Transcript Debt Reduction Clear Focus on Execution

Morris Gelb
Chief Operating Officer
Morgan Stanley
February 13, 2002
Safe Harbor Language
Statements in this presentation relating to matters that are not
historical facts are forward-looking statements. These forwardlooking 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 future global
economic conditions, availability of capital markets, industry
production capacity and operating rates, technological
developments, the supply demand balance for the products
produced by the Company and its joint ventures, competitive
products and pricing pressures, increases in raw material and/or
energy costs, changes in governmental regulations 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, 2000, Lyondell’s Quarterly Report on Form 10Q for the quarter ended September 30, 2001, as well as Lyondell’s
Annual Report on Form 10-K for the year ended December 31, 2001
and Lyondell’s 2002 proxy statement, which will be filed with the
Page 2
SEC.
Lyondell Operates in 3 Major Businesses

Lyondell Chemical Company - Intermediate Chemicals and
Derivatives
– World’s leading producer of PO and derivatives
– 100% Ownership

Equistar - Petrochemicals and Polymers
– A leading North American producer of ethylene, propylene and
polyethylene
– Low cost position based on feedstock flexibility and scale
– 41% Ownership

LCR - Refining
– Unique capability to refine heavy crude oils
– Contractually stable business; strong cash flow generator
– 58.75% Ownership
Page 3
Roadmap to Success
 Executing our Strategic Plan
 Prudently Managing Quality Assets
 Delivering Results in Difficult Environment
 Positioned for Significant Returns in Up-Turn
Page 4
Our Beliefs in the Drivers of Success
Remain Constant
 Sustainable Competitive Advantages
 Technology
 Market Position
 Low Cost Production
 Scale
 Breadth and Depth of Product Offering
 Global Reach
 Capital Market Liquidity
Page 5
Strategy for Value Creation
Page 6
Leading Positions in All Key Products
Product
IC&D
Propylene Oxide (lbs)
Styrene Monomer (lbs)
MTBE (bbl/day)
Equistar
Ethylene (lbs)
Propylene (lbs)
Polyethylene (lbs)
* Source: CMAI, LYO capacities as of 1/1/01
Annual Capacity*
3.9 billion
3.7 billion
58,500
11.6 billion
5.0 billion
5.7 billion
Capacity Position
1st in North America
1st in the world
1st in North America
3rd in the world
1st in North America
1st in the world
2nd in North America
3rd in the world
2nd in North America
6th in the world
3rd in North America
3rd in the world
Page 7
Products Serve Key
Durable & Non-Durable Markets
Grocery Sacks
Automotive Components
Toys
Consumer Products
Food Packaging
Apparel
Ethylene
Propylene
Antifreeze / deicers
Automotive Seating
Home Construction
Home Furnishings
Pharmaceuticals
Page 8
Sustainable Advantages in Key Businesses
Petrochemicals – Low Cost Advantage
 Feedstock flexibility historically provides 4 cpp
variable cost advantage
Refining – Strong Cash Generation
 Heavy Crude Processing Capability
 Unique “Deemed Margin” Contract
 Improved Operational Reliability
IC&D – PO Cost and Technology Leadership
 Proprietary Process Technology Leader
 Global Production Base
 Important Derivative Positions
Page 9
Large Asset Base Provides
Opportunities to Optimize the Portfolio
Petrochemicals
• Idled Lake Charles
Polymers
• Shut-Down Port Arthur
• Expanded Matagorda & Victoria
IC&D
• Exited ADI
• Sold Polyols
Page 10
Organizational Focus Delivers
Results Throughout the Cycle
Reduced Fixed Costs
2000
2001
% Change
Lyondell
566
471
-17%
Equistar
921
917
0%
LCR
271
253
-7%
Page 11
Reduced Working Capital
90
80
70
60
50
40
30
20
10
0
1998
1999
2000
Lyondell
2001 Cash from
Working Capital:
LYO $128MM
* Includes elimination $130 million AR securitization
2001
Equistar
Equistar $282MM*
Page 12
Prudently Managing Assets
Disciplined Capital Expenditures
PO11 Spending
($MM)
($,MM)
200
150
100
50
0
1999
2000
Equistar
2001
2002 LE
Lyondell
Page 13
Minimal Near Term Debt Maturities
Debt Maturity Schedule
2,000
$MM
1,500
1,000
500
0
2002
2003
1
2004
Lyondell
2005
2006
2007
2008
2009
Equistar
1 – LYO Revolver Expires
Page 14
Significant Liquidity
Cash Balance 12/31/01
Lyondell
Equistar
$146MM
$202MM
Revolver 12/31/01
$500MM
Total Liquidity
$646MM
1
1 – excludes approximately $4.5 million committed against letters of credit
2 – excludes approximately $0.7 million committed against letters of credit
$500MM
2
$702MM
Page 15
Debt Reduction Still a Priority
Total Lyondell Debt
8000
7000
($, MM)
6000
$3.1 B
reduction
5000
4000
3000
2000
1000
0
1998
1999
2000
2001
Page 16
Equistar Transactions

Lyondell Sells Package of Securities to
Occidental
– 30 – 34 million shares of Series B stock
– 5 million, 5 year $25 warrants
– Payments equivalent to 7.38% of ’02 & ’03
Equistar distributions up to $35 million

Lyondell buys Occidental’s 29.5% share
of Equistar
Page 17
Impact of Occidental Transaction on
Cash Generation and Earnings Potential
Impact of $0.01/lb margin increase on EPS
Ethylene
Polymers
Before
0.24
0.14
After
0.32
0.19
Impact of accelerated debt reduction . . .
Normalized Equistar EBITDA1 = $1.0 billion
Increase in proportional Equistar EBITDA
$300 million
Impact of $300 million of Lyondell debt reduction $0.12/share
1 - Pro forma assuming 1993 (trough) and 1995 (cyclical upturn) CMAI cash margins, Equistar product capacities as of 2000 and
up to $280 million of cost savings resulting from Equistar formation.
Page 18
Past Demand Contractions Were Followed by
Periods of Strong Growth
30%
?
45000
25%
20%
15%
Mn Lbs
35000
10%
% Chg GDP
55000
Ethylene Demand 1970-2002
United States
25000
5%
15000
0%
-5%
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
5000
GDP %AGR
Source: DRI & ChemData
Ethylene consumption
Page 19
Investment Highlights

Executing our strategy

Accumulated leading positions in all key
products

Established low cost producer positions

Delivering results in difficult environment

Preserving our liquidity

Committed to debt reduction and our dividend
Page 20
Morgan Stanley
February 13, 2002