David Kinney:

Good day, everybody, and thank you for joining today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com/investorrelations.

Peter Z. Vanacker:

Thank you, David, and welcome to all of you. We appreciate you joining us today as we discuss our first quarter results. During today's call, our leaders will be discussing results in line with the organizational changes we announced on February 19. In addition to her prior responsibilities for Refining & Supply Chain, Kim Foley is now our Executive Vice President for Global Olefins and Polyolefins. Kim will discuss the results for both O&P segments as well as the refining segments.

The second key message is that LyondellBasell's focused strategy is creating unique opportunities to transform our business. As you have heard me say many times, we are executing on 3 strategic pillars:

we're growing and upgrading our core businesses through the startup of our new PO/TBA capacity and the acquisition of our NATPET joint venture in the Middle East. We intend to give a more substantive update on this pillar of our strategy during our second quarter results.

Michael McMurray:

Thank you, Peter, and good morning, everyone. Please turn to Slide 8, and let me begin by addressing our cash generation. During the past 4 quarters, LyondellBasell generated $4.3 billion of cash from operating activities. Our team efficiently converted 93% of our EBITDA into cash over the last 12 months. At the end of the quarter, our cash balance was $2.3 billion.

Kimberly Foley:

Thank you, Michael. After more than 35 years in various leadership positions at LYB, I am very excited to assume responsibility for our O&P segments. Earlier in my career, I was the site manager for our largest site here in Channelview, Texas. It is an honor for me to now lead LyondellBasell's work to grow and upgrade these core businesses for our company.

Operator:

[Operator Instructions] Our first question comes from the line of Steve Byrne with Bank of America.

Peter Z. Vanacker:

Steve, I mean, thanks for your question. This is Peter. It was a bit difficult, I mean, to understand the line was breaking up. But you were asking for our level of demand on the renewable side of polyethylene as well as if it is cost plus or not.

Operator:

Our next question comes from the line of Patrick Cunningham with Citi.

Peter Z. Vanacker:

Good question, Patrick. And of course, we are very pleased that we see that the situation is changing in Europe. Of course, as you alluded to and as we said in the prepared remarks, held by discontinuity because of the issues in the Red Sea.

Kimberly Foley:

I think the only thing that I would add, Peter, is we continue to see strength in packaging, which you alluded to in our prepared remarks. And none of us can predict what's going to happen with the supply chains, and so long as that threat is out there, I think we'll continue to see more nearshoring.

Operator:

Our next question comes from the line of Frank Mitsch with Fermium Research.

Kimberly Foley:

I think I want to go back to the first part of Frank's question, just so I answer that. As many of you saw in the prepared remarks and the releases this morning, our first quarter North American olefins and polyolefins would operate at our crackers at about 75%. So you asked the question about operating rates for global OPAM. I would say OPAM or global O&P-Americas as well as global, Europe, Asia and International are both at 85% in the second half -- or the second quarter of the year.

Matthew Blair:

Could you go into your outlook for PE pricing in the second quarter as well as the back half of the year? Is it fair to say that the export demand right now is stronger than domestic demand for PE? And then also, could you talk a little bit about just overall inventory levels?

Operator:

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Kimberly Foley:

Second question, I think the easiest way to explain that is it's an optimization. You're going to look at what margin you have on your domestic demand, you're going to look at your incremental cost of production to export, and you're going to make the right optimization across our assets?

Joshua Spector:

I wanted to ask on the cost side of the equation. So I mean, you continue to make good progress on your Value Enhancement plan. But at the same time, you're investing to stand up a new business in CLCS. I think, correct me if I'm wrong, that's probably a big driver about why your SG&A continues to increase, up about $100 million over the last couple of years. So I'm wondering if you could kind of break the pieces apart in terms of the benefit from VEP you see yourself getting, the costs that you're adding for that new business maybe over the next couple of years that don't have the EBITDA to match that at this point, and maybe inflation, so we can maybe better model over '24 and '25 what the actual drop-through was of the savings versus cost versus new businesses.

Michael McMurray:

Yes, Josh, and maybe just a few more comments in regards to cost. I think we have a pretty good reputation for operating lean, which we think actually gives us an advantage versus others. When times are good, we actually continue to be disciplined. Quite frankly, in 2023, I think underlying cost control was strong. SG&A as a percent of sales totaled 3.8%, despite revenue and cost headwinds. We also made investments in our footprint when we started up PO/TBA in circularity, as you noted, and VEP, and some capability building across the enterprise. And clearly, inflation was a significant headwind last year.

Operator:

Our next question comes from the line of Hassan Ahmed with Alembic Global.

Peter Z. Vanacker:

Thank you, Hassan. Good question. As you alluded to, I mean, in Saudi Arabia, we have lots of activities ongoing, not just with the existing joint ventures, but then, of course, also with the NATPET joint venture and then the next step with the investment.

Michael McMurray:

Yes. And maybe, Hassan, I'd say a couple more things. I think clearly, just looking back upon the last 2 years we've been much more active from a portfolio management perspective, both on bringing things in, but also jettisoning things where there are better owners. But I don't think it's appropriate for us as to comment on a specific transaction?

Kevin McCarthy:

Peter, last March, or March of '23 I should say, you unveiled some financial goals around your CLCS initiatives, $0.5 billion in EBITDA by 2027 en route to $1 billion in 2030. I was wondering if you could speak to your level of confidence in the March toward the first piece of that in 2027. And part of the reason I ask is, it sounds like you may not take a final investment decision on MoReTec in Houston until next year. I'm not sure exactly how long that might take to build out. But maybe you could kind of speak to the timing and ramp of tonnage extending on what you show on Slide 6. How does that 123 kilotons maybe ramp over the next 2 or 3 years towards your medium- and long-term goals?

Operator:

Ladies and gentlemen, our final question this morning comes from the line of Vincent Andrews with Morgan Stanley.

Michael McMurray:

Vincent, it's Michael. Yes. Well, I'd probably answer the question in 2 ways. I think for the second quarter, it should be relatively stable. But I hope things actually get better in the second half when we consume a bit. But that said, I don't expect us to consume anything that's material?

Peter Z. Vanacker:

Yes. Thank you, everybody. Very good questions. But of course, I was missing a little bit questions around our propylene oxide business, our Oxyfuels business, and our APS business.

Operator:

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

David Kinney:

Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results, while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions, and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern Time today until March 2, by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13742056. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins and Polyolefins; Kim Foley, our EVP of Intermediates & Derivatives and Refining; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on fourth quarter and full year 2023 results, including an update on LYBs strategic progress. We will also discuss current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter.

Michael McMurray:

Thank you, Peter. And good morning, everyone. Please turn to Slide eight and let's take a look at the progress of our value enhancement program. As Peter mentioned, LYBs value enhancement program far exceeded our initial expectations in 2023. When we launched the program, we thought we could achieve a 2023 year-end run rate of $150 million of midcycle recurring annual EBITDA improvement. With high engagement and rapid execution, our team achieved a run rate of more than $400 million by year-end 2023. We have a strong management system in place for our VEP program. Our team has screened more than 13,000 ideas, and more than 1900 of these ideas have advanced to the execution ready stage of our process. By the end of 2023, we executed on approximately 450 of these initiatives. Our system is robust and disciplined, and our internal and external auditors have validated our processes. We currently believe this effort will add a total of $600 million of recurring annual EBITDA by the end of 2024 and up to a billion dollars by the end of 2025. This is a significant increase from our initial target of $750 million that we announced last March, driven by the enthusiastic [indiscernible] of our colleagues and the tangible results that we have delivered so far. The LYV value enhancement program is providing meaningful contributions to our strategic financial goals. And we'll continue to do so as we move forward. On Slide nine, let me share more details about the progress on our VEP program during 2023. Our targets for the program are described as year-end run rates relative to 2021 volumes, and using average margins from 2017 to 2019, a time period that provides a good approximation of mid cycle margins. Through more than 450 initiatives, we generated over $300 million of VEP EBITDA from the program based on 2023 margins. This reflects the net recurring improvements throughout the year relative to 2021 volume, product mix and cost. Now, let me highlight a few of the initiatives from last year. At our Lake Charles integrated polyethylene joint venture, we automated controls for a water treatment unit that reduced manual operations and water consumption. With a small investment, we were able to reduce our LYB share of cost by $800,000 annually. In our oxy fuels business, our cost advantaged U.S. production is exported in vessels to markets around the world. We worked with one of our terminal providers to encourage their investment in a vapor recovery system that allowed LYB to double decile loading rates to reduce demerge cost and vapor emissions for a net recurring benefit of $1 million per year. By investing resources to learn more about the needs of our customers, our polymer product development team allocated resources for new products to serve demanding applications and wired cable sheathing for subsea infrastructure markets. This initiative improved recording profitability by at least $300,000 per year. We hope these examples provides you some insight into the hundreds of small initiatives that we have that we expect to add up to $1 billion of midcycle recurring annual EBITDA to LYBs run rate by the end of 2025. Please turn to Slide 10. And let me begin by highlighting the outstanding Cash Generation from our business portfolio during 2023. LYB generated a total of $4.9 billion of cash from operating activities over the past year. Cash on hand increased to $3.4 billion at the end of the fourth quarter. During 2023, we achieved cash conversion of 98% well above our long-term target of 80%. Our cash conversion was bolstered by working capital reduction of approximately $700 million during the fourth quarter. The majority of the working capital benefit was from lower receivables and inventories. We expect our working capital needs will increase during the first quarter. Our efficient cash generation allowed the company to return more than $1.8 billion to LyondellBasell shareholders in 2023. This represents 53% of our $3.4 billion of free cash flow for the year. Let's continue with Slide 11 and review the details of our capital allocation over the past year. As Peter mentioned, we are committed to discipline capital allocation as we execute our strategy and maintain our robust investment grade balance sheet. During 2023 cash from operating activities fully funded $1.6 billion in dividends $210 million in share repurchases and our capital investment program. In May, we increased our quarterly dividend by 5%, marking the 13th consecutive year of annual dividend growth. This year, we invested 1.5 billion in capital expenditures. We reached an important milestone with the successful startup of our new PO/TBA asset in 2023. With the completion of this world scale project, our future capital expenditures will be increasingly focused on a portfolio of smaller projects to advance our strategy. This includes investments in small profit generating projects, integrated hubs for circular solutions, and hundreds of initiatives within the value enhancement program. We ended the year with $3.4 billion of cash and short-term investments, then $7.6 billion of cash and available liquidity. In line with our strategic focus on leadership and sustainability. We issued our initial inaugural green bond for $500 million LYBs robust balance sheet positions as well to move forward on our long term strategy during the year ahead. One last comment. We added over a billion dollars of cash to our balance sheet in 2023 as a result of strong execution amid challenging market conditions. As a result, we are carrying about two times our stated minimum of 1.5 billion. We have built a bit more cash because of the challenging market conditions and uncertain economic outlook that we have been navigating. That said our capital allocation priorities remain unchanged. And we remain committed to returning 70% of our free cash flow to shareholders over the long-term. Now I would like to provide an overview of the quarterly results for each of our segments on Page 12. LYBs business portfolio delivered $910 million of EBITDA during the fourth quarter. Our lower results reflect a significant decline in gasoline crack spreads in seasonally lower demand during the fourth quarter. Lower gasoline cracks bedspreads negatively impacted our refining results oxy fuels in the intermediates and Driftwood segment and the value of coproduct fuels and olefins and polyolefins Americas. During the quarter, lower ethane in energy cost and increased polyethylene exports benefitted our O&P Americas business. Overall, olefins and polyolefins demand remained soft, particularly in Europe, where utilization rates remained low. Lower demand and higher raw material costs negatively impacted our advanced polymer solution segment. Across the portfolio, a noncash LIFO inventory valuation charge decreased pre tax for quarter results by approximately $55 million. As a reminder, the LIFO impact reflects changes in inventory valuation over the full year and it's not necessarily limited to fourth quarter valuations. Before we discuss our segment results in detail, let me discuss our capital expenditure plans for 2024, our capital plan includes approximately $800 billion for profit generating growth projects, and $1.3 billion of sustaining investment to keep our assets running safely and reliably. The increased profit generating capital includes investments to grow our circular and low carbon solutions business, as well as investments to lower the carbon footprint of our existing asset base, particularly in Europe. Funding required to drive our value enhancement program is included in our CapEx plan. We expect our 2024 effective tax rate will be approximately 20%. And our cash tax rate will be a few percentage points higher. In the appendix of the slide deck, we have provided additional 2024 modeling information, including impacts for major plant maintenance costs associated with the exit from our refining business than other useful financial metrics. With that, I'll turn the call over to Ken. Ken?

Kim Foley:

Thank you, Ken. Please turn to Slide 16, as we take a look at our intermediates and derivatives segment. Fourth quarter EBITDA was $265 million. Oxyfuel margins declined due to a significant decrease in gasoline CAC spreads as well as an increased supply of oxyfuels after industry downtime during the third quarter. Direct margins were pressured due to higher benzene feedstock costs, LIFO inventory charges were approximately $95 million. In the fourth quarter we recognized an impairment of $192 million related to our PO/SM joint venture in the Netherlands. We operated our assets at a rate of approximately 70% during the fourth quarter due to low demand as well as planned and unplanned downtime across most businesses. As we begin the first quarter oxyfuel margins remain similar to fourth quarter levels. We anticipate higher volumes across the segment after downtime in the fourth quarter and plan to operate across the IMD segment at approximately 75% in the first quarter. These operating rates reflect the impact of the recent winter freeze event, resulting in unplanned downtime at our U.S. Gulf Coast assets. In December, we announced an agreement to divest our ethylene oxide and derivative business to Ineos for $700 million. As Peter mentioned earlier, we are taking decisive actions to grow and upgrade that businesses and assets that align with our long-term strategy. While exiting businesses where LYB does not have a path to a leading position. We expect the transaction will close in the second quarter following regulatory approvals, and other closing conditions. Please note that the agreed transaction price is pre-tax, and that these assets are heavily depreciated. Now let's turn to Slide 17 and discuss the results of the refining segment. Fourth quarter EBITDA was $51 million, including charges of $40 million of LIFO inventory valuation refining margins compressed due to lower gasoline crack spreads. During the quarter we operated the refinery at 85% of capacity due to planned and unplanned downtime, with an average crude rate of 230,000 barrels per day. In the near term, we expect gasoline crack spreads will improve offset by lower distillate cracks. We plan to operate the refinery directionally 80% of capacity in the first quarter, including a planned Coker outage with an estimated EBITDA impact of $50 million. Our team remains highly focused on safe and reliable operations as we continue to run our refining assets through no later than the end of the first quarter of 2025. With that, I will turn the call over to Torkel.

Peter Vanacker:

Thanks, Torkel. I would like to thank the entire LyondellBasell team for delivering such resilient results during a very challenging year. To close out on the segments, let's turn to Slide 19 and discuss the results for our technology business on behalf of Jim Seward. During the fourth quarter, licensing revenue moderated after exceptionally strong results in the third quarter due to the timing of licensing milestones. Nonetheless, EBITDA for the segment exceeded the fourth quarter of the prior year. Fourth quarter catalyst volumes were higher than any quarter since the third quarter of 2022. First quarter results for the technology segments were expected to improve due to increased licensing revenue and a further rise in catalyst volumes compared to the fourth quarter of 2023. As Ken mentioned earlier, we will utilize our proprietary MoReTec technology as we build our first commercial scale advanced recycling plant in Germany. I'm very proud of the work our R&D team embarked on years ago to develop this differential and advantage technology from lab to commercial scale. Let me now summarize our outlook with Slide 20. As we begin 2024, the majority of our businesses are continuing to face the slow demand seen in the fourth quarter of 2023. But we are seeing a few early signs of improvement. Our North American O&P business is seeing modest demand improvements. In Europe, order trends were improving from a very low level as our O&P customers begin to pursue modest restocking. For the year, we expect normal seasonal demand improvements to begin near the end of the first quarter and continue through the summer. As we progress through the second half of the year, we expect demand to benefit from moderating interest rates and reduced inflation. Durable goods are a critical market for LYBs products. Demand for durable goods lacked the economy during 2022 and 2023. As markets digested the extraordinary high levels of consumer activity that prevailed during pandemic era stimulus. We expect that moderating interest rates, reduced inflation and infrastructure-related stimulus spending will begin to support a gradual return to a healthier demand for durable goods during the second half of this year. China is the largest market for chemicals, exceeding North America and Europe combined, and we continue to watch closely for targeted stimulus and other measures that could drive improved economic growth in China. In the meantime, LYB will continue to advance on our strategic goals. We are actively managing our portfolio to grow and upgrade our core businesses. We will continue to see actions supporting the growth of regional hubs that will serve as the engines for our profitable circular and low-carbon solutions business. And our work to embed value creation into our corporate culture will continue to deliver results through our value enhancement program. We're now pleased to take your questions.

Stephen Richardson:

Peter, I was wondering if you could just dig in a little bit on the expectations for the second half and maybe just a little bit more on the O&P businesses. What kind of recovery are you kind of underwriting in your outlook? And how do you think that plays out and any guideposts beyond the statements on durables we should be thinking about as the year progresses?

Operator:

Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your question.

Peter Vanacker:

Thank you, Steve. Also a good question on NATPET. First of all, I mean, we are very pleased that we were able to sign this deal that has been work of a core team in our company where I was personally, of course, deeply involved during quite an important period of time to come to this conclusion. When you look at the amount of money that we paid and Ken alluded to that in his remarks, then one cannot just look at the EBITDA, mid-cycle EBITDA to $150 million for the entire company. But what you don't see and what needs to take into consideration is the fact that we are the path to market, so we are generating value for the company that comes out of selling the products outside of Saudi Arabia to our other markets. And therefore, also strategically very important because we have a very sustainable low-cost feedstock basis that we have negotiated that is included in the deal so that we are better positioned in Polypropylene to go to certain markets where maybe today, we don't have the best position. And here, let's not forget that we did close '19 at our Brindisi assets in Italy as well. In addition to that, as we alluded to, we have the income streams generated out of our license agreements. We have the opportunity to continue to invest with the second line next to the existing lines to capture synergies there. And that's why Ken alluded to the fact that with the current deal, we are in iron ore, which is above 12%. But then as we do the second step, then we would be higher to say, I mean, quite higher than 12% or no final investment decision yet, but it is also part of the consideration in doing that first.

Peter Vanacker:

Without taking into consideration, I mean, marketing fees, et cetera, et cetera.

Patrick Cunningham:

Maybe within the $800 million in growth CapEx allocated for this year, how much of that is directly related to circular and low-carbon solutions? And beyond that, what should we expect in terms of inorganic growth and additional investments in that space for 2024?

Michael McMurray:

Yes. I mean what I'd say is that the guidance that we gave at Capital Markets Day for CapEx remains intact. As a reminder, we said over the period, '23 to '25 on average, we'd spend $2 billion. We guided to $2.1 billion today. And as Peter said, the expectation for the CLC SR circularity business it's about 15% to 20% over the period. Now specifically around inorganic growth. I'd probably say a couple of things. I think at our Capital Markets Day, we were clear that we hope to get some M&A done over the next few years. I think we were pretty clear the criteria that we shared in regards to growing and upgrading the core. I think the Sasol joint venture, our new PO/TBA facility, the circularity investments that we've made and the refining exit are all great examples and then our recent announcement of our EO and D exit is another great example. And quite frankly, it was a great valuation with the best owner mindset. We also shared our approach to growth through M&As and joint ventures at our Capital Markets Day. And I think with our Damped acquisition, we're off to a great start, and this clearly fits the framework, which we shared back in March. And then, it also has a great opportunity for future attractive growth. And then finally, at our March Capital Markets Day, we shared our goal of getting to $10 billion of EBITDA normalized EBITDA in 2027, which assumed we would deploy roughly the remaining 30% of our free cash flow that we haven't returned to investors to fund our future M&A ambitions. But I want to be clear about a couple of things. Our commitments to investors remain steadfast and our capital allocation principles and priorities remain unchanged. We will be disciplined acquirers we will not burn it in your cash. We will not build a lazy balance sheet. If we can't find compelling transactions, we'll give back more of your cash to you.

David Begleiter:

Just in IND, how much of the PO/TBA plant contributed in 2023? Do you think mid-cycle earnings power here is still with the new CBA plant above $2 billion. And when do you think you'll start achieving a run rating at that mid-cycle earnings level? Thank you.

Operator:

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Michael McMurray:

Yes. What I'd say, I mean, hopefully, you heard my prepared remarks, Vincent, so the benefit, the actual benefit in our P&L for 2023 was approximately $300 million. And then we guided for '24 for an exit run rate of $600 million. Now if you're trying to draw a line from '23 to '25, it looks like that kind of the pace of change slows a bit. But keep in mind that last year, we focused on low-hanging fruit, things that didn't require investment and that we could execute upon very quickly. So we're in kind of building up projects again as we sit in this year, but we have high confidence in the outlook that we gave up to $1 billion in 2025 and again, $300 million of P&L benefit in '23, actual.

Michael Sison:

Cheers, in terms of 2024 a lot of chemical companies you've reported thus far has sort of said their earnings could recover or be better in '24 versus '23. It sounds like your first half is going to be a little bit challenged with demand being weaker and the second half being a little bit better. So when you sort of total up potentially what you see in '24, should earnings be up, flat or down or just maybe directionally for the full year, how do you think about the setup for early?

Michael McMurray:

But mostly in the second half.

Kevin McCarthy:

In 2024, would you expect your regional mix of earnings to differ materially from 2023. Part of the reason I ask is it looks like you're guiding to a tax rate of 20% and often regional mix is the reason behind that, but perhaps there are other reasons you might call out. Maybe you could just kind of talk through the dynamics there would be helpful.

Operator:

Our next question comes from the line of John Roberts with Mizuho. Please proceed with your question.

Peter Vanacker:

Yes, John. Welcome back. Let me give that question to Ken. The opportunity?

