Q4 2020 Calumet Specialty Products Partners LP Earnings Call
Ladies and gentlemen, your conference call scheduled to begin momentarily. Please continue to standby and thank you for your patience.
[music].
Ladies and gentlemen, and thank you for standing by and welcome to the fourth quarter, 2020 Calamos specialty products Partners earnings Conference call. At this time, all participants on a listen only mode. After the speaker's presentation there'll be a question and answer session go ask a question. During this session you will need to press. The Star then the one key on you touched on the telephone please.
We advised on today's conference maybe recorded if he would go offer assistance. Please press Star then zero I would now like to hand, the conference I'll, let you speak of House Joseph Caminiti. Please go ahead.
Thank you Olivia good morning, everyone and thank you for joining us today for our fourth quarter earnings results call.
With us on today's call are Steve Moore, CEO, and Todd Morgan CFO, Bruce Fleming, EVP of money and renewables and corporate development and Scott Obermeier E V P of specialty products and solutions and.
Marc lore and E V P of performance brands.
Before we proceed allow me to remind everyone that during the course of this call. We may provide various forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934 and such.
Such statements are based on the beliefs of our management as well as assumptions made by them and in each case based on the information currently available to them.
Although our management believes that the expectations reflected in such forward looking statements are reasonable neither the partnership its general partner, nor our management can provide any assurances the expectations will prove to be correct.
Please refer to the Partnership's press release that was issued this morning as well as our latest filings with Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward looking statements made on this call.
As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today's conference call as indicated in the press release, we issued earlier today.
You may access these slides and the Investor Relations section on the website that Kevin go specialty Dot com.
Also a webcast replay of this call will be available on our site within a few hours and you can contact Alpha IR group for Investor Relations support at three one to 4452 870.
With that I'll pass the call to Steve Steve.
Thanks, Joe.
Morning, everyone and thank you for joining us.
2020 was a year characterized by crisis. It was also a year characterized by how the Calumet team responded to that crisis.
The market challenge handed to us by the pandemic with unprecedented unprecedented and the combination on both the severity and length.
We're through the worst, but the average prices plus days weeks and not more than a year.
We used our crisis playbook to effectively manage through all the uncertainty and volatility and succeeded and generating positive cash flow a significant result, given the market conditions.
Tom Thanks, and Calumet team enough for how they rose to the challenge and.
Time on execution and teamwork has to be impactful our employees itself.
Of particular note is that most of our safety and environmental performance measures improved on an exceptional 30% to 40% year on year.
The improved performance on this foundational area during a crisis is simply fantastic and so.
This shows how committed our team has been driving excellence of all forms.
The cost Delta despite the pandemic meant that our financial results inevitably with disappointing compared to our normal yet.
And on top of and economic crisis, there was confusion and inaction on renewable policy by the outgoing administration just to make the challenge even more complicated.
If you look back to the price performance of both on debt securities on our common units and the spring of 2020. It is clear that the opinion on the financial markets was that there is still and that's going to overwhelm the industry and with that Calumet.
The storm did hit but it didn't materialize into the result of the markets broadly assumed and we think our unit holders and bondholders, who have showed confidence and us so far and those who believed and Calumet and our team have been rewarded with outperformance during the recovery.
Additionally, with our recent strategic update we believe we have a possible and to further enhancing unitholder value and that's a sign and we believe we're really just getting started.
Coming back to the pandemic and what it also of our team slide three details on three.
Three most imperative objectives to address the crisis.
The first is that we needed to excel and specialties.
We spent the last couple of years, Tony on the specialties business and just something we believe we do really well and we will go into more detail later on won't be truly mean, when we say club doing specialty is really well on quote however at the most fundamental level. It means delivering earnings and margin growth during a major economic shock and our results across the year.
Clearly show we succeeded.
Some time back you may recall, we communicated and aspirational goal of $40 per barrel gross profit margins for our specialty business across an entire year and a 2020. This goal was met and exceeded and we believe this.
This performance level is sustainable and repeatable.
A critical part of our successes on delivered strategy to operate with a much more diversified customer base and most of our competitors and the payoff from this strategy was foundational throughout 2020 results and shows how actively manage diversification and help where the macroeconomic volatility.
