Q1 2022 Calumet Specialty Products Partners LP Earnings Call
Good day and welcome to the Calumet specialty products partners L. P first quarter 2022 results conference call.
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I would now like to turn the conference over to Brad Macmurray and Investor Relations. Please go ahead.
Good morning, Thank you for joining us today for our first quarter 2022 earnings call with me on today's call are Todd Boardman CEO , Vincent Argo CFO , Bruce Fleming EVP of Montana, renewables and corporate development, Scott Obermeier EVP of specialty products and solutions Mark Lawn EVP of performance.
And Steve Martin Executive Chairman.
Before we proceed I'll remind everyone that during this call we may provide various forward looking statements.
Please refer to the Partnership's press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations.
You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at Www Dot Calumet specialty dot com.
A webcast replay of this call will be available on our site within a few hours with that I'll pass the call to Todd.
Thanks, Brad and good morning, let's start on slide three.
The first quarter was a busy one here at Calumet and we're progressing our business on all fronts first let me start on the people front I am pleased to introduce Vince our new CFO , who you'll hear from shortly.
Vince has been with us for a couple of years now as our Chief Accounting officer and under his leadership, we were able to successfully re segment. The business early last year and remediate a longstanding material weakness this past quarter we.
We've also seen broader internal people move throughout our system, it's great to have the depth and breadth of talent, we have in the organization and thank you to Steve Vince and the entire team for providing for a smooth transition over the past couple of months.
It's also been wonderful to see our people plan play out tomorrow.
Talent is a critical area and we've been able to recruit a first class team as people recognize just what a unique business model we are developing.
Last quarter, we mentioned how committed we are to our strategy and I want to reinforce that nothing has changed.
We're focused on creating two independent leading businesses.
One is a specialty products business built on our Calumet legacy and the other is a unique competitively advantaged renewable diesel business.
Both are built on lasting competitive advantage will carry appropriate leverage have simple capital structures and ultimately have access to competitive growth capital.
We believe our renewable diesel business is built on the permanent competitive advantages of location and cost leadership.
Our specialty products business I was wanted to build out a world class customer base exceptional brand and a nearly a replicable asset base.
While we think of these businesses as separate they're strategically linked and that we expect to echo ties a portion of Montana renewables to expedite the delevering of Calumet specialty business we.
We started 2022 by refinancing our 23 notes, which create our short term bond maturities and allowed us to focus on its remaining recapitalization I'll provide an update on that shortly.
Unfortunately, it's hard to talk about the first quarter without somberly mentioning the humanitarian disaster to Ukraine.
The event clearly exacerbated the already stressed commodity markets, which were short on the back of their recovery from Covid and the global supply chain crisis.
Calumet has very little direct business in Ukraine, or Russia, but the impact of the attacks.
On energy pricing were felt around the globe.
Crude oil ran from a December average of $71 a barrel to a high of over $123 in the first quarter, which was the largest quarterly dollar increase in history.
In the face of these challenges Calumet posted a first quarter adjusted EBITDA of $23 $3 million and ended the quarter with a multiyear high of $412 million of liquidity.
The rising cost environment, most impacted our performance brands and asphalt businesses, where price lag is most prominent.
Other product lines in our specialty products and solutions segment were certainly impacted too, but we're proud to post this specialty material margins north of $50 a barrel in such a challenging environment.
I'd be remiss to not highlight once again, the competitive advantage that our specialty business has to effectively manage rapidly changing market regimes.
This is an incredibly flexible business and we typically processed crude oil to produce our own specialty feedstocks cost effectively, thereby also ensuring secure supply and quality control.
Of course, we also make fuels during this process and we have significant optimization flexibility and control over the degree to which we process crude versus intermediates.
When fuels margins, where nothing during COVID-19, we tweaked our operation in feed mix to minimize fields and focus on specialty yields and that generated cash and.
In the current environment were in Max diesel mode, and we limit the amount of third party intermediates we process.
Calumet specialty products business and that will always be our core focus, but our flexibility to shift feedstocks and integrate internally to Mac to match market conditions is a core strength and differentiator.
