Solid Strategy, Confident Execution
Lehman Brothers Conference March 23, 2004
Karen TwitchellVice President and Treasurer
2
Safe Harbor LanguageStatements 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, 2003, filed in March 2004. Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation.
3
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
($ MM)
Revenues EBITDALyondell
OwnershipIC&D $3,801 $245 100.0%Equistar 6,545 175 70.5LCR 4,162 377 58.75
2003
4
Significant Integration Exists Among the Operating Entities and With Our Partners
5
Leading Product Positions Create Significant Earnings Leverage
1 Source: LYO capacities as of January 2004, CMAI2 Includes 100% of joint venture volumes3 Does not include refinery-grade material or production from the product flexibility unit at Equistar’s Channelview
facility.4 Based on 1¢/gal change
Inte
rmed
iate
C
hem
ica
ls a
nd
D
eriv
ati
ves
Eq
uis
tar
Product Annual Capacity(1)
Capacity Position
Propylene Oxide(2)
( lbs) 4.5 billion 1st in North America1 st in the world
Styrene Monomer (lbs) 5.0 billion 1st in North America4th in the world
MTBE (bbl/day) 58,500 1st in North America1st in the world
Ethylene (lbs) 11.6 billion 2nd in North America5th in the world
Propylene (lbs) 5.0 billion 2nd in North America7 th in the world
Polyethylene (lbs) 5.7 billion 3 rd in North America4 th in the world
(1)
(3)
$23MM
$21MM
$ 9MM
$116MM
$50MM
$57MM
Pre-TaxLeverage(∆1¢/unit)
(4)
6
We’ve Significantly Strengthened Our Operations
0
30
60
90
120
150
180
Lyondell Equistar PO11 Spending Regulatory
4.2%
9.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
LYO+EQU Peers
SG
&A
+ R
&D
, %S
ale
s
0102030405060708090
1998 2003
Lyondell Equistar
Safety PerformanceEnterprise Incident Rate
Days of Working Capital *Capital Spending
Average SG&A and R&D, % Sales 2000 - 2002
1999 2004 Budget
$MM
Re
co
rda
ble
In
jury
Ra
te
1st Quartile ’02 1.001.180.99
0.8
0.52 0.52
0
0.5
1
1.5
2
1999 2000 2001 2002 2003
Days
* Based on accounts receivable (including those sold), inventories & accounts payable as of 12/03, and fourth-quarter days of sales.
Peers include:
Dow, Nova,
Eastman, Celanese,
Solutia, Westlake,
Millennium, Georgia Gulf
7
Lyondell and Equistar Products Serve a Broad Mix of End Users
Bldg & Const
Consumer
Electronics
Other
Transportation
Packaging
Textiles/Furnishings
Bldg & Const
Consumer
Packaging
Textiles/ Furnishings
Electronics
Other
Transportation
PROPYLENE OXIDEETHYLENE
8
Growth in the World Economy Revives
-2-1
012
34
56
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Real GDP Industrial Production
(Percent change)
Source: 2004 Global Insight, Inc.
9
A Brief Portfolio Review
IC&D
– Propylene Oxide (PO) and Derivatives
– Styrene
– MTBE
LCR
– Gasoline
– Heating oil
– Jet fuel
Equistar
– Ethylene
– Polyethylene
10
PO Industry Capacity Lyondell PO & Derivatives
Other
LYO/Bayer/Sumitomo
Shell/BASF
Dow
PG
BDO
Merchant PO
Deicers
PO Solvents
Our Propylene Oxide and Derivatives Business (IC&D) Benefits from a Strong Position
Product Capacity Position
Market Growth
Merchant PO 1
PG 2 Moderate
BDO 2 High
P-Solvents 2 Low
Deicers 1 Low
PO 4-5%/yr
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
11
There Are Very Few Future Propylene Oxide Capacity Additions
Source: SRI / Lyondell
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
1992 1994 1996 1998 2000 2002 2004 2006 2008 201050%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
Nam
epla
te C
apac
ity
Effective Operating Rate(96% On Stream Time)
Demand at 4.4% growth
12
The Lyondell Enterprise Has A Well Established Presence in Asia
Presence established in 1972
40% interest in Nihon Oxirane
$1 B revenue 1
2.5 – 3.0 B lbs of sales 1
Leading PO and derivative positions
Strong styrene relationships
1 Includes 100% of Nihon Oxirane
BeijingTokyo
Shanghai
Taipei
Hong Kong
Guangzhou
Offices
Inventory
Point
Manufacturing
13
There are Three Principle Propylene Oxide Technologies. Lyondell Practices Two Co-Product Technologies
Technology Principle Participants
PO & Styrene (POSM) Lyondell, Shell
PO & MTBE (PO / MTBE) Lyondell, Huntsman
Chlorine Based Dow, Asian Plants
14
The North American MTBE Industry Has Been Adjusting To The Regulatory Changes
2002 VS. Q1 2004
M B/D
U.S. Demand (130)
U.S. Supply / Capacity
-- U.S. Dehydro Capacity (70)
-- Refinery / Olefins Capacity (20)
-- Import / Export (40)
(130)
Source: EIA, Lyondell Estimates
15
600
500
400
300
200
100
Steps Toward Increased IC&D Cash Flow
Complete PO-11
Capital Spend
Convert PO/SM
Purchases onProduction
1999PO / TDI
SMMargins
MTBEResolution
Sell-out at 1995PO / TDI / SM Margins
Potential Cash Improvement
From 2003
$ MM/Yr
Base
16
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: $120 MM
17
LCR Important Cash Generator -- Operating Reliability and Crude Deliveries Drive Performance
1 4Q01: Scheduled maintenance turnaround2 1Q03: Includes a $25MM write-off
0
50
100
150
200
250
300
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
0
20
40
60
80
100
120
140CSA Spot Mkt EBITDA
MB/day $MM
21
Net Distribution To LYO, $MM 33 (7) 16 76 20 24 59 17 2 22 49 7 67 69 55 32
18
Equistar is a Leading Ethylene Producer
#2 in North America
Competitive position based on feedstock flexibility
1991 2003
Top 5 North America
Shell9%
Dow9%
Equistar15%Nova
8%
Union Carbide7%
Exxon7%
Dow/Carbide18%
ExxonMobil13%
ChevronPhillips10%
Nova 8%
40%
64%
Source: CMAI
19
North American Supply/Demand Balance Is On Track To Improve Significantly
30
40
50
60
70
80
90
100
110
120
1994 1996 1998 2000 2002 2004 2006
Bil
lio
n P
ou
nd
s
60%
70%
80%
90%
100%
Op
erat
ing
Rat
e
Ethylene Supply/Demand Balance – North America
Source: CMAI / Equistar (September/2003)
Nam
epla
te C
apac
ity
N. American Effective Operating Rate(96% On-Stream Time)
N. America Demand
Rest of World
N. America
20
12000
14000
16000
18000
20000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Mill
ion
s C
apac
ity L
bs
70
75
80
85
90
95
100
Op
erat
ing
Rat
e, %
Effective Capacity Downtime Operating Rate
Effective Ethylene Operating Rates Are Forecast To Be In The Low To Mid 90% Range
U.S. Ethylene Supply/Demand
CMAI-2/04
2002 20032002 2003 2004
21
0
20
40
60
80
100
120
0 5, 000 10, 000 15, 000 20, 000 25, 000 30, 000 35, 000 40, 000
US
Korea
Taiwan
WE
Singapore
Japan
Thailand
Malaysia
ChinaIndiaIndonesia
The Emergence of a Middle Class Increases Local Demand for Plastics
Sources: CMAI 2001; Nexant Chemsystems
0
2
4
6
8
10
12
Domestic Exports
1995 2001
