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 in Westlake Chemical Partners
LP's annual report on Form 10-K for the fiscal year ended December 31, 2020 (the
"2020 Form 10-K"), as filed with the SEC on March 2, 2021. Unless otherwise
indicated, references in this report to "we," "our," "us" or like terms, refer
to Westlake Chemical Partners LP (the "Partnership"), Westlake Chemical OpCo LP
("OpCo") and Westlake Chemical OpCo GP LLC ("OpCo GP"). References to "Westlake"
refer to Westlake 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 a Delaware limited partnership formed by Westlake to operate, acquire and
develop ethylene production facilities and related assets. On August 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. On April 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, effective
April 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 on August 30, 2017. On September 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, effective July 1, 2017. On March 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, effective January 1,
2019, resulting in us owning an aggregate 22.8% limited partner interest in
OpCo.
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's Lake Charles, Louisiana
site; (2) one ethylene production facility ("Calvert City Olefins") at
Westlake's Calvert City, Kentucky site; and (3) a 200-mile common carrier
ethylene pipeline (the "Longview Pipeline") that runs from Mont Belvieu, Texas
to Westlake's Longview, 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 on an annual basis, is 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. In the event of a force majeure event, we recognize buyer
deficiency fees representing fixed margin and unavoided operating and
maintenance capital expenditures and maintenance expenses associated with
ethylene that OpCo would have produced and is not expected to be produced based
on anticipated production. Payment for the buyer deficiency fee is scheduled to
be received by the Partnership after the conclusion of the year.
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 generally
recognized during the period in which the related operating, maintenance or
turnaround activities occur.
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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
generally 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 in the United States is
commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure
is generally defined by the Securities 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. Fees
for a buyer deficiency and Shortfall are included in net income in the periods
in which they are recognized. 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.
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Significant Developments Affecting Industry Conditions and Our Business
COVID-19, Industry Conditions and Our Business
On March 11, 2020, the World 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
have not experienced significant disruptions to our business operations 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.
OpCo's Petro 2 Turnaround
In September 2021, we commenced our planned major maintenance activities, or
turnaround, of OpCo's Petro 2 ethylene unit in Lake Charles, Louisiana. The
turnaround was originally expected to conclude in November. On September 27,
2021, shortly after the turnaround commenced, there was a flash fire at the
quench tower of the Petro 2 facility. Several contractors working on the quench
tower were injured. Although there was no sustained fire or offsite impact
resulting from the incident and the quench tower did not sustain significant
damage, due to the subsequent investigation by the Occupational Safety and
Health Administration, the duration of the turnaround has been extended and is
now expected to conclude in December. There are five lawsuits pending in
connection with the flash fire.
Force Majeure Events
OpCo declared force majeure events in September 2021 during the Petro 2 facility
turnaround, in June 2021 related to OpCo's Petro 1 facility outage, and in
February 2021 due to the severe winter storm. As a result of these force majeure
events and the commencement of OpCo's Petro 2 ethylene unit turnaround in
September 2021, the Partnership updated its estimate of OpCo's 2021 anticipated
production as of September 30, 2021. The buyer deficiency fee is measured based
upon the lower of the actual production deficiency at period end or the
estimated annual production deficiency based upon OpCo's annual anticipated
production. Based upon this change in estimate of OpCo's 2021 anticipated
production, the Partnership has recognized buyer deficiency fees and Shortfall
of $3.0 million and $21.5 million during the three and nine months ended
September 30, 2021, respectively. The buyer deficiency fees and Shortfall are
classified as a component of net sales.
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Results of Operations
                                                      Three Months Ended September 30,             Nine Months Ended September 30,
                                                          2021                   2020                  2021                   2020

                                                                                 (dollars in thousands)
Revenue
Net sales-Westlake                                 $       247,887           $ 217,763          $       708,646           $ 660,022
Net co-product, ethylene and other
sales-third parties                                         46,079              14,206                  175,756              60,996
Total net sales                                            293,966             231,969                  884,402             721,018
Cost of sales                                              218,038             131,578                  589,746             427,049
Gross profit                                                75,928             100,391                  294,656             293,969
Selling, general and administrative expenses                 7,792               6,255                   24,734              18,590
Income from operations                                      68,136              94,136                  269,922             275,379
Other income (expense)
Interest expense-Westlake                                   (2,190)             (2,320)                  (6,650)             (9,701)
Other income, net                                               24                  17                       52                 725
Income before income taxes                                  65,970              91,833                  263,324             266,403
Income tax provision (benefit)                                (105)                (15)                     333                 408
Net income                                                  66,075              91,848                  262,991             265,995
Less: Net income attributable to
noncontrolling interest in OpCo                             53,285              73,313                  209,956             214,853
Net income attributable to Westlake Chemical
Partners LP                                        $        12,790           $  18,535          $        53,035           $  51,142
MLP distributable cash flow (1)                    $        12,977           $  21,188          $        54,760           $  56,380
EBITDA (2)                                         $        94,746           $ 120,076          $       352,804           $ 353,871
____________

(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 September 30, 2021         Nine Months Ended September 30, 2021
                                                         Average                                      Average
                                                       Sales Price              Volume              Sales Price              Volume
Product sales prices and volume percentage
change from prior-year period                                +30.3   %           +22.3  %                 +27.6   %            -0.6  %

                                                      Three Months Ended September 30,             Nine Months Ended September 30,
                                                          2021                   2020                  2021                   2020

Average industry prices (1)
Ethane (cents/lb)                                             11.7                 7.4                      9.5                 6.2
Propane (cents/lb)                                            27.6                11.9                     23.2                10.1
Ethylene (cents/lb) (2)                                       48.0                19.3                     45.3                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 and Net 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 September 30,       Nine Months Ended September 30,
                                                      2021                2020               2021                2020

                                                                          (dollars in thousands)
Net cash provided by operating activities         $   99,459          $ 117,157          $  386,577          $ 340,876
Loss from disposition of fixed assets                   (372)              (554)             (1,763)            (1,000)
Changes in operating assets and liabilities
and other                                            (33,012)           (24,755)           (121,823)           (73,881)
Net Income                                            66,075             91,848             262,991            265,995
Add:
Depreciation, amortization and disposition
of property, plant and equipment                      26,958             26,476              84,590             78,767
Mark-to-market adjustment loss (gain) on
derivative contracts                                       -              1,572                   -               (215)

Less:


Contribution to turnaround reserves                  (10,795)            (9,890)            (35,590)           (29,697)
Maintenance capital expenditures                     (15,346)            (6,509)            (41,433)           (25,858)

Distributable cash flow attributable to
noncontrolling interest in OpCo                      (53,915)           (82,309)           (215,798)          (232,612)
MLP distributable cash flow                       $   12,977          $  21,188          $   54,760          $  56,380


Reconciliation of EBITDA to Net Income, Income from Operations and Net 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 September 30,       Nine Months Ended September 30,
                                                    2021                2020               2021                2020

                                                                        (dollars in thousands)
Net cash provided by operating activities       $   99,459          $ 117,157          $  386,577          $ 340,876
Loss from disposition of fixed assets                 (372)              (554)             (1,763)            (1,000)
Changes in operating assets and
liabilities and other                              (33,012)           (24,755)           (121,823)           (73,881)
Net Income                                          66,075             91,848             262,991            265,995
Less:
Other income, net                                       24                 17                  52                725
Interest expense                                    (2,190)            (2,320)             (6,650)            (9,701)
Benefit (Provision) for income taxes                   105                 15                (333)              (408)
Income from operations                              68,136             94,136             269,922            275,379

Add:


Depreciation and amortization                       26,586             25,923              82,830             77,767
Other income, net                                       24                 17                  52                725
EBITDA                                          $   94,746          $ 120,076          $  352,804          $ 353,871


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Summary


For the quarter ended September 30, 2021, net income was $66.1 million on net
sales of $294.0 million. This represents a decrease in net income of $25.7
million as compared to net income of $91.8 million on net sales of $232.0
million for the quarter ended September 30, 2020. Net income attributable to the
Partnership for the third quarter of 2021 was $12.8 million as compared to $18.5
million for the third quarter of 2020, a decrease of $5.7 million. Income from
operations was $68.1 million for the third quarter of 2021 as compared to $94.1
million for the third quarter of 2020. Net income, net income attributable to
the Partnership and the operating income for the third quarter of 2021 as
compared to the third quarter of 2020 were lower primarily due to decreased
sales volumes to third parties and higher ethane feedstock and natural gas
costs, partially offset by increased sales prices and volumes to Westlake. Net
income, net income attributable to the partnership and income from operations
for the third quarter of 2020 were also higher as compared to the current
quarter because of a buyer deficiency fee of $41.3 million recognized in the
third quarter of 2020 due to force majeure events in that period. Net sales for
the third quarter of 2021 increased by $62.0 million as compared to net sales
for the third quarter of 2020, mainly due to higher production during the
current quarter resulting in higher sales volumes to Westlake and higher sales
prices to Westlake and third parties, partially offset by lower sales volumes to
third parties and the buyer deficiency fee of $41.3 million recognized during
the third quarter of 2020.
For the nine months ended September 30, 2021, net income was $263.0 million on
net sales of $884.4 million. This represents a decrease in net income of $3.0
million as compared to net income of $266.0 million on net sales of $721.0
million for the nine months ended September 30, 2020. Income from operations was
$269.9 million for the nine months ended September 30, 2021 as compared to
$275.4 million for the nine months ended September 30, 2020. Net income and the
income from operations for the nine months ended September 30, 2021 as compared
to the nine months ended September 30, 2020 were lower due to decreased sales
volumes to Westlake and higher ethane feedstock and natural gas costs, partially
offset by increased sales prices and volumes to third parties, and increased
sales prices to Westlake. A buyer deficiency fee and Shortfall totaling $21.5
million per the terms of the Ethylene Sales Agreement with Westlake was
recognized in the nine months ended September 30, 2021 as compared to the buyer
deficiency fee of $41.3 million recognized in the nine months ended September
30, 2020. Net income attributable to the Partnership for the nine months ended
September 30, 2021 was $53.0 million as compared to $51.1 million for the nine
months ended September 30, 2020, an increase of $1.9 million. The higher net
income attributable to the Partnership for the nine months ended September 30,
2021 as compared to the nine months ended September 30, 2020 was primarily due
to lower interest expense in the nine months ended September 30, 2021. Net sales
for the nine months ended September 30, 2021 increased by $163.4 million as
compared to net sales for the nine months ended September 30, 2020, mainly due
to higher sales prices and volumes to third parties and higher sales price to
Westlake, as well as the buyer deficiency fee and Shortfall recognized during
the nine months ended September 30, 2021, partially offset by the buyer
deficiency fee recognized during the first nine months of 2020 and lower sales
volumes to Westlake during the nine months ended September 30, 2021.
RESULTS OF OPERATIONS
Third Quarter 2021 Compared with Third Quarter 2020
Net Sales. Total net sales increased by $62.0 million, or 26.7%, to $294.0
million in the third quarter of 2021 from $232.0 million in the third quarter of
2020. The increase in net sales in the third quarter of 2021 was primarily due
to higher sales prices and volumes to Westlake, higher sales prices to third
parties, partially offset by lower sales volumes to third parties and the buyer
deficiency fee recognized during the third quarter of 2020. The average sales
price in the third quarter of 2021 contributed to a 30.3% increase in net sales,
primarily due to higher ethylene sales prices to third parties and Westlake per
the terms of the Ethylene Sales Agreement. The average sales volume in the third
quarter of 2021 contributed to a 22.3% increase in net sales, primarily due to
higher production resulting in increased sales volumes to Westlake as compared
to the third quarter of 2020.
Gross Profit. Gross profit decreased to $75.9 million for the third quarter of
2021 from $100.4 million for the third quarter of 2020. The gross profit margin
in the third quarter of 2021 was 25.8%, as compared to 43.3% for the third
quarter of 2020. The third quarter 2021 gross profit margin was lower mainly due
to lower sales prices to Westlake, higher ethane feedstock and natural gas costs
and the buyer deficiency fee recognized during the third quarter of 2020,
partially offset by higher prices for ethylene sold to third parties and higher
volumes for ethylene sold to Westlake in the third quarter of 2021.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.5 million, or 23.8%, to $7.8 million in
the third quarter of 2021 as compared to $6.3 million in the third quarter of
2020. The increase in the third quarter of 2021 was mainly attributable to
increased service costs and allowance for doubtful accounts as compared to the
third quarter of 2020.
Interest Expense. Interest expense of $2.2 million in the third quarter of 2021
was comparable to $2.3 million in the third quarter of 2020.
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MLP Distributable Cash Flow. MLP distributable cash flow decreased by $8.2
million to $13.0 million in the third quarter of 2021 from $21.2 million in the
third quarter of 2020. The decrease in the third quarter of 2021, as compared to
the prior-year period, was primarily attributable to the decreased earnings at
OpCo, increased turnaround reserves and higher maintenance expense due to OpCo's
Petro 2 ethylene unit turnaround that commenced in September 2021.
EBITDA. EBITDA decreased by $25.4 million to $94.7 million in the third quarter
of 2021 from $120.1 million in the third quarter of 2020. The decrease was
primarily due to the buyer deficiency recognized during the third quarter of
2020, higher ethane feedstock and natural gas costs, partially offset by higher
sales volumes and prices to Westlake and the buyer deficiency fee and Shortfall
recognized during the third quarter of 2021.
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September
30, 2020
Net Sales. Total net sales increased by $163.4 million, or 22.7%, to $884.4
million in the nine months ended September 30, 2021 from $721.0 million in the
nine months ended September 30, 2020. The increase in net sales in the nine
months ended September 30, 2021 was primarily due to higher sales prices and
volumes to third parties and higher sales price to Westlake per the terms of the
Ethylene Sales Agreement, as well as the buyer deficiency fee and Shortfall
recognized during the nine months ended September 30, 2021, partially offset by
the buyer deficiency fee recognized during the first nine months of 2020 and
lower sales volumes to Westlake during the nine months ended September 30, 2021.
The average sales price in the nine months ended September 30, 2021 contributed
to a 27.6% increase in net sales, primarily due to higher ethylene sales prices
to third parties and to Westlake.
Gross Profit. Gross profit increased to $294.7 million for the nine months ended
September 30, 2021 from $294.0 million for the nine months ended September 30,
2020. The gross profit margin in the nine months ended September 30, 2021 was
33.3%, as compared to 40.8% for the nine months ended September 30, 2020. The
decrease was lower mainly due to the decreased sales volume to Westlake,
increased ethane feedstock and natural gas costs, partially offset by higher
prices for ethylene sold to Westlake and third parties and the buyer deficiency
fee and Shortfall recognized during the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6.1 million, or 32.8%, to $24.7 million in
the nine months ended September 30, 2021 as compared to $18.6 million in the
nine months ended September 30, 2020. The increase in the nine months ended
September 30, 2021 was mainly attributable to higher service costs and allowance
for doubtful accounts, as compared to the nine months ended September 30, 2020.
Interest Expense. Interest expense decreased by $3.0 million to $6.7 million in
the nine months ended September 30, 2021 from $9.7 million in the nine months
ended September 30, 2020, largely due to a lower average interest rate on debt.
MLP Distributable Cash Flow. MLP distributable cash flow decreased by $1.6
million to $54.8 million in the nine months ended September 30, 2021 from $56.4
million in the nine months ended September 30, 2020. The decrease in the nine
months ended September 30, 2021 was primarily attributable to the decreased
earnings at OpCo, increased turnaround reserves and higher maintenance expense
related to OpCo's Petro 2 ethylene unit turnaround that commenced in September
2021.
EBITDA. EBITDA decreased by $1.1 million to $352.8 million in the nine months
ended September 30, 2021 from $353.9 million in the nine months ended September
30, 2020. The decrease was primarily due to lower sales volumes to Westlake as a
result of force majeure events, higher ethane feedstock and natural gas costs
and the buyer deficiency fee recognized during the nine months ended September
30, 2020, partially offset by higher sales prices and volumes for ethylene sold
to third parties, higher sales prices to Westlake and the buyer deficiency fee
and Shortfall recognized in the nine months ended September 30, 2021.
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CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Operating Activities
Operating activities provided cash of $386.6 million in the first nine months of
2021 compared to cash provided by operating activities of $340.9 million in the
first nine months of 2020. The $45.7 million increase in cash flows from
operating activities was mainly due to an increase in cash provided from working
capital during the nine months ended September 30, 2021 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, net-Westlake,
accounts receivable, net-third parties, inventories, prepaid expenses and other
current assets less accounts payable-Westlake, accounts payable-third parties
and accrued liabilities, provided cash of $57.3 million in the first nine months
of 2021 as compared to $2.1 million of cash used in the first nine months of
2020, resulting in an overall favorable change of $59.4 million. The favorable
change in working capital was mainly attributable to a favorable change in
Westlake, net accounts receivable due to the receipt of the buyer deficiency fee
recognized in 2020 related to the force majeure events partially offset by
unfavorable changes in accounts receivable, net-third parties due to higher
sales prices in the nine months ended September 30, 2021.
Investing Activities
Net cash used for investing activities during the first nine months of 2021 was
$111.4 million as compared to net cash used for investing activities of $58.2
million in the first nine months of 2020, mainly due to increased net cash used
under the Investment Management Agreement in the first nine months of 2021, as
compared to the prior-year period. Capital expenditures during the first nine
months of 2021 and 2020 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 nine months of 2021 was
$273.7 million as compared to net cash used for financing activities of $279.3
million in the first nine months of 2020. The outflows during the first nine
months of 2021 were related to the distribution of $223.9 million to Westlake
and of $49.8 million to other unitholders by the Partnership. The cash outflows
during the first nine months of 2020 were related to the distribution of $229.5
million to Westlake and of $49.8 million to other unitholders by the
Partnership.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Financing Arrangements
Pursuant to the terms of the ATM Agreement, entered in October 2018 and amended
in February 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 Managers, 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 of September 30, 2021.
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 equity interests or debt.
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.
In order to fund non-annual turnaround expenditures, we cause OpCo to reserve an
amount for turnaround costs during each twelve-month period designed to cover
future 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.
Westlake's credit facility and various indentures do not prevent OpCo from
making distributions to us.
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On November 1, 2021, the board of directors of Westlake Chemical Partners GP
LLC, our general partner, approved a quarterly distribution of $0.4714 per unit
payable on November 29, 2021 to unitholders of record as of November 12, 2021,
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 on September 30, 2021. 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
nine months ended September 30, 2021 and 2020 were $38.5 million and $29.2
million, respectively. No funding was required by OpCo to fund capital
expenditures during the nine months ended September 30, 2021 and 2020. 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 of September 30, 2021, our cash and cash equivalents totaled $18.6 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.
In August 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 $196.3 million of cash invested under the Investment Management
Agreement at September 30, 2021.
Indebtedness
OpCo Revolver
In connection with the IPO, OpCo entered into a $600.0 million revolving credit
facility with Westlake, as amended in August and December 2017 and March 2020
(the "OpCo Revolver") that may be used to fund growth projects and working
capital needs. The OpCo Revolver is scheduled to mature on September 25, 2023.
As of September 30, 2021, 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.
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 $600.0 million and is scheduled to mature in 2023. On March 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. On March 19,
2020, the Partnership entered into an amendment to the MLP Revolver, to extend
the maturity date to March 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, 4.50:1.00 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 of September 30, 2021, outstanding borrowings under
the MLP Revolver totaled $377.1 million and bore interest at the LIBOR rate plus
2.0%, which is accrued in arrears quarterly. 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.
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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 and efforts to
contain its transmission;
•our plans and Westlake's plans to respond to the challenges presented by the
COVID-19 epidemic, as well as the duration of the planned ongoing 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 expenditures;
•our intended 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;
•receipt of any buyer deficiency fee and Shortfall under the Ethylene Sales
Agreement;
•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;
•our ability to receive indemnification from Westlake for environmental and
other losses; 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 2020 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 the United States and worldwide economies,
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 the United States and
regulatory actions and political unrest in other countries, including
environmental regulations;
•industry production capacity and operating rates;
•the supply/demand balance for our products;
•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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