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LyondellBasell Industries NV (NYSE:LYB)

Q1 2012 Earnings Call

April 30, 2012 12:00 pm ET

Executives

Doug Pike - VP, IR

Jim Gallogly - CEO

Karyn Ovelmen - EVP & CFO

Sergey Vasnetsov - SVP, Strategic Planning and Transactions

Analysts

Duffy Fischer - Barclays Capital

Bob Koort - Goldman Sachs

P.J. Juvekar - Citi

Jeff Zekauskas - JPMC

Don Carson - Susquehanna Financial

Frank Mitch - Wells Fargo Securities

Mike Ritzenthaler - Piper Jaffray

Hassan Ahmed - Alembic Global

David Begleiter - Deutsche Bank

Rob Walker - Jefferies

Vincent Andrews - Morgan Stanley

Andy Cash - UBS

Gregg Goodnight - UBS Financial

Charles Neivert - Dahlman Rose

Kevin McCarthy - Bank of America-Merrill Lynch

Operator

Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. Following today's presentation, we will conduct a question-and-answer session. (Operator Instructions).

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

Doug Pike

Thank you Debbie. Well hello and welcome to LyondellBasell's first quarter 2011 teleconference. I am joined today by Jim Gallogly our CEO; Karyn Ovelmen, our CFO; and Sergey Vasnetsov, our Senior Vice President of Strategic Planning and Transactions.

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

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

Finally, I'd like to point out that a recording of this call will be available by telephone beginning at 3 pm Eastern Time today until 11 pm Eastern Time on May 30, by calling 866-489-3828 in the United States and 203-369-1672 outside of the United States, and the passcode for both numbers is 2121. And during today's call, we'll focus on first 2012 performance, the current environment, and the near-term outlook.

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

Jim Gallogly

Thank you for joining our earnings call. As Doug mentioned, a set of presentation slides accompany this call and are available on our website.

Let's begin by taking a look at page 4 and reviewing a few financial highlights. The first quarter reflects a strong rebound following the slow fourth quarter. Net income was $599 million and EBITDA was $1.24 billion. The recovery was led by improved margins in the O&P Americas and Refining and Oxyfuels segments, but all segments recorded gains. Earnings per share increased to $1. Karyn and I will discuss the quarter in detail, but I thought I would quickly summarize a few highlights and trends from the quarter.

In North America, we benefited from increased ethylene margins. European Polyolefins volumes returned to third-quarter levels following the fourth quarter slowdown. Intermediates & Derivatives results returned to a more difficult level following the completion of fourth-quarter maintenance. Refining spreads improve as the quarter progress while Oxyfuels margins were unseasonably strong throughout the quarter.

As a result of our 2011 performance we were honored by Hart Energy as the Refining and Energy Company of the Year. Operations at the Berre refinery were suspended on January 4 and the refinance the majority of the remaining balance on our 2017 and 2018 bonds at an average interest rate of 5.25%.

Overall it was a good quarter. Our personal safety performance was no exception.

On slide number five we have updated our safety data. I'm proud to say that we have started the year well. There were some minor injuries primarily related to Channelview turnaround work. For the first quarter statistics improved versus 2011, a tribute to both our employees and contractors. Our safety record is very near best in class. Now I would like to turn the call over to Karyn to discuss some key elements of our financial performance.

Karyn Ovelmen

Thanks Jim. Please turn to slide number six, which charts are first quarter and last 12 months segment EBITDA. The $1.24 billion of EBITDA reflects a strong beginning to 2012 particularly when one considers that the first quarter is typically a seasonally slow period. From a segment perspective, O&P Americas continue to be our strongest segment generating approximately $600 million of EBITDA. The majority of this was in Olefins where the benefits of ethane cracking were particularly strong. It is also important to note that these results were generated while we conducted significant maintenance at our Channelview site.

O&P EAI produced approximately $100 million of EBITDA consistent with past quarters that differentiated polyolefins products and our joint venture's performed well. The improvement versus the fourth quarter was driven by improved olefin and polyolefin volumes and margins.

Following the fourth quarter turnarounds, Intermediates & Derivatives segment results returned to strong historical levels with EBITDA of approximately $280 million. The Refining and Oxyfuels segment generated over a $190 million of EBITDA in what is historically a seasonally slow quarter. Oxyfuels results were particularly strong.

The Technology segment continues to benefit from steady catalyst sales leading to EBITDA of approximately $55 million. The bar chart on the right depicts the last 12 month's EBITDA by segment. Over the period total EBITDA was approximately $5.1 billion. Approximately 45% was generated from O&P Americas while the Intermediates & Derivatives and Refining and Oxyfuels segments, each generated approximately $1 billion.

You return to slide number seven. We have plotted the key components of our cash flow. During the first quarter, cash balances increased by approximately $600 million, closing the quarter near $1.67 billion. Typically, the first quarter is characterized by relatively weak cash flow and several annual payments including property taxes, customer rebates, insurance premium payments and employee bonuses are made during the quarter. This year was somewhat of an exception as strong earnings and the receipt of approximately $250 million from tax refunds more than offset these items. CapEx spending was slightly less than our planned rate.

On the right side of this chart, you can see that over the last 12 months our cash balances declined from $4.4 billion to $1.67 billion. Operations, including working capital generated, over $3.6 billion of cash while usage included approximately $1 billion for CapEx, $2 billion of debt repayment and $3 billion in dividends.