As we do this our assets are operating at high utilization with good reliability and in the first quarter. Our facilities recorded the largest production volume we've seen in over three years.
We'll wrap with an update on MRO in a bit but first I'll turn the call over to Vince to take you through our first quarter results then.
Thanks, Todd I look forward to meeting our investors and analysts and working with you all on this call.
Moving to slide five our specialty products and solutions segment generated $28 1 million and adjusted EBITDA in the first quarter, which is flat sequentially. As Todd mentioned, we were pleased to deliver over $50 per barrel of specialty material margin in the face of our records spike and feed costs.
The Sps team did a great job of rapidly passing through these higher costs and ultimately we ended the quarter well positioned to benefit from the favorable market environment at the same time fuel margins increased significantly throughout the quarter as the industry is challenged to keep up with global demand as you are.
And gas prices continued to provide a meaningful cost advantage for U S producers.
<unk> experienced the largest margin challenge in the Sps segment as it is price the month prior to delivery for example March ashbaugh with price when crude was approximately $90 per barrel and there was a point in March when crude was more than $30 per barrel higher than that despite.
Despite the challenge he loves and asphalt material margins increased to 918, a barrel, which is the highest we've seen since we started reporting this metric.
Our plants also ran very well throughout the quarter late in March we prepared for our planned secondary losing focus turnarounds at Shreveport and in April that was completed on time and on budget. During the turnaround. We also reinforced our utility system, which is one of the targeted high return reliability.
With the improvement we mentioned on the last call.
Moving to performance brands on slide six you can see our latest true fuel offering which is a larger 2.1 gallon container.
Recently launched a national campaign to market. This larger size following a strong demand response from our regional marketing program.
On slide seven.
The business generated adjusted EBITDA of $5 3 million last quarter, we reported that we were seeing the light at the end of the supply chain panel that we could catch up with demand and make a dent in our backlog, we were able to accomplish there and tier one as the backlog was slightly reduced unfortunately.
Just when we thought we had caught up with pricing we saw a tremendous feedstock cost increase and the PB team went back to announcing price increases to catch up.
Demand is strong in this segment and we continue to expect to reach normal stay in this business in 2022.
Supply chain and price lag have dominated the headlines and performance brands over the past year, but our team has also been formulated and marketing new products. Our biomass brand in particular is showing real promise.
Max is a high performance environmentally friendly lubricant that was designed for the shipping industry. However, as its performance gains a reputation we're seeing demand spread rapidly across other industries.
Our style based lubricants solutions underperformed traditional products, but our customers and our team have been favorably surprised by no loss of performance from this unique and sustainable offering.
It's an early stage brand that grew over 100% in 2021, and then the first quarter more biomass for cells than all of last year.
Also in the first quarter, we became ISO 14001 certified.
This was no easy task and receiving this designation is a recognition of a changing world and the commitment we have to both progressing our high performance brands and enhancing their environmental performance.
Moving to Montana renewables, we turn to slide eight.
Slide eight.
There is a picture of a canola field.
<unk> is a crop that grows in a balanced and both sides of the border around our great style facility, we expect canola oil to be part of our renewable feedstock slate recent.
Recently, the EPA announced the proposal for kind of a pathway into renewable diesel production.
On slide nine.
Montana renewables business generated $9 million of adjusted EBITDA, which is roughly in line with the fourth quarter of 2021.
These quarters represented good marks for the winter season.
Fuel margins were good during the quarter, but here again, we see the impact of rapidly rising oil prices on our asphalt business, which is a significant portion of our total production.
We also saw the normal slowdown and winter demand.
That is expected in Montana during the quarter, which typically reverses as we get into the spring and summer.
Meaningful asphalt price increases are in and so far so good on crude prices stabilize.
In fact, we're extremely excited finished upcoming asphalt season in Montana as we just completed the polymer modified asphalt project, which will upgrade our ACH score, which is already extremely high quality and to one of the premier paving materials on the market.
We're also looking forward to the spring and summer margins awaiting essent grateful and even more excited about the Montana renewables project that continues to progress well with that I'll turn the call back over to Todd.
Thanks, Vince, let's move to slide 10, and continue with MRO.
We've made substantial progress since we spoke to five months ago, let's.
