What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-02 compared with 2021-03-02 · 133 added, 117 removed, 265 unchanged (49% of the section changed)

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See "Cautionary Statement Regarding Forward-Looking Statements" and "Item 1A.

Risk Factors" in this report.

Risk Factors" included within this report.

We are a Delaware limited partnership formed by Westlake to operate, acquire and develop ethylene production facilities and related assets.

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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.

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 as of April 1, 2015.

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 as of July 1, 2017.

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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 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.

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 a force majeure event lasting fewer than 45 consecutive days.

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.

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The Shortfall is generally recognized during the period in which the related operating, maintenance or turnaround activities occur.

The Ethylene Sales Agreement provides that, if compliance with any law adopted or modified following our IPO results in OpCo incurring additional costs in excess of $500,000 in any contract year, OpCo is entitled to charge Westlake a monthly surcharge following efforts to mitigate the effects of such matter.

We sell ethylene production in excess of volumes sold to Westlake, as well as all associated co-products resulting from the ethylene production, directly to third parties on either a spot or contract basis.

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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.

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 costs 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.

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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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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 Item 6.

"Selected Financial Data" above.

Reconciliations for each of MLP distributable cash flow and EBITDA are included in "—Results of Operations" below.

Factors Affecting Our Business

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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.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the ongoing 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 year ended December 31, 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.

Although 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.

Crude oil prices have recovered somewhat since the second quarter of 2020.

Regardless, we may idle production and reduce operating rates if it is not economical for us to produce ethylene to sell to third parties.

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 regulatory 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.

Impact of Hurricanes Laura and Delta

On August 27, 2020, Hurricane Laura made landfall in Louisiana as a Category 4 storm, which resulted in widespread 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 completely shut down for a significant period of time in the months of August, September and October 2020 and returned to more routine operations by the beginning of November 2020.

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) is not reduced for the first 45 days of a force majeure event.

As a result of the force majeure events due to Hurricanes Laura and Delta, we recognized a buyer deficiency fee of $69.6 million as a component of net sales in 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 events.

Payment for the buyer deficiency fee was received in January 2021.

February Weather Event

In February 2021, large parts of the southern United States, including Louisiana and Kentucky, experienced extreme winter weather.

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

OpCo has declared force majeure under the Ethylene Supply Agreement and expects to recognize a buyer deficiency fee in 2021.

The COVID-19 pandemic has not caused significant disruptions to our business operations and we do not expect the COVID-19 pandemic to cause significant disruptions to our future business operations, primarily due to the fact that 95% of our production is sold to Westlake on a take-or-pay contract.

OpCo's Petro 2 Turnaround

In September 2021, we commenced our planned major maintenance activities, or turnaround, of OpCo's Petro 2 ethylene unit in Lake Charles, Louisiana.

The turnaround was originally expected to conclude in November 2021.

On September 27, 2021, shortly after the turnaround commenced, there was a flash fire at the quench tower of the Petro 2 facility.

Several contractors working on the quench tower were injured.

Although there was no sustained fire or offsite impact resulting from the incident and the quench tower did not sustain significant damage, due to the subsequent investigation by the Occupational Safety and Health Administration, the duration of the turnaround was extended until December 2021.

There are lawsuits pending in connection with the flash fire at the quench tower during the Petro 2 turnaround.

We expect insurance to cover most of the costs associated with these lawsuits.

Force Majeure Events

OpCo declared force majeure events in September 2021 due to the flash fire at the Petro 2 facility, in June 2021 due to OpCo's Petro 1 facility outage, and in February 2021 due to the severe winter storm.

As a result of these force majeure events, the Partnership recognized revenue for buyer deficiency fees of $51.4 million and Shortfall of $58.9 million during 2021, which is classified as a component of net sales.

The buyer deficiency fee is measured periodically based upon the lower of the actual production deficiency at period end or the estimated annual production deficiency based upon OpCo's annual anticipated production.

These periodic estimates are updated at the end of the year based on actual annual production.

The buyer deficiency fee was collected from Westlake in January 2022 and the Shortfall recognized in 2021 is recoverable during 2022 under the Ethylene Sales Agreement.

Results of Operations

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(1) See "Item 6.

Selected Financial Data", for discussions on non-GAAP financial measures.

