some pricing improvements and moves.

But during the investor day, I think Bob Patel brought forward some of the cost restructuring items and some of the items on the efficiencies that the group over there has been working on. So I might refer you back to that for some of those efficiencies that we are building over in that area.

Thanks. And just as a follow-up, resin prices in Asia have come off pretty hard recently, and I know that you don't export directly to Asia, but can you help us understand the impact of this on some of global trade flows?

Yes, first, we do sell product into Asia, but primarily from the Middle East. We sell a few specialized products from Europe into Asia that are extremely high value, but generally the product we move into Asia comes from the Middle East with significantly advantaged cost structure. We have been able to consistently move the product.

In the United States, the last period we've been selling more 12% to 13% exports, primarily into South America. So we've actually decreased our exports and sold more domestically.

When will Asia improve? As I mentioned in my previous remarks, generally we see buying patterns when naphtha prices are falling, customers will wait to see what's going on and withhold full volumes and work off of inventories a bit. We expect some of that is going on, but it's just a bit early to predict how the rest of the year will go.

David Begleiter, Deutsche Bank.

Jim, there has been some discussion of ethylene multipliers the last few weeks, some as high as 1.4 times GDP, some as low as 1.1 times GDP. What is your view of ethylene growth as a multiple of GDP?

Well, you have to think really, really back in history to get to 1.4. I haven't seen that number for a while.

But a lot of people just say it is GDP plus or minus a bit, depending on what the geography and what the economy is. I don't think much has changed on that recently.

And just lastly, you announced some new fractionation capacity at Corpus Christi. Could there be additional type arrangements at other cracker sites you have in the US for these types of on-site fractionation?

Well, generally, no. A lot of our facilities are close to Belvieu. And so, it really isn't necessary. There's been a lot of capacity added there.

Down at Corpus Christi, this was a unique opportunity for us to work with a third party to diversify our supply, put the plant actually on our facilities, operate it for them, and we think we're seeing a nice feedstock advantage as a result of that. We're not at liberty to tell the pricing because that is a confidential contractual matter, but obviously we consider it quite favorable to us.

Vincent Andrews, Morgan Stanley.

As you talk to customers now, the same dynamic played out last year with declining naphtha at this time of year, is the dialogue any different today about order trends and order patterns than it was a year ago?

Well, I don't think so. I think, again, we've been able to move our volumes effectively from the Middle East into Asia. And in the United States, we've actually increased our domestic volumes and exported a little less.

We'll just have to see how the rest of the year plays out. It's a bit early yet, and we're certainly not in peak-type conditions in the summertime.

P.J. Juvekar, Citi.

Jim, you had a nice increase in European profitability. Can you break it down for us into how much of that came from restructuring versus how much of it came from lighter feed, like propane, that you are using?

P.J., I'm sorry, you were a little bit hard to hear, but I believe what you are asking is in the increase in European profitability, how much would we relate to --

To restructuring (multiple speakers)

(Multiple speakers) naphtha and pricing movement so that the volatility within the markets, and how much would we say is driven from the restructuring and the work that we are doing there? Is that correct?

Yes. That is correct.

I don't have that number broken down that way, to say what percentage is what. There was a lot of movement, obviously, in naphtha pricing across the quarter, and our timing was pretty effective.

But generally, we work all of our costs across the period. There's no new single large item that I could report in our cost-reduction effort. It's just continuing relentless pursuit of a better cost structure there. So I can't say that there is a unique item on cost that differentiated it. It's more how we performed against the general market.

Nils Wallin, CLSA.

Curious as to what your outlook is for volumes in the olefins business in the US in the second quarter with all these turnarounds, because obviously you mentioned that you were running at full rates. Is there any way to get incremental volumes out there, or what type of flexibility might you be able to employ to put higher-value products into the market where it is tight?

Yes. Well, you are tough on us because we have above nameplate for three quarters in a row and you are wondering would we have more. I don't know if we can do that much more than we have already been able to accomplish.

