Business context and reporting period
Westlake Chemical Partners LP’s Form 10-Q covers the quarter and six months ended June 30, 2023. The Partnership’s principal asset is a 22.8% limited-partner interest in Westlake Chemical OpCo LP, which it controls and consolidates; Westlake owns the remaining 77.2%. OpCo operates three ethylene production facilities and an ethylene pipeline. Sales are predominantly to Westlake under a long-term, cost-based agreement with a minimum purchase commitment.
Financial performance and liquidity
Amounts below are in millions of dollars except per-unit data. Consolidated results include OpCo’s results, including Westlake’s noncontrolling interest.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $264.2 | $448.8 | $571.9 | $811.2 |
| Gross profit / margin | $87.7 / 33.2% | $97.3 / 21.7% | $193.8 / 33.9% | $188.7 / 23.3% |
| Income from operations | $80.5 | $87.4 | $178.7 | $170.6 |
| Consolidated net income | $75.3 | $84.4 | $166.7 | $165.3 |
| Net income attributable to Partnership | $11.9 | $16.4 | $26.8 | $32.6 |
| MLP distributable cash flow (non-GAAP) | $15.0 | $19.6 | $32.5 | $38.9 |
| EBITDA (non-GAAP) | $108.6 | $118.5 | $234.2 | $233.0 |
For the first half, operating cash flow was $243.4 million, investing cash outflow was $46.3 million, and financing cash outflow was $202.5 million. Capital expenditures were $17.2 million. Cash and equivalents were $59.4 million at June 30; a further $94.2 million was invested with Westlake under an agreement providing daily availability. Current assets were $220.6 million versus current liabilities of $66.3 million.
Debt payable to Westlake was $399.7 million, unchanged from year-end, all variable-rate; the weighted-average rate was 6.7%, up from 4.8% at December 31, 2022. Debt matures July 12, 2027, and the Partnership reported compliance with covenants. A 100-basis-point rate increase would add approximately $4.0 million to annual interest expense at the reported debt balance.
Material changes versus prior comparable periods
- Q2 net sales fell 41.1%, mainly from lower ethylene and co-product prices and lower volumes during the planned Calvert City turnaround. The filing attributes 33.0 percentage points of the sales decline to price and 8.1 points to volume.
- Despite lower sales, gross margin rose to 33.2% from 21.7%, principally because ethane feedstock and natural gas prices were lower. Q2 gross profit nevertheless declined, and Partnership-attributable net income fell to $11.9 million from $16.4 million.
- For the first half, lower input costs lifted gross profit and consolidated net income modestly despite lower sales. Partnership-attributable net income declined, principally because interest expense rose to $13.4 million from $5.1 million.
- First-half operating cash flow increased $17.7 million year over year, with management citing more favorable working-capital movements, partly offset by turnaround-related cash use. MLP distributable cash flow declined.
Outlook, management commentary, risks and unusual items
No quantified earnings or production guidance is provided. Management said it expects available cash from operations and financing sources to meet working-capital and capital needs and support quarterly distributions, while noting Westlake is not obligated to provide additional financing. The August 1, 2023 distribution was declared at $0.4714 per unit, payable August 25; it matches the prior-year rate. The Partnership has no contractual obligation to make distributions at any particular rate. Distributions declared for the first half ($33.2 million) exceeded Partnership-attributable net income ($26.8 million) and MLP distributable cash flow ($32.5 million).
Key exposures include dependence on Westlake as customer (84.3% of first-half sales), related-party debt and cash investments, variable interest rates, commodity and energy prices, operational interruptions, environmental regulation, and industry demand and pricing. The filing reports no open derivative positions at June 30. A 2021 flash fire at the Petro 2 facility resulted in contractor injuries and pending lawsuits; the Partnership expects insurance to cover most costs. It does not believe the proceedings will materially adversely affect its financial condition, results or cash flows. Risk factors were unchanged from the 2022 Form 10-K. The planned Calvert City turnaround occurred in May 2023.
Important facts for investors to verify
- Whether post-turnaround operating volumes and margins recover, and how ethylene and co-product prices and feedstock costs evolve.
- Interest-rate sensitivity and the terms, covenant headroom and related-party nature of the $399.7 million debt balance.
- Distribution sustainability: compare declared distributions with Partnership-level distributable cash flow, net income and cash needs.
- Westlake concentration and the terms and collectability of receivables and investments held with Westlake.
- Developments and insurance coverage relating to the Petro 2 flash-fire lawsuits, and any material environmental or other contingencies.