Westlake Corp (WLK) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Fourth Quarter and Full Year 2017 Earnings Conference Call. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, February 20, 2018.

I would now like to turn the call over to today's host, Mr. Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin.

Thank you, Christie. Good morning, everyone, and welcome to the Westlake Chemical Corporation Fourth Quarter and Full Year 2017 Conference Call. I'm joined today by Albert Chao, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. The conference call agenda will begin with Albert, who will open with a few comments regarding Westlake's performance, followed by a current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments, and we will open up the call to questions.

During this call, we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to the master limited partnership, Westlake Chemical Partners LP; and references to OpCo refer to our subsidiary, Westlake Chemical OpCo LP, who owns certain olefins facilities. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and, thus, are subject to risks or uncertainties. Actual results could differ materially based upon many factors, including: the cyclical nature of the chemical industry; availability, cost and volatility of raw materials, energy and utilities; governmental regulatory actions and political unrest; global economic conditions; industry operating rates; the supply-demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; and other risk factors discussed in our SEC filings.

This morning, Westlake issued a press release with details of our fourth quarter and full year results. This document is available in the Press Release section of our web page at westlake.com. A replay of today's call will be available beginning 2 hours after completion of this call until 11:59 p.m. Eastern time on February 27, 2018. The replay may be accessed by dialing the following numbers. Domestic callers should dial (855) 859-2056. International callers may access the replay at (404) 537-3406. The access code for both numbers is 4879787. Please note that information reported on this call speaks only as of today, February 20, 2018, and therefore, you are 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 webcast system that can be accessed on our web page at westlake.com.

Now I would like to turn the call over to Albert Chao. Albert?

Thank you, Jeff. Good morning, ladies and gentlemen, and thank you for joining us to discuss our fourth quarter and full year 2017 results.

In this morning's press release, we reported record quarterly net income of $802 million for the fourth quarter or $6.15 per diluted share. Net income for the quarter included a $591 million onetime benefit related to tax reform which was enacted in December 2017. Excluding the benefit from tax reform, our [net] income in the fourth quarter was a record $211 million or $1.62 per share, including the impacts from integration costs and additional interest from our refinancing activities. For the full year 2017, net income was a record $1.3 billion or $10 per share. Excluding the benefit from tax reform, net income was a record $713 million or $5.46 per share.

In 2017, we achieved record productions in both our Olefins and Vinyls segments and have invested to improve our reliability and reduce operating costs. We also benefited from growing demand for all our major products, including polyethylene, caustic soda and PVC, as a result of improving global economic growth. We continue to see improving margins in the chlor-alkali chain as recent capacity reductions in Europe and reduced production and export in China led to increased global price for caustic soda.

We remain focused on driving additional value from our Axiall acquisition. In 2017, we realized $170 million in cost reductions and cost-related synergies versus the $120 million that we have previously discussed. As a result, we've increased our target for cost-reduction synergies from $200 million to $250 million. We continue to pursue more value from this acquisition by improving operations and investing to further improve the competitiveness of these assets.

The financial and operating -- operational records achieved in 2017 will not have been possible without the ongoing dedication and efforts of our -- all our employees around the globe. Whether they are working on the integration of Axiall, improving the operations of the production facilities or working to maximize the benefits of our global organization and exceeding our customers' expectations, we thank them for their focus and commitment to achieving our goals.

I would now like to turn our call over to Steve to provide more detail on the financial and operating results.

Thank you, Albert, and good morning, everyone. I will start with discussing our consolidated financial results, followed by a detailed review of our Olefins and Vinyls segment results.

Let me begin with our consolidated results. This morning, Westlake reported record net income attributable to Westlake for the fourth quarter 2017 of $802 million or $6.15 per diluted share on net sales of $2 billion as compared to the fourth quarter 2016 net income of $99 million or $0.76 per share on sales of $1.7 billion. As Albert mentioned, this quarter included a $591 million onetime benefit associated with the Tax Cuts and Jobs Act. Excluding this benefit, Westlake's net income for the quarter was a record $211 million or $1.62 per share.

