Westlake Chemical to Review IRS Ruling on Limited Partnerships

Westlake Chemical Co. (WLK), the Houston- based chemical company that has gained 93 percent this year, will review a U.S. Internal Revenue Service decision allowing chemical makers to structure some units as master-limited partnerships.

An Oct. 12 ruling allows companies that convert ethane and other natural gas liquids into olefins, such as ethylene, to classify themselves as partnerships. Such partnerships, common in the pipeline industry, generally don’t pay income taxes at the corporate level, Standard & Poor’s Rating Services said in a report published yesterday.

“We are aware of this ruling and will be reviewing this in more detail on a going forward basis,” Dave Hansen, a spokesman for Westlake, said in an e-mail today.

Westlake, LyondellBasell Industries NV (LYB), Dow Chemical Co. (DOW), Exxon Mobil Corp. (XOM) and Williams Cos. are among U.S. ethylene producers who may reduce taxes by converting their olefins units into a partnership, Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said today by phone. The partnerships can distribute most of their income to investors as dividends and are assigned higher equity valuations, he said.

Profits at U.S. ethylene producers are near record levels as shale-gas production creates plentiful and cheap supplies of gas liquids, providing a cost advantage over producers in Asia and Europe where oil-derived naphtha is the main feedstock. Analysts at Goldman Sachs Group Inc. are among those who expect profit to continue to climb as ethylene demand outpaces supply through 2016.

Westlake rose 7.8 percent to a record $77.78 at the close in New York, the biggest gain since Aug. 2.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net