LyondellBasell Industries NV LYB
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/26/2013

Operator: 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.

I'd now like to turn the conference over to Mr. Doug Pike, Vice President, Investor Relations. Sir, you may begin.

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

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

For more detailed information about the factors that could cause our actual results to differ materially, please refer to the cautionary statements in the presentation slides and our financial reports, which are available at lyondellbasell.com/investorrelations. Reconciliations of non-GAAP financial measures to GAAP financial measures, together with any other applicable disclosures, including the earnings release, are currently available on our website at, www.lyondellbasell.com.

Finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2 pm Eastern Time today until 11 pm Eastern Time on May 26th, by calling 800-469-5439 in the United States and 203-369-3805 outside of the United States, and the passcode for both numbers is 3102.

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

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

James L. Gallogly - CEO: Thank you for joining our earnings call. As Doug mentioned, a set of presentation slides accompanies this call and is available on our website.

Let's take a look at Slide 4 and review a few financial highlights. Overall the first quarter of 2013 was a good start to the year, as we generated nearly $1.6 billion of EBITDA. This led to income from continuing operations of $906 million and record diluted earnings per share of $1.56. The fundamentals have benefited us over the past several years, continue to drive our success. Carriers of strength were North American ethylene margins and production and continued steady performance from the Intermediates and Derivatives segment.

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

If you turn to Slide 5, you will see that our safety results for the first quarter were best ever. Performance in this area continued a positive trend. Our recordable injury rate declined to 0.12 perhaps the best in our industry. Environmental and process safety results were also very good during the quarter. We understand that great safety performance is not realized on our quarterly basis. It must be top of mind for all our employees and contractors every day. We will continue to stay focused on improving our safety environmental performance.

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

Karyn Ovelmen - EVP and CFO: Thanks, Jim. Before I begin my discussion of results I want to remind you that we have modified our presentation of EBITDA and we have issued reconciliation of historic results to help your modeling. These can be find on our website. Please turn to Slide 6, which shows our first quarter EBITDA by segment. The quarter generally reflected the trends and conditions that prevail throughout 2012.

O&P Americas generated recorded EBITDA of $898 million. The combination of continued strong ethylene and production drove these results. O&P EAI EBITDA was $225 million. This was a significant improvement versus late 2012 however the improvement was predominantly driven by raw material cost variability rather than underlying fundamentals.

The intermediates and derivative segment generated EBITDA of $373 million reflecting steady chemical and Oxyfuels results. Refining segment EBITDA $20 million was negatively impacted by the turnaround a coker and a crude unit. The significant plant maintenance spanned almost two months and reduced the average quarterly crude oil throughput by approximately 85,000 barrels per day. While this impacted the first quarter it positions the refinery well for the future.

On the right side of the slide we have provided segment EBITDA for the last 12 months generally trends were quite consistent across the period. O&P Americas and intermediates and derivatives were areas of strength both areas benefit from U.S. shale gas development its effect on advantage natural gas and natural gas liquids prices. Our O&P EAI results experienced some volatility across the period but in general were depressed by the European economic environment coupled with high naphtha raw material costs. In Refining margins were negatively impacted by the value of co-products while volumes were impacted by the recent turnaround.

Now let's turn to Slide 7 and see how we deployed the cash. First quarter operations generated $1.1 billion cash exclusive of working capital changes, use of the funds including a temporary $280 million increase in working capital, primarily due to an inventory increase. We anticipate that working capital will decline over the next quarter. Capital spending increased to approximately $390 million as we invested in our growth projects and the refinery turnaround. During the quarter we paid our normal interim dividend of $229 million. Our cash balance increased by $147 million. This is consistent with our expectations as the quarter included several annual payments such as property taxes, customer rebates and employee bonuses which together totaled approximately $460 million.

On the right side of the slide you see similar metrics for the last 12 months. I want to highlight a few items. First operations generated $4.8 billion exclusive of minor working capital changes. We paid dividends of $2.5 billion, invested $1.2 billion in capital projects and our cash balance increased by $1.2 billion.

On Slide 8, we provide some further details, working capital and metrics that we tracked. I have covered most of these, so now, I will turn the call back to Jim.

James L. Gallogly - CEO: Thanks, Karyn. Let's discuss segment performance beginning on Slide 9, with Olefins and Polyolefins Americas. First quarter EBITDA was $898 million, a $121 million increase versus the fourth quarter of 2012. This was a record performance for this segment. The Olefins business provided a quarterly improvement as ethylene margins expanded significantly. Our average, ethylene price increased by approximately $0.04 per pound, while our cost of ethylene production metrics declined.

Ethylene co-products such as propylene contributed to the lower product cost. During the quarter, approximately 87% of our ethylene production was from natural gas liquid feed stocks. For the third consecutive quarter, ethylene production exceeded nameplate capacity. This may not be apparent to you in our reported metrics as we report net ethylene after taking into account the operation of our metathesis unit. For a portion of the first quarter, propylene prices justified operation of this unit. At other times, we sold spot ethylene to competitors who had operating issues, or made polyethylene. We use our flexibility to maximize value.

