Q1 2021 Westlake Chemical Partners LP Earnings Call

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Good afternoon. Thank you for standing by walking through the Westlake Chemical partners first quarter 2021 earnings conference call. During the presentation, all participants will be on listen only mode.

After the Speakers' remarks, you will be invited to participate in the question and answer the question.

Your line of this conference call is being recorded today may four of 2021.

I'd now like turn the call over to today's host, Jeff Holly Westlake Chemical partners, Vice President and Treasurer, Sir you may begin.

Valerie good afternoon, everyone and welcome to the Westlake Chemical partners first quarter of 2021 conference call I'm joined today by Albert Chao, Our President and CEO, Steve Bender, Our senior Vice President and CFO and other members of our management team.

During this call we refer to ourselves as Westlake partners or the partnership references to Westlake or Westlake chemical refer to our parent company Westlake Chemical Corporation and references to Opco referred to Westlake Chemical Opco L. P. A subsidiary of Westlake chemical and the partnership which owns.

Certain olefins assets. Additionally, when we refer to distributable cash flow.

We are referring to Westlake chemical partners MLP distributable cash flow.

Definitions of these terms are available on the partnership's website.

Today management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs.

As well as the assumptions made by and information currently available to management.

These forward looking statements suggest predictions or expectations, and thus are subject to risks or uncertainties.

Actual results could differ materially based upon many factors, including operating difficulties the volume of ethylene that we were able to sell the price at which we're able to sell ethylene changes in the prevailing economic conditions actual and proposed governmental regulatory actions competitive products in <unk>.

Reising pressures the COVID-19, pandemic extreme weather events, our ability to borrow funds and access capital markets at a reasonable cost and other risk factors as discussed in our SEC filings.

This morning, Westlake partners issued a press release with details of our first quarter.

2021 financial and operating results.

This document is available in the press release section of our webpage at W. L K partners Dot com.

A replay of today's call will be available beginning two hours after the conclusion of this call.

The replay may be accessed by dialing the following numbers domestic callers should dial 850 585920 of five six international callers may access the replay at 4045373406, the access code for both numbers.

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Please note the information reported on this call speaks only as of today may 4th 2021, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.

I would finally advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at W. L K partners Dot com.

Now I would like to turn the call over to Albert Chao Albert.

Thank you Jeff Good afternoon, everyone and thank you for joining us to discuss our first quarter results.

In this morning's press release, we reported consolidated net income.

Including of course earnings of $77 million for the first quarter of two of the 2021.

What's the <unk> partners first quarter 2021, net income was $50 million all of 43 cents per unit.

And sort of can production in the first quarter was impacted by the severe winter storm and the ethylene sales agreement with Westlake chemical again this quarter.

The significant benefits to our partnership.

We dealt with the implant production outages from the storm supporting on earnings.

The severe winter storm caused widespread power outages disrupted feedstocks and utilities.

Clothing widespread industry of ethylene outages, including optical.

I wanted to take this opportunity to thank our employees for the efforts quickly responding to the disruptions caused by the severe winter storm and 40 resuming operation by the end of the quarter.

The other thing sales agreement with Westlake provides full recoveries of margins uncommitted production volumes and fixed costs associated with this unplanned outage.

We will discuss this in greater detail in just a moment.

Partners financial results in the first quarter on a testament to the stability generated from our fixed margin ethylene sales agreement for the 95 per cent of annual planned production each year.

Which insulates us from market volatility and other production risks.

This certainty combined without you listen great sponsor Westlake chemical <unk>.

Produces predictable earnings and stable cash flows.

I would now like the tune of I'll call it to over to Steve to provide more detail on the financial and operating results for the quarter, Steve. Thank you Albert and good afternoon, everyone. In this morning's press release, we reported consolidated net income, including <unk> earnings of $77 million on consolidated sales of 260.

The $8 million for the first quarter of 2021.

Westlake partners first quarter net income was $15 million of 43 cents per unit.

Partnership had distributable cash flow for the quarter of $16 million of 46 cents per unit.

And as Albert mentioned provisions in the ethylene sales agreement commit Westlake to purchase and pay for a defined amount of ethylene from opco each calendar year.

Yes, largely insulating us from the impact of these outages during the force majeure events.

Through the protective provisions of this agreement Opco continues to receive the 10 cent margin per pound for ethylene volumes that would have been produced plus production costs that were incurred allowing opco and interim Westlake partners.

Liver consistent earnings during these unplanned events.

As a result of the ethylene sales agreement net income in the first quarter of 2021 included a benefit of $10 million.

This revenue and cost recovery mechanism is an example of how our business model provides predictable earnings and cash flows that's delivering value to our unit holders over the long term.

First quarter 2021, net income for Westlake partners of $15 million decreased by $3 million compared to first quarter 2020 partnership net income of $18 million.

The decrease of net income was primarily attributable to lower production that resulted from the winter storm, partially offsetting this decrease was higher earnings on third party sales driven by the strong pricing environment in the ethylene market in the quarter.

Just <unk> cash flow of $16 million for the first quarter of 2021 decreased by $2 million compared to first quarter 2020, distributable cash flow of $18 million.

The decrease in distributable cash flow was attributable to lower earnings, resulting from the severe winter storm and contributions per turnaround reserves.

Turning our attention to the balance sheet and cash flows at the end of the first quarter, we had consolidated cash balance and cash investments with Westlake chemical through our investment management agreement totaling $205 million.

At the end of the first quarter of Westlake chemical had payment obligations to the partnership of $10 million representing margin from the loss production and cost recovery due to the storm.

These payments will be received in 2022 under the terms of the ethylene sales agreement.

Long term debt at the end of the quarter was $400 million of which $377 million that the partnership and the remaining $23 million was that opco.

In the first quarter Opco spent $13 million in Capex expenditures.

For the first quarter of 2021, we maintained our strong leverage metrics with a consolidated leverage ratio below one times, the net debt to capitalization ratio of near 15%.

Looking ahead looking ahead, our planned turnaround of our Petro two ethylene unit will begin in September of this year and is projected to last approximately 60 days.

The cost of this turnaround has been included in the amount, we charge Westlake chemical and will be fully reserved for at the commencement of the turnaround.

<unk> predictable fee based cash flow continues to be attractive attribute in today's economic environment and is differentiated by consistency of earnings and cash flows the structure of our ethylene sales agreement and the associated cash flows coming from this agreement of all the partnership to continue distributions at a current level while sustaining.

Our long term target one one times distribution coverage, thus eliminating the need to access the equity capital markets.

Excluding the impact of the turnaround this year, we are expecting our full year of 2021 coverage to be at this targeted level.

On May three 2021, we announced distributions of 40 714 cents per unit with respect to the first quarter of 2021.

Since the IPO in 2014, the partnership has made 27 consecutive of quarterly distributions to our unit holders and we have grown distributions, 71% since the partnership's original minimum quarterly distribution of $27 five.

For the three months ended March 31, 2021, distributable cash flow provided coverage of 1.15 times the declared distributions first.

The first quarter's partnership distribution will be paid on May 27, 2021 to unit holders of record to unit holders of record of May 13th 2021.

Now I'd like to call turn the call back over to Albert to make some closing comments Albert.

Thank you, Steve we're pleased with the partnerships financial performance.

The stability of our business model was well illustrated in 2021.

Sales agreement and its protective provisions provided us with the predictable earnings and cash flows despite the winter storm and associated unplanned production outages.

We remain optimistic about sustained demand for Italy.

Driven by continuing downstream demand for polyethylene PVC produced by on a parent Westlake chemical and continuing strong demand for ethylene to support our third party sales.

Oh ethylene sales agreement that provides predictable fee based cash flow of structure from a take or pay contract with Westlake chemical.

The 95% of Optical's production, we will continue to deliver stable and predictable cash flows.

We remained a strong balance sheet, we maintained the strong balance sheet with conservative financial and leverage metrics.

As we continue to navigate market conditions.

We evaluate opportunities via all four levers of growth in the future, including increases of all of our ownership interest of the Opco acquisitions of other qualified income streams.

Organic growth opportunities such as expansions of our COVID-19 ethylene facilities.

And negotiations of the higher fixed margin ethylene sales agreement with Westlake.

We remain focused on ability to continue to provide long term value to our unitholders.

As always we will continue to operate safely along with being good stewards of the diamond and the commodities English we work and live.

Thank you very much of a listening to our first quarter earnings call now I'll turn the call back over to Jeff.

Thank you Albert before we begin taking questions I would like to remind you that a replay of this teleconference will be available two hours. After the call has ended.

We will provide that number again at the end of the call Valerie.

Valerie we will now take questions.

Thank you, ladies and gentlemen, if you'd like to ask the question. Please press Star then one when you touched on the telephone again, if you would like to ask the question please per dart.

One moment for our first question.

Our first question comes from Michael <unk> of Barclays. Your line is open.

Great. Thanks, Good morning, good afternoon guys.

And all of them.

First of all.

Question I guess, if you look at the current unit price now over $27. Obviously much improved since you changed the distribution strategy in late 2019 I think on.

On an absolute price level. The the last time your sustainable year was call it 2015, or so although I guess the yield.

Maybe a bit better at that time I guess my question is how if at all of US your thinking on the distribution growth of evolving or are you thinking about restarting that growth again or maybe what's the few of the gating items that would need to be cleared up the before restarting distribution growth just any perspective, there would be much appreciated.

Certainly so Mike we paused distribution growth actually in early 2000 2020, the market really is indicating of preference really toward a value model versus a growth model.

But certainly we will continue to evaluate that.

Investor interest and preference in the future and look to see what the investors looking for as Albert outlined we've got those four growth levers is certainly available to us and should we see of switch back to of growth valuation of our growth model from the valuation model. We certainly have those levers available to us to do so.

Great. That's helpful. And then just a quick follow up the the Petro two turnaround. This year can you just briefly remind us how about your flow through Westlake partners as the P&L.

And so.

So certainly over the course of the.

Period, we plan for this and the stated production and so we establish of production.

Plan for the year and so there will be some loss of a loss of pounds relative to say a normalized year, but we'll still get that 10 fixed margin on full cost recovery on the pounds that are produced over the course of 2021.

Great. Thank you Youre welcome.

Thank you. Our next question again, if you'd like to ask the question. Please press Star then one on you touched on the call.

Our next question comes from Steve Byrne of Bank of America. Your line is open.

Alright, I just wanted to say.

We had the divide and conquer this morning, so the stereo isn't on your call.

But I I.

I have a couple for you and.

Maybe first off would be.

Where your thinking is these days on whether the the partnership valuation is.

As of May be sufficiently attractive to to raise funds and transfer some of the ownership of the of the joint venture with low day that cracker into optical.

So Steve as I mentioned, just a moment ago. The the market really is looking more of a value model than necessarily a growth oriented model.

Certainly the acquisition by Opco of the ownership that Westlake has of the Lacey ethylene unit certainly is one of those four levers that we've talked about an acquisition strategy. If you will.

Certainly that could be one of the options to grow distributions over time, if the market moves more toward a rewarding for growth versus rewarding for value.

As Mike just mentioned a moment ago, we've seen valuations that have taken the yield in the neighborhood of about 7% and certainly as we think about the the path going forward were certainly intentive to the investor.

Your interest and the value model or the growth model that they are interested in addressing.

We are well positioned to address either one of those given the tools and the levers that we have available to us.

And.

The on the hydrogen the off gas from the crackers, just curious where the that is being used as fuel.

In the in the various furnaces on whether any of your ESG initiatives.

Lead you down the path of potentially.

Using you know an electric source of cash.

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The green hydrogen in any of those.

The principal implications on the operations of these crackers.

So Steve from a Westlake chemical perspective, you know certainly will assess opportunities to to take advantage of any of the byproducts that are available to improve the value proposition. So if theres a higher valuation relative to the return of any investment that may be necessary to provide that higher.

Cleaner form of hydrogen that certainly as alternative.

We're always interested in looking for ways to be more socially and environmentally friendly and at the same time, providing a good value of return to all of our investors.

Okay. Thank you.

Welcome.

Thank you at this time of the Q&A session has now ended.

I will now turn the call back over to Jeff Holly.

Thank you again for participating in today's call. We hope you'll join US for our next conference call to discuss our second quarter results.

Thank you for participating on today's Westlake Chemical partners first quarter earnings conference call as from.

Out of this call will be available for replay of beginning two hours after the call.

And may be accessed until 11 59 P. M. Eastern standard time on Tuesday May 11, 2021 replay can be accessed by calling the following numbers.

The polishing now.

Okay.

Two zero.

International callers may access the replay of course of all four.

Seven three points of okay.

That's kind of it.

332, 7838. This concludes today's call goodbye.

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