Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

This discussion should be read in conjunction with the information contained in our Consolidated Financial Statements, and the accompanying notes elsewhere in this report. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell Industries N.V. together with its consolidated subsidiaries (“LyondellBasell N.V.”).

Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from the Advanced Polymer Solutions (“APS”) segment and reintegrated into the Olefins and Polyolefins-Americas (“O&P-Americas”) and Olefins and Polyolefins-Europe, Asia, International (“O&P-EAI”) segments. This move will allow the APS team to focus on our compounding and solutions business, and to develop a more agile operating model with meaningful regional and segment growth strategies. The segment information provided herein has been revised for all periods presented to reflect these changes.

OVERVIEW

Excluding the impacts of the first quarter 2023 APS goodwill impairment, results for the second quarter of 2023 compared to the first quarter of 2023 were relatively unchanged. Our O&P-Americas and O&P-EAI segment results improved due to modest margin improvements driven by lower feedstock costs. Our I&D segment results improved primarily due to incremental volume driven by improved demand and production from our new PO/TBA plant which was largely offset by planned maintenance at our existing assets. These improvements were offset by a decline in refining margins during the quarter.

During the first six months of 2023 our results decreased compared to the first six months of 2022. Global olefins and polyolefins margins decreased primarily due to a decline in average sales prices resulting in lower O&P-Americas and O&P-EAI segment results. Our I&D segment results decreased due to unfavorable margins across most businesses partially offset by volume increases for oxyfuels. Refining results declined as a result of decreased margins and unplanned downtime in the first quarter of 2023.

During the first six months of 2023 we generated $1,772 million in cash from operating activities. We remain committed to a disciplined approach to capital allocation, spending $653 million for capital expenditures and returning $967 million to shareholders through dividends and share repurchases. We continue to explore strategic options for our U.S. Gulf Coast-based ethylene oxide & derivatives (“EO&D”) business.

Results of operations for the periods discussed are presented in the table below:

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	10,306					$	10,247											$	20,553					$	27,995
Cost of sales			8,868						8,864												17,732						23,403
Impairments			—						252												252						69
Selling, general and administrative expenses			395						385												780						657
Research and development expenses			32						33												65						64
Operating income			1,011						713												1,724						3,802
Interest expense			(115)						(116)												(231)						(132)
Interest income			28						23												51						6
Other (expense) income, net			(7)						5												(2)						(67)
(Loss) income from equity investments			(12)						17												5						51
Income from continuing operations before income taxes			905						642												1,547						3,660
Provision for income taxes			188						167												355						694
Income from continuing operations			717						475												1,192						2,966
Loss from discontinued operations, net of tax			(2)						(1)												(3)						(2)
Net income			715						474												1,189						2,964
Other comprehensive income (loss), net of tax –
Financial derivatives			3						4												7						190
Defined benefit pension and other postretirement benefit plans			2						2												4						83
Foreign currency translations			(31)						59												28						(186)
Total other comprehensive (loss) income, net of tax			(26)						65												39						87
Comprehensive income			$	689					$	539											$	1,228					$	3,051

RESULTS OF OPERATIONS

Revenues—Revenues increased by $59 million, or 1%, in the second quarter of 2023 compared to the first quarter of 2023. Higher volumes driven primarily by increases in our I&D and Refining segments resulted in an 8% increase in revenues. Favorable foreign exchange impacts resulted in a 1% increase in revenues. Average sales prices in the second quarter of 2023 were lower for many of our products as sales prices generally correlate with crude oil prices. These lower prices resulted in an 8% decrease in revenues.

Revenues decreased by $7,442 million, or 27%, in the first six months of 2023 compared to the first six months of 2022. Average sales prices were lower for many of our products as sales prices generally correlate with crude oil prices, which decreased relative to the first six months of 2022. These lower prices led to a 25% decrease in revenues. Lower volumes driven by a decline in demand resulted in a 2% decrease in revenues.

Cost of Sales—Cost of sales remained relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023. Cost of sales decreased by $5,671 million, or 24%, in the first six months of 2023 compared to the first six months of 2022, primarily driven by lower feedstock and energy costs.

Impairments—During the first quarter of 2023 we recognized a non-cash goodwill impairment charge of $252 million in our APS segment after the effect of moving our Catalloy and polybutene-1 businesses from our APS segment and reintegrating into our O&P-Americas and O&P-EAI segments. During the second quarter of 2022 we recognized a non-cash impairment charge of $69 million related to the sale of our Australian polypropylene manufacturing facility. See Note 12 to our Consolidated Financial Statements for additional information.

SG&A Expenses—Selling, general and administrative (“SG&A”) expenses remained relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023. SG&A expenses increased by $123 million, or 19%, in the first six months of 2023 compared to the first six months of 2022. Approximately half of the increase was attributable to higher employee-related expenses. The remaining increase was largely driven by professional fees incurred for strategic projects.

