Westlake Chemical Partners LP (WLKP) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Partners Third Quarter 2015 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, November 3, 2015.

I would now like to turn the call over to today's host, Dave Hansen, Westlake Chemical Partners Senior Vice President of Administration. Sir, you may begin.

Thank you and good morning everyone and welcome to the Westlake Chemical Partners Third Quarter 2013 Conference Call. I am joined today by Albert Chao, our President and CEO; Steve Bender, our Senior Vice President and Chief Financial Officer; and other members of our management team. The conference call will begin with Albert who will open with a few comments regarding Westlake Chemical Partners performance in the third quarter and a current outlook on our performance and opportunities. 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 then open up the call to questions.

During this call, we refer to ourselves as Westlake Partners or the partnership. References to Westlake Chemical refer to our parent company Westlake Chemical Corporation and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake Chemical, which owns certain olefin's assets at Westlake Chemical.

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 operating difficulties, the volume of ethylene that we are able to sell, the price at which we are able to sell ethylene, changes in the prevailing economic conditions, actual and proposed governmental regulatory actions, competitive products and pricing pressures, our ability to borrow funds and access capital markets, and other factors discussed in our SEC filings. This morning, Westlake Partners issued a press release with details of our third quarter financial and operating results. This document is available in the press release section of our web page at wlkpartners.com. A replay of today's call will be available beginning two hours after completion of this call until 11:59 PM, Eastern Time on November 10, 2015. 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 is 58792939. Please note that information reported on this call speaks only as of today, November 3, 2015 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 webpage at wlkpartners.com.

Now, I'd like to turn the call over to Albert Chao. Albert?

Thank you, Dave. Good morning ladies and gentlemen, and thank you for joining us on our earnings call to discuss our third quarter results. In this morning's press release, we reported consolidated net income including OpCo's earnings of $87 million for the third quarter of 2015. Westlake Partners net income was $10 million. OpCo performed well in the third quarter mainly due to strong performances by its plants at our Lake Charles, Louisiana facility in spite of lower ethylene prices and operational downtime.

Our results demonstrate the benefits of the structure of our operations and the sales agreement with Westlake Chemical as we increase distributions to our unit holders with respect to the third quarter on October 28. This 2.9% increase in distributions is a third consecutive increase in distributions to our unit holders since our initial public offering in August 2014 and is consistent with our targeted annual low double-digit growth in distributions.

In regards to the IRS proposed regulations governing qualifying income for master limited partnerships, we submitted along with many other industry participants comments during the 90-day comment period that ended in August. We also participated in the IRS hearing on this matter in October, presenting our view of the tax statute and supporting why our activities clearly are within the plain reading of the statute. We believe that IRS interpretation of the law while issuing our private letter ruling was and still is correct. And we will continue to keep investors updated as events unfold.

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

Thank you Albert and good morning everyone. In this morning's press release, we reported consolidated net income including OpCo's earnings of $87 million on consolidated sales of $249 million for the third quarter of 2015. Westlake Partners net income was $10 million or $0.37 per limited partner unit. We also reported MLP distributable cash flow of $9 million for the quarter. The benefit from the long-term ethylene sales agreement with our sponsor Westlake Chemical is the stable fee-based cash flow which is insulated from oil and ethylene price volatility.

This contract represents 95% of our ethylene sales and protects most of the partnership's cash flows from the margin volatility traditionally associated with the ethylene business. This ethylene contract which is structured to generate a margin of $0.10 per pound of ethylene along with the take or pay provisions incentivizes us to continue to look for opportunities to increase capacity and operating rates.

As Albert mentioned, we continue to see strong operating rates for OpCo's ethylene plants in spite of a short one week outage at our Calvert City, Kentucky plant, production of ethylene continues to be strong. Along with the previously announced expansion of the Petro 1 plant at the Lake Charles site, we continue to evaluate other expansion opportunities as well as potential acquisitions of other qualified assets from third parties.

For the first nine months of 2015, OpCo spent $153 million in capital expenditures. Of that, $108 million was spent on pre-turnaround work as we prepare for the expansion of Petro 1. The turnaround of this project will begin in the early second quarter of 2016 and is expected to last approximately 80 days. We estimate that our second quarter 2016 production will be lower by approximately 285 million pounds. Once completed, this project will add approximately 250 million pounds of annual ethylene capacity.

At the end of the third quarter, we had a consolidated cash balance of $154 million, of which, $149 million was held at OpCo and $5 million at the partnership level. Long-term debt was $330 million, of which, $195 billion was at the OpCo level and $135 million was at the partnership. On October 28, we declared a quarterly distribution to unit holders of $0.299 per unit. This increase of $0.84 cents per unit represents a 2.9% increase for the second quarter of 2015. And continues us down the path to deliver consistent quarterly increases, targeting an annualized low double-digit growth rate. Coverage ratio for the third quarter of 2015 was 1.17 times with respect to the MLP distributable cash flow. Now, I'd like to turn the call back over to Albert to make some closing comments. Albert?

Thank you Steve. The stable fee-based cash flow generated by our fixed margin ethylene filtered contract with Westlake Chemical forms the foundation for us to deliver long-term value to our unit holders. This enables us to successfully pursue dropdown transactions, organic growth and third-party acquisition opportunities to increase distributions to our unit holders.

Looking forward, we continue to work towards our Petro 1 expansion at our Lake Charles site that is expected to add approximately 250 million pounds of ethylene capacity by the end of the first half of 2016. We also continue to assess future growth opportunities that will allow us to grow MLP distributable cash flow.

Thank you very much for listening to our third quarter earnings call this morning. Now I'll turn the call back over to Dave Hansen.

Thank you, Albert. I'd like to remind you that a replay of this teleconference will be available starting two hours after we conclude the call. We'll provide that number again at the end of the call. Operator it appears as though we have no questions. And so we are prepared to end the call at this time.

Thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our fourth quarter and full-year 2015 results. Thank you for participating in today's Westlake Chemical Partners [second] quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 11:59 PM Eastern Time on November 10, 2015. 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 is 58792939.