So the volume side, we've operated really well. And we've been able to move the product.

We have a very flexible system. You can see that we've got our NGL rates up to 87%, which is outstanding. We've got more ethane is coming into Channelview, about another 10,000 barrels per day, as a result of a pump we put in, a new line, so that is moving Channelview's feedstock even lighter. Feel good about that.

And in terms of the value adds, we will go in and out of markets pretty quickly. For instance, if spot moves up -- you know, it fell almost $0.10, then moved right back up with some operating issues. So then, we are into spot markets and out of running metathesis. We will watch the polyethylene trends. And generally, we'd rather sell to a competitor's spot than make polyethylene these days. But those are decisions we make every day.

Got it. And just a follow-up, you certainly highlighted the volatility in raws in Europe, but on your slides it looks like ethylene margins are up in April. So is there reason to expect that not to flow through your numbers in the second quarter? Or is this some artifact from the way that the consultants report the profitability?

Well, the pricing is just settling in Europe, as we speak, and then we will have to watch and see what happens with naphtha pricing, and also for May. April numbers, you've seen the trend lines already, so we just have to see how the quarter develops.

But there is still some continued volatility in the pricing. Naphtha has been reasonably inexpensive, but again, May should be settling very, very shortly, if it hasn't settled overnight.

Don Carson, Susquehanna Financial.

A couple of questions on Europe. Jim, are you able to take advantage of any feedstock opportunities in Europe, like increased Algerian condensate or propane?

And just a question on what your outlook is for equity income there. Is there an inflection point coming where as they pay down debt, they can start dividending more money back to you, or whether they will have a significant improvement in your share of their income?

Yes, on feedstock in Europe, we are running more condensates than we did, particularly at Berre.

And by the way, we are running Berre full out. As you know, a competitor had a plant incident in that region, and as a result, ethylene is extremely short. And we are running full rates, running some condensates. We've been moving butanes into our cracks and propanes. We are cracking a little lighter than we did before, but remember that we're buying NGLs there more at world prices versus the discounts that you see in the United States. So you have to be careful in terms of the expectations on that. But generally lighter, improving the mix.

A couple of our crackers already had some advantage from some of the heavier streams, hydrowax, things like that that have always been a bit of a plus for us.

Let's see, the second -- the JV dividends. There is not a new trend there, per se. Obviously we are reporting those differently in EBITDA, Karyn explained that, so you are seeing not just the dividend stream, but the earnings from our joint ventures.

But the dividends, I expect those to continue to be fairly lumpy. We didn't have any of that cash in Europe in the first quarter. I also had mentioned that it's not just the Middle East, it's also some Asian JVs will give us dividends from time to time, but first quarter didn't have any of those.

Duffy Fischer, Barclays.

One of the big things for the last couple of years has just been the changing outlook for the feedstocks in ethylene. So there is some chatter that naphtha could become disconnected from Brent oil over time.

I'm just wondering if you guys have had a chance to look through that. Obviously, you've been in a lot of different places within the energy space, Jim, so if you had any insights on -- is that something that could surprise us in the next three to five years?

Well, I've seen some write-ups on that and I'm a little skeptical. It is theoretically possible, but right now it seems like ethane will continue to be advantaged in rejection periods right now in certain geographies.

In terms of naphtha coming down differentially, we've got to get into the gasoline pool to figure that one out. Gasoline prices had been reasonably strong the first quarter. I think octane is going to have more value going forward. So I've read a little bit about that, but I'm scratching my head. I'm not sure I agree with all the premises at this point.

Kevin McCarthy, Bank of America Merrill Lynch.

Your shareholder vote regarding repurchases, I guess, is less than four weeks away now. Can you comment on whether or not you would see potential to accelerate the pace of execution relative to the 18-month time frame that you put out there?