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

Joint venture equity income was $4 million. We received $10 million of dividends in the first quarter. During April, raw material costs have been relatively consistent with the first quarter. The propylene benchmark price has declined significantly. We have also seen some weakness in Polyolefin export markets. We have no planned ethylene maintenance until the third quarter, but there continues to be significant ongoing industry plant maintenance through the second quarter.

Let's turn to Slide 10 and review performance in the Olefins and Polyolefins Europe, Asia and International segment. First quarter EBITDA was $225 million, an improvement of $198 million versus the fourth quarter. Joint venture equity income was $54 million but there were no joint venture dividends.

The improved quarterly results were in part due to the absence of fourth quarter charges which included items such as restructuring charges, compensation accruals, a feedstock contract renegotiation, and the impact of the plant turnaround. Exclusive of these fourth quarter charges our underlined ethylene margin improved several cents per pound.

We believe this was largely attributable to naphtha raw material cost volatility and timing of polyolefin price changes rather than improved industry fundamentals. Excluding the impact of the fourth quarter feedstock contract renegotiation polyolefin results improved by approximately $30 million, driven by improved margins; combined polypropylene compounds and polybutene-1 EBITDA improved by approximately $20 million.

Results returned to a more typical pattern following the normal end of the year holiday slowdown. Despite the improved first quarter results conditions in this segment continue to be difficult. Ethylene plant operating rates in April have been in the mid 80% range. Margins continue to be impacted by weak economic conditions and raw material volatility. During April performance from our joint ventures and differentiated polyolefins is relatively unchanged.

Now please turn to Slide 11 for a discussion of our intermediates and derivative segment. First quarter EBITDA was $373 million, a $76 million increase from the prior quarter. Propylene oxide and derivative results improved primarily due to stronger volumes.. Sales improved following the typical year end slowdown. Sales into aircraft deicers increased. Results in acetyls and ethylene oxide were relatively unchanged. C4 chemical and styrene results, benefited by approximately $25 million from increased margins. Oxyfuels margins increased in part due to lower butane costs. During April trends and conditions within Intermediates and Derivatives have remained relatively consistent with the first quarter.

Let's move to Slide 12 for a discussion of the Refining segment. First quarter EBITDA was $20 million, a $103 million decline from the fourth quarter. First quarter results were significantly impacted by the turnaround of crude units and the coker. The scheduled maintenance took place during February and March. Versus the fourth quarter, we estimate the turnaround impacted approximately $80 million. First quarter crude throughput averaged 173,000 barrels per day approximately 95,000 barrels per day less than our stated capacity.

Relative to the fourth quarter industry benchmark Maya 2-1-1 spread declined by approximately $3.40 per barrel. As you can see from this slide most of the decline was in the heavy light differential while the gasoline spread improved. Our overall spread declined less than the decline in the Maya 2-1-1 benchmark. During the quarter, we saw a significant increase in the cost of RINs or renewable identification numbers for renewable fuels. This is driven by a growing imbalance between renewable fuel regulations and the realities of fuel markets.

Our cost of RINs increased from less than $10 million in the fourth quarter to $25 million in the first quarter. We expect that increased costs associated with rents will ultimately be passed through to the market, but it is difficult to predict exactly when. Thus far during April, we have run the refinery near, as full state of capacity. The Maya 2-1-1 benchmark spread has averaged approximately $18 per barrel. Since completion of a turn around, we have adjusted our crude mix to a lighter slater.

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

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

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

As always, we remain focused everywhere on operational excellence; safe, reliable, and low cost operations every day. A number of our growth projects are now in construction and our future is. I want to remind shareholders that our proxy has been filed and our Annual Shareholder Meeting will be held on May 22 in Rotterdam.

Thank you for your interest in LyondellBasell. We're now pleased to take questions. Corey?

Transcript Call Date 04/26/2013

Operator: Jeff Zekauskas, JPMorgan.

Jeffrey Zekauskas - JPMorgan: Sort of a two-part question. You've been running your North American ethylene units closed to 100% for three quarters now, does that place undue stress on your assets or is that a new normal? Then the second question is, you mentioned in your prepared comments that you would lighten to your crude slated your Houston refinery. Can you be a little bit more explicit as to how much you've lightened it?

