利安德巴塞爾 (LYB) 2015 Q3 法說會逐字稿

Hello and welcome to the LyondellBasell teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes.

(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, Tori. Welcome to LyondellBasell's third quarter 2015 teleconference. I'm joined today by Bob Patel, our CEO, and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions.

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

For more detailed information about the factors that can cause our actual results to differ materially, please refer to the cautionary statements and presentation slides and our financial reports which are available at www.lyb.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 the website at www.lyb.com.

Now, finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2:00 p.m. Eastern time today until 11:59 Eastern time on November 23 by calling 800-856-2254 in the United States and 402-280-9961 outside of the United States. The passcode for both numbers is 5671.

During today's call, we will focus on third-quarter results, the current environment, and the near-term outlook. Before turning the call over to Bob, I'd like again to call your attention to the non-cash lower of cost or market inventory adjustments, or LCM, that we've discussed on past calls. As previously explained, these adjustments are 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 volatility in crude oil prices and prices for many of our raw materials and finished goods inventories. During the third quarter, we recognize in LCM charges totaling $181 million. Comments made on this call will be in regard to our underlying business results, excluding the impacts of these LCM inventory charges. With that being said, I will turn the call over to Bob.

Thanks, Doug. Good morning, everyone, and thank you for joining our third quarter earnings call. Let's take a look at slide 4 and review a few financial highlights from this record third quarter. Third-quarter earnings per share was $2.80 with EBITDA of $2.2 billion. This quarterly diluted EPS figure is another new all-time high for LyondellBasell and is represented by the orange lines in the lower left chart. Our EBITDA has now averaged approximately $2 billion in each of the last six quarters.

Additionally, we have achieved 12 consecutive quarters of year-over-year EBITDA growth. This sustained level of earnings has translated into diluted EPS during the past 12 months of $10.60 per share. Achieving these record results during a period of slow economic growth in a volatile hydrocarbon environment speaks to the balance in our portfolio. We remain focused on safe, reliable operations and cost discipline. Our results support these statements and continue to surpass most, if not all, within the chemical space. In fact, our cash flow and shareholder friendly policies not only stand out within the industry but also among S&P 500 companies. Our dividend yield places us within the top 15% of the S&P 500, and our share repurchase program is in the top 4%.

Turning to slide 5 you will see that our safety performance year-to-date remains slightly ahead of 2014. We continue to operate as a top decile performer and a safety leader in the chemical industry. While we're proud of our safety performance, we're not at all satisfied. Our goal remains zero incidents. Our discipline around safety sets a strong tone, defines who we are, and we believe translates into both operational and financial success.

Please turn to slide 6 for our third quarter and last 12 months EBITDA results. EBITDA in our Olefins and Polyolefins Americas segment was again in excess of $900 million. The Olefins and Polyolefins EAI and Intermediates and Derivatives segment each produced record EBITDA results for the second consecutive quarter. Olefins and Polyolefins EAI EBITDA totaled $555 million as supply-demand balances in Europe remain tight early in the third quarter and moved to be a more balanced position as the quarter closed.

The Intermediates and Derivatives segment recorded EBITDA of $506 million, strengthened propylene oxide and styrene helped to offset seasonally lower oxyfuel results and scheduled maintenance activity. Refining EBITDA declined by $11 million and the results in this segments have been relatively stable throughout the year. Year-to-date EBITDA is $451 million, $75 million ahead of 2014 results. The technology segment results declined by approximately $12 million but are on a pace again to exceed $200 million for the full year.

During the last 12 months, we have generated EBITDA of $8.5 billion. The composition of this EBITDA is in the lower right-hand part of slide 6. EBITDA has been fairly steady across quarters. This is been achieved despite the volatile crude oil price environment and again is a testament to our portfolio's resilience and stability. As the chart shows, all segments contributed to our success.

Please turn to slide 7 and 8 and I will discuss cash generation and cash use. Cash from operations continued to be very strong as we generated $1.8 billion from our operations during this period, an increase of more than $300 million from the prior quarter. Cash used for share repurchases and dividends totaled $1.7 billion. Share repurchases during the third quarter totaled 15.5 million shares or approximately 3.3% of the outstanding shares.

During the quarter, capital spending totaled $373 million. We anticipate capital spending of approximately $1.4 billion for the full year of 2015. During the past 12 months we generated $6.7 billion in cash from operations while raising $1 billion from a bond issuance and utilized $500 million of our commercial paper program. $6.3 billion was used for share repurchases and dividends during this period, $4.9 billion, or 73% of our cash flow, was used for share repurchases, reducing our outstanding shares by 56.3 million, or approximately 11%. Dividend payments totaled $1.4 billion. We also invested approximately $1.4 billion in CapEx with about half of this amount dedicated to growth projects.