China PE Demand
Domestic vs. Export
PE Consumption/capita, lbs
2000 GDP/Capita
22
We Believe that Global Ethylene Supply/Demand is on a Path to a Tight Balance
175
200
225
250
275
300
2003 2007 '07 + 2% Growth '07 - 18 Mo Delay
Wo
rld
Eth
yle
ne
Su
pp
ly -
De
ma
nd
(billio
n p
ou
nd
s/y
ear)
Effective Capacity Demand
Source: CMAI
SensitivityCMAI base case
96%104%
99%
23
Ethane - Light Naphtha Cost of Ethylene Spread
0
1
2
3
4
5
6
7
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
¢/lb
eth
yle
ne Average
Liquid Cracking Variable Cost Advantage vs. NGL
Source: ChemData
Equistar Capability
NGL
37%
Liquid
63%
N. American Industry
(ex. Equistar)
NGL
75%
Liquid
25%
Liquid Cracking Provides an Advantage vs. Ethane Raw Materials
Source: CMAI and Lyondell
20
03
24
In Summary, The Business Areas Are Positioned For Significant Improvement
Global Economy Turning Positive
Crude Oil and Natural Gas High But Vulnerable To A Fall
Significant Volumetric Leverage
Tightening Supply/Demand Outlook In Key Products
Differential Positions In Key Products
– POSM Technology
– Liquid Crackers
25
Enterprise Earnings Capability Far Exceeds Recent Trough Results
0
500
1000
1500
2000
2500
3000
2003 1999/2000Margins
1995 Margins 1988 Margins
$MM
LCR IC&D Equistar
1 Chem Data/CMAI industry margins conditions for IC&D and Equistar products (ex. MTBE) applied to current capacities and ownership, LCR 2003 EBITDA
1
1 1
Recession/ Trough
Pre-Recession
PeakCycle EBITDA Potential
2003Proportional
Interest,Dividends &
Capital
26
Our Financial Strategy is Focused and Unchanged
Maintain Sufficient Liquidity
Repay Debt
27
We Have Maintained Significant Liquidity
$632MM$738MM $461MM$631MM Total Liquidity
$433MM$300MM $434MM$301MMFacility Avails
$199MM$438MM $27MM $330MMCash & ST Investments
EquistarLyondell Equistar Lyondell
12/31/200312/31/2002
28
We Have Actively Managed Our Maturity Profile
Debt Maturities(1),(2) Pre-Payable Debt(3)
(1) Lyondell: Does not include $350MM Revolving Credit Facility, which expires in 2005, or $100MM Receivables Purchase Program
(2) Equistar: Does not include $250MM Inventory Revolving Credit Facility or $450MM Receivables Purchase Program
(3) 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 $700MM Senior Notes due 2008 (Equistar)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2003 2004 2005 2006 2007 2008
($MM)
Lyondell Equistar
29
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 atconstant capitalization $11.50/share
30
Lyondell net loss (302)$ Add: Benefit from income tax (179)
Interest expense, net 392 Depreciation and amortization 250 Loss from equity investment in Equistar 228 Income from equity investment in LCR (144)
Lyondell EBITDA 245$
Equistar net loss (339)$ Add: Depreciation and amortization 307
Interest expense, net 207
Equistar EBITDA 175$
Proportionate Share - 70.5% 123$
LCR net income 228$ Add: Depreciation and amortization 113
Interest expense, net 36
LCR EBITDA 377$
Proportionate Share - 58.75% 222$
Lyondell and Proportionate Share of Equity Investments - EBITDA Lyondell EBITDA 245$ 70.5% of Equistar EBITDA 123 58.75% of LCR EBITDA 222
Lyondell and Proportionate Share of Equity Investments 590$
LYONDELL CHEMICAL COMPANYRECONCILIATION OF NET INCOME (LOSS) TO EBITDA
(Millions of dollars)For the Twelve Months Ended December 31, 2003
31
Lyondell IC&DInterest expense, net 392$ Capital expenditures (a) 50 Dividends 116
Total 558$
Equistar Interest expense, net 207 Capital expenditures 106
Total 313$
Proportionate Share - 70.5% 221$
LCRInterest expense, net 36 Capital expenditures 46
Total 82$
Proportionate Share - 58.75% 48$
Lyondell and Proportionate Share of Equity Investments - Interest, Capital Expenditures and DividendsLyondell IC&D 558$ 75% of Equistar 221 58.75% of LCR 48 Lyondell and Proportionate Share of Equity Investments
Interest, Capital Expenditures and Dividends 827$
________(a) Excludes contributions to PO-11 and U.S. PO joint ventures and the purchase of the BDO-2 facility.
Lyondell Chemical Company
(Millions of dollars)For the Twelve Months Ended December 31, 2003
Reconciliation of Lyondell and Proportionate Share of Ventures' Interest, Capital Expenditures and Dividends
32
Dec. 31, 1998 * Dec. 31, 2003
Lyondell Equistar Lyondell Equistar
Working Capital: (a)
Accounts receivable (b) 479$ 522$ 449$ 608$
Inventories 550 549 347 408
Accounts payable (310) (337) (431) (513)
Total 719 734 365 503
Add: Accounts receivable sold (c) 160 130 75 102
Adjusted working capital 879$ 864$ 440$ 605$
Days of Working Capital:
Fourth Quarter Sales Revenue 872$ 1,141$ 945$ 1,665$
Days in Quarter 92 92 92 92
Sales per day 9.5$ 12.4$ 10.3$ 18.1$
Days of working capital (b) (d) 93 70 43 33
(a) Defined as the major controllable components of working capital - receivables, inventories and payables. (b) In consideration of discounts offered to certain customers for early payment for product delivered in December 2003, some
receivable amounts were collected in December 2003 that otherwise would have been expected to be collected in January 2004, including $41 million from Occidental. Had such amounts been collected in January 2004, days of working capitalwould have been 36 days.
(c) Receivables sold are added back for consistency as such amounts are included in sales and in the sales per day calculation. Management believes that this provides useful information to investors because it reflects Lyondell's and Equistar's responsibility for administration and collection of said amounts.
(d) Days of working capital are calculated as adjusted working capital divided by sales per day.
Days of Working CapitalReconciliation
Dollars in Millions
33
1Q 2000 2Q 2000 3Q 2000 4Q 2000 1Q 2001 2Q 2001 3Q 2001 (a) 4Q 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 (b) Q1 2003 Q2 2003 Q3 2003 Q4 2003
Net income (loss) 22$ (22)$ 66$ 62$ 42$ 66$ 78$ 17$ 41$ 63$ 50$ 59$ 28$ 58$ 69$ 73$
Add: Depreciation and amortization 26 30 28 28 28 27 26 27 29 30 28 29 28 29 28 28
Interest expense, net 12 16 16 17 16 15 10 10 8 7 8 9 10 9 8 9
LCR EBITDA 60$ 24$ 110$ 107$ 86$ 108$ 114$ 54$ 78$ 100$ 86$ 97$ 66$ 96$ 105$ 110$
________(a) EBITDA for LCR for the three months ended September 30, 2001 was originally reported as $116 million and was restated to include extraordinary charges
related to early debt retirement, currently reflected in other expense, net.
(b) EBITDA for the three months ended December 31, 2002 was originally reported as $98 million and was restated to include extraordinary charges related to early debt retirement, currently reflected in other expense, net.
1Q 2000 2Q 2000 3Q 2000 4Q 2000 1Q 2001 2Q 2001 3Q 2001 4Q 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 Q4 2003
Investment in LCR at beginning of quarter 52$ 35$ 32$ 58$ 20$ 27$ 44$ 33$ 29$ 54$ 71$ 54$ 68$ 20$ 1$ (14)$
Add: Equity in income (loss) of LCR 16 (10) 42 38 27 41 48 13 27 39 32 37 19 37 43 45
Other comprehensive loss due to minimum pension liability - - - - - - - - - - - (16) - - - 4
Accrued interest converted to capital - - - - - - - - - - - - - 10 - -
Contribution payable to LCR - - - - - - - - - - - - - 3 (3) -
Less: Investment in LCR at end of quarter (35) (32) (58) (20) (27) (44) (33) (29) (54) (71) (54) (68) (20) (1) 14 (3)
Net cash distributions from (contributions to) LCR 33$ (7)$ 16$ 76$ 20$ 24$ 59$ 17$ 2$ 22$ 49$ 7$ 67$ 69$ 55$ 32$
Distributions from LCR 33$ -$ 24$ 86$ 22$ 30$ 79$ 34$ 24$ 27$ 63$ 12$ 88$ 69$ 58$ 38$ Contributions to LCR - (7) (8) (10) (2) (6) (20) (17) (22) (5) (14) (5) (21) - (3) (6)
Net cash distributions from (contributions to) LCR 33$ (7)$ 16$ 76$ 20$ 24$ 59$ 17$ 2$ 22$ 49$ 7$ 67$ 69$ 55$ 32$
RECONCILIATION OF LCR NET CASH DISTRIBUTIONS
LYONDELL CHEMICAL COMPANYRECONCILIATION OF LCR NET INCOME (LOSS) TO EBITDA
(Millions of dollars)