(1) See above for discussions on non-GAAP financial measures.

Reconciliations for each of MLP distributable cash flow and EBITDA are included below.

(2) Industry pricing data was obtained through IHS.

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(3) Represents average North American spot prices of ethylene over the period as reported by IHS.

Reconciliation of MLP Distributable Cash Flow to Net Income and Net Cash Provided by Operating Activities

Year Ended December 31,

2021 2020 2019

(dollars in thousands)

Net cash provided by operating activities $ 408,439 $ 373,397 $ 450,807

Loss from disposition of fixed assets (4,198) (1,000) (515)

Changes in operating assets and liabilities

and other (2,856) (31,278) (117,397)

Net Income 401,385 341,119 332,895

Depreciation, amortization and

disposition of property, plant and

113,032 104,154 107,835

Mark-to-market adjustment loss (gain) on

derivative contracts — (1,340) 1,301

Contribution to turnaround reserves (80,090) (39,937) (15,630)

Maintenance capital expenditures (87,783) (37,343) (39,940)

Incentive distribution rights — — —

Distributable cash flow attributable to

noncontrolling interest in OpCo (276,487) (294,670) (313,280)

MLP distributable cash flow $ 70,057 $ 71,983 $ 73,181

Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities

Year Ended December 31,

2021 2020 2019

(dollars in thousands)

Net cash provided by operating activities $ 408,439 $ 373,397 $ 450,807

Loss from disposition of fixed assets (4,198) (1,000) (515)

Changes in operating assets and liabilities

and other (2,856) (31,278) (117,397)

Net income 401,385 341,119 332,895

Other income, net 62 733 3,096

Interest expense (8,816) (12,038) (19,623)

Provision for income taxes (549) (564) (728)

Income from operations 410,688 352,988 350,150

Depreciation and amortization 108,814 103,154 107,320

Other income, net 62 733 3,096

EBITDA $ 519,564 $ 456,875 $ 460,566

For the year ended December 31, 2021, net income was $401.4 million on net sales of $1,214.9 million.

This represents an increase in net income of $60.3 million as compared to net income of $341.1 million on net sales of $966.7 million for the year ended December 31, 2020.

Net income attributable to the Partnership in 2020 was $66.2 million as compared to $61.0 million in 2019, an increase of $5.2 million, which was 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 $69.6 million recognized in 2020 as a result of the force majeure events at the Petro 1 and Petro 2 units and lower interest expense, partially offset by lower sales to third parties, lower sales volumes to Westlake due to the force majeure events and increased maintenance expense.

Net sales for 2020 decreased by $125.2 million as compared to 2019 mainly due to lower sales to third parties and lower sales volumes to Westlake due to the force majeure events, partially offset by higher sales prices to Westlake per the terms of the Ethylene Sales Agreement and the buyer deficiency fee recognized during the year ended December 31, 2020.

Net income attributable to the Partnership in 2021 was $82.5 million as compared to $66.2 million in 2020, an increase of $16.3 million.

Income from operations was $410.7 million for 2021, as compared to $353.0 million for 2020.

Income from operations for the year ended December 31, 2020 increased mainly as a result of the higher sales price for ethylene sold to Westlake, and the buyer deficiency fee recognized during the year, partially offset by increased maintenance expense and lower sales volumes to third parties and to Westlake, as compared to the year ended December 31, 2019.

The increase in income from operations, as well as net income and net income attributable to the Partnership, was primarily due to the higher sales price for ethylene sold to third parties and an increase in the buyer deficiency fee and Shortfall revenue in 2021 compared to 2020.

The buyer deficiency fee and Shortfall revenue in 2021 was $110.3 million as compared to $69.6 million in 2020.

These increases were slightly offset by lower sales volumes to Westlake due to OpCo's Petro 2 turnaround and force majeure events that resulted in lower production as well as higher feedstock and conversion costs.

Net sales for 2021 increased by $248.2 million as compared to 2020 mainly due to higher sales prices to third parties and Westlake per the terms of the Ethylene Sales Agreement and the buyer deficiency fee and Shortfall recognized, partially offset by lower sales volumes to Westlake during the year ended December 31, 2021.

2021 Compared with 2020

Net sales increased by $248.2 million, or 25.7%, to $1,214.9 million in 2021 from $966.7 million in 2020.

