What’s Different Today Versus The Mid 1990’s?Morgan Stanley Basic Materials Conference February 25, 2004Dan F. SmithPresident and CEO: What’s Different Today Versus The Mid 1990’s? Morgan Stanley Basic Materials Conference February 25, 2004 Dan F. Smith President and CEO


Safe Harbor Language: 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, Lyondell’s Quarterly Report on Form 10-Q, filed in November, 2003, and Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2003, which will be filed in March 2004. Reconciliations of GAAP financial measures to non-GAAP financial measures are provided at the end of this presentation.


Slide3: Rexene Polymers Purchase of LDPE & PP Assets LCR/Refinery Upgrade Partnered with PDVSA Equistar 1 Joined with Millennium to form Equistar Equistar 2 Oxychem joins Equistar Partnership ARCO Chemical Purchased ACC Bayer Divested polyols business to Bayer Merged Structure Combined management of Equistar and Lyondell PO & BDO Europe What’s Different? Lyondell Is Different 1985 Formation: ARCO Olefins, Houston Refinery 1998 1999-00 2000 2001-03 1996-97 1985-95 Increase Equistar Ownership Purchased Oxy’s share of Equistar We have created significant change since the mid-1990’s


We’ve Developed A Balanced Portfolio: We’ve Developed 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 Growth & International Presence -- 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


Leading Product Positions Create Significant Earnings Leverage: Leading Product Positions Create Significant Earnings Leverage 1 Source: LYO capacities as of January 2004, CMAI 2 Includes 100% of joint venture volumes 3 Does not include refinery-grade material or production from the product flexibility unit at Equistar’s Channelview facility. 4 Based on 1¢/gal change Intermediate Chemicals and Derivatives Equistar Product Annual Capacity (1) Capacity Position Propylene Oxide (2) ( lbs) 4.5 billion 1 st in North America 1 st in the world Styrene Monomer ( lbs) 5.0 billion 1 st in North America 4 th in the world MTBE (bbl/day) 58,500 1 st in North America 1 st in the world Ethylene ( lbs) 11.6 billion 2 nd in North America 5 th in the world Propylene ( lbs) 5.0 billion 2 nd in North America 7 th in the world Polyethylene ( lbs) 5.7 billion 3 rd in North America 4 th in the world (1) (3) $23MM $21MM $ 9MM $116MM $50MM $57MM Pre-Tax Leverage (∆1¢/unit) (4)


We’ve Significantly Strengthened Our Operations: We’ve Significantly Strengthened Our Operations Safety Performance Enterprise Incident Rate Days of Working Capital * Capital Spending Average SG&A and R&D, % Sales 2000 - 2002 1999 2004 Budget $MM Recordable Injury Rate 1st Quartile ’02 1.00 Days * Based on accounts receivable (including those sold), inventories & accounts payable as of 12/03, and fourth-quarter days of sales. Peers include: Dow, Nova, Eastman, Celanese, Solutia, Westlake, Millennium, Georgia Gulf


Lyondell’s Portfolio Is Significantly Larger Than In The Early 1990’s: Lyondell’s Portfolio Is Significantly Larger Than In The Early 1990’s Early 1990’s Today Petrochemicals - 100% Owned - 70.5% Owned & Polymers - 2 Ethylene Plants - 8 Ethylene Plants - 1 Polymer Plant - 7 Polymer Plants - 2 MEG Plants Refining - 100% Owned - 58.75% Owned - Sour Crude Refinery - Heavy Crude Refinery - PDVSA Contract IC&D - 100% Owned - 3 POSM Plants - 5 PO/MTBE Plants - Nihon Oxirane JV POSM Plant


We’ve Increased Market Cap and Liquidity: We’ve Increased Market Cap and Liquidity Late 1993 Jan-Feb 2004 Shares Outstanding 80 MM 176 MM Share Price $20 – 23 $17 – 19 Trading Liquidity ~100 M Shares/Day ~1 MM Shares/Day


We Have Increased Cycle Leverage: We Have Increased Cycle Leverage Lbs/Share Lbs/$ Invested Lbs/Share Lbs/$ Invested Petrochemicals Ethylene 45 2.1 46.5 2.6 Styrene -- -- 16.5 0.9 Propylene Oxide -- -- 13.5 0.8 TDI -- -- 3 0.2 45 2.1 79.5 4.5 Derivatives Polyolefins 5.5 0.3 24 1.3 Ethylene Oxygenates -- -- 6.5 0.4 PO Derivatives -- -- 9.5 0.5 5.5 0.3 40 2.2 Early 1994 Jan. 1, 2004 Notes: Lbs refers to capacity times ownership percentage. 1994 2004 Share Count 80 MM 176 MM Share Price $21.50 $18


Lyondell Stock Has Performed Well In Recessions and Recoveries: Lyondell Stock Has Performed Well In Recessions and Recoveries 1990 – 1995 Cycle 2000 – 200? Cycle Shareholder Return % / Yr Source: Bloomberg


Slide11: Most But Not All Industry Fundamentals Are Unchanged Energy prices have changed Economy emerging from a downturn Cyclicality has not been repealed Product growth driven by improved quality of life Sustained advantage requires differential cost, scale and/or technology


