Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Second Quarter 2016 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, ladies and gentlemen, this conference is being recorded today, July 28, 2016. I would now like to turn the call over to today's host, Ben Ederington, Westlake's Vice President and Chief Administrative Officer. Sir, you may begin.

Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Corporation second quarter 2016 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. The conference call agenda will begin with Albert, who will open with a few comments regarding Westlake's performance in the second quarter of 2016, followed by a current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments and we will open the call up to questions. During this call, we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to the master limited partnership, Westlake Chemical Partners LP, and references to OpCo refer to our subsidiary, Westlake Chemical OpCo LP, who owns certain olefin facilities. 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 the cyclical nature of the chemical industry; availability, cost and volatility of raw materials, energy and utilities; governmental regulatory actions and political unrest; global economic conditions; industry operating rates; the supply/demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; the pending acquisition of Axiall; and other risk factors discussed in our SEC filings. This afternoon, Westlake issued a press release with details of our second quarter 2016 results. This document is available in the press release section of our Webpage at westlake.com. A replay of today's call will be available beginning two hours after completion of this call until 11.59 PM Eastern Time on August 4, 2016. The replay may be accessed by dialing the following numbers. Domestic callers should dial 1-855-859-2056. International callers may access the replay at 404-537-3406. The access code for both numbers is 49754021. Please note that information reported on this call speaks only as of today, July 28, 2016, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet Webcast system that can be accessed on our Webpage at westlake.com. Now, I'd like to turn the call over to Albert Chao. Albert?

Thank you, Ben. Good afternoon, ladies and gentlemen, and thank you for joining us on our earnings call to discuss our second quarter 2016 results. In this afternoon's press release, we reported quarterly net income of $111 million or $0.85 per diluted share on net sales of $1.1 billion. Our quarterly results reflect good demand for our Olefins and Vinyls products, following steady improvement in consumer spending and commercial and residential construction activity, which has been supported by low crude oil prices and a growing economy. Sales prices for our products also showed improvement over levels seen in the first quarter, as supply was impacted by high levels of seasonal turnaround activity and unplanned events, but are lower compared to the second quarter of 2015 due to lower global crude oil prices. Our second quarter Olefins and Vinyls segment earnings were impacted by the planned maintenance turnaround and other unplanned outages, which Steve will comment in more detail. However, we are pleased with the recent milestones that we have achieved. In June, we entered into a definitive agreement to acquire Axiall Corporation, a leader in the chlorovinyl, PVC and building product businesses. Additionally, we recently completed work that began in the quarter on expansion of our Lake Charles, Louisiana Petro 1 ethylene unit which adds 250 million pounds of ethylene capacity, further strengthening our olefins integration, along with successful restart of our Calvert City, Kentucky unit following an unplanned outage. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the second quarter of 2016. Steve?

Thank you, Albert, and good afternoon everyone. I will start with discussing our consolidated financial results followed by a detailed review of our Olefins and Vinyls segment results. Let me begin with our consolidated results. In this afternoon's press release, Westlake reported net income for the second quarter of 2016 of $111 million or $0.85 per diluted share on net sales of $1.1 billion, compared to the second quarter 2015 net income of $205 million or $1.54 per diluted share on net sales of $1.2 billion. Net income for the second quarter of 2016 was impacted by pre-tax unabsorbed fixed manufacturing costs and other costs associated with the planned maintenance turnaround and expansion of our Lake Charles Petro 1 ethylene unit, an unplanned outage at our Calvert City facility and other unplanned outages totaling approximately $66 million or $0.33 per diluted share and approximately $11 million or $0.05 per share in lost margins associated with these turnarounds and outages. Additionally, the second quarter net income was impacted by a pre-tax cost related to the Axiall acquisition of approximately $8 million or $0.04 per diluted share. These second quarter results compared to net income for the second quarter of 2015, which included a pre-tax gain of $16 million or $0.13 per diluted share, related to the bargain purchase gain from the acquisition of a controlling interest in Huasu, our Chinese PVC operation, which we acquired in June 2015 from a partial impairment of an equity method investment. To summarize, our net income for the second quarter of 2016 was lower as a result of several non-recurring pre-tax items. These items included the cost related to the planned turnaround and expansion project, unplanned outages and the lost margin associated with these outages, and the transaction costs related to the pending Axiall acquisition.…