And it looks like you came out of the quarter levered 0.2 to 0.3 times EBITDA. If you look further out, maybe one to two years, do you see opportunity to recapitalize and return cash through that mechanism, in addition to the organic cash generation?

Sure. I'm sure you can appreciate that we are continuing to work with our Board on this topic in anticipation of that meeting that is coming up in May.

But from a financial perspective, financial policy perspective, nothing has changed in terms of our policy to continue to distribute discretionary cash to our investors. As it relates to how we are looking at our balance sheet and overall leverage, with the investment-grade rating that we just recently received, it does provide for some increased optionality and flexibility in our balance sheet as we continue to optimize our capital structure.

So as we discussed at Investor Day, we do have some flexibility here to potentially evolve and optimize the structure in line with our ratings and our outlook and our very solid, strong investment-grade metrics that we are committed to maintaining.

Further discussions with our Board, Kevin. We don't want to get out in front of ourselves.

Hassan Ahmed, Alembic Global.

Wanted to revisit, broadly speaking, Europe. Of late, over the last couple of weeks and months, we've heard a few different announcements. On one side, maybe a week or so ago, SABIC came out and announced a fairly large rationalization or restructuring plan for Europe. On the other side, you have INEOS, which is talking about trying to import ethane from the US.

So I mean, as you look a couple of years out, how do you see the European industry, i.e., is it skinnier? Is it more feedstock flexible? Would love to hear your views about that.

Yes, I think there have been some recent closure announcements. We'd consider that a positive for the European industry. I wouldn't call it material at this point, but all these closures are helpful to us.

I think that concept of ethane imported into Europe is going to be something that will be small and unique, not a major trend. It just hasn't happened in other parts of the world on a large scale. It's generally not cost effective unless you have some unique assets and abilities that you have already paid for in past years. So I don't think that's a trend line to watch.

Europe is going to be -- until the economy improves, it will be a place we will just have to operate very effectively and continue to reduce our costs. And that is exactly what we are doing.

Fair enough. Now another quick question, obviously a lot of focus on capacity additions within the US, but on the other side of it, you have the Chinese making a lot of noise around MTO facilities. How real are those capacity additions, in your view?

Well, there are some capacity additions in central China. That product stays in central China versus on the coast. There are some additions there, but I think the bulk of the future growth is going to be here in the United States with a mind toward export.

Very good. Thanks so much.

(Operator Instructions). Mike Ritzenthaler, Piper Jaffray.

A lot of questions have been answered already, but I just wanted to follow up on the JVs real quick, operational issues that have been seen in Jubail in PDH in the past. Have those been put in the rear-view mirror? And is there further expansion as we go into 2013? Or is it just lumpiness?

Yes, the PDH unit originally had some issues with catalyst. It's one of the largest units ever built. And we generally have resolved that issue with the technology provider. So that's in much better shape.

Our polypropylene unit is one of our advanced units, and it also runs extremely well. There have been some operational issues from time to time. There is power blips and occasional utility issues, but compared to where we started a couple of years ago, that plant has improved its operations. Although as a Company, we're pretty much into the expectation of perfect operations, and it doesn't yet meet that standard.

Okay, thank you.

Laurence Alexander, Jefferies.

This is Rob Walker on for Laurence. First, Jim, what's your view on butane prices in the short and medium term, and how flexible are your crackers to butane if prices continue to drift lower?

Yes, butane prices have come down pretty hard, and they are starting to show up in the crack. Over the last days, they have been in the same type economics as propane. And so, we have been taking butane into the crack a bit more.

Of course, discounted butane prices are also very good to our oxyfuels business through MTBE. So we consider that a very, very positive development.

Now in all of this, I always remind everybody that certain of the heavier NGLs can be exported, and some of that is being exported. But at this moment in time, more of that has been propane than the butanes. So it's something -- that's a trend, as I've mentioned a couple times before publicly, that has to be watched pretty carefully.