Okay.
Yeah.
Second and a crisis, we needed to take decisive unsuccessful actions.
A step change down and on cost structure is the longest lasting about decisive actions.
Having said that on decisions to significantly pay about 2020 capital expenditures.
Diligently manage the volume margin envelopes and all our businesses and.
Aggressively hedge.
Ladies and crude supply show, how calumet can be focused and decisive and the pursuit of our objectives.
It bears reminding.
And the same time that we were able and doing this we were able to maintain focus on our key growth objectives.
And particularly through investing in and capturing dramatic growth and our engineered fuels business.
The third objective was capital discipline and so for 2020 cash flow positive was the rally and go all of our team and our team delivered.
Responsible business stewardship includes material planning for stress events and I'll tell you Matt that planning is a KOL business practice, you can see that first and how fast we've responded with controllable cost reductions second and our ability to maintain access to ample liquidity through a very extended crisis and third and how we creatively and effectively.
We addressed our debt maturities.
Executing on all these activities has given us the time and optionality to accomplish our strategic objectives without duress or pressure and allows us to remain focused on creating unitholder value.
We executed effectively on our tactical 2020 pandemic objectives, but the new circumstances did indeed slow our progress towards our strategic objectives, it's not easy to delever into a market, which is trading on cycle lows and incorrectly assumed that that may be blood and the water.
So our strategy strategic objectives, Hasnt changed and as we leave 2020, having preserved cash having dealt with the maturities and having proposed a best in class renewable diesel future and Montana, we are positioned to make value, creating steps for our unit holders as both our businesses and the economy and accelerate.
I'm going to hand over to Todd to talk about our results and will then circle back to discuss our business segment changes I'm really excited to present Calumet and consistent with how we actually run Calumet simplicity clarity and focus are essential to winning and I believe as you get to know these three distinct businesses better you will see that each has a.
Cliff and winning strategy.
Thank you Steve.
Let's turn to slide four where we provide the fourth quarter and full year highlights.
Calumet reported adjusted EBITDA for the quarter of negative $8 $6 million.
Similar to the rest of 2020, the specialty segment performed exceptionally well and generating $61 4 million of adjusted EBITDA and the quarter.
The fuel segment loss of $57 9 million of adjusted EBITDA.
The largest driver of this fuels loss and the fourth quarter was $52 9 million of noncash rent expense.
For the full year Calumet generated $141 5 million of adjusted EBITDA, including the corporate cost Center.
The specialty segment delivered $238 million of adjusted EBITDA, which was up more than 14% from 2000 and from 2019, despite the challenges of the past year.
As you know back and our second quarter, we at Calumet has shifted our entire focus to avoid and cash burn amidst the pandemic.
And 2020, we generated $62 $8 million of cash flow from operations and $18 8 million of free cash flow.
We recently completed a $70 million sale leaseback financing transaction involving our fuels terminalling assets at our Shreveport plant and proceeds will be used to pay down on 2022 notes.
Earlier in the year, we extended the maturity day on $200 million of 'twenty, two notes to 2020 four.
These creative financing solutions allow us to manage our debt maturities comfortably and we can remain focused on our more material strategic priorities as we are well positioned to create value.
To further quantify the key drivers of 2020, let's let's turn to slide five.
I don't think anyone needs reminded of how challenging 2020 was to all fuels producers.
Fuel margins were $93 million worse in 2020, and rens costs were $117 million higher than in 2019.
Remember rins are not historically been a cash expense for Calumet.
These two non controllable items accounted for $210 million of the decrease in adjusted EBITDA versus the prior year.
Helping offset the fuels market was $23 million improvement and specialty margins and transportation costs, as well as and $78 million improvement and our cost structure.
It was these items that allowed us to generate cash and this past year.
We expect this more efficient cost structure to continue to provide an advantage going forward and the proven resilience of our specialty business reinforces our strategy of focusing on specialties growth.
On slide six we detail our fuels products segment.
The crack spread and rent and headlines we just discussed really sum up the field here and we controlled what we could to offset them. This.
And this segment lost $33 million of adjusted EBITDA in 2020 down $182 8 million from 2019.
