Executive Summary / Key Takeaways

• Westlake Chemical Partners LP offers investors a stable, fee-based cash flow model primarily derived from a take-or-pay ethylene sales agreement covering 95% of its production with parent Westlake Corporation (WLK), significantly mitigating exposure to commodity price volatility.
• First quarter 2025 financial results were temporarily impacted by a planned maintenance turnaround at the Petro 1 facility, leading to lower production volumes, sales, and profitability compared to the prior year, as anticipated by management.
• Despite the temporary impact, the Partnership maintained a strong balance sheet with a consolidated leverage ratio of approximately 1x and continued its track record of consistent quarterly distributions, marking the 43rd consecutive payment.
• Management has guided for no further planned turnarounds in 2025 or 2026, positioning the Partnership for more stable production levels following the completion and ramp-up of the Petro 1 unit.
• Future growth potential is centered on four levers, including increasing ownership in OpCo, acquisitions, organic expansions, and potential margin renegotiation, supported by the predictable cash flow and balance sheet strength.

A Foundation of Stability in the Ethylene Landscape

Westlake Chemical Partners LP was established in March 2014 by Westlake Corporation with a clear mandate: to operate, acquire, and develop ethylene production assets. This Master Limited Partnership (MLP) structure was designed to provide investors with stable, predictable cash flows, a goal largely achieved through its unique relationship with its parent company.

The core of WLKP's business lies in its significant limited partner interest in Westlake Chemical OpCo LP (OpCo), which owns and operates three key ethylene production facilities in Louisiana and Kentucky, along with a crucial ethylene pipeline. Since its initial 10.6% stake acquired during the 2014 IPO, WLKP has strategically increased its ownership in OpCo, reaching an aggregate 22.8% interest following a $201.4 million acquisition in March 2019. Westlake Corporation retains the remaining 77.2% interest in OpCo and maintains control of the Partnership through its general partner interest and a substantial limited partner unit holding.

The fundamental strength of WLKP's model is the long-term, fee-based Ethylene Sales Agreement with Westlake Corporation. This take-or-pay contract covers a significant 95% of OpCo's budgeted ethylene production annually. Pricing under this agreement is structured to be cost-plus, based on OpCo's actual feedstock (primarily ethane and natural gas) and other operating costs, plus a fixed margin of $0.10 per pound, less co-product sales revenue. This structure is explicitly designed to minimize the Partnership's direct exposure to the often-volatile spot market prices for ethylene and its key feedstocks for the vast majority of its production. A smaller portion, approximately 5% of OpCo's production, is sold to third parties, which does expose the Partnership to some commodity price risk, though management notes this is limited.

Operationally, the Partnership's facilities focus on ethane-based cracking, a process known for its cost-effectiveness in the U.S. Gulf Coast region. While specific technological differentiators are not extensively detailed, the company's operations, leveraging the integrated infrastructure and experience through its relationship with Westlake, are noted for achieving competitive efficiency. This includes optimized processes contributing to propylene recovery rates estimated to be 10-15% higher than industry averages and achieving 5-10% better energy efficiency in specific facilities compared to some peers. These operational efficiencies contribute to the cost structure that underpins the fee-based contract. Significant R&D initiatives or new technological developments beyond optimizing existing processes are not highlighted.

In the competitive landscape, WLKP operates alongside major petrochemical players like LyondellBasell (LYB), Dow Inc. (DOW), and Exxon Mobil (XOM). These competitors often possess greater scale, broader product portfolios, and deeper integration, particularly XOM with its energy assets. Companies like DOW also invest heavily in R&D, potentially leading to technological advantages in areas like processing speed and yield. However, WLKP's competitive positioning is fundamentally different. Its strength lies not in scale or diversification, but in the stability provided by the Ethylene Sales Agreement. While larger peers face the full brunt of market price swings for their entire production, WLKP's revenue and cash flow for 95% of its volume are insulated by the fixed-margin contract, offering a unique stability moat. This allows WLKP to focus on reliable operations and cash distribution, differentiating it from the more growth- or market-cycle-dependent strategies of its larger rivals. Despite this, WLKP's smaller scale can lead to disadvantages like potentially higher energy consumption per unit compared to larger, more modern facilities, and its reliance on ethane feedstock and Westlake as a primary customer introduces specific dependencies.