Our fourth quarter results were negatively impacted by $9 million or $0.05 per share related to the integration costs and incremental interests associated with our debt refinancing. Excluding the impacts associated with tax reform, the fourth quarter 2017 results increased from the fourth quarter of 2016 due to increased margin and volumes for all of our major products, partially offset by a higher effective tax rate as compared to the prior year period.

Operating income of $365 million for the fourth quarter of 2017 increased $212 million compared to the fourth quarter of 2016. This increase in operating income was due to higher sales prices and volumes for our major products, lower cost associated with planned turnarounds and unplanned outages and lower transaction integration costs, partially offset by higher feedstock and energy costs.

Fourth quarter 2017 net income of $211 million, excluding the onetime tax benefit of $591 million, was comparable to the third quarter 2017 net income of $211 million. Fourth quarter 2017 operating income of $365 million was comparable to the third quarter 2017 record operating income of $366 million as seasonally lower sales volumes were offset by increased margins.

For the full year 2017, after adjusting for the impact of tax reform, net income was $713 million or $5.46 per share on net sales of $8 billion as compared to net income of $399 million or $3.06 per share on sales of $5.1 billion for 2016. This increase in net income of $314 million or $2.40 per share compared to 2016 was primarily due to earnings contributed by Axiall, which was acquired on August 31, 2016; higher sales prices for our major products resulting in higher margins; and lower transaction and integration costs related to Axiall's acquisition. These increases were partially offset by higher interest expense due to the increased debt assumed as a result of the acquisition, higher costs associated with planned turnarounds and unplanned outages and the realized gain in 2016 of $49 million from the previously held common stock of Axiall.

Net sales for 2017 increased $3 billion compared to 2016 mainly due to sales contributed by Axiall and higher sales prices and volumes for all of our major products. Full year 2017 income from operations was a record $1.2 billion as compared to $581 million for 2016. This increase of $652 million in 2017 income from operations was largely a result of earnings contributed by Axiall, higher margins for our major products and lower transaction and integration-related costs, partially offset by higher costs associated with planned turnarounds and unplanned outages.

Pretax transaction and integration costs for 2017 were $29 million or $0.16 per diluted share as compared to $104 million in 2016. Our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of approximately $12 million or $0.06 per share in the fourth quarter to what earnings would have been if we'd reported on the LIFO method. This calculation is only an estimate and has not been audited.

Now let me move on to review the performance of our 2 segments, starting with the Olefins segment. In the fourth quarter 2017, the Olefins segment reported operating income of $166 million on net sales of $517 million as compared to fourth quarter 2016 operating income of $149 million on sales of $471 million. This increase in operating income of $17 million was mainly attributable to higher sales prices and lower costs associated with planned turnarounds and unplanned outages, partially offset by higher feedstock and energy costs. Fourth quarter 2017 operating income of $166 million on net sales of $517 million was comparable to third quarter 2017 operating income of $165 million on net sales of $502 million. Higher prices in margins in the fourth quarter were offset by lower styrene sales volumes.

Olefins segment income from operations of $655 million in 2017 increased $107 million compared to operating income of $558 million in 2016. This increase in operating income was primarily due to higher sales prices for our major products, higher operating rates and lower costs associated with planned turnarounds and unplanned outages as compared to the prior year. These increases were partially offset by higher feedstock and energy cost. Olefins income from operations for 2016 was negatively impacted by planned turnaround and the 250 million pound expansion of our Lake Charles Petro 1 ethylene unit, which was completed in the third quarter of 2016.

Now let's move on to the Vinyls segment. Fourth quarter Vinyls income from operations of $216 million increased $178 million from fourth quarter 2016 income from operations of $38 million. This increase is primarily attributable to higher sales volumes as a result of higher operating rates, higher integrated margins due to higher sales prices and lower costs associated with planned turnarounds and unplanned outages, partially offset by higher feedstock and energy cost when compared to the prior year period. Fourth quarter 2017 operating income of $216 million was comparable to third quarter 2017 operating income of $217 million, with seasonally lower sales volumes offset by increased margins due to higher sales prices and lower energy cost.