Kim Foley:

I would say as it relates to the joint ventures we have on the propylene oxide guide. We ran both of those JVs above 95% operating rates last year, excluding a turnaround, which was significantly higher than other PO plants in that region. As Ken alluded to, the margins were rather thin. We saw high raw material costs, and we also saw high utilities. But as we've mentioned before, these are the best technologies that we have in the region. They are very cost competitive. They sit on integrated sites owned by a very good operator with expertise in both of these technologies. And we think as we go forward, we have huge potential here.

Operator:

Our next question comes from the line of Mike Leithead with Barclays. Please proceed with your question.

Peter Vanacker:

Yes. Thank you, Mike. A very good question. And you've seen from our actions already last year that we are turning around every stone. We did shut down one line in Brindisi, which is an important capacity. We've seen that there has been a couple of other announcements in the marketplace in terms of consolidations. We continue to look, of course, at the entire portfolio. That's what you would expect us to do. But having said that, I also reflect back on Q4. So in a big picture on for the company for us, was towards the end of the year, we wanted to also optimize our cash flow and working capital. And we freed up about $700 million in working capital in that Q4. And as a consequence, of course, also can see this business towards lower than what we had originally guided to. 75% of capacity utilization was the guidance. We reduced at really surprisingly low levels 65% of our capacity utilization. Again, in the context of also with the current market environment, optimizing our working capital. Anything you want to add?

Peter Vanacker:

Yes. And we see the future also in Europe. You see also that regulation is progressing in terms of renewable and circular solutions which is actually also what we are focusing upon, I mean, with quite a lot of activities in terms of building [indiscernible], the final investment decision for our MoReTec-1 facility, but lots of joint ventures and feedstock cooperations that we have built up in the meantime. So that in Europe, I continue to believe that these circular and renewable solutions, they demand, local supply chains. So therefore, it will be very important to have such a leading position in a local market with the access to brand owners or EPS business, access to OEMs as well.

John McNulty:

Just a follow-up on the NATPET joint venture. I guess, can you help us to understand in terms of the ability to upscale that with the additional allocation, is it similar in scale or size, would it be kind of the 400 KTA? And also, when you think about the timing of financial investment decision and also how the capital gets allocated? Is it going to be proportional is the same kind of 35%, 65% or is there some different variation to that? Can you help us to think about those?

Ken Lane:

Yes, I'll just add that part of the synergy that you had talked about before is that region is short of propylene. And so we're going to have additional propylene capacity with this expansion, which is one of the synergies around potentially executing that. But it will be financed by the joint venture. And yes, it will be proportionate for the shareholders, but we don't expect to be putting cash in. That's going to be something financed by the joint venture.

Matthew Blair:

Looking at the 70% payout target versus free cash flow just in the context of increasing CapEx when you're considering these payout targets, why is the denominator free cash and not more of like a cash from operations. Don't you need to balance these returns on the growth investments against returning cash to investors.

Peter Vanacker:

And then we also, at the Capital Markets Day guided to words, that what is the CapEx level that we are investing so sustainable CapEx around. I mean that $1.2 billion, $1.3 billion a year. And then the growth CapEx, we also said we're going to be pretty much in the range of our historic spending somewhere between $2 billion and $3 billion on a yearly basis depending on how these projects come. So I think that helps you, to do the back of the unloved calculation, whatever cash flow number you take.

Peter Vanacker:

Okay. Thank you, again, for all the excellent questions. And of course, I also want to thank our global team for delivering outstanding value and maximizing cash conversion during these challenging times. We look forward to sharing more updates over the coming months with further progress on our long-term strategy. We wish you all a great weekend and stay well, stay safe. Thank you.

David Kinney:

Good day, everybody, and thank you all for joining today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results, while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions, and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern Time today until November 27, by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13739196. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins and Polyolefins; Kim Foley, our EVP of Intermediates & Derivatives and Refining; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on third quarter results, current market dynamics, our near-term outlook and our long-term strategy. With that being said, I would now like to turn the call over to Peter.

Michael McMurray:

Thank you, Peter, and good morning, everyone. Please turn to Slide 6, and let me begin by describing how we are extending our track record of efficient cash conversion that supports our investment-grade balance sheet and strong shareholder returns. During the past 4 quarters, LyondellBasell generated $5 billion of cash from operating activities. At the end of the third quarter, our cash balance was $2.8 billion. Our team efficiently converted 102% of our EBITDA into cash over the last 12 months. Let's continue with Slide 7 and review the details of our capital deployment during the third quarter. LyondellBasell remains committed to balanced and disciplined capital allocation that supports investment in our long-term strategy, while providing strong returns for our shareholders. During the third quarter, our portfolio of businesses generated $1.7 billion in cash from operating activities. Robust cash conversion, comfortably covered capital expenditures, paid down maturing bonds, and enabled a return of $448 million to shareholders through dividends and share repurchases. As Peter mentioned, our team is focused on growing and upgrading our core businesses while actively managing our portfolio with the completion of our new PO/TBA assets, our capital expenditures are now focused on investments in building a profitable circular and low carbon solutions business and smaller profit generating projects as well as maintaining safe and reliable operations across our existing asset base. I would now like to provide a brief overview of the results from each of our segments on Slide 8. LyondellBasell business portfolio delivered $1.4 billion of EBITDA during the third quarter. Our results reflected exceptional oxyfuel margins that fueled record quarterly EBITDA in I&D offset by lower margins from both O&P segments. Results in our olefins and polyolefin businesses were pressured by higher feedstock cost, new industry capacity and very challenging conditions in European markets. In our last earnings call, we shared our expectation that third quarter EBITDA would decline from second quarter results. Subsequent events led to results that exceeded our expectations, primarily in our I&D segment. During August and into September, unplanned downtime at several assets across the U.S. Gulf Coast. Oxyfuels industry triggered a significant improvement in margins that increased I&D EBITDA by 50% relative to the second quarter. Our third quarter EBITDA for the company's did declined slightly, but clearly exceeded the upper end of our expectations. We continue to align our operating rates with market demand to optimize working capital. During the fourth quarter, we expect operating rates of 85% for our North American olefins and polyolefin assets, 75% for our European olefins and polyolefin and 70% for intermediates and derivative assets. With that, I'll turn the call over to Ken. Ken?

Kim Foley:

Thank you, Ken. Please turn to Slide 11 as we look at the Intermediates & Derivatives segment. Exceptional oxyfuel margins resulted in record third quarter segment EBITDA of $708 million. During the quarter, unplanned industry downtime for oxyfuels production on the U.S. Gulf Coast led to higher blend premiums for oxyfuels relative to gasoline. When coupled with higher crude oil prices and relatively low cost for butane raw materials, oxyfuel margins expanded significantly in North America and Europe. The outstanding performance of our oxyfuels business during the third quarter is an example of how our diverse global business portfolio is capable of providing resilient results through market cycles. With our new PO/TBA asset, LyondellBasell's global oxyfuels capacity is now as large as our North American polyethylene capacity, highlighting the diversity of our growing portfolio. In our propylene oxide and derivatives business, additional volumes from the new PO/TBA asset were largely offset by the planned idling of two POSM assets in the U.S. and Europe for approximately 2 months at each asset. These actions reflect our disciplined approach to match production rates with the demands during challenging market conditions. Looking ahead, we expect the end of summer driving season and the higher butane costs will cause oxyfuel margins to moderate towards levels seen in the first half of 2023. In line with our guidance from the beginning of the year, we are conducting planned maintenance during the fourth quarter at two of our existing propylene oxide assets. We expect to run our global I&D assets at approximately 70% capacity in the fourth quarter. In September, we expanded the range of our sustainable offerings with the launch of our +LC brand of low-carbon solutions. These products are sourced from recycled and renewable feedstock’s and offer our customers a solution for meeting their greenhouse gas emissions targets with propylene oxide, styrene and other products that provide a lower carbon footprint than fossil-based alternatives. Please turn to Slide 12, and let's review the progress of our new PO/TBA asset. As Peter mentioned earlier, the first pillar of our strategy is to grow and upgrade our core by investing in businesses that fit our long-term strategy. Our new PO/TBA asset in Houston, Texas is a key part of that growth. This facility is the world's largest single-train asset increasing LyondellBasell's global propylene oxide and oxyfuels capacities by more than 35%. Furthermore, we believe that PO/TBA technologies are highly advantaged relative to other widely used propylene oxide technologies. By our analysis, PO/TBA technologies had the lowest operating cost and the lowest carbon footprint for producing propylene oxide. And our strategically located U.S. Gulf Coast assets benefit from the shale advantaged butane and propylene feedstocks. During the commissioning and the start-up of these assets, we achieved more than 4 million man hours of work without a recordable injury. This relentless focus on safety and the associated attention to detail is a key part of our success. Within two months of the plant start-up, we completed the technical acceptance test to prove out the full capacity of our new PO/TBA facilities. In 2023, the ramp-up in our new capacity will be largely offset by planned maintenance at our existing PO/TBA assets, but we expect to see more meaningful volume contribution from the new PO/TBA asset in 2024 and beyond as the demand for durable goods return. I am incredibly proud of what our team has accomplished to quickly reach these milestones and look forward to their continued success. Now let's turn to Slide 13 and discuss the results of the refining segment. Third quarter EBITDA was $105 million. Modest improvements in the benchmark Maya 2-1-1 crack spread were offset by a mark-to-market impact from a distillate hedging program. As part of our ongoing risk management efforts, we will occasionally use derivatives to hedge commercial or financial risks. During the third quarter, refinery cracks, particularly distillate cracks, were highly favorable relative to historical levels. And we took the opportunity to lock in attractive margins for a portion of our refinery output through 2024. Distillate cracks in September outperformed our expectations, resulting in mark-to-market losses for our distillate hedging program. In the near term, we expect seasonally slower demand for refined products and the Maya 2-1-1 spreads to decrease. Currently, we are executing planned maintenance on our catalytic cracker, with an estimated EBITDA impact of $25 million in the fourth quarter. We expect crude throughputs at the refinery to be approximately 80% of capacity in the fourth quarter. We remain committed to the safe operation of these assets through no later than the end of the first quarter of 2025, with a focus on high reliability, as we develop new projects to transform the site in support of our circular and low-carbon solutions growth strategy. With that, I will turn the call over to Torkel.

Peter Vanacker:

Thank you, Torkel. Please turn to Slide 15, and I will discuss the results for the technology segment on behalf of Jim Seward. Third quarter EBITDA of $146 million reflected higher licensing revenue and improved catalyst results. In the fourth quarter, we expect that revenue associated with licensing milestones will be unusually low, and catalyst volumes will decrease. As a result, we estimate that full year 2023 technology segment EBITDA will be approximately $30 million lower than full year 2022. As discussed in the beginning of this call, we are targeting a final investment decision for a commercial scale plant using our MoReTec advanced catalytic recycling technology before the end of this year, and hope to share more details in our fourth quarter telephone conference. Please turn to Slide 16, and I will discuss the near-term market outlook by regions and end markets. As you heard from our business leaders, we expect that challenging market conditions will persist through the remainder of the year and into 2024. In addition, we expect additional pressures from typical fourth quarter seasonality associated with holidays and year-end inventory management. In the Americas, pricing is expected to be supported by increased polyethylene exports and stable demand. Integrated polyethylene margins will likely be constrained by higher feedstock costs and new market capacity. We expect that European markets will remain highly challenged. Weak market demand, coupled with rising feedstock and energy costs, are likely to continue to compress margins. In China, markets are slowly improving, and targeted stimulus initiatives seem to be providing some limited benefits. In our end markets, demand for consumer packaging is slow but steady, supported by the consumer and industrial packaging markets. However, our customers continue to keep their inventory levels low. Building and construction markets are slow, but we're watchful for potential benefits in the United States, enabled by stimulus from the Inflation Reduction Act, the Bipartisan Infrastructure Law and the Chips & Science Act. We expect demand from automotive production will continue to gain momentum. The UAW strike has not yet materially affected our results. Oxyfuel margins are expected to remain well above historical averages, but declined from third quarter records to a level similar to the first half of 2023. Distillate inventories are expected to remain on the low end of seasonal averages and gasoline inventories have risen with the end of the summer driving season. We will continue to optimize our operating rates to remain in step with market demand. Now let me summarize the third quarter, our outlook and our long-term strategy for the company with Slide 17. Exceptional oxyfuels margins enabled record results from our Intermediates & Derivatives segments. O&P margins were pressured by higher feedstock costs and new industry capacity, amid stable but soft demand. Cash generation was outstanding, with $1.7 billion in cash from operations, which enabled us to return approximately $450 million to shareholders in dividends and share repurchases as part of our balanced capital allocation framework. Looking ahead to the fourth quarter, we anticipate seasonally softer demand across our businesses, but we remain confident in our proven ability to navigate challenging markets and deliver results. Our team will continue to remain focused on advancing value creation through the three pillars of our long-term strategy. Our third quarter results demonstrate the benefits from growing our core with new capacity from our PO/TBA assets, and we are upgrading our business portfolio by improving our focus on this core. We are reallocating resources away from noncore assets and businesses. At the same time, we are rapidly building a comprehensive business model to support the profitable circular and low-carbon solutions business, where LyondellBasell benefits from participation up and down the value chain. And we are transforming our performance and culture to embrace a comprehensive approach to value creation. Our value enhancement program is unlocking value at an accelerating pace. And I am confident we will exceed our 2023 recurring annual EBITDA exit run rate target of $200 million. We are laser-focused in our goal to deliver a more profitable and sustainable growth engine for LyondellBasell. With that, we are now pleased to take your questions.

Jeff Zekauskas:

Thanks very much. A two-part question. Can you talk about profitability of your Bora joint venture in China? How that's changed through the course of the third quarter and into the fourth? And I think in the quarter, you bought back a minimal number of shares. Do you have a weighting between dividends and share repurchase that you think about? Or why was the share repurchase so small?

Ken Lane:

Yes. I would just say that we did have a turnaround that impacted the asset in the third quarter, Jeff. But what we are seeing is signs of some domestic growth in the market there, which is encouraging. However, the growth rate is still not where we needed to be to absorb all of the new capacity. But that asset is approaching breakeven levels of EBITDA, which is great to see, but still a very challenging market in China.

Michael McMurray:

No, sure, Jeff. So what I would say is that our capital allocation priorities remain fundamentally unchanged. I think really pleased with our cash flow performance this year and this quarter, in particular. I think really good execution. Pleased with the amount of working capital that we're able to take out of operations this quarter as well. And then again, I said looking forward, our commitments to shareholders remain intact. I think this has been demonstrated by our previous actions. You know that we communicated a 70% payout target for free cash flow, that stands. That said, we don't put capital allocation on autopilot. We have a point of view. And then clearly, given all the risks and uncertainties as we sit here today, we're being a little bit more cautious in the near term.

Patrick Cunningham :

Hi, good morning. You guys had a record quarter in I&D, with strong oxyfuels, and now the PO/TBA plant is online. Maybe there's still some weakness in derivatives, but how should we think about margin set up into 2024 across each of the chains? And what sort of ramp up in EBITDA should we see from the PO/TBA plant as it gets to nameplate?

Kim Foley:

Absolutely. Let me start by taking us back to Capital Markets Day. I think what we said then is mid-cycle margins for the cycle would produce an I&D EBITDA segment of about 1.6. So if you think about the new plant as an incremental $450 million, we're just north of $2 billion. Short term, this segment is challenged by weak, durable demand and capacity oversupply, which impacts both volume and margin in our current environment. But on the positive side, we continue to see really strong demand for oxyfuels. Margins are above historical levels. So as we discussed in Capital Markets Day, again, it's this diversity of this segment, combined with our global low-cost asset footprint that provides positive EBITDA through the cycle.

Operator:

Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Peter Vanacker:

Thank you, David, for your question. I'm actually very, very pleased with how the LyondellBasell team has embraced the value enhancement program. I mean I've done these programs in the past at other companies, and it took longer. We have about 4,000 or 5,000 people now involved. We just went to Phase E in having smaller sites that have now rolled out the Value Enhancement Program, also with a huge amount of success. As we said, I mean, our original target was first year, 150 million exit run rate EBITDA. We increased it to 200 million. Today, we actually said we're going to exceed that 200 million. We haven't changed our 750 million target. But as we have said in the past, I mean, this is not a project. It becomes part of the DNA. So it doesn't have a beginning and an end. So we can definitely say that it's not going to stop at 750 million as a consequence. So we will be able to capture more value. And we see that already happening because the sites that were involved in the first phase, they have already started going again, I mean, through new initiatives, new brainstorming sessions that they have captured. So we already start building up that certain, let's say, that first-level sites already have a new group of projects, new projects identified, I mean, to continue to increase value and creation.

Steve Byrne :

Yes. Thank you. What would you put the probability that your refinery is selected as the DOE-funded hydrogen hub for Texas? And if it is, would that influence your choice of where to put the MoReTec process? And would it also potentially lead you to operate the hydro treaters and hydrocrackers longer than that first quarter of 2025 to keep them functional for longer-term utility and renewable fuels?

Operator:

Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Peter Vanacker:

Thank you, Matthew. I'm going to give that question immediately to Ken.

Operator:

Our next question comes from the line of Mike Leithead with Barclays. Please proceed with your question.

Peter Vanacker:

Thank you, Mike. Very good question. And as you well noted, we are in the midst now of negotiating with the union representatives on the shutdown of that one particular line that we have in the southern part of Italy and Brindisi. Of course, as usual, we continue to look at all the other assets that we have, not just, I mean, limited to the O&P business, but also the I&D business as well as the APS business. I mean some actions you have seen that we have taken. Like, for example, I mean, our joint venture that we have in the [indiscernible] on PO/SM. We have idled that a couple of times already this year, just like we did at the end of last year. So that continues for us to be very important that we look at all these different opportunities. But we have taken, I mean, that decision that we are planning to shut down, I mean, that one line in the southern part of Italy.

Frank Mitsch:

Thank you and good morning. And congrats on the nice results. If I look back three months ago, these 3 consensus was at $1.41 billion for the third quarter in EBITDA. And the company thought that, that was probably too high, and proactively went out with a guidance of $1.1 billion to $1.25 billion. Obviously, you outlined the reasons why the results came in better, actually right in line with that $1.41 billion. But my question is, having taken that tact in the third quarter, as we stand here today, the Street is at $1.1 billion EBITDA for the fourth quarter, it begs the question in terms of no guidance that I would assume that Lyondell feels more positive about that results. Any color you could provide would be great.

Operator:

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Peter Vanacker :

Yes. Thank you very much, I mean, Vincent, for that question. We've been, let's say, more strategic when we are looking at these kind of investments in funds. So of course, based upon our clearly articulated strategy at the Capital Markets Day, when we look at the second pillar of our strategy, building up a profitable circular and low-carbon solutions business, it's clear that in that area, we are looking at enhancing also our knowledge on what is happening in the marketplace. So that fund ticks that box because we have more visibility on the market. In addition to that, of course, we also want to make sure that we are supporting these early-stage technologies, companies that were in that fund so that they can continue to grow. So it is not a pure just venture financial investments. It's much more also looking at it from a strategic and conceptual point of view.

Hassan Ahmed:

Good morning, peter. A quick one. Recently in the news, there's been a lot of talk about lower water levels in the Mississippi. So I was just wondering whether that's impacting you guys in any way or form or broadly the industry as well.

Operator:

Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your question.

Peter Vanacker :

Yes. Aleksey thank you for your question. The second pillar of our strategy as I just mentioned, it's mainly focused at the beginning on building up these renewable and circular apps, one in Europe, and that is around Cologne, Wesseling Knapsack where we have our assets. And the other one is around Houston, so HRO channel view. The way how we have at the Capital Markets Day articulated our strategy is that we both go upstream in working together with partners, so also investing in the upstream to get access, I mean, to plastic waste because we do believe that getting access, I mean to plastic waste is important. Then secondly, investing in both micro recycling and then also advanced recycling, leveraging, of course, upon the relationship that we have with start-up companies, but also upon our own advanced catalytic recycling technology, the so-called MoReTec technology, with the two first investments FID, that I have mentioned before. And then thirdly, also, we are looking at or access that we have in the marketplace through our APS business. And here, we have done this Mepol acquisition so that we actually were closer to the brand owners closer to the OEMs, where the demand is actually coming from. So we have the entire value chain where we are taking positions and that's why you see all these smaller deals that we are making because there is no one company that is covering the entire value chain or that is covering, let's say, the upstream or the downstream in the value chain. We've said at the Capital Markets Day around 15% of our investments, maybe a little bit more than that 15% in the investments over the period of time that we were talking about, I mean, 2027, 2030. So pretty much, I mean, in that ballpark, has not changed our view substantially, but I said maybe a bit more than the 15% because we see that we have very good traction. Michael?

Operator:

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Peter Vanacker :

Thank you, Kevin, for your questions. I mean remember, I mean, oxyfuel margins what we said in Q3 were exceptional, but we continue because we are the lowest cost producer. We continue to be very comfortable, I mean, with higher margins than what we have seen historically. So I will lead it to Kim to answer in more detail your two questions.

Peter Vanacker :

And as you can see, I mean, we have the investments on the PO/TBA plant is a very successful investment as we are running at 70% in total of our capacity. That gives us a huge opportunity also to continue to grow. And again, that fits them into the first pillar of our strategy, growing and upgrading the core because these are markets that are growing.

Arun Viswanathan :

Great. Thanks for taking my question. I just wanted to, I guess, get some more detail on your thoughts on how you're thinking about polyethylene markets from here. So as you noted, there were the two increases for August and September. But we're still seeing some challenging conditions in China, and then some new absorption of new capacity. So as you look into '24, do you think that we've bottomed out on PE markets and we should see some sustainable increases here? How would you characterize that with -- against the backdrop of U.S. demand and your operating review as well?

Ken Lane :

I'll just add to that, Arun, that we're seeing very good support for those exports with a high oil to gas ratio that we expect is going to continue, especially with the volatility around oil markets and gas production being relatively robust. So we do feel good about what's happening in the North American market. Europe is going to continue to be very challenged in terms of demand. That is still significantly down, mainly because of the inflation impacts but also the margins are challenged there with the higher naphtha pricing that we saw. So we've got good momentum coming out of the third quarter going into fourth quarter, seeing some signs of growth in China and really a very challenging market that's going to continue in Europe.