Before I comment on the performance of each of our segments, I wanted to make two broader observations. First, the quarter was characterized by generally stable volume across our portfolio. The second is that while margins in some product areas declined, some seasonally, other products improved. As a result, we generated another strong, stable quarter despite the oil price volatility and during a period were Olefins and Polyolefins' market conditions shifted from tight supply demand toward a more balanced market environment.

Please turn to slide 9 as we look deeper into the segment results. Olefins and Polyolefins Americas third quarter EBITDA was $920 million, or $73 million lower than the second quarter. As a result of the rebalancing market and declining crude oil price, results declined from very strong second quarter levels as the third quarter progressed. [During] the second quarter, Olefins results declined by approximately $140 million as our average quarterly ethylene price declined by approximately $0.06 per pound. This downside was somewhat mitigated by lower cost of ethylene production. Our US Olefins plants ran at 94% of capacity during the quarter, in line with the second quarter.

Our metathesis unit operated at reduced rates and its contribution declined by $6 million quarter on quarter. Approximately 90% of our ethylene was produced from NGLs with ethane representing approximately 65% of ethylene production during the quarter. Propane and butane cracking accounted for 22% of ethane production. While Olefin results declined sequentially, Polyolefins results improved by approximately $70 million during the third quarter. Polyethylene spreads increased $0.02 per pound and polypropylene spreads increased $0.04 per pound during the third quarter. Polyethylene volume was steady and polypropylene volume declined 5%, partially as a result of maintenance at our Lake Charles facility.

During the first week of the fourth quarter the market remains balanced. Natural gas costs have declined from second quarter levels while NGL costs have increased seasonally but still remain low. Inventories of both remain abundant. Sales and production volumes have been relatively consistent with the end of the third quarter.

As you can see in the lower left on slide 9, third quarter price declines have led industry consultants to forecast lower ethylene chain margins. We do not have planned fourth quarter maintenance, but we intend to build inventory for the first quarter of Corpus Christi steam cracker turnaround and expansion which will add 800 million pounds to our annual ethylene capacity. We estimate that this inventory build will negatively impact fourth quarter results by approximately $30 million. In addition, we declared force majeure in polypropylene due to a site wide power loss at our Bayport plant. Bayport polypropylene accounts for approximately 15% of our global polypropylene capacity and approximately half of our North American capacity.

Please turn to slide 10 and a review of our Olefins and Polyolefins Europe, Asia, and International segment. Third quarter EBITDA was $555 million, another quarterly record, and $63 million higher than the second quarter. Olefins results improved by approximately $60 million. Ethylene continued to remain tight early in the third quarter and prices were relatively constant. Margins increased approximately $0.06 per pound primarily from a lower cost of ethylene production due to lower feed stock costs.

During the quarter, we operated our assets at 92% of capacity, excluding planned maintenance at our Munchsmunster, Germany Olefins plant. We estimate that this maintenance impacted third quarter results by approximately $15 million during the quarter. We produced approximately 65% of our ethylene from advantaged raw materials, adding approximately $30 million to EBITDA over naphtha cracking. Combined Polyolefins EBITDA improved by approximately $20 million. An increase in polypropylene price spread to $0.02 per pound and 9% higher polypropylene volume more than offset the 4% lower polyethylene volume. [Polypropylene] compound results were lower by approximately $10 million. Volume was seasonably lower and margins were compressed by increasing polypropylene costs. JV equity income was relatively constant.

The third quarter was characterized by a rebalancing in both Olefins and Polyolefins markets as the industry came off the high rate of outages that defined the second quarter. Volume continued to remain at second-quarter levels, but margins in September closed lower than where they started the quarter. To this point, October margins as forecasted by IHS, located on the lower left side of slide 10, have come off of the levels of the third quarter.

Typically, during the fourth quarter the benefit from advantaged [feed] cracking declines in Polyolefin volumes decline seasonally with converter holiday downtime. The maintenance outage at our Munchsmunster Olefins plant is scheduled to continue through October. Based on current margins, we expect this to impact fourth quarter EBITDA by approximately $15 million.

Now, please turn to slide 11 for a discussion of our Intermediates and Derivatives segment. Exclusive of the LCM impacts, third quarter EBITDA was a record $506 million, $23 million higher than the second quarter. Propylene oxide and derivative results were higher by approximately $30 million as lower feed stock and other variable costs led to the margin improvement. Intermediate chemicals performance also improved by approximately $30 million. Styrene results improved approximately $30 million as margins remained strong and volume increased following the conclusion of the planned maintenance at one of our propylene oxide styrene monomer plants at Channelview.

