Westlake Chemical Partners LP (WLKP) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Partners fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

As a reminder, ladies and gentlemen, this conference is being recorded today, February 23, 2016.

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

Thank you very much. Good morning, everyone, and welcome to the Westlake Chemical Partners fourth quarter and full-year 2015 conference call. I'm 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 fourth quarter and the full year as well as 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 then we will 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 olefins 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 risk factors discussed in our SEC filings.

This morning Westlake Partners issued a press release with details of our fourth quarter and full-year financial and operating results. This document is available in our 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 March 1, 2016. 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 411 -- excuse me 41990126.

Please note that information reported on this call speaks only as of today, February 23, 2016, and therefore you are advised the 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 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 fourth quarter and full-year 2015 results. In this morning's press release we reported consolidated net income including OpCo's earnings of $91 million for the fourth quarter 2015.

Westlake Partners net income was $11 million. For the full year 2015 consolidated net income including OpCo's earnings were $354 million, while Westlake Partners' net income for 2015 was $40 million.

We are very pleased with OpCo's fourth quarter and full-year performance. Our results continue to demonstrate the strength and the stability of the sales agreement with Westlake Chemical and the efficiencies of our operations.

We continue to deliver solid results in the face of challenging energy markets. On February 1, 2016, we announced an increase in distributions to our unit-holders with respect to the fourth quarter of 2015 and maintained a coverage ratio of 1.21 times to declared distributions. Its 2.9% increase in distributions is the fourth consecutive increase in distributions to our unit-holders since our initial public offering in August of 2014 and remains 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 participated in the IRS hearing on this matter in October of 2015 presenting our view that our activities are clearly within the plain reading of the statute. We believe that the IRS' interpretation of the law when issuing our private other 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 fourth quarter and full year. Steve?

Thank you, Albert, and good morning, everyone. In this morning's press release we reported consolidated net income including OpCo's earnings of $91 million on consolidated sales of $249 million for the fourth quarter 2015. Westlake Partners net income was $11 million or $0.40 per limited partner unit. We also reported MLP distributable cash flow of $10 million for the fourth quarter.

Fourth quarter 2015 net income for Westlake Partners increased by $2.5 million, $0.092 per unit when compared to fourth quarter 2014 net income. MLP distributable cash flow of $10 million was $1.5 million higher than the fourth quarter 2014. These increases were due to the additional 2.7% interest in OpCo acquired by the MLP in April, 2015.

Partnership's fourth quarter 2015 net income was $11 million. Of $11 million was $900,000 or $0.033 per unit higher than third quarter 2015 net income. MLP distributable cash flow was $500,000 higher than the third quarter MLP distributable cash flow. The increase in ethylene production was the result of excellent operating performance at our Petro 2 in Calvert City, Kentucky facilities.

For the full year 2015 we reported consolidated net income including OpCo's earnings $354 million on consolidated net sales of $1 billion. Westlake Partners net income was $40 million or $1.47 per limited partner unit. 2015 MLP distributable cash flow was $37.7 million.

The benefit from the long term ethylene sales agreement with our sponsor at Westlake Chemical is a stable fee-based cash flow. This contract represents 95% of our ethylene sales and protects the partnership cash flow from the margin volatility that can be 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, incentivises to continue to look for opportunities to increase capacity and operating rates. Along with the previously announced 250 million-pound ethylene expansion of our Petro 1 plant at our Lake Charles, Louisiana facility, we've also recently announced an expansion at our Calvert City facility which we expect to complete in early 2017.

This expansion in addition to other incremental capacity increases will bring our annual ethylene capacity at Calvert City to 730 million pounds. For the full year 2015 OpCo spent $231 million in capital expenditures as we prepare for the expansion of our Petro 1 plant. This project is scheduled to begin in the second quarter of 2016 and will be completed in conjunction with the plant maintenance turnaround that will last for approximately 80 days.

Due to the turnaround and expansion of Petro 1 we expect production for the second quarter of 2016 to be 260 million pounds less than the second quarter of 2015. The expansion of our Petro 1 and Calvert City facilities will be funded through the $600 million revolving credit facility established with our sponsor, Westlake Chemical.

At the end of the fourth quarter we had a consolidated cash balance of $170 million of which $164 million was held at OpCo and $6 million held at the partnership level. Long term debt was $384 million of which $249 million was at the OpCo level, and $135 million was at the partnership.

On February 1, 2016, we declared a quarterly distribution to unit-holders of $0.308 per unit. This increase in distributions of $0.086 per unit represents a 2.9% increase from the third quarter 2015 and continues us down the path to deliver consistent quarterly increases targeting an annualized low double-digit growth rate.

The coverage ratio for the fourth quarter 2015 was 1.21 times with respect to MLP distributable cash flow. For the full year 2015, MLP distributable cash flow of $37.7 million provided coverage of 1.18 times declared distributions.

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 sales contract with Westlake Chemical forms the foundation for us to deliver long term value to our unit-holders. This enables us to successfully pursue drop-downs on sections, 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 facility which will begin in the second quarter of this year as well as prepare for our upcoming expansion in Calvert City in 2017. The additional 350 million pounds of ethylene capacity at these two facilities should allow us to continue our targeted low double-digit growth rate in distributions without a need for drop-downs on sections for the next several years.

We'll continue to assess future growth opportunities that will allow to us grow MLP distributable cash flow. Thank you very much for listening to our fourth quarter earnings call this morning. Now I'll turn the call back over to Dave Hansen.

Thank you, Albert. Before we begin taking questions I would like to remind you that a replay of this teleconference will be available starting two hours after we conclude the call. We will provide that number again at the end of the call. Operator, we'll now take any questions.

(Operator Instructions)

Our first question comes from [Mark Hake] from Barclays. Your line is open.

Hey, guys, good afternoon.

Good afternoon.

So, two quick questions for you -- the first one is: How does the Company plan to manage its distribution coverage in the context of the planned downtime at Petro 1 this year? Are you guys going to allow coverage to be eaten into a little bit, relative to what you guys did in 2015?

If you think about the outage that we mentioned of the 80 days and the coverage we start with when we get to that second quarter, you'll see it will compress coverage. But very clearly we come back very strong by the end of the year, and get back to a very strong coverage ratio then.

Okay. Sounds good.

And then, could you just remind me how much is left to be spent on the Petro 1 expansion? And how much the Calvert City expansion is going to cost next year?

Well, as we said, we spent $231 million through December, and we said the project would be between $275 million to $335 million. So, you can see that, given that mid-point, we have substantial spending already done, with very little left to do relative to what we've already spent.

Okay. And then, the downtime for Calvert City next year, will that be roughly the same, in terms of what you're seeing with Petro 1 this year?

We haven't given guidance into the numbers of days. It will be shorter, but we'll give guidance as we get a little closer and finish our detailed planning. It will be shorter than the 80 days.

Great, thank you.

Thank you.

You're welcome.

Operator, do we have any more questions?

At this time, I'm showing no questions. This has ended the Q&A session. Are there any closing remarks?

We'd like to thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our first-quarter 2016 results. Have a wonderful day.

Thank you for participating in today's Westlake Chemical Partners fourth-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 March 1, 2016. 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 41990126.