Let's talk the project first and then we'll do commercial.
First our procurement team has been working miracles, where roughly 80% done with engineering and procurement.
We actually started the procurement process about this time last year as global supply chain challenges, we're starting and we felt the need to get ahead.
It hasnt been easy, but our team has been able to deliver with essentially all purchases of long lead items complete.
This leaves the efficient construction in the field as the remaining variable ahead of us to manage on timeline, we remain on track to commission the plant in September .
Commercially our geographic advantage is becoming more evident by the day is our feedstock efforts are moving ahead of plan.
We've agreed to terms on approximately 5000 barrels a day of renewable supply, which you'll remember is the volume that we will use during the commissioning period starting in September .
We will start receiving loads late next month to start with <unk>.
Through this feedstock procurement process, we focused on geographic advantage.
We're not looking for specific magical feedstocks like used cooking oil as we expect all feeds will arb over time to what we call Ci parity. So let's talk about how we've gone about this.
We started by identifying all potential feed sources, where we have a geographic advantage compared to other already hubs.
It's through this process and we verified there's roughly 10 times more available feedstock than we ultimately require and our advantaged area.
We then went out and hired people who have the relationships and experience to derisk execution and as I mentioned earlier, we've been pleased to see how attractive MRO as to phenomenal talent.
Last we reach out to the suppliers.
Even though we had conviction and our analysis of regional supply demand balances the headlines of feed scarcity honestly had us a bit nervous in the beginning.
While we've experienced has been the opposite.
It's evident that farmers and meet renders our economically rational and they are very happy to sell to local purchasers with short supply chains.
We were able to secure the first tranche of supply quickly and we have a clear line of sight to the rest that will officially execute as we get closer to full run rates at the end of the year.
We do believe that we are unique is not many other locations could identify as much oil seed in the animal fat supply within 500 miles is great falls Kim.
I'd also note. The recent proposed rulemaking from the EPA that is clearing the way for a canola pathway to renewable diesel production in the United States.
Even though we've expected to sell canola based Rd and to Canada for some time given our proximity it's nice to know the 60000 barrels a day of Canadian exports canola oil will be suitable for U S markets to as most of that production is close to the great falls than any other facility.
On offtake, we feel that we're in a bottom of the eighth inning is commercial agreements have been reached with three major off takers that account for all of our renewable diesel volume.
We've also committed to the sale of roughly 2000 barrels a day of SaaS or sustainable aviation fuel, which makes US one of the first movers in this early stage high growth business.
These are first class customers and while we can't say their names publicly yet youll recognize the group immediately as large highly credit worthy companies.
Liquid feedstocks the demand for renewable diesel has been better than we expected in fact, the intense demand from those who are most into no leaves us thinking that renewable diesel market might just be even shorter than we even expected for the foreseeable future.
Last on MRO, our capitalization plan is also advanced meaningfully.
A third party transaction was done in a quarter that confirmed our valuation expectation and market lease in the field of independent renewable diesel producers and we have since engaged lazard to formally optimize our equity options.
We also expect to raise debt capital, which is strategically tied to the equity.
Securing a $500 million term loan would replace our current Oaktree bridge loan with permanent capital, thus, removing removing the convert and mandatory prepay and it would provide the funds necessary to complete the project.
This creates a clean and simple backdrop to execute equity upon whether that equity is a cash sale of public market transaction are ultimately both.
In summary, as we sit here today Calumet has more than optimistic about 2022, and all of our business lines.
We know we live in a very volatile world right now, but the margin environment looks to have some staying power and while our core deleveraging plan sits with MRO, we expect our specialties business can potentially generate excess cash flow. This year to further deleverage the company.
And as MRO will continue to execute the plan to stand up this truly unique and transformational business.
With that I'd like to turn the call over to the operator to open the line for Q&A operator.
Okay.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you good morning, everyone.
Good to see all this progress congratulations on executing against that.
With respect to sort of you know any any additional color on spreads and margins can.
Can you talk a little bit about how you are situated you know for the next few quarters from that perspective.
Is there maybe some risk where you know you're capped at the top line in terms of prices et cetera feedstocks remain elevated.
Okay.