Before I leave this chart, I wouldn’t like to point out that our first quarter’s financials do not reflect the premiums and other costs associated with our recent financing. The transactions were closed during the second quarter and will be reflected accordingly. By way of guidance, I estimate the second quarter will include a charge of approximately $330 million representing tender premiums and the write-offs of previous financing fees.

Of course, this is a non-recurring item and approximately $35 million is non-cash. Most importantly, I want to highlight that going forward our cash interest expense will be approximately $250 million annually. The average interest rate on our remaining debt is slightly greater than 5.5%.

Let's move to slide 8 to look at a few balance sheet statistics. On the left, you can see that working capital was relatively unchanged during the quarter as inventory declined while receivables increased. The inventory reduction is related to both our Channelview turnaround and the sale of the Berre refinery inventory.

On the right, we included a few key statistics. As you can see, we closed the quarter with $4 billion of debt and net debt of $2.3 billion.

During the past two quarters, we have significantly restructured our debt and improved the balance sheet. In fact, since our original financing in 2010, we’ve reduced debt by more than 3 billion, reduced the average interest rate by approximately 4.5% and decreased annualize interest by more than 400 million.

Additionally, our credit rating has improved substantially. Notably, one of the agencies recently raised our corporate rating to investment-grade.

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

Jim Gallogly

Thanks, Karyn. Let’s discuss segment performance beginning on slide number nine with Olefins & Polyolefins-Americas. First quarter EBITDA was $598 million, an increase over $191 million versus the fourth quarter. Olefins EBITDA exceeded $500 million despite having significant downtime related to the Channelview turnaround.

During the quarter, maintenance activity reduced ethylene production by approximately 200 million pounds. A combination of fourth quarter product purchases and a first quarter inventory draw enabled us to meet our customers’ product needs.

I would like to discuss a few metrics to put results in perspective. Relative to the fourth quarter, our average ethylene price increased by approximately $0.02 per pound, while the cost of ethylene production metric decreased by approximately $0.10 per pound.

The later decrease was primarily related to the lower cost of ethane. Our average ethane cost declined by $0.28 per gallon in the Gulf and approximately $0.10 per gallon in the Midwest. During the quarter, 82% of our ethylene was produced from natural gas liquids, with ethane accounted for 68% of the ethylene production.

Polyolefin results also strengthened versus the fourth quarter as EBITDA increased by approximately $60 million. Margins drove the increased performance. Versus the fourth quarter, the average polyethylene sales price increased by approximately $0.06 per pound while the polypropylene price increased by $0.02 per pound. Prices for both polymers were relatively unchanged. During the quarter, we received $10 million dividend from our Mexican joint venture.

Overall, the first quarter was a good for this segment and the underlying fundamentals have remained intact. Ethane prices have remained low while industry turnarounds have made ethylene availability tighter than normal.

Our Channelview olefins plant turnaround is complete and the plant is being restarted. During April, the turnaround impacted ethylene production by approximately 150 million pounds.

Let’s turn the slide no. 10 and review performance in the olefins and poly-olefins Europe, Asia and International segment. First quarter EBITDA was $103 million, a $41 million improvement over the fourth quarter. The improvement was generated in European olefins and commodity polyolefins.

During the quarter, our differentiated products such as polypropylene compounds and Catalloy resins continued to perform well, generating results consistent with prior quarters. Equity income associated with our joint ventures increased but due to the timing of payments, we received $40 million fewer dividends. Although profits in European Olefins & Polyolefins increased, they were still relatively weak as most of the improvement occurred during March.

Product prices increased as the quarter progressed but raw material cost increases offset a significant portion of the benefit. Quarterly sales volumes improved returning to third quarter levels. First quarter results were negatively impacted by an explosion in one of our low density polyethylene facilities at in Wesseling, Germany.

During the quarter, we recognized a $22 million charge for damage to the asset, an estimate about a $10 million impact from lost sales. Thus far, second quarter trends have remained largely unchanged.

Within Europe, the environmental olefins and polyolefins remained difficult. However, raw material costs have stabilized and we are benefiting from butadiene pricing. We anticipate that joint venture dividends will be consistent with historic averages, but it can be difficult to predict the timing of the payments by quarter.

Now, please turn to slide 11 for a discussion of the intermediates and derivates segment. First quarter EBITDA was $282 million, an increase of $109 million from the prior quarter, which included the impact of substantial maintenance activity. First quarter results were on track with performance seen during the first three quarter of 2011.

Absent the impact of the fourth quarter turnaround, propylene oxide and derivate results were largely unchanged. Volumes benefited from the absence of the turnaround activity and stronger trade sales.

Acetyls volumes and results also improved poly in fourth quarter maintenance and PO co-products, TBA derivatives benefited from strong margins but styrene margins declined. Ethylene oxide and glycol results were relatively unchanged.

Underlying business trends were largely unchanged from the first quarter as we head into the second quarter.

Let’s move to slide number 12 for a discussion of the Refining & Oxyfuels segment. First quarter EBITDA was $192 million. Throughout the quarter, Oxyfuels spreads were strong and as the quarter progressed, the Maya 2-2-1 benchmark spread improved from its December low point.

Houston refinery quarterly EBITDA improved by approximately $30 million. Margins improved as the quarter progressed and the Maya 2-1-1 benchmark spread averaged approximately $20 per barrel.