C4 chemical volumes also improved. Acetyl results declined by approximately $20 million due to planned maintenance at our La Porte acetyls plant. Oxyfuel results follow typical seasonal patterns and decreased by approximately $30 million. To date, October demand has been similar to third quarter. During the fourth quarter, we generally see seasonal margin declines in our oxyfuels and C4 chemicals businesses as butane becomes more expensive due to winter gasoline blending. As you can see on the slide, this year was not an exception.

During the quarter, we will complete the maintenance turnarounds at our French POTVA plant and at our La Porte, Texas, acetyls plant. This maintenance will impact the production of propylene oxide, oxyfuels, and acetyls. We estimate that the total impact of these maintenance activities will negatively impact full-quarter EBITDA by approximately $20 million.

Let's move to slide 12 for a discussion of the refining segment. This quarter -- third quarter EBITDA was $143 million. Excluding LCM impacts, results are $11 million lower than the prior quarter. During the third quarter, the Maya 2-1-1 spread averaged nearly $23 per barrel. The realized spread at our refinery was moderately higher than the Maya 2-1-1 spread but approximately $1 lower than the second quarter. Crude throughput averaged 249,000 barrels per day, a decrease of 6000 barrels per day. Canadian crude oil and light US crude oil made up approximately 30% of our crude slate. During the fourth quarter, we're expecting maintenance at the refinery to impact fourth quarter EBITDA by $15 million to $20 million. Our technology segment generated EBITDA of $45 million during the quarter, a decrease of $12 million. This is primarily the result of lower licensing earnings.

Please turn to slide 13 and I will briefly summarize the quarter. Third quarter earnings was another all-time record and marked the sixth consecutive quarter with EBITDA of approximately $2 billion. We again delivered record earnings per share to our shareholders and we continue to deliver industry-leading cash returns. Our operating excellence is the enabler and our balanced portfolio continues to deliver strong, steady earnings and cash generation. During the third quarter we returned nearly $1.7 billion to shareholders through share repurchases and dividends. I described the third quarter as a transitional market. The supply constraints of the second quarter transition to a more balanced market during the third quarter. As a result, there was some margin compression as the quarter progressed.

Looking ahead, during the fourth quarter we typically experience seasonal slowdowns in our oxyfuels, Polyolefins, and refining businesses. Overall, we continue to see ethylene markets that are balanced. Thus far, sales volumes remain similar to the third-quarter pace. During the fourth quarter, we will complete three ongoing turnarounds and our Bayport polypropylene plant has resumed production; however, the force majeure remains in place in polypropylene. As we look ahead into the first half of 2016, we remain encouraged by what we see. The next several slides help explain our optimism.

First, as shown on slide 14, the current oil-to-gas ratio remains healthy and well above the pre shale average. This represents the US shale advantage and we remain well positioned to continue benefiting from it. Along with this cost advantage we continue to benefit from an abundant supply of natural gas and NGLs. The markets that we serve also lead us to be optimistic. Demand for our products, approximately two-thirds of which go into consumable end uses, remain steady. Our products are relied upon for fuel, food packaging, and other diverse everyday end uses. These markets grow consistently and in excess of global GDP as you can see in the graphs on the right of slide 15. In the past 25 years, global polyethylene and polypropylene demand has grown year over year in all but one year, 2008, and we know how severe that recession was.

Earlier in the call I mentioned fourth quarter seasonality and transitioning to a balanced quarter, but we also need to look further ahead. Slide 16 provides a view of global industry supply demand. Operating rates in 2016 are projected to be very similar to 2015 with ethylene effective operating rates again above 90%. This suggests a balanced tight market depending on industry operating reliability which over the past two years has not been that strong.

Please turn to slide 17. As the fourth quarter trends lower due to seasonality, we typically see a demand increase during spring and restocking occurs. This pickup in demand coincides with planned maintenance and we could again see another period of supply tightness during the first half of 2016; it would not be unreasonable for the first half of 2016 to look similar to the first half of 2015. With that, I'm now pleased to take your questions.

(Operator Instructions)

Jeff Zekauskas with JPMorgan.

The price of ethane today is $0.20 a gallon, which equates to about $3 per MMBtu, and the price of natural gas at Henry hub on the order of magnitude $2.40. If anything were trading or were priced with natural gas it would be at $0.15 per gallon. There is 500,000 barrels of ethane a day being rejected, so it seems like there is plenty of ethane yet a premium has been built into the ethane price. Do you have an opinion on why that is? Do find it puzzling or straightforward?