The increase in net sales in 2021 was primarily due to the higher sales price to third parties and Westlake per the terms of the Ethylene Sales Agreement and the buyer deficiency fee and Shortfall of $110.3 million recognized in 2021 as compared to $69.6 million in 2020, partially offset by lower production during the year, mainly due to the force majeure events occurring in 2021 .

T he average sales price in 2021 contributed to a 26.8% increase in net sales, compared to 2020.

The lower sales volume during 2021 contributed to a decrease in net sales of 3.6% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease in sales volume during 2021 was primarily due to OpCo's Petro 2 Turnaround and the force majeure events in 2021.

Gross Profit .

Gross profit was $441.7 million in 2021, as compared to gross profit of $378.9 million in 2020.

The gross profit margin was 36.4% in 2021 as compared to 39.2% in 2020.

The increase in gross profit was primarily due to the higher sales price for ethylene sold to third parties and an increase in the buyer deficiency fee and Shortfall revenue in 2021 compared to 2020.

The decreased 2021 gross profit margin was primarily due to increased feedstock and conversion costs as compared to 2020.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses increased by $5.1 million, or 19.7%, to $31.0 million in 2021 from $25.9 million in 2020.

The increase in 2021, as compared to 2020, was mainly attributable to higher service costs.

Interest Expense .

Interest expense decreased by $3.2 million to $8.8 million in 2021 from $12.0 million in 2020, largely due to a lower average interest rate on debt.

Other Income, net.

Other income, net decreased by $0.6 million to $0.1 million in 2021 from $0.7 million in 2020, 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 $0.5 million in 2021 as compared to $0.6 million in 2020.

MLP Distributable Cash Flow.

MLP distributable cash flow decreased by $1.9 million to $70.1 million in 2021 from $72.0 million in 2020.

The decrease in MLP distributable cash flow was primarily a result of lower production, increased turnaround reserves and higher maintenance expense in 2021 compared to 2020, partially offset by the buyer deficiency fee and Shortfall of $110.3 million recognized in 2021 as compared to $69.6 million in 2020 and lower interest expense during the year.

EBITDA increased by $62.7 million to $519.6 million in 2021 from 2020 EBITDA of $456.9 million.

The increased EBITDA, as compared to the prior year, was primarily due to the buyer deficiency fee and Shortfall of $110.3 million recognized during 2021 compared to the buyer deficiency of $69.6 million recognized in 2020 , partially offset by lower sales volumes as a result of lower production and higher feedstock and conversion costs.

2020 Compared with 2019

Net sales decreased by $125.2 million, or 11.5%, to $966.7 million in 2020 from $1,091.9 million in 2019.

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The decreased EBITDA, as compared to the prior year, was primarily due to lower sales volumes as a result of lower production and higher maintenance expense, partially offset by the buyer deficiency fee of $69.6 million recognized during 2020 and lower selling, general and administrative expenses.

2019 Compared with 2018

Net sales decreased by $193.7 million, or 15.1%, to $1,091.9 million in 2019 from $1,285.6 million in 2018, primarily due to lower ethylene sales prices to Westlake per the terms of the Ethylene Sales Agreement.

The overall decreased sales price in 2019 contributed to a 15.4% decrease in net sales, compared to 2018, which was mainly due to lower sales prices to Westlake per the terms of the Ethylene Sales Agreement and lower third party ethylene sales prices.

Sales volumes in 2019 were comparable to 2018.

Gross Profit .

Gross profit was $379.4 million in 2019 as compared to gross profit of $377.2 million in 2018.

The gross profit margin was 34.7% in 2019 as compared to 29.3% in 2018.

The higher 2019 gross profit margin was due to improved margins on third party sales, primarily due to lower feedstock costs, as compared to 2018.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses increased by $1.7 million, or 6.2%, to $29.3 million in 2019 from $27.6 million in 2018.

The increase in 2019, as compared to 2018, was associated with the acquisition of the incremental interest in OpCo and increased general and administrative expense allocations, partially offset by a decrease in provision for doubtful accounts.

Interest Expense .

