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LyondellBasell Industries N.V. (NYSE:LYB)

March 13, 2013 8:30 am ET

Executives

Douglas J. Pike - Vice President of Investor Relations

James L. Gallogly - Chairman of Management Board, Chief Executive Officer and President

Sergey Vasnetsov - Senior Vice President of Strategic Planning & Transactions

Timothy D. Roberts - Senior Vice President of Olefins and Polyolefins for Americas

Bhavesh V. Patel - Senior Vice President of Olefins and Polyolefins - Europe Asia and International (Eai) Operations

Patrick. D. Quarles - Senior Vice President of Intermediates & Derivates

Kevin W. Brown - Senior Vice President of Refining & Oxyfuels

Karyn F. Ovelmen - Chief Financial Officer and Executive Vice President

Analysts

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Brian Maguire - Goldman Sachs Group Inc., Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Vincent Andrews - Morgan Stanley, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Andrew W. Cash - SunTrust Robinson Humphrey, Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Robert Walker - Jefferies & Company, Inc., Research Division

Douglas J. Pike

Okay, I'll tell you what, why don't we get started then because we've got a full day today and I want to move forward and rather than you guys sitting and listening to me, I'd rather get you listening to the executive team and what we're going to be doing over the next several years as a company.

So welcome, everyone, and thank you for joining us this morning. I'm Doug Pike in Investor Relations with LyondellBasell. So again, thanks for coming here this morning. For those of you on the webcast, we appreciate you signing in and listening to us for the morning and joining us. This is our third Investor Day. So the company is moving forward and I hope today, what you're going to do is you're going to hear a story about just how quickly and how far Jim has the company moving forward. Here in the room, we're supposed to have a couple of hundred people, so we really appreciate the interest and support.

Now the agenda for today, if we can move forward to the agenda, it is pretty full. Jim is going to start this off, open and close the day, and kind of set the tone with his strategy and how he's moving the company forward and how we're running the company. Then we're going to have the business and financial management present as we proceed through the day. During the day, we're going to provide time for Q&A. So after we have Jim, Sergey, Tim and Bob speak, we'll take some time for Q&A, and as we did at breakfast today, during the breaks and things, executives will all be available to you for some discussion.

Before we begin, though, we also have some other members of the management team with us today. We have Francesco Svelto and Claire Liu, who run our treasury group, are here. So many of you work with them on a regular basis, I want to thank them.

Also before we begin, I want to cover a few pieces of business to address. In our company, we always start with safety. So let me first address a few things on the safety side. And importantly, with 200 people in a room like this, should we have any kind of an issue, you need to remember where the exits are. There's one on each side of the room towards the back of the room and then the exit where you came in. So those will be the 3 exits for today. I don't anticipate we'll use them but I've learned it's always best to be prepared.

Next I want to thank some of the people within the company. It takes a lot to pull this together and most of you know, we run as a pretty low-cost company. That's one of the guiding principles that Jim's established and one part of our strategy. It takes a lot of people to pull these things together. So I want to thank our communications group who have pulled everything together for us. I want to thank the planning and Investor Relations folks that have pulled the presentations together along with the executives and of course, Sergey and my assistant, Cheryl, who manages to make sure I get to the right place at the right time usually, which I think is probably a challenge in itself.

So now before we start, I have the honor of talking to some of the cautionary statements and information related to financial measures. We are going to use non-GAAP measures today. They're not alternatives to our financials as filed with the SEC. You must remember that across different companies and different entities, there may be differences in the definitions that are used. There will be forward-looking statements. These are -- the actual outcomes may differ. These are our beliefs at this time when statements are made. And we'd refer you to our SEC filings for additional information and risk factors. And of course, the presentations today do include time-sensitive information.

And I want to make one other comment to make regarding the presentation. I want to point out that today, we're not going to make financial projections regarding the projects and our other plans. However, when you look through things, we are going to put forward the potential value of our projects that's based on historic benchmark margins as provided by third parties. So we're using typically [ph] 2012 historic benchmark margins to look at these projects and to give you an idea of have conditions stayed at that point, what these projects could generate in terms of value. We've assumed the expansions and other projects operate at capacity and we applied those margins to that volume. So that's kind of just to give you a foundation in your thinking there.

Now I think that covers the items that need to cover before we begin. So rather than me standing up here and saying more, let me turn it over to Jim, our Chief Executive Officer.

James L. Gallogly

Good morning, everyone. In 2010, the cover of our annual report was a photograph of some bumblebees on a hive of honey. You may remember that photograph. The caption of it was, Quite possibly, the busiest chemical company on the planet. At that moment in time, I think we were -- we were not only reorganizing our company after Chapter 11, putting in new systems, continuing to reduce our costs, but we were also at that moment, getting ourselves prepared for projects that would be coming to fruition today.

In 2011, we had another cover that was a bit unusual for our annual report. It was a picture of a bull's-eye with an arrow through the center. When that was presented to me, I asked if that wasn't a bit of a bold statement. After all, to say that you hit the center of the bull's-eye every time is a bit of a tough prediction for a company that has commodity products like ours. I was convinced to use that however, because we did have a banner year that year, we had met all of the targets. We were starting to show that we're a company that could perform at a different plane than most people expected.

This coming year, we're going to see on the cover of our annual report this photograph of an individual that seems to be reaching up to touch a golden sky, the sun rising. It says, "Seize the Moment, Securing the Future." We believe we have a very, very bright future and that things ahead will be better than things in our past. But once again, I looked at this and said, that's a bold statement. To me it looks like someone raising their hands to signal a touchdown. The person convinced me that we should go ahead and put that on the cover. He said, "Jim, whenever you challenge your team, they deliver." And so that's what we're going to use again, a bold statement because this is a company that's reaching new heights, going places and showing that we are someone who not only hits the target but also performs at exceptional levels.

Let's take a look at what I mean by that, looking at some of our 2012 highlights. We had an 89% total stock return last year, returned $2.4 billion to our shareholders through dividends. We're included in the S&P 500 and upgraded to investment-grade by Moody's. Our EBITDA was $5.8-plus billion; net income, $2.8 billion; a year-on-year growth of 32%; and diluted earnings per share of $4.92. Our Olefins & Polyolefins - Americas business almost reached $3 billion of EBITDA, a record year for us. Intermediates & Derivatives, $1.6-plus billion, of course Oxyfuels is now a part of that business, but it is a good, stable high-return business.

Olefins & Polyolefins - Europe, Asia and International had a difficult year. It's bottom of the cycle economics in Europe. But the solid, non-commodity related businesses that we have there continue to demonstrate their year-on-year earnings capacity and that is most of that $561 million of EBITDA there. Our refinery ran well last year. It was very competitive with other Gulf Coast heavy sour crude refineries and had $481 million of EBITDA. And of course our technology segment had solid catalyst returns and we also sold some licenses, so it had respectable results.

For some of you who may not know our company well, let me give you a few facts and figures on the league table. In ethylene, we're #5 in the world; #2 in the United States. Propylene #5; propylene oxide, a very solid #2. In polymers, we're the world's largest polyolefins producer, polyethylene and polypropylene. In polypropylene, we're also #1 in the world, polyethylene #4 in the world and polypropylene compounds, generally, products that go into the automotive segment, we're a very solid #1. In Oxyfuels, also #1. And then Technology and R&D, with licensing business, we're #2.

I mentioned our strong performance year-over-year. In 2011, we had $5.5 billion of EBITDA and grew that to $5.85 billion in 2012. Our cash dividends were almost $9 a share. We gave $2.9 billion of dividends in the year 2011 and $2.4 billion in the year 2012, remarkable return of cash to our investors, a policy that we've adopted and continued to have in our company. The strategy in this company has remained the same since the day that I arrived and I expect it will not change until the day that I leave. We are a back-to-basics company. First and foremost, we will always operate well. We put safety as our first priority. We believe in strong environmental performance and we will run very, very reliably. I'll show you a few numbers on this in a couple of minutes.

We also believe in cost-reduction. We're not a company that has corporate jets. We're not a company that has significant staff in all sorts of positions. We run a very flat, very lean, cost-effective organization because we're a commodity chemical business. The other thing you've seen from us is capital discipline. While we're starting to grow the company in an amazing way, those projects have very, very nice returns. You'll see some of those numbers later on in the program, but we remain very disciplined in the amount of money that we spend.

The other item in our strategy is always portfolio management. In the earliest days of this company, you saw that we were shutting down businesses that did not make sense. Today, we still look at every business year-over-year, what cash should go into that business, what it should do for us in the future, how much should be reinvested, spend a great deal of time on that. We also have a performance-driven culture. We benchmark absolutely everything. We consider what the gaps are to best-in-class and our job is to fill those gaps so that we can be the top petrochemical company in the industry.

Another item is technology-driven growth. Now normally, that talks about technology within our own business, like our PO/TBA plant in China. But in this instance, most of our growth is coming from someone else's technology, that in the the natural gas field. With long horizontal wells and multistage fracs, the U.S. natural gas industry has seen a revolution, with shale gas absolutely changing the prospects of U.S. chemicals. So our technology-driven growth is someone else's technology in a sense that applies directly to our bottom line.

So what I'm going to do is spend a bit of time on each one of these components, that's the first part of the program, telling you where we are and what we're doing.

Beginning with operational excellence, these are some numbers we're very, very proud of. In terms of safety incidents, the number of people being injured in our company has been reduced by half from the period 2009 until today. Our recordable incident rate is one of the very best in the industry as we finished up 2012 with a 0.23 recordable incident rate. Today, that rate, through the first part of the year, is in the 0.1s. I believe that's absolutely industry-leading performance. In the number of environmental incidents that we have, unpermitted releases has dropped by 60% since the year 2009 and on process incidents, the number of times where we have small process incidents has dropped over 75% in the last 4 years, a remarkable performance.

I think one of the other things that people are starting to note this company for is our reliable operations, and as an example of that I show some benchmarks on the U.S. ethylene crackers, that's the heart of our business these days, that's where a lot of the profitability is made and so what better example to show for reliability than that particular business. I announced in the last earnings call that in the third and fourth quarter of last year, we had better than 100% nameplate capacity in our U.S. ethylene crackers, a remarkable record. You can see that over the last decade, 2002 to 2012, according to third-party benchmarks, we were #1 in the industry in reliability. And last year, the green bar at the top right-hand chart shows that we had a 99.5% reliability factor last year when the margins were very strong. We've gone through a number of significant turnarounds in our company to prepare our assets to run extremely well as we see these banner margins come our way. I'm happy to tell you that so far, year-to-date, we're above nameplate as well, running very, very well.

The second item in the strategy is cost. I think this is fairly boring chart. You see that our cash fixed cost remained basically flat year-in, year-out despite inflationary trends, there are very few companies that have a track record like this. The first thing we do on January 1 is start talking about how we're going to reduce our cost through the year so that we remain flat the following year after year after year. As a management team, our job is to manage that part of the business very, very tightly. We reduced costs by about $1 billion coming out of Chapter 11. A lot of those were one-time items that were unique to that period of time. We were able to turn those one-time items into year-after-year type items in 2009 and we continue with that same flat trend, year-in and year-out. Our headcount has dropped from over 17,000 people in 2008 to today, slightly over 13,000 people. We manage headcount on a daily basis, not through special programs. You'll see some statistics later on in the presentation by Karyn that show how we are headcount-wise compared to our competition. We are lean, we're flat and we perform extremely well in that department.

On capital discipline, I told you in the very first couple of times that we met that we would need to spend extra cash to refurbish our assets. In Europe, we had assets in pretty good condition, in the United States, pre-bankruptcy, we had allowed the assets to deplete a bit and need to go into significant turnarounds. As a result of that, we have been in major turnarounds at most of our facilities over the last few years. I'm happy to report that most of that is in the rearview mirror. We've accomplished those things, generally, with turnarounds that have been completed in the top quartile, maybe a couple of them in the second quartile in the industry in terms of both cost and schedule. Not much money has historically been spent on growth. The things that we did do on growth were very high return but small capital-type projects but while we were busy fixing the assets, doing the turnarounds, we were also planning for the future, doing early engineering so that we could begin to grow the company at this point in time.

Our capital budget in 2012 was closer to $1.3 billion, we only spent $1 billion. We exercised a great deal of discipline. In the first part of the year, we said let's spend less money in Europe in particular, that's a very difficult environment, let's see what we can do to reduce our cost. Let's also see what we can do to execute projects more efficiently. Historically, the company would do projects at about 1.2 factor of the industry, in other words, spending about 20% more than the rest of industry to do the same projects and we would also take longer. A growing company can't have that kind of a record. We've changed a lot of people in that department.

In fact, we just brought in a gentleman who started a couple of weeks ago, who built plants for me in the Middle East and is going to help us on our debottlenecks on the things that we do going forward. We've reinvigorated that department and you're going to see this company be extremely competitive in a way that it brings in its assets going forward. Going forward in 2013, 2014, you're seeing the spend closer to $1.5 billion a year. About 1/2 of that spent relates to growth today, very, very powerful for our future.

So the other item that we have is portfolio management and the strategy. It's the fourth item in our strategic direction. In Olefins & Polyolefins - America, we continue to invest. We have natural gas liquids advantage that only puts us second to the Middle East in terms of low-cost feedstock ability to market our products cheaper than our competition. We do see a cyclical upside and as a result of that, you'll hear us talk a great deal today about projects that take advantage of that. In Olefins & Polyolefins - Europe, Asia and International, we're restructuring. Difficult market environment, and as a result of that, we're continuing to take cost out of our portfolio. Bob will spend more time on that.

Having said that, we still have portions of our business, our polypropylene compounding business, which is #1 in the world; our Catalloy business, Polybutene-1; our joint ventures in the Middle East and some in Asia that have nice returns, they provide the bulk of the earnings today. That part of the earnings will be very stable goal going forward.

In Intermediates & Derivatives, we're also investing. We signed a Memorandum of Understanding with out partner to build a PO/TBA plant in China. We have now a permit to expand or to restart our methanol plant. At Channelview, that work is in heavy progress. We hope to have that up by the end of this year.

In refining, we used the word sustain. We have a very you fine, large heavy crude refinery that's extremely competitive. We're in the process of completing another significant turnaround as we speak. We just replaced the coke drums, done the large part of the lift, reworking on our small crude unit, and that asset will come out having most of its major work done very well prepared for the future that we think will be quite positive.

In Technology, we continue to optimize the business. One of the hallmarks of this company in the past is its outstanding polyolefins technologies. #2 in the world in licensing but we believe our technologies are #1 in terms of product mix and cost structure. Having said that, we found ways to further reduce the cost in that business, as well, to optimize whatever bright scientists are working on around the world. And so we'll take costs out, at the same time, bringing on new technologies going forward.

Our culture is all about benchmarking, as I mentioned in my opening remarks. This slide is extremely important to us. It's part of how we pay our people. We look at operating EBITDA, divided by net operating assets. In the last decade, LyondellBasell was dead last in 9 out of 10 years, this EBITDA divided by assets type of a metric. We were not about return in the old days. This is a totally new company. We are about return, we are about taking that nice return that we have returning value to our shareholders. We've gone from dead last 9 out of 10 years to #2 in the industry in 2012. We don't like being #2. #1 is the company that a large number of the people in our management team used to work for. We've built that enterprise, they're sitting in our spot.

Technology-driven growth, great story you'll hear today. There's a reason for the gentleman as you look at both sides holding up his hands like this, we're going to increase our North America ethylene capacity by 18% through debottlenecks. You'll see us complete those projects earlier than the competition, typically 2 to 3 years earlier than our competition. You'll see us bring that in, in the order of $0.50 an annual pound, instead of $0.75 to $0.80 an annual pound. Faster, cheaper, we hope that our assets will be paid for before our competition brings their assets online. We've already demonstrated the ability to crack more NGL. We're around 85% as of the last time that we reported in our quarterly earnings. We expect that to be around 90% going forward. We also have a variety of modest U.S. derivative debottlenecks that are in progress. On an annual pound basis, that will be about $0.10, perhaps a little less an annual pound, which is remarkable, but this company was underinvested in the past and now that we're a growing company again, we can do these modest-capital, high-return projects much cheaper than new builds.

Our butadiene expansion at Wesseling, Germany is going very well. I was there a few weeks ago. I saw the progress, we expect to start that up midyear. While butadiene prices have fall in a little bit, at the time that we made the decision to do this investment, butadiene prices were absolutely at all-time highs. We said, "Let's make sure that we can guarantee a very nice return on this project." And so we put floors in the pricing structure. And so this asset is going to have very, very strong returns despite where the butadiene markets are. That's the new way that we do projects to make sure that we bring value to our shareholders.

The methanol project that we have just received this permit. We have people in the field working extremely hard to get that asset back up and running by the end of the year. And when it does start running, a couple of hundred, $250 million a year of additional EBITDA to the company. You won't see a cheaper project out there, you won't see a faster project than what we're trying to do there. As I mentioned, our Houston refinery is just finishing up a turnaround. And as Kevin will tell you, we're opening up the operating window for that asset for better days ahead.

