Executive Summary / Key Takeaways

• Westlake Chemical Partners LP (WLKP) offers investors a compelling thesis rooted in predictable, fee-based cash flows, primarily driven by its long-term Ethylene Sales Agreement with parent company Westlake Corporation (WLK), which covers 95% of its ethylene production.
• The recent renewal of the Ethylene Sales Agreement through December 31, 2027, with unchanged terms, reinforces the Partnership's stable revenue stream and commitment to consistent unitholder distributions.
• Despite a challenging global macroeconomic backdrop and a planned turnaround at its Petro 1 facility in early 2025, WLKP demonstrated resilience, with the Ethylene Sales Agreement's protective provisions, including buyer deficiency fees, mitigating financial impact.
• The Partnership maintains a strong balance sheet with a consolidated leverage ratio of approximately 1x and a historical cumulative distribution coverage ratio of 1.1x, supporting its 45 consecutive quarterly distributions.
• While WLKP's focused operational model provides stability, its growth trajectory and scale may lag behind larger, more diversified chemical industry competitors like LyondellBasell Industries and Dow Inc. , necessitating a focus on its "four levers of growth" for future expansion.

A Foundation of Stability: Westlake Chemical Partners' Enduring Model

Westlake Chemical Partners LP (WLKP) stands as a unique entity within the dynamic petrochemical landscape, structured as a Delaware limited partnership primarily focused on the operation and development of ethylene production facilities and related assets in the United States. Established in March 2014, the Partnership's core investment thesis is built upon a foundation of predictable, fee-based cash flows, largely insulated from the inherent volatility of commodity markets. This stability is primarily derived from a long-term Ethylene Sales Agreement with its parent, Westlake Corporation (WLK), which commits WLK to purchase 95% of OpCo's (Westlake Chemical OpCo LP) budgeted ethylene production.

OpCo, the Partnership's sole operating segment, owns three critical ethylene production facilities—Petro 1 and Petro 2 in Lake Charles, Louisiana, and Calvert City Olefins in Calvert City, Kentucky—along with a 200-mile common carrier ethylene pipeline. The Partnership holds a 22.80% limited partner interest in OpCo and consolidates its financial results, while Westlake Corporation retains the remaining 77.20% limited partner interest. This contractual arrangement, which includes variable pricing based on OpCo's feedstock and natural gas costs, estimated operating costs, and a five-year average of maintenance capital and turnaround expenditures, plus a fixed margin of $0.10 per pound, is the bedrock of WLKP's consistent financial performance.

The strategic importance of this agreement was recently underscored by its renewal on October 28, 2025, through December 31, 2027, with no changes to its core terms or conditions. This renewal, along with amendments to the Services and Secondment Agreement and the Omnibus Agreement, demonstrates Westlake Corporation's commitment to OpCo's operations and the critical nature of OpCo's ethylene supply to its broader chemical enterprise. This contractual stability is WLKP's primary differentiator, providing a predictable revenue stream that minimizes exposure to market fluctuations and production risks, a stark contrast to the more cyclical nature of the broader chemical industry.

Competitive Landscape and Operational Edge

In the competitive arena, WLKP operates as a specialized player, distinct from the global giants that dominate the broader chemical sector. Direct competitors include diversified chemical companies like LyondellBasell Industries (LYB), Dow Inc. (DOW), and the chemical division of ExxonMobil Corporation (XOM), as well as its parent, Westlake Corporation (WLK). These larger entities typically boast extensive global footprints, broader product portfolios, and significant investments in research and development.

WLKP's competitive advantage does not stem from proprietary technological breakthroughs in ethylene production, as the company does not detail specific technological differentiators or R&D initiatives beyond general operational efficiency and reliability of its facilities. Instead, its core "technological differentiation" lies in the strategic structuring of its business model: a highly reliable, fee-based operational framework that ensures consistent utilization of its assets and predictable cash flows. This model effectively mitigates the direct commodity price risk to approximately 5% of its total ethylene production, which is sold to third parties. The remaining indirect exposure is substantially offset by the cost-plus pricing mechanism within the Ethylene Sales Agreement.

While larger competitors like LYB and DOW may exhibit higher revenue growth and potentially superior profitability margins due to their diversified income streams and scale, WLKP's focused operational model and contractual stability provide a qualitatively stronger cash flow generation profile, particularly in stable market conditions. For instance, WLKP's dividend yield, at 10.19% on a trailing twelve-month basis, reflects its commitment to unitholder distributions, a characteristic that differentiates it from many of its larger, more growth-oriented peers. Its debt-to-equity ratio of 0.79 also indicates a conservative financial posture compared to some industry players.

However, WLKP's limited scale and reliance on ethane as a primary feedstock expose it to energy price dependencies, though largely mitigated by its contractual structure. Broader industry trends, such as the increasing power demands from AI and data centers, could indirectly influence energy costs across the sector, potentially impacting all players, including WLKP. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, WLKP's strong performance in its specialized segment suggests a robust, albeit focused, market position.

Financial Performance and Liquidity: A Story of Resilience

The Partnership's financial performance in 2025 has been a testament to the resilience embedded in its business model, even amidst operational challenges. For the nine months ended September 30, 2025, net income attributable to the Partnership decreased to $34.2 million, down from $47.4 million in the prior-year period. This decline was primarily attributed to lower ethylene and co-products sales volumes to both Westlake and third parties, a direct consequence of the planned turnaround at the Petro 1 ethylene unit. The turnaround, which commenced in late January 2025 and extended into April 2025, also led to higher maintenance capital expenditures.