Interest expense decreased by $1.8 million to $19.6 million in 2019 from $21.4 million in 2018, largely due to a lower average debt balance resulting from the partial repayment of borrowings under the OpCo Revolver in April 2019 and a decrease in the applicable margin on the OpCo Revolver from 3% to 2% effective September 25, 2018, partially offset by a higher interest rate on debt due to an increase in LIBOR in 2019.

Other Income, net.

Other income, net increased by $0.6 million in 2019 to $2.5 million, as compared to 2018, primarily due to an increase in interest income earned under the Investment Management Agreement.

Provision for Income Taxes.

Provision for income taxes increased to $0.73 million in 2019 as compared to $0.02 million in 2018.

The increase was mainly attributable to a tax benefit in 2018 due to a revaluation of the state deferred income tax liability as a result of a decrease in state tax apportionment.

MLP Distributable Cash Flow.

MLP distributable cash flow increased by $13.2 million to $73.2 million in 2019 from $60.0 million in 2018.

The increase in MLP distributable cash flow as compared to 2018 was primarily a result of the 4.5% increase in the Partnership's interest in OpCo, effective as of January 1, 2019, as well as higher third party sales margins, partially offset by higher maintenance capital expenditures.

EBITDA for 2019 was $460.6 million, which was comparable to 2018 EBITDA of $460.9 million.

Operating Activities

Operating activities provided cash of $408.4 million in 2021 as compared to cash provided by operating activities of $373.4 million in 2020.

The $35.0 million increase in cash flows from operating activities was mainly due to increase in net income and in cash provided by working capital, partially offset by OpCo's Petro 2 facility turnaround activities during 2021 as compared to 2020.

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 and accrued liabilities and other liabilities, provided cash of $25.6 million in 2021 as compared to $67.9 million of cash used in 2020, resulting in an overall favorable change of $93.5 million.

This change in 2021 as compared to 2020 was due to changes in receivable due from Westlake resulting from the buyer deficiency fee and Shortfall recognized in 2021 as compared to 2020 and favorable changes in third party accounts payable and accrued liabilities due to the timing of payments related to the turnaround costs and capital expenditures.

These favorable changes were partially offset by an unfavorable change related to turnaround costs incurred during 2021.

Operating activities provided cash of $373.4 million in 2020 as compared to cash provided by operating activities of $450.8 million in 2019.

The $77.4 million decrease in cash flows from operating activities was mainly due to an increase in use of cash in working capital during 2020 as compared to 2019.

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This change was due to an unfavorable change in Westlake accounts receivable in 2020 as compared to 2019, primarily due to the buyer deficiency fee recognized in 2020.

Operating activities provided cash of $450.8 million in 2019 as compared to cash provided of $436.2 million in 2018.

The $14.6 million increase in cash flows from operating activities was mainly due to a decrease in use of cash in working capital during 2019 as compared to 2018.

Changes in components of working capital provided cash of $11.7 million in 2019 as compared to $4.3 million of cash used in 2018, resulting in an overall favorable change of $16.0 million.

This change was due to a favorable change in third party and Westlake accounts receivable, accounts payable and accrued liabilities in 2019 as compared to 2018, primarily resulting from lower ethylene sales prices and feedstock costs.

Investing Activities

Net cash provided by investing activities during 2020 was $2.0 million as compared to net cash used for investing activities of $57.7 million in 2019, mainly due to maturities of investments under the Investment Management Agreement and a decrease in additions to property, plant and equipment in 2020, as compared to 2019.

Net cash used in investing activities during 2021 was $64.3 million as compared to net cash provided by investing activities of $2.0 million in 2020, mainly due to increased additions to property, plant, and equipment, partially offset by maturities of investments under the Investment Management Agreement in 2021, as compared to 2020.

During 2021, we invested $276.0 million with Westlake, and $293.0 million of such investments matured.

Capital expenditures were $81.2 million in 2021 as compared to $37.0 million in 2020.

Capital expenditures during 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 2019 was $57.7 million as compared to net cash used for investing activities of $51.8 million in 2018, mainly due to increased net cash used under the Investment Management Agreement in 2019, as compared to 2018.

The higher capital expenditure in 2021 was primarily associated with OpCo's Petro 2 turnaround.

Remaining capital expenditures during 2021 and 2020 were related to projects to improve production capacity or reduce costs, maintenance and safety and environmental projects at our facilities.