Joshua Spector :

Yes, thanks. Actually I want to follow up on the last point that when you're looking at China. I think -- can you give us an update on what you're seeing in terms of inventory? And are we over the hump on the capacity additions there? Or does that impact the shape of the curve as we go into next year? What's your view around that?

Ken Lane :

Yes. So Josh, we're still going to see more capacity coming online next year, and that's why we're going to kind of be bouncing along the bottom. Overall, as an industry, I think, first half of next year and then the hope is in the back end of next year, we start to see some recovery in the market growth comes back to absorb the additional capacity, but there's going to be -- continue to be pressure around new capacity coming in, and that's going to be the biggest watch out for us.

Operator:

Ladies and gentlemen, I'm showing no other questions at this time. I'll turn the floor back to Mr. Vanacker for any final comments.

Operator:

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

David Kinney :

Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation that accompany today's call is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions, and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern time today until September 4 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13739183. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins & Polyolefins; Kim Foley, our EVP of Intermediates and Derivatives and Refining; and Torkel Rhenman, our EVP for Advanced Polymer Solutions. During today's call, we will focus on second quarter results, current market dynamics, our near-term outlook and our long-term strategy. With that being said, I would now like to turn the call over to Peter.

Michael McMurray :

Thank you, Peter, and good morning, everyone. Please turn to Slide 11 and let me begin by describing how we are extending our track record of outstanding cash conversion. During the past 4 quarters, LyondellBasell generated $4.8 billion of cash from operating activities. Our cash balance was $2.5 billion at the end of the second quarter. Our team efficiently converted 103% of our EBITDA into cash over the last 12 months. Let's continue with Slide 12 and review the details of our cash allocation during the second quarter. The LyondellBasell team remains committed to our balanced capital allocation strategy while providing strong returns for our shareholders. During the second quarter, our portfolio of businesses generated $1.3 billion in cash from operating activities. Our robust cash generation comfortably covered our capital expenditures of approximately $300 million as well as our $500 million of returns to shareholders through dividends and share repurchases. During the quarter, we increased our quarterly dividend by 5% to $1.25 per share. 2023 will mark our 13th consecutive year of annual dividend growth. In May, we issued our first green bond to support investments that advance our strategy for leadership in sustainability. After the start-up of our new PO/TBA facilities in the first quarter, we successfully demonstrated full operating rates on these assets. Our capital expenditures are now focused on continued investments in maintenance and smaller growth projects. With the rapid progress in the value enhancement program and the extension of operations at our refinery, we expect capital expenditures for 2023 will increase to $1.7 billion, $100 million higher than our original guidance of $1.6 billion. During the third quarter, we expect operating rates of 85% for our North American olefins and polyolefin assets. 75% for our European olefins and polyolefins and intermediates and derivative assets and just below 95% for our refinery. In the appendix of the slide deck, we provide updated 2023 modeling guidance, CapEx and several other items, including refresh estimates on cost and capital expenditures associated with extending the operations at our refinery business. Now I'd like to provide an overview of the results from each of our segments on Slide 13. The LyondellBasell's business portfolio delivered $1.5 billion of EBITDA during the second quarter. Our results reflect modest improvements in O&P margins and higher I&D volumes, offset by weaker refining margins. Results in our olefins and polyolefins businesses benefited from lower feedstock costs. Demand for oxyfuels remained strong, while margins in our refining business declined due to lower refining crack spreads. With that, I'll turn the call over to Ken. Ken?

Kim Foley :

Thank you, Ken. Please turn to Slide 16 as we look at the Intermediates and Derivatives segment. EBITDA for the segment increased $46 million in the second quarter to $472 million. Additional capacity from our new propylene oxide facility was largely offset by planned maintenance downtime. Propylene oxide and derivative margins decreased on continued weak demand for durable goods. Demand for oxyfuels remains strong when margins were slightly lower. In line with the guidance from the beginning of the year, we are conducting planned maintenance during the third quarter on 2 of our existing propylene oxide assets. We expect to run our global I&D assets at approximately 75% of capacity in the third quarter, which includes the idling of 2 PO/SM assets in the U.S. and Europe for approximately 2 months at each asset. In the second half of the year, we expect oxyfuel margins to compress as cost seasonally increase for butane are key raw material. Last quarter, we discussed the successful start-up of our new PO/TBA plant. This quarter, I'm pleased to report that we have completed the technology performance test to prove out the full capacity of our new PO/TBA facilities. I am incredibly proud of what our team has accomplished to quickly reach these milestones. Now let's turn to Slide 17 and discuss the results of the Refining segment. The second quarter EBITDA declined by approximately $200 million to $114 million as the benchmark Maya 2-1-1 crack spreads settled by more than $9 a barrel relative to the first quarter. Spreads for other heavy crude oil run at our refinery, such as the Canadian WCS declined further than Maya, providing additional headwinds to our margins. In the near term, we expect demand for refined products to remain stable and inventories to remain low. The recent elevation of crack spreads will likely moderate as outages in the refining industry are resolved. Nonetheless, we expect Maya 2-1-1 spreads to remain above historical averages. In the third quarter, we plan to operate the refinery at approximately 93% of capacity. This rate provides optimal economics for our asset based on our plans for crudes, products and operations ahead of our maintenance work. We remain committed to the safe operation of these assets with a focus on high reliability. In the fourth quarter, we are planning for FCC maintenance with an estimated EBITDA impact of $25 million. We are extending operations at our refinery to no later than the first quarter of 2025. This extension will help to bridge activities at the site as we develop new projects to transform site in support of our circular and low-carbon solution growth strategy. With that, I will turn the call over to Torkel.

Peter Vanacker :

Thank you, Torkel. Please turn to Slide 19, and I will discuss the results for the Technology segments on behalf of Jim Seward. Second quarter EBITDA of $79 million reflected higher licensing revenue and lower catalyst volumes. In the third quarter, we expect that licensing revenue and catalyst volumes will moderately improve. As a result, we estimate that the third quarter Technology segment results will be similar to the quarterly results seen in the first 3 quarters of 2022. As discussed in the previous earnings call, we expect that LyondellBasell's proprietary MoReTec advanced catalytic recycling technology will be a key enabler for scaling up our circular and low-carbon solutions business. Engineering work for our first commercial scale plant in Cologne, Germany is underway. We hope to provide you with further updates and announced an investment decision for a commercial scale plant during the fourth quarter of this year. Please turn to Slide 20 and I will discuss the market outlook by regions and end markets. As you heard from our business leaders, we expect that the challenging market conditions of the second quarter will continue for the remainder of the year. And the America's fundamental demand is stopped and we see cautious buying from our customers and consumers. Margins are expected to be pressured by near-term volatility in feedstock costs and new capacity. The potential for energy cost volatility and associated consumer caution looms over the European markets, despite moderation in feedstock and energy costs relative to 2022. In China, strength in Consumer Services has not been sufficient to offset slow recovery in durable goods, infrastructure and export activity. Markets are not reflecting much benefit from the initial stimulus measures. Demand for consumer packaging is stable, supported by the service industries. However, our customers continue to keep their inventory levels cautiously low. Building and construction markets are relatively flat with benefits from new housing starts offset by reduced sales and maintenance for existing homes as owners resist trading into higher mortgage rates. We're watchful for tailwinds in the United States from stimulus enabled by the Inflation Reduction Act, to be part of the infrastructure law and the CHIPS and Science Act. Demand from automotive market seems to be gaining momentum. However, there may be some headwinds from the typical downtime at OEMs in the third quarter. Oxyfuels and refining markets continue to see stable demand as refined product inventories remain low. At LyondellBasell, we optimize our well-positioned assets across the world. We will continue to align our operating rates with market demand and steered through all stages of the business cycle. Now let me summarize our second quarter outlook and our long-term strategy for our company with Slide 21. Our second quarter results illustrate how our team is capturing value to our new strategy despite challenging markets. Margins for our O&P businesses moderately improved amid tipid demand. Although lower than the first quarter, our oxyfuels and refining margins remained above historical averages, supported by low inventories and steady demand. Cash generation in the second quarter was outstanding with $1.3 billion in cash from operations and an impressive cash conversion of 103% over the past 4 quarters. We returned $508 million in dividends and share repurchases, demonstrating our commitment to shareholder returns. Looking ahead to the third quarter, we anticipate soft demands and additional polyolefins capacity in North America and Asia will lead to further margin compression. We expect LyondellBasell's third quarter EBITDA will be mid-teens to mid-20 percentage points lower than the second quarter. We remain watchful for near-term risks and opportunities across sectors and geographies. At our Capital Markets Day in March, we shared our excitement around our new forward strategy. And during the call today, we provided updates on our progress to capture incremental value across the 3 pillars of the strategy. I want to emphasize that we are not allowing current conditions to slow us down. Our value enhancement program has generated incredible energy and enthusiasm across our workforce, from frontline operators and manufacturing to engineers developing innovative solutions to sales and support teams serving our customers around the world. LyondellBasell VEP is unlocking value at an accelerating pace. We're making steady progress on our goal to deliver a more profitable and sustainable growth engine for LyondellBasell. We're now pleased to take your questions.

Christopher Parkinson :

Great. Just taking a step back on Slide 14. You had a pretty solid 2Q in the Americas. But at the same time, as you've been consistently highlighting, there's been a lot of volatility in NGL pricing, there's going to be a difference in operating rates in the second half. There's a little bit of a choppy macro picture. Just when we're thinking about integrated olefin margins, just how should we be thinking about the run rate for the second half and in 2024, just want to take a look at the current dynamics? And then any comments on how you expect this to eventually inflect and improve, hopefully, next year.

Operator:

Our next question comes from the line of Duffy Fischer with Goldman Sachs.

Peter Vanacker:

That's a very good question, Duffy. Let me hand it over to Ken on the olefins and polyolefins side.

Operator:

Our next question comes from the line of Steve Byrne with Bank of America.

Peter Vanacker:

Thank you, Steve. Very good question that you're asking. I mean what we are doing here together with our partners is, first of all, developing the technology further into, let's call it, a semi industrial scale. So this is not replacing, but it is feeding into a cracker. Next to that, of course, we are following different other avenues in order to prepare ourselves, I mean, for more renewable hydrocarbons. And here, that's what we are looking at, at the refinery and how can we leverage upon the hydrotreaters and hydro crackers that we have. So there will not be one solution fits all is the key message, but we are playing, let's say, very broadly, being technology agnostic, and investing in the different types of technologies that eventually where we then would decide to invest in those technologies on an industrial scale. We're talking about 2013 plus in my view. Then, of course, there can be different solutions depending on where you are in the world.

Steve Richardson :

I was wondering if you could ask on APS, Torkel. I appreciate the update. I was wondering if you could maybe remind us of some of your longer-term goals in terms of restoring profitability. It sounds like you're making some good inroads. And then also I was wondering if you could talk a little bit about more if acquisitions should be expected to be persistent part of the outlook there or if this is something unique.

Peter Vanacker:

And here -- it's Peter. I mean just to add to that, I mean, in terms of the acquisitions, I mean, one needs to look at the Mepol acquisition, being at the boundary, the interface between circular and low-carbon solutions and then the APS business with the compounding. So Mepol has a very strong mechanical recycling position in those different markets, and that's what made it so attractive for us to do that acquisition.

Arun Viswanathan :

Just wanted to follow up on your outlook for O&P margins across both North America and EIA. So it calls -- it looks like you're calling for double-digit declines in your profitability in Q3 sequentially from Q2. Can you just walk us through some of those mechanics? I know that we had the $0.03 decline in June on polyethylene. Are you looking for further declines in Q3? And just wondering, given the feedstock volatility there as well and then the recent decline in ethane prices, or is it continued weakness in volume? Or is it a little bit of both? Or maybe just walk us through some of the tanks.

Ken Lane:

Yes, like I had said previously, we're looking at the feedstock kind of peaked in July. So that definitely is going to hurt us versus Q2, if you think about it sequentially. Also, like I said, with prices coming down in the U.S. at the end of Q2, that's carried into Q3, so both of those are going to be headwinds. Then there is some volume component to that. Q2 is normally our peak fall in terms of seasonality and in Q3, especially in Europe, in the summer months, you start to see the volume slow down. So we will have some volume slowdown in Q3 as well. Overall, I expect that we are, like I said, bumping along here on margins in Q3 in terms of being at the bottom.

Operator:

Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Peter Vanacker:

Yes, Aleksey, I mean, we have seen a couple of areas where that eventually could have an impact. But at this point in time, it's too premature to say, I mean how much that impact will be. Our people, as you know, they are on the ground, I mean, following that. There seems to talks around, I mean, automotive industry, talks about white goods industry, but too premature, I mean, to say because we need -- we've seen a couple of these initiatives so far, but we are rather in a wait-and-see position now and ready. I mean, if the market would see, I mean, an uptick because all the initiatives so far have not had the impact as we would have hoped despite the fact, I mean, that the saving rates of individuals is extremely high, I mean, in China.

Frank Mitsch :

I had a question on I&D. You noted in your slide that you're anticipating a $20 million headwind in 3Q from turnarounds, but also you indicated that you're shutting down 2 PO/SM plants for both the months of July and August, I assume that that's not included in that guide. So I'm just curious what sort of financial impact we should be anticipating with the shutdowns of the PO/SM facilities and are you awaiting a return in demand before you bring those facilities back up? Any more color there would be very helpful.

KimFoley :

Frank. Thank you, Peter. Let me just add a little bit more color, as Peter alluded to, when we provide the guidance, the guidance was really to help investors understand the difference of bringing on this new PO/TBA capacity and relative to the other capacity that we would be taking offline for maintenance. And we really looked at that from the PO/TBA technology. So that you can see both the PO impacts as well as the oxyfuel impacts because they're almost offsetting, which is what you see in the guidelines. We talked about a 50% run rate for the new plant versus the maintenance of the other assets. So when you ask about what's the impact of the PO/SM market or assets going down, I think the way to think about it is where is styrene today. Styrene is oversupplied, it's changing month-to-month on very, very thin margins. So what -- how I would answer your question, Frank, is I don't think there is an impact based on PO demand of those plants idling at this point in time based on the durable demand for polyurethanes regionally as well as globally.

Vincent Andrews :

Question within your wide range of EBITDA guidance, you have sort of a single point targets for operating rates. So I'm just wondering how you're thinking about operating rates given they fluctuated a fair amount a lot more than normal over the past 12 months. And so what are you solving for with those operating rates versus the profitability you're seeing?

Operator:

Our next question comes from the line of Mike Leithead with Barclays.

Peter Vanacker:

Yes, Ken, I mean, if you can take that question?

Operator:

Our next question comes from the line of Matthew Blair with TPH.

Peter Vanacker:

Well, Matthew, I mean, normally, you have quite a good visibility. I mean, with the announcements of capacity increases. So -- and that visibility in our industry is normally around what, 4, 5 years, I mean, down the road. I would be very surprised, I mean, if there would certainly be additional capacities that come on stream. I mean, within that period that have not been announced because that's not how the industry is working. I mean, Ken, with regards, I mean, to the announcements now as the supply and demand.

Peter Vanacker:

And then if you look at it, I mean, from the demand side, if you look into the history, than with the financial crisis 2008 and 2009, then certainly in 2009 and 2010, you had a big recovery. So growth was higher than it normally is, let's say, over the cycle, let's say, around, I mean, 4% per year. And the same we've seen, I mean also with the pandemic, I mean, pandemic in 2021. During the second year, you saw a recovery with -- when you compare that to 2020. So I mean, we continue to be just looking, I mean, from a historic point of view. We have a consumer behavior. It could very well be that also then we see in the future that there's going to be higher demand compared to, I mean, to the average over the cycle demand growth of about 4% per year on polyethylene.

John Roberts :

Will the delay in closing the refinery pushback the time frame to achieve the $1 billion EBITDA from circular plastics? I assume you're going to be later in converting some of the gasifiers and so forth at the location.

Operator:

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Torkel Rhenman:

Thank you for the question. On the APS, I covered when we had the Capital Markets Day, I think we've really lost the focus on the business and our customers when we went through the integration. And we took out a lot of cost and synergy but this is a business that really requires this customer centricity. It's a project-based business. You have to have a really good growth pipeline and a very, very good service level and that's the recognition that I think from the whole integration that we made some mistakes and we really have not put together this transformation plan to deliver what this business can perform. And that's the journey that we're on. And I'm confident that we're going to deliver on it. We're making good progress. But it is a transformation, it will take up years.

Peter Vanacker:

And to your question, I mean, on the circular business, Jeff. I mean the $500 million in -- by 2027 and then the $1 billion by 2030. When we talked about that on the Capital Markets Day, you know that we are talking about 2 million tons of target by 2030. The margins that we talked about, I mean, you can do the back of the [indiscernible] Calculation pretty much is incremental EBITDA on top of the EBITDA that we normally make, I mean, in our crackers. So it gives you a bit of guidance also here. I must say, I mean we're -- we look at the margins that we are creating, I mean, today with that business, you know that since we started the business, we have been able, I mean, to grow the business quite substantially. Of course, albeit, I mean, still at a low level compared to the overall volumes that we are having in the polyolefins. We see that the margins that we can capture or substantially higher than what we have said, I mean, at the Capital Markets Day. And again, it's a separate business that is being created. I keep repeating that. Like I said at the Capital Markets Day, with its own supply and demand that has its own value-based pricing mechanisms that we are positioning in the marketplace. So this is not a market where you have a polyolefin plus a premium type of approach.

Hassan Ahmed :

Just wanted to revisit the earlier question around polyethylene exports out of the U.S. Look, I mean, a lot of this capacity that's been coming online in the U.S. has been with an eye to the export markets. And as you guys and others have talked about, the European market isn't looking great. Asia hasn't rebounded the way one would have expected it to. So I mean, are you seeing a scenario where some of that product that was meant for the export market isn't making its way to the export markets and potentially is putting further downward pressure on PE pricing in the U.S.?

Ken Lane:

I completely agree with that. And like I had mentioned before, there will be headwinds with this capacity coming on. There always is. But the capacity comes on one time and then you feel it and the market will adjust to that. I also said earlier, we're seeing some strength in some of the export markets, especially going south. So we're starting to see some growth in some markets like Brazil that's going to help absorb some of that capacity. So I'm not any more concerned about it now than I was 6 months ago. Southeast Asia is even looking a little bit better. We've seen that trend over the last couple of months. So the markets are going to absorb it over time. And like Peter said and Michael had said, we'll adjust our operating rates to optimize cash.

Peter Vanacker :

Okay. Thank you very much. As usual, very thoughtful questions. We're looking forward to sharing the updates on our progress towards unlocking additional value, of course, over the coming months and we wish you all a great weekend. And as usual, stay safe. Thank you very much.

David Kinney:

Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern Time today until May 28 by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13735436. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins and Polyolefins; Kim Foley, our EVP of Intermediates and Derivatives and Refining; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on first quarter results, current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter.

Michael McMurray:

Thank you, Peter, and good morning, everyone. Please turn to slide six, and let me begin by describing how we are extending our track record of outstanding cash generation. In the first quarter, LyondellBasell generated nearly $500 million of cash from operating activities that contributed toward our total of $5.1 billion over the last 12 months. Our cash balance was $1.8 billion at the end of the first quarter. Over the last four quarters, our team efficiently converted 89% of our EBITDA into cash. During the first quarter, our cash conversion dipped to 35% driven by increased sales volumes and additional inventory required to serve customers during upcoming maintenance. Nonetheless, we expect to continue converting approximately 80% of EBITDA to cash over the longer term, as we have done in the past. We remain committed to delivering returns to our shareholders. Over the last 12 months, we returned $3.5 billion in the form of dividends and share repurchases. Let's continue with slide seven and review the details of our cash generation and allocation during the first quarter. The LyondellBasell team remains focused on disciplined capital allocation to provide strong returns for our shareholders. During the past four quarters, we returned 107% of free cash flow to our shareholders. This is well above the annual target of 70% that I shared with you at our Capital Markets Day. During the first quarter, we returned approximately $460 million to shareholders through our quarterly dividends and share repurchases. First quarter capital expenditures were $352 million, approximately $120 million less than the fourth quarter. With a successful start-up of our world-scale PO/TBA plant, capital expenditures related to the construction of the plant will be replaced with growing cash generation. Our continued investments in maintenance and smaller growth projects remain within our plan of $1.6 billion for 2023. Now, I'd like to provide an overview of the results for each of our segments on slide eight. LyondellBasell's business portfolio delivered $1.5 billion of EBITDA during the first quarter. Our results reflect moderate margin and volume improvements across most segments due to improving global demand and lower energy costs. Results in our olefins and polyolefins businesses benefited from higher asset utilization. Demand for fuels remained strong, and our oxyfuels and refining businesses continued to earn margins above historical averages. Please note that our first quarter segment results reflect the movement of our Catalloy and polybutylene businesses from the APS segment to the O&P Americas and O&P EAI segments, effective as of January 1st. We filed an 8-K on March 7th that provides summary historical financial information for the three prior years. During the quarter, we recognized $69 million in cost related to the exit from a refining business and a non-cash goodwill impairment of $252 million related to our Advanced Polymer Solutions segment. As I mentioned last quarter, we expect to incur approximately $75 million of EBITDA impact as well as $55 million of depreciation related to the exit from our refining business during each quarter of 2023. As a follow-up to our 2023 plant maintenance guidance, we decided to pull forward some planned maintenance in our O&P Americas segment to the second quarter. We expect this will result in an additional impact of $90 million for a total estimated EBITDA headwind of $110 million for the segment during the second quarter of 2023. With that, I'll turn the call over to Ken.

