Item 7. Management’s Discussion and Analysis
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying consolidated financial statements, the notes thereto, and the other financial information appearing elsewhere in this report. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Cautionary Statement Regarding Forward-Looking Statements" and "Item 1A. 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. 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.
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 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 unavoid ed operating and maintenance capital expenditures and maintenance expenses per pound of volume committed by Westlake during the force majeure period. In the event Westlake purchases less than its annual commitment, we recognize buyer deficiency fees representing fixed margin and all expenses and expenditures incurred per pound of volume committed but not taken by Westlake. 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.
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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 compliance.
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. Net proceeds (after transportation and other costs) from the sales of associated co-products that result from the production of ethylene purchased by Westlake are netted against the ethylene price charged to Westlake under the Ethylene Sales Agreement, thereby substantially reducing our exposure to fluctuations in the market prices of these co-products. During 2024, all third-party ethylene and associated co-products sales generated 16.3% of our total revenues.
Under the Services and Secondment Agreement, OpCo uses a portion of its production capacity to process purge gas for Westlake. On August 4, 2016, OpCo and Westlake entered into an amendment to the Ethylene Sales Agreement in order to provide that certain of the pricing components that make up the price for ethylene sold thereunder would be modified to reflect the portion of OpCo's production capacity that is used to process Westlake's purge gas instead of producing ethylene and to clarify that costs specific to the processing of Westlake's purge gas would be recovered under the Services and Secondment Agreement, and not the Ethylene Sales Agreement.
Please refer to Note 2 to the consolidated financial statements included in Item 8 of this form 10-K for more information on the Ethylene Sales Agreement.
How We Source Feedstock
OpCo has entered into a 12-year feedstock supply agreement (the "Feedstock Supply Agreement") with Westlake Petrochemicals LLC, a wholly owned subsidiary of Westlake, under which Westlake Petrochemicals LLC supplies OpCo with ethane and other feedstocks that OpCo uses to produce ethylene under the Ethylene Sales Agreement. For its approximately 5% merchant sales, OpCo may purchase the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from Westlake Petrochemicals LLC.
Please refer to Note 2 to the consolidated financial statements included in Item 8 of this form 10-K for more information on the Feedstock Supply Agreement.
How We Evaluate Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (1) production volumes, (2) operating and maintenance expenses, including turnaround costs, and (3) MLP distributable cash flow and EBITDA.
Production Volumes
The amount of profit we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at Calvert City Olefins and Lake Charles Olefins. Although Westlake has committed to purchasing minimum volumes from us under the Ethylene Sales Agreement, our results of operations are impacted by our ability to:
• produce sufficient volumes of ethylene to meet our commitments under the Ethylene Sales Agreement or recover our estimated costs through the pricing provisions of the Ethylene Sales Agreement;
• contract with third parties for the remaining uncommitted production capacity;
• add or increase capacity at our existing production facilities, or add additional production capacity via organic expansion projects and acquisitions; and
• achieve or exceed the specified yield factors for natural gas, ethane and other feedstock under the Ethylene Sales Agreement.
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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. We commenced the next maintenance turnaround at Petro 1 in the first quarter of 2025.
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 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. 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.
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. 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; 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.
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Factors Affecting Our Business
Supply and Demand for Ethylene and Resulting Co-products
We generate a substantial majority of our revenue from the Ethylene Sales Agreement. This contract is intended to promote cash flow stability and minimize our direct exposure to commodity price fluctuations in the following ways: (1) the cost-plus pricing structure of the Ethylene Sales Agreement is expected to generate a fixed margin of $0.10 per pound, adjusting automatically for changes in feedstock costs; and (2) Westlake is committed to purchase 95% of the annual planned output, subject to a maximum commitment of 3.8 billion pounds of ethylene per year, with an option to purchase an additional 95% of actual output in excess of the planned output on a contract year basis. As a result, our direct exposure to commodity price risk is limited to approximately 5% of our total ethylene production, which is that portion sold to third parties, assuming Westlake exercises its option to purchase 95% of the over production, as well as to our co-products sales.