During 2020, we invested $349.0 million with Westlake, and $388.0 million of such investments matured.

Capital expenditures were $37.0 million in 2020 as compared to $43.7 million in 2019.

Capital expenditures during 2019 and 2018 were primarily related to projects to improve production capacity or reduce costs, maintenance and safety and environmental projects at OpCo's facilities.

Capital expenditures during 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

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Net cash used for financing activities during 2020 was $378.2 million as compared to net cash used for financing activities of $392.9 million in 2019.

The cash inflows during 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 2019 were related to partial repayments of borrowings under the OpCo Revolver of $201.4 million and the distribution of $315.6 million to Westlake and of $62.1 million to other unitholders by the Partnership.

The cash outflows during 2020 were related to distributions of $311.8 million to Westlake and of $66.4 million to other unitholders by the Partnership.

Liquidity and Capital Resources

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Net proceeds from the issuance of these common units were approximately $62.7 million.

Pursuant to the terms of the ATM Agreement, 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.

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 December 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.

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.

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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 an amount for turnaround costs during each twelve-month period designed to cover for turnaround activities in future years.

Westlake may also provide other direct and indirect financing to us from time to time, although it is not obligated to do so.

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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Our cash is generated from cash distributions from OpCo.

OpCo is a restricted subsidiary under certain indentures governing Westlake's senior notes.

These restrictions limit OpCo's ability to incur additional debt, among other things.

OpCo is a restricted subsidiary under certain indentures governing Westlake's senior notes, and these restrictions limit OpCo's ability to incur additional debt, among other things.

Westlake's credit facility and various indentures do not prevent OpCo from making distributions to us.

We, OpCo and Westlake are parties to an Investment Management Agreement that authorizes Westlake to invest the Partnership's and OpCo's excess cash with Westlake for a term of up to a maximum of nine months.

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Westlake has historically funded expansion capital expenditures related to Lake Charles Olefins and Calvert City Olefins.

No funding was required by OpCo to fund its capital expenditures during 2020 or 2019.

No such funding was required by OpCo during 2021 or 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.

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As of December 31, 2021, our cash and cash equivalents totaled $17.1 million.

In addition, we have cash invested under the Investment Management Agreement and a revolving credit facility with Westlake available to supplement cash if needed, as described under "Indebtedness" below.

In addition, we have cash invested under the Investment Management Agreement and a revolving credit facility with Westlake available to supplement cash on hand, if needed, as described under "Indebtedness" below.

As described above, we, OpCo and Westlake are parties to an Investment Management Agreement that authorizes Westlake to invest the Partnership's and OpCo's excess cash with Westlake for a term of up to a maximum of nine months.

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OpCo Revolver

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 ("OpCo Revolver") that may be used to fund growth projects and working capital needs.

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.

On April 30, 2019, OpCo repaid $201.4 million of borrowings under the OpCo Revolver.

As of December 31, 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.

As of December 31, 2021, outstanding borrowings under the OpCo Revolver totaled $22.6 million and bore interest at the London Interbank Offered Rate ("LIBOR") rate plus 2.0%, which is accrued in arrears quarterly.

On September 25, 2018, the OpCo Revolver was amended to extend the scheduled maturity date from August 4, 2019 to September 25, 2023 and to revise the applicable margin from 3% to 2%.

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Contractual Obligations and Commercial Commitments

In addition to long-term debt, we are required to make payments relating to various types of obligations.

The following table summarizes our contractual obligations as of December 31, 2020 relating to long-term debt, interest payments, operating leases and purchase obligations for the next five years and thereafter.

The amounts do not include deferred charges and other items classified in other liabilities in the consolidated balance sheet due to the uncertainty of the future payment schedule.

Payment Due by Period

Total 2021 2022-2023 2024-2025 Thereafter

(dollars in millions)

Contractual Obligations

Principal (1)

$ 399.7 $ — $ 399.7 $ — $ —

20.0 8.9 11.1 — —

Operating leases (3)

1.2 0.8 0.4 — —

Purchase obligations (4)

37.9 37.9 — — —

Total $ 458.8 $ 47.6 $ 411.2 $ — $ —

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(1) Long-Term Debt .

Long-term debt consists of the OpCo Revolver and MLP Revolver.

(2) Interest Payments.

