Q2 2021 Calumet Specialty Products Partners LP Earnings Call
We'll begin momentarily again, please standby for your conference will begin momentarily.
[music].
Good day, ladies and gentlemen, and welcome to the Q2.2021 and tell them that specialty products partners L. P earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Anyone should require assistance during the conference. Please press star zero on your Touchtone telephone as a reminder, this call is being recorded I would now like to turn the conference over to your host Mr. Brad Macmurray, Vice President of Investor Relations.
You may begin.
Good morning.
Thank you for joining us on today's call to discuss our second quarter results. Joining me on the call are Steve Marsh CEO, Todd Boardman CFO, Bruce Fleming EVP of Montana, renewables and corporate development, Scott Obermeier EVP of specialty products and solutions and Mark Lawn Edp performance brands.
Before we proceed allow me to remind everyone that during this call. We may provide various forward looking statements as defined under federal Securities laws.
Please refer to our press release that was issued this morning as well as our latest filings with the 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 the call.
As a reminder, you may now download the slides that will accompany the remarks made on the conference call.
It can be accessed in the Investor Relations section of our website at Www Dot Calumet specialty dot com.
A replay of this call will also be available on the website later today with that I'll pass the call to Steve.
Thanks, Brad Good morning, everybody and thank you for joining us today.
For the second quarter, the partnership generated $32.3 million of EBITDA.
Specialty margins have been very good increasing 19% over the first quarter, despite dramatic increases in input costs.
Within the specialty products and solutions segment, most of our product lines that are implemented 6 or 7 price increases so far this year.
Back in late 2020, our team labeled 2021 as the year of the price increase and.
And prepared our systems and teams for a rapid increase in our feedstock costs. We really appreciate how diligently our team has protected our margins in this environment.
Sales volumes in specialty products and solutions improved over last quarter, but still showed a maximum rate given that we completed our post turnaround inventory rebuild and also experienced an unplanned outage at our Shreveport facility in June.
Performance brands has also successfully implemented price increases with similar frequency this year.
As 1 gets closer to the consumer as we do in performance brand price increases operate with a significantly longer lag time and performance brands second quarter is affected by this.
1 way to think about this lag cost effect is as a reversal of the positive price lag benefit that we accrued in the second and third quarter of 2020, when we were in a deflationary depressed price environment.
Demand in performance brands is extremely robust and for now we can't keep up resulting in a record backlog as.
As a specialty focused company with consumer brands, we're right in the thick of the supply chain challenges that the recovering global economy is experiencing.
<unk> brands second quarter shipped volumes dip versus first quarter due to the production complexity that comes with multiple shortages and Todd will spend a few minutes sharing a supply chain perspective challenges and also opportunities a bit later in the call.
Yeah.
Montana renewables had a solid second quarter.
Northern Rockies niche tends to manifest its advantaged during the spring and summer and this was again the case in the second quarter <unk>.
Our limited availability and expensive long haul trucking in Utah, and Nevada have increased the cost of re supply to a market, which has benefited us. Although this has been partly offset by asphalt pricing not fully keeping up with crudes impressive rally.
We also set production records, both in Montana, and several of our specialty products and solutions facilities during the quarter.
Yeah.
I know there was a lot of interest and the excellent progress, we're making on our renewable diesel conversion project.
And so before Todd takes you deeper into segment performance, Let me give you an update.
June was the last time, we shared an update on Montana renewables conversion at <unk>.
That point, we added feed pretreat as an additional project module and significantly raised EBITDA guidance.
Since then.
Estimates of the project cost and timing have not changed we still plan to be producing renewable diesel after the plant wide turnaround next April.
As we have discussed before derisking the renewable diesel venture.
Or indeed any venture is a key element of our operating philosophy and stewardship.
This stewardship goes in 3 directions.
The first direction as project readiness.
Due to the excellent metallurgy of our existing hydro cracker and already rail focused site logistics the scope of work needed to complete the initial conversion is quite limited.
We are holding fast to our modular step by step approach on the site, which simplifies execution and flattens the capex spending curve.
We have decided to.
To advance an FTC turnaround away from next April into the fall of this year in order to reduce execution complexity in 2022.
We have secured a fixed cost engineering and procurement contract for our renewable green hydrogen plant, which removes cost uncertainty from a major program element and assures us of low carbon intensity.
We've passed another internal front end loading gate as well as an external readiness review of a project without the change to forecasting timing oil spending.
These are just examples.
A core reason behind holding the line on cost and timing is the top tier metallurgy, we have at the plant already.
This existing platform means we can dramatically reduce the cost and complexity of switching to renewable feedstock.
Metal is at the heart of why we believe this is arguably the best renewable diesel conversion project in North America and as we've shown before we have the lowest capex per barrel of any announced project.
So right now we feel good about capital stewardship.
Our second stewardship element as commercial readiness, which also continues to make excellent progress.
Geographical advantage helps here as well and we'll touch on that on the next slide which I believe it's slide 4 in the packet.
In terms of feedstock access and logistics, we're starting up next spring using technical tallow and some soy.
<unk> buy our feedstock strategy, which is to emphasize the local gathering and take advantage of our superior geographic location.
Local supplies of non soybean oil such as Camelina, canola mustard et cetera of our low carbon intensity and lower logistics costs. Because these temporary climate crops literally grow in our backyard the dashed red circle on the map illustrates this.
With the pre treat the on deck for late 2022 commissioning.
Our hydrocracker metallurgy, we will be able to run any feedstock.
Millions of acres in Montana, Alberta, and Saskatchewan either <unk>.
Or can produce oilseed crops and our location within this temporary oilseed belt will make us 1 of the most feedstock advantaged renewable producers in North America.
While we plan to start up on technical Tallo on some soy the pre treat even shrinks soy dependency window to 1 that is quite manageable and you can see that from a chart. We put on slide 11 in the appendix of the packet.
When you look at the appendix Slide Youll also see that we have an opportunity to debottleneck, our oversized hydro cracker and further expand the renewable diesel facility to over 18000 barrels a day of throughput capacity for little capital cost. Many of you will recall that the hydro cracker was an off the shelf.
<unk> and was oversized from day, 1 and we plan to take advantage of that.
You can think about this as another exciting growth base and opportunity for our renewable diesel business.
Back to feedstocks, we've begun signing the initial supply agreements with startup.
Focusing on soybean oil and tallow produces close to our plants to our natural suppliers.
We can get into this during Q&A if there's interest.
But we are strongly supported the.
Comprehensive bipartisan Senate effort to have EPA approved the pending renewable diesel pathway application for canola.
Canola is already approved in Canada, as well as being approved for biodiesel in the U S. So we see its inclusion as inevitable.