Thank you, Steve. We saw improving fundamentals in the second quarter as we benefited from higher integrated product prices and margins and strong demand for our end products, although we were impacted by the planned and unplanned outages at our Lake Charles and Calvert City sites. We are excited about our recently announced acquisition of Axiall Corporation, which we believe creates a more diversified and competitive company. This acquisition will make us a leader in the chlorovinyl market as we become the No. 3 chlor-alkali producer and the No. 2 PVC producer in North America and the No. 3 PVC producer globally. This acquisition provides greater scale and synergies with the combined Westlake and Axiall businesses. There are opportunities to apply our strategy of vertical integration for improving operations by showing best practices and synergies across both companies. We expect this transaction will close by the fourth quarter and will meaningfully add to the earnings potential of our Company. We look forward to welcoming the Axiall employees into the Westlake family. Thank you very much for listening to our earnings call this afternoon. Now, I will turn the call back over to Ben. Ben?

Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this conference call will be available starting two hours after we conclude the call. We will provide that number again at the end of the call. Chrystal, we will now take questions.

[Operator Instructions] Our first question comes from Aleksey Yefremov from Nomura Securities. Your line is now open.

What was your caustic soda price realization in the second quarter, what was the increase in dollars per ton, and do you expect to realize further increases in the third quarter?

Yes, as you know that at least IHS reported since April of this year, each month there has been price increases announced by the industry, totaling over $130 per short ton, and Westlake, we have been increasing realized our price increases as the terms of our contracts allow. So we've been enjoying an increase in the prices as our terms allow.

And if I may follow-up, Albert, do you expect any sort of flagged increases to benefit you in the third quarter from those reassessing contracts from the second quarter?

Yes, we expect that the price increase as announced will flow into the third quarter.

Thank you. And a second question on European chlor-alkali, European natural gas prices have declined and you have chlor-alkali assets in the region. Do you see any change in the cost position for your assets there, do you see any decline in the electricity prices or do you expect it to occur in the near future?

We see a reasonable demand for chlor-alkali in Europe and we see potential price increase as well, but time will tell whether those price increases will succeed or not.

And anything on the cost side, are your costs moving lower in Europe by any appreciable amount?

Yes, the cost of – we use electricity that we don't produce, we buy electricity from the European market, and they are reflective of natural gas prices, but it will take a while to have those power cost reflect the natural gas price changes.

Our next question comes from David Begleiter from Deutsche Bank. Your line is now open.

Albert, what's your expectation for polyethylene prices in the back half of the year, do you expect any erosion to occur?

As you know that we have been enjoying price increases in polyethylene this year, there has been, since February and March, there has been $0.09 price increases and IHS and CDI are projecting that July prices will stay flat, but they are projecting prices to decline in the second half or fourth quarter of this year and time will tell whether it would happen or not. I think the industry inventory is quite good for the producers and somewhat on a low side for consumer side. So we'll see whether there will be price declines in the second half of the year or not.

And Albert, just on the feedstock side, ethane, with their exports increasing in the back half, do you expect ethane prices to stay in the teens or do you think they could go higher again later in the year?

The projection by IHS are saying that ethane prices will move up near the end of the year with more ethane exports as well as the new expanded ethylene capacity increases. And again, time will tell whether additional production from oil and gas production will add more volume to supply of ethane.

Our next question comes from Don Carson from Susquehanna. Your line is now open.

A question going back to caustic soda, you talked about higher caustic volumes in the first six months, but was Q2 down from Q1 because of the Calvert City outage or is that more of an issue that you were selling out of inventory and you'll be somewhat constrained by the outage in Q3?

I was talking about caustic prices earlier, and because of our Calvert City unplanned outage, our volume has come down.

Okay and will that be ongoing in the current quarter?

I think, yes, our Calvert City operation as we started over a week ago, but we will have some impact in the third quarter because of the downtime experienced earlier this month.

Okay. And you talked earlier about the contract price increases. What is the exact lag between when we see say the IHS index go up and when you realize those price increases in your actual transaction prices?

It's dependent. Spot price certainly reflects much faster. Contract price, there are price protections. And not always the IHS announced dollar amount is realized. So a portion of those has been realized.

And then turning to the actual acquisition, you'll be somewhat short ethylene as you absorb those assets. So would you plan on running some of the ethylene derivatives like VCM where margins are relatively low right now or would you wait until you are more back integrated into additional sources of ethylene to run those assets flat out?