Kim Foley :

Thank you, Ken. Please turn to Slide 12 as we look at the Intermediates and Derivatives segment. EBITDA for the segment increased by $135 million in the first quarter to $426 million. Propylene oxide volumes increased with higher operating rates after planned downtime last quarter, while margins decreased on continued weak demand for durable goods. Oxyfuel margins remained strong, supported by low inventories and steady demand for gasoline. Overall, we operated our assets at approximately 85% for the quarter. As highlighted at our Capital Markets Day in March, we have successfully started up our new PO/TBA plant, which is the largest propylene oxide plant in the world. This start-up was many years in the making, and I am incredibly proud of what our team has accomplished. In line with the guidance from last quarter, a heavy planned maintenance schedule across our propylene oxide assets in 2023 will largely offset the benefits from this new volume during the first year of operations. In 2023, we'll be focused on driving safety, quality and reliability as we fine-tune the operation of this new PO/TBA plant and ramp up cash generation in 2024. For the second quarter, we expect to run our global IND assets at approximately 80% of capacity in line with demand. Our new PO/TBA capacity is included in the calculation of our I&D segment operating rates beginning with the second quarter. Now let's turn to Slide 13 and discuss the results of the refining segment. First quarter EBITDA of $315 million was fairly comparable with the prior quarter, which benefited from a $40 million in tailwinds from a LIFO inventory valuation. In the first quarter, the Maya 2-1-1 spread remained stable at about $49 per barrel. Industry inventories for fuels remain low following winter weather and significant maintenance, coupled with stable demand. We operated the refinery at approximately 85% of capacity with an average crude rate of 226,000 barrels per day. In the near term, we expect the Maya 2-1-1 spreads to moderate due to declining diesel spreads while remaining well above historical averages. We plan to operate the refinery at approximately 95% of capacity in the second quarter. We remain committed to safe operation of these assets with a focus on high reliability to capitalize on current market conditions. As Peter mentioned earlier, we have started the evaluation of several projects to transform the site to fit with our circular and low-carbon solution strategy. With that, I will turn the call over to Torkel.

Peter Vanacker:

Thank you, Torkel. Please turn to slide 15, and I will discuss the results for the Technology segment on behalf of Jim Seward. First quarter EBITDA of $73 million reflected stable catalyst volumes and lower licensing revenue. In the second quarter, we expect that licensing revenue and catalyst volumes will be moderately better. Nonetheless, we estimate that second quarter Technology segment results will be similar to the first quarter. As Ken discussed, we believe that LyondellBasell's circular and low-carbon solutions business has a strategic advantage with our integrated hub solution. A key enabler to scale our hubs is LyondellBasell's proprietary MoReTec advanced catalytic-recycling technology. Engineering work for our first commercial scale plant is underway. We hope to provide you with further updates and reach an investment decision for a commercial scale plant during the fourth quarter of this year. Let me now summarize our first quarter and the outlook for our company with slide 16. Our first quarter results illustrate how our team is capturing value through our new strategy with help from moderately improving market conditions. LyondellBasell's foundational commitment to safety remains at the core of our culture and will continue to be a critical enabler for our future success. Our O&P businesses benefited from moderately improving demand. Our oxyfuels and refining businesses continue to see margins above historical averages, supported by low inventories and steady demand. During the first quarter, we returned approximately $460 million in dividends and share repurchases, demonstrating our commitment to shareholder returns. Looking ahead to the second quarter, we anticipate modest seasonal demand improvements. North American polyethylene margins should benefit from delays in industry capacity additions. In response, we're aligning our operating rates to match market demand. We remain watchful for market improvements in China, as stronger economic activity could help drive recovery in global markets during the second half of the year. LyondellBasell is focused on serving rapidly growing demand for our valuable circling products from our circular and low-carbon solutions business. We're entering multiple arrangements to secure plastic waste feedstocks and build out the regional apps that will drive our advantage. And we are making progress on our climate targets in less than one year since signing our first power purchase agreements, we achieved 70% of our target to procure at least half of global electricity from renewable sources by 2030. At our Capital Markets Day last month, I hope you sense our excitement around our new forward strategy. Last week, we gathered 150 of our global leaders to provide feedback and align on implementation. The energy and enthusiasm around our initial progress is incredible. From our frontline operators and manufacturing to engineers, developing innovative solutions for our customers to three pillars of our strategy for providing focus and clarity for our progress to capture incremental value and deliver a more profitable and sustainable growth engine at LyondellBasell. We're now pleased to take your questions.

Steve Byrne:

Yes. Thank you. This FID that you're targeting at the end of the year for the MoReTec technology, is it fair to assume that you're thinking about building this at the refinery site, given you have all these hydrotreaters available that could be used to treat the pyrolysis oil, you could also use the hydrotreaters to make your own renewable feedstock rather than buying it from Neste and you need a lot of hydrogen to do all this. Could this site become a hydrogen hub as well and get some DOE funding.

Operator:

Thank you. Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Michael McMurray:

Hey, Jeff, it's Michael. Let me help you out with that. So I'll refer you back to an 8-K that we issued last year. But we anticipate a number of charges. So there's charges associated with the existing operating lease assets. So this would include like tanks and other infrastructure. There's asset decommissioning cost, so like things like tank cleaning and then personnel-related costs as well and then some miscellaneous charges. So our total cost estimate -- and this is still a good estimate today. We had given a range of about $600 million to $900 million. It's unlikely and this is happening, that they're not going to be recognized all at once, so we've been incurring some cash and some non-cash costs now largely non-cash this year, and they'll continue into 2024 as well. And you're seeing charges per quarter right now of about $85 million, similar to what we had seen in 2023 as well. On the fourth quarter, we did raise our estimate on asset decommissioning costs slightly, and you've seen some incremental depreciation related to that. But that's within our $1.4 billion estimate for the full year. And then don't forget, there will be a meaningful working capital release when we shut down the refinery -- it's on the order of about $700 million is what we're expecting.

Mike Sison:

Hey, good morning, guys. Nice start to the year. In terms of fundamental polyethylene demand, where do you think we're running at here in the first quarter, heading into the second quarter and -- and how do you think it holds up in the second half of the year?

Ken Lane:

Yeah. Thanks, Mike. We're seeing modest improvements from Q4. Q4 being very low, and we saw a lot of destocking, especially in Europe in the fourth quarter. So I'd say overall demand is going to modestly improve going into Q2. We typically see some seasonal improvement. We have begun to see some improvement in China. The consumer is sort of waking up there. So my expectation is that as we get into the second half of the year, that's probably going to be the biggest opportunity for improvement in the market is going to be how quickly China comes back I don't think in Europe and in the US, you're going to see anything different than the normal kind of Q2, Q3 peak and then a decline in Q4, which is normal for those markets. But we should see Asia performing stronger in the second half.

Operator:

Thank you. Our next question comes from the line of Duffy Fischer with Goldman Sachs. Please proceed with your question.

Peter Vanacker:

Thank you, Duffy. Very good question. And that allows me again to repeat what a huge success that is to be able to start up that PO/TBA plants. I mean the largest that is in the entire industry, on time, safely and is now ramping up just like inset to demonstrate, I mean maximum capacity in that plant. So really, I mean, an incredible -- and I must say, even when I compare that to my previous assignments and other companies, I've never seen it going that move. So really a great job by the entire team, which gives you Kim some time to answer the question.

Peter Vanacker:

And Duffy, that a part of the PO consumption is going into bedding into furniture. But there is also a part that is going about, I would say, 20% is going into automotive. And if you look at the automotive industry in terms of builds, the latest the IHS numbers were, let's say, April expectation, close to 4% increase. So it's not all negative. But as long as we don't see that the construction market will start to pick up, then we expect that it will be moderate in terms of demand growth in PO, but we are ready for that.

Josh Spector:

Yes. Hi. Thanks. I wanted to follow up on one of the earlier questions on demand and specifically around China in terms of what you're seeing in terms of on-the-ground demand and inventories for polyethylene and polypropylene. And you made a comment on, I mean, your prepared remarks around delays in polyethylene capacity in North America being helpful. I mean, at least on paper, there's capacity coming out in China at meaningful scale. Is there anything you could comment on there that's going perhaps per plant slower or faster than you expected? Thanks.

Ken Lane :

Yes. Thanks for the question, Josh. No, there's nothing that we see really meaningfully different in terms of the developments around China capacity additions. They seem to be coming on about the way that we had expected. So really nothing new there. But again, what we're starting to see is consumption is improving, converters and downstream customers are being a little bit more careful. They're not wanting to build inventory. So that's part of what we see in terms of, I'd say, the slow ramp-up. They're being very risk-averse, but the demand is beginning to come back a little bit as far as consumer goods. To the point that Peter made earlier, durables are less strong in terms of the recovery, but we still see good demand in food packaging and those sorts of markets.

Ken Lane :

Yes. So exports from North America have gone up in the in the month of March pretty significantly, if you look at the ACC data. So that's going to continue, I think, into the second quarter.

David Begleiter :

Thank you. Peter, can you talk to the strength of the oxyfuels margins and how sustainable it might be beyond the seasonally stronger period we're about to enter?

Kim Foley :

Thanks, Peter. So I think if you think about the big drivers for the profitability of oxyfuels, at your feedstock costs, so look at your butane costs versus your crude. Look at your cost of methanol, which right now in the U.S. is favorable with low natural gas, the relative price of crude, so the higher crude is, the more favorable it is because it's the difference between the lower gas and the crude. And then the premium. And I think that's the question many people have is what's going to happen with all this new capacity as we come into the market with the -- what we call the oxyfuel for the ether premium. And we're pretty confident we have outlets for all of that material. And we think there'll be some seasonal moderation of margins as we go into the third and fourth quarter as butane pricing increases, but no concerns or plans that we haven't forecasted within our portfolio.

Operator:

Thank you. Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Peter Vanacker:

Well, we do believe, and it's a very good question, I mean, Aleksey, and rightfully noted as well that this is -- as we said at the Capital Markets Day, this is the who breadth of different technologies that we are deploying globally, not just at the Cologne hub. And one of those technologies is actually the mechanical recycling technologies. And you saw from our announcement this morning that we have agreed to me to buy out and now have full ownership over the QCP assets, which are assets in Galena in the Netherlands as well as the Tekova assets in Belgium. So these assets are on one hand side, industrial mechanical waste focus, and on the other hand side was consumer waste focused. So again, here, we have the breadth of technologies that we then can bring to the market. We do believe that we have differentiated technology not just on the mechanical of course, as you know, but also on the advanced recycling and intend to continue to deploy that.

Peter Vanacker:

Yeah, that's a very important point. And that's why, I mean, this a approach, the synergies that we have, the optimization that is possible to maximize the value out of our waste.

Vincent Andrews:

Thank you, and good morning, everyone. I'm wondering if you can give us a bit of a bridge in EAI from 1Q into 2Q and a couple of questions within that. One would just be on the energy cost position of the plant footprint. I know you said it was $90 million better versus 4Q. Does that improve any further into the second quarter? And then also, you commented in the release about in the first quarter, I believe it was 70% naphtha as a feedstock. What was the reason why you were so rich in naphtha versus LPG? And what would you anticipate for the second quarter?

Operator:

Thank you. Our next question comes from the line of Matthew Skowronski with Credit Suisse. Please proceed with your question.

Ken Lane:

Sure, Matthew. So we are in a really good position, as you can imagine, for North American feedstock advantage, the oil and gas ratio is very strong. Our outlook is that that's going to continue. We've seen good increases in production in North America in NGLs. And if you look at ethane and propane inventories, they're at high levels and production continues, so I expect that we're going to see in the midterm continued strength in the advantage for North America. And like we said in the prepared statement, the -- some of the delays in the production issues that are happening with the North American capacity that's coming on, should continue to lend support to polyethylene pricing. And we've got price increase announcements out there. And certainly, we're optimistic that we'll be able to secure for that.

Kevin McCarthy:

Yes, good morning. Just to follow up on the prior question. Can you comment on the demand side of polyethylene? Do you think that destocking has run its course at this point? And if so, would you anticipate any restocking in coming months? And then with regard to the new supply that's coming domestically, it seems that, as you alluded to, there's either delays or we've also heard that some units are having trouble running on specs sustainably. So welcome any color you have along those lines for the market or individual grades of resin?

Ken Lane:

Yes. Sure. So listen, I'll just continue. Nothing really more to add. We are seeing tightness in some market segments more than others, which is things like high-density polyethylene, you've probably heard the issues around some of the tightness in the markets there. We expect that's going to continue, but not a lot really to add. These things are a little bit hard to predict. And exports, like we had mentioned earlier, did creep up in March, and that's always going to be one of the key factors in terms of new capacity coming on with the feedstock advantage that we have here, a lot of that new capacity is going to go offshore. And we're not faced with any of the supply chain issues like what we were seeing in the early fourth quarter those issues are gone. So the ability to move product offshore is going to help sort of evacuate that volume fairly quickly.

Ken Lane:

Yes, yes. I would say destocking, we don't really see that occurring anymore and people are being cautious in terms of their inventory levels.

Arun Viswanathan:

Great. Thanks for taking my question. Just a question on how you're thinking about the year and maybe next year as well. We appreciate the '27 $10 billion number. But if you just look into the rest of this year, you were able to do the 1.5 for Q1 on EBITDA. [indiscernible], a little bit better, and you're still talking about weak demand. So I'm assuming there's a little bit of improvement as we go through the middle of the year. That should put you on a pace of around $6 billion. Next year, you have, unfortunately, the refinery out, which maybe is a loss of $1 billion. How do you -- are some of those kind of ways of thinking about Lyondell accurate? And how do you kind of plan to plug that $1 billion hole for next year? Thanks.

Michael McMurray:

So to put a bow around that, Peter, we think the second half should be better than the first half. That's broadly in line with what the analyst community is thinking as well. But as you said, China is the linchpin and uncertainty generally is high right now.

Matthew Blair:

Hey, good morning. Thanks for taking my question. On natural gas, I think you've given sensitivity that every dollar per MMBtu is about $175 million of op costs. Did you realize all those benefits in Q1 from both lower US as well as lower European gas prices? And I guess, should we expect any sort of incremental benefit heading into Q2?

Michael McMurray:

Sure. Happy to take that question. And we got some feedback from a few folks that they didn't like our rule of thumb. So I'll give you a bit more data this morning, which hopefully is helpful. But as you all know, energy prices last year surged significantly, both in Europe and the US. And so just looking at energy cost for last year versus 2021, up about $1.7 billion. If you benchmark last year versus 2020, up $3.3 billion. So we faced into some significant energy cost increases over the last couple of years. But obviously, have seen relief that started in the fourth quarter and has followed through into the first quarter of this year and now is continuing into the second quarter. So -- what I would say is that if you looked at energy cost overall for the fourth quarter for the enterprise, about $1 billion overall, in the first quarter, down roughly $200 billion. Our expectation as we move into Q2, that it's largely flattish, maybe a little bit of kind of full quarter effect. And then just from a modeling perspective, I'll give you a couple of more data points to be helpful both around North American average natural gas prices that we incurred and then Europe average natural gas prices. So for North America, average price in the fourth quarter was $5 -- roughly $5.30 per MMBtu. In the first quarter, the average was $3.10 roughly 3.10. And then for Europe, fourth quarter was $26.70, and in the first quarter was $16.60. So hopefully, those data points will help you all as you kind of think about the balance of the year from a modeling perspective.

Hassan Ahmed:

Good morning, Peter. I wanted to revisit a series of questions that you guys obviously got on polyethylene supply additions. I mean if I were to sort of dig deeper into the different grades of polyethylene there seem to be fairly major divergences in those capacity adds. Meaning, if I take a look at LDPE, the capacity adds are fairly tepid versus HD and LL. So how do you see that sort of playing out in the near to medium term?

Ken Lane:

Thank you for the question, Hassan. I mean like I said before, we've seen this capacity coming for several years. There's not anything really new here. You're exactly right, linear low and high-density capacity has really been differentially higher coming online than low density. But it doesn't change our outlook. We know -- if you go back to the fourth quarter, we really did hit sort of the bottom of the cycle at that point. And now as growth begins to come back in the market, that's going to absorb that capacity. We will sometime in the next several years, get back to a more normalized level of earnings. So not really anything new to add to that. These are things that happen, and we just we have to work through that in the marketplace.

Peter Vanacker:

Thank you very much, everybody. As usual, excellent questions, very thoughtful questions. We, of course, look forward to sharing our progress in delivering LyondellBasell strategy and unlocking additional value over the coming months. I wish you all a great weekend, and as usual, stay safe. Thank you.

David Kinney :

Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of the non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern Time today until March 3 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13734290. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins and Polyolefins; Kim Foley, our EVP of Intermediates and Derivatives and Refining; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on the fourth quarter and full year 2022 results, current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter.

Michael McMurray :

Thank you, Peter, and good morning, everyone. Please turn to Slide 8, and let me begin by highlighting our excellent cash generation from our business portfolio during 2022. LyondellBasell generated a total of $6.1 billion of cash from operating activities over the past year. Our cash on hand increased to $2.2 billion at the end of the fourth quarter. During 2022, we achieved cash conversion of 96%, 13 percentage points higher than our 2021 cash conversion. In the fourth quarter, cash conversion reached an outstanding rate of 203%. This efficient and robust cash generation allowed the company to return a total of $3.7 billion to LyondellBasell shareholders in 2022. Let's continue with Slide 9 and review the details of our capital allocation over the past year. Our approach remains focused on disciplined capital allocation and strong returns for our shareholders. During 2022, cash from operating activities fully funded dividends, share repurchases and capital expenditures. We returned approximately 60% of the cash from operating activities to shareholders. This included $3.2 billion in quarterly and special dividends and $420 million in share repurchases. In May, we increased our quarterly dividend by 5%. This represents our 12th consecutive year of annual dividend growth. We continue to invest in maintenance and growth projects with $1.9 billion in capital expenditures. A significant portion of this capital funded the final stages of construction of our world-scale PO/TBA plant. Startup activities remain on track for the end of this quarter. Our transformation of is working across our company to rigorously manage and track the progress of our value enhancement program. We look forward to sharing the progress of this program at our Capital Markets Day in March. Now I'd like to provide an overview of the quarterly results for each of our segments on Slide 10. LyondellBasell's business portfolio delivered $865 million of EBITDA during the fourth quarter. Our results reflected margins stabilizing at the low levels seen towards the end of the third quarter. Moderating energy and feedstock costs provided modest offsets for compressed margins in our olefins and polyolefins businesses. Overall, OMP demand remained low, particularly in Europe and China. Intermediates and Derivatives results sequentially declined on lower volumes due to the quarterly timing of oxyfuel vessel shipments. Margins at our oxyfuels and refining businesses remained above historical averages as demand for fuels remained strong due to increasing global mobility. High cost for utilities and raw materials coupled with low seasonal demand negatively impacted our Advanced Polymer Solutions segment. Across the portfolio, a noncash LIFO inventory valuation charge impacts pretax fourth quarter results by approximately $90 million. Fourth quarter LIFO charges were approximately $15 million for O&P Americas segment, $50 million for the O&P [EII] segment each for the intermediates and derivatives in APS segments, $15 million for the Technology segment and a $40 million benefit for the refining segment. As a reminder, volatility in natural gas prices impacts our cost for not only gas, but also steam and electricity. We estimate that a $1 per million BTU change in the price of natural gas impacts the energy cost of our directly operated assets by approximately $175 million per year across the company with 80% of this impact in North America and 20% in Europe. These estimates do not include the impact of gas price on feedstock cost. Before I turn the call over to Ken and then to each of our business leaders, who will describe our segment results in more detail, let me address some of your annual modeling questions for 2023 on Slide 11. As our new world-scale PO/TBA plant ramps up, we expect to produce and sell about half of the asset's nameplate capacity in 2023. We remain confident that our value enhancement program can achieve recurring annual EBITDA of $150 million by the end of 2023 through the execution of about 1,000 projects. In order to achieve this benefit, we expect to incur a similar amount of onetime capital and operational cost of about $150 million, with the majority of these costs allocated to capital. Major planned maintenance for 2023 included a turnaround at one of our Midwest ethylene crackers in the O&P Americas segment, turnarounds at our acetyls assets and 3 propylene oxide plant turnarounds within our I&D segment. Based on expected volumes and margins, we estimate that lost production associated with all of this maintenance downtime will impact 2023 EBITDA and by approximately $290 million. While routine maintenance costs are expensed, maintenance costs arising from turnarounds of major production units are capitalized and included in our capital expenditure forecast. During the fourth quarter, we recognized costs related to the exit from our refining business, which impacted EBITDA by $73 million. As I mentioned last quarter, we expect the business will incur similar EBITDA impacts during each quarter of 2023. We will also recognize about $55 million each quarter for depreciation charges to reflect cost accrued for asset decommissioning that will be incurred after the asset shuts down. We expect that our capital expenditures will decline by about $300 million to approximately $1.6 billion this year with the completion of the PO/TBA plant and disciplined spend resulting from the current business environment. Approximately $500 million of CapEx is targeted towards profit-generating growth projects with the remaining balance supporting sustaining maintenance. We expect that this year's capital requirements for the value enhancement program will be funded within our $1.6 billion CapEx budget. Other financial metrics worth noting include net interest expense, depreciation and amortization, pension related estimates and tax rates. We expect 2023 net interest expense will be approximately $405 million. Depreciation and amortization charges for 2023 are expected to be $1.4 billion, which includes the [$202 million] of additional refinery depreciation charges related to asset decommissioning. We plan to make regular pension contributions in 2023, totaling about $65 million with approximately $105 million of pension expense for the year. We expect our effective tax rate will be approximately 20% and our cash tax rate will be lower than our ETR. With that, I'll turn the call over to Ken. Ken?

