利安德巴塞爾 (LYB) 2015 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. Following today's presentation, we will conduct a question-and-answer session. (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. Hello and welcome to LyondellBasell's first quarter 2015 teleconference. I'm joined today by Bob Patel, 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, www.lyondellbasell.com.

I'd also like for you to note that the statements made in this call relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon assumptions of management which are believed to be reasonable at the time made and are subject to significant risks and uncertainties. And actual results could differ materially from those forward-looking statements. And 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 lyondellbasell.com.

Finally, I'd 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 May 24 by calling 800-839-4837 in the United States and 203-369-3588 outside of the United States. And the pass code for both numbers is 4558.

Now, during today's call, we'll focus on first quarter results, the current environment and the near-term outlook. But before turning the call over to Bob, I'd like to call your attention to the non-cash lower of cost or market inventory adjustment or LCM that we recognized during the quarter. And this charge is somewhat unique to our 2010 company formation when all assets and liabilities were measured at fair value, our use of LIFO accounting and the recent declines in prices for many of our raw materials and finished goods inventories. And comments made on this call will be in regard to our underlying business results excluding the impacts of LCM inventory charges.

That being said, I'll turn the call over to Bob.

Good morning. Thank you for joining our earnings call. As Doug mentioned, [a set of] presentation slides accompanying this call and is available on our website.

Let's take a look at slide four and review a few financial highlights. First quarter earnings per share were $2.54 with EBITDA of $2.04 billion, excluding a $92 million lower of cost or market inventory adjustment.

This quarter the EPS figure is a new high for LyondellBasell. And our EBITDA has now averaged approximately $2 billion in each of the last four quarters. This can be seen in the lower left chart. Strong operational and business performance coupled with share repurchases contributed to a quarterly diluted earnings per share increase of $0.82 per share since the first quarter of last year.

Over this one-year period, our outstanding share count was reduced by 58 million shares or 11%. At the end of March, we had 475 million shares outstanding and as of the 22 of April, approximately 473 million shares are outstanding.

Overall, our business portfolio has continued to perform well. Margins and volumes have been good leading to consistent, strong results. Our revenues have declined since product prices have followed crude oil price declines. Ultimately in our business, profitability and cash generation are more important metrics, and both have been strong. The sustained strength of LyondellBasell's profitability over the past year in this volatile crude oil environment can be attributed to a combination of items which have helped offset the impact of lower product prices related to the decline in crude oil.

First, tightness in the global ethylene and polyethylene supply and demand balance has helped support product prices. This has been driven in part by planned and unplanned industry downtime which is persistent into the early weeks of April. Coupled with our solid operations, our O&P segments have benefited from these favorable balances. Additionally, our own PE and I&D segments have benefited from low US natural gas and NGL prices which have lowered our production costs.

In refining, increased availability of Canadian crude oil and improving ratio of product pricing to crude oil have benefited the refining segment. Of course we're also benefiting from the ethylene and polyethylene expansions that we completed last year and our share repurchase program and resulting lower share count is having a material effect in raising earnings per share.

On slide 5, you will note that our safety performance continues to be very good and is showing some improvement when compared with 2014. While we are proud of these results, we are certainly not satisfied until we reach perfection in this area.

Please turn to slide 6 and our first quarter and last 12 month EBITDA results. Within the segments the O&P Americas first quarter EBITDA was just shy of $1.1 billion. Olefin prices declined with lower global crude oil prices. However, polyolefin prices and chain margins did not fall as much.

In O&P EAI, EBITDA exceeded $350 million. As in the Americas segment olefin prices and margins declined while polyolefin results improved. In intermediates and derivatives, EBITDA exceeded $375 million. Propylene oxide and derivatives continued to demonstrate steady performance. Methanol results declined due to scheduled first quarter maintenance.

During the first quarter refining posted EBITDA of $154 million, the highest quarter in more than two years. Crude oil throughput was down but margins increased. Our technology segment continued to enjoy consistent, strong earnings.

I will now turn the call over to Karyn for a summary of cash flow.

Thanks, Bob. Slide 7 and 8 provide a picture of our cash generation and use. During the first quarter, we generated $1.5 billion from our operations and issued $1 billion in 40-year bonds at an interest rate of 4.625%.

Our cash and short-term security balance improved as a result ending the quarter with $3.6 billion or about $600 million more cash and securities than at the end of 2014.

Cash used for share repurchases and dividends totaled $1.7 billion during the quarter. During the first quarter we make several annual payments including Texas property taxes, customer volume rebates and employee bonuses. Together, these payments totaled approximately $465 million.