Full year 2017 Vinyls income from operations of $647 million increased $473 million from 2016 income from operations of $174 million. The $473 million increase was primarily due to earnings contributed by Axiall, higher sales prices and volumes for our major products. These increases were partially offset by higher costs associated with planned turnarounds and unplanned outages, including the 100 million pound ethylene expansion completed in second quarter 2017 in the Calvert City, Kentucky facility and higher feedstock and energy cost in 2017 as compared to 2016.

Now let's turn our attention to the balance sheet and statement of cash flows. Full year 2017 cash flows from operating activities were a record $1.5 billion, and we invested $577 million in capital expenditures. At the end of 2017, we had cash and cash equivalents of $1.5 billion and total debt of $3.8 billion. Both cash and debt balances included $745 million of proceeds from the issuance of the 15- and 30-year bonds in November 2017.

Last week, we used the proceeds -- a portion of those proceeds to redeem $688 million in long-term bonds assumed with the acquisition of Axiall. We also intend to redeem another $450 million of debt that becomes callable this May. Funds to redeem this debt will come from cash on hand as well as borrowings under our revolving credit facility. Following our redemption of the $450 million in debt this May, we will have retired over $1.2 billion in debt since our acquisition of Axiall in August 2016.

Now let me provide updated guidance for modeling purposes. For 2018, we expect capital expenditures to range from $600 million to $650 million. This includes our normal maintenance capital expenditures and value-enhancing investments as well as a portion of the recently announced expansions in our Vinyls segment yesterday. These include 750 million pounds of PVC capacity at our facilities in the Geismar, Louisiana and Burghausen, Germany, 200 million pounds of VCM capacity in our facilities in Geismar and Gendorf, Germany, 55 million pounds of chlorine and 60 million pounds of membrane caustic soda at our facility in Gendorf, Germany, in addition to the joint venture investment of the 2.2 billion pound ethylene facility in Lake Charles, Louisiana currently under construction with Lotte Chemical.

We expect 2018 interest expense to be approximately $30 million lower or $130 million for the year as we continue to delever the balance sheet throughout the first half of 2018. We estimate that our 2018 effective annual tax rate will be approximately 23% and our cash tax rate will be approximately 16%. As Albert mentioned, we have increased our target for cost-reduction initiatives for the Axiall acquisition from $200 million to $250 million, of which we realized $170 million in 2017 while expensing integration-related costs of $29 million.

With that, I will now turn the call back over to Albert to make some closing comments. Albert?

Thank you, Steve. This year's record results demonstrated the value of improving the operational reliability and organic expansions of our facilities while we continue to experience solid global demand for polyethylene, caustic soda and PVC. In addition to working diligently on the newly announced expansions in our Vinyls segment, we continue to focus on capturing additional value related to our Axiall acquisition and investing to improve the competitiveness of all of our assets.

Looking forward, we believe we will continue to benefit from low-cost ethane natural gas in the U.S. as a result of expanded oil and gas drilling activity driven by higher oil prices. We also expect continued benefit from the favorable chlor-alkali cycle driven by strong global demand, European capacity reductions, limited Chinese production and exports due to environmental regulations and with no significant capacity additions on the horizon. Our delevered balance sheet and lower tax rate will boost Westlake's cash flows and allow us to pursue growth initiatives, which will increase our capacity and reduce our operating costs, including projects such as the 2.2 billion pounds ethylene joint venture in Lake Charles, which is expected to start up in 2019.

Thank you very much for listening to our earnings call this morning. 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 this teleconference will be available starting 2 hours after we conclude the call. We will provide that number again at the end of this call.

Christie, we will now take questions.

(Operator Instructions) Our first question comes from the line of P.J. Juvekar of Citi.

So Albert, Westlake is known to invest when the cycle is down, like your ECU expansions a few years ago and then the Axiall purchase. And now that you're expanding Vinyls capacity again, can you explain the logic of the timing? And do you see an extended Vinyls cycle going forward?

Yes. We do believe the Vinyls cycle, both from the chlor-alkali side and PVC, VCM side, to be on the upstream -- upswing in the cycle. And hence, we are debottlenecking, expanding our capacities.