Hey, Matt its Tom.
Let's start with specialties.
Kind of on that and then we can go to kind of renewable diesel outlook, if that's where you're going but but.
On specialties pricing.
I think we feel pretty confident and very comfortable with where we're at right now.
Obviously, we had quite a run and feedstock prices in Q1.
Thank goodness, we've made the commercial excellence progress we have because we were able to keep up with with those increases pretty ratably as we said at the end of the quarter here.
We've.
Those increases are in and we feel pretty confident about the about the next quarter and path forward. So like we said on the call were in Max crude mode.
Honestly this is kind of funny to say, given given where our specialty focus but the specialties are a little bit along for the ride here. We're really pleased with with how margins have held up in Q1, we're pleased with where we sit for Q2, but but we're going to process as much crude as we can.
And same crack spread kind of environment that we're seeing in the front. So so we think specialties will keep up.
We're confident in the demand so far we've been able to push it all out and don't see a whole lot changing there.
In the foreseeable future I don't know if Scott if you have anything to add or Bruce.
Bruce you want to jump over to the to Montana.
Hey, Amit, it's Bruce Fleming, so on the <unk>.
Reds and margins question around renewables.
I would just point you to the investor deck, the Montana renewables investor deck, we've got.
Charts of how that has played out over the last five or six years.
We think vegetable oil is the incremental feed for the industry. It has more than tripled in price and that has done nothing at all to the margin.
Just like crude refinery, we're going to float on the feedstock price.
And get a fixed margin above that.
Okay understood.
With respect to some of the deleveraging efforts.
I know you highlighted you have certain things in theater.
With the visibility you have can you give us a sense of where you might end up by the end of the year with respect to you know.
Quarterly interest rate levels et cetera.
Yes.
We're in a pretty positive position like you said ended the quarter.
Super strong on liquidity, so the days of kind of worrying about that seem to be behind us. So 400, and some $412 million I think we ended the quarter with <unk>.
Going forward, we do expect to generate excess cash this year.
Obviously, given given some assumptions on on current crack and margin environment, holding up but but as it sits right now.
Where we end the year as simply an outlook on on what the what the remaining year holds as far as credit spread environment, which will translate to EBITDA, but what I would say it's.
It has improved pretty dramatically throughout the first quarter and as we sit here looking forward.
We are pretty comfortable with our ability to to improve liquidity and generate excess cash.
Okay, and then Capex is still at the 115 to 135 million range for this year Capex spend.
Got it nothing's changed there.
Got done with the turnaround in Shreveport in April like we mentioned.
That went really really well on.
On budget on plan. So so that was that was a reasonable chunk and.
We will continue to move forward, but no change to the forecast.
Okay.
You you said you have engaged lazard.
No.
So should we assume that.
Prior comments about potentially spinning off.
As a public entity.
Absolutely.
Amit This is Bruce again shall we.
Since we last spoke theres been a number of developments.
Todd mentioned, one that was rajeev being bought by Chevron and that transaction pretty well confirmed our thinking on enterprise value. So we've accelerated our Montana renewables recapitalization.
Yeah.
The.
Highest.
Shareholder value for the Calumet shareholders is probably to get Montana renewables public.
But that's not necessarily.
Our current objective we think.
The capital markets are open very open to.
To the kind of value proposition, we've got here in Montana renewables. So lazard is going to be a strategic advisors, we test a couple of different.
Suggestions that have been made to us by by third parties.
Okay understood. Thank you so much that's all I have guys I'll take my other questions. Okay I appreciate it.
Thanks, Matt.
And the next question is from Roger read with Wells Fargo. Please go ahead.
Yeah. Thanks, good morning.
Morning, Roger.
Let me take a slightly different tack here I mean, I think we all can look at the crack spreads we look at the.
The outlook for renewable diesel would be pretty positive, but I was just curious with some of the price moves and everything <unk> seen anything.
Weakening on the demand front across any of the three segments.
Yeah, I'll start off and then.
Everybody jumps in and responds.
So far so good Roger.
There's always the risk and.
I think a lot of that's driven by just pure flat price.
And in type.
Any recession risk or any of that that you hear that you hear floating around but as we sit here today.
