Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Second Quarter 2021 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. After the speakers' remarks, you will be invited to participate in a question and answer session.
As a reminder, this conference is being recorded today, August 3, 2021. I would now like to turn the call over to today's host, Jeff Holly, Westlake Chemical Partners' Vice President and Treasurer. Sir, you may begin.
Thank you, Tamika. Good afternoon, everyone, Welcome to the Westlake Chemical Partners' 2nd quarter 2021 conference call. I'm joined today by Albert Chao, our President and CEO Steve Bender, our Senior Vice President and Chief Financial Officer and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the Partnership. References to Westlake or Westlake Chemical refer to our parent company, Westlake Chemical Corporation and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake Chemical and the Partnership, which owns certain olefin assets.
Additionally, when we refer to distributable cash flow, We are referring to Westlake Chemical Partners' MLP distributable cash flow. Definitions of these terms are available on the partnership's website. Today, management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. Actual results could differ materially based upon many factors including operating difficulties, The volume of ethylene that we are able to sell, the price at which we are able to sell ethylene, changes in the prevailing economic conditions, Actual and proposed governmental regulatory actions, competitive products and pricing pressures, the COVID-nineteen pandemic, Extreme weather conditions, our ability to borrow funds and access capital markets at a reasonable cost and other risk factors as discussed in our SEC filings.
This morning, Westlake Partners issued a press release with details of our Q2 2021 financial and operating results. This document is available in the press release section of our webpage at wlkpartners.com. A replay of today's call will be available beginning 2 hours after the conclusion of this call. This replay may be accessed by dialing the following numbers. Domestic callers should dial 855-859-2056.
International callers may access the replay at 404-537-3406. The access code is 32,169. Please note that information reported on this call speaks only as of today, August 3, 2021, And therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this teleconference is being broadcast live through an Internet webcast system that can be accessed on our webpage at wlkpartners.com. Now, I would like to turn the call over to Albert Chao.
Albert?
Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our Q2 2021 results. In this morning's press release, we reported Westlake Partners' 2nd quarter 2021 net income was a record of $25,000,000 or $0.71 per unit. Ethylene production in the 2nd quarter was strong, contributing to OpCo's record quarterly net income of $120,000,000 During the quarter, we saw a strong demand for a very broad range of ethylene derivatives As a result of the current economic recovery and expansion, the strong ethylene derivative demand drove ethylene prices higher in the 2nd quarter, benefiting our 3rd party sales. On June 25, 2021, OpCo's Petro-one facility experienced an unplanned outage And we resumed normal operations on July 19.
As a result of this unplanned outage, OpCo declared force majeure under OpCo's ethylene sales agreement. Pursuing to the ethylene sales agreement, Westlake is obligated to purchase and pay for a minimum amount of ethylene from optical each calendar year. Thus, we are insulated from impact of such outages. Under this agreement, Western Chemicals' ethylene purchase obligation Including cost plus a fixed margin per pound, these protective provisions allow OpCo and in turn Westlake Partners to maintain consistent cash flows during unplanned events. Westlake Partners' financial results in the 2nd quarter Continue to demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual planned Production each year does insulating us from market volatility and other production risks.
This certainty, combined with our investment grade sponsor, Westlake Chemical, produces predictable earnings and stable cash flows. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve?
Thank you, Albert, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' 2nd quarter net income of $25,000,000 or $0.71 per unit. Consolidated net income including OpCo's earnings was $120,000,000 on Consolidated sales of $322,000,000 The partner had distributable cash flow for the quarter of $26,000,000 or $0.73 per unit. As Albert mentioned, the provisions of the ethylene sales agreement commit Westlake to purchase and pay for a defined amount of ethylene from OpCo each calendar year, thus insulating us from the impact of unplanned outages resulting in force majeure events. We recognized $9,000,000 in the 2nd quarter associated with loss These provisions enable OpCo and in turn Westlake Partners to deliver consistent earnings during these unplanned events.
