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  • WESTLAKE CHEMICAL PARTNERS LP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

WESTLAKE CHEMICAL PARTNERS LP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

By on March 2, 2022 0

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 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. 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 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 unavoided
operating and maintenance capital expenditures and maintenance expenses per
pound of volume committed by Westlake during the force majeure event. Payment
for the buyer deficiency fee is scheduled to be received by the Partnership
after the conclusion of the year.

Westlake has an option to take 95% of volumes in excess of the minimum
commitment on an annual basis under the Ethylene Sales Agreement if we produce
more than our planned production. Under the Ethylene Sales Agreement, the price
for the sale of such excess ethylene to Westlake is based on a formula similar
to that used for the minimum purchase commitment, with the exception of certain
fixed costs. In addition, under the Ethylene Sales Agreement, if production
costs billed to Westlake on an annual basis are less than 95% of the actual
production costs incurred by OpCo during the contract year, OpCo is entitled to
recover the shortfall in such production costs (proportionate to the volume sold
to Westlake) in the subsequent year ("Shortfall"). The Shortfall is generally
recognized during the period in which the related operating, maintenance or
turnaround activities occur.

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.
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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 2021, all the third-party ethylene and associated
co-products sales generated 15.5% 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 of the consolidated financial statements included in this report for more information on the ethylene sales agreement.

How we source raw materials

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 five percent 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 of the consolidated financial statements included in this report for more information on the raw material 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 the remaining uncommitted production capacity with third parties;

•add or increase the capacity of our existing production facilities, or add additional production capacity through organic expansion projects and acquisitions; and

• Meet or exceed performance factors specified for natural gas, ethane and other feedstocks under the Ethylene Sales Agreement.

Operating expenses, maintenance capital expenses 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.
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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 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 "-Results of Operations" below.

Factors affecting our business

Supply and demand of 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.
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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 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.

Significant developments affecting industry conditions and our business

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. 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 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.


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Operating results

The table below and the descriptions that follow represent the consolidated results of operations of the Partnership for the years 2021, 2020 and 2019.

                                                                           Year Ended December 31,
                                                              2021                  2020                   2019

                                                         (in thousands of

dollars, except unit and per unit amounts

data)

Net sales-Westlake                                      $   1,026,586          $    888,245          $     937,625
Net co-products, ethylene and feedstock
sales-third parties                                           188,272                78,425                154,246
Total net sales                                             1,214,858               966,670              1,091,871
Gross profit                                                  441,706               378,883                379,428
Selling, general and administrative expenses                   31,018                25,895                 29,278
Income from operations                                        410,688               352,988                350,150
Other income (expense)
Interest expense-Westlake                                      (8,816)              (12,038)               (19,623)
Other income, net                                                  62                   733                  3,096
Income before income taxes                                    401,934               341,683                333,623
Provision for income taxes                                        549                   564                    728
Net income                                              $     401,385          $    341,119          $     332,895
Less: Net income attributable to noncontrolling
interest in OpCo                                              318,838               274,952                271,914
Net income attributable to Westlake Chemical
Partners LP and limited partners' interest in net
income                                                  $      82,547          $     66,167          $      60,981
Net income attributable to Westlake Chemical
Partners LP
per limited partner unit (basic and diluted)
Common units                                            $        2.34          $       1.88          $        1.77
Weighted average limited partner units
outstanding
(basic and diluted)
Common units-public                                        21,084,103            21,073,041             20,365,828
Common units-Westlake                                      14,122,230            14,122,230             14,122,230
MLP distributable cash flow (1)                         $      70,057          $     71,983          $      73,181
EBITDA (1)                                              $     519,564          $    456,875          $     460,566


                                                                                         Year Ended December 31,
                                                                        2021                                                2020
                                                        Average Sales                                       Average Sales
                                                            Price                    Volume                     Price                     Volume
Product sales price and volume percentage
change
  from prior year                                                 +26.8  %               -3.6  %                         +0.8%               -18.6  %


                                            Year Ended December 31,
                                   2021               2020              2019
Average industry prices (2)
Ethane (cents/lb)                 10.4                6.4                7.3
Propane (cents/lb)                24.7               11.0               12.7
Ethylene (cents/lb) (3)           42.9               17.5               18.5


______________________________

(1) See above for discussion of non-GAAP financial measures. Reconciliations for each of MLP’s distributable cash flow and EBITDA are included below.

(2) Industry price data was obtained through IHS. We have not independently verified the data.

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


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    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 flow generated by operating activities $408,439 $373,397 $450,807

     Loss from disposition of fixed assets               (4,198)        

(1,000) (515)

Change in operating assets and liabilities

       and other                                         (2,856)       (31,278)      (117,397)
     Net Income                                         401,385        341,119        332,895
     Add:

Depreciation, amortization and

alienation of property, factories and

       equipment                                        113,032        

104 154 107 835

Mark-to-market adjustment loss (gain) on

       derivative contracts                                   -         

(1,340) 1,301

Less:

     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 flow generated by operating activities $408,439 $373,397 $450,807

     Loss from disposition of fixed assets               (4,198)        

(1,000) (515)

Change in operating assets and liabilities

       and other                                         (2,856)       (31,278)      (117,397)
     Net income                                         401,385        341,119        332,895
     Less:
     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

Add:

     Depreciation and amortization                      108,814        103,154        107,320
     Other income, net                                       62            733          3,096
     EBITDA                                           $ 519,564      $ 456,875      $ 460,566


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Summary

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
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. 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 vs. 2020

Net Sales. 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. The 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. The provision for income taxes has been $0.5 million in 2021 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. 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.
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2020 vs. 2019

Net Sales. Net sales decreased by $125.2 million, or 11.5%, to $966.7 million in
2020 from $1,091.9 million in 2019. The decrease in net sales in 2020 was
primarily due to lower production during the year, mainly due to the force
majeure events and lower sales prices to third parties, partially offset by the
buyer deficiency fee of $69.6 million recognized in 2020 and higher sales price
to Westlake per the terms of the Ethylene Sales Agreement in 2020. The lower
sales volume during 2020 contributed to a decrease in net sales of 18.6% for the
year ended December 31, 2020 compared to the year ended December 31, 2019. The
decrease in sales volume during 2020 was primarily due to the force majeure
events at our Lake Charles Petro 1 and Petro 2 units. The average sales price in
2020 contributed to a 0.8% increase in net sales, compared to 2019, which was
mainly due to higher sales prices to Westlake per the terms of the Ethylene
Sales Agreement, partially offset by lower third party sales prices.

Gross Profit. Gross profit was $378.9 million in 2020, as compared to gross
profit of $379.4 million in 2019. The gross profit margin was 39.2% in 2020 as
compared to 34.7% in 2019. The increased 2020 gross profit margin was due to
higher earnings on ethylene sold to Westlake and the buyer deficiency fee of
$69.6 million recognized during the year, partially offset by lower sales
volumes resulting from lower production at the Lake Charles Petro I and Petro 2
units compared to 2019.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $3.4 million, or 11.6%, to $25.9 million in
2020 from $29.3 million in 2019. The decrease in 2020, as compared to 2019, was
mainly attributable to lower service cost.

Interest Expense. Interest expense decreased by $7.6 million to $12.0 million in
2020 from $19.6 million in 2019, largely due to a lower interest rate on debt as
a result of a decrease in the London Interbank Offered Rate ("LIBOR").

Other Income, net. Other income, net decreased by $2.4 million to $0.7 million
in 2020 from $3.1 million in 2019, primarily due to a decrease in interest
income earned under the Investment Management Agreement as a result of lower
average interest rates.

Provision for income taxes. The provision for income taxes has been $0.6 million in 2020 compared to $0.7 million in 2019.

MLP Distributable Cash Flow. MLP distributable cash flow decreased by $1.2
million to $72.0 million in 2020 from $73.2 million in 2019. The decrease in MLP
distributable cash flow was primarily a result of lower production, increased
turnaround reserves and higher maintenance expense, partially offset by the
buyer deficiency of $69.6 million recognized in 2020 and lower interest expense
during the year.

EBITDA. EBITDA decreased by $3.7 million to $456.9 million in 2020 from 2019
EBITDA of $460.6 million. 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.

Cash Flows

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.
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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. 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, used cash of $67.9
million in 2020 as compared to $11.7 million of cash provided in 2019, resulting
in an overall unfavorable change of $79.6 million. 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.

Investing activities

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. 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.

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. 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 2020 and 2019 were primarily related to projects to improve production
capacity or reduce costs, maintenance and safety and environmental projects at
our facilities.

Financing Activities

Net cash used for financing activities during 2021 was $344.2 million as
compared to net cash used for financing activities of $378.2 million in 2020.
The cash outflows during 2021 were related to distributions of $277.9 million to
Westlake and of $66.4 million to other unitholders by the Partnership.

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

Cash and capital resources

Cash and financing arrangements

On March 29, 2019, we completed the private placement of 2,940,818 common units
at a price of $21.40 per unit. Net proceeds from the issuance of these common
units were approximately $62.7 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
interests or debt.

The Partnership maintains separate bank accounts, but Westlake continues to
provide treasury services on our behalf under the Services and Secondment
Agreement. Our sources of liquidity include cash generated from operations, the
OpCo Revolver, the MLP Revolver and, if necessary and possible under then
current market conditions, the issuance of additional 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 years. By reserving
additional cash annually, we intend to reduce the variability in OpCo's cash
flow. Westlake's purchase price for ethylene purchased under the Ethylene Sales
Agreement includes a component (adjusted annually) designed to cover, over the
long term, substantially all of OpCo's turnaround expenditures.

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 a term 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 24, 2022, 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 17, 2022 to unitholders of record on February 3, 2022, which
equates to 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, 2021. We do not have a legal or contractual obligation to pay
distributions on a quarterly basis or any other basis at our minimum quarterly
distribution rate or any other rate.

Capital expenditure

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

Cash and Cash Equivalents

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 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. The Partnership had $106.2 million of cash invested under the Investment
Management Agreement at December 31, 2021.

Debt

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
(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, 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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MLP Revolver

In 2015, we entered into a senior, unsecured revolving credit agreement with an
affiliate of Westlake (the "MLP Revolver"). The MLP Revolver has a borrowing
capacity of $600.0 million. On March 29, 2019, the Partnership borrowed $123.5
million under the MLP Revolver to partially fund the purchase of an additional
4.5% interest in OpCo. On March 19, 2020, the Partnership entered into an
amendment to the MLP Revolver, to extend the maturity date to March 19, 2023 and
add a phase-out provision for LIBOR, which is to be replaced by an alternate
benchmark rate. Borrowings under the MLP Revolver bear interest at a variable
rate of either (a) LIBOR plus 2.0% or, if LIBOR is no longer available, (b)
Alternate Base Rate plus 1.0%. The MLP Revolver provides that we may pay all or
a portion of the interest on any borrowings in kind, in which case any such
amounts would be added to the principal amount of the loan. The MLP Revolver
requires that we maintain a consolidated leverage ratio of either (1) during any
one-year period following certain types of acquisitions (including acquisitions
of additional interests in OpCo), 5.50:1.00 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, 2021, the outstanding borrowings under the MLP Revolver totaled
$377.1 million. We intend to use the MLP Revolver to purchase additional limited
partnership interests in OpCo in the future, in the event OpCo desires to sell
such additional interests to us, for other acquisitions and for general
corporate purposes.

Contractual obligations and commercial commitments

The Partnership’s significant cash requirements for short-term (next 12 months) and long-term (2023 and beyond) contractual obligations and trade commitments 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. 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.

Significant 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 to the
consolidated 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. 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.
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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 $108.8 million, $103.2 million and $107.3 million in 2021,
2020 and 2019, 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 $131.2 million, $3.7
million and $1.2 million in 2021, 2020 and 2019, respectively. Amortization in
2021, 2020 and 2019 of previously deferred turnaround costs was $16.5 million,
$11.8 million and $17.3 million, respectively. As of December 31, 2021, deferred
turnaround costs, net of accumulated amortization, totaled $146.9 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 regarding long-lived assets and related amortization can be found in Notes 5 and 7 to the audited consolidated financial statements included in this report.

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. 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, 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. 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 quantitative assessment during 2021,
and such assessment did not indicate impairment of the goodwill. Under the
discounted cash flow methodology, even if the fair value of OpCo decreased by
10%, the carrying value of OpCo would not exceed its fair value.

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 within this report.
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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 within this report
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.

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