Westlake Chemical Partners LP 10-Q

Item 1. Financial Statements WESTLAKE CHEMICAL PARTNERS LP CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 2020 December 31, 2019 (in thousands of dollars, except unit amounts) ASSETS Current assets Cash and cash equivalents $ 23,331 $ 19,923 Receivable under the Investment Management Agreement—Westlake Chemical Corporation ("Westlake") 191,241 162,773 Accounts receivable, net—Westlake 56,237 42,847 Accounts receivable, net—third parties 5,144 9,914 Inventories 1,652 2,484 Prepaid expenses and other current assets 557 470 Total current assets 278,162 238,411 Property, plant and equipment, net 1,060,840 1,102,995 Goodwill 5,814 5,814 Deferred charges and other assets, net 37,466 46,236 Total assets $ 1,382,282 $ 1,393,456 LIABILITIES Current liabilities Accounts payable—Westlake $ 17,923 $ 15,201 Accounts payable—third parties 6,816 6,141 Accrued and other liabilities 16,955 17,507 Total current liabilities 41,694 38,849 Long-term debt payable to Westlake 399,674 399,674 Deferred income taxes 1,527 1,649 Other liabilities 555 1,149 Total liabilities 443,450 441,321 Commitments and contingencies (Note 13) EQUITY Common unitholders—publicly and privately held (21,072,315 and 21,072,315 units issued and outstanding at September 30, 2020 and December 31, 2019, respectively) 472,556 471,736 Common unitholder—Westlake (14,122,230 and 14,122,230 units issued and outstanding at September 30, 2020 and December 31, 2019, respectively) 48,900 48,350 General partner—Westlake ( 242,572 ) ( 242,572 ) Total Westlake Chemical Partners LP partners' capital 278,884 277,514 Noncontrolling interest in Westlake Chemical OpCo LP ("OpCo") 659,948 674,621 Total equity 938,832 952,135 Total liabilities and equity $ 1,382,282 $ 1,393,456 The accompanying notes are an integral part of the consolidated financial statements. 1 Table of Contents WESTLAKE CHEMICAL PARTNERS LP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands of dollars, except unit amounts and per unit data) Revenue Net sales—Westlake $ 217,763 $ 216,678 $ 660,022 $ 703,765 Net co-product, ethylene and other sales—third parties 14,206 33,247 60,996 115,308 Total net sales 231,969 249,925 721,018 819,073 Cost of sales 131,578 156,706 427,049 543,242 Gross profit 100,391 93,219 293,969 275,831 Selling, general and administrative expenses 6,255 6,822 18,590 21,434 Income from operations 94,136 86,397 275,379 254,397 Other income (expense) Interest expense—Westlake ( 2,320 ) ( 4,411 ) ( 9,701 ) ( 15,436 ) Other income, net 17 565 725 2,533 Income before income taxes 91,833 82,551 266,403 241,494 Income tax provision (benefit) ( 15 ) 72 408 509 Net income 91,848 82,479 265,995 240,985 Less: Net income attributable to noncontrolling interest in OpCo 73,313 67,557 214,853 197,375 Net income attributable to Westlake Chemical Partners LP and limited partners' interest in net income $ 18,535 $ 14,922 $ 51,142 $ 43,610 Net income per limited partner unit attributable to Westlake Chemical Partners LP per limited partner unit (basic and diluted) Common units $ 0.53 $ 0.42 $ 1.45 $ 1.27 Weighted average limited partner units outstanding (basic and diluted) Common units—publicly and privately held 21,072,315 21,065,959 21,072,315 20,128,775 Common units—Westlake 14,122,230 14,122,230 14,122,230 14,122,230 The accompanying notes are an integral part of the consolidated financial statements. 2 Table of Contents WESTLAKE CHEMICAL PARTNERS LP CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) Partnership Common Unitholders — Public and Privately Held Common Unitholder — Westlake General Partner — Westlake Noncontrolling Interests in OpCo Total (in thousands of dollars) Balance at December 31, 2019 $ 471,736 $ 48,350 $ ( 242,572 ) $ 674,621 $ 952,135 Net income 10,626 7,121 — 76,023 93,770 Quarterly distribution to unitholders ( 9,934 ) ( 6,657 ) — — ( 16,591 ) Quarterly distribution to noncontrolling interest retained in OpCo by Westlake — — — ( 79,223 ) ( 79,223 ) Balance at March 31, 2020 $ 472,428 $ 48,814 $ ( 242,572 ) $ 671,421 $ 950,091 Net income 8,897 5,963 — 65,517 80,377 Quarterly distribution to unitholders ( 9,933 ) ( 6,657 ) — — ( 16,590 ) Quarterly distribution to noncontrolling interest retained in OpCo by Westlake — — — ( 78,025 ) ( 78,025 ) Balance at June 30, 2020 $ 471,392 $ 48,120 $ ( 242,572 ) $ 658,913 $ 935,853 Net income 11,098 7,437 — 73,313 91,848 Quarterly distribution to unitholders ( 9,934 ) ( 6,657 ) — — ( 16,591 ) Quarterly distribution to noncontrolling interest retained in OpCo by Westlake — — — ( 72,278 ) ( 72,278 ) Balance at September 30, 2020 $ 472,556 $ 48,900 $ ( 242,572 ) $ 659,948 $ 938,832 The accompanying notes are an integral part of the consolidated financial statements. 