I divided the company up into various chapters. I think in the days that I talked to you in the past, I said, "Maybe, someday, people will write a book about what this company has done, coming out of Chapter 11, taking an underperforming group of assets and people that are a little despondent about its past history and turning it into the #1 petrochemical company in the world. The first chapter was Chapter 11. And we got out in record time. We took $1 billion out of the cost structure. We got reorganized. We worked incredibly hard to build a foundation.

And then the second chapter, we started to print some very, very nice financial numbers and we started to return significant sums of cash that was discretionary to our shareholders. And we moved from a company with significant debt to a company that's now an S&P 500 company and a company with a beautiful balance sheet and a company that Moody's has recently upgraded to investment-grade, all in record time. We went from a group of people that spent a lot of time looking at the tops of their shoes, to a group of people who are extremely proud of what they've done so far, but with a view to what it can do in the future and where we can take this company. We finished chapter 2. Chapter 2 ending was when we received an investment-grade rating, when we cleaned up the balance sheet and when we had a couple of successive years of record earnings.

Chapter 3 is when we begin to lead the industry. When we begin to execute the growth projects and build for the future, when we maximize shareholder return. We don't like being #2.

You're going to hear from a leadership team that I've assembled. Almost all of these people are new to our company. They bring vision, they bring vitality, most of all, you'll never see a harder working group of executives than the team that I've assembled.

Sergey will spend a bit of time talking about the macro environment. Our relative performance versus our peers, as I said, we benchmark everything. And he'll talk a little bit about our growth options.

Tim gets the privilege of talking about the U.S. ethane and ethylene outlook, absolutely brilliant. The things that we're doing that will result in differential performance. Yes, every one of our competitors will see a benefit from cheap ethane and other NGLs, but we plan to beat the competition. He'll talk about the growth projects, what they look likable, what they could do in terms of adding value.

Bob will talk about the European outlook. Things have been more difficult in Europe than in the United States. Someone probably asked Bob this morning what he was thinking when he left the U.S. business and went to Europe. Bob has gone there and he is working very, very hard to make that business extremely competitive as well. So we are in the process of continuing to restructure. We've already achieved significant cost savings, more to come. But he'll also talk about some of the differential products that we have. We have a very sizable position in the Middle East that's very advantaged, we have some other Asian joint ventures at are advantaged, and we have always differentiated our products. Industry benchmarks show us in the top quartile in terms of value on the polymers that we sell and it also shows us in the top quartile in terms of the cost structure that we have to sell those polymers, highly competitive in a very difficult environment. Somebody will make money and that somebody will be us.

Pat will talk about some of the performance drivers of his business. You'll see that our Intermediates & Derivatives business is bigger than most of the specialty chemical companies in our space. We've performed extremely well there. We have some cash flow generation projects that look very, very nice. Pat will explain those in more detail.

Kevin will have the opportunity to talk to you about the refining industry. That's a portion of the business that not all of you in the audience cover from day-to-day, but it is also an important business to us. There are going to be dynamics that have possibilities to create upside for us, Canadian crudes coming in, the ability to crack some of those lighter, sweeter crudes as they come down from pipelines, West Texas intermediate, West Texas sour into our Gulf Coast refinery at reduced cost to make us even more competitive than we have been in the past. And Karyn will have the opportunity to dig a little bit deeper into our 2012 financial performance, talk about some of the capital restructuring that we've done in the past and also talk about discretionary cash flow deployment, a topic I know all of you are interested in.

We have a very, very bright future. The person in this photograph is reaching for a new sun. I call him Touchdown Charlie, thank you.

[Presentation]

Douglas J. Pike

Okay, thank you. Now we're going to introduce Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions. And Sergey's going to set the stage today with a brief review of the environment as we see it, performance comparisons to their chemical peers, discuss a little bit of our cash flow and some thoughts about the use of cash, really setting the stage for the rest of the group for the business and finance presentations. Also I just want to say, just a brief moment about the videos we'll show, we're going to use a few of those. We couldn't bring all our people and our plants here with you, but I hope it could give you a kind of a picture and a background of the company and the breadth of the company and the activity that's taking place here. So with that, I'm going to turn it over to Sergey.

Sergey Vasnetsov

Thank you, Doug, and good morning. Several things will dominate our discussion today. Two of them are positive sustainable changes in supply/demand and therefore price environments of NGL, chemical chain and attribution of value through this vertical chain. And secondly, implications that draw company from some free cash flow generation and its value creation.

So let me suggest today a few key elements of those 2 things, and my colleagues will develop it further later on. So to set the stage, let's track evolution of oil and natural gas prices since late 2008, when they were at parity at $7 per Btu. Since that time, oil price recovered from $7 to $18 a barrel or about $110 of Brent crude equivalent. In the meantime, the U.S. natural gas prices declined to about $3.50 per MMBtu. As a result, a potential value gap or value-creation gap opportunity shown in the gray area for the chemical industry and the midstream have increased to about $15 per MMbtu, a very significant opportunity. This structural shift allowed U.S. ethylene producers to move from a high end of that global cost curve that they used to be in most of the 2000s, now to a much lower, more advantaged and more sustainable position at the low end of the curve, fairly close to the Middle East.

Obviously, cheap natural gas helps the chemicals and some other industries. However, methane or dry gas, is not as important to us as ethane, propane and butane, which collectively are called natural gas liquids or NGL. So let's consider a vertical value chain for the NGL industry starting from natural gas on the top, and you can see that, that part of the chain exploration production companies enjoyed strong natural gas prices in 2008 -- 2005 and 2008 on a full year basis, and that was the relative peak, at least, in the current history. Next bubble is the midstream, typically represented by fractionation transportation pipeline companies, many of them are MLPs. They have seen the peak of their value in 2007 and 2011 as defined with the high frac spread or profitability of their ethane premium to fuel value. The low part of the chart shows the chemical industry profitability represented by ethylene cash margin that you're very familiar with. And so based on this, I have seen this peak in 2005, 2006. And since that decline into the trough of the cycle of '08 and '09, what's interesting has been since that time, since '09, it continuously coming up to the high end, high profit and so we are far from the peak of the cycle yet.

So as you've seen the global industry trends, notably in Europe and Asia, high cost producers operate today at the profitability margins very close to breakeven, they're clearly signaling that it's the trough of the cycle globally. But in the meantime, the U.S. business has shifted into the more favorable territory and significant part of the value and the overall NGL chain now gets captured downstream, which is at our level.

As Jim mentioned, comparative analysis with peers has been our consistent focus for quite some time and my team tracks various profit and efficiency indicators to compare to our peer. We discuss them quarterly with our top management and also with our supervisory board and in a highly competitive global petrochemicals industry, it is very important for us to show not only strong absolute results but also the fact that we're up from peers, driving towards the objective, as Jim mentioned, of becoming the top global petrochemical company.

Jim showed you our current position, which has much improved, #2 amongst largest peers in terms of operating EBITDA to asset ratio, which we view as a proxy for return of capital employed. And we apply this measure and to other factors subtract and benchmark all of our 58 production plants, 16 business sub-segments, 5 reported business segments and, of course, overall company in total. So EBITDA is a good starting point, but obviously, free cash flow is much more important to us and it is one of the key performance measures. So on the left chart, you can see that not surprisingly, O&P Americas segment is the strongest cash flow generating segment within the company. It gets a lot of attention from you and it deserves it, of course. Tim will discuss the plans of the growth of free cash flow in this segment. In the meantime, global I&D segments, Intermediates & Derivatives, is our second strongest cash flow generator and it doesn't get as much attention from you in our ongoing discussion partially because it's larger, a little bit more complex, partially because it's fairly stable. However, it should get more respect and hopefully discussions like today will help you to understand and appreciate this segment a little bit more. If you look at the free cash flow basis compared to the right hand slide, as you mentioned, this business alone, just this segment, generates 2 to 3x more free cash flow than several of its midsized company public peers. So Pat will discuss with you today how a combination of our recent technology, lean and efficient operations and excellent market position allow this segment to be very stable on a quarterly basis and growing in value through the past and future years.

For the past 3 years, LyondellBasell, as a new company, grew EBITDA faster and achieved return capital employed higher than 4 of our direct, large and mid-cap public peers. To remind you from the early days of 2000, upon emerging, we were focused to getting the most of our current assets, which Jim defined to be the most important task for the companies to run, exist and [indiscernible] every day, and then on growing the value through attractive risk adjustment expansion projects. Some of you have done or have seen analysis of our strong free cash flow yield versus other U.S. companies and Karyn will talk a bit more about this later. This slide shows the broader comparison with 25 original peer companies. Large, medium, small, U.S. global and regional companies. We'll put them together as industries. You can take a look at the specific results. It's all based in public data. And it shows that our free cash flow yield is much higher than the yield of our direct U.S. peers, as well as international group averages.

When it comes to free cash flow generation, it's subject to attention from you and justifiably so. So hopefully, in both formal discussions and informal discussions over lunch we'll get a chance for you to understand this very important direction of the company much better. And so, of course, you know that's why our petrochemical company based on different feedstocks. So we have ethane-based furnaces, propane and naphtha-based furnaces in Texas. However, as we said before, we can assure to you that we do not have a cash based furnace. We do not burn cash, so to speak, in frivolous expense, bad capital projects or expensive M&A. And while the center of our free cash flow is no longer a secret, the power of accumulated free cash flow is not yet fully reflected in perception and valuation of our stock. So to illustrate this point, let's take a hypothetical example of our near future case if the next 3 years of EBITDA were exactly like 2012 at $8.85 billion -- sorry, $5.85 billion. Certainly, this is not our future outlook.

And yet as a simple and conservative case based on our recent historical results of EBITDA and also on near term expectations of other cash flow items, depreciation, interest expense, taxes, maintenance CapEx and dividends interim -- interim dividends at the current rate. So after all these items are taken care of, the remaining 3 year accumulated discretionary cash collectively comes up to about $8 billion or $14 a share. Clearly, a very significant value. And so in the absence of cash burning furnace and no plans to install one anytime soon, this value should accrue the shareholders and Karyn will discuss our views on cash deployment.

Talking about capital projects. This is another important task of my team, to review all proposals of capital projects, small, medium and large with particular focus on risk factors, return assumptions and strategic fit with our portfolio. Tim will share with you details of cost and profit expectations from our current and the interim pipeline of large capital projects. Those are mostly based on capturing opportunities based on our NGL advantage in the cheapest and fastest way possible to assure the high return of capital and free cash flow generation, which are 2 most important things to us. To illustrate this selectively, what we've done is to sum up the announced growth project and show them on an annual cash flow trajectory. We started from 2010 at 0 points, initially the line goes down, below 0 because we spent cash to generate those ideas. Later on this could start coming up towards the higher level in 2012, still in a negative territory, though. And it could achieve breakeven by late 2013, and then after that, generate strong and growing free cash flow in future year. So the line here shows free cash flow generation in any given year based on projects we announced so far. And so as Doug mentioned earlier, for simplicity, we stayed away from cycle prediction and this and all other charts in today's presentations are based on 2012 industry margin. Of course, you will make your own estimates for the future outlook and future results will be somewhat different from those projected numbers discussed today based on the full length -- the future of the current ethylene cycle. So the key points of this slide it's a portfolio of collective capital spend, $1.6 billion, should generate fast and higher return of capital, indeed, several years before other competitors who are based on the projects, new crackers, will get a chance to start recovering their investment.

I'm going to finish my presentation with just one slide on world view of discretionary cash deployment. And clearly, this is a very complex topic to be discussed in any given slide. But nonetheless, we decided to give it a try and to look at the, at least 3 possible routes which is: share buyback; new cracker, plus polyethylene unit, 1 unit combined, just for example; and also potential M&A in 3 different dimensions -- timing, complexity and risk. So if it starts on time, clearly share buyback is the most flexible way to pull cash as compared to building new plants or buying new units. And so in our view, of course, M&A and CapEx compete because essentially, either way, you're trying to bring more productive capacity and to increase value to shareholders.

In terms of complexity, once again, share buybacks is the lowest complexity of all. We know the ticker. We've seen it. We're trading. And then the medium complexity for the new plant depends on this location and fairly high complexity for M&A if you consider that you are bringing new people, new technology, assets, systems and you need to integrate it all.

Lastly, from the point of risk of execution again, clearly share buyback, has lowest risk medium case for their new cracker idea and size in case of M&A on a relative basis. So obviously, each of these 3 routes and other routes of cash deployments such as dividends, et cetera, have their own considerations and this page not meant to be simplistic, definitive guide to how we're going to act, but hopefully it will bring you some of elements of our consideration and we will review them and decide upon them as they arrive going into the future. So with that, let me close my presentation and turn the mic to Tim Roberts, who will discuss our outlook and plans in O&P-Americas segment.

[Presentation]

Douglas J. Pike

Okay. Well, thanks. I'm going to turn it over to Tim Roberts and Tim runs our Olefins & Polyolefins - Americas business. That includes the North and South American areas and obviously some important business for us. I mean for you guys, I know this is the one you mostly focus on right now. Generate about $3 billion of EBITDA, that's before the growth programs that we're bringing forward. Tim can speak to you today a little bit about our view of the ethylene supply/demand. He's also going to talk about our NGL outlook and importantly, the project plans, where they are, how we're moving those forward. And as you think about that, just kind of take you back to one slide that Sergey showed. If you think of since Jim was with the company and kind of started a growth program with modest high returns, small projects then we started that spending in 2010. You see those projects are now generating cash. That cash is starting to drive the spending that we're moving forward with on these expansion and growth projects. So if you think of our curve and you think of the cash flow, where we are, we're really now moving to the point where the growth is funding itself, positive cash flow and we're moving forward with a great group of programs and projects that Tim is going to talk to you about today. So let me turn it over to Tim now.

Timothy D. Roberts

Thanks, Doug. Appreciate it. Actually, the videos are very good. I've enjoyed watching those. I just got to see those a couple of days ago before we came. And interesting, the truck rack, and Janet Miertschin was our Feedstock Director, on the truck rack, ironically, if you weren't aware -- it's a lot of trucks, by the way, to put in that type of system. We were very quick to get it on the ground and we were humping it, but we did it safely, but it paid for itself in less than a month and kind of highlight a little bit what Jim is talking about as part of the projects, how selective we are and getting to market quickly but safely.

And then also I want to talk about Marie Herzig on here. She's a Chemical Engineer out of Texas A&M Kingsville, and I would suspect and I didn't have a discussion with Marie. So if she hears this, she's probably going to wind up quarreling [ph] me on this but I would suspect when she joined the company, she had a lot of offers, she's a very, very bright chemical engineer, very bright, had a lot of offers from our competition, the peers that we're talking about. She came on board with us and I would suspect she had no idea in such a short tenure in her career wind up with how she'd be doing the things of the magnitude that she's doing right now. And I think that speaks a lot about the people we have in our company with regard to the opportunities we have and responsibility and performance culture we've driven. So that wasn't on my script, but I couldn't help it after I saw the videos.

What am I going to talk about? It's really a discussion about technology, it's about opportunity and execution. So let's go ahead and walk right on into this.

We continue to maintain a leadership position as far as our capacities and our market share in the Americas. Clearly, we're a commodity company with some specialty elements. I'm not going to spend a lot of time on those specialty elements, but I will tell you, they were a significant contributor to us, and not as much clearly as the ethane advantage Olefins, but we do have some specialty elements that surround really a commodity piece of our business. But we maintain significant market share positions and you can see year-over-year, we continue to take advantage of the opportunity with advantaged feedstock and it shows up in our EBITDA going back from 2010 through '12.

When you look at the environment we're in, and this is not something where it's -- we're the only one out there with that advantage, but you got plentiful natural gas and NGLs, and this really highlights a little bit and I'll talk about the technology. The technology is really about the folks who've been able to unlock this trapped resource and make it available for companies like ourselves and the midstream people to take advantage of this and prove our competitive position globally. Olefin operating rates, near capacity. You look at the cyclical upside and we're going to talk a little bit about that. This is all going on if we all recollect, when we were at parity with NAFTA back in 2008 and '07, there was this little meltdown in the economy we had. And so really the economy's been trying to recover from that. It hasn't fully recovered either regionally or globally. We are starting to see where there's a little bit of traction started to occur but again, it's very regional. So running hard in what we would consider probably a low- to mid-cycle case right now, certainly not an up cycle case. And then we've been advantaged with the technology of bringing it out from the wellhead and getting it to the marketplace, we've been really benefiting from a significant advantage on crude-to-gas ratios, and we see that extending out to the near future.

What have we done? And I think this really highlights a little bit what Jim was talking about, it is our back to basic strategy. And I've talked a couple of you before this, growth is wonderful, we love it, it's a lot more fun, growth is really fun, but don't do it -- growth, at the expense of your existing assets and taking care of your business. So we spent a lot of time over the last several years focusing on improving reliability of our assets, which includes turnarounds and other activities and investments, preventive maintenance, reliability to improve overall reliability throughout our system and it's paid dividends for us. We continue to focus on feedstock and leveraging the advantage feedstock, as well as creating more optionality in our feedstock. We believe having that optionality is a differentiator and one we've been able to capitalize on in 2012 and going forward. Also, we're going to continue to invest in improving that flexibility, not where we needed to be yet but we continue to look at all our assets, where can we get the right connection here, the right feedstock here, the right pipeline there to maintain that flexibility. And also we're going to continue to expand our ethylene assets, quicker and cheaper, quicker and cheaper. And then also with that -- and I remember, you got to get the ethylene to market, you got to get the ethylene to market and we are an integrated company and let me tell you, as we'll talk about a little bit, when you look at $110 approximate oil out there and you've got $3.50 gas out there. Where do they meet? They meet in the export market, that's where they meet, and that's where we have competitive advantage. Going forward, if you look at it -- in 2008, and I really just touched upon that, overall this just highlights a little bit, but we don't think we're in this up cycle. Yes, operating rates have been very high. Jim did show you where we've been operating close to 100%, which is great, and we believe that's higher than where the industry's at. But the industry as a whole has been running very high, in the upper 90s, mid to upper 90%. So really, when you look at it from a global standpoint, it's really a tale of 2 cities. North America and the Middle East, 2 of the cost advantaged positions have done very well and have operated very well. If you start looking at Europe and Asia, not so well and those are the regions where utilization rates have been somewhat anemic. And so collectively, what you see that from a global standpoint, we're not in an up cycle, but what we do believe is we're getting into that crossover -- a lot of projects have been delayed or pushed out as far as adding more ethylene capacity. Demand is starting to trickle up and we do believe over the next horizon here, probably 3 to 5 years, where you're going to see there's some strength in ethylene, global ethylene, as utilization rates and global utilization rates start to improve.

You've seen this chart -- the one I actually want to focus on, because it's very powerful, is when you look at the cost of ethylene production, we're looking in, call it COE, cost of ethylene. And when you look at it and you compare back with the chart on the right-hand side and you look at 2010 towards 2013, it's striking to see what's happened as how the gap has opened up. You're at parity around 2008, 2007, parity with naphtha. And look how it's opened up even from 2010 to 2013 and what you can see is ethane and propane significantly advantaged with regard to Asia naphtha. And frankly, that's where we're competing at this point. That's the price for a lot of the derivatives out there and we've got anywhere where it's grown from low teens as far as the advantage in 2010 to the upper $0.30 per pound as far as the advantage of ethane over naphtha.

Now, this is the part of the technology. And I'm not going to -- I can have Jim come up here and talk about getting in the well and doing all those things, but I will tell you, the technology shows up on the E&P part. That's where, again, we've unlocked these reserves, they've been there, we've got new technology, we've got hydraulic fracturing, we've got clearly horizontal drilling, new records and new milestones are being developed all the time. In fact, it's an amazing pace of change on the E&P side, amazing pace of change, where they're able to get in and again, find -- they found the reserves, it's now, how do you leverage them and optimize them. So what's happened, though, is you've got people drilling and you got us on one side. We want to get that product into our crackers so we can take advantage of that. And there's a lot of activity in the midstream, and that midstream, we believe, has finally caught up. We've got several major players out there who've made a variety of different announcements, they either executed the projects or in process of doing it or have announced new projects with regard to gas plants, frac plants and as well as pipelines to make sure product goes from the left-hand side to the right-hand side so we can get it to market both domestically and to potential growth regions such as Asia.

When you look at the ethane piece and shale gas production, I will not [ph] talk about shale gas first in natural gas. So you've got, there's more production coming onboard, there's no question, you've got a lot of drilling happening so you've got -- we're expecting about 20% capacity increases -- not capacity but increase in growth as far as natural gas goes over the next 5-year planning period. We expect that to continue and ironically, even though you would say -- we watch rig count, by the way, and a year ago, for example, there were 700 rigs that were out there drilling gas not just gas, specific gas. And with that, comes some NGLs. That's down to about 370 rigs today. The 370 rigs, we had 700. Well, surely that's going to impact natural gas and it's going to impact you guys on the ethane side, you would think in a normal environment or an environment maybe 10 years ago, but not now. One, the gas wells that you are drilling are extremely prolific, very prolific as far as the NGLs that are in there. And then also, you're moving over to wet plays or moving to oil, you're moving your gas rig over those, well there's a lot of associated gas and NGL streams from those as well and again, very prolific. We see demand is going to pick up. You are in an environment where you've got plenty of natural gas and then #2, you've got the right price structure. So you will incent more demand for the product whether it's transportation, power generation, industrial use, whatever it may be, but the environment's ripe for people to begin either looking at switching, have already switched or planning to do so. In fact, we've heard a number of third parties that about 4 BCF a day has displaced coal of natural gas.

Let's talk about ethane. It's near and dear to my heart. We see the same thing on this and what I want to highlight on this point is, again, I said earlier how prolific the wells are. It's very, very important, it's very important. We're drilling this. If you've got natural gas out there and you've got any NGLs in that natural gas, you're incented to keep drilling. You are incented to keep drilling and what we do see is when you look at the -- the turn on the left, it's very -- it looks fairly boring to tell you the truth. And so you really look at the growth and what's happened is the amount of natural gas and the level of NGLs coming out of the natural gas, it's astounding. It really is. And again, that's recent technology in horizontal drilling and hydraulic fracturing. Now the other side of the equation is you got a well. Natural gas is being produced. You got to find a home for the natural gas, number one. And then number two, if they don't like the natural gas price, why don't they quit drilling and then go focus on something else. Well, if you've got an NGL stream in there, you'll find very quickly that the other products outside of natural gas will drive you to keep producing. There's enough value in the rest of the stream to keep producing. Ethane's a small piece of that. It's only 10% of that equation. So you're not going to do it because of where ethane prices are, you'll do it because you like where the butanes and propanes and the natural gasoline are. So there is still an incentive for people out there to go ahead and produce and ethane will ride that coattail.

When you look at overall supply and demand, we look at the fractionation capacity that's out there. Big questions with regard to, will that ethane be there for the long haul? Our expectation is yes. We continue to talk to multiple third parties. We like to think that we're the experts on it. We continue to talk to folks upstream, midstream, and then also like I said, third-party consultants. And I think we're all getting surprised every day about: one, the sustainability of this; and then again, the prolific nature of the wells that are being drilled and some of these plays that are out there. You will see on here that -- you see capacity going up somewhere, it's just south of 1.8 million barrels going out to 2017. I've looked at 2 reports where, I believe, that had it north of 2.2 million barrels. What's not sufficiently factored in here, a little bit, but not fully factored in, is the Marcellus/Utica. The expectation is that those molecules -- there's about 600,000 barrels a day of ethane, we believe, up there, if not more. It's not fully developed, but the potential is phenomenal. And those molecules, we're beginning to hear [ph] people announcing pipelines to come south and get them down to market, so it can clear down in Mont Belvieu. And you've already got enterprise involved in that, and Williams has just announced another project for [indiscernible] coming down. So it just tells us that this is likely going to be higher than what we see here.

Demand is going to be good. We all know about the crackers coming onstream. Yes, we can debate which ones are coming on when, who's really going to do it, who's not. Let's just make the assumption of 5 of these are coming on, which by the way, is the equivalent of 1 year's demand growth -- demand growth around the globe. Five crackers. You've got to put 5 crackers on every year to support global demand. And in fact, we've put in about 5 crackers in here. And you can see, we still expect at this point where supply should be ample to cover that and more.

We look at historical ethane production, this just goes through '12. Even with rejection that's going on and the number, it varies. I've heard as high as 200,000. I've heard it's low as 75,000. But we've tagged in here, we think it's about 150,000 barrels a day of rejection. And that is still going on. We see some of that, especially in some areas, a little further up in the Rockies and in the Midwest. But we look at this, even through 2012, even with rejection, there's plenty of production available. And then when you look at inventories, we're at record highs with regard to inventory. And again, there's enough incentive to keep drilling. Ethane's a small piece of the equation, but again we benefit from that. But there's still -- we're well positioned as far as going forward on ethane supply.

Let me summarize the NGL and then I'm going to talk about some of the more funner [ph] things that we're doing. Overall, we do see where we still have a very favorable and advantaged crude-to-gas ratio that'll keep us competitive with regards to the rest of the world. Natural gas, because of the pricing structure where it is and the availability, we do see it penetrating in this new market where existing markets that have been hesitant to make the switch. We do think that NGLs, other than ethane, will continue to drive as far as the demand as well as the continued production for ethane. We're hearing continued announcements out there with regard to LPGs, for example, and propane export. And once you get to the global market at that point will increase the demand and again ethane will ride that coattail end of the market, okay? And we do believe, overall, key point on this is the midstream, multiple players out there. A lot of activity are all moving and progressing rather rapidly and we believe that infrastructure for the stage we're at now has caught up.

Okay, let's talk about our program to capture these opportunities. Reliability's been very, very critical for us. We've been in a wonderful environment with regard to margins on the olefin side. It's been very, very good but generally as good as your ability to capture them, and that is we have to run and we have to run well. We've had planned turnarounds we've had in place. We have some coming forward in the next couple of years as well, but we've completed some and we've seen the advantages of those turnarounds. We've upgraded our logistics and our ability to get the right molecule to the right plant. We like flexibility at all of our assets whether it's for multiple ethane supplies or ethane, propane, butane, natural gasoline, liquids. And the South Texas condensate shale gas play with our liquids has been really a great success story for us.

We're going to continue to optimize our ethylene feed slate in production and sales portfolio. It's not all about the ethylene. We have quite an extensive effort with regard to our polymers in how we market and add value on that side. And I got to tell you, 2012 was unbelievable. We ran very well. As an industry, it probably did not run very well as an industry in 2012. A lot of bobbles, nothing major, which was good. But a lot of bobbles. But we ran right through it and we had a good year. We increased our NGL cracking capacity from 70% to 85% over the last 3 years. It's phenomenal. And we've transitioned to domestic condensates we've talked about. And the $60 million in captured and sales optimization, we do a have a sliver of our business in the merchant and we were also able to capture some of that spot play at the end of last year, which was really a nice adder. Again, a differentiator for us.

Going forward, we're going to continue to focus on reliability. It's critical to us. We have some major turnarounds coming up in the next 2 to 3 years, which we're going to incorporate some of our growth projects in and we're going to expand our crackers. And we will be looking to add derivative capacity as well to maintain our high level of integration.

We're looking at 90-plus percent as far as our cracking capability. But when we do that, we're not giving up the liquids flexibility in the process. In total, Jim talked about 18% growth in our ethylene as far as expansion.

This chart I'll go through rather quickly. It just shows you the transformation. It's very striking as well, quite a transformation with regard to our exposure on liquids. And I'd probably add a caveat a little bit. On 2009, pre-2009, that does include, which has now been shut down, the Chocolate Bayou olefins plant. It's a little [indiscernible] show a heavier weighting on imported liquids. But nonetheless, we were heavily exposed on liquids. And you can see through 2012 and into the future, imported liquids, out of the equation, that's one thing, because the shale gas condensate is advantaged versus our offshore alternatives and then we'll clearly have more opportunity to get our NGL crack higher than what we've got right now.

We talked about a little bit of this last year. And again, as Doug mentioned, these are based on 2012 industry margins when you look at the potential growth out on the right-hand side. We've completed our ethane project as far as increasing the amount of ethane we can bring into the Channelview site. We did complete in the fourth quarter our Midwest debottleneck up in Morris, Illinois successfully. It's 100 million pounds of polyethylene. And then also, we've been approved and are moving forward rather rapidly with our La Porte expansion, which will be 100 million pounds. And on La Porte side, we're expecting mid-2014 completion on that project. So it's new and we've got plenty of opportunities here, too.

We're moving rather aggressively on a polyethylene debottleneck at one of our Gulf Coast polyethylene sites. This is a very, very low-cost debottleneck for 220 million pounds and $20 million, we like this a lot. And it happens to be in a technology that also has a specific market segment we're targeting heavily. So that's been moving rather quickly as well.

Channelview expansion. We're going to be expanding Channelview, 250 million pounds of additional ethylene on that. Very attractive project for us as well.

Corpus Christi. We haven't talked much about this. And we have a project -- it looks very familiar to La Porte. Very similar type of project, but also looking at 800 million pounds to continually debottleneck and get the most out of that site that will all be ethane, propane-based so we still have liquids in Corpus as you're aware, but that'll become a much, much smaller share of our crack in Corpus.

And then we have an olefin NGL recovery project. This one's fairly simple. We've got a stream of really stranded olefins that are sitting in some off-gas and we're going to look at a project to go ahead and pull that out and get it to our crackers. A very cost-effective way to be able to make -- produce -- lower our overall COE to produce ethylene.

And the last one I'll talk about, this is in early stages at this point, so it's very early and we're going to be updating you further as time goes on through the year. But we are looking -- we are in the polyethylene business and we are a global leader in polyethylene and we like the technologies we have, and so we're looking to put in a new polyethylene plant and this will help maintain a level of integration in our business. We still like the merchant business, but we also like being integrated. But it'll allow us to continue to grow and differentiate products with this technology we have into some segments that we like not only globally, but also there's a demand and need in North America for. So we're very, very excited about what this offers for us and we're early in this one, but we're nonetheless moving it forward.

And really to summarize, and Doug said, take your time, so if I've blown through the clock, somebody -- Doug, wrestle me down. Can't tell you enough what safe and reliable operations mean to us as a business. When you're in a high-margin environment, the best thing you can do is run safely, but run. And we've done that in 2012 and even in '11. But 2012 was a very good year for us and we're off to a good start this year. But you invest in your assets and you invest in your people to make that happen. This is critical. This is where we think we do better than the rest.

Sustainable U.S. ethane advantage is a great advantage. Everybody has the advantage. So what are we going to do to compete and be better than the next guy? So we're executing cheaper, quicker. We're going to capture that bubble. And as Jim said -- I'm saying that lot because he's right, we're going to capture that and hopefully get these projects paid for before the other guys turn on the switch.

Feedstock flexibility. This is critical to our success going forward. This is a differentiator and we think we've been very aggressive in the marketplace. These are not flashy-splashy activities that we do. This is what we call our day job, which is going out and getting the right connections to the right feedstock supplier.

And growth projects. Growth is a fun. It is really, really fun, but not at the expense of your ongoing operations, so we're working them both very, very hard in parallel. And we do believe that from a global standpoint, this is all occurring and we haven't even had a cyclical upside yet. In this industry, typically -- typically, about every 7 years see you get a ramp-up and we're at about that point. It's been a little while. 2007, '08, there was a little bit of a life in '07, but it's been a while and we expect that at some point global economies are going to get some traction.

I'm going to close with one point and I was out in the Bay Area with my wife celebrating an anniversary and we saw signs all over the place about the America's Cup, which is a yacht race, I think most of you may be familiar with. So it's a yacht race, and no, it's not something I would stay up and watch ESPN 5 and watch the America's Cup on. But nonetheless, a lot of signs and a lot of flash about it, and I'm familiar with it. And it strikes me because one of the comments that hits home with is we have shale gas. We've been given a tremendous opportunity. We have huge tailwinds. Huge tailwinds. And it really comes down, what are we going to do about it? And if you look at the America's Cup race, all the yachts line up, they circle and then they're off. They all have the same tailwind, but there's only one winner. All had the same number of people on the boat, have some similar designs, not quite the same, but they all have the same tailwind. But only one winner. And as we strive to be the best chemical company, we're not striving to be at market. We are striving to be the best. So with that, thank you.

Douglas J. Pike

Thanks, Tim.

[Presentation]

Douglas J. Pike

Now, the next speaker is Bob Patel, and Bob's located in our Rotterdam offices and heads the European, Asian and International business as well as the Technology business. And as we mentioned, Bob's business, similar in products to Tim, but in a very different environment and different situations, so you hear a different story from Bob and how he's addressing that and where he's moving forward. You also just heard how the shale side affects us globally and we've been able to take care of -- take advantage of opportunities that it's presented in Europe, as well as in the U.S. So one other thing I want to point out, I hope you understand that Bob's business is more than a European olefins business. He's going to bring forward to you some pictures of the differentiation, integration, the international nature, the Asian piece of it.

And with that, we're just going to turn it over to Bob.