Okay, thanks. And then, Karyn, you mentioned that getting to investment grade gives you some more balance-sheet flexibility. Can you update us on your thoughts on acquisitions and your criteria for those, if you were considering those?

Yes, from an M&A perspective? Yes, that's -- we've discussed this in the past in terms of looking at those roads, looking at everything.

But in terms of our capital deployment and our hierarchy, we've got these growth projects that we are currently working on with quick, short-term, quick return type projects. We do look at M&A, but from a capital deployment perspective in terms of them being very strategic and meaningfully accretive. Those are the criteria there.

And then, beyond that is really looking for direct returns to our shareholders via either dividends and/or potentially share buybacks, if authorization is received. Management and Board will consider all of those options.

Yes. Simply put, we haven't seen anything of interest to us lately.

Thank you very much.

Frank Mitsch, Wells Fargo.

Jim, in the past when a topic of looking at the MLP structure for your olefin assets has come up, you've suggested that it was, quote, under intense study, unquote. So how about an update on how your studying is going there?

Yes, well, it continues to be intense. A couple of insights in how we look at that.

First, remember that we have assets that went through a bankruptcy process and were written down. And so, we have unique tax issues on the front end of -- or at some point. We are a different tax-paying entity than some of our competitors because of the bankruptcy process. So that is one consideration that we have to look at very, very carefully with each individual asset.

The second is while we have a fair amount of infrastructure that is the kind of assets that are typically dropped into that kind of thing, most of our pipelines and all are very, very uniquely strategic to us and not common carrier lines. So we have some of that, but probably not enough to be something that would fully flesh out an MLP.

So we're considering various options, but at this point in time, we are still in the study mode. Taxes are a unique issue, though.

Terrific. And obviously, you spoke before about the shareholder vote coming up on the share buyback. But as you look at the returning cash to shareholders via regular dividend, a special dividend, or a share repurchase, what is your general take on the roles of all of those three?

Karyn, would you want to comment on that?

From a regular dividend perspective, we have set our overall total dollar amount of our regular dividend so that we can fund that comfortably through the cycle without having to raise debt and giving us some bandwidth to continually grow that, so a sustainable, forever-growing regular dividend.

And as we outlined at Investor Day, there is also some potential for additional growth beyond that over the next few years, in relation to the discretionary cash generation as a result of the materialization of the growth projects that we've outlined in the near term.

So our growth plan is centered around those quick, high-return projects, which will result in additional discretionary cash that we'll look at in connection with our regular dividend, as well.

And then beyond that, it becomes the alternatives between special or supplemental dividends, as well as -- and/or buybacks, which, again, if shareholder authorization is received, management and the supervisory board will assess all those considerations.

Thank you.

John Roberts --

Basically, you will hear more from us on that following the shareholder vote.

John Roberts, UBS.

A question for Jim or Karyn. Just qualitatively on capital spending post-2014, I know you are up near $1.5 billion this year and next year, but one of your competitors was in town last week and we were talking about how crowded the engineering and construction environment will be in the US in the next few years. Do you think you'd actually be able to keep your US spending up near these levels post the next couple of years, or will you get crowded out? It would be very hard for you to get more projects underway in the US in that environment.

Well, we are all about capital efficiency. And one of the reasons we were so early to file permit applications for our debottlenecks is because we assumed that construction resources would begin to get more stressed in the Gulf coast following the announcements of a lot of big crackers.

So our strategy has been get the permits early, do the debottlenecks, get the assets running, get the cash generated, and have the assets paid for before anybody else starts up their new capacity. So I would expect that domestic investment to trail off. We've announced the projects we're intending to do. We've got a base amount of capital that's gone $600 million, $700 million -- in the early days, up to $800 million. That is coming off as we've gotten a lot of our big turnarounds behind us.

So we are very focused on, the next couple of years, getting these projects done before the wave of activity hits and the costs go up significantly.

So you would tail down, you think, after --

I would expect that -- we haven't announced anything additional at this point. Maybe there's something in the second wave in terms of a condo cracker, as we've said before. But we are building the equivalent of a full-sized cracker in our debottlenecks, but want to get it done early.

Thank you.

Gregg Goodnight, UBS.

Now that your refinery turnaround is over, you mentioned that you are running a bit of a lighter feed slate. Could you comment on what your expectations are in terms of operating rates and in terms of design capacity? Or would running higher operating rates sub-optimize your economics?

Well, that all depends on where gasoline distillate prices are. But I can tell you, a couple of days ago when I talked to Kevin, we were at 290,000 barrels a day when we're cracking them a little lighter. You can run your rates up pretty hard then. And so, we're making quite a bit of gasoline at this moment in time.

Lighter crude slates move that up. A little less by co-products on the back end, but a little less coke today is probably a good thing, and given where some of the gas pricing is, it's better not to make as much of that. So a little lighter. Hopefully that will improve our spreads, but every day we re-optimize.

Okay. Thank you for that.

Bill Young, ChemSpeak.

Your new methanol restart, could you give us an idea of how you are structuring your natural gas purchase contracts for that? Is it spot, some kind of a floor and an escalator, or whatever it happens to be?

And also, Jim, what does your crystal ball say about natural gas prices in the next two to three years?

Well, where we are getting our gas for methanol today, we're just -- we're buying it locally and at market prices versus trying to hedge it. Those prices, as you know, have been pretty low, a little over $4 recently. But when you look at world prices for natural gas and how our methanol plant would compete, we feel very, very good about it.

Just had an update literally this morning on the progress of that restart, and everything is still marching along very nicely. Everything seems to be on track for a later in the year startup of that unit.

We generally, as I said, don't hedge that product. I'm not sure -- did I answer all of your questions on that or was there another component?

No, I think that's pretty good. It's not a complex formula of purchase contract with someone or anything like that?

No.

Okay. And what do you think natural gas might be, say, a couple, three years out?

Well, that one is a real tough question. But let me give you a bit of a twist on that.

I know that most people would say the lower the natural gas price, the better. And that is somewhat true when you look at our utility costs and all. Low natural gas prices, $1 an Mbtu, is about $275 million in operating costs.

But we like cheap ethanes. And I've said in various industry forums that a price in the $4.50 range is really pretty optimum for the chemical business because that means that a lot of the fields that are drier of gas will be profitable for those E&P operators. That will bring on even more natural gas liquids. And so, that is favorable to us.

So these kind of gas prices, I'm just fine with. I think it helps us on our liquids. And overall, as we've done our own internal math, natural gas liquids prices being low is better for us than cheap methane.

Right. Okay. Thank you.

Charles Neivert, Cowen Securities.

Two quick ones. One, getting back to the butane side, looking at the very low butane, especially versus year ago, how much of a benefit can we attribute to MTBE? How much in terms of margin is that going to benefit you guys?

And also, where you're running a heavier feed slate, the non-NGL feed slate, have you guys been able to take advantage of any of the condensate or some of the other stuff that is a little bit less expensive than, let's say, a naphtha run? And what is your advantage over naphtha with those products versus -- as opposed to ethane?

Yes. Do you want to say anything about butane, Doug?

Let me give you some thoughts on the MTBE and butane, Charlie. When you think about MTBE and the oxyfuels, it is about a gallon of butane per gallon of oxyfuel. So you are really looking at a simple formula between the cost -- price of gasoline and the cost of butane. So that's going to be a core driver there.

Now some of our materials, when you look at our volumes, we are also in the market buying and reselling as we balance the market and be sure we can optimize systems and have flexibility. We have contracts, of course, a big contract with Japan. So not everything floats every day with the market, volumetrically. But just look at it as a simple -- a gallon of butane to a gallon of MTBE for that.

So that's a pretty good formula. Obviously, cheaper butane helps us in that business and helps us in our crack. So I don't have a specific number for you, per se, because again, as Doug indicated, it has to be against gasoline prices and octane values.

In terms of other feedstocks besides naphtha, we are running south Texas condensates both at Corpus Christi and up at Channelview, and we've had nice discounts. We're not able to describe those because of contractual terms, but as you know, they are long. And we've been able to bring up pretty significant volumes to the point where we are basically cracking domestic condensates and not any imports. So, it's been a plus for us and we expect that to continue.

Okay. And that is a definitive advantage over just against naphtha. So if we were grading (multiple speakers), ethane is still the low end, but this is certainly well below naphtha as well.

Yes.

Okay, great. Thank you.

Barrett Eynon, Pentwater.

Yes, I have a follow-up on your comment about using leverage in terms of potentially upping your share repurchases. And I'm just curious what your comfort level is in how many turns of leverage you'd put on there. Because if you do the quick math on it, [sets] every turn of leverage would theoretically allow you guys to buy back, especially where your stock is today, 15% of the Company.

So I'm just curious how you think about how much leverage you are comfortable with for the purposes of using that to buy back shares.

Yes, I think from an overall capital structure, I think you can separate that from the potential of just returning cash directly to shareholders via dividends or buybacks. So separating the two in terms of looking at the balance sheet, again, is there some opportunity there, some flexibility as we move forward to optimize that? Yes, there is. And as we go through and start to see [gent] as an investment-grade Company, we will look at that as well.

But is there a leverage level you guys are comfortable with or that you would target?

No, we don't have any specific targets that we put out there today. But today, we are pretty comfortable with our balance sheet. It is a conservative balance sheet, albeit, but we do understand that we have some optionality there.

Okay, so I guess a different kind of questions is, is two turns considered a lot of leverage for you, given your investment-grade rating and where you view your balance sheet today?

I think when we look at it, we do look at all of those metrics from an investment-grade perspective. So if we are looking at a strong -- in the BBB area from an investment grading, you look at those metrics there, we are going to stay well within that.

What number would that imply, actually?

From an EBITDA turn multiple, that can go anywhere from 1.0, 1.5, to 2.0.

Okay. And one other question, on your historical restatement of financials from, I think it was, yesterday or the day before, you broke out your prior reported EBITDA more in terms of the -- you segment it in terms of what your base level would be, but one thing that drew my attention was you made a bigger effort to segment your JV income and your JV dividends. Is one thought there that helps the market understand that prior to this, your JV income had been embedded in your EBITDA number, so it's being valued on EBITDA versus a P/E multiple?

No, this is really a presentation of EBITDA. So historically, we've got those tables in our press release with -- and there were numerous unusual or nonrecurring-type items you'll see in this quarter that we (multiple speakers) any that reached any materiality. So going forward, we are going to be presenting EBITDA as defined.

Sure.

We will still continue to highlight any material, unusual, or nonrecurring so that those modeling the Company can adjust accordingly going forward. But our presentation is purely just to present to EBITDA as defined.

But you are removing JV income specifically, it seems like, whereas before you didn't.

Barrett, this is Doug. I think what we've done is we are using a strict EBITDA definition. The use of having the dividend as part of the EBITDA is really more of a cash-driven thing, which really is a historic thing from the Company's history where EBITDA and cash flow were the focus of people.

Really what we are doing with this is it will go straight up the income statement. You'll see the equity pickup from the JVs. As you know, dividends are always a bit lumpier anyway. So you'll see an income presentation really of the EBITDA.

As Karyn said, we'll continue in the earnings release with table 2. That will highlight things that you can make your own decisions on, but we will highlight some items that -- if there are any in the quarter, things such as impairments and things.

Just to everybody on the phone, we have put a reconciliation out on the website of the past, and I think you'll see it's very clear to see what changes in periods and over the years going back through 2010. So I hope everything is clear to everybody, and if you have any questions, just give me a call. I'd be happy to help anyone out.