And any rationale on expansion in Europe? Do you see particularly any strength in Europe that you think you should invest in Europe now?

Certainly. European economy has turned around and, for the first time in many years, is growing. And so European demand is strong as cost is pretty competitive, and we believe that expansion will help us to reduce our costs and increase our bottom line.

Our next question is from David Begleiter of Deutsche Bank.

Albert, just on polyethylene price increases, can you comment on what you expect for February, which looks like it will go through in March as well?

Yes, certainly. We believe that the announced $0.04 a pound price increase for February and $0.03 in April will have a good chance of getting through because inventories, at least -- especially in our side, has been quite low and the customers' inventory has been low as well because of the winter storms and all that. So we believe that there's a strong push for the price to be implemented.

Very good. And just on your VCM and PVC expansions in the U.S., are you now balanced between VCM and PVC in this country?

Yes, depends on locations, we are -- we have more capacity in VCM than PVC. Hence, we do sell VCM to third parties.

Our next question is from Neel Kumar of Morgan Stanley.

What is the breakdown of the 150 million pounds of new PVC capacity in Germany and Geismar? And then could you help us get a sense of what your merchant chlorine position will be post the expansions?

Neel, as we get further into the completion of these projects, we'll give more details at that stage. And certainly, as we think about the initiatives that we're undertaking, certainly, we'll use some of that merchant chlorine. But we'll give more details as we get further into these initiatives.

Okay. And then, I guess, given the incremental ethylene needs with the PVC expansions, does this mean you're more likely to exercise the additional 40% interest in Lotte? And have you had any additional thoughts of securing ethylene beyond Lotte? Or are you comfortable participating in the stock market?

Well, certainly, as we continue to complete that project, and you heard Albert's comments that, that plant will be in start-up in 2019, we'll assess the opportunity that we have with that option. And once we make that decision, we'll let everyone know.

Our next question is from Jim Sheehan of SunTrust.

Albert, can you comment on your outlook for PVC prices in February and March? I think you're seeing [comparatively] more values. What do you expect for the realization of the announced price increases?

Certainly. Again, the industry players have announced price increases of $0.03 a pound price increase for February 1, additional $0.04 a pound price increase for March 1. And inventory positions, both at producers and customer levels, are on the low side. And as you know, this is the spring -- start of the spring season for construction, so we think that this price increase will be well supported.

Great. And can you also comment on the impacts you're seeing on the closures of acetylene-based PVC capacity in China, what impact that might be having on international PVC prices?

Yes, certainly. China, in the past, has been a large producer and exporter of acetylene-based PVC. And because of the highly polluting nature and energy-intensive nature of using the carbide process to produce PVC, that has been -- production has been curtailed and export has been curtailed also. And we believe, hence, that the U.S. will be in good position to export PVC around the world.

What does your turnaround schedule look like for 2018?

Jim, our normal schedule that we've been working toward all of last year to get these cycles back into the normal cycle will be commenced in '18. And so we don't have any turnaround scheduled beyond the normal plan in 2018, so I think you can expect that our normal cycles will then be implemented in 2018. I don't have anything specifically to call out today.

Our next question is from Kevin McCarthy of Vertical Research.

You raised your synergy target by $50 million to $250 million from $200 million. Can you comment on the source of the incremental $50 million and the timing within which you expect it might be achieved?

And so Kevin, this is Steve. We had targeted for 2017 to achieve $120 million, and you could see from our remarks that we achieved $170 million in '17 and continue to work toward that number of $250 million. And those synergies were cost related and spread really across the business, but all of those really contribute into reducing our cost. And so that's very much where we continue to be focused.

Okay. And then, Steven, the building product segment, how would you characterize your operating margin for building products relative to Vinyls at this point in the cycle?

I think we've seen good continued demand as we've seen construction numbers begin to look more solid. And certainly, that's a segment of business that is making very good contribution to the bottom line. It does -- we do see it as a very important contributor to the bottom line results. But with the improvement in starts and in permits, we've certainly seen that as a very value-added business, but we don't break out specifically margins in that segment of the business.