Kimberly Foley :

Thank you, Ken. Please turn to Slide 14 as we take a look at our intermediates and Derivatives segment. Fourth quarter EBITDA was $291 million. Styrene margins improved due to lower feedstock costs. Oxyfuel margins remained well above historical fourth quarter averages. Oxyfuel volumes declined as the timing of the vessel sailings resulted in unusually high third quarter volumes. We operated our assets at rates of approximately 75%. Our propylene oxide and styrene joint venture in the Netherlands is expected to restart this month after 3 months of downtime in response to volatile European energy costs and lower demand. We look forward to initial volumes from the new PO/TBA asset in Houston by the end of the quarter. We plan to operate our assets across the IND segment at approximately 80% in the first quarter. In January, we are encouraged by unseasonably strong oxyfuel margins with low butane feedstock costs and strong oxyfuel blend premiums. We expect relatively stable margins for the segment for the first quarter. We developed multiyear maintenance schedules to ensure that our plants can safely and reliably serve our customers. As it works out, 2023 will be a heavy year for maintenance across several of our PO/TBA assets. Maintenance is scheduled for 2 of our 3 PO/TBA plants at our Bayport, Texas facility in the second and fourth quarters. Our [indiscernible] PO/TBA facility in the Netherlands will also undergo maintenance from September through November. We expect the ramp-up in volumes of our new plant will be partially offset by loss production from this planned maintenance. Nonetheless, the incremental 2023 PO and TBA volumes should be sufficient to capture typical market growth. In 2024, we expect less scheduled maintenance and the full year of production from our new assets will provide additional volumes to serve market growth. Now let's turn to Slide 15 and discuss the results of the Refining segment. Fourth quarter EBITDA included a LIFO inventory valuation benefit of approximately $40 million. Results increased on higher margins and slightly higher volumes following the third of the planned maintenances, offset by the disruptions of the December freeze. In the fourth quarter, the Maya 2-1-1 spread modestly increased to $48 per barrel, remaining well above historical averages. Despite unplanned downtime, we operated the refinery at 85% of capacity with an average crude rate of 229,000 barrels per day. In January, the Maya 2-1-1 spreads have also been unseasonally strong at more than $50 per barrel, driven by strong discounts for heavy crudes. We expect to operate the refinery at approximately 85% of capacity in the first quarter. Finally, I would like to recognize our team at the refinery for finishing the year with 0 recordable injuries in 2022. This is the first time such a record has been achieved in the 104-year history of this facility. Our team is dedicated to safely and reliably operating these assets until we exit the business. With that, I will turn it over to Torkel.

Peter Vanacker :

Thank you, Torkel. And to the entire LyondellBasell team, thank you again for all the hard work in delivering strong results during a challenging year. To close out on the segments, let's turn to Slide 17 and discuss the results for our technology business on behalf of Jim Seward. During the fourth quarter, reduced global polyolefin industry operating rates resulted in lower catalyst volumes, licensing revenue moderated due to the timing of milestones for revenue recognition. We estimate that the first quarter results for the Technology segment will be similar to fourth quarter 2022 as catalyst volumes improve, offset by moderating licensing revenue. Our technology team is hard at work advancing engineering on LyondellBasell's first commercial advanced recycling plant. This plant will leverage on proprietary MoReTec technology to extract sale from most consumer mixed plastic waste by closing the loop and producing feedstocks for our Italian crackers. Our technology provides distinct advantages by reducing energy consumption, improving yields through innovative process designs and catalysis. Let me now summarize our results and first quarter outlook with Slide 18. Despite highly targets, our team is capturing value and moving forward on our strategic priorities. Most importantly, we are sharpening our focus on leveraging the scale of our clear portfolio to deliver resilient results. We remain focused on LyondellBasell's core values. Last year's outstanding safety performance speaks to the depth with which safety is ingrained in our corporate culture. Our goal is to expand our core petro foundations to encompass a more comprehensive passion for value creation. This week, we welcomed Trisha Conley to our Executive Committee as Executive Vice President, People and Culture. Trisha will play a pivotal role in leading LyondellBasell's vision and strategy to enhance the employee experience, elevate our organizational performance and create the best and most inspiring culture in our industry. In 2022, our businesses were pressured by the effects of the war, volatile energy costs emergence from the pandemic and monetary policy. We responded by matching our reduction with changing demand, leveraging our global business portfolio and maximizing cash generation. Over the past year, our businesses generated over $6 billion of cash from operations and returned $3.7 billion to shareholders in dividends and share repurchases. Lander focus and commitment to shareholder returns remains strong. The more annuity formed circular and carbon solutions business, we are laser-focused on meeting the needs of our customers, brand owners and society. Our decarbonization goals are now aligned with science-based guidance, and we have made substantial progress towards our 2030 goal to procure 75% of our electricity from renewable and low-carbon sources. The Circular and Low Carbon Solutions business is well positioned to address the challenges of sustainability and plastic waste. By building an end-to-end business with robust supply chains, proprietary technology for transforming materials and our global manufacturing and marketing network, we're confident that we can build a large-scale and valuable leadership position in this exciting and expanding market. And our focus on sustainability is gaining recognition. In December, we were honored to be awarded the EcoVadis Gold Medal for sustainability performance with a 91st percentile ranking. The EcoVadis platform is valued by procurement professionals for assisting in the identification and evaluation of sustainable supply solutions. We expect modest improvements in the first quarter from moderating energy and feedstock costs, stable demand and the absence of fourth quarter life for charges. Normalizing supply chains or enabling improved trade flows from our advantaged feedstock positions in North America and the Middle East. Nonetheless, we will continue to maintain focus and discipline to ensure that operating rates across our global portfolio are matched to market conditions. As the year progresses, we anticipate seasonal demand improvements during the second and third quarter. And we're keeping a close eye on China's emergence from Covet and potential benefits from increased economic activity during the second half of 2023. The most exciting challenge during my first 8 months as the CEO of LyondellBasell has been the process of identifying and building a compelling strategy that generates substantial value for our customers, suppliers, employees, communities and shareholders over the next decade. We've shared some initial decisions with you already, but much more is ahead. As you will have recognized, we have waited until the Capital Markets Day, but started moving ahead with great focus and speed in the right direction. On Slide 19, we ask that you save the date for March 14, when we will share more details on our forward strategy at our Capital Markets Day in New York, and we hope that you can all join us virtually or in person. We are now pleased to take your questions.

P.J. Juvekar:

Yes. Just had a quick question on China reopening. What do you see in terms of inventory in China at the ports? And then maybe you can make a comment on your China joint venture with Bora and where you -- what were the operating rates there?

Kenneth Lane :

Yes, that's right. We continue to operate the joint venture of technical minimums. We've seen -- in two weeks, we're seeing a little bit of improvement in consumer demand, but it's really far too early to say that that's going to continue. Margins are continuing to be challenged. So we're seeing red load spread there still. So even with that improvement of demand, it's not translating yet into improved spreads. So -- we're watching that very closely, of course, P.J.

Kenneth Lane :

Correct.

Steve Byrne :

I wanted to just drill into the EAI segment here. Is the EBITDA loss-making a result of just the fixed cost absorption of running at 60% or were cash margins negative in the region in the quarter? And Ken, you mentioned demand improving. Is that sufficient to drive operating rates from 60% to 80%. Do you think that margins will remain stable? Or do you see risk of that given others may restart with lower and lower energy costs as well?

Kenneth Lane :

Yes. Thank you. And just to remind you, we did have that LIFO charge in the fourth quarter of $50 million. So -- but looking at what we see coming out of the fourth quarter, we hit a very low point there because demand was coming off, energy costs were high. They moderated at the end of the quarter, and we're seeing that continue in the first quarter. We also had our [indiscernible] fracker down during the fourth quarter. So -- that's why our operating rates were lower. Those repairs are complete, the fracker is back up. Similar to what we see in China, we're seeing some improvement in consumer demand. But again, I would say it's still early. Let's not call it a win yet, but we're definitely seeing some early signs of consumer demand improving there. So overall, the margin environment is going to improve mainly because of what Peter had said around the energy costs.

Christopher Parkinson:

Great. Could you just give your outlook on various regional operating rates and what's been happening across NGL and feedstocks? Could you just give us your latest update on the NGL front and what that just generally means for the progression of integrated [PE] margins throughout the year?

Kenneth Lane :

Sure. Yes, I'll take that. Listen, NGL production continues to increase. So we expect that to be a tailwind, especially for our position here in North America. The oil and gas ratio is going to be continue -- or continue to be favorable for our portfolio. We don't see that really changing. We do expect there could be some strengthening in the oil price as we go through the year just as demand potentially comes back with China reopening. So all in all, I would say that the environment today should be better than where we were in the second half of last year around feedstock synergy in our portfolio.

Operator:

Our next question comes from line of John McNulty from BMO Capital Markets.

Peter Vanacker:

It's a very broad question, of course. I mean, let me try to digest to put it in different buckets here. I mean, needless to say that when we talk about the demand for mature goods with high inflation rates, which are still high with interest rates that continue to go up with new house builds and houses being sold still being very -- a very low base, yes, it's clear that we expect that the demand for durable goods will continue to be at least for the foreseeable future depressed. What we have seen on the other hand side, as we have seen in other cycles, is that demand for nondurable goods is relatively stable, not to say, I mean, in certain areas, even strong. So that has led to the fact that we have given this guidance that we say, I mean, we are now operating in the Americas at 80% utilization. And Ken already talked about the European utilization rates, which was [indiscernible] at 80%. In the I&D, I mean, you know that we have a start-up of the PO/TBA sands, as we alluded to and Kim said, starting up at the end of this quarter, which will add, I mean, a bit more volumes of propylene oxide -- but let's not overreact on that either because we have, of course, our scheduled shutdowns, turnarounds that we have moved to the periods when we are starting up, I mean, the new facilities. Stock we'll be able to grow a bit, but operating assets currently is at 80%. Also here, a tick higher than it was at the end of last year.

Jeff Zekauskas:

A two-part question. When you think about the shutdown of your refinery at the end of 2023, does that mean that there are reduced operating rates in the fourth quarter of 2023? That is, do you have to really prepare to shut it down or you get to the end of the year and you shut it down? Second question is, you gave a sensitivity to natural gas price changes. You said every dollar per MMBtu is [$175 million]. And you said 20% is in Europe. So that's roughly 35 million MMBtus. The European gas price today is maybe $17 an MMBtu. And last year, it averaged $37. So it's down $20. $20 times 35, $700 million. So is that the benefit for 2023 if gas prices in Europe stay where they are relative to last year? Have I done the calculation correctly?

Kimberly Foley :

I would just tell the audience that we're working through the detailed plans of how to do that. As you alluded, you can do that with a slow ramp down? Or are you going to do that by just pulling the plug on the 31st [of the year], and we're working through the different scenarios to make sure that we have the most efficient an effective shutdown in clearing process.

Operator:

Our next question comes from the line of Frank Mitsch with Fermium Research.

Michael McMurray :

So good question. So I think, first, I mean I just -- I'd point out again that the cash generation in 2022 was extremely strong. Excellent execution by the businesses from a working capital perspective during the year. In the fourth quarter, in particular, longer-term perspective as well. Kind of turning to this year and looking forward, I would say that, I think, first and foremost, our capital allocation priorities remain unchanged. And you all know that we have a reputation for generating strong cash flow and returning to gain cash flow to our shareholders, and that expectation has not changed. Thinking specifically about 2023, I would point out that CapEx is going to be down materially. So expectations for capital is about $1.5 billion. It is going to be a tale of 2 halves for this year with an expectation that the second half gets stronger. As we move here into the first quarter, it's my expectation that working capital should be flattish. But as I look towards the balance of the year, I actually hope to consume some working capital with better sales and better pricing. And then remember, our growth investments are starting to pay dividends as well, in particular, with the start-up of PO/TBA. And so again, as I think about the full year, it's my expectation, and I'm looking at Peter and he's nodding at me. But we will continue to return meaningful cash to shareholders, including growing our recurring dividend.

Vincent Andrews:

Shifting back to polyethylene. Could you give us what you anticipate a reasonable range of outcomes is for Chinese polyethylene demand growth during 2023? And how much of that you think will need to be sourced from the ex-China market? And if you also had a view on what their demand growth actually turned out to be in 2022, that would be helpful.

Kenneth Lane :

Yes, we are very close to that. Vincent, thank you for the question. Look, our view for the last 2 years is the demand for polyethylene in China has been relatively flat. So when you talk about a range of outcomes for 2023, if you look historically, after 2 years like that, you would expect to see a significant snapback in growth, but it doesn't mean that that's a guarantee. So you could see anything from flat to plus 8%. It's very hard to call. That's why that's one of the markets that we watch very closely just because it is largely the price that are in the market. And will drive the absorption of all the new capacity that has come on. But we'll watch it closely and hope to see some more signs of recovery in the near future and more to come.

Aleksey Yefremov:

I have a long-winded question. So U.S. ethylene and polyethylene capacity has -- there's a cost advantage. And there's long-standing thesis that due to cost advantage, U.S. can export to anywhere in the world almost as much as necessary. It's not what's happening right now, right? You and the rest of the industry has lower capacity utilization. So why is there not an increase in export? Is it not economical or other logistical limitations that don't allow it? And could this change as we go through 2023 such that your utilization rates go up due to higher exports and there's no imbalance in the domestic market as a result?

Operator:

Our next question comes from the line of Michael Sison with Wells Fargo.

Peter Vanacker:

Yes. Thank you, Richard. This is Peter. Good question. The process -- I mean, the value enhancement program is ramping up quite impressively, I must say. We've done the major sites in the United States. And since the beginning of the year -- I mean the 2 major sites actually in Germany. We're expanding now also to other sites as we speak during the next quarters, both in the United States as well as in Europe. more than 3,000 projects that have been identified so far. And it goes, I mean, from areas in the manufacturing side to procurements to commercial excellence, supply chain management. So it's a very broad portfolio of different projects. We will give a couple of examples during the Capital Markets Day to make it more tangible. Today, we are mainly focusing on projects that have a very fast payback time, not so much projects that add and increase capacity, which is logical if you look at where the market is, but it is a continuous stage gate process that we have, where we continue to prioritize projects based upon the returns and based upon what we are seeing in the marketplace. So stay tuned, I would say, to get more specifics on a couple of examples on the 14th of March at the Capital Markets Day.

Duffy Fischer:

Two quick questions. One, in the increase in your operating rates across segments, does that contemplate some inventory build for the summer season? Or does that also -- or do you see that as kind of sell-through as well for Q1? And then on the polymers for Americas, what -- or what's your plan, I guess, for the split between U.S. sold and export this year versus next year? Do you have to improve your export percent meaningfully with the new capacity in North America?

Kimberly Foley :

Thank you, Peter. So as it relates to the propylene oxide side, yes, we're building a a slight bit of working capital as a contingency for the startup. But once the startup is successful, which we have tremendous confidence in that inventory level will come down. And we expect throughout the year to operate at about 85% capacity based on the modest demand we see in propylene oxide right now.

Operator:

Our next question comes from Kevin McCarthy with Vertical Research Partners.

Peter Vanacker:

Thank you, Kevin. Well, it's clear that we continue to have price increases out there in the U.S. market. And we're hopeful that these price increases, we see at least there is a good development in the marketplace. Ken?

Operator:

Our next question comes from the line Joshua Spector with UBS.

Peter Vanacker:

Definitely very good question, Josh. And this is one of the reasons why we have repositioned this APS business as well because we are, of course, not happy at all with the results in the APS business. And yes, there are lots of factors that they roll on market demand and higher costs that we have seen last year, energy cost feedstock costs -- so therefore, we have decided to mic reposition this business. And [indiscernible] like run it as a separate company within LyondellBasell. Michael, do you want to add?

Operator:

Our next question comes from the line of David Begleiter with Deutsche Bank.

A –Peter Vanacker:

Yes. Good question, of course. As we go into the markets with an entire portfolio, so we have a reasonable part of the portfolio, we have the circular part of the portfolio, which is either mechanical recycled or advanced recycled. We are in the market – I mean, with the entire family. Yvonne will give more insights in our go-to market during the Capital Markets Day also with our aspirations that we have by having set up this strategic business units, Currently, this is a market which is extremely short. Demand is substantially higher than the supply in the market. So we’re completely sold out in the products that we have available. The premiums that we are getting are quite attractive. Yes. I’m not going to put a number on it as we speak. You’ve heard numbers, I mean, from other calls. And I can say we are at least on that level. That said, Yvonne will be more insights on the aspirations that we have during the Capital Markets Day.

Peter Vanacker :

Thank you very much, and thanks again. Very good questions, very thoughtful questions. And once again, I hope that you will join us on March 14 as we will then share how LyondellBasell will advance on our strategy and unlock substantial value over the coming years. As we have said in the prepared comments for this call, we have not waited until the Capital Markets Day. We have already put a lot of things into action. And the purpose of the Capital Markets Day is to go deeper into the more specifics on the different pillars of our new strategy. I wish you all a great weekend, and as usual, stay safe.

David Kinney:

Thank you, Melissa. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions, and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documentation on our investor website provides reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release, in our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern time today until November 28 by calling (877) 660-6853 in the United States; and (201) 612-7415 outside the United States. The access code for both numbers is 13732141. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins and Polyolefins; Tim Foley, our EVP of Intermediates and Derivatives and Refining; and Torkel Reman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on third quarter results, current market dynamics and our near-term outlook. With that being said, I would now like to turn the call over to Peter.

Michael McMurray:

Thank you, Peter, and good morning, everyone. Please turn to Slide 8, and let me begin by describing how we are extending our track record of robust cash generation. In the third quarter, LyondellBasell generated $1.4 billion of cash from operating activities that contributed towards a total of $7.6 billion over the last 12 months. Our cash on hand increased to $1.5 billion at the end of the third quarter. During the past four quarters, our team efficiently converted 100% of EBITDA into cash. This efficient and robust cash generation provided for the return of $4 billion to LyondellBasell shareholders over the last 12 months. Let's continue with Slide 9 and review the details of our cash generation and allocation during the third quarter. The LyondellBasell team remains focused on disciplined capital allocation to provide strong returns for our shareholders. During the third quarter, we returned $400 million to our shareholders through our quarterly dividend and an additional $160 million through share repurchases. We continue to invest in maintenance and growth projects with $440 million in capital expenditures, a significant portion of this capital funded the final stages of construction for our world-scale PO/TBA plant that remains on track for start-up in the first quarter 2023. My finance and strategy teams are partnering with our strategic business unit leaders to rigorously track the ongoing progress from our value enhancement program. We look forward to regular reporting on our value capture beginning in 2023. Now, I'd like to provide an overview of the results for each of our segments on Slide 10. LyondellBasell's business portfolio delivered $1.2 billion of EBITDA during the third quarter. Our results reflect margin compression across all segments due to rising costs and weaker global demand. Our olefins and polyolefins businesses faced persistently high and volatile energy cost, coupled with lower demand, particularly in Europe and China. While our oxyfuel business and refining segment continue to earn margins above historical averages and demand for fuels remained strong, results were sequentially lower following peak margins in the second quarter of 2022. Higher cost for energy, raw materials, labor and transportation negatively impacted our Advanced Polymer Solutions segment. Across our European assets, September year-to-date energy costs are $1.8 billion higher than the same period in 2020. During the quarter, we recognized $84 million in cost related to the exit from our refining business. We expect to incur a similar amount for refining exit costs during each of the next five quarters. With that, I'll turn the call over to Ken.

Kim Foley:

Thank you, Ken, and thank you, Peter, for your kind remarks at the beginning of the call. Please turn to Slide 13 as we look at the Intermediates and Derivatives segment. Following a record second quarter, EBITDA for the segment declined to the third quarter of $360 million. Styrene margins deteriorated to a loss as market supply improved following second quarter industry outages. Oxyfuel margins declined relative to the second quarter, but remained above historical averages. Propylene oxide margins continued to moderate on softer demand for durable goods. In the fourth quarter, lower benzene and ethylene raw material costs are expected to improve styrene margins and bring the styrene business closer to breakeven. As we expect, lower seasonal demand will lead to further margin compression across most of the remaining IND product lines. Despite the improving outlook for styrene, we have decided to idle production at our Dutch propylene oxide and styrene monomer joint venture during the months of November and December due to the high energy costs and weaker European demand. Overall, we expect to run our global IND assets at approximately 75% capacity during the fourth quarter. We remain on track to start up our new PO/TBA plant in Houston during the first quarter of 2023. Lastly, as we have completed the validation steps for the IND portion of the value enhancement program, and we look forward to the implementation plans to be done by year-end. Now let's turn to Slide 14 and discuss the results of the refining segment. The third quarter EBITDA decreased to $190 million on moderating margins following an extraordinarily strong second quarter demand for refined products. In the third quarter, the Maya 2-1-1 spread declined to about $47 per barrel, but remains well above historical averages. Due to planned maintenance, we operated the refinery at 80% of capacity with an average crude rate of 215,000 barrels per day. In the near term, we expect continued strength in the Maya 2-1-1 spread driven by a tight market and strong demand. We plan to run the refinery above 90% capacity during the fourth quarter. The successful completion of the planned maintenance during the third quarter demonstrates our commitment to safely operate these assets with high reliability until we exit the refining business at the end of 2023. With that, I will turn the call over to Torkel.