Those things haven't closed yet. We don't know the details how they run their business. But I would expect that if there is a margin from purchase to ethylene to run those assets, they will run them and sell the products. If there are no margins, then they will not run it.

Right. Okay, thank you.

Our next question comes from Bob Koort with Goldman Sachs. Your line is now open.

This Ryan Berney on for Bob. I was hoping you'll give us sense for – you decided to reduce maybe your CapEx guide a little bit this year, given the Axiall deal, which makes sense. Given kind of the position you see yourself now with the balance sheet, if an acquisition became available for you to kind of close some of that ethylene gap, is that something that you feel like you could do with this Axiall deal on the table?

Yes, we'll continue to look at opportunities. My comment on capital was certainly just to continue to use the cash flow that we see from the business in a very cost effective manner, but should there be an opportunity for us, be it in that business, as you mentioned, or other opportunities, we'll continue to take a look at those and if they are value-additive, there's always a way to make that materialize and finance that.

Great. Thanks. And then can you provide any update on kind of how you are thinking about the dropdown pace into the OpCo and whether or not you think you'll see an adjustment there?

With the opportunity to expand the Petro 1 unit this year and the planned expansion in 2017 in Calvert City, there isn't a near-term need to have a drop-down. That organic growth provides us the earnings growth that the partnership needs into 2016, 2017 and well into 2018. So we don't see a need for drops to continue the track that we're on for that low double-digit growth rate for several years.

Our next question comes from Frank Mitsch from Wells Fargo Securities. Your line is now open.

I wanted to talk about the planned and unplanned outage impact. I believe you said it was $65 million for Q2, and Steve, I thought I heard you say $55 million. Was that just a Q3 number that you're expecting for planned and unplanned outages impact?

Yes, Frank, the number for the second quarter was $66 million and for the third quarter, that's right, that was just third quarter impact, the carry-on impact into Q3 for both planned and unplanned outage.

All right, and at this point, do you have any planned turnarounds for Q4?

Nothing other than the normal small minor, some of the derivative units, but those are very small.

All right, terrific. And it's been six weeks since you announced the deal. I'm wondering how much contact you've been able to have with Axiall and if your thinking is any different regarding the $100 million synergy target that you laid out at the time that you announced the transaction.

Frank, the $100 million is the number that we believe that we can achieve, and certainly we're not going to stop if we think there's an opportunity to drive more value. But once we close the transaction and have a good opportunity to get into the business in more detail, we'll look to see if there is more opportunity. We won't stop at that $100 million number of course.

And at this point you haven't had as much opportunity to get in and see what you're actually going to be buying, correct?

We need to obviously get to the point where we own the asset and really get into the running of the businesses. And even at this stage, where we have a good dialog with the company, the answer is, we can't have the level of dialog that's necessary until we close the transaction and look across all elements of the business.

Terrific. Thank you.

Our next question comes from Jim Sheehan from SunTrust. Your line is now open.

Guys, could you update us on the status of your discussions with the IRS about MLP status?

Jim, it's Steve. The IRS has said that they thought – this was Curt Wilson, who is the Associate General Counsel of the IRS, made a comment about two months ago, and he said he thought he'd have some comments out by Labor Day. And there's been no other commentary by himself of a date other than that. So our expectation still is this summer, but there are a number of other items they are dealing with other than just this proposal that are in front, which I think are keeping them busy. But it's still my expectation that we'll see something before the end of this summer.

Thanks. And for the third quarter, do you expect to have any variance in the FIFO impact?

It's hard to know where prices will go between now and the end of the third quarter, but as I say, we always try to give that FIFO/LIFO, we're a FIFO Company, so we always try to give that sense, but you can see where product prices are, and so we've tried to give some guidance where we were in the second quarter.

Our next question is from Edlain Rodriguez from UBS. Your line is now open.

Just one quick one on caustic soda, I mean did you have to ship more to the export market than normal or was everything similar?

Westlake typically do not participate in the export market. Our Calvert City plant is up in the Midwest, but unfortunately, we experienced some downtime in the second quarter as well.

Okay, so it's all domestic. And just one last quick one for you, Albert. Going into 2017, I mean are you worrying at all about all the new capacity coming online? I mean like what's your view there and like what's the potential impact on pricing there?

You're talking about polyethylene prices?

Polyethylene, yes.

