Eastman Chemical Company Earnings Call Nuggets: Restarting the Fourth Cracker, Kingsport Coal Gasification Facility
Restarting the Fourth Cracker
Frank Mitsch – Wells Fargo Securities: I guess this is a question for Ron. There was some discussion about restarting the fourth cracker, and then this morning you’re talking about investing in a PDH unit. Does that preclude restarting the fourth cracker? Where do you stand on that decision making process?
Ronald C. Lindsay – EVP, Performance Chemicals and Intermediates, Fibers, Engineering, Construction, and Manufacturing Support: Yeah, Frank, let me go back to what was driving a lot of our assessment of our options here. We, you know, buy a substantial amount of propylene still. Even though we make it we’re net short. We’re net long on ethylene. So, we’ve been looking at how to address in particular that position on propylene and effectively fully backwards integrate our propylene derivatives out of long view. So, we looked at a variety of options there. Starting the cracker was certainly one that we’ve gone through carefully. It did not meet all of our propylene needs to fully backwards integrate, and unlike the one we did restarted was quite a bit more expensive. It was in a poor condition, needed lot more work. So the capital requirement there was much higher, and that really drove us to look at, is that really the right approach to proceed and that led to these other options being surfaced. And we believe this one is the best one of the bunch because of the impact that’s going to have on it as well as the fact that we can take that capital. We would have gone to rebuild something to get the same position and take that capital elsewhere.
Frank Mitsch – Wells Fargo Securities: And then you expect that – you expect this PDH unit to be fully constructed by 2015, and am I correct that this project has not been announced yet publicly?
Ronald C. Lindsay – EVP, Performance Chemicals and Intermediates, Fibers, Engineering, Construction, and Manufacturing Support: You’re right on both fronts there.
Frank Mitsch – Wells Fargo Securities: And…
James P. Rogers – Chairman and CEO: Frank, this is Jim. We’re just a little ahead of the game on this. But we thought it was important. We know, for a few calls now, people have been looking at – so what the Eastman going to do down there in Texas. And let me just say, this is a good, good outcome. We’re getting the economics of the olefin conversion unit close to it and saving our capital. And as we look at doing acquisitions and the other kind of growth initiatives we got, we got to do some more smart moves like this where you get the economics but don’t spend your capital. So, I want to make sure people understand how happy we are with this contract. They still got to sign up a couple more folks. I don’t think you’ve along the way, right Ron?
Ronald C. Lindsay – EVP, Performance Chemicals and Intermediates, Fibers, Engineering, Construction, and Manufacturing Support: That’s right.
James P. Rogers – Chairman and CEO: I mean this one looks like this is a good project. They were being smart. The people building that are being smart about how they’re managing the risk and pretty much locking up the output of this thing. That makes a lot of sense to me. So, this is a win-win for the guys still in it and for us as well.
Frank Mitsch – Wells Fargo Securities: Well, I must say I do appreciate – I do admire the way that you keep us sitting on the edge of our seats. You have Ron giving some news next month; you’ve got Greg Nelson giving some news next month, so I just can’t wait for the next piece of news that out of EMN, I got to tell you.
James P. Rogers – Chairman and CEO: We’re trying to look down the road. You might have noticed we’re trying to be a little more long-term focused in this. For example, on this Perennial Wood if this hits the way we got a shot at it hitting, you’re not going to feel it and this is first thing we book because it’s smaller and it’s really just to tease the market out, but when we go to commercial scale on Perennial it should look very good.
Frank Mitsch – Wells Fargo Securities: Well I was going to ask a different question. Why don’t we stay with Perennial Wood? You said that the initial response has been quite favorable. Can you give us some color around that, any sort of metrics in terms of why you’re feeling better about that today than you did perhaps a couple months ago?