Operating Income—Operating income increased by $298 million, or 42%, in the second quarter of 2023 compared to the first quarter of 2023. Operating income in our APS, O&P-Americas, I&D, O&P-EAI and Technology segments increased by $256 million, $153 million, $41 million, $33 million, and $9 million, respectively. These increases were partially offset by a decrease in our Refining segment of $189 million.

Operating income decreased by $2,078 million, or 55%, in the first six months of 2023 compared to the first six months of 2022. Operating income in our O&P-Americas, I&D, Refining, APS, O&P-EAI and Technology segments decreased by $676 million, $422 million, $387 million, $302 million, $233 million and $68 million, respectively.

Interest Expense—Interest expense remained relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023. Interest expense increased by $99 million, or 75%, in the first six months of 2023 compared to the first six months of 2022, primarily due to a decrease in capitalized interest associated with our new PO/TBA plant which started-up in the first quarter of 2023 and the impact of our fixed-for-floating interest rate swaps due to higher interest rates in current year.

Other Expense, net—Other expense, net remained relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023. Other expense, net decreased by $65 million, or 97%, in the first six months of 2023 compared to the first six months of 2022, primarily as a result of pension settlements recognized in the second quarter of 2022.

(Loss) Income from Equity Investments—Income from equity investments declined by $29 million, or 171%, in the second quarter of 2023 compared to the first quarter of 2023, and by $46 million, or 90%, in the first six months of 2023 compared to the first six months of 2022. The declines were related to the lower results across our joint ventures in O&P-Americas and O&P-EAI segments driven primarily by lower margins.

Results for each of our business segments are discussed further in the Segment Analysis section below.

Income Taxes—Our effective income tax rate for the second quarter of 2023 was 20.8% compared with 26.0% for the first quarter of 2023. The lower effective income tax rate for the second quarter of 2023 is primarily attributable to the first quarter goodwill impairment, for which there is no tax benefit, of 6.6% and the increased relative impact of exempt income due to decreased pretax income of 2.7%. These decreases were partially offset by a 4.8% increase in our effective income tax rate due to an audit settlement during the second quarter.

Our effective income tax rate for the first six months of 2023 was 22.9% compared to 19.0% for the first six months of 2022. The higher effective tax rate for the first six months of 2023 was primarily due to the first quarter 2023 goodwill impairment, for which there is no tax benefit, of 2.8%, an audit settlement during the second quarter 2023 of 2.4%, and fluctuations in uncertain tax positions of 1.2%. These increases were partially offset by a 2.7% decrease in our effective income tax rate due to the increased relative impact of exempt income due to decreased pretax income.

Our income tax results are discussed further in Note 8 to the Consolidated Financial Statements.

Comprehensive Income—Comprehensive income increased by $150 million in the second quarter of 2023 compared to the first quarter of 2023, primarily due to the increase in Net income. Comprehensive income decreased by $1,823 million in the first six months of 2023 compared to the first six months of 2022, primarily due to the decrease in Net income. The activities from the remaining components of Comprehensive income are discussed below.

Financial derivatives designated as cash flow hedges, primarily our forward-starting interest rate swaps, remained relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023. Financial derivatives designated as cash flow hedges, primarily our forward-starting interest rate swaps, led to a decrease in Comprehensive income of $183 million in the first six months of 2023 compared to the first six months of 2022 due to periodic changes in the benchmark interest rates.

Defined pension and other postretirement benefit plans remained relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023. Defined pension and postretirement benefit plans led to a decrease of Comprehensive income of $79 million in the first six months of 2023 compared to the first six months of 2022, primarily due to a pre-tax pension settlement of $94 million that was reclassified from Accumulated other comprehensive loss to Other (expense) income, net, in the second quarter of 2022.

Foreign currency translations decreased Comprehensive income by $90 million in the second quarter of 2023 compared to the first quarter of 2023, primarily due to the weakening of the U.S. dollar relative to the euro, offset by the effective portion of our net investment hedges. Foreign currency translation increased Comprehensive income by $214 million in the first six months of 2023 compared to the first six months of 2022, primarily due to the strengthening of the U.S. dollar relative to the euro, offset by the effective portion of our net investment hedges.

See Notes 7 and 10 to our Consolidated Financial Statements for further discussions.

Segment Analysis

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (“EBITDA”) as our measure of profitability for segment reporting purposes. This measure of segment operating results is used by our chief operating decision maker to assess the performance of and allocate resources to our operating segments. Intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other postretirement benefits other than service costs are included in “Other”. For additional information related to our operating segments, as well as a reconciliation of EBITDA to its nearest generally accepted accounting principles (“GAAP”) measure, Income from continuing operations before income taxes, see Note 12 to our Consolidated Financial Statements.

Our continuing operations are managed through six reportable segments: O&P-Americas, O&P-EAI, I&D, APS, Refining and Technology.

Revenues and the components of EBITDA for the periods presented are reflected in the table below:

			Three Months Ended												Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues:
O&P-Americas segment			$	2,727					$	2,808											$	5,535					$	7,972
O&P-EAI segment			2,729						2,892												5,621						7,823
I&D segment			2,662						2,682												5,344						7,105
APS segment			960						997												1,957						2,252
Refining segment			2,459						2,190												4,649						6,508
Technology segment			154						139												293						375
Other, including intersegment eliminations			(1,385)						(1,461)												(2,846)						(4,040)
Total			$	10,306					$	10,247											$	20,553					$	27,995
Operating income (loss):
O&P-Americas segment			$	524					$	371											$	895					$	1,571
O&P-EAI segment			54						21												75						308
I&D segment			361						320												681						1,103
APS segment			9						(247)												(238)						64
Refining segment			(3)						186												183						570
Technology segment			70						61												131						199
Other, including intersegment eliminations			(4)						1												(3)						(13)
Total			$	1,011					$	713											$	1,724					$	3,802
Depreciation and amortization:
O&P-Americas segment			$	144					$	144											$	288					$	291
O&P-EAI segment			47						48												95						92
I&D segment			117						110												227						162
APS segment			24						22												46						48
Refining segment			49						61												110						2
Technology segment			10						11												21						20
Total			$	391					$	396											$	787					$	615

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Income (loss) from equity investments:
O&P-Americas segment			$	12					$	23											$	35					$	62
O&P-EAI segment			(19)						1												(18)						—
I&D segment			(5)						(6)												(11)						(11)
APS segment			—						(1)												(1)						—
Total			$	(12)					$	17											$	5					$	51
Other (expense) income, net:
O&P-Americas segment			$	(1)					$	3											$	2					$	(31)
O&P-EAI segment			2						7												9						—
I&D segment			(1)						2												1						(33)
APS segment			1						—												1						1
Refining segment			1						(1)												—						(6)
Technology segment			(1)						1												—						(4)
Other, including intersegment eliminations			(8)						(7)												(15)						6
Total			$	(7)					$	5											$	(2)					$	(67)
EBITDA:
O&P-Americas segment			$	679					$	541											$	1,220					$	1,893
O&P-EAI segment			84						77												161						400
I&D segment			472						426												898						1,221
APS segment			34						(226)												(192)						113
Refining segment			47						246												293						566
Technology segment			79						73												152						215
Other, including intersegment eliminations			(12)						(6)												(18)						(7)
Total			$	1,383					$	1,131											$	2,514					$	4,401

Olefins and Polyolefin-Americas Segment

Overview—EBITDA in the second quarter of 2023 increased compared to the first quarter of 2023 driven by improvements in polyolefin margins. EBITDA decreased in the first six months of 2023 relative to the first six months of 2022 primarily driven by lower margins.

*Ethylene Raw Materials—*We have flexibility to vary the raw material mix and process conditions in our U.S. olefins plants in order to maximize profitability as market prices fluctuate for both feedstocks and products. Although prices of crude-based liquids and natural gas liquids are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly. In the second and first quarter of 2023, and the first six months of 2023 and 2022, approximately 70% to 80% of the raw materials used in our North American crackers was ethane.

The following table sets forth selected financial information for the O&P-Americas segment including Income from equity investments, which is a component of EBITDA:

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	2,727					$	2,808											$	5,535					$	7,972
Income from equity investments			12						23												35						62
EBITDA			679						541												1,220						1,893

Revenue—Revenues for our O&P-Americas segment decreased by $81 million, or 3% in the second quarter of 2023 compared to the first quarter of 2023 and by $2,437 million, or 31%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Revenue decreased by 6% as a result of lower average sales prices driven by lower demand. Higher volumes resulted in a revenue increase of 3% primarily driven by higher propylene and polypropylene sales and improved ethylene operating rates.

First six months of 2023 versus first six months of 2022—Lower average sales prices across all products resulted in a 30% decrease in revenue primarily driven by increased market supply. Lower volumes resulted in a 1% decrease in revenue.

EBITDA—EBITDA increased by $138 million, or 26%, in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $673 million, or 36%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Higher polyethylene results led to a 12% increase in EBITDA due to higher margins driven by lower monomer and freight costs. Higher polypropylene results led to a 5% increase in EBITDA driven by higher margins resulting from lower propylene cost.

First six months of 2023 versus first six months of 2022—Lower polyethylene results led to a 16% decrease in EBITDA primarily driven by lower margins as a result of lower average sales prices. Lower polypropylene results led to a 14% decrease in EBITDA driven by a decrease in margin as a result of lower prices due to increased industry capacity and lower demand. Lower olefins results led to an 8% decrease in EBITDA due to lower margins driven by a decline in the average sales price of ethylene partially offset by lower feedstock costs.

Olefins and Polyolefin-Europe, Asia, International Segment

Overview—EBITDA increased in the second quarter of 2023 compared to the first quarter of 2023 primarily due to improved olefins margins, partially offset by lower polymers margins and lower income from equity investments. EBITDA decreased in the first six months of 2023 relative to the first six months of 2022 primarily as a result of lower polymers margins.

