Westlake Chemical Partners LP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and the consolidated financial statements and notes thereto included in Westlake Chemical Partners LP's annual report on Form 10-K for the fiscal year ended December 31, 2019 (the " 2019 Form 10-K"), as filed with the SEC on February 28, 2020 . Unless otherwise indicated, references in this report to "we," "our," "us" or like terms, refer to Westlake Chemical Partners LP (the "Partnership"), Westlake Chemical OpCo LP ("OpCo") and Westlake Chemical OpCo GP LLC ("OpCo GP"). References to "Westlake" refer to Westlake Chemical Corporation and its consolidated subsidiaries other than the Partnership, OpCo GP and OpCo. The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements. Partnership Overview We are a Delaware limited partnership formed by Westlake to operate, acquire and develop ethylene production facilities and related assets. On August 4, 2014, we closed our initial public offering (the "IPO") of 12,937,500 common units. In connection with the IPO, we acquired a 10.6% interest in OpCo and a 100% interest in OpCo GP, which is the general partner of OpCo. On April 29, 2015, we purchased an additional 2.7% newly-issued limited partner interest in OpCo, resulting in an aggregate 13.3% limited partner interest in OpCo, effective April 1, 2015. The 12,686,115 subordinated units of the Partnership, all of which were previously owned by Westlake, were converted into common units of the Partnership on August 30, 2017. On September 29, 2017, we completed a secondary public offering of 5,175,000 common units and purchased an additional 5.0% newly-issued limited partner interest in OpCo, resulting in an aggregate 18.3% limited partner interest in OpCo, effective July 1, 2017. On March 29, 2019, we completed a private placement of 2,940,818 common units and used the net proceeds to purchase an additional 4.5% interest in OpCo, effective January 1, 2019, resulting in us owning an aggregate 22.8% limited partner interest in OpCo. Currently, our sole revenue generating asset is our 22.8% limited partner interest in OpCo, a limited partnership formed by Westlake and us in anticipation of the IPO to own and operate an ethylene production business. We control OpCo through our ownership of its general partner. Westlake retains the remaining 77.2% limited partner interest in OpCo as well as a significant interest in us through its ownership of our general partner, 40.1% of our limited partner units (consisting of 14,122,230 common units) and our incentive distribution rights. OpCo's assets include (1) two ethylene production facilities ("Petro 1" and "Petro 2" and, collectively, "Lake Charles Olefins") at Westlake's Lake Charles, Louisiana site; (2) one ethylene production facility ("Calvert City Olefins") at Westlake's Calvert City, Kentucky site; and (3) a 200-mile common carrier ethylene pipeline (the "Longview Pipeline") that runs from Mont Belvieu, Texas to Westlake's Longview, Texas facility. 16 Table of Contents How We Generate Revenue We generate revenue primarily by selling ethylene and the resulting co-products we produce. OpCo and Westlake have entered into an ethylene sales agreement (the "Ethylene Sales Agreement") pursuant to which we generate a substantial majority of our revenue. The Ethylene Sales Agreement is a long-term, fee-based agreement with a minimum purchase commitment and includes variable pricing based on OpCo's actual feedstock and natural gas costs and estimated other costs of producing ethylene (including OpCo's estimated operating costs and a five-year average of OpCo's expected future maintenance capital expenditures and other turnaround expenditures based on OpCo's planned ethylene production capacity for the year), plus a fixed margin per pound of $0.10 less revenue from co-products sales. Pursuant to the Ethylene Sales Agreement, Westlake's obligation to pay for the annual minimum commitment (95% of OpCo's budgeted ethylene production), which is measured on an annual basis, is generally not reduced for the first 45 days of a force majeure event, but is reduced for the portion of a force majeure event extending beyond the 45th day. In the event of a force majeure event, we recognize buyer deficiency fees 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. Westlake has an option to take 95% of volumes in excess of the minimum commitment on an annual basis under the Ethylene Sales Agreement if we produce more than our planned production. Under the Ethylene Sales Agreement, the price for the sale of such excess ethylene to Westlake is based on a formula similar to that used for the minimum purchase commitment, with the exception of certain fixed costs. In addition, under the Ethylene Sales Agreement, if production costs billed to Westlake on an annual basis are less than 95% of the actual production costs incurred by OpCo during the contract year, OpCo is entitled to recover the shortfall