I mentioned net rent expense for the year was $117 million higher than 2019, and a rent impact and the fourth quarter alone was $36 million worse and the third quarter of 2020.
Again, these are non cash expenses and both the fourth quarter and full year.
More positively with supply across the country slowing down our local rack sales reached record levels are.
Our strategy and this business has continued to grow and our local markets and spreads return.
And with vaccine levels, increasing throughout the country and a large amount of global fuel capacity permanently offline the markets are looking better.
The average 2020 Gulf Coast 211, crack spread was down $8.61 per barrel from the 2000 and from the 2019 average.
And this spread compression is largely what caused calumet fuels margins to worsen by $93 million in 2020 and looking forward the 2020, one strip and is currently more than 60% better than that 2020 average.
Let's move forward to slide seven and talk specialties.
Specialty uses what Calumet does best and 2020 was a clear demonstration of that is we had our second straight year of double digit adjusted EBITDA growth and this segment.
Fourth quarter adjusted EBITDA was 61, 4 million, which is 43% better than the fourth quarter of 2019, and 11% better than this year's third quarter.
On the last earnings call, we made and we have not yet seen the normal seasonal slowdown as the country continues to recover and restock and this trend continued throughout the quarter.
Growth and the consumer facing businesses was tremendous throughout the year, particularly within our true fuel and Penrico brands and has held and the fourth quarter.
And also in the quarter, our industrial products, largely solvents, and lubricants returned to 96% of 2019 average levels.
Go to slide eight.
Earlier, I mentioned that we've had two straight years of double digit specialty growth and here you can see a positive quarterly trend from the fourth quarter of 2019 as well.
We've talked before about the importance of effectively balancing margin and volume throughout the pandemic and growth and specialty adjusted EBITDA margins up 53% for last year's fourth quarter demonstrates the effectiveness of our margin management efforts.
This was achieved while specialty volume was down over 9% on a year some are.
And this volume was pandemic related but over half was intentional SKU reduction and customer rationalization.
Calumet has market, leading customer and product diversity is what provides the ability to optimize our business for success and changing market conditions.
This diversification and breadth is at the core of our advantage and especially and business now I'll turn the call back to Steve.
Thanks, Tom let's turn to slide nine.
Several weeks ago as part of our strategic update we announced that we were planning to re segment on financials going forward.
Since selling the San Antonio refinery and 2019, the reality of Calumet has been that we have operated three distinct businesses that we will clearly portraying on financials starting in the first quarter of 2021.
We will also follow up and then undertaking to make these businesses more understandable and transparent and on.
Humble opinion and each of these three businesses and a competitively advantaged gem with clear growth and development opportunities.
Currently our financials are grounded and a business model philosophy and strategy dating back some years simply put non amending the reporting structure in a way that keeps up with our business model and strategic changes is both confusing and wasteful, we don't like to confuse investors and based on feedback we have further.
As you can see from the cost reductions implemented this year, we aren't big fans of waste either.
Aligned on the financials with our actual distinct businesses is something that as a management team. We think is a common center activity that enhances focus.
I'm just going to talk briefly about one slide each for the three businesses and then the leaders of each business are on the call to answer questions and the Q&A.
Bruce Fleming EVP of Montana on renewables and corporate development, Scott Obermeier as EVP of specialty products and solutions and Mark alone EVP of performance brands.
So next on Slide 10, let me just spend a few moments updating you on our plans for Montana.
And you might have been very pleased with our position here impactful and although we are one of the smaller refineries and the country. We are also being one of the safest and most innovative.
Today that innovation takes the form on exceptional energy transition project.
Strategic review of alternatives for grateful and consider selling it.
Consider and expanding it and considered renewable feedstocks.
We have a very rare opportunity to do all of the above.
And by introducing an equity investor.
And expanding the small legacy refinery that remains after converting the hydrocracker and renewables, we have elements of the sale elements of and expansion and elements of renewable diesel conversion at the same time.
This is an exceptionally good energy transition project, which we believe will execute fast renewable supplies on needed for Canada, and the U S West coast, where we already sell products given.
Location.
In addition on specialty asphalt plus essential fuel supply flow, Montana will remain available.
