Westlake Chemical Partners LP — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet figures compared with December 31, 2021. The Partnership owns 22.8% of OpCo and consolidates its results; Westlake owns the remaining 77.2%, presented as noncontrolling interest. Westlake is also the Partnership’s principal customer, supplier, lender, and service provider.
Key financial results
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total net sales | $362.4 million | $268.2 million |
| Gross profit / margin | $91.4 million / 25.2% | $87.7 million / 32.7% |
| Operating income | $83.2 million | $79.0 million |
| Net income, consolidated | $80.8 million | $76.6 million |
| Net income attributable to Partnership | $16.2 million; $0.46 per unit | $15.1 million; $0.43 per unit |
| MLP distributable cash flow | $19.3 million | $16.2 million |
| EBITDA | $114.5 million | $106.6 million |
| Net cash from operating activities | $104.8 million | $155.4 million |
| Capital expenditures | $20.3 million | $12.7 million |
Sales rose 35.1%; management attributed the increase mainly to higher production and volumes, higher co-product prices, and higher ethylene prices to Westlake. Reported average sales price and volume each contributed to growth, up 22.0% and 18.1%, respectively. Higher ethane feedstock and natural gas costs, along with lower third-party ethylene prices, partly offset the gains. Gross profit increased, but gross margin fell to 25.2% from 32.7%.
Balance sheet, liquidity, and distributions
- Cash was $19.2 million at March 31, 2022, and $111.2 million was invested with Westlake under an agreement providing daily availability of funds. Current assets were $274.7 million and current liabilities $454.0 million.
- Total debt to Westlake was $399.7 million, unchanged from year-end: $377.1 million under the MLP Revolver and $22.6 million under the OpCo Revolver. The MLP Revolver balance is classified as current and is scheduled to mature in March 2023; the OpCo Revolver matures in September 2023. Both bear variable rates; weighted average interest was 2.2%. The Partnership reported compliance with debt covenants.
- Operating cash flow declined $50.6 million year over year. Working capital used $10.7 million in Q1 2022 versus providing $51.5 million in Q1 2021, mainly reflecting timing of payments and higher receivables associated with higher sales.
- The Partnership paid $16.6 million in quarterly distributions to unitholders and distributed $60.7 million to Westlake’s retained interest in OpCo. A $0.4714-per-unit distribution for Q1 was declared May 2, payable May 26, 2022. The Partnership states it has no obligation to pay a minimum or other quarterly distribution.
Outlook, risks, and unusual items
No specific earnings or production guidance was provided. Management said available liquidity sources—including operating cash, invested funds, and Westlake revolvers—are expected to support working capital, capital spending, and distributions. Westlake is not obligated to provide additional financing. The Partnership expects the MLP Revolver term to be extended before its scheduled maturity, but this is not assured.
- The Ethylene Sales Agreement is long-term and fee-based, with a 95% annual minimum purchase commitment and cost-based pricing plus a fixed margin. Westlake accounted for 80.2% of Q1 sales, creating substantial customer and related-party concentration.
- Most production is covered by the Westlake agreement; direct commodity-price exposure is primarily the approximately 5% of ethylene production sold to third parties. No open derivative positions were reported at quarter-end.
- All $399.7 million of debt is variable-rate. Management estimated that a 100-basis-point rate increase would add approximately $4.0 million to annual interest expense. LIBOR transition was underway; management did not expect a material impact.
- Petro 2 experienced a flash fire during a September 2021 turnaround, causing contractor injuries and pending lawsuits. The Partnership expects insurance to cover most associated costs.
- Potential EPA flare matters may require corrective actions and a monetary sanction exceeding $300,000; Westlake is expected to fully indemnify the Partnership for such costs. Environmental, operational, feedstock and energy cost, supply-chain, weather, and market risks remain relevant.
- The 2021 comparison was affected by Winter Storm Uri-related outages and by 2021 Petro 2 turnaround-related buyer deficiency and shortfall fees. The buyer deficiency fee was collected in January 2022; the shortfall fee recognized in 2021 is recoverable during 2022 under the agreement.
Most important facts for investors to verify
- Whether the MLP Revolver is extended or refinanced before its March 2023 maturity, and on what terms.
- Whether operating performance and distributable cash flow can sustain distributions amid higher feedstock, energy, and interest costs.
- Collection and timing of amounts due from Westlake, and continued availability of the investment-management funds and related-party credit facilities.
- Developments and potential costs from Petro 2 litigation and EPA flare proceedings, including the scope of insurance and Westlake indemnification.
- Production reliability, third-party ethylene pricing, and continued reliance on Westlake, which generated 80.2% of Q1 sales.