We are able to process crude at current price move all of our products.
Including some of the higher priced specialty products with without much impact on demand in fact.
Obviously, the highest margin areas performance brands and we see demand in that segment as strong as ever so so as we sit here today.
We're pretty comfortable with where with where demand is.
If we see another skyrocket in flat price of crude has doubled from here or something right.
Yeah.
It may have to revisit that but right now all signs all signs point to a pretty favorable rest of the year.
Okay, well, we can wait and see if anybody else Jeff.
Thank you the next question.
On the on.
On the MRO El project you obviously.
You said you were very much more comfortable on both the supply end.
The offtake side I was just curious we've talked before it's been a lot of this product might ultimately go to Canada without giving away. The companies that you might have agreements with is that still the way we should think about it or is there a much larger.
Demand coming from from the Continental U S as well.
Hey, Roger it's Bruce I'll take that one.
So theres a tapestry of demand you've got.
A bunch of jurisdictions in low carbon fuel space.
State and provincial you've got the rest of federal Canada coming online there next year and of course, you've got the RFS umbrella overall of that.
No.
Actually interesting that it's.
And optimization chance.
And what our off takers, who and when we eventually reveal them.
C are very recognizable blue chip names and very sophisticated operators.
They selected to lift F O b.
They're going to get to participate in the optimization that I would just signal and we're gonna be fully compensated for that.
So we think that we're forming some pretty good partnerships with these off takers.
Aye.
I've been on record before and I'll say, it again I'd be surprised if our physical barrels fall further than 100 miles from Puget sound.
Okay. So it sounds reasonably consistent with prior expectations.
Okay.
Theres no yeah. So there's no just to be clear there is no no change in our thinking and outlook. There what has changed is we've bolted on.
The sustainable aviation fuel offering we always had the hardware capability for that and we were looking for really the.
The renewable jet offtake partner and we found one.
So we're pretty pleased with that initiative.
This is something that a lot of people talk about but frankly very few are actually doing much and were a quasi first mover.
We are a first mover in the Pacific Northwest. So we think that's going to be an important growth factor down the road.
Yeah, like I said I was going to leave it to two questions, but no one else SaaS I'll come back around on the ESA Yeah. Thanks Scott.
Thanks Roger.
The next question is from Carly Davenport from Goldman Sachs. Please go ahead.
Hey, good morning, Thanks for taking the questions wanted to just start on the MRO side, particularly on the Pretreatment unit could you just give an update there on progress in terms of construction.
Timing on how costs are tracking.
Yes.
So timing and costs are tracking.
Progress is beginning in the field, it's at the site prep level. This is not like building.
Conventional refinery process unit, it's some pretty simple vessels.
Critical path.
Key was purchasing the oil water separators, which had been fabricated overseas and never installed for another client.
So we got a.
Procurement success in that regard, which has allowed us to hold timeline.
Got it great. Thanks for that and then the follow up was just kind of around the the Saf F comments.
Some of the other players.
Players in this space that that we've heard from you know the the view has been that the economics have been a bit more challenged for that product relative to some of the other renewable fuels out there can you talk about kind of from your perspective, what's differentiated the offering that that that you can provide there.
And how we should think about the economics of the asp's versus renewable diesel piece.
Sure.
First key is that those molecules, we're always in the production.
And so the base value is always going to be leaving them in the renewable diesel.
Yes.
The second.
Disposition would.
It would be Canadian Arctic spec winter diesel.
Which is an uplift and the third is sustainable higher fuel, which has a higher uplift. So that's the siri item, but we've got three places to go with the physical molecule.
<unk>.
Question about the jet fuel sustainable pricing is an interesting one that industry is still forming I think this is bespoke.
And we've got an offtake partner for the jet that definitely knows their way around the emerging segment. So we're planning to exceed renewable diesel revenues.
And look if we don't it stays in the renewable diesel.
The fact that we've got the physical Optionality is one of the keys.
To our competitive advantage in great falls.
I.
Kate the color. Thank you.
Thank you. The next question is from Gregg Brody from Bank of America. Please go ahead.
Hi, Good morning, guys and nice to hear the new team are they revised team I should say.