Physical structure is in place infrastructure is in place, we're already especially experienced at managing a large rail fleet at this location, but let me talk about the oversized hydro cracker, which is at the core of the project.
We Opportunistically purchased this brand new unit operated are being designed and fabricated a planned installation on another U S refinery and was larger than what we needed but gave us a compelling business opportunity.
The reason, we called it oversized is because the hydrocracker name plate capacity is equal to the size of our crude processing, we estimate that it will process 10 to 12000 barrels a day of renewable feedstock increases from minor debottlenecking and decreases from the chemistry renewable feeds.
In summary on prepaid a.
And I proposed dual train operation leaves us a clear line of sight to $220 million to $260 million annual EBITDA based on the average of the last five years prices each of the two trains the renewable and the fossil will be about the same capacity.
Finally, a word on what this implies for Calumet and capital structure, we intend to partner with an equity investor and the renewable conversion project and potentially the entire jewel trane energy transition opportunity.
We see three very compelling reasons for meeting our partners first the renewable diesel project depends on government regulated markets and therefore carries a higher on 17 and other projects available to the company.
Our strategic partners, who is already pursuing renewable diesel supply would be prepared to manage that risk.
On the other hand want to focus on capital investment on specialty businesses.
Our partners, who was already pursuing renewable diesel supply we'll see.
<unk> the same way, we do it's the lowest capital cost per barrel of any industry and announcements to date and our opinion and third the renewable diesel business is in an up cycle, while refining and 2020 is arguably bottom of cycle. It's the right time for the pivot.
Especially because we can straddle the energy transition with a dual train moving fast and given the infrastructure in place.
Turning to slide 11.
And on specialty products and solutions business three unique factors come together to create a competitively advantaged business.
First we are grateful to have tremendous customers, we've deliberately pursued a strategy of having the most diversified customer base and widest range of brands and products and our space. Many of these customers are linked with us through long term relationships and contracts.
This allows us to navigate volatility in both the economy as a whole or in specific sectors and was a key enabler for our strong 2020 specialty results.
Second we operate our facilities and northwest, Louisiana, That's Shreveport Cotton Valley on Princeton as a single integrated complex, putting these facilities together creates a unique asset base focused on custom distillation hydro treating and extraction and we believe that these comps.
<unk> puts us at the sweet spot on both customization and scale for the core products we make.
Further it allows us to provide this service cost efficiently.
And I'll fundamentals specialty assets process intermediates into specialty products. However, our integrated complex also provides the flexibility to process crude oil to generate our own intermediates specialty feedstocks and this provides superior cost and quality control. So for example, we maintain a crude quality database covering hundreds of <unk>.
Dividual wells, allowing us to create the optimal feed mix for any production run.
Processing crude oil has been the economic path for much of recent history. However, our integrated complex has the flexibility to operate using intermediates should that be a more profitable option.
Third we have formulation capability through our additional facilities in Louisiana, Texas, Pennsylvania, Illinois, and Indiana that are fed by the northwest Louisiana complex.
Formulations, and waxes petrol items gels and specialty oils are very customer sticky and higher margin businesses that just power through the pandemic selling.
Selling more of our formulated products into these resilient customer focused markets is a key growth priority.
If you put these three factors together the unique customer offering.
And integrated manufacturing hub and value add formulations spokes that build the business out we believe we have something pretty special here.
And our third business moving to slide 12 is performance brands.
Our performance brands segment consists of three well established very well established instantly and internationally recognizable brands. Each of these brand stands out and its market due to unique outperformance characteristics. This.
And this approach creates high margin brands with tremendous consumer loyalty and customer loyalty translates into growth dynamics, well above the sector average.
Three years ago. The performance brands team began a project to turnaround. This business, we focused on what we do well fulfilling customer application and industry needs and the result is that we double the EBITDA over that three year period and in 2021, we anticipate anticipate that the segment should generate results above $60 million EBITDA.
Doc.
It also it doesn't hurt that this business has a tremendous cash generator.
Royal Purple is the number one and independent premium synthetic oil and the U S and number two and the U S. Overall as a premium synthetic provides ultra high performance lubricating products to both consumers and industry fell.