Our sense is that ethane demand increased as Q3 progressed, as propane fell more out of favor. Propane prices rising through the quarter. Demand increased and I think the rejection rates that you quoted are in line with our views, 400,000 to 500,000 barrels a day. This frac margin should encourage more of that ethane to come to market and I would suspect that over time we would see ethane trade back closer to fuel value. So I see this, Jeff, as really more transitional.

And then for my followup. A good portion of your increase in EBITDA year over year came from your European operations. In Europe, this was a year where there were all kinds of operational issues. How much of the improvement do you see year over year as being due to transitory events and how much do you see it as being due to steps that you have taken to improve the business in a more durable way?

Part of the improvement in Europe is improvement in demand year over year, but I would say that the restructuring work that we have undertaken over the past three, four years has really provided the foundation for this increase in earnings. Having said that, a weaker euro, lowering the price does increase competitiveness of Europe, so our end-use customers are more competitive in export markets, for example for (inaudible).

So we've seen polypropylene demand grow very solidly year over year and polyethylene is incrementally higher year-over-year. I think those are all the factors, and with lower oil price and weak euro we expect that Europe should do pretty well.

Bob Koort with Goldman Sachs.

Bob, noticing your ethylene forecast it looks like you've got operating rates you are going to sustain a pretty consistent level here, assuming ongoing downtime in the industry. Is there a reason not to simplistically assume then you should be able to continue booking these $2 billion quarterly EBITDA numbers or do think there's some further leg up as you bring on some new capacity or maybe do some other things with the portfolio?

In terms of unplanned outages, Bob, it is difficult to really forecast those, so we don't know what is going to happen next year. If history is any indicator -- recent history is any indicator, then next year's additional planned outages will create some firmness in markets. We will just have to see how that develops.

We do have more capacity coming on next year with our Corpus Christi expansion, so we will take a fairly large turnaround in the first half of the year as we bring that expansion online and we will have more operational leverage in ethylene in the second half of the year. I'm not sure if I answered your question, Bob, but we will just have to see how the operating reliability develops in the first half.

If I might ask a followup. On slides 9 and 10 you show your US and -- or Americas and then the Europe metrics. I found it interesting that in the third quarter [naflan] and ethane-based spreads were the same then. European and US spreads were nearly the same. Do you think going forward as you go to the next few years here that you are going to see the European spread continue to be close to North America or do think that was sort of a one-off because of the extraordinary shut downs in the first half of 2015?

I think third quarter it was more than just about the tightness in the market. We also had a declining [naflin] price which increased margins. As you know, we had a price lag on our ethylene price settlement, so we settle price on ethylene at the beginning of the month. We buy feed stock throughout the month and a falling price environment we tend to benefit. There is some of that in the third quarter. I would not expect it to be that strong in future quarters.

Arun Viswanathan of RBC Capital Markets.

Just wanted to clarify couple of your comments. I think a lot of us have kind of witnessed the loosening supply demand in the third quarter and expect a lower fourth quarter. At the end of the call you noted that the first half of 2016 could look like the first half of 2015. What drives that comment? What are the factors that go into your expectation there?

Well, as we sit here today, Arun, I think inventories are average at best, maybe below average in the value chain. We see buyers only buying what they need, we do not see them buying ahead. Seasonally, as I mentioned in my remarks, we tend to see demand decline in November/December, fourth quarter time seasonal effects.

Usually we see spring pickup not only in demand but then restocking of inventory to meet that higher level of demand. I don't expect next year to be any different. The year-over-year planned outages on the ethylene side, they are higher in 2016, and if demand grows year over year then all of that points to tighter markets in 2016 compared to 2015.

Great. And on the cash flows you're still generating very strong cash flow. If you are at a similar level next year, what are the plans and priorities for that cash flow?

Our cash flow deployment parities have been relatively consistent. I do not expect those to change next year. We will do growth CapEx where we see opportunity to leverage and that is feed stock or technology and have a stable growing dividend, and then beyond that share repurchase is a very good option for us. I suspect that we would continue in the same rhythm as we have in the past.

Would it be possible to comment whether you would be announcing any further new projects or considering M&A as well?

On the project side we are advancing discussions with our Board and we are developing a few different projects and as we are ready to discuss those we will certainly do that next year.

On M&A, our view has not changed from prior calls. My view is that M&A first of all competes with share buyback in our organic growth program. In the case of our organic growth program we are leveraging local advantage we're doing debottlenecks, not Greenfield when it comes to ethylene expansion, so that is a fairly high bar.