Recent Performance: Navigating a Planned Outage

The first quarter of 2025 provided a clear illustration of the predictable, albeit temporarily impacted, nature of WLKP's business model during a planned operational event. Consolidated net sales decreased by 16.5% to $237.6 million in Q1 2025 from $284.7 million in Q1 2024. This decline was primarily driven by lower ethylene sales volumes to Westlake and lower co-products sales volumes to third parties, a direct consequence of the planned maintenance turnaround at the Petro 1 ethylene unit. Higher ethylene sales prices partially offset the volume impact on revenue.

The turnaround also significantly affected profitability metrics. Gross profit fell to $54.1 million in Q1 2025 from $102.2 million in the prior-year quarter, resulting in a lower gross profit margin of 22.8% compared to 35.9%. This margin compression was attributed not only to the fixed costs spread over lower production volumes but also to higher ethane feedstock and natural gas costs in Q1 2025 compared to Q1 2024. Income from operations similarly decreased by $48.5 million to $46.6 million.

Consolidated net income for the quarter was $42.3 million, down from $89.6 million in Q1 2024. Net income attributable to Westlake Chemical Partners LP, reflecting its 22.8% interest in OpCo's earnings after accounting for the noncontrolling interest, decreased by $9.9 million to $4.9 million. This translated to net income per limited partner unit of $0.14, down from $0.42 in the prior-year period.

MLP distributable cash flow, a key metric for unitholders, also saw a decrease, falling by $12.2 million to $4.7 million in Q1 2025 from $16.9 million in Q1 2024. Management explicitly linked this reduction to decreased earnings at OpCo and higher maintenance capital expenditures incurred due to the Petro 1 turnaround. EBITDA followed a similar trend, decreasing by $49.4 million to $75.0 million.

Despite the temporary dip in profitability and cash flow metrics due to the planned outage, management highlighted that the Q1 2025 performance was consistent with their expectations for a period impacted by a significant turnaround. They noted that the costs associated with the turnaround are included in the price charged to Westlake under the Ethylene Sales Agreement and are reserved for and funded in advance, mitigating the impact on overall cash flow stability over the long term. Full year 2024 results had shown an increase in Partnership net income and distributable cash flow, partly benefiting from higher third-party ethylene sales prices and margins, demonstrating the potential upside from the smaller portion of the business exposed to market dynamics.

Financial Strength and Forward Outlook

Westlake Partners maintains a solid financial position, providing a foundation for its distribution policy and future strategic initiatives. As of March 31, 2025, the Partnership held $154 million in consolidated cash and cash investments with Westlake under an Investment Management Agreement, which provides daily availability and earns a market return plus five basis points.

Long-term debt stood at $400 million, primarily consisting of amounts owed to Westlake affiliates under the OpCo Revolver ($22.6 million) and the MLP Revolver ($377.1 million), both maturing in July 2027. The weighted average interest rate on this debt was 6.2% at quarter-end. The Partnership's consolidated leverage ratio remained conservative at approximately 1x, well within the covenants of its credit facilities.

Cash flows from operating activities in Q1 2025 were $45.8 million, a decrease from $104.6 million in Q1 2024, primarily reflecting the impact of the Petro 1 turnaround and lower income from operations. However, a favorable change in working capital, particularly in accounts payable and accrued liabilities related to turnaround activities, provided a partial offset. Capital expenditures in Q1 2025 were $16 million, also higher due to the turnaround. The Partnership's policy is to distribute most excess cash flow, funding capital expenditures primarily through external sources like borrowings from Westlake or future equity/debt issuances if needed. The MLP Revolver provides $600 million in borrowing capacity for potential future acquisitions, including increasing its OpCo interest, and general partnership purposes.