Alright occupy several performance niches, including food grade lubricants and mission critical industrial machinery, and Troupial, maybe the Brian Youre, most familiar with given its commodity position as the number one engine and fuel and North America and the growth of true fuel continues to accelerate with year on year volume increases on greater than 30% during 2020.
So let's move on to slide 13, and our 2021 outlook.
At least for now there seems to be a consensus that the economy is running strongly and we would share that opinion, but right. Now this brings benefits and challenges to Calumet and supply chain and really tight.
Thank you we're all aware of just how expensive container freight from Asia is how clubs U S wholesale and that there is a nationwide shortage of truck drivers, so calumet and we've really ramped up our focus on ensuring supply chain resilience, adding to our logistics capability and being Super vigilant on sourcing key inputs. We've also automated much of our price.
Systems to a degree and by price increases can be proactively implemented swiftly and consistently reducing the effect of price volatility.
Having talked about the whole economy Calumet remains and what has been termed austerity mode for now.
Opex budget for 2021 is currently estimated at $65 million a figure that is composed of sustaining regulatory and turnaround expenditures plus small investments and very high return growth projects as we returned to being a cash flow generator. We will consider selective addition on further growth spending.
Capex budget will be weighted to the first half of the year, primarily due to a major turnaround at Shreveport.
Speaking of Shreveport and February the poll, the storm and the challenge for most of the industry, including Calumet.
And Montana, we experienced severe arctic conditions with a low of minus 32 Fahrenheit.
This is a highly winterized plant and disruption was minimal and our southern plants conditions were more disruptive we had a continuous free for over a week and northwest, Louisiana and two major ice storm events.
External consequences were closed gross with no truck movements for more than a week and the loss of municipal water supplies and all of which hampered production.
<unk> was and a full plant turnaround in February and was approaching on on time on budget completion, when the weather event on unfolded.
For the safety of our employees, we have to stop all work.
And now we're in the middle of our delayed restart so clearly lost production, we will have an effect on.
Although we did not have the force majeure mature any of our customers.
Which I think a lot of other people did it is however unclear as of today, how much of that loss production effect will be reduced by order backlog catch up.
And we continue to see improving market structure, both in fuels and specialties, which will further alleviate the economic effect of loss production again here I would like to thank our team for how they responded to what mother nature threw at them.
On the refining side, its clear were well off the bottom of the cycle with cracks on an uptrend and the strong demand for transportation fuels at our racks with only appears to confirm that we have a hot economy on our hands.
And finally as we've touched on before.
I believe the timing to make strategic progress on Calumet is journey is much more favorable now both in terms of where we sit and the economic cycle, the pivot to renewable diesel and Montana and our ability to demonstrate to the world that we are resilient and able to protect and enhance unitholder value.
With that I'd like to turn the call over to the operator to open up the lines for Q&A operator.
Thank you, ladies and gentlemen, as a reminder to ask a question and you will need your question start and one key on your Touchtone telephone.
To withdraw your question question.
Please standby, while we compile the Q&A roster.
And our first question coming from the line of Neil Mehta with Goldman Sachs. Your line is open.
Hi, Good morning. This is nicolette cluster on for Neil Mehta, Thanks for taking my question.
And you pointed to higher rins costs weighing on refining profitability. During the quarter can you just talk a little bit more about how you see rins cost for Calumet tracking and 2021, and then what that range volatility and driver and your decision to explore and renewable diesel at great falls as an offset.
Go ahead.
Good morning so.
EPA has a pretty difficult position to play and I think as you look back over a couple of years they've done a pretty good job.
Pick and their way through all of the details are administered under the clean Air Act.
Last year, there were a lot of political influences and Steve mentioned it caused inaction on a couple of key things. So basically right now everybody is doing everybody work tracking 29 and lawsuits and.
And I think until that settles the picture is going to remain unclear as Todd said historically this is a noncash.
Accounting entry for us and as such it actually doesn't drive.
Strategic decision, making.
Okay. Thank you I appreciate that very helpful. And then just as a follow up I would just be around feedstock availability for renewable diesel and how Calumet is thinking about securing that feedstock for great falls.