The refinery operated at near-full capacity consuming approximately 259,000 barrels of crude daily. Although quarterly results improved, they lag the benchmark. The following factors contributed to the shortfall.

January results were negatively impacted by the residual effect of late 2011 crude price volatility. Efficiencies between the refinery and Channelview were impacted by the olefin’s turnaround. This impacted results by approximately $20 million.

And although the Maya 2-1-1 benchmark serves as a good indicator of trends, it does not reflect the pricing of byproducts such as coke which did not increase in concert with first quarter crude oil prices.

As I previously mentioned, our Berre refinery ceased operations during early January. During the quarter, we continued to incur fixed costs and some utility spending as we secured and mothballed the asset. This resulted in an EBITDA loss of approximately $35 million.

However, we also sold the existing product inventories at a gain, a portion of which is related to our use of LIFO inventory accounting. Consequently, EBITDA was near breakeven and we generated positive cash flow.

First quarter Oxyfuels results were unseasonably strong, improving by approximately $80 million versus the fourth quarter. Margins accounted for the majority of the improvement; relatively good demand for Octane, coupled with high gasoline prices and low natural gas based raw material costs generated strong margins.

As you can see on slide number 12 during April, Refining and Oxyfuels margins have been very strong. However, margins declined as the month progressed and although we expect them to remain quite good they may not maintain April levels throughout the quarter. Specific to our operations, the Channelview turnaround impact should be limited to the first quarter. But coke coal pricing has remained depressed relative to crude.

The Houston refining has operated near-full rates and is expected to do so throughout the quarter. You should anticipate that the Berre refinery will continue to incur fixed costs during the second quarter.

Let’s step back from the details and summarize the business environment on slides number 13 and 14. Most importantly, on slide number 13, you can see the pace and magnitude of the industry margin recovery across the first quarter and into April.

Clearly, our O&P Americas and refining segments are in a good position. As I mentioned, we are also seeing positive trends in Oxyfuels and good butadiene pricing. And in our other businesses trends have been largely unchanged from the first quarter.

Before we finish our prepared comments, I want to mention that our growth projects are moving forward consistent with the spending and timing outlined at our Investor Day presentations. We will do our best to bring these additional volumes online as soon as possible given the excellent margin environment we expect to see in the future for the US Olefins, methanol and European butadiene.

We’re now pleased to take questions Debbie?

Question-and-Answer Session

Operator

Thank you (Operator Instructions) Our first question is from Duffy Fischer of Barclays. Your line is open.

Duffy Fischer - Barclays Capital

I know it’s not your preferred method of talking about the business, but a lot of people seem pretty cautious about stepping into a stock like your with you know all the crackers coming up over the next several months and the draw that’s going to put on the ethane side of things and potentially the amount of ethylene that are put into the market.

Can you kind of give your best guesstimate how the summer looks as far as the spread between ethane and ethylene goes and just that interplay with all the crackers coming back up in the near-term?

Jim Gallogly

Well, a number of crackers are already coming up. There are several down as I mentioned, OP-2 came up earlier in our company a day or two ahead of schedule. OP-1 is starting up as we speak. If you look at ethane pricing today, things are about where they have been. It’s Gulf Coast, $0.50 plus or minus a gallon and EP at Conway’s in the teens. So that’s working pretty good.

Volumes have been holding up. The economy has been pretty good in the United States. As a company we don’t export much as you know Duffy, so we are not as dependent on the China market. So things still look very good and remember we’ve had incredible margins in this business recently, so we expect them to be good, the question is how good.

Duffy Fischer - Barclays Capital

And then you mentioned the $20 million number for the synergy that was kind of foregone between Channelview and the refinery, was that just for that aspect or was that also including the purchases, you are still underwater a little bit for January within the refining business as well?

Doug Pike

Hi Duffy, this is Doug. Now that $20 million is related to the turnaround only. If you recall, we have the Alky unit and also an MTBE unit over at the Channelview side, but our process refinery materials actually got impact well, it’s in that quarter. That’s a completely separate thing from any purchasing.

Duffy Fischer - Barclays Capital

Okay great. Thank you, guys.

Jim Gallogly

The other thing that you are mentioning there Duffy, we did have some residual effects of, some of the WTI and Brent pricing flow into the first quarter that we had experienced at the end of the fourth quarter; that’s separate.

Operator

Our next question is from Bob Koort of Goldman Sachs. Your line is open.

Bob Koort - Goldman Sachs

Jim, can you talk a little bit about the residence time of a gallon of ethane going through your system production into ethylene and down into derivates and then ultimately being sold and put on a cost to good plan?

Jim Gallogly

Well, we try to make that very quick. We don’t hold much inventory of either ethane or ethylene; the industry has got to the point, it’s really a very rapid process. And then, even into polyethylene, if you look at our days they sail on hands it’s always into 20s kind of a number of days, so things move through the system pretty rapidly.

Bob Koort - Goldman Sachs

And how much capacity do you have to store and how fixated should we be on spot transit; that certainly gets most of the attention on Wall Street, but I suspect most of your sales are on monthly contracts. So can you tell me how much or what you’ve been storing from a raw material standpoint and then, is there a reason to or not to fixate on the spot trends?

Jim Gallogly

First let me comment on ethane storage; we do store some ethane, but we try not to hold a lot of inventory; it just doesn’t make a lot of sense, so that’s not a big issue. We did hold a lot of ethylene inventory from the fourth quarter and into the turnaround at Channelview, because when we have the two largest units down like that that’s pretty significant and we wanted to make sure that we were in good shape.

So you saw that the inventories depleted here in the first, that's as a result of the turnaround in the use of that ethylene we stored, spot prices are somewhat important but it just kind of helps on trend on contract. So we don't, it's important, but the contract price is far more important.

Operator

Our next question is from P.J. Juvekar of Citi. Your line is open.

P.J. Juvekar - Citi

You mentioned that you are restarting Channelview now, there seems to be plenty of real estate at Channelview. Any thoughts on the condo cracker that you talked about at that site and do you have any partners lined up?

Jim Gallogly

Well, a number of people have come to us when we indicated that we would be interested in the condo cracker and there are multiple parties have announced crackers. I don't expect most of those to build their own cracker. They are raising their hand to say we are available. A number of them have contacted us. Channelview could be a site but we are still in early discussions with folks on that. So I don't want to signal anything at this point in time.

P.J. Juvekar - Citi

And just wanted to get your thoughts Jim, on co-products propylene and butadiene. Can you give us an update on your metathesis expansion and then the industry is now beginning to talk about BDH units, sort of butane dehydro units. What do you think can be done in the tight butadiene situation? Thank you.

Jim Gallogly

Well, as you may recall, we announced butadiene expansion in Europe. We had the feedstock, that's one of the big questions is do you have the feedstock for that kind of an extraction unit and we did within our European system, so while we are not trying to grow Europe, in general a butadiene unit at our Wesseling facility made a lot of sense and has just really outstanding economics and that project remains on track. It was approved, you know it’s a construction and so that looks very good.

The reason butadiene is so strong is because everybody is cracking [lighter]. As result of that, the polypropylene molecule has been short, butadiene has been short and you’ve heard people talk about PDH units, metathesis units. We also are looking at expanding our metathesis unit at Channelview and continue to study that. We will pay a lot of attention to the propylene molecules as we make our final investment decisions. There haven’t a fair number of announcements related to PDH units and as you know people can over build pretty rapidly. So we’ll look at relative economics and make sure that that’s still makes sense as we develop the engineering on that project.

Operator

Our next question is from Jeff Zekauskas of JPMC. Your line is open.

Jeff Zekauskas - JPMC

When you look at the amount of that same capacity which is coming on in the United States, is it sufficiently visible that you can making an assessment of whether you think ethane prices on average might be lower in 2013 and then in 2012 or is it not so well defined?

Jim Gallogly

Well, at this point in time you know there is over a million barrels a day showing up. That’s more than last year, against basically the same capacity. You know there has been a little bit of deep bottleneck. We’ve done a bit of that you know to be able to take a little more ethane, but the nice thing about having retained our swing capacity, we will watch everyday and see does it make sense to crack ethane, does it make sense to crack a little more propane.

We have got some very nice corn intake pricing from some of the South Texas fields and the Eagle Ford that have been coming on and we will make a daily call on all of that but at this point in time, things look reasonably balanced. And we think that following year in 2016, ethane gets pretty long and should be very, very good for our industry. But coming into the second, third quarter, I think things are pretty balanced and then start to go long ethane.

Doug Pike

And Jeff this is Doug. I might point out that we do have a presentation on our website where we spoke to the balances going forward in actually in six months increments over the next couple of years of how we see ethane demand and ethane supply developing out with fractionators and pipelines.

Jim Gallogly

And one of the things I will add that I probably didn’t focus on enough is propane is pretty helpful. The propane crack is pretty good right now. As you know it was pretty warm winter, propane went long. Everybody is exploring as much of that as they can and still very readily available and so that’s a pretty nice crack right now which takes some pressure off of that thing.

Jeff Zekauskas - JPMC

Okay, and then secondly, can you tell me what your maintenance cost or turnaround cost for your I&D business in fourth quarter of 2011?

Doug Pike

If I recall correctly, in our fourth quarter call, we said there was about a $75 million impact from the combined turnarounds of the propylene oxide and related units and the acetyls units in the I&D. So that was sort of the lost opportunity from this.

Operator

Our next question is from Don Carson of Susquehanna Financial.

Don Carson - Susquehanna Financial

Yes, Jim a few questions on demand. I mean once all these outages are behind us, I think assuming (inaudible) of current name plate offering rates is about 83% and I am just wondering what you are seeing in terms of polyethylene demand domestically, are buyers holding off in anticipation of lower prices and I know you don’t you export much if any to, to Asia but what are your thoughts on Chinese demand and the implications for them being able to take more Middle Eastern material and hence make Europe a little less over supplied as well?

Jim Gallogly

Well when China came out of the Chinese New Year, very early in the first quarter, people expected demand to pick up, but I don’t think we have seen that. I think demand has been slower than we expected in Asia at the present time and that has put pressure on European margins.

And as the companies you mentioned Don, we do not export to China much out of the United States and so it has limited impact on this business. You saw the impact that it had on Europe and continues to have. It's to be seen you know lot of people are watching which way crude is going, which way naphtha is going.

Here in the United States, demand has been pretty good. People again are watching you know as people have the turnarounds being completed, which way our margins is going to go, so you know if you try to predict within a given week or two, you'd probably miss it and lot of times that’s what people try to do, but I think the US economy has been pretty good overall. China has been reasonably week and Europe quite week and so you see that reflected in the first quarter numbers, so we remain pretty optimistic going forward.

Don Carson - Susquehanna Financial

And just a follow up on Europe, can you update us on where you are on your restructuring plan which I think you have identified about $200 million of potential benefits there?

Jim Gallogly

Yeah, we’re in pretty good shape on that. You know a lot of the work in Bob Patel’s area in Olefins and Polyolefin’s is nearing completion. We continue to work on some of the other staff cost. I try not to go into too much details, because we have work’s counsels there and we always have to have robust discussions with our employee groups in advance of announcing things and quarterly reports like this. But we remain very, very actively engaged in reducing costs, because frankly your profitability is problematic as you can see in the first quarter results.

Operator

Our next question is from Frank Mitch of Wells Fargo Securities. Your line is open.

Frank Mitch - Wells Fargo Securities

Just a couple of questions on the Refining and Oxyfuels side of the business; you had a good Oxyfuels result in Q1 and it sounds like you are expecting more of the same here in Q2. So I guess, at this point, if the quarter were to end, you are pretty much looking for a pick-up relative to Q1 on that deal?

Jim Gallogly

You know Oxyfuels has performed very well, and seasonably strong results in the first quarter; you know we get some benefit out of low natural gas prices in that business, so the spreads have been good, demand has been good, people have wondered octane gasoline prices have been very high, because of high crude prices.

Usually the fourth and first quarters in Oxyfuels are weaker and we had a, you know we did pretty well through those quarters and so that continues, it usually gets stronger going into the second quarter.

We've seen either Maya 2-1-1 do pretty well in April, it fell off a little bit over the last few days, but its still pretty strong. And so as I mentioned in the planned remarks that coke prices, some of the byproduct prices are a bit depressed, but overall Refining and Oxyfuels should do well.

Frank Mitch - Wells Fargo Securities

And you mentioned that there were some fixed costs that were sticking with the Berre facility. Can you size that for us; is it bigger than bread box?

Karyn Ovelmen

Yeah, going forward through the end of the year, we do expect to have continued fixed costs for the second quarter order of magnitude somewhere around $30 million to $35 million. And then for the following you know five to six months around $10 million for the quarters.

Operator

Our next question is from Mike Ritzenthaler of Piper Jaffray. Your line is open.

Mike Ritzenthaler - Piper Jaffray

I would like to expand a little bit on the previous question. So butadiene and other co-products and international Olefins; I think we have (inaudible) and been looking perhaps a bigger earnings list in the co-products. Can you provide us a little bit more background on prices you’ve been seeing in local markets maybe sequentially and the strength that we might be looking at three months from now?

Doug Pike

Mike this is Doug, I’ll take it first and then maybe Jim can take up on a broader answer. One of things you want to think about across the first quarter is what you saw was rising prices across the quarter in most of the co-products since you recall we finished fourth quarter pretty weak, I mean tough even across the quarter.

Also with Channelview site being down for turnaround in March that is one of our main co-product locations and producer of our key co-products for us. So Q4 recovery units were down, metathesis and of course the crackers at OP-1 and OP-2 for a while.

So all those things have some impact on our side of things in the co-product area and Jim mentioned before, we have to see how thing come in, people come back from some turnaround, but we still have a lot of capacity off in April and due in May as well.

Jim Gallogly

Yeah, butadiene prices have come down just a bit, but from very high elevated levels. And so we still feel very good about that business in co-product pricing. Again, as people continue to crack light in United States, it puts worldwide pressure, butadiene, propylene or oil treated commodities. And so we expect that pricing to stay in good shape.

Mike Ritzenthaler - Piper Jaffray

And then, can you discuss a little bit more on the timing issue, the JV dividends that you highlighted in your prepared comments; where the dividends just pushed forward into 2Q, so it will be the $40 million seen in license 2Q versus 1Q?

Jim Gallogly

Yeah, on dividends, it is fairly lumpy. It’s very hard to predict; you know when the JV Board’s are going to actually declare dividends, but the earnings have been nice and strong across those businesses and so we expect the dividends to come. We just can’t tell you whether it’s first quarter or second quarter and so we expect that the forecast that we have given on that will remain true. The businesses have been reasonably strong still.

Doug Pike

I expect a lot of focus more on the equity earnings rather than specific timing of dividends.

Operator

Our next question is from Hassan Ahmed of Alembic Global. Your line is open.

Hassan Ahmed - Alembic Global

Just wanted to expand a bit further on the dividend side of things, I know there was a bit of power outage in Jubail, as well as I understand it, some PDH related issues as far as Al Waha goes. So was that factored into the timing of the dividends or the timing of the announcement? And if you could just give a sense of how much earnings reduced because of those things?

Jim Gallogly

Yeah. First, you are correct that there was a power outage across all of Jubail and that did slow things down for a couple of weeks. That isn’t that material in our overall program.

The significant dividends that we see are from the other two joint ventures, not Al Waha, in Al Waha we’re still paying down debt. We have had periodic PDH unit issues in terms of hitting maximum rates, but the economics of that plant have improved over the last year and half and we’ve gotten rates up in general on poly propylene plants running a lot better; we have our plant manager in there, but you haven’t seen dividends from Al Waha; you have been seeing SEPC and SPC and others have bit of an outage, and I don’t think that was material given our percentage interest.

And then of course Thailand is another venture where have a nice feedstock advantage and you’ll see good dividends. You’ll see bits and pieces sometimes from Indelpro like you saw $10 million in this quarter, those have come periodically, but a couple of big Saudi joint ventures, Thailand joint ventures are the ones to really watch.

Operator

Our next question is from David Begleiter of Deutsche Bank. Your line is open.

David Begleiter - Deutsche Bank

Jim as your cash builds nicely through Q1, can you update us on your thoughts about another one-time special dividend at year end perhaps?

Jim Gallogly

I’ll let Karyn talk about our dividend policy; we get that question often lot and so I’ll let her discuss that.

Karyn Ovelmen

Just in terms of our special dividend, it is a good way to return value to the shareholders if there is no other immediate or appropriate accretive opportunity to do so. And of course we would balance that with any potential other opportunities we have and then also in terms of our goal to become investment grading; maintenance of strong investment credit grade metrics.

But generally speaking, our cash balances today in absolute terms as well as a percentage of our market cap or EBITDA is lower and in many cases significantly lower than our peers, so no urgent cash deployments needed in the very short term.

David Begleiter - Deutsche Bank

And Jim just on the Conway advantage, you talked about the sustainability of that advantage as some other efforts under way to move some of that Conway EP down to the Gulf Coast?

Jim Gallogly

Yeah, there will be a pipeline built to move some of that product. We think that's a 2013 event. For now though ethane EP is very long there and we are seeing prices in the teens, so a very strong advantage. We have a couple of billion pounds in that region and so it's very helpful. Recognizing the strand and nature of that, like always happens, there will be pipelines built and some of that will be remedied and we expect that to happen.

Now having said that, there still will be an ethane advantage there at the transportation differential and those crackers are still going to look good going into the future and as supply demand tightens, we still feel very good about our Morris and Clinton assets and in fact they are doing a little bit of debottlenecking to the extent we can to maximize that.

Operator

Our next question is from Laurence Alexander of Jefferies. Your line is open.

Rob Walker - Jefferies

I guess first as you mentioned in the quarter you were 68% ethane in the US. With Channelview back online has that figure increased further and if so how much?

Jim Gallogly

Yeah, let me give you kind of a couple of kind of high level comments on that. We can at this moment I would guess 80% to 82% maybe system-wide US production from NGLs and you know by the time we get into September, that will probably be closer to 85%. In terms of ethane high 60s maybe 68% system-wide ethane and again in September following a little bit of work we’re doing, that will be probably be around you know low 70s. I think our target is about 72%. So I think those numbers will give you pretty good idea.

Rob Walker - Jefferies

Okay, thanks and then just trying to par some of the commentary around the Houston refinery and then the R&O segment. I guess can you clarify that in Q2 there are no substantial overhangs that allow you to earn closer to or even above the industry margin benchmark? And I guess and then how much did you get in Berre in terms of the $30 million to $35 million. Is there any other inventory that you could still liquidate?

Jim Gallogly

There is a little bit of inventory left at Berre. But it's fairly modest and that will be liquidated at the right time. In terms of the overhang, the Channelview turnaround impact it does talk about you know, that’s done and that was, those units were started up a couple of weeks ago and so that impact is gone.

Now having said that when you look at the Maya 2-1-1, one of the points I continue to make is byproduct pricing like coke has been depressed and so you don’t always realize the full Maya 2-1-1. It just depends on how co-products move in that business to so to speak.

And so the crude oil trading between the WTI and Brent, that caught us at the end of last year, that was more of a January event and so things look pretty good. We’re still buying some distressed cargos and we running very well at the refinery and so hopefully we post some good numbers.

Rob Walker - Jefferies

And can you just clarify the last point, so theoretically the Houston asset might be roughly a hundred million below what the benchmark would have suggested the Maya 2-1-1, your cracks spread capture rate, the $20 million is from the synergies, with the remainder, if you had to divide that up between coke versus other trading activities?

Doug Pike

I would say yeah, 20 million from the first, the January and trading actually activity going to hang over the WTI, we had about 20 from the turnarounds. And then the balance really are things like the coke side, also just timing of things. One thing you got to remember that this refinery is a very big facility. So the timing of purchases and sales can have an impact on results in any one quarter.

So there is always going to be a little bit of variability from the benchmark here. So and sometimes that will be on positive side, sometimes it will be a little bit negative. I think there was a timing impact that impacted, it had a first quarter impact to us. But we wouldn’t really change our thoughts going forward and what we've guided you to for a metric and a formula to be used for the benchmark with the exception of remember what Jim said is some of co-products like coke you know had a lower price being depressed by this right now.

Jim Gallogly

I think an important takeaway though is it, this refinery is running so much better than it did in prior years. We can exceed nameplate fairly regularly and we are much smarter about the way we buy crude and sell our clean products. So it’s totally a different asset than it used to be

Operator

Our next question is from Vincent Andrews of Morgan Stanley. Your line is open.

Vincent Andrews - Morgan Stanley

Thanks very much. I just wanted to circle back on the ethane price commentary and if I have mischaracterized what you said, Jim please correct me. But I believe you are sort of indicating that you weren’t concerned of the ethylene prices going up in the back half the year which is consistent with what one of your peers said last week.

So I just wanted to revisit that and then also I do have that slide deck out from the presentation, I believe that I referred to earlier and if you could just sort of comment a little bit on what your expectations are on the demand side of things over the next let's say 12 or 18 months and may be specifically what I am thinking about is just sort of the level of capacity creep that could take place in the industry that might not be announced or visible from some of your competitors and how if all that factors into your thought process here?

Jim Gallogly

Well I think the specific thing that I said Vincent is that ethane was around $0.50 right now plus or minus some, could they go up some in the third quarter. I think it could, how much? It is very, very difficult to predict. But we have a lot of variables that play here. As you know rig count has dropped pretty significantly as a result of lower gas prices. We are above $2 and them now again, it really needs to be much better than that just to sustain the heavier rig count looking for natural gas.

Having said that because liquid prices are much better. You still see pretty good rig counts in the fields that are [wet] and that’s positive that you know they are still looking for that and adding the volumes. We have had some studies done internally where we looked at supply demands on NGLs and you know say they are reasonably balanced. I think it was the words that I used into the second or third quarter may be starting to go a little long in the fourth quarter and then the next year we think they should be long from everything we see.

And in terms of the demand side, the US economy has been better than other parts of the world. This is a, lot of our product goes into the domestic market and so a lot depends on the economy, but it's been reasonably good. So we still feel pretty good about our business going forward. Out into 2013 and 2014 we feel very good. Ethane gets long, propane has been helping us some and we think that there's not much new capacity being added in the early years and so it should be very good.

Vincent Andrews - Morgan Stanley

So just then, is it fair to assume that you do not believe that there's any risk from, what you would call sort of hidden capacity created from your competitors in the next 12 to 18 months, if that's properly reflected in your forecast?

Jim Gallogly

Well, hidden capacity increase on the ethane consumption side?

Vincent Andrews - Morgan Stanley

Yeah, or is the risk just not material? That could be answer to it.

Jim Gallogly

Well, I just done explaining to someone that we might go up 2% to 3% here or there in our capacity to crack ethane and other NGLs and I think other people are trying to do that. A part of that depends on where they are in turnaround schedules and all because sometimes you need to turn around to capture that capacity, you have to actually change hardware.

And you need to be down to accomplish that. So I think everybody who could, has been but I do want to make a special point about propane because it's helping and propane has been pricing reasonably close to ethane and obviously you get to more co-products with that and so if other people are like us, they maybe running some more furnaces on propane than they had in the past based on relative pricing.

Doug Pike

And Vincent one other thing I would say is one other thing to think about is the turnaround activity and what we have seen this year is we are talking about ability to consume, but we’ve also seen ethane production records in ethane and propane inventories both rising a little bit fast by multiple month. So you’ll see the balances.

Operator

Our next question is from Andy Cash of UBS. Your line is open.

Andy Cash - UBS

Firstly, stock behaving where it is and I would imagine that you would like to buyback some stock here, but given the Dutch tax penalty, I am just curious maybe you could go through and explain to us what the earliest date that you think you could buyback some stock without that penalty and after that penalty is waste what will be the latitude let’s say over 12 month period of time how much stock you could buyback if you decided to buyback?

Karyn Ovelmen

Yeah, beginning in January of 2013 we could potentially review our options as it related to share back buybacks without that significant tax penalty. Beyond the tax publications, we would look at obviously any share buybacks in relation to the any other accretive growth projects; cash use overall outlook in the market.

It doesn’t mean we will or having intention at this point, but just that there was tax issue would no longer for preclude at. However, regardless of this, we would still need to keep in mind our current ownership structure and the potential concentration of ownership; our larger holders do not participate in that share buyback. But going forward, after January of 2013 those tax issues will no longer have on that kind of onerous consequence for us.

Andy Cash - UBS

And as far as the magnitude excluding the potential ownership is it something that has to relate to the dividend, how much dividend you paying and how much buyback it could be. Could you talk about that explain that?

Jim Gallogly

Well, Andy they are -- and it is that dividends are paid thus far and of course but not too that point in time yet; it is a substantial amount.

Andy Cash - UBS

And then if I could just to follow-up….

Jim Gallogly

Over a number of years.

Andy Cash - UBS

And just a quick follow-up, given that your turnaround of (inaudible) and Channelview, was the 1.5 billion pounds of polyethylene in the first quarter, was that low watermark for polyethylene this year.

Jim Gallogly

Well, we’ll see how the year develops for the sales you mean.

Andy Cash - UBS

Yeah, as far as the volume; I mean I was surprised how strong it was; that was very strong.

Jim Gallogly

Remember Andy, we just spoke about it and built inventory of ethane prior to the fourth quarter so we can meet the customer requirements. So I think as you are commenting on demand, it was okay in the quarter and we were able to meet the demand through the actions that we took in anticipation that it turnaround. We’ll see how the rest of the year develops out for us.

Operator

Our next question is from Gregg Goodnight of UBS Financial. Your line is open.

Gregg Goodnight - UBS Financial

Good mornings. Congratulations on your safety performance. That’s truly outstanding for turnaround quarter.

Jim Gallogly

Thanks Gregg. That’s something we worked very hard at.

Gregg Goodnight - UBS Financial

Could you comment on the timing of tax refund Karyn, is that a first quarter or second quarter event?

Karyn Ovelmen

We received the $250 million in the first quarter. The cash has been received.

Gregg Goodnight - UBS Financial

Second question, the Clinton shutdown as I understand that has been scheduled in May, perhaps five to six weeks. Is there any chance of delaying that outage now that the margins are so spectacular on the very cheap Midwest ethane?

Jim Gallogly

No Gregg, we don’t have the six week outage at hand.

Gregg Goodnight - UBS Financial

I am sorry; I picked that up from a consultant.

Jim Gallogly

I know its been reported before; we may have some downtime to do a little bit of work over the next couple of quarters but nothing else of that magnitude at this time.

Gregg Goodnight - UBS Financial

Okay, maybe a couple of weeks or something like that, what would the timing be?

Jim Gallogly

We don’t have a turnaround in that one, it’s scheduled as you are suggesting here; we’ve had a little bit of an outage but, no turnaround and activity like that. We have been doing some premise maintenance, but I am not sure where that’s coming from.

Operator

(Operator Instructions) Our next question is from Charles Neivert of Dahlman Rose. Your line is open.

Charles Neivert - Dahlman Rose

A quick question on the turnaround of Channelview what would you clarify is the cost of sort of using inventory ethylene instead of because it’s got a lot higher cost structure in it from whatever feedstock’s you are using considering especially the drop across from fourth quarter into 1Q in terms of the cost structure; can that get quantified in the first quarter; how much of the effect cost you?

Jim Gallogly

We’ll try to keep things I think that is, basically the turnaround work impacted production by a couple of hundred million pounds, as we said, it’s really matter of pressing the needs so we have a couple of hundred million pounds that have been able to reduce it.

Charles Neivert - Dahlman Rose

But I mean what you used out of the inventory to basically keep your supply more….?

Jim Gallogly

If you recall from our fourth quarter call, we said we actually purchased (inaudible) inventory, so we purchased inventory here, so we referred to seeing under 50 as we’ll produce them into 20.

Operator

Our next question is from Kevin McCarthy of Bank of America-Merrill Lynch. Your line is open.

Kevin McCarthy - Bank of America-Merrill Lynch

Hi Jim, you referenced a few times that the propane crack is becoming fairly competitive with the ethane crack. And so I am wondering if propane continues to lengthen over the summer here such that that becomes an advantage feed relative to ethane, what is the maximum amount of propane that your US asset base could handle in percentage terms and does that figure changed at all with your Channelview feedstock flexibility project once that's done?

Jim Gallogly

We can go back to where we were, we can still crack very heavy at Channelview, we can still do the same thing down the Corpus and so propane is very, very easy to take into our furnaces and so I don't think we will be very limited on that.

In fact another way of thinking about that is if we can do high 60s in ethane and we want to start pulling in propane that number goes up if we needed to.

Now I am not trying to infer that propane will overcome ethane longer-term in terms of overall pricing, I am saying that it does kind of help put a cap on things. And it does overall improve the relative pricing of ethane because of additional propane that's being cracked because of good economics.

But I don't see it going really long propane and you know a lot loss ethane. I think ethane will stay favorite. Realistically, I think probably ethane has to react.

Kevin McCarthy - Bank of America-Merrill Lynch

So just to clarify, if I look at the 82% figure you mentioned for NGLs and 68% ethane, I guess we are running 14% as the sum of propane and butane; it sounds to me like that number may not necessarily move a lot higher, but if the propane crack improves your benefit through a loser ethane market essentially; is that fair?

Jim Gallogly

Yeah, it could increase significantly, if we wanted it to, but we wouldn’t probably because what I am saying is that ethane should stay the lower and to favor crack. But let’s see, how would I say that differently that I am trying to say that ethane, in this coast of the argument that ethane gets short into the third quarter and fourth quarter and as result their price will spike like we saw following some outages at Bellevue last you related to a fire; I don’t see that happening absent some unusual situation like that again, because we are very along at propane right now. That was the one I remember.

Doug Pike

I think keep saying the number the problem is that its really only one -- well two places for ethane to go. One is to stay in fuel up to a certain extent, but at the point its only working about $0.15 like we’re seeing in the Midwest right now.

The other alternative is to crack it, so we tend to think its going to remain -- have to remain competitive to the propane side of it and as Jim was saying, propane is going to cap your ethane situation.

As you think about it, what we’ve done is lately opened up the feeds there. You know there is always a lot of discussion about ethane coming off of these wells, now 47% ethane is about 28% propane, but it really opened up the cracking like in the industry propane is competitive.

And Jim has a couple of comments he would like to make to close.

Jim Gallogly

Yes. Let me just finish that up. I believe we did have a very solid start to the year. First quarter is normally a weaker quarter, but several of our businesses had excellent results. U.S opens at over a $500 million a quarter, despite Channelview, OP-1 and OP-2 being down a fair amount of that quarter. It’s very rare when both of those are down, but we still had that kind of Olefin result.

Refining & Oxyfuels also had a very good start to the year and I&D continues to perform well quarter-after-quarter. Obviously, the fourth quarter we had some turnaround activity, but if you look at a normalized I&D quarter, very, very solid. We are finishing up our refinancing efforts and our stand of course has given us an investment grade corporate rating and this is a major milestone for the company; something that we wanted to see for quite some time, a very solid balance sheet at this point in time.

We’re in cyclical businesses, we are going to closely monitor European and Asia business conditions, but overall we feel very good about our relative competitive position.

Thanks for joining us. Thanks for your interest in LyondellBasell.

Operator

Thank you. This concludes today’s presentation. You may disconnect at this time.

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