We also have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the ethylene consumption patterns of third-party purchasers. Demand for ethylene exhibits cyclical commodity characteristics as margins earned on ethylene derivative products are influenced by changes in the balance between supply and demand, the resulting operating rates and general economic activity. While we believe we have substantially mitigated our indirect exposure to commodity price fluctuations during the term of the Ethylene Sales Agreement through the minimum purchase commitment and the cost-plus based pricing, our ability to execute our growth strategy in our areas of operation will depend, in part, on the demand for ethylene derivatives in the geographical areas served by our ethylene production facilities.
Recent Development
Petro 1 Turnaround
During the first quarter of 2025, we commenced our planned maintenance turnaround of the Petro 1 production facility.
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Results of Operations
The table below and descriptions that follow represent the consolidated results of operations of the Partnership for the years ended December 31, 2024 and 2023. A detailed comparison of the Partnership's 2023 operating results to its 2022 operating results can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section in the Partnership's 2023 Annual Report on Form 10-K filed February 28, 2024.
Year Ended December 31,
2024 2023
(in thousands of dollars, except unit amounts and per unit data)
Net sales—Westlake $ 950,801 $ 1,026,655
Net co-products, ethylene and other sales—third parties 185,095 164,136
Total net sales 1,135,896 1,190,791
Gross profit 418,939 387,459
Selling, general and administrative expenses 28,495 29,751
Income from operations 390,444 357,708
Other income (expense)
Interest expense—Westlake (25,701) (26,501)
Other income, net 5,251 4,232
Income before income taxes 369,994 335,439
Provision for income taxes 835 813
Net income 369,159 334,626
Less: Net income attributable to noncontrolling interest in OpCo 306,767 280,343
Net income attributable to Westlake Chemical Partners LP and limited partners'
interest in net income
$ 62,392 $ 54,283
Net income per limited partner unit attributable to Westlake Chemical Partners LP
(basic and diluted)
Common units $ 1.77 $ 1.54
Weighted average limited partner units outstanding
(basic and diluted)
Common units—publicly and privately held 21,110,640 21,102,110
Common units—Westlake 14,122,230 14,122,230
MLP distributable cash flow (1)
$ 66,864 $ 62,574
EBITDA (1)
$ 507,594 $ 472,143
Year Ended December 31,
2024 2023
Average Sales
Price Volume Average Sales
Price Volume
Net sales percentage change from prior-year period due to average sales price and volume
-6.6 % +2.0 % -25.5 % +1.4%
Year Ended December 31,
2024 2023
Domestic US prices percentage change from prior-year period for fuel cost and feedstock
Fuel cost (Natural Gas) -17.3 % -58.5 %
Feedstock (Ethane) -22.6 % -48.8 %
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(1) See above for discussions on non-GAAP financial measures. Reconciliations for each of MLP distributable cash flow and EBITDA are included below.
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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.
Year Ended December 31,
2024 2023 2022
(in thousands of dollars)
Net cash provided by operating activities $ 485,001 $ 451,999 $ 463,736
Loss from disposition of property, plant and equipment (2,345) (4,933) (4,707)
Changes in operating assets and liabilities and other (113,497) (112,440) (124,200)
Net income 369,159 334,626 334,829
Add:
Depreciation, amortization and disposition of property, plant and
equipment
114,244 115,136 125,781
Less:
Contribution to turnaround reserves (43,880) (29,520) (29,175)
Maintenance capital expenditures (50,731) (49,212) (45,249)
Distributable cash flow attributable to noncontrolling interest in
OpCo (321,928) (308,456) (310,316)
MLP distributable cash flow $ 66,864 $ 62,574 $ 75,870
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.