You probably haven't heard much about the canola feedstock opportunity from others as for most of the renewable diesel projects in the U S. Canola production is far away from them, but for US a growth right around the plant.
On the marketing side, we've had strong interest in our production, particularly in the northwestern market our position as the short coal supply to British Columbia, and the Pac northwest is readily apparent and events of the last 6 months have reminded people of the risks of lengthy supply chains.
We're also blessed with unique proximity to supply, Alberta, and Saskatchewan with renewable diesel when the rest of Canada goes to low carbon fuels.
In 2023.
While we conservatively forecast, our EBITDA performance, assuming realization of the products in Los Angeles, we expect to do better than that.
Indeed, our current modeling and buyer interest indicates the Canada may be a main or even possibly our entire market.
Our third stewardship element is partnering.
I'm happy to report that we've had tremendous interest in this project feedback from those who have dug in hard in the data room confirms our point of view that this is a truly exceptional value proposition and most definitely not 1 of the me too renewable diesel projects.
It's also gratifying its always gratifying when highly capable people go through a data room and debt and reinforced and confirm our competitive thinking.
Funding for this project could be available to us from multiple sources.
Field has been narrowed and when we are ready to announce we will announce.
I'll now turn the call over to Todd to take you through our second quarter results in more depth Todd.
Thank you, Steve and let's turn to slide 5.
As Steve mentioned, we generated $32.3 million and adjusted EBITDA for the quarter.
Our SPM business generated $31.8 million, Montana renewable generated $12.8 million and performance brand 7.3.
As you can see in the chart sales volumes improved relative to the first quarter as we came out of the Shreveport turnaround in the polar vortex.
However, despite exceptional demand sales volume fell below pre COVID-19 levels for some of the reasons, Steve alluded to earlier and we will get deeper into that in the segment discussion.
The story on so many calls this quarter has been around the global supply chain challenges that are affecting businesses across the country.
On slide 6 let's go into more detail on how that impacts Calumet.
In our Sps business the primary supply chain impact was around trucking and driver availability during the quarter.
Members of our team at Calumet, we're working around the clock to find transportation solutions to keep our customer satisfied and the situation has progressed favorably throughout the quarter.
Further as an industry, we entered the quarter with low inventory levels. After the Q1 freeze.
When you stack low inventories on top of the global supply chain challenges and pair it with extraordinary demand, we're seeing spectacular specialty unit margins in Sps.
As we look forward in Sps, we believe our most significant challenges around logistics are behind us and we expect demand will remain strong as customers continue to restock.
Our performance brands Division has experienced supply chain phenomenon most directly.
This segment has our longest and most complicated supply chain, including various raw materials that are sourced internationally.
As we know complexity increases as businesses get closer to the consumer and in this business. We're all the way to retail shelves low.
<unk> base oils additives packaging steel bottle caps labels and even cardboard has presented challenges.
In addition, while our diversified supplier base of the strength when the industry supply chain has backed up as it was in the second quarter, our broad supply play a broad supply base actually added more variables in scheduling complexity.
Balancing all of these moving parts required a litany of inefficient short production blocks and short chip shipments they don't come cheaply.
In fact, our team was changing the production line more than quadruple the normal amount and with these inefficiencies we cannot keep up with the demand growth. This business is seeing.
We really appreciate the dedication of our production team as they balance these challenges to meet as many of our customers' needs as they possibly could and we also thank our customers per working with his patiently and collaboratively as we spared no costs and pulled every lever we had to meet your needs.
Additionally, an item of note that didn't have a big impact on the quarter, but that will impact us for the rest of the year is the loss of the industry's largest supplier of Greece as they suffered a catastrophic plant fire in June.
We've already began receiving shipments from our alternative suppliers and expect this transition to continue smoothly as we serve our growing customer base with a higher cost of alternative supply will likely weigh on our short term financial performance and these product lines.
Our Montana renewable segment was impacted the least of all of our segments. In fact, we've seen extremely low pad for fuel inventories.
As logistics constraints have raised the cost of long haul truck and parts from competitors outside the region.
I'll now go into our business segment results and we'll begin on slide 7 for Sps.
Both Steve and I have referenced the strong specialty margin environment, we are experiencing.
I'll reiterate what Steve mentioned earlier around pricing discipline, we've averaged a price increase per month in 2021, and the result is material margins that are higher than they were even during Q2 of last year and a period when crude oil prices went negative.
As the world supply chain issues continue to be on display we expect to remain in a strong margin environment for longer than we would have estimated earlier in the year as our customers continue to restock.
And a bit we'll see how these sps margin tailwind have the opposite effect on our performance brands Division, but remember we sell 7 times as many gallons of base oil and Sps as we buy and performance brands. So it is a dynamic that can be favorable for Calumet.
Unfortunately in Q2, we did not net recognized normal sales volumes.
Our lube and wax inventory at the end of the first quarter was essentially it bottoms, which was 170000 barrels lower than average levels.
Took a little longer than expected, but we were able to replenish our inventories to acceptable levels during the quarter and we expect to sell what we make in Q3.
We also experienced some unplanned downtime at Shreveport, and we estimate the impact of the Q2 downtime and the inventory rebuild was approximately $24 million.
Last you can see that margin for transportation fuels continue to sit at depressed levels. We.
We are pleased to see the market trending in the right direction, but after accruing for the impact of the RVO fuels margins remain at bottom quartile levels.
Outside of Shreveport, we had strong operational performance at our specialty manufacturing plants, even setting 5 year production records at our Princeton plant and our Penrico specialty oil plants.
Let's turn to slide 8.
Our second our second quarter performance brands EBITDA of $7.8 million was below last quarter and the second quarter of 2020.
A few things we've already discussed significantly affected this business.
First was the inflationary environment and subsequent upward pressure on feedstocks and other materials, which impacted our costs.
While we've implemented price increases in this segment at a similar rate to SPF, there's a natural timing lag on recognizing these increases in the consumer business and we estimate the impact of that lag to be roughly $7 million during the quarter.
Steve reminded us that we experienced the opposite effect a year ago, when feedstock prices were deflating and our consumer.
Facing products benefited from margin expansion in a conference earlier. This year, we estimated the impact of that deflationary environment to be an $8 million benefit to last year's performance brands EBITDA. So we're clearly seeing the reverse of that now.
We've talked about supply chain issues, but I do want to highlight the extremely strong demand for our performance products this quarter.
Unfortunately, we haven't converted all of this demand to shipments yet as we battled through the supply chain and we've seen a record order backlog developed.
Compared to last year's second quarter, we've seen sales grow by $6.5 million, but we've also seen our sales backlog double to roughly $19 million.
To put that in perspective had we been able to ship everything that was ordered throughout the first half of the year, we estimate EBITDA would be roughly $7 million stronger than it was and we are working diligently to reduce the backlog and deliver products to our customers effectively and efficiently.