3 Table of Contents Partnership Common Unitholders— Public and Privately Held Common Unitholder— Westlake General Partner— Westlake Noncontrolling Interests in OpCo Total (in thousands of dollars) Balance at December 31, 2018 $ 409,608 $ 48,774 $ ( 242,572 ) $ 718,271 $ 934,081 Net income 8,422 6,533 — 63,441 78,396 Net proceeds from private placement of common units 62,934 — — — 62,934 Quarterly distribution to unitholders ( 7,845 ) ( 6,112 ) — — ( 13,957 ) Quarterly distribution to noncontrolling interest retained in OpCo by Westlake — — — ( 81,507 ) ( 81,507 ) Balance at March 31, 2019 $ 473,119 $ 49,195 $ ( 242,572 ) $ 700,205 $ 979,947 Net income 8,222 5,511 — 66,377 80,110 Offering costs related to private placement of common units ( 18 ) — — — ( 18 ) Quarterly distributions to unitholders ( 9,379 ) ( 6,287 ) — — ( 15,666 ) Quarterly distribution to noncontrolling interest retained in OpCo by Westlake — — — ( 72,259 ) ( 72,259 ) Balance at June 30, 2019 $ 471,944 $ 48,419 $ ( 242,572 ) $ 694,323 $ 972,114 Net income 8,934 5,988 — 67,557 82,479 Offering costs related to private placement of common units ( 255 ) — — — ( 255 ) Quarterly distributions to unitholders ( 9,646 ) ( 6,467 ) — — ( 16,113 ) Quarterly distribution to noncontrolling interest retained in OpCo by Westlake — — — ( 75,494 ) ( 75,494 ) Balance at September 30, 2019 $ 470,977 $ 47,940 $ ( 242,572 ) $ 686,386 $ 962,731 The accompanying notes are an integral part of the consolidated financial statements. 4 Table of Contents WESTLAKE CHEMICAL PARTNERS LP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2020 2019 (in thousands of dollars) Cash flows from operating activities Net income $ 265,995 $ 240,985 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 77,767 80,382 Loss from disposition of property, plant and equipment 1,000 458 Other gains, net ( 522 ) ( 819 ) Changes in operating assets and liabilities Accounts receivable—third parties 5,170 2,647 Net accounts receivable—Westlake ( 10,136 ) 8,217 Inventories 832 ( 88 ) Prepaid expenses and other current assets ( 87 ) ( 189 ) Accounts payable 711 ( 662 ) Accrued and other liabilities 1,398 4,869 Other, net ( 1,252 ) ( 646 ) Net cash provided by operating activities 340,876 335,154 Cash flows from investing activities Additions to property, plant and equipment ( 29,170 ) ( 30,028 ) Maturities of investments with Westlake under the Investment Management Agreement 276,000 405,445 Investments with Westlake under the Investment Management Agreement ( 305,000 ) ( 421,445 ) Other — 46 Net cash used for investing activities ( 58,170 ) ( 45,982 ) Cash flows from financing activities Net proceeds from private placement of common units — 62,661 Proceeds from debt payable to Westlake — 123,511 Repayment of debt payable to Westlake — ( 201,445 ) Quarterly distributions to noncontrolling interest retained in OpCo by Westlake ( 229,526 ) ( 229,260 ) Quarterly distributions to unitholders ( 49,772 ) ( 45,736 ) Net cash used for financing activities ( 279,298 ) ( 290,269 ) Net increase (decrease) in cash and cash equivalents 3,408 ( 1,097 ) Cash and cash equivalents at beginning of period 19,923 19,744 Cash and cash equivalents at end of period $ 23,331 $ 18,647 The accompanying notes are an integral part of the consolidated financial statements. 5 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) 1. Description of Business and Basis of Presentation Description of Business Westlake Chemical Partners LP (the "Partnership") is a Delaware limited partnership formed in March 2014 to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, the Partnership completed its initial public offering (the "IPO") of 12,937,500 common units representing limited partner interests. In connection with the IPO, the Partnership acquired a 10.6 % limited partner interest in Westlake Chemical OpCo LP ("OpCo") and a 100 % interest in Westlake Chemical OpCo GP LLC ("OpCo GP"), which is the general partner of OpCo. OpCo owns three ethylene production facilities and one common carrier ethylene pipeline. Since the IPO, the Partnership has periodically purchased additional limited partner interest in OpCo. Most recently, on March 29, 2019, the Partnership purchased an additional 4.5 % newly-issued limited partner interest in OpCo for approximately $ 201,445 , resulting in an aggregate 22.8 % limited partner interest in OpCo, effective January 1, 2019. The remaining 77.2 % limited partner interest in OpCo is owned by Westlake Chemical Corporation. Basis of Presentation The accompanying unaudited consolidated interim financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim periods. Accordingly, certain information and footnotes required for complete financial statements under generally accepted accounting principles in the United States ("U.S. GAAP") have not been included. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Partnership included in the annual report on Form 10-K for the fiscal year ended December 31, 2019 (the " 2019 Form 10-K"), filed with the SEC on February 28, 2020 . These financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the notes to the consolidated financial statements of the Partnership for the fiscal year ended December 31, 2019 with the exceptions of those accounting standards adopted in 2020 as discussed in Note 1 . References to "Westlake" refer collectively to Westlake Chemical Corporation and its subsidiaries, other than the Partnership, OpCo and OpCo GP. The Partnership holds a 22.8 % limited partner interest and the entire non-economic general partner interest in OpCo. The remaining 77.2 % limited partner interest in OpCo is owned directly by Westlake, which has no rights to direct the activities that most significantly impact the economic performance of OpCo. As a result of the fact that substantially all of OpCo's activities are conducted on behalf of Westlake, and the fact that OpCo exhibits disproportionality of voting rights to economic interest, OpCo was deemed to be a variable interest entity. The Partnership, through its ownership of OpCo's general partner, has the power to direct the activities that most significantly impact the economic performance of OpCo, and it also has the obligation or right to absorb losses or receive benefits from OpCo that could potentially be significant to OpCo. As such, the Partnership was determined to be OpCo's primary beneficiary and therefore consolidates OpCo's results of operations and financial position. Westlake's retained interest of 77.2 % is recorded as noncontrolling interest in the Partnership's consolidated financial statements. In the opinion of the Partnership's management, the accompanying unaudited consolidated interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Partnership's financial position as of September 30, 2020 , its results of operations for the three and nine months ended September 30, 2020 and 2019 and the changes in its cash position for the nine months ended September 30, 2020 and 2019 . Results of operations and changes in cash position for the interim periods presented are not necessarily indicative of the results that will be realized for the fiscal year ending December 31, 2020 or any other interim period. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates. 6 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) On March 11, 2020, the World Health Organization declared the ongoing coronavirus (COVID-19) outbreak a pandemic and recommended containment and mitigation measures worldwide. The pandemic has resulted in widespread adverse impacts on the global economy and on our employees, customers and suppliers. The Partnership did not experience significant disruptions to its business operations in the nine months ended September 30, 2020 and does not expect significant disruptions to its business operations resulting from COVID-19. However, the impact that COVID-19 will have on the Partnership's financial condition, results of operations and cash flows cannot be estimated with certainty at this time as it will depend on future developments, including, among others, the ultimate duration, geographic spread and severity of the virus, the actions to contain the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the impact on the operation of OpCo facilities, Westlake, customers, suppliers and other third parties and the timing and extent to which normal economic and operating conditions resume. Recent Accounting Pronouncements Reference Rate Reform (ASU No. 2020-04) In March 2020, the FASB issued an accounting standards update to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Partnership is in the process of evaluating the impact that the new accounting guidance will have on the Partnership's consolidated financial position, results of operations and cash flows. Recently Adopted Accounting Standards Credit Losses (ASU No. 2016-13) In June 2016, the FASB issued an accounting standards update providing new guidance for the accounting for credit losses on loans and other financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on trade receivables and certain types of financial instruments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The accounting standard became effective for reporting periods beginning after December 15, 2019 and did not have a material impact on the Partnership's consolidated financial position, results of operations and cash flows. Fair Value Measurement (ASU No. 2018-13) In August 2018, the FASB issued an accounting standards update to modify the disclosure requirements on fair value measurements. The amendments became effective for reporting periods beginning after December 15, 2019. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date. Most amendments should be applied retrospectively but certain amendments should be applied prospectively. The Partnership adopted this accounting standard effective January 1, 2020 and the adoption did not have a material impact on the Partnership's consolidated financial position, results of operations and cash flows. 2. Accounts Receivable—Third Parties Accounts receivable—third parties consist of the following: September 30, 2020 December 31, 2019 Trade customers $ 5,220 $ 9,730 Allowance for credit losses ( 76 ) ( 476 ) 5,144 9,254 Other receivables — 660 Accounts receivable, net—third parties $ 5,144 $ 9,914 7 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) 3. Inventories Inventories consist of the following: September 30, 2020 December 31, 2019 Finished products $ 1,174 $ 2,154 Feedstock, additives and chemicals 478 330 Inventories $ 1,652 $ 2,484 4. Property, Plant and Equipment Depreciation expense on property, plant and equipment of $ 22,913 and $ 22,313 is included in cost of sales in the consolidated statements of operations for the three months ended September 30, 2020 and 2019 , respectively. Depreciation expense on property, plant and equipment of $ 68,380 and $ 66,754 is included in cost of sales in the consolidated statements of operations for the nine months ended September 30, 2020 and 2019 , respectively. 5. Deferred Charges and Other Assets Amortization expense on other assets of $ 3,010 and $ 4,368 is included in costs of sales in the consolidated statements of operations for the three months ended September 30, 2020 and 2019 , respectively. Amortization expense on other assets of $ 9,387 and $ 13,628 is included in costs of sales in the consolidated statements of operations for the nine months ended September 30, 2020 and 2019 , respectively. 6. Distributions and Net Income Per Limited Partner Unit On October 30, 2020 , the board of directors of Westlake Chemical Partners GP LLC ("Westlake GP"), the Partnership's general partner, declared a quarterly cash distribution for the three months ended September 30, 2020 of $ 0.4714 per unit. This distribution is payable on November 24, 2020 to the unitholders of record as of November 9, 2020 . Distributions are declared subsequent to quarter end; therefore, the table below represents total cash distributions declared from earnings of the related periods pertaining to such distributions. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income attributable to the Partnership $ 18,535 $ 14,922 $ 51,142 $ 43,610 Less: Limited partners' distribution declared on common units 16,591 16,348 49,772 48,127 Net income in excess of distribution (distribution in excess of net income) $ 1,944 $ ( 1,426 ) $ 1,370 $ ( 4,517 ) Net income per unit applicable to common limited partner units is computed by dividing the respective limited partners' interest in net income by the weighted-average number of common units outstanding for the period. Because the Partnership has more than one class of participating securities, it uses the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units and incentive distribution rights. Net income attributable to the Partnership is allocated to the unitholders in accordance with their respective ownership percentages in preparation of the consolidated statements of changes in equity. However, when distributions related to the incentive distribution rights are made, net income equal to the amount of those distributions is first allocated to the general partner before the remaining net income is allocated to the unitholders based on their respective ownership percentages. Basic and diluted net income per unit is the same because the Partnership does not have any potentially dilutive units outstanding for the periods presented. 8 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) Three Months Ended September 30, 2020 Limited Partners' Common Units Incentive Distribution Rights Total Net income attributable to the Partnership: Distribution $ 16,591 $ — $ 16,591 Net income in excess of distribution 1,944 — 1,944 Net income $ 18,535 $ — $ 18,535 Weighted average units outstanding: Basic and diluted 35,194,545 35,194,545 Net income per limited partner unit: Basic and diluted $ 0.53 Three Months Ended September 30, 2019 Limited Partners' Common Units Incentive Distribution Rights Total Net income attributable to the Partnership: Distribution $ 16,348 $ — $ 16,348 Distribution in excess of net income ( 1,426 ) — ( 1,426 ) Net income $ 14,922 $ — $ 14,922 Weighted average units outstanding: Basic and diluted 35,188,189 35,188,189 Net income per limited partner unit: Basic and diluted $ 0.42 Nine Months Ended September 30, 2020 Limited Partners' Common Units Incentive Distribution Rights Total Net income attributable to the Partnership: Distribution $ 49,772 $ — $ 49,772 Net income in excess of distribution 1,370 — 1,370 Net income $ 51,142 $ — $ 51,142 Weighted average units outstanding: Basic and diluted 35,194,545 35,194,545 Net income per limited partner unit: Basic and diluted $ 1.45 9 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) Nine Months Ended September 30, 2019 Limited Partners' Common Units Incentive Distribution Rights Total Net income attributable to the Partnership: Distribution $ 48,127 $ — $ 48,127 Distribution in excess of net income ( 4,517 ) — ( 4,517 ) Net income $ 43,610 $ — $ 43,610 Weighted average units outstanding: Basic and diluted 34,251,005 34,251,005 Net income per limited partner unit: Basic and diluted $ 1.27 The amended Partnership Agreement provides that the Partnership will distribute cash each quarter to all the unitholders, pro rata, until each unit has received a distribution of $ 1.2938 . If cash distributions to the Partnership's unitholders exceed $ 1.2938 per common unit in any quarter, the Partnership's unitholders and Westlake, as the holder of the Partnership's incentive distribution rights, will receive distributions according to the following percentage allocations: Marginal Percentage Interest in Distributions Total Quarterly Distribution Per Unit Unitholders IDR Holders Above $1.2938 up to $1.4063 85.0 % 15.0 % Above $1.4063 up to $1.6875 75.0 % 25.0 % Above $1.6875 50.0 % 50.0 % The Partnership's distribution for the three months ended September 30, 2020 did not exceed the $ 1.2938 per unit threshold, and, as a result, no distribution was made with respect to the Partnership's incentive distribution rights to Westlake, as the holder of the Partnership's incentive distribution rights. Distribution Per Common Unit Distributions per common unit for the three and nine months ended September 30, 2020 and 2019 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Distributions per common unit $ 0.4714 $ 0.4579 $ 1.4142 $ 1.3359 7. Partners' Equity On October 4, 2018, the Partnership and Westlake GP, the general partner of the Partnership, entered into an Equity Distribution Agreement with UBS Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBC Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC to offer and sell the Partnership's common units, from time to time, up to an aggregate offering amount of $ 50,000 . The Equity Distribution Agreement was amended on February 28, 2020 to reference a new shelf registration for utilization under this agreement. No common units were issued under this program as of September 30, 2020 . On March 29, 2019, the Partnership completed the issuance and sale of 2,940,818 common units at a price of $ 21.40 per unit through a private placement. Net proceeds to the Partnership from the sale of the units were approximately $ 62,934 . TTWF LP, Westlake's principal stockholder and a related party, acquired 1,401,869 common units out of 2,940,818 common units issued in the private placement. 10 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) 8. Related Party Transactions The Partnership and OpCo regularly enter into related party transactions with Westlake. See below for a description of transactions with related parties. Sales to Related Parties OpCo sells ethylene to Westlake under the Ethylene Sales Agreement. Additionally, the Partnership and OpCo from time to time provide other services or products for which it charges Westlake a fee. Sales to related parties were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net sales—Westlake $ 217,763 $ 216,678 $ 660,022 $ 703,765 During the third quarter of 2020, the Lake Charles Petro 1 and Petro 2 facilities were impacted by Hurricane Laura, which resulted in a force majeure event under the Ethylene Sales Agreement. As a result of the force majeure event, the Partnership recognized a buyer deficiency fee of $ 41,329 as a component of net sales in the quarter ended September 30, 2020, representing fixed margin and unavoided operating and maintenance capital expenditures and maintenance expenses per pound of volume committed by Westlake during the force majeure event. Payment for the buyer deficiency fee is scheduled to be received by the Partnership after the conclusion of the year. Cost of Sales from Related Parties Charges for goods and services purchased by the Partnership and OpCo from Westlake and included in cost of sales relate primarily to feedstock purchased under the Feedstock Supply Agreement and services provided under the Services and Secondment Agreement. Charges from related parties in cost of sales were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Feedstock purchased from Westlake and included in cost of sales $ 60,646 $ 73,813 $ 189,608 $ 285,567 Other charges from Westlake and included in cost of sales 23,166 25,990 71,164 81,026 Total $ 83,812 $ 99,803 $ 260,772 $ 366,593 11 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) Services from Related Parties Included in Selling, General and Administrative Expenses Charges for services purchased by the Partnership from Westlake and included in selling, general and administrative expenses primarily relate to services Westlake performs on behalf of the Partnership under the Omnibus Agreement, including the Partnership's finance, legal, information technology, human resources, communication, ethics and compliance and other administrative functions. Charges from related parties included within selling, general and administrative expenses were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Services received from Westlake and included in selling, general and administrative expenses $ 5,679 $ 6,808 $ 16,492 $ 19,875 Goods and Services from Related Parties Capitalized as Assets Charges for goods and services purchased by the Partnership and OpCo from Westlake which were capitalized as assets relate primarily to the services of Westlake employees under the Services and Secondment Agreement. Charges from related parties for goods and services capitalized as assets were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Goods and services purchased from Westlake and capitalized as assets $ 404 $ 634 $ 1,268 $ 1,918 Receivable under the Investment Management Agreement On August 1, 2017, the Partnership, OpCo and Westlake executed an investment management agreement (the "Investment Management Agreement") that authorized Westlake to invest the Partnership and OpCo's excess cash with Westlake for a term of up to a maximum of nine months. Per the terms of the Investment Management Agreement, the Partnership earns a market return plus five basis points and Westlake provides daily availability of the invested cash to meet any liquidity needs of the Partnership or OpCo. Accrued interest of $ 69 and $ 601 was included in the receivable under the Investment Management Agreement balance at September 30, 2020 and December 31, 2019 , respectively. Total interest earned related to the Investment Management Agreement was $ 69 and $ 716 for the three months ended September 30, 2020 and 2019 , respectively, and $ 876 and $ 2,688 for the nine months ended September 30, 2020 and 2019 , respectively. The Partnership's receivable under the Investment Management Agreement was as follows: September 30, 2020 December 31, 2019 Receivable under the Investment Management Agreement $ 191,241 $ 162,773 12 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) Accounts Receivable from Related Parties The Partnership's accounts receivable from Westlake result primarily from ethylene sales to Westlake and the buyer deficiency fee recognized under the Ethylene Sales Agreement, as discussed above under "Sales to Related Parties." The Partnership's accounts receivable from Westlake were as follows: September 30, 2020 December 31, 2019 Accounts receivable—Westlake $ 56,237 $ 42,847 Accounts Payable to Related Parties The Partnership's accounts payable to Westlake result primarily from feedstock purchases under the Feedstock Supply Agreement and services provided under the Services and Secondment Agreement and the Omnibus Agreement. The related party accounts payable balances were as follows: September 30, 2020 December 31, 2019 Accounts payable—Westlake $ 17,923 $ 15,201 Related Party Leases OpCo is obligated to Westlake under various long-term and short-term noncancelable operating leases, primarily related to rail car leases and land. Operating lease rentals paid to Westlake for such leases were $ 407 and $ 597 for the three months ended September 30, 2020 and 2019 , respectively, and $ 1,803 and $ 1,673 for the nine months ended September 30, 2020 and 2019 , respectively, and reflected in other charges from Westlake that are included in cost of sales. OpCo has two site lease agreements with Westlake, each of which has a term of 50 years. Pursuant to the site lease agreements, OpCo pays Westlake one dollar per site per year. Debt Payable to Related Parties See Note 9 for a description of related party debt payable balances. Interest on related party debt payable balances for the three months ended September 30, 2020 and 2019 was $ 2,320 and $ 4,411 , respectively. Interest on related party debt payable balances for the nine months ended September 30, 2020 and 2019 was $ 9,701 and $ 15,436 , respectively. Interest on related party debt payable is presented as interest expense—Westlake in the consolidated statements of operations. At September 30, 2020 and December 31, 2019 , accrued interest on related party debt was $ 2,320 and $ 4,187 , respectively, and is reflected as a component of accrued liabilities in the consolidated balance sheets. Debt payable to related parties was as follows: September 30, 2020 December 31, 2019 Long-term debt payable to Westlake $ 399,674 $ 399,674 Major Customer and Concentration of Credit Risk During the three months ended September 30, 2020 and 2019 , Westlake accounted for approximately 93.9 % and 86.7 % , respectively, of the Partnership's net sales. During the nine months ended September 30, 2020 and 2019 , Westlake accounted for approximately 91.5 % and 85.9 % , respectively, of the Partnership's net sales. Other See Note 7 above for an additional related party transaction. 13 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) 9. Long-term Debt Payable to Westlake Long-term debt payable to Westlake consists of the following: September 30, 2020 December 31, 2019 OpCo Revolver (variable interest rate of London Interbank Offered Rate ("LIBOR") plus 2.0%, scheduled maturity of September 25, 2023) $ 22,619 $ 22,619 MLP Revolver (variable interest rate of LIBOR plus 2.0%, scheduled maturity of March 19, 2023) 377,055 377,055 $ 399,674 $ 399,674 On April 30, 2019, the Partnership repaid $ 201,445 of borrowings under the OpCo Revolver. On March 29, 2019, the Partnership borrowed $ 123,511 under the MLP Revolver to partially fund the purchase of the additional 4.5 % interest in OpCo. On March 19, 2020, the Partnership entered into an amendment to the MLP Revolver, to extend the maturity date to March 19, 2023 and add a phase-out provision for LIBOR, which is to be replaced by an alternate benchmark rate. The amended Credit Agreement bears interest at a variable rate of either (a) LIBOR plus 2.0 % or, if LIBOR is no longer available, (b) Alternate Base Rate plus 1.0 % . The weighted average interest rate on all long-term debt was 2.3 % and 4.1 % , respectively, at September 30, 2020 and December 31, 2019 . As of September 30, 2020 , the Partnership was in compliance with all of the covenants under the OpCo Revolver and the MLP Revolver. 10. Derivative Commodity Instruments From time to time, the Partnership uses derivative instruments to reduce price volatility risk on commodities, primarily ethane and ethylene. The Partnership does not use derivative instruments to engage in speculative activities. The Partnership had no derivatives that were designated as fair value hedges during the nine months ended September 30, 2020 and 2019 . Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in net sales and cost of sales in the consolidated statements of operations for the nine months ended September 30, 2020 and 2019 . The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market price declines below the established fixed price. In such case, the Partnership would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Partnership would continue to receive the market price on the actual volume hedge. The Partnership also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty). The Partnership had non-hedge designated derivatives covering approximately 7.6 million gallons and 18.0 million pounds of commodities as of September 30, 2020 and 39.1 million gallons and 93.0 million pounds of commodities as of December 31, 2019 . At September 30, 2020 , the fair value of these derivative instruments recorded as accrued liabilities was $ 1,147 . At December 31, 2019 , the fair values of these derivative instruments recorded as accrued liabilities and accounts receivable, net were $ 1,959 and $ 597 , respectively. The losses recognized in net sales and gains recognized in cost of sales related to derivatives were $ 2,539 and $ 306 , respectively, for the three months ended September 30, 2020 and losses recognized in net sales and cost of sales were $ 6,801 and $ 1,294 , respectively, for the three months ended September 30, 2019 . The losses recognized in net sales and gains recognized in cost of sales related to derivatives were $ 384 and $ 150 , respectively, for the nine months ended September 30, 2020 and losses recognized in net sales and cost of sales related to derivatives were $ 4,375 and $ 2,678 , respectively, for the nine months ended September 30, 2019 . The Partnership's commodity contracts are measured using forward curves supplied by industry recognized sources and unrelated third-party services and classified as Level 2 under the fair value measurement guidance. 14 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) 11. Fair Value Measurements The Partnership reports certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Under the accounting guidance for fair value measurements, inputs used to measure fair value are classified in one of three levels: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. The Partnership has financial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, net, accounts payable and long-term debt payable to Westlake, all of which are recorded at carrying value. The amounts reported in the consolidated balance sheets for accounts receivable, net and accounts payable approximate their fair value due to the short maturities of these instruments. The carrying and fair values of the Partnership's long-term debt at September 30, 2020 and December 31, 2019 are summarized in the table below. The Partnership's long-term debt includes the OpCo Revolver and the MLP Revolver at September 30, 2020 . The fair value of debt is determined based on the present value of expected future cash flows using a discounted cash flow methodology. Because the Partnership's valuation methodology used for long-term debt requires the use of significant unobservable inputs, the inputs used to measure the fair value of the Partnership's long-term debt are classified as Level 3 within the fair value hierarchy. Inputs used to estimate the fair values of the Partnership's long-term debt include the selection of an appropriate discount rate. September 30, 2020 December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value OpCo Revolver $ 22,619 $ 22,980 $ 22,619 $ 23,364 MLP Revolver 377,055 378,797 377,055 379,452 12. Supplemental Information Accrued Liabilities Accrued liabilities were $ 16,955 and $ 17,507 at September 30, 2020 and December 31, 2019 , respectively. Accrued taxes, accrued maintenance expense and accrued interest, which are components of accrued liabilities, were $ 5,550 , $ 4,054 and $ 2,320 , respectively, at September 30, 2020 and $ 2,611 , $ 3,225 and $ 4,187 , respectively, at December 31, 2019 . No other component of accrued liabilities was more than five percent of total current liabilities. Non-cash Investing Activity The non-cash investing activities related to accruals for capital expenditures were $ 1,945 and $ 1,213 for the nine months ended September 30, 2020 and 2019, respectively. 15 Table of Contents WESTLAKE CHEMICAL PARTNERS LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued (Unaudited) (in thousands of dollars, except unit amounts and per unit data) 13. Commitments and Contingencies The Partnership is subject to environmental laws and regulations that can impose civil and criminal sanctions and that may require the Partnership to mitigate the effects of contamination caused by the release or disposal of hazardous substances into the environment. These laws include the federal Clean Air Act, the federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Toxic Substances Control Act and various other federal, state and local laws and regulations. Under CERCLA, an owner or operator of property may be held strictly liable for remediating contamination without regard to whether that person caused the contamination, and without regard to whether the practices that resulted in the contamination were legal at the time they occurred. Because the Partnership's production sites have a history of industrial use, it is impossible to predict precisely what effect these legal requirements will have on the Partnership. Westlake will indemnify the Partnership for liabilities that occurred or existed prior to August 4, 2014. The Partnership is involved in various legal proceedings incidental to the conduct of its business. The Partnership does not believe that any of these legal proceedings will have a material adverse effect on its financial condition, results of operations or cash flows.