Yes, generally, what we are trying to do here is the income is pretty steady from our joint ventures, whereas the dividends is pretty lumpy, so hopefully this helps everybody understand the value of those joint ventures better.

Right. That is kind of how I interpret it.

One last thing on the cost savings in debottlenecking you were targeting. In your press release, you said that the measures you've taken would ultimately result in $775 million of annual EBITDA. How much of the measures that you're taking will be realized this year and how much have been realized through the first quarter -- just for what is going to be recognized in 2013?

Barrett, I think that $775 million in the earnings release was (multiple speakers)

Over time, right.

Earnings release -- no, excuse me -- is related to the methanol, the expansion at La Porte, and also the added processing operating flexibility at the refinery. That saving is very consistent with what we've brought forward. So for more details, I'd refer you back to our Investor Day.

So as those projects complete, methanol will be the end of this year, La Porte will be next year, and, of course, the refining with the turnaround complete, that flexibility is in the system now and we'll see how the market moves forward. So we are now in a much stronger position to respond to a transitioning market in US crudes.

Yes, and for everybody's recollection, those numbers were based on 2012 historic margins, just so you'd have a basis upon which to calculate.

Sure.

Thank you.

John McNulty, Credit Suisse.

Just a quick clarification on the refining side. On the RIN costs, you indicated it was about a $25 million hit in the first quarter. But you were running at 65% utilization rate, so if we run you up to 100%, is the right way to think about it that it is roughly a $40 million hit or was it more -- is it not quite that simple just doing the math that way because of either product slate changes or maybe preparation ahead of the turnaround where you had product around?

Of course, that market has been extremely volatile, but our internal rule of thumb, based on what we see today, is an annual $100 million to $150 million, based on current pricing. But we will just have to see how that all develops.

Again, we would expect that those RINs would be passed on to the marketplace over time. We think some of that is being passed on, but how much, it's just a tough thing to calculate so early in the process. But obviously, we didn't see that in the fourth quarter and we are now seeing that. We'll see how long that trend lasts.

Great. Thanks for the clarification.

Brian Maguire, Goldman Sachs.

Just a question on the MTBE volumes. I know it's a seasonally-weak quarter, but they were a little light there. And given how good the margins are and the outlook for butane prices to remain low, just wondering if you have any ability to take some market share in the MTBE market over time and leverage your low-cost position there?

Brian, MTBE typically is seasonal. So what you often will see that we will see a little stronger sales in the second and third quarter, versus the first and fourth, as we manage inventories and manage the system there.

We're also -- it's a product where you do do catalyst changes periodically, so that will also change period-to-period volumes.

But I think the key thing to remember here is we are running our [POTVA] plants full. That is really the priority within the intermediate system. So we are producing the raw materials at the same pace that we have been at. And we will bring those to market with the same kind of flexibility and optimization between the various options of chemical markets and fuels markets.

That is what you're seeing, really, in the first quarter is those types of decisions. It's not a production-based decision.

Yes. And Brian, if you look at the first quarter of last year, you saw some really strong earnings. But there were some very unusual sales that were made because there was a lot of pull in South America at that time. There was competitor outage. A few things that were going on in the markets that we reported in that quarter that said we had high volumes for the first quarter in the year.

We've got a butane advantage today and the margins are nice. And that's a very strong business. We feel good about it. And ultimately, we think octane is going to be more and more valuable in the fuel pool, and we're excited about having -- being the number one producer of oxyfuels in the world.

Great. Thanks very much.

Okay. Well, I think we've answered all of the questions. We very much appreciate your interest in our Company.

We did have record earnings per share; very, very strong olefin results in the Americas; steady I&D performance. I think a solid quarter to begin 2013. We look forward to updating you on our plans following the shareholder meeting. I know that there's a great deal of expectation around that, and we will be back to you before long. Thank you very much.

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