Year Ended December 31,
2024 2023 2022
(in thousands of dollars)
Net cash provided by operating activities $ 485,001 $ 451,999 $ 463,736
Loss from disposition of property, plant and equipment (2,345) (4,933) (4,707)
Changes in operating assets and liabilities and other (113,497) (112,440) (124,200)
Net income 369,159 334,626 334,829
Less:
Other income, net 5,251 4,232 1,566
Interest expense—Westlake (25,701) (26,501) (13,407)
Provision for income taxes (835) (813) (1,017)
Income from operations 390,444 357,708 347,687
Add:
Depreciation and amortization 111,899 110,203 121,074
Other income, net 5,251 4,232 1,566
EBITDA $ 507,594 $ 472,143 $ 470,327
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Summary
For the year ended December 31, 2024, net income was $369.2 million on net sales of $1,135.9 million. This represents an increase in net income of $34.6 million as compared to net income of $334.6 million on net sales of $1,190.8 million for the year ended December 31, 2023. Net income attributable to the Partnership in 2024 was $62.4 million as compared to $54.3 million in 2023, an increase of $8.1 million. Income from operations was $390.4 million for 2024, as compared to $357.7 million for 2023, an increase of $32.7 million . Net sales for 2024 decreased by $54.9 million as compared to 2023 primarily due to lower ethylene sales prices to Westlake in 2024 compared to 2023, including the impact of the sale of excess quantities of ethylene in 2024 at prices that excluded certain non-variable costs of production pursuant to the Ethylene Sales Agreement, partially offset by higher ethylene and co-products sales volumes and higher third-party ethylene sales prices. Income from operations, net income and net income attributable to the Partnership for 2024 increased compared to 2023 due to higher third-party ethylene sales prices, lower ethane feedstock and natural gas costs and higher ethylene and co-products sales volumes, partially offset by lower ethylene sales prices to Westlake including the impact of the sale of excess quantities of ethylene at prices that excluded certain non-variable costs of production.
2024 Compared with 2023
Net Sales . Net sales decreased by $54.9 million, or 4.6%, to $1,135.9 million in 2024 from $1,190.8 million in 2023. The decrease in net sales in 2024 was primarily due to lower ethylene sales prices to Westlake in 2024 as compared to 2023 including the impact of the sale of excess quantities of ethylene at prices that excluded certain non-variable costs of production, partially offset by higher ethylene and co-products sales volumes and higher third-party ethylene sales prices. Lower average sales prices in 2024 contributed to a 6.6% decrease in net sales compared to 2023. Higher sales volumes in 2024 contributed to a 2.0% increase in net sales compared to 2023.
Gross Profit . Gross profit was $418.9 million in 2024, as compared to gross profit of $387.5 million in 2023. The gross profit margin was 36.9% in 2024 as compared to 32.5% in 2023. The increased gross profit margin in 2024 was primarily due to lower ethane feedstock and natural gas costs and higher third-party ethylene sales prices in 2024 as compared to 2023.
Selling, General and Administrative Expenses . Selling, general and administrative expenses decreased by $1.3 million , or 4.4%, to $28.5 million in 2024 from $29.8 million in 2023. The decrease in 2024, as compared to 2023, was mainly attributable to lower service costs.
Interest Expense—Westlake . Interest expense remained relatively consistent at $25.7 million in 2024 compared to $26.5 million in 2023.
Other Income, net. Other income, net increased by $1.1 million to $5.3 million in 2024 from $4.2 million in 2023 primarily due to an increase in interest earned on the balance with Westlake under the Investment Management Agreement due to a higher average amount of cash invested in 2024 as compared to 2023.
Provision for Income Taxes. Provision for income taxes remained consistent at $0.8 million in 2024 as compared to $0.8 million in 2023.
MLP Distributable Cash Flow. MLP distributable cash flow increased by $4.3 million to $66.9 million in 2024 from $62.6 million in 2023. The increase in MLP distributable cash flow was primarily a result of higher net income, partially offset by higher reserves for future turnarounds.