Bhavesh V. Patel

All right, thank you, Doug. This project is a good example of how Europe is benefiting from shale gas in America. Good morning, everyone. It's my pleasure to be here this morning. As Doug mentioned, I'm responsible for running 2 of the 5 reporting segments in LyondellBasell, Europe, Asia, International O&P and then Technology segment. This morning, I'll briefly give you an update on 2012, market conditions in Europe, especially, and there's some relationship to Asian market as well. Talk to you about the restructuring effort that we've had underway over the past 2 years. I'll give you an update on that. It's progressing very well, good solid progress. More to come on that. I want to talk about some of our differentiated businesses that we have, such as JVs and compounding, those that provide more stable income while we wait for the cyclical upside. And then lastly the cycle itself. I'll try to frame for you what I think is possible in terms of cyclical upside.

So with that, a few quick words about the segment itself. Europe, Asia, International, as you see here on the league tables, a lot of volume, tremendous scale in this segment. It's a very diverse segment from a product standpoint as well as from a geographic standpoint. It includes the Australian polypropylene business; 8 joint ventures, 3 in the Middle East, 1 in Korea, 1 in Japan, 1 in Thailand, 1 in Australia. I personally sit on the board of 4 of those, 3 in the Saudi joint ventures as well as the Polish joint venture. It includes the European Olefins & Polyolefins business. It includes the global compounding business, which we run in 3 different regions: we have the Americas, we have Europe and we have Asia. That was a significant contributor to earnings in 2012. And last but not least, we have Polybutene-1, Catalloy and a few other grades that are very differentiated and contribute significant share of the income. And with respect to the Technology segment, it includes the sales of our proprietary polyolefin catalysts, as well as our proprietary technology in polyolefins and in the I&D business such as the PO/TBA technology.

So what happened in 2012? From a macro standpoint, we had, of course, the full onset of the sovereign debt crisis. That impacted demand. It impacted consumer sentiment. We saw demand decline year-over-year for polyolefins. That, coupled with a very weak Asian environment led to a lot of margin pressure and volume pressure in Europe.

To give you a few statistics. In Asia, we saw polyolefins demand grow year-over-year from '11 to '12 in the low single digits. polyethylene demand only grew by 1% from '11 to '12 in China. We've come to know Chinese demand growth for polyethylene to be at least at the pace with GDP, if not the multiple of GDP. So with China being weak, we saw a few more imports into Europe from other regions and a declining demand environment in Europe, itself. We also had very unusual feedstock price volatility, especially in the first 3 quarters of last year. So if you can imagine in the backdrop of low operating rates and having large swings in naphtha price where we had very little area under the margin curve, and just give you a few statistics about that volatility. The naphtha price increased about 26% in the first quarter. It dropped 37% in the second quarter. And it increased 46% in the third quarter. Those are significant swings in a market where operating rigs were in the low 80s or about 80%. That's really why I think the European business was in a very deep trough sort of environment in 2012. Our response is really accelerating more of what we've already been working on. Frankly, we started our restructuring efforts before the market even turned down. When I went over to Europe at the end of 2010, we had already started to lay out our plans for reorganizing, restructuring, getting our cost structure to match what the rest of the corporation was doing. We were well ahead of the market and it was good that we were. We didn't want to wait for the crisis to be at our doorstep before we made a change.

In terms of the cycle and operating rates and to give you a little bit of historic perspective on trough-to-peak margins in ethylene in Europe, what that might look like. First of all, as I mentioned, '12 was really a trough year when compared to historical trough years. We do show the cycle improving. The thing about the cycle is the supply piece is pretty well known. We know how many new crackers are going to be built between now and 2016. But the bit of an unknown is the demand. How fast will demand grow on a global basis, but our view is that demand growth will outpace supply growth and that this will cause or provide the basis for an increase in operating earnings on a global basis. If and when that happens, on the right-hand side of this chart, what you see is, from trough-to-peak, there's a significant increase in margins in ethylene. This is based on historic trough-to-peak sort of moods [ph] . Given the volume leverage we have, we think we're well positioned to capitalize on whatever up cycle lies ahead between now and perhaps 2017.

In the meantime, a bit more about our restructuring efforts. We're now waiting for the cycle to just come about. We continue to take actions to position ourselves in the meantime. We've closed a lot of capacity that was under competitive, noncompetitive. We've shuttered 2.5 billion pounds of capacity in Europe. The reorganization that we undertook in Europe after I went over there, in my mind, was nothing short of a revolution. We really changed how we did business. Before, the organization there was very decentralized. We had segment-focused teams, a lot of management. We've reduced the headcount in Europe on the business side by 30%. We centralized in Rotterdam. Before, we had people scattered throughout Europe. And my view was that those who will decide what we will do will sit in Rotterdam whether they're analysts or the VPs that run the businesses. I think we're stronger as a team than we are as individuals. And given the volatility that we saw last year, this was quite a benefit to be able to walk down the hall and make decisions quickly. It's part of being nimble when the region is on the third or fourth quartile of the global cost curve.

2013 plus, there's still more to come and we've been working a lot on feedstock flexibility, one of the outcomes of shale gas in America is we're seeing a lot more propane in the Mediterranean. We're seeing more propane that was being exported from Europe that's staying in Europe. We're also seeing more availability of Algerian condensates that were being exported to America, in fact being cracked in our crackers at Corpus and Channelview. So there are benefits in terms of feedstocks, as well as coproducts, and we're really trying to position to maximize those benefits as the future years come about.

Now onto the update on the restructuring effort. When my team and I sat down together at the end of 2012, we said we've done a lot of work on costs whether it's raw material costs, variable costs in terms of freight or terminalling costs, fixed costs we've reduced headcount by a lot. Where did all that go? The earnings in the end were lower compared to 2011 and certainly lower than 2010. But what I attempt to describe in this chart is top-down sort of view on how much have we really accomplished through these restructuring efforts. So what I've done here is taken out the market effects in our commodity business, the industry change in volume, industry change in margin. We've taken that out of the 2010 results. We've also taken our differentiated business improvements that were more market related. And what's left is the result of our restructuring and efficiency improvement efforts. That's about $200 million. This amount is net of inflation in our underlying fixed costs. As you know, every year, we give some amount of merit increase. There's some inflation in our maintenance costs and so on. This is net of that. It's also net of certain contracts that led to higher costs. We didn't always renegotiate contracts or other commercial agreements that led to lower costs, some led to higher. So this is a net of underlying inflation and other puts and takes. I think it's significant achievement. Run rate by year-end 2012 was higher than this number and we have a lot more that we're working on. As I mentioned, we're still progressing our restructuring efforts. Couple of areas that we're focusing on next is to reduce our fixed costs in some of our larger sites in manufacturing and also in R&D. The R&D cost reduction will show up more in the Technology segment. That's where we house our corporate R&D costs. But nonetheless, if you put the 2 segments together, there's still a lot more to come as we get fit for the up cycle that lies ahead.

We also spend a lot of time in sort of a bottom-up tabulation of these restructuring efforts. Think of it as an effort similar to post-M&A transaction sort of synergy capture effort. We have -- we track every project, every area where we're either looking at raw material acquisition at a better price, feedstock flexibility, reduce fixed costs. We have hundreds of line items that we track and so this attempts to show you the breakdown of that, about $200 million, where did it come from? And as you see here, part of it was from variable costs in the supply chain area. A large part of that was in feedstock costs, cracking more propane, cracking more condensate, accessing more butane in the summer. And then also, finding distressed streams from neighboring refineries such as refinery off gas or propane or LPGs that are not as pure. So we're really turning over every rock possible and piecing together this $200 million that we've done so far. And as I mentioned, we continue to work on more.

In terms of growth, I haven't talked a lot about that. There isn't that much growth in EAI today. But what there is this butadiene project. You saw the video of it earlier. It's a very significant project. It'll contribute to earnings starting the second half of this year. As Jim mentioned earlier, we've already locked up the contracts to back that, so there's very little volume risk or margin risk in this particular project. It's a very solid high-return project.

Up till now, I basically talked about our European cyclical business. But as I mentioned earlier, we also have a portfolio of stable businesses. And what this slide attempts to show or the chart attempts to show is the contribution of our stable business in different parts of the cycle. So in the trough of the cycle, these stable business such as the JVs, compounding, Catalloy, Polybutene-1, those businesses contribute 2/3 or a little bit more than that of our income in a trough. In the mid-cycle, it's about 1/2. And at the peak of the cycle, the cyclical, more commodity businesses contribute 2/3 of the earnings. And as you see, in 2012, we were closer to the trough conditions.

I want to spend a couple of minutes here to talk about the stable businesses, just to give you a little flavor for where the stability comes from and how we're growing those businesses.

First, our portfolio of joint ventures. As I mentioned, we have 8 joint ventures. And I know during the quarterly earnings release, there's often -- we talk about the timing of the dividends. We have a few very large JVs that contributed a significant amount of the dividend stream or income stream. Those tend to be pretty lumpy. But if you look at our equity earnings, they're a bit more stable quarter-to-quarter. And if you look of the bottom graph, it basically shows that there's a steady slope in terms of equity earnings and dividend, and we dividend out a significant portion of our equity earnings. So over a period of time, these JVs contribute a very steady level of dividend income and equity earnings to the EAI segment and to the company.

Our Compounding business, we're very proud of the business we've built here. It's built on innovation. We don't sell into the commodity compounding area such as talc-filled polypropylene or those kind of things. We basically compete on innovation and on a global footprint. This business we do run globally, so the Americas reports to me as well, and the reason we do that is because we work with OEMs who prefer a global supplier. OEMs such as GM and Ford and BMW and Nissan and Toyota. So in every region of the world, they want one face to the market and we seek higher ground here. So we're looking for inter-material substitution. We're looking to leverage our innovation and our basic process technology and product technology in polypropylene to earn higher margins. And that means we have to create value for the customer in order to have them share some of that with us.

This has been a great success story. We -- where we have a 35% global market share in automotive. We're going to continue to grow in every region in Europe. We're going to pause for about a year and reevaluate, but I'm confident that we'll continue to grow even in Europe.

Next, the Technology business. This is a very high-margin business. It includes, as I mentioned earlier, our proprietary polyolefin catalyst. Our process technology is not only in polyolefins, but also in chemicals. Very stable earnings in that $200 million EBITDA per year range. We continue to invest in R&D to develop new process technologies to maintain our leadership position.

So with that, my closing slide, the European restructuring continues. We're focusing not only on fixed costs, but also on variable costs on feedstocks. One thing I've learned over my career in olefins and polyolefins is that feedstocks are the most critical element in the cost structure. And even in Europe, we have the opportunity to do better in terms of feedstocks. And I think the opportunities are in propane and in some of the condensates that are being backed down as a result of more ethane cracking in America.

This also means we need to have more flexibility in the summer, the ability to crack more butane in the winter, to crack less, in the case of our French cracker that sits on the Mediterranean, the ability to source propane, condensates, butane and naphtha and to be able to move that month-to-month depending on relative value. Butadiene expansion will contribute later this year. We've worked on exiting some of our uncompetitive positions. I mentioned we've closed about 2.5 billion pounds of capacity. We will continue to evaluate our asset footprint. That's what all good companies do. And then as we see opportunities or if we see distressed assets, we'll take action. We don't wait for the prices to come to our doorstep. Compounding will continue to grow. It's a very important part of EAI, and ultimately, what we want to do is prepare this segment to maximize the upside when the petrochemical cycle turns up on a global basis.

Thanks for your attention.

Douglas J. Pike

Okay. Now we're going to take a few questions now and then after that, we'll take a break. Someone asked Jim and Sergey, Tim, to come up and join Bob and I. Okay. We'll start with Kevin. How is that? Kevin McCarthy. Yes, I'll go ahead with you first. I'm sorry? Coming now.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Kevin McCarthy of Bank of America Merrill Lynch. Question for, I guess, either Jim or Tim. You mentioned you're considering a new 1 billion pound per annum polyethylene resin plant for startup in 2016. So I'll talk about ethane and the record unit margins that we've seen. A lot of that, really, has been at the monomer level whereas polymer margins have been quite thin as you know. And so I'm wondering if you expect that to change over the next 2 or 3 years, and if not, what is the rationale for expanding in polyethylene resin.

James L. Gallogly

Yes, I'll go ahead and comment then let Tim fill in the blanks that I may forget. You're right that today, the margins in polyethylene are thinner than they have historically been. But as Tim mentioned, there's a bit of an up-cycle that we expect to come. Olefins, by themselves, have a nice return but they have to be turned into a derivative of some type. We're a long olefins in the United States, that's been the competitive advantage. Sometimes, we take our olefins and sell it into the spot market, whether it's propylene or ethylene, instead of turning it into polypropylene or polyethylene. But longer term, there'll be an up-cycle in all of these businesses. We could create an export platform with a very, very low cost monomer into a polymer that could be exported at, we think, a nice reasonable margin. The other side of our business that Bob mentioned is licensing. And we have outstanding technologies. We may use the mix [ph] plant as the showcase. And not only would it have returns related to the products that we make, it would also have potential returns in terms of a reinvigoration of a polyethylene licensing business.

Douglas J. Pike

Brian?

Brian Maguire - Goldman Sachs Group Inc., Research Division

Brian Maguire with Goldman Sachs. A question for either Jim and maybe Sergey can comment but we're just hoping you could update us on your thoughts about pursuing an MLP structure for some of the U.S. ethylene businesses and maybe the pros and cons. I know you've been looking at it for a while now, but any initial thoughts or more conclusions from it?

James L. Gallogly

Yes, so we're studying that -- in a very precise way. It's a complicated question. Nobody's taken an ethylene plant into an MLP yet. As you know, we wrote down some assets during Chapter 11, so our tax basis is fairly low. So we're looking at what's the overall concept, what are the returns to our shareholders. Sergey's heavily, heavily involved with that so I'll let him provide any additional color you may have.

Sergey Vasnetsov

It's a very complex set of questions on operational, legal, tax side to see what combination makes more sustainable, durable value to the company or companies. That's a fairly complicated question, we don't have the answer yet.

Douglas J. Pike

Okay. P.J., I think a question here. P.J., if you can just hold your hand up so...

P.J. Juvekar - Citigroup Inc, Research Division

I have 2 quick questions. One on U.S. and one on Europe. First, in the U.S., I think in one of the videos you talked about bringing in 200 trucks of condensate from Eagle Ford to Corpus. Would you consider building a pipeline once you expand Corpus?

Douglas J. Pike

Tim?

Timothy D. Roberts

Is it on? Sorry. At this point, we don't contemplate doing that. I mean, we've looked at the alternate value of barging versus a pipeline, and actually, I have to tell you, it's surprisingly how cheap it is to barge it out of Corpus. Now will it always stay that way? But we'll continue to look at that type of activity, whether it makes sense and if we should do it. But if we don't, somebody else will at some point if the economics makes sense, but barging is extremely economic right now. So this time, no.

P.J. Juvekar - Citigroup Inc, Research Division

Just a quick question on Europe. Bob, if you do a chart like what Sergey did, comparing yourself to local competitors, the ABCD, how would you look like? How would that chart look like?

Bhavesh V. Patel

In terms of cost structure?

P.J. Juvekar - Citigroup Inc, Research Division

In terms of your EBITDA margins or cost structure.

Bhavesh V. Patel

Yes, I think on the high end we've done some work against a couple of the competitors that report earnings. We also have a view through our benchmarking that we do in Phillip Townsend and in Solomon. We benchmark very well both on revenue and cost, amongst the best -- in the best quartiles on both cost and revenue. So I think we're -- we have excellent scale in Europe and we're in the proper quartile on revenue and cost, well positioned and continue to work on improving that.

Douglas J. Pike

Okay. Frank? I think we have a question. Frank Mitsch?

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Frank Mitsch, Wells Fargo Securities. I have a comment and a question for Tim. My comment, Tim, is don't sell short ESPN's coverage of the America's Cup. I've actually gotten a good stock pick from it in the past and actually, I think it's on the old [ph] Show, not on the slide. There has been some discussion about Lyondell possibly doing a PDH unit. Can you update us as to where you stand there? And also, can you more broadly talk about the competition out there over the next few years, bringing up 5 or 6 mega crackers? How many do you think will get built? And what possibility might there be of Lyondell getting involved in one of those?

Douglas J. Pike

Tim, you want to take that?

Timothy D. Roberts

Yes, PDH, we're not actively pursuing a PDH. I think it's fair to say that nothing's ever off the table. I'm not trying to hedge my bet there, but it's no different in the pipeline, P.J., talking about that. If it gets to a point it makes sense, we would do it. But we're not actively pursuing a PDH at this point in time. And we're going to continue to focus on our existing crackers as far as to continue to push every last molecule out of those. With regard to expansion coming down the road, yes, things are progressing, albeit slowly. It appears a lot of those projects are slipping. I think it's -- there's a lot of wagers out there with regard to who will, who won't, and it's anybody's guess at this point in time. I do think some of the majors that we do have, clearly, the ExxonMobils and the CBs [ph] and the Dows of the world will likely be the folks driving sooner to the finish line than the rest. But at this point, I don't discount anybody with regard to what they're doing. I mean, the main issues you're going to deal with, like any of these projects, permitting is going to be first. You got to get the permit, you got to get it filed and those are publicly available to go see who's doing what and really where they are in the process. The other piece is getting the skilled labor to do the project. And then really one of the more critical long lead time items is getting the shop space to get some of these equipment fabricated. You could expect lead times anywhere between 12 to 24 months and you're competing with shop space, which right now appears to be fairly tight -- or getting tighter, should I say. So -- but anyway, Jim, I don't know if you wanted to...

James L. Gallogly

Well, I might add a couple of statements. First, a couple of years ago, we indicated that we would consider expansion of our metathesis unit. We called it our flex unit. We are not pursuing that. There are moments in time when we run that unit in double dimer, termed ethylene and propylene, when it's very advantaged. We did that early this year, of course. But as we see things going forward, we recognized that propane is extremely advantaged and our crack today [ph], we think it'll supply support for ethane going forward. On the other hand, having been an ex-producer in the exploration and production business, I know the folks in that business spend a lot of time on figuring out how to put that propane on a boat, declare it world market prices versus at distressed prices in the U.S. So I would expect that there will be export facilities built. Some are already commissioning, more will come, and that significant advantage won't completely dissipate, but I think it won't be as strong as some people expect. As we know, we can put that product on a boat and ship it easily unlike ethane. Now in terms of a condo cracker that we talked about, we will continue to look at that. We're not wanting to build a world-scale cracker all on our own. In the essence, what we've done by our debottlenecks is give ourselves the equivalent of one of that. We then would have to add some derivative capacity we would expect down the road. But if we do a condo cracker, we have to look at it in terms of the total integrated value versus just the ethylene base like we can today. And so with all of that, we'll study it. We may participate in it. It would probably be a second wave. But we're very, very thoughtful, first and foremost, as you saw in the graph of where we sit competitively in return. We make decisions based on return, not just making our company bigger.

Douglas J. Pike

We have -- Vincent has a question right there?

Vincent Andrews - Morgan Stanley, Research Division

Vincent Andrews from Morgan Stanley. Each of you, in different ways, touched on the idea of the cyclical upside in ethylene. And there's some charts in here that would suggest we're very close to it, based on some of the lines. So I'm just wondering if you could dive a little deeper into that and maybe walk us through on both the supply and the demand side. What needs to happen? In terms of supply, we could be surprised if there's more delays or if there are disruptions in production. And then on the demand side, what do we need to see happen out of China? What do we need to see happen out of Europe to get over that sort of magical 90% number?

Sergey Vasnetsov

Vincent, we are looking very closely at the supply-demand sectors that you described. One of the benefits of us besides being a very large producer of plastics and olefins globally is that also we have a very strong technology business where we supply catalysts to existing plants and we supply the technology on the polyolefin/polypropylene side to new plants. So for that reason, I think we're quite well informed. So we track these projects based on the ownership, financing, government approvals for whatever issues there might be. It probably smoothes [indiscernible] that you have -- [indiscernible] gets them fueled up with the inputs from all over the world. What you see so far is that the supply side of the story remains pretty well known. There are not a lot of huge surprises, perhaps a few projects will give it away, it depends, as I said, the allocations of ownership. The demand side has been somewhat weaker in 2012, but I don't think it will stay this way. As the China economy gets its foot in, and as they get the faster growth and also continuing transition from a construction-led economy to consumer demand-led economy. Clearly, this transition will not happen overnight. And certainly, if one has taken place, it will be very helpful to the chemical industry because that transition will then increase intensity of chemicals and positive consumption. As far as the peak of the cycle, it's typically driven by the cycle getting overall to the well-balanced situation and then you have some surprises. Those could be -- produce outages. There could be inventory restockings. There could be energy spikes. So we're aware what those factors have been in the past. It's difficult to predict them 3, 4 years out in the future. And in terms of transition for the next year or 2, I think within -- it's appropriate to say that we don't see the peak of the cycle is just around the corner and so I don't think it will surprise you when it comes. You'll see spot prices strengthen in Asia. You'll see spot margins opening up in Asia. It's not happening right this moment, but it's pretty well reported since many of you do publish and read on this issue. So we remain optimistic that the medium-term view is on the upswing, and when it happens, we are fully prepared to take advantage of it.

Timothy D. Roberts

And maybe just if I can a word or 2 on that. Very simply put, the demand side -- or the supply side, we know relatively well, 1.5%, maybe 2% per year in terms of ethylene capacity growth. The historical demand growth has been more in line with GDP, 3% to 3.5%. To me, the key is Europe needs to stabilize and we need to see a reversion back to growth rates more along the lines of historical growth rates in China. But certainly, inventories are low all over the world given the amount of volatility and lower operating rates. So I think some small response on the demand side, we'll see it very quickly in terms of improvement in the operating rates.

James L. Gallogly

Yes. And of course, if Asia starts to have higher demand quickly, that will take pressure off of Europe because some of the Middle East capacity has come in to Southern Europe, in particular. If Asia is a stronger market, that product goes there instead of the Europe, which helps us a lot as a company.

Douglas J. Pike

Okay. I think we'll take one or 2 more questions then we'll take a break. So we why don't we have Dave?

David L. Begleiter - Deutsche Bank AG, Research Division

Dave Begleiter, Deutsche Bank. Tim, I'm not saying that supply becomes very long next few years, do you think ethane price will move lower? And could higher propane prices even push ethane prices to byproduct economics? And just on Corpus Christi, how much cheaper is that cracker with the condensate for the Eagle Ford versus La Porte and Channelview right now from a cash cost basis?

Timothy D. Roberts

Well, there are 2 questions. One, typically we see ethane -- well, it can go lower. We've seen that. Now whether it sustains itself is another issue. I think you're going to see it bobbing along at natural gas values and for a while. And I think that's really our fundamental premise as we go forward. You will see again of the increased demand to keep drilling because of some of the other products where they can go, propane needs to be exported or natural gas finding other uses outside of the chemical space. And again, ethane will have that ride and they'll have to find a way to make the spot demand balances work, which means through price. But I think overall it's going to bob around natural gas in that level. With regard to Corpus, it is advantaged, something I'm not going to be able to tell you exactly how advantaged we are, but it is advantaged to our alternative and worth our while in doing what we're doing currently.

Douglas J. Pike

Okay. I'll take one more and then we'll take a break. Yes, we got Andy?

Andrew W. Cash - SunTrust Robinson Humphrey, Inc., Research Division

Andy Cash, SunTrust Robinson Humphrey. Tim, maybe you didn't want to mention the word bubble, but you mentioned the word bubble. I'm just curious, maybe that bubble lasts for quite a few years, but I'm just curious, what do you think might burst that bubble? Could it be LNG exports? Could it be a fleet of diesel trucks switching over to natural gas? What is your argument on that?

James L. Gallogly

Let me help. First, we have a very, very bullish view of this long ethane staying with us for quite a few years. Our first comment from a former producer side, the economics are still very, very powerful for natural gas production. Obviously, methane prices are lower but the liquids are higher. The productivity per well has increased significantly, in part because the drilling technology has improved exponentially over the last years, especially since I left the business. And so while the rig count is down, productivity per well has been very, very strong and up some. So we feel that that's a trend that we can count on for quite a while. Obviously, a lot of other people are in that camp. In terms of what could derail this, there's been some discussion about whether the industry supports LNG exports or not. We do, as an industry, the American Chemistry Council, support exports. I think that's a clear position. Now there was some doubt for a short period of time, but we support exports. We're a business that exports more than any other business in the United States so of course we love free enterprise and exports. Having said that, if you look at the economics of LNG, you'll see some LNG export happen. I suspect it will be fairly modest. I participated in LNG business in the past. And if you look at the global economics of that, as soon as methane prices start to rise a bit, you'll see a production increase fairly rapidly in the dry gas plays, which will moderate that. So I don't think LNG hurts us. In fact, my own personal analysis is it generally helps us. We want the producer to have better pricing than they do today because we're primarily interested not in the methane but in the liquids. So it's a powerful engine for us going forward. It's not a bubble in our view, and we're optimistic.

Douglas J. Pike

Good. Why don't we take a break now. I think I'm going to shorten our break down to about 10 minutes or so since we're a little bit long.

[Break]

Douglas J. Pike

[Audio Gap]

benefiting both from their technology and as well, how they're benefiting from the natural gas development situation. So I'll turn that over to Pat.

Patrick. D. Quarles

Thanks, Doug, good morning. So on a simplified basis, I typically describe I&D as the chemical businesses downstream at the crackers within LyondellBasell system. After Sergey's comment, we're going to be the Rodney Dangerfield segment of LyondellBasell. So we're working today to get some more respect perhaps. It's a high-quality business. Let's go to this next slide. We talk about we operate and we optimize this segment globally. This is a commodity chemical segment that comprises several pieces with several different fundamental drivers and I want to walk you through some of those today. But some very important components to it. Doug mentioned our propylene oxide business, it's the #2 position in the world. We have assets in the U.S. and Europe. We have 2 joint ventures in Asia, which again allow us to balance regional demand and take advantage of our cost positions as they differ around the world. It's called product technology. We have a styrene monomer business, which we don't talk too much about these days. Styrene business has been in very difficult straits for about a decade now. The converse side of that is our TBA side, the C4 chemistry, and that participates Oxyfuels where we're #1 in the world in Oxyfuels. And we also take our TBA into the chemicals market through high purity isobutylene, again, where we're the #1 producer of high purity isobutylene globally.

Other important pieces of I&D, although not necessarily global footprint, is methanol business. I'll talk more about that and how U.S. natural gas is impacting both our current business as well as where we're headed in the future and downstream of that is acetic acid. We're small in the global scheme of things for acetic acid, but we do have world-class and worldscale assets sitting in the U.S. Gulf Coast. Again, tied 100% to U.S. natural gas and we appreciate the benefits of that. And then lastly, our EO/MEG business, again, U.S.-based and tied into our Gulf Coast cracker operation, which allows that optimization across ethylene channels to market, and today, is providing very good stand-alone value as well. So what has this resulted in? You can see the bars there. We've seen a very solid performance of this segment over the last 3 years, continually improving it and really taking advantage of the structural differences as they play through the cost position in our feedstocks and the advantages that we have in our technology. So $1.65 billion revenue over the last year, a record result for I&D, and we're really quite proud of it. I'm going to walk through a little bit today as kind of what those drivers were.

So certainly, first, environment is an important one, right? And from an O&P side, think of I&D a little bit differently because we're about 60% tied to durable goods. And so while you heard Bob talk about the difficult environment he's been facing in Europe, for instance, on the demand side, that hasn't actually been the world that we've been living in, in I&D because of that tie to durables and probably the best way to think about that is the automotive sector.

Now European Cash for Clunkers, similar program in the U.S., helped spur growth in the early days coming out of the recession and then China's resurgence and growth in light vehicles. And as you know, light vehicle sales in China today is the largest market in the world. That consumes not only chemicals locally but -- and to a large extent, they're importing autos to meet that local demand out of Europe. So actually our position in Europe has been quite robust from a demand perspective and we've seen -- we see that trend continuing. The question now is, as automotive is getting a little bit softer is construction? Early positive signs. I guess the old quote was green shoots on construction front. Now we see our participation through things like UPR, resins for tub and bathtub-type home, resins for construction starting to grow now. And we hope that -- for that to be the kind of the second wave to support this business moving forward.

But very significantly, our U.S.-based cost position raw material advantage that flows directly through our businesses like methanol, acetic acid, also clearly on Oxyfuels. And kind of knock-on effect to that is low gas natural gas -- low-cost natural gas to crude ratio. And here, this is gas to liquid. And as I say it's a knock-on effect to shale [ph] , but in a world where fuel products are often tied on global price to $110 Brent crude, we're buying butane at discount to those world markers, and in the U.S. actually getting even deeper discounts because where the current NGL balances sit, that goes directly to the value of MTBE and I'll talk a little bit about that later as well.

So this is kind of the bones of I&D, if you will. I think one of the things that characterizes it is comprised of businesses that have very important proprietary and advantaged technology positions. You tie that -- or connect that with this U.S. feedstock advantage and now you've got a very powerful cash generator. And you can see in the bar chart how the cash generation across I&D compares to many of our peers. I think Sergey spoke to this a little bit earlier. We have large installed globally competitive assets. They've been well maintained over the years and have relatively low capital requirements on that ongoing maintenance. So we deduct that capital off the top. And you can see over the last 3 years, cash generation well in excess of $1 billion a year. We think that's a structural position that's sustainable for the business. It's tied not only to that raw material position, but through these proprietary technologies, we're able to have very strong positions on the sell side in the market.

Now if you look across all of I&D for instance, about 60% of our sell-side contracts are fixed margins. In other words, they're tied to the raw material cost input and then we're selling -- we calculate the price based on that fixed margin. So we have exposure to the demand side of the equation. But from profitability, on a unit basis, we've got a lot of stability year-in and year-out. And typically, these are kind of 3-year contracts. And so over this period, while market conditions continue to improve, you can imagine that we can continue to roll over those contracts and have the ability to reset within current market values. And that's what really allowed us to continue to improve every year.

Talk a little bit about how we fit in integration-wise to the rest of the company. I think really just a quick point here on the distinction between our feedstocks. We basically have 1 of 2 inputs. We're either sourcing very deep global commodities or regional commodities, U.S. natural gas for instance for our methanol acetyls business, butane for Oxyfuels and C4 businesses in U.S. and Europe. In those markets, we're participating in a market, we get the benefit. In the case of the U.S., where you're advantaged, but we're never at a disadvantage, right?

The other piece of the business is sourcing light olefin, propylene and ethylene. And here, we feel it is actually very important to be closely integrated and do competitive, flexible and dynamic cracker operations and that's in fact what we have inside LyondellBasell, both in Europe, tied to Bob's business on his cracker operations and portfolio across Europe and then in the U.S. with Tim's Gulf Coast crackers, which all of our assets plug into via pipeline. So it provides that steady, reliable and competitive input from an olefin's perspective and then we play in the deep commodities for the remainder of our feedstocks.

This is a slide I want to spend a little bit of time on and -- because I think it's important. It characterizes the way in which we approach our markets. Optimization, this is something we have to do every day and we think it's driven to give you value over and above what our competition has achieved over the last several years. First of all, I'll talk about geography. I mentioned we operate and we optimize globally. Let's focus on the propylene oxide business first because this is a business where we have assets, U.S. and Europe, as I said before, and they have different coproducts that they produce when we manufacture the propylene oxide. So that gives you several knobs to turn, if you will. We're running about 85% operating rate today globally in propylene oxide. That 15% is really what you have the ability to play with to pick where you want to be manufacturing your product, meeting your customer's demand. With the value of C4 versus -- sorry, monomer where it is today, obviously, we prefer that. Those assets over POSM assets, P-O-S-M assets. And oftentimes, although not always, we prefer U.S. production to European. So we're able to basically maximize lower cost assets, balance with marine movement and take advantage of ARBs that exist between the region, one component of the driver of our value.

The other one we're calling here is the product side. Think about this as playing up and down the value chain. Across I&D and not just true in our propane oxide business, we actually have a variety of derivatives, 2 -- or 1 to 2 steps below that core intermediate we're producing. At any point in time, of course, those have different values that they offer back to the company. And again, we maintain flexibility with our contract portfolio to pick where we see the greatest value. We can sell TBA out to the merchant market. We do that in the U.S. and Europe. We can manufacture MTBE to meet high values for octane, commanded by the export markets in the U.S. We can manufacture ETBE to meet government mandates on sustainable fuel requirement. Or we can take that same TBA into isobutylene chemical market. In all of these, ultimately, they'd have to compete for that market value, be it whichever bar we want to hold that particular market to, big driver for our ability to upgrade and constantly upgrade our selling portfolio.

The last one, I think, is particularly unique to us. And if you were here last year, I kind of mentioned at the very end of my presentation and that's how we manage customer margin. I think we're somewhat unique today in our industry versus our peers. We stood on top of a global ERP system. We have managed over time to build systems and analysis that allow us to understand the profitability of each of our customers up and down a value chain at their plant gate anywhere in the world. You can imagine the power of that. What that allows us to do is roll back that analysis to our plant gate and determine which customer we want, do we pick high-quality customer mix, which customer facilities are preferential to us from a cost position and whether or not we want to be in derivative A or derivative B and flex our unit appropriately.

All told, if you look across these 3 elements, this is something we measure closely. We talked about benchmarking and differentiation. This is something that's important to us and visible inside the company. Last year, we would tag about $170 million of EBITDA that we produced, really, to these optimization efforts up and down. And to give you kind of an example of the commitment we have to this, this is -- this features prominently in all of our business reviews and is visible not only to the business managers sitting there, making the individual pricing decisions, the customer decisions, but visible to Jim as well when he reviews our business. We're looking at it down to the customer level to ensure we know who the high-value guys are and the low-value guys are and have to have an action plan against all kinds of bottom end of our portfolio, if you will. I kind of like the motif behind me in that regard of the mechanism because it really is the process and it's commitment and discipline to really running that crank and really understanding where we make money in the markets.

