Get documents about "SSB
Document Sample
Solid Strategy, Confident Execution
Lehman Brothers
2003 High Yield Conference
March 21, 2003
Kevin DeNicola
Senior Vice President and CFO
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.
2
Lyondell Has Built a Balanced Portfolio
Lyondell
Stability & Growth
IC&D -- A leading global producer of PO and derivatives
-- Process technology strength
Cash Generation
LCR -- Unique capability to refine heavy crude oils
-- Contractually stable business; strong cash flow generator
Commodity Leverage
-- A leading North American producer of ethylene, propylene
Equistar
and polyethylene
-- Low cost position based on feedstock flexibility and scale
($ MM) 2002 Lyondell
Revenues EBITDA Ownership
IC&D $3,262 $410 100.0%
Equistar 5,537 256 70.5
LCR 3,392 362 58.75
3
The Recent Years Have Been a Period of
Optimization
Mid 1990’s 1999-2002
Formation years Position and Optimize
LCR Contract and JV Portfolio Adjustments
Equistar JV Capacity Rationalization
IC&D Acquisition Project Reorientation
Organization Effectiveness
– Best practices
– Organization design
4
Processes and Systems Have Steadily
Improved the Capital Utilization Within the
Enterprise
Capital Spending Days of Working Capital*
$MM
Lyondell Equistar PO11 Spending Lyondell Equistar
90
180
80
150 70
120 60
50
90 40
60 30
30
20
10
0 0
1998 2002
1999 2002
* Based on accounts receivable (including those sold), inventories and
accounts payable as of 12/31, and fourth-quarter days of sales
5
A Snapshot of Operating Metrics Highlights
the Success
90 % Improvement*
80
70
60
50 Safety Downtime Environment Quality
40
30
20
10
0
LYO/EQU EQU LYO/EQU Polymers
* 1998 to 2002
6
A Brief Portfolio Review
IC&D
LCR
Equistar
7
Our Propylene Oxide and Derivatives Business (IC&D)
Benefits from a Strong Position
PG
33%
Lyondell PO Bayer
BDO
Capacity 45%
Merchant PO 18%
Lyondell 33%
55%
P-Solvents
Deicer 10%
6%
Capacity Market
Product
Position Growth
Merchant PO 1
PG 1 Moderate
BDO 2 High
P-Solvents 2 Low
Deicers 1 Low
PO 4-5%/yr
Source: LYO databook and SRI
Post PO-11 Project
8
PO Technology Development
Propylene
Chlorohydrin
Electricity Chlor-Alkali Chlorohydrin PO
Salt
Peroxidation Oxygen Propylene
EB Styrene
IC4 MTBE
H2 H2O
Cumene Cumene
Oxidation Epoxidation
Propylene Oxide
Direct PO
Propylene
Oxidation Propylene Oxide
Oxygen
H2O
H2
9
LCR Important Cash Generator
Operating Reliability and Crude Deliveries Drive Performance
MB/day $MM
300 CSA Spot Mkt EBITDA 140
250 120
100
200
80
150
60
100
40
50 20
1
0 0
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 Q402
1 4Q01: Scheduled maintenance turnaround
10
3/2/1 Refining Spread ($/Bbl)
Source: Platt’s
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
Ju
l-0 $12.0
Ju 2
l-0
Ju 2
l
Au -02
g-
Au 0 2
g
Se -0 2
p-
Se 02
p-
O 02
ct
-0
O 2
11
ct
No -02
v-
No 0 2
v-
De 0 2
c-
De 0 2
c-
De 0 2
c-
Ja 0 2
n-
Ja 03
WTI Crude Oil Refining Margin
n
Fe -03
b-
Fe 03
b-
M 03
ar
-0
3
Refining Spreads Have Increased By $4-5/Bbl
Equistar is a Leading Ethylene Producer
Top 5 North America 66%
Nova
8%
#2 in North America
ChevronPhillips
10%
Competitive position based on
feedstock flexibility 40% ExxonMobil
Exxon 13%
7%
Union Carbide