Yes, that's an interesting one and I'll give you a couple of broad strokes.
But I think to start with.
The complementary interest of whoever is our final selection as a strategic partner.
And the important and the.
And the determination there. So for example, if.
If it's a partner that brings the strength of gathering the feedstocks themselves.
We would want to accommodate that and the project broadly speaking so it would be.
The obvious point made broadly speaking.
Yes.
And the road is plant or animal feeds and.
The long term availability and plant based fees I don't think isn't out there a lot of cash.
Technical folks projected and various assumptions and to some kind of a pinch point, that's really hard to imagine the total amount of announced renewable diesel projects and so.
<unk>, 5% of the U S diesel demand. So we really don't see a feedstock problem on the plant side. The animal side is very different and so a lot harder to parse. It would also require investment and training facilities. So for all these reasons.
Strategic partner that we eventually take on and it's Gonna have a strong voice and whats determined.
Okay, great very helpful. Thank you.
And our next question coming from the line of Gregg Brody with Bank of America. Your line is open.
Good morning, guys.
Okay great.
Just to just.
Maybe stay on the theme of the renewable facility.
If you could talk a little bit about.
Maybe the timing around realizing the third party.
And then.
When do you think you'll have the projects on line and then could you talk a little bit about.
And perhaps.
You gave US you gave us some normalized numbers for this project.
Could you give us a sense of what normalized numbers weren't prior to this.
Potentially what normalized numbers are for the rest of the businesses as you've started to price them out.
Yes, Greg if I take the last one first.
We will.
So all of that and that will include a restatement looking backwards and so youre about to get all of that from Todd.
And the relatively near future, so I'm going to.
And on a wait for the actuals and if you don't mind.
But I will say that a lot of the industry announced projects.
Our finding ways to repurpose refineries that werent that good ours isn't in that condition ours is quite a good refinery.
Small, but it happens to offer a top decile.
Canada because of the oversized hydro cracker, so we've got a confluence of unique circumstances.
I think point to try and to find a way to put the renewables in without taking the crude out and this is what we've come up with.
In terms of the timing.
And that's gonna have a lot.
To do with the appetite of a strategic partner to go on a particular direction and now.
I'll use the same example that I just did if for some reason and we find ourselves partner and with <unk>.
And entity that is on the animal feedstock side, we're gonna have to design and incorporate some trading and facilities there right now or not and the vision, so theres a bit of and interaction there I'll tell you, though our intend is to sort this quickly.
So that you know.
Ultimately, we create a partial deleveraging event in 2021 based on the equity injection from the partner and then of course, we will have the ongoing participation and cash flow as we build up the value chain.
And.
Once you go to invest and how long would it take to overcome facility.
Okay.
Sure.
There is a sequence of engineering activities, if I jump over it will be we will have feed in.
By early next year, we'll have full capability.
No worse than 12 months after that.
12 months maybe.
And maybe it's.
And you touched on partial deleveraging.
And does.
And what are you hoping to achieve here, but when you say that.
Joint venture.
But the deleveraging is there the capital and Youre talking about raising.
How much could you deleverage.
Well Youre basically asking what the plant will sell for we will find out.
Got it and the JV is ideally a 50 50, JV I guess it depends on when it comes down to.
Yeah, I think again, we're fairly flexible on the structure and you know there.
Hoping to convey the idea that there are a lot of different ways to put all the Lego blocks together, if we do or don't have feedstock pretreatment for some reason the hydrocracker itself is capable of a series of pipe stretching and expansions to our higher capability.
On the products side, whether we go to Canada, and therefore tune the operation for more Arctic spec diesel or whether we're sending it all down to L. A where it's nice and warm raw material considerations and so the partners go to half a point of view and a voice on these things.
And then financially you know work, we're certainly open to.
Inappropriate.
Sure and of the new created revenue, yes, Greg. This is Steve I mean, I would just add as we work through this process and that's an exciting process and.
It's all about creating unitholder value and so I think just kind of starting by by the management team and Calumet, saying Gee, we'd like to me and a 50 50, JV or a 49 51 or 50 149 or whatever and then back engineering isn't the right way to create unit holder value, we need to be aligned with the right partner and create the right deal for our unit holders.