Our next question is from Steve Byrne of Bank of America.

That 55 million pound chlorine expansion at Gendorf, do you consider that a debottleneck project? What are the capital costs involved in that? And is there a reason to be looking potentially at greenfield expansion in chlor-alkali? Or are reinvestment economics at all attractive at this point?

Steve, it is a debottleneck, and certainly, as we get further into completing these projects, we can certainly give more color on those. But certainly, when you think about investing, at one end of the chain, you have to recognize you have to have demand across the chain. So as we think about the chain today, you can see we're investing in segments of that, but we don't see the need to really make further investments at that end of the chain, but you can see us certainly using some of the merchant chlorine that we're using in VCM and further PVC expansions.

And on the Axiall facilities that you see greater opportunity for cost synergies, what about debottlenecking at those facilities? You're operating them now long enough that do you see opportunities to debottleneck some of those facilities?

Well, certainly, as we think more about the opportunity set that we see with the acquired assets, we're spending a lot of time looking at where it makes sense to debottleneck and capture the additional value there. And so certainly, as we make more progress there, we'll certainly communicate that publicly.

Just lastly, were your third quarter results, that seem to be roughly flat with fourth quarter, did you pull volumes into the third quarter as a result of some of that hurricane-driven outages by some of your competitors?

Certainly, in selected markets, because we were not impacted, we did have some benefit in that respect. And you can see also the seasonally lower businesses in our businesses were lifted by higher margins across both the Olefins and the Vinyls segments.

Our next question is from Hassan Ahmed of Alembic Global.

Guys, as I take a look at these sort of growth projects that you've announced, you were very clear in talking about your positive view of the chloro-vinyl cycle. Now historically, obviously, you guys have run a pretty fully integrated model, integrated -- back integrated, be it into chlorine -- fully back integrated into chlorine as well as ethylene. But now it seems that in this 2019 through 2021 period, what was a short position in ethylene becomes a larger short position in ethylene. So I mean, you've been clear about your views or bullishness on the chloro-vinyl side, but does this signal a relative bearishness on the ethylene cycle in the 2019 through 2021 time period? Or should we assume that, similar to the legacy sort of Westlake model, where you ran sort of this fully integrated shop, you will sort of consider greenfield ethylene capacity additions as well in the near to medium term?

Yes. Certainly, we would like to be integrated. And historically, we either did it organically by building plants or expansions or inorganic through acquisitions, and we'll explore both ways of increasing our ethylene production to be more fully integrated.

But just to be clear, these announcements that you've made, which obviously raised your short position in ethylene, I mean, are you bearish in the 2019 through 2021 time period on the ethylene cycle? Or do you think that utilization rates will tighten once this imminent capacity that's expected to come online comes online?

No, we're not bearish. I think if you look at global demand for polyethylene, which 60% of all the ethylene in the world goes to polyethylene, the world demand for polyethylene growth and capacity expansion pretty matches each other over the next 5, 6 years. So I think it's really hinged on the global economic growth. And as you know, typically, polyethylene demand follows between 1 and 1.5x global GDP growth rate.

Understood, understood. And as a follow-up, sequentially, Olefins segment volumes were down 4%; Vinyls segment volumes, 9%. You were very clear in talking about, obviously, Q4 being a seasonally weak quarter demand-wise, so I'd imagine a large part of those volume declines were for seasonal reasons. But you also highlighted some planned and unplanned outages in Q4, so just wanted to get a sense of how much of those volume declines were from these planned and unplanned outages and what sort of EBITDA impact they had in Q4.

Hassan, the outages that occurred in Q4 were those that we earlier had indicated and gave guidance to the impact of. And then, of course, you did mention my comments as it relates to the seasonal impact of volumes. And of course, that was offset by higher margins both in Olefins and in Vinyls.

And Steve, can you just remind me what the guidance was for the Q4 impact?

The guidance was $25 million.

And it was in line with that?

Yes.

Our next question is from Bob Koort of Goldman Sachs.

Albert, I was wondering if you could talk about, as you've optimized these Axiall assets, sort of where you are on that path and maybe some metrics that you can give us so we can calibrate the success that you've had there.

Well, certainly, as we said, we captured good synergies in cost reduction and in operational improvements and volume growth, and we are continuing doing that. The expansions are part of that activity. And as Steve said, we will look at debottlenecks, expansion in all our plants. And with the acquisition of Axiall, I think we have -- we're one of the largest producer of VCM, PVC in the world and chlor-alkali. So we have 10 or 11 plants around the world where we could expand rather than doing more greenfield plants.

I'll ask another question. You had mentioned the outlook on the polyethylene markets. Your small competitor here in Houston, in their recent slide deck, looked differently at HDPE, LLDPE and LDPE. And they gave a pretty bullish forecast on HDPE, where there's not enough capacity to meet the demand growth for the next 3 years, but maybe it was a little more damning on the LDPE side. So I'm just curious if you have any reservations about maybe incremental capacity on the LDPE markets creating a little more pressure there than the other polyethylenes.

Well, as you know, that -- the U.S. polyethylene industry today already exports about 20% of all its production. So all the capacity added, whether LD, linear low or high density, a large part of that will be exported. And domestic demand growth of polyethylene is between 1 and 1.5x GDP in the U.S., so it's not enough to absorb all the expansions. So we think that most of the new capacity added when it comes onstream will be exported.

Our next question is from Frank Mitsch of Wells Fargo Securities.

As I look at the industry operating rates in chlor-alkali in January, they were depressed largely due to weather issues. And I was wondering how was Westlake, relative to industry operating rates, in the month of January in the chlor-alkali side of things.

Frank, we were fortunate that we had no issues as it relates to the weather issues that you made reference to.

All right. Terrific. So you're able to take advantage of some of the volumes then quarter to date, I would anticipate. And then, Steve, if I could follow up. There are a lot of talk about in -- follow-up on a question of turnarounds. For 2018, you said, I think, you're expecting a normal schedule of turnarounds. How would you compare that to 2017's actual, higher, lower, the same, bigger than a bread basket?

As you recall, we gave guidance of what I would call the catch-up deferred maintenance work that we were doing all throughout 2017 and gave guidance inclusive of not only the maintenance expense but the lost sales that aggregated roughly $180 million throughout '17 to get us back to a more normalized level of work, and that's where we are today. And so there isn't any turnaround work that I would call out in '18. We're really back to that normalized level, and so the numbers that we spoke of as it related to 2017 were that. Those expenditures are lost sales that were above the normalized kind of run rate for turnaround activity.

Our next question is from John Roberts of UBS.

On your option to possibly increase your interest in the Lotte cracker, how much advanced notice do you have to give? And could you just remind us how long does that option stay alive for? How long does it last?

So John, the option is 3 years post start-up of the facility. The facility is expected to start up in 2019. And so we have the ability to notify Lotte of any interest we choose up to 3 years post that start-up period, and the notices are relatively short.

Okay. And then could you update us on your balance sheet targets beyond the current debt reductions that you've already outlined?

Our focus always is to maintain a balance sheet that permits us the optionality to continue to fund the business and be opportunistic as investment opportunities come along. We want to remain strongly positioned so that our investment-grade balance sheet is there, but we don't set finite targets. As you may recall, the rating agencies move their ratios around over time, and so our objective is to meet the objectives that they set for investment -- strong investment-grade status so that we can be in that position throughout the cycle.

Our next question is from Arun Viswanathan of RBC Capital Markets.

So a couple of questions here. I guess, first off, on the CapEx side. What's a normal level of CapEx? And I guess, how much do you expect to spend on these new projects? And if you could break out of the normal CapEx, kind of maintenance versus growth, that would be great.

Arun, our number this year of $600 million to $650 million is inclusive of all these projects we've talked about, inclusive of the investment in the Lotte project as we near completion in 2019. Our normalized capital expenditure numbers for maintenance and maintaining the plants and running them safely and reliably is in the $400-or-so million range. So the numbers that you see in our elevated number is inclusive of all those projects and the Lotte investments going forward.

