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Westlake about to create new publicly traded ethylene feedstock business

By: Frank Esposito

April 29, 2014

The ongoing natural gas boom is leading Westlake Chemical Corp. to file an initial public stock offering for Westlake Chemical Partners LP, a new business that will operate, develop and acquire production facilities and assets related to plastic feedstock ethylene.

Pipeline assets also are expected to be included in the new firm, according to an April 29 news release. Houston-based Westlake will be majority owner of the new entity. The IPO is expected to raise $272 million, but no listing date or per-share price range was included in the release.

The new company will trade under the symbol WLKP.

The new firm will include Westlake’s ethylene plants in Lake Charles, La., and Calvert City, Ky. Those plants have a combined annual capacity of almost 3.4 billion pounds. The Longview Pipeline — a 200-mile common carrier ethylene pipeline that runs from Mont Belvieu to Longview in Texas — also will be included in the new firm’s assets. Westlake has a polyethylene production unit in Longview.

These assets already have been placed into Westlake Chemical OpCo LP, a business entity owned by both Westlake and the new firm. Westlake’s downstream PE and PVC production facilities will consume a substantial majority of the ethylene produced by OpCo, officials said in an April 29 filing with the Securities and Exchange Commission.

Westlake will enter into a 12-year ethylene sales agreement with the new firm, under which Westalek will agree to buy 95 percent of the new firm’s ethylene output at a price that’s expected to generate a fixed 10-cent per-pound margin. Westlake, in turn, will supply the new firm with the ethane it needs to produce ethylene.

In the filing, officials said that the agreement “will promote more stable and predictable cash flows for OpCo.”

One industry source praised Westlake’s move to form the new firm, saying that Westlake was “a well-managed firm that’s made a lot of good decisions.” Investors apparently agreed with that assessment, driving Westlake’s per-share stock price up almost 10 percent to $70.53 on April 29, the day the move was announced. That hike has been sustained, as the firm’s per-share price was near $71 in early trading May 1.

At the Motley Fool financial web site, market analyst Travis Hoium wrote that the new firm would be a master limited partnership (MLP), adding that MLPs “have become a very popular tool for companies looking to squeeze as much value from energy and chemical-related products as possible.”

Westlake already is flush with the success of a surging per-share stock price that led to a two-for-one stock split on March 18. For full-year 2013, the firm’s profit grew almost 60 percent to more than $610 million. Annual sales grew more than five percent tom almost $3.8 billion.

Westlake — with major businesses in ethylene, polyethylene and PVC resin and pipe — has benefited from low-priced natural gas feedstock at many points of its production chain. The firm added 230 million pounds of ethylene capacity last year at its plant in Lake Charles, La. In 2014, Westlake plans to add almost 200 million pounds of PVC resin capacity and 180 million pounds of ethylene capacity at a site in Calvert City, Ky.