EBITDA. EBITDA increased by $35.5 million to $507.6 million in 2024 from EBITDA of $472.1 million in 2023. The increased EBITDA, as compared to the prior year, was primarily due to higher third-party ethylene sales prices, lower ethane feedstock and natural gas costs and higher ethylene and co-products sales volumes in 2024 as compared to 2023, partially offset by lower ethylene sales prices to Westlake including the impact of the sale of excess quantities of ethylene at prices that excluded certain non-variable costs of production.
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Cash Flows
Operating Activities
Operating activities provided cash of $485.0 million in 2024 as compared to cash provided by operating activities of $452.0 million in 2023. The $33.0 million increase in cash flows from operating activities was mainly due to higher income from operations, which was partially offset by a decrease in cash provided by working capital. 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 and other liabilities, provided cash of $24.8 million in 2024 as compared to $34.4 million of cash provided in 2023, resulting in a unfavorable change of $9.6 million. The unfavorable change in working capital was mainly attributable to unfavorable changes in accrued and other liabilities and accounts payable—third parties primarily due to higher maintenance costs accrual at December 31, 2023 as compared to December 31, 2024. These unfavorable changes were partially offset by a favorable change in accounts receivable, net—third parties due to collection of a maintenance cost reimbursement and lower third party receivables at the end of 2024.
Investing Activities
Net cash used for investing activities during 2024 was $89.0 million as compared to net cash used for investing activities of $75.9 million in 2023. The $13.1 million increase in cash used for investing activities was mainly due to an increase in net cash invested under the Investment Management Agreement in 2024 as compared to 2023. During 2024, we invested $40.0 million with Westlake. During 2023, we invested $174.1 million with Westlake, and $145.0 million of such investments matured. Capital expenditures were $49.0 million in 2024 as compared to $46.8 million in 2023. Capital expenditures during 2024 and 2023 were 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 2024 was $396.3 million as compared to net cash used for financing activities of $382.2 million in 2023. The cash outflows during 2024 were related to distributions of $329.9 million to the noncontrolling interest retained in OpCo by Westlake and of $66.4 million to unitholders by the Partnership. The cash outflows during 2023 were related to distributions of $315.8 million to the noncontrolling interest retained in OpCo by Westlake and of $66.4 million to unitholders by the Partnership.
Liquidity and Capital Resources
Liquidity and Financing Arrangements
Pursuant to the terms of the 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, which may include the funding of potential drop-downs and other acquisitions. No common units had been issued under the ATM Program as of December 31, 2024 .
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 interests or debt.
The Partnership maintains separate bank accounts, but Westlake continues to provide treasury services on our behalf under the Omnibus 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 equity interests or debt. 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 obligated to do so.
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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 to eight years. By reserving additional cash annually, we intend to reduce the variability in OpCo's cash flow. Although we had previously planned to commence the next maintenance turnaround at the Petro 1 ethylene unit in the third quarter of 2024, we made the decision to defer the planned turnaround in order to maintain production and capitalize on higher average third-party ethylene sales prices during the third quarter of 2024. We commenced the planned maintenance turnaround in the first quarter of 2025. 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.
Our cash is generated from cash distributions from OpCo. 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 durations of up to a maximum of nine months. Per the terms of the Investment Management Agreement, cash invested with Westlake 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.
On January 27, 2025, the board of directors of Westlake Chemical Partners GP LLC, our general partner, approved a quarterly distribution of $0.4714 per unit payable on February 25, 2025 to unitholders of record as of February 7, 2025, 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 December 31, 2024. 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. No such funding was required by OpCo during 2024, 2023 or 2022. Total capital expenditures for the years ended December 31, 2024, 2023 and 2022 were $49.0 million, $46.8 million, and $54.1 million, respectively. 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 December 31, 2024, our cash and cash equivalents totaled $58.3 million. 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 durations of up to a maximum of nine months. The Partnership had $134.6 million of cash invested under the Investment Management Agreement at December 31, 2024.