During the past 12 months, we generated $6.7 billion in cash from operations while raising $1 billion from bond issuances and issuing over $400 million in commercial paper. Almost $7.4 billion were used for share repurchases and dividends and another $1.5 billion invested in capital expenditures.

Before I wrap up, I want to point out a couple of other items that might help your analysis. First, our book tax rate was 27% in line with our previous guidance. Depreciation and amortization was $287 million. However, this includes a non-recurring $35 million impact from amortization of an environmental credit. Thus the first quarter run rate is below previous guidance. Assuming the euro-dollar relationship remains near first quarter levels, we would expect depreciation and amortization to remain near the adjusted first quarter run rate.

The final point I wanted to discuss is our overall foreign exchange exposure. We have defined some of the pertinent points on slide nine. There are a lot of moving parts in our global business, but in the end we believe that the real economic and business exposure to foreign exchange is small relative to the size of our business. Our businesses tend to be global in nature and priced off of crude oil based raw materials. Therefore, our products are generally priced in relation to dollars.

Of course, we do experience translation impacts in our reported numbers. This quarter, the reported translation impact was $45 million as compared with the fourth quarter exchange rate. However, we believe that this was mostly offset within the business and the true economic impact was not significant within our earnings. Along with the nature of the business serving as a foreign exchange buffer, we also hedge our net transaction exposure. When all aspects are considered, we don't believe that exchange rate had a significant impact on first quarter results.

With that, I'll turn the call back to Bob.

Thanks, Karyn. Let's move to a deeper discussion of the underlying segment results excluding the impacts of the LCM inventory charge. Slides 10 and 11 pertain to olefins and polyolefins-Americas. First quarter EBITDA was $1.07 billion, about $200 million less than the fourth quarter. Olefins results declined by $280 million as ethylene prices declined by $0.14 per pound from Q4 to Q1. This was partially offset by a lower cost of ethylene production which modestly declined due to lower feedstock and natural gas costs. Our US olefins plants ran at approximately 97% operating rate during the quarter, approximately 10% ahead of the US industry average. Our metathesis unit ran throughout the quarter, generating approximately $20 million of EBITDA. Approximately 90% of our ethylene was produced from NGLs with ethane representing approximately 70% of ethylene production.

On slide 11, we have plotted the key NGL prices and the costs of ethylene production metrics as estimated by IHS. These provide good perspective on the NGL price response to the decline in the price of crude oil as well as the impact of the cost of ethylene production. You can see that US propane and butane prices largely followed the price of crude oil lower. Similarly ethylene prices followed natural gas prices. These movements accompanied by co-product price movements result in IHS's estimated cost of ethylene production metrics [quoted] on the right hand side of the slide. Versus the first quarter of last year, IHS estimates that the price of ethylene declined by nearly $0.14 per pound while the cost of ethylene production metric declined by nearly $0.10 per pound.

Our margin results show a similar trend while volumes are benefiting from our expansions and the absence of last year's significant turnaround activity. While olefins results declined sequentially, polyolefin results improved by approximately $75 million as price declines lagged the declines in monomer prices.

This led to an increase in the margin versus the fourth quarter of 2014. However, both polyethylene and polypropylene margins declined as the quarter progressed and finished the quarter lower than where they started. Thus far during the first weeks of April, sales and production volumes have been relatively consistent with the end of first quarter pace. We don't have any significant maintenance plan for the quarter.

Our 250 million pound per year Channelview ethylene expansion is scheduled to be on line late in the second quarter. From a cost standpoint, NGL and natural gas costs remain low. At this time April product prices are still being negotiated. So I won't offer further commentary.

Let's turn to slide 12 and review performance in the olefins and polyolefins - Europe, Asia and international segments. First quarter EBITDA was $357 million or $35 million less than the fourth quarter. Olefin results declined by approximately $105 million. Similar to the Americas segment the decline is related to lower pricing. Versus the fourth quarter of 2014, the first quarter average ethylene price declined by $0.14 per pound, roughly equivalent to the decline in the Americas segment.

Our cost of ethylene production metric was relatively unchanged in dollar terms. We produced almost 50% of our ethylene from raw materials with a cost advantage to naphtha. While still significant the contribution from these feeds declined by approximately $15 million versus the fourth quarter.

Olefin operating rates remained strong at 94% of capacity, more than 10% ahead of the European industry average.

Combined polyolefin results partially offset lower olefins results as EBITDA improved by approximately $45 million. Volumes increased in polyethylene and polypropylene by 22% and 16% respectively. Polyolefin spreads improved roughly 9% in local currency, but they were unchanged on a dollar basis.

Polypropylene compounds and polybutene-1 benefited seasonally as volumes improved by approximately 12%. Coupled with increased margins EBITDA increased by approximately $30 million. JV equity income increased slightly to $57 million. April business conditions have been relatively consistent with those experienced during the first quarter.

Now please turn to slide 13 for a discussion of our intermediates and derivatives segment. Exclusive of the LCM impacts, first quarter EBITDA was $381 million, $17 million higher than the fourth quarter. Propylene oxide and derivative results improved by approximately $15 million and 11% higher volume. Industry maintenance and sales into the aircraft de-icing end use contributed to the volume increase.

Intermediate chemical performance improved by approximately $35 million. However, as is often the case individual products are varying results. Acetyl results declined by approximately $20 million due to our scheduled Channelview methanol plant maintenance and lower product margins. Each was responsible for approximately half of that decline.

The methanol plant returned to operation in March and ran near full rates since that time. The acetyl decline was offset by stronger EO, EG and styrene results as well as the absence of some fourth quarter costs.

Oxyfuel results were lower by approximately $35 million primarily due to lower margins following atypically strong fourth quarter margins.

For oxyfuels our year-on-year comparison removes seasonality and provides a different perspective. On this basis, you can see in the chart on the lower right that raw material margins are relatively unchanged. This variance might surprise you given the decline in crude oil and gasoline pricing, however butane and methanol raw material costs have also declined.

April business conditions have been generally similar to conditions experienced late in the first quarter. We'll have a [Possum] unit turnaround at Channelview during the quarter. This will impact propylene oxide and styrene production.

Although plans have been made to minimize the impact, we estimate that the second quarter segment results will be negatively impacted by approximately $20 million.

Let's move to slide 14 for a discussion of the refining segment. First quarter EBITDA was $154 million. Excluding LCM impacts, this is a $121 million quarter-on-quarter increase. During the first quarter, the Maya 2-1-1 spread averaged $23.74 per barrel. The realized spread at the refinery was relatively consistent with the Maya 2-1-1 spread. Crude throughput averaged 241,000 barrels per day, a decline of about 25,000 barrels per day, primarily due to maintenance at a third party off-gas processor and some maintenance within the refinery. The lower throughput impacted results by approximately $20 million.

During the quarter, we received increased shipments of Canadian crude oil. As a result, the volume of combined Canadian and light US crude process doubled versus the fourth quarter, reaching almost 30% of our crude fleet. However, during the period, the per barrel advantage was relatively small versus other heavy crude oil. The capture rate on the benchmark spread improved as the price difference between byproduct and crude prices declined. This has raised the capture rate on the spread to the low 70% level from approximately 60% during 2014 when costs were relatively unchanged versus the fourth quarter.

April benchmark spreads have averaged approximately $23 per barrel. The third party facility that impacted first quarter operating rates has completed their maintenance. During April, we have operated the refinery at less than full capacity as we conducted some maintenance ourselves. We plan to increase rates shortly. This will slightly impact second quarter throughput.

As you may know, the majority of our employees at the Houston refinery represented by the United Steelworkers union remain out on strike. The Company has negotiated diligently and in good faith with the union from the beginning, and we remain committed to negotiating in good faith for a fair and responsible contract. To-date, the parties have been unable to reach agreement on local issues and the strike continues.

As a result of the strike, we've decided to delay our planned fourth quarter FCC turnaround to first quarter 2016. I want to take this opportunity to recognize and thank all of our employees and contractors who have been operating the refinery during this period, including employees represented by the union who have elected to return to work. Through their commitment, we've operated the refinery safely, reliably and enabled it to achieve the best quarterly result in over two years.

Our technology segment continued to perform well with both the catalyst and licensing businesses slightly ahead of fourth quarter results. In this segment, licensing revenues can be lumpy.

We would now turn to slide 15. I'll briefly summarize and then we'll take you to questions. The key point I want to emphasize is the consistency and strength in our results across the past four quarters. And while we have experienced a very volatile crude oil and raw material market, our businesses have performed consistently well. In O&P Americas, we've been aided by strong operational performance, ployethelyene margin improvement and low cost natural gas and NGLs.

In O&P EAI it is a similar story as both naphtha and advantaged raw material costs have declined to offset falling product prices. Although we have a translation effect related to the euro-dollar exchange rate, increases in euro based results offset the impact. As a result, dollar based margins and spreads were relatively unchanged.

Our I&D segment continued to show consistent results as the characteristics of its products, contracts and portfolio dampened the impacts of raw material volatility. The Houston refinery bounced back from a weak fourth quarter to post results that exceeded the past nine quarters. Our first quarter results and my comments regarding April business should provide a level of comfort that our business is responding very well in this period of crude oil price volatility.