Interest payments are based on interest rates in effect at December 31, 2020.

(3) Operating Leases.

Represent noncancelable operating leases with respect to rail cars that are subleased to OpCo and two site lease agreements for various periods.

Pursuant to the site lease agreements, OpCo leases the real property underlying Lake Charles Olefins and Calvert City Olefins.

OpCo is also granted rights to access and use certain other portions of Westlake's production facilities that are necessary to operate OpCo's ethylene production facilities.

OpCo owes Westlake one dollar per site per year.

Each of the site lease agreements has a term of 50 years.

The Partnership's material cash requirements for contractual obligations and commercial commitments in the near term (next 12 months) and the long-term period (2023 and thereafter) include repayment of long-term debt, interest payments and purchase obligations.

Debt Obligations and Interest Payments.

As of December 31, 2021, we had $8.5 million of debt related interest expense due within the near term, and debt obligations of $399.7 million and related interest expense of $2.1 million due over the long-term period, respectively.

All $399.7 million of our outstanding debt matures in 2023.

See Note 8, "Long-Term Debt," in the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" for further information on our debt obligations and the expected timing of future principal and interest payments.

Purchase Obligations.

Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including a minimum quantity and price.

We are party to various obligations to purchase goods and services, including the Services and Secondment Agreement, in the ordinary course of our business, as well as various purchase commitments for our capital projects.

Off-Balance Sheet Arrangements

Critical Accounting Policies

As of December 31, 2021, we had $14.7 million of enforceable and legally binding purchase commitments due within the near term, and none due over the long-term period.

Additionally, we are party to various agreements to purchase goods and services, including the Services and Secondment Agreement, in the ordinary course of our business, as well as various agreements related to our capital projects.

Critical Accounting Policies and Estimates

Critical accounting policies are those that are important to our financial condition and require management's most difficult, subjective or complex judgments.

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We have evaluated the accounting policies used in the preparation of the accompanying consolidated financial statements and related notes and believe those policies are reasonable and appropriate.

We apply those accounting policies that we believe best reflect the underlying business and economic events, consistent with GAAP.

Our more critical accounting policies include those related to long-lived assets, fair value estimates, goodwill impairment and environmental and legal obligations.

Inherent in such policies are certain key assumptions and estimates.

We periodically update the estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment.

Our significant accounting policies are summarized in Note 1 to the consolidated financial statements.

We believe the following to be our most critical accounting policies applied in the preparation of our financial statements.

Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Our more critical accounting estimates include those related to long-lived assets, fair value estimates, goodwill impairment and environmental and legal obligations.

Inherent in such estimates are certain key assumptions.

We periodically update the estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business and general economic environment.

We believe the following to be our most critical accounting estimates required for the preparation of our financial statements.

Long-Lived Assets.

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We use all available information to make these fair value determinations, including the engagement of third-party consultants.

At December 31, 2020, recorded goodwill was $5.8 million, all of which was associated with the acquisition of the Longview Pipeline as part of the acquisition of Westlake's Longview production facilities.

In addition, we record all derivative instruments at fair value.

We record all derivative instruments at fair value.

The fair value of the financial instruments is estimated using quoted market prices in active markets and observable market-based inputs or unobservable inputs that are corroborated by market data when active markets are not available or unobservable inputs that are not corroborated by market data.

We settled all derivatives in 2020 and no new derivatives were entered in 2021, however, we may enter into derivative arrangements in the future.

Goodwill impairment.

Goodwill is evaluated for impairment at least annually, or when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below its carrying value.

Goodwill is evaluated for impairment, or when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below its carrying value, and otherwise at least annually.

At December 31, 2021, recorded goodwill was $5.8 million, all of which was associated with the acquisition of the Longview Pipeline as part of the past acquisition of Westlake's Longview production facilities.

We perform our annual impairment assessment in October.

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Alternatively, we may unconditionally elect to bypass the qualitative assessment and perform a quantitative goodwill impairment assessment in any period.

Significant assumptions used in the discounted cash flow projection impairment assessment for goodwill include sales volumes based on production capacities.

Significant assumptions used in the discounted cash flow projection impairment assessment for goodwill include future sales volumes based on production capacities.

The future cash flows are discounted to present value using a discount rate.

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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-K

Item 7. Management’s Discussion and Analysis