Share buyback is also a fairly high bar as we will buy back shares. We're buying back something we know every day and we are buying at market. M&A would have to be or would have to have significant synergy potential, would have to be accretive, so we continue to evaluate things on all fronts but we think our organic growth program and share repurchase set pretty high bars.

David Begleiter with Deutsche Bank.

Bob, on slide 9 you highlight polypropylene margins. Can you discuss the drivers of the expansion and your view of the sustainability of these higher margins in polypropylene?

Good morning, David. Polypropylene has been under invested for the past few years, especially in the US and in Europe, and this is the first year we have seen really significant growth globally in polypropylene. Part of that could be that propylene prices come down some and it's more competitive with ethylene, especially in the US, but we're definitely seeing demand grow in polypropylene.

With the prospects of capacity in the near term not changing a whole lot, polypropylene markets in the US and to even some degree in Europe is structurally balanced and headed towards a very tight market and I expect that will continue over the next year or two.

Bob, just [to hedge] November, there are some polyethylene prices on the table. What is your sense for the potential for those to be successful?

My sense of the market environment for the moment is that our order book is pretty full and we see demand being solid here in the US. Inventories are low, so we will just have to see how this develops, but markets seem pretty firm as we sit here today.

Prashant Juvekar with Citi.

My first question is on styrene. That is not a market we have talked about a lot on these calls, but that profitability has improved and at least in the quarter it more than offset the decline in NTPE. So maybe can you add a little bit of color on the styrene market? What is the sort of proximity that you make there? I know it is a co-product, and then what is the outlook for the next 6 to 12 months?

Well, in terms of supply and demand for styrene, as you know it has been very under invested for years. In fact, demand was shrinking for styrene and derivatives for some time. We've now seen demand increasing year-over-year.

It has been under invested for quite a long time and there had been some unplanned outages. As you know, in the Netherlands there was a POSM unit that had a very significant incident which has created more tightness in the styrene market.

Our sense is that the styrene market will remain balanced if not tight, much like I described polypropylene with the prior question. Of course as that capacity in the Netherlands returns to the market, it will ease some of the tightness. We do expect year-over-year demand growth and then also you have to remember that benzene prices come off a bit as oil price came up in the third quarter so that also helps margins. We're constructive on styrene. We have not said that in a long time, but the styrene market looks decent to us.

Thank you. And then my next question, Bob, is on NGLs. Some of these propane export terminals begin to ship propane, what's your outlook on propane and do you think that it then becomes more advantage next year compared to propane? Thank you.

In the case of both propane and butane we have to consider seasonality in terms of the competitiveness with ethane. In the summer months we're going to see propane and butane be more competitive, and in the winter months less so. The export capacity for propane is increasing, but I do not think it is increasing at a pace where propane becomes disadvantaged.

As long as both propane and butane are of abundant supply, I think they will compete to be in the cracker slate, and of course co-products play a big role in this, so as propane cracking decreases incrementally going into the winter, we should see less propylene production and that should change the outlook for propylene process.

So you kind of have to think about the co-products in all this as well, but my sense is that propane and ethane will be near each other in terms of competitiveness in the cracker.

Duffy Fischer with Barclays.

Question kind of on the split between profitability and your integrated ethylene change. Obviously I think it surprised everybody how much it has kind of moved downstream seeing polyethylene from the ethylene side. Do you find that transitory or do you think that that is kind of a structural shift we will see persist over the next three, four, five years? And then how would that affect your desire to be the net long or net short ethylene?

I think if the near term that is more transitory, local conditions and situations. As you know, PVC is a large consuming derivative of ethylene and when the PVC producers are exporting more they can certainly afford ethylene at the price where it is today.

Longer term, Duffy, we're watching to see how some of these announcements develop. As you know it takes a lot less time to build derivative capacity than it does ethylene capacity. We intend to be a merchant seller of ethylene long term in a similar proportion as we are today, so we still think that is an important part of our portfolio. We will continue to evaluate derivatives and we are as we speak.

Okay, great. Maybe one for Doug. Just on the Corpus Christi turnaround next year as we are modeling that, with the inventory build, with the downtime and then kind of ramping back up, how should we think about that affecting year-over-year numbers?

Duffy, the first thing is to do a comparison is somewhat like the La Porte turnaround that we did, right. We built inventory for that, then we had it down and it is going to be an expensive turnaround. It is not only the turnaround but the expansion.

So, if you can think of it in terms of maybe a 90 day or maybe a little bit longer or shorter turnaround, the inventory builds, what we're really doing is we are buying ethylene now, putting it in inventory. That is why you see the fourth quarter financial impact, and then that will come out of inventory as the turnaround proceeds. I think those things will guide you through how to model and how to balance it as we go forward with that.