Our focus on operations and optimization enable us to move quickly. Meanwhile, our project teams continue to move our expansions forward with the next start-up scheduled for the end of this quarter. It's difficult to say that every quarter in 2015 will achieve the earnings results of this quarter. However, our focus on safety, operational reliability and cost position us to perform relatively well in any environment. Thus far, April has not disappointed.

At this time, I will close the formal comments by reminding you that we will hold our Investor Day next Wednesday in New York and via webcast.

With that we would be happy to take your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Arun Viswanathan, RBC Capital Markets.

Congratulations on a great quarter. Just wanted to understand some of your comments. You've pointed out some outages that are supporting pricing right now and you said that conditions are relatively consistent. Can you comment on the demand trends that you're seeing in April and maybe your expectations for May and June? Do you expect restocking or increased consumer demand, especially in Europe as well just given a weak euro? Thanks.

Well, market conditions are very strong. As I mentioned in the previous earnings call, generally we see seasonal improvement in our demand going into Q2. So if you look back in time, Q2 tends to be one of our stronger quarters in terms of demand.

As we sit here today, supply-demand balances are well-balanced. Any small outages have caused tightness or even shortage in regional markets. So my sense is that volumes will remain strong in US, in Europe in April, May and June. Small outages or regional outages can cause local disruptions. We're at that point on the operating rate curve where markets are [on] supply and demand are well balanced.

And as a follow-up in I&D as well, you stated in the press release that there are some seasonal benefits. Maybe you can just help us parse that out with some of the downtime. Do you expect Q2 results to be up? And then how does the rest of the year play out? Thanks.

Generally, Arun, in I&D, the seasonality comes from oxyfuels, where we benefit from butane becoming relatively less expensive in the summer months and the blend season kicks in. So I expect that oxyfuel results should improve as they do each year seasonally in Q2.

For the rest of the year, we expect a very good demand for all of our products in the I&D business.

P. J. Juvekar, Citi.

European and Asian ethylene seems to be quite tight. I think there are a couple of things going on. I think 10% to 12% of Asian capacity is out for maintenance. And then secondly, oil prices have gone up. So that might cause some restocking. So how do you think about this tightness and how do you think that plays out for rest of the year?

In the case of Asia, supply-demand balances are tight. And as you rightly note, there are a lot of outages in Q1. From what we see in the IHS information, the planned outages are actually going to be higher in Q2 compared to Q1. So I would expect that in the rising oil environment the restocking plus seasonal demand increase should be positive for product sales into Asia and I think that should tighten the global supply-demand balance, especially for polyethylene.

And then secondly just on a longer-term issue, oil and gas CapEx has come down quite a bit. The rig count has fallen and it seems like the labor pressure on the Gulf Coast is easing a little bit. Would you like to take advantage of that with any further brownfield or greenfield projects or is it too early to make a call? Thank you.

Thanks, PJ. Well, I think it's a little early to make that call because we really haven't seen the labor rate stabilize yet. Perhaps it's safe to say that the rate of increase in labor rates has not been as much as what we've experienced. We'll continue to evaluate that. But as you know we have a lot of projects still in front of us that we need to execute in terms of debottlenecks. We remain focused on those. Those are low cost, high return and they will be well ahead of the first grassroots capacity that will come out. So we will evaluate as we continue to evolve our strategies, but at this point we remain committed and focused on executing what we have in front of us and then we'll see how labor markets evolve.

David Begleiter, Deutsche Bank.

Bob, can you discuss your view of US ethane now $0.18 gallon, your all-time lows? How do you see that price trending this year and how you view ethane supply-demand going forward on the next three, four years given perhaps maybe a little lower drilling activity and increased demand from new crackers and export facilities?

Well in terms of supply-demand balance, we see still an abundance of ethane. There is somewhere between 300,000 and 400,000 barrels per day of ethane being rejected today. That's a significant amount and could supply several world-scale crackers that will be built in the US.

In terms of the near-term price dynamics, it seems to me that ethane has been trading right around its fuel value and with propane being abundant propane will be competing to be in the cracker feed slate here in the US. So between both of those being well supplied, my sense is that ethane will be closer to its fuel value in the foreseeable future. And with natural gas prices at [$2.50] coming into the summer months, I expect that ethane prices should be where they are today.

Very good. And Bob just -- I'm sure you'll address this on Wednesday, how do you view acquisitions and what role it might play in Lyondell's future over next five to seven years?

Our focus David has been on share repurchase as a means of deploying our free cash flow. That's really the benchmark that we compare acquisitions to. We'll continue to develop our strategy with our Board and we'll look at different alternatives. But frankly, we have to think about what are we trying to sell for. If it's an acquisition for the sake of growth or to become bigger, not necessary as we are already a very large company. With a global footprint, we have an incredible scale and we'll show you that next week at Investor Day.

