Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners First Quarter 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded today, May 4, 2020. I'd now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President and Treasurer.

Sir, you may begin..

Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners First Quarter 2020 Conference Call. I'm joined today by Albert Chao, our President and CEO; Steve Bender, our Senior Vice President and CFO; and other members of our management team.During this call, we refer to ourselves as Westlake Partners or the Partnership.

References to Westlake or Westlake Chemical refer to our parent company, Westlake Chemical Corporation. And references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake Chemical and the Partnership, which owns certain olefins assets.

Additionally, when we refer to distributable cash flow, we're referring to Westlake Chemical Partners' MLP distributable cash flow.

Definitions of these terms are available on the Partnership's website.Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management.

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

Actual results could differ materially based upon many factors, including operating difficulties, the volume of ethylene that we are able to sell, the price at which we are able to sell ethylene, changes in the prevailing economic conditions, actual and proposed governmental regulatory actions, competitive products and pricing pressures, the COVID-19 pandemic, our ability to borrow funds and access capital markets at a reasonable cost and other risk factors discussed in our SEC filings.This morning, Westlake Partners issued a press release with details of our first quarter 2020 financial and operating results.

This document is available on the press release section of our web page at wlkpartners.com. A replay of today's call will be available beginning 2 hours after the conclusion of this call. That replay may be accessed by dialing the following numbers. Domestic callers should dial (855) 859-2056.

International callers may access the replay at (404) 537-3406. The access code for both numbers is 6470789.Please note that information reported on this call speaks only as of today, May 4, 2020, and therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay.

I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at wlkpartners.com.Now I would like to turn the call over to Albert Chao.

Albert?.

Thank you, Jeff. Good afternoon, ladies and gentlemen, and thank you for joining us to discuss our first quarter 2020 results. Before we talk about the quarter, I would like to recognize, this is a very challenging time and our thoughts are with those affected by COVID-19.

I will highlight some of the ways we are responding to COVID-19 and thoughts on the current situation.Our operations were deemed essential by both the Department of Homeland Security and various local authorities, which have permitted us to operate during the state and local state-at-home orders.

In managing each of our facilities, we have followed recommendations and instructions of those national, state and local health authorities. Safety of our employees has always been our #1 priority and response to the threat posed by COVID-19.

We have implemented a variety of initiatives and actions to protect our employees, including ensuring personal spacing and providing personal protective equipment, conducting temperature screenings at entrances to our plants, postponing or canceling all noncritical business activities and travel, increased cleaning and disinfecting of all facilities and having as many employees who can work remotely do so.In addition to protecting our employees by supporting communities where we operate, our parent, Westlake Chemical, in connection with the Ting Tsung and Wei Fong Chao Foundation, contributed a combined $1 million to the Greater Houston COVID-19 Recovery Fund.As a business deemed essential, the Partnership makes the ethylene feedstock that our parent Westlake Chemical uses in a wide range of life-enhancing products that benefit lives every day, many of which are particularly important in today's environment, including ethylene that goes into polyethylene that's used in medical applications and food packaging; and PVC that's used in medical equipment and a variety of construction and infrastructure uses such as for fresh and wastewater piping.

Once again, I want to thank our employees who are producing and supporting the production of these products that are critical to society's needs and safety in today's environment.In this morning's press release, we reported consolidated net income, including OpCo's earnings of $94 million for the first quarter of 2020.

Westlake Partners' first quarter net income was $80 million. In the first quarter of 2020, we achieved strong financial performance, driven by continued strong operations of our facilities. Our ethylene facilities consistently ran well and above industry operating rates and delivered solid financial performance.

This consistent production when combined with the ethylene sales agreement, which is designed to insulate us from commodity price risks, combined with our investment-grade rated sponsor, Westlake Chemical, produces predictable cash flows.I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the first quarter.

Steve?.

Thank you, Albert, and good afternoon, everyone. In this morning's press release, we reported consolidated net income, including OpCo's earnings of $94 million on consolidated sales of $251 million for the first quarter of 2020.Westlake Partners' first quarter 2020 net income was $18 million or $0.50 per unit.

The Partnership had distributable cash flow for the quarter of $18 million or $0.52 per unit. First quarter 2020 net income for Westlake Partners of $18 million increased by $3 million compared to the first quarter 2019 net income of $15 million.

The increased net income was primarily due to the increased production at OpCo and higher third-party sales margins.Distributable cash flow of $18 million for the first quarter of 2020 was consistent with the first quarter of 2019 distributable cash flow.

The Partnership's first quarter 2020 net income of $18 million increased slightly from the fourth quarter 2019.

First quarter 2020 distributable cash flow of $18 million decreased $1 million from fourth quarter 2019 distributable cash flow of $19 million as a result of slightly higher maintenance capital spending.Turning our attention to the balance sheet and cash flows.

At the end of the first quarter, we had a consolidated cash balance of $20 million and cash invested with Westlake Chemical from our investment management agreement of $162 million.

The $162 million in cash invested through the investment management agreement includes cash generated from operations throughout the quarter and a reserve for turnaround expenditures.Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and $23 million was at OpCo.

For the first quarter of 2020, OpCo spent $12 million in capital expenditures.

For the first quarter of 2020, we maintained strong leverage metrics with a consolidated leverage ratio below 1x and a net debt to capitalization ratio below 25%.In past calls, we discussed the turnaround of our Petro 2 ethylene unit, which was slated to occur in September.

Due to the continued strong performance of Petro 2, we will be deferring the turnaround until the first half of 2021. We will provide further updates later in the year as we finalize our 2021 turnaround plan for the Petro 2 cracker.

The cost of this turnaround has been included in the amount we charge to Westlake Chemical and has been reserved for.The Partnership's predictable fee-based cash flow is an attractive attribute in today's uncertain economic environment.

Given the uncertain environment and market dislocation for the first quarter, we made the decision to keep our distribution consistent with the prior quarter. Our cash flow allows the Partnership to continue its current distributions without accessing the capital markets.

We will assess market conditions in future quarters to make use of our 4 growth levers.On April 30, 2020, we announced distributions of $0.4714 per unit with respect to the first quarter of 2020, an increase of approximately 6% over the first quarter of 2019.

Since our IPO in 2014, the Partnership has made 23 consecutive quarter of distributions to unitholders, and we have grown distributions 71% since the partner's original minimum quarterly distribution of $0.275. For the 12 months ending March 31, 2020, distributable cash flow provided coverage of 1.13x the declared distributions.

The distribution will be paid on May 26, 2020 to unitholders of record May 11, 2020.Now I'd like to turn the call back over to Albert to make some closing comments.

Albert?.

Thank you, Steve. We are pleased with the Partnership's solid operational and financial performance in the first quarter and believe its predictable fee-based cash flow structure from its take-or-pay contract with our parent Westlake Chemical for 95% of OpCo's production provides a stable and predictable growth cash flow.

This predictable cash flow should be an even more attractive investment thesis in today's uncertain economic environment caused by the impact of COVID-19 and low interest rate environment.We also believe the ability to pause the distribution growth by relying on the source of stable cash flow allow us greater flexibility in this environment to make optimal growth and financing decisions for the unitholders.

We look forward to seeing these attributes better reflected in unit price of the Partnership.Furthermore, we have continued to maintain a strong balance sheet with conservative financial and leverage metrics.

As we continue to navigate the evolving market conditions, prepare for return to normalized market, we continue to evaluate opportunities via 4 levers of growth, including increases of our ownership interest of OpCo, acquisitions of other qualified income streams such as Westlake's interest in the LACC cracker, organic growth opportunities such as expansions of our current ethylene facilities and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake.As the MLP and capital markets recover from the current dislocation, with these 4 levers, we believe that we have the capability to provide continuing value to our unitholders over the long term.

As always, we will continue to operate safely along being good stewards of the environment and the communities in which we live and work.Thank you very much for listening to our first quarter 2020 earnings call. Now I'll turn the call back over to Jeff..

Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available starting today at 3:00 p.m. Eastern Time. We will provide that number again at the end of the call.

Please also be aware that we have posted a presentation outlining our distribution philosophy, which is available on the Partnership's website at wlkpartners.com. Jimmy, we'll now take questions..

[Operator Instructions]. Our first question comes from Michael Leithead with Barclays..

I guess just one question on the distribution from me. I appreciate the color you guys offered here. I guess when we flex our models, the $0.10 per pound margin feels fairly secure, even where today's energy markets are.

So when you think about the decision going forward about whether to maintain the distribution or grow it, is it more of a capital markets question and you wouldn't want to issue new equity at a double-digit distribution yield rather than an operational EBITDA question? Or I guess maybe just said another way, how should we think about the 1 or 2 things you're looking for internally before you consider raising the distribution going forward?.

Well, Mike, the strength of the Partnership and the predictability of its cash flows is really driven by the ethylene sales agreement that we have. We certainly need an effective and working capital markets to make that work, and we need to make sure that it's accretive to all parties.

And so as we look to see the markets begin to become less dislocated for both Westlake and Westlake Partners, and we certainly have a model that it provides, as Albert outlined, those 4 levers.

So we look forward to finding an opportunity in the markets as they restabilize for an ability to really access the market to act on any one of those 4 levers..

And our next question comes from Steve Byrne with Bank of America..

Is there a potential risk that operating rates here in the second quarter drop to a level that you fall below some contract minimums to the Partnership? Maybe if you could just remind me how that stands..

Steve, we have an arrangement through the ethylene sales agreement that outlines the planned production of ethylene during the course of the year. And Westlake and Westlake Partners will work to see that, that contract -- the ethylene sales agreement arrangement is executed under the terms of its agreement..

So whether you have a short-term period where the demand for that ethylene drops to a level that -- does that represent a risk to the Partnership in the quarter?.

Well, Steve, when we think about the operations of the business and the targets that we set, they're always on a rolling 12-month basis, if you recall. Even when we had plans for a turnaround, as we had announced earlier last year, we would have had an outage during that period.

So the operations of a particular quarter aren't overly relevant in terms of how we think about the metrics that we're shooting for the operations of OpCo and the Partnership. We've always looked at the metrics on a rolling 12-month basis..

Okay. That helps, Steve. And I also just wanted to ask about the interest in using the Partnership to raise capital and to transfer some of the ownership of that Lotte cracker to the Partnership.

What is the level of interest in such a transaction?.

Well, as Albert outlined earlier, we have those 4 levers available to us, but we need a market that is effectively functioning and properly valuing both entities, Westlake Partners and Westlake Chemical. And once we see a market that does effectively value those assets and is effectively working, those tools, those 4 levers are fully available to us.

And whether it be the acquisition of Westlake's ownership of LACC or other, the other three levers, they're all fully available to us..

And just one last one. I know you've got this turnaround on Petro 2 that you're deferring.

What's the footprint of that plant look like in terms of the ease at which it could be expanded as part of a brownfields expansion? Is that -- does that facility lend itself to that?.

Steve, the -- those -- all of our crackers have gone through a series of debottlenecks. And when one thinks of a cost-effective debottleneck, it's always a function of the return one gets and the capital cost to expand the production to get that return.

And so both Petro 1, Petro 2 and our Calvert City crackers have all been through a series of debottlenecks. And so the more likely opportunity to expand production would be from the facility newly started last year. This is the LACC joint venture..

[Operator Instructions]. Our next question comes from Matthew Blair with Tudor, Pickering, Holt..

Just regarding the decision to push out the turnaround that's originally coming up pretty soon here, will that affect earnings going forward just in the form of reduced turnaround accruals for the next few quarters?.

So Matthew, we would have had a turnaround. Our earlier guidance was about 60 days of outage approximately. And so by moving this to 2021, we will obviously be earning and producing over that period when we otherwise would have had the turnaround occur. So that occurrence of the turnaround is now slated for the first half of 2021.

We felt it was appropriate to do, because the plant was running very effectively and we felt like that bringing in additional contract to the site would have brought people too close to each other to be able to effectively operate, given the distancing and the desires to keep all personnel, on-site contractors or employees safe.

And so we felt it was very prudent to go ahead and move that turnaround to first half of '21..

Okay. Sounds good. And then spot ethane cracking was down pretty meaningfully quarter-over-quarter in Q1. Your earnings were up.

What was the offset there? And would any of those factors persist into the second quarter?.

Well, the strength of the ethylene sales agreement as we have kind of a fixed cost of manufacturing tolling arrangement. And as you've seen in our previous filings, we have hedged some portion of the third-party sales..

At this time, the Q&A session has now ended. I would like to turn the call over -- back over to Jeff Holy..

Thank you, again, for participating in today's call. We hope you'll join us for our next conference call to discuss our second quarter 2020 results..

Thank you for participating in today's Westlake Chemical Partners First Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed by calling the following numbers. Domestic callers should dial 855-859-2056.

International callers may access the replay at 404-537-3406. The access code is 6470789.This will conclude today's call. Goodbye..