Yes, certainly there are more planned or scheduled plants coming up. But we don't know, we have heard some stories that those scheduled plant start-ups could be delayed, so we don't know when they will be. And certainly it will add more capacity to the market if they do come on at the right time. But we expect that most of those products will be exported and depending on the global economy as well, as how fast those capacity will be absorbed by the global market.

Okay, that makes sense. Thank you very much.

Our next question comes from Hassan Ahmed from Alembic Global. Your line is now open.

Just wanted to follow up on one of the earlier questions. Someone asked you if you would potentially consider acquiring assets to fill the net short position in ethylene that will obviously evolve post the Axiall acquisition. My question is that I don't know whether you guys have gotten a chance to study at all or in length the agreement between Axiall and Lotte. The question really is that let's assume for a second that via an acquisition you were to address most of that net short position, in that scenario, is there enough flexibility in that agreement to maybe potentially walk away from it?

As far as we understand, and I think the agreement has been filed publicly, that Axiall will be taking approximately 50% of the output of their plants' ethylene and that amount is approximately 50% of Axiall's internal demand for ethylene, and we're buying additional ethylene from the marketplace. So I think there is a contract that they have to purchase. So, as far as I know that we can't walk away from the purchase for at least for the term of the contract.

Fair enough. Okay, fair enough. Now, moving on to the outage impact, I know you guys sort of broke out $0.33 a share as sort of the impact from planned and unplanned outages. I would really appreciate if you could kind of just give us some sort of an estimate as to what part of that $0.33 was planned, what part of it was unplanned?

Hassan, we gave some indication of the impact of the Calvert outage earlier in the quarter where we indicated $40 million of that would be split between the second quarter and the third quarter. And so that was obviously an unplanned outage of course, and we said that the greater portion of that was in the second quarter. And so I think you can get some good sense of how much that was relative to the $66 million or the $0.33 that I earlier reflected.

Got it. So $40 million basically was Calvert City, you split between Q2 and Q3 with the bulk of it in Q2?

With a majority of it in Q2 and the minority of it in Q3.

Fantastic and very helpful. Thank you.

And our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is now open.

This is Dan Dicicco on for Arun. A competitor mentioned [indiscernible] forecast of ethylene capacity additions over the next five years could be overstated and they are expecting project delays, postponements and stuff like that, would keep operating rates maybe higher than people are expecting. Just curious on your thoughts on that.

Most of the new plants that are being added are accompanied with the derivate plants. So those new plants, they would sell the ethylene into the derivate products which will be sold on a global basis.

Okay, great. And then just as a follow-up, following the Axiall transaction, to make up some of that short ethylene, would there be more interest in maybe brownfield expansion or going out and purchasing an existing asset such as like ethylene [indiscernible] cracker or something like that?

The Axiall Corporation, they are one of the largest purchasers of ethylene in the merchant market. The new Lotte joint venture will not come onto market until I presume their scheduled is 2019. So in the interim, Axiall and Westlake will be buying ethylene from the market. Certainly, as Steve said, we will look at opportunities that come up as to acquisitions, but we presume we'll be doing merchant purchases as well as look for opportunities.

Our next question comes from David Wang from Morningstar. Your line is now open.

[Indiscernible] your operating cost, can you talk to us about what your cost to produce ethylene was this quarter and how you see that trending in the coming years?

According to IHS, with the relative low ethane prices, I think the cash cost for ethane crackers to produce ethylene is between $0.10 and $0.11 a pound.

Okay, great. And then I know this was brought up a little bit earlier, but what are your thoughts on the potential delays for the greenfield crackers that are planned to come online? Do you see the current environment as conducive for them to continue to come online or do you think that some of them will eventually be delayed or some of them even cancelled?

I think those projects that already have broken ground and ongoing, they will I presume get built. We have heard some projects, they have publicly announced the project being delayed for various reasons. And we know that the Gulf Coast skilled labors are still quite short. So it will impact the construction schedule. By how much, we don't know and time will tell.

All right. Thank you.

I'm showing no further questions at this time. The question-and-answer session has now ended. Are there any closing remarks?

Thank you for participating in today's call. We hope you will join us for our next conference call to discuss our third quarter 2016 results. Good evening.

Thank you for participating in today's Westlake Chemical Corporation second quarter 2016 earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended. It may be accessed until 11.59 PM Eastern Time on Thursday, August 4, 2016. The replay can be accessed by calling the following numbers. Domestic callers should dial 1-855-859-2056. International callers may access the replay at 404-537-3406. The access code for both numbers is 49754021. Thank you.