Solid Strategy, Confident Execution
Goldman Sachs 11th Annual Cyclicals and Specialty Materials Forum
May 21, 2003
Kevin DeNicolaSenior Vice President and CFO
2
Safe Harbor Language
Statements in this presentation relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are just predictions or expectations and are subject to risks and uncertainties. Actual results could differ materially, based on factors including but not limited to the cyclical nature of the chemical and refining industries; availability, cost and volatility of raw materials and utilities; governmental regulatory actions and political unrest; global economic conditions; industry production capacity and operating rates; the supply/demand balance for Lyondell's and its joint ventures' products; competitive products and pricing pressures; access to capital markets; and technological developments and other risk factors. For more detailed information about the factors that could cause our actual results to differ materially, please refer to Lyondell Chemical Company’s Annual Report on Form 10-K for the year ended December 31, 2002, filed in March 2003, and Lyondell’s Quarterly Report on Form 10-Q, which was filed in May 2003. Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation.
3
Lyondell Has Built a Balanced Portfolio
Lyondell
IC&D
LCR
Equistar
Commodity Leverage-- A leading North American producer of ethylene, propylene
and polyethylene-- Low cost position based on feedstock flexibility and scale
Stability & Growth-- A leading global producer of PO and derivatives-- Process technology strength
Cash Generation-- Unique capability to refine heavy crude oils-- Contractually stable business; strong cash flow generator
($ MM)
Revenues EBITDALyondell
OwnershipIC&D $3,262 $410 100.0%Equistar 5,537 256 70.5LCR 3,392 362 58.75
2002
4
Leading Positions in All Key Products
1 Source: CMAI, LYO capacities as of Jan 20032 Includes 1.5 billion pounds that represents Bayer’s share under the PO Joint Venture and 385 million pounds or
100% of the capacity of Nihon Oxirane3 Does not include refinery-grade material or production from the product flexibility unit at Equistar’s Channelview
facility.
Inte
rmed
iate
C
hem
ica
ls a
nd
D
eriv
ati
ves
Eq
uis
tar
Product Annual Capacity1
Capacity Position
Propylene Oxide2 (lbs) 3.9 billion 1st in North America2nd in the world
Styrene Monomer (lbs) 3.7 billion 1st in North America3rd in the world
MTBE (bbl/day) 58,500 1st in North America1st in the world
Ethylene (lbs) 11.6 billion 2nd in North America5th in the world
Propylene (lbs) 5.0 billion 2nd in North America6 th in the world
Polyethylene (lbs) 5.7 billion 3 rd in North America4 th in the world
1
3
5
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2002 1995 Margins¹ 1988 Margins¹
LCR IC&D Equistar
Significant Cash and Earnings Generation in Up-Cycle
Cycle EBITDA Potential
1 1988/1995 Chem Data/CMAI margins for Ethylene, Polyethylene and Styrene applied to current capacities and ownership Note: Assumes current capital structure; 160MM shares
($MM)
$6.20/share
$1.35/share
6
A Brief Portfolio Review
IC&D
LCR
Equistar
7
PO Industry Capacity Lyondell PO & Derivatives
Other24%
LYO/Bayer/Sumitomo
33%
Shell/BASF15%
Dow28%
PG33%
BDO18%
Merchant PO33%
Deicers6%
PO Solvents
10%
Our Propylene Oxide and Derivatives Business (IC&D) Benefits from a Strong Position
ProductCapacityPosition
MarketGrowth
Merchant PO 1
PG 1 Moderate
BDO 2 High
P-Solvents 2 Low
Deicers 1 Low
PO 4-5%/yr
Source: LYO databook and SRI Post PO-11 Project
Durables- Furniture
- Automotive
- Construction
- Boating
- Electronics
Non-Durables- Coatings/Adhesives
- Personal Care
- Spandex
- Aircraft DeIcing
PO End Uses
8
Olefins PO BDO
NMPGBLTHF
PTMEG
End Use
• Spandex
• Solvents
• Urethanes
• Automotive
• Electronics
• Cosmetics
$0.10 $0.50-.80$0.45$0.20 $1.00+
Illustrative Price, $/lb.
