利安德巴塞爾 (LYB) 2014 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 conference over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

Thank you, Holly. Well hello, and welcome to LyondellBasell's First Quarter 2014 Teleconference. 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.

But 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.

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

Now finally, I would like to point out that a recording of this call will be available by telephone beginning at 2 PM Eastern time today, until 11 PM Eastern time on March 2, by calling 888-566-0499 in the United States, and 203-369-3057 outside the United States. And the passcode for both numbers is 3675.

Now, during today's call, we'll focus on first-quarter results, the current environment, and the near-term outlook. With that being said, I will 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. First quarter earnings per share were $1.72, with EBITDA of $1.67 billion. This is the fifth consecutive quarter with EBITDA in excess of $1.5 billion. Strong results continued, despite headwinds created by scheduled and unscheduled maintenance, weather-driven raw material cost volatility, and shipping delays.

Cumulatively, these items impacted the quarter by approximately $300 million, but were partially offset by first-quarter price increases. We expect some of this impact to be recovered in the coming quarter.

Overall, industry trends have remained relatively unchanged, although US natural gas prices have been somewhat elevated, following a very cold winter. Oil prices have remained relatively steady, and seasonal trends are following their normal course.

Our Company performed significant maintenance in our US operations in the first quarter. Given strong US margins, this negatively impacted results. However, we also benefited from growth projects that are now online, and advanced our new growth projects. I'll discuss these topics later in my remarks.

Turning to slide number 5, you'll see that our safety statistics continue at the strong level that we have established over the past several years. While our statistics are very good, I'm saddened to say that during April, a contractor working for a third-party company that manages rail-car movements at our Wesseling, Germany site, died in a tragic incident. We are assisting that company in their investigation.

Our Wesseling site had achieved 3 million man hours without any injuries just prior to this incident, truly a world-class record, but obviously we have more work to do. As you have often heard me say, safety is our top priority. So this type of event is very troubling to us.

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

Please turn to slide number 6, which charts first-quarter segment EBITDA. As Jim said, overall, our results have been strong and steady. Within the segments, the O&P America results were below the typical run rate of the past years. This is primarily attributed to maintenance and weather impacts. Jim will cover these items in more detail.

In addition to these factors, there was an impact from our La Porte turnaround preparation, where during the quarter we made outside purchases of close to 300 million pounds of ethylene, which negatively impacted results.

In O&P EAI results exceeded recent quarters. We attribute this to an environmental indemnity settlement, improved margins, and normal seasonal recovery, following the fourth-quarter holidays.

In intermediates and derivatives, results followed recent trends. Oxyfuel results began the quarter with typical low winter margins, which improved as the quarter progressed. Methanol contributed strong results, while styrene and ethylene glycol weakened.

Refining posted a quarter similar to the fourth quarter. Combined, these two quarters make up almost all of the last 12 months earnings for this segment. The technology segment continued to enjoy consistent strong earnings.

Slide number 7; slide 7 provides a picture of our cash generation and use. During the first quarter we generated $1.1 billion from our operations, and issued $1 billion in 30-year bonds at 4.875% interest. Our cash balance declined slightly, with cash use of $1.5 billion in share repurchases and dividends.

During the past 12 months we generated $4.8 billion in cash from operations, while raising $2.5 billion in cash from bond issuances. Almost $4.4 billion were used for share repurchases and dividends, and another $1.5 billion invested in capital expenditures.

On slide 8 we summarize a few key aspects of our cash story. In the chart on the upper left, you can see the relatively steady cash generation from operations over the past two years continuing into the first quarter.

On the right we have plotted the past three-plus years of share repurchases and dividends, averaging approximately $2.8 billion per year. If you annualize the pace of first-quarter share repurchases and dividends, it could be in the range of $6 billion for the year 2014.

During the quarter, we repurchased approximately 15 million shares, bringing the total purchased since last May when we initiated the program, to approximately 42 million shares at the end of the first quarter. You have seen from recent press releases, our shareholders approved a second share repurchase program at our annual meeting. And the Supervisory Board approved a $0.10 per share increase of the quarterly interim dividend to $0.70 per share.

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

Thanks, Karyn. Let's discuss segment performance, beginning on slides 9 and 10, with olefins and polyolefins Americas. First quarter EBITDA was $736 million, $147 million less than the fourth quarter. Operationally, first quarter results were negatively impacted by a number of maintenance items, including unscheduled maintenance at our Channelview crackers. This required us to temporarily reduce production by an estimated 160 million pounds.

