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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ~~SECURITIES EXCHANGE ACT OF 1934~~

~~For~~SECURITIES EXCHANGE ~~the~~ACT ~~quarterly~~OF ~~period ended March 31, 2006~~ 1934

For the quarterly period ended September 30, 2007

¨[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ~~SECURITIES EXCHANGE ACT OF 1934~~

~~For~~SECURITIES EXCHANGE ~~the~~ACT ~~transition~~OF ~~period from to~~ 1934

For the transition period from . . . . . . . . . . to . . . . . . . . . .

Commission file number 333-76473

EQUISTAR CHEMICALS, LP

(Exact name of registrant as specified in its charter)

Delaware	76-0550481	~~76-0550481~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or other jurisdiction of	(I.R.S. Employer
1221 McKinney Street, Suite 700, Houston, Texas		77010
incorporation or organization)	Identification No.)
(Address of principal executive offices)		(Zip Code)
1221 McKinney Street,	77010
Suite 700, Houston, Texas	(Zip Code)
(Address of principal executive offices)

Registrant’'s telephone number, including area code: (713) 652-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes~~ x Yes __ No ¨ ü

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

(Check one): Large accelerated filer ¨ __ Accelerated filer ¨ __ Non-accelerated filer x ü

Indicate by by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~Yes ¨ No x~~

Yes __ No ü

There is no established public trading market for the registrant’s equity securities.

The Registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and, therefore, is filing this form with a reduced disclosure format.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

EQUISTAR CHEMICALS, LP

CONSOLIDATED STATEMENTS OF INCOME

	For the three months endedMarch 31,
	For the three months ended September 30,						For the nine months ended September 30,
Millions of dollars	~~2006~~2007			~~2005~~2006			2007			2006
Sales and other operating revenues
Sales and other operating revenues:
Trade	$	2,~~414~~416		$	2,~~242~~591		$	7,096		$	7,358
Related parties		~~622~~1,048			~~619~~889			2,771			2,436
		3,036			2,861
		3,464			3,480			9,867			9,794
Operating costs and expenses
Operating cost and expenses:
Cost of sales		23,~~670~~314			23,~~417~~151			9,414			8,849
Selling, general and administrative expenses		48			50
Asset impairment		- -			135			- -			135
Research and development expenses		8			8
Selling, general and administrative expenses		71			54			202			163
		2,726			2,475
Research and development expenses		10			8			28			25
Operating income		310			386
		3,395			3,348			9,644			9,172
Interest expense		(55	)		(56	)
Operating income		69			132			223			622
Interest income		2			2
Interest expense		(47	)		(55	)		(155	)		(164	)
Other expense, net		(1	)		—
Interest income		- -			- -			5			4
Net income	$	256		$	332
Other income (expense), net		- -			1			(32	)		- -
Net income	$	22		$	78		$	41		$	462

See Notes to the Consolidated Financial Statements.

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EQUISTAR CHEMICALS, LP

CONSOLIDATED BALANCE SHEETS

Millions of dollars	~~March~~September 3130,~~2006~~ 2007			December 31,~~2005~~ 2006
ASSETS
Current assets:
Cash and cash equivalents	$	3325		$	~~215~~133
Accounts receivable:
Trade, net		~~596~~1,074			~~685~~890
Related parties		~~296~~364			~~239~~277
Inventories		~~801~~679			~~657~~809
Prepaid expenses and other current assets		4338			5349
Total current assets		12,~~769~~180			12,~~849~~158
Property, plant and equipment, net		32,~~022~~814			32,~~063~~846
Investments		5751			5859
Other assets, net		~~334~~273			~~350~~296
Total assets	$	5,~~182~~318		$	5,~~320~~359
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Current maturities of long-term debt	$	—400		$	~~150~~- -
Accounts payable:
Trade		~~653~~946			~~622~~731
Related parties		~~129~~134			~~113~~174
Accrued liabilities		~~182~~252			~~275~~312
Total current liabilities		964			1,160
Notes payable to Millennium Chemicals Inc.		515			- -
Long-term debt		2,160			2,161
Total current liabilities		2,247			1,217
Other liabilities and deferred revenues		419			416
Long-term debt		1,153			2,160
Other liabilities and deferred revenues		371			378
Commitments and contingencies
Partners’ capital:
Partners’ accounts		1,~~659~~583			1,~~603~~642
Accumulated other comprehensive loss		(2036	)		(2038	)
Total partners’ capital		1,~~639~~547			1,~~583~~604
Total liabilities and partners’ capital	$	5,~~182~~318		$	5,~~320~~359

See Notes to the Consolidated Financial Statements.

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EQUISTAR CHEMICALS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the threemonths endedMarch 31,
	For the nine months ended September 30,
Millions of dollars	~~2006~~2007			~~2005~~2006
Cash flows from operating activities
Cash flows from operating activities:
Net income	$	~~256~~41		$	~~332~~462
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		82243			79243
Asset impairment		- -			135
Debt prepayment premiums and charges		34			- -
Changes in assets and liabilities that provided (used) cash:
Accounts receivable		35(271	)		(~~268~~341	)
Inventories		~~(144~~130	)		(71138	)
Accounts payable		46175			~~149~~142
Other assets and liabilities, net		(86	)		(87	)
Other, net		(99	)		(53	)
Net cash provided by operating activities		~~189~~253			~~134~~450
Cash flows from investing activities
Cash flows from investing activities:
Expenditures for property, plant and equipment		(22152	)		(35105	)
Proceeds from sales of assets		—			3
Other		8			2
Net cash used in investing activities		(22144	)		(32103	)
Cash flows from financing activities
Cash flows from financing activities:
Distributions to owners		(200	)		—
Repayment of long-term debt		(632	)		(150	)
Repayment of long-term debt		(150	)		(1	)
Proceeds from notes payable to Millennium Chemicals Inc.		515			- -
Other		1			—
Distributions to owners		(100	)		(375	)
Net cash used in financing activities		(349	)		(1	)
Other		- -			1
Increase (decrease) in cash and cash equivalents		(182	)		101
Net cash used in financing activities		(217	)		(524	)
Cash and cash equivalents at beginning of period		215			39
Decrease in cash and cash equivalents		(108	)		(177	)
Cash and cash equivalents at end of period	$	33		$	140
Cash and cash equivalents at beginning of period		133			215
Cash and cash equivalents at end of period	$	25		$	38

See Notes to the Consolidated Financial Statements.

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

1. Basis of Preparation		5
1.	Basis of Preparation	5
2. Company Ownership		5
2.	Company Ownership	5
3. Accounting and Reporting Changes		5
3.	Accounting and Reporting Changes	5
4. Accounts Receivable		5
4.	Proposed Merger of Lyondell and Basell	5
5. Inventories		6
5.	Asset Impairment	6
6. Property, Plant and Equipment, Net		6
6.	Notes Payable to Millennium Chemicals Inc.	6
7. Accounts Payable		6
7.	Accounts Receivable	6
8. Deferred Revenues		7
8.	Inventories	7
9. Long-Term Debt		7
9.	Property, Plant, and Equipment, Net	7
10. Pension and Other Postretirement Benefits		7
10.	Accounts Payable	8
11. Commitments and Contingencies		8
11.	Deferred Revenues	8
12. Comprehensive Income		9
12.	Long-Term Debt	8
13. Segment and Related Information		9
13.	Pension and Other Postretirement Benefits	9
14.	Commitments and Contingencies	9
15.	Comprehensive Income	10
16.	Segment and Related Information	11

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – —(Continued)

1. Basis of Preparation

The ~~accompanying~~ accompanying consolidated financial statements are unaudited and have been prepared from the books and records of Equistar Chemicals, LP and its subsidiaries (“Equistar”) in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, ~~consisting~~ consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and notes thereto included in the Equistar Annual Report on Form 10-K for the year ended December 31, ~~2005~~ 2006. ~~Certain previously reported amounts have been reclassified to conform to current period presentation.~~

2. Company Ownership

Equistar, a Delaware limited partnership, is owned 70.5% by Lyondell Chemical Company (together with its consolidated subsidiaries, “Lyondell”) and 29.5% by Millennium Chemicals Inc. (together with its consolidated subsidiaries, “Millennium”). Equistar became a wholly owned subsidiary of Lyondell as a result of Lyondell’s acquisition of Millennium in 2004. The consolidated financial statements of Equistar reflect its historical cost basis , and, accordingly, do not reflect any purchase accounting adjustments related to the acquisition by Lyondell of Millennium and Millennium’s interest in Equistar.

3. Accounting and Reporting Changes

~~Effective~~In ~~January 1,~~ February ~~2006~~2007, ~~Equistar~~the ~~adopted~~Financial ~~the~~Accounting ~~provisions~~Standards ofBoard (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. ~~123~~ ~~(revised 2004)~~159, ~~Share-Based~~The ~~Payment~~Fair ~~using~~Value Option ~~the~~for ~~modified~~Financial ~~prospective~~Assets ~~method~~ and, ~~consequently,~~Financial ~~has~~Liabilities ~~not~~- ~~adjusted results~~Including an amendment of ~~prior~~FASB ~~periods~~Statement No. ~~Equistar~~115, ~~previously~~which ~~accounted~~permits ~~for~~election ~~these~~of ~~plans~~fair ~~according~~value to ~~the~~measure many ~~provisions~~financial ofinstruments and certain other items. SFAS No. ~~123,~~ ~~Accounting~~159 is effective for ~~Stock-Based~~Equistar ~~Compensation.~~beginning in 2008. Equistar’s ~~application~~is ofcurrently evaluating ~~SFAS~~whether ~~No. 123~~it ~~(revised~~will ~~2004)~~elect ~~had~~the nofair ~~material effect~~value onoption ~~its~~for ~~consolidated~~any of its eligible financial ~~statements.~~instruments and other items.

In September ~~2005~~2006, the ~~Emerging~~ ~~Issues~~FASB ~~Task~~issued ~~Force~~SFAS ~~(“EITF”) of the Financial Accounting Standards Board reached consensus on one issue of EITF Issue~~ No. ~~04-13~~ 157, ~~Accounting~~Fair ~~for~~Value Measurements. The ~~Purchases~~new ~~and~~standard ~~Sales~~defines offair ~~Inventory with the Same Counterparty~~value, ~~that~~establishes ~~inventory~~a ~~purchase~~ framework ~~and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined~~ for ~~purposes~~its ofmeasurement ~~applying~~and ~~Accounting~~expands ~~Principles~~disclosures ~~Board~~about ~~Opinion No. 29, Accounting for Nonmonetary~~such ~~Transactions~~ measurements. For Equistar, ~~currently records certain purchases and sales of chemical products entered into contemporaneously with~~ the ~~same~~standard ~~counterparty~~will asbe ~~cost~~effective of sales and revenues. The EITF consensus could result in a reduction of Equistar’s reported revenues and cost of sales for affected transactions. The consensus on this issue would apply to transactions entered into beginning in ~~the second quarter 2006~~2008. Equistar does not expect the application of ~~EITF~~SFAS No. 157 ~~04-13~~ to have a material effect on its consolidated financial statements.

