Lyondell Chemical (LYO) 8-K/A Regulation FD Disclosure

1

Purchase of Remaining Share of 

the Houston Refinery

August 17, 2006

Dan Smith

President & Chief Executive Officer

Exhibit 99.1

2

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

differ

materially

based

on

factors

including,

but

not

limited

to,

availability,

cost

and

price

volatility

of

raw

materials

and

utilities;

supply/demand

balances;

industry

production

capacities

and

operating

rates;

uncertainties

associated

with

the

U.S.

and

worldwide

economies;-legal,

tax

and

environmental

proceedings;-cyclical

nature

of

the

chemical

and

refining

industries;

operating

interruptions;

current

and

potential

governmental

regulatory

actions;

terrorist

acts;

international-political

unrest;

competitive

products

and

pricing;

risks

of

doing

business

outside

of

the

U.S.;

access

to

capital

markets;

technological

developments;-Lyondell’s

ability

to

implement

its

business-strategies,

including

whether

the

expected

benefits

of

Lyondell’s

acquisition

of

CITGO’s

interests

in

LCR

are

achieved

to

the

extent

and

in

the

time

period

anticipated;

and

other

risk

factors.

Additional

factors

that

could

cause

results

to

differ-materially

from

those

described-in

the

forward-looking

statements

can

be

found

in

the

Lyondell,

Equistar

and

Millennium

Annual

Reports

on

Form

10-K

for

the

year

ended

December

31,

2005,

Quarterly

Reports

on

Form

10-Q

for

the

quarter

ended

March

31,

2006,

and

Quarterly

Reports

on

Form

10-Q

for

the

quarter

ended

June

30,

2006.

Reconciliations

of

non-GAAP

financial

measures

to

GAAP

financial

measures

are

provided

at

the

end

of

this

presentation.

Safe Harbor Language

3

Houston Refinery Acquisition Agenda

Transaction Summary

Impact Of Acquisition And Supply Contract

Refining And Crude Oil Fundamentals

Houston Refinery Specific Opportunities

4

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

5

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

6

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

Heavy, sour crude refineries differentially advantaged

Refining cycle longevity

Houston Refinery Is Well Positioned

Houston Ship Channel location

Recent investment improves future results

Investment cycle near completion

Lyondell and Houston Refinery Are Synergistic

7

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

Recent Capital Investments

Substantial modernization of most key refining units

Tier II Gasoline & ULS Diesel –

2006

Fluid

Unit

Upgrade

and

NO

X

Compliance

–

Early

2007

8

Impact Of The Acquisition

And Supply Contract

8/17/2006

9

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

10

Transaction Completed At Favorable Multiple

$2.12 B

$2.12 B

Transaction Price

2

Combined

58.75%

Share

41.25%

Share

($MM except as noted)

2.4x

3.8x

EBITDA Multiple

$1338

$786

$ 552

Annualized EBITDA-Pro forma

1

$774

$455

$ 319

Annualized EBITDA-Historical

1

1

Based on YTD 2006 actual results and pro forma

EBITDA  annualized

2 

Includes assumption of 41.25% of existing LCR

debt

11

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

12

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

13

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

14

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

Replacement

Cost, %

     - Average

5.3 x

$18,300

$2,000

125%

     - Range

3.6 - 7.3

$9,400 - 31,500

$1,150 - 3,150

70 - 200%

•

Transaction EBITDA multiple is less than independent refiners’

trading multiples

•

Transaction capacity metrics are in-line but don’t fully reflect the profitability:

•

Crude Capacity -

$19,200/bbl

•

Nelson Complexity -

$1,600/bbl

15

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

16

Refining and Crude Oil Fundamentals

17

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

18

0

0.5

1

1.5

2

2004 Gasoline Supply

U.S. Refineries (83%)

Imports (10%)

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

Imports

MTBE &

NGLs

Ethanol

Data Source: EIA , Lyondell

19

Global Refining Is Essentially Sold Out At

90 Percent Utilization

Data Source: Chemical Data, BP, EIA

0%

5%

10%

15%

20%

25%

30%

35%

0

5

10

15

20

25

30

35

(¢/gal)

Profitability

U.S. Refinery

Spare Capacity

20

65

75

85

95

105

2001

2003

2005

2007

2009

2011

50

60

70

80

90

100

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

21

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

Expansions

Announced

Refining

Additions

Grassroots

Grassroots

Expansions

0

2

4

6

8

10

12

14

16

18

20

22

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

23

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

24

Refining Margins and Heavy/Light Spreads Reflect

The Situation

Refining Spreads

Source:  Platts

0

5

10

15

20

WTI 2-1-1 Spread

WTI - Maya Spread

2002

2003

2004

2005

June '06 YTD

25

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

2005

2006

USGC Cash 

(1)

Refining Margin

(1)

Muse Stancil Gulf Coast Coking Cash Margin

26

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

27

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, sweet

28

Houston Refinery Specific Opportunities

29

Lyondell Is Not A Newcomer To The Fuels Markets

Lyondell

Houston

Refinery

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/year (ex LCR)

30

Multiple Upgrades Make The Houston Refinery

One Of The Most Modern In The U.S.

2004 / 2005

2005 / 2006

2006

2001 / 2005

2001

2005 / 2006

2001 / 2005

1976 / 1997

1956 / 2006

1972

1969 / 1997

1953

1961 / 1997

1961 / 1997

970 LTPD

304

34

98

97

182

268

3

9

1

2

1

3

3

Sulfur

Hydrotreating

(1)

Reforming

Coking

Catalytic Cracker

Vacuum

Crude

Last Modified

Year Built

Capacity

(MBPD)

Number of

Units

Refinery

Units

Note:

(1)

New SCANfining unit to add 70MBPSD capacity by the end of 2006.

31

Houston Refinery Operations Have Demonstrated

Strong Performance And Steady Improvement

65

70

75

80

85

90

2000

2001

2002

2003

2004

2005

2006

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)

2001 was a major turnaround year. 2005 was impacted by a major turnaround, coker upset,

third party force majeure and Hurricane Rita related issues.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1998

1999

2000

2001

2002

2003

2004

2005

2006

YTD

Recordable Injuries

NPRA Gulf Coast Average

Recordable Injury Rate

Solomon Utilization

(1)(2)

Base

Support

&

Environmental

Capital,

$/yr

0

50

100

150

200

250

2001 to '04

2005 to '06

2007 to '10

(est.)

100

105

110

115

Crude

FCCU

Cokers

Maximum Sustained Monthly Rates

32

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

Product optimization / DIB blending

Capital optimization

Raw materials

Logistics

Purchasing

33

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

Heavy, sour crude refineries differentially advantaged

Refining cycle longevity

Houston Refinery Is Well Positioned

Houston Ship Channel location

Recent investment improves future results

Investment cycle near completion

Lyondell and Houston Refinery Are Synergistic

34

(Millions of dollars)

LCR six months ended June 30, 2006 historical basis:

Net Income

294

$      

Interest

23

Depreciation and amortization

62

Taxes¹

8

LCR six months ended June 30, 2006 EBITDA

387

LCR

annualized

EBITDA

(six

months

ended

June

30,

2006

EBITDA

X

2)

774

$      

LCR six months ended June 30, 2006 annualized pro forma basis:

LCR six months ended June 30, 2006 EBITDA

387

$      

Pro forma adjustment to crude costs

282

LCR Pro forma six months ended June 30, 2006 EBITDA

669

LCR

Pro

forma

annualized

EBITDA

(six

months

ended

June

30,

2006

EBITDA

X

2)

1,338

$   

1

As a partnership, LCR is not subject to federal income taxes.  Amount includes 2006 effect of Texas state income tax.

LYONDELL-CITGO Refining LP

Annualized Historical and Pro Forma EBITDA

Reconciliation of Historical Six Months Net Income to

35

(Millions of dollars)

Transaction Price

Pro forma purchase price

1,899

$   

CITGO share of long-term debt ($444 million x 41.25%)

183

CITGO owner loans

40

Transaction price including debt repaid

2,122

$   

Combined

Citgo

Lyondell

Amounts

41.25%

58.75%

LCR

annualized

EBITDA

-

Historical

(six

months

ended

June

30,

2006

X

2)

774

$      

319

$      

455

$      

LCR

annualized

EBITDA

-

Pro

forma

(six

months

ended

June

30,

2006

X

2)

1,338

552

$      

786

$      

Lyondell

Incremental

EBITDA

($1,338

less

$455)

883

EBITDA Multiples:

Transaction price including debt repaid

2,122

$   

divided by: Citgo

41.25% LCR annualized EBITDA -

Pro forma

552

Citgo

share EBITDA multiple

3.8

Transaction price including debt repaid

2,122

$   

divided by: Lyondell incremental EBITDA

883

Multiple

of

transaction

price

as

a

ratio

to

Lyondell

Incremental EBITDA

2.4

LYONDELL-CITGO Refining LP

Annualized EBITDA Multiples

Reconciliation of Historical and Pro forma EBITDA to

36

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

1

2.3

2.3

EBITDA/Interest calculation:

Annualized EBITDA (six months ended June 30, 2006 EBITDA X 2)

$2,568

$3,662

divided by: Interest expense, net (six months ended June 30, 2006  X 2,

Historical $253 X 2 = $506, Pro forma $353 X 2 = $706)

506

706

Ratio of EBITDA to Interest

1

5.1

5.2

Reconciliation of historical and pro forma

EBITDA to historical and pro forma Net Income:

Historical

Pro Forma

EBITDA six months ended June 30, 2006

$1,284

$1,831

Less:

Depreciation and amortization

(362)

(454)

Interest expense, net

(253)

(353)

Provision for income taxes

(276)

(386)

Distributions from equity investments

(122)

-

Subtotal

(1,013)

(1,193)

Add:

Income from equity investments

179

2

Net Income six months ended June 30, 2006

$450

$640

1

Coverage ratios above are based on EBITDA as presented and not on Adjusted EBITDA per Lyondell's Credit Agreement.        

LYONDELL CHEMICAL COMPANY

Reconciliation of Historical and Pro forma Information to

Annualized Coverage Ratios

37

Contributions to Lyondell EPS

Six Months

(Millions

of

dollars)

Ended

Annualized

June 30,

Annualized

After Tax

Percent

Annualized

Diluted

2006

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 contract

282

564

367

58.75%

215

259.7

0.83

Acquire CITGO share:

LCR net income

294

588

382

41.25%

158

259.7

Incremental impact of crude at market

282

564

367

41.25%

151

259.7

309

259.7

1.19

Additional pro forma depreciation as a result of the acquisition

(30)

(60)

(39)

100.00%

(39)

165

0.64

Additional pro forma interest as a result of the acquisition

(77)

(154)

(100)

100.00%

(100)

Elimination of accretion of Lyondell's equity investment

in

LCR

up

to

its

underlying

equity

in

LCR's

net

assets

(4)

(8)

(5)

100.00%

(5)

(144)

259.7

(0.55)

Total Contribution to Lyondell Net Income

$605

$2.33