7% Equistar
Nova 15%
8%
Dow
9% Dow/Carbide
20%
Shell
9%
1991 2002
Source: CMAI
12
Significant Cash and Earnings Generation in
Up-Cycle
Cycle EBITDA Potential
($MM)
$3,000
LCR IC&D Equistar
$2,500 $1.35/share
$2,000
$6.20/share
$1,500
$1,000
$500
$0
2002 1995 Margins¹ 1988 Margins¹
1 1988/1995 Chem Data/CMAI margins for Ethylene, Polyethylene and Styrene applied to current capacities and ownership
Note: Assumes current capital structure; 160MM shares
13
Liquid Cracking Provides an Advantage
Equistar Capability
Liquid Cracking Variable Cost Advantage
Ethane - Light Naphtha Cost of Ethylene Spread
NGL 7
37%
6
Liquid
5
63% ¢/lb ethylene
Average
4
N. American Industry 3
(ex. Equistar)
Liquid 2
22%
1
0
1995
2001
1987
1988
1989
1990
1991
1992
1993
1994
1996
1997
1998
1999
2000
2002
NGL Source: ChemData,
78%
Source: CMAI and Lyondell. 14
The Oil/Gas Price Ratio has Moved in Favor
of Liquid Feedstock
15
Oil/Gas Ratio
10
Oil/Gas
Energy Value Parity
5
0
02-Jan 02-Apr 02-Jul 02-Oct 03-Jan 03-Feb 03-Mar
CMAI -3/03
15
N. American Supply/Demand Imbalance is
Differential to Global Situation
Ethylene Supply/Demand Balance - North America
130
Effective Operating Rate
World
120 100%
110
Effective Operating Rate
100 90%
N. America
Bln lbs
90
80 80%
Nameplate Capacity
Demand
70
60 70%
50
40 60%
1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: CMAI/Equistar
Capacity Additions 16
Effective Ethylene Operating Rates Move
Toward 95% Early in 2003
U.S. Ethylene Supply/Demand
Quarterly - 2002 > 2004
20000 100
95
Operating Rate, %
18000
Millions Capacity Lbs
90
16000 85
80
14000
75
12000 70
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2004
2002 2003 Qtrly
Avg
Effective Capacity Downtime Operating Rate
CMAI-2/03
17
As Energy Rose Ethylene Cash Cost
Increased Accordingly
40 10
Ethylene Cash Cost 9
35 Nat Gas ($/MM BTU)
WTI ($/Bbl)
8
30
7
25
6
$/Mn Btu
$/Bl
20 5
4
15
3
10
2
5 1
0 0
02-Jan 02-Apr 02-Jul 02-Oct 03-Jan 03-Feb 03-Mar
CMAI -3/03
18
Market Prices Have Increased in Recent
Months
Price Increases
Jan. Feb.
EQUISTAR
Ethylene 2.25 ¢/lb 1.75 ¢/lb
Propylene 2.0 ¢/lb 2.0 ¢/lb
Polyethylene 2.5 ¢/lb 2.5 ¢/lb
MEG 2.0 ¢/lb 4.5 ¢/lb
LYONDELL
Styrene 2.0 ¢/lb 5.5 ¢/lb
19
Typically It Has Taken Time to Move These Increases
Through The Supply Chain: $3 Bbl Impact At Equistar
0
Hours Days Weeks Months
Polymers/
Derivatives
Rise
EBITDA Impact ( $ MM/mo )
Naphtha
(10) Impact
Petro -
chemicals
Rise
(20) NGLs
Follow
Fuel
Co-Products
Rise
(30)
20
Our Financial Strategy is Unchanged
Maintain Sufficient Liquidity
Repay Debt
21
We Have Maintained Significant Liquidity
Lyondell Equistar
Cash & ST Investments* $330MM $27MM
1 1
Revolver* $350MM $450MM
Total Liquidity $680MM $477MM
1 – does not include 12/31 amounts committed against letters of credit :
(LYO-$49MM, Equ-$16MM)
* As of 12/31/2002
22
De-leveraging Will Benefit All Stakeholders
Impact of Lyondell debt reduction at constant capitalization1:
Debt Reduction
$1B $2B
Debt to capitalization 54% 36%
Avoided interest expense $100MM/Yr $200MM/Yr
Earnings improvement 40¢/share 80¢/share
Share price improvement at
constant capitalization $6/share $12/share
1 Capitalization = debt + book value of equity + minority interest
23