So we're in a great spot. We don't have to do something in terms of an acquisition today or evaluate different options, build our strategy with our Board and in the meantime continue to focus on delivering on our CapEx that we have in front of us and continue our share repurchase program as we've outlined.

Hassan Ahmed, Alembic Global.

You broadly spoke about demand obviously being good and you mentioned restocking generally. My question is a bit more specific about the polypropylene side of things. If I take a look at sequential volume improvements, a good 6% in O&P Americas, up 16% within EAI. Is this sort of sustainable, is this primarily restocking related? I mean if you could talk a bit about the polypropylene market in general.

Yes, I think in polypropylene in both regions demand is growing at a reasonable rate. There is some restocking that probably occurred in Q1 and some destocking on our side. So if you think about inventory and the value chain, I'm not sure if that has increased significantly, it's probably shifted a little more downstream.

Having said that, I don't think inventory downstream is on the high side. It's probably about right going into a seasonal uptick in Q2. So could we experience 16% growth quarter after quarter, probably not. There are some timing effects here. But I do see demand being very strong globally and Q2, as I mentioned earlier, tends to be our stronger quarter in terms of volume.

Fair enough. Now as a follow-up, as sort of more of your brownfield facilities come on line and expansions happen, within the Americas you are becoming net long ethylene up to the tunes of, I would say, over 1 billion pounds. So what is the plan associated with that ethylene? Do you want to continue sort of being a merchant seller of ethylene, do you want to integrate it into maybe polyethylene units, I mean what's the strategy there?

Well, we have many options in front of us and this is one of the topics that we'll discuss next week at Investor Day. But briefly the options we have in front us are merchant sales which there is still plenty of opportunities out there, a new polyethylene plant or we could build another metathesis plant to make propylene. So we continue to evaluate that and we'll discuss a little more in detail next week at Investor Day how we think about those options. But we think we have solid options ahead of us and these debottleneck projects have very good returns.

Vincent Andrews, Morgan Stanley.

Bob could you talk a little bit about sort of how we should think about the European operating rates over the next couple of quarters, obviously very high this quarter, and obviously a lot of outages? But how should we be thinking about it into 2Q and then maybe thereafter?

Yes, European operating rates have been strong and in my view will be strong going into Q2. Vincent there is a couple of things that are going on in Europe and I think are benefiting the operations there. One is the weaker euro is improving export competitiveness of our customers or the end users of our products, and we are seeing less imports because of the weaker euro.

So more and more of what we're seeing is competitiveness, polyethylene or polypropylene exports as well as finished goods. The other is of course lower oil price makes Europe more competitive on the global cost curve. So my sense is that we're going to run at full capacity for the foreseeable future. Q2 and Q3, I don't expect that to change.

Okay, thanks. And as a follow-up, could you address sort of how you think about the ethane price forecast going forward as it relates to new capacity, but what do you think might happen on the output price, on the polyethylene price as always new crackers come along and presumably that product does get forced out into the export market? And what do you think that could do to spreads for sort of the balance of North America?

I think longer term as some of the larger greenfield capacity comes on line that product will be exported on the increment to either Asia or to South America. And so the margins in the US will largely depend on the crude to gas ratio and the cost of production in destination markets like China. So my sense is that just like the Middle East 10 years ago built out their capacity to export, the US will fulfill ethylene derivative demand growth in the coming years. And so I think margins will still be good and in a sense the US advantage is present today and could get better as the crude to gas ratio increases again.

Aleksey Yefremov, Nomura.

Your working capital declined slightly quarter over quarter. Do you expect to realize a more pronounced benefit later in the year in terms of your working capital? Thank you.

We don't expect any major swings in working capital through the end of the year. If we exclude LCM and some of the ForEx, we really were pretty flat on a normalized basis in terms of working capital and we expect that to kind of -- we will see some seasonality towards the end of the year, but no significant changes in working capital through the year.

We don't have any significant inventory dislocations in our system.

And as a follow-up, another question on ethane, do you think there is enough pipeline capacity that connects the Northeast NGL producing regions to the Gulf Coast? We currently have one pipeline. Do you think there are more pipelines needed and if that is the case, do you think those pipelines can be built in time for ethylene cracker start-ups in 2018?

Well, I think that there is sufficient supply of ethane hear on the Gulf Coast already. And as those crackers get built out, I would imagine that some of the lines that were going south to north will be reversed and we'll get more ethane from north.

Yes, Aleksey I think in general Marcellus and Utica as they build up off-take has been one of the issues. It's has been addressed first by the ATEX pipeline. There have been two more pipeline proposals. It's the same in gas coming off of those facilities that they have to build out the infrastructure. And really this is all part of what's been going on in the industry really for the last five years. The E&P progresses then the midstream catches up and we've been a logical beneficiary of it as they develop.

Don Carson, Susquehanna Financial.

Question on your US feed slate in the quarter and going forward. Bob you mentioned that 90% of your feed slate was NGLs with 70 percentage points ethane. Is that 20% delta the max propane and butane you can crack? And if so would you plan on any investments to increase your flexibility to crack propane and butane?

Yes, Don, not necessarily that that 20% is the max. When we have more flexibility within that, it's just a question of economics and optimization and how we run our crackers week to week, but we have flexibility. And remember, we also cracked some liquid feedstocks down in Corpus Christi. So it's not just ethane and propane. We can crack the full range.

And, Don, we'll talk to this some more in the Investor Day as well.

Okay. And then just a follow-up on near-term pricing. It looks like polyethylene is going to roll over flat in April. There is an industry -- $0.05 initiative in May that looks like it has real support. How long do you think this tightness in polyethylene, the seasonal uptick that we're seeing? What's kind of your price outlook for not only Q2 but also going into the second half of the year?

Well, I'll speak to markets rather than price. And I would say that supply-demand is very firm today. And so there is market underpinning for what you see. And so we'll just have to see how the quarter develops. But I'm very bullish about demand for Q2. I think demand for Q2 will be very good as it is seasonal.

James Sheehan, SunTrust Robinson Humphrey.

A question for Karyn. How do you see the pace of share buybacks occurring through the rest of the year?

Yes, we're going to continue on the pace that we're at. We have the second 10% that will be wrapping up here in the May time frame. And in our next annual meeting, we have the authorization that we expect to get approval for for an additional 10% going forward.

And on the refining segment, you mentioned some maintenance occurring here in the second quarter. How do you see that affecting the throughput?

I think it will be minimal. We've just about completed (inaudible) material for the segment.

John Roberts, UBS.

Morning, nice quarter. One of the messages from the IHS conference last month was that we're heading into a period where propylene would be long relative to ethylene. I don't know if you agree with that. And if you do agree with that, how is that going to play out through your polypropylene, propylene oxide, you mentioned you are looking at expanding metathesis. I don't think you'd do that in the long propylene market, but maybe you could give us your outlook on propylene?

Sure. Thanks for the question, John. Well, propylene is one of those molecules that when it gets long, the sources of production tend to adjust. So for example, when propylene values fall, generally you crack less propane, you crack more ethane. For us we have the flexibility to run the metathesis unit or not to run the metathesis unit.

We'll certainly evaluate that as we think about investment. I know that IHS has a view on propane to propylene that PDH plants when they come on. But remember as propane balances become narrower, propane prices could rise and therefore propylene from propane could become more expensive. So there are a lot of factors that impact the propylene price and it is very dynamic. So before we make an investment certainly we would think through all of those factors.

So you're thinking propane rises or you're thinking propane stays low?

I think if there is a lot of propane consumption, propane could rise and remember propane can be exported as well in much larger quantities than ethane can. So we'll just have to see how those supply-demand balances develop over the longer term. It's all just depends on the time frame.

Kevin McCarthy, Bank of America Merrill Lynch.

Bob, if we look at the industry data it looks like polyethylene resin exports surged something like 42% in March after five straight months of decline. So just wondering if you could talk about your own mix of domestic polyethylene sales versus exports and with outages overseas, would you expect the international trade component to remain strong.

Kevin, our exports have increased a little bit, but as we've mentioned in the past calls, we tend to export a little bit less than the industry average. And generally we have longer-term sales contracts going to South America rather than to Asia. So our focus is less on Asia when it comes to exports.

I do think that the industry has exported a bit more. I have seen that in some of the data that's been published. But for us, it's not significant in terms of the increase.

Okay. And then as a second question, it looks as though your propylene monomer production increased 12% in 1Q versus 4Q. Is that all explained by your metathesis unit and did you run that unit full out in the quarter or did you crack more propane as well?

It's a combination of the two, Kevin. We did run the metathesis unit most of the quarter. That contributed to most of the propylene production increase and then some of that was a bit more than propane.

Okay. Thank you very much.

Mostly metathesis.

Frank Mitsch, Wells Fargo Securities.

Good morning folks and obviously a great start to the year. Bob, I was just curious, obviously [bit deep relative to this three]. From your perspective were there any big surprises relative to what your expectations were three weeks ago -- I'm sorry three months ago or not necessarily?

For us, I think what we've seen develop over the quarter is that the market is a lot stronger than we expected. Supply-demand are much more balanced. Some of these outages that we didn't predict. Our sense is that we're really realizing markets where operating rates are in that 90%, 92% range. And when there are outages it causes some margin expansion. And of course I think prices come off a bit during the period, our share repurchases have benefited us as well. Lot of factors and we ran well as we are known to do. So not necessarily surprises, but I would say just more confirmation that we have a fairly strong market environment.

All right. Terrific. I do concur that given everybody running as hard as they are, you are bound to have more unplanned outages than what the consultants are saying out there. So knock on wood, it's not you and obliviously your safety slide shows that you know how to run assets. And then if could ask a question on the I&D segment, you are talking about the (inaudible) turnaround being about a $20 million impacting Q2. If I'm not mistaken I think you were thinking that the methanol turnaround in Q1 was also going to be a $20 million impact. But I think your comments today suggested that was closer to $10 million. Is that correct and if so why was it less of an impact?

Yes, actually just because of the way the margins evolved in the methanol business during the quarter versus our prior estimates and on the (inaudible) unit which based on what we know today in terms of margins. But we are largely prepared and mitigated most of the impact of that Possum outage. And by the way methanol plant is running very well and that at nameplate capacity. So our team at Channelview did a really nice job in conducting the maintenance, getting it back up and delivering on what they had intended.

Nils Wallin, CLSA.

In terms of your own operations obviously ethylene in Americas has been running at very high rates for multiple quarters. Is there a risk that you need to either pull back on those units at some point to prevent an unplanned outage or how do you look at the high rates over a sustainable period?

We're not running these units at above benchmark. We're not pushing them beyond their capability. And as we've mentioned in past calls, we've been very diligent in doing our turnarounds at the prescribed cycles and so on. So I would say that our discipline around maintenance and around how we manage our operations allows us to run at our nameplate capacity. But we're not pushing beyond that necessarily. We don't want to go beyond the capability of the plant for near-term gain. That's not our philosophy. So we'll continue to run within the capability of each of our units.

Understood. And then with respect to polyethylene inventories, do you have a sense of what levels they might be down at the customer converter level? There has been some discussion that distributors are starting to get their warehouses pretty full.

No, I haven't heard any significant trend there. It could be that one or two have a bit more. But going into Q2, a bit more inventory shouldn't concern anybody because generally demand is very good. So my sense is inventory is kind of at par in the value chain. I don't think it's very high or very low, frankly.

Jeff Zekauskas, JP Morgan.

Lyondell is always contemplating MLPs. Has it made a decision yet or positive or negative?

Jeff, that's one of the topics we were going to cover at Investor Day next week. So we'll provide our analysis on how we think about it and we'll discuss next week at Investor Day.

Okay, that sounds great. And then secondly, your tax rate keeps coming down even though you make more in the United States. Can you explain why that's the case and if there is a difference between your book taxes and your cash taxes?

Yes, the guidance that we gave at the beginning of the year, it's pretty much still on line. We're on 27% for an effective tax rate and then on a cash tax basis we're lower than that, somewhere in the 23% range. It's fairly consistent with prior years.

We continue to optimize our tax structure but we did see a slight uptick here this quarter with larger earnings in the US and you will see that as the mix of earnings if they are more North America based, you will see our rates ebb and flow depending on what jurisdictions our earnings are at.

Duffy Fischer, Barclays.

Questions on say just the last 12 months if we step way back 50,000 foot view, a lot of volatility in oil and some of your inputs, not very much volatility in your earnings. Bob, I wonder if you could just kind of -- if you step back a year ago and we told you what would happen with energy what surprised you and what actually played out over the last year versus what you would have thought a year ago?

I think markets are a lot stronger than we thought they would be a year ago. Demand growth has been very good globally. There have been these unplanned outages recently that we discussed. Natural gas price has drifted down. So if you look at the graph that we had in our earnings report here while crude oil price dropped and butane and propane dropped as well, ethane dropped. So we've seen our cost come off a bit.

Our share repurchase program has also helped in terms of EPS which is the intended purpose of the share repurchase program and we continue to push reliability and push our units hard. So I would say if there is one thing that I could point to that's perhaps a bit different is that supply-demand is just much stronger and so price declines on products have not been at the same pace as the oil price might indicate.

And then your catalyst business gives you a pretty good insight into what people are thinking about building on the olefins, polyolefins chain. When you look into that business, how do you see the next three to five years as far as your olefins, polyolefins business goes global build-out.