On slide 9 you can see our Montana business had a reasonably good quarter.
We saw the typical season demand increase as weather improved and so did margins for light products in asphalt remember.
Remember that asphalt pricing tends to be negotiated a few months prior and we will experience a margin lag in an inflationary environment and the opposite on the way down.
As I mentioned earlier pad for light product inventories are low and supportive of the crack spreads and margins we are seeing.
Now I'll turn the call back over to Steve for a few final remarks before Q&A Hey, Thank you Todd we've covered a lot. This morning, we're very happy with the progress and the opportunity in Montana.
Inventory rebuilds and the final legacy of Winter storm year are behind us and we moving to a third quarter characterized by good specialties margins and the continuing slow recovery of fuels margins the.
The Rockies markets are showing a usual seasonal strength.
Demand in performance brands keeps growing and the team is focused on tuning that record backlog into income.
So with that I'll, Thank you and I'll turn it over to questions.
Okay.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number 1 on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Neil Mehta with Goldman Sachs.
Hi, Good morning. This is carly on for Neil Thanks for taking the questions just wanted to talk a little bit about the base oil market.
You talked about margins have been really strong and kind of you expect that strength to continue longer than you would have initially anticipated. So just wanted to get your thoughts on kind of as we move through the back half of the year and as we go into 2022 kind of when do you see the path to those kind of normalizing.
Hey, Carly Scott Obermeier here.
Yes, the base oil market as you probably heard from others remain at very very strong demand very high profit levels for the producers out there we see that trend in that plateau. If you will continuing through Q3 and at this point really even into Q4.
As production continues to ramp up and the global supply chain works to stabilize so we see a strong forecast for the remainder of the year outside of that correlate is hard to look too far out into 2022.
Guests, Steve if I could add I mean, I think that the choice of words by Scott was very good plateau that.
We're not expecting margins to improve from here I mean, they are at record levels already.
We think there'll be good for a while but at the margin in the U S is pulling base oil imports at this point.
And so we would kind of generally speaking see that as maybe a cap on margins here, but.
I would reiterate Scott's point of view that we think that'll be good for ways to come at us.
Customers are still clearly in restock mode.
Great. Thank you and then and then just wanted to touch on leverage and cash you guys. Obviously took out a portion of the 'twenty twos during the quarter. So just wanted to get your thoughts on kind of the remaining balance there as we move towards 2022, and then on the cash side the $35 million balance at the end of the quarter seems a bit low relative to recent quarters. So could you.
Just maybe remind us if theres a target level that you'd look for around cash balances going forward.
Yes, I'll take the cash versus Carly This is Todd thanks for the question.
We really had too much cash sitting on the balance sheet with $100 million.
We focused on overall liquidity.
We didn't think that that was the level that we needed to maintain so so we're just managing cash managing interest costs with the move to use cash to that.
Kind of pay down the revolver.
Great. Thanks, and then if I could just sneak 1 more in.
You guys talked about great falls and kind of the Rockies regions margin being really robust right now.
Based on the timing of the FCC turnaround that you had mentioned do you expect to be up and running to kind of capture the full <unk>.
End of summer driving season strength.
Hey, Carly this is Bruce I'll take that 1 so the Rockies margins are actually at reasonably.
Typical historical levels.
For this time of the year, so thats relatively strong for last year or 2 the winter season in the spring season. So.
In terms of the FCC.
Many outage that's going to be after day.
Fall peak season.
Okay.
And your next question.
It comes from the line of Roger read with Wells Fargo.
Yes. Thank you good morning.
Good morning budget Marine revenue.
Just hoping to dig in first to some of the things you talked about like the $7 million lag in the second quarter.
You mentioned that that's a.
A function of price versus.
Feedstock costs coming in but is that something that generally against recaptured in 30 to 90 day period does it take longer than that.
Yes.
Crude and some of the supply chain things get ironed out as we go through the back half of the year would you look for pricing improvements that have occurred in may still occur.
To ultimately lead to a little better margin environment, Let's say is typical as we look at maybe year end into the first part of 2002.
Mark would you like would you like to take that 1.
Yes, Paul Thanks for the question, Rob Jed so.
Yes.
The price lag gains in net 30 to 90 day range.
This is low.
The contracts in the different channels that we operate through <unk>.
Assumptions correct as we work through the balance of the year.
Number of elements that play their way through in <unk>.
The unknown on the supply chain side of things.
Intersection as we mentioned as bad so to supply challenges.
Customer and consumer needs and then the Operationalization C. P S.
You mean that the supply chain naturally start to ease up we would expect to see all of that.
Margin recapture it further down the line.
You've seen the record backlogs that we have and we believe that there is upside potential in the second half of the EBITDA, we're playing catch up with those elements, but there's still a lot of unknowns will be able to navigate the way trade, but we would expect.
Back to this volume question, we would expect some normalization backing that day.
The margin that we've been doing historically.
Okay, Yeah, let me, let me add a little bit Roger.
This is Todd.
Earlier, we heard from Scott kind of the concept of plateauing Sps margin. So so as mark.
Pricing catches up to the rising feedstock prices over that 30 to 90 days.
We should see.
Scott's margins remain where they are at we should see debt margin impact flow all the way through right. So you get the benefit of price increases and performance brands catching up and then you also get the benefit of.
Feedstock prices kind of plateauing and not continuing to increase.
That's helpful very clear.
<unk> gears, a little bit to look at the renewable diesel project just 2 questions.
1 of them on page 12 of the.
A presentation, where it talks about renewable hydrogen project just curious what the factors are behind that and then the other question as we look at the various alternative feedstock sales soybean oil.
What.
As we understand in soybean oil limitation here is not so much soybeans and soybean processing into oil. So are you comfortable as you look at the alternatives that you mentioned that there will actually be oil processing capacity as well as farming capacity and maybe how all that fits in.
Supply chains.
Hey, Roger.
I'll take a start at that and Steve may want to add a couple of comments.
So.
In reverse order.
Yes, there is a agricultural commodities value chain.
First the farming and ranching remember that we're also planning their own tallow oil.
Then the.
The crop processing seed crushing.
Importantly.
The oil pretreatment every renewable diesel plant in the country without exception has to have a pretreated feed. The question is does the pre treaters shed on your site or is it some kind of an industry service.
The crop processing point.
And by choosing to put our pre treater on our site will be able to run anything at all what you're seeing in the markets is mostly a distortion due to lack of pre treating capacity, it's not lack of crops.
Okay. Thanks, and then the renewable hydrogen.
Yes, so that's the cause.
Given our site balances and the fact that we're going to continue to have a crude oil business.
<unk> got a good opportunity to reduce their carbon intensity of our renewable diesel products further.
By gathering some of the other hydrocracker products and using them in their hydrogen production. So that's what we're going to do and that's why we're doing it.
Okay. So politically source then everything.
Specifically, we're going to recycle some of the molecules from debt.
Hello, and vegetable oil processing some of the light ends back into hydrogen production.
Okay, great. Thank you.
Your next question comes from the line of Gregg Brody with Bank of America.
Good morning, everybody.
Good morning, Greg.
Just wanted.
Moving to topics oil discovery.
So obviously, we have to the Supreme Court ruling.
While refinery credentials.
I'm curious how you think this plays out from here with respect to your liability.
What we should be looking for oil.
Looking towards the next steps there.
Bruce you want to go first on that 1.
Yes, Thanks, Gregg for the question.
I think it's safe to say at this point net.
No matter, what the EPA decides somebody will sue them for it.
It's difficult to see anything happening in real time, it looks like it's all on them.
Court dockets kind of a timeline.
We wouldn't care to forecast, how that's going to play out I can tell you in our case that is.
As we discuss every quarter.
Iran is not a cash obligation.
I know that financial model or so it seemed to convert that to money, but that's not how it works.
That's helpful. I appreciate that.
There's a lot of unknowns just wanted to hear your thoughts.
<unk>.
Just turning to <unk>.
You've previously said that you plan.
JV JV proceeds would be to pay down.
'twenty 2.
Some of the 'twenty threes is that is that still the plan.
Wednesday.
No nothing has changed there.
This is Todd Greg but.
As you know the the markets continue to be very fair favorable should we want to kind of re Fi our debt stack now but.
Looking at the horizon and kind of thing kind of where we're at in the.
Partners search and our positioning there.
We do plan to use proceeds from that to pay down the short term short term debt.
Great.
That's it for me guys I appreciate the time.
Thanks, Greg.
Okay.
Your next question comes from the line of Jason <unk> with Cowen.
Okay.
Thanks for taking my questions I P.
Good day, all the detail on the renewable diesel project.
Had a couple questions on it personally.
I know you've previously disclosed a pretreatment unit.
Can you discuss the.
The capex cost of that agreement.
Peanut.
In previous materials, and then secondly on the renewable diesel project.
Is there something that needs to happen in the market and order.
Hum.
In order to capitalize about JV partners.
<unk> signing an agreement I'm thinking.
Maybe the RVO is being announced or maybe there are other.
Public market milestones that need to occur.
And then thirdly.
What do you think.
What's the likelihood that the refinery.
Income.
Part of the joint venture it seems like there have been a handful of.
Refining deals recently.
So just wondering if you were thinking.
Sure.
Non renewable diesel part of Montana, well the room.
We remain 100% owned by Calumet or any part of the joint venture.
Hey, thanks.
Excuse me Jason.
Jason for the question.
Maybe if I take those in reverse order.
<unk>.
We told our unitholders in March that we were going to go in this direction. After spending about 18 months reviewing our strategic options included in these reconfiguration opportunities on that side.
Yes, the majority of.
The inbound calls that we got in the next 100 days.
We're focused on renewable only theres a lot of money available.
In the U S economy for Green projects and this is a really good green project so for that reason.
And we're flexible in our own thinking but to the investors. It looked like a renewable only play was preferred so we've set it up that way.
The.
The question of whether there is some sort of a market trigger not that im aware of volume.
Todd or Steve to think about that a little bit.
It's not like we're waiting on an event we funnel this down the first part of the funnel with sorting out whether people wanted the whole side or the renewable part, which I've just covered.
Second part of the funnel was what's the security of feedstock supply look like which we.
<unk> done in these remarks, and Steve had a slide at the very beginning with it.
And interest and color coated I test that's important.
Suggests some focus there as appropriate.
So the addition of Patriot and then followed from that which takes me to your first question what's it cost.
That is.
Guidance that we've actually not given at the discrete project elements level. What I can tell you is that our installed capital cost per barrel is the lowest of any project that's been announced adding the pretreated did not change that remember that the pre treater brings its own revenue stream.
We talked about that a little bit with Roger is that going to go.
So given all of that work.
Pretty satisfied we're not spending a great deal of money.
Getting an excellent leverage added to these program elements. It stretches out the field activity. All during next year, it's not some kind of a big Bang turn on a giant project. It's discrete small elements that are very manageable. So we're pretty excited but all of that is what allows us to hold the line on costs and to hold the line on timing.
Yes.
Got it great I appreciate all that color and then my other question just going back to Iran.
And I think Chuck.
But it was a 48 million non cash mark to market charge.
Total liabilities sitting at right now.
Can you discuss is there do you have any type of strategy. If you don't get all the small refinery exemptions.
You previously Garda and how you how you're thinking about handling what potential.
Payments that you would be required to make.
Okay.
Let me maybe start with the second part of the question and pass it back to Todd for that.
Current balance sheet part of the question. So in terms of how this plays out.
We feel like it's going to play out in slow motion no matter, what happens whether anybody wanted to or not there always seems to be someone showing up to try to resolve the matter in court rather than through the administrative channels.
So we feel reasonably good about our relationship with the EPA in this regard but.
We can't say that we don't all get dragged into a larger controversy.
So.
With respect to our strategy and our options yes.
We talk to the EPA a lot we talk on multiple levels and for.
For a different tactical reasons. They have several authorities, it's not only the small refinery exemption. So they've certainly got the ability to navigate all of us into a better consensus as a society and I think theyre going to find a way I just don't want to have an opinion on how fast.
Todd do you want to tackle the balance sheet part.
Yeah.
The number on the balance sheet.
$273 million is the total.
<unk>.
For all of the reasons Bruce Bruce has talked about.
In many calls before and some of what you just just referenced this isn't a number that we expect to turn to cash it's more than just the sorry.
There are a lot of layers to this but just to answer your question.
$273 million is the number we report on our balance sheet.
Okay, Yes.
Alright.
Jason This is Steve if I could add I mean, I just want to reiterate what Bruce said I mean, we maintain what we would describe as a slow motion scenario. So if you go back to before the Supreme Court ruling we said that the Supreme Court.
Rolling wouldn't make that much different at which is spark off a wave of litigation.
Supreme Court ruling when effectively in Calumet favor, but we don't change our position. We think it's just setup setting up a wave slow motion wave of litigation. This thing will run and run and run its not a cash settled.
And at all.
And we.
Internal expectation is that this situation runs.
At least well past the point, where we will be a net RIN generator.
Yeah.
Got it I appreciate all the color thanks, guys.
Thanks, Jason.
I am showing no further questions in the queue at this time I would now like to turn the conference back to the presenters.
Thanks, everyone on behalf of Calumet The management team here and then the entire company. We appreciate your interest and your time. This morning, everyone has a good weekend. So thanks again.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating have a wonderful day you may all disconnect.
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Good day, ladies and gentlemen, and welcome to the Q2.2021 kilometer specialty products partners L. P earnings Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press star zero on your Touchtone telephone as a reminder, this call is being recorded I would now like to turn the conference over to your host Mr. Brad Macmurray, Vice President of Investor Relations.
You may begin.
Good morning.
Thank you for joining us on today's call to discuss our second quarter results. Joining me on the call are Steve Marsh CEO, Todd Boardman CFO.
Bruce Fleming EVP of Montana, renewables and corporate development.
Got over Meier, EVP of specialty products and solutions and Mark Lord Edp performance brands before.
Before we proceed allow me to remind everyone that during this call. We may provide various forward looking statements as defined under federal Securities laws.
Please refer to our press release that was issued this morning as well as our latest filings with the 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 the call.
As a reminder, you may now download the slides that will accompany the remarks made on the conference call.
It can be accessed in the Investor Relations section of our website at Www Dot Calumet specialty dot com.
A replay of this call will also be available on the website later today with that I'll pass the call to Steve.
Thanks, Brian Good morning, everybody and thank you for joining us today.
For the second quarter, the partnership generated $32.3 million of EBITDA.
Specialty margins have been very good increasing 19% over the first quarter, despite dramatic increases in input costs.
Within the specialty products and solutions segment, most of our product lines that are implemented 6 or 7 price increases so far this year.
Back in late 2020, our team labeled 2021 as the year of the price increase and prepared our systems and teams for a rapid increase in our feedstock costs. We really appreciate how diligently our team has protected our margins in this environment.
Sales volumes in specialty products and solutions improved over last quarter, but still showed a maximum rate given that we completed our post turnaround inventory rebuild and also experienced an unplanned outage at our Shreveport facility in June.
Performance brands has also successfully implemented price increases with similar frequency this year.
As well and get closer to the consumer as we do in performance brand price increases operate with a significantly longer lag time and performance brands second quarter is affected by this.
1 way to think about this lag cost effect is as a reversal of the positive price lag benefit that we accrued in the second and third quarter of 2020, when we earn a deflation rate depressed price environment.
Demand in performance brands is extremely robust and for now we can't keep up resulting in a record backlog as.
As a specialty focused company with consumer brands, we're right in the thick of the supply chain challenges that the recovering global economy is experiencing.
<unk> brands second quarter shipped volumes dip versus first quarter due to the production complexity that comes with multiple shortages and Todd will spend a few minutes sharing our supply chain perspective challenges and also opportunities a bit later in the call.
Yeah.
Montana renewables had a solid second quarter.
Northern Rockies niche tends to manifest its advantage during the spring and summer and this was again the case in the second quarter <unk>.
Our limited availability and expensive long haul trucking in Utah, and Nevada have increased the cost of re supply to a market, which has benefited us. Although this has been partly offset by asphalt pricing not fully keeping up with crudes impressive rally.
We also set production records, both in Montana, and several of our specialty products and solutions facilities during the quarter.
I know there was a lot of interest in the excellent progress, we're making on our renewable diesel conversion project.
And so before Todd takes you deeper into segment performance, Let me give you an update.
June was the last time, we shared an update on Montana renewables conversion.
That point, we added feed pretreat as an additional project module and significantly raised EBITDA guidance.
Since then.
Estimates of the project cost and timing have not changed we still plan to be producing renewable diesel after the plant wide turnaround next April.
As we have discussed before de risking the renewable diesel venture.
There are indeed any venture is a key element of our operating philosophy and stewardship.
This stewardship goes in 3 directions.
The first direction as project readiness.
Due to the excellent metallurgy of our existing hydro cracker and already rail focused site logistics the scope of work needed to complete the initial conversion is quite limited.
We're holding fast to our modular step by step approach on the site, which simplifies execution and flattens the capex spending curve.
We have decided.
<unk> advanced and FCC turnaround away from next April into the fall of this year in order to reduce execution complexity in 2022.
We have secured a fixed cost engineering and procurement contract for our renewable green hydrogen plant, which removes cost uncertainty from a major program element and assures us of lower carbon intensity.
We've passed another internal front end loading gate as well as an external readiness review of our project without the change to forecasting timing all spending.
These adjusted examples the core reason behind holding the line on cost and timing is the top tier metallurgy, we have at the plant already.
This existing platform means we can dramatically reduce the cost and complexity of switching to renewable feedstock.
Metal is at the heart of why we believe this is arguably the best renewable diesel conversion project in North America and as we've shown before we have the lowest capex per barrel of any announced project.
So right now we feel good about capital stewardship.
Our second stewardship element as commercial readiness, which also continues to make excellent progress.
Our geographical advantage helps here as well and we'll touch on that on the next slide which I believe it's slide 4 in the packet.
In terms of feedstock access and logistics, we're starting up next spring using technical tallow and some soy supported by our feedstock strategy, which is to emphasize local gathering and take advantage of our superior geographic location.
Local supplies of non soybean oil such as Camelina, canola mustard et cetera off of lower carbon intensity and lower logistics costs. Because these temporary climate crops literally grow in our backyard the dashed red circle on the map illustrates this.
With the pre treat the on deck for late 2022 commissioning.
Our hydrocracker metallurgy, we will be able to run any feedstock.
Millions of acres in Montana, Alberta, and Saskatchewan either.
Or can produce oilseed crops and our location within this tempered oilseed belt will make us 1 of the most feedstock advantaged renewable producers in North America.
While we plan to startup on technical tallow and some soy the pre treat even shrinks our soy dependency window to 1 that is quite manageable and you can see that from a chart. We put on slide 11 in the appendix of the packet.
When you look at the appendix slide you'll also see that we have an opportunity to debottleneck, our oversized hydro cracker and further expand the renewable diesel facility to over 18000 barrels a day of throughput capacity the little capital cost. Many of you will recall that the hydro cracker was an off the shelf.
Purchased and was oversized from day, 1 and we won't we plan to take advantage of that.
You can think about this as another exciting growth base and opportunity for our renewable diesel business.
Back to feedstocks, we've begun signing the initial supply agreements for startup focusing on soybean oil and tallow produces close to our plan to a natural suppliers.
We can get into this during Q&A if there's interest.
But we are strongly supported the.
Comprehensive bipartisan Senate effort to have EPA approved the pending renewable diesel pathway application for canola.
Canola is already approved in Canada, as well as being approved for biodiesel in the U S. So we see its inclusion as inevitable.
You probably haven't heard much about the canola feedstock opportunity from others as well most of the renewable diesel projects in the U S. Canola production as far away from that but for US a growth right around the plant.
On the marketing side, we've had strong interest in our production, particularly in the north western market our position as the short haul supply to British Columbia, and the Pac northwest is readily apparent and events of the last 6 months have reminded people of the risks of lengthy supply chain.
We're also blessed with unique proximity to supply, Alberta, and Saskatchewan with renewable diesel when the rest of Canada goes to low carbon fuels and.
In 2023.
While we conservatively forecast, our EBITDA performance, assuming realization of the products in Los Angeles, we expect to do better than that.
Indeed, our current modeling and buyer interest indicates the Canada may be our main or even possibly our entire market.
Our third stewardship element is partnering.
I am happy to report that we've had tremendous interest in this project feedback from those who have dug in hard in the data room confirms our point of view that this is a truly exceptional value proposition and most definitely not 1 of the me too renewable diesel projects.
It's also gratifying its always gratifying when highly capable people go through a data room and debt and reinforced and confirm our competitive thinking <unk>.
Funding for this project could be available to us from multiple sources. The field has been narrowed and when we are ready to announce we will announce.
I'll now turn the call over to Todd to take you through our second quarter results in more depth Todd.
Thank you, Steve and let's turn to slide 5.
As Steve mentioned, we generated $32.3 million and adjusted EBITDA for the quarter.
Our SPM business generated $31.8 million, Montana renewable generated $12.8 million and performance brand 7.3.
As you can see in the chart sales volumes improved relative to the first quarter as we came out of the Shreveport turnaround in the polar vortex. However.
However, despite exceptional demand sales volume fell below pre COVID-19 levels for some of the reasons, Steve alluded to earlier and we will get deeper into that in the segment discussion.
The story on so many calls this quarter has been around the global supply chain challenges that are affecting businesses across the country and on slide 6 let's go into more detail on how that impacts Calumet.
In our Sps business the primary supply chain impact was around trucking and driver availability during the quarter.
Members of our team at Calumet, we're working around the clock to find transportation solutions to keep our customer satisfied and the situation has progressed favorably throughout the quarter.
Further as an industry, we entered the quarter with low inventory levels. After the Q1 fruit when.
When you stack low inventories on top of the global supply chain challenges and pair it with extraordinary demand, we're seeing spectacular specialty unit margins in Sps.
As we look forward in Sps, we believe our most significant challenges around logistics are behind us and we expect demand will remain strong as customers continue to restock.
Our performance brands Division has experienced the supply chain phenomenon most directly.
This segment has our longest and most complicated supply chain, including various raw materials that are sourced internationally.
As we know complexity increases as businesses get closer to the consumer and in this business. We're all the way to retail shelves.
Logistics base oils additives packaging steel bottle caps labels and even cardboard have presented challenges.
In addition, while our diversified supplier base is a strength when the industry supply chain has backed up as it was in the second quarter, our broad supply play a broad supply base actually added more variables in scheduling complexity.
Balancing all of these moving parts required a litany of inefficient short production blocks and short chip shipments they don't come cheaply.
In fact, our team was changing the production line more than quadruple the normal amount and with these inefficiencies we cannot keep up with the demand growth. This business is seeing.
We really appreciate the dedication of our production team as they balance these challenges to meet as many of our customers' needs as they possibly could and we also thank our customers for working with us patiently and collaboratively as we spared no costs and pulled every lever we had to meet your needs.
Additionally, an item of note that didn't have a big impact on the quarter, but that will impact us for the rest of the year as the loss of the industry's largest supplier of Greece as they suffered a catastrophic plant fire in June.
We've already began receiving shipments from our alternative suppliers and expect this transition to continue smoothly as we serve our growing customer base, but a higher cost of alternative supply will likely weigh on our short term financial performance and these product lines.
Our Montana renewable segment was impacted the least of all of our segments. In fact, we've seen extremely low pad for fuel inventories.
As logistics constraints have raised the cost of long haul truck and parts from competitors outside the region.
I'll now go into our business segment results and we'll begin on slide 7 for Sps.
Both Steve and I have referenced the strong specialty margin environment, we are experiencing.
I'll reiterate what Steve mentioned earlier around pricing discipline, we've averaged a price increase per month in 2021, and the result is material margins that are higher than they were even during Q2 of last year and a period when crude oil prices went negative.
As the world supply chain issues continue to be on display we expect to remain in a strong margin environment for longer than we would've estimated earlier in the year as our customers continue to restock.
And a bit we will see how these sps margin tailwind have the opposite effect on our performance brands Division, but remember we sell 7 times as many gallons of base oil and Sps as we buy and performance brands. So it is a dynamic that can be favorable for Calumet.
Unfortunately in Q2, we did not net recognized normal sales volumes.
Our lube and wax inventory at the end of the first quarter was essentially it bottoms, which was 170000 barrels lower than average levels.
Took a little longer than expected, but we were able to replenish our inventories to acceptable levels during the quarter and we expect to sell what we make in Q3.
We also experienced some unplanned downtime at Shreveport, and we estimate the impact of the Q2 downtime and the inventory rebuild was approximately $24 million.
Last you can see that margin for transportation fuels continue to sit at depressed levels. We.
We are pleased to see the market trending in the right direction, but after accruing for the impact of the RVO fuels margins remain at bottom quartile levels.
Outside of Shreveport, we had strong operational performance at our specialty manufacturing plants, even setting 5 year production records at our Princeton plant and our Penrico specialty oil twins.
Let's turn to slide 8.
Our second our second quarter performance brands EBITDA of $7.8 million was below last quarter and the second quarter of 2020.
A few things we've already discussed significantly affected this business.
First was the inflationary environment and subsequent upward pressure on feedstocks and other materials, which impacted our costs.
While we've implemented price increases in this segment at a similar rate to Sps Theres, a natural timing lag on recognizing these increases in the consumer business and we estimate the impact of that lag to be roughly $7 million during the quarter.
Steve reminded us that we experienced the opposite effect a year ago, when feedstock prices were deflating and our consumer.
Facing products benefited from margin expansion in a conference earlier. This year, we estimated the impact of that deflationary environment to be an $8 million benefit to last year's performance brands EBITDA. So we're clearly seeing the reverse of that now.
We've talked about supply chain issues, but I do want to highlight the extremely strong demand for our performance products this quarter.
Unfortunately, we haven't converted all of this demand to shipments yet as we battled through the supply chain and we've seen a record order backlog developed.
Compared to last year's second quarter, we've seen sales grow by $6.5 million, but we've also seen our sales backlog double to roughly $19 million.
To put that in perspective had we been able to ship everything that was ordered throughout the first half of the year, we estimate EBITDA would be roughly $7 million stronger than it was and we are working diligently to reduce the backlog and deliver products to our customers effectively and efficiently.
On slide 9 you can see our Montana business had a reasonably good quarter.
We saw the typical season demand increase as weather improved and so did margins for <unk> products in asphalt.
I remember that asphalt pricing tends to be negotiated a few months prior and will experience a margin lag in an inflationary environment and the opposite on the way down.
As I mentioned earlier pad for light product inventories are low and supportive of the crack spreads and margins we are seeing.
Now I'll turn the call back over to Steve for a few final remarks before Q&A. Thank you Todd we've covered a lot. This morning, we're very happy with the progress and the opportunity in Montana inventory.
Rebuilds and the final legacy of winter Snow mirrors are behind us and we're moving to a third quarter characterized by good specialties margins.
And the continuing slow recovery of fuels margins.
Rockies markets are showing a usual seasonal strength day.
Demand in performance brands keeps growing and the team is focused on turning that record backlog into income.
So with that I'll, Thank you and I'll turn it over to questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number 1 on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Neil Mehta with Goldman Sachs.
Hi, Good morning. This is carly on for Neil Thanks for taking the questions just wanted to talk a little bit about the base oil markets.
You talked about margins have been really strong and kind of you expect that strength to continue longer than you would have initially anticipated. So just wanted to get your thoughts on kind of as we move through the back half of the year and as we go into 2022 kind of when do you see the path to those kind of normalizing.
Hey, Carly Scott Obermeier here.
Yes, the base oil market as you probably heard from others remained at very very strong demand very high profit levels for the producers out there we see that trend in that plateau. If you will continuing through Q3 and at this point really even into Q4.
As production continues to ramp up and the global supply chain works to stabilize so we see a strong forecast for the remainder of the year outside of that correlates hard to look too far out into 2022.
Yes, Steve if I could add I mean, I think that the choice of words by Scott was very good plateau there.
We're not expecting margins to improve from here I mean, there are record levels already.
We think there'll be good for a while but at the margin in the U S is pulling base oil imports at this point.
So we would kind of generally speaking see that as maybe a cap on margins here, but.
I would reiterate Scott's point of view that we think that'll be good for ways to come.
Customers are still clearly in restock mode.
Great. Thank you and then and then just wanted to touch on leverage and cash you guys. Obviously took out a portion of the 'twenty twos during the quarter. So just wanted to get your thoughts on kind of the remaining balance there as we move towards 2022, and then on the cash side the $35 million balance at the end of the quarter seems a bit low relative to recent quarters. So could you just.
Maybe remind us if theres a target level that you'd look for around cash balances going forward.
Yes, I'll take the cash first Carly this is Todd thanks for the question.
We really had too much cash sitting on the balance sheet with $100 million.
So we focused on overall liquidity.
We didn't think that was the level that we needed to maintain so so we're just managing cash managing interest costs with the move to use cash to.
To kind of pay down the revolver.
Great. Thanks, and if I could just sneak 1 more in.
You guys talked about great falls and kind of the Rockies regions margin being really robust right now.
Based on the timing of the FCC turnaround that you had mentioned do you expect to be up and running to kind of capture the full <unk>.
Kind of summer driving season strength.
Hey, Charlie this is Bruce I'll take that 1 so the Rockies margins are actually at reasonably typical historical levels.
For this time of the year, so thats relatively strong for last year or 2 the winter season in the spring season. So.
In terms of the FCC.
Many outage that's going to be after that.
Fall peak season.
Okay.
And your next question.
Comes from the line of Roger read with Wells Fargo.
Yes. Thank you good morning.
Good morning budget, earning revenue.
Just hoping to dig in first to some of the things you talked about like the $7 million lag in the second quarter.
You mentioned that that's a function of price versus.
Feedstock costs coming in but is that something that generally against recaptured in our 30 to 90 day period, it would take longer than that.
Yes.
Crude and some of the supply chain things get ironed out as we go through the back half of the year would you look for pricing improvements that have occurred in may still occur.
To ultimately lead to a little better margin environment, Let's say is typical as we look at maybe year end into the first part of 2002 day.
Mark would you like would you like to take that 1.
Yes, and Charles Thanks for the question, Rob Jed so.
Yes.
The price lag gains in net 30 to 90 day range.
This is low.
The contracts in the different channels that we operate through.
Assumptions correct as we work through the balance of the year.
Number of elements that play their way through in today. So we see that the unknown on the supply chain side of things, where the intersection as we mentioned as soon as.
<unk> challenges.
Customer and consumer needs and then the operational efficiency piece.
You mean that the supply chain naturally start to ease up we would expect to see all of that.
Margin, we captured further down the line.
You've seen the record backlogs that we have and we believe that.
There is upside potential in the second half of the year, we're playing catch up with those elements, but there's still a lot of unknowns that would be able to navigate the way trade, but we would expect right back to this volume question, we would expect some normalization back in that day.
Margin that we've been doing historically.
Okay, Yeah, let me, let me add a little bit Roger.
Todd.
Earlier, we heard from Scott kind of the concept of plateauing Sps margin. So so as mark.
Pricing catches up to the rising feedstock prices over that 30 to 90 days.
We should see.
And Scott's margins remain where they are at we should see that margin impact flow all the way through right. So you get the benefit of price increases and performance brands catching up and then you also get the benefit of P.
Feedstock prices kind of plateauing and not continuing to increase.
That's helpful very clear.
Changing gears, a little bit to look at the renewable diesel project.
2 questions.
1 of them on page 12 of the presentation, where it talks about renewable hydrogen project just curious what the factors are behind that and then the other question as we look at the various alternative feedstocks soybean oil.
What.
As we understand that soybean oil limitation here is not so much soybeans and soybean processing into oil. So are you comfortable as you look at the alternatives that you mentioned that there will actually be oil processing capacity as well as farming capacity and maybe how all that fits.
Some of the supply chain.
Hey, Roger.
I'll take a start at that and Steve may want to add a couple of comments.
So.
In reverse order.
Yes, there is a agricultural commodities value chain.
First the farming and ranching remember that we're also planning to run tallow oil.
Then the.
The crop processing seed crushing.
Importantly.
The oil pre treatment every renewable diesel plant in the country without exception has to have a pretreated feed. The question is does the pre treaters shed on your site or is it some kind of an industry service.
The crop processing point.
And by Tuesday to put our pre treater on our site will be able to run anything at all what you're seeing in the markets is mostly a distortion due to lack of pre treating capacity, it's not lack of crops.
Okay. Thanks, and then the renewable hydrogen.
Yes, so that's the cause.
Given our site balances and the fact that we're going to continue to have a crude oil business.
<unk> got a good opportunity to reduce their carbon intensity of our renewable diesel products.
Further.
By gathering some of the other hydrocracker products and using them in their hydrogen production. So that's what we're going to do and that's why we're doing it.