Merchant
Merchant
We are completing an investment cycle in the PO and Butanediol Value Chain
9
40
60
80
100
120
140
160
180
200
PG Styrene HDPE
Relative Raw Material Margin Range, 1994-2002100 = Period Average
•PG: U.S. Industrial Grade Propylene Glycol minus (0.59) x Chem Grade Propylene, both as reported by Chem Data•Styrene: US Net Industry Average Styrene Price minus 0.28 x North America ethylene Net Transaction Price, minus 0.105 x North America Contract Benzene, all as reported by CMAI•HDPE: North America HDPE Domestic Market Contract Injection Molding price - Ethylene product cash cost (Weighted Average Feed) as reported by CMAI
Propylene Glycol (PG) Margin History Illustrates the Stability in the PO Chain Relative to Other Products
10
Global Styrene Supply/Demand Balances Are Tightening
20
30
40
50
60
70
80
90
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Cap
acit
y (B
illio
n P
ound
s)
70%
75%
80%
85%
90%
95%
100%
Op
erat
ing
Rat
e (%
)
Supply
Source CMAI 2003 World Styrene Analysis
Operating Rate
92% Rate
Demand at 4.5% Growth
11
600
500
400
300
200
100
MTBE is a Source of Premium Clean Octane to the 19-20 MMB/D Global Gasoline Market
Global Supply/Demand US Market Balance
MB/D
CA
U.S.
Non-U.S.
CARefinery/Olefins
U.S.Dehydro
DehydroNon -US
PO
DEMAND
CAPACITY
DEMAND SUPPLY
Refinery/Olefins
U.S.
Imports
U.S.Dehydro
PO
Source : Dewitt
12
2003 MTBE Legislative Activity
Legislation Could Lead To Any Of Three Options:
• Continue MTBE Production
• Add Iso-octane Flexibility
• Utilize ETBE Capability
Senate Proposal
• Ban MTBE after 4 years
• Ethanol use to 5B gal/yr
• Oxygen requirement eliminated
• ETBE tax equality
• Liability protection Ethanol only
House Proposal
• No MTBE ban
• Ethanol use to 5B gal/yr
• Oxygen requirement eliminated
• Liability Protection Ethers and Ethanol
13
Lyondell Products Help Make Clean Gasoline
Octane RVP Toxics VOC NOX
MTBE 109 8 (10.9%) (2.4%) (1.5%)
ETBE 111 4 (7.1%) (6.6%) (1.8%)
Iso-Octane 100 2.5 (3.5%) (2.6%) (2.4%)
Ethanol 114 20 (5.4%) + 9.1% (1.3%)
Reformulated Gasoline 87 6.8
BlendingAutomobile Emissions
Change in Clean Air Act Pollutants
Calculations based on typical reformulated gasoline in 8 U.S. cities and application of EPA complex model
14
LCR Important Cash Generator
Operating Reliability and Crude Deliveries Drive Performance
1 4Q01: Scheduled maintenance turnaround2 1Q03: Includes a $25MM write-off
0
50
100
150
200
250
300
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03
0
20
40
60
80
100
120
140CSA Spot Mkt EBITDA
MB/day $MM
21
15
Equistar is a Leading Ethylene Producer
#2 in North America
Competitive position based on feedstock flexibility
1991 2002
Top 5 North America
Shell9%
Dow9%
Equistar15%Nova
8%
Union Carbide7%
Exxon7%
Dow/Carbide20%
ExxonMobil13%
ChevronPhillips10%
Nova 8%
40%
66%
Source: CMAI
16
Equistar Capability
NGL
37%
Liquid
63%
N. American Industry
(ex. Equistar)
NGL
78%
Liquid
22%
Liquid Cracking Provides an Advantage
Source: CMAI and Lyondell.
