WESTLAKE CHEMICAL PARTNERS LP This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included inWestlake Chemical Partners LP's annual report on Form 10-K for the fiscal year endedDecember 31, 2019 (the "2019 Form 10-K"), as filed with theSEC onFebruary 28, 2020 . Unless otherwise indicated, references in this report to "we," "our," "us" or like terms, refer toWestlake Chemical Partners LP (the "Partnership"),Westlake Chemical OpCo LP ("OpCo") andWestlake Chemical OpCo GP LLC ("OpCo GP"). References to "Westlake" refer toWestlake Chemical Corporation and its consolidated subsidiaries other than the Partnership, OpCo GP and OpCo. The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements. Partnership Overview We are aDelaware limited partnership formed by Westlake to operate, acquire and develop ethylene production facilities and related assets. OnAugust 4, 2014 , we closed our initial public offering (the "IPO") of 12,937,500 common units. In connection with the IPO, we acquired a 10.6% interest in OpCo and a 100% interest in OpCo GP, which is the general partner of OpCo. OnApril 29, 2015 , we purchased an additional 2.7% newly-issued limited partner interest in OpCo, resulting in an aggregate 13.3% limited partner interest in OpCo, effectiveApril 1, 2015 . The 12,686,115 subordinated units of the Partnership, all of which were previously owned by Westlake, were converted into common units of the Partnership onAugust 30, 2017 . OnSeptember 29, 2017 , we completed a secondary public offering of 5,175,000 common units and purchased an additional 5.0% newly-issued limited partner interest in OpCo, resulting in an aggregate 18.3% limited partner interest in OpCo, effectiveJuly 1, 2017 . OnMarch 29, 2019 , we completed a private placement of 2,940,818 common units and used the net proceeds to purchase an additional 4.5% interest in OpCo, effectiveJanuary 1, 2019 , resulting in us owning an aggregate 22.8% limited partner interest in OpCo. Currently, our sole revenue generating asset is our 22.8% limited partner interest in OpCo, a limited partnership formed by Westlake and us in anticipation of the IPO to own and operate an ethylene production business. We control OpCo through our ownership of its general partner. Westlake retains the remaining 77.2% limited partner interest in OpCo as well as a significant interest in us through its ownership of our general partner, 40.1% of our limited partner units (consisting of 14,122,230 common units) and our incentive distribution rights. OpCo's assets include (1) two ethylene production facilities ("Petro 1" and "Petro 2" and, collectively, "Lake Charles Olefins") at Westlake'sLake Charles, Louisiana site; (2) one ethylene production facility ("Calvert City Olefins") at Westlake'sCalvert City, Kentucky site; and (3) a 200-mile common carrier ethylene pipeline (the "Longview Pipeline") that runs fromMont Belvieu, Texas to Westlake'sLongview, Texas facility. How We Generate Revenue We generate revenue primarily by selling ethylene and the resulting co-products we produce. OpCo and Westlake have entered into an ethylene sales agreement (the "Ethylene Sales Agreement") pursuant to which we generate a substantial majority of our revenue. The Ethylene Sales Agreement is a long-term, fee-based agreement with a minimum purchase commitment and includes variable pricing based on OpCo's actual feedstock and natural gas costs and estimated other costs of producing ethylene (including OpCo's estimated operating costs and a five-year average of OpCo's expected future maintenance capital expenditures and other turnaround expenditures based on OpCo's planned ethylene production capacity for the year), plus a fixed margin per pound of$0.10 less revenue from co-products sales. Pursuant to the Ethylene Sales Agreement, Westlake's obligation to pay for the annual minimum commitment (95% of OpCo's budgeted ethylene production), which is measured at the end of the year, is generally not reduced for the first 45 days of a force majeure event, but is reduced for the portion of a force majeure event extending beyond the 45th day. Westlake has an option to take 95% of volumes in excess of the minimum commitment on an annual basis under the Ethylene Sales Agreement if we produce more than our planned production. Under the Ethylene Sales Agreement, the price for the sale of such excess ethylene to Westlake is based on a formula similar to that used for the minimum purchase commitment, with the exception of certain fixed costs. In addition, under the Ethylene Sales Agreement, if production costs billed to Westlake on an annual basis are less than 95% of the actual production costs incurred by OpCo during the contract year, OpCo is entitled to recover the shortfall in such production costs (proportionate to the volume sold to Westlake) in the subsequent year ("Shortfall"). The Shortfall is recognized during the period in which the related operating, maintenance or turnaround activities occur. 16