James L. Gallogly - CEO: Yes, Jeff. First on the question of ethylene production and our U.S. operations we've actually operated above nameplate in the last three quarters. We are cracking a later slate that improves our ethylene yield. It's a little higher furnace temperatures and also, but we don't expect that to have a long-term impact. We already normally do our de-coking operations and things are pretty typical. So, that's very, very unusual. I think exemplary performance by our people and I couldn't be prouder of that kind of a record. I haven't seen that for a long time in our industry and I personally think we are showing very differential performance in our ethylene operations at a time when margins are great. In terms of our crude slate at the Houston refinery we just came out of that turnaround, one of the reasons that we're working on the crude unit for a couple of months is we basically re-plumbed it so that we could take some of the lighter crudes. I think depending upon how we blend and all we could probably run above 20% light type crudes, but there's a lot of factors that go into how we operate blending rates and all of that. But I think that's a reasonable rule of thumb.

Operator: Robert Koort, Goldman Sachs.

Robert Koort - Goldman Sachs: Jim I was just curious, and sensing from some investors that my interest about the cadence of operating rates globally for ethylene. I think in your guidance model you are something like 3.5% to 4% over the next several years. Do you think there is any need to revise that given the lethargic global economy at the moment?

James L. Gallogly - CEO: Well right now we are running obviously better than 100% in the United States and every pound we make we have been able to sell. So we see no reason to think differently about that. In terms of our global operating rates we have been operating in the mid-80% range. Remember that we are structurally a bit short in Europe and so we can differentially run our assets a bit harder depending upon which one of the (parts) we are in so to speak within the geographies there in Europe. But I don't a reason to change anything at this point in time. Market conditions in Europe are reasonably stressed as we indicated and Asia has been reasonably flat for a bit. So we hope that there's some upside at some point in time but that will depend on the economy.

Operator: Chris Nocella, RBC Capital Markets.

Chris Nocella - RBC Capital Markets: Just on the European side, can you just split the earnings improvement in the first quarter between naphtha being lower and the benefits you're restructuring there? When your competitors in Europe announced a shutdown of polypropylene assets, so is that enough to fund the market or is there some additional actions you need to take?

James L. Gallogly - CEO: I think we had differential performance in Europe. I haven't had a chance to review everybody's numbers up, because not all of those are out. But if I look at where we stand versus some of the competitors, I think we ran reasonably well and we pride on chasing value, not volume and I think our results look pretty good. We did benefit from some of the timing issues during the quarter, but hopefully we surprise everybody with better than expected numbers in Europe. We do have continued restructure efforts underway. We're in discussions with the works councils and we're going to be pressing very, very hard to get that cost structure even further improved in Europe.

Douglas J. Pike - VP, IR: Chris I'll just add, I think to that, I think as you see the quarter, we saw the volatility in naphtha, we saw some pricing improvements and moves but during the Investor Day, I think Bob Patel brought forward, some of the cost restructuring items and some of the items on the efficiencies that the Group over there has been working on. So, I might refer you back to that, for some of those efficiencies that we're building over in that area.

Chris Nocella - RBC Capital Markets: Just as a follow-up, resin prices in Asia have come off pretty hard recently, and I know you won't export directly to Asia, but can you help us understand the impact to this on some of the global trade close?

James L. Gallogly - CEO: Yeah, first we do sell product in Asia, but primarily from the Middle East. We sell a few specialized products from Europe and Asia that are extremely high valued, but generally, the product we move in Asia comes from the Middle East with significantly advantaged cost structure We haven't been able to consist or remove the product in the United States, the last period we've been selling more 12% to 13% exports primarily into South America. So, we've actually decreased our exports and sold more domestically. When will Asia improve? As I mentioned in my previous remarks, generally we see buying patterns when naphtha prices are falling, customers await to see what's going on and withhold full volumes and work off of inventories a bit. We expect some of that's going on, but it's just a bit early to predict how the rest of the year will go.

Operator: David Begleiter, Deutsche Bank.

David Begleiter - Deutsche Bank: Jim there's been some discussion of ethylene multiplier in the last few weeks some as high as 1.4 times GDP, some as low as 1.1 times GDP. What's your view of ethylene growth as multiple of GDP?

James L. Gallogly - CEO: Well you have to think really, really back in history to get to 1.4, I haven't seen that number for a while. But a lot of people just say it's GDP plus or minus a bit depending on what the geography and what the economy is. I don't think much has changed on that recently.

David Begleiter - Deutsche Bank: You announced some new fractionation capacity at Corpus Christi, could that be additional type arrangement for the other cracker sites you have in the U.S. for these types of on-site fractionation?

James L. Gallogly - CEO: Well, generally no, a lot of our facilities are close to Bellevue and so it really isn't necessary. There's been a lot of capacity added there. Down at Corpus this was a unique opportunity for us to work with a third-party to diversify our supply. Put the plant actually on our facilities, operate it for them and we think we're seeing nice feedstock advantage as a result of that. We are not at liberty to tell the pricing because that's a confidential contractual matter but obviously we consider it quite favorable to us.

Operator: Vincent Andrews, Morgan Stanley.

Vincent Andrews - Morgan Stanley: As you talk to customers now, same dynamic played out last year with declining naphtha at this time of year. Is the dialog any different today about order trends and order patterns than it was a year ago?

James L. Gallogly - CEO: Well I don’t think so. I think again we have been able to move our volumes effectively from the Middle East into Asia and in the United States we have actually kind of increased our domestic volumes and exported a little less. We just have to see how the rest of the year plays out. It's a bit early. We are certainly not in peak type conditions in the summer time.

Operator: P.J. Juvekar, Citi.

P.J. Juvekar - Citi: Jim you had a nice increase in European profitability. Can you sort of break it down for us into how much of that came from restructuring, was this – how much of it came from sort of lighter feeds like propane that you are using?

Douglas J. Pike - VP, IR: P.J. I am sorry you were a little hard to hear but I believe what you are asking is in the increase in European profitability how much would we relate to naphtha and pricing movements so the volatility within the markets and how much would be phase driven from the restructuring and the work that we are doing there, is that correct?

P.J. Juvekar - Citi: That is correct.

James L. Gallogly - CEO: I don’t have that number broken down that way. To say what percentage is what, there was a lot of movement obviously on naphtha pricing across the quarter and our timing was pretty effective. But generally we work all of our costs across the period. There's no new single large item that I've to report. Our cost reduction effort is just continuing relentless pursuit of a better cost structure there. So, I can't say that there's a unique item on cost, a differentiator. It's more how we performed against the general market.

Operator: Nils Wallin, CLSA.

Nils Wallin - CLSA: Curious as to what your outlook is for volumes in the Olefins business, in the U.S. in the second quarter with all these turnarounds. Obviously you have mentioned that you're running at full rates. Is there any way to get incremental volumes out there or what type of flexibility might you be able to employ to put higher value products into the market where it's tight?

James L. Gallogly - CEO: You're tough on us, because we have above nameplates for three quarters in a row and you are wondering what we have more – I don't know if we can do that much more than we've already been able to accomplish. So the volumes side, we've operated really well and we've been able to move the product. We have a very flexible system. You can see that we've got our NGL rates up to 87%, which is outstanding. We've got more ethane coming into Channelview about another 10,000 barrels per day, as a result of a new pump we put in, new line. So that's moving Channelview's feedstock even lighter. Feel good about that. In terms of the value adds, we'll go in and out of markets pretty quickly, for instance if spot moves up, it fell almost $0.10 and then moved right back up with some operating issues. So then we're in the spot markets and now that we are running metathesis. We'll watch the polyethylene trends and generally we'd rather sell to a competitor spot then make polyethylene these days, but those are decisions we make every day.

Nils Wallin - CLSA: Just to follow-up I mean you had certainly highlighted the volatility in raws in Europe, but on your slides it looks like ethylene margins are up in April. So is there a reason to expect that not to flow through your numbers in the second quarter or is this just sort of some artifact from the way the consultants' report the profitability?

James L. Gallogly - CEO: Well, the pricing is just settling in Europe as we speak and then we'll have to watch and see what happens with naphtha pricing so for May, April numbers you've seen trend lines already, just have to see how the quarter develops, but there is still some continued volatility in pricing. Naphtha has been reasonably inexpensive but again May should be settling very, very shortly if it hasn't settled overnight.

Operator: Don Carson, Susquehanna Financial.

Don Carson - Susquehanna Financial: Couple of questions on Europe. Jim are you able to take advantage of any feedstock opportunities in Europe like increased Algerian condensate or propane? Then just a question on what your outlook is for equity income there, is there an inflection point coming where as they pay down debt they can start dividending more money back to you or whether they will have a significant improvement in your share of their income?

James L. Gallogly - CEO: On feedstock in Europe we're running more condensates than we did the particularly at Berre and by the way we're running Berre full out. As you know, a competitor had a planned incident in that region and as a result ethylene is extremely short and we're running full rates, running some condensates. So we have been moving butanes into our cracks and propane. We are cracking a little lighter than we did before but remember that we are buying NGLs there more at world prices versus the discounts that you see in the United States, so you have to be careful in terms of the expectations on that. But generally either improving the mix, a couple of our crackers already had some advantage from some of the heavier streams, Hydro Vacs things like that, that have always been a bit of a plus for us. Let's see the second, the JV dividends, there is not a new trend there per se. Obviously we are reporting those differently on EBITDA, Karyn explained that. So you are seeing, not just the dividend stream but the earnings from our joint ventures. But the dividends, I don't – I expect those continue to be fairly lumpy. We didn't have any of that cash in Europe in the first quarter. So I also had mentioned that is not just the Middle East, it's also some Asian JVs will give us dividends from time to time. The first quarter didn’t have any of those.

Operator: Duffy Fischer, Barclays Capital.

Duffy Fischer - Barclays Capital: One of the big things for the last couple of years has just been the changing outlook for the feedstocks on ethylene. There is some chatter that naphtha could become disconnected from Brent oil over time. I am just wondering, if you guys have had a chance to kind of look through that? Obviously you have been in a lot of different places within the energy space Jim, so if you had any insights on kind of, is that something that could surprise us in the next three to five years?

James L. Gallogly - CEO: Well we are seeing some write-ups on that and I am a little skeptical. It's theoretically possible, but right now, it seems like ethane will continue to be advantage, in rejection periods right now in certain geographies. In terms of naphtha, coming down differentially; we got to get into the gasoline pool to figure that one out. Gasoline prices have been reasonably strong in the first quarter. I think octane is going to have more value going forward. So, I've read a little bit about that, but I'm scratching my head. I'm not sure I agree with all the premises at this point.

Operator: Kevin McCarthy, Bank of America Merrill Lynch.

Kevin McCarthy - Bank of America Merrill Lynch: Your shareholder vote regarding repurchases, I guess is less than four weeks away now. Can you comment on whether or not you would see potential to accelerate the pace of execution, relative to the 18 months' timeframe that you put out there? It looks like you came out of the quarter levered – I don't know 0.2 to 0.3 times EBITDA. If you look further out, maybe one to two years, do you see opportunity to recapitalize and return cash through that mechanism in addition to the organic cash generation?

Karyn Ovelmen - EVP and CFO: Sure. I am sure that you can appreciate that we are continuing to work with our Board on this topic, in anticipation of that meeting that's coming up in May. But from a financial perspective, financial policy perspective, nothing's changed in terms of our policy to continue to distribute discretionary cash to investors. As it relates to how we're looking at our balance sheet and overall leverage, with the investment grade ratings that we just recently received. It does provide for some increased optionality and flexibility in our balance sheet as we continue to optimize our capital structure. So as we discussed at Investor Day we've developed some flexibility here to potentially involve and optimize the structure in line with ratings and our outlook and our very solid strong investment grade metrics that we're committed to maintaining.

James L. Gallogly - CEO: Further discussions with the Board, Kevin we don't want to get out in front of ourselves.

Operator: Hassan Ahmed, Alembic Global.

Hassan Ahmed - Alembic Global: Jim wanted to revisit, broadly speaking Europe. Off late over the last couple of weeks and months we we've heard a few different announcements. On one side you know maybe a weak or so ago SABIC came out and announced a fairly large rationalization or restructuring plan for Europe. On the other side you have INEOS which is talking about trying to import ethane from the U.S. so I mean as you look a couple of years out how do you see the European industry i.e. is it more skinnier, is it more feedstock flexible, would love to hear your views about that?

James L. Gallogly - CEO: Yeah, I think there have been some recent closure announcements, we consider that a positive for the European industry. I wouldn't call it material at this point, but it's – all of these closures are helpful to us. I think that concept of ethane imported into Europe is going to be something that will be small and unique, not a major trend. It just hasn't happened in other parts of the world on a large-scale and it's generally not cost effective unless you have some unique assets and abilities that you've already paid for in past year or. So, I don't think that's a trend line to watch. Europe is going to be until the economy improves, it will be a place we’ll just have to operate very effectively, continue to reduce our costs and that's exactly what we are doing.

Hassan Ahmed - Alembic Global: Now another quick question. Obviously a lot of focus on capacity additions within the U.S., but on the other side of it, you have the Chinese making a lot of noise around (NPO) facilities. I mean, how real are those sort of capacity additions in your view?

James L. Gallogly - CEO: Well there are some capacity additions kind of in Central China, that product kind of stays in Central China versus on the coast there are some additions there. But I think the bulk of the future growth is going to be here in the United States with a mind towards export.

Operator: Mike Ritzenthaler, Piper Jaffray.

Michael Ritzenthaler - Piper Jaffray: A lot of questions have been answered already, but I just wanted to follow-up on the JVs real quick, operational issues that have been seen in Jubail and PDH in the past. Have those been putting (the move to mirror) and is there further expansion as we go into '13 and then is it – or is it just lumpiness?

James L. Gallogly - CEO: The PDH unit originally had some issues with (catalyses). One of the largest units that were built and we generally have resolved that issue with the technology provider. So that's in much better shape. Our polypropylene unit is one of our advanced units and it also runs extremely well. There have been some operational issues from time to time, there was power blips an occasional utility issue but compared to where we started a couple of years ago, that plant has improved its operations, although as a Company we are pretty much into the expectation of perfect operations and it doesn't yet meet that standard.

Operator: Laurence Alexander, Jefferies.

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

James L. Gallogly - CEO: Butane prices have come down pretty hard and they are starting to show up in the crack over the last days they've been in their – in the kind of same type economics as propane. So, we have been taking butane into the crack a bit more. Of course discount of butane prices are also very good to our Oxyfuels business through MTBE. So we consider that a very, very positive development. Now in all of this, I always remind everybody that certain of the heavier NGLs can be exported and some of that is being exported, but at this moment in time, more of that's been propane than the butane and so, something that's a trend as I've mentioned a couple of times before publically plus we watch pretty carefully.

Robert Walker - Jefferies: Then Karyn, you mentioned that you're getting through investment grade – kind of gives you somewhat of a balance sheet flexibility. Can you update us on kind of your thoughts on acquisitions and your criteria for those if you were considering those?

Karyn Ovelmen - EVP and CFO: Yeah, from an M&A perspective, that's – we've discussed in the past in terms of looking at those – we're always looking at everything, but in terms of our capital deployment and our hierarchy, we've got these growth projects that we're currently working with quick short-term quick return type projects. We do look at M&A but from a capital deployment perspective in terms of them being very strategic and meaningfully accretive. Those are the criteria there and then beyond that it's really looking for direct returns to our shareholders via either dividends and/or potentially share buybacks if authorization is received, the management and Board will consider all of those options.

James L. Gallogly - CEO: Simply put we haven't seen anything of interest to us lately.

Operator: Frank Mitsch, Wells Fargo.

Frank Mitsch - Wells Fargo: Jim in the past when the topic of looking at the MLP structure for your olefin assets has come up you've suggested that it was under intense study. So how about an update on those – how you're studying is going there?

James L. Gallogly - CEO: Well, it continues to intense, but a couple insights in how we look at that. First, remember that we have assets went through a bankruptcy process and were written down until, we have unique tax issues on the front end of or at some point we are a different taxpaying entities then some of our competitors because of the bankruptcy process. So, that's one consideration that we have to look at and very, very carefully with each individual asset. The second while we have a fair amount of infrastructure that's kind of assets that typically dropped into that kind of thing. Most of our pipelines and all are very, very uniquely strategic to us and not common carrier alliance. And so we have some of that but probably not enough to be something that would be fully flush out an MLP. So we're considering various options but at this point in time we're still in the study mode. Taxes are unique really issues out though.

Frank Mitsch - Wells Fargo: Obviously you spoke before about the shareholder vote coming up on the share buyback but as you look at the returning cash to shareholders by regular dividend, a special dividend or share repurchase, what is your general take on the roles of all of those three?

James L. Gallogly - CEO: Karyn do you want to comment on that?

Karyn Ovelmen - EVP and CFO: From a regular dividend perspective we have set our overall total dollar amount of our regular dividend so that we can fund that comfortably through the cycle without having to raise that and giving us some bandwidth to continually grow that to a sustainable forever growing regular dividend. As we outlined on Investor Day there is also some potential for additional growth beyond that over the next few years in relation to the discretionary cash generation as a result of materialization of the growth projects that we have outlined in the near term. So our growth plan is set around those quick high return projects which will result in additional discretionary cash that we will look at in connection with our regular dividend as well. Then beyond that it becomes – the alternative is between special or supplemental dividends as well as and/or buybacks which again if shareholder authorization is received, management and supervisory board will assess those considerations.

James L. Gallogly - CEO: Basically you will hear more from us on that following the shareholder vote.

Operator: John Roberts, UBS.

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

James L. Gallogly - CEO: We are all about capital efficiency and one of the reasons we were so early to file permit applications for our debottlenecks because we assume that construction resources would begin to get more stressed in the Gulf Coast, following the announcements of a lot of big crackers. So, our strategy has been get the permits early, do the de-bottlenecks, get the assets running, get the cash generated and how the assets paid for before anybody else starts up the new capacity. So I would expect that domestic investment to trail off. We've announced the projects that we're intending to do and we've got a base amount of capital that's gone (six, seven) – in the early days up to $800 million. That's coming off as we're got in a lot of big turnarounds behind us. So, we're very focused on the next couple of years getting these projects done before the wave of activity hits and the costs go up significantly.

John Roberts - UBS: So you would tail down, you think after…

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

Operator: Gregg Goodnight, UBS.

Gregg Goodnight - UBS: Now that your refinery turnaround is over, you mentioned that you're running a bit of a lighter feeds slate. Could you comment on what your expectations are in terms of operating rates and in terms of design capacity or would running higher operating rate sub-optimize your economics?

James L. Gallogly - CEO: That all depends on where gasoline distillate prices are. But I can tell you, couple of days ago, when I talked to Kevin, we're 290,000 barrels a day, when we're cracking, and a little lighter. You can run your rates up pretty hard then and so we're making quite a bit of gasoline at this moment and time. Lighter crude slates move that up a little less on – by coke products on the back end but little less coke today is probably a good thing and given where some of the gas pricing is, it's better not to make as much of that. So a little lighter hopefully that will improve our spreads, but it's – every day we reoptimize.

Operator: Bill Young, ChemSpeak.

William Young - ChemSpeak: Your new methanol restart, could you give us an idea of how you are structuring your natural gas purchase contracts for that? Is it spot, some kind of a floor and an escalator, or whatever it happens to be? Also, Jim, what does your crystal ball say about natural gas prices in the next two to three years?

James L. Gallogly - CEO: Well, on where we're getting a gas from ethanol today we're just – we're buying it locally at market prices versus trying to hedge it. Those prices as you know have been pretty low a little over $4, but when you look at world prices for natural gas and how our methanol plant would compete, we feel very, very good about it. Just had an update literally this morning on the progress of that restart and everything is still marching along very nicely everything seems to be on track for later in the year startup of that unit. We generally doesn't as I said don't hedge that product. I'm not sure, did I answer all of your questions on that or was there another component?

William Young - ChemSpeak: I think that's pretty good. It's not a complex formula of purchase contract with someone or anything like that?

James L. Gallogly - CEO: No.

William Young - ChemSpeak: What do you think natural gas might be, say, a couple or three years out?

James L. Gallogly - CEO: Well that one is a real tough question but let me give you a bit of a twist on that. I know that most people would say the lower the natural gas price the better and that's somewhat true when you look at our utility costs and all. Low natural gas prices $1 an Mbtu is about $275 million of operating costs. But we like cheap ethanes and I have said in various industry forums that a price in the $4.50 range is really pretty optimum for the chemical business because that means that a lot of the fields that are drier of gas will be profitable for those E&P operators. That will bring in even more natural gas liquids and so that's favorable to us. So these kind of gas prices I am just fine with. I think it helps us on our liquids and overall as we have done our own internal math, natural gas liquids being low is better for us than cheap methane.

Operator: Charles Neivert, Cowen Securities.

Charles Neivert - Cowen Securities: Two quick ones, one on getting back to the butane side. Looking at the very low butane especially versus a year ago how much of the benefit can we sort of attribute to MTBE, I mean how much in terms of margin is that going to benefit you guys? Also the way you are running heavier feed slate, the non-NGL feed slates, have you guys have been able to take advantage of any of the condensate or some of the other stuff that's a little bit less expensive than let's say a naphtha run and what your advantage over naphtha with those products versus – as opposed to ethane?

James L. Gallogly - CEO: Yes. You want to say anything about butane Doug?

Douglas J. Pike - VP, IR: Let me just give you some thoughts on the MTBE and butane, Charlie. When you think about MTBE and obviously fuels it's about a gallon of butane per gallon of Oxyfuel. So you're really looking at a simple formula between the cost, the price of gasoline and the cost of butane. So that's going to be a core driver there. Now some of our materials when you look at our volumes, we're all serving the market, buying and reselling as we balance the market and be sure we can optimize systems and have flexibility. We have contracts; we closed a big contract with Japan. So not everything flows everyday with the market, volumetrically, but just look at it as a simple gallon of butane to a gallon of MTBE for that.

James L. Gallogly - CEO: So that's a pretty good formula. Obviously cheaper butane helps us in that business and helps us in our crack. So, I don't have a specific number for you per se, because again as Doug indicated, it has to be against gasoline prices and octane values. In terms of other feedstocks besides naphtha, we're running South Texas condensates, both at Corpus and up at Channelview. We've had nice discounts. We're not able to describe those, because of contractual terms, but as you know they are long and we've been able to bring up pretty significant volumes to the point where we're basically cracking domestic condensates and not any import. So, it's been a plus for us and we expect that to continue.

Charles Neivert - Cowen Securities: That's a definitive advantage over just against naphtha. So if we were sort of grading that, ethane is still at the low end, but this is certainly well below naphtha as well?

James L. Gallogly - CEO: Yes.

Operator: (Barrett Eynon, Pentwater Capital Management).

Barrett Eynon - Pentwater Capital Management: I have a follow-up on your comment about using leverage in terms of potentially upping your share repurchases. I'm just curious what your comfort level is in how many turns of leverage you'd put on there. Because if you do the quick math on it, sets that every turn of leverage would theoretically allow you guys to buy back, especially where your stock is today, 15% of the Company. So I'm just curious how you think about how much leverage you are comfortable with for the purposes of using that to buy back shares?

Karyn Ovelmen - EVP and CFO: Yeah I think from an overall capital I think you can separate that from the potential of just returning cash directly to shareholders via dividends or buyback. So, separating the two in terms of looking at the balance sheet yet again is there some opportunity there some flexibility as we move forward to kind of optimize that? Yes there is and as we go through and start to seasoned as an investment grade company we'll look at that as well.

Barrett Eynon - Pentwater Capital Management: But is there a leverage level you guys are comfortable with or that you would target?

Karyn Ovelmen - EVP and CFO: No we don't have any specific targets that we put out there today. But today we're pretty comfortable with our balance sheet. It's a conservative balance sheet albeit but we do understand that we have some optionality there.