Okay, that's helpful, Steve. And yes, just a question -- another question on the projects. Could you help us understand kind of the return hurdles that were employed there? Is that -- if you think about PVC margins right now at around $0.10 a pound, that means something like this could be adding $100 million of EBITDA on an annual basis. Is that anywhere in the ballpark? And -- or what kind of after-tax return metrics were you looking at on this?

Well, certainly, we assess a return hurdle and then risk-adjust all these projects as we assess any AFE. And so certainly, it's a moving target depending on what the particular project is and the risk assessment that we assign to that, but these all have good returns and well above that risk-adjusted cost of capital. I'm not going to speak to any individual project, but these all have good returns and well above that risk-adjusted cost of capital number I mentioned.

Okay. And on your own capacity, I guess, post this debottlenecking, would you have other opportunities to continue to expand Vinyls capacity? And maybe you can also speak to the Olefins side. Or would you have to kind of construct greenfield? Is there -- are there further brownfield opportunities within your own system? Or will it require greater investment?

Across the platform of Westlake, there are opportunities to debottleneck, and we talked earlier about some of those related to the Axiall asset that one of the questioners asked. And certainly, we'll continue to assess those. And somewhat, the investment thesis to invest in debottleneck even on the Olefins side is somewhat a function of capital cost and the margins that one has. And so certainly, as we see capital cost rise and fall, it does change economics on the opportunity set, but we still see plenty of opportunity across the platform of Westlake to very cost-effectively debottleneck.

And just lastly, just maybe you can speak to your view on caustic prices. We've had a couple of other announcements recently. Do you expect to realize full amount of that? And why if so? Would it be exports continue to be tight or domestic demand or everything above? Or...

Certainly. Caustic demand has continued to grow and, certainly, the export prices, depending on the seasonality and as well as regulations, such as the regulation China. So we are seeing the export demand and price to -- has recovered, and the industry now has made announcements of price increases for the first quarter. And also, we -- Westlake has also made further price increase starting for February, about $40 dry short term. So -- and export prices, some of them had higher margin than domestic prices. So we believe, with the increasing demand, the higher export prices, that these announced price increases should be able to go through completely.

Our next question is from Don Carson of Susquehanna Financial.

A question on what your plans are for the MLP. I noticed that, in Q3, you dropped down some additional ethylene assets into the MLP. What are your plans for any further actions like that in 2018? And what part will WKLP play in the Lotte venture if you do, in fact, exercise your option to go up to 1.1 billion pounds?

So Don, certainly, as we think about the growth trajectory that we've been on, that low double-digit growth rate, we continue to believe as long as we're paid for those kinds of growth rates, that we'll continue on that pace. And so certainly, you'll recall we have 4 levers with which to act on that. That is a drop-down, as you mentioned, we accomplished in the third quarter. We can think about the margin opportunities, it's certainly set at $0.10 of margin per pound. But certainly, that could also be elevated over time. You mentioned acquisitions, and Lotte could be a natural acquisition target for the OpCo entity to create a same kind of tolling mechanic around that production as it has around the existing 3 crackers and, of course, debottlenecking opportunities. So we see significant opportunity with those 4 levers to continue to grow so long as there's a fair return in valuation to make that happen. We certainly see the -- as you mentioned, the Lotte assets, we certainly see that as a very interesting and potentially attractive opportunity for OpCo in the future once that plant is completed.

(Operator Instructions) Our next question is from Jeff Zekauskas of JPMorgan.

What was your cash tax rate in 2017?

Cash tax rate was running right around 25%, cash tax rate in '17, Jeff.

And the 16% number you quoted for 2018, is that a representative number for the future? Or is there something unusual about 2018?

Well, you recall, under this new tax bill -- the tax law that we have, that we can certainly take kind of what I would call bonus depreciation, immediate depreciation of any new asset deployed. So as we deploy new assets into the business, we're able to fully depreciate those. And so certainly, as long as we continue a spending program along these lines, our cash tax rate should be in the mid-teens or so. So I expect that 16% for '18 is a reasonable target, and that's somewhat a function, over time, as we deploy additional capital and put them into service.

