Lyondell returns to profitability, remains focused on debt reduction

By Paul Deckelman

New York, Feb. 3 - Lyondell Chemical Co. was back in the black during the fourth quarter and for 2004, riding the crest of a cyclical turnaround that boosted the entire chemical industry and helped by its own acquisition last year of Millennium Chemicals Inc., which gave Houston-based Lyondell - the Number-3 U.S. chemical producer - a greater share of the ethylene market and the strengthening market for inorganic chemicals such as titanium dioxide, widely used in paints and coatings.

Lyondell also said that it had called $500 million of debt in 2004, putting it one-sixth of the way toward its previously stated goal of reducing its overall debt load by $3 billion - and chief financial officer T. Kevin DeNicola told analysts on midday conference call following release of the earnings data that "every [extra] dollar we can generate will go to debt reduction."

So central is that $3 billion debt reduction goal to Lyondell's long-term plans that the company would pursue it rather than spending money to buy back its shares currently held by Occidental Petroleum - though it should be noted that according to DeNicola "we really are precluded" from such a share buyback under terms of the bond indentures as things now stand.

Lyondell's president and chief executive officer, Dan Smith, likewise declared that the company's "most attractive investment right now" is to repay debt, in answering an analyst's question over whether Lyondell might seek to buy out the 41.25% stake in its Lyondell Citgo Refining joint venture, which 58.75% owner Lyondell runs with Citgo Petroleum Corp., the Tulsa, Okla.-based U.S. marketing arm of Venezuela's state-run oil company PDVSA.

News reports say that PDVSA is evaluating its refining assets in the United States to determine whether they should be restructured or sold, influenced by the harsh criticism from Venezuela's left-wing president, Hugo Chavez, of the terms under which it ships 1.5 million barrels of oil daily to the United States. Lyondell has the first right of refusal on Citgo's stake in the huge Houston refinery, which is one of the largest U.S. refineries designed to process heavy crude oil.

When asked whether Lyondell would consider buying out Citgo's share of the business to be an attractive investment, Smith said that "It would have to be extremely attractive to come anywhere near the attractiveness we have just from reducing our debt position."

"Confusing publicity" from Venezuela

At any rate, Smith added, there had been "a lot of confusing publicity" coming out of Venezuela, with new management teams at both PDVSA and Citgo, making it uncertain whether Chavez, a fierce critic of the United States, would let his pique at Washington influence whether PDVSA sells its share of the refinery.

"It sounds like a lot of noise," he asserted. "We have a long term contract with Citgo. Our relationship remains very strong operationally."

DeNicola noted that while Lyondell had called $500 million of debt during 2004, only $300 million had actually been bought back, with the final redemption of $200 million of its 9 7/8% series B notes due 2007, which was announced in December, actually taking place in mid-January, so it will thus count in the 2005 first quarter and for 2005 overall. Earlier, Lyondell had issued three separate calls for $100 million of those notes, in mid-August, mid-September and mid-November.

$2.5 billion to go - and more possible

As impressive as the buyback of $500 million last year and earlier this year might be, the CFO said that "we have another $2.5 billion to go to get to that marker we've put in the ground - but I would also tell you that if that $2.5 [billion] comes easily, we'll repay more than that."

Lyondell reported net income for the quarter ended Dec. 31 of $16 million (eight cents a share), a sharp turnaround from a year-earlier loss of $77 million (44 cents a share), as revenues jumped 2.5 times to $2.4 billion. The results included a $12 million charge related to the early retirement of debt.

As of the end of the year, Lyondell had $804 million of cash on a consolidated basis. It had $950 million available under various credit facilities at the parent company and subsidiary levels.

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