Good afternoon. And thank you for standing by. Welcome to the Westlake Chemical Partners Fourth Quarter 2021 Earnings Conference Call. During the presentation, all participants will be in listen-only mode. After the speakers remarks, you will be invited to participate in a question-and-answer session.

As a reminder, this conference is being recorded today, February 22nd, 2022. I will now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners Vice President and Treasurer. Sir, you may begin..

Domestic callers should dial 855-859-2056. International callers may access the replay at 404-537-3406. The access code is 6369819. Please note that information reported on this call speaks only as of today, February 22nd, 2022. 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 web caste 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, everyone and thank you for joining us to discuss our fourth quarter and full-year 2021 results. In this morning's press release, we reported record Westlake Partners full-year 2021 net income of $83 million or $2.34 per unit.

Strong third-party sales margins during the year, and a buyer digit deficiency fee contributed to consolidated net income, including OpCo's of $401 million. In the second half of 2021, we completed our planned turnaround at OpCo Petro 2 facility in Lake Charles, Louisiana.

Westlake Partners financial results continue to demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual plant production each year, insulating us from market volatility and other production risks.

The certainty combined with our investment-grade sponsor, Westlake, produces predictable earnings and stable cash flows. This was evident despite many weather-related challenges of 2021 and the completion of our planned turnaround at OpCo into two facility and we delivered solid results and sustained distributions to our unit holders.

The stable fee-based cash flow generated by our fixed margin ethylene sales contract with Westlake forms the foundation for us to deliver long-term value due to our unit holders, as we have seen, our IPO in July of 2014. This quarter's distribution is the 30th consecutive quarterly distribution since our IPO.

This high degree of cash flow stability, and predictability provide for our long history of reliable distributions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve..

Thank you, Albert and good afternoon everyone. In this morning's press release, we reported Westlake Partners fourth-quarter 2021, net income of $30 million or $0.84 per unit. Consolidated net income, including OpCo's earnings was $138 million, on consolidated net sales of $330 million.

The Partnership had distributable cash flow for the quarter of $15 million for $0.43 per unit. Fourth quarter 2021 net income for Westlake Partners of $30 million decreased by 15 million, compared to fourth quarter 2020 Partnership net income of $15 million.

The Partnership benefited from a buyer deficiency fee as well as recovery of certain other costs from Westlake attributable to an unplanned outage. Distributable cash flow of $15 million with fourth quarter of 2021 was comparable to fourth quarter of 2020 distributable cash flow of $16 million.

For the full-year of 2021, record net income of $83 million, or $2.34 per unit, increased by $17 million compared to full-year 2020 net income of $66 million.

The increase net income attributable to the Partnership was due to strong third-party sales margins as well as benefits from the buyer deficiency fee and recovery of certain other costs from Westlake.

For the full-year of 2021, MLP distributable cash flow was $70 million comparable to MLP distributable cash flow of $72 million for the full-year of 2020.

Turning our attention to the balance sheet and cash flows at the end of the fourth quarter, we had consolidated cash balance and cash investments with Westlake through our investment management agreement totaling $106 million.

At the end of the fourth quarter, Westlake had payment obligations to OpCo of a $110 million representing the buyer deficiency fee for the lost production and the recovery of certain other costs.

This payment obligations will be received in 2022 under the terms of the ethylene sales agreement, Long-term debt at the end of the quarter was $400 million of which $377 million at the Partnership. And the remaining $23 million was at OpCo. And 2021 OpCo spent $81 million on capital expenditures.

We maintained our strong leverage metrics with a consolidated leverage ratio of approximately one times. On January 24th, 2022, we announced a quarterly distribution of ¢47.14 per unit with respect to the fourth quarter of 2021.

Since our IPO in 2014, the Partnership has made 30 consecutive quarterly distributions to our unit holders, and we've grown distributions 71% since the Partnership's original minimum quarterly distribution of ¢27.5 per unit. For the full-year of 2021, distributable cash flow provided coverage of 1.06 times the declared distributions.