Is it conceivable that you would you would still consider selling the facility.
Oil facilities everything we have we have whole values on its I think that spread that's prudent management.
Got it and.
And one more here for you and I'll jump back on the queue.
How does this facility address the rent and one that you have.
And maybe you can talk a little bit about about how about just in general.
And how you're thinking about rent and this year.
And let's say.
So compliance.
And is accomplished by giving the EPA a quantity of returns.
Everybody loves to price that as if it was a financial instrument, but it's not this is an opaque market.
This is a complicated market.
And all I can tell you is we have not had to settle price.
And anybody any cash historically.
This facility.
Presumably this facility helps you.
On the diesel facility would help you address any rent issues.
How much that would that would reduce travel occasion.
So the the production of before or day, five rins, depending on how we do that.
Settled and technology.
As.
All written or written per gallon and this is a lot of gallons. It it's way more than what Calumet requires so it makes us written law.
That's helpful I'll jump back on with you.
And so all you got to go forward.
Alright, I've got a few more here so.
Yeah.
Okay.
Okay.
Okay.
Oh.
Did we lose Gregg and Matt.
And have lost their whole go.
And here.
Go ahead, please press star one again.
Yeah.
Yes.
Ted Thanks.
And that is helping.
Hey, Greg we can hear you and you can hear us Greg I just want to reiterate we did we didn't hang up on you Greg I just wanted to say that.
I can hear you all on I was talking and.
Telephone and you guys kind of sound great.
Maybe just coming back to.
Some of the things that I noticed your.
Your ears.
And SG&A went down fourth quarter quite a bit is is that a run rate number and we should think about or is it or how should we think about that and 2021.
For the year, Greg and like you said.
Corporate SG&A was around $65 million for the year, we would expect about 20 of that to come back. So so kind of as it stands today I think about kind of and $85 million type type run rate.
So in other words about $30 million and the savings will will stick.
Got it.
And then you are there are there any other cost increases we should think about.
No I don't think we could see some some variable cost increases come back obviously is as refinery throughput increases but.
I think that would already be built into your into your normal variable cost model.
And and I noticed I don't know if I missed it but did you provide and capital number for this year Capex number.
And today $65 million.
As it stands today and that's.
That's the sustaining environmental Capex with a small amount of growth. We do have some some kind of a less a pretty interesting and exciting.
Smaller strategic growth projects that then we'd love to get to but we're going to say conservative.
You don't make sure make sure that things out their economy, and really have recovered and net and that were comfortable before we before we had approached us.
And how do you do you expect to be free cash flow positive. This year how are you.
And your expectations.
Yes, I would think so yes.
And we were free cash flow positive in 2020, and the outlook for 2021 clearly better so.
So I would take it from there.
And then you mentioned.
And the impact from the storm.
And the freeze.
And as you mentioned a lot.
So.
Some negative impact and then specialty and potentially offsetting that as it right now.
And it sounds like Youre not expecting on significant impact from the storm is that did I did I hear that right.
I think we lost about a week.
And northwest, Louisiana from the storm is the way is the way we would think about it.
And remember we also had the Shreveport plant turnaround. So so we didn't lose a month at Shreveport.
But that was already in and and your model I'm assuming so.
Yeah.
The incremental loss from the storm would be about a week of production and northwest Louisiana.
Got it.
And I think I would just go ahead, Greg sorry go.
No. Please please go to the thought of you if you had more to add.
I was just going to add to Todd I mean, we're still triangulating that right now.
Across multiple of our businesses now now the roads are viable and everything we've been sending shipping records and the last day or two.
So it's difficult to triangulate kind of how it all comes through how we catch up we feel really good that we didnt have the force majeure or any of our customers with some of our competitors did and some of our suppliers to us.
So it's still a little early to see if we're going to kind of catch that order book back up on now and then there's an extra dimension of the fact that.
Margins for all these businesses are pretty good right now so how you put all that together it's difficult to say.
Got it.
And.
And you mentioned and the margins have been good.
Is there it is.
You've been able to pass through the increase and crew.
Oil prices pretty seamlessly.
And sorry, Scott yes.