Ethane - Light Naphtha Cost of Ethylene Spread
0
1
2
3
4
5
6
7
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
¢/lb
eth
yle
ne Average
Liquid Cracking Variable Cost Advantage
Source: ChemData,
17
0
5
10
15
02-J
an
02-A
pr
02-J
ul
02-O
ct
03-J
an
03-A
pr
03-J
ul
03-O
ct
04-J
an
04-A
pr
Oil/
Ga
s
Oil/Gas Ratio
Energy Value Parity
The Oil/Gas Price Ratio has Moved in FavorThe Oil/Gas Price Ratio has Moved in Favorof Liquid Feedstockof Liquid Feedstock
History : CMAI -4/03Future : NYMEX
18
500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
3,300
Wor
king
Gas
in U
nder
grou
nd S
tora
ge,
BC
FUS Natural Gas Inventories Are Forecast To Remain Very Tight
Inventory Forecasts under 3 Demand Scenarios
Mar Apr NovMay
Source: PIRA / DOE
Rolling 5-Year Average
Actual (thru 05/8/03)
Jun Jul Aug DecSep Oct
5-Yr Average
Jan Feb Mar Apr
Base Case: 4 BCF/D Demand Destruction
High Case: 6-7 BCF/D Demand Destruction
Low Case: 1.5-2 BCF/D Demand Destruction
19
Both The Overall Ethylene Margin and the Naphtha Advantage Have Increased Significantly
-5
0
5
10
15
20
25
30
35
Jan Jul Jan Jul
Delta COE
Ethane COE
Naphtha COE
Ethylene Price
Cents/lb
2002 2003
Source : ChemData
COE – Cost of ethylene production
20
North American Supply/Demand Balance Is Expected to Improve
30
40
50
60
70
80
90
100
110
120
1994 1996 1998 2000 2002 2004 2006
Bil
lio
n P
ou
nd
s
60%
70%
80%
90%
100%
Op
erat
ing
Rat
e
Ethylene Supply/Demand Balance – North America
Source: CMAI / Equistar (April 2003)
Na
me
pla
te C
ap
ac
ity
N. American Effective Operating Rate(96% On-Stream Time)
N. America Demand
World
N. America
21
12000
14000
16000
18000
20000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2004QtrlyAvg
Mill
ion
s C
ap
ac
ity
Lb
s
70
75
80
85
90
95
100
Op
era
tin
g R
ate
, %
Effective Capacity Downtime Operating Rate
Effective Ethylene Operating Rates Are Effective Ethylene Operating Rates Are Forecast To Be In The Low To Mid 90% RangeForecast To Be In The Low To Mid 90% Range
U.S. Ethylene Supply/Demand
CMAI-4/03
2002 20032002 2003
22
Our Financial Strategy is Unchanged
Maintain Sufficient Liquidity
Repay Debt
23
We Have Maintained Significant Liquidity
Lyondell Equistar
Cash & ST Investments* $384MM $112MM
Revolver* $350MM $354MM
Total Liquidity $734MM $466MM
1 1
1 – does not include 3/31 amounts committed against letters of credit : (LYO-$50MM, Equ-$16MM) * As of 3/31/2003
24
We Have Actively Managed Our Maturity Profile
Debt Maturities
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2003 2004 2005 2006
Lyondell Equistar($MM)
Note: Pro-forma the May LYO bond offering
Pre-Payable Debt
$0
$400
$800
$1,200
$1,600
2003 2004 2005 2006
Lyondell Equistar($MM)
25
0102030405060708090
1998 2002
Lyondell Equistar
0
30
60
90
120
150
180
Lyondell Equistar PO11 Spending
Processes and Systems Have Steadily Improved the Capital Utilization Within the Enterprise
$MM
1999 2002
Capital Spending Days of Working Capital*
* Based on accounts receivable (including those sold), inventories and accounts payable as of 12/31, and fourth-quarter days of sales
26
Industry Leading Safety Performance - Enterprise Incident Rate
0.931.18
0.99
0.8
0.52
0
0.5
1
1.5
2
199819992000
20012002
ACC Best ‘01 - 0.48
RIR
(1) Enterprise Recordable Incident Rate data does not include Lyondell-Citgo Refining (LCR)Note: RIR = Recordable Incident Rate
(1)
27
A Snapshot of Operating Metrics Highlights the Success
0
10
20
30
40
50
60
70
80
90
EQU LYO/EQU Polymers
Downtime Environment Quality
% Improvement*
* 1998 to 2002
28
1 Capitalization = debt + book value of equity + minority interest
