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Lyondell Reports Second-Quarter 2007 Results

Published on 2007-08-24. Author : SpecialChem

HOUSTON -- Lyondell Chemical Company announced income from continuing operations for the second quarter 2007 of $271 million, or $1.02 per share on a fully diluted basis. For the first six months of 2007, net income from continuing operations was $277 million, or $1.05 per share on a fully diluted basis.

Second-quarter 2007 results from continuing operations improved versus the first quarter 2007 primarily due to record refining segment results coupled with strong fuels (MTBE/ETBE) performance. Ethylene segment results continued to reflect good volumes and operating rates with modest margin improvement. In the propylene oxide segment, chemical product results declined primarily due to increased raw material costs; however, these were more than offset by the strength in fuels (MTBE/ETBE). The inorganic chemicals business is accounted for as a discontinued operation as it was sold midway through the quarter for a total transaction value of approximately $1.3 billion. After-tax cash proceeds of approximately $1.05 billion were used to repay debt.

"The strength in our refining operations was quite clear during the quarter and demonstrated the way in which the segment complements our chemical operations and provides balance within our portfolio. While our refining and fuel products benefited from the strong fuel markets, similar dynamics within the energy markets pressured our chemical products. In fact, ethylene segment raw material costs on average increased by approximately 20 percent. Consequently, despite a relatively strong market and several price increases, margin improvement in this segment was quite modest," said Dan F. Smith, chairman, president and CEO of Lyondell Chemical Company. "The strong refining results were complemented by the sale of our inorganics business, which enabled us to accelerate our debt repayment program providing additional value to our investors."

OUTLOOK

Thus far, third-quarter market conditions have been similar to the prior quarter. Refining and fuels have remained quite strong while elevated raw material costs continue to pressure the chemical products. "Our outlook for our chemical and fuel businesses continues to be positive and thus far the summer season has been strong, meeting our expectations. The portfolio changes that we made over the past year, coupled with our operational focus, have positioned us to benefit in a growing global economy," said Smith.

LYONDELL BUSINESS RESULTS DISCUSSION BY REPORTING SEGMENT

Lyondell operates in three segments:

  1. Ethylene, co-products and derivatives;
  2. Propylene oxide (PO) and related products; and
  3. Refining.

Inorganic chemicals is presented as a discontinued operation due to the May 15 sale of this business.

Ethylene, Co-products and Derivatives Segment:

The primary products of this segment are ethylene, ethylene co-products (propylene, butadiene and benzene), and derivatives of ethylene (polyethylene, ethylene oxygenates and vinyl acetate monomer or VAM).

2Q07 v. 1Q07: Ethylene and ethylene derivative product sales volumes increased by approximately 125 million pounds (approximately 4 percent) versus the first quarter 2007. Compared with the first quarter, our quarterly average prices for ethylene and polyethylene increased by approximately 4.5 cents and 5 cents per pound, respectively, while the ethylene glycol price increased by 1.5 cents per pound. The company's average cost-of-ethylene-production metric (COE) increased by approximately 2.5 cents per pound versus the first quarter primarily due to increases from natural gas liquid-based raw materials. Acetyls results declined by approximately $15 million as a result of higher costs and lower methanol prices.

2Q07 v. 2Q06: Ethylene and ethylene derivative product sales volumes were up approximately 150 million pounds versus the second quarter 2006. The quarterly average prices for ethylene and polyethylene decreased by approximately 2.5 cents and 2 cents per pound, respectively, and the ethylene glycol price increased by 4 cents per pound. The company's average COE metric increased by approximately 1 cent per pound. Acetyls results were unchanged.

PO and Related Products Segment

The principal products of the PO and related products segment include PO, PO derivatives (propylene glycol, propylene glycol ethers, butanediol and butanediol derivatives), styrene, fuel products (methyl tertiary butyl ether [MTBE] and ethyl tertiary butyl ether [ETBE]), isobutylene and toluene diisocyanate (TDI).

2Q07 v. 1Q07: Segment EBITDA increased by $108 million versus the first quarter 2007 partially due to the absence of the $62 million first-quarter TDI charge. Fuel-product results increased by approximately $105 million primarily as a result of increased raw material margins (approximately 40 cents per gallon) and sales volumes. PO and PO derivative results decreased by approximately $45 million primarily due to increased propylene raw material costs, compensation expense and charges related to commercial disputes. Styrene results were relatively unchanged. Absent the first-quarter charge, TDI results decreased by approximately $10 million due to scheduled second-quarter maintenance.

2Q07 v. 2Q06: Segment EBITDA increased by $25 million versus the second quarter 2006 primarily due to increased fuel product margins. Fuel product results increased by approximately $45 million due to higher volumes and margins. PO and PO derivative results decreased by approximately $10 million primarily due to compensation expense and charges related to commercial disputes. Together, styrene and TDI results declined by approximately $10 million.

Refining Segment

Lyondell owned a 58.75 percent interest in Houston Refining LP (formerly known as Lyondell-Citgo Refining LP) prior to Aug. 16, 2006, at which time Lyondell purchased the remaining 41.25 percent interest from CITGO Petroleum Corporation. Prior to Aug. 16, Lyondell's interest was accounted for by the equity method. As a result of the acquisition, Houston Refining's operations are consolidated from Aug. 16.

2Q07 v. 1Q07: Segment EBITDA was $318 million higher than the prior quarter, which was negatively impacted by $140 million related to the planned maintenance turnaround and upgrade of the fluid catalytic cracking unit and related units. In addition to the absence of turnaround-related impacts, second-quarter results were positively impacted by approximately $160 million from increased margins versus the first quarter. Additionally, aromatics and lubes benefited by a combined $20 million as a result of strong operations.

2Q07 v. 2Q06: Results increased primarily due to increased margins, which are partially attributed to stronger market conditions and partially attributed to the cancellation of the previous PdVSA crude supply agreement during August 2006. Aromatics and lubes contributed an additional $20 million versus the second quarter 2006.

Discontinued Operations:

Inorganic Chemicals The principal product of inorganic chemicals is titanium dioxide (TiO2). In view of the May 15, 2007, sale, the inorganic chemicals business is reported as a discontinued operation including comparative periods. Second-quarter results for the discontinued operations include a $91 million loss on the sale due primarily to the impact of income taxes.

ABOUT LYONDELL:

Lyondell Chemical Company, headquartered in Houston, Texas, is North America's third-largest independent, publicly traded chemical company. Lyondell is a leading global manufacturer of chemicals and plastics, a refiner of heavy, high-sulfur crude oil and a significant producer of fuel products. Key products include ethylene, polyethylene, styrene, propylene, propylene oxide, gasoline, ultra low-sulfur diesel, MTBE and ETBE.

FORWARD-LOOKING STATEMENTS:

The statements in this release and the related teleconference relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of management, and are subject to significant risks and uncertainties. Actual results could differ materially based on factors including, but not limited to, Lyondell's ability to implement its business strategies, including the ability of Lyondell and Basell to complete the proposed merger; availability, cost and price volatility of raw materials and utilities; supply/demand balances; industry production capacities and operating rates; uncertainties associated with the U.S. and worldwide economies; legal, tax and environmental proceedings; cyclical nature of the chemical and refining industries; operating interruptions; current and potential governmental regulatory actions; terrorist acts; international political unrest; competitive products and pricing; technological developments; risks of doing business outside of the U.S.; access to capital markets; and other risk factors. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the Lyondell, Equistar and Millennium Annual Reports on Form 10-K for the year ended December 31, 2006 and Quarterly Reports on Form 10-Q for the quarter ended March 31, 2007, Quarterly Reports on Form 10-Q for the quarter ended June 30, 2007 which will be filed with the SEC in August 2007 and the Lyondell Current Report on Form 8-K filed on May 21, 2007.

Source: Lyondell Chemical Company


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