Lyondell Chemical — Merger or Acquisition (August 2006)
36 slides from Lyondell Chemical's merger presentation, Aug 24, 2006
Slide 1: Purchase of Remaining Share of the Houston Refinery
Purchase of Remaining Share of the Houston Refinery August 17, 2006 Dan Smith President & Chief Executive Officer Exhibit 99.1
Slide 2: Safe Harbor Language
The statements in this presentation relating to matters that are not historical facts are forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of management, and are subject to significant risks and uncertainties. Actual results could diffe
Slide 3: Houston Refinery Acquisition Agenda
Houston Refinery Acquisition Agenda Transaction Summary Impact Of Acquisition And Supply Contract Refining And Crude Oil Fundamentals Houston Refinery Specific Opportunities
Slide 4: The Houston Refinery Transaction
The Houston Refinery Transaction Acquire CITGO’s 41.25% Share of Houston Refinery Transaction - ~$2.0 B CITGO share of bank debt - $183MM Market Based Crude Supply Contract Cancel existing contract New 230 MB/D of Venezuelan heavy crude contract 5 year Lyondell To Market Refined Products
Slide 5: Long-Term Bank Financing Is In Place
Long-Term Bank Financing Is In Place Finance At The Lyondell Level No debt at Houston Refinery Transaction Financing 7-year term loan for $2.65 B from JPMorgan Pricing: Libor + 200 bp $800 MM 5-year revolver - Lyondell and Houston Refinery
Slide 6: The Transaction Offers Significant Value
The Transaction Offers Significant Value Unlocks Value Of Existing CSA Contract Transaction Multiple Favorable To: Refining trading multiples Lyondell trading multiple Significant Earnings and Cash Flow Accretion Diversifies cash flows across cycle Strong Industry Fundamentals Attractive margins Hea
Slide 7: Attributes Of Houston Refinery
Attributes Of Houston Refinery 268 MB/D Crude Capacity 100% extra heavy crude capability Full Conversion Refinery Approximately a 2-1-1 refinery yield 120 MB/D Gasoline 95 MB/D Distillate 25 MB/D Jet Fuel Houston Ship Channel Location Major pipeline access Private dock and Gulf of Mexico access Rece
Slide 8: The Transaction is Accretive
The Transaction is Accretive (1 st Half 2006 pro forma, annualized) $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $/Share $605 $165 $215 $225 Contribution to LYO Net Income, MM$ New New New CSA Contract 100% 41.25% 58.75% 58.75% Ownership Contribution To Lyondell EPS
Slide 9: Transaction Completed At Favorable Multiple
Transaction Completed At Favorable Multiple $2.12 B $2.12 B Transaction Price Combined 58.75% Share 41.25% Share ($MM except as noted) 2.4x 3.8x EBITDA Multiple $1338 $786 $ 552 Annualized EBITDA-Pro forma $774 $455 $ 319 Annualized EBITDA-Historical Based on YTD 2006 actual results and pro forma EB
Slide 10: Unlocks The Value Of The Refinery: Q2 Is A Good Example
Unlocks The Value Of The Refinery: Q2 Is A Good Example $0 $50 $100 $150 $200 $250 $300 $350 CITGO’s 41.25% $6.75 crude differential CSA less Maya Q2 2006 Operating Income, 58.75% $MM
Slide 11: CSA Contract Crude Cost Has Exceeded Maya Crude By $6/bbl
On Average, CSA Contract Crude Cost Has Exceeded Maya Crude By $6/bbl During 2005/06 $0 $2 $4 $6 $8 $10 $12 $14 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 Source: Lyondell CSA Price Less Maya Crude $1/bbl Equates to ~$85MM/yr
Slide 12: Underlying Performance Of The Houston Refinery
Underlying Performance Of The Houston Refinery Meets or Exceeds Independent Refiners $0 $2 $4 $6 $8 $10 $12 $14 $16 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 Valero Tesoro Houston Ref Actual Houston Ref @ Maya Price Source: Published Financial Reports
Slide 13: Favorable Acquisition Price
Favorable Acquisition Price (1) Based on publicly reported information for Valero, Sunoco, Tesoro, Frontier, Holly, Alon USA, Western Refining and Giant (2) Based on 2006 IBES Consensus estimates Independent Refiners (1) EBITDA (2) Multiple Crude Capacity, $/bbl Nelson Complexity, $/bbl capacity Rep
Slide 14: Coverage Ratios Are Not Significantly Impacted By The Transaction
Coverage Ratios Are Not Significantly Impacted By The Transaction Lyondell Ratios Post Acquisition Lyondell Ratios Debt / EBITDA 2.3x 2.3x EBITDA / Interest 5.1x 5.2x
Slide 15: Refining and Crude Oil Fundamentals
Refining and Crude Oil Fundamentals
Slide 16: U.S. Gasoline Demand Has Grown Steadily
U.S. Gasoline Demand Has Grown Steadily Over The Past 15 Years – 600 MB/D Since 2000 Source: EIA 6,500 7,000 7,500 8,000 8,500 9,000 9,500
Slide 17: Only 60% of U.S. Gasoline Growth Was Met By U.S. Refineries
Imports (10%) Imports 0.5 1.5 2004 Gasoline Supply U.S. Refineries (83%) MTBE & NGLs (4.5%) Ethanol (2.5%) Since 1990, Only 60% of U.S. Gasoline Growth Was Met By U.S. Refineries (MM B/D) U.S. Refineries MTBE & NGLs Ethanol Data Source: EIA , Lyondell
Slide 18: Global Refining Is Essentially Sold Out
Global Refining Is Essentially Sold Out At 90 Percent Utilization Data Source: Chemical Data, BP, EIA 0% 5% 10% 15% 20% 25% 30% 35% (¢/gal) Profitability U.S. Refinery Spare Capacity
Slide 19: Global Refining Is Forecast To Remain At High Operating Rates
Global Refining Is Forecast To Remain At High Operating Rates While U.S. Operates At Capacity Sources: IEA, BP, Morgan Stanley Global Refining Supply/Demand U.S. Operating Rate Global Operating Rate Demand
Slide 20: A Ten-Year Forecast Of Global Supply/Demand
A Ten-Year Forecast Of Global Supply/Demand Growth Indicates A Continued Tight Balance Source: Wood Mackenzie 0% 20% 40% 60% 80% 100% High Medium Low Wood Mackenzie’s View of Global Refining Supply/Demand Probability-Adjusted Supply Analysis 2005-15 Supply/Demand Growth Crude Demand Growth Expansion
Slide 21: Regional Investment Focus Is Similar To Chemicals
Regional Investment Focus Is Similar To Chemicals – North America Is Likely To Remain A Significant Importer Most Likely Regional Refining Capacity Additions 2005-2015 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Asia Pacific, ME & Africa North & South America Europe Expansions Grassroots Source: Wood Mackenzie
Slide 22: Crude Reserves And Refining Capabilities Favor Heavy Sour Crude Refiners
Both Crude Reserves And Refining Capabilities Favor Heavy Sour Crude Refiners 19% 65% 16% Source: Oil & Gas Journal 35% 53% 12% Sweet Sweet Lt / Med Sour Lt / Med Sour Heavy Sour Heavy Sour Global Crude Reserves Refining Capacity
Slide 23: Refining Margins and Heavy/Light Spreads
Refining Margins and Heavy/Light Spreads Reflect The Situation Refining Spreads Source: Platts WTI 2-1-1 Spread WTI - Maya Spread June '06 YTD
Slide 24: Already Strong Gulf Coast Coking Margins Have Increased
Already Strong Gulf Coast Coking Margins Have Increased $0 $5 $10 $15 $20 $25 $30 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June USGC Cash (1) Refining Margin (1) Muse Stancil Gulf Coast Coking Cash Margin
Slide 25: The Forward Curve Indicates Continued Strength
The Forward Curve Indicates Continued Strength And The WTI Spread Alone Supports The Refinery Economics WTI 2-1-1 Crack Spread $0 $5 $10 $15 $20 $25 $30 Source: Morgan Stanley
Slide 26: Not Likely That Refining Margins Will Revert To Early 2000 Values
Not Likely That Refining Margins Will Revert To Early 2000 Values In The Next 5 Years Environmental Laws Sulfur NOx / VOC emissions Permitting Capital Cost Increases Construction Schedules Demand In Developing Economies Nature Of New Crude Supply Vs. Existing Refining Capacity Heavy, sour vs. light,
Slide 27: Houston Refinery Specific Opportunities
Houston Refinery Specific Opportunities
Slide 28: Lyondell Houston Refinery
Lyondell Houston Refinery Lyondell Is Not A Newcomer To The Fuels Markets Crude = 268 MB/D Gasoline Comp = 20 MB/D Olefins Feed = 360 MB/D Butanes = 60 MB/D Purchases Sales Gasoline Comp = 115 MB/D Fuel Oils = 7 MB/D Gasoline = 125 MB/D Diesel = 95 MB/D Jet Fuel = 25 MB/D $8.1 B/year (ex LCR) $3.2 B
Slide 29: Multiple Upgrades Make The Houston Refinery One Of The Most Modern
Multiple Upgrades Make The Houston Refinery One Of The Most Modern In The U.S. 2004 / 2005 2005 / 2006 2001 / 2005 2005 / 2006 2001 / 2005 1976 / 1997 1956 / 2006 1969 / 1997 1961 / 1997 1961 / 1997 970 LTPD Sulfur Hydrotreating (1) Reforming Coking Catalytic Cracker Vacuum Crude Last Modified Year
Slide 30: Houston Refinery Operations Have Demonstrated Strong Performance
Houston Refinery Operations Have Demonstrated Strong Performance And Steady Improvement LCR Industry Avg () Notes: (1) Utilization is defined as the capacity used (or utilized) divided by the total capacity, expressed as a percent. 2001, 2003 and 2005 figures are LCR calculations of Solomon Data. (2
Slide 31: Recent Capital Expenditures And Synergies With Lyondell
Recent Capital Expenditures And Synergies With Lyondell Expected To Add Significant Value Recent Capital Programs Are Expected To Add ~$100 MM/yr Fluid unit upgrade Heavy pyrolysis gasoline hydrotreating Ultra low sulfur diesel Tier 2 gasoline Over Time, Synergies With Lyondell Can Add $50+ MM/yr Pr
Slide 32: The Transaction Offers Significant Value
The Transaction Offers Significant Value Unlocks Value Of Existing CSA Contract Transaction Multiple Favorable To: Refining trading multiples Lyondell trading multiple Significant Earnings and Cash Flow Accretion Diversifies cash flows across cycle Strong Industry Fundamentals Attractive margins Hea
Slide 33: LYONDELL-CITGO Refining LP Annualized Historical and Pro Forma EBITDA
(Millions of dollars) LCR six months ended June 30, 2006 historical basis: Net Income $ Interest Depreciation and amortization Taxes ¹ LCR six months ended June 30, 2006 EBITDA LCR annualized EBITDA (six months ended June 30, EBITDA X 2) $ LCR six months ended June 30, 2006 annualized pro forma basi
Slide 34: LYONDELL-CITGO Refining LP Annualized EBITDA Multiples
(Millions of dollars) Transaction Price Pro forma purchase price 1,899 $ CITGO share of long-term debt ($444 million x 41.25%) CITGO owner loans Transaction price including debt repaid 2,122 $ Combined Citgo Lyondell Amounts 41.25% 58.75% LCR annualized EBITDA - Historical (six months ended June 30,
Slide 35: Debt/EBITDA and EBITDA/Interest Reconciliation
Historical Pro Forma (Millions of dollars) Ratios Ratios Debt/EBITDA calculation: Debt $5,836 $8,345 divided by: Annualized EBITDA (six months ended June 30, 2006 EBITDA X 2) 2,568 3,662 Ratio of Debt to EBITDA 2.3 2.3 EBITDA/Interest calculation: Annualized EBITDA (six months ended June 30, 2006 EB
Slide 36: Contributions to Lyondell EPS
Contributions to Lyondell EPS Six Months (Millions of dollars) Ended Annualized June 30, Annualized After Tax Percent Annualized Diluted Amount Amount Interest Contribution Shares EPS ( X 2) ( X .65) LCR net income $294 $588 $382 58.75% $225 259.7 $0.86 Pro forma benefit of market based crude oil co
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