10-K: Westlake Chemical Partners LP Reports Fiscal Year 2023 Results

Westlake Chemical Partners LP reports a decrease in net income attributable to the partnership for fiscal year 2023, despite an increase in income from operations.

Summary

• Westlake Chemical Partners LP reported a net income of $334.6 million for the year ended December 31, 2023, compared to $334.8 million in 2022.
• Net sales decreased to $1,190.8 million in 2023 from $1,593.1 million in 2022, primarily due to lower ethylene and co-product sales prices.
• Income from operations increased to $357.7 million in 2023 from $347.7 million in 2022, driven by lower feedstock and natural gas costs.
• Net income attributable to the partnership decreased to $54.3 million in 2023 from $64.2 million in 2022, due to higher interest expenses.
• MLP distributable cash flow decreased to $62.6 million in 2023 from $75.9 million in 2022, primarily due to higher interest expense.
• EBITDA increased to $472.1 million in 2023 from $470.3 million in 2022, due to lower feedstock and natural gas costs, partially offset by lower sales prices.
• The company had $399.7 million in variable-rate debt outstanding at the end of 2023.

Sentiment

Score: 4

Explanation: The document presents mixed results with decreased net sales and net income attributable to the partnership, but increased income from operations and EBITDA. The company's reliance on Westlake and variable-rate debt are significant risks. The overall sentiment is slightly negative due to the decrease in net income attributable to the partnership and distributable cash flow.

Positives

• Gross profit increased due to lower ethane feedstock and natural gas costs.
• EBITDA increased slightly due to lower feedstock and natural gas costs.
• The company maintains a comprehensive approach to cybersecurity and data protection.

Negatives

• Net sales decreased significantly due to lower ethylene and co-product sales prices.
• Net income attributable to the partnership decreased due to higher interest expenses.
• MLP distributable cash flow decreased due to higher interest expenses.

Risks

• The company is substantially dependent on Westlake for its cash flows.
• The company is subject to the credit risk of Westlake on a substantial majority of its revenues.
• The company's variable-rate debt exposes it to increases in interest rates.
• The company's operations are subject to significant hazards and risks inherent in ethylene production operations.
• The company's operations and assets are subject to climate-related risks and uncertainties.
• The company's operations and assets are subject to extensive environmental, health and safety laws and regulations.
• The company's ability to make distributions to unitholders is substantially dependent on Westlake's ability to meet its minimum contractual obligations under the Ethylene Sales Agreement.

Future Outlook

The company expects to distribute most of its available cash to its partners, which may limit its ability to grow and make acquisitions. The company expects to fund capital expenditures primarily from external sources, including borrowing directly from Westlake, as well as future issuances of equity interests or debt.

Industry Context

The report reflects the cyclical nature of the chemical industry, with fluctuations in ethylene and co-product prices impacting revenue. The company's reliance on a long-term agreement with Westlake mitigates some of the direct exposure to commodity price volatility, but the company is still indirectly exposed to market fluctuations.

Comparison to Industry Standards

• The company's performance is heavily influenced by its relationship with Westlake, which purchases a substantial majority of its ethylene production.
• The company's cost-plus pricing structure under the Ethylene Sales Agreement is designed to provide a fixed margin, which differs from companies that sell directly into the market.
• The company's financial results are impacted by the price of ethane and natural gas, which are key feedstocks for ethylene production, similar to other ethylene producers.
• The company's reliance on a single customer for a substantial majority of its revenue is a significant risk factor, unlike more diversified chemical companies.
• The company's debt levels and interest expenses are a key factor in its profitability, similar to other capital-intensive businesses in the chemical industry.

Corporate Governance

Legal Proceedings

• The company is subject to lawsuits, investigations and claims, including environmental claims and employee related matters.
• Final settlements were reached with all of the plaintiffs to fully resolve the lawsuits related to a flash fire at the quench tower of the Petro 2 facility by Westlake, but payment by the insurance carriers has not yet been completed.

Related Party Transactions

• The company has significant related party transactions with Westlake, including sales, purchases, services, leases, and debt agreements.
• The company's revenue is primarily generated from sales to Westlake under the Ethylene Sales Agreement.

Stakeholder Impact

• Unitholders may experience reduced distributions due to lower net income and distributable cash flow.
• The company's reliance on Westlake as a major customer and service provider creates a dependency risk.
• Employees of Westlake who are seconded to OpCo are subject to the terms of the Services and Secondment Agreement.

Next Steps

• The company will continue to monitor and manage operating expenses, maintenance capital expenditures, and turnaround costs.
• The company will continue to evaluate potential acquisitions and expansion opportunities.
• The company will continue to monitor and manage its debt obligations and interest rate risk.

Key Dates

Keywords

ethylene, Westlake Chemical Partners LP, financial results, MLP, distributable cash flow, EBITDA, feedstock, Ethylene Sales Agreement, debt, production, turnaround, interest rates