Peter Vanacker:

Thank you again to the entire LyondellBasell team for successfully navigating this challenging quarter. To close out our segments, let's turn to Slide 16 and discuss the results for our technology business on behalf of Jim Seward. Third quarter EBITDA declined by $20 million to $92 million due to lower catalyst demand. In the fourth quarter, we expect our licensing revenue will moderate and catalyst volumes will decrease due to lower demand on a weaker macroeconomic outlook. We estimate that fourth quarter results for the Technology segment will be roughly half of quarterly results seen thus far in 2022. After the slow beginning to 2022, our licensing business signed six new agreements during the third quarter to provide polyolefin process technologies for five projects in Asia and one in Europe. Over the history of our company, LyondellBasell has sold more than 300 polyolefin licenses around the world, and we continue to be a leader in this space. As indicated by our activity to secure plastic waste feedstock in Germany, we are making good progress on developing our MoReTec advanced recycling technology. And during my recent visit to our technology center in Italy, I was impressed by the rich legacy of innovation at LyondellBasell and the creative work underway to launch this exciting technology. We hope to provide you with further updates and reach an initial investment decision for a commercial scale plant in the fourth quarter. Now let me summarize our third quarter and the outlook for our company with Slide 17. Despite very challenging markets, our team is delivering results. Our goal is to capture value and move forward on strategic priorities under a variety of economic conditions. We remain focused on LyondellBasell's core values. The outstanding safety performance from our team is just one indicator of the passion and commitment that I see across our workforce. Our O&P businesses are under pressure from weaker demand, new supply and higher energy costs. With our diverse business portfolio often provides balance. In the third quarter, our oxyfuels and refining businesses provided offsets with margins that remained well above historical averages. With over $550 million in dividends and share repurchases during the third quarter, our commitment to shareholder returns remains strong. LyondellBasell is focused on serving growing customer demand for our Circulen products. We recognize the differential needs of these businesses and are rapidly moving to enter multiple partnerships to secure the plastic waste feedstocks required to advance the leading position of our circular and low-carbon solutions business. Looking ahead to the fourth quarter, we anticipate seasonally weaker demand and volatile energy costs will further pressure fourth quarter margins. In response, we are proactively lowering operating rates to match reduced demand. Our business leaders are optimizing working capital and further strengthening our balance sheet flexibility. We'll remain watchful for market improvements in China as stronger economic activity could help drive recovery in global markets during 2023. I hope that you can sense our excitement around the initial progress towards developing a north star to guide LyondellBasell's strategic initiatives. During the quarter, we launched the new organizational structure and established a circular and low-carbon solutions business unit. We are building the structures and leadership that will enable LyondellBasell to quickly advance and our initial strategies with new business models that address our customers' needs. We're also highly energized around the prospects of unlocking the opportunities identified by our value enhancement program. We have put into place the required infrastructure and management expertise to organize, support and track our progress. We aim to leverage LyondellBasell's core competencies and target value opportunities totaling $750 million in annual recurring EBITDA by the end of 2025. In closing, we look forward to sharing more details over the coming months and at our Capital Markets Day in New York next March that should clarify your understanding of LyondellBasell's forward strategy. We're now pleased to take your questions.

Steve Byrne:

I think I'd like to dig in first with your PO/TBA plant that you're talking about starting up in the first quarter, how would you assess the supply and demand fundamentals of PO/TBA right now, given you got some idle capacity, are you potentially considering a delay on that start. And maybe longer term, do you have a view on how that the competitive landscape in PO/TBA is going to be given your competitor probably is pretty high on the cost curve with the cost of chlorine these days, do you see potentially some rationing of capacity down the road? .

Operator:

Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question.

Peter Vanacker:

Thank you, P.J. Very good questions, as usual. On the Circulen economy, we are at the very early stage in this year. But just coming back, I mean, from the Kfar and Dusseldorf. You know this is organized every two years that was an amazing positiveness around renewable and circular solutions, both, I mean, from the brand owner side as well as from the companies that were actually producing the packaging. So we noticed that there was quite some demand, I mean, to accelerate the amount of volumes that are being brought into the marketplace. And as a consequence, of course, willingness to pay, that is there across the value chain. So that gives us the commitments that we are, as you have seen during the last couple of weeks with the creation of that strategic business unit that we are accelerating because we see this as a value proposition, which is quite attractive. Then on the second question on the IRA, I will give that question to you, Ken.

Operator:

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Peter Vanacker:

Let me take that question. Peter here speaking. As you alluded to, mid-cycle earnings, what we talked about in the past was increasing from $6.5 billion to $8 billion. And you mentioned a couple of these elements that bridge that $1.5 billion, one being the Zelman acquisition, then our joint venture that we have in China, the joint venture with Sasol and Louisiana, the Hyperzone investments or POSM joint venture as well as the PO/TBA. So you may know that on top of that, our commitment to increase value on the bottom line by EUR 750 million on a run rate by the end of 2025. So that means that if you look at the year 2026, we expect, I mean, to capture that fully that $750 million. And of course, we are still in progress of developing our North Star strategy. So more on that to come then with the Capital Markets Day in March, I mean, next year, and if we find other opportunities to create value. In case that question comes up, by experience by launching these value enhancement projects in the first year, one may expect that about what -- 20% of that can be captured on a run rate basis by the end in that first year. So this is not something that is completely back ended towards 2025 that due to the fact that we already have the teams in place, we have a transformation office in place the value capturing, the sequencing of the different topics starting immediately.

Josh Spector:

Just on your European assets within O&P. So I mean you're taking actions today and you continue to take more to address some of the lower profitability. I guess if we think about this energy environment persisting for next year plus, are there other actions that you would take to optimize your asset base further? And I guess where are you kind of in the line of thinking along making changes, further changes to the region?

Operator:

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Ken Lane:

Sure, Jeff. Thanks for the question. Good to hear from you. So we've done a lot of investigation into that, as you can imagine, because what we're seeing in the China market, we're at historically low spreads there and a lot of that is driven by the new capacity coming on. But our view is a lot of that oil is actually going into the state-owned refiners and not being passed on to the market in terms of lower priced feedstocks for the polymers. What's happening in China is really more related just to the higher capacity and the lower demand that we're seeing there. So that is going to be the larger driver in the even midterm -- what we really want to see is the growth come back in the China market, which we've not seen as of yet, and you may recall, going back to even the first quarter earnings call, we were talking about expecting to see some recovery in demand in China already after Chinese New Year, and that just has not materialized. So once we see that and that demand starts to absorb all of the new capacity, then I think you're going to start to see a return to a more normal level of spreads in China.

Aleksey Yefremov:

We saw energy prices in Europe have come down quite a bit in recent weeks. Could you attempt to sort of provide mark-to-market, how much better your profits would be in EMEA and perhaps in IND if these energy prices kind of stay the same and all other factors were like in place as well.

Michael McMurray:

My view is that we're seeing some moderating in the headwinds around the energy costs and feedstock costs in Europe, and that could be short-lived. If we have a cold winter, then we might see that reverse. But longer term, obviously, one of the things that we're going to be looking at are ways to improve the competitiveness of our assets. What can we do to make the flexibility of our feed slate and the energy consumption that we have in those assets more competitive. And frankly, some of that is going to be related to our CO2 reduction targets because believe it or not, that is a way that we will improve competitiveness is by finding lower CO2 energy by making the assets more efficient and improving our cost position. So a lot of things are going to happen over time here. And we're currently very focused on what's happening in the short term, but don't let that make you think that we're not thinking longer term about how we position ourselves more competitively in the region.

Michael McMurray:

And Peter, you want to maybe make some comments from an enterprise perspective to help the analysts and investors kind of think sequentially as well. I mean, things lagged down substantially in August versus July. It was pretty dramatic. And those reasons were highlighted in our release today and then September deteriorated further. And as we look forward to October, it should be a bit better than September. And as you pointed out, we are seeing some relief in both feedstocks and energy costs. And I would say, broadly, it feels like we're kind of finding maybe a bottom. But to be clear, Q4 will be sequentially lower than Q3. We're facing into persistent inflation, high-cost energy, weaker seasonal demand and we're missing fixed cost absorption with all the idled and curtailed assets, which are heavier curtailed in Q4. So again -- and we're also experiencing the full effect of lower prices from the third quarter. So again, dramatic drop-off from July to August. So we will be sequentially down.

Vincent Andrews:

Could you speak a little bit more in more detail about the program to get it to $750 million and maybe an area I would appreciate some focus on -- what are the things that you're doing that are taking until 2025 to see the EBITDA show up in your results? And if you could also comment on what, if any, cash costs are associated with going after the $750 million?

Operator:

Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Peter Vanacker:

Ken?

Operator:

Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.

Peter Vanacker:

That's a very good question, of course, and we've alluded to that and Ken made comments as well in this call. Very important just to look at China. What will happen in China, how will demand be encouraged in China? That's a big question mark. I mean you know that China normally imported about 40% of their needs in polyethylene. So at this point in time, not a lot of growth in China, and therefore, the material is not flowing into China either. So that's an important element to look at. And of course, I mean, what about the cost situation. We've alluded to that also in the call already energy costs on the other hand side, electricity costs, of course, included in that. And Ken, anything you want to add?

Peter Vanacker:

What we have seen also in the past, if you just look at the history, then markets have relatively quickly recovered as well. That doesn't mean that I'm not saying that we have seen the trough going back to Michael's comments before. But how long can I stay like this is the question that we are all looking at.

Kevin McCarthy:

I was wondering if you could speak to your inventory levels internally as well as your perception of inventory downstream among your customers reason I ask is you've put forth some very low operating rates for the fourth quarter. If I look at the inventory on your balance sheet, it's up, but it's not up dramatically, maybe 3% or 4% year-over-year. And so just looking for some context, do you think these low operating rates will serve to rightsize inventory by year-end? Or might it take longer than that? How would you frame that issue?

Ken Lane:

Yes, that's right. I mean, we certainly -- we've adjusted and what you've seen even with the adjustment to the utilization rates that we've communicated is we're adjusting the utilization rate to match what we see with our demand and we'll continue to do that in the fourth quarter.

Mike Leithead:

Just two around capital uses and returns. First, I wanted to reask part of Vincent's question and just see if you could give us at least a rough cash spend figure for the $750 million EBITDA value-enhanced program? And second, just on circular and low-carbon solutions. I assume this is going to be a focus area in March. But could you just give us a rough sense of the capital you tend to spend annually on this area? And just any sort of commensurate type EBITDA or return on capital or return hurdles we should expect there?

Operator:

Our next question comes from the line of John Roberts with Credit Suisse. Please proceed with your question.

Peter Vanacker:

Yes. You know that we have always been extremely focused on costs. So cost discipline, even when I joined LyondellBasell, I was quite amazed. I mean how deep it is embedded in the DNA. So yes, we have not announced a certain number in terms of cost preservation, cost reduction but remain sure that, I mean, this continues to be managed on a daily basis, so where we can actually reduce our costs, but not at the expense of our value enhancement program. Michael?

Operator:

Our next question comes from the line of Frank Mitsch for Fermium Research. Please proceed with your question.

Kim Foley:

Thank you, Frank. And yes, I remember our visit through the Cataby facility quite well. I hope to see you again as we start up the new PO/TBA plant later next year or early next year, I should say. As it relates to your question, the operating rates in the third quarter were about 75%. So we're basically steady or equivalent quarter-on-quarter. Some of the differences as far as what we're operating is around my comments that I made earlier in the presentation. So we'll be idling the P11 or the propylene oxide styrene monomer plant in Maasvlakte and the way that we -- what we will do with that is we'll have the opportunity to help improve the styrene supply demand as well as run our PO/TBA plants at higher capacity.

Peter Vanacker:

Okay. Thank you, everybody, and thank you for joining also all your as usual, very thoughtful questions. We look forward to sharing more of our plans and how LyondellBasell will advance on our strategy and unlock additional value over the coming months. I wish you all a great weekend. Stay safe and looking forward to meeting you again soon.

David Kinney:

Thank you, operator. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1:00 p.m. Eastern time today until August 29 by calling (877) 660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13729909. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Michael McMurray; Ken Lane, our Executive Vice President of Global Olefins and Polyolefins; Torkel Rhenman, EVP of Intermediates and Derivatives and Refining; and Jim Guilfoyle, EVP of Advanced Polymer Solutions and Supply Chain. During today's call, we will focus on second quarter results, current market dynamics and our near-term outlook. Before turning the call over to Peter, I would like to call your attention to the noncash lower of cost or market inventory adjustments, or LCM, and impairments that we have discussed on past calls. LCM adjustments are related to our use of last in first out or LIFO accounting and the volatility in prices for our raw materials and finished goods inventories. Impairment charges were recognized to write down assets to their estimated fair value. Impairments include the noncash impairment of $69 million in the second quarter of 2022 that reflects the exit of our polypropylene business in Australia and the noncash impairment of $624 million in the fourth quarter of 2021 and that reflects our evaluation of strategic options for the Houston refinery. Comments made on this call will be in regard to our underlying business results, excluding the impacts of impairments and LCM inventory adjustments. With that being said, I would now like to turn the call over to Peter.

Michael McMurray:

Thank you, Peter, and good morning, everyone. Please turn to Slide 9, and let me begin with describing how the step-up in our earnings is leading to increased cash generation from our business. In the second quarter, LyondellBasell generated $1.6 billion of cash from operating activities that contributed towards $8.3 billion in cash from operations over the last 12 months. During the past 4 quarters, our team efficiently converted over 90% of our EBITDA into cash. After accounting for sustaining capital reinvested in the business, we achieved a free operating cash flow yield of 26% relative to our market capitalization over the last 12 months. Let's continue with Slide 10 and review the details of our cash generation and allocation during the second quarter. The LyondellBasell team remains focused on extending our disciplined track record of capital allocation to provide for reinvestment in the company and generous returns for our shareholders. After generating $1.6 billion in cash from operations during the second quarter, we returned $2.1 billion to shareholders through a $5.20 per share special dividend, a 5% increase to our quarterly dividend that paid another $1.19 per share, all while repurchasing 45 million of our shares during the quarter. We continue to invest in maintenance and growth projects with approximately $530 million in capital expenditures with a large portion funding our nearly completed world-scale PO/TBA plant. Now I'd like to provide an overview of the results for each of our segments on Slide 11. During the second quarter, LyondellBasell's business portfolio delivered nearly $2.5 billion of EBITDA. Our results reflect record profitability in our Intermediates and Derivatives segment, driven by strong oxyfuels margins while our refining margins benefited from increased demand for transportation fuels. Conversely, margins in our O&P businesses encountered headwinds from rising costs for ethane feedstocks and moderating European demand. One modeling item of note. Our original full year pension expense guidance of approximately $55 million did not include a second quarter $94 million noncash pension settlement charge that impacted earnings by $0.22 per share. As a result, our 2022 pension expense is expected to increase to approximately $180 million. During the third quarter, we anticipate that we will begin recording costs related to our planned exit from our refining business at the end of 2023. With that, I'll turn the call over to Ken.

Torkel Rhenman:

Thank you, Ken. Please turn to Slide 14 as we take a look at our Intermediates and Derivatives segment. Exceptional oxyfuel margins resulted in record second quarter segment EBITDA of $675 million. During the quarter, styrene results benefited from tight market supply. We are beginning to see that softer demand for durable goods is leading to moderation in propylene oxide margins. In the third quarter, we expect margin compression across most product lines. Oxyfuel margins are also moderating but expected to remain elevated at levels well above historical averages. The steady success of our Intermediates and Derivatives segments is rooted in the Advantage Technologies, underpinning our propylene oxide business. On Slide 15, let me highlight the cost advantages of LyondellBasell's propylene oxide production. The chart on the right depicts the global cost curve for producing propylene oxide by asset. The lower an asset is positioned on the curve, the greater the cost advantage. As you can see, LyondellBasell's assets that produce propylene oxide with a tertiary butyl alcohol co-product are on the lowest or most favorable part of the cost curve. PO/TBA assets represent roughly 15% of global capacity and derive their advantage from favorable costs for butane raw materials and strong pricing for the clean burning high-octane oxyfuel products produced from tertiary butyl alcohol. LyondellBasell's plants that produce propylene oxide with the styrene monomer co-products are the next lowest cost technology and represent 35% share of global capacity. Much of the industry produces propylene oxide using older, higher-cost technologies such as the chlorohydrin process. With the recent escalation in chlorine prices, the cost curve for chlorohydrin-based propylene oxide has only steepened, creating hardships for producers using this technology. LyondellBasell's advantage PO/TBA technology provides an excellent platform to address increasing global demand for propylene oxide and oxyfuels. Propylene oxide is used in the production of polyurethanes, first-time materials that saves energy by producing insulation and reducing weight in a wide range of applications. Oxyfuels are clean-burning, high-oxygen gasoline blending components that increase fuel efficiencies and improves air quality by reducing harmful emissions. Let's continue with Slide 16 with an update on our PO/TBA project that we are completing here in Houston. This is the largest greenfield investment in LyondellBasell's history and will deliver much needed capacity to serve growing demand for these products that provide sustainable solutions for our planet. We are thrilled to have nearly completed construction and we have already begun commissioning the oxyfuel assets, depicted in the photo on the right. The PO/TBA plant commissioning will begin during the fourth quarter, and we expect the integrated facility to start up in first quarter of 2023. Our ramp-up during 2023 will not provide for full year of production but continued market strength is likely to support stronger margins than the mid-cycle economics depicted on this line. With LyondellBasell's sells advantaged technology and affordable shale advantage butane feedstocks are new capacity starting up with the support of favorable markets. Now let's turn to Slide 17 and discuss the results for our Refining segment. Second quarter EBITDA was $418 million, with improved margins driven by increased demand for gasoline, diesel and jet fuel. In the second quarter, the Maya 2-1-1 spread expanded significantly to about $56 per barrel. We operated the refinery at 94% of capacity with an average crude throughput of 252,000 barrels per day. In the near term, the Maya 2-1-1 spread is moderating from second quarter levels. We plan to run the refinery about 87% of capacity during the third quarter to perform a limited scope of planned maintenance. With that, I will turn the call over to Jim.

Peter Vanacker:

Thank you again, team, for this impressive quarter. The closeouts on our segments, let's turn to Slide #19, and discuss the results for our technology business on behalf of Jim Seward, our Senior Vice President for R&D, Technology and Sustainability. I have always been highly impressed by the strength of LyondellBasell's international innovation and technology capabilities, the broad technology portfolio and our leading market position. Very clearly, innovation is a core part of LyondellBasell's DNA. Second quarter EBITDA was $112 million, supported by strong licensing revenue and record year-to-date catalyst demand. While new licensing activities slowed we have noted a recent shift in our licensing demand away from commodity polymers. 4 of our 5 new licenses this year were sold in Asia to produce low-density polyethylene vinyl acetate copolymers used in solar panel laminations and encapsulants that support the world's rising demand for renewable energy. In the third quarter, we expect our licensing revenue and catalyst volumes to moderate. This segment is likely to produce results similar to that seen in the first or second quarter of 2021. Now let me summarize the second quarter and the outlook for our company with Slide #20. LyondellBasell's second quarter results benefited from a balanced portfolio that captured considerable value with very efficient cash conversion. Margin expansion in our oxyfuels and refining businesses and solid demand for our products more than offset higher feedstock and energy costs. Our management team and Board understands and respects the power of this portfolio. We are unwavering and our disciplined approach to capital allocation and demonstrated our commitment to shareholder returns during the second quarter. LyondellBasell is making measurable progress towards our ambitious interim and long-term goals for the reduction of our greenhouse gas emissions while developing sustainable businesses based on recycled and renewable materials. Our aim is to build upon our initial work, scale or reach and establish LyondellBasell as a leader in serving the world's growing needs for circular and sustainable materials while reducing our carbon footprint. I began my journey as CEO with a commitment to leverage LyondellBasell's strengths and capture value from both near-term and long-term opportunities. Over the past several months, we have undertaken an in-depth examination of our company to identify a north star that will provide clarity and guiding principles for our strategic decisions. including our progress on circularity and sustainability. We are consulting with all stakeholders to ensure we have aligned on a durable and resilient strategy that will serve LyondellBasell well across a range of scenarios for many years. Last week, we had a very productive interim review with our board on this topic. We're planning further alignment during our Board meetings in the second half of the year with our work aimed towards communicating or our north star externally during an Investor Day in early 2023. In addition, the second work stream is underway to identify, prioritize and execute on value opportunities that exist in LyondellBasell's current business structure. Thus far,our work has identified a considerable number of opportunities such as creep capacity, debottlenecks, automation and energy saving opportunities that can be delivered through modest investments by leveraging LyondellBasell's existing strengths. We believe the value of these projects is considerable and actionable. I am committed to communicating our initial assessment of this value opportunity and our time line for realization during our third quarter earnings call. We look forward to sharing our vision for LyondellBasell and the additional value we plan to unlock from our company. We are now pleased to take your questions. Thank you.

Stephen Byrne:

Yes. I appreciate the Slide 15 on your outlook for PO. And Torkel, maybe you could comment on what do you think that slide or that chart would have looked like historically, clearly, now you have some reasons for it to be shaped like that with lower butane and higher benzene and certainly higher chlorine, but is part of this just because TVA is so valuable right now? And is the shape of this year outlook in the years to come? Is that part of your EBITDA forecast?

Operator:

Our next question comes from the line of Josh Spector with UBS.

Peter Vanacker:

Let me give that question, I mean, to you, Ken, you're close to that business, of course.

Operator:

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

Peter Vanacker:

Yes. Thank you, Vincent. A very good question on naphta and especially what is happening in Europe and in China. As you noticed well, I mean, naphtha is decoupling at the moment from what is happening on the oil side. But I think one needs to look at China and when demand will pick up substantially again in China, and that eventually would reestablish, in our opinion, the relationship between naphtha and crude oil. Giving a little bit of further information, I mean, around China, then we have seen a little bit already or an uptick in demand in China, but it was very modest during the second quarter. We expect that, especially after October, there will be quite some incentives coming out as it has been in the past. So towards the end of the year, beginning of next year, one may expect that demand in China would substantially pick up and be back on normal levels of growth that we have seen over the cycle.

Frank Mitsch:

Congrats, Peter, on a very solid first quarter as CEO. May you have many more. If I could follow up on Europe and energy. How do you see the situation playing out if there is a material natural gas shortage, what would be the impact on Lyondell? What are the actions that you're taking to -- that you would take to possibly mitigate that?

Operator:

Our next question comes from the line of John McNulty with BMO Capital Markets.

Peter Vanacker:

Let me take them in the first question, John. It's clear, I mean that China operations, I mean, profitability at this point in time is low. But due to the fact, I mean, with our investments that we made in China that we are in the first quartile in terms of delivered costs, cash costs. So we have a favorable position in China. But generally spoken, I mean, the profitability is very low. Having said that, also, again, I'd like to put it into perspective. I mean, China for us in terms of revenues or total revenues is let's say, a bit lower than 5%. So I don't want to overemphasize that either. Then on your second question can I give that to you, Ken?

Operator:

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Kenneth Lane:

Sure, Kevin. Thank you for the question. Yes, I do see -- expect to see that trend in propylene reverse in the U.S. In fact, I would -- I think we're going to see that in August already. We're starting to see spot prices move up again for propylene. And I'll go back to the answer that I gave earlier. There's been a lot of downtime for polypropylene assets in the U.S., and that's put some link into the propylene market. What's happening now is you're starting to see those assets run again, and you're going to start to see people refilling inventory levels because of all the downtime that we've had with polypropylene and that's going to start to bring the propylene price back up a little bit here in the back half of the year.

