LyondellBasell Industries N.V. (LYB) Q4 2016 Earnings Report, Transcript and Summary

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.

Thank you. Welcome to LyondellBasell's fourth quarter 2016 teleconference. I'm joined today by Bob Patel, our CEO; and Thomas Aebischer, our CFO. 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.lyb.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. Now 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.lyb.com/investorrelations. And reconciliations of non-GAAP financial measures to GAAP financial measures, together with any other applicable disclosures, including the earnings release, are currently available on our website at www.lyb.com. And finally, I'd like to point out that a recording of this call will be available by telephone beginning at 2 PM Eastern Time today until 11 PM Eastern Time on March 3 by calling 866-467-2412 in the United States, and 203-369-1448 outside the United States. And the passcode for both numbers is 2526. And during today's call, we'll focus on fourth quarter and full year 2016 performance, the current environment, and the near-term outlook. But before turning the call over to Bob, I'd like to call your attention to the non-cash, lower of cost or market inventory adjustments, or LCM, that we have discussed on past calls. As previously explained these adjustments are related to our use of LIFO accounting and the recent decline in prices of our raw material and finished goods inventories. During the fourth quarter we recognized LCM charges totaling $29 million. Comments made on this call will be in regard to our underlying business results excluding the impact of these LCM inventory charges. With that being said, now I'll turn the call over to, Bob.

Thanks Doug. Good morning to all and thank you for taking the time to join our fourth quarter earnings call. 2016 was another dynamic year for our industry as we saw our crude oil prices were down from the lows of the first quarter and the continuation of relatively type balances in global chemical and polymer markets. For LyondellBasell, it was very busy year within our company as we scheduled and completed twice as many ethylene cracker maintenance turnarounds than we could have in a typical year along with several other growth and reliability projects. Despite these challenges, our company continued to deliver strong results. Let's take a look at Slide 4 and reflect on a few of the more notable financial accomplishments for 2016. Performance continued to be strong with $6.6 billion in EBITDA that resulted in earnings of $9.20 per share and $5.6 billion of cash from operations. We invested $2.2 billion of this cash in our growth and maintenance capital program, while over $4 billion was returned to shareholders in the form of dividends and share buybacks. Our strong dividend yield placed us in the top 10% of the S&P 500 index and our share repurchase program relative to our market capitalization placed us in the top 5% of all S&P 500 companies. Despite the high capital intensity of our industry, the end result is an impressive 30% return on invested capital. As always, I would like to call your attention to Slide 5 and talk briefly about our company's fundamental focus on continuously improving our health, safety, and environmental performance. 2016 was another year of top decile safety performance within our industry. Unfortunately with our increased level of maintenance and expansion work, the number of process safety incidents rose during the year. While I'm pleased to see the continued employee safety improvements, we remained focused on our drive to capture the lessons learnt from our experiences and work towards safety perfection. Our annual results summarized on Slide number 6 provide some perspective on the company’s earnings profile over the past several years and quarters. Our results have proven to be more durable and resilient and many might have thought through the swing in crude oil pricing seen over the past three years. The result shown on the bottom of this slide illustrates quarterly profile similar to 2015 when seasonal trends enabled us to capture the benefits of relatively tight Olefins & Polyolefins markets through the spring and the summer. Margin compression and reduced production due to maintenance reduced profitability late in the year. Slide 7 summarizes some of the notable financial and operating accomplishments for 2016. Our Olefins & Polyolefins Europe, Asia, and International segment and our Technology segment both achieved their second consecutive year of record EBITDA results. Income from equity investments increased to an all time high of $367 million on improved results from our joint ventures in Mexico, Saudi Arabia, and Poland. Our $5.6 billion of cash flow from operations enables us to buy back 37 million shares or 8% of the shares outstanding at the beginning of 2016. We increased our interim dividend by 9% to $0.85 per share bringing our total dividend for 2016 to $3.33 per share, and we continue to optimize our balance sheet with new euro denominated bonds issued at the lowest rate in company history. On the operational side, LyondellBasell remained true to our roots with our strong focus on safety, costs, and manufacturing performance that enabled us to achieve 38 annual production records, despite the heavy maintenance schedule. We finished our 20% U.S. ethylene expansion program with the startup of our Corpus Christi expansion. Unfortunately in early July, the Corpus Christi plant experienced an operational issue which will delay the majority of the benefit from the 800 million pound expansion until late in the second quarter. In the commercial arena, our O&P Americas team have been successful in fully contracting our merchant ethylene volumes through 2019. Finally, we continue to manage our asset portfolio with several small acquisitions, restructuring, and divestitures. As I discussed in our third quarter teleconference, we engaged in investment bank last year to assist us with the testing of the value of our refinery, both as part of our regular reviews of our asset portfolio and due to indications of interest received from third parties. After a thorough process, we elected to retain the refinery. Thomas will now discuss our financial highlights.

Thank you, Bob. Please turn to Slide 8 which puts fourth quarter and full year segment results. As Bob already mentioned, both O&P-EAI and the Technology segments achieved their second consecutive year of record EBITDA during 2016 with O&P-EAI surpassing $2 billion. Bob will review these results in more detail during the segment discussions. Our fourth quarter results included a $58 million charge for a lump sum pension settlement that negatively impacted the quarter by $0.09 per share. In addition, our full year results included the $78 million after-tax gain on the sale of our Argentine polymer business. During the 2016 cost process, we addressed an issue within our primary tax calculations. The issue is not material to any period and pertains to the other complicated tax accounting for our cross currency debt swap. As a result during fourth quarter we had recorded $61 million non-cash out of period cumulative correction charge for 2014, 2015, and through the third quarter of 2016. The impact to the full year 2016 results to correct for the 2014 and 2015 out of period amount is $74 million. These are non-cash charges and will not impact our cumulative taxes over the life of this loan. However, it does negatively impact our fourth quarter and 2016 effective tax rate by 5.8 and 1.4 percentage points respectively. Together the pension settlement and the correction charge adversely impacted fourth quarter earnings by $0.24 per share. The combined impact of the pension settlement, the correction charge, and the gain on the sale of our Argentine polymer business negatively impacted full year 2016 earnings by $0.07 per share. Please turn to Slide 9 which provides a picture of our cash generation and use. During 2016, we generated $5.6 billion of cash from operations. We also took advantage of favorable markets and further optimized our euro to U.S. dollar debt balances by issuing €750 million in bonds at a coupon rate of 1.875%. The cash and short-term security balance remained relatively constant for the year at $2.4 billion. Turning to Slide 10, you can see that the $5.6 billion in cash from operations during 2016 compares well with the prior three years. This strong cash generation has allowed us to fund both internally reinvestments and returns to shareholders. Over the past four years, we have funded $6.7 billion of capital investments, approx one half of this investment was allocated to profit generating growth project. We have returned $20.7 billion through dividends and share repurchases over the past four years. Since the inception of our share repurchase program, we have repurchased approximately 179 million shares or approximately 31% of the initial shares outstanding. At the end of 2016, we had approximately 21 million shares or 50% remaining under the current 18 months share repurchase authorization that begun in May of 2016. As we do every year, I would like to address some of your 2017 modeling questions. Regarding capital, we are currently planning to spend approximately $2 billion during 2017. This spending level advances both our base maintenance and growth program approximately 45% is targeted toward profit generating growth. A large part of this growth investment in 2017 will be dedicated to the new Hyperzone polyethylene plant that is scheduled to begin production in 2019. Although not all plants are finalized yet, we estimate capital spending to range between $2 billion and $2.5 billion annually to 2021. Approximately 50% of this spent is targeted toward profit generating growth. The largest individual growth project in this period is PO/TBA plant that we plan to advance toward a final investment position in the first-half of 2017. Our net cash interest expense for 2017 is expected to be approximately $350 million with a weighted average cost of long-term borrowings of close to 5%. 2017 annual book depreciation and amortization should be approximately $1.1 billion. We plan to make regular pension contribution in 2017 a total approximately $110 million and we estimate the pension expense of approximately $65 million. We currently expect a 2017 effective tax rate of approximately 27%, the cash tax rate is expected to be slightly lower. Now, I will turn the call back to Bob for a discussion of our segment results. Thank you.

Thank you, Thomas. Let's turn to Slide 11, as mentioned previously my discussion of business results will exclude the impact of the LCM inventory charges. In our Olefins & Polyolefins Americas segment, fourth quarter EBITDA was $592 million, $90 million less than the third quarter. For the full year segment EBITDA was $2.9 billion. Relative to the third quarter ethylene margins decreased by $0.06 per pound, excluding our scheduled maintenance at Corpus Christi our equity our ethylene site operating rates remain strong during the quarter, averaging 96%. 67% of our ethylene production was from ethane and approximately 85% came from NGLs. In Polyolefins combined results improved by approximately $100 million. Our polyethylene price spreads over ethylene improved by approximately $0.02 per pound while volume is declined. Similarly polypropylene volumes are seasonal declines during the fourth quarter while our spreads over propylene improved by approximately $0.04 per pound. At fourth quarter industry benchmark margins, the net value of lost production related to the Corpus Christi turnaround is estimated to be $40 million. For the full-year results decreased by $915 million due to ethylene margin decline of approximately $0.06 per pound and ethylene production volumes following by 13% mainly due to our planned maintenance. Polyolefins results declined by approximately $120 million from the prior year as polyethylene spreads declined by approximately $0.04 per pound, while polypropylene spreads improved by a similar amount. Polyethylene volumes were constrained due to maintenance at our Morris facility and polypropylene volumes failed due to the divestiture of the Argentine plant earlier in 2016. During January polyethylene and propylene prices rallied by use of increased cracker maintenance while ethane cost declines, this resulted in improved olefins margins. Polyolefin exports have increased reducing domestic inventories and lending support to monomer-driven price increases. Expected delays for the new capacity volumes should provide continued support for these favorable market conditions. Our North American ethylene system will be limited by planned maintenance on a co-product processing unit at Channelview that is estimated to have a $40 million impact on first quarter results. Additionally, we are only expecting a small share of the benefits of the Corpus Christi expansion volumes in the first quarter. Let's turn to Slide 12 and review performance in the olefins and Polyolefins, Europe Asia and international segment. During the fourth quarter underlying EBITDA was $398 million or $186 million lower than third quarter. For the full year underlying EBITDA was a record of nearly $2.1 billion and $212 million increase versus 2015. Olefins results decreased versus the third quarter by approximately $120 million due to lower margins resulting from increased cost of raw materials and reduce volumes due to planned maintenance at one of our crackers in Wesseling, Germany. Combined Polyolefins results declined by $50 million due to pressure on spreads for both polymers. Open results for the full year declined by approximately $20 million from 2015. Our Polyolefins results increased approximately $180 million on a year-over-year basis, reflecting improved spreads for both polyethylene and polypropylene. Equity income increased by $19 million primarily due to our joint ventures in Saudi Arabia, Thailand and Kuwait. During January markets were relatively consistent with demand improving after the holidays. Within the industry five European crackers are scheduled to be in turnaround during March and April. With no maintenance schedule for our European crackers we are well positioned to serve the market. Now please turn to Slide 13 for a discussion of our intermediates and derivatives segment. Fourth quarter EBITDA was $306 million and relatively consistent with the third quarter. For the full-year the segment generated EBITDA of $1.3 billion, representing a decline of $323 million from a record high established during 2015. The fourth quarter reflected the net result of improvements in propylene oxide and derivatives and intermediate chemicals offset by seasonal decline in margins and volumes. Intermediate chemicals improvements were primarily driven by improved methanol and ethylene glycol margin and the completion of third quarter maintenance. During 2016, margin compression from ethanol, ethylene glycol, PO and derivatives and PO sales mix were the primary drivers for the approximately $200 million decline in intermediate chemical and PO and derivatives results relative to 2015. Oxyfuels declined by approximately $90 million as high gasoline inventories, reduced margins relative to the strong profit theme during the 2015 driving season. The new year has started with stable demand in propylene oxide market. Oxyfuels margins remain near typical winner levels. Styrene and methanol margins have strengthened with spot methanol prices exceeding $1 per gallon. Our PO/TBA facility in the Netherlands will begin a two months turnaround in mid-March that is estimated to impact earnings by total of $40 million primarily in the second quarter. Now let's move to Slide 14 for a discussion of our refining results. Fourth quarter EBITDA was $81 million and improvement of $91 million from the prior quarter. For the full year the segment generated $72 million of EBITDA, decline of $447 million versus 2015. During the fourth quarter approximately half of the increased profitability was provided by low-priced crude inventory consumption. Relative to the third quarter crude throughput improved by 19,000 barrels to 228,000 barrels per day. Despite the improvement rates were impacted by several operating issues that reduced results by approximately $40 million. The Maya 2-1-1 benchmark was relatively unchanged and the cost of RINs increased by approximately $7 million. Crude throughput average 201,000 barrels per day during 2016, down 37,000 barrels per day from 2015. The Maya 2-1-1 benchmark decreased by approximately $3 per barrels to average approximately $19 per barrel. The cost of RINs increased by approximately $30 million. During 2016 reduced industry margins and several planned and unplanned maintenance events at our Houston refinery resulted in unacceptably poor performance. Our refinery team is diligently implementing our strategy to improve this asset reliability and performance going forward. We are currently performing planned maintenance on the fluid unit and one of the crude units at the refinery. That is expected to may impact first quarter results by approximately $80 million. Turning to Slide 15, let's step back and consider the changes that are occurring in our core olefins and Polyolefins markets. Shown in the upper right global demand growth for Polyolefins has been a steady and consistent factor for at least the past 25 years. Our polymers are largely used in nondurable applications that track demographic trends related to urbanization and growing consumer class around the world. These demand growth trends are expected to continue. Product spreads shown on the left for North America and Europe illustrated few trends. First, the improvement in polypropylene profitability is evident in the upward trend of the grey bars in both regions. With very little new capacity in these regions the outlook is bright for our nearly 12 billion pounds of global polypropylene capacity. Margin in spread for ethylene and polypropylene are seeing in some of the two blue bars for each year. North America has seen a shift in margin from ethylene and polypropylene, but the underlying development of the North American shale advantage has been strong over the past five years. European NAFTA based production has also been very profitable. Lower crude oil prices and good global and regional operating rates supported the improvement you see in European results. Again LyondellBasell's global scale offers considerable leverage to these trends. On Slide 16, I'd like to offer our views on how we expect the industry environment to develop during 2017. From a macro view, we already mentioned how we expect moderate but steady growth to continue to support demand. In North America we expect good NGL stock availability from shale plays production to continue but higher crude price is driving higher production and moderately increasing the crude to gas ratio that underpins the shale advantage. New ethylene and polyethylene capacity coming online during the latter part of 2017 will undoubtedly counter some of this improvement with increased supply and price competition. Global supply and demand balances continue to suggest that this decline will not be as deep for as long as initial predictions had indicated. For I&D markets we do not see much change in the balance type market that we see during 2016, while each product has unique aspect we see continuing strength in styrene, an upside from ethanol would benefit related to higher crude and coal prices in Asia. Tier 3 low sulphur fuel regulations and market absorption of the excess gasoline capacity seen during 2016 should support improvements for our low sulphur high octane oxy fuels. The same issues also point toward improving refining margins for 2017. Let me conclude the business discussion with Slide 17. During 2016 we completed our multi-year U.S. ethylene expansion program that added 2 billion pound of capacity to our system. We also concluded a year of exceptionally high plan and unplanned maintenance that should provide benefits and year-over-year volume improvements for LyondellBasell during 2017. Over the past year, the diversity within our product portfolio were seen as our polypropylene business provided partial offset to lower polyethylene chain margins. In the early weeks of 2017, global markets for our products are favorable, with the relatively light maintenance schedule for 2016 LyondellBasell is well positioned to serve these markets over the coming years. Before we open the line for your questions, please turn to Slide 18, I want to make you aware of two upcoming investor events. In March we will again be holding a reception here in Houston for those who will be attending the IHS World Petrochemical Conference and a Bank Sponsored Chemical Conference. The reception will be on Tuesday, March 21 at the conclusion of the day's activities near our offices and the conference venue. And on Wednesday April 5, we will hold our next Investor Day at the New York Stock Exchange in Lower Manhattan. Both these events will allow you time to interact with members of our executive leadership team and learn more about our plans for the future. Please watch your email for invitations or contact Doug Pike or Dave Kinney for further details. This year's reception and Investor Day will be bittersweet for us at LyondellBasell as they will be some of the last events that Doug Pike will host for us. After nearly 40 years with our company and 15 years as Head of Investor Relations, Doug has elected to retire shortly after our Investor Day in April. I know that Doug's work is highly appreciated by the investment community and that is just one of the many reasons why we hold him in such high regard within the company. So we hope our events will provide you with one more chance to meet with Doug and join us in congratulating him as he moves on to the next chapter in his life. The reception and Investor Day will also allow you to spend more time with Dave Kenny who will assume leadership with immediate effect for Investor Relations. I'm sure many of you have already met Doug during the past year as he has worked closely with Doug. Dave also has a deep background in the industry through 25 years of experience in research, strategy, planning, sales and business management with work across all of the segments within LyondellBasell. I'm confident you will find Dave to be another great resource to help you learn more about our industry and about our company. So with that, we are now pleased to take your questions.

[Operator Instructions] Our first question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Good morning. Thank you. Yes, congrats on the announcement, Doug, definitely be surely missed. And first off, I just had a question on America's O&P. You characterized that there has been some improvement in the markets due to delays. I also wanted to get your thoughts on just overall margins. Propane and ethane have been moving up as well. How would you characterize your outlook for 2017 margins? And also there's a price increase for polyethylene for February. Do you have any characterization of whether that would go through or not? Thank you.

Yes, good morning, Arun. First of all on markets, so yes propane and butane have moved up but we typically see that from a seasonal perspective during the heating season. In response to that, ethane cracking rates have been pretty high and ethane prices have been still moderate, I think that indicates that there is still lot of ethane supply and also what you’ve probably noticed of recent is that, co-product values have come up quite a lot, so propylene and butadiene have come up - in the case of butadiene , it has come up globally. So all of that points to better margins in ethylene. Normally, we see more maintenance, planned maintenance during the spring season as demand also picks up, so we are very constructive about our margin outlook and with normal [ph] increases, as you have heard me mentioned there some polymer increases that are out there. So we have to see how all that goes, but I think what underpins markets today is that there is very little inventory and market seems to be very balanced going into the spring season.

Thanks. And then on I&D, it looks like there also is potential for some positive price movement in some of your markets. Maybe you can just help us understand how you view acetic and VEM and some of these areas that may be positively impacted by rising coal prices in China? Thanks.

Yes, so on methanol, it's benefited from a rise in oil prices in the second half of last year, and as many know, there has been a rise in the coal price in Asia as well. So we see that sort of underpinning cost for these marginal producers in Asia and with globally high operating rates in ethylene, I think that's the higher flow. With regards to I&D, certainly the higher methanol prices are favorable for us in the I&D segment. Styrene remains very tight, it seems, and there has been some upward movement in pricing there. In oxyfuels, we are expecting better year this year, as a year ago there was a lot of inventory in gasoline, and so crack spreads have declined and also blend premiums were much lower, so we see some upward movement in methanol, styrene, and oxyfuels as we work through the year, those markets should be pretty good.

Thank you.

Thank you. And our next question is from the line of Jeff Zekauskas from JPMorgan. Your line is now open.

Thanks very much. You said that you've got about 20 million shares remaining on your authorization, and you bought back roughly 5 million in the quarter. Historically, you've been able to complete your share repurchase by midyear. Does it look like it may take until the end of 2017 to complete the residual shares that you've not purchased yet?

It's Thomas Aebischer speaking, thanks for the question. I don’t think we should focus the share repurchase program quarter-by-quarter. The way to look at it ,we initiated the new 10C51 in May of 2016 and completed virtually 50% by year end of that existing program, roughly 8.3% for the full year and as we have said in the material in front of you, it is an 18 months program, and obviously we are not commenting on future - how we are going to buy in the future, but clearly have the intention to finish the program as we have done in the past.

Okay. Your cash flow from operations was $1.7 billion in the quarter. And when you look at depreciation and net income and working capital changes, it comes to about $1.2 billion. What led to the extra $500 million in cash generation in the quarter?

So, we clearly had - you saw the change in networking capital on one end and on the other end we had significantly lower cash tax for 2016. Main reason for the significantly lower cash tax expense is the 2015 retroactive enactment of accelerated tax depreciation in the U.S., but we have significantly overpaid in 2015, which we didn’t receive the benefit in 2016. Or maybe just continue on this looking at the cash tax rate for 2017 that will be again higher than what you have seen in 2016 somewhere around 22 - between 22% and 24%.

Okay. Thank you so much.

Thank you. And our next question is from the line of Robert Koort from Goldman Sachs. Your line is now open.

Thank you very much. Good morning. Bob, I was curious if you had any thoughts. Historically, we looked at pretty high correlation between industry operating utilization rates and margins, and that trend has maybe gone off kilter a little bit the last few years as rates went up and margins came in a bit. How do you look at that dynamic as you go forward? You mentioned a little softening of rates. Is that something that changes in feed stocks can offset, or what do you think will be the critical driver in determining margin structure in the next couple of years?

I mean those are probably just quarter-to-quarter sort of changes in markets, but fundamentally I think our operating rates point higher margin and the softness in operating rate that I alluded to is more about late 2017 through 2018. There are some of the new capacity comes online. But as you know there have been delays and so we'll have to see how that goes. To the extent that in the case of ethylene there is more propane or butane cracking and certainly that would yield less ethylene and therefore high ethylene. I think that fundamental relationship still largely holds.

Got it. And then if you could maybe help us out on two quick ones. What's the reason that Corpus isn't contributing more here in the first quarter? Can you give us some stab at what normalized refining margins might be for your asset base?

In the case of Corpus we had an operating issue, we have to make some repairs over there and the net effect is that we'll realized a little bit of our expanded volume will resume sort of production of the full prior volume. And then as we move into the second quarter we'll fully ramp up on that expansion. So we are just working through a few errors, which will take us couple of months. So that's Corpus and now on refining margins we have not really provided outlooks for our refinery per se. But I'll tell you we're focused on as more reliable operation over there. Our team has a really great plan and they are executing on that plan. They are very committed to very different year this year. And once we’re done with this FCC and through unit turnaround that we are in right now, there is really nothing else planned at the refinery for the rest of the year in terms of major maintenance.

Perfect. Thank you.

Thank you. And our next question is from the line of Jonas Oxgaard from Bernstein. Your line is now open.

Morning. Sorry to hear that you're leaving us, Doug. You'll be missed.

Thank you.

Question on butadiene. So Asia price is now hitting $3,000, and Asia is usually the leading indicator. Do you think we'll see $3,000 Europe, U.S.? And what kind of impact does that have on your earnings, if that remains the rest of the year?

Well, so let's talk a little about why that's happening. First of all I think it’s an indication of very strong demand on globally for butadiene and market has come back a long way from lows that we saw couple of years ago. In Asia we saw very strong buying in fourth quarter and even ahead of Lunar New Year holiday, which is not typical. Normally you see activity really get quite over there and the people are buying we think that there are few factors that are driving some of the buying and what might impact Q1. First of all I guess there was some fires in the national rubber plantations so the fairly heavy cracker maintenance schedule for both Asia and Europe in Q1 and Q2. European crackers have shifted to more LPG cracking which yield less butadiene. So let me put all that together there is less butadiene expected global in terms of supply in the near-term and demand seems to be very robust. As far as pricing outlook certainly market look to be very tight in the near-term, so we'll have to see how demand develops.

Okay. And follow-up on that, I know your Channelview C4 separation facility's idle. Is there an opportunity to take overseas cargoes in there?

Yes, we are always looking for those opportunities and we have excess capacity. But I think because of the planned maintenance in Europe, which is usually the exporting regions, it's unlikely that we are going to build access much more. Also I mentioned that we have a turnaround going on in our C4 unit in Q1. So I think in Q2 we will be better positioned to take advantage of incremental importance of the crude butadiene, we're always looking for that Jonas.

Thank you.

Thank you. And our next question is from the line of Aleksey Yefremov from Nomura International. Your line is now open.

Good morning. Thank you. Your ethylene production in 2016 was 8.4 billion pounds. Is it fair to assume that you will be somewhere around 10.4 billion pounds in 2017, absent some unplanned outages?

Well, as I mentioned earlier in my prepared remarks that on Corpus Christi we'll probably see our expansion at full rates late Q2. So that expansion is 800 million pounds you could probably take about half of that all from the number and I think the rest is about rise, so I would deduct 400 million from that number.

Okay, got it. Thank you. And could assure your outlook for the US merchant ethylene market, do you think on balance it will be more favorable to you in 2017 than 2016 or same or worse?

Aleksey, it seems to us that because of some of the timing of derivatives being ahead of crackers in the ethylene market looks to be very balanced type in 2017. We will have to see how crackers operate. But in the past generally you have seasonal upticks in demand in Q2 and Q3, usually the period when there is planned maintenance. And with more derivatives more of the derivative capacity maybe being phased to couple of quarters ahead of crackers, there is a potential for very constructive ethylene market in 2017. So that mentioned in my earlier comments, we contracted our merchant ethylene through 2019 now. So no cracker turnarounds, we already run pullout other than Corpus in the first half.

Thank you. A final question, if I may, on the refinery sale. Was the uncertainty around the tax code a big, big part of that decision? Or are there other issues that were more important?

No, please note that tax really wasn’t a factor frankly in our decision. As we engage in the evaluations in the middle of the year if you think about how market evolves, market is softened through the year refining outlook became weaker. Frankly our operations were disappointing and we're working on that. So we had both internal and external factors moving the long way. And our conclusion was that is not the right time to make a move. So we're firmly focused on improving the operation over there and controlling the things that are in our hands, as well as we can.

Great. Thanks a lot.

Thank you. And our next question is from the line of David Begleiter from Deutsche Bank. Your line is now open.

Thank you. Good morning. Bob, on polyethylene margins, how would you expect them to trend through the year if we do have this additional derivative capacity coming on stream? Did you believe you over-earned the polyethylene margins the last, perhaps, 18 months and these margins might normalize by the end of 2017?

No I think first of all you got to start David with global markets.

Yes.

And demand has been growing at 4% plus globally even Europe is seeing 1.5% kind of growth rates. So our view first of all is that demand growth is still going to be in mid 4s% year-over-year. There’s spacing in the capacity that is coming in the U.S. as I just mentioned in the prior question that ethylene is going to be fairly balance or tight so that will probably underpin polyethylene pricing. And so our expectation is that we still see pretty good market in polyethylene through this year and may be seasonally in the fourth quarter you see softer demand, but yet more capacity coming that will probably increase the need to export I would suspect from the U.S. but I’m pretty constructive for most of the year given that ethylene is going to be pretty tight we think.

Very good. Bob, and just longer term, now that we're looking forward to the end of the decade. Looking at M&A beyond maybe your core commodity businesses, how are you thinking about perhaps longer term the portfolio of LyondellBasell, if you might integrate maybe a little further downstream? How does that play into your thinking?

Well, we first think about is, what are our strengths and how can we leverage those to create value and our focus is on safe and reliable and cost efficient operations. I think we understand how to operate in commodity markets and allocate capital. I&D has the stability of more of a specialty type of business, but still fits more of a commodity sort of product profile. So downstream in I&D certainly is interesting and in the odd period where we are today is still fairly wide open. So these are kind of things we’re going to try to elaborate on in our Analyst Day in April. So we’ll frame this much better and help everyone to understand how we think about long-term grow for LyondellBasell so stayed tuned.

Thank you.

And perhaps in the interest of so I’m just looking at time here and length of the queue so I’m going to ask people if they could stay to one question please, I apologize for that need but it's still fairly long queue of questions. Okay thanks David.

Thank you. And our next question is from the line of Don Carson from Susquehanna Financial. Your line is now open.

Yes thank you. Bob, question on the refinery. What would be the benefit, it looks like Keystone may go ahead now, how would that benefit your refinery? Would you be able to get a lot of additional heavy Canadian crude in? And with that, and if you do show better performance, are we to surmise that the refinery could come up again on the block if you can demonstrate higher value?

With respect to the Keystone certainly more crude getting to the Gulf Coast heavier crude is in our wheelhouse so to speak that's a heavy processing refinery that we own. And so that's positive for us. Our focus is on running at consistently at the highest rates possible. I have met with team over there a couple of weeks ago and they have a great plan, look forward to them executing the plan and getting back to what we know that refinery can do and that our focus.

And can you be more specific on the Canadian crude? How much you could get? If Keystone does run with that, what sort of heavy slate could you run out of Western Canada if that was the case?

Well this is Doug Don, that’s a little bit hard because we got moving things – in the equation here including production. But you can see over the past couple of years since we've been able to receive meeting crude by pipeline we typically run up towards 30% or so of our crude is Canadian. If the economic are right and the availability is there we can do more stuff. So that will move with economics for us and as Bob said, the more availability, the better they should be.

Okay. Thank you.

Thank you. And our next question is from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Thanks. This is actually Matt Gingrich on for Vincent. I'm wondering if it's possible to quantify the total one-time maintenance expenses incurred in 2016, and then maybe a rough estimate of what you think 2017 will be?

Yes, Doug.

This is Doug again your number of items I don't have them all totaled in front of me, but you could see at the refinery we’re probably looking at upwards to around $200 million plus there. And then if you think on the Olefins side in Americas you had two turnarounds probably it’s more or less about $40 million or so and of course Corpus was down really for three quarters of the year. So you can pick that and basically just look at the volume impact on that. Over in Europe we had two turnarounds. So you had, each one would run about the same as the Morris kind of size.

And those volumes we had highlighted those in our Q3 earnings call slides so I think you can refer to those for the volume impacts.

Yes, I think that.

Kind of maintenance the biggest item was really the refinery as Doug mentioned so.

I hope you can get an idea on that. We can talk some more if we need to

Okay. Thanks guys.

Thank you. And our next question is from the line of PJ Juvekar from Citigroup. Your line is now open.

Yes. Hi, good morning. What are polyethylene inventories in US and China today with the converters? And then secondly, as new capacity starts up, most of that will get likely exported. Where does that go? And then secondly is a stronger dollar a concern for you with those exports? Thank you.

Yes, so on converter inventory our sense is that they’re normal to be a little bit below normal both here and in Asia and the reason I say that is we saw pretty good buying in polyethylene both here and in Asia, in Asia especially prior to the Lunar New Year. Normally things go very quite over there and they didn’t this year. So our sense is that demand and inventories are such that there was a need to buy. In terms of the new capacity being exported where would it go certainly for ethylene derivatives Asia is a primary destination and just given the balances and demand growth over there is a need for polyethylene. For example for Asia so we think the market is there and in terms of the dollar I suspect if the market is there then prices will adjust accordingly depending on however the dollar shape up. So I kind of think more fundamentally about supply demand and it seems operating rates it should be very constructive globally in 2017.

Thank you.

Thank you. And our next question is from the line of Hassan Ahmed from Alembic Global. Your line is now open.

Good morning Bob. Bob, quick question around the MTO side of things. Obviously methanol prices have shored up a fair bit, and it just seems that on a standalone non-integrated MTO economic basis, you'd be in the red, right? But it seems that profitability for these facilities is being buoyed by downstream units. So just wanted to hear your views on how you think near- to medium-term -- what the near to medium term looks like in terms of empty or utilization rates, as well as incremental capacity adds?

Well again I come back to global operating rates and I think with MTO the first thing we got to think about is that capacity needed to meet demand. And I think the answer is yes, the operating rates are high enough that that last incremental capacity is needed. MTO costs are somewhere around 51, 52 I think ethylene price in Asia is about 50 but very close. And so I suspect that if the need is there then prices would have to rise to cover the cost of this high cost producer. And so that’s what we’ll be watching for as Q1 develops. But our sense is that MTO will continue to operate given where demand is globally and I thinking prices have to be particularly in the money.

Perfect. Thanks so much Bob.

Thank you. And our next question is from the line of Steve Byrne from Bank of America. Your line is now open.

Yes. Thank you. Just continuing in China here, how do you look at demand growth for polyethylene in China versus supply growth there? And on the supply side in addition to the MTO question, are you seeing any evidence of rationalization of CTO capacity there for environmental reasons?

Yes. So, Steve if you would look at IHS balances even from two years ago they had a lot more CTO capacity than you would see today, if you look in the balances and to your point beyond the environmental considerations oil prices have come up as well and CTO processes require water. So there are lots of things that point to less CTO. We see a bit of that because we have a view into that market given our licensing business and we do see moderation in activity. On the demand side now - I think polyethylene demand is going to continue to grow at very good rates and it seems to me that the need for imports will be consistently there. And I think if you look at global balances over time U.S. capacity - additional capacity should be absorbed relatively quickly compared to prior cycles that we have seen.

Thank you.

Thank you. And our next question is from the line of Frank Mitsch from Wells Fargo Securities. Your line is now open.

Hi, good morning gentlemen. Bob, a little more of a strategic question for you. Given that Doug is worth at least 100 multiple bps on you EBITDA multiple, how do you plan on replacing that?

I am still - I was tearing up earlier just reading that, that Doug leaving, Frank. Look we are going to miss Doug, he's been a great force in the company and frankly you know he helped me during my transition two years ago and was really invaluable, Though I'll probably say, there is few other times in different forms, we really appreciated everything he's done. Unfortunately, we have Dave who has a lot of experience, has been an understudy for about a year under Doug. So, I am expecting Dave to not only make up that 100 bps- it’s going to be his KPI.

All right. Good luck, Dave, on doing that. I also want to understand the Corpus Christi issue a little bit better. I think you were talking about it being the existing asset is down, as well as the 800 million pound expansion. Is that correct? I think you had originally sized the investment in that project of being $800 million. With the most recent delays and repairs, et cetera, are we looking at a material cost overrun there?

No, I am sorry about that. So let me explain perhaps I didn't say it properly earlier. There are not separate units. It's one unit essentially and to be very simplistic we increased the size of just about everything, but its one factor at the end of the day. We have one part of that unit that is not able to run at full rates. Therefore, we cannot run all of our furnaces and process everything through. So there is no cost overrunning act beyond what we know today. It’s just a matter of some repairs and requires long lead equipment. And so we’re expediting that as much as possible and our aim is to ramp-up the full rates towards the end of Q2, but just it’s one unit there are not separate units.

Okay. All right. And thanks for the clarification.

Frank it is running. I mean, it’s running but closer to its pre-expansion rates then opposed to expansion rates.

Got you. Thank you.

Thank you. And our next question is from the line of Duffy Fischer from Barclays. Your line is now open.

Good morning. Question on the Olefins versus Derivatives. You would delay the potential expansion on the Olefin side to focus on your polyethylene plant. But now you're kind of talking about Derivatives being looser than the Olefins. So can you just kind of marry those two views? If ethylene is going to be tight, derivatives are going to be a little bit loose relative, why wouldn't we have pushed that next expansion as opposed to focusing on the derivative?

Yes. Good morning, Duffy. So this fading of derivatives and crackers in the industry, it’s sort of the emerge - that middle of 2016. I think it’s very temporary. We are talking about a couple of quarters not structural. Structurally in our view the story hasn't changed and so if you think about our derivative expansion, our polyethylene expansion is targeted to come on stream somewhere in the middle of 2019 and that will consume some of these debottleneck ethylene that we've already got coming to market. And then that last expansion debottleneck that we have delayed. We still intend to do it. So structurally there is no change it’s more just near-term saving in the big projects which is probably two or three quarters not even a full year.

Okay, terrific. Thank you.

Thank you. And our next question is from the line of Kevin McCarthy from Vertical Research Partners. Your line is now open.

Yes, good morning. My question relates to your U.S. ethylene margins. On table 9 of your press release you show some very helpful benchmark data that would seem to suggest that U.S. benchmark margins declined about $0.04 a pound in the fourth quarter sequentially from the third quarter. And on Slide 11 of your deck, I think you indicate your own margins were down $0.06 per pound. And so I'm wondering if you can speak to that differential, what might be causing it in terms of your asset base or feed stock mix? And whether or not you would expect that to reverse at some point in the first quarter or beyond? Thanks.

There is always a little bit of noise and variation across the benchmark to our actual site and it’s nothing really unusual some quarter go one way, some will go the other kind of depend on mix, mix of raw materials and operating rates and also your sales mix but nothing more than that.

Okay. So kind of transitory noise there, such that perhaps it'll renormalize at some point down the road?

Yes.

Thank you very much.

Thank you.

Perfect

Thank you. And our next question is from the line of John Roberts from UBS. Your line is now open.

Thanks. Doug, best wishes as well.

Thank you.

Bob, in your refining deal discussions, was your earnings outlook higher than the potential buyers, or was it simply a valuation difference between you and the buyers on a relatively consensus outlook that prevented a deal?

I think - again given sort of the challenges we had in the operations at the plant and if you recall in Q3 and Q4 outlook for the industry was being revised for the refining industry and so as we were trying getting through all of that perhaps we had different views on the capability of the refinery, as well as how the market might evolve. And there are lots of moving parts and as I had mentioned in the Q3 call it's not something that we felt we have to do, if there is a right value we would do it. As you know we have a very balance sheet. We generate a lot of cash so it's sort of it's not something that's necessary as a precedent doing something else. So it's really at the end of the day our view of value versus the buyers view value.

Thank you.

Thank you. And our next question is from the line of James Sheehan from SunTrust Robinson. Your line is now open.

Thank you. Sticking with the refinery for a moment, what do you think the impact would be on the refinery's profitability if Washington were to implement this proposed border tax adjustment?

That something we are watching closely and we import most of the crude oil that we process there as you know. So, it would have an impact but when we think more broadly about the different strategies that are being discussed certainly lower corporate tax rate and more balanced energy and environmental regulations and all those things, those certainly will benefit and so - we just have to watch and see how that develops and suspect that something like that were in place eventually downstream prices would adjust and we'd have to think about the second and third order effects of all that.

Thank you.

Thank you. And our next question is from the line of Nils Wallin from CLSA. Your line is now open.

Thanks, and good afternoon. Just had a question - you mentioned earlier, Bob, that the discussion about the potential for ethylene to be short, as you have different phasing of the derivative units versus the expansions, has been in discussion since maybe middle of 2016. So with respect to the producers that will be engaged in this phasing, why wouldn't they have built enough inventory so that they don't get short when this actually transpires?

Yes, I think that’s difficult to predict about inventories and I suspect that I can only got out from my experience that on startups it's not that predictable in terms of will be making product on ex-date. So I suspect that people looked balances and say there is - there are merchant seller's who have ethylene and we'll buy such that we price ethylene in the market and sell derivatives in the market. So again I think in terms of ethylene tight perhaps a bit stronger I would say. We are going to be – certainly going to see very balanced markets but I don’t think they’re going to be short, I think that's the word you'd use, I mean, tight is probably characterization. And then we’ll see how everyone operates. So - and this is through Q2 and Q3.

Understood, thanks very much. And just one quick follow-on. Butadiene, obviously you've mentioned how the price has moved up a little, quite significantly and in Europe. I believe you had had a favorable contract in butadiene in Europe at one time, but it was sort of fixed in terms of margin. Are you able to participate at all in the fly-up in the butadiene prices?

Yes. So those have largely are now rolled off. Look at those back in 2011 and 2012 associated with our expansion but we should be able to take advantage of the upside.

Got. Thank you very much.

Thank you. And our last question is from the line of Matthew Blair from Tudor, Pickering, Holt. Your line is now open.

Thank you. Hi, Doug, best wishes going forward here. I just wanted to ask a question, your press release mentioned your optimism regarding NGL supply. And I was hoping you could elaborate on this and maybe share any production targets you might have. And then also, are you more optimistic on ethane production growth going forward or propane, or is it pretty similar? Thanks.

Yes, I think our comments really relates higher oil price and higher drilling - more drilling activity in the Permian and we think eventually in the Eagle Ford. So, it's more towards NGL generally not just ethane as you know, you get propane and butane in certain proposition in mix NGL. So our sense as oil price increase, as crackers come up and there is a destination for the ethane that is otherwise been rejected and there is a market backdrop for more value being created from NGLs and that’s kind of our simply our view.

Thank you.

Thank you. All right. So with that being the last question let me provide some closing thoughts here. First of all thank you for hanging in there a little bit beyond the hour. Thanks for all of your thoughtful questions and on conclusion markets are still relatively balanced and for us the past year was a year of really high maintenance both planned and unplanned throughout the Company and I think that’s positioned us well to serve what we think are very constructive markets and developing in 2017. So we look forward to updating you on our progress as we move through the year. Thank you for your interest in our company.

Thanks everybody. Bye-bye.

Thank you. And that concludes today's conference. Thank you all for joining and you may now all disconnect.