Okay, so locally sourced and everything.
Yes, specifically, we're going to recycle some of the molecules from low.
Low and vegetable oil processing some of the light ends back into hydrogen production.
Okay, great. Thank you.
Your next question comes from the line of Gregg Brody with Bank of America.
Good morning, everybody.
Good morning, Greg.
Just.
2 topics I wanted to cover.
So obviously, we have to the Supreme Court ruling.
While refinery essentials homecare.
I'm curious how you think this plays out from here with respect to your liability.
What we should be looking for.
What are you looking towards the next steps there.
Bruce you want to go first on that 1.
Yes, Thanks, Gregg for the question.
I think it's safe to say at this point that.
No matter, what the EPA decides somebody will sue them for it.
It's difficult to see anything happening in real time, it looks like it's on.
Court dockets kind of a timeline.
No.
We wouldn't care to forecast, how that's going to play out.
I can tell you in our case that.
As we discuss every quarter.
Iran is not a cash obligation.
We know that financial model or so it seemed to convert that to money, but that's not how it works.
That's helpful. I appreciate that.
There's a lot of them just wanted to hear your thoughts.
It's.
Just turning to <unk>.
You've previously said that your plan was.
JV with JV proceeds would be to pay down the rest of the 22.
Total 23 does that is that still the plan or has anything changed there.
No nothing has changed there.
This is Todd Greg but.
As you know the markets continue to be very fair favorable should we want to kind of re fi our debt stack now but.
Looking at the horizon and kind of thing kind of where we're at.
And the partners search and our positioning there.
We do plan to use proceeds from that to pay down the short term short term debt.
Great.
Can you guys I appreciate the time.
Thanks, Greg.
Okay.
Your next question comes from the line of Jason <unk> with Cowen.
Okay.
Thanks for taking my questions.
I appreciate all the detail on the renewable diesel project.
Couple of questions on it personally.
I know you've previously disclosed a pretreatment unit.
Can you discuss.
The capex cost of that movement, I don't think I've seen it in <unk>.
<unk> materials, and then secondly on the renewable diesel project.
Is there something that needs to happen in the market in order for.
In order to capitalize about JV.
JV partners, signing an agreement I'm thinking.
Maybe the RVO is being announced or maybe there are other kind of public market milestones that need to occur.
And then thirdly.
What do you think.
What's the likelihood that the refinery.
Hum.
Part of the joint venture it seems like there have been a handful of.
Refining deals recently.
So just wondering if you were thinking.
Sure.
Non renewable diesel part of Montana well.
Remain 100% owned by Calumet or be part of the joint venture.
Hey, thanks.
Excuse me.
Jason for the question.
Maybe if I take those in reverse order.
<unk>.
We told our unitholders in March that we were going to go in this direction after spending about 18 months reviewing our strategic options included.
Reconfiguration opportunities on the side.
Yes, the majority of the.
The inbound calls that we got in the next 100 day as well.
We're focused on renewable only theres a lot of money available.
In the U S economy for Green projects and this is a really good green project so for that reason.
And we're flexible in our own thinking but to the investors.
Looked like a renewable only play was preferred so we've set it up that way.
The.
The question of whether there is some sort of a market trigger not that I'm aware of volume by Todd or Steve to think about that a little bit.
It's not like we're waiting on an event, we saw low base down the first part of the funnel with sorting out whether people wanted the whole side or the renewable part, which I've just covered.
Second part of the funnel was what's the security of feedstock.
8 stacked supply look like which we've.
Touched on in these remarks, and Steve had a slide at the very beginning with it.
Kind of an interest and color coated I test, that's important and I would suggest some focus there as appropriate.
So the addition of Patriot and then followed from that which takes me to your first question what's it cost.
That is.
Guidance that we've actually not given at the discrete project elements level. What I can tell you is that our installed capital cost per barrel is the lowest of any project that's been announced adding the pretreated did not change that remember that the pre treater brings its own revenue stream.
We talked about that a little bit with Roger is that going to go.
<unk>.
So given all of that were pretty satisfied we're not spending a great deal of money, we're getting an excellent leverage out of these program elements. It stretches out the field activity. All during next year, it's not some kind of a big Bang turn on a giant project. It's discrete small elements that are very manageable.
We're pretty excited but all of that is what allows us to hold the line on costs and to hold the line on timing.
Yes.
Got it great I appreciate all that color and then my other question just going back to Iran.
Chuck.
But there was a 48 million non cash mark to market charge.
Total liability sitting at right now.
Can you discuss is there do you have any type of strategy. If you don't get all the small refinery exemptions.
That you previously got and how you how you're thinking about handling oil potential.
Payments that will be required to make.
Let me maybe start with the second part of the question and pass it back to Todd for the.
Current balance sheet part of the question.
So in terms of how this plays out.
We feel like it's going to play out in slow motion no matter, what happens whether anybody wants it to or not there always seems to be someone showing up to try to resolve the matter in court rather than through the administrative channels.
So we feel reasonably good about our relationship with the EPA in this regard but.
We can't say that we don't all get dragged into a larger controversy.
So.
With respect to our strategy and our options yes.
We talked to the EPA a lot we talk on multiple levels and for different tactical reasons. They have several authorities, it's not only the small refinery exemption. So they've certainly got the ability to navigate all of us into a better consensus as a society and I think theyre going to find a way and just don't want to have an opinion.
And how fast.
Do you want to tackle the balance sheet part.
Yeah.
The number on the balance sheet.
$273 million is the total.
And.
For all of the reasons Bruce Bruce has talked about.
In many calls before and some of what you just referenced this isn't a number that we expect to turn to cash it's more than just the sorry.
There are a lot of layers to this but just to answer your question.
$273 million is a number a report on our balance sheet.
Okay, Yes.
Alright.
Jason This is Steve if I could Adam I, just want to reiterate what Bruce said I mean, we maintain what we would describe as a slow motion scenario. So if you go back to before the Supreme Court ruling we said that the Supreme Court.
Ruling wouldn't make that much different at which is spark off a wave of litigation.
The Supreme Court ruling when effectively in Calumet favor, but we don't change our position. We think it's just setup setting off a wave slow motion wave of litigation. This thing will run and run and run it is not a cash settled.
And at all.
And.
Internal expectation is that this situation runs.
At least well past the point, where we will be a net RIN generator.
Got it I appreciate all the color thanks, guys.
Thanks, Jason.
I am showing no further questions in the queue at this time I would now like to turn the conference back to the presenters.
Thanks, everyone on behalf of Calumet, the management team here and the entire company. We appreciate your interest in.
Your time this morning, everyone has a good weekend so thanks again.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating have a wonderful day you may all disconnect disconnect.