Vincent Andrews with Morgan Stanley.

Bob, a big spread has opened up between contract ethylene and spot ethylene in the United States and it is a lot wider than normal. Could you sort of discuss what is causing that and what gives you the confidence that we're not going to see the contract price leak down to where the spot price is?

Good morning, Vincent. Spot ethylene, let me first frame the market. So, the spot ethylene market accounts for about 10% of the total volume produced in the US.

Now, that includes both paper and physical trades. If you just look at the physical volume, it is 5% to 7% of the total production, so that is quite small. It kind of makes a very thin market in the end.

So, near-term price movements like we saw in the second half of the third quarter, those can be influenced by very local logistic-type issues, producer issues or whatever that might be, but I don't see this as being something that is structural. In fact, if you look at the forward curve on ethylene, it is in contango and it points upwards.

So, our sense is that this is just a local situation and that if you step back and look at next year's supply-demand balance on ethylene and the number of outages that are planned in Q1, my sense is that the market remains balanced, tight, and then again will have to see how [upward] profitability develops.

Okay. Just as a followup, is there an update on the CFO search?

Yes, it remains a high priority for us and we're closing in on a selection. We didn't want to rush into this and we continue to advance all of our financial-related matters. Stay tuned. We're getting close.

Steve Byrne with BofA Merrill Lynch. Alex Yefremov with Nomura.

With polypropylene market being tight, is there any opportunity for LyondellBasell to restart some of the older plans that have been idled in the past, either in the US or Europe?

Good morning, Alex. We're not so much looking at that as we are de-bottleneck opportunities. As you know, that has been kind of the hallmark of our expansion program and we may have a few possibilities there. We will evaluate that, and this is more of a recent development meaning in the last two or three quarters, so we are starting to think about our capacity and the potential here in the US.

Continuing the theme of merchant ethylene market, with the upcoming expansion of Corpus Christi, do you have that extra ethylene -- do you have a buyer for that extra ethylene or you will need to place it into the market on a spot basis?

No. We have already contracted quite a bit of that volume and we have ongoing discussions as we are merchant seller and have been for quite some time. So, it just comes into our portfolio and a lot of it is already placed.

Don Carson with Susquehanna Financial.

Bob, we've seen propylene pricing come in quite a bit relative to ethylene, at its lowest level since 2009 kind of pre the shale boom. What impact is this having on Lyondell? For example, if that $140 million sequential decline in US Olefins, how much would be due to lower co-product credits, and then with this lower relative propylene price, I know in the past you talked about perhaps expanding your metathesis unit. Is that kind of on hold now?

In terms of propylene price, first of all, with higher propylene cracking that is what increases the supply of propylene. In terms of the impact on our results, we were just -- as I mentioned during my remarks that we did run the flex and metathesis unit at lower rates. We will have to watch how all of this develops. I suspect as we work through the next few months and propane is currently out of favor, we should see propylene rise. It has happened already. It is going to depend on supply demand for propylene of course.

Longer term, the metathesis unit, that is one of the projects that we have that we are studying. We have taken longer term view rather than just what happened this month or this quarter. So we will kind of step back and look at propylene balances and our need for propylene, especially in light of a more -- a stronger polypropylene business here in the US. That is still an option and it is something we will look at with the longer term view.

Just a followup. With the shift, industry shift in Europe to more propane usage, does that reduce the effective capacity industry by couple of points? Do you think that is one of the reasons behind some of the better-than-expected margins you are seeing in Europe beyond just the outages?

It does not impact the ethylene output as much as it does the co-products like propylene or butadiene, and even that is very incremental. I suspect it is not really the driver for some of the things you are seeing in Europe.

Hassan Ahmed with Alembic Global.

Two part question on methanol if I may. First question is one of your priorities obviously was better sort of operations or better running at the Channelview facility, so how is that going? That is part one.

The second part is that obviously you've been talking about [evolving] tightness within the ethylene side of things. As I understand it, there are roughly three million tons of MTO capacity that was supposed to come online this year, but owing to volatility a lot of that Chinese capacity has not come online.

How does that fit into your thinking as one thinks about 2016? Will those facilities start coming back online?

First of all, the Channelview methanol plant it is running very well. We've been running at benchmark rate, so I would say issues that we had last year have been resolved and we're really proud of how well that plant is running today. Given where margins have been, we virtually paid for that restart. It was a very quick payback for us.