So now let me step through a few of the different platforms, if you will, or value chains that we have in I&D, speak to what kind of the fundamentals, drivers of that profitability. I'll start at the top with C4. MTBE, we're using here as an example, and the bar chart, I think, are pretty telling. This is an example or demonstration of how MTBE values have changed in the market from a pre shale and post shale period of time. Now we break it into 2 pieces. So the first piece is the bottom, the light blue, that really represents the spread and how that spread has changed during that period of time related to the cost of your feedstock input, butane and methanol in this case, and then selling into the gasoline market. So this is a glass to liquids that I mentioned earlier. And with $110 Brent Crude and butane discounts that I mentioned. $110 times the 10% discount or times the 15% discount, that accrues directly into the margin and is the driver for this step-up.

The next piece is something maybe isn't always quite so visible and this is the value that MTBE receives in excess of its gasoline value. And what this really speaks to is the octane component. And there's a few drivers here that sometimes may be subtle and sometimes quite obvious. One is light cracking and how that impacts feedstocks light [ph] In U.S. crackers. So what have the U.S. crackers been doing? They've been rejecting naphtha in favor of NGLs, right? So the naphtha has to go somewhere. It's going into the blending pool and so low octane blending component. So in order to hit the blending standards and octane standards, the refiners are driven to look for higher octane components and MTBE is a perfect blending component in that respect. Another driver has been the elimination of sulfur and aromatics from the blending pool. Again, taking octane out of the pool, while at the same time, on the demand side for octane, you've seen a smaller engines, higher compression engines, driving for the need on higher octane for consumption to drive their efficiencies in the automobile. So it's been a nice kind of coincidence of increased demand while the alternative supply for octane has been decreasing. We think that's something that is actually quite structural and extends beyond the U.S. over time and really underlies one of our interests and what our interests is in developing our PO/TBA technology into Asia.

So PO, under C3s. Our PO business is one of those businesses where you often characterize as a franchise business for us. This company developed -- first in the world to develop coproduct PO technology a few decades ago and have used that technology to establish the global position we have today. It's characterized both by very good demand growth. I mentioned earlier, you think about automotives, polyurethane foam seating. Lots of components of automotive have gone through material substitution in favor of polyurethane, been driving demand, think about spray insulation foams in -- focused particularly in Europe on energy efficiency has driven demand. So we've seen a fairly reliable 5% growth profile for PO really over the decade and that we've been able to count on that year in and year out. That reflects about 1 worldscale PO plant being required somewhere in the world every 12 to 18 months.

So how do you match that supply? Well, PO is also characterized by high barriers to entry. This technology -- all these technologies that are competitive are held very closely. There aren't many players in the PO market globally, and we see these things kind of coming together to drive very reliable margins that we see in the business over time and a fairly healthy demand profile. We don't really see that changing. The last thing I'll point to and it really kind of refers back to the last slide, the bottom right bar chart. There we're showing you kind of on a normalized basis the cash cost position of the various technologies practiced today. What we find even today, I mentioned 85% operating rates, it's not a robust environment for propylene oxide or for polyurethane downstream and yet you've got a fairly flat cost curve in kind of the second and third quartiles, which are holding up values for PO while those folks who have access to the PO/TBA technology were able to exploit the very low cost position for those assets. So PO/TBA for us represents about half of our capacity, and there's only one other player globally who has access to that technology who we think -- that's again, a very attractive position for us to be in, in the years to come.

C1s. I'm going to skip some [indiscernible]. Methanol. Well, that bottom chart on the right kind of tells the story, right? So U.S. methanol producers were cash breakeven at best historically with natural gas, where it had been in the range over the last decade or so and effectively almost all that capacity was shut down. Well, here we are in a post shale world, in a very different environment. Today, methanol is selling at about $1.35 a gallon. If you think about the cash cost of conversion of natural gas to methanol, kind of rule of thumb is about 1.1x natural gas, so for a 3 50 [ph] world, that you're making it 40 and you're selling at about $1.35. Very compelling economics today in the market to be producing in the U.S. And that's why you are seeing all the activity and I'll give you an update on our projects specifically here in a minute. But you might also expect, well, what is it going to mean a little bit longer term for methanol price then? Are we basically going to kill that opportunity? The top bar shows you balances in the U.S. and with all that capacity that got shut down, that I mentioned, U.S. is dramatically undersupplied domestically today for its demand. U.S. demand has actually been growing, so that's not so bad. So what we would expect to have happen, we take into contemplation projects that are announced. And U.S. is still going to stay a significant net importer of methanol. So we're comfortable with our -- with the market dynamics and we really like the cost position coming through C1. And that plays right down to the competitiveness of our acetyls business as well again, right? Acetyl is a base, 50% on natural gas through SIM [ph] gas; and 50% on methanol. So we like what this means for acetyls business long term as well.

So projects. So where do we go from here? Two primary focuses today and Jim mentioned it earlier, of course. Methanol restart. We announced that last year. We intended to bring it up late in 2013 for about $150 million. I'm pleased to report, as we sit here today, we're on budget and on time. Long lead items are still something we watch very closely. But very importantly, we've crossed the milestones of permitting. So we have all permits necessary to commence construction, and I think we've got about 180 guys on the unit today moving us towards the start-up early in the fourth quarter. We certainly look forward to it. Importantly as well, on the marketing side, when the market is presenting you margins like we have to date, clearly, we want to be able to run flat out as soon as possible. And we've put in place now a marketing position for the product, which is going to allow us to do that. It allows us to tie in to our Oxyfuel needs, as well as our acetyls needs and have full access to the merchant market to again support high operating rates. So we're looking forward to this play this year.

Second project that we talked about last year was PO/TBA. You may remember, we have a joint venture with Sinopec in Ningbo, China, south of Shanghai, about 3 hours, but it's PO/SM. It started up about 3 years ago. That project start-up is going well, execution is going well and the relationship with Sinopec has certainly remained on track. So it's provided a good environment for us to approach them on the next growth opportunity, which for us PO/TBA. We talked last year about launching a joint feasibility study. We completed that. Clearly, the economics are attractive to both us and Sinopec, and that carried us on then to complete a Memorandum Of Understanding, a MOU, on the commercial terms of that joint venture. So that's now completed and looking forward this year to continuing to advance that project for start-up and call it 2016. I can tell you it's a bit of question mark on that still today, but we're remain very positive about this project and what it could mean both for our PO business having access to both technologies in that market, but also then providing that foundation for C4 chemistries being built out to support Chinese demand growth.

So to wrap it up, the Rodney Dangerfield segment. It's good technologies, really good assets, well positioned today in the market, and I think we're fully taking advantage of what that position can bring us. We rolled through dramatic changes in the profitability of our C4 business. We've maintained very high profitability on merchant PO and PO derivative pieces and continued to drive optimization to ensure we get everything we can get out of what's available to us. A lot of focus on project execution. As I said, I think we're on time with methanol and quite optimistic about where we're headed on PO/TBA. Thanks for your attention.

[Presentation]

Douglas J. Pike

Okay. Next up is Kevin Brown, and Kevin heads our Refining business as well as our engineering efforts with the construction that we have going on everywhere.

In this situation you find the Refinery very analogous to what we've seen on the NGL side. It crosses '11 and into '12, you saw the infrastructure and pipelines develop. On the NGL side, you saw it happen with ethane. And here we are sitting now where the pipeline and infrastructure is moving forward on the crude oil side.

So Kevin is going to talk about what we're going to do about those things.

Kevin W. Brown

Thanks, Doug. I guess if Pat feels like Rodney Dangerfield, I don't know who I should feel like. Refining had a little bit tougher year last year than we had the year before. And in fact, John McCorderly [ph] who you just saw on the screen, was the person most responsible for the trading advantage that we had in 2011. And John hasn't been asleep at the switch, and we'll talk about that as we go through the presentation.

So why don't we start with EBITDA? With the refining business last year, we declined from about $975 million to about $480 million of EBITDA. And the question is, why? Well, there were some changes in the business.

Jim talked about us running the refinery well. In fact, we ran about 255,000 barrels a day of heavy crude, almost the same number as the year before. But some things changed in the business, downstream units in the refinery. We actually ran better.

So let's level set a little bit and talk about the environment that we're in. Pipeline infrastructure is lagging, and we're seeing big disconnects in the mid-continent. That's not a new secret, but it's blown out even further during the prior year. We're seeing Canadian heavy crudes continue to develop, and we see huge discounts on those. We've got low natural gas prices. More importantly, most of my peers here today that have been talking about the advantages that they've seen with low natural gas prices and associated liquids, we actually have an impact in the refining business that's a little bit negative to that side. We'll talk about that.

And then the U.S. gasoline market continues to decline. Actual consumption of gasoline falls, additional ethanol blending is putting less of a demand on refining output, and so you see continued exports there. So what are we doing? John talked about diversifying our crude supply, I'll show you that. If we're going an exporter and if we're going to be competitive in this business, we've got to continue to focus on our operations.

Cost and capital discipline are key. We've talked about that a lot. I'll show you what we've done.

Flexibility, cheap options, that's what we're going to try to drive to. And we'll spend very limited capital on de-bottlenecking and expanding our operating window. And we continue to grow the export business. We're exporting almost 25% of our gasoline now and closer to 30% of our distillate.

So last year, what happened? The Maya 2-1-1 improved. It was actually up a few dollar -- $1 a barrel or so. Our coproduct pricing, butane and lighter, dropped about $200 million. Now most of that goes through our channel view plan, but just the pricing impacts on the yields that we make was about $200 million. On top of that, our coke price declined even though crude oil price for us with Maya was up. So when coke price drops, we see another hit, and that was close to $100 million of decline. And then the rest was what we saw with a few other nits and nats that added up to about $100 million. That orange bar is about $400 million of decline.

Crude oil pricing. Last year or year before -- the end of December in 2011, we had this meeting. We talked about exceeding our normal expectations on trading by up to $200 million. We were about $300 million poorer last year. Why was that?

Well, first of all, we did buy some lighter crudes. We tried to bring in lighter crudes and make less of the byproducts, but the market got tougher. Some of those disadvantaged cargoes, distressed barrels that we were able to pick up in 2011, weren't available in its greatest supply to us in 2012. So we went from a large discount to Maya price to a slight increase over Maya price.

What's happened with our manufacturing costs? We're essentially flat. I'll tell you that the difference between 2010 and 2012 was about $0.60 a barrel. That's in spite of natural gas prices going up a little bit. $0.60 a barrel when you run 100 million barrels a year is $60 million. It's not insignificant. And we're not just focusing on what we're doing on the expense side, we focus on capital. We've driven our costs down for base maintenance capital, and we're down to about 60% of where we were just 2 years ago. And by the way, our operations are improving. So it's not that we're not doing the things that we need to do.

So let's shift to the Canadian crude for a minute. We think the combination of Canadian crude and the heavy crudes that are available for refineries like ours, plus the light crudes that are being produced in the mid-continent in West Texas, give us a huge ability to change our feedstock cost. This for the refining industry and it's not just us at LyondellBasell, it's peers of mine in the industry. This, for us, is the biggest thing that's happened in our careers. It's similar to the NGL situation and gas production. We have the ability to have advantaged feedstocks and become an export marketer, very different than where people thought the industry was as recently as 3 years ago.

So if we think we want to take advantage of feedstocks, where should we look? And if you look at Brent, and that's the world marker price we're competing against, it's really not the margins that people see on Brent aren't significantly different between 2010 and 2012. LLS is the Gulf Coast marker, Light Louisiana Sweet, it's about the same.

West Texas Intermediate. Look at the difference in margin. More importantly, look at the margin on it relative to Maya in 2012. Actually can buy West Texas Intermediate and lay it in to our Houston Refinery and produce a product slate that would give us an advantage.

And then Western Canadian Select. This is the big deal on the Canadian pipelines. It's trading now at huge discounts to WTI.

So what's happening in the pipeline market? Well, last year, we added about 150,000 barrels a day of capacity with the Seaway pipeline reversal that brought Cushing crude to the Gulf Coast. By the end of 2013, we expect an additional just over 1 million barrels a day of capacity to come online with announced projects. And in 2014, we expect another roughly 1 million barrels, 1.1 million barrels a day of capacity to come online.

What does it mean for us? Well, let's go back to the fourth quarter. In the fourth quarter, if we'd been able to buy Canadian crude, bring it down by pipeline to the U.S. Gulf Coast, it would have priced at about $62 a barrel at Hardisty. It would have cost about $8 a barrel to bring it to the Gulf Coast.

Look at the Maya price in the third quarter, $93. $93 versus $70 is a huge change, and there's not a very big difference in the yield structure.

Cushing crude oil, WTI, sells for about $88 a barrel. We could have brought that to the Gulf Coast. West Texas sour, heavily discounted, landlocked. With pipeline capacity, we ought to be able to bring that to the Gulf Coast. So if you look on the right side of the page, we actually are participants in the Seaway reversal. We will have space in that pipeline. We have space. We are shipping on it beginning in February. And it's a little less than 10% of our crude supply.

Flanagan South is another leg. And that'll provide capacity from Hardisty, Canada -- Hardisty, Alberta, Canada all the way to the Gulf Coast, and a little bit less than 20% of our supply will have space in that pipeline. We're also connected to Keystone pipeline when it opens, and we're connected to a pipeline that's coming in directly from West Texas. And we'll be connected to a connection to a pipeline that's bringing crude oil in from the Eagle Ford shale. So we'll have access to all of those crudes.

If you look back at our history, we were primarily a facility that ran Venezuelan crude. We've talked in the past about bringing that down. We brought it down to about 50% of our crude supply. And now you see us taking the next steps.

So why not rail? We actually thought about rail for our Houston Refinery, and we thought we were pretty close to having some pipeline capacity coming in. The rail cost to come to the Gulf Coast from Canada is about $16 a barrel, and the pipeline cost is about $8. We thought that was a better option and it's pretty close around the corner. We think, ultimately, this transportation advantage, so long as rail is the incremental shipper, will give us about an 8 -- or $7 or $8 dollar a barrel advantage on crude cost relative to people that are shipping by rail.

So taking a look back, what did we do? We said we were going to do some things to get our operating rates up. We've done that. And if you think about our EBITDA in 2010 compared to where we were in 2012 and all the changes we've seen in the marketplace, I think you see the benefit with those rates. We finished the work that we said we were going to do on our Fluid Catalytic Cracking Unit. We've seen the yield benefit, and we have seen -- we've run the rates when it's made economic sense that we design the unit to run.

We talked about improving our product marketing, and we had talked about a downstream focus on trying to move further into the markets. As the price of crude oil has gone up, the working capital cost to do that is prohibitive, and instead we focused on exports. And we think we're picking up better than $10 million a year now.

And finally, we improved our sulfur recovery units. We're at the point now, we actually have a turnaround in the fall. And we won't be curtailing refinery operations when we take one of the sulfur units out of service.

And lastly, we mothballed the Berre Refinery. Now that cost us about $120 million, but we were saving $50 million to $100 million a year of losses that we were seeing on that asset.

So where do we go from here? First of all, Jim talked about broadening the operating window. You heard John talk about broadening the operating window. We're given ourselves the ability to run lighter crudes. It's a very low-cost option. We're finishing that workup right now on a turnaround at our Houston Refinery and looking forward to being able to take advantage of bringing in WTI when it makes sense or running more of the light Canadian when it makes sense.

We are securing crude oil deliveries. We are in negotiations to bring -- to tie-up a portion of our pipeline space with longer-term contracts in Canada. We think that the benefit of doing that is included in the $200 million to $300 million benefit.

Finally, we're increasing our product export capability. We have reached a dock limitation in the short term on exports. A dock is being built -- additional dock capacity next door to our refinery, and we'll have the ability to ship even more. And we think that's got an additional $15 million to $20 million a year of benefit over what we've seen. By the way, when you look at the $200 million to $300 million benefit, almost all of that is the transportation advantage. If you take about 2/3 of our capacity and $7 a barrel, it's just under $200 million.

So finally, the punchline. We think flexibility is going to have a whole lot of benefit for us. That ability to run light crude, that really came as a byproduct of looking at the Canadian crude, is going to help us. We will probably make a little bit more sulfur but fit within our existing sulfur plants and our existing permit. We're going to increase the gravity range of the crudes that we can buy. So if Eagle Ford crude remains discounted, if some of the other light crudes remain discounted, if West Texas sour remains discounted, we'll be able to bring all of those crudes in.