Scott here I think I think it is reflected and the numbers.
And a highly volatile year last year and really the final three quarters of the Iraqi crude and continuing the March up I think you could see that Steve mentioned on the gross profit per barrel well about 40, you can see that continued mark shop, and that's been really a pattern and the past couple of years as we've really drilled.
Driven a lot of our pricing programs and overall commercial excellence programs with and Calumet specialties.
And if you take so it sounds like you can keep your margin is it is it we should think about your growing with GDP.
Is that a good number.
And to focus on plus or minus some spun out.
Well of course.
And the GDP numbers can be pretty weird, so so and a normal year, we'd probably say, yes, but but.
I don't know what we can debate the accuracy of the GDP print currently.
Okay, and if they haven't.
If you go GDP number, but the general idea.
And we're expecting a lot of gross I think on for Chad.
And America.
Cent a share yes.
Yes.
And it seem to be.
I mean at the highest level, Greg we can sell everything we can make right now.
And then just my last question before and yet you said you were going to use the proceeds from the.
And.
From this from both sales and leaseback to pay down between share notes is there a is there a reason why you're waiting to do that is it.
I think it's closed so as it is.
And.
Or should we expect you to pay down any day.
On it.
No we would expect to pay it down here very shortly we just got the proceeds and last week.
And our way through the through the polar star, but startups and and we would expect to be moving forward on that shortly.
Does it does it makes sense to use your excess cash to pay down and the rest.
On the 20 twos are or is that.
And until potentially.
And this JV.
And we probably wait we could we could so the most important thing to US is that we have the ability to do so.
You know as long as we have the ability to do so and we're very comfortable with that position going forward. Then then when we do it is just it's just a tactic that will optimize kind of like you said as we get more certainty and clarity around timing on a J P.
Got it and.
And I'll just go on to one last one here and just.
Definitely my last one so rents.
And if I look.
I'm, telling you what is the liability that you are showing right now on the balance sheet and I know that will come out today.
And just what is what's the time that you use.
Point in time and easy.
And prices to estimate that.
The quantity the run rate quantity of gross obligation is about $80 million.
Across all the classes annually.
And where the EPA is backed up on.
Compliance and includes the.
For 2019 and 2020 deadlines.
Not yet occurred.
Pushed them back or proposed to push them back.
So basically we have a gross obligation of two years' worth, but it's offset by a lot of ethanol blending that we've done we like ethanol blending and we'd like to be able to do more of it especially at great Falls.
So you know there is a there is a net on the balance sheet.
And we mark to market at the end of each quarter and Tom.
And they have a financial figure for that but I think the key is that's a that's a placeholder that's reversed upon small refinery exemptions.
Yeah, I think that's right and and.
The financial placeholder, so he said.
$53 million of Rins expense and the fourth quarter.
Which would be the the obligation we generated plus just the mark to market of the obligation and so.
The the numbers that that make that up would be the year and the 12 31, RIN price, which was 70 some consensus around.
And just a follow up I guess, you the small refinery pinery exception, where where does the process 10 and the courts.
And your.
And from your perspective.
And it's been a half a dozen different courts and various manifestations.
Our crystal ball is not good enough to know if we go to re legislated. This through a series of court actions or whether Congress will deal with it or and a preferred mode, whether the EPA will simply use some administrative tools that are available to them now.
I wouldn't care to speculate.
And you do you have any indications from the EPA and they reduced their tools no.
I think that the conventional the center of mass of the conventional wisdom is everybody's waiting.
Or the Supreme Court to have an opinion.
And sometime this summer on one particular matter and that that may be foundational.
And we'll see.
Yeah.
Uh huh.
Alright, guys. Thank you and come to the time.
Yeah.
Thanks, Great. Thanks, Greg.
Okay.
And that's all the time, we have for questions today I would now like to turn the call back to Steve Moore for closing remarks.
Well again, and thanks, everybody for your interest and Calumet and the team really executed at a high level and 2020.
Even the fact that a lot on their plate, but they did a super job I'm really appreciative, we've taken proactive actions to both protect the business and to reposition and for long term success.
So looking forward to 2021, thanks for your time today have a great day.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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