in such production costs (proportionate to the volume sold to Westlake) in the subsequent year ("Shortfall"). The Shortfall is generally recognized during the period in which the related operating, maintenance or turnaround activities occur. Operating Expenses, Maintenance Capital Expenditures and Turnaround Costs Our management seeks to maximize the profitability of our operations by effectively managing operating expenses, maintenance capital expenditures and turnaround costs. Our operating expenses are comprised primarily of feedstock costs and natural gas, labor expenses (including contractor services), utility costs (other than natural gas) and turnaround and maintenance expenses. With the exception of feedstock, including natural gas, and utilities-related expenses, operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances, particularly maintenance and turnaround activities. Our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our ethylene production facilities and the amortization of capitalized turnaround costs. These capital expenditures relate to the maintenance and integrity of our facilities. We capitalize the costs of major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected facility. Operating expenses, maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to Westlake under the Ethylene Sales Agreement. Because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the Ethylene Sales Agreement for any given 12-month period, our ability to manage operating expenses, maintenance expenditures and turnaround cost may directly affect our profitability and cash flows. The impact on profitability is partially mitigated by the fact that we generally recognize any Shortfall as revenue in the period such costs and expenses are incurred. We seek to manage our operating and maintenance expenses on our ethylene production facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows, without compromising our commitment to safety and environmental stewardship. In addition, we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence. The purchase price under the Ethylene Sales Agreement is not designed to cover capital expenditures for expansions. 17 Table of Contents MLP Distributable Cash Flow and EBITDA The body of accounting principles generally accepted in the United States is commonly referred to as "GAAP." For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. We use the non-GAAP measures of MLP distributable cash flow and EBITDA to analyze our performance. We define distributable cash flow as net income plus depreciation, amortization and disposition of property, plant and equipment, less contributions for turnaround reserves, maintenance capital expenditures and mark-to-market adjustment on derivative contracts. We define MLP distributable cash flow as distributable cash flow less distributable cash flow attributable to Westlake's noncontrolling interest in OpCo and distributions attributable to the incentive distribution rights holder. MLP distributable cash flow does not reflect changes in working capital balances. We define EBITDA as net income before interest expense, income taxes, depreciation and amortization. We use each of MLP distributable cash flow and EBITDA to analyze our performance. MLP distributable cash flow and EBITDA are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our operating performance as compared to other publicly traded partnerships; our ability to incur and service debt and fund capital expenditures; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. MLP distributable cash flow is not a substitute for the GAAP measures of net income and net cash provided by operating activities. MLP distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities. EBITDA is not a substitute for the GAAP measures of net income, income from operations and net cash provided by operating activities. In addition, it should be noted that companies calculate EBITDA differently and, therefore, EBITDA as presented for us may not be comparable to EBITDA reported by other companies. EBITDA has material limitations as a performance measure because it excludes interest expense, depreciation and amortization, and income taxes. Reconciliations for each of MLP distributable cash flow and EBITDA are included in the "Results of Operations" section below. Recent Developments COVID-19 and Other Recent Developments Affecting Industry Conditions and Our Business 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. We did not experience significant disruptions to our business operations in the nine months ended September 30, 2020 and do not expect to experience significant disruptions to our business operations resulting from COVID-19, primarily due to the fact that 95% of our production is sold to Westlake on a take-or-pay contract. Our first priority in our response to this crisis has been the health and safety of our operators, who are loaned to us by Westlake, and those of our customers and vendors. Westlake has implemented preventative measures and developed corporate and regional response plans to minimize unnecessary risk of exposure. We and Westlake have modified certain business practices (including those related to employee travel, employee work locations and employee work practices) to conform to government restrictions and best practices encouraged by the Center for Disease Control and Prevention, the World Health Organization and other governmental and health authorities. We and Westlake have implemented strategies to reduce costs, increase operational efficiencies and lower capital spending. We have also deferred the planned turnaround at OpCo's Petro 2 ethylene unit and associated maintenance cost into the second half of 2021. The turnaround is expected to last approximately 60 days. Though the price of crude oil has partially recovered from its sudden collapse in early March 2020, due to the continuing impact of low crude-oil prices and the addition of ethylene production capacity in recent months, prices for ethylene and co-products have remained weak and have also negatively impacted our plants' operating rates. We may idle production and reduce operating rates if it is not economical for us to produce ethylene to sell to third parties. 18 Table of Contents Impact of Hurricanes Laura and Delta On August 27, 2020, Hurricane Laura made landfall in Louisiana as a Category 4 storm, which resulted in wide-spread damage to property and infrastructure in the greater Lake Charles area, including the electricity transmission system. On October 9, 2020, Hurricane Delta made landfall as a Category 2 storm in the same general vicinity of Louisiana. As a precautionary measure, OpCo idled its units in the Lake Charles area, Petro 1 and Petro 2, in advance of each storm. As a result of the storms and certain pre-existing issues discovered during start-up following Hurricanes Laura and Delta, Petro 1 and Petro 2 remained shut down in the month of September. Petro 1 and Petro 2 have resumed production. In connection with these outages and pursuant to the Ethylene Sales Agreement, OpCo provided notices of force majeure events to Westlake. Under the Ethylene Sales Agreement, Westlake's obligation to pay for the annual minimum commitment (95% of OpCo's budgeted ethylene production) will generally not be reduced for the first 45 days of a force majeure event. As a result of the force majeure event due to Hurricane Laura, we recognized a buyer deficiency fee of $41.3 million 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. 19 Table of Contents Results of Operations Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (dollars in thousands) 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 $ 18,535 $ 14,922 $ 51,142 $ 43,610 MLP distributable cash flow (1) $ 21,188 $ 20,452 $ 56,380 $ 54,429 EBITDA (2) $ 120,076 $ 113,643 $ 353,871 $ 337,312 ____________ (1) See "Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities" below. (2) See "Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities" below. Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Average Sales Price Volume Average Sales Price Volume Product sales prices and volume percentage change from prior-year period +10.8 % -34.5 % -1.8 % -15.2 % Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Average industry prices (1) Ethane (cents/lb) 7.4 5.8 6.2 7.6 Propane (cents/lb) 11.9 10.3 10.1 13.0 Ethylene (cents/lb) (2) 19.3 20.7 15.4 17.1 _____________ (1) Industry pricing data was obtained through IHS Markit ("IHS"). We have not independently verified the data. (2) Represents average North American spot prices of ethylene over the period as reported by IHS. 20 Table of Contents Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities The following table presents reconciliations of MLP distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (dollars in thousands) Net cash provided by operating activities $ 117,157 $ 121,482 $ 340,876 $ 335,154 Loss from disposition of fixed assets (554 ) — (1,000 ) (458 ) Changes in operating assets and liabilities and other (24,755 ) (39,003 ) (73,881 ) (93,711 ) Net Income 91,848 82,479 265,995 240,985 Add: Depreciation, amortization and disposition of property, plant and equipment 26,476 26,582 78,767 80,787 Mark-to-market adjustment loss (gain) on derivative contracts 1,572 7,195 (215 ) 6,996 Less: Contribution to turnaround reserves (9,890 ) (3,932 ) (29,697 ) (11,669 ) Maintenance capital expenditures (6,509 ) (5,568 ) (25,858 ) (28,613 ) Distributable cash flow attributable to noncontrolling interest in OpCo (82,309 ) (86,304 ) (232,612 ) (234,057 ) MLP distributable cash flow $ 21,188 $ 20,452 $ 56,380 $ 54,429 Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities The following table presents reconciliations of EBITDA to net income, income from operations and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (dollars in thousands) Net cash provided by operating activities $ 117,157 $ 121,482 $ 340,876 $ 335,154 Loss from disposition of fixed assets (554 ) — (1,000 ) (458 ) Changes in operating assets and liabilities and other (24,755 ) (39,003 ) (73,881 ) (93,711 ) Net Income 91,848 82,479 265,995 240,985 Less: Other income, net 17 565 725 2,533 Interest expense (2,320 ) (4,411 ) (9,701 ) (15,436 ) Benefit (Provision) for income taxes 15 (72 ) (408 ) (509 ) Income from operations 94,136 86,397 275,379 254,397 Add: Depreciation and amortization 25,923 26,681 77,767 80,382 Other income, net 17 565 725 2,533 EBITDA $ 120,076 $ 113,643 $ 353,871 $ 337,312 21 Table of Contents Summary For the quarter ended September 30, 2020 , net income was $91.8 million on net sales of $232.0 million . This represents an increase in net income of $9.3 million as compared to net income of $82.5 million on net sales of $249.9 million for the quarter ended September 30, 2019 . Net income attributable to Westlake Chemical Partners LP for the third quarter of 2020 was $18.5 million as compared to $14.9 million for the third quarter of 2019 , an increase of $3.6 million . Net income and net income attributable to Westlake Chemical Partners LP for the third quarter of 2020 as compared to the third quarter of 2019 were higher primarily due to the higher sales price for ethylene sold to Westlake per the terms of the Ethylene Sales Agreement, the buyer deficiency fee of $41.3 million recognized in third quarter of 2020 as a result of the force majeure event at the Petro 1 and Petro 2 units, as discussed above under "Recent Developments—Impact of Hurricanes Laura and Delta," and lower interest expense, partially offset by lower sales to third parties and increased maintenance expense. Net sales for the third quarter of 2020 decreased by $17.9 million as compared to net sales for the third quarter of 2019 , mainly due to lower sales to third parties, partially offset by higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and the buyer deficiency fee recognized during the period. Income from operations was $94.1 million for the third quarter of 2020 as compared to $86.4 million for the third quarter of 2019 . Income from operations for the third quarter of 2020 increased mainly as a result of the higher sales price for ethylene sold to Westlake, the buyer deficiency fee recognized during the period, partially offset by increased maintenance expense and lower sales volumes to third parties, as compared to the third quarter of 2019 . For the nine months ended September 30, 2020 , net income was $266.0 million on net sales of $721.0 million . This represents an increase in net income of $25.0 million as compared to the nine months ended September 30, 2019 net income of $241.0 million on net sales of $819.1 million . Net income attributable to Westlake Chemical Partners LP for the nine months ended September 30, 2020 was $51.1 million as compared to $43.6 million for the nine months ended September 30, 2019 , an increase of $7.5 million . The increase in net income and net income attributable to Westlake Chemical Partners LP in the nine months ended September 30, 2020 was primarily due to the buyer deficiency fee of $41.3 million recognized during the current-year period as a result of the force majeure event at the Petro 1 and Petro 2 units and lower selling, general and administrative expenses and interest expense, partially offset by lower sales to third parties, as compared to the nine months ended September 30, 2019 . Net sales for the nine months ended September 30, 2020 decreased by $98.1 million as compared to net sales for the nine months ended September 30, 2019 , mainly due to lower production and lower sales to third parties, partially offset by higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and the buyer deficiency fee recognized for the period. Income from operations was $275.4 million for the nine months ended September 30, 2020 as compared to $254.4 million for the nine months ended September 30, 2019 . Income from operations for the nine months ended September 30, 2020 increased mainly as a result of the buyer deficiency fee recognized during the period and lower selling, general and administrative expenses, partially offset by lower sales to third parties, as compared to the nine months ended September 30, 2019 . RESULTS OF OPERATIONS Third Quarter 2020 Compared with Third Quarter 2019 Net Sales. Total net sales decreased by $17.9 million , or 7.2% , to $232.0 million in the third quarter of 2020 from $249.9 million in the third quarter of 2019 . The decrease in net sales in the third quarter of 2020 was primarily due to lower production during the quarter, partially offset by the buyer deficiency fee of $41.3 million recognized for the period and higher sales prices to Westlake per the terms of the Ethylene Sales Agreement in the third quarter of 2020 . The lower sales volume in the third quarter of 2020 contributed to a decrease in net sales of 34.5% in the third quarter of 2020 compared to the third quarter of 2019 . The decrease in sales volume for the third quarter of 2020 was primarily due to the force majeure event at our Lake Charles Petro 1 and Petro 2 units. The average sales price in the third quarter of 2020 contributed to a 10.8% increase in net sales, primarily due to higher ethylene sales prices to Westlake per the terms of the Ethylene Sales Agreement. Gross Profit. Gross profit increased to $100.4 million for the third quarter of 2020 from $93.2 million for the third quarter of 2019 . The gross profit margin in the third quarter of 2020 was 43.3% , as compared to 37.3% for the third quarter of 2019 . The third quarter of 2020 gross profit margin was higher mainly due to higher earnings on ethylene sold to Westlake as a result of the buyer deficiency fee of $41.3 million recognized during the third quarter of 2020, partially offset by lower sales to third parties and increased maintenance expense at the Lake Charles Petro I and Petro 2 units compared to the third quarter of 2019 . Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $0.5 million , or 7.4% , to $6.3 million in the third quarter of 2020 as compared to $6.8 million in the third quarter of 2019 . The decrease in the third quarter of 2020 was mainly attributable to lower general and administrative expense allocations as compared to the third quarter of 2019 . 22 Table of Contents Interest Expense. Interest expense decreased by $2.1 million to $2.3 million in the third quarter of 2020 from $4.4 million in the third quarter of 2019 , largely due to a lower interest rate on debt as a result of a decrease in the London Interbank Offered Rate ("LIBOR"). Other Income, net. Other income, net in the third quarter of 2020 decreased by $0.6 million , primarily due to a decrease in interest income earned under the Investment Management Agreement as a result of lower average interest rates. MLP Distributable Cash Flow. MLP distributable cash flow increased by $0.7 million to $21.2 million in the third quarter of 2020 from $20.5 million in the third quarter of 2019 . The increased MLP distributable cash flow in the third quarter of 2020 , as compared to the prior-year period, was primarily due to the buyer deficiency fee of $41.3 million recognized in the third quarter of 2020 and lower interest expense, partially offset by increased turnaround reserves. EBITDA. EBITDA increased by $6.5 million to $120.1 million in the third quarter of 2020 from $113.6 million in the third quarter of 2019 . The increased EBITDA, as compared to the prior-year period, was primarily due to the buyer deficiency fee of $41.3 million recognized in the third quarter of 2020 , partially offset by lower sales volumes as a result of lower production. Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019 Net Sales. Total net sales decreased by $98.1 million , or 12.0% , to $721.0 million in the nine months ended September 30, 2020 from $819.1 million in the nine months ended September 30, 2019 . The decrease in net sales in the nine months ended September 30, 2020 was primarily due to lower production during the nine months ended September 30, 2020 and lower sales prices to third parties, partially offset by the buyer deficiency fee of $41.3 million recognized in the current-year period and higher sales price to Westlake per the terms of the Ethylene Sales Agreement in the current-year period. The lower sales volume contributed to a decrease in net sales of 15.2% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 . The decrease in sales volumes for the nine months ended September 30, 2020 was primarily due to the force majeure event at our Lake Charles Petro 1 and Petro 2 units resulting from Hurricane Laura. The average sales price for the nine months ended September 30, 2020 contributed to a 1.8% decrease in net sales, primarily due to lower sales prices to third parties. Gross Profit. Gross profit increased to $294.0 million for the nine months ended September 30, 2020 from $275.8 million for the nine months ended September 30, 2019 . The gross profit margin in the nine months ended September 30, 2020 was 40.8% , as compared to 33.7% for the nine months ended September 30, 2019 . The nine months ended September 30, 2020 gross profit margin was higher mainly due to higher earnings on ethylene sold to Westlake and the buyer deficiency fee of $41.3 million recognized for the nine months ended September 30, 2020 , partially offset by lower sales volumes resulting from the lower production at the Lake Charles Petro I and Petro 2 units compared to the nine months ended September 30, 2019 . Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $2.8 million , or 13.1% , to $18.6 million in the nine months ended September 30, 2020 , as compared to $21.4 million in the nine months ended September 30, 2019 . The decrease was mainly attributable to lower general and administrative expense allocations in the nine months ended September 30, 2020 , as compared to the prior-year period. Interest Expense. Interest expense decreased by $5.7 million to $9.7 million in the nine months ended September 30, 2020 from $15.4 million in the nine months ended September 30, 2019 due to a lower interest rate on debt. Other Income, net. Other income, net decreased by $1.8 million to $0.7 million in the nine months ended September 30, 2020 as compared to $2.5 million in the nine months ended September 30, 2019 , primarily due to a decrease in interest income earned under the Investment Management Agreement as a result of lower average interest rates. Provision for Income Taxes. Provision for income taxes was $0.4 million for the nine months ended September 30, 2020 , as compared to a provision of $0.5 million for the nine months ended September 30, 2019 . The decrease was mainly attributable to a tax benefit due to a revaluation of the state deferred income tax liability arising from a decrease in state tax apportionment. MLP Distributable Cash Flow. MLP distributable cash flow increased by $2.0 million to $56.4 million in the nine months ended September 30, 2020 from $54.4 million in the nine months ended September 30, 2019 . The increased MLP distributable cash flow in the nine months ended September 30, 2020 , as compared to the prior-year period, was primarily due to the buyer deficiency fee of $41.3 million recognized during the nine months ended September 30, 2020 and lower interest expense, partially offset by increased turnaround reserves. 23 Table of Contents EBITDA. EBITDA increased by $16.6 million to $353.9 million in the nine months ended September 30, 2020 from $337.3 million in the nine months ended September 30, 2019 . The increased EBITDA, as compared to the prior-year period, was primarily due to the buyer deficiency fee of $41.3 million during the nine months ended September 30, 2020 , partially offset by lower sales volumes to Westlake and third parties as a result of the lower production. CASH FLOW DISCUSSION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 Operating Activities Operating activities provided cash of $340.9 million in the first nine months of 2020 compared to cash provided by operating activities of $335.2 million in the first nine months of 2019 . The $5.7 million increase in cash flows from operating activities was mainly due to an increase in income from operations, partially offset by an increase in cash used for working capital during the nine months ended September 30, 2020 as compared to the prior-year period. Changes in components of working capital, which we define for the purposes of this cash flow discussion as accounts receivable—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued liabilities, used cash of $2.1 million in the first nine months of 2020 as compared to $14.7 million of cash provided in the first nine months of 2019 , resulting in an overall unfavorable change of $16.8 million . The unfavorable change in working capital was mainly attributable to an unfavorable change in Westlake, net accounts receivable due to the buyer deficiency fee recognized in the third quarter of 2020. Investing Activities Net cash used for investing activities during the first nine months of 2020 was $58.2 million as compared to net cash used for investing activities of $46.0 million in the first nine months of 2019 , mainly due to increased net cash used under the Investment Management Agreement in the first nine months of 2020 , as compared to the prior-year period. Capital expenditures during the first nine months of 2020 and 2019 were primarily related to projects to improve production capacity or reduce costs, maintenance and safety and environmental projects at our facilities. Financing Activities Net cash used for financing activities during the first nine months of 2020 was $279.3 million as compared to net cash used by financing activities of $290.3 million in the first nine months of 2019 . The outflows during the first nine months of 2020 were related to the distribution of $229.5 million to Westlake and of $49.8 million to other unitholders by the Partnership. The cash inflows during the first nine months of 2019 were a result of borrowings under the MLP Revolver of $123.5 million and net proceeds from the private placement of common units of approximately $62.7 million . The cash outflows during the first nine months of 2019 were related to the distribution of $229.3 million to Westlake and of $45.7 million to other unitholders by the Partnership as well as a partial repayment of borrowings under the OpCo revolver of $201.4 million . LIQUIDITY AND CAPITAL RESOURCES Liquidity and Financing Arrangements Pursuant to the terms of an equity distribution agreement, entered in October 2018 and amended in February 2020, among the Partnership and various investment banks, the Partnership may offer and sell the Partnership's common units from time to time to or through the investment banks, as the Partnership's sales agents or as principals, having an aggregate offering amount of up to $50.0 million ("the ATM Program"). The Partnership intends to use the net proceeds of sales of the common units, if any, for general partnership purposes, including the funding of potential drop-downs and other acquisitions. No common units had been issued under the ATM Program as of September 30, 2020 . Based on the terms of our cash distribution policy, we expect that we will distribute to our partners most of the excess cash generated by our operations. To the extent we do not generate sufficient cash flow to fund capital expenditures, we expect to fund them primarily from external sources, including borrowing directly from Westlake, as well as future issuances of equity and debt interests. The Partnership maintains separate bank accounts, but Westlake continues to provide treasury services on our behalf under the Services and Secondment Agreement. Our sources of liquidity include cash generated from operations, the OpCo Revolver, the MLP Revolver and, if necessary and possible under then current market conditions, the issuance of additional common units representing limited partner interests of the Partnership, other classes of units representing limited partner interests of the Partnership or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. Westlake may also provide other direct and indirect financing to us from time to time, although it is not required to do so. 24 Table of Contents In order to fund non-annual turnaround expenditures, we cause OpCo to reserve approximately $30.0 million during each twelve-month period for turnaround activities. Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. Westlake's purchase price for ethylene purchased under the Ethylene Sales Agreement includes a component (adjusted annually) designed to cover, over the long term, substantially all of OpCo's turnaround expenditures. Westlake's credit facility and various indentures do not prevent OpCo from making distributions to us. On October 30, 2020 , the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.4714 per unit payable on November 24, 2020 to unitholders of record as of November 9, 2020 , which equates to a total amount of approximately $16.6 million per quarter, or approximately $66.4 million per year in aggregate, based on the number of common units outstanding on September 30, 2020 . We do not have a legal or contractual obligation to pay distributions on a quarterly basis or any other basis at our minimum quarterly distribution rate or any other rate. Capital Expenditures Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins. Total capital expenditures for the nine months ended September 30, 2020 and 2019 were $29.2 million and $30.0 million , respectively. No funding was required by OpCo to fund capital expenditures during the nine months ended September 30, 2020 and 2019 . We expect that Westlake will loan additional cash to OpCo to fund its expansion capital expenditures in the future, but Westlake is under no obligation to do so. Cash and Cash Equivalents As of September 30, 2020 , our cash and cash equivalents totaled $23.3 million . In addition, we have cash invested under the Investment Management Agreement (as described below) and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below. In August 2017, the Partnership, OpCo and Westlake executed the Investment Management Agreement that authorized Westlake to invest the Partnership's 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. The Partnership had $191.2 million of cash invested under the Investment Management Agreement at September 30, 2020 . Indebtedness OpCo Revolver In connection with the IPO, OpCo entered into a $600.0 million revolving credit facility with Westlake (the "OpCo Revolver") that may be used to fund growth projects and working capital needs. On April 30, 2019, the Partnership repaid $201.4 million of borrowings under the OpCo Revolver. As of September 30, 2020 , outstanding borrowings under the OpCo Revolver totaled $22.6 million and bore interest at the LIBOR rate plus 2.0%, which is accrued in arrears quarterly. In September 2018, the OpCo Revolver was amended to extend the scheduled maturity date from August 4, 2019 to September 25, 2023 and revise the applicable margin from 3.0% to 2.0%. 25 Table of Contents MLP Revolver In 2015, we entered into a senior, unsecured revolving credit agreement with an affiliate of Westlake (the "MLP Revolver"). The MLP Revolver has a borrowing capacity of $600 million and is scheduled to mature in 2023. On March 29, 2019, the Partnership borrowed $123.5 million under the MLP Revolver to partially fund the purchase of an 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. Borrowings under the MLP Revolver bear 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 MLP Revolver provides that we may pay all or a portion of the interest on any borrowings in kind, in which case any such amounts would be added to the principal amount of the loan. The MLP Revolver requires that we maintain a consolidated leverage ratio of either (1) during any one-year period following certain types of acquisitions (including acquisitions of additional interests in OpCo), 5.50:1.0 or less, or (2) during any other period, 4.50:1.0 or less. The MLP Revolver also contains certain other customary covenants. The repayment of borrowings under the MLP Revolver is subject to acceleration upon the occurrence of an event of default. As of September 30, 2020 , outstanding borrowings under the MLP Revolver totaled $377.1 million . We intend to use the MLP Revolver to purchase additional limited partnership interests in OpCo in the future, in the event OpCo desires to sell such additional interests to us, for other acquisitions and for general corporate purposes. Off-Balance Sheet Arrangements None. 26 Table of Contents FORWARD-LOOKING STATEMENTS Certain of the statements contained in this report are forward-looking statements. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expects," "will" or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Forward-looking statements relate to matters such as: • the amount of ethane that we are able to process, which could be adversely affected by, among other things, operating difficulties; • the volume of ethylene that we are able to sell; • the price at which we are able to sell ethylene; • industry market outlook, including prices and margins in third-party ethylene and co-products sales; • widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the COVID-19 pandemic; • our plans and Westlake's plans to respond to the challenges presented by the COVID-19 epidemic, including planned reductions of costs, increases of operational efficiencies and lowering of capital spending, as well as the timing and deferral of the planned turnaround at OpCo's Petro 2 ethylene unit; • the parties to whom we will sell ethylene and on what basis; • volumes of ethylene that Westlake may purchase, in addition to the minimum commitment under the Ethylene Sales Agreement; • timing, funding and results of capital projects; • our intended minimum quarterly distributions and the manner of making such distributions; • our ability to meet our liquidity needs; • timing of and amount of capital expenditures; • the Partnership's At-the-Market program and the use of any net proceeds from any sales under that program; • potential loans from Westlake to OpCo to fund OpCo's expansion capital expenditures in the future; • expected mitigation of exposure to commodity price fluctuations; • turnaround activities and the variability of OpCo's cash flow; • receipt of any buyer deficiency fee under the Ethylene Sales Agreement; • compliance with present and future environmental regulations and costs associated with environmentally related penalties, capital expenditures, remedial actions and proceedings, including any new laws, regulations or treaties that may come into force to limit or control carbon dioxide and other greenhouse gas emissions or to address other issues of climate change; and • effects of pending legal proceedings. 27 Table of Contents We have based these statements on assumptions and analysis in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. These statements are subject to a number of assumptions, risks and uncertainties, including those described under "Risk Factors" in the 2019 Form 10-K and the following: • general economic and business conditions; • the cyclical nature of the chemical industry; • the availability, cost and volatility of raw materials and energy; • low crude oil prices reducing the cost advantage of ethane-based ethylene producers; • uncertainties associated with the United States and worldwide economies, including those due to political tensions and unrest in the Middle East and elsewhere; • uncertainties associated with pandemic infectious diseases, particularly COVID-19; • current and potential governmental regulatory actions in the United States and regulatory actions and political unrest in other countries, including environmental regulations; • industry production capacity and operating rates; • the supply/demand balance for our product; • competitive products and pricing pressures; • instability in the credit and financial markets; • access to capital markets; • terrorist acts; • operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks); • changes in laws or regulations; • technological developments; • our ability to integrate acquired businesses; • foreign currency exchange risks; • our ability to implement our business strategies; and • creditworthiness of our customers. Many of these factors are beyond our ability to control or predict. Any of the factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Every forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. 28 Table of Contents