Steve I know, you're probably sitting somewhere around there being silent.
A trial.
Good to hear all your unlocking.
[laughter].
Okay.
On the fuel products side.
It's been a while since you've been able to think about this but you used to hedge there I'm curious what your philosophy is.
Going forward and if youre thinking about locking in some of the some of the fuel products rates.
Yeah, no. It's a good question.
We're certainly happy to be back in an environment, where we can have those have those conversations. So so it's actually something we talk about every day.
And a lot more recently so so we did start layering on some some cracks actually.
When they started spiking early in the Ukraine that time is a little bit uncertain as to how long that would go and level of certainty et cetera saw an opportunity to.
Sure some pretty strong margins for the year. So we went ahead and bit off about 9000 barrels a day.
<unk>, one which put it in perspective, it's about 20% of our of our of our fields make.
So it's something that.
We might add some length to out the curve.
It's really hard to get.
Too excited honestly.
Given the extreme backwardation in the front months. So that's why it's been a little bit harder than normal.
We look at it we're watching it closely it is important to us to add some stability under.
Given our leverage position to kind of.
Increase the likelihood that we're going to have that free cash flow to.
Kind of ramp up the delevering so.
Yes.
Yes, we're watching it close and have started.
Are there any you mentioned you've put in some hedges at the beginning of the Ukraine crisis.
Hi.
I guess, you'll disclose in your Q what those are.
I don't know if you could.
I think there might be a little below market, where the market is yesterday.
Are there do you foresee any collateral postings with that that are meaningful.
We don't obviously, our hedge positions are secured by.
By the assets and the Cta, So just to give a little more color at 9000 barrels a day of crude to one one around 27 Bucks a barrel so yeah clearly under market at.
The current current extreme prices.
Uh huh.
They go up they go a little bit further under market to be honest.
You will feel that plays out.
And is that.
That's all of 'twenty or 'twenty two.
$27 flat across the year correct.
Sure.
Yes.
Maybe shifting gears just to the asphalt market.
It's been a while since I've I've stared at this as being a credit card.
How is that market acting relative to what's happening with puts appeals potash market.
On crude I know you said, there's a lag.
On a monthly basis I'm, just curious are margins consistent.
I think going up in a while.
As you saw in the first quarter. It was all about the lag so so.
They look worse than they really are.
We had a record record asphalt price increase at the end of March we expect quite a bit of stability under those margins as we look at kind of alternative value for those molecules.
Going into the Coker feed obviously theres not some of the heavier Russian oil coming over that was feeding kocur's on the Gulf Coast. We're seeing those heavy molecule is extremely short. So so our expectation is that we will continue to be able to push up asphalt prices in the event that crude was to run.
We'll see a little bit of lag because that's just the way that industry prices, we priced the month prior but as a whole.
We don't expect.
Much drag on EBITDA from asphalt.
Got it and just remind us in the in the Sps business, how much of that is asphalt.
We do about.
I'm going to say 5000 barrels a day of 506000 barrels a day of asphalt and Sps.
Alright.
And I believe it's it's like.
Eight or nine.
In Montana.
In Montana.
That's right.
Okay.
When you when you're just thinking about now in this dynamic refining environment.
You're going to have to shut down the Montana refinery can you talk about how you shutdown of a ton of refinery how long that's going to be more parts of it would be working.
And just so we understand how to how to model that.
Hey, Greg it's Bruce.
The plan is to be down excuse me in August we need to energize. The sites. So we're not going to try to run part of it.
We will do this by using our own splicing change the catalyst for the renewable feedstock and come back up so we will have.
Production in September .
The turnaround execution guys are finalizing the details so I don't have the oil to oil outage, we do have a good amount of tankage relative to our size. So.
We're going to.
Leverage.
Inventory build and draw a plan as part of that.
If you had to stick your thumb in the air figure.
Amongst lost production.
Got it.
Again, the Max that out.
And maybe just turning to performance.
There was you said you expect normalcy in 'twenty. Two are you do you believe you can pass through higher crude price entry.
And to your performance products and get margin back up to where it's been historically or do you think there'll be some challenges there.
