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JPMorgan 020204

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Published on January 24, 2008

Author: Dora

Source: authorstream.com

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Solid Strategy, Confident Execution JP Morgan High Yield Conference February 2, 2004 Karen A. Twitchell Vice President and Treasurer:  Solid Strategy, Confident Execution JP Morgan High Yield Conference February 2, 2004 Karen A. Twitchell Vice President and Treasurer Safe Harbor Language:  Safe Harbor Language Statements in this presentation relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are just predictions or expectations and are subject to risks and uncertainties. Actual results could differ materially, based on factors including but not limited to the cyclical nature of the chemical and refining industries; availability, cost and volatility of raw materials and utilities; governmental regulatory actions and political unrest; global economic conditions; industry production capacity and operating rates; the supply/demand balance for Lyondell's and its joint ventures' products; competitive products and pricing pressures; access to capital markets; and technological developments and other risk factors. For more detailed information about the factors that could cause our actual results to differ materially, please refer to Lyondell Chemical Company’s Annual Report on Form 10-K for the year ended December 31, 2002, filed in March 2003, Lyondell’s Quarterly Report on Form 10-Q, filed in November, 2003, and Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2003, which will be filed in March 2004. Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation. Lyondell Has Built a Balanced Portfolio:  Lyondell Has Built a Balanced Portfolio Lyondell IC&D LCR Equistar Commodity Leverage -- A leading North American producer of ethylene, propylene and polyethylene -- Low cost position based on feedstock flexibility and scale Growth & International Presence -- A leading global producer of PO and derivatives -- Process technology strength Cash Generation -- Unique capability to refine heavy crude oils -- Contractually stable business; strong cash flow generator Significant Integration Exists Among the Operating Entities and With Our Partners:  Significant Integration Exists Among the Operating Entities and With Our Partners Leading Product Positions Create Significant Earnings Leverage:  Leading Product Positions Create Significant Earnings Leverage 1 Source: LYO capacities as of Jan 2004, CMAI 2 Includes 100% of joint venture volumes. 3 Does not include refinery-grade material or production from the product flexibility unit at Equistar’s Channelview facility. 4 Based on 1¢/gal change. Intermediate Chemicals and Derivatives Equistar Product Annual Capacity 1 Capacity Position Propylene Oxide 2 ( lbs) 4.5 billion 1 st in North America 1 st in the world Styrene Monomer ( lbs) 5.1 billion 1 st in North America 1 st in the world MTBE (bbl/day) 58,500 1 st in North America 1 st in the world Ethylene ( lbs) 11.6 billion 2 nd in North America 5 th in the world Propylene ( lbs) 5.0 billion 2 nd in North America 7 th in the world Polyethylene ( lbs) 5.7 billion 3 rd in North America 4 th in the world 1 3 $23MM $21MM $ 94MM $116MM $50MM $57MM Pre-Tax Leverage (∆1¢/unit) 2 Lyondell and Equistar Products Serve a Broad Mix of End Users:  Lyondell and Equistar Products Serve a Broad Mix of End Users PROPYLENE OXIDE ETHYLENE There Is Growing Consensus That The Economy Is Emerging From A Difficult Period:  US GDP and Industrial Production There Is Growing Consensus That The Economy Is Emerging From A Difficult Period Source: Global Insights Overall U.S. Hydrocarbon Inventories: -- Have Increased -- Are Above Five-Year Average Levels:  Overall U.S. Hydrocarbon Inventories: -- Have Increased -- Are Above