Yes, so in the case of polyethylene if we just look at IHS data even beyond our catalyst business, supply growth is going to be somewhere in the 3% to 4% range annually. Demand grows at about that same pace. So our sense is based on what's been announced and the likelihood of some of the projects being pushed a year or two based on recent announcements, our sense is that new supply will meet incremental new demand and that we could have a period of relatively high operating rates and we will show that next week when we have our Investor Day, our own view and IHS's view on operating rates.

Bob Koort, Goldman Sachs.

Bob you had mentioned the volumes of your plastics in Europe are really quite exceptional. I think there may be five or six force majeures during the first quarter. So where did all that product go or are you displacing your competitors that couldn't run their plants at rates or was there some restock inventory build and I am speaking to Europe specifically and then how do you see that normalizing through the rest of the year?

So in Europe I think there were three factors, one was re-stocking, the other was just higher demand from our customers because of their export competitiveness, especially in film. Out of these film is where we see that the most. And then, yes, we did displace some of our customer sales when they had issues. And we also had a little bit of an issue at (inaudible) which we resolved. So it's a combination of factors. My sense is that the European market is going to be pretty strong here in the foreseeable quarter or two and then we'll have a typical seasonality in Q4 barring any sort of economic issue.

And if I may a follow-up, in the Americas it looks like Total and Cyntech have put their name to the list that's growing for US new plant builds. And I'm just curious do you think Lyondell will ever build a brand new plant or will continue to be the incremental adds? And then secondly, you mentioned ethane at fuel value, but the need maybe to start sucking in some barrels from north and northwest or northeast, would you expect that? At least you'd see the ethane price have to accommodate that transportation tariffs down to the Gulf Coast or do you think you can still sell below fuel value plus traditional spreads out into the future?

In the case of our expansions, Bob, we still have quite a bit in front of us in terms of debottlenecks. We will evaluate, as we do, many other alternatives, greenfield site project that competes with share repurchase program and other projects. So we'll evaluate that. I wouldn't say that we would never do it. It is one of the options and so we'll just continue to think through that.

In terms of ethane and maybe incremental increase because of ethane coming north to south, it's possible. But even if that increase were to occur, when you think about it on a global basis ethane will still be advantaged compared to polyethylene production in China based on naphtha. So my sense is that the ethane advantage and the US position on the global cost curve will largely be what we think it is today. And there will be plenty of ethane to supply these new expansion that are planned. And in the case of Cyntech and Total, the timing of those -- we're already essentially in the middle of 2015, so I suspect there is going to be towards the end of this wave of capacity that's been announced.

Laurence Alexander, Jefferies.

Good morning. Can you aggregate your cost advantage feedstock tailwind that you had in the quarter in Europe and the US and how you think about it for the balance of the year? And given the strength in the supply-demand balances that you're seeing, do you expect a sort of bump in the number of brownfield announcements before the wave of greenfield announcements gets done or do you think that that sort of capacity is tied off at this point?

Laurence, this is Doug. Let me try and take that first and then maybe Bob will add some. I think when you think of advantage feeds let's go to Europe and look there as we said about half of our ethylene was produced from advantage feeds. Percentage wise that's where we've been running. What perhaps is different about that is this year because of the pricing of NGLs, we've been able to do it throughout the winter quarters. Now, the advantage we said was down about $15 million from quarter to quarter. So you saw a little bit of that trending there. And of course, like we told you last year, in our facilities the benefit from advantage feeds is a little over $200 million across the year.

So I think that gives you kind of a picture of that. But I think the key thing was the dynamics of the NGL market even in a lower crude price allowed us to continue processing at those rates.

In the US, we're pretty much -- I think the graphs that we showed you pretty well show you how [your fall-out grew]. Our mix moved a little bit as it always does. Our guys optimize almost daily and weekly. So you move your mix a little bit around. Propane was attractive for a while, but that's $0.01 or $0.02 versus ethane. And so we've been able to hold those types of opportunities and advantages as we've moved forward.

And, Laurence, to answer your question about potential brownfield expansions, I think a lot of the debottleneck sort of opportunities have been harvested because of the advantage that existed over the last two, three years. So while we might find some more -- other companies might find some more, I would imagine that most of what was possible has already been harvested.

And at this time I am showing no further questions.

Okay. We'll then offer just a couple of comments as we close out the call. Look we had a terrific quarter with strong performance across the entire company. Our focus on safety, operational reliability, commercial agility and cost discipline they continue to prove resilient in a volatile crude oil environment. I'm extremely proud of what our team across the world has accomplished and their continued focus on everyday excellence. I think that's really what defines us. We look forward to seeing all of you next week at Investor Day and thanks for your continued interest in our company.

Thanks and this does conclude today's conference. We thank you for your participation. At this time you may disconnect your lines.