Westlake Chemical Partners LP — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing reports annual results, not standalone fourth-quarter results. The Partnership owns 22.8% of Westlake Chemical OpCo LP (OpCo) and controls it through OpCo’s general partner; consolidated results include OpCo, with Westlake’s 77.2% interest presented as noncontrolling interest.
Business context and key financial metrics
OpCo operates three ethylene plants with total annual capacity of approximately 3.72 billion pounds and a 200-mile pipeline. Its long-term agreement with Westlake requires Westlake to buy at least 95% of planned ethylene output, subject to exceptions and a 3.8-billion-pound annual cap. Pricing is cost-based and includes a fixed $0.10-per-pound margin. Westlake accounted for 86.2% of 2023 net sales.
| Metric | 2023 | 2022 |
|---|---|---|
| Total net sales | $1,190.8 million | $1,593.1 million |
| Gross profit / gross margin | $387.5 million / 32.5% | $377.4 million / 23.7% |
| Income from operations | $357.7 million | $347.7 million |
| Consolidated net income | $334.6 million | $334.8 million |
| Net income attributable to the Partnership | $54.3 million; $1.54 per unit | $64.2 million; $1.82 per unit |
| Net cash provided by operating activities | $452.0 million | $463.7 million |
| MLP distributable cash flow (non-GAAP) | $62.6 million | $75.9 million |
| EBITDA (non-GAAP) | $472.1 million | $470.3 million |
At December 31, 2023, cash and cash equivalents were $58.6 million, with a further $94.4 million invested with Westlake under the Investment Management Agreement. Debt payable to Westlake was $399.7 million, all variable-rate, at a 7.2% weighted-average rate; both revolvers mature July 12, 2027. The Partnership reported compliance with debt covenants. A 100-basis-point rate increase would add approximately $4.0 million to annual interest expense, based on year-end debt.
Material changes and notable items
- Sales fell 25.3%, primarily because ethylene and co-product prices were lower; higher sales volumes contributed a 1.4% increase. 2022 sales included a $23.8 million buyer deficiency fee; none was recognized in 2023.
- Gross profit and operating income rose despite lower sales, as lower ethane and natural gas costs more than offset lower selling prices. Higher interest expense—$26.5 million versus $13.4 million—contributed to lower Partnership-attributable net income and distributable cash flow.
- OpCo completed a planned Calvert City Olefins turnaround in May 2023. Capital expenditures were $46.8 million, compared with $54.1 million in 2022.
- Annual distributions were $1.8856 per common unit in both 2023 and 2022. The board approved a $0.4714-per-unit fourth-quarter 2023 distribution, paid February 20, 2024. The Partnership’s policy is discretionary, not a contractual obligation.
Outlook, risks and contingencies
The filing gives no specific earnings or distribution guidance. Management states it expects available liquidity sources to meet near- and long-term needs and support quarterly distributions, while noting that distributions are not guaranteed. OpCo estimates environmental-compliance capital expenditures of approximately $3.5 million in 2024 and $3.6 million in 2025. Westlake is expected to pay approximately $1.0 million in 2024 for EPA-required flare corrective actions and to indemnify the Partnership for the related consent-decree costs.
- Westlake concentration and related-party dependence: OpCo relies on Westlake for most sales, feedstock, services, employees and financing. The sales, feedstock and services agreements are initially terminable from December 31, 2026, subject to renewal provisions.
- Debt and rates: All outstanding debt is variable-rate and owed to Westlake affiliates; higher rates could reduce cash available for distributions. The MLP Revolver has leverage-ratio covenants.
- Operations and market: Production is concentrated at three plants across two sites; outages, turnarounds, severe weather, feedstock interruptions or chemical-industry downturns could affect results and cash generation.
- Environmental and legal matters: The EPA flare consent decree carries compliance requirements and potential stipulated penalties; Westlake is expected to indemnify the Partnership. Lawsuits related to the 2021 Petro 2 flash fire were settled by Westlake, but insurance payments had not been completed. Management does not expect pending proceedings to materially adversely affect the Partnership.
- Governance and partnership risks: Westlake controls the general partner and holds 40.1% of Partnership units plus the incentive distribution rights. The filing describes conflicts of interest, limited unitholder voting rights and the possibility of additional unit issuance.
PwC issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded controls were effective at year-end. Revenue from the Westlake ethylene agreement was identified as a critical audit matter.
Important facts for investors to verify
- Whether Westlake renews or replaces the key commercial agreements before their initial term ends in 2026, and on what economics.
- Westlake’s ability and willingness to meet purchase, feedstock, service and financing obligations, given the Partnership’s reliance on this related party.
- Cash available for Partnership distributions after interest, maintenance and turnaround spending; compare distributable cash flow with distributions declared.
- Variable-rate debt costs, leverage-covenant headroom and the 2027 revolver maturities and refinancing plan.
- Progress, final costs and indemnification for EPA flare requirements, and completion of insurance payments for the Petro 2 settlements.