Late in the quarter, we began the La Porte ethylene plant turnaround, which impacted production by approximately 40 million pounds. As Karyn mentioned, in preparation for the turnaround, we purchased approximately 300 million pounds of ethylene.

During the quarter, we also conducted a significant turnaround at our Matagorda polyethylene site. Collectively, these events generated most of the variance between the two quarters.

Weather also had an impact, both through delayed shipments and increased cost of feedstock in natural gas. Slide number 9 provides a perspective on natural gas and NGL costs. January and February experienced cost pressure, but the beginning of spring brought some relief.

The chart on the right side of the page indicates that the benchmark cost of ethylene production metric has returned to a level similar to the fourth quarter. However, natural gas costs have remained somewhat elevated, increasing utility costs.

Despite all of this volatility, ethylene margins remained relatively steady. Our average ethylene price increased by approximate $0.02 per pound. The cost of ethylene production increased similarly, in part due to increased natural gas and NGL costs.

During the quarter, ethane accounted for 75% of our ethylene production and NGLs represented 87%.

Within polyolefins, polyethylene prices increased by $0.03 per pound, while sales volumes remained relatively unchanged. Pre-turnaround planning mitigated impacts on our polyethylene sales. Polypropylene results were relatively unchanged.

Overall, the quarter for O&P Americas was not on our normal pace, but the reasons for this were primarily transitory. The weather-related margin pressure that we experienced during January and February was relieved during March, and the quarter finished on a strong note.

During the second quarter, our focus will be on the successful completion of the La Porte turnaround and expansion. The downtime related to this will impact ethylene production. However, the impact on sales and EBITDA should be mitigated by the first quarter inventory build.

Let's turn to slide number 11 and review performance in the olefins and polyolefins Europe, Asia and International segment. First quarter EBITDA was $356 million, $241 million greater than the fourth quarter. Results include a $52 million benefit from an environmental indemnity settlement with previous owners.

As we had expected, results also benefitted from a seasonal recovery, following the year-end holidays. Olefin results improved by approximately $65 million. Margins improved by several cents per pound, due to a combination of lower naphtha raw material costs, the use of advantage feedstocks, and moderately higher co-product prices.

Our ethylene plants operated at approximately 93% of capacity, which was significantly above reported industry rates. Approximately 35% of our ethylene production was sourced from raw materials with advantaged economics, versus naphtha.

Combined polyolefin results also improved, reflecting both increased European margins and volumes. Combined polypropylene compounds and Polybutene-1 results, increased by approximately $30 million, reflecting the typical seasonal recovery.

Joint venture equity income was a strong $54 million, but no dividends were paid this quarter. Business conditions during April have been relatively consistent with those experienced during the first quarter.

Now please turn to slide number 12 for a discussion of our intermediates and derivatives segment. First quarter EBITDA was $375 million, almost $20 million higher than the fourth quarter. Propylene oxide and derivative results improved due to seasonal volume recovery versus the fourth quarter.

Intermediate chemical performance declined, primarily due to weaker styrene and ethylene glycol results. Margins were pressured by the increased benzene and ethylene costs. This weakness was partially offset by increased acetyls results. Acetyls benefitted from increased methanol, acetic acid and VAM volumes and margins.

The Channelview methanol plant operated for the full quarter at approximately 85% of nameplate capacity. Oxyfuel results benefitted from seasonally improved spreads, but this was partially offset by lower volumes. The temporary closure of the Houston ship channel delayed some vessel movements, impacting results by approximately $10 million.

April business conditions have been generally similar to conditions experienced late in the first quarter. In conjunction with the La Porte olefins turnaround, our acetyls operation at the site will be down for two to three weeks. Sales will be met through inventory.

Let's move to slide number 13 for a discussion of the refining segment. First quarter EBITDA was $129 million, relatively unchanged from the fourth quarter. During the first quarter, the Maya 2-1-1 spread averaged $28.26 per barrel and crude throughput averaged 247,000 barrels per day. The spread at the refinery increased following a trend similar to the Maya 2-1-1 benchmark.

Crude oil throughput increased versus the fourth quarter, contributing approximately $5 million to first-quarter results. However, our product mix and yield were negatively impacted by coker maintenance. Additionally, increased natural gas and RIN costs negatively impacted results by a combined $20 million.