Indebtedness
OpCo Revolver
In connection with the IPO, OpCo entered into a $600.0 million revolving credit facility with an affiliate of Westlake, as amended in June 2017, September 2018 and July 2022 (the "OpCo Revolver") that may be used to fund growth projects and working capital needs. The OpCo Revolver is scheduled to mature on July 12, 2027. On July 12, 2022, OpCo entered into the Second Amendment (the "OpCo Revolver Amendment") to the OpCo Revolver. The OpCo Revolver Amendment, among other things, extended the maturity date to July 12, 2027 and provided for the replacement of the London Interbank Offered Rate ("LIBOR") with the Secured Overnight Financing Rate, as administered by the Federal Reserve Bank of New York ("SOFR"). Borrowings under the OpCo Revolver bear interest at a variable rate of either (a) SOFR plus the Applicable Margin plus a 0.10% credit spread adjustment or, if SOFR is no longer available, (b) the Alternate Base Rate plus the Applicable Margin minus 1.0%. The Applicable Margin under the OpCo Revolver is 1.75%. As of December 31, 2024, outstanding borrowings under the OpCo Revolver totaled $22.6 million and bore interest at SOFR plus the Applicable Margin and credit spread adjustment, which is accrued in arrears quarterly.
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MLP Revolver
In 2015, we entered into a senior, unsecured revolving credit agreement with an affiliate of Westlake, as amended in August and November 2017, March 2020 and July 2022 (the "MLP Revolver"). The MLP Revolver has a borrowing capacity of $600.0 million and is scheduled to mature on July 12, 2027. On July 12, 2022, the Partnership entered into the Fourth Amendment (the "MLP Revolver Amendment") to the MLP Revolver. The MLP Revolver Amendment, among other things, extended the maturity date to July 12, 2027 and provided for the replacement of LIBOR with SOFR as the reference rate. Borrowings under the MLP Revolver bear interest at a variable rate of either (a) SOFR plus the Applicable Margin plus a 0.10% credit spread adjustment or, if SOFR is no longer available, (b) the Alternate Base Rate plus the Applicable Margin minus 1.0%. The Applicable Margin under the MLP Revolver varies between 1.75% and 2.75%, depending on the Partnership's Consolidated Leverage Ratio. 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), 5.50:1.00 or less, or (2) during any other period, 4.50:1.00 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 December 31, 2024, the outstanding borrowings under the MLP Revolver totaled $377.1 million and bore interest at SOFR plus the Applicable Margin and credit spread adjustment, 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 partnership purposes.
Contractual Obligations and Commercial Commitments
The Partnership's material cash requirements for contractual obligations and commercial commitments in the near term (next 12 months) and the long-term period (2026 and thereafter) include repayment of long-term debt, interest payments, operating leases and purchase obligations.
Debt Obligations and Interest Payments. As of December 31, 2024, we had $25.8 million of debt related interest expense due within the near term, and debt obligations of $399.7 million and related interest expense of $39.4 million due over the long-term period, respectively. All $399.7 million of our outstanding debt matures in 2027. See Note 8, "Long-Term Debt," in the Notes to Consolidated Financial Statements in Item 8 of this form 10-K for further information on our debt obligations and the expected timing of future principal and interest payments.
Operating Leases. As of December 31, 2024, there was $1.7 million in operating lease obligations due within the near term and $2.2 million due over the long-term period related to noncancelable operating leases with respect to rail cars that are subleased to OpCo.
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. As of December 31, 2024, we had $128.7 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. Different amounts would be reported under different operating conditions or under alternative assumptions. 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. Our significant accounting policies are summarized in Note 1 in the Notes to Consolidated Financial Statements in Item 8 of this form 10-K.
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.
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Long-Lived Assets. Key estimates related to long-lived assets include useful lives, recoverability of carrying values and existence of any retirement obligations. Such estimates could be significantly modified. The carrying values of long-lived assets could be impaired by significant changes or projected changes in supply and demand fundamentals (which would have a negative impact on operating rates or margins), new technological developments, new competitors with significant raw material or other cost advantages, adverse changes associated with the U.S. and world economies, the cyclical nature of the chemical and refining industries and uncertainties associated with governmental actions.