As the unplanned outage was primarily impacting 3rd quarter production, we expect to continue to recover costs from loss production pursuant to our ethylene sales agreement during the balance of the year. Record 2nd quarter 2021 net income for Westlake Partners of $25,000,000 increased by $10,000,000 compared to Q2 2020 Partnership net income of $15,000,000 The increased net income was primarily attributable to higher production and higher earnings on 3rd party sales as well as the buyer deficiency fee related to year to date lost ethylene production. Distributable cash flow of $26,000,000 for the Q2 of 2021 increased by $9,000,000 compared to the Q2 of 2020 Distributable cash flow was $17,000,000 The increase in distributable cash flow was attributable to higher earnings at OpCo resulting from increased production and the buyer deficiency fee. Partially offsetting these increases were increased maintenance costs and contribution to the turnaround reserves. For the 6 months of 2021, net income for the partnership of $40,000,000 increased $7,000,000 The increases in net income and MLP distributable cash flow were primarily due to higher earnings on ethylene sold the Westlake Chemical and 3rd parties, MAPCO and the buyer deficiency fee, partially offset by lower ethylene production from unplanned outages.
Turning your attention to the balance sheet and cash flows. At the end of the second quarter, we had consolidated cash balance and cash invested with Westlake Chemical through our investment management agreement totaling $240,000,000 At the end of the 2nd quarter, Westlake Chemical had payment obligations to the partnership of $18,000,000 representing the buyer deficiency fee from loss production and cost recovery. These payment obligations will be received in 2022 under The terms of the ethylene sales agreement. Long term debt at the end of the quarter was $400,000,000 of which 377,000,000 was at the partnership and the remaining $23,000,000 was at OpCo. In the 2nd quarter, OpCo spent $15,000,000 on capital expenditures.
For the Q2 of 2021, we maintained our strong leverage metrics with a consolidated leverage ratio of approximately 1 times and a net Debt to capitalization ratio of nearly 12%. Looking ahead, the planned turnaround of our Petro II unit will begin in September of this year and is projected to last approximately 60 days. The cost of this turnaround has been included in the amount we charge Westlake Chemical and will be fully reserved for at commencement of the turnaround. The partnership's predictable fee based cash flow continues to prove Very beneficial in today's economic environment is differentiated by the consistency of our earnings and cash flows. The structure of ethylene sales agreement and the associated cash flow allows the partnership to continue distributions at our current level while Our long term targeted 1.1 times distribution coverage, thus eliminating the need to access equity capital markets.
Looking back over the past 7 years since our IPO, we've maintained a conservative coverage ratio above this targeted level. On August 2, 2021, we announced distributions of $0.4714 per unit with respect to the 2nd quarter. Since our IPO in 2014, the partnership has made 28 consecutive quarterly distributions to our unitholders And we've grown distributions 71% since the partners original minimum quarterly distribution of $0.275 per unit. For the 12 months ending June 30, 2021, distributable cash flow provide a coverage of 1.18 times the declared distribution. 2nd quarter's partnership distribution will be paid on August 26, 2021 to unit record holders of August 12, 2021.
Now I'd like to turn the call back over to Albert to make some closing comments. Albert?
Thank you, Steve. We are pleased with the partnership's financial and operational performance. The stability of our business model was well illustrated in the first half of twenty twenty one As our ethylene sales agreement and its protective provisions provided the partnership with predictable long term Earnings and cash flows, despite unforeseen events and associated production outages, we remain optimistic about Sustained demand for ethylene driven by continued downstream derivative needs by our parent Westlake Chemical as well as strong market demand for ethylene support our 3rd party sales. Our ethylene sales agreement, which provides a predictable fee based cash flow structure from our take or pay contract with Westlake Chemical For 95% of OpCo's production, we will continue to deliver the stable and predictable cash flows. This further proves our thesis of underlying value of the partnership.
We maintain a strong balance sheet With conservative financial and leverage metrics, as we continue to navigate market conditions, We'll evaluate opportunities via our 4 levers of growth in the future, including increases of our ownership interest of OpCo, Acquisitions of other qualified income streams, organic growth opportunities such as expansions of our current ethylene facilities and negotiations of a higher fixed margin in our ethylene sales agreement with Westlake. We remain focused on our ability to continue to provide long term value to our unitholders. As always, we will continue to operate safely along with being good stewards of the environment where we work and live. Thank you very much for listening to our Q2 earnings call. Now, I'll turn the call back over to Jeff.
Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide that number again at the end of the call. Tamika, we will now take questions.
Thank Your first question is from the line of Mike Lighthead with Barclays.
Great. Thanks. Good afternoon, guys. I guess first question, if you look at the WLKP Unit price, it's much improved over the past year, but it's kind of sort of held fairly steady around 27. And when I think about further price improvement from here, it's really a question of either the yield going down or distribution growth restarting again.
So I guess when you look at the market and talk to investors, what's your latest thoughts on that value versus growth model that you think can ultimately drive the unit price higher going forward?
As we think about the levers that Everett just outlined, the 4 growth levers, those are readily available to us and we can access and use those levers as the market provides the opportunity to do so. And when I say that, we really are focused in demonstrating the value proposition that you see the partnership being able to deliver, But also looking for ways in which we get rewarded for those growth levers. And so we stand ready to be able To provide growth in distributions using any one or several of those growth levers as long as we get the contribution back for the value that those levers provide. Mike, as we see the market today, the market continues to appreciate value over growth. We certainly stand ready to provide growth if the market is ready to provide that value.
Got it. And when I think about Kind of some of your comments, is there a specific yield or specific level at which you would look to do that or it's Really dependent upon, the capital markets and the opportunity available to you.
Yes, it's the availability of the markets. As you can imagine, we have a major turnaround this year. And so I would expect that we'll be addressing those operational needs for the maintenance of the ethylene unit. And as we talk to investors and look at the capital markets, we'll continue to assess the opportunity to use those growth levers. As I say, we stand ready to do so.
It's just Being rewarded accordingly for those using those levers.
Got it.
Thank you. You're welcome.
Your next question comes from the line of Matthew Blair with Tudor, Pickering and Holt.
Hey, good morning, Albert and Steve.
Hi, Matthew. Good afternoon, Matthew.
I had a question on the Spire's deficiency fees. So in Q2, Looks like it was $8,700,000 given the cracker was down for 19 days in Q3. Would you expect that number to look larger in Q3 relative to Q2?
So Matthew, the answer is we do expect to have most of the lost pounds occurring in Q3 Because the outage did occur late in the Q2. So there is very likely some additional buyer deficiency fee to accrue in the second half and largely in the Q3 of this year. The benefit of having the structure as we do both with Shortfall fee and the buyer deficiency fee as it protects OpCo and therefore the partnership providing that earnings stability Even though the unit lost those pounds, Westlake will still pay for the fixed component of all other cash production costs to provide that buyer deficiency protection.
Sounds good. And then would you expect the downtime in Q3 to have an impact on your 3rd party ethylene sales?
We've been able to take advantage of those stronger ethylene markets over the course of the first half of this year. And so as we think about the benefits that we see here, we'll be looking to sell some additional ethylene, but we've really had the ability to achieve Significant portion of the third party sales for the first half of the year.
Great. Thank you. You're welcome.
At this time, we have came to the end of our Q and A session. I will now turn the call back over to Jeff Holley.
Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our Q3 2021 results.
Thank you for participating in today's Westlake Chemical Partners Second Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and maybe in excess until 11:59 pm Eastern Time on Tuesday, August 10, 2021. The replay can be accessed by calling the following numbers. Domestic callers should dial 855 8,592,056. International callers may access the replay at 404 5,373,406.
The access code is 32,165,579. This will conclude today's call. Goodbye.