April benchmark spreads have averaged approximately $29 per barrel, in line with the March spread. We took a one-week outage on one of our crude units during April. RIN and natural gas costs have been reasonably consistent with March costs.

Our technology segment continued to perform well, with the catalyst business slightly ahead of 2013 results. Segment results improved as a result of our past restructuring efforts, and reduced R&D costs.

The next five slides provide an update on our growth program. You may recall that we were scheduled to bring online a new project almost every six months during the end of 2015. The benefit is already visible in our earnings. For example, the Channelview methanol plant started on schedule during December, and contributed approximately $50 million to first-quarter EBITDA.

During late March, we initiated production at our Matagorda polyethylene facility, which now has an additional 200 million pounds per year in capacity, due to the debottleneck. This project was generally on schedule, with costs in line with our estimates.

As you can see from slide number 14, the next project in the queue is a major expansion at our La Porte ethylene plant. We currently anticipate that it will startup mid-year with an EBITDA impact within the range that we previously discussed and plotted on the chart.

The next three slides provide a visual perspective on progress since last October. At that time, we were erecting a tower at the methanol plant. Today it's online and contributing to our EBITDA.

The Channelview expansion was a mere hole in the ground when we last discussed it. Today, you can see that the furnaces are really taking shape.

At La Porte we were erecting furnaces. Today, the furnaces are up and the final steps of the expansion are underway. We have approximately 2,800 contractors on site.

We have been moving quickly, because the sooner we can bring these projects on stream, the sooner we can increase earnings and cash flow.

Slide number 18 updates the cost and status for both the active and previously discussed developing projects. As a quick review, the light blue denotes projects that have been completed. The medium blue represents projects that are currently underway. The projects highlighted in dark blue are projects that we are developing. They're not yet under construction. The cost estimates and timing represent current estimates, while the potential pre-tax earnings column is based on 2013 industry benchmark data. Our 2013 margins would yield similar earnings.

If you compare this chart to past versions, you'll notice that the projects generally remain on schedule, but that we're experiencing increased costs on several projects. For example, the methanol project costs increased due to higher construction wages and hours worked, as we strived to maintain a very aggressive startup schedule.

The polyethylene expansion project was completed on schedule and within our cost estimates.

The La Porte ethylene expansion is in full swing with a turnaround completion targeted for June. We have experienced cost escalation on this project in terms of scope, labor efficiency, and materials cost escalation. Some of this is related to our aggressive schedule and working on a large-scale debottleneck within an operating plant.

The Channelview ethylene expansion remains on track, both in terms of schedule and cost. This has been a less complicated project to execute, as we're only adding two furnaces to the existing plants.

We received the final permits for the Corpus Christi ethylene expansion in mid-April. I first introduced this project to you over a year ago, when the scope was still under definition. At that project stage, capital estimates were typically in the range of plus or minus 50%. On this chart our estimates have been updated to reflect a more defined scope and the recent realities of Gulf Coast construction costs. The timing remains on track with the forecast that we made over a year ago.

Our polypropylene compounding projects have moved forward as planned. Last year we added two new lines, and during 2014 through 2016, we expect that we'll add another four lines. Spending will be in the order of $10 million to $15 million per year, to make these additions.

Let's next discuss two of the projects that are not yet in construction. You might recall that we have been developing a new polyethylene process with the intent to build the first plant at one of our locations, and then add the technology to our licensing portfolio.

Work has proceeded well over the past year. Our supervisory board recently approved advancing the project to the next stage, during which we will finish engineering and purchase long lead items. Permit applications were filed during the fourth quarter.

The cost estimate and timing on the chart incorporate the final process design and the addition of site-specific infrastructure costs. Previous estimates were conceptual, and only included the polyethylene line itself.

The Chinese PO/TBA joint venture has advanced at a slower pace, due to the general slowdown in the Chinese economy. We now believe that completion will in 2018.

Along with moving many projects forward, we also took to decision to cancel the olefins NGL recovery project. While developing the details of the capital project, we simultaneously pursued commercial options that would eliminate the need for capital, while accelerating the timing of earnings.

We recently renegotiated a contract that met these criteria. Going forward, we will recover a greater portion of the economic benefit of our gas stream from a third party, without making the capital investment. We are very disciplined with capital, and if we don't need to spend your money to get incremental benefits, we won't.

In summary, our project slate is very strong and is adding value today. Our projects are being completed on schedule. Project definitions and the construction cost environment are clearer today than a year ago. This has resulted in cost increases, but we expect that our projects will still have wonderful returns.

We think that the labor market in the Gulf Coast is in the early years of an up cycle. We're very happy that most of our projects are under construction now, rather than later.

During 2014, we will continue to build momentum across the Company. Market conditions, coupled with our internal focus on efficiency, enable us to pay a strong growing dividend, while utilizing additional cash to acquire shares.

We're now pleased to take questions, Holly.

Thank you. (Operator Instructions). Duffy Fischer, Barclays.

Yes, good morning. First point, a couple announcements by either a competitor or a supplier that have some impact on you, the first would be Enterprise's export of ethane and the 240,000 barrels a day number that they put out, kind of coming on line late in 2016. One, just wanted to get your take on the plausibility of that actually coming up on time; and then how should we think about maybe an over-under for how much ethane will be exported out of the US in say 2017 and 2018?

And then the second question is around this morning's announcement by Westlake that they're going to pursue an MLP. And just want to get your take on—obviously it's a company by company fit, but is there a fit with an MLP for Lyondell going forward?

OK. Thanks, Duffy. First question on the Enterprise ethane export terminal. That's a large project, 240,000 barrels per day and say that they'll start up in mid-2016, that's a very aggressive schedule. But I'm sure that they've considered what the construction timing would be. I would first say that's a big vote of confidence of strong oversupply of Gulf Coast ethane. They stated in the press release that the supply could exceed demand by 700,000 barrels per day by 2020. That's very, very strong; and that's after all the new crackers are built. So they're very, very bullish.

That capacity, as you know, is equivalent to about three world-scale crackers and 20% of current supply, so it's a very big and important announcement.

We have been studying whether we could effectively use ethane in our cracking in Europe and in fact I had a review with our European team two short weeks ago. It just doesn't work for us, when we look at propane-butane cracking, condensate cracking; it just seems to be so much better for us. I know that Ineos has a project that's announced, but that's what—10,000 barrels ramping up 20,000 barrels per day. I'm having a hard time understanding how that kind of volume could go to Europe. Some of it must be going to Asia. But I wonder if some of that isn't going to be used to spike LNG in a couple of the countries, where they have some lean gas supplies.

I know that they haven't contracted all of that volume yet. We're anxious to see further details, as that's worked out with Enterprise. How much of that is actually going to move? As you said, it's an aggressive schedule and we'll see how that develops.

But once again, I think the important note is they have a lot of confidence in a very long position in ethane, otherwise they wouldn't be making that type of investment.

Second, on Westlake MLP, as we reported some time ago, we also studied an MLP. Our tax position on our assets is different than some others. We did go through bankruptcy four years ago and had some asset write-downs. And so the tax implications may be different from us. We've looked at it. We continue to look at it.

Obviously the market has reacted very favorably to Westlake's announcement. We'll take a look at all of that and continue our evaluation.

Great. Thank you. And Karyn, just a follow-up question for you. On the 300 million pounds of inventory you built, is it rule-of-thumb fair to say that there's about a $0.25 margin in that? So that was about $75 million hit to Q1 earnings?

Yes, but more or less, it's probably a little bit higher than that. And then again, we would expect to see that returning in the second quarter.

OK, great. Thank you, guys.

P.J. Juvekar with Citi

Yes, hi. Good morning. This is John Hirt on for P.J. today. I'm curious looking at your methanol facility, now that it's up and running and I guess it ran at 85% in the first quarter. It would seem to be a logical MLP candidate, given that it's a standalone plant. I think you've mentioned in the past that you've got some debottlenecking opportunities there, and you just put in about $100 million, $180 million of fresh capital. So I'm just curious if that's an asset you'd be willing to put into an MLP structure.

John, that's a new item that we will look at. The asset hasn't been running very long. We just brought it up in December. We'll continue to advance the—ramp up the rates. We're going to do a little bit of unscheduled work in the third quarter on some heating tubes, but otherwise that thing, we think we can debottleneck it and get some extra capacity and margins are holding up reasonably well, and it's definitely adding to our earnings.

We'll take a peek at the MLP for that asset as well.

OK. And then your O&P Europe, Asia and International business was up nicely year over year. With propane swinging into favor in February and March, and I think it's still in favor today; and to what extent have you been able to take advantage of that? And could you just kind of talk about your [feed slate] mix in Europe today, given that you're now free from some of those unfavorable naphtha contracts?

Yeah. Well, the first quarter we ran at about 35% of advantage feedstocks. Typically in the summer we can ramp that up. We'll be looking to do that as opportunities present themselves. That segment had a very nice first quarter. Margins were up on falling naphtha prices, and we ran our crackers at 93% of capacity, which is outstanding.

I've been able to move the polymer volumes reasonably well. And of course our businesses such as Polybutene-1, our compounding businesses, performed very nicely as they always do, from quarter to quarter. So we're pretty proud of the results in Europe. We're definitely differentiating ourselves from our competitors there and we expect to continue to do that in the future.

OK. Thanks very much.

Vincent Andrews, Morgan Stanley

Thanks. Jim, could you talk about—in the past you talked about maybe doing another round of CapEx following this round, probably smaller in scale. And I'm just wondering, given what you're noting on the cost side of things and we still have all the crackers ahead of us; do you think another round of sort of debottlenecking or brownfield type stuff is prohibited from a cost perspective at this point?

Vincent, I don't think it's cost prohibitive. It depends on where you do it and how you do it. But as you said, we like to do the debottleneck kinds of things where the capital is naturally cheaper. One of the things I didn't mention in the base part of the call was that despite these cost increases in a couple of our olefins expansions, we're still bringing those on at something in the order of two thirds the cost of other people's incremental production on a cents-per-annual-pound basis. So they're not only earlier, but they're also quite a bit cheaper.

We always look at those cost increases that we're seeing right now. It could delay some of the projects that people are looking at. Their costs will definitely go up based on what we're seeing in labor rates, productivity; other kinds of costs like that. But we're going to be very sensitive as we do our economics and make sure that those additional capital projects do make sense. And as we put the engineering together, we'll start announcing those.

OK. And just as a follow up to the ethane export situation, could you just give a little bit more detail as to why your analysis said that exports for your facilities didn't work? Was it sort of the CapEx you would have to invest or is it sort of the relative opportunity with the other feedstocks? What were sort of the big bottlenecks for you?

Yes, it was both of those things. It's—we can run some of those crackers lighter than we do today, but generally that's 20%, maybe 25% on some of those furnaces, without a fair amount of modifications. They're slightly different than that.

Some of it's transportation issues, because some of our crackers are inland. But frankly, when we looked at propane-butane, some of the condensates, the economics really favored the slightly heavier feedstocks, when you looked at all the transportation costs and everything else. It just didn't work very well for us. I was hoping it would.

OK. Thanks very much. I'll pass it along.

David Begleiter, Deutsche Bank

Thank you, Jim. Can you discuss the M&A pipeline? There is potentially a large transaction available on the plastic side. If greenfield doesn't make sense from a US perspective, do you look more towards M&A longer terms to perhaps integrate downstream?

Thanks, Dave. I'm sorry. This is Doug. You weren't too clear on our side. I think you were asking about the future for M&A?

Yes, the M&A pipeline, and given potential assets on the plastic side and the interest—can you discuss your interest in those?

David, we're the same place on M&A as we've always been. It has to be significantly accretive. Nothing's come on to the market that has been of interest to us lately. And as we have previously said, we always evaluate all of those opportunities as against buying our own shares. And so far our own shares, in our view, is better value and obviously we know the Company well and like our prospects.

And just lastly, on the refinery Jim, can you discuss a timing of the Canadian crude coming down into your operations and potential impact this year and next?

Yes. As we've mentioned, we're expecting additional volumes to come in, in the second half of the year. Flanagan South is slightly delayed, but we expect still that to be kind of a third-quarter event and allow us to ramp up Canadian crudes at a nice discount, which should help our refining earnings.

One of the things that's been happening is obviously the Maya 2-1-1 spread has been pretty decent fourth quarter, first quarter and now into the second quarter. So with a little better operations, we should be able to have better earnings in that segment.

Thank you.

Don Carson, Susquehanna Financial

Yes, two questions; on the La Porte turnaround, what other impact will you have other than the inventory that you've built? Did you have to buy some inventory and so will that negatively affect margins as you go into Q2?

Don, that primarily had a first-quarter impact. We did have to buy about 300 million pounds of ethylene to cover and as we are in the second quarter, we're now selling that or using it in our own operations. So that should have somewhat of a positive impact on the second quarter, whereas it was a negative in the first.