Michael Leithead:

I think industry consultants are forecasting, I don't know, about $0.15 to $0.20 a pound decline in U.S. polyethylene prices between now and the first quarter. I guess, do you agree with that assessment? And why or why not?

Kenneth Lane:

Yes. I guess the one thing that I'll add is when we look at this, we've got a lot of levers that we pull here in terms of managing our margins. We do expect to see energy and feedstock costs continue to be elevated in the back half of the year, but they're going to moderate versus the second quarter. There will be things that we're doing around our feed slate, our product slate, our channel selection market segments because we still do, to Peter's point, see strength in some of our market segments. And we'll be gearing our portfolio to serve that.

Michael Sison:

Nice quarter. I think as you guys know, polyethylene demand was fairly resilient during the pandemic, up 2% in 2020. And so just curious, what you think demand would be for polyethylene if we are or going into a recession as we head into '23?

Kenneth Lane:

I absolutely agree. I think what we've seen in the past is that polyethylene is typically recession-resistant. And even this year, with China being down, we still expect to see growth in the kind of 2% to 3% range globally. So -- as China comes back, I think you're going to see that growth number go up even higher, which is what we've seen historically.

Prashant Juvekar:

Peter, a question on refining. You announced the refinery shutdown way before the actual shutdown? And if refining margins continue to remain high, would you be able to delay the refinery shutdown by putting in some incremental maintenance capital?

Operator:

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Peter Vanacker:

Yes. Thank you, Jeff. I mean, for your very good questions. And let me go a little bit deeper. And what actually is the attention that we are having with regard I mean to the refinery, what are we actually looking at? I mean with the refinery I mean it's a very nice location that we have. We have very good assets also at the refinery. So we're mainly looking at the fact, can we do -- what can we do else, I mean, with the assets that we have at the refinery? You're very familiar with the fact that we are making very good progress on our molecular recycling technology. So the advanced recycling technology development. And this site could be a very good fit for us to do very large investments. Nothing has been decided yet. As said, this is investigation, but we -- the more we look at it, I mean, the more we are inspired coming by it because we have very good equipment that we eventually could then use. So there could be quite a lot of synergies. So this is the direction of travel, Jeff, with regards, I mean, to the refinery.

Christopher Parkinson:

Just given all the moving parts and spread compression across the intermediate and segment, -- can you just give the intermediate-term outlook in terms of spreads of the various businesses in there, including Oxyfuels, just to give us help us a little bit more perspective heading into 2023?

Torkel Rhenman:

Yes. No, thank you. So even instead of I&D, what we have through the portfolio, it's a very resilient portfolio in terms of over a cycle that they don't all follow the same cycle. And the oxyfuels is a really good example of that, where we see maybe the gasoline cracks moderatingbut the oxyfuels margins are expected to stay well above the historical averages. And it's the multitude of things that drives the margins there. It's also the advantaged butane cost that we see helping us looking forward, but then also the very strong demand for octane and that basically drives the premium of our oxyfuels above gasoline. And that's also been a very strong factor for the excellent results, the record earnings that we had for Oxyfuels, and we think will remain at an elevated level?

John Roberts:

In the presentation, you talked about continued strength in propylene oxide, but I think the release discussed some slowing in polyurethane markets, which I guess we'd expect with auto and appliances and construction. As you begin commissioning the new PO plant, do you plan to take downtime in other plants to kind of keep the market balanced if we are facing a slowdown there?

Peter Vanacker:

John I mean start-up is scheduled, I mean, towards the end of Q1 2023. And as said, I mean, by Torkel, you gradually move into the name paid capacity volumes. So therefore, if you average it out over the year 2023, then it would be approximately we expect, I mean, 50% of the nameplate capacity.

Hassan Ahmed:

I just wanted to touch on O&P-EAI. In the press release, you guys, I believe, said that around 30% of the sort of feedstock slate out there was non-naphtha-based. So I just wanted to get a better sense of how we should think about the feedstock flexibility you have in your European operations. Are you sort of hitting the upper limit when you say that 30% was non-naptha?

Kenneth Lane:

I would not say we're hitting the upper limit. There are a lot of things that we can still do on the feed slate. As you know, naphtha has been favored. A lot of that is driven by not only the naphtha price, but also the co-product pricing. So that is a big lever for us, not only in Europe but also in U.S. markets, and we'll continue to find opportunities around the feed slate and optimize the portfolio as we go.

Arun Viswanathan:

Great. I just wanted to drill down a little bit into O&P-Americas profitability. If you look ahead, I guess, into Q3 and the back half, we potentially have some slowing demand high consumer retail inventories and continued high feedstock. Do you expect the continued high feedstock slate to resist and I guess, support pricing? Or is the demand waiting to the that maybe we see some margin deterioration as we go through the next couple of quarters?

Kenneth Lane:

Yes. I think the only thing that I'll add to that is you do have new supply coming on, and that's going to be another headwind for us. But the good news is that we'll start to see some of these supply chain constraints unwind at the back end of the year, and that's going to help open up some channels to market. We also -- you had mentioned inventory levels. We're already seeing downstream consumers start to reduce inventory levels. So that -- that's actually already started taking place. And I think one thing we're going to watch very closely, obviously, is going to be what's happening with the weather impacts on that becausethere is a sort of a natural tendency in this industry to start to pull the inventories down, and this is not necessarily a great time of year to do that. But of course, we'll be watching that closely and see how those things develop.

Unidentified Analyst:

This is Kishan on for Steve. Just a question on IND. I'm just curious, I was wondering if Scope 3 emission standards would disadvantage the business long term? And then also with MTD prices normalizing, what might baseline earnings potential for I&D look like?

Operator:

Our final question comes from the line of David Begleiter with Deutsche Bank.

Peter Vanacker:

Give that question into Torkel.

Operator:

I am showing that there are no further questions. I will turn it back to Mr. Vanacker for closing comments.

Operator:

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

David Kinney:

Thank you, Alex. Before we begin the discussion, I would like to point out that a slide presentation accompanies today's call and is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available at our Investor Relations website. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until May 29 by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13727006. During today's call, we will focus on first quarter results, the current market and our near-term outlook. Before turning the call over to Ken, I would like to call your attention to the noncash lower of cost or market inventory adjustments, or LCM, in the impairments that we have discussed on past calls. LCM adjustments are related to our use of last in, first out or LIFO accounting and the volatility in prices for our raw materials and finished goods inventories. Impairment charges were recognized to write down assets to their estimated fair value. Impairments include the noncash impairment of $624 million in the fourth quarter of 2021 that reflects our evaluation of strategic options for the Houston refinery. Comments made on this call will be in regard to our underlying business results, excluding the impacts of impairments and LCM inventory adjustments. With that being said, I now would like to turn the call over to Ken.

Michael McMurray:

Thank you, Ken, and good morning, everyone. Please turn to Slide 9, and let me begin by extending the stepping-up theme to the substantial cash generation from our businesses. In the first quarter, LyondellBasell generated $1.5 billion of cash from operating activities that contributed toward a new record of $8.6 billion in cash from operations over the last 12 months. During the past 4 quarters, our team efficiently converted 88% of our EBITDA into cash. After accounting for sustaining capital reinvested in the business, we achieved a free operating cash flow yield of 23% relative to our market capitalization over the last 12 months. The LyondellBasell team is highly focused on extending our proven track record of efficient cash generation to provide prudent reinvestment in our company and generous returns for our shareholders. Let's continue with Slide 10 and review the details of our cash generation and allocation during the first quarter. With $1.5 billion of cash from operating activities, we funded our dividends and capital investments for the first quarter while continuing to repurchase shares and building some cash on the balance sheet. During the first quarter, we returned nearly $600 million to shareholders through our dividend and the repurchase of approximately 2.1 million shares. We continue to invest in maintenance and growth projects with more than $400 million in capital expenditures. This includes our new world-scale PO/TBA plant starting up later this year. We ended the quarter with $1.8 billion of cash and short-term investments and $5.9 billion of cash and available liquidity. With our total debt at 1.2x trailing EBITDA, our leverage ratios are below our targeted range of 1.5 to 2.5, and we see no need for further deleveraging at this time. Now I'd like to provide an overview of the results for each of our segments on Slide 11. As Ken mentioned, LyondellBasell's business portfolio delivered over $2 billion of EBITDA during the first quarter. Our results reflect solid demand for our products and improving market conditions, benefiting our I&D and APS segments, offset by higher feedstock costs that compressed margins in our O&P-Americas segment. Let's begin the individual segment discussions on Slide 12 with the performance of our Olefins and Polyolefins Americas segment. First quarter 2022 EBITDA was $911 million, $351 million lower than the fourth quarter 2021. Olefin results decreased approximately $170 million compared to the fourth quarter with lower margins due to higher feedstock costs and lower pricing for propylene and butadiene coproducts. We completed planned cracker maintenance at our La Porte, Texas site that contributed to lower volumes and resulted in our North America crackers operating at a rate of 82% during the quarter. Polyolefins results decreased approximately $185 million during the first quarter due to compressed margins driven by lower product prices and higher monomer costs. Stable demand led to relatively comparable volumes despite ongoing logistics and raw material challenges. In March, we achieved an increase in polyethylene contract prices to reverse fourth quarter trends of declining prices. We continue to see strong demand for our polymers as we head into the second quarter. We expect margin recovery as product prices rise reflect higher energy and feedstock costs and stronger summer demand tightens markets. Now please turn to Slide 13 to review the performance of our Olefins and Polyolefins Europe, Asia International segment. Higher product prices and volumes offset rising cost in EAI markets, resulting in first quarter EBITDA of $188 million, $33 million higher than the fourth quarter. Prior quarter results were impacted by LIFO inventory valuation charges of approximately $30 million. Olefins results increased about $25 million as margins improved driven by increased monomer prices that offset higher feedstock and energy cost. We operated our European crackers at a rate of 74% of capacity due to planned maintenance and feedstock supply disruptions resulting from the war in Ukraine. Combined polyolefin results increased approximately $35 million compared to the prior quarter. Stable demand drove increased polyolefin price spreads and volumes despite higher energy and monomer cost. Historically low Asian polyolefin spreads and weaker volumes, driven by COVID-related lockdowns in China caused our joint venture equity income to decline by about $50 million. During the second quarter, we expect that volumes and integrated margins for the segment will be comparable to the first quarter as steady demand should support price increases and keep pace with increasing costs. On April 13, we reached an agreement to sell our Australian polypropylene business to Veeva Energy. We expect a second quarter noncash asset impairment charge of approximately $70 million in the O&P EAI segment related to the sale of this business. Last quarter, we provided guidance related to planned maintenance at our cracker in Berre, France. Due to additional work we now think this turnaround will impact second quarter EBITDA by about $50 million. As high inflation begins to trigger concerns about the potential for recession, it is instructive to review the resilience of polyethylene demand growth over the past 30 years. In Slide 14, the chart depicts the strength of polyethylene demand relative to other markets through the last 4 U.S. recessions. As indicated by the turquoise line, PE demand is remarkably resilient and compounds at a fairly consistent rate of about 4%, meaningfully higher than typical GDP. Unlike U.S. housing and vehicle markets, PE demand is relatively inelastic and embedded in essential products for our modern lives. Polyethylene is a foundational building block for consumer staples with wide-ranging applications such as food packaging, daily hygiene supplies and health care products. And with a cost advantage from shale feedstocks, U.S. polyethylene production increasingly serves a global market. We expect these resilient growth trends will continue as more people in emerging markets gain purchasing power and increased consumption of these essential products for modern life. Please turn to Slide 15 as we take a look at our Intermediates and Derivatives segment. Robust margin expansion in most businesses resulted in record first quarter EBITDA of $546 million, $294 million above the prior quarter. Prior quarter results were impacted by LIFO inventory valuation charges of approximately $95 million. First quarter propylene oxide and derivative results increased $50 million as butane dial and other derivative margins expanded. Durable goods demand remained solid, resulting in comparable volumes for the quarter. Intermediate chemicals results increased more than $30 million. Margins increased in most businesses, primarily styrene and acetyls driven by tight market supply. Volumes increased as a result of improved first quarter operations. Oxyfuels and related products results increased more than $125 million as margins improved on higher gasoline prices and moderation in the ratio of butane feedstock prices relative to crude oil. Prior to the pandemic, our oxyfuels business was a fairly reliable contributor to the profitability of our Intermediates and Derivatives segment. With gasoline demand approaching pre-pandemic levels, we expect a return to typical performance for the oxyfuels business in 2022. In the second quarter, we expect volumes to increase with seasonal strength in demand for durable goods from building and construction markets. Margins for oxyfuels and related products are expected to expand with typical seasonal reductions in butane feedstock costs and increased gasoline demand associated with summer travel. Planned maintenance at our butane dial facility in 1 of our 2 propylene oxide units located at our Channelview, Texas site is expected to impact second quarter EBITDA for Intermediates and Derivatives segment by approximately $80 million. Over the past 2 weeks, we declared force majeure for several acetyl products due to equipment failure at our La Porte, Texas site. If we are successful in restarting acetyls production during May, we are currently estimating a second quarter EBITDA impact for the downtime of approximately $50 million. Now let's move forward and review the results of our Advanced Polymer Solutions segment on Slide 16. Improving volumes from automotive production and higher margins resulted in first quarter EBITDA of $125 million, $101 million higher than the fourth quarter. Prior quarter results were impacted by LIFO inventory valuation charges of approximately $55 million. Compounding and solutions results increased $40 million. Volumes increased due to improved demand from automotive parts manufacturers relative to the fourth quarter. Margins increased through stronger product pricing and improving asset utilization, partially offset by higher raw material and energy costs. Advanced results increased $10 million, driven by increased seasonal roofing demand for Catalloy and higher product prices. We expect results will be similar in the second quarter as automotive recovery continues to drive volumes while rising cost impact margins. The latest IHS production forecast predicts a 4% rise in 2022 global automotive builds and a 9% increase in 2023. Unfortunately, these reduced forecast delay a return to prior peak production levels until 2025. Now please turn to Slide 17 and discuss the results of our Refining segment. Our first quarter EBITDA was $148 million, a decrease of $2 million. Prior quarter results benefited from LIFO inventory valuation changes of approximately $50 million. In the first quarter, the Maya 2-1-1 benchmark expanded significantly to $30.82 per barrel, a $7.24 increase due to higher demand for gasoline and diesel partially offset by lower byproduct value. We operated the refinery at 95% of nameplate capacity with an average crude throughput of 255,000 barrels per day. In April, Refining margins continue to expand with increasing demand for transportation fuels. We expect refining markets will remain favorable during the summer months. Please turn to Slide 18 as we review the results for our Technology segment. First quarter EBITDA was $103 million, $70 million lower than the prior quarter's record level. The results were driven by lower licensing revenue and higher catalyst volumes and margins. We expect that second quarter profitability for our technology business will be slightly higher than the first quarter based on the anticipated timing of licensing revenue milestones. With that, I'll turn the call over to Ken. Ken?

Operator:

[Operator Instructions]. Our first question comes from the line of Christopher Parkinson with Mizuho.

Kenneth Lane:

Thank you for your question. We are -- as we've said during the remarks, we are still very bullish on the demand outlook, especially in the Americas. So we see demand being very strong. We had a record sales month in the month of March for polyethylene in the Americas. And we see April actually looking to improve on that. So we're -- our outlook is that we'll continue to see operating rates, effective rates probably in the 90% or higher range. So that's going to be very supportive for the price increases that are in the market today.

Jeffrey Zekauskas:

Polyethylene prices in China continue to fall. Maybe if you look at the month forward prices, maybe they're down $100 a ton to 13 30, something like that. What do you make of that, in that I would have thought that profitability was pretty poor even at higher prices, and there's been a movement upward in the other regions? And maybe you can also comment on the changing profitability of your Bora cracker.

Operator:

Our next question comes from the line of Steve Byrne with Bank of America.

Kenneth Lane:

Thank you, Steve, for your question. Yes. So we're very proud of the product portfolio that we're developing. As we've said before, we're looking forward to being a leader in the area of circularity and launch of our Circulen brand globally last year, you're beginning to see the fruits of that effort in the products that we've been developing together with customers today. In our portfolio, as we look forward, the CirculenRenew part of our portfolio will probably be the smaller segment for us. We are much more bullish on our ability to develop the advanced recycling and mechanical recycling parts of our business. Those really fit very well with our technical capabilities around developing new processes, but also the application development that we do together with our customers. So we will continue to look for opportunities to develop the CirculenRenew portfolio, where we see that and where customers are demanding lower CO2 footprint products, which is primarily why you want those CirculenRenew products. But remember, when you're doing recycling, people are driving recycled content. So there is a little bit of a different value proposition for those 2 products in the marketplace.

Bhavesh Lodaya:

This is Bhavesh Lodaya for John. So in the I&D segment, clearly, very impressive results, especially in the first quarter. Now within the first quarter, a lot changed in March with the spike in crude. So could you describe or maybe break out the earnings seen in March versus the rest of the quarter? And then you mentioned that you expect oxyfuels earnings to return to more of a normalized earnings level this year. What would that new norm be?

Michael McMurray:

And Ken, what I'd also add specifically around oxyfuels, if you look at the decade kind of before the pandemic, the oxyfuels business kind of consistently delivered $400 million plus of EBITDA. So a very consistent generator of earnings.

Operator:

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

Kenneth Lane:

So listen, thanks for your question, Vincent. We're absolutely committed to continuing to be very disciplined around our capital allocation. And, of course, returning excess cash to our shareholders is going to be a priority. Michael, maybe you can just comment a little bit on that.

Operator:

Our next question comes from the line of Hassan Ahmed with Alembic Global.

Kenneth Lane:

Thanks for the question. Listen, a lot of -- there's been a lot of talk about what's happening, especially around natural gas. And of course, ethane is going to be following that. It's -- there are very much short-term impacts that are driving natural gas higher. If you look at just the energy complex, the alternative with coal is very high. So you don't see the switching, although production for natural gas is coming up. So normally, this time of year, we would see a bigger drop-off in natural gas pricing. I think that's delayed just a little bit because of a couple of things. You've got colder weather in the northern part of the United States. So demand is continuing to be high -- the higher coal prices. Of course, we still are maxed out on LNG exports. Until the inventories get refilled in Europe and in the U.S., which I think will be sometime in kind of mid- to late summer, I think you're going to see a lot of volatility and elevated prices for natural gas, but I do expect it to come back into a more normal level sometime in the back end of the summer. Now longer term, these export facilities take a long time to develop and build. So while those things are being constructed, I think what you're going to see, and we're seeing it even currently is that the production rates are going to accelerate. So you're going to see more production of the natural gas coming on, more production of oil coming on. Both of those, I think, production are up about 10% for both oil and gas since a year ago. All of that is going to be supported by generating more NGLs in the marketplace. So we still believe that longer term, the United States or the American position around ethane advantage is going to continue to be very durable.

Prashant Juvekar:

Yes. Ken, some people believe that integrated polyethylene margins in the U.S. are depressed somewhat because we can't export as much and given that there's logistical issues. Do you agree with that assessment? How does China COVID play into that? And have you seen any export sort of improving over the last few months?

David Kinney:

And P.J., this is Dave. I would just chime in that in March, we did see an increase in exports. It's up to nearly 40% of production in the month of March. And so we think that trend will continue into April once we get the numbers back.

Michael Sison:

Nice start to the year. There's a lot of new capacity in China is supposed to come on stream for polyethylene. Given what you've mentioned in terms of pricing and sort of the profitability over there, do you think that those projects will come on stream, be delayed, maybe in some of you getting canceled? Any thoughts there?

Operator:

Our next question comes from the line of Josh Spector with UBS.

Kenneth Lane:

Thank you, Josh. Listen, the polypropylene, we're actually very bullish on. The supply-demand fundamentals there are very good, and that's even in the absence of a strong automotive market. We expect to see spreads increasing coming into the second quarter. We've already announced a spread increase for May. The market continues to be very tight. Inventories have been coming down. And I do think that there is room to go up in polypropylene. So we're feeling very good about our position with polypropylene.

Aleksey Yefremov:

Could you talk about your PO business? What percent of this business is on spot versus long-term contracts was pass-through with sort of semi-fixed margins? And how do you expect those margins to trend next year given the start-up of your PO project in the U.S.?

Operator:

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Kenneth Lane:

Kevin, thanks for your question. Listen, like we said, the refinery site is located in a very good positioned geographically on the ship channel, and it's got great pipeline connections with our cracker in Channelview. So there's a lot of kit there that we can look at that could be valuable in terms of if you think about circularity and some of the feedstocks that we would be using, a lot of those pyrolysis oil do need some hydrotreating and things like that. So they're fairly straightforward, but could be very synergistic with our circular ambition. So we're going to take the next several years to really study where we think that could go. And we think we can find some good value for that site in the mid- to long term to support our strategy.

David Begleiter:

Ken, can you talk about Hyperzone? How is that plan progressing and the selling? And what the type of premiums, if any, you're getting on the Hyperzone product?

Operator:

Our next question comes from the line of Steve Richardson with Evercore ISI.

Kenneth Lane:

Thank you, Sean. I'll take the first question, and I'll let Michael take the second. So listen, it's way too early for us to be talking about any kind of repurposing costs around the refinery site. The focus for now is that we're going to operate that asset safely and reliably. Of course, we're going to keep a separate team that's going to be looking at some of the options for the future. But our priority right now is going to be really to stay focused on taking advantage of what we see in the marketplace today and really achieving a great result there and operating the assets safely. So Michael, do you want to take the next question?

Operator:

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Kenneth Lane:

Thank you, Arun. So yes, for I&A, I mentioned before, we are expecting to be above mid-cycle for that business. So I would say I would expect to be above the numbers that you're thinking about would be where we're at. For sure, we've got very strong tailwinds. And I had mentioned we had a record first quarter. So coming into the second quarter with demand even improving, we're very optimistic heading into the second half of the year or the second quarter going even into the second half of the year. Now for APS, one of the biggest things that we need to see there, we've been able to successfully maintain margins and continue to improve on margins. The volume equation is what's really going to be impactful for that business. So as automotive comes back and we're able to really refill that pipeline and get the demand side up, that's going to be what's going to drive our results.