4. Proposed Merger ~~Accounts~~of ~~Receivable~~Lyondell and Basell

~~Equistar~~On July 16, ~~has~~2007, ~~a four-year~~Lyondell, ~~$600 million~~ ~~accounts~~Basell ~~receivable~~AF, ~~sales~~a ~~facility~~Luxembourg ~~that~~company ~~matures~~(“Basell”), inand ~~November~~BIL Acquisition ~~2010.~~Holdings ~~Pursuant to this facility~~Limited, ~~Equistar~~a ~~sells,~~Delaware ~~through~~corporation aand wholly- owned, ~~bankruptcy-remote~~ subsidiary of Basell (“Merger Sub”), onentered into an ~~ongoing~~agreement ~~basis~~ and ~~without~~plan ~~recourse,~~of anmerger ~~interest~~pursuant to inwhich aMerger ~~pool~~Sub ~~of accounts~~will ~~receivable~~be tomerged ~~financial~~with ~~institutions~~and ~~participating~~into inLyondell with Lyondell continuing as the ~~facility.~~surviving ~~Equistar~~corporation isand ~~responsible~~a ~~for~~wholly ~~servicing~~owned ~~the~~subsidiary ~~receivables~~of Basell. Pursuant ~~The~~to the merger, each outstanding ~~amount~~share of ~~receivables~~Lyondell’s common ~~sold~~stock ~~under~~will be converted into the ~~facility~~right asto receive $48 per share in cash. A special meeting of ~~March 31,~~Lyondell’s ~~2006~~shareholders ~~and~~has ~~December 31,~~been ~~2005~~scheduled ~~was~~ for ~~$225~~November ~~million~~20, ~~and~~2007 ~~$200 million~~to vote on the proposed merger, ~~respectively.~~which is expected to close in the fourth quarter 2007.

The merger agreement restricts the ability of Lyondell and its subsidiaries, including Equistar, to take specified actions without Basell’s approval including, among other things, making significant acquisitions, dispositions or investments, making certain significant capital expenditures not contemplated by the current capital plan, and entering into certain material contracts.

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – —(Continued)

54. Proposed Merger ~~Inventories~~of Lyondell and Basell – (Continued)

~~Inventories~~As a result ~~consisted~~ of the ~~following:~~proposed merger, Equistar’s debt and accounts receivable sales facility will be affected to varying degrees. If not amended, Equistar’s credit and accounts receivable sales facilities will be terminated at the closing. The indentures governing Equistar’s Notes due 2008 and 2011 contain put rights, which may be available to the debt holders as a result of the merger.

Millions of dollars	March 31,2006		December 31,2005
Finished goods	$	470	$	400
Work-in-process		8		11
Raw materials		211		132
Materials and supplies		112		114
Total inventories	$	801	$	657

5. Asset Impairment

Equistar’s 6 third quarter 2006 earnings reflect a charge of $135 million for impairment of the net book value of its idled Lake Charles, Louisiana ethylene facility. In ~~Property~~the third quarter of 2006, ~~Plant~~Equistar undertook a study of the feasibility, cost and ~~Equipment~~time required to restart the Lake Charles ethylene facility. As a result, ~~Net~~management determined that restarting the facility would not be justified. The remaining net book value of the related assets of $10 million represents an estimate, based on probabilities, of alternative-use value. Equistar does not expect to incur any significant future costs with respect to the facility.

~~The~~6. Notes ~~components~~Payable to ofMillennium ~~property,~~Chemicals ~~plant and equipment, at cost, and the related accumulated depreciation were as follows:~~ Inc.

Millions of dollars	March 31,2006			December 31,2005
Land	$	78		$	78
Manufacturing facilities and equipment		6,197			6,184
Construction in progress		105			98
Total property, plant and equipment		6,380			6,360
Less accumulated depreciation		(3,358	)		(3,297	)
Property, plant and equipment, net	$	3,022		$	3,063

During the first nine months of 2007, Equistar issued promissory notes to Millennium and received proceeds of $515 million pursuant to loan agreements permitting Equistar to borrow up to $600 million. The proceeds were primarily used to repay debt (See Note 12). In connection with the proposed merger of Lyondell and Basell (see Note 4), the maturity of the notes was extended to February 16, 2008 from December 21, 2007, or earlier upon demand. The notes bear interest, which is payable quarterly, at the London Interbank Offered Rate ("LIBOR”) plus 1.75%. The balance of the notes outstanding at September 30, 2007 was $515 million.

~~Depreciation and amortization is~~7. Accounts ~~summarized as follows:~~ Receivable

	For the three months endedMarch 31,
Millions of dollars	2006		2005
Property, plant and equipment	$	63	$	63
Turnaround costs		10		9
Software costs		5		4
Other		4		3
Total depreciation and amortization	$	82	$	79

Equistar has a $600 million accounts receivable sales facility that matures in November 2010. Pursuant to this facility, Equistar sells, through a wholly owned, bankruptcy-remote subsidiary, on an ongoing basis and without recourse, an interest in a pool of accounts receivable to financial institutions participating in the facility. Equistar is responsible for servicing the receivables. The outstanding amount of receivables sold under the facility as of September 30, 2007 was $40 million and there was no outstanding amount as of December 31, 2006.

7. Accounts Payable

Accounts payable at March 31, 2006 and December 31, 2005 included liabilities in the amounts of $7 million and $6 million, respectively, for checks issued in excess of associated bank balances but not yet presented for collection.

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – —(Continued)

8. ~~Deferred Revenues~~ Inventories

~~Deferred revenues at~~Inventories ~~March 31,~~ consisted ~~2006 and December 31, 2005~~ of $172 million and $171 million, respectively, represent advances from customers for partial prepayments for products to be delivered under long-term product supply contracts. Trade sales and other operating revenues included $5 million and $4 million in the ~~three-month periods ended March 31, 2006 and 2005, respectively, of such previously deferred revenues.~~ following:

9. Long-Term Debt

Millions of dollars	September 30, 2007		December 31, 2006
Finished goods	$	383	$	452
Work-in-process		18		14
Raw materials		147		225
Materials and supplies		131		118
Total inventories	$	679	$	809

~~Long-term~~9. Property, Plant ~~debt~~and ~~consisted~~Equipment, ~~of the following:~~ Net

Millions of dollars	March 31, 2006		December 31, 2005
$400 million inventory-based revolving credit facility	$	—	$	—
Other debt obligations:
Senior Notes due 2008, 10.125%		700		700
Senior Notes due 2011, 10.625% ($7 million of premium)		707		708
Debentures due 2026, 7.55%		150		150
Notes due 2006, 6.5%		—		150
Notes due 2009, 8.75%		600		600
Other		3		3
Total long-term debt		2,160		2,311
Less current maturities		—		(150	)
Total long-term debt, net	$	2,160	$	2,161

The components of property, plant and equipment, at cost, and the related accumulated depreciation were as follows:

Lyondell remains a guarantor of Equistar’s $150 million, 7.55% Debentures due 2026. The unaudited interim consolidated financial statements of Lyondell are filed as an exhibit to Equistar’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.

Millions of dollars	September 30, 2007			December 31, 2006
Land	$	85		$	85
Manufacturing facilities and equipment		6,113			6,093
Construction in progress		239			141
Total property, plant and equipment		6,437			6,319
Less accumulated depreciation		(3,623	)		(3,473	)
Property, plant and equipment, net	$	2,814		$	2,846

~~In February 2006, Equistar repaid, at~~Depreciation ~~maturity,~~ and ~~the~~amortization ~~$150~~expense ~~million~~is ofsummarized ~~6.5%~~as ~~Notes outstanding.~~ follows:

Amortization of debt issuance costs of $1 million for each of the three-month periods ended March 31, 2006 and 2005 is included in interest expense in the Consolidated Statements of Income.

	For the three months ended September 30,				For the nine months ended September 30,
Millions of dollars	2007		2006		2007		2006
Property, plant and equipment	$	64	$	64	$	191	$	190
Turnaround costs		12		10		33		30
Software costs		1		4		10		13
Other		4		1		9		10
Total depreciation and amortization	$	81	$	79	$	243	$	243

Equistar 10 believes that there are asset retirement obligations associated with some of its facilities, but that the present value of those obligations normally is not material in the context of an indefinite expected life of the facilities. Equistar ~~Pension~~continually reviews the optimal future alternatives for its facilities. Any decision to retire one or more facilities would result in an increase in the present value of such obligations. At September 30, 2007 and ~~Other~~December 31, ~~Postretirement~~2006, ~~Benefits~~the balance of the liability that had been recognized for all asset retirement obligations was $16 million and $12 million, respectively.

Net periodic pension and other postretirement benefit costs included the following components for the three months ended March 31:

	Pension Benefits						Other Postretirement Benefits
Millions of dollars	2006			2005			2006		2005
Service cost	$	6		$	5		$	1	$	1
Interest cost		3			3			1		2
Recognized return on plan assets		(3	)		(3	)		—		—
Amortization		1			1			—		—
Net periodic benefit cost	$	7		$	6		$	2	$	3

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – —(Continued)

1110. ~~Commitments and Contingencies~~ Accounts Payable

~~Leased~~Accounts ~~Facility—Equistar~~ payable ~~has~~included anliabilities ~~ethylene facility~~ in ~~Lake Charles, Louisiana, which has been idled since~~ the ~~first~~amounts ~~quarter~~ of ~~2001, pending sustained improvement in market conditions. The facility and land, which are included in property, plant and equipment at a net book value of~~ $~~135~~7 million, ~~are~~as ~~leased from Occidental Chemical Corporation, a subsidiary~~ of ~~Occidental Petroleum Corporation (together with its subsidiaries and affiliates, collectively (“Occidental”). In May~~September ~~2003~~ 30, ~~Equistar~~2007 and Occidental entered into a new one-year lease, which had renewal provisions for two additional one-year periods at either party’s option. Equistar exercised the second one-year renewal option that expires in May 2006. If the Lake Charles lease terminates, Occidental will either (1)December ~~allow Lyondell or its designee to acquire~~31, ~~operate or receive the benefit of operating the Lake Charles facility, (2)~~ ~~pay~~2006 ~~Lyondell~~for orchecks ~~its~~issued ~~designee $75 million~~ in ~~cash~~excess ~~or (3) transfer or pay to Lyondell or its designee 5.4 million shares~~ of ~~Lyondell common stock or the sale proceeds from 5.4 million shares of Lyondell common stock or a combination of both if the value is greater than $75 million.~~ ~~Equistar~~ associated ~~expects~~bank ~~that~~balances ~~the~~but ~~lease~~not ~~will~~yet bepresented ~~renewed.~~for collection.