OK. And then on your EU feedstock flexibility, I know earlier in the year you renegotiated a long-standing naphtha supply arrangement that you had. What was the benefit? Did this just give you more flexibility to use advantage feedstocks or did you actually negotiate a reduction in the benchmark price for that naphtha contract?

Yes, that was—it wasn't just all naphtha, there were some other feedstocks. In certain instances we got slightly lower pricing. But the primary benefit of that is a lot more flexibility, because we had basically take-or-pay requirements that would push us to process an awful lot of naphtha, when sometimes we would prefer to crack something different.

By lowering the volumes on that, we're now able to bring in some advantage feeds when available. Some of that is seasonal. Some of it's not seasonal and can be done year round, as for instance we just showed with first quarter with 35% advantage feeds.

And what kind of benefit do you think that's going to have on a full-year basis going forward?

Well, it really depends on what propane, butane and that is doing in the marketplace. Right now it's fairly advantaged. But in the summertime, it's historically been even more advantaged. So we'll just have to see how that develops into the year.

OK. Thank you.

Kevin McCarthy, Bank of America Merrill Lynch

Yes, good morning. Jim, I was wondering if you could comment on the sequential pattern of profitability at the refinery. It looks like your benchmark spread improved and your throughput ticked up a bit, and the earnings were off $5 million. What is going on there? Is it crude slate or the coker outage impact?

It was more the coker outage impact. It didn't let us process what we wanted to process, and really hit the mix of products on the back end. So that was more the story and we had said last quarter that we still had some work going on, on that. And that's now been completed.

Very good. And then second, you'd indicated kind of weather-related impacts of about $300 million, partially offset by some price increases. Can you give us a sense regarding how much of that pressure you might expect to recover in 2Q and beyond, if any?

Yes. We'll get some of that back in the second quarter. But kind of to put that in perspective, a couple of hundred million dollars was related to O&P Americas. And then about another $100 million was related to increased natural gas, oxyfuel shipping delays; couldn't get some cargos out, and then the coker stuff at the refinery increased natural gas prices.

Kevin, this is Doug. I just wanted to clarify that $300 million that Jim stated was not just weather, that was also largely the maintenance where we had the planning for La Porte, we had our La Porte polyethylene facility in its turnaround, and then we had some weather-related maintenance and some other maintenance in some of the olefins plants. So that really encompasses the whole thing, not just the weather.

Yes. That's very important to make sure that that's clear. I mentioned the La Porte turnaround cost us 40 million pounds of ethylene and a couple of Channelview crackers used another 160 million pounds. And then we've talked about weather-related things as well. So all of that's in that total mix—that $200 million.

Thank you for the additional color there.

Hassan Ahmed, Alembic Global

Thanks. Good morning, Jim. Again I wanted to revisit this whole European ethane and export side of things. Obviously, from one side of it, it's fair that there may be tightness in the US ethane market on the back of this. But let's say that all of this volume does eventually arrive in Europe. I mean obviously there are going to be some fairly severe core product consequences as well, particularly on the propylene and the butadiene side of things. So I would love to sort of hear your views around that.

Yes. If all of that could go to Europe, and my view is if we're talking about the Enterprise deal, I think that's highly, highly improbable from what I understand the economics look like, and the ability of crackers to even take it. That would—

I would imagine (inaudible) you'd have companies shutting down downstream units if they were to do that.

Yes. There'd have to be a lot of work to accomplish it. And I just don't know how that gets done. Frankly, when we do our economics, it's also much easier to ship polyethylene than ethane. And that's why you see all these cracker announcements versus these kind of projects. There must be more to that story than we're seeing, and that's why we're anxious to hear more. But if your premise were basically right, that that all could go to Europe, it would have a significant impact on co-products. It'd run up propylene prices. It'd run up butadiene prices. There'd be significant shortages.

But all of that stuff goes into our computation when we decide what we're going to crack every day. So I just don't see how all that capacity could go to Europe.

Fair enough. Now as a follow up, changing gears a bit, you had mentioned that in terms of usage of cash, you'd look at acquisitions, obviously being accretive and the like. I mean, could you comment on just your appetite in terms of specialty versus commodity? Because again and again, obviously you've reiterated the back-to-basics strategy. Does that still hold?

Yes. You know there's several companies that like to talk about becoming more specialty oriented. We're very happy with who we are. We compete very well. We have a commodity mindset in the way that we maintain our costs, the way that we work our debottlenecks and adding cheap capacity.

We also believe that very well run commodity chemical companies perform better across the cycle than specialty. So overall we're more interested in accretive transactions, versus whether they're this type or that type. We're interested in high return on our capital and the deployment of our cash.

Very good. Thank you, Jim.

Nils Wallin with CLSA

Good morning, and thanks for taking my question. There's been a number of announcements on or around condensate splitters being built over the next couple of years. And I was curious to get your thoughts on if that would change the economics at all at Corpus. Obviously, you're doing an expansion there, too. And if so, how that would affect the economics there?

Actually, I think there will be some condensate splitters built and frankly, we're looking at that as well, because we have some opportunity, potentially, to do that at a very cheap cost. So we think it's a positive develop for us instead of a potential negative.

Yes, condensate prices could in theory go up, but we expect there to be a lot of condensate available, some out of South Texas, already from the Eagle Ford, that has a positive impact on us. To the point where we're just not taking any Middle East condensate in our US operations anymore. And we expect some additional condensates to come from some of the Northeast deals, particularly the Utica.

So we think there's an opportunity for us there, both at Corpus at our refinery, and we'll see how that all develops.

And then just a follow up on that; obviously there's still wrangling going on in Washington on whether condensate can be allowed to be exported. But if there's always capacity that comes on, it may not matter because you'll have a lot of naphtha in either case. Would you be a participant, either on condensate exports or naphtha exports into your European assets?

Well, so far we haven't needed to export any naphtha into our European operations. But potentially condensates could move in, at the right pricing. Although one of the things that's happened is there has been a displacement of foreign imports into the United States. Those have been flowing into our European operations, and in fact, in one instance we just changed the contract from being a US contract to a European contract, and moved those cheap condensates in.

Thanks very much, that's helpful.

Laurence Alexander, Jefferies

Good morning. A quick couple of questions; first, can you give a sense for how—what you think aggregate outages will be as a headwind in Q2 and possibly also Q3 if you have that available?

Yes. You know there's a fair amount of capacity that we expect to be down in olefins in the second quarter. Obviously La Porte is down now, our asset, and we talked about that being an 80-day outage. DuPont has a cracker down, Exxon-Mobile Beaumont and Baytown will be down. We're hearing about 10% of capacity down.

And then with the pipeline looking like it's coming up into Louisiana, we're already seeing spot ethylene move up fairly aggressively. So we think that's all a nice development for margins into the second quarter.

And then secondly on the European dynamic in term of condensate and naphtha becoming available; are you seeing any competitor assets that would not be able to benefit from that dynamic over the next several years—that would keep the cost curve steeper, or is this going to be something that everybody in the industry should eventually get a benefit from?

Well, I think the United States and the Middle East assets still are so competitively advantaged, it all gets down to a crude-to-natural gas ratio and we still very much favor, like what we see here in the United States and our Middle East assets are also benefitting. But we see that ratio staying high and that's why you see people like Enterprise making announcements like they did.

Thank you.

One thing I should have also said is obviously Europe has a large number of inland crackers, so that's something to consider when you start thinking about the ability to take advantaged feedstocks. There aren't that many coastal crackers with that kind of opportunity.

Frank Mitsch, Wells Fargo

Good morning. Hey, thanks so much, Jim, for the project-by-project review. I thought it was interesting in listening to the commentary about the rising labor and material costs that you're seeing. So it kind of begs the question regarding all these mega crackers that may be coming up in 2016, 2017, even 2018. What are your thoughts about those projects and how should we be thinking about that timeframe in terms of startups, et cetera?

Those projects are going to be expensive. We've already seen a lot of pressure. Since we're in the field today, we can see first-hand what's going on and there's a couple of dynamics. One, labor is definitely going up. And the quality of that labor is not what it used to be, and so productivity is going down. And that's at this stage, when there's not as much out there to do.

We're still in the early phases. So when some of those big projects ramp up, I think it's going to get worse, not better. So I would expect costs to be higher and I expect things to come in a little slower. We'll see what really develops. But I can tell you from our own experience, that's absolutely what we're seeing today.

All right, terrific. And then obviously you have a very enviable balance sheet. You spent over $1 billion on buying back stock in Q1. Does that pace seem reasonable for Q2 and beyond?

Yes. (Inaudible) going to file our Q here, you'll see as of the end of last week, we had approximately 10 million shares remaining on the initial 10% authorization. And the expectation is that we will purchase that through the end of this May. And then we have the new authorization of 53 million shares, which we have authorized over the next 18 months.