Matthew Blair:

I know you're selling -- or you're closing the refinery at the end of '23, but right now, refining margins are pretty phenomenal looking at $30 Gulf Coast cracks, $70 diesel cracks. How should we think about your margin capture potential in Q2? Are you going to be able to capture these pretty phenomenal numbers? Or is there a reason to be cautious on just overall margin capture?

Operator:

Thank you. I am showing that there are no further questions. I will turn it back to Mr. Lane for closing comments.

Operator:

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

David Kinney:

Thank you, operator. Hello and welcome to LyondellBasell’s fourth quarter 2021 teleconference. I am joined today by Ken Lane, our Interim Chief Executive Officer and Michael McMurray, our Chief Financial Officer. Before we begin the discussion, I would like to point out that a slide presentation accompanies today’s call and is available on our website at www.lyondellbasell.com/investorrelations. Today, we will be discussing our business results while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until February 28 by calling 877-660-6853 in the United States and 201-612-7415 outside the United States. The access code for both numbers is 13725132. During today’s call, we will focus on fourth quarter and full year 2021 results, the current environment and our near-term outlook. Before turning the call over to Ken, I would 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. These adjustments are related to our use of last in, first out, or LIFO, accounting and the volatility in prices for our raw material and finished goods inventories. During the fourth quarter of 2021, we recognized a non-cash impairment of $624 million that reflected our ongoing evaluation of strategic options for the Houston refinery. Comments made on this call will be in regard to our underlying business results, excluding the impacts of the refinery impairment and the LCM inventory adjustments. With that being said, I would now like to turn the call over to Ken.

Michael McMurray:

Thank you, Ken and good morning everyone. Please turn to Slide 8 and let me begin by highlighting our substantial cash generation during 2021. LyondellBasell delivered record cash from operations and free cash flow in 2021. Our team worked diligently to efficiently convert 82% of our EBITDA into cash for the year despite increased working capital needs to support higher prices. After accounting for sustaining capital investments, we achieved a 23% free operating cash flow yield relative to our market capitalization. Let’s continue with Slide 9 and review the details of how we deployed all of this cash last year. During 2021, we paid dividends and repurchased shares to provide a total of $2 billion in returns for shareholders. In May, we increased our quarterly dividend by 8%. 2021 represents our 11th consecutive year of annual dividend growth. At the same time, we reduced our long-term debt by $4 billion and further bolstered our balance sheet by paying down $300 million of short-term commercial paper. Net interest expense increased to $510 million, higher than our guidance at the beginning of 2021, largely due to debt extinguishment costs. Our current portfolio supports our solid investment-grade balance sheet, and we do not see the need for additional debt reduction. We ended the year with $1.5 billion of cash and short-term investments and $5.4 billion of cash and available liquidity. Now I’d like to provide an overview of the results for each of our segments on Slide 10. As Ken mentioned, our business portfolio delivered $2 billion of EBITDA during the fourth quarter. Our results reflected strong demand for our products, offset by higher costs for feedstocks and energy, primarily in our O&P Europe, Asia, International, I&D and APS segments. Let’s begin the individual segment discussions on Slide 11 with the performance of our Olefins and Polyolefins, Americas segment. Fourth quarter 2021 EBITDA was $1.3 billion, $306 million lower than the third quarter. Margins declined on lower pricing for both Olefins and Polyolefins. Olefin results decreased approximately $190 million compared to third quarter 2021 due to margin declines driven by lower ethylene and propylene prices. Although we operated our North American ethylene crackers at 97%, sales volumes remained relatively unchanged as we built inventory to support maintenance downtime planned for the first quarter. Combined polyolefin results were approximately $120 million lower than the third quarter, primarily due to a decrease in polyethylene and polypropylene spreads over monomer. Polyethylene, however, posted record volumes driven by strong demand and increased production from our Hyperzone facility in December. O&P Americas posted record EBITDA of $5.3 billion for the full year, $3.5 billion higher than 2020. Margins increased for both Olefins and Polyolefins as higher product prices outpaced higher cost. Demand for nondurable packaging and consumer goods remained strong and led to increased volumes for both ethylene and polyethylene. Based on increasing seasonal demand and tight industry supply due to higher industry cracker maintenance, we expect robust margins to continue into the first quarter. Let’s turn to Slide 12 and review typical seasonal trends in the U.S. polyethylene market. After tight markets escalated prices over the first three quarters of 2021, declines in polyethylene contract prices during the fourth quarter of last year captured market attention. As illustrated by the green line on the chart, demand typically rises during the first quarter, stabilizes in the second quarter and grows again during the second season of the third quarter. In the fourth quarter, orders for polymers slow due to holiday downtime and as market participants strive to minimize their year-end inventories. The blue line indicates that polyethylene pricing logically follows these seasonal demand trends. Simply put, lower fourth quarter prices are a common occurrence. In contrast, the industry usually sees a rebound in demand and pricing during the first quarter. Orders increase as customers resume full production. During February and March, export demand often improves following the Lunar New Year holiday. In 2022, industry consultants are forecasting planned maintenance for U.S. ethylene crackers will be 3x higher than normal, with about 15% of U.S. capacity taking maintenance downtime. Similarly, about 10% of European ethylene capacity will be down for maintenance during the first half of 2022. Ethylene cracker outages often constrain downstream polyethylene production. In summary, the confluence of seasonal trends, industry downtime and robust consumer demand should provide support for polyethylene pricing during the first quarter of 2022. Now please turn to Slide 13 to review the performance of our Olefins and Polyolefins, Europe, Asia and International segment. Higher cost and lower spreads reduced margins and volumes in our EAI markets, resulting in a fourth quarter EBITDA of $155 million, $319 million lower than the third quarter. Olefins results declined approximately $180 million as margins decreased driven by higher feedstock and energy cost despite higher ethylene and propylene prices. We operate our crackers at a rate of 70% due to planned maintenance. Combined polyolefin results decreased approximately $100 million compared to the prior quarter. Lower seasonal demand drove declines in polyolefin price spreads relative to monomer cost and reduced volumes. Declining polyolefin spreads and higher energy costs also affected our joint venture equity income by about $15 million. Full year EBITDA increased $923 million compared to 2020. Olefins margins declined due to higher feedstock costs, outpacing increased ethylene and propylene prices. Combined polyolefin results and our joint venture equity income increased by more than $815 million and $125 million, respectively, driven by higher margins with increases in polyolefin prices. In Europe, we expect typical seasonal improvements as we progress through the first half of the year. Please turn to Slide 14 as we take a look at our Intermediates and Derivatives segment. Fourth quarter EBITDA was $252 million, a decline of $96 million from the third quarter of 2021. Compressed margins for Oxyfuels & Related Products and last in, first out inventory valuation charges of about $95 million muted margin improvements in our propylene oxide and derivatives and intermediate chemical businesses. Fourth quarter propylene oxide and derivatives results remained relatively unchanged, with higher margins offset by lower volumes due to planned maintenance. Intermediate chemicals results increased about $65 million with the resumption of our acetyls production. Oxyfuels & Related Products results decreased approximately $85 million as margins declined due to higher butane feedstock costs. For the full year, strong demand and a tight market drove margin increases in most businesses, resulting in EBITDA of $1.4 billion, $535 million higher than 2020. Volumes declined due to reduced exports of our propylene oxide and derivative products. In the first quarter of 2022, we expect margins to improve for our Oxyfuels & Related Products business with lower butane feedstock costs. Our volumes are expected to increase during the first quarter, supported by continued strong demand for our propylene oxide and derivatives and acetyls products. Now let’s move forward and review the results of our Advanced Polymer Solutions segment on Slide 15. Customer supply chain constraints and high raw material costs hindered results with fourth quarter EBITDA of $24 million, $97 million lower than the third quarter. The segment incurred last in, first out inventory valuation charges of about $55 million during the quarter. Results for the Compounding & Solutions businesses decreased due to margin declines driven by higher raw material costs. Volumes decreased with continued supply chain constraints in the automotive manufacturing market. Results for our advanced polymer businesses were relatively unchanged, with margin improvement offset by volume declines. Full year EBITDA for the segment was $409 million, a $28 million increase over 2020. Compared to the prior period, results benefited from a $35 million reduction in integration costs. Margins increased with higher spreads and volumes, increased with higher building and construction demand for our advanced polymer businesses. We expect volumes to improve as automotive manufacturers begin to ramp up production, particularly for products from our Compounding & Solutions business. Now let’s turn to Slide 16 and discuss the results of our Refining segment. Fourth quarter EBITDA was $150 million, a $109 million improvement compared to the third quarter of 2021. Results excluded a noncash impairment charge of $624 million, reflecting our ongoing evaluation of strategic options. Results for the quarter benefited from approximately $50 million due to LIFO effects from reduced inventory volumes. Results for the fourth quarter were driven by an improvement in margins due to a better product mix and an increase in the Maya 2-1-1 benchmark crack spread to about $23.58 per barrel. We operated the refinery at near-full rates of nameplate capacity with an average crude throughput at 266,000 barrels per day. Full year EBITDA increased $289 million compared to 2020 or breakeven for the year. Comparisons exclude impairments taken in the fourth quarter of 2021 and the third quarter of 2020. Approximately $45 million of LIFO changes benefited the segment for 2021. Refining margins improved with higher demand for gasoline and jet fuel, which drove the Maya 2-1-1 spread from a historically low point in 2020 at an average of $12.63 to $20.87 per barrel in 2021. Crude throughput improved to 231,000 barrels per day in response to higher market demand. Refining margins are expected to improve slightly, with crack spreads estimated to be about $25 per barrel. We plan to operate the refinery at more than 90% of nameplate crude capacity during the first quarter. Please turn to Slide 17 as we review the results of our Technology segment. All-time high levels of licensing revenue and catalyst volumes drove EBITDA to new records of $173 million for the fourth quarter and $514 million for the full year. Based on the timing of anticipated licensing milestones, we expect the first quarter Technology business profitability will be lower, similar to levels in the first quarter of 2021. Before I turn the call over to Ken, let me address some of your annual modeling questions for 2022 on Slide 18. We are planning to invest approximately $2.1 billion in capital expenditures during 2022. Approximately $0.9 billion is targeted toward profit-generating growth projects, with the balance supporting sustaining maintenance. The majority of our 2022 growth investment is associated with the construction of the PO/TBA plant in Houston. We have a fairly typical schedule of planned maintenance for 2022 with a total of three major cracker turnarounds. We will also have a couple of turnarounds in our I&D segment during the second quarter. Based on expected volumes and margins, we estimate that lost production associated with all of this maintenance downtime will impact 2022 EBITDA by approximately $265 million. While routine maintenance costs are expensed, maintenance costs arising from turnarounds of major production units are capitalized and included in our capital expenditure forecast. The U.S. cracker turnaround is scheduled for the La Porte, Texas site in the first quarter and expected it to impact O&P America’s quarterly EBITDA by approximately $125 million. The European cracker turnarounds will occur at our French cracker during the first and second quarters and are smaller cracker in Wesseling, Germany during the third and fourth quarters of 2022. The maintenance is expected to impact O&P EAI quarterly EBITDA by approximately $25 million, $15 million, $10 million, and $10 million in the first through fourth quarters, respectively. Plant maintenance at our butanediol facility in one of our two propylene oxide units located in Channelview, Texas is expected to impact second quarter EBITDA for our Intermediates and Derivatives segment by approximately $80 million. We expect 2022 net interest expense will be approximately $340 million after netting capitalized interest of about $95 million. 2022 book depreciation and amortization is forecasted to be approximately $1.3 billion. We plan to make regular pension contributions in 2022 totaling approximately $70 million with approximately $55 million of pension expense for the year. We currently expect our effective tax rate to be approximately 20% and our cash tax rate to be lower than our ETR. With that, I’ll turn the call back over to Ken. Ken?

Operator:

Thank you, sir. [Operator Instructions] Our first question comes from the line of Bob Koort with Goldman Sachs. Please go ahead.

Ken Lane:

Sure, Bob. Thank you for your question. Like I said previously, there is no change to our capital allocation strategy. And what I’ll do is just ask Michael to talk a little bit more about the options going forward, and then maybe I’ll come back and talk about Sasol after that.

Ken Lane:

Yes, Bob. So for Sasol, we’ve commented before that it’s our desire and intent to own the other half of that joint venture. We’re very happy with the partnership. It obviously performed very well in 2021. But of course, there is a buyer and a seller, and our mutual interests are going to have to be aligned in order to be able to come to a conclusion on the transaction. So timing is a little bit hard to predict. But I would still say that it is going to be in the midterm.

Jeff Zekauskas:

Thanks very much. Do you expect your cash balance at the end of the year to be very different from what it is right now? And are cost pressures in your European olefins business in the first quarter greater than what they were in the fourth?

Ken Lane:

And just in terms of the cost pressure in Europe, yes, we saw really an unprecedented spike in energy costs in Europe in the fourth quarter. And we started taking action then to be able to give us a little bit of insulation from that and started to move some surcharges into the market to be able to share some of that burden. So that is going to help us in the first quarter offset some of that. But the cost pressures that we saw in Europe are obviously going to be continuing as you look at the energy prices where they are today. But we’re doing what we can to offset where possible.

Mike Sison:

Hey, good morning. Just curious on your thoughts on pricing for polyethylene near-term, there are a couple of announcements out there for February, March. And given that there is some capacity or a lot of capacity coming on in 2Q and in North America and the rest of the world, just any thoughts on how you see that unfolding over the year and whether you think that capacity can be absorbed? Thank you.

Operator:

Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

Ken Lane:

Sure, Bhavesh. Thank you for your question. And look as we’ve communicated before, we’re exploring strategic options for this business and we do continue to believe that the asset has a higher value as part of the – an integrated network. I am sure you can appreciate we’re – there is really not more that we can say at this time. We’re in the middle of that process as we speak. And with where we are right now, I hope to be able to provide more details of the outcome and in the next few months. But that’s really all that I can say at this point. Michael, I don’t know if you wanted to add anything?

Operator:

Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Ken Lane:

Hi Arun, thank you for the question. Well, listen, like I had said before, I really do believe that with the robust demand that we are seeing in the markets and the pent-up demand that is still in the market yet to come. We saw in the second half of the year last year the largest market in China weakening in the second half of the year as they were approaching the Olympics and trying to keep the pandemic under control. There is a lot of demand that I believe is still yet to come back, and we are going to see that, I believe sometime in the middle of the year in the spring. And so that is going to be supportive overall. I don’t think that this is related just to feedstock. It really is that demand is strong and supply is tighter than probably most people would expect. For polypropylene, certainly, we are optimistic for polypropylene this year where our portfolio is about 15% or so exposed to automotive. And that market is going to come back this year and that’s also going to be supportive for polypropylene as we move forward in the year.

Frank Mitsch:

Yes. Good morning and nice to speak with you again Ken. I appreciate the Slide 18 that talks about your planned maintenance impact for 2022 of $265 million. Can you put that into context as to what your plans, and more importantly, what’s your unplanned impacts were in 2021 and to that extent also if you can comment a little bit about the propylene oxide capacity additions? When should we anticipate seeing financial impacts from those capacity additions? Thank you.

Michael McMurray:

In the first quarter.

David Kinney:

And I would just add, I would caution – this is Dave, Frank. I would just caution that you shouldn’t just add back that $400 million because margins really inflated on our downtime. So, that’s why we have been hesitant to try to quantify the unplanned downtime from last year because there is a chicken-and-egg effect between margins and volume.

Chris Parkinson:

Great. Thank you very much. So, your team actually appears quite content with the Sasol deal, and I understand we will have to await an outcome on that front. But are there other similar facility and marketing deals your team would be interested in across the globe, perhaps anything else in the U.S. or Asia?

Operator:

Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Ken Lane:

Sure, Kevin. Thank you for the question. Yes, we have set some ambitious targets for circularity, and it’s our intent to be a leader in the circular plastics space. We do see this market developing rapidly, and it’s an exciting area of growth that fits really well with our capabilities. So, it’s going to be a clear focus for us. Both mechanical and advanced recycling are going to be areas that we are concentrating on as well as renewable products. As you know, we have mentioned previously that we are developing our own technology for advanced recycling called MoReTec. And we expect really to be able to assess the extent of that technology’s advantage here in the next few months. Following that, we will be deciding on an initial commercial investment that should be completed around the middle of the decade. At the same time, we are looking at other paths to be able to reach that volume target. And we will be doing things like buying recycled and renewable feedstocks that we can track in our existing assets. And that of course, requires little or really no capital investment. So, all of these things are going to be levers that we are going to be pulling, working very closely with our customers and innovating with them on applications that we can roll out over time.

Duffy Fischer:

Okay. Good morning guys. Three questions around the PO plants coming up. So, first is just technically, is there any reason to think we may have issues with the ramp up of this, let’s say, like Hyperzone, or is this an older technology that you feel more comfortable about the ramp up? Two, what will the ramp up look like? I mean when you look at the market today, how long will it take to get those plants or at least the products from those plants mostly sold out? And then the third one is, just given the market you see today, is the EBITDA contribution from these plants similar to what was expected historically?

David Kinney:

And Duffy, just for numbers, this is our sixth PO/TBA plant that we have built. So, good experience with it, definitely not number one.

John Roberts:

Thanks. Was the Technology segment just timing or has something happened there that shift the historical range up? So, when it drops off, your guidance is for it to come back down. But does it come back down within the normal range, or has the range moved up here as well?

Michael McMurray:

Sure. Hi John. So listen, the technology business had a great year overall. So, record EBITDA, all-time high licensing revenue and catalyst volumes, primarily driven by Asia. You are right. So, Q4 did exceed even our expectations. There were a number of licenses that we are expecting to book in the first quarter that got done in the fourth quarter. So, you shouldn’t expect that trend to continue. And it’s kind of our expectation that the first quarter of this year should look a lot like the first quarter of last year. But it is a great business. It’s kind of like a razor-blade business, right. So, you sell licenses and then you continue to sell catalysts for a long, long time at great profits.

Hassan Ahmed:

Good morning Ken. I wanted to revisit near-term sort of pricing dynamics in polyethylene. Just want to get a bit more granular. Look I mean we know for Q1, roughly, call it, around $0.08 a pound worth of price hikes on the table. And you guys sort of pointed out that around 15% of U.S. capacity is undergoing maintenance in Q1. So obviously, that’s supportive. My question really is that, I mean with roughly 8 million tons of polyethylene capacity expected to come online this year, I mean could there be a situation where it’s a strong first half and then we sort of go down a cliff in the back half of the year in terms of pricing? And just paring that with the demand side, look, I mean if all of that 8 million tons of capacity comes online this year, for demand to keep pace with that, global demand growth would need to be north of 7%. So, are you guys sort of – as you talk about demand strength, are you looking for demand growth at those elevated levels?

Operator:

Thank you. Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question.

Ken Lane:

Thank you, P.J. Good morning. Yes, so there is a shortage of hexane in the market. And that combined with downtime at some of the linear low plants both in the U.S. and in Europe, has tightened that market pretty significantly. Now I will tell you that we are not having any constraints on hexane with our linear low business. So, that’s good news. But for the industry, yes, there is tightness in that market, and I expect that that’s going to continue in the short-term. Now going back to your question around our targets for Scope 1 and Scope 2 reductions that we have announced, in the next few years, we will be able to accommodate all of the things that we are looking at with our $2 billion capital spending. Our focus really in the next few years is going to be capturing the low-hanging fruit, really to make the first significant steps in the process of ramping up to the target in 2030. And that’s going to include things like improved energy efficiency and some emission-reduction programs at our sites that really require little or no investment. Another low-capital enabler for our carbon-reduction targets is also going to be the increased utilization of renewable energy. So, we expect that within the next few years, the amount of capital that we have guided to, the $2 billion is going to be adequate for us to be able to get started on meeting these commitments. And then we will be identifying projects and developing detailed plans to achieve the full target in the second half of the decade. And that’s likely to result in some increased capital, but we will have more to communicate on that later.

David Begleiter:

Thank you. Good morning. Ken and Michael, can you just discuss oxyfuels? How – what was the earnings decline in 2021 and what you are expecting for ramp-up, a return back to some higher normal high levels of profitability in 2022?

Michael McMurray:

No. I mean maybe just a couple of other comments around the I&D business for the quarter and around oxyfuels. So, don’t forget in the quarter itself, there was a $95 million LIFO charge, which obviously will not be there in the first quarter of this year. And then maybe to put some numbers around kind of the feedstock drag in the quarter within oxyfuels, it was about $85 million. So, it was pretty significant related to butane. And as Ken said, butane prices have already started to ease off. And it’s our expectation as we move through the year that, that’s going to continue. And then maybe one other thing I would just point out about this business. I mean this business is kind of the comonomer or kind of mail person of chemical businesses. It has a long track record, if you look back over the last decade, of earning kind of $400 million-plus EBITDA. So, go back and look over the last 10 years, we are confident it’s going to get back to its historic earning power.

Unidentified Analyst:

Hello. Hi. This is Sean on for Steve. So, in the last few weeks, you have seen a real run-up in Brent prices and also on nat gas. So, I was just wondering what are your views on the possible tailwind we might see a re-widening of the oil-gas ratio, if we see a supply response on the nat gas side?

David Kinney:

Yes. In Asia, it’s really tight, Sean. I mean the spread between naphtha and polyethylene is like $200, $300 per ton. That’s a historic lows. It just can’t stay there. So, oil is going to pressure polyethylene prices upwards in Asia, and that’s good for us.

Matthew Blair:

Thanks. Good morning. Maybe sticking on feedstocks, do you have any thoughts on overall ethane availability? We have seen the ethane premium to natural gas move out to about $0.10. I think last year, it was closer to $0.05. And maybe that’s a function of some new plants starting up. But what’s your outlook on this going forward?

Operator:

Thank you. I am showing that there are no further questions. I will turn it back to Mr. Lane for closing comments.