~~Environmental Remediation—Equistar’s accrued liability for future environmental remediation costs at three of its plant sites totaled $1 million as of March 31, 2006, and December 31, 2005~~11. ~~In the opinion of management, there is no~~ Deferred material estimable range of reasonably possible loss in excess of the liability recorded for environmental remediation. However, it is possible that new information about the sites for which the accrual has been established, new technology or future developments such as involvement in investigations by regulatory agencies, could require Equistar to reassess its potential exposure related to environmental matters. Revenues

~~Equistar~~Deferred revenues ~~currently~~at ~~estimates~~September 30, ~~that~~2007 ~~environmentally~~and ~~related~~December ~~capital~~31, ~~expenditures~~2006 atof ~~its~~$154 million and ~~facilities~~$175 ~~will~~million, respectively, represent advances from customers as partial prepayments for products to be ~~approximately~~delivered under long-term product supply contracts. Trade sales and other operating revenues included $7113 million ~~for~~and $5 million in the three-month periods ended September 30, 2007 and 2006, respectively, and $2731 million and $19 million in the nine-month periods ended September 30, 2007. and 2006, respectively, of such previously deferred revenues.

~~MTBE—In the U~~12.~~S., the Clean Air~~ Long-Term Act Amendments of 1990 set minimum levels for oxygenates, such as MTBE, used in gasoline sold as reformulated fuel in areas not meeting specified air quality standards. However, the presence of MTBE in some water supplies in California and other states due to gasoline leaking from underground storage tanks and in surface water from recreational water craft led to public concern about the use of MTBE and resulted in the U.S. federal Energy Policy Act of 2005 and U.S. state governmental initiatives to reduce the use of MTBE. Debt

~~The federal Energy Policy Act of 2005, which was enacted in the U.S. in August 2005, does not phase~~Long-~~down or ban the use of MTBE. However, the Act eliminates the oxygen standard for reformulated fuels, effective May 6, 2006, and also contains a renewable fuel standard that~~term ~~mandates~~ debt ~~the~~consisted ~~use~~ of ~~ethanol in gasoline. As a result of~~ the elimination of the oxygen standard for reformulated fuels, some companies are no longer using MTBE or any other oxygenate. Various U.S. states have banned or are considering banning the use of MTBE. For example, California, Connecticut and New York banned MTBE, effective January 2004, and New Jersey banned MTBE, effective January 2009. In addition, at this time, the majority of refiners and blenders have discontinued the use of MTBE in the U.S. In addition to decisions by refiners and blenders to discontinue use of MTBE, at this time some common carrier pipelines and terminals also have indicated an intention to discontinue handling gasoline containing MTBE. It is not clear whether these actions by pipelines and terminals are consistent with legal or regulatory requirements. following:

Millions of dollars	September 30, 2007		December 31, 2006
$400 million inventory-based revolving credit facility	$	- -	$	- -
Other debt obligations:
Senior Notes due 2008, 10.125%		400		700
Senior Notes due 2011, 10.625% ($3 million of premium)		403		707
Debentures due 2026, 7.55%		150		150
Notes due 2009, 8.75%		600		600
Other		- -		3
Total long-term debt		1,553		2,160
Less current maturities		400		- -
Total long-term debt, net	$	1,153	$	2,160

In June 2007, Equistar repaid $300 million principal amount of its 10.125% Senior Notes due 2008 and $300 million principal amount of its 10.625% Senior Notes due 2011, paying premiums totaling $32 million.

Lyondell is a guarantor of Equistar’s 7.55% Debentures due 2026. The unaudited interim consolidated financial statements of Lyondell are filed as an exhibit to Equistar’s Quarterly Report on Form 10-Q for the period ended September 30, 2007.

Amortization of debt issuance costs of $1 million and $3 million for each of the three- and nine-month periods ended September 30, 2007 and 2006, respectively, is included in interest expense in the Consolidated Statements of Income.

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – —(Continued)

1113. ~~Commitments~~ Pension and ~~Contingencies~~Other –Postretirement ~~(Continued)~~ Benefits

~~terminals to discontinue use or handling of MTBE, Equistar may make capital expenditures to~~Net ~~add~~ periodic ~~the~~pension flexibility to produce alternative gasoline blending components, such as iso-octane, iso-octene (also known as “di-isobutylene”) or ethyl tertiary butyl ether (“ETBE”), at its MTBE plant. Conversion and ~~product decisions~~other ~~will~~postretirement bebenefits ~~influenced~~included ~~by further regulatory and market developments. The profit contribution related to~~ the ~~non-ether alternative gasoline blending components is likely to be lower than that historically realized on MTBE. In~~following addition, there are higher distribution costs and import duties associated with exporting MTBE outside of the U.S., and the increased supply of MTBE may reduce profitability of MTBE in these export markets. cost components:

Other—Equistar is, from time to time, a defendant in lawsuits and other commercial disputes, some of which are not covered by insurance. Many of these suits make no specific claim for relief. Although final determination of any liability and resulting financial impact with respect to any such matters cannot be ascertained with any degree of certainty, management does not believe that any ultimate uninsured liability resulting from these matters in which it currently is involved (directly or indirectly) will individually, or in the aggregate, have a material adverse effect on the financial position, liquidity or results of operations of Equistar.

	For the three months ended September 30,						For the nine months ended September 30,
Millions of dollars	2007			2006			2007			2006
Pension benefits:
Service cost	$	6		$	6		$	17		$	17
Interest cost		3			3			11			10
Recognized return on plan assets		(5	)		(4	)		(13	)		(10	)
Amortization		1			2			2			4
Net periodic pension benefit cost	$	5		$	7		$	17		$	21
Other postretirement benefits:
Service cost	$	1		$	1		$	2		$	2
Interest cost		1			1			4			4
Net periodic other postretirement benefit cost	$	2		$	2		$	6		$	6

Equistar contributed $32 million to its pension plans in the first nine months of 2007, and does not expect to make any contributions in the remainder of 2007.

14. Commitments and Contingencies

Environmental Remediation—Equistar’s accrued liability for future environmental remediation costs totaled $4 million as of September 30, 2007 and December 31, 2006. In the opinion of management, there is no material estimable range of reasonably possible loss in excess of the liability recorded for environmental remediation. However, it is possible that new information about the sites for which the accrual has been established, new technology or future developments such as involvement in investigations by regulatory agencies, could require Equistar to reassess its potential exposure related to environmental matters.

MTBE—The presence of methyl tertiary butyl ether (“MTBE”) in some water supplies in certain U.S. states due to gasoline leaking from underground storage tanks and in surface water from recreational water craft led to public concern about the use of MTBE and resulted in U.S. federal and state governmental initiatives to reduce or ban the use of MTBE. Substantially all refiners and blenders have discontinued the use of MTBE in the U.S.

Accordingly, Equistar’s MTBE is sold for use outside of the U.S. However, there are higher distribution costs and import duties associated with exporting MTBE outside of the U.S., and the increased supply of MTBE may reduce profitability of MTBE in these export markets. Should it become necessary or desirable to significantly reduce MTBE production, Equistar may make capital expenditures to add the flexibility to produce alternative gasoline blending components, such as iso-octane, iso-octene (also know as “di-isobutylene”) or ethyl tertiary butyl ether (“ETBE”), at its MTBE plant. Conversion and product decisions will continue to be influenced by regulatory and market developments. The profit contribution related to iso-octane or iso-octene may be lower than that historically realized on MTBE.

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EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14. Commitments and Contingencies – (Continued)

Other—Equistar is, from time to time, a defendant in lawsuits and other commercial disputes, some of which are not covered by insurance. Many of these suits make no specific claim for relief. Although final determination of any liability and resulting financial impact with respect to any such matters cannot be ascertained with any degree of certainty, management does not believe that any ultimate uninsured liability resulting from these matters in which it currently is involved will, individually or in the aggregate, have a material adverse effect on the financial position, liquidity or results of operations of Equistar.

General—In the opinion of management, the matters discussed in this note are not expected to have a material adverse effect on the financial position or liquidity of Equistar. However, the adverse resolution in any reporting period of one or more of these matters could have a material impact on Equistar’s results of operations for that period, which may be mitigated by contribution or indemnification obligations of others, or by any insurance coverage that may be available.

1215. Comprehensive Income

The components of comprehensive income were as follows:

	For the three months endedMarch 31,
	For the three months ended September 30,					For the nine months ended September 30,
Millions of dollars	~~2006~~2007		~~2005~~	2006		2007		2006
Net income	$	~~256~~22	$	~~332~~$	78	$	41	$	462
Other comprehensive loss -
Other comprehensive income -
Derivative instruments		—		(3	)
Amortization of actuarial and investment income included in net periodic pension cost		1			- -		2		- -
Comprehensive income	$	256	$	329
Total other comprehensive income		1			- -		2		- -
Comprehensive income	$	23		$	78	$	43	$	462

~~13. Segment and Related Information~~ 10

~~Equistar~~Table ~~operates in one reportable segment, which is part~~ of Lyondell’s ethylene, co-products and derivatives (“EC&D”) segment. Equistar’s EC&D segment includes: the ethylene and co-products product group, including primarily manufacturing and marketing of ethylene, its co-products, including propylene, butadiene, fuels and aromatics; and the derivatives product group, including primarily manufacturing and marketing of ethylene oxide, ethylene glycol and polyethylene. Contents

EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – —(Continued):

1316. Segment and Related Information ~~– (Continued)~~

Equistar operates in one reportable segment, ethylene, co-products and derivatives (“EC&D”), which includes: the ethylene and co-products product group, including primarily manufacturing and marketing of ethylene, its co-products, including propylene, butadiene and aromatics; and the derivatives product group, including primarily manufacturing and marketing of ethylene oxide, ethylene glycol and polyethylene.

Although Equistar operates in one integrated reportable segment, Equistar has provided certain additional data, as shown below, for two product groups: the ethylene and co-products group, reflecting the products of the core ethylene manufacturing processes, and the derivative products group.

In Millions	Ethylene & co-products		Derivatives			Eliminations				Consolidated
Millions of dollars	Ethylene & co-products			Derivatives				Eliminations				Consolidated
For the three months ended March 31, 2006
For the three months ended September 30, 2007
Sales and other operating revenues
Sales and other operating revenues:
Customers	$	12,~~995~~350	$	~~1,041~~$	1,114	$	—	$	- -	$	~~3,036~~	$	3,464
Inter-product group		~~701~~764		—	- -		~~(701~~	)	(764	)	—		- -
		2,696		1,041			(701	)			3,036
		3,114			1,114				(764	)			3,464
Operating income		243		67			—				310
Operating income (loss)		71			(2	)			- -				69
For the three months ended March 31, 2005
For the three months ended September 30, 2006
Sales and other operating revenues
Sales and other operating revenues:
Customers	$	12,~~890~~425	$	~~971~~$	1,055	$	—	$	- -	$	~~2,861~~	$	3,480
Inter-product group		~~599~~746		—	- -		~~(599~~	)	(746	)	—		- -
		2,489		971			(599	)			2,861
		3,171			1,055				(746	)			3,480
Operating income		~~301~~130		85	2		—		- -		~~386~~		132
For the nine months ended September 30, 2007
Sales and other operating revenues:
Customers	$	6,650		$	3,217			$	- -			$	9,867
Inter-product group		2,016			- -				(2,016	)			- -
		8,666			3,217				(2,016	)			9,867
Operating income		157			66				- -				223
For the nine months ended September 30, 2006
Sales and other operating revenues:
Customers	$	6,604		$	3,190			$	- -			$	9,794
Inter-product group		2,130			- -				(2,130	)			- -
		8,734			3,190				(2,130	)			9,794
Operating income		526			96				- -				622

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with information contained in the Consolidated Financial Statements of Equistar Chemicals, LP, together with its consolidated subsidiaries (collectively, “Equistar”) and the notes thereto.

In addition to comparisons of current operating results with the same period in the prior year, Equistar has included, as additional disclosure, certain “trailing quarter” comparisons of first quarter 2006 operating results to fourth quarter 2005 operating results. Equistar’s businesses are highly cyclical, in addition to experiencing some less significant seasonal effects. Trailing quarter comparisons may offer important insight into the current business direction of Equistar.

References to industry benchmark prices or costs, including the weighted average cost of ethylene production, are generally to industry prices and costs reported by Chemical Marketing Associates, Incorporated (“CMAI”), except that crude oil and natural gas benchmark price references are to industry prices reported by Platts, a reporting service of The McGraw-Hill Companies.

Overview

Equistar manufactures and markets ethylene and its co-products, primarily propylene, butadiene and aromatics, which include benzene and toluene. Equistar also manufactures and markets ethylene derivatives, primarily polyethylene (including high density polyethylene (“HDPE”), low density polyethylene (“LDPE”) and linear-low density polyethylene (“LLDPE”)), ethylene glycol, ethylene oxide and its other derivatives, and ethanol. Equistar also manufactures and markets fuels, such as methyl tertiary butyl ether (“MTBE”) and alkylate, as well as polypropylene. Equistar is a wholly owned subsidiary of Lyondell.

During the first quarter 2006, the chemical industry generally continued to experience favorable supply/demand conditions. Average crude oil and natural gas prices were significantly higher compared to the first quarter 2005 and resulted in higher average raw material and energy costs, which were largely offset by higher product prices.

Equistar’s first quarter 2006 operating results reflected the effects of 27% higher average benchmark crude oil prices and 26% higher average benchmark natural gas prices compared to the first quarter 2005, which resulted in higher average raw material and energy costs that were not completely offset by higher average sales prices. As a result, average product margins were lower in the first quarter 2006 compared to the same quarter in 2005. U.S. market demand for ethylene and polyethylene in the first three months of 2006 decreased an estimated 5.2% and 1%, respectively, compared to the same period in 2005.

Benchmark Indicators—Benchmark crude oil and natural gas prices generally have been indicators of the level and direction of movement of raw material and energy costs for Equistar. Ethylene and its co-products are produced from two major raw material groups:

• crude oil-based liquids (“liquids” or “heavy liquids”), including naphthas, condensates, and gas oils, the prices of which are generally related to crude oil prices; and

• natural gas liquids (“NGLs”), principally ethane and propane, the prices of which are generally affected by natural gas prices.

Equistar has the ability to shift its ratio of raw materials used in the production of ethylene and co-products to take advantage of the relative costs of liquids and NGLs.

~~The following table shows the average U.S. benchmark prices for crude oil and natural gas for the applicable three-month~~Table ~~period, as well as benchmark U.S. sales prices for ethylene, co-products propylene and benzene, and HDPE, which Equistar produces and sells. The benchmark weighted average cost~~ of ethylene production, which is reduced by co-product revenues, is based on CMAI’s estimated average ratio of heavy liquid raw materials and NGLs used in U.S. ethylene production and is subject to revision. Contents

	Average Benchmark Price and PercentChange Versus Prior Year Period Average
	For the three months endedMarch 31,		Percent Change
	2006	2005
Crude oil – dollars per barrel	63.30	49.65	27	%
Natural gas – dollars per million BTUs	7.52	5.98	26	%
Weighted average cost of ethylene production – cents per pound	29.86	23.33	28	%
Ethylene – cents per pound	50.33	41.50	21	%
Propylene – cents per pound	43.50	43.50	—
Benzene – cents per gallon	268.33	317.00	(15	)%
HDPE – cents per pound	74.00	72.50	2	%

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

~~As indicated in the table above,~~This ~~benchmark~~ discussion ~~crude~~should ~~oil~~be ~~prices~~read ~~and~~in ~~natural~~conjunction ~~gas~~with ~~prices~~the ~~increased~~information ~~significantly,~~contained ~~resulting~~ in the Consolidated ~~higher~~Financial ~~raw~~Statements ~~material~~of ~~and~~Equistar ~~energy~~Chemicals, ~~costs~~LP, intogether ~~the~~with its consolidated ~~first~~subsidiaries ~~quarter~~(collectively, ~~2006~~“Equistar”) ~~compared~~and to the ~~first quarter 2005~~notes thereto.

~~RESULTS~~In addition OFto ~~OPERATIONS~~comparisons of current operating results with the same period in the prior year, Equistar has included, as additional disclosure, certain “trailing quarter” comparisons of third quarter 2007 operating results to second quarter 2007 operating results. Equistar’s businesses are highly cyclical, in addition to experiencing some less significant seasonal effects. Trailing quarter comparisons may offer important insight into current business directions.

~~Revenues—Equistar’s~~References to ~~revenues~~industry ofbenchmark $3prices or costs,~~036 million~~ inincluding the ~~first~~weighted ~~quarter~~average ~~2006 compared to revenues~~ cost of ethylene $2production,~~861 million~~ inare ~~the~~generally ~~first~~to ~~quarter~~industry ~~2005, reflecting higher average sales~~ prices. Asand ~~noted~~costs inreported by Chemical ~~the~~Marketing ~~table above~~Associates, ~~benchmark~~Incorporated ~~sales~~(“CMAI”), ~~prices~~except inthat ~~the~~crude ~~first quarter 2006 averaged higher for ethylene~~oil, natural ~~were~~gas ~~comparable for propylene~~ and ~~HDPE,~~naphtha ~~and~~benchmark ~~averaged~~price ~~lower~~references ~~for~~are ~~benzene compared~~ to ~~the~~industry ~~2005 period.~~prices ~~Ethylene~~ reported ~~and~~by ~~derivative~~Platts, ~~sales~~a ~~volumes~~reporting inservice ~~the~~of ~~first~~The ~~quarter 2006 were comparable to the first quarter 2005~~McGraw-Hill Companies.

~~Cost of Sales—Equistar’s cost of sales was $2,670 million in the first quarter 2006 and $2,417 million in the first quarter 2005. The increase was primarily due to higher raw material costs,~~PROPOSED ~~which~~ TRANSACTION ~~reflected~~BETWEEN ~~higher~~LYONDELL ~~prices~~AND ~~for both crude oil and natural gas in the first quarter 2006 compared to the same period in 2005.~~ BASELL

~~Operating~~On July 16, ~~Income—Equistar~~2007, ~~had~~Lyondell, ~~operating~~Basell ~~income~~AF, a Luxembourg company (“Basell”), and BIL Acquisition Holdings Limited, a Delaware corporation and a wholly owned subsidiary of ~~$310 million~~Basell in(“Merger ~~the~~Sub”), ~~first~~entered ~~quarter~~into ~~2006~~an agreement and ~~$386 million~~plan inof merger pursuant to which Merger Sub will be merged with and into Lyondell with Lyondell continuing as the ~~first~~surviving ~~quarter~~corporation ~~2005~~and a wholly owned subsidiary of Basell. Pursuant ~~The~~to ~~decrease~~the merger, each outstanding share of Lyondell’s common stock will be converted into the right to receive $7648 per share in cash. A special meeting of the Lyondell shareholders has been scheduled for November ~~million~~20, ~~was~~2007 ~~primarily~~to ~~due~~vote on the proposed merger, which is expected to ~~lower~~close ~~product~~in ~~margins~~the ~~reflecting~~fourth ~~higher~~quarter ~~raw~~2007; ~~material~~however, ~~and~~there ~~energy~~can ~~costs.~~be no assurance that the proposed merger will be completed.

~~Net~~The merger ~~Income—Equistar’s~~agreement ~~net~~restricts ~~income~~the ~~was~~ability ~~$256 million~~of inLyondell ~~the~~and ~~first~~its ~~quarter~~subsidiaries, including ~~2006~~Equistar, ~~compared~~ to ~~$332 million~~take inspecified ~~the~~actions ~~first~~without ~~quarter~~Basell’s ~~2005.~~approval including, ~~The~~among ~~decrease~~other ofthings, ~~$76 million~~making ~~was~~significant ~~primarily~~acquisitions, ~~due~~dispositions or investments, tomaking ~~the decrease~~certain insignificant ~~first~~capital ~~quarter~~expenditures ~~2006~~not ~~operating~~contemplated by the ~~income~~current ~~compared~~capital toplan, ~~the~~and ~~first~~entering ~~quarter~~into ~~2005.~~certain material contracts.

~~First~~As a result ~~Quarter~~of ~~2005~~the ~~versus~~proposed ~~Fourth~~merger, ~~Quarter~~Equistar’s ~~2004~~debt and accounts receivable sales facility will be affected to varying degrees. If not amended, Equistar’s credit and accounts receivable sales facilities will be terminated at the closing. The indentures governing Equistar’s Notes due 2008 and 2011 contain put rights, which may be available to the debt holders as a result of the merger.

~~Equistar’s~~Basell intends ~~first quarter 2006 net income of $256 million compares~~ to ~~net~~finance ~~income of $302 million in~~ the ~~fourth~~merger ~~quarter~~between ~~2005.~~Lyondell ~~The~~and ~~decrease~~Basell ofwith ~~$46 million~~borrowings and, as ~~was primarily due to~~ a ~~decrease~~result, inLyondell ~~product~~or ~~margins~~its assubsidiaries, aincluding ~~result~~Equistar, ~~of lower~~may ~~average sales prices~~become more levered, ~~partially~~which ~~offset~~would byexacerbate athe ~~decrease~~risks inrelating ~~raw~~to ~~material~~Equistar’s debt. In ~~costs~~July 2007, Standard and ~~the~~Poor’s ~~effect~~Rating ofServices ~~higher~~placed ~~sales~~its credit ~~volumes.~~ratings ~~The~~for ~~lower~~Lyondell, ~~raw~~Equistar ~~material~~and ~~costs~~Millennium ~~primarily~~debt ~~reflected~~on ~~decreased~~CreditWatch with negative ~~NGL~~implications ~~prices~~and inMoody’s ~~the~~Investor ~~first~~Services ~~quarter~~placed ~~2006 compared to~~ the ~~fourth~~ratings ~~quarter~~of ~~2005.~~ Lyondell, ~~Sales~~Equistar ~~volumes~~and ~~for~~Millennium ~~ethylene~~under ~~and~~review ~~derivatives~~for ~~increased~~possible 2%downgrade, ~~compared~~each as toa result of the ~~fourth~~anticipated ~~quarter~~post-merger ~~2005.~~capital structure.

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OVERVIEW

Equistar manufactures and markets ethylene and its co-products, primarily propylene, butadiene and aromatics, which include benzene and toluene. Equistar also manufactures and markets ethylene derivatives, primarily polyethylene (including high density polyethylene (“HDPE”), low density polyethylene (“LDPE”) and linear-low density polyethylene (“LLDPE”)), ethylene glycol, ethylene oxide (“EO”) and other EO derivatives, and ethanol as well as polypropylene. Equistar also manufactures and markets fuel products, such as methyl tertiary butyl ether (“MTBE”) and alkylate. Equistar is a wholly owned subsidiary of Lyondell.

During the third quarter and first nine months of 2007 compared to the same periods in 2006, U.S. ethylene markets experienced lower profitability despite operating rates in the mid-90% range and stronger polyethylene demand in export markets. Ethylene and polyethylene sales prices decreased more than raw material costs late in 2006, and did not increase as rapidly as raw material costs during the first nine months of 2007. As discussed below, prices of both crude oil-based liquid raw materials and NGL-based raw materials averaged higher in the 2007 periods, with the latter approaching record levels late in the third quarter 2007.

U.S. market demand for ethylene in the third quarter and first nine months of 2007 increased an estimated 0.8% and 2.6%, respectively, compared to the same periods in of 2006, while U.S. market demand for polyethylene increased an estimated 6.9% and 4.6%, respectively, in the third quarter and first nine months of 2007 compared to the same periods in 2006.

Equistar experienced lower profitability as higher average co-product sales prices were more than offset by the combined effect of higher average raw material and other costs, including higher incentive compensation expense, and lower average ethylene and polyethylene sales prices during the third quarter and first nine months of 2007. Results for the third quarter and first nine months of 2006 included a pretax charge of $135 million related to impairment of the net book value of the idled Lake Charles, Louisiana ethylene facility.

Benchmark Indicators—Benchmark crude oil and natural gas prices generally have been indicators of the level and direction of movement of raw material and energy costs for Equistar. Ethylene and its co-products are produced from two major raw material groups:

·	crude oil-based liquids (“liquids” or “heavy liquids”), including naphthas, condensates, and gas oils, the prices of which are generally related to crude oil prices; and

·	natural gas liquids (“NGLs”), principally ethane and propane, the prices of which are generally affected by natural gas prices.

Equistar has the ability to shift its ratio of raw materials used in the production of ethylene and co-products to take advantage of the relative costs of liquids and NGLs. Although the prices of these raw materials are generally related to crude oil and natural gas prices, during specific periods the relationships among these materials and benchmarks may vary significantly.

Table of Contents

For crude oil, the table below reflects the average quoted price for West Texas Intermediate (“WTI”) crude oil. During the first six months of 2007, the WTI crude oil price was lower relative to other benchmark crude oil prices, such as Brent crude oil, and, therefore, was not indicative of the rate of increase in crude oil-based raw material costs. As a result, the benchmark price of Northwest Europe (“NWE”) naphthas, which is representative of trends in certain market prices, is included in the table below. Prices for WTI crude oil realigned with other benchmark crude oil prices during the third quarter 2007. WTI crude oil prices have increased from $60.75 per barrel in early January 2007, to $82.33 per barrel at the end of September 2007.

Similarly, while natural gas prices have been relatively stable, ethane prices have risen significantly during the first nine months of 2007, reaching record levels late in the period. These increases are indicative of the pressure on the cost of Equistar’s raw materials, both crude oil-based and NGL-based.

The following table shows the average U.S. benchmark prices for crude oil and natural gas for the applicable periods, as well as benchmark U.S. sales prices for ethylene, propylene, benzene and HDPE, which Equistar produces and sells. The benchmark weighted average cost of ethylene production, which is reduced by co-product revenues, is based on CMAI’s estimated ratio of heavy liquid raw materials and NGLs used in U.S. ethylene production and is subject to revision.

	Average Benchmark Price
	For the three months ended				For the nine months ended
	September 30,				September 30,
	2007		2006		2007		2006

Crude oil – dollars per barrel		75.40		70.37		66.09		68.04
Natural gas – dollars per million BTUs		6.19		6.14		6.67		6.71
NWE Naphtha-dollars per barrel		74.97		66.17		70.35		64.27
Weighted average cost of ethylene production – cents per pound		38.75		33.64		33.82		31.81
Ethylene – cents per pound		50.17		50.67		44.94		49.17
Propylene – cents per pound		50.83		49.67		47.96		47.11
Benzene – cents per gallon		355.00		371.33		367.56		313.78
HDPE – cents per pound		76.00		75.67		69.89		73.56

RESULTS OF OPERATIONS

Revenues—Equistar’s revenues of $3,464 million in the third quarter 2007 were comparable to revenues of $3,480 million in the third quarter 2006, and revenues of $9,867 million in the first nine months of 2007 were comparable to revenues of $9,794 million in the first nine months of 2006. Revenues in the third quarter and first nine months of 2007 reflected the effects of higher average sales prices for co-products, principally fuel products and benzene, and higher sales volumes, which were substantially offset by lower average sales prices for ethylene and polyethylene compared to the same periods in 2006. Ethylene and derivative sales volumes in the third quarter and first nine months of 2007 were comparable to the third quarter and first nine months of 2006.

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Cost of Sales—Equistar’s cost of sales of $3,314 million in the third quarter 2007 was 5% higher compared to $3,151 million in the third quarter 2006, while cost of sales in the first nine months of 2007 of $9,414 million was 6% higher compared to $8,849 million in the first nine months of 2006. The increases reflect the effects of higher costs, primarily raw material costs, resulting from the effects of higher crude oil and NGL-based raw material prices.

Asset Impairment—Charges of $135 million in the third quarter and first nine months of 2006 reflected impairment of the net book value of Equistar’s idled ethylene facility in Lake Charles, Louisiana. See Note 5 to the Consolidated Financial Statements.

SG&A Expenses—Selling, general and administrative (“SG&A”) expenses were $71 million in the third quarter 2007 compared to $54 million in the third quarter 2006 and $202 million for the first nine months of 2007 compared to $163 million for the first nine months of 2006. The increases in the third quarter and first nine months of 2007 were primarily due to higher compensation expense, including higher incentive compensation, compared to the third quarter and first nine months of 2006.

Operating Income—Equistar had operating income of $69 million in the third quarter 2007 compared to $132 million in the third quarter 2006 and $223 million in the first nine months of 2007 compared to $622 million in the first nine months of 2006. The third quarter and first nine months of 2006 included the $135 million impairment charge related to the Lake Charles, Louisiana ethylene facility. The decreases in the third quarter and first nine months of 2007 were primarily due to higher raw material and other costs, including higher compensation expense of $26 million and $75 million, respectively, compared to the third quarter and first nine months of 2006.

Interest Expense—Interest expense was $47 million in the third quarter 2007 compared to $55 million in the third quarter 2006 and $155 million in the first nine months of 2007 compared to $164 million in the first nine months of 2006. The decreases reflected the effect of repayments of $600 million principal amount of debt in June 2007, which was partially offset by the interest expense on promissory notes issued to Millennium in June 2007.

Net Income—Equistar had net income of $22 million in the third quarter 2007 compared to $78 million in the third quarter 2006 and $41 million in the first nine months of 2007 compared to $462 million in the first nine months of 2006. The decreases in the third quarter and first nine months of 2007 were primarily attributable to the lower operating income compared to the same periods in 2006 and, in the first nine months of 2007, charges totaling $32 million related to the prepayment of debt in June 2007.

Third Quarter 2007 versus Second Quarter 2007

Equistar’s third quarter 2007 net income was $22 million compared to net income of $8 million in the second quarter 2007. The second quarter 2007 included charges of $32 million related to the prepayment of debt. The remaining decrease of $18 million was primarily due to the effects of higher liquid and NGL-based raw material costs, lower average co-product sales prices, higher incentive compensation expense and lower sales volumes, all of which were partially offset by higher average sales prices for ethylene and polyethylene and lower interest expense. Sales volumes for ethylene and derivatives in the third quarter 2007 were 3% lower compared to the second quarter 2007.

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Product Group Analysis

The following analysis discusses Equistar’s operating results, focusing on two product groups: ethylene and co-products; and derivatives. Ethylene co-products primarily include propylene, butadiene and aromatics, ~~fuels~~which include benzene and toluene. Fuel products, which include MTBE and ~~alkylates~~akylates, are ~~and~~included ~~aromatics,~~in ~~which~~the ~~include~~co-products ~~benzene~~group ~~and~~because ~~toluene.~~fuel products are produced from co-products. Derivatives primarily include polyethylene, ethylene glycol, ethylene oxide and its other derivatives, and ethanol and polypropylene.

The following tables ~~reflect selected~~set ~~sales~~forth ~~data,~~Equistar’s ~~including~~ sales ~~of ethylene~~ and ~~co-products~~other ~~used~~operating ~~as derivative raw materials~~revenues, operating income and ~~summarized~~selected ~~financial information for the two~~ product ~~groups.~~sales volumes.

	For the three months endedMarch 31,
	For the three months ended						For the nine months ended
Millions of dollars	2006			2005
	September 30,						September 30,
Sales and other operating revenues:
Millions of dollars	2007			2006			2007			2006
Ethylene and co-products	$	2,696		$	2,489
Sales and other operating revenues:
Derivatives		1,041			971
Ethylene and co-products	$	3,114		$	3,171		$	8,666		$	8,734
Ethylene and co-products sales included in derivatives		(701	)		(599	)
Derivatives		1,114			1,055			3,217			3,190
Total	$	3,036		$	2,861
Product group eliminations		(764	)		(746	)		(2,016	)		(2,130	)
Operating income:
Total	$	3,464		$	3,480		$	9,867		$	9,794
Ethylene and co-products	$	243		$	301
Operating income:
Derivatives		67			85
Ethylene and co-products	$	71		$	130		$	157		$	526
Total	$	310		$	386
Derivatives		(2	)		2			66			96
Volumes in millions
Total	$	69		$	132		$	223		$	622
Selected ethylene and co-products:
Volumes in millions
Ethylene and co-products (pounds)		4,487			4,521
Selected ethylene and co-products:
Aromatics (gallons)		89			102
Ethylene and co-products (pounds)		4,445			4,621			13,439			13,650
Derivatives products (pounds)		1,720			1,754
Aromatics (gallons)		89			89			271			266
Derivatives products (pounds)		1,878			1,770			5,818			5,402

Ethylene and co-products

Revenues—Revenues of ~~were~~ $23,~~696~~114 million in the ~~first~~third quarter ~~2006~~2007 were 2% lower compared to $3,171 million in the third quarter 2006, while revenues of $8,666 million in the first nine months of 2007 were comparable to $28,~~489~~734 million in the first ~~quarter~~nine ~~2005.~~months of 2006. The ~~increase~~decrease in ~~revenues~~ the third quarter 2007 reflected ~~higher~~the ~~sales~~effects ~~prices,~~of ~~particularly~~lower ~~for~~average sales prices for ethylene and ~~fuel-related~~lower ~~products.~~sales ~~Ethylene~~volumes, ~~and~~partially offset by higher average sales prices for co-products. Sales volumes in the third quarter 2007 were 3% lower compared to the third quarter 2006, while sales volumes in the first nine ~~quarter~~months ~~2006~~of 2007 were comparable to the ~~2005~~same period. in 2006.

Operating Income—Operating income in the ~~first~~third quarter ~~2006~~2007 was $~~243~~71 million compared to $~~301~~130 million in the ~~first~~third quarter ~~2005.~~2006 and $157 million in the first nine months of 2007 compared to $526 million in the first nine months of 2006. The ~~decrease~~third quarter and first nine months of 2006 included the $58135 million ~~was~~impairment charge related to the Lake Charles, Louisiana ethylene facility. The decreases in the third quarter and first nine months of 2007 were primarily due to lower product margins., ~~Higher~~ as higher raw material costs inand ~~the~~lower ~~first~~ethylene ~~quarter~~sales ~~2006~~prices ~~reflected~~more ~~the~~than ~~negative~~offset ~~effect~~the effects of ~~significantly~~ higher ~~crude~~average ~~oil~~ co-product sales prices, and ~~natural~~the ~~gas~~effects ~~prices~~of lower sales volumes in the third quarter 2007 compared to the ~~first~~same ~~quarter~~periods ~~2005~~in 2006.

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Derivatives

Revenues—Revenues of ~~were~~ $1,~~041~~114 million in the ~~first~~ third quarter ~~2006~~2007 were 6% higher compared to revenues of $~~971~~1,055 million in the ~~first~~third quarter ~~2005.~~2006, ~~The~~while ~~increase~~revenues of $3,217 million in ~~revenues~~the ~~was~~first ~~primarily~~nine ~~due~~months of 2007 were comparable to ~~higher~~revenues of $3,190 million in the first nine months of 2006. Revenues in the third quarter and first nine months of 2007 reflected the effects of lower average polyethylene sales prices., which were more than offset in the third quarter and substantially offset in the first nine months by the effects of higher sales volumes. Sales volumes in the ~~first~~third quarter ~~2006~~2007 were ~~comparable~~6% higher compared to the ~~first~~third quarter ~~2005.~~2006, while in the first nine months of 2007 sales volumes were 8% higher than in the first nine months of 2006.

Operating Income (Loss)—~~Operating~~The ~~income~~derivatives ~~for~~product ~~derivatives~~group ~~was~~had an operating loss of $672 million in the ~~first~~third quarter ~~2006~~2007 compared to operating income of $852 million in the ~~first~~third quarter ~~2005.~~2006 ~~The~~and operating income of $1866 million ~~decrease~~in ~~was~~the first nine months of 2007 compared to $96 million in the first nine months of 2006. The decreases in the third quarter and first nine months of 2007 were primarily the result of lower product margins that aswere ~~higher~~only ~~raw~~partly ~~material~~offset ~~costs~~by ~~more~~the ~~than~~favorable ~~offset~~effect of higher sales ~~prices in~~volumes, compared to the ~~first~~same ~~quarter~~periods in 2006. Product margins were lower as a result of the higher raw materials costs and lower average sales prices in 2007.

FINANCIAL CONDITION

Operating Activities—Operating activities provided cash of $~~189~~253 million in the first ~~quarter~~nine ~~2006~~months of 2007 and $~~134~~450 million in the first ~~quarter~~nine ~~2005.~~months ~~The~~of 2006. The $55197 million ~~improvement~~decrease primarily reflected lower earnings in the ~~benefit~~first nine months of a2007 ~~smaller~~compared ~~net~~to ~~increase~~the first nine months of 2006, partly offset by the effects of changes in the main components of working capital – accounts receivable, and inventory, ~~and~~net ~~accounts~~of accounts payable. In –the ~~partly~~first ~~offset~~nine bymonths ~~lower~~of ~~earnings~~2007, a decrease in the ~~first quarter~~main ~~2006~~ components of working capital provided cash of $34 million compared to the first ~~quarter~~nine ~~2005.~~months 2006 when an increase used cash of $337 million.

InInventories decreased $130 million, providing cash, in the first ~~quarter~~nine ~~2006~~months of 2007 and ~~2005~~increased $138 million, ~~increases~~ using cash, in the ~~main~~first ~~components~~nine months of 2006. In ~~working~~the ~~capital~~2007 ~~used~~period, ~~cash~~inventory decreased from higher levels at December 31, 2006, due to lower volumes of ~~$63 million~~water-borne ~~and~~cargos ~~$190 million~~in transit at September 30, ~~respectively~~2007 due to a delay in a shipment and a reduction in inventory levels in preparation for turnaround activities at a production facility in the fourth quarter 2007. The increase in the 2006 period reflected a shift from NGLs to higher usage of liquids; however, due to timing, this resulted in an increase in overall inventory levels during the period.

~~Receivables~~Accounts receivable ~~showed~~increased ~~a $35 million decrease~~ in the first ~~quarter~~nine ~~2006~~months of 2007 and a2006, ~~$268~~using cash of $271 million ~~increase~~and in$341 million, ~~the first quarter 2005~~respectively. Prior ~~The decrease in the first quarter 2006~~to ~~reflected~~ January ~~lower March~~ 2006, ~~sales~~discounts ~~revenues~~were ~~compared~~offered to ~~December~~certain ~~2005~~customers ~~and~~for anearly ~~increase~~payment for product. As ofa ~~$25~~result, ~~million~~some ~~in the outstanding amount of accounts~~ receivable ~~sold~~amounts ~~under~~were ~~Equistar’s~~collected ~~accounts~~in December ~~receivable~~2005 ~~sales~~that ~~facility,~~otherwise ~~which~~would ~~more~~have ~~than~~been ~~offset~~expected ~~the $84 million effect related~~ to ~~discounts~~be ~~noted~~collected ~~below~~in January 2006. This ~~The~~included ~~increase~~collections inof ~~the first quarter 2005 primarily reflected a~~ $~~200~~ 84 million ~~decrease~~ in ~~the~~December ~~outstanding~~2005, related ~~amount~~to ofreceivables ~~accounts~~from ~~receivable~~Occidental ~~sold~~Chemical ~~under the accounts receivable sales facility and~~Corporation, to a ~~lesser extent,~~subsidiary ~~the effect~~ of Occidental ~~higher~~Petroleum ~~average sales prices in the first quarter 2005~~Corporation.

~~Prior to~~Accounts ~~January~~ payable ~~2006,~~increased ~~discounts~~in ~~were~~the ~~offered~~first tonine ~~certain~~months ~~customers~~of ~~for~~2007 ~~early~~and ~~payment~~2006, ~~for~~providing ~~product.~~cash of $175 Asmillion aand ~~result~~$142 million, ~~some~~respectively, ~~receivable~~due ~~amounts~~primarily ~~were collected in December 2005 that otherwise would have been expected~~ to behigher ~~collected in January 2006. This included~~raw ~~collections~~ material ofprices ~~$84 million~~ in ~~December~~both ~~2005,~~periods ~~related~~compared to ~~receivables~~December ~~from~~31 ~~Occidental~~levels ~~Chemical Corporation, a subsidiary~~ of ~~Occidental~~the ~~Petroleum Corporation~~preceding year.

~~Inventories~~The higher ~~showed~~use aof ~~$144~~cash ~~million increase~~ in the first ~~quarter~~nine ~~2006~~months ~~compared~~of to2007 aas ~~$71~~indicated ~~million~~by ~~increase~~ changes in ~~the first quarter 2005. The increase in the 2006 period~~ ~~reflected~~ other, anet, ~~shift~~was ~~from~~primarily ~~liquids~~due to ~~higher usage of NGLs in~~ the ~~production~~timing of ~~ethylene~~interest ~~and~~payments, ~~planned~~which ~~increases~~are quarterly inunder ~~polymers~~the ~~inventory~~Millennium ~~levels~~Notes, inpayments ~~anticipation~~ of ~~scheduled~~incentive ~~maintenance~~compensation and increased atpension ~~certain polymers production facilities in the second quarter 2006~~funding.

~~Accounts~~Investing Activities—Investing ~~payable~~activities ~~increased~~used ~~$46~~cash of $144 million ~~in the first quarter 2006 compared to~~and $~~149~~ 103 million in the first ~~quarter~~nine ~~2005~~months ~~due~~of ~~primarily~~2007 toand ~~increases~~2006, inrespectively, primarily ~~raw~~for ~~material~~capital ~~costs that were partly offset by decreases in energy costs~~expenditures. Equistar’s ~~However,~~capital ~~the~~budget ~~rate~~for 2007 ofis ~~increase~~$192 million inand ~~raw~~includes ~~material~~spending ~~costs~~for ~~was~~base ~~lower~~plant ~~during~~support, ~~the first quarter 2006 compared to the~~plant ~~first~~ efficiency ~~quarter 2005~~projects, ~~while~~projects ~~the~~related ~~rate~~to ofenvironmental ~~decrease~~and inregulatory requirements ~~energy~~and ~~costs~~profit ~~was~~enhancement, ~~greater~~which ininclude ~~the~~projects ~~first~~devoted ~~quarter~~to ~~2006~~further co-product ~~compared~~upgrading toand ~~the~~raw ~~first~~materials ~~quarter 2005~~flexibility.

Investing Activities—Investing activities used cash of $22 million and $32 million in the first quarter 2006 and 2005, respectively, primarily for capital expenditures. Equistar’s capital budget for 2006 is $232 million and includes spending for base plant support, plant efficiency projects and projects related to environmental and regulatory requirements, including air emission reductions and wastewater management. 17

~~Financing Activities—Cash~~Table ~~used by financing activities was $349 million in the first quarter 2006 and $1 million in the first quarter 2005. During the first quarter 2006, Equistar repaid the $150 million~~ of ~~6.5% Notes outstanding, which matured in February 2006, and distributed $200 million to its owners. Equistar did not make distributions to its owners in the first quarter 2005.~~ Contents

~~Liquidity and Capital Resources~~Financing Activities—AtCash ~~March 31,~~used ~~2006,~~by ~~Equistar’s~~financing ~~long-term~~activities ~~debt~~was ~~totaled~~ $~~2.2~~217 ~~billion,~~million orin the ~~approximately~~first ~~57%~~nine months of ~~its~~2007 ~~total capitalization~~ and ~~there~~$524 million ~~were~~in nothe ~~current~~first ~~maturities.~~nine Atmonths ~~March 31,~~ of 2006,. During ~~Equistar~~the ~~had~~first ~~cash~~nine onmonths ~~hand~~ of ~~$33 million~~2007, ~~and~~Equistar ~~the~~issued promissory ~~total~~notes ~~amount~~to ~~available~~Millennium subsidiaries under ~~both~~loan ~~the~~agreements ~~$400 million~~with ~~inventory-based~~total availability ~~revolving~~of ~~credit facility and the~~ $600 million, ~~accounts~~and ~~receivable~~borrowed ~~sales facility totaled approximately~~ $~~708~~515 million, ~~giving~~under ~~effect~~these agreements. As toa ~~the~~result ~~borrowing base net~~ of athe ~~$50 million~~proposed ~~unused~~merger ~~availability~~of ~~requirement~~Lyondell and Basell, the ~~$225 million~~maturity ~~outstanding~~of ~~amount~~the ~~sold~~notes ~~under~~was ~~the accounts~~extended ~~receivable~~to ~~sales~~February ~~facility~~16, at2008 ~~March~~from December 3121, ~~2006~~2007, ~~and~~or ~~$17 million~~earlier ofupon ~~outstanding~~demand, ~~letters~~and ofbear ~~credit under the revolving credit facility as of March 31~~interest, ~~2006.~~which ~~The borrowing base~~ is payable ~~determined~~quarterly, ~~using~~at aLondon ~~formula~~Interbank ~~applied~~Offered toRate ~~accounts receivable~~(“LIBOR”) ~~and inventory balances~~plus 1.75%. Equistar ~~The~~used ~~revolving~~the ~~credit~~proceeds ~~facility~~of ~~requires that~~ the ~~unused~~Millennium ~~available~~loans, ~~amounts~~along ~~under~~with cash ~~that~~on ~~facility~~hand, ~~and~~to ~~the~~repay $~~600~~300 million ~~accounts~~principal ~~receivable~~amount ~~sales~~of ~~facility~~its ~~equal~~10.125% orSenior Notes ~~exceed~~due ~~$50 million or~~2008, $~~100~~300 million ~~if the~~principal ~~Interest~~amount ~~Coverage~~of ~~Ratio,~~its as10.625% ~~defined,~~Senior atNotes due ~~the~~2011 ~~end~~and ofrelated ~~any~~premiums ~~period~~totaling of$32 million. In ~~four~~the ~~consecutive~~first nine ~~fiscal~~months ~~quarters~~of is2006, ~~less~~Equistar ~~than~~repaid ~~2:1.~~the ~~There~~$150 million ~~was~~of no6.5% Notes outstanding, ~~borrowing~~which ~~under~~matured ~~the~~in ~~revolving~~February ~~credit facility at March 31,~~ 2006.

14Equistar distributed $100 million to its owners during the first nine months of 2007 compared to $375 million during the first nine months of 2006.

~~Equistar’s ability to continue to pay or refinance its debt will depend on future operating performance, which could~~Liquidity be and ~~affected~~Capital byResources—At ~~general economic~~September 30, ~~financial~~2007, Equistar’s ~~competitive,~~total ~~legislative~~debt, ~~regulatory,~~including ~~business~~current ~~and other factors~~maturities, ~~many~~totaled ~~of which are beyond its control~~$2. ~~However~~1 billion, ~~Equistar believes that conditions will be such that cash balances, cash generated from~~ ~~operating~~ or ~~activities~~57% ~~and~~of ~~funding~~its ~~under~~total ~~the credit facility will be adequate to meet anticipated future cash requirements, including scheduled debt repayments, necessary capital expenditures and ongoing operations~~capitalization. The Incurrent ~~the~~maturities ~~first quarter 2005,~~included ~~Standard~~ $400 &million ~~Poors~~principal ~~(“S&P”)~~amount ~~upgraded~~of Equistar’s ~~debt rating from B+ to BB- and gave Equistar a positive outlook~~10.125% InSenior ~~April~~Notes ~~2006,~~due ~~S&P placed Equistar’s debt ratings on Credit Watch with positive implications as a~~2008 ~~result~~ and $515 million of ~~actions~~notes ~~taken~~payable ~~by Equistar’s parent, Lyondell,~~ to ~~explore~~Millennium ~~the~~due ~~sale of a joint venture in which Lyondell has an interest~~upon demand.

At September 30, 2007, Equistar’s had cash on hand of $25 million, and the total amount available under both the $400 million inventory-based revolving credit facility, and the $600 million accounts receivable sales facility totaled ~~and~~approximately ~~indentures~~$899 million, ~~contain~~after ~~restrictive~~giving ~~covenants.~~effect ~~These~~to ~~covenants~~the ~~are described~~borrowing in base ~~Notes~~net 5of ~~and~~a 11$50 million tounused ~~Equistar’s~~availability ~~Consolidated~~requirement, ~~Financial~~any ~~Statements~~outstanding amount ~~included~~of inaccounts ~~Equistar’s~~receivable ~~Annual~~sold ~~Report~~under onthe ~~Form~~accounts ~~10-K~~receivable ~~for~~sales ~~the~~facility, of ~~year~~which ~~ended~~there ~~December~~was $40 ~~31,~~million ~~2005.~~at ~~The~~September 30, ~~potential~~2007, ~~impact~~and $11 million of aoutstanding ~~breach~~letters of ~~these~~credit ~~covenants~~under isthe ~~discussed~~revolving incredit ~~“Liquidity~~ facility ~~and~~as ~~Capital~~of ~~Resources” under Item~~September 730, of2007. The ~~Equistar’s~~borrowing ~~Annual~~base ~~Report~~is determined onusing ~~Form~~a ~~10-K~~formula ~~for~~applied ~~the~~to ~~year~~accounts ~~ended~~receivable ~~December 31,~~and ~~2005~~inventory balances. The ~~There~~revolving ~~have~~credit ~~been~~facility norequires ~~changes~~that in the ~~terms~~unused available ofamounts ~~the~~under ~~covenants~~that infacility and the ~~quarter ended March~~$600 ~~31,~~million ~~2006.~~accounts ~~Some~~ receivable ofsales ~~Equistar’s~~facility ~~indentures~~equal ~~require~~or ~~additional~~exceed ~~interest~~$50 million, ~~payments~~or to$100 million if the ~~note~~Interest ~~holders~~Coverage ifRatio, ~~Equistar~~as ~~makes~~defined, ~~distributions~~at ~~when~~the ~~its~~end ~~Fixed~~of ~~Charge~~any ~~Coverage~~period ~~Ratio,~~of asfour consecutive ~~defined,~~fiscal quarters is less than 2:1.75 There towas 1.no outstanding borrowing under the revolving credit facility at September 30, 2007.

~~Off-Balance Sheet Arrangements—Equistar’s off-balance sheet arrangements are~~In ~~described~~ addition, intotal ~~Item 7~~availability ofunder ~~its~~the ~~Annual~~revolving ~~Report~~loan onagreements ~~Form~~with ~~10-K~~Millennium subsidiaries ~~for~~was ~~the~~$600 ~~year ended December 31~~million, ~~2005.~~while ~~Equistar’s~~aggregate ~~off-balance~~borrowings ~~sheet~~were ~~arrangements~~$515 million at ~~did not change materially in the quarter ended March~~September 3130, ~~2006~~2007.

Equistar’s ability to continue to pay or refinance its debt will depend on future operating performance, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond its control. However, Equistar believes that conditions will be such that cash balances, cash generated from operating activities and funding under lines of credit and other potential lending arrangements will be adequate to meet anticipated future cash requirements, including scheduled debt repayments, necessary capital expenditures and ongoing operations.

Equistar’s inventory-based revolving credit facility, accounts receivable sales facility and indentures contain restrictive covenants. These covenants are described in Notes 6 and 12 to Equistar’s Consolidated Financial Statements included in Equistar’s Annual Report on Form 10-K for the year ended December 31, 2006. The potential impact of a breach of these covenants is discussed in “Liquidity and Capital Resources” under Item 7 of Equistar’s Annual Report on Form 10-K for the year ended December 31, 2006. There have been no changes in the terms of the covenants in the nine months ended September 30, 2007. Some of Equistar’s indentures require additional interest payments to the note holders if Equistar makes distributions when its Fixed Charge Coverage Ratio, as defined, is less than 1.75 to 1.

Off-Balance Sheet Arrangements—Equistar’s off-balance sheet arrangements are described in Item 7 of its Annual Report on Form 10-K for the year ended December 31, 2006. Equistar’s off-balance sheet arrangements did not change materially in the nine months ended September 30, 2007.

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CURRENT BUSINESS OUTLOOK

~~The resumption of North American ethylene production~~ Thus far in the ~~industry~~fourth ~~during the first~~ quarter ~~2006~~2007, ~~after~~both ~~planned~~crude oil and ~~unplanned~~NGLs ~~outages~~price isincreases ~~currently~~have accelerated, ~~resulting~~setting innew ~~lower prices~~highs. Record ~~Nonetheless,~~high ~~Equistar~~raw ~~expects~~material ~~strong~~costs ~~underlying business conditions to result in industry operating rates in the mid-90% range over the course of the year and~~are to offsetting ~~offset~~ the ~~effects~~benefit of ~~volatility~~recent ~~and~~sales ~~current~~price ~~high~~increases, ~~prices~~necessitating infurther pricing ~~the energy markets~~initiatives. ~~Equistar believes its products are positioned for a strong 2006.~~

ACCOUNTING AND REPORTING CHANGES

~~Effective~~In February ~~January 1~~2007, ~~2006,~~the ~~Equistar~~Financial ~~adopted~~Accounting ~~the~~Standards ~~provisions~~Board of(“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. ~~123~~ ~~(revised 2004)~~159, ~~Share-Based~~ ~~Payment~~The ~~using~~Fair ~~the~~Value Option ~~modified~~for ~~prospective~~Financial ~~method~~Assets and, ~~consequently,~~Financial ~~has~~Liabilities ~~not~~- ~~adjusted~~Including ~~results~~an amendment of ~~prior~~FASB ~~periods~~Statement No. ~~Equistar~~115, ~~previously~~which ~~accounted~~permits ~~for~~election ~~these~~of ~~plans~~fair ~~according~~value to ~~the~~measure many ~~provisions~~financial ofinstruments and certain other items. SFAS No. ~~123,~~ ~~Accounting~~159 ~~for~~is ~~Stock-Based~~ effective ~~Compensation.~~for Equistar’s ~~application~~beginning ofin ~~SFAS No~~2008. ~~123~~ Equistar ~~(revised~~is ~~2004)~~currently evaluating ~~had~~whether noit ~~material~~will ~~effect~~elect onthe ~~its~~fair ~~consolidated~~value option for any of its eligible financial ~~statements.~~instruments and other items.

In September ~~2005~~2006, the ~~Emerging~~FASB ~~Issues~~issued ~~Task~~SFAS ~~Force (“EITF”) of the Financial Accounting Standards Board reached consensus on one issue of EITF Issue~~ No. ~~04-13,~~ ~~Accounting for Purchases and Sales of Inventory with the Same Counterparty~~157, ~~that~~Fair ~~inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined for~~Value ~~purposes~~ Measurements. The ofnew ~~applying~~standard ~~Accounting~~defines ~~Principles~~fair ~~Board Opinion No. 29~~value, ~~Accounting~~establishes a framework for ~~Nonmonetary~~its ~~Transactions.~~measurement ~~Equistar currently records certain purchases~~ and ~~sales~~expands ofdisclosures ~~chemical~~about ~~products entered into contemporaneously with the same~~such ~~counterparty as cost of sales and revenues~~ measurements. For ~~The EITF consensus could result in a reduction of~~ Equistar’s, ~~reported~~the ~~revenues~~standard ~~and~~will ~~cost~~be ofeffective ~~sales for affected transactions. The consensus on this issue would apply to transactions entered into~~ beginning in ~~the second quarter 2006~~2008. Equistar does not expect the application of ~~EITF~~SFAS No. 157 ~~04-13~~ to have a material effect on its consolidated financial statements.

15 ENVIRONMENTAL MATTERS

Various environmental laws and regulations impose substantial requirements upon the operations of Equistar. Equistar’s policy is to be in compliance with such laws and regulations, which include, among others, the Comprehensive Environmental Response, Compensation and Liability Act as amended, the Resource Conservation and Recovery Act and the Clean Air Act Amendments. Equistar does not specifically track all recurring costs associated with managing hazardous substances and pollution in ongoing operations. Such costs are included in cost of sales.

Equistar also makes capital expenditures to comply with environmental regulations. Equistar currently estimates that environmentally related capital expenditures at its facilities will be approximately $50 million in 2007 and $15 million in 2008, representing an increase of $20 million in 2007 due to rising costs associated with a regulatory project.

Item 3. Disclosure of Market Risk

Equistar’s exposure to market risk is described in Item 7a 7A of its Annual Report on Form 10-K for the year ended December 31, ~~2005.~~ 2006. Equistar’s exposure to market risk has not changed materially in the ~~quarter~~nine ~~ended~~months ~~March~~ended September 3130, ~~2006~~2007.

Item 4. Controls and Procedures

Equistar performed an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer (principal executive officer) and Senior Vice President and Chief Financial Officer (principal financial officer), of the effectiveness of Equistar’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of ~~March 31~~September 30, ~~2006~~2007. Based upon that evaluation, the Chief Executive Officer and the Senior Vice President and Chief Financial Officer concluded that Equistar’s disclosure controls and procedures are effective.

There were no changes in Equistar’s internal control over financial reporting that occurred during Equistar’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, Equistar’s internal control over financial reporting.

16 19

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FORWARD-LOOKING STATEMENTS

Certain of the statements contained in this report are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements can be identified by words such as “estimate,” “believe,” “expect,” “anticipate,” “plan,” “budget” or other words that convey the uncertainty of future events or outcomes. Many of these forward-looking statements have been based on expectations and assumptions about future events that may prove to be inaccurate. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond Equistar’s control. Equistar’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to:

•· the ~~availability,~~ability ~~cost~~of Lyondell and ~~price~~Basell ~~volatility~~to ofcomplete ~~raw~~their ~~materials~~proposed ~~and utilities~~merger,

•· uncertainty concerning the ~~supply/demand~~effects ~~balances~~of ~~for~~the ~~Equistar’s~~proposed ~~products~~merger, including the diversion of attention from the day-to-day business and the ~~related~~potential ~~effects~~disruption ofto ~~industry~~employees ~~production~~and ~~capacities~~relationships with customers, suppliers, distributors and ~~operating~~business ~~rates~~partners,

•· the ~~cyclical~~availability, ~~nature~~cost and price volatility of ~~the~~raw ~~chemical~~materials ~~industry~~and utilities,

•· ~~operating~~the ~~interruptions~~supply/demand ~~(including~~balances ~~leaks,~~for ~~explosions,~~Equistar’s ~~fires~~products, ~~weather-related~~and ~~incidents,~~the ~~mechanical~~related ~~failures,~~effects ~~unscheduled~~of ~~downtimes,~~industry ~~supplier~~production ~~disruptions,~~capacities ~~labor difficulties, transportation interruptions, spills~~ and ~~releases~~operating ~~and other environmental risks)~~rates,

•· uncertainties associated with the U.S. and worldwide economies, including those due to political tensions in the Middle East and elsewhere,

•· ~~legal~~the ~~and~~cyclical ~~environmental~~nature ~~proceedings~~of the chemical industry,

•· ~~current~~operating ~~and~~interruptions ~~potential~~(including ~~governmental~~leaks, ~~regulatory~~explosions, ~~actions~~fires, inweather-related ~~the~~incidents, ~~U.S.~~mechanical failures, unscheduled downtimes, supplier disruptions, labor shortages or other labor difficulties, transportation interruptions, spills and inreleases and other ~~countries~~environmental risks),

•· ~~terrorist~~legal ~~acts~~ and ~~international~~environmental ~~political unrest~~proceedings,

•· ~~competitive~~current ~~products~~and potential governmental regulatory actions in the U.S. and ~~pricing~~in ~~pressures~~other countries,

•· ~~access~~terrorist toacts ~~capital~~and ~~markets~~international political unrest,

•· ~~technological~~competitive ~~developments,~~products and pricing pressures,

•· ~~Equistar’s~~technological ~~ability to implement its business strategies.~~developments,

~~Any~~· ofaccess ~~the~~to ~~factors,~~capital ~~or a combination of these factors~~markets, ~~could materially affect Equistar’s future results of operations~~ and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of Equistar’s future performance, and Equistar’s actual results and future developments may differ materially from those projected in the forward-looking statements. 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~~· ~~forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section, elsewhere in this report and in~~ Equistar’s ~~Annual~~ability Report on Form 10-K for the year ended December 31, 2005. See “Item 1A. Risk Factors” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These factors are not necessarily all of the important factors that could affect Equistar. Use caution and common sense when considering these forward-looking statements. Equistar does not intend to ~~update~~implement ~~these statements~~its ~~unless~~business ~~securities laws require it to do so~~strategies.

Any of these factors, or a combination of these factors, could materially affect Equistar’s future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of Equistar’s future performance, and Equistar’s actual results and future developments may differ materially from those projected in the forward-looking statements. 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 forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section, elsewhere in this report and in Equistar’s Annual Report on Form 10-K for the year ended December 31, 2006 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. See “Item 1. Legal Proceedings” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These factors are not necessarily all of the important factors that could affect Equistar. Use caution and common sense when considering these forward-looking statements. Equistar does not intend to update these statements unless securities laws require it to do so.

In addition, this Form 10-Q contains summaries of contracts and other documents. These summaries may not contain all of the information that is important to an investor, and reference is made to the actual contract or document for a more complete understanding of the contract or document involved.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments with respect to Equistar’s legal proceedings previously ~~reported~~disclosed in the Annual Report on Form 10-K for the year ended December 31, ~~2005.~~2006 and in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, except as described below:

In May 2007, the Texas Commission on Environmental Quality (the “TCEQ”) notified Equistar that it is seeking a civil penalty of $153,330 in connection with alleged noncompliance during 2005 and 2006 with various air pollution regulations at the Channelview facility. Also in May 2007, legislative changes were finalized that impacted the manner in which TCEQ assesses penalties and could result in a substantial reduction in the assessed penalty. In September 2007, the TCEQ staff issued a policy determination of the recent legislation which determination limits the potential reduction in the proposed penalty pursuant to such legislation. Equistar continues discussions with TCEQ.

In October 2007, the TCEQ notified Equistar that it is seeking a penalty of $129,400 in connection with alleged exceedances of permitted emissions at Equistar’s Chocolate Bayou plant.

Equistar does not believe that the ultimate resolution of these matters will have a material adverse effect on the business, financial position, liquidity or results of operation of Equistar.

Item 1A. Risk Factors

There have been no material changes with respect to Equistar’s risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2006 and ~~2005,~~in ~~except~~the asQuarterly ~~described~~Reports ~~below:~~on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.

~~Legislative and other actions may reduce U.S. demand for MTBE and, therefore, Equistar may produce less profitable alternative gasoline blending components instead.~~ 21

~~In the U.S., the Clean Air Act Amendments of 1990~~Table ~~set minimum levels for oxygenates, such as MTBE, used in gasoline sold as reformulated fuel in areas not meeting specified air quality standards. However, the presence~~ of MTBE in some water supplies in California and other states due to gasoline leaking from underground storage tanks and in surface water from recreational water craft led to public concern about the use of MTBE and resulted in the U.S. federal Energy Policy Act of 2005 and U.S. state governmental initiatives to reduce the use of MTBE. Contents

The federal Energy Policy Act of 2005, which was enacted in the U.S. in August 2005, does not phase-down or ban the use of MTBE. However, the Act eliminates the oxygen standard for reformulated fuels, effective May 6, 2006, and also contains a renewable fuel standard that mandates the use of ethanol in gasoline. As a result of the elimination of the oxygen standard for reformulated fuels, some companies are no longer using MTBE or any other oxygenate. Various U.S. states have banned or are considering banning the use of MTBE. For example, California, Connecticut and New York banned MTBE, effective January 2004, and New Jersey banned MTBE, effective January 2009. In addition, at this time, the majority of refiners and blenders have discontinued the use of MTBE in the U.S. In addition to decisions by refiners and blenders to discontinue use of MTBE, at this time some common carrier pipelines and terminals also have indicated an intention to discontinue handling gasoline containing MTBE. It is not clear whether these actions by pipelines and terminals are consistent with legal or regulatory requirements.

The combination of these actions is negatively affecting U.S. MTBE demand. Equistar’s North American MTBE business accounted for approximately $378 million of Equistar’s revenues in 2005. At this time, Equistar cannot predict the full impact that the U.S. federal legislation, state governmental initiatives and bans, and these commercial actions will have on MTBE margins or volumes longer term. Equistar intends to continue offering MTBE either in the U.S. or outside of the U.S. However, should it become necessary or desirable to significantly reduce MTBE production as a result of state bans or the commercial decisions by refiners, blenders, pipelines and terminals to discontinue use or handling of MTBE, Equistar may make capital expenditures to add the flexibility to produce alternative gasoline blending components, such as iso-octane, iso-octene (also known as “di-isobutylene”) or ethyl tertiary butyl ether (“ETBE”), at its MTBE plant. Conversion and product decisions will be influenced by further regulatory and market developments. The profit contribution related to the non-ether alternative gasoline blending components is likely to be lower than that historically realized on MTBE. In addition, there are higher distribution costs and import duties associated with exporting MTBE outside of the U.S., and the increased supply of MTBE may reduce profitability of MTBE in these export markets.

Item 6. Exhibits

31.1		Rule 13a – 14(a)/15d – 14(a) Certification of Principal Executive Officer

31.2		Rule 13a – 14(a)/15d – 14(a) Certification of Principal Financial Officer

32.1		Section 1350 Certification of Principal Executive Officer

32.2		Section 1350 Certification of Principal Financial Officer

99.1		Consolidated Financial Statements (Unaudited) of Lyondell Chemical Company

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Equistar Chemicals, LP
Dated: May 4, 2006		/s/ Charles L. Hall
Dated: November 7, 2007		/s/ Charles L. Hall
		Charles L. Hall
		Vice President and Controller
		(Duly Authorized and Principal Accounting Officer)

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