We evaluate long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, including when negative conditions such as significant current or projected operating losses exist. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and the operational performance of our businesses. Actual impairment losses incurred could vary significantly from amounts estimated. Long-lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Additionally, future events could cause us to conclude that impairment indicators exist and that associated long-lived assets of our businesses are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
The estimated useful lives of long-lived assets range from three to 40 years. Depreciation and amortization of these assets, including amortization of deferred turnaround costs, under the straight-line method over their estimated useful lives totaled $111.9 million, $110.2 million and $121.1 million in 2024, 2023 and 2022, respectively. If the useful lives of the assets were found to be shorter than originally estimated, depreciation or amortization charges would be accelerated.
We defer the costs of planned major maintenance activities, or turnarounds, and amortize the costs over the period until the next planned turnaround of the affected unit. Total costs deferred on turnarounds were $21.5 million, $30.9 million and $6.7 million in 2024, 2023 and 2022, respectively. Amortization of previously deferred turnaround costs was $25.1 million, $25.4 million and $26.0 million in 2024, 2023 and 2022, respectively. As of December 31, 2024, deferred turnaround costs, net of accumulated amortization, totaled $129.6 million. Expensing turnaround costs as incurred would likely result in greater variability of our quarterly operating results and would adversely affect our financial position and results of operations.
Additional information concerning long-lived assets and related depreciation and amortization appears in Notes 5 and 7 to the consolidated financial statements included in Item 8 of this form 10-K.
Fair Value Estimates. We develop estimates of fair value to allocate the purchase price paid to acquire a business to the assets acquired and liabilities assumed in an acquisition, to assess impairment of long-lived assets and goodwill and to record derivative instruments. We use all available information to make these fair value determinations, including the engagement of third-party consultants. 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. There were no derivative positions during the years ended December 31, 2024, 2023 and 2022. However, we may enter into derivative arrangements in the future.
Goodwill. Goodwill is evaluated for impairment 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, 2024, 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 the fourth quarter. We may elect to perform an optional qualitative assessment to determine whether a quantitative impairment analysis is required. The qualitative assessment considers factors such as macroeconomic conditions, industry and market considerations, cost factors related to raw materials and labor, current and projected financial performance, changes in management or strategy, and market capitalization. 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 future sales volumes based on production capacities. The future cash flows are discounted to present value using a discount rate. The significant assumptions used in determining the fair value of the reporting unit using the market value methodology include the determination of appropriate market comparables and the estimated multiples of EBITDA a willing buyer is likely to pay. We elected to perform the qualitative assessment in the fourth quarter of 2024 and concluded that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount and, as such, the quantitative impairment test was not required.
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Environmental and Legal Obligations. We consult with various professionals to assist us in making estimates relating to environmental costs and legal proceedings. We accrue an expense when we determine that it is probable that a liability has been incurred and the amount is reasonably estimable. While we believe that the amounts recorded in the accompanying consolidated financial statements related to these contingencies are based on the best estimates and judgments available, the actual outcomes could differ from our estimates. Additional information about certain legal proceedings and environmental matters appears in "Item 1. Business — Environmental" and in Note 16 to the consolidated financial statements included in Item 8 of this form 10-K.
The Partnership has conditional asset retirement obligations for the removal and disposal of hazardous materials and the remediation of the cause of any such release from certain of the Partnership's manufacturing facilities. However, no asset retirement obligations have been recognized because the fair value of the conditional legal obligation cannot be measured due to the indeterminate settlement date of the obligation. Settlement of these conditional asset retirement obligations is not expected to have a material adverse effect on the Partnership's financial condition, results of operations or cash flows in any individual reporting period.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements included in Item 8 of this form 10-K for a full description of recent accounting pronouncements, including expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.