De-leveraging Will Benefit All Stakeholders
Impact of Lyondell debt reduction at constant capitalization1:
Debt Reduction
$1B $2B
Debt to capitalization 54% 36%
Avoided interest expense $100MM/Yr $200MM/Yr
Earnings improvement 40¢/share 80¢/share
Share price improvement atconstant capitalization $6/share $12/share
29
2002 2001
Lyondell
Operating income 174$ 112$
Add:Restructuring charges (credits) (a) (3) 63 Depreciation and amortization 244 254 Other income (expense), net (6) (4) Income from other equity investments 1 -
Lyondell EBITDA excluding restructuring charges (credits) 410$ 425$
Equistar
Operating income (loss) (44)$ (99)$
Add:Facility closing costs (b) - 22 Depreciation and amortization 298 319 Other income (expense), net 2 8
Equistar EBITDA excluding facility closing costs 256$ 250$
Proportionate Share - % varies (c) 122$ 103$
LCR
Operating income 246$ 256$
Add:Depreciation and amortization 116 108
LCR EBITDA 362$ 364$
Proportionate Share - 58.75% 213$ 214$
EBITDA - Lyondell and Proportionate Share of Equity Investments
Lyondell EBITDA excluding restructuring charges (credits) 410$ 425$ Lyondell share of Equistar EBITDA excluding facility closing costs (c) 122 103 58.75% of LCR EBITDA 213 214 75% of LMC EBITDA through April 30, 2002 (3) (4) Lyondell and Proportionate Share of Equity Investments 742$ 738$
________(a) Restructuring charges (credits) related to shutdown of Lyondell's ADI business.(b) Closing costs related to Equistar’s Port Arthur, Texas facility.(c) Lyondell had a 41% interest in Equistar through August 22, 2002 and 70.5% thereafter.
LYONDELL CHEMICAL COMPANYSELECTED FINANCIAL AND OPERATING INFORMATION (UNAUDITED)
(Millions of dollars)
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA
For the twelve months ended
December 31,
30
1Q2000 2Q2000 3Q2000 4Q2000 1Q2001 2Q2001 3Q2001 4Q2001 Q12002 Q22002 Q32002 Q42002 Q12003
Operating income (loss) 34$ (6)$ 82$ 79$ 58$ 81$ 90$ 27$ 49$ 70$ 58$ 69$ 38$
Add:Depreciation and amortization 26 30 28 28 28 27 26 27 29 30 28 29 28
Other expense, net - - - - - - (2) - - - - (1) -
LCR EBITDA 60$ 24$ 110$ 107$ 86$ 108$ 114$ 54$ 78$ 100$ 86$ 97$ 66$
________(a) EBITDA for the three months ended December 31, 2002 was originally reported as $98 million and was restated to include extraordinary charges related to
early debt retirement, currently reflected in other expense, net.
(b) EBITDA for LCR for the three months ended September 30, 2001 was originally reported as $116 million and was restated to include extraordinary charges related to early debt retirement, currently reflected in other expense, net.
LYONDELL CHEMICAL COMPANYRECONCILIATION OF LCR OPERATING INCOME (LOSS) TO EBITDA
(Millions of dollars)
Dollars in Millions
Lyondell Equistar Lyondell Equistar
Working Capital as of December 31: b
Accounts Receivable 479$ 522$ 396$ 625$
Inventories 550 549 344 424
Accounts Payable (310) (337) (344) (459)
Total 719 734 396 590
Add: Accounts Receivable Sold 160 130 65 81
Adjusted Working Capital 879$ 864$ 461$ 671$
Days of Working Capital:Fourth Quarter Sales Revenue 872$ 1,141$ 890$ 1,431$
Days in Quarter 92 92 92 92
Sales per Day $9.5 $12.4 $9.7 $15.6
Days of Working Capital c 93 70 48 43
a - Certain amounts for 1998 have been restated to conform to the 2002 presentation.b - Defined as the major controllable components of working capital - receivables, inventories and payables.
c - Days of working capital are calculated as adjusted working capital divided by sales per day.
Days of Working CapitalReconciliation
1998 a 2002