*Quality Circular Polymers—*In April 2023, we acquired the remaining 50% interest in Quality Circular Polymers (“QCP”). As a result of the acquisition, QCP became a wholly owned subsidiary and is included in our O&P-EAI consolidated results prospectively after the acquisition date.

Ethylene Raw Materials—In Europe, naphtha is the primary raw material for our ethylene production and represented approximately 65% to 70% of the raw materials used in the second and first quarter of 2023, and the first six months of 2023 and 2022.

The following table sets forth selected financial information for the O&P-EAI segment including Income (loss) from equity investments, which is a component of EBITDA:

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	2,729					$	2,892											$	5,621					$	7,823
(Loss) income from equity investments			(19)						1												(18)						—
EBITDA			84						77												161						400

Revenue—Revenues decreased by $163 million, or 6%, in the second quarter of 2023 compared to the first quarter of 2023 and by $2,202 million, or 28%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Lower average sales prices resulted in a 6% decrease in revenue as sales prices generally correlate with crude oil prices, which on average, decreased compared to the first quarter of 2023. Lower volumes resulted in a revenue decrease of 2% primarily due to a decline in demand. Favorable foreign exchange impacts resulted in a revenue increase of 2%.

First six months of 2023 versus first six months of 2022—Lower average sales prices resulted in a 24% decrease in revenue as sales prices generally correlate with crude oil prices, which on average, decreased compared to the first six months of 2022. Lower volumes resulted in a revenue decrease of 3% primarily due to a decline in demand. Unfavorable foreign exchange impacts resulted in a revenue decrease of 1%.

EBITDA—EBITDA increased by $7 million, or 9%, in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $239 million, or 60%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Higher olefins results led to an 88% increase in EBITDA primarily driven by higher cracker margins as a result of lower feedstock and energy costs. Lower polyolefins results led to a 56% decrease in EBITDA primarily driven by lower margins due to decreased demand as European markets remain challenging, especially for durable goods. A decrease in income from our equity investments led to a decline in EBITDA of 25% mainly attributable to the absence of a gain on sale of asset recognized by one of our joint ventures in Europe in the first quarter of 2023.

First six months of 2023 versus first six months of 2022—Lower polymer results led to a 91% decrease in EBITDA primarily driven by decreased margins resulting from lower average sales prices reflecting weak demand. Higher olefins results led to a 17% increase in EBITDA, which was primarily driven by higher volumes resulting from the absence of planned and unplanned downtime. In the second quarter of 2022, we recognized a $69 million non-cash impairment charge in conjunction with the sale of our polypropylene manufacturing facility located in Australia. The absence of a similar charge in the first six months of 2023 resulted in a 17% increase in EBITDA.

Intermediates and Derivatives Segment

Overview—EBITDA increased in the second quarter of 2023 compared to the first quarter of 2023, primarily driven by volume improvements for oxyfuels and related products. EBITDA decreased in the first six months of 2023 compared to the first six months of 2022, primarily driven by a decrease in margins for propylene oxide and derivatives and intermediate chemicals, partially offset by volume improvements for oxyfuels and related products.

The following table sets forth selected financial information for the I&D segment including Income (loss) from equity investments, which is a component of EBITDA:

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	2,662					$	2,682											$	5,344					$	7,105
Loss from equity investments			(5)						(6)												(11)						(11)
EBITDA			472						426												898						1,221

Revenue—Revenues decreased by $20 million, or 1%, in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $1,761 million, or 25%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Lower average sales prices resulted in a 12% decrease in revenue driven by propylene oxide and derivatives as a result of lower demand. Sales volumes improved resulting in a 10% increase in revenue driven by driven by improved demand. Favorable foreign exchange impacts resulted in a 1% increase in revenue.

First six months of 2023 versus first six months of 2022—Lower average sales prices resulted in a 24% decrease in revenue driven by lower pricing as a result of lower demand. Sales volumes decreased resulting in a 1% reduction in revenue due to lower demand and planned maintenance.

EBITDA—EBITDA increased by $46 million, or 11%, in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $323 million, or 26%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—EBITDA improved 23% as a result of higher oxyfuels and related products volumes driven by strong demand. Propylene oxide and derivatives results drove a 13% decrease in EBITDA driven equally by lower volumes and margins as a result of weak demand.

First six months of 2023 versus first six months of 2022—Propylene oxide and derivatives results drove a 25% decrease in EBITDA as margins declined due to lower demand. Intermediate chemicals results declined, resulting in an 18% decrease in EBITDA, primarily driven by lower margins as higher market supply drove average sales prices down. Improved oxyfuels and related products results led to an EBITDA increase of 10% as volumes increased as a result of strong demand.

