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Westlake Chemical: Favorable NGL Dynamics 'for Years to Come'

August 6, 2012
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Westlake Chemical Corp. second quarter income from operations was up more than 23% over the year-ago period and the company posted record net income, thanks in part to lower-cost energy and feedstocks, including ethane from the shale gas boom. CEO Albert Chao told financial analysts he expects the good times to continue on the natural gas-derived feedstock front.

"The favorable dynamics in natural gas liquids continue. We expect the growing production of natural gas liquids from shale gas and oil drilling will cause ethane to become structurally long, as billions of dollars of fractionation and pipeline infrastructure will bring ethane from the wellhead to market faster than the ability of the chemical industry to consume this production," Chao said during an earnings conference call Thursday.

"Ethane and propane feedstock prices declined significantly in the second quarter as the supply of these feedstocks outstripped demand...The sustained favorable oil-to-gas ratio has provided margin expansion opportunities to ethane-based ethylene producers such as Westlake and continues to encourage an increasing supply of ethane..."

On the other side of the market the view is a bit different. Oneok Partners President Terry Spencer on Wednesday said his company expects ethane inventories to decline for the remainder of the year (see related story). Also on Wednesday, Enterprise Products Partners CEO Michael Creel predicted tightening in the ethane market (see related story).

Chao told analysts Westlake's feedstock position will be "an advantage that will be with us for years to come," adding that the company's expansion of its ethylene plant in Lake Charles, LA, will begin delivering benefits during the fourth quarter.

"We will follow up that expansion project with expansion of the other Lake Charles ethane cracker in 2015. We are also finalizing our study of the conversion of the Calvert City, KY, ethylene unit from propane to ethane, as well as the expansion of that cracker," he said.

A chlor-alkali project at the company's Geismar, LA, plant "capitalizes on the globally competitive cost of natural gas used for electricity" and is expected to be operational during the second half of next year, Chao said. The company also is working to convert from propane to ethane feedstock at a Calvert Cit, KY, plant.

Westlake manufactures and supplies products within two primary segments: olefins and vinyls.

"All of these [feedstock] dynamics are game-changers for our industry and provide the foundation for Westlake and other North American light-cracking ethylene producers to be globally competitive for many years to come." Chao said.

Westlake reported second quarter net income of $115.5 million ($1.72/share) on sales of $914 million, representing an increase in net income of $34.5 million (51 cents/share) over year-ago quarter net income of $81 million ($1.21/share) on net sales of $925 million.

Income from operations increased to $171 million compared to $138.4 million for the second quarter of 2011, primarily driven by lower feedstock and energy costs, improved building products margins and higher caustic sales volume when compared to the same period in 2011, the company said./p>

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