Now we think we think we can pass through and we've been able to pass through.
As we've as we followed feeds up the issue. There is every time, we think that were caught up obviously.
You know feedstocks to keep running so so so far we've been able to pass through the increase like I said, just the 90 120 day lag in that business and.
The feedstock market hasn't given us time to settle out now.
We've got the supply chain, obviously that has settled down as well so.
We do think that we can keep up with what's kind of increasing demand in that space.
As we move forward, which is kind of more of the normalcy in 2020 to comment.
I'll stop there mark anything anything to add on.
Yeah.
Thanks, Todd Hi, Greg.
No I don't think theres anything other than that sort of hit the additional bit of color rates that some.
As we sort of seeing normalcy, there isn't a surplus of supply out there. So that's that one.
See a sudden reversal the other way in terms of sort of a large amounts of material available but.
So to reinforce <unk> point.
It was a record set of price increases for the lubricants industry on wet cold last year.
And we facilitated three further increases this year already as well so I would say.
At this point is that we can possibly make the lag.
<unk> is the piece that we got it bad.
Thanks, Amit.
So do.
Do you think that means we can actually the <unk> were going to see.
EBITA come up quite a bit just because it's a lot.
You saw it in 'twenty 2020.
You'll see it in improving yeah, sorry that we will see an improving environment that definitely Greg based on what we see at this point in time.
But as Todd.
Todd alluded to it in the stock base that Q.
Q1 was a record increase of.
Basically in absolute terms in terms of so the <unk> move and the like so there is still an element of uncertainty around what the markets will do and why that volatility abates, we all 100% confident in being able to pass the price through.
So that's sort of a start point, we've got the material will continue to work and move.
That alone.
Yes, I'll pile on a pilot at that Greg.
Obviously, the crude run happened primarily in March so that was the spike so feedstock prices are up they've been pass through like Mark said, we'll continue to see margin improvement throughout the quarter, but by the time, we get through the whole 91% to 120 day lag you are kind of in the early early Q3 by that point, So expect improvement in Q2.
The full benefit in Q3.
Got it.
And then just two I'll turn to serve two last questions for you.
Obviously higher crude prices that's in place that's been inflationary or are you seeing inflation any other parts of your business.
Sort of.
How is that impacting the Montana refinery.
Our cost of capital cost relative to your original expectations.
If I take the Montana one first.
And then ill give the general business going back to the <unk>.
Fact that we've procured most of the <unk>.
Construction materials, the major vessels the long lead items means they can inflate it cannot inflate.
We have a lump sum engineering and procurement contract for the renewable hydrogen plants, so that cannot in play.
Mostly what's in front of us is pain, the craft to complete the field construction activity. So if we do see an issue it would presumably manifest in wage rates.
Site productivity that sort of thing.
It's hard to feel that that's going to be a material step change to our total installed cost outlook.
Okay.
Yes, I feel the same about the rest of the business naturally you will see a bit of inflation everywhere, just but that will be following the trends of the market. So nothing should really change as far as kind of structural dynamics anything there obviously, the the highest inflation is in energy prices and even though we see cost of natural gas.
For example, increasing.
Still pretty meaningfully advantaged.
Relative to the.
The international market, so expect to for that to play through through the cracks.
Got it.
I think.
And just you obviously it sounds like you have your supply chain issues address the impacts of business last year, so anything that you're concerned about that that you've seen that that's worth highlighting.
I think generally you're just talking about.
No.
Unknown World environment, right I mean.
There are a lot of things that.
We think we're focused on in our business in the.
The team across the company as everyday focused on managing risk, but but the unknown is just.
It's a pretty crazy world out there right now and.
General inflationary impacts Ukraine, you name it.
And that we're watching closely and trying to understand how how some of those dynamics can can impact our business.
And then all the other still one last one in here. So I appreciate you've you've hired.
Is hard and you also have this loan process going on which I think is nearing conclusion.
What do you think the timing around the monetization is right. Now are you are you think before you were talking about an IPO sometime next year.
As this process with lazard potentially accelerate that.
Maybe just sort of a framework for trying to think about it.
This is Bruce again.
Yeah.
Since that you've developed that we're accelerating.
Our engagement with the capital markets is correct.
We had a number of positive catalysts that led to that so basically if you take the existing Montana renewables entity, which is fully separated.
Illegally from the company already we just happened to still own 100% of it.
And you look at the way, we put the balance sheet together last year.
That was for the purpose of.
Completing the business launch for Montana renewables.
Oh Korea with a great partner for that.
And we feel good about how that is all moving as you've heard.
As you pivot from the business launch too.
Regular way.
Corporate entity, we're gonna want the permanent capital, which Todd mentioned, we have always said that we will take on an equity partner at the right point.
We will be looking for fair value, but we'd also be looking at the quality and the particular alignment aspects of that partnering.
And anything.
Anything we entertain ought to be reasonably likely to get done.
These things can become big distractions for a small operator like us.
Lazard will be very useful to pick our way through the specific suggestions that have come in from third parties.
And yes, we think this year not next year.
That's great. Thank you again for the time guys.
Thank you Greg.
And the next question is from Jason <unk> from Cowen. Please go ahead.
Hey, good morning, Thanks for taking my questions.
First on the going back to just the trends in the specialty margins, which seem to be improving.
Can you give us a sense of where that shook out in April .
Thank you and then just so I understand I think in the past you've mentioned that.
Specialty margins to some extent rack what diesel.
Mrs are doing.
That bar in this environment, just given what diesel cracks have done.
Hey, Jason Scott.
Here, so as we think about our specialty margins in terms of where we're at today.
Todd had mentioned during the first quarter wheat with the run up in <unk>.
In crude we did have some compression, but overall, we're pleased with how we executed against the run up in crude still delivered over $50 a barrel.
What we've seen in April here in early Q2, as some of the flow through of our price increases.
So we're we're feeling pretty good about where we're at today and managing this volatility in the market.
Got it and just on that part about diesel or is that an accurate statement just that.
Yeah.
We've got here so certainly in some business like our solvent that definitely floats on top of the diesel.
Other business base oils can float on top of <unk>. So I think the strength of the fuels and the intermediates market.
Only serves to.
The port our specialty margins and give us the optionality of that Todd alluded to earlier that we have in our business model.
Yes.
Yes, if I can just build on what Scott said.
I think the reality was at the beginning of the year base oils market to be honest is looking a little squishy.
And actually.
The way we collect these diesel valid the margin excuse me is some of the least special of the specialties and up in the diesel pool instead of go into specialties, which is knocked up specialties market quite quite nicely.
So we play that Optionality and optimize it all the way and I reiterate think Scott and the team have done a magnificent job of making sure that our specialties business is by and large staples really well to the diesel crack.
Got it right.
Helpful and then.
Moving to the green financing on MRO.
<unk> can you discuss just are there any kind of a make whole costs or debt extinguishment costs for oaktree in and then.
With the.
<unk> 500 million I guess that Youre looking to raise do you have a sense of where that rate could come out and.
Do you expect that will leave you with any excess cash.
At MRO once.
The project is up and running.
Yes, good question.
I'll try to take it and feel free to pile on but so debt extinguishment costs on oak tree have always been 11%. So on a $300 million think kind of <unk>.
<unk> $34 million to $35 million ish, there as far as.
As far as uses for potential alone.
Right <unk>.
At this time obviously.
The markets market is not going with us, but but the cost right now right isn't really what this is about.
We're pretty comfortable that we have a strong project and we will get a competitive rate.
A lot of interest to have a lot of positive feedback in that but really primary function of a debt raise is to simplify clear up.
The convert pre mandatory prepay simplified the structure before before an equity deal right. So just highlight that and then as far as excess cash.
We're planning to have have a little bit of buffer and if so if we were to do 500 million Bucks.
There's plenty of room for buffer on construction costs et cetera, So and our base case, we would expect to have.
Some excess cash flow through to the balance sheet.
And we're not going to cut it China to cut it to close on that and give ourselves a little bit of little bit of room if needed.
Alright, that's great. Thanks for those answers.
Thank you.
Ladies and.
Gentlemen, this concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Well, thanks, everyone for your time and interest in joining US today and go ahead have a great and safe weekend. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
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