Looking ahead, management's outlook is anchored by the completion of the Petro 1 turnaround. The unit began its restart on April 12, 2025, and is ramping up production. Crucially, management has stated there are no further planned turnarounds scheduled for 2025 or 2026. This provides a clear runway for more stable production volumes and associated cash flows over the next couple of years, assuming no unplanned outages occur.

The core of the forward outlook remains the predictable cash flow generated by the Ethylene Sales Agreement, which management expects to continue delivering stability regardless of broader economic conditions or trade tensions. This stable base supports the Partnership's ability to maintain its current distribution level, which stands at $0.4714 per unit for Q1 2025, marking the 43rd consecutive quarterly distribution without reduction since the IPO. The Partnership has grown distributions by 71% since its inception and has maintained a cumulative distribution coverage ratio of approximately 1.1 times.

Beyond maintaining the current distribution, the Partnership has outlined four potential levers for future growth: increasing its ownership interest in OpCo, acquiring other qualified income streams, pursuing organic growth opportunities such as facility expansions, and negotiating a higher fixed margin in the Ethylene Sales Agreement with Westlake. While the timing and impact of these initiatives depend on market conditions and opportunities, they represent potential avenues for enhancing long-term value and distributions to unitholders, leveraging the Partnership's stable cash flow and balance sheet strength.

Risks and Considerations

While the fee-based contract provides significant stability, Westlake Chemical Partners is not without risks. The primary customer concentration with Westlake Corporation (accounting for over 80% of net sales) means the Partnership is highly dependent on Westlake's operational health and continued adherence to the Ethylene Sales Agreement. Although the contract has take-or-pay provisions, a severe or prolonged issue impacting Westlake could indirectly affect the Partnership.

Operational risks, including unplanned outages at the ethylene facilities or pipeline disruptions, could temporarily impact production volumes not covered by the minimum commitment, affecting the portion of revenue tied to actual production. While planned turnarounds are budgeted and reserved for, unexpected issues during these periods could lead to higher costs or extended downtime.

The Partnership is exposed to interest rate risk on its variable rate debt. A 100 basis point increase in interest rates would increase annual interest expense by approximately $4.0 million based on current debt levels, which could pressure distributable cash flow if not offset by other factors.

Although largely mitigated for the contracted volume, the small exposure to third-party sales means fluctuations in spot ethylene prices and feedstock costs can still introduce some variability to earnings and cash flow, as seen in the impact of higher feedstock costs in Q1 2025. Global macroeconomic conditions and trade tensions, while buffered by the contract, could still influence overall demand and pricing dynamics in the broader market, potentially affecting the 5% third-party sales volume and future growth opportunities.

Finally, as an MLP, the Partnership's ability to execute its growth levers, particularly acquisitions funded by equity issuances, is subject to capital market conditions and investor appetite for MLP units.

Conclusion

Westlake Chemical Partners LP presents a compelling investment case built on a foundation of cash flow stability and predictability, largely insulated from the typical volatility of the petrochemical industry by its long-term, fixed-margin contract with Westlake Corporation. While the first quarter of 2025 demonstrated the temporary impact of planned maintenance turnarounds on production and financial results, this was an expected event, and the underlying business model performed as designed, providing a stable base.

With the Petro 1 turnaround successfully completed and no further planned turnarounds scheduled through 2026, the Partnership is positioned for a period of more consistent operational performance. The strong balance sheet and conservative leverage provide financial flexibility. For investors seeking reliable income, WLKP's history of consistent distributions, supported by its unique contractual structure and operational efficiency in its asset base, remains a key attraction. While risks related to customer concentration, operational events, and interest rates exist, the core investment thesis centered on stable, fee-based cash flows appears robust, with potential upside from the identified growth levers in the future.