The Energy World Was Very Different: The Energy World Was Very Different Source: Platt’s


Global Conditions Are Strikingly Similar To The Early 1990’s: Global Conditions Are Strikingly Similar To The Early 1990’s Coming out of the “U.S. recession of 1991” 1992 and 1993 confirmed the worse fears of pessimists U.S. hoping to sustain economic growth of late 1993 Europe headed to moderate economic recovery Iraq will comply with UN edict and…export crude Source: 1993 World Light Olefins Analysis, CMAI


The Global Economy is Emerging from a Difficult Period: The Global Economy is Emerging from a Difficult Period (Percent change in real GDP) Global GDP Source: Global Insights


Within The Ethylene Industry, There Are Striking Similarities Between 1993 And 2003: Within The Ethylene Industry, There Are Striking Similarities Between 1993 And 2003 Demand forecasts Annual rate of 4.9% per year 1992-1998 period Worldwide growth…during 1993 . . . 2% New light olefins in Asia/Pacific and Africa/Middle East will severely impact exports Source: 1993 World Light Olefins Analysis, CMAI Operating rate forecasts Slowly improve from 85% in 1993 Between 1993 and 1997…17.9 MM tons capacity will be added In the U.S. between 1990 and 1992 three new world scale plants


North American Supply/Demand Balance Is On Track To Improve Significantly: North American Supply/Demand Balance Is On Track To Improve Significantly Source: CMAI / Equistar (September/2003)


We Believe that Global Ethylene Supply/Demand is on a Path to a Tight Balance: We Believe that Global Ethylene Supply/Demand is on a Path to a Tight Balance Source: CMAI Sensitivity CMAI base case 96% 104% 99%


Slide18: US Korea Taiwan WE Singapore Japan Thailand Malaysia China India Indonesia The Emergence of a Middle Class Increases Local Demand for Plastics Sources: CMAI 2001; Nexant Chemsystems China PE Demand Domestic vs. Export PE Consumption/capita, lbs 2000 GDP/Capita


Historically Ethylene And Styrene Have Had The Most Leverage To A Cyclical Upturn: Historically Ethylene And Styrene Have Had The Most Leverage To A Cyclical Upturn Contract Pricing Margin Change: Trough To Peak 1992/93 vs. 1995 Δ Margin ¢ / lb Source: CMAI; Lyondell Databook


Enterprise Earnings Capability Far Exceeds Recent Trough Results: Enterprise Earnings Capability Far Exceeds Recent Trough Results 1 Chem Data/CMAI industry margins conditions for IC&D and Equistar products (ex. MTBE) applied to current capacities and ownership, LCR 2003 EBITDA. Note: Assumes current capital structure; 175 MM shares. 1 1 1 Recession/ Trough Pre- Recession Peak Cycle EBITDA Potential $6.90 / share $1.40 / share 2003 Proportional Interest, Dividends & Capital


Slide21: Investing Based on Differential Technology – PO & Derivatives Growth rate: 4-5%/yr End Use: Polyols: seating, mattresses, insulation, coatings PG: deicers, boat hulls, coatings, countertops/showers, personal care Ethers: coatings, electronics BDO: Spandex, electrical & auto parts Basis of differentiation: Proprietary process technology/cost Global position Derivative integration 2003 PO Capacity Share 2003 Derivative Demand Source: SRI, Tecnon, Lyondell estimates


Propylene Oxide Is Differentiated From Other Commodity Petrochemicals By Its Technology Position: Propylene Oxide Is Differentiated From Other Commodity Petrochemicals By Its Technology Position Co-Product Technology Chlorine- Based Technology LYO & Partners Asian Region European Region American Region LYO LYO LYO PO Regional Capacity PO Technology Source Source: SRI, Tecnon , Lyondell estimates


Slide23: The PO Industry Has Absorbed a Period of Capacity Additions Source: SRI / Lyondell Demand at 4.4% growth


The Lyondell Enterprise Has A Well Established Presence in Asia: The Lyondell Enterprise Has A Well Established Presence in Asia Presence established in 1972 40% interest in Nihon Oxirane $1 B revenue 1 2.5 B lbs of sales 1 Leading PO and derivative positions Strong styrene relationships 1 Includes 100% of Nihon Oxirane Beijing Tokyo Shanghai Taipei Hong Kong Guangzhou               Offices Inventory Point Manufacturing


The Asian / Middle East Propylene And PO Chain Supply / Demand Balance Represent An Opportunity: The Asian / Middle East Propylene And PO Chain Supply / Demand Balance Represent An Opportunity Propylene Oxide Growth Propylene Growth 2002 - 2007 2002 - 2007 2007 - 2010 Blbs Blbs Ethylene Co-Product FCC Co-Product Source: CMAI, SRI, Lyondell Estimates


Slide26: Lyondell What Is NOT Different? Our Financial Strategy Maintain Sufficient Liquidity Repay Debt Create Shareholder Value


Lyondell Stock Has Performed Well In Recessions and Recoveries: Lyondell Stock Has Performed Well In Recessions and Recoveries 1990 – 1995 Cycle 2000 – 200? Cycle Shareholder Return % / Yr Source: Bloomberg