Barrett Eynon - Pentwater Capital Management: So I guess a different kind of questions is, is two turns considered a lot of leverage for you, given your investment-grade rating and where you view your balance sheet today?

Karyn Ovelmen - EVP and CFO: I think when we look at it we do look at all of those metrics from an investment grade perspective. So, if we're looking at a strong in the triple B area from an investment grading you look at those metrics there, we're going to stay well within that.

Barrett Eynon - Pentwater Capital Management: What number would that imply, actually?

Karyn Ovelmen - EVP and CFO: From an EBITDA turn multiple there we can anywhere from one, one and a half to two.

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

Karyn Ovelmen - EVP and CFO: Now this is really a presentation of EBITDA so historically we have got those tables in our press release with numerous unusual or non-recurring type items you will see in this quarter that we (doubt) any of that reached any materiality. So going forward we are going to be presenting EBITDA as defined. We will still continue to highlight any material unusual or non-recurring so that those modeling the Company can adjust accordingly going forward. But our presentation is purely just to present the EBITDA as defined.

Barrett Eynon - Pentwater Capital Management: But you are removing JV income specifically it seems like, whereas before you didn't?

Douglas J. Pike - VP, IR: I think what we have done is we are using a strict EBITDA definition. The use of having the dividend as part of the EBITDA is really more of a cash driven thing which really is a historic thing from the Company's history where EBITDA and cash flow were focus of people. Really what we are doing with this is it will go straight up the income statement. You will see the equity pick up from the JVs. As you know, dividends are always bit lumpier any way. So you'll see an income presentation really of the EBITDA. As Karyn said we will continue in the earnings release with Table 2, that will highlight things that you can make your own decisions on, but we will highlight some items that if there are any in the quarter. Things such as impairments and things and I just to – to everybody on the phone we have put a reconciliation out on the website of the past and I think you will see it's very clear to see what changes in periods and over the years going back through 2010. So hope everything is clear to everybody and if you have any questions, just give me a call. I will be happy to help anyone else.

James L. Gallogly - CEO: Generally what we are trying to do here is, the income is pretty steady from the joint ventures, whereas the dividends in pretty lumpy. So hopefully this helps everybody understand the value of those joint ventures better.

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

Douglas J. Pike - VP, IR: I think that $775 million in the earnings release is related to the methanol, the expansion at La Porte and also the added processing operating flexibility at the refinery. That's very consistent with what we brought forward. So for more details, I'd refer you back to our Investor Day. So as those projects complete, methanol would be the end of this year. La Porte will be next year and of course the Refining with the turnaround complete, that flexibility is in the system now and you'll see how the market moves forward. So we're now in a much stronger position to respond to a transitioning market in U.S. groups.

James L. Gallogly - CEO: For everybody's recollection, those numbers were based on 2012 historic margins. So say you'd have a basis upon which to calculate.

Operator: John McNulty, Credit Suisse.

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

James L. Gallogly - CEO: Of course that mark has been extremely volatile, but kind of our internal rule of thumb based on what we see today is kind of an annual $100 million to $150 million, kind of based on current pricing. But we'll just have to see how that all develops. Again we would expect that those RINs would be passed on to the marketplace over time. We think some of that is being passed on, but how much it's just a tough thing to calculate so early in the process, but obviously we didn't see that in the fourth quarter and we are now seeing that. We'll see how long that trend lasts.

Operator: Brian Maguire, Goldman Sachs.

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

Douglas J. Pike - VP, IR: Brian, MTBE typically is seasonal, so what you will often will see that we will be a little stronger in sales in the second and third quarter versus the first and fourth as we manage inventories and manage the system there. We also – it's a product where you do, do catalyst changes periodically, so that will also change kind of a period-to-period volumes. But I think the key thing to remember here is, we're running our PO/TBA plans full. That's really the priority within the intermediate system. So we're producing the raw materials at the same pace that we have been at. We'll bring those to market with the same kind of flexibility and optimization between the various options of chemical markets and fuels markets. So that's what you're seeing really in the first quarter, is more of those types of decisions, not a production-based decision.

James L. Gallogly - CEO: Brian, if you look at the first quarter of last year you saw some really strong earnings, but there are some very unusual sales that were made because there was a lot of pull in South America at that time, there was competitor outage. A few things that were going on in the market that we reported in that quarter is; that we have high volumes for the first quarter in the year. We've got a butane advantage today and the margins are nice and that's a very strong business. We feel good about it. Ultimately, we think octane is going to be more and more valuable in the fuel pool and we're exciting about having – being the number one producer of oxyfuels in the world. Well, I think we've answered all of the questions. We very much appreciate your interest in our Company. We did have record earnings per share; a very, very strong olefin results in the Americas; steady I&D performance, I think a solid quarter to begin 2013. We look forward to updating you on our plans following the shareholder meeting. I know that there's a great deal of expectation around that, and we will be back to you before long. Thank you very much.

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