James P. Rogers – Chairman and CEO: Yeah, and I’m not going to steal Greg’s thunder. I will say the response – there’s different metrics you get in terms of response to ads, response to turning (indiscernible) call it but when people first call in and that initial lead turning that into an actual sale, I mean all those kind of numbers are good. I guess while I’m here feeling good, I want to make sure I caveat it a little bit because this is still pretty early on. We’re still getting the bugs out of a few things in the chain, but in general the reception we get from people who know what they’re talking about like the folks within Lowe’s or the folks within Boston Cedar I think this one can be pretty good. But Greg will talk some more about it when he gets up in front of people in a couple weeks.
Kingsport Coal Gasification Facility
David Begleiter – Deutsche Bank: Jim, just on your coal gasification facility in Kingsport. I think you said in the past it was advantaged up until nat gas got as low as $2.5 per MMBtu, I might be wrong on that, but given where gas is, is that facility, is that facility and is that (asphalt chain) still advantaged given low priced nat gas in U.S.?
James P. Rogers – Chairman and CEO: Yes, it is. I mean, we went back and looked at the history. We cannot find a time when we were not advantaged being on coal here in Kingsport. Of course there’s two moving parts; there’s the price of coal and what we pay for it, there’s the efficiency of how we run our operations. So there’s more than two moving parts and then just the price of natural gas. The other thing I would ask you to remember is you’re not necessarily competing with those products. You’re not necessarily competing against other people who are natural gas based. So, when we think globally with where we take those products, a lot of people we’re competing with are naphtha based or natural gas based in other regions of the world, but yeah we’re still pretty pleased with the economics of our gasification facility here in Kingsport.
David Begleiter – Deutsche Bank: Just on the PDH in (indiscernible), you will not be making any capital investment correct?
Curt E. Espeland – SVP and CFO: That’s correct.
David Begleiter – Deutsche Bank: Did you consider making one or taking ownership interest in the facility?
James P. Rogers – Chairman and CEO: Well, this is Jim again. We anticipated a question well, why not do two or three things, why not restart the cracker, why not do the (OCU), why not take a chunk of this PDH. We’re really trying to think about our long-term strategy how we deploy our cash, our resources and we don’t necessarily just want to be a bigger ethylene producer and if we did, it wouldn’t be with the size of crackers that we have in Texas. So, we were more than willing to go ahead with the OCU; that made a lot a sense, but this was a very elegant solution in terms of saving our capital and getting what we need. By the way the economics look different when you are talking about replacing or backing out your propylene purchases versus just being a merchant ethylene or propylene producer. So, we really like where we’re ending up. I hope to go ahead and wrap up that project and get it announced publically so that we can talk more about it.
David Begleiter – Deutsche Bank: Jim, lastly, can you comment on the propane-propylene spread in Q1 and if you can quantify the benefit to you guys?
James P. Rogers – Chairman and CEO: Yeah, we did it once last year to kind of lay it out for people. We said that wasn’t the (impetus) we wanted people to think about and we didn’t want them just focusing on propane and propylene. I can tell you, it’s good again in the first quarter. Of course, the ethylene was really good in our first quarter for selling you everything that you got to think more than just the propane, propylene; it’s also how the ethylene did. Year-over-year, it’s going to be – the whole cracker spreads are going to be pretty good for us compared to last year. I was sitting here and thinking as much as I don’t want to talk about that it’s nice to have the spreads issue as yet. The other thing I’ll say on it is, there is some chatter about whether or not propane is going to come off in the middle of the year, maybe go a little long, and that very well could be. One of the things I thought about is, it is perhaps more likely to hold on the spread if propane is what comes off. Just propylene going up sometimes; the way we move so much propylene through derivatives you don’t – you can’t always get the pricing and the derivatives that equates to what the propylene went up, and we talked about that last year in the second quarter when people were thinking we’re going to do better than we did. So, propane coming off, you may be more likely to keep some of that spread, but as we looked forward in the year and looked at our numbers, we just kind of assumed it was steady state where it is now.