In terms of the supply demand balance from methanol, I still see the US as being an exporter -- sorry, importer of methanol. Market balances we don't think change a whole lot in the next year or so. As this decade develops, it is possible that the US will become an exporter of methanol if all this capacity that's been announced will come online. MTO plants, they are under construction or coming up in China. The demand is growing as well. Our sense is that at least next year methanol supply demand balance is reasonable for the US.

Perfect. And as a followup on methanol derivative side of things, you talked a bit about a seated margin sort of compressing a bit through the course of Q3. Now, obviously methanol pricing is lower and continues to go down, but the flip side is that obviously acetyl supply demand balances remain quite slack as well. How should we be thinking about sort of 2016 acetyls profitability for year on year?

Hassan, it's Doug. I do not think our reference to the acetyl of course encompasses methanol, so when we talk about being down, it's more turnaround related is where we were referencing. We have got the La Porte facility which includes an ethanol plant and (inaudible) in turnaround that is going to come up pretty shortly, but that is what we were referring to in the comments.

[Jim Sheehan with Central].

With respect to the oil-to-gas ratio chart you have in there, with oil production continuing to increase, how close to parity do you think we get there? How do think that chart moves as we go forward?

If you look at natural gas price where it is today, we are sub 240 on Henry hub. It's difficult to predict where oil prices will go in the near term, but longer term certainly there is a lot of production in the world that is underwater at $45.

My sense is that longer term oil price should come up. It is a question of when and the path that we take to get there. If you think about natural gas is very abundant in the US, so we think this ratio is pretty resilient at different oil price environments.

Thank you. And also on the ethylene supply demand balances that you are showing, how much of the production of ethylene is going to be for domestic markets versus export markets in your view? Do we have more growth internationally and is that what absorbs the capacity?

Yes, you really have to look at ethylene derivatives because we don't really ship ethylene as [martimer]. We do, but not much in the material quantities. So, the US ethylene production increase later in the decade will really meet global demand increase for PVC, for polyethylene, for MEG and so on. When you look at those markets, there is not a lot of ethylene expansion elsewhere in the world.

Nils Wallin with CLSA.

As you noted that there are a fair number of ethylene turnarounds next year but there are also a fair number of polyethylene startups, so I am just curious how you are thinking about the interplay between those two and what that effect might have on the PE spread over ethylene?

Good morning, Nils. The polyethylene expansions I think they are in the second half of next year, most of them are. Those expansions in the month that they start up there may be a little bit of disruption, but our sense is if you look at markets on a global basis there is enough demand growth based on the trend that we have been on to absorb that new capacity. Could there be some change in the month? Perhaps, but we think that this capacity will be absorbed.

Got it. And then obviously your comment on the question before was instructive in terms of your long-term view around oil prices. However, in the medium or short term, rig counts have come down and efficiency is decelerating, so do you have a view on how all that might -- in the US that is, how all that might affect the NGL supply?

So far, Nils, we do not see a whole lot of impact on NGL supply and it's still abundant. As I mentioned earlier in response to one of the other questions that ethane rejection still is north of 400,000 barrels per day. That is enough to feed five to six world scale crackers and some frac margin will probably bring even more supply to market. So, our sense so far not much impact on NGL supply, but we will continue to watch it.

Frank Mitsch with Wells Fargo Securities.

This is [Ray Blake] sitting in for Frank Mitsch. Just a couple questions following up. You guys spoke about demand improving in Europe. When you think about a global pace that is constant demand growth, has there been any change in terms of regional strength or how would you guys characterize maybe how things trended through the quarter?

Demand was pretty strong through the quarter in Europe in Polyolefin. Now, you have to remember that normally in July and August there are pretty significant holiday periods that occur in north Europe, south Europe at different times. If you were to take that out, year-over-year demand was stronger this year than it was last year. So, hopefully constructive on where Polyolefin demand is in Europe.

Okay. And then just following up on the feed stock commentary. Obviously it seems like the NGL view is to be long in the US, but given where you saw things trend maybe in the middle of the year with propane coming off extremely strong, do see further investment opportunities to enhance your flexibility or do think that is everything is going to be parity longer term?

We do find incremental opportunities to increase flexibility. We're going to do some work at Channelview to increase flexibility to frac propane. I continue to believe that flexibility will be the key going forward. They're going to be times when propane is favored like it was the summer and then ethane and so on. I would say it is more incremental flexibility improvement. We've already done a lot of work in the past two or three years.

John Roberts with UBS.

I was curious about your comment always wanting to be net long on ethylene. I assume that is in excess of your metathesis capacity and many players like to have a more tapered integration strategy, so why would you like to be long ethylene even in excess of metathesis?