Advanced Polymer Solutions Segment

Overview—EBITDA increased in the second quarter of 2023 relative to the first quarter of 2023 and decreased in the first six months of 2023 compared to the first six months of 2022 primarily due to the recognition of a non-cash goodwill impairment charge in the first quarter of 2023.

The following table sets forth selected financial information for the APS segment including Income (loss) from equity investments, which is a component of EBITDA:

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	960					$	997											$	1,957					$	2,252
Loss from equity investments			—						(1)												(1)						—
EBITDA			34						(226)												(192)						113

Revenue—Revenues decreased by $37 million, or 4%, in the second quarter of 2023 compared to the first quarter of 2023 and by $295 million, or 13%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Sales volumes decreased resulting in a 3% decrease in revenue stemming from lower demand. Average sales prices decreased resulting in a 2% decrease in revenue. Favorable foreign exchange impacts resulted in a revenue increase of 1%.

First six months of 2023 versus first six months of 2022—Average sales price decreased resulting in an 8% decrease in revenue. Sales volumes decreased resulting in a 4% decrease in revenue stemming from lower demand. Unfavorable foreign exchange impacts resulted in a revenue decrease of 1%.

EBITDA—EBITDA increased by $260 million or 115% in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $305 million or 270% in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—During the first quarter of 2023 we recognized a non-cash goodwill impairment charge of $252 million after the effect of moving our Catalloy and polybutene-1 businesses from our APS segment and reintegrating them into our O&P-Americas and O&P-EAI segments. The absence of a similar charge in the second quarter of 2023 resulted in a 112% increase in EBITDA when compared to the first quarter of 2023. See Note 12 to our Consolidated Financial Statements for additional information.

First six months of 2023 versus first six months of 2022—Margins in the first six months of 2023 decreased compared to the first six months of 2022, primarily due to sales prices decreasing more than production and raw material costs, resulting in a 27% decrease in EBITDA. Lower volumes resulted in a 26% decrease in EBITDA as a result of a decrease in demand. The remaining decrease was primarily due to the recognition of the non-cash goodwill impairment charge in the first quarter of 2023, discussed above.

Refining Segment

Overview—EBITDA decreased in the second quarter of 2023 compared to the first quarter of 2023 primarily due to lower margins. EBITDA decreased in the first six months of 2023 compared to the first six months of 2022 due to lower margins, unplanned downtime and costs incurred related to the planned exit from the refining business.

The following table sets forth selected financial information and heavy crude oil processing rates for the Refining segment and the U.S. refining market margins for the applicable periods. “Brent” is a light sweet crude oil and is one of the main benchmark prices for purchases of oil worldwide. “Maya” is a heavy sour crude oil grade produced in Mexico that is a relevant benchmark for heavy sour crude oils in the U.S. Gulf Coast market. References to industry benchmarks for refining market margins are to industry prices reported by Platts, a division of S&P Global.

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	2,459					$	2,190											$	4,649					$	6,508
EBITDA			47						246												293						566
Thousands of barrels per day
Heavy crude oil processing rates			245						226												236						254
Market margins, dollars per barrel
Brent - 2-1-1			$	25.11					$	29.44											$	27.27					$	35.08
Brent - Maya differential			14.34						19.39												16.87						8.25
Total Maya 2-1-1			$	39.45					$	48.83											$	44.14					$	43.33

Revenue—Revenues increased by $269 million, or 12%, in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $1,859 million, or 29%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Sales volumes increased resulting in an 18% increase in revenue due to the absence of unplanned downtime in the second quarter of 2023. Lower product prices led to a revenue decrease of 6% due to an average Brent crude oil price decrease of approximately $4.20 per barrel.

First six months of 2023 versus first six months of 2022—Lower product prices led to a revenue decrease of 27% due to an average Brent crude oil price decrease of approximately $24.47 per barrel. Sales volumes decreased resulting in a 2% decrease in revenue due to slightly lower operating rates.

EBITDA—EBITDA decreased by $199 million, or 81%, in the second quarter of 2023 compared to the first quarter of 2023 and by $273 million, or 48%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Lower margins resulted in a 99% decrease in EBITDA as the Maya 2-1-1 industry crack spread declined approximately $9 per barrel to $39 per barrel in the second quarter with heavy crude supply tightening leading to lower Maya and Western Canadian Select (“WCS”) crude discounts. Higher volumes, as a result of the absence of unplanned downtime in the second quarter of 2023, resulted in an 18% increase in EBITDA.

First six months of 2023 versus first six months of 2022—Costs incurred related to our planned exit from the refining business in the first six months of 2023 resulted in a 24% decrease in EBITDA. Lower margin drove a 14% decrease in EBITDA primarily due to unfavorable pricing on non-Maya crude purchases and lower operating yields of refined products. EBITDA decreased 11% as a result of a decrease in volumes driven by unplanned downtime in the first quarter of 2023. See Note 12 to the Consolidated Financial Statements for additional information regarding our planned exit of the refining business.