The Partnership's fourth-quarter distribution was paid on February 17, 2022, to unit holders of record on February 3, 2022. The Partnership's shifts predictable fee-based cash flow continues to prove beneficial in today's economic environment, and is differentiated by the consistency of our earnings and cash flows.

The structure of our ethylene sales agreement and the associated cash flow allowed the Partnership to continue distributions at our current level while sustaining our long-term targeted 1.1 times distribution coverage, thus eliminating the need to access the equity capital markets.

Looking back since our IPO, we have maintained a cumulative coverage ratio above this target level, further, demonstrating the fortitude of our business. For modeling purposes, we have no planned turnaround in 2020.

Our next turnaround, is that our Petro 1 facility in Lake Charles, Louisiana, which is currently planned for 2023, and we will provide more details on the turnaround once we complete our planning. 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 financial and operational performance through the fourth quarter and a year as a whole.

The stability of our business model and associated cash flows demonstrate the benefit of our ethylene sales agreement, and it's protective provisions provide a Partnership's predictable long-term earnings and cash flows, despite both planned and unplanned production outages.

We remain optimistic about the continuing demand for ethylene driven by robust downstream derivative needs by our parent Westlake. And a strong end-use market demand in consumer products and packaging.

Our ethylene sales agreement which provides a predictable fee-based cash flow structure, from our take-or-pay contract with Westlake for 95% of OpCo's production, will continue to deliver these stable and predictable cash flows.

With respect to the outlook for our third-party sales, we feel confident this should deliver a healthy margins in 2022, driven by continued elevate demand, and strong market fundamentals. We maintained a strong balance sheet with conservative financial and leverage metrics.

As we continue to navigate market conditions, we'll evaluate opportunities via our four levers of growth in the future, including increases of our ownership interest of OpCo, acquisitions of other qualified income stream, 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.

We remain focused on our ability to continue to provide long-term value to our unit holders. As always, we we'll continue to operate safely along with being good stewards of the environment where we work and live. Thank you very much for listening to our fourth-quarter earnings call. Now I will 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 today's teleconference will be available two hours after the call has ended. We will provide that number again at the end of the call. Carmen, we will now take questions..

Thank you. . Please standby while we compile the Q&A roaster. Your question comes from the line of Steve Byrne with Bank of America. Your question, please..

So Holy you made a comment about your expectations for increased demand for ethylene. And my question for you is, if the parent here, Westlake was interested in expanding and more back integration into ethylene, would that have to be initiated by the parents or could partners raise capital and funds and some expansion.

And if you were, would it be more capital efficient to say de -bottleneck one of the crackers, or to acquire the other half of the low pay cracker..

So Steve, it's Steve Bender. So good question, And you're right, we've got several alternatives available to us. We have inside the Partnership to three ethylene units. We also have outside the Partnership, Westlake Corporation has the LACC ethylene.

So depending on and the capital costs and the margin expectation and therefore the returns, Westlake Corporation could consider going of either paths or both.

So it really as a function of which path is most compelling, would impact the Partnership, either not at all, if the parent shows go down the path with LACC, if it chose go down the path of the bottlenecking, one of the other three ethylene units it would work with OpCo, which owns those three units to expand those facilities.

So depends on which path they choose to go down..

And can you help me better understand what led to the surge of EBITDA in the quarter?.

Yes. So in the quarter we had a number of drivers. We had the turnaround and because of the turnaround, we had a outage and because of that outage, we had -- and then the outage was extended. We had two issues driving the revenue growth. That was both the buyer deficiency fee because there was no uptake of ethylene.

And so therefore incurred a buyer deficiency fee and of course a shortfall fee for the maintenance costs incurred during the quarter. So it was both the buyer deficiency fee, Steve, as well as the shortfall fee. Those total by the way, in the quarter, just about $90 million..

Okay. Thank you..

Thank you. Our next question comes from Mike Leithead with Barclays. Your question, please..

Thanks. Good afternoon guys..

Good afternoon..

Just with all the changes going on at parent Westlake Corporation platform earlier this morning, does that change at all how you think about the overall strategy for Westlake Partners?.

Mike, you're a little garbled.

Could I get you to repeat that question?.

Yes. Sorry about that.

Just with all the changes going on at our parent Westlake Corporation, does that changed at all how you think about the overall strategy for Westlake Partners?.

No, there's no change in the structure at the partnership level, the demand for ethylene that Westlake Corporation has for its various performance and essential materials businesses remain as they did irrespective of the changes at the parent level.

So the need for ethylene and the demand that the parent sees remains just as strong as it did prior to the resegmentation on the changes that you saw occur in 2021..

Great. And then secondly, in regards to the potential for restarting distribution growth, it sounded last quarter like it was mostly a valuation issue.

Is it fair to say we are in a similar dynamic right now, looks like quite has been roughly flat the past few quarters, is distribution growth still relatively on my play with where we are today?.

Mike, as you've assessed the market, you've seen the market continues to reward value players. And I think the presentation of the results this quarter illustrate the benefits of the Partnership as a value MLP delivering that consistency and predictability.

We certainly stand ready to provide growth in the various four levers that we have, which is additional interest and OpCo, increase our margin arrangement with apparent, increase production capacity as well as an accretive M&A opportunity. But as I said, the market is still rewarding those that are really demonstrating value.

And so we certainly stand ready if the market stands ready to reward for that growth..

Mike..

Are there any other questions?.

All right. Our next question is from Matthew Blair with Tudor Pickering Holt. Your question, please..

Good morning, Albert and Steve..

Hi, Matthew, how are you?.

Good. Good. Thanks.

A 110 million of obligations if that is repaid, does that act as a headwind on earnings per unit for Westlake LP in 2022? And what's the cadence of that repayment? LIke would it be pretty much in Q1 2022 or would it be spread out evenly throughout the year?.

Yes, it does not provide any headwind whatsoever to the earnings profile of the Partnership. And that a $110 million is made up, as I mentioned earlier, of a buyer deficiency fee and a shortfall fee.

As you know, the buyer deficiency fee is -- arises when there is an extended outage or an unplanned outage and as a consequence of lack of take by Westlake Corporation. That fee is paid and the following new year and so that fee has already been paid. And then the shortfall fee is any costs that may be associated with the production of ethylene.

Those are spread out over the course of the 12 months in the calendar year of 2022. That just translates into higher cost pass back to Westlake Corporation. The margin for the partnership remains as it is. So there is no headwind there on the shortfall fee, nor is or any headwind on this buyer deficiency fee..

Okay, that's helpful. And then, Steve, you mentioned earlier that you stand ready to provide growth capacity if the market wants. It does look like your yield's around 7%.

Is that a premium compared to recent averages? How would you assess the availability of equity capital? Do you feel you can cap the MLP markets if you wanted to? And I guess how would you think about the structure of the drop? Would it be 50-50 debt equity or do you think you could do a drop all on the debt side?.

So Matthew, we did observe a number of transaction that occurred in 2021. These were all in the MLP space, and they were at discounts that we thought were relatively elevated.

But certainly as we think about transactions be it a drop down, or whether it'd be a contract renegotiation of that $0.10 margin, or production capacity increases, or an acquisition of some of the interest in LACC by OpCo. Those could be done with both leverage, as well as with equity taps into the market.

It's really a function of, can we make that an accretive transaction for both parties, Westlake Corporation, and the Partnership, and will the market reward that with growth of the unit price accordingly. And that, as I said -- as I mentioned earlier, the market seems to still be rewarding value players in this space.

And so if we do see that pivot back to those who are growing their distribution then it certainly is of interest and capability for us to continue to grow that distribution..

Great. Thank you very much..

You're welcome..

Thank you. And at this time, the Q&A session has now ended. I will now turn the call back over to Jeff Holy..

Thank you. Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our first-quarter 2022 results..

Thank you for participating in today's Westlake Chemical Partners fourth quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended, and maybe accessed until 11:59 PM Eastern Time on Tuesday, March 1, 2022. The replay can be accessed by calling the following numbers.

This will conclude today's call. Good bye..