We've tied up space in Canadian pipelines, and we're continuing to move our products further and further. We are trying to make less of the byproducts and more of pure gasoline and diesel. That's where our real focus is. Thank you.

Douglas J. Pike

Okay, thanks, Kevin. Well, I think what you've heard from Pat and Kevin is these businesses really aren't the Rodney Dangerfields. In many ways, these are some of the hidden jewels that exist within the company. As people have focused so much on ethane, maybe sometimes we forgotten about that couple of billion dollars of EBITDA being generated over on the other side and the opportunities over there.

Okay. Our next speaker is Karyn Ovelmen, our CFO. Karyn is going to speak to us today about some of the cost below EBITDA. She's going to talk to us about cash deployment.

We don't have a video to introduce Karyn. As I was sitting here thinking about what we might do, it might be Karyn with piles of money or something around and sorting out how to disperse it. And that's been a nice problem and a nice situation for the company that she's come into as she joined us as the CFO.

So let me turn it over to Karyn now, and we'll talk about the financial side a little bit, roll it together a bit.

Karyn F. Ovelmen

Thanks, Doug. Good morning, everyone. I'm going to start out today talking about where we're at currently from a financial perspective.

So we're going to take a few minutes and talk about the balance sheet and how we view our balance sheet today and look at some of the actions that we've taken today to get to where we're at, and then also focus a little bit on the cost and our focus on cost and how that drives our cash margins as efficiently as possible to the bottom line so that they can be available in terms of looking at additional opportunities that we have; then pull together everything that you've heard this morning from Tim, Pat, Bob and Kevin in terms of their segments and their cost, the margin environment that they're in today and put in perspective the potential returns associated with the projects that they've outlined, so their progress in each of their segments and how that will impact our financial policies as it relates to decisions around capital deployment and, of course, potential returns directly to the shareholders.

Okay, starting point, where we're at today from a financial health perspective. You can see the strong EBITDA, almost $6 billion in 2012. That's a 45% increase from 2010. So it's that strong market conditions, coupled with our ability to increase our percent realization of that market as a result of the optimization programs as well as our cost-cutting activities, that and a favorable bond market resulted in our ability to completely refinance the balance sheet, so both on the debt side and the liquidity side.

If you look at that top-right section of that slide, overall reduction in the total debt, more importantly than the reduction, there was a complete change in the makeup of that debt. So we went from a high-interest rate, very restrictive covenants to a much lower, longer-dated, staggered maturity investment-grade-type ratings and terms. Today, those bonds are trading very competitively, so anybody who bought into those bonds or exchanged for those bonds should be pretty happy.

Bottom right on that chart, also very important, in terms of going from a position of having too much or, I would say, ineffective level of cash in a borrowing base secured facility to a proper investment-grade cash flow unsecured facility. And we also tapped the securitization market for some pretty flexible and very inexpensive additional liquidity.

In addition, we brought down those cash balances to a more reasonable level, or I should say, more reflective of our current operational and liquidity needs.

Overall, though, today, we have a very robust and conservative balance sheet. We are still transitioning. We're a young company. So we're still kind of in that phase where we're moving forward. We're moving up that investment grade trajectory. At the same time, we have a very active, organic growth program. We've had recent changes in our ownership structure and we're actively redeploying cash directly to our shareholders.

So to support all of this, we have a capital structure today that is conservative. We're here today, however, as we continue to evolve, our growth projects begin to materialize and we become more seasoned as an investment grade company. We're not there totally yet, but we do have flexibility and some opportunity in this balance sheet. So we have the potential to evolve this balance sheet as we evolve in line with our ratings, our outlook. We have strong, today, investment grade, very solid investment grade metrics. We're committed to maintaining those metrics. However, for sure though, there is some opportunity here in this balance sheet as we mature as a company.

So a quick snapshot of some of the actions we've taken to date, new management team and a focus on cost reduction program as you've heard outlined here from everybody this morning. So those increased efficiencies really began back in 2009. You hear a lot of companies today announcing these large cost reduction programs. This has been part of our culture for a long time now. So it's very much embedded in what we do. IPO in 2010, began to establish ourself in the market in terms of credit worthiness, began some of the small-return capital projects. As Doug mentioned this morning, those projects are now coming online in time to fund the larger growth projects that we've announced last year and of course have outlined here this morning.

Over 2011 and '12, we also refinanced the balance sheet. We initiated our first regular interim dividend, and we paid our first very large special dividend and then in 2012 paid our second large special dividend and ultimately level set our regular dividend at $0.40 per share per quarter or $1.60 for the year, so close to $1 billion now for our regular interim dividend.

And all of this culminating in some great milestones from a financial perspective with the upgrade in terms of investment grade, although not fully investment grade on the bonds at a company level and then of course the S&P 500 inclusion.

So going forward into 2013, as you've heard, all of our projects online. We're beginning construction. We also announced just recently that the board approved that the company seek authorization from our shareholders with regards to share repurchases. If we receive authorization, this would provide the management team and the supervisory board another mechanism when we're determining our deployment of our discretionary cash, which essentially wasn't possible until very recently.

So up until the beginning of this year, 1/1/13, we had some legacy issues from a Dutch perspective in terms of some tax consequences associated with buybacks. So those have been alleviated. And then of course, we also had the ownership concentration concerns, which really have just been -- become alleviated or at least give us some more room to work with. And that's really just -- having just recent sell down a month ago with our private equity shareholder.

Okay, so let's go back to basics in terms of cost control. This morning you heard a lot about the opportunities that we have to increase our margin as well increase our percentage of the margin that's there, both operationally, commercially and then with the capital projects. But for those margins to flow into real cash to be available for redeployment for our growth projects as well as directly to shareholders, we can't consume it with a high-cost or inefficient operations. So regardless of the market conditions, we always want that margin realization to flow as efficiently as possible to the bottom line. So therefore, our fixed costs have -- across all of our segments have remained flat for the last 3 years even while absorbing inflation. And all the while, we're increasing our reliability across our assets across the company. Tim touched on this already this morning, but this is very, very important to us.

Equally important, if you look to this chart on the right, is our SG&A expenses versus our peers. SG&A, our back office, our corporate functions, as you can see, are very much well below our peers.

Financing cost, approximately $400 million. Interest expense, savings or cost reductions, I guess 2 things here. One is there is some opportunity, but the key here is that we are in a very low-cost position today. And two, as we continue up that investment grade continuum, as I already indicated, we do have some room. So we do have some flexibility here.

Working capital, this is another area where we have shown tremendous discipline, not only from a cash cost perspective but also from a use of cash. You can see the improvement from 2010, a lot of that has to do with trade credits. So we were in a position where we're prepaying for all of our feedstock raw material purchases. And so that has changed, and now we're getting credit in the market as though we're an investment-grade company.

And then from 2010 end of year through 2012, you can see relatively flat. So we managed our working capital in a very disciplined manner. And then of course on the right, as everyone has indicated, we benchmark against every -- all the time. And you can see relative to our peers, all of this fixed cost, SG&A, the back office, the corporate function, the financing costs, the working capital costs as well as the use of cash and our working capital, all of this culminates in more cash being delivered to the bottom line. So this is an important part in our effort in terms of our investing for our future with our projects and maximizing the potential returns.

I'll display 2 different metrics here, which the one on the left should be no surprise, considering the graphs I just previously showed you. But you can see we outperform our peers in terms of free cash flow as a percentage of EBITDA. And then on the right, free cash flow as a percentage of our 2012 year-end market caps. So a bit of a valuation take there as well.

Let's move onto the next slide. Some additional growth in return metrics here versus our peers. Building on to what I just said on the previous slide, you can see that our performance in itself but also versus our peers has been very strong over the last couple of years. So earnings growth just shy of 40%. And then the other ratios on the right side of this slide, you can see the same thing. We outperform our peers not only in growth but also in terms of our returns and our payouts.

I'm not going to spend too much time on all the ratios. I know you all spent a lot more time on these types of comparisons on your own. Rather, I'd rather spend more time now in terms of how we think about cash deployment.

So let's start by taking a step back. Several of you have asked me about how we think about this. So let's spend a little time on it.

First, we have to cover our base CapEx needs. So that's about $700 million to $800 million per year. Our interest expense adds to that around $260 million a year. So we're about $1 billion for our base needs from a cash perspective. Add to that the regular interim dividend, which is $920 million per year, so about $2 billion in total for our base cash requirements. And we expect to fund this through the cycle with cash from operations.

As all of you know, we're in a very good position today in that we generate more cash than our base needs, and that therefore we have some additional opportunities.

So discretionary opportunities that we can consider. One is growth. Okay, you've heard some very compelling projects this morning. Then, after these growth projects, it's really simply just about distributing that cash above that back to our shareholders. And we have 2 mechanisms essentially. One is special dividends. And then two, assuming shareholder approval and board approval, is share buybacks.

So we have growth CapEx. We plan spending about $750 million annually in growth projects over the next few years. And as we've outlined, these projects will bring fantastic results for the dollars spent, which then in turn provide more cash for us to consider for discretionary opportunities. And I'll talk a little bit more about that on the next few slides. But -- so it's growth CapEx, then -- and then if there's no other near-term, and I can't stress this enough, no other near-term strategically, very strategically and very meaningfully accretive M&A, then we will not sit on an asset, we will not sit on cash, cash that is well beyond our liquidity and operating needs, earning relatively no returns. So we will look to redistribute that cash. That's what we've done, and that's what we will continue to do.

All right. Let's talk a little bit more about distributing the cash and how we think about this. So 2012 over $3.5 billion in free cash flow, close to $2.5 billion paid out in dividends. I want to spend a little bit of time on this chart on the right. If you look at this chart, you can see the yield as compared to our peers. And obviously, it's well above. But I want to spend a little more time on that lighter blue shaded part of that bar on the right, which is really the regular dividends.

So if you look at that green dotted line, without even considering the special dividend, we're at the high end of our peer group, which is where we expect to be given our free cash flow profile.

But moving away from the yield, and let's talk about this in terms of the absolute dollar amount of that regular dividend. So that is set based on our ability to fund that comfortably through the cycle without having to raise debt to fund it and without having to put it at risk in terms of our having to decrease that regular dividend. So there's no reason for us to put that at risk. We're at the high end in terms of payout ratio, in terms of our peers as well as S&P 500. And as we've done in the past, we have mechanisms to supplement that through the cycle with either with a special dividend, and potentially now in the future we'll have buybacks as well.

So the regular dividend amount, we've had a 60% level setting increase last year. So going forward, we expect to be a serial dividend increaser. So much smaller increases but always, always increasing. Smaller increasing, but continuing to increase methodically over the years.

In addition to that, there is some embedded potential in that regular dividend for growth. So as our growth plans start to materialize, we increase our base EBITDA and our free cash flow through the cycle. So there's some potential embedded growth even further.

Then also, if we were to execute on share repurchases and reduce the total amount of shares outstanding while we were continuing to increase the absolute dollar amount of the regular dividend, then simple math, the dollar value of that regular dividend per share goes up.

So very strong regular dividend today as compared to our peers and S&P 500 as it should be considering our free cash flow profile. Growing methodically over the years, and then not so aggressive that it could be at risk of funding with cash through the cycle. And then on top of that, there is some potential growth there as well.

Okay. Now going forward, our capital program over the next 3 years or so. So pulling everything together that you heard this morning, our growth projects in total will make up about 50% of our CapEx in the coming years and be around $750 million in 2013 and '14. It's no surprise that the majority of the capital will go into the segments where we see the best returns for the dollars spent. So low cost, quick return projects.

Okay. And if you add up, and again, this is using 2012 margins, if you add up what's been outlined here this morning, we'll have about $1.5 billion to around $2 billion in EBITDA growth, so coming from both the growth and improvement projects.

We often hear about the first wave of capacity additions coming online in 2017 and beyond. But the first wave of capacity additions in terms of coming online are not in 2017 and beyond. The first wave of capacity additions are now in over the next few years, and we are going to be participating in a very big way. So we're going to see those earnings and those cash flows from those projects incremental to our current earnings profile. And because of the way we're structured and are focused on cost, efficiently flow to our bottom line and be available for deployment in the near term.

Okay. This slide pulls it all together. It's just a math example to illustrate the order of magnitude of the total impact from these projects. And what that means from an overall discretionary cash potential, above our base and above our growth CapEx. So it's not a forecast. It's just a math example, but you'll see it's pretty compelling. So if you look at the box on the left and you take our market cap at year-end 2012 and simply apply our year-end EBITDA multiple on the average EBITDA associated with our growth and the improvement projects. So as I indicated, $1.5 billion to $2 billion, average $1.7 billion. No cyclical upside here, not forecasting, just illustrating the significant over 30% appreciation, assuming growth projects potential value at constant 2012 margins. So pretty significant potential value proposition over the next 3 years.

And then, how could that potentially influence our annual discretionary cash opportunities? So if you looked on the right side of the slide and you take 2012 discretionary cash, and this is above our growth in regular interim, approximately $2 billion. And then add on to that the additional discretionary cash associated with the capital projects. So it just illustrates the potential for up to a 75% increase from that $2 billion to the $3.5 billion.

Now, I'd love to be able to stand here and tell you exactly what we planned in the short term in terms of the method of which we would return cash. But I'm sure you can appreciate, until we have our shareholder approval, which really is just in a couple of months and management board decision -- not in a position today. However, when you look at the potential, returns are strong. Either way, whether it's special dividend or share repurchases or a combination of the two.

For example, if you applied all of that to the top box, the special dividends, you're looking at up to 11% yield. Of course, that's based on our year-end stock price. And similarly, if you apply all of that to the bottom, to the share repurchase box, it would result in a reduction of our shares outstanding of up to 16 million shares. And if you assume the same multiple, the multiple doesn't change, the accretion there would be pretty significant. And as I indicated earlier, that also increases our regular dividend on a per-share basis. So either way you look at it, it's pretty significant.

Again, this is not a forecast. It's just using those 2012 actuals to show the order of magnitude, the impact that these projects would have not only on the valuation, but on the growth of the amount of discretionary cash available to us over the next 3 years or so.

Okay. Final Slide. Record earnings, flat fixed costs, restructuring, increased liquidity and S&P 500 inclusion, investment-grade with Moody's and of course some great returns directly to our shareholders. Great achievements, but there's a lot more to do.

Execute on the organic growth. Continue to improve our credit rating and optimize the balance sheet. Continue to broaden investor base from a focus on cost control and more frequent cash distributions. So we often get the question on whether we will actually return the majority of the discretionary cash that we generate to our shareholders. My response to that is always that history speaks for itself. We have been, and in this market, this management team has said that it will return the cash. And that's what we've done. And after consideration of any other near-term, better alternatives, and we've outlined -- hopefully did a good job, outlined how we think about that today, then we will continue to return the cash. Okay. Thank you.

Douglas J. Pike

Okay. Thanks, Karyn. Okay, well, Jim's going to come up now and wrap things up for us a little bit and put things together. And then after that, we'll do some more Q&A.

James L. Gallogly

We're running a little bit behind schedule. So I'm going to be succinct in the way that I close out this session. First and foremost, in 2012 we had a banner year: $5.9 billion of EBITDA, $2.8 billion of net income, $4.8 billion of cash flow from operations, resulting in an 89% total return to our shareholders. We've implemented the back-to-basics strategy that we started with. At that same time that we were fixing our company, we were also doing the engineering to begin to grow the company, to beat our competition to the finish line on that. We believe we have differentiated assets. But most importantly, as you've seen from some of these videos, differentiated employees.

We completed some of the things that we promised to you in the past. We've redone our capital structure as Karyn explained, and refinanced the high cost debt that we had. The Berre Refinery is closed and no longer losing money. We've been fixing the Houston Refinery both in terms of its cost structure, in terms of its reliability, in terms of its ability to crack crudes that are going to become available to us.

In Europe, a couple of years ahead of the competition, we started the restructuring effort to the point where today, we have a couple hundred million dollars worth of savings ongoing. All of those things yielded an estimated pretax value of about $700 million to $900 million per year.

There are some things that we're going to do going forward and I'll talk about those. You've heard about those so far today. There is going to be further restructuring in Europe. Some of that is in manufacturing. Some of that is in R&D. Because of the process in Europe, it takes a bit of time. But we're into discussions with the Works Councils and expect to execute that shortly.

The Houston Refinery, we're completing a significant turnaround. Kevin talked about that. There'll be a little bit more work to do on our hydrotreating capacity in 2014. But generally, we're very, very well-positioned for the future there. These featured improvements in those 2 areas are expected to yield $250 million to $400 million per year by 2015.

We previously announced a variety of high-return growth projects, you heard more about that. You saw the status of those projects from the La Porte expansion, Olefins ethane capacity expansion going all the way up to 90 plus percent. The methanol restart that Pat talked about. The butadiene expansion in Europe at Wesseling, Midwest debottlenecks, PO/TBA joint venture, some incremental growth and our compounding business and other quick return projects, remaining spending on those things, $600 million to $700 million, with additional potential pretax earnings of $800 million to $1 billion by 2016.

