Q3 2021 Westlake Chemical Partners LP Earnings Call

[music].

Good morning, Thank you for standing by and welcome to the Westlake Chemical partners third quarter 2021 earnings conference call. During the presentation. All participants will be in a listen only mode. After the speakers' remarks, you'll be invited to participate in a question and answer session.

This conference is being recorded today November seven 2021, I would now like to turn the call over to your resource carefully Westlake Chemical Partners', Vice President and Treasurer, Sir you may begin thank you.

Good morning, or afternoon, everyone and welcome to the Westlake Chemical partners third quarter 2021 conference call.

I'm joined today by Albert Chao, our President and CEO, Steve Bender, our executive Vice President and CFO and other members of our management team.

During this call we refer to ourselves as Westlake partners or the partnership.

For instance to Westlake or Westlake chemical refer to our parent company Westlake Chemical Corporation and references to Opco referred to Westlake Chemical Opco L. P.

The daily of Westlake chemical and the partnership which owns certain olefins assets. Additionally.

Additionally, when we refer to distributable cash flow.

We were referring to Westlake chemical partners' MLP distributable cash flow definitions of these terms are available on the partnership's website.

Today's management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs as well as 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 are able to sell the price at which we are able to sell ethylene changes in the prevailing economic conditions.

Actual and proposed governmental regulatory actions competitive products and pricing pressures.

The COVID-19 pandemic extra.

Extreme weather events, our ability to borrow funds and access capital markets at a reasonable cost.

And other risk factors discussed in our SEC filings.

This morning, Westlake partners issued a press release with details of our third quarter 2021 financial and operating results. This document.

It's 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, 5859056 international callers may access the replay at 404 537 3406.

The access code is eight to 85407 please.

Please note that information reported on this call speaks only as of today November <unk> 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 morning, or good afternoon, everyone.

And thank you for joining us to discuss our third quarter 2021 results.

In this morning's press release.

We reported Westlake Partners' third quarter 2021, net income of $13 million or <unk> 36 cents per unit.

During the quarter higher ethylene production contributors to consolidated net income, including articles of $66 million.

In mid September.

We began our planned 10 alone at off course perpetual two facility in Lake Charles Louisiana.

Which we now anticipate to be completed in December.

Westlake Partners' financial results in the third quarter call.

To demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual planned production each year.

Insulating us from market volatility and other production risks.

This certainty combined with our investment grade sponsor Westlake chemical.

Produces predictable earnings and stable cash flows.

I would now like to turn our call over to Steve to provide more detail on our financial and operating results for the quarter Steve. Thank.

Thank you Robert and good morning, or good afternoon, depending on the times on your end.

In this morning's press release, we reported Westlake Partners' third quarter 2021, net income was $13 million or <unk> 36 per unit.

Consolidated net income, including <unk> earnings was $66 million on consolidated net sales of $294 million.

The partnership had distributable cash flow for the quarter of $13 million or a 37 per unit.

Third quarter 2021, net income for Westlake partners of $13 million decreased by $6 million compared to third quarter 2000 2020.

Net income of $19 million. The decrease net income was primarily due to lower planned production attributable to the turnaround of Petro two which started in September and the buyer a deficiency fee recognized in the third quarter of 2020.

Distributable cash flow of $13 million for the third quarter of 2021 decreased by $8 million compared to the third quarter of 2020 distributable cash flow of 2000 $21 million.

The year over year decrease was attributable to lower earnings at <unk> from a lower production during our planned turnaround and higher maintenance cost.

Turning to the balance sheet and cash flows at the end of the third quarter, we had consolidated cash balance and cash investments with Westlake chemical through our investment management agreement totaling $215 million.

At the end of the third quarter, Westlake chemical had payment obligations to opco of $21 million representing.

Representing the buyer deficiency fee for the loss production and cost recovery.

These payment obligations 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 was at the partnership and the remaining $23 million was at Opco.

In the third quarter, Opco incurred $15 million and capital expenditures.

For the third quarter of 2021, we maintained our strong leverage metrics with a consolidated leverage ratio of approximately one times and a debt to total capitalization ratio near 15%.

As Albert mentioned are currently we are currently undergoing the turnaround of our Petro two ethylene unit, which began in September of this year and is projected to be completed in December.

Cost of this turnaround has been included in the amount we charge Westlake chemical under the terms of our ethylene sales agreement and funded the commencement of the turnaround.

On November one 2021, we announced distributions of 40 714 cents per unit with respect to the third quarter of 2021.

Since our IPO in 2014, the partnership has made 29 consecutive quarterly distributions to unit holders.

Distributions, 71% since the partnership's original minimum quarterly distribution of $27.05 per unit.

For the 12 months ending September 32021, distribute distributable cash flow provided coverage of one six times the declared distributions.

The third quarter's partnership distribution will be paid on November 29, 2021 to unit holders of record November 12 2021.

The partnership's predictable fee based cash flow provides.

Benefits in today's economic environment and is differentiated by the consistency of our earnings and cash flows the structure of our ethylene sales agreement and the associated cash flow allow the partnership to continue distributions at our current level, while sustaining our long term targeted one one times distribution coverage ratio first.

Eliminating the need to access equity capital in the markets.

Looking back since our IPO, we have maintained our cumulative coverage ratio above this targeted level.

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

Thank you Steve.

I'm pleased with the partnership's financial and operational performance through the third quarter.

The stability of our business model and associated cash flows demonstrate the benefit of our ethylene sales agreement and its protective provisions provided partnership.

Predictable long term earnings and cash flows despite both planned and unplanned production outages.

We remain optimistic about the continuing demand for ethylene.

Driven by robust downstream dilutions needs by our parent Westlake chemical as.

As well as strong end use demand in packaging.

Our ethylene sales agreement, which provides a predictable fee based cash flow structure.

From our take or pay contract with Westlake chemical.

For 95% of <unk> production.

We will continue to deliver these stable and predictable cash flows.

We maintained a strong balance sheet with conservative financial and leverage metrics.

As we continue to navigate market conditions.

We will evaluate opportunities via our four levers of growth in the future, including increasing our ownership interest of Opco.

Acquisitions of other qualified income streams.

Organic growth opportunities such expansions of our current ethylene facilities.

And negotiations, although highest fixed margin.

Turning sales agreement with Westlake.

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

As always.

We will continue to operate safely.

Along with being good stewards of the environment, where we work and live.

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

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 Dexter we will now take questions.

Thank you.

Participants to ask a question you need to press star one on your telephone to withdraw.

Your question press the pound key again, that's star then the number one on your telephone keypad glassy question.

First question is from Matthew Blair from.

Your line is open.

Good morning, Albert and Steve.

Morning, Debbie.

You mentioned, the turnaround is lasting a little bit longer.

Should we think about that as an incremental headwind to Westlake LP in Q4.

No because of the extended outage the operating company declared force majeure protecting the partnership from any extended delays and so therefore, there should not be any impact to the partnership as a result of that.

Okay sounds good and then.

As far as the potential for restarting distribution growth what are the key.

Benchmark you are looking for in order to make that decision.

Yes, I'm looking for really a an appreciation of the predictability and stability that we've been able to demonstrate I think the unit price has done well and has performed but hasnt performed entirely up to the company's expectations and so certainly we do expect that demonstration of performance this year given the number.

There are events that have arisen.

And when you think of the number of events, whether they've been freezes or turnarounds or other unplanned outages.

We have demonstrated incredible predictability and continue to make distributions as expected.

So with that performance I do expect the unit price to be reflective of that predictability and cash flow performance with that I think will continue to be able to then provide growth in distributions if the market rewards accordingly.

Okay. So it sounds like most of them.

A valuation issue what about what's your sense of how open are the equity capital markets.

You see investor appetite for dropdown transactions.

Given the size of the <unk>.

Distributions that we've been making over the years I think there is adequate capital to make those kinds of distribution growth opportunities, assuming valuations are reasonable and our view and so I certainly think that the scale and size of the capital asset we would need to fund any future growth are certainly achievable.

In the markets today.

It may not have been the case for some of the very very large partnerships that existed, but certainly in our case given the scale of our business and the growth in distributions that we've been able to provide over over the recent past I think they are achievable in the markets.

Assuming we have an appropriate valuation for the unit price.

Sounds good thank you very much.

You're welcome.

At this time, the Q&A session assay and that 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 fourth quarter and full year results.

Thank you.

But he's right.

Chemical Partners' third quarter earnings Conference call. As a reminder, this call will be available for replay beginning two hours after the call.

And maybe at Axis and people that have been 69 P. M. Eastern time on Tuesday November 19 2021.

A replay can be accessed by calling the following numbers.

Domestic callers should dial 855859056, again, it's H buying 5592056 toward domestic loans.

International callers may access the replay at 404.

Last week seven three for series six again, it's 400 453734 through six.

Cisco eight to 85407.

This concludes today's conference call Goodbye.

Okay.

Sure.

Yes.

Yeah.

Yeah.

[music].

Sure.

[music].

Yes.

Yes.

[music].

Yes.

Okay.

[music].

[music].

[music].

[music].