You raised your cost-cutting targets. Is that because you're completing your cost cuts faster than expected so that maybe you'll be done by the end of '18?

So Jeff, the guidance we had given for '17 was $120 million, and you can see from our comments we achieved $170 million. And so we did achieve more this past year in '17. And certainly, we continue to make efforts to achieve all opportunities to pocket some of those synergies. And so that's why the guidance of $250 million in total. And certainly, we'll continue to work diligently to achieve those and more to the extent that we can find them.

Are you ahead of schedule? Or did you find different costs to pull out? What do you make of the difference between what you expected and what you achieved?

Well, we certainly -- as you may recall, we certainly will make every effort to look. And as we know more about the opportunities to reduce our cost, we'll certainly pursue those. And so that earlier estimate was a function of what we knew at the time. And as we gain better insight into the opportunities, we'll pursue those.

Okay. Can you comment on nonintegrated PVC margins in the United States in 2017? For -- when you look at PVC on a nonintegrated basis, were those margins very much different than they were in 2016?

So you're assuming buying merchant chlorine to -- and merchant ethylene to make PVC?

Yes and not getting a cost of credit.

Yes. And so if -- in fact, if you see those -- if you're buying merchant ethylene and merchant chlorine and not getting the caustic credit, you are going to find those margins to be kind of in these very low, typically, in kind of single-digit range.

Right. And so not very much different from '16 on a nonintegrated basis?

Yes, yes.

Okay. So when you look at China caustic soda prices, they seem to have come down quite a lot from where they were in October, November, whereas domestic prices seem to have risen. Can you comment on the differences between the 2 markets and whether they affect each other?

Yes, certainly. The Chinese market has come down due to the environmental regulations curtailing some of the demand, and it's also because of the Chinese New Year time. But I think that has changed. I think the regulations are supposed to end March 15, and the Chinese New Year is over. I think the Chinese economy is doing quite well. So we are seeing the prices already going up in -- not only in China but in Southeast Asia as well and so -- hence, support the export demand from U.S. overseas as well as higher prices in export.

And then lastly, you talked about your CapEx being $600 million to $650 million for '18, but these are multiyear projects. So as a base case -- and I know you haven't forecast 2019 numbers, but should they be similar in '19 as a base case?

I'm sorry, Jeff. Can you repeat that?

Your CapEx, I think, for '18 is $600 million to $650 million, and the projects you're working on are multiyear projects. So I know that you haven't forecasted 2019 CapEx, but as a base case, would it be relatively similar to 2018 given that you still have to spend on these projects?

Well, certainly, recall that we will -- we expect to be completing the Lotte investment in Lake Charles in 2019. So those expenditures that we incur in 2018, will begin to -- will cease as we finish the project in '19. So absent other opportunities, those capital numbers should begin to kind of drift out.

Our last question is from P.J. Juvekar of Citi.

I had a question on ethane. And Albert, maybe you can discuss your outlook on ethane both for the Gulf Coast as well as for your Calvert City operations, where you get ethane from the Marcellus.

Certainly. As I said in my earlier discussions, that with the increased U.S. production of oil and gas, that we have more production of ethane, and hence, the ethane price has been kept quite attractive. And if you look at the future prices, ethane is still staying in the $0.20 to $0.30 -- $0.20 range, and the future price gets to a $0.30 range only in 2020.

Any comments on your Calvert City ethane import?

No, I think Calvert City, we are getting ethane from the ATEX pipeline, which brings Marcellus, Utica ethane via Calvert City to the Gulf Coast. So we are having ample supply of ethane.

Is Calvert City advantaged relative to the Gulf Coast?

We are paying market-related prices.

And that does conclude our Q&A session for today. I'd like to turn the call back over to Mr. Jeff Holy for any further remarks.

Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our first quarter 2018 results.

Thank you for participating in today's Westlake Chemical Corporation fourth quarter full year earnings conference call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Tuesday, February 27, 2018. The replay can be accessed by calling the following numbers. Domestic callers should dial (855) 859-2056. International callers may access the replay at (404) 537-3406. The access code for both numbers is 4879787.