Consolidated net sales for the nine-month period remained relatively stable at $843.6 million, a marginal decrease of 0.3% from $845.8 million in the same period of 2024, supported by higher ethylene sales prices to Westlake and third parties.

In the third quarter of 2025, following the completion of the Petro 1 turnaround, the Partnership began to see a recovery. Net income attributable to the Partnership was $14.7 million, a decrease from $18.1 million in the third quarter of 2024, partially due to lower margins on third-party ethylene sales. However, consolidated net sales for the quarter increased by 11.5% to $308.9 million, driven by higher ethylene sales prices and volumes to Westlake, partially offset by lower third-party sales. Gross profit margins, however, saw a contraction, decreasing to 32.2% in Q3 2025 from 42.2% in Q3 2024, primarily due to higher ethane feedstock and natural gas costs.

MLP distributable cash flow (DCF) for the third quarter of 2025 was $14.9 million, a decrease of $3 million from the prior year, largely due to decreased earnings at OpCo and higher maintenance capital expenditures. For the nine months, DCF decreased by $17.3 million to $34.6 million for similar reasons. Management acknowledged that the quarterly DCF dipped below the distribution per unit during the turnaround period, but emphasized that this was expected and that the robust operating surplus would cover distributions, with a full recovery anticipated now that the plant is back in full production. The Partnership has a strong track record, having made 45 consecutive quarterly distributions since its IPO in 2014, with a cumulative distribution coverage ratio of approximately 1.1x.

Liquidity remains robust, with consolidated cash and cash investments totaling $51 million as of September 30, 2025. Long-term debt stood at $400 million, with a conservative consolidated leverage ratio of approximately 1x. The OpCo Revolver and MLP Revolver, both maturing in July 2027, provide additional financial flexibility, bearing variable interest rates tied to SOFR. Capital expenditures for the nine months ended September 30, 2025, increased to $70 million, primarily due to the Petro 1 turnaround.

Outlook and Strategic Pathways

Looking ahead, Westlake Chemical Partners benefits from a clear operational roadmap and strategic stability. Management has provided concrete guidance, stating there are no planned turnarounds for the remainder of 2025 or in 2026. This absence of major maintenance events is expected to allow for sustained production levels and a recovery in distributable cash flow and distribution coverage. The Petro 1 unit, having successfully completed its turnaround in Q2 2025, is now running reliably and ramping up to meet market demand. Management anticipates that the operating surplus will continue to build, ensuring distributions remain well covered by the business's cash flows.

Despite a soft global industrial and manufacturing environment in 2025, the Partnership's financial performance and distributions are expected to remain stable, underpinned by the predictable, fee-based cash flow structure of the Ethylene Sales Agreement. Furthermore, third-party ethylene sales prices and margins have been at relatively favorable levels in 2025, which is expected to positively impact financial performance.

The Partnership continues to explore growth opportunities through its "four levers of growth": increasing its ownership interest in OpCo, acquiring other qualified income streams, pursuing organic growth opportunities (such as expanding current ethylene facilities), and negotiating a higher fixed margin in its Ethylene Sales Agreement with Westlake. While these avenues are continuously evaluated, the immediate pursuit of capital-raising through these levers is influenced by Westlake Corporation's current capital needs and market conditions. Management believes the MLP structure continues to provide value to Westlake from a multiple perspective, offsetting administrative costs.

Risks and Considerations

While WLKP's business model offers significant stability, investors should be aware of several key risks. The Partnership's direct exposure to commodity price risk is limited, but it remains susceptible to interest rate risk due to its variable rate debt. A hypothetical 100 basis point increase in the average interest rate on its variable rate debt would increase annual interest expense by approximately $4 million.

Furthermore, the Partnership operates in a highly regulated industry and is subject to various environmental laws and regulations. Although Westlake indemnifies the Partnership for certain pre-2014 environmental liabilities and those incurred from Westlake's services, the industrial history of its production sites means that unforeseen environmental liabilities could arise. The concentration of sales to Westlake Corporation, which accounted for approximately 89.50% of net sales in Q3 2025, also represents a significant customer concentration risk, though mitigated by the long-term contractual agreement.

Conclusion

Westlake Chemical Partners LP presents a compelling investment case for those seeking stable, income-generating assets within the chemicals sector. Its unique MLP structure, underpinned by a robust, fee-based Ethylene Sales Agreement with Westlake Corporation, provides a high degree of cash flow predictability and insulation from commodity market volatility. The recent renewal of this critical agreement, coupled with the successful completion of the Petro 1 turnaround and a clear outlook of no further planned turnarounds in the near term, positions WLKP for continued operational and financial stability.

While the Partnership's growth trajectory may be more measured compared to its larger, more diversified chemical industry peers, its consistent distribution history, conservative leverage, and strategic focus on optimizing its core assets offer a distinct value proposition. Investors should monitor global macroeconomic conditions, energy price trends, and the execution of WLKP's "four levers of growth" as the Partnership seeks to enhance unitholder value in the coming years. The enduring strength of its contractual relationships and operational reliability remain the cornerstones of its investment appeal.