Technology Segment

Overview—EBITDA increased in the second quarter of 2023 compared to the first quarter of 2023 primarily due to higher licensing revenues from more contracts reaching significant milestones. EBITDA decreased in the first six months of 2023 relative to the first six months of 2022 primarily driven by lower catalyst volumes and lower licensing revenues from less contracts reaching significant milestones.

The following table sets forth selected financial information for the Technology segment:

			Three Months Ended																		Six Months Ended
			June 30,						March 31,												June 30,						June 30,
Millions of dollars			2023						2023												2023						2022
Sales and other operating revenues			$	154					$	139											$	293					$	375
EBITDA			79						73												152						215

Revenue—Revenues increased by $15 million, or 11%, in the second quarter of 2023 compared to the first quarter of 2023 and decreased by $82 million, or 22%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Licensing revenues increased by 10% as more contracts reached significant milestones during the quarter. Increased average catalyst sales price resulted in a revenue increase of 2%. Favorable foreign exchange impact increased revenue by 2%. Lower catalyst volumes resulted in a 3% decrease in revenues.

First six months of 2023 versus first six months of 2022—Lower catalyst volumes resulted in a 16% decrease in revenue primarily driven by weaker demand. Lower licensing revenues resulting from fewer contracts reaching significant milestones drove a 6% decrease in revenue.

EBITDA—EBITDA increased by $6 million, or 8%, in the second quarter of 2023 compared to the first quarter of 2022 and decreased by $63 million, or 29%, in the first six months of 2023 compared to the first six months of 2022.

Second quarter of 2023 versus first quarter of 2023—Higher licensing revenues resulting from more contracts reaching significant milestones led to a 15% increase in EBITDA. Catalyst results drove an 8% decrease in EBITDA equally driven by price and volume declines as a result of lower demand.

First six months of 2023 versus first six months of 2022—Lower catalyst volumes driven by lower demand resulted in a 22% decrease in EBITDA. Lower licensing revenues from less contracts reaching significant milestones resulted in a 10% decrease in EBITDA.

FINANCIAL CONDITION

Operating, investing and financing activities of continuing operations, which are discussed below, are presented in the following table:

			Six Months Ended June 30,
Millions of dollars			2023						2022
Cash provided by (used in):
Operating activities			$	1,772					$	3,101
Investing activities			(742)						(1,034)
Financing activities			(701)						(2,392)

Operating Activities—Cash provided by operating activities of $1,772 million in the first six months of 2023 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital—Accounts receivable, Inventories, and Accounts payable.

In the first six months of 2023, the main components of working capital used $605 million of cash driven primarily by increases in Inventories and Accounts receivable. The increase in Inventories was primarily due to inventory build associated with our PO/TBA plant as well as planned and unplanned outages. The increase in Accounts receivable was primarily driven by higher volumes and average sales prices in our O&P-EAI and I&D segments.

Cash provided by operating activities of $3,101 million in the first six months of 2022 primarily reflected earnings adjusted for non-cash items and cash used by the main components of working capital.

In the first six months of 2022, the main components of working capital used $494 million of cash driven primarily by an increase in Accounts receivable and Inventories partially offset by an increase in Accounts payable. The increase in Accounts receivable was driven by higher revenues across most businesses primarily driven by higher average sales prices and increased demand. The increase in Inventories was primarily due to replenishment of crude and refined products inventory levels to support anticipated business demands as well as increased prices of certain inventory. The increase in Accounts payable was primarily driven by increased raw material costs.

Investing Activities—Capital expenditures in the first six months of 2023 totaled $653 million compared to $978 million in the first six months of 2022. Approximately 40% and 45% of our capital expenditures in the first six months of 2023 and 2022, respectively, was for profit-generating growth projects, primarily our PO/TBA plant, with the remaining expenditures supporting sustaining maintenance. See Note 12 to the Consolidated Financial Statements for additional information regarding capital expenditures by segment.

Financing Activities—We made dividend payments totaling $797 million and $2,464 million in the first six months of 2023 and 2022, respectively. Additionally, in the first six months of 2023 and 2022, we made payments of $170 million and $262 million to repurchase outstanding ordinary shares, respectively.

In May 2023, we issued $500 million of 5.625% guaranteed notes due 2033. For additional detail see Note 6 to the Consolidated Financial Statements.

Through the repurchase and issuance of commercial paper instruments under our commercial paper program, we made net repayments of $200 million in the first six months of 2023 and received net proceeds of $105 million in the first six months of 2022.

In the first six months of 2022, we received a return of collateral of $217 million, related to the positions held with our counterparties for certain forward-starting interest rate swaps.

Liquidity and Capital Resources

Overview

We plan to fund our working capital, capital expenditures, debt service, dividends and other cash requirements with our current available liquidity and cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. Debt repayment, and the purchase of shares under our share repurchase authorization, may be funded from cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt, or a combination thereof.

