Question-and-Answer Session
Operator
(Operator instructions) The first question comes from the line of Jeff Dietert - Simmons & Company.
Jeff Dietert - Simmons & Company
On slide seven you go through the typical realized refining margin slide. That is a very helpful slide. I was hoping to get a little bit more color. The last two quarters your product differentials have been negative relative to the marker. Can you talk more specifically about the third quarter 2009 product realization and this $1.95 difference?
Brian McDonald
I would say in general we are not very happy with our performance around margin capture. We have a number of things we are doing internally to improve our capture rate. A couple of things we are looking at our operations processes, structure, etc. I think as we look at this on a go-forward basis we don’t have any specifics to talk about today but I would say this is an area of focus for us going forward.
Jeff Dietert - Simmons & Company
Is there something that has changed in the second quarter and third quarter of this year relative to prior operations or is this all market related?
Brian McDonald
I would say that some of it is market related. I would say some of it is our own execution. We are focused on improving our own execution in that component of it.
Jeff Dietert - Simmons & Company
Secondly, your chemicals segment gives you a view into demand for chemicals, economic recovery and also demand for crude. Can you talk about what you are seeing in the chemical segment? Is there a recovery in the products that you market?
Lynn Elsenhans
On the polypropylene side of the business we see some strengthening in demand. Phenol still is pretty weak. On the polypropylene if what I am saying to you doesn’t jive exactly what you see in our sales volumes, in part we have been impacted by lack of propylene supply.
Jeff Dietert - Simmons & Company
Did I read correctly you had McKenzie and Co. engaged in a cost cutting effort? If so is that the extent of their assignment or is it a broader assignment?
Lynn Elsenhans
We had asked McKenzie to help us with a benchmark approach to looking at our costs across the board. That is what we were calling the business improvement initiative and the guidance we had given was $300 million pre-tax annualized savings by year-end. We are on target to deliver that through seven months of when it was really initiated. We have about $175 million in reduced expenses, about $75 million of that in SG&A and about $100 million in other operating expenses and costs of goods sold.
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