I think it gives us an opportunity to first of all optimize, right. We can participate in the spot market when it is strong via either merchant sales or spot sales.

We can increase or decrease metathesis production or propylene production. It gives us another knob, if you will, in terms of optimization. We're not significantly long. I think our length has been consistent over the past four or five years.

Secondly, I assume M&A activity still doesn't compete anywhere close to share buyback?

Our share buyback program looks pretty attractive to us at this point.

Jonas Oxgaard with Bernstein.

I have a follow up on the MTBE side. You were talking about seasonal weakness on MTBE going forward but a lot what's been driving the MTBE price has been the octane premium. The octane premium the last couple of quarters has been I think the highest that it has ever been. Do you have any comments on that dynamic and where we can expect that to be next year in the summer?

John, this is Doug. We agree that the octane premium has been very strong. We think octane is going to remain in demand. If you think about the developing world, you think about the way crude is developing, shale produces quite a bit of high vapor pressure low octane components. Engine technologies are driving toward more need of octane. That is why we feel quite good about it.

Our comments really around MTBE and butane are you do see though a seasonal thing. This is something I guess I have watched for 25 years. Seasonally what happens is we get the winter months. The demand for butane both for blending -- gasoline blending and cooking, so you pull up butane a little bit and gasoline demand comes off a little bit, so it usually comes off a little bit.

Those two bases are trends that you will see. This year so far is no different than really most years. You see that strong summer period and you will come off a little bit and then you will see in the spring typically you will see it move back up. I think you have got it exactly right. We feel good about octane and we feel good about the oxyfuels position.

Laurence Alexander with Jefferies.

I think maybe just to wrap up. One quick question is if you highlight a bunch of different outage-related items for next quarter, if you roll all of those up that works out to about $125 million to $150 million. Is that right or did I miss something?

Going to be a little bit trouble getting that. That sounds a little bit, but I'm not sure if you are doing a relative to relative. What we have got in the fourth quarter is we have a continuation of the acetyls and the PO turnaround, so there was one month in the third quarter, one month in the fourth quarter.

In Europe, in EAI kind of a similar thing with the Munchsmunster cracker where we had a one month in the third quarter, one month in the fourth quarter. We have similar impact across those periods.

Now, when we get into the first quarter is where we do have more activity because in the first quarter we will have a part of the refinery in turnaround. If you recall, we moved that out of this spring due to the strike in the labor environment, moved it into the first quarter of next year and of course Corpus Christi will be there. So that will be a fairly large activity.

Brian DiRubbio with Tipp Hill Capital.

Just wanted to clarify a comment you made earlier. You said first half of 2016 will look like first half of 2015. So is that just on the EBITDA level basis?

No, I was thinking more about market conditions and relative supply demand, the amount of industry, planned outages, along those lines.

Cooley May with Macquarie.

If I'm looking at the market correctly, it appears following heavy planned outages first half of next year, the supply of US ethylene will grow 3% year over year, next year 9% in 2016 and 17% year over year in 2017. So I want your thoughts generally on capital deployment during this period? Do you expect to buy back a similar rate of stock or similar amount of stock over this period? Also, if you are looking to keep merchant ethylene at a similar portion to what is consumed, what high ROI projects do you envision?

In terms of cash deployment, our approach so far has been to prioritize our high return growth projects, CapEx, and what remains we would dedicate to share repurchase. In the absence of significant M&A, that would be accretive. Our focus would be similar in that regard.

In terms of derivative projects, I think we're continuing to study a lot of different options in that area. I think we will be a merchant seller in the future. The degree to which we are a merchant seller will depend on our opportunities in the derivative projects. So as we develop those and we align with our Board, we will communicate with all of you on our progress.

Okay. I think if there are no further questions then thank you for all of your questions and let me close with a few comments. We delivered another record quarter despite further declines in oil price and related volatility and end markets. I think this is a testament to the balance and resilience of our portfolio. We are continued focus on safe, reliable, cost competitive operations. It defines who we are and enables our financial performance. We are a strong cash flow generator with a disciplined and shareholder friendly approach to deploying our free cash flow.

In the past 12 months we returned $6.3 billion to shareholders via repurchases and dividends. Our growth program continues to focus on low capital cost de-bottleneck's and end products that leverage our technology. We're increasing operational leverage where we see structural advantage i.e. the US.

Our focus stays steadfast. I hope you see our approach is consistent and we remain constructive about the industry outlook for 2016. Thanks for your continued interest in our Company.

Thank you, speakers. That concludes today's conference. Thank you all for joining. You may now disconnect.