New things that we talked about today: the Channelview expansion, Corpus Christi expansion, Olefins NGL recoveries, PE debottleneck at $0.10 an annual pound, potentially a new polyethylene line. Projected spending, $900 million to $1 billion; potential pretax earnings, $500 million to $600 million per year by 2016 with an average payback of less than 2 years.

You've heard us talk about strategy. The strategy of back-to-basics remains the same although today we now have some green boxes about investing in Olefins & Polyolefins Americas and in I&D, where we have the cheap ethane advantage, where we have cheap natural gas advantages. Those businesses will be thoughtfully grown with a lot of capital discipline.

In Europe, we'll continue our restructuring effort. We think we are a low-cost producer already, but that cost will get even more competitive going forward.

In refining, sustained, and we expect the crude portfolio to improve. More to come on this. It should be a beneficial asset going forward and technology optimized.

Let me give you a short report card. It's my personal report card. You heard our strategy. When it comes to safety, reduce the number of people getting hurt in our company by half. It was already industry-leading. Today, we think we're the best recordable incident rate 0.1 year-to-date.

In reliability and the cracker business running above nameplate, multiple quarters in a row, that same kind of reliability is elsewhere in our company. We get value for the dollars that we spend on maintenance. Third parties tell us that we are industry leading in reliability on a very, very regular basis.

On cost and revenue. It's always flat to falling in this company. We've been able to maintain those costs consistently flat. But as we increase volume, don't expect those costs to go up. We'll get further bang out of each dollar, euro, yen that we spend going forward, with the same kind of cost structure despite growing the capacities.

On the revenue side. We set new benchmarks in the industry. We had a third party come in and said, "You just set a new model for us." We thought that the -- in Europe, where we already had very high revenue for our polymers, we thought that whoever had the high revenue would also have the high cost and that's how it always was, year after year, after year. We have a new model. You're both the high revenue producer and the low-cost producer.

And then United States, where we were neither high revenue or low cost, we are now the leader in both of those categories. We pay a lot of attention to those details.

On growth. You heard about the plans that we have to expand our company. We will beat the competition to the market significantly. We hope by years. These projects are being carefully monitored. We are spending less, significantly less than the competition. We hope to have our growth projects paid for before the other competition gets their projects up and running. We will exercise capital discipline going forward. Those projects will not be over budget, they'll not be long. That's historically what we did is a company, but this is a totally different company than you saw on the past.

In terms of return. On the day we went public, we're a little over $17 a share. Today, I don't know what the price is because we've been with you. But yesterday we set another new high. We paid, in addition to that, $9 worth of dividends over the last couple of years. That sounds good, but that's not where we want to end. We want to be the #1 petrochemical company in the world.

I sent a letter to our team, December 31 -- well, actually, I couldn't wait. I think it was December 30. I said, we've created great expectations in this company. People have come to expect performance. We have to deliver that. And that's what we're all about. There will be relentless execution, relentless. We will continue to drive the company forward. We are not #1 today, but we will be soon. Thank you.

Douglas J. Pike

Okay. All right. If Pat, Karyn and Kevin could come up and we'll take some more questions at this point in time.

Question-and-Answer Session

Douglas J. Pike

I think we have John Roberts [ph] back there. Andrew?

Unknown Attendee

Karyn, you said that the total dividend in dollars, $920 million, won't decrease in the future. So if you buy back stock, are you committed to raising the per share dividend by at least as much as any share reduction?

Karyn F. Ovelmen

Yes. Basically, what we're saying is -- so our overall, from an absolute dollar perspective, is that we expect to continue to increase that methodically over the years. So as that increases, and if we did a buyback, again the overall number of shares outstanding goes out so per dollar per share, simple math, you get an increase in that dollar per share. So you get it from the reduction in the denominator as well as, as we continue to grow that regular dividend.

Unknown Shareholder

I'm Charlie Rose [ph]. I've got to tell you something first before I ask the question. I am in awe. I own your stock, but I'm much more in awe of the cultural and operational and financial restructuring. And I give you a tremendous amount of applause.

James L. Gallogly

Thank you. I'll tell you that 13,500 people took their company back.

Unknown Shareholder

The question I have for you is that, what are the longer term -- obviously right now we're in this significant low interest rate, low natural gas, U.S. advantaged gain that you're taking a significant -- you're capitalizing on very successfully in a very aggressive way, and I give you a lot of compliments. What are the longer term issues of where this normalizes at? You obviously believe this will go on for a couple of years. But markets tend to ultimately normalize. And what is this company's normalized -- maybe you earn -- let's pick a number, 2 years now you're earning $8 or $10 a share, whatever that number is, I don't know. I don't really care, as long as your stock goes up. But I think the real question is, what are some of the normalized parameters we should be thinking about longer term? Because most things in life have normalized earnings. They have -- they are not this way in highly commoditized businesses. If they are then I'm a new -- I'll have to go back to school. So tell me what you think about what normalized issues we should be thinking about longer term?

James L. Gallogly

First, let me tell you that there is a new normal. In the Middle East, people don't talk about how feedstocks are going to suddenly go up because they know that there's advantage feedstocks for the long-term because it's hard to put natural gas on the boat. And ethane is a component of it and despite there being significant LNG projects, the ethane stays or is created at long-term competitive advantage. And everybody looks at that and says, that's sustainable. In the United States, we have the same kind of thing going on. It's not 1,000 wells, it's 10,000s of wells. The production rates are lower, but it truly is a revolution. I used to drill those wells, the decline curves are much steeper, but the economics still are very, very compelling. And so, we're in a totally different environment. And I think that stays with us for quite a while. We have cheap ethane. We have cheap methane. And so we're going to capitalize on that with our growth projects. And people who are building these crackers with expectations that they start up in '17 and '18 are not doing that for 1 or 2 years for the cycle. They are thinking that this continues. And so I think there's a new normal. We think that's very positive. Now in terms of the future things that this company may do, there are other potentially feedstock advantaged areas in the world that will come into play. We're already beginning to think about those things because that happens a ways down the road. I used to be an E&P guy and I know where those locations are. I'm not going to talk about it in the meeting. But we will be a company that chases cheap feedstock. 75%, 80% of the as-delivered cost of our products generally in this company are energy-related. And so we'll continue to do that. Today, what we're talking about is what we're doing in the United States to create an advantage for the opportunities at hand. More to come in the future.

Unknown Shareholder

What type of returns on capital are you generating in the incremental and the new spend that you're doing?

James L. Gallogly

Well you can see that when these projects pay for themselves in 1 or 2 years, these are extremely robust. And part of the reason that our cracker projects returned such strong values is because they're the first in line before the other people have the capacity up. And the capital is a lot cheaper, as I said, $0.50 in annual pound, plus or minus, compared to something in the $0.70 to $0.80 an annual pound. And so with cheaper capital sooner into the market before the extra capacity is added, it's just very strong. So we target very, very strong returns because we have an alternative and that's, of course, to buy our own shares, which were very strong, positive about going forward. And so M&A is kind of way over here. We're the best M&A opportunity in our own mind at this point in time. And so we're driving shareholder value every day.

Unknown Shareholder

I'll make one last point, is that your competitors should all go bankrupt. It'll teach them something about how to manage capital.

Douglas J. Pike

Thanks, Charlie. I think we have a question here from Jeff Zekauskas.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

I guess I have 2 questions, 1 for Jim. If I'm not mistaken, I think your employment contract comes up in 2014? So all things being equal, do you plan with a high probability, if you can, to stay on at Lyondell -- LyondellBasell, or do you not? And if Lyondell were to look for someone, will they look for someone internally or externally? And the second question is to Karyn. And that is when you think about share repurchase, what are the value parameters that you use? That is, is it Lyondell's level of dividend? Is it normalized return? And if it is -- or capital appreciation over a 3-year period? And if it is those, which are relatively favorable, does that argue for more of a ratable repurchase program, because you would be undervalued on those measures? Or do you plan to be more opportunistic, given the way you see the values at Lyondell?

James L. Gallogly

Let me answer the first question by saying this company is not #1 yet. I came to take a bankrupt company flat on its back with $20-plus billion of debt and make it #1 and the job isn't done. I have a lot of intensity around that. So more work to be done. But I'll tell you, as you look across this team, we've built the best leaders in the industry. I'm highly, highly selective of the people that I bring on the team. I hope that you're impressed with them. The other part, we run like a clock and we run a system, and it's not dependent on 1 person. So we're going to be just fine going forward. My job isn't finished yet.

Karyn F. Ovelmen

Yes. In regards to the share repurchases question. First and foremost, that's something that we're working with our board on in terms of how we will potentially execute, assuming we had shareholder approval, of course, so I'll throw all those caveats in there. Just generally speaking, when we look at that from a share repurchase as a potential mechanism, there is 2 ways to look at it in the sense of an investment or being opportunistic and looking at our share price. But how we are looking at it today is really in connection with a return of cash to shareholders. So we're generating a significant amount of cash for which we had no near-term better alternatives for. And so we have 2 mechanisms: it's the special dividend or the buy back. And so when we look at it in that context, it really is about just returning the shares. And so the potential there is when you look at how other companies do it or how we would potentially do it, you look at it as over a certain period of time, we have a certain amount of authorization. And you look to get what the market bares during that period. So that's a method of looking at a share buyback. Whether or not we would go in opportunistically and look at shares, that's going to be facts and circumstances at the time. And at this point, it's still very premature. Once we get shareholder approval, we'll start to work through all of those mechanisms.

James L. Gallogly

If some of you are wondering why we're hedging our bet, we don't get in front of our supervisory board. So that's just an important thing for us to do. We have a meeting coming up, more to come.

Douglas J. Pike

Okay. Next question?

Robert Walker - Jefferies & Company, Inc., Research Division

Rob Walker, Jefferies. I guess a question for Pat and Kevin. With -- as refiners cracks more, as they change their feed slates, what do you expect the impact would be on aromatic seals and ultimately benzene prices and styrene margins?

Patrick. D. Quarles

I'll ask Kevin to answer more broadly. Candidly, styrene suffers from a variety of challenges, not least of which is high benzene. Of course, U.S. has gone short benzene. So I think some these measures will help improve the supply balances for the U.S., but we really need to see growth to really change the equation for styrene.

Kevin W. Brown

So if you look at octane demand continuing to increase, and we believe that there's going to be continued demand for octane in the market, people are going to run reformers harder and increase reforming capacity. But because of the benzene rules, they'll need to reject benzene. I see the supply increasing.

Douglas J. Pike

P.J.?

P.J. Juvekar - Citigroup Inc, Research Division

I got 2 questions, 1 for Kevin and 1 for Jim. Kevin, as you bring in lighter crudes into Houston refinery, what happens to your coking operation? I mean does that run underutilized? Or can you bring in heavy crudes just to run the cokers?

Kevin W. Brown

We excess some material today beyond our coker capacity. But if we bring in enough of the light crude to idle our units, we'll make a conscious decision on whether we should buy residual feedstocks, basically fuel oil and coke that will go to [ph] lower price or leave that capacity idle.

P.J. Juvekar - Citigroup Inc, Research Division

And the question for Jim is that, is refinery a core asset for you?

James L. Gallogly

The refinery has a lot of potential. As you've probably seen, there's been some transactions in the refinery space where people have sold assets for very, very undervalued prices. This asset is a fine asset. Some of you may remember my history. I ran the second largest refining system in America and by the way the most profitable per barrel. I know a good refinery when I see it and this is one of them. We have some very dedicated people. We see some longer term advantages. I don't know whether I call an asset strategic or not, but I think it has plenty of upside potential. And if there ever were any thoughts of selling, then today is certainly not the right day to think about it.

Douglas J. Pike

I think we have a question in the back.

Unknown Attendee

Two quick questions for Karyn, balance sheet related, 1 specific and 1 general. The specific, S&P several months ago rated your 8.1% notes, which I think would have been done at the request of the company. Have you currently engaged Moody's or are you pursuing Moody's to rate those notes as well? That's number 1. And number 2, you mentioned the balance sheet opportunities and striving under an IG kind of regime. What do you think about in terms of ultimate leverage hurdles and things like that?

Karyn F. Ovelmen

In terms of the first question, no, we haven't pursued a second and nor is there any real request to pursue a second rating on those -- the 500 million bonds that we have -- or 300 million, sorry, bonds that are out there. So we haven't had a second -- another request for that. In terms of overall leverage, with where we're at today, we're very comfortable with our financial position today. But there is capacity in our balance sheet. We understand that. We're very committed to maintaining the strong metrics that we have from an investment-grade perspective. Moody's has us at -- from a bond perspective investment-grade, but we're still not fully there across the bonds with both rating agencies. Until we start to become more of a seasoned investment-grade company, then we'll start to look to see where we are from a capital structure. That will allow us tremendous more flexibility in opportunities. And so we've got a lot going on and a lot of support from a balance sheet perspective, as I indicated, as we evolve though, as we mature, we do have some opportunities there. And so we will evolve that structure ultimately.

Douglas J. Pike

Okay, I think we're going to just take 1 or 2 more questions and we're going to go to lunch. And everyone can continue discussions there.

Andrew W. Cash - SunTrust Robinson Humphrey, Inc., Research Division

Andy Cash, just a quick one, Kevin. With the industry up against the blendwall, do you think there's going to be relief on the ethanol mandate? And perhaps, do you have any views on what might happen to the RINS? And my second question on this area is a lot of money, a lot of capital is going into biodiesel from soybeans and other sources? What's your view on biodiesel in the context of the deals market?

Kevin W. Brown

So I'll take the first question. You've noticed that the RINS prices have run up fairly significantly over the last month or so. And I think the market is moving very quickly. Ultimately, I think relief will be what occurs. The question is when? We're taking the approach that we can't outguess the market. So we're trying to stay ratable on purchases and not suffer the risk of a big loss by over acquiring and having cash going out or having to buy at a higher price later. I can tell you that our trade association is working the issue. We're working the issue as a company. Numerous other refiners are working the issue, from the conversations I'm hearing. Ultimately, that's going to happen. If it doesn't, I think the market will rebalance, not the RIN market, but the gasoline market. You already see conversation in the trades about gasoline imports that have to acquire RINS or importers have to acquire RINS to be able to sell that. That's going to keep barrels less likely to come onshore. So there's not a lot of downside, if you looked at those Brent margins on being able to sell the gasoline cheaper to make up for that RIN cost. So we'll rebalance, and you'll see people in the short term exporting more. That's going to dry up supply as well, and the price of product will rebalance. So we'll see where it goes. With respect to biodiesel, there is a fair amount of biodiesel coming into the market. I think you're going to continue to see more and more of that. It's going to increase the exports of diesel. It is the follow-on from that. And as refiners, we have to think more about being competitive globally, not competitive with the guy down the street.

Douglas J. Pike

Okay. I think I'm going to take one more question from David, and Jim's going to make a couple of closing comments here.

David L. Begleiter - Deutsche Bank AG, Research Division

Pat, just quickly, any thoughts on increasing your acetic acid gas and capacity down the road?

Patrick. D. Quarles

I'm sorry, which capacity?

David L. Begleiter - Deutsche Bank AG, Research Division

Acetic acid. And also, any interest in MDI capacity, either here or in China down the road?

Patrick. D. Quarles

MDI, no. So on acetic acid, I think it's a good question. We really like the position of that asset. I talked about it earlier, it's based on U.S. natural gas. Although the reality today is really the value in that chain is accruing all to methanol. So I think we're going to enjoy, on the front end, a lot of value acquisition through the start of the methanol unit and the methanol unit we already have running in La Porte. And we'll evaluate opportunities to incrementally grow out acetic acid over time, but don't have the anticipation at this point of significant expansion. And MDI is really probably a bridge too far for us right now. It's not a foundation that we have in the company. I think you've heard the views on M&A type activities. So it's not really a priority for us to be spending time focused on that.

Douglas J. Pike

Okay. I think Jim is going to just make closing comments. I'm going to remind everybody that we have lunch in the SOHO Room. So please join us and continue discussions there. And let me turn it over to Jim just for a sec.

James L. Gallogly

Thank you, Doug. First, I'd like to say thank you for all of you attending today. It's been a little bit chilly in the room. I think, people must not have recognized that natural gas is cheap.

Chapter 1 on our company was Chapter 11. We got out in record time and stabilized the company. Chapter 2 finished up in December of 2012. We're a company that shows a can-do attitude. Now, we've improved our cost structure, our basic execution. And while we were stabilizing, we were also preparing for the future. 2013 begins Chapter 3. And I'm here to tell you that the best is yet to come.

I purposely allowed the creator of our covers, of annual reports, to use the symbol that you see in front of you, on what I call Touchdown Charlie. We are seizing the moment and we are securing the future. It is a very bright future. Thank you.

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