As part of our overall capital allocation strategy, we plan to provide returns to shareholders in the form of dividends and share repurchases. Barring any significant or unforeseen business challenges, mergers or acquisitions, over the long-term, we are targeting shareholder returns of 70% of free cash flow, defined as net cash provided by operating activities less capital expenditures. We intend to continue to declare and pay quarterly dividends, with the goal of increasing the dividend over time, after giving consideration to our cash balances and expected results from operations. Our focus on funding our dividends while remaining committed to a strong investment grade balance sheet continues to be the foundation of our capital allocation strategy.

Cash and Liquid Investments

As of June 30, 2023, we had Cash and cash equivalents totaling $2,468 million, which includes $965 million in jurisdictions outside of the U.S., the majority of which is held within the European Union and the United Kingdom. There are currently no legal or economic restrictions that would materially impede our transfers of cash.

Credit Arrangements

At June 30, 2023, we had total debt, including current maturities, of $11,612 million. Additionally, we had $186 million of outstanding letters of credit, bank guarantees and surety bonds issued under uncommitted credit facilities to support trade payables and other obligations.

We had total unused availability under our credit facilities of $4,150 million at June 30, 2023, which included the following:

• $3,250 million under our $3,250 million Senior Revolving Credit Facility, which backs our $2,500 million commercial paper program. Availability under this facility is net of outstanding borrowings, outstanding letters of credit provided under the facility and notes issued under our commercial paper program. At June 30, 2023, we had no outstanding commercial paper and no borrowings or letters of credit outstanding under this facility; and

• $900 million under our $900 million U.S. Receivables Facility. Availability under this facility is subject to a borrowing base of eligible receivables, which is reduced by outstanding borrowings and letters of credit, if any. At June 30, 2023, we had no borrowings or letters of credit outstanding under this facility.

At any time and from time to time, we may repay or redeem our outstanding debt, including purchases of our outstanding bonds in the open market, through privately negotiated transactions or a combination thereof, in each case using cash and cash equivalents, cash from our short-term investments, cash from operating activities, proceeds from the issuance of debt or proceeds from asset divestitures. Any repayment or redemption of our debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. In connection with such repurchases or redemptions, we may incur cash and non-cash charges, which could be material in the period in which they are incurred.

Share Repurchases

In May 2023, our shareholders approved a proposal to authorize us to repurchase up to 34.0 million ordinary shares, through November 19, 2024, which superseded any prior repurchase authorizations. Our share repurchase authorization does not have a stated dollar amount, and purchases may be made through open market purchases, private market transactions or other structured transactions. Repurchased shares could be retired or used for general corporate purposes, including for various employee benefit and compensation plans. The maximum number of shares that may yet be purchased is not necessarily an indication of the number of shares that will ultimately be purchased. In the first six months of 2023, we purchased approximately 1.9 million shares under our share repurchase authorizations for $173 million.

As of August 2, 2023, we had approximately 33.1 million shares remaining under the current authorization. The timing and amounts of additional shares repurchased, if any, will be determined based on our evaluation of market conditions and other factors, including any additional authorizations approved by our shareholders. For additional information related to our share repurchase authorizations, see Note 10 to the Consolidated Financial Statements.

Capital Budget

In 2023, we are planning to invest approximately $1.7 billion in capital expenditures. Approximately 70% of the 2023 budget is planned for sustaining maintenance, with the remaining budget supporting profit-generating growth projects.

CURRENT BUSINESS OUTLOOK

In the third quarter of 2023, we expect typical benefits from summer seasonality to be more than offset by soft demand due to ongoing economic uncertainty. Stagnant demand, volatile feedstock costs and new capacity in North America and China are challenging petrochemical margins. Summer demand for transportation fuels continues to support attractive oxyfuels and refining margins.

During the third quarter, we expect average operating rates of 85% for our North American olefins and polyolefins assets and 75% for our European olefins and polyolefins and I&D assets in line with global market demand. We believe current market conditions will persist amidst challenging economic conditions and a slower than expected recovery in China. As a result of the challenging economic environment, we expect our third quarter 2023 earnings will range from mid-teen to mid-twenty percentage points lower than the second quarter of 2023.

Value Enhancement Program

During 2022, we introduced our value enhancement program that is anticipated to generate approximately $575 million in recurring annual Net income improvement by the end of 2025, which, after adding back income taxes and depreciation and amortization of $140 million and $35 million, respectively, results in $750 million of EBITDA.

Our Value Enhancement Program is progressing ahead of schedule. As a result, the program's near-term target was increased by approximately 30% and is now expected to deliver $150 million of Net income and $200 million of recurring annual EBITDA by year end 2023. EBITDA excludes income taxes and depreciation and amortization of approximately $35 million and $15 million, respectively.

We estimate incurring costs of $150 million in 2023 to achieve this milestone. Net income and recurring annual EBITDA for the value enhancement program is estimated based on 2017 through 2019 mid-cycle margins and modest inflation relative to a 2021 baseline year.