Five-Year Average Levels Change Versus Jan. 2004 (MM Bbls) MM Bbls Jan. 2003 5 Yr. Avg. 5 Yr. Low Commercial Crude 265 (10) (35) (10) Strategic Reserve 640 40 70 100 -- Total Crude 905 30 35 90 Refined Products 660 10 (20) 15 -- Total Inventory 1,565 40 15 105 Natural Gas, BCF 2,260 280 205 460 Source: Energy Information Administration – 1-16-04 A Brief Portfolio Review:  A Brief Portfolio Review IC&D Propylene Oxide (PO) and Derivatives Styrene MTBE LCR Gasoline Heating oil Jet fuel Equistar Ethylene Polyethylene IC&D Has Significant Financial Leverage To Chemical / Economic Cycle:  IC&D Has Significant Financial Leverage To Chemical / Economic Cycle PO & Derivatives 2.3 Blbs * Styrene 2.0 Blbs * Toluene Di-isocyante (TDI) 0.5 Blbs 4.8 Blbs * Excludes Nihon Oxirane JV Products PO: 0.2 Blbs SM: 0.4 Blbs Our Propylene Oxide and Derivatives Business (IC&D) Benefits from a Strong Position:  PO Industry Capacity Lyondell PO & Derivatives Our Propylene Oxide and Derivatives Business (IC&D) Benefits from a Strong Position Source: LYO databook and SRI Post PO-11 Project Durables - Furniture - Automotive - Construction - Boating - Electronics Non-Durables - Coatings/Adhesives - Personal Care - Spandex - Aircraft DeIcing PO End Uses Slide12:  The PO Industry Has Absorbed a Period of Capacity Additions Source: SRI / Lyondell Demand at 4.4% Unlike Other Large Volume Petrochemicals, Propylene Oxide Technology Is Not Widely Licensed:  Unlike Other Large Volume Petrochemicals, Propylene Oxide Technology Is Not Widely Licensed Global Styrene Supply/Demand Balances Are Relatively Tight:  Global Styrene Supply/Demand Balances Are Relatively Tight Source: CMAI 2003 World Styrene Analysis Slide15:  600 500 400 300 200 100 MTBE is a Source of Premium Clean Octane to the 19-20 MMB/D Global Gasoline Market Global Supply/Demand US Market Balance MB/D CA U.S. Non- U.S. CA Refinery /Olefins U.S. Dehydro Dehydro Non -US PO 2002 DEMAND 2002 CAPACITY 2002 DEMAND 2002 SUPPLY Refinery /Olefins U.S. Imports U.S. Dehydro PO Source : Dewitt 2004 Est. Demand The MTBE Industry Has Been Adjusting To The Regulatory Changes:  The MTBE Industry Has Been Adjusting To The Regulatory Changes Pre-Phase Down Current Import / Export Balance 90 M B/D 30 - 50 M B/D North American Capacity 101 M B/D 0 – 40 M B/D (on-purpose) Slide17:  600 500 400 300 200 100 Steps Toward Increased IC&D Cash Flow Complete PO-11 Capital Spend Convert PO/SM Purchases on Production 1999 PO / TDI SM Margins MTBE Resolution Sell-out at 1995 PO / TDI / SM Margins Potential Cash Improvement From 2003 $ MM/Yr Base LYONDELL-CITGO Refining Performance Is Structured To Be Independent of Crude Oil Costs and Refining Margins:  LYONDELL-CITGO Refining Performance Is Structured To Be Independent of Crude Oil Costs and Refining Margins JV with CITGO CITGO 100% owned by PDVSA 268 M B/D Heavy Crude Refinery located in Houston 230 M B/D contract with PDVSA Deemed Margin Crude Price Based on Product Price Less Cost Formula Balance of Crude Processed at Market Conditions Net Cash Distribution to Lyondell 2003: $223 MM 2002: $ 80 MM 2001: $121 MM LCR Important Cash Generator -- Operating Reliability and Crude Deliveries Drive Performance:  LCR Important Cash Generator -- Operating Reliability and Crude Deliveries Drive Performance 1 4Q01: Scheduled maintenance turnaround 2 1Q03: Includes a $25MM write-off MB/day $MM 2 1 Net Distribution To LYO, $MM 33 (7) 16 76 20 24 59 17 2 22 49 7 67 68 55 32 Equistar is a Leading Ethylene Producer:  Equistar is a Leading Ethylene Producer #2 in North America Competitive position based on feedstock flexibility Top 5 North America Shell 9% Dow 9% Equistar 15% Nova 8% Union Carbide 7% Exxon 7% Dow/Carbide 20% ExxonMobil 13% ChevronPhillips 10% Nova 8% 40% 66% Source: CMAI North American Supply/Demand Balance Is On Track To Improve Significantly:  North American Supply/Demand Balance Is On Track To Improve Significantly Source: CMAI / Equistar (September/2003) Slide22:  US Korea Taiwan WE Singapore Japan Thailand Malaysia China India Indonesia The Emergence of a Middle Class Increases Local Demand for Plastics Sources: CMAI 2001; Nexant Chemsystems China PE Demand Domestic vs. Export PE Consumption/capita, lbs 2000 GDP/Capita We Believe that Global Ethylene Supply/Demand is on a Path to a Tight Balance:  We Believe that Global Ethylene Supply/Demand is on a Path to a Tight Balance Source: CMAI Sensitivity CMAI base case 96% 104% 99% Liquid Cracking Provides an Advantage vs. Ethane Raw Materials:  Equistar Capability NGL 37% Liquid 63% N. American Industry (ex. Equistar) NGL 78% Liquid 22% Liquid Cracking Provides an Advantage vs. Ethane Raw Materials Source: CMAI and Lyondell 2003 Ethylene Demand Growth will Increasingly be Supplied Without Co-Product Production :  Ethylene Demand Growth will Increasingly be Supplied Without Co-Product Production Global Ethylene Supply by Feed Type Global Propylene Growth Current (2003) Additions (2008) Ethylene Supply – Heavy vs Light (billion pounds / year) Propylene (Blb/yrs) Source: CMAI Slide26:  PG Styrene HDPE Relative Raw Material Margin Range, 1994-2002 100 = Period Average PG: U.S. Industrial Grade Propylene Glycol minus 0.63 x Chem Grade Propylene, both as reported by Chem Data Styrene: US Net Industry Average Styrene Price minus 0.28 x North America ethylene Net Transaction Price, minus 0.105 x North America Contract Benzene, all as reported by CMAI HDPE: North America HDPE Domestic Market Contract Injection Molding price - Ethylene product cash cost (Weighted Average Feed) as reported by CMAI The Chemical Product Chains All Offer Upside in a Recovery Enterprise Earnings Capability Far Exceeds Recent Trough Results:  Enterprise Earnings Capability Far Exceeds Recent Trough Results 1 Chem Data/CMAI industry margins conditions for IC&D and Equistar products (ex. MTBE) applied to current capacities and ownership, LCR 2003 EBITDA. Note: Assumes current capital structure; 175 MM shares. 1 1 1 Recession/ Trough Pre- Recession Peak Cycle EBITDA Potential $6.90 / share $1.40 / share 2003 Proportional Interest, Dividends & Capital Our Financial Strategy is Focused and Unchanged:  Our Financial Strategy is Focused and Unchanged Maintain Sufficient Liquidity Repay Debt We Have Maintained Significant Liquidity:  We Have Maintained Significant Liquidity 1 – represents the undrawn balances and has not been reduced by amounts committed against letters of credit: (12/30/02: LYO-$49MM, Equ-$16MM) $632MM $738MM $477MM $680MM Total Liquidity $433MM $300MM $450MM $350MM Facility Avails $199MM $438MM $27MM $330MM Cash & ST Investments Equistar Lyondell Equistar Lyondell 12/31/2003 12/31/2002 1 1 We Have Actively Managed Our Maturity Profile:  We Have Actively Managed Our Maturity Profile Debt Maturities(1),(2) Pre-Payable Debt(3) Lyondell: Does not include $350MM Revolving Credit Facility, which expires in 2005, or $100MM Receivables Purchase Program Equistar: Does not include $250MM Inventory Revolving Credit Facility or $450MM Receivables Purchase Program Prepayable debt is shown for the first year in which it is callable. Debt with make-whole provisions is shown at maturity, including the $900MM Senior Secured Notes Series A due 2007 (Lyondell) and the $700MM Senior Notes due 2008 (Equistar) De-leveraging Will Benefit All Stakeholders:  1 Capitalization = debt + book value of equity + minority interest Based on 175 MM shares outstanding De-leveraging Will Benefit All Stakeholders Impact of Lyondell debt reduction at constant capitalization1: Debt Reduction $2B Debt to capitalization 35% Avoided interest expense $200MM/Yr Earnings improvement 75¢/share Share price improvement at constant capitalization $11.50/share

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