So I'd tell you we have a great balance sheet and we like our growth prospects a lot. So we're making an acquisition of ourselves.

Thank you so much.

Robert Koort, Goldman Sachs.

Thank you, good morning. Jim, I was wondering if we're to presume that there is going to be a massive ethane imbalance for quite some time. Have you seen that expressed yet, in any greater willingness for long-term contracts or fixed fractionation margin contracts or something where you could lock in a more secure price over the next five or ten years?

No, I really haven't. That's why I'm a bit anxious to see what's going on with the Enterprise project, to see if there's more details on what they're doing. But right now, I don't see that. We just have to see how that develops. Frankly, if it's as long as we think, we're still going to get great pricing. And so we're happy to let it all develop like it's going on right now.

And do you suspect that it's possible, like if they really had three virtual ethane crackers pop up in Europe, would that make your cracker system even better? Would we get into some shorter supply as we've seen in the US, or is it just a drop in the bucket, given the scale of assets already over there; it just won't make a big difference?

Well, I just frankly can't see how all that Enterprise volume goes to Europe. Physically, I just don't know how that happens and how it gets integrated into the crackers over there. I don't see anybody that would build a new ethane cracker over there with these kind of economics. You can build it here in the United States immediately and not have that shipping cost. So there's got to me more to their story. I think there must be an Asian dimension that we don't understand yet.

And here I've seen some producers suggest the potential for ethane imports into Europe have allowed them to negotiate better feedstock terms. Have you seen that creep up at all for you?

Not really.

And the last one if I might, on the refining side; do you think there's any scope for any change in the ethanol mandates in gasoline?

Well, I hope so.

Do you think there is?

Well, I think we'll know more in a short period of time, but at least in the first EPA announcement, on certain of the cellulosic volumes, they were realistic on that. So we hope good judgment prevails.

Yep. OK, thanks.

John Roberts, UBS

Good morning. Jim, when you say lighter feedstocks just don't work for you in Europe, that's because of the polypropylene and propylene oxide integration that you've got over there?

No, not really. When I say lighter feedstocks don't work, I want to be careful I said ethane doesn't work. Propane, butane does. Condensates do. Obviously when we crack lighter like that, we make less propylene and less butadiene. But overall, within our system, we're still the major purchaser of propylene anyway. We're very short. And so that we're buying on the open market.

So overall, it's more a question of lightening up somewhat. Last year in the summer, we went quite a bit lighter and in the first quarter maybe almost a third of the feed. So we'll keep working that and try to make money.

And as a follow up, it seems pretty certain that CapEx will decline materially in 2016. I know that's a little ways out, here. But is that far enough out that you can have some shorter-term projects come in and backfill on the CapEx side.

Well, we're not going to have all the big projects that we do today to expand US olefins. We want those online soon and that's why we've been racing to get those projects finished. But we'll have another pipeline of projects that come back in that point in time, but maybe not as much as we're doing right now.

Thank you.

(Operator Instructions). [Robert Rightfees with Broadright Capital]

I just have one quick question. Regarding the first two months of the year, I was trying to put together how much that cost you—the weather and some of the outages, etc. And I'm not sure if you were saying a couple hundred million and there, but can you give us either a margin number or a dollar number, what you think the weather and some of those effects cost you in the first quarter?

Yes. What we were saying is in O&P Americas, the impact was about $200 million and then there was $100 million of other items on the rest of the portfolio related to weather, natural gas prices, coker outage; all of those kinds of things.

Thanks.

And Bob, there's a little bit of an offset, of course, across the quarter as we raise prices, moving across the quarter.

OK, thanks again.

And February was our toughest month. March was much better.

I am showing no further questions at this time.

OK. Well, thank you very much. We expect a very solid second quarter in US O&P Americas. As I said, the first quarter was not on our normal pace. We have the La Porte turnaround as a key project and other growth projects moving ahead very rapidly. So we feel very good about US O&P.

EAI had a strong first quarter, running at exceptional rates, 93%; way above industry averages. And we think we're performing differentially in Europe compared to our peer groups.

I&D had another very solid quarter, performing as expected, and now with methanol online, we have upside in our refining operations, margins are good; we just need to run better.

So we feel very good about our future. We're investing in our Company. We've increased the regular dividend and are buying back our shares. We have a very bright future and we thank you for your support.

Thank you. This does conclude today's conference call. You may disconnect at this time. Have a great day.