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Operating Expenses, Maintenance Capital Expenditures and Turnaround Costs Our management seeks to maximize the profitability of our operations by effectively managing operating expenses, maintenance capital expenditures and turnaround costs. Our operating expenses are comprised primarily of feedstock costs and natural gas, labor expenses (including contractor services), utility costs (other than natural gas) and turnaround and maintenance expenses. With the exception of feedstock, including natural gas, and utilities-related expenses, operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances, particularly maintenance and turnaround activities. Our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our ethylene production facilities and the amortization of capitalized turnaround costs. These capital expenditures relate to the maintenance and integrity of our facilities. We capitalize the costs of major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected facility. Operating expenses, maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to Westlake under the Ethylene Sales Agreement. Because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the Ethylene Sales Agreement for any given 12-month period, our ability to manage operating expenses, maintenance expenditures and turnaround cost may directly affect our profitability and cash flows. The impact on profitability is partially mitigated by the fact that we recognize any Shortfall as revenue in the period such costs and expenses are incurred. We seek to manage our operating and maintenance expenses on our ethylene production facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows, without compromising our commitment to safety and environmental stewardship. In addition, we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence. The purchase price under the Ethylene Sales Agreement is not designed to cover capital expenditures for expansions. MLP Distributable Cash Flow and EBITDA The body of accounting principles generally accepted inthe United States is commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure is generally defined by theSecurities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. We use the non-GAAP measures of MLP distributable cash flow and EBITDA to analyze our performance. We define distributable cash flow as net income plus depreciation, amortization and disposition of property, plant and equipment, less contributions for turnaround reserves, maintenance capital expenditures and mark-to-market adjustment on derivative contracts. We define MLP distributable cash flow as distributable cash flow less distributable cash flow attributable to Westlake's noncontrolling interest in OpCo and distributions attributable to the incentive distribution rights holder. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. We use each of MLP distributable cash flow and EBITDA to analyze our performance. MLP distributable cash flow and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our operating performance as compared to other publicly traded partnerships; our ability to incur and service debt and fund capital expenditures; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. MLP distributable cash flow is not a substitute for the GAAP measures of net income and net cash provided by operating activities. MLP distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. EBITDA is not a substitute for the GAAP measures of net income, income from operations and net cash provided by operating activities. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization, and income taxes. Reconciliations for each of MLP distributable cash flow and EBITDA are included in the "Results of Operations" section below. 17
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Recent Developments Affecting Industry Conditions and Our Business OnMarch 11, 2020 , theWorld Health Organization declared the ongoing coronavirus (COVID-19) outbreak a pandemic and recommended containment and mitigation measures worldwide. The pandemic has resulted in widespread adverse impacts on the global economy and on our employees, customers and suppliers. We did not experience significant disruptions to our business operations in the six months endedJune 30, 2020 and do not expect to experience significant disruptions to our business operations resulting from COVID-19, primarily due to the fact that 95% of our production is sold to Westlake on a take-or-pay contract. Though the price of crude oil has partially recovered from its sudden collapse in earlyMarch 2020 , due to the continuing impact of low crude-oil prices and the addition of ethylene production capacity in recent months, prices for ethylene and co-products have remained weak and have also negatively impacted our plants' operating rates. We may idle production and reduce operating rates if it is not economical for us to produce ethylene to sell to third parties. Our first priority in our response to this crisis has been the health and safety of our operators,who are loaned to us by Westlake, and those of our customers and vendors. Westlake has implemented preventative measures and developed corporate and regional response plans to minimize unnecessary risk of exposure. We and Westlake have modified certain business practices (including those related to employee travel, employee work locations and employee work practices) to conform to government restrictions and best practices encouraged by theCenter for Disease Control and Prevention , theWorld Health Organization and other governmental and regulatory authorities. We and Westlake have implemented strategies to reduce costs, increase operational efficiencies and lower capital spending. We have also deferred the planned turnaround at OpCo's Petro 2 ethylene unit and associated maintenance cost into the first half of 2021. The turnaround is expected to last 60 days. 18
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Results of Operations
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(dollars in thousands)
Revenue
Net sales-Westlake $ 227,431 $ 230,047 $ 442,259 $ 487,087
Net co-product, ethylene and other
sales-third parties 11,069 40,015 46,790 82,061
Total net sales 238,500 270,062 489,049 569,148
Cost of sales 148,470 178,104 295,471 386,536
Gross profit 90,030 91,958 193,578 182,612
Selling, general and administrative
expenses 6,139 7,639 12,335 14,612
Income from operations 83,891 84,319 181,243 168,000
Other income (expense)
Interest expense-Westlake (3,431 ) (5,125 ) (7,381 ) (11,025 )
Other income, net 123 1,153 708 1,968
Income before income taxes 80,583 80,347 174,570 158,943
Income tax provision (benefit) 206 237 423 437
Net income 80,377 80,110 174,147 158,506
Less: Net income attributable to
noncontrolling interest in OpCo 65,517 66,377 141,540 129,818
Net income attributable to Westlake
Chemical Partners LP $ 14,860 $ 13,733 $ 32,607 $ 28,688
MLP distributable cash flow (1) $ 16,855 $ 16,422 $ 35,192 $ 33,977
EBITDA (2) $ 109,827 $ 112,329 $ 233,795 $ 223,669
____________
(1) See "Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating
Activities" below.
(2) See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating
Activities" below.
Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
Average Average
Sales Price Volume Sales Price Volume
Product sales prices and volume
percentage change from prior-year
period +1.9 % -13.6 % -8.9 % -5.2 %
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019Average industry prices (1) Ethane (cents/lb) 6.4 7.1 5.6 8.5 Propane (cents/lb) 9.6 12.8 9.2 14.3 Ethylene (cents/lb) (2) 11.0 13.7 13.4 15.4 _____________
(1) Industry pricing data was obtained through IHS Markit ("IHS"). We have not
independently verified the data.
(2) Represents average North American spot prices of ethylene over the period as
reported by IHS.
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Reconciliation of MLP Distributable Cash Flow to Net Income andNet Cash Provided by Operating Activities The following table presents reconciliations of MLP distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (dollars in thousands) Net cash provided by operating activities$ 112,758 $ 100,173 $ 223,719 $ 213,672 Loss from disposition of fixed assets (349 ) - (446 ) (458 ) Changes in operating assets and liabilities and other (32,032 ) (20,063 ) (49,126 ) (54,708 ) Net Income 80,377 80,110 174,147 158,506 Add: Depreciation, amortization and disposition of property, plant and equipment 26,164 26,903 52,291 54,205 Mark-to-market adjustment loss (gain) on derivative contracts 704 516 (1,787 ) (199 )
Less:
Contribution to turnaround reserves (9,884 ) (3,889 ) (19,807 ) (7,737 ) Maintenance capital expenditures (8,228 ) (11,725 ) (19,349 ) (23,045 ) Distributable cash flow attributable to noncontrolling interest in OpCo (72,278 ) (75,493 ) (150,303 ) (147,753 ) MLP distributable cash flow$ 16,855 $ 16,422
Reconciliation of EBITDA to Net Income, Income from Operations andNet Cash Provided by Operating Activities The following table presents reconciliations of EBITDA to net income, income from operations and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (dollars in thousands) Net cash provided by operating activities$ 112,758 $ 100,173 $ 223,719 $ 213,672 Loss from disposition of fixed assets (349 ) - (446 ) (458 ) Changes in operating assets and liabilities and other (32,032 ) (20,063 ) (49,126 ) (54,708 ) Net Income 80,377 80,110 174,147 158,506 Less: Other income, net 123 1,153 708 1,968 Interest expense (3,431 ) (5,125 ) (7,381 ) (11,025 ) Provision for income taxes (206 ) (237 ) (423 ) (437 ) Income from operations 83,891 84,319 181,243 168,000 Add: Depreciation and amortization 25,813 26,857 51,844 53,701 Other income, net 123 1,153 708 1,968 EBITDA$ 109,827 $ 112,329 $ 233,795 $ 223,669 20
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Summary
For the quarter endedJune 30, 2020 , net income was$80.4 million on net sales of$238.5 million . This represents an increase in net income of$0.3 million as compared to net income of$80.1 million on net sales of$270.1 million for the quarter endedJune 30, 2019 . Net income attributable toWestlake Chemical Partners LP for the second quarter of 2020 was$14.9 million as compared to$13.7 million for the second quarter of 2019, an increase of$1.2 million . Net income and net income attributable toWestlake Chemical Partners LP for the first quarter of 2020 as compared to the first quarter of 2019 were higher primarily due to the higher earnings on ethylene sold to Westlake, lower manufacturing costs, selling, general and administrative expenses and interest expense, partially offset by lower ethylene production. Net sales for the second quarter of 2020 decreased by$31.6 million as compared to net sales for the second quarter of 2019, mainly due to lower sales volumes to Westlake and third parties and lower sales prices to third parties, partially offset by higher sales prices to Westlake per the terms of the Ethylene Sales Agreement. Income from operations was$83.9 million for the second quarter of 2020 as compared to$84.3 million for the second quarter of 2019. Income from operations for the second quarter of 2020 decreased mainly as a result of overall lower sales volumes to Westlake and lower sales prices and volumes to third parties, partially offset by lower manufacturing costs and selling, general and administrative expenses, as compared to the second quarter of 2019. For the six months endedJune 30, 2020 , net income was$174.1 million on net sales of$489.0 million . This represents an increase in net income of$15.6 million as compared to the six months endedJune 30, 2019 net income of$158.5 million on net sales of$569.1 million . Net income attributable toWestlake Chemical Partners LP for the six months endedJune 30, 2020 was$32.6 million as compared to$28.7 million for the six months endedJune 30, 2019 , an increase of$3.9 million . The increase in net income and net income attributable toWestlake Chemical Partners LP in the six months endedJune 30, 2020 was primarily due to the higher earnings on ethylene sold to Westlake, lower manufacturing costs, selling, general and administrative expenses and interest expense, partially offset by lower ethylene production, as compared to the six months endedJune 30, 2019 . Net sales for the six months endedJune 30, 2020 decreased by$80.1 million as compared to net sales for the six months endedJune 30, 2019 , mainly due to lower sales prices and volumes to third parties and Westlake. Income from operations was$181.2 million for the six months endedJune 30, 2020 as compared to$168.0 million for the six months endedJune 30, 2019 . Income from operations for the six months endedJune 30, 2020 increased mainly as a result of lower manufacturing costs and selling, general and administrative expenses, partially offset by lower ethylene production, as compared to the six months endedJune 30, 2019 . RESULTS OF OPERATIONS Second Quarter 2020 Compared with Second Quarter 2019Net Sales . Total net sales decreased by$31.6 million , or 11.7%, to$238.5 million in the second quarter of 2020 from$270.1 million in the second quarter of 2019. The overall average sales price in the second quarter of 2020 contributed to a 1.9% increase in net sales, primarily due to higher ethylene sales prices to Westlake per the terms of the Ethylene Sales Agreement, partially offset by lower sales prices to third parties, compared to the second quarter of 2019. The overall sales volume in the second quarter of 2020 contributed to a decrease in net sales of 13.6% in the second quarter of 2020 compared to the second quarter of 2019. Gross Profit. Gross profit decreased to$90.0 million for the second quarter of 2020 from$92.0 million for the second quarter of 2019. The gross profit margin in the second quarter of 2020 was 37.7%, as compared to 34.1% for the second quarter of 2019. The second quarter of 2020 gross profit margin was higher mainly due to higher earnings on ethylene sold to Westlake and lower manufacturing costs, partially offset by lower production. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by$1.5 million , or 19.7%, to$6.1 million in the second quarter of 2020 as compared to$7.6 million in the second quarter of 2019. The decrease in the second quarter of 2020 was mainly attributable to lower general and administrative expense allocations, provision for doubtful accounts and consulting and professional fees as compared to the second quarter of 2019. Interest Expense. Interest expense decreased by$1.7 million to$3.4 million in the second quarter of 2020 from$5.1 million in the second quarter of 2019, largely due to a lower average debt balance resulting from the partial repayment of borrowings under the OpCo Revolver inApril 2019 . Other Income, net. Other income, net in the second quarter of 2020 decreased by$1.1 million to$0.1 million as compared to$1.2 million in the second quarter of 2019 due to a decrease in interest income earned under the Investment Management Agreement as a result of a lower average cash balance under the Investment Management Agreement and lower average interest rates. Provision for Income Taxes. Provision for income taxes was$0.2 million in the second quarter of 2020, which was comparable to the second quarter of 2019. 21
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MLP Distributable Cash Flow. MLP distributable cash flow increased by$0.5 million to$16.9 million in the second quarter of 2020 from$16.4 million in the second quarter of 2019. The increased MLP distributable cash flow in the second quarter of 2020, as compared to the prior-year period, was primarily due to lower manufacturing costs, partially offset by lower production of ethylene at OpCo and increased turnaround reserve. EBITDA. EBITDA decreased by$2.5 million to$109.8 million in the second quarter of 2020 from$112.3 million in the second quarter of 2019. The decreased EBITDA, as compared to the prior-year period, was primarily due to lower sales volumes to Westlake and third parties and lower sales prices to third parties, partially offset by lower manufacturing costs and selling general and administrative expenses. Six Months EndedJune 30, 2020 Compared with Six Months EndedJune 30, 2019 Net Sales . Total net sales decreased by$80.1 million , or 14.1%, to$489.0 million in the six months endedJune 30, 2020 from$569.1 million in the six months endedJune 30, 2019 . The overall decreased sales price for the six months endedJune 30, 2020 contributed to a 8.9% decrease in net sales, as compared to the six months endedJune 30, 2019 , which was mainly due to lower sales prices to third parties and Westlake per the terms of the Ethylene Sales Agreement. The overall sales volume contributed to a decrease in net sales of 5.2% in the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . Gross Profit. Gross profit increased to$193.6 million for the six months endedJune 30, 2020 from$182.6 million for the six months endedJune 30, 2019 . The gross profit margin in the six months endedJune 30, 2020 was 39.6%, as compared to 32.1% for the six months endedJune 30, 2019 . The six months endedJune 30, 2020 gross profit margin was higher mainly due to higher earnings on ethylene sold to Westlake and lower manufacturing costs, partially offset by lower production, as compared to the six months endedJune 30, 2019 . Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by$2.3 million , or 15.8%, to$12.3 million in the six months endedJune 30, 2020 as compared to$14.6 million in the six months endedJune 30, 2019 . The decrease was mainly attributable to lower general and administrative expense allocations in the six months endedJune 30, 2020 , as compared to the prior-year period. Interest Expense. Interest expense decreased by$3.6 million to$7.4 million in the six months endedJune 30, 2020 from$11.0 million in the six months endedJune 30, 2019 due to a lower average debt balance resulting from the partial repayment of borrowings under the OpCo Revolver inApril 2019 . Other Income, net. Other income, net decreased by$1.3 million to$0.7 million in the six months endedJune 30, 2020 as compared to$2.0 million in the six months endedJune 30, 2019 , primarily due to a decrease in interest income earned under the Investment Management Agreement as a result of a lower average cash balance under the Investment Management Agreement and lower average interest rates. Provision for Income Taxes. Provision for income taxes was$0.4 million for the six months endedJune 30, 2020 , which was comparable to the six months endedJune 30, 2019 . MLP Distributable Cash Flow. MLP distributable cash flow increased by$1.2 million to$35.2 million in the six months endedJune 30, 2020 from$34.0 million in the six months endedJune 30, 2019 . The increased MLP distributable cash flow in the six months endedJune 30, 2020 , as compared to the prior-year period, was primarily due to lower manufacturing costs, partially offset by lower production of ethylene at OpCo and increased turnaround reserves. EBITDA. EBITDA increased by$10.1 million to$233.8 million in the six months endedJune 30, 2020 from$223.7 million in the six months endedJune 30, 2019 . The increased EBITDA, as compared to the prior-year period, was primarily due to lower manufacturing costs and selling and general administrative expenses, partially offset by lower sales volumes and prices. 22
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CASH FLOW DISCUSSION FOR THE SIX MONTHS ENDEDJUNE 30, 2020 AND 2019 Operating Activities Operating activities provided cash of$223.7 million in the first six months of 2020 compared to cash provided by operating activities of$213.7 million in the first six months of 2019. The$10.0 million increase in cash flows from operating activities was mainly due to an increase in income from operations, partially offset by an increase in cash used for working capital during the six months endedJune 30, 2020 as compared to the prior-year period. Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable-Westlake, accounts receivable, net-third parties, inventories, prepaid expenses and other current assets less accounts payable-Westlake, accounts payable-third parties and accrued liabilities, used cash of$2.1 million in the first six months of 2020 as compared to$1.4 million of cash provided in the first six months of 2019, resulting in an overall unfavorable change of$3.5 million . The unfavorable change in working capital was mainly attributable to an unfavorable change in Westlake, net accounts receivable, due to lower feedstock purchases, partially offset by a favorable change in third party accounts receivable due to lower sales prices. Investing Activities Net cash used for investing activities during the first six months of 2020 was$29.6 million as compared to net cash used for investing activities of$17.5 million in the first six months of 2019, mainly due to increased net cash used under the Investment Management Agreement in the first six months of 2020, which was partially offset by decreased capital expenditures, as compared to the prior-year period. Capital expenditures during the first six months of 2020 and 2019 were primarily related to projects to improve production capacity or reduce costs, maintenance and safety and environmental projects at our facilities. Financing Activities Net cash used for financing activities during the first six months of 2020 was$190.4 million as compared to net cash used by financing activities of$198.4 million in the first six months of 2019. The outflows during the first six months of 2020 were related to the distribution of$157.2 million to Westlake and of$33.2 million to other unitholders by the Partnership. The cash inflows during the first six months of 2019 were a result of borrowings under the MLP Revolver of$123.5 million and net proceeds from the private placement of common units of approximately$62.9 million . The cash outflows during the first six months of 2019 were related to the distribution of$153.8 million to Westlake and of$29.6 million to other unitholders by the Partnership as well as a partial repayment of borrowings under the OpCo revolver of$201.4 million . LIQUIDITY AND CAPITAL RESOURCES Liquidity and Financing Arrangements Pursuant to the terms of an equity distribution agreement, entered inOctober 2018 and amended inFebruary 2020 , among the Partnership and various investment banks, the Partnership may offer and sell the Partnership's common units from time to time to or through the investment banks, as the Partnership's sales agents or as principals, having an aggregate offering amount of up to$50.0 million ("the ATM Program"). The Partnership intends to use the net proceeds of sales of the common units, if any, for general partnership purposes, including the funding of potential drop-downs and other acquisitions. No common units had been issued under the ATM Program as ofJune 30, 2020 . Based on the terms of our cash distribution policy, we expect that we will distribute to our partners most of the excess cash generated by our operations. To the extent we do not generate sufficient cash flow to fund capital expenditures, we expect to fund them primarily from external sources, including borrowing directly from Westlake, as well as future issuances of equity and debt interests. The Partnership maintains separate bank accounts, but Westlake continues to provide treasury services on our behalf under the Services and Secondment Agreement. Our sources of liquidity include cash generated from operations, the OpCo Revolver, the MLP Revolver and, if necessary and possible under then current market conditions, the issuance of additional common units representing limited partner interests of the Partnership, other classes of units representing limited partner interests of the Partnership or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. Westlake may also provide other direct and indirect financing to us from time to time, although it is not required to do so. 23
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In order to fund non-annual turnaround expenditures, we cause OpCo to reserve approximately$30.0 million during each twelve-month period for turnaround activities. Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures. Our cash is generated from cash distributions from OpCo. OpCo is a restricted subsidiary under certain indentures governing Westlake's senior notes. The indentures governing Westlake's senior notes prevent OpCo from making distributions to us if any default or event of default (as defined in the indentures) exists. Westlake's credit facility does not prevent OpCo from making distributions to us. OnJuly 31, 2020 , the board of directors ofWestlake Chemical Partners GP LLC , our general partner, approved a quarterly distribution of 0.4714 per unit payable onAugust 24, 2020 to unitholders of record as ofAugust 10, 2020 , which equates to a total amount of approximately$16.6 million per quarter, or approximately$66.4 million per year in aggregate, based on the number of common units outstanding onJune 30, 2020 . We do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate. Capital Expenditures Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins. Total capital expenditures for the six months endedJune 30, 2020 and 2019 were$20.6 million and$25.6 million , respectively. No funding was required by OpCo to fund capital expenditures during the six months endedJune 30, 2020 and 2019. We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so. Cash and Cash Equivalents As ofJune 30, 2020 , our cash and cash equivalents totaled$23.6 million . In addition, we have cash invested under the Investment Management Agreement (as described below) and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below. InAugust 2017 , the Partnership, OpCo and Westlake executed the Investment Management Agreement that authorized Westlake to invest the Partnership's and OpCo's excess cash with Westlake for a term of up to a maximum of nine months. Per the terms of the Investment Management Agreement, the Partnership earns a market return plus five basis points and Westlake provides daily availability of the invested cash to meet any liquidity needs of the Partnership or OpCo. The Partnership had$171.4 million of cash invested under the Investment Management Agreement atJune 30, 2020 . Indebtedness OpCo Revolver In connection with the IPO, OpCo entered into a$600.0 million revolving credit facility with Westlake (the "OpCo Revolver") that may be used to fund growth projects and working capital needs. OnApril 30, 2019 , the Partnership repaid$201.4 million of borrowings under the OpCo Revolver. As ofJune 30, 2020 , outstanding borrowings under the OpCo Revolver totaled$22.6 million and bore interest at the LIBOR rate plus 2.0%, which is accrued in arrears quarterly. InSeptember 2018 , the OpCo Revolver was amended to extend the scheduled maturity date fromAugust 4, 2019 toSeptember 25, 2023 and revise the applicable margin from 3.0% to 2.0%. 24
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MLP Revolver In 2015, we entered into a senior, unsecured revolving credit agreement with an affiliate of Westlake (the "MLP Revolver"). The MLP Revolver has a borrowing capacity of$600 million and is scheduled to mature in 2023. OnMarch 29, 2019 , the Partnership borrowed$123.5 million under the MLP Revolver to partially fund the purchase of an additional 4.5% interest in OpCo. OnMarch 19, 2020 , the Partnership entered into an amendment to the MLP Revolver, to extend the maturity date toMarch 19, 2023 and add a phase-out provision for LIBOR, which is to be replaced by an alternate benchmark rate. Borrowings under the MLP Revolver bear interest at a variable rate of either (a) LIBOR plus 2.0% or, if LIBOR is no longer available, (b) Alternate Base Rate plus 1.0%. The MLP Revolver provides that we may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that we maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo), 5.50:1.0 or less, or (2) during any other period, 4.50:1.0 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. As ofJune 30, 2020 , outstanding borrowings under the MLP Revolver totaled$377.1 million . We intend to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, in the event OpCo desires to sell such additional interests to us, for other acquisitions and for general corporate purposes. Off-Balance Sheet Arrangements None. 25
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FORWARD-LOOKING STATEMENTS Certain of the statements contained in this report are forward-looking statements. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expects," "will" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Forward-looking statements relate to matters such as: • the amount of ethane that we are able to process, which could be adversely
affected by, among other things, operating difficulties;
• the volume of ethylene that we are able to sell;
• the price at which we are able to sell ethylene;
• industry market outlook, including prices and margins in third-party
ethylene and co-products sales;
• widespread outbreak of an illness or any other communicable disease, or
any other public health crisis, including the COVID-19 pandemic;
• our plans and Westlake's plans to respond to the challenges presented by
the COVID-19 epidemic, including planned reductions of costs, increases of
operational efficiencies and lowering of capital spending, as well as the
timing and deferral of the planned turnaround at OpCo's Petro 2 ethylene
unit;
• the parties to whom we will sell ethylene and on what basis;
• volumes of ethylene that Westlake may purchase, in addition to the minimum
commitment under the Ethylene Sales Agreement;
• timing, funding and results of capital projects;
• our intended minimum quarterly distributions and the manner of making such
distributions;
• our ability to meet our liquidity needs;
• timing of and amount of capital expenditures;
• the Partnership's At-the-Market program and the use of any net proceeds
from any sales under that program;
• potential loans from Westlake to OpCo to fund OpCo's expansion capital
expenditures in the future;
• expected mitigation of exposure to commodity price fluctuations;
• turnaround activities and the variability of OpCo's cash flow;
• compliance with present and future environmental regulations and costs
associated with environmentally related penalties, capital expenditures,
remedial actions and proceedings, including any new laws, regulations or
treaties that may come into force to limit or control carbon dioxide and
other greenhouse gas emissions or to address other issues of climate
change; and
• effects of pending legal proceedings.
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We have based these statements on assumptions and analysis in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. These statements are subject to a number of assumptions, risks and uncertainties, including those described under "Risk Factors" in the 2019 Form 10-K and the following: • general economic and business conditions;
• the cyclical nature of the chemical industry;
• the availability, cost and volatility of raw materials and energy;
• low crude oil prices reducing the cost advantage of ethane-based ethylene
producers;
• uncertainties associated with
including those due to political tensions and unrest in the Middle East
and elsewhere;
• uncertainties associated with pandemic infectious diseases, particularly
COVID-19;
• current and potential governmental regulatory actions in
and regulatory actions and political unrest in other countries, including
environmental regulations;
• industry production capacity and operating rates;
• the supply/demand balance for our product;
• competitive products and pricing pressures;
• instability in the credit and financial markets;
• access to capital markets;
• terrorist acts;
• operating interruptions (including leaks, explosions, fires,
weather-related incidents, mechanical failure, unscheduled downtime, labor
difficulties, transportation interruptions, spills and releases and other
environmental risks);
• changes in laws or regulations;
• technological developments;
• our ability to integrate acquired businesses;
• foreign currency exchange risks;
• our ability to implement our business strategies; and
• creditworthiness of our customers.
Many of these factors are beyond our ability to control or predict. Any of the
factors, or a combination of these factors, could materially affect our future
results of operations and the ultimate accuracy of the forward-looking
statements. These forward-looking statements are not guarantees of our future
performance, and our 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. Every forward-looking statement speaks only as of the date of
the particular statement, and we undertake no obligation to publicly update or
revise any forward-looking statements.
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