CRITICAL ACCOUNTING POLICIES

Goodwill Impairment—We evaluate the recoverability of the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable.

Effective January 1, 2023, our Catalloy and polybutene-1 businesses were moved from our APS segment and reintegrated into our O&P-Americas and O&P-EAI segments. When moved, a portion of the APS reporting unit’s goodwill was allocated to the O&P-Americas and O&P-EAI segments based on the businesses’ relative fair values compared to the reportable segment.

In the first quarter of 2023, we evaluated goodwill for impairment immediately before and after the transfer of these businesses. Our evaluation resulted in the recognition of a non-cash goodwill impairment of $252 million recognized in our APS segment. Refer to Note 12 to our Consolidated Financial Statements.

Fair values were determined utilizing a discounted cash flow method under the income approach and assumptions including management’s view on long-term growth rates in our industry, discount rates and other assumptions based on a market participant perspective, which are inherently subjective. Discount rates utilized in our cash flow model were based on a variety of factors, including market and economic conditions, the risk and nature of the cash flows and the rate of return required by market participants. We believe our fair value estimates of projected financial information are reasonable and consistent with those used in our planning, capital investment and business performance reviews. However, actual results may differ from these projections.

An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions, including pricing, volumes and discount rates, which could materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions.

ACCOUNTING AND REPORTING CHANGES

For a discussion of the potential impact of new accounting pronouncements on our Consolidated Financial Statements, see Note 2 to the Consolidated Financial Statements.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.

We based forward-looking statements on our current expectations, estimates and projections of our business and the industries in which we operate. We caution you that these statements are not guarantees of future performance. They involve assumptions about future events that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. Our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

• the cost of raw materials represents a substantial portion of our operating expenses, and energy costs generally follow price trends of crude oil, natural gas liquids and/or natural gas; price volatility can significantly affect our results of operations and we may be unable to pass raw material and energy cost increases on to our customers due to the significant competition that we face, the commodity nature of our products and the time required to implement pricing changes;

• our operations in the United States (“U.S.”) have benefited from low-cost natural gas and natural gas liquids; decreased availability of these materials (for example, from their export or regulations impacting hydraulic fracturing in the U.S.) could reduce the current benefits we receive;

• if crude oil prices are low relative to U.S. natural gas prices, we could see less benefit from low-cost natural gas and natural gas liquids and it could have a negative effect on our results of operations;

• industry production capacities and operating rates may lead to periods of oversupply and low profitability;

• we may face unplanned operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failures, unscheduled downtime, supplier disruptions, labor shortages, strikes, work stoppages or other labor difficulties, transportation interruptions, spills and releases and other environmental incidents) at any of our facilities, which would negatively impact our operating results;

• changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate could increase our costs, restrict our operations and reduce our operating results;

• our ability to execute our organic growth plans may be negatively affected by our ability to complete projects on time and on budget;

• our ability to acquire or dispose of product lines or businesses could disrupt our business and harm our financial condition;

• our ability to successfully implement initiatives identified pursuant to our value enhancement program and generate anticipated earnings;

• uncertainties associated with worldwide economies could create reductions in demand and pricing, as well as increased counterparty risks, which could reduce liquidity or cause financial losses resulting from counterparty default;

• the negative outcome of any legal, tax and environmental proceedings or changes in laws or regulations regarding legal, tax and environmental matters may increase our costs, reduce demand for our products, or otherwise limit our ability to achieve savings under current regulations;

• any loss or non-renewal of favorable tax treatment under tax agreements or tax treaties, or changes in tax laws, regulations or treaties, may substantially increase our tax liabilities;

• we may be required to reduce production or idle certain facilities because of the cyclical and volatile nature of the supply-demand balance in the chemical and refining industries, which would negatively affect our operating results;

• we rely on continuing technological innovation, and an inability to protect our technology, or others’ technological developments could negatively impact our competitive position;

• we may be unable to continue operations until the shut down of the Houston refinery within the expected timeframe or without incurring additional charges or expenses;

• we have significant international operations, and fluctuations in exchange rates, valuations of currencies and our possible inability to access cash from operations in certain jurisdictions on a tax-efficient basis, if at all, could negatively affect our liquidity and our results of operations;

• we are subject to the risks of doing business at a global level, including wars, terrorist activities, political and economic instability and disruptions and changes in governmental policies, which could cause increased expenses, decreased demand or prices for our products and/or disruptions in operations, all of which could reduce our operating results;

• if we are unable to achieve our emission reduction, circularity, or other sustainability targets, it could result in reputational harm, changing investor sentiment regarding investment in our stock or a negative impact on our access to and cost of capital;

• if we are unable to comply with the terms of our credit facilities, indebtedness and other financing arrangements, those obligations could be accelerated, which we may not be able to repay; and

• we may be unable to incur additional indebtedness or obtain financing on terms that we deem acceptable, including for refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.

Any of these factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Our management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements.