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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-04 · 94 added, 121 removed, 200 unchanged (52% of the section changed)

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 .

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, 2020 (the "2020 Form 10-K"), as filed with the SEC on March 2, 2021.

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").

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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.

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.

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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.

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 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 associated with ethylene that OpCo would have produced and is not expected to be produced based on anticipated production.

Payment for the buyer deficiency fee is scheduled to be received by the Partnership after the conclusion of the year.

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We use each of MLP distributable cash flow and EBITDA to analyze our performance.

Fees for a buyer deficiency and Shortfall are included in net income in the periods in which they are recognized.

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;

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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

Significant Developments Affecting Industry Conditions and Our Business

COVID-19, 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.

We have not experienced significant disruptions to our business operations 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 seconded 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.

We also deferred the planned turnaround at OpCo's Petro 2 ethylene unit and associated maintenance cost from 2020 to 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.

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.

February Winter Storm

In February 2021, large parts of the southern United States, including Louisiana and Kentucky, experienced a severe winter storm.

Due to the severe winter storm, OpCo's ethylene production facilities in the region experienced disruption to their operations, resulting in lost production and additional maintenance costs.

OpCo declared force majeure under the Ethylene Supply Agreement during February and March 2021.

As a result of the force majeure events, we recognized a buyer deficiency fee of $5.5 million and a Shortfall of $4.2 million in the first quarter of 2021 that are scheduled to be received by the Partnership after the end of 2021.

The buyer deficiency fee is associated with ethylene that OpCo would have produced and is not expected to be produced in 2021 based on anticipated production.

OpCo's production facilities have since resumed production.

Results of Operations

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Net co-product, ethylene and other sales—third parties

48,404 35,721

Total net sales 268,207 250,549

Cost of sales 180,508 147,001

Gross profit 87,699 103,548

Selling, general and administrative expenses 8,673 6,196

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Income before income taxes 76,797 93,987

Income tax provision (benefit)

Income tax provision 175 217

Net income 76,622 93,770

Net income attributable to noncontrolling interest in OpCo

61,476 76,023

Net income attributable to Westlake Chemical Partners LP

$ 15,146 $ 17,747

MLP distributable cash flow (1)

$ 16,245 $ 18,337

$ 106,575 $ 123,968

(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

Three Months Ended March 31, 2021

Sales Price Volume

Product sales prices and volume percentage change from prior-year period

Three Months Ended September 30,

Nine Months Ended September 30,

+22.2 % -19.0 %

Three Months Ended March 31,

Average industry prices (1)

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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,

Three Months Ended March 31,

(dollars in thousands)

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Changes in operating assets and liabilities and other (77,427) (17,094)

Net Income 76,622 93,770

Depreciation, amortization and disposition of property, plant and equipment

Mark-to-market adjustment loss (gain) on derivative contracts

28,898 26,127

Mark-to-market adjustment gain on derivative contracts — (2,491)

Contribution to turnaround reserves (12,332) (9,923)

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Distributable cash flow attributable to noncontrolling interest in OpCo

(65,200) (78,025)

MLP distributable cash flow $ 16,245 $ 18,337

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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,

Three Months Ended March 31,

(dollars in thousands)

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Changes in operating assets and liabilities and other (77,427) (17,094)

Net Income 76,622 93,770

Other income, net 7 585

Interest expense (2,236) (3,950)

Benefit (Provision) for income taxes

Provision for income taxes (175) (217)

Income from operations 79,026 97,352

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Other income, net 7 585

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 .

EBITDA $ 106,575 $ 123,968

For the quarter ended March 31, 2021, net income was $76.6 million on net sales of $268.2 million.

This represents a decrease in net income of $17.2 million as compared to net income of $93.8 million on net sales of $250.5 million for the quarter ended March 31, 2020.

Net income attributable to the Partnership for the first quarter of 2021 was $15.1 million as compared to $17.7 million for the first quarter of 2020, a decrease of $2.6 million.

Net income and net income attributable to the Partnership for the first quarter of 2021 as compared to the first quarter of 2020 were lower primarily due to lower sales volumes to Westlake and third parties and higher feedstock and conversion costs.

The decreases were partially offset by higher sales prices for ethylene sold to Westlake per the terms of the Ethylene Sales Agreement and to third parties, as well as the buyer deficiency fee of $5.5 million and the Shortfall of $4.2 million recognized in the first quarter of 2021 due to the force majeure events in February and March 2021 resulting from the severe winter storm.

Net sales for the first quarter of 2021 increased by $17.7 million as compared to net sales for the first quarter of 2020, mainly due to higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and to third parties, as well as the buyer deficiency fee and the Shortfall recognized during the first quarter of 2021, partially offset by lower sales volumes to Westlake and third parties during the first quarter of 2021.

Income from operations was $79.0 million for the first quarter of 2021 as compared to $97.4 million for the first quarter of 2020.

Income from operations for the first quarter of 2021 decreased mainly as a result of decreased sales volumes to Westlake and third parties, increased selling, general and administrative costs and higher feedstock and conversion costs, as compared to the first quarter of 2020, partially offset by higher sales prices for ethylene sold to Westlake and third parties, as well as the buyer deficiency fee and the Shortfall recognized during the period.

RESULTS OF OPERATIONS

Third Quarter 2020 Compared with Third Quarter 2019

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 .

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 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

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.

First Quarter 2021 Compared with First Quarter 2020

Total net sales increased by $17.7 million, or 7.1%, to $268.2 million in the first quarter of 2021 from $250.5 million in the first quarter of 2020.

The increase in net sales in the first quarter of 2021 was primarily due to higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and to third parties, the buyer deficiency fee of $5.5 million and the Shortfall of $4.2 million recognized during the period, partially offset by lower sales volumes to Westlake and third parties during the first quarter of 2021.

The average sales price in the first quarter of 2021 contributed to a 22.2% increase in net sales, primarily due to higher ethylene sales prices to Westlake per the terms of the Ethylene Sales Agreement and to third parties.

The lower sales volume contributed to a 19.0% decrease in net sales in the first quarter of 2021 compared to the first quarter of 2020.

The decrease in sales volumes for the first quarter of 2021 was primarily due to the force majeure events as a result of the severe winter storm that impacted OpCo's production facilities.

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 .

Gross profit decreased to $87.7 million for the first quarter of 2021 from $103.5 million for the first quarter of 2020.

The gross profit margin in the first quarter of 2021 was 32.7%, as compared to 41.3% for the first quarter of 2020.

The first quarter 2021 gross profit margin was lower mainly due to increased feedstock and conversion costs and lower sales volumes to third parties, partially offset by higher prices for ethylene sold to Westlake and third parties compared to the first quarter of 2020.

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.

Selling, general and administrative expenses increased by $2.5 million, or 40.3%, to $8.7 million in the first quarter of 2021 as compared to $6.2 million in the first quarter of 2020.

The increase in the first quarter of 2021 was mainly attributable to higher service costs as compared to the first quarter of 2020.

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.

Interest expense decreased by $1.8 million to $2.2 million in the first quarter of 2021 from $4.0 million in the first quarter of 2020, largely due to a lower average 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.

Other income, net in the first quarter of 2021 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 $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.

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

MLP distributable cash flow decreased by $2.1 million to $16.2 million in the first quarter of 2021 from $18.3 million in the first quarter of 2020.

The decrease in the first quarter of 2021, as compared to the prior-year period, was primarily attributable to the lower earnings at OpCo resulting from the severe winter storm as well as contributions for turnaround reserves.

EBITDA decreased by $17.4 million to $106.6 million in the first quarter of 2021 from $124.0 million in the first quarter of 2020.

The decrease, as compared to the prior-year period, was primarily due to lower sales volumes to Westlake and third parties as a result of lower production due to the severe winter storm in February 2021 and higher feedstock and conversion costs, partially offset by higher sales prices for ethylene sold to Westlake per the terms of the Ethylene Sales Agreement and to third parties, as well as the buyer deficiency fee and the Shortfall recognized in the first quarter of 2021.

CASH FLOW DISCUSSION FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

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.

Operating activities provided cash of $155.4 million in the first three months of 2021 compared to cash provided by operating activities of $111.0 million in the first three months of 2020.

The $44.4 million increase in cash flows from operating activities was mainly due to an increase in cash provided for working capital, partially offset by a decrease in income from operations during the three months ended March 31, 2021 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, net—Westlake, accounts receivable, net—third parties, inventories, prepaid expenses and other current assets less accounts payable—Westlake, accounts payable—third parties and accrued liabilities, provided cash of $51.5 million in the first three months of 2021 as compared to $8.7 million of cash used in the first three months of 2020, resulting in an overall favorable change of $60.2 million.

The favorable change in working capital was mainly attributable to a favorable change in Westlake, net accounts receivable due to the receipt of the buyer deficiency fee related to the force majeure events in 2020 by the Partnership in January 2021, partially offset by unfavorable changes in accounts receivable, net—third parties, accounts payable and accrued and other liabilities.

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.

Net cash used for investing activities during the first three months of 2021 was $76.6 million as compared to net cash used for investing activities of $11.0 million in the first three months of 2020, mainly due to increased net cash used under the Investment Management Agreement in the first three months of 2021, as compared to the prior-year period.

Capital expenditures during the first three months of 2021 and 2020 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 .

Net cash used for financing activities during the first three months of 2021 was $78.7 million as compared to net cash used by financing activities of $95.8 million in the first three months of 2020.

The outflows during the first three months of 2021 were related to the distribution of $62.1 million to Westlake and of $16.6 million to other unitholders by the Partnership.

The cash outflows during the first three months of 2020 were related to the distribution of $79.2 million to Westlake and of $16.6 million to other unitholders by the Partnership.

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").

Pursuant to the terms of the ATM 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 Managers, 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 .

No common units had been issued under the ATM Program as of March 31, 2021.

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.

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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.

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.

In order to fund non-annual turnaround expenditures, we cause OpCo to reserve an amount for turnaround costs during each twelve-month period designed to cover future turnaround activities.

Each of OpCo's ethylene production facilities requires turnaround maintenance approximately every five years.

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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 .

On May 3, 2021, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.4714 per unit payable on May 27, 2021 to unitholders of record as of May 13, 2021, 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 March 31, 2021.

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.

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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 .

Total capital expenditures for the three months ended March 31, 2021 and 2020 were $12.7 million and $12.0 million, respectively.

No funding was required by OpCo to fund capital expenditures during the three months ended March 31, 2021 and 2020.

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 .

As of March 31, 2021, our cash and cash equivalents totaled $17.3 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.

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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 .

The Partnership had $187.2 million of cash invested under the Investment Management Agreement at March 31, 2021.

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%.

In connection with the IPO, OpCo entered into a $600.0 million revolving credit facility with Westlake, as amended in August and December 2017 and March 2020 (the "OpCo Revolver") that may be used to fund growth projects and working capital needs.

The OpCo Revolver is scheduled to mature on September 25, 2023.

As of March 31, 2021, 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 2015, we entered into a senior, unsecured revolving credit agreement with an affiliate of Westlake (the "MLP Revolver").

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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 .

As of March 31, 2021, outstanding borrowings under the MLP Revolver totaled $377.1 million and bore interest at the LIBOR rate plus 2.0%, which is accrued in arrears quarterly.

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.

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• 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;

• widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the COVID-19 pandemic and efforts to contain its transmission;

• our plans and Westlake's plans to respond to the challenges presented by the COVID-19 epidemic, 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;

• timing, funding and results of capital expenditures;

• our intended quarterly distributions and the manner of making such distributions;

• our ability to meet our liquidity needs;

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• 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;

• our ability to receive indemnification from Westlake for environmental and other losses;

• effects of pending legal proceedings.

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• industry production capacity and operating rates;

the supply/demand balance for our product;

• the supply/demand balance for our products;

• competitive products and pricing pressures;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis