Q2 2022 Calumet Specialty Products Partners LP Earnings Call

The conference will begin shortly. The raise your hand during Q&A.

After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brad McMurray, Investor Relations. Please go ahead, sir.

Good morning. Thank you for joining us today for our second quarter 2022 earnings call. With me on today's caller, Todd Borgman, CEO , then Stinargo, CFO , Bruce Fleming, EVP Montana Renewables and Corporate Development. Scott Overmeyer, EVP Specialty Products and Solutions, Mark Lon, EVP Performance Brands, and Steve Marr, our Executive Chairman. Before we proceed, I'll remind everyone that during this call, we may provide various overlooking statements.

Please refer to the partnerships press release that was issued this morning, as well as our latest filings with the Securities and Exchange Commission for List of Factors that may affect our actual results and cause them to differ from expectations. The Securities and Exchange Commission chapter 31 of Confirmationsnew ??????? 2015 2015 2015 2015 2015 it? It? It officers It associated?? VB organization vB instantly dormitile? vH vB vB ulog??th uSí v region III vote Curtis vB vB vB e Samantha VMe There VB vB VB vV Fed 3 vB vB vRig VLive... humanity VB vOur VB VB VB VS ? VMA VB VB VLGO you

You may now download the slides that accompany the remarks made on today's conference call.

We can be accessing the Investor Relations section of our website at www.caliimutsspecialty.com.

Also, 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. Todd?

Thanks, Brad. Good morning all and thank you for joining us today.

This morning we shared two announcements.

First, we reported second quarter of Justin EBITDA of $175 million, which is a Calumet quarterly record.

We also reported that we've concluded a set of transactions that Montana renewables that place the pre-commissioning enterprise value at $2.25 billion on MRL.rozal.

These are game-changing accomplishments.

And I thank our employees, customers and investors.

For the effort, commitment, and faith you've demonstrated in CalUMet.

Honestly, a couple of short years ago, many didn't believe that Kai met what we were sitting here today. What would be sitting here today?

And the grit determination of our employees is the fundamental reason that we are.

It's fun to see that type of commitment rewarded with phenomenal results.

Before we dive into the quarter, let's flip to slide three and revisit our strategic plan to create and separate two independent leading businesses.

our specialty product business, and our renewable diesel business.

As we highlight the quarter on slide four, I'll come at it through the lens of these two businesses.

Let's start with specialty products.

The second quarter demonstrates the upside power of our integrated specialty business.

This business is unique and it's been built one brick at a time over decades.

We believe Calumet benefits from industry leading flexibility and optionality. And we have an unparalleled ability to provide a full portfolio of specialty products across the wide array of world-class customers and in markets.

Our brand names are well known and they are built on years of specific technical interactions with our customers to meet their specific needs. We are now at the point of our customers to meet their specific needs. We are now at the point of our customers to meet their specific needs.

Our replicable asset base provides the ability to meet these needs at scale. They have demonstrated the flexibility required to succeed in all business cycles.

In tough times, we have the ability to scale back volume and target our production towards specific market niches that are business cycle agnostic, which was demonstrated during COVID.

In a strong market like we're seeing now, we could run all out.

with the focus on generating as much product as possible, including the fuels that are made as byproducts of our specially manufacturing process. Thank you.

We've talked before about the competitive advantage of integration, and we estimate the value difference between running specialty feedstocks only and running our fully integrated system was worth more than $70 million in the second quarter.

As you might expect in an integrated business, every product line and even business segment doesn't respond the same to changing market dynamics. It doesn't respond the same to changing market dynamics.

Our specially product and solution segment benefited tremendously from both the favorable market demand and the team's commitment to commercial excellence, especially margins not only kept up with the commodity super cycle, but actually elevated to level similar to the all time high scene light last year.

Conversely, our retail business in the performance brand segment is seeing the effect of this market.

as a rising material cost increase and the coinciding price increases to the cost of the timing delay.

Kali met as a whole, was happy to make that trade. As we sell 20 times more base oil and gasoline molecules in our system, then we consume and rural purple, Belray and Trufield.

So we're seeing the high cycle results that we'd expect. And in a load cycle, as we saw a couple of years ago, we'll see the thick year pricing, higher margin inside of our business carry a larger portion of the way. Thanks, too.

We think this dynamic puts the floor under our business risk and we believe the favorable misbalance of upside reward and downside risk protection is something that sets our commitment apart.

Next, let's talk Montana renewables.

Since our last earnings call, we have essentially completed the standing up of MRL.

Production is expected within the next 60 to 70 days. Our renewable diesel and sustainable aviation fuel has been sold at commercial terms superior to what we expected in our financial model.

Feed purchasing continues to progress much better than anyone expected, and cards have been arriving throughout the quarter as our tanks fill.

And this the morning, we announced two transactions that complete the capitalization of Montana renewables. The capitalization of Montana renewables.

The transaction highlight of free start-up in Marl Enterprise value of $2.25 billion, which demonstrates why Marl is so transformative for carrying that in our unit all this.

The chain-backed support tar hypo offices.

So this is the leading independent renewable diesel project in North America.

I'll come back to Montana Renewables later this morning. In the meantime, I'd like to hand the call over to Vince to discuss the quarter. Vince? Vince, great to see you.

Great, good. Turning to slide six, our second quarter results in our SDS business generated a record, $220,335,000,000 out of adjusted EBITDA. $220,335,000 out of adjusted EBITDA.

Our team executed well in a strong margin environment.

as a specialty margin approach near record level.

The specialty material margin of $65.95 per barrel is exceptional for this business and the 2567 cents per barrel and fuels material margin reflected very favorable crack environment as experienced by many other companies and the fuels industry. And the fuels industry.

Operationally, our plants ran very well as Todd mentioned. And even with the successful tree porch turnaround in April , we were able to deliver increased volumes to take advantage of the strong margin environment.

We mentioned earlier in the year that we were making what we thought were low risk high return investments in Northwest Louisiana, focused on improved control, reliability of our plants, and additions to increasing the level of integration.

We've been very pleased with the results we've seen so far, and we expect to continue down this path. On the whole, we've produced over 60,000 barrels per day of products.

Put this into context. We have never produced the volumes experience in the first half of 2022 with our current set of assets. The first half of 2022 with our current set of assets.

Our ability to ramp up production when commodity markets are strong is obvious from the improvement in our results.

And a commercial side of the STS business.

We have implemented over a dozen price increases this year as commodity prices have increased.

The commercial team is doing a great job managing rising feedstock costs, operations are performing exceptionally well, and external market factors are strong. It is this combination that is responsible for a strong performance.

Slide 7 is a visual of some of the brands within a performance brand segment. Slide 7 is a visual of some of the brands in the

including our new BioMax offering with Royal Purple.

Biomax is a high performance sustainable lubricant and it's our fast and gross growing brand in the company. And it's our fast and gross growing brand in the company.

Moving to slide 8 and quarterly results, we generate a 3.7 million of adjusted EVA dot during the quarter. III...

We have been increasing prices as quickly as possible. In fact, given a typical 90-day notice to it. In fact, given a typical 90-day notice to it.

We're at the maximum level of price increases over the last few quarters. So we have the S to catch up. And sure, the exact same market drivers that are supporting SPS margins are headways for performance brands.

And that's the phrase Calumet is happy to make, given the favorable volume imbalance between STF sales and performance brands purchases.

We saw the opposite results in the declining commodities market of 2020, when this business was a key reason we were able to generate cash as an organization, which again, is part of the benefit of our integrated specialty business.

What is critically important in our model is that the man remains strong as cost volatility will balance out over time. And we do continue to see strong demands for our form of performance brand products.

Moving to Montana on slide 10, we had a great quarter and generated 68.6 million of adjusted even though. and adjusted even though.

Naturally, the strong crack environment was helpful.

As we start rocking out the fuel margins, we turn to seasonal norms.

Further, asphalt margins stabilized as expected as we moved out of winter asphalt season and saw less price lag impact and experience in the first quarter....</ Berlin

And an environment like this, the most important thing is to operate well.

It's a testament to the Great Ball's team for staying focused on operational excellence while dealing with the distractions and excitement of Montana and the renewables surrounding them.

The Montana site will be coming down for a turnaround this quarter, and when we come back up, we will have both a highly profitable specialty asphalt and mixed fuels business and a leading renewable diesel business.

In fact, we estimate that had we been operating the future smaller configuration this year, it still would have earned approximately 40 to $50 million a year to date.

We are excited to get started.

With that, I will hand the call back over to Todd for closing to comment.

Thanks, Vince, and let's turn to slide 11 to go deeper into Montana Renewables.

If essentially finalize the execution of our commercial plan, in some areas it was even improved.

First on product, we executed a renewable diesel off-take contract with three primary customers.

Delta 66, Subron Renewable Energy Group, and another super major who is not named just yet. Delta 66, Subron Renewable Energy Group,

Obviously, these majors are intimately knowledgeable with this space and provide a rock-solid backdrop for entering the business with strong economics.

We've also added staff recovery to our project, and we're increasingly excited about the growing opportunity here. We've also added staff recovery to our project, and we're increasingly excited about the growing opportunity here.

This enhancement was finalized a couple months ago due to strong economics. Since then, SAS is gaining quite a bit of attention after recent potential legislation highlighted $1.75 per gallon tax credit for tap production.

Our feedstock program continues to confirm our hypothesis on geographic advantage.

I thought it supplies secure and we've recently brought a couple hundred rail cars into service. We started delivering renewable feed stock in June as we ramped up our tank fuel program.

In fact, I'm slightly pictured the first calo car and loaded into the facility.

Early on, we wondered if we were to bullish on feedstock given the vast amount of skepticism in the marketplace. But we've been pleased to land more low CIPs than even we initially modeled, which like the SAP Improvements is an upgrade to our economic model.

Finally, let's flip to slide 12 and highlight the transactions announced today.

We've announced two transactions that will bring $600 million to the fresh capital in the Montana and Illinois. The fresh capital in the Montana and Illinois.

setting the pre-production enterprise value of MRL at $2.25 billion.

The equity transaction is a $250 million preferred equity investment from Orberg Pinkus. It ultimately will convert to common with Orberg owning a 14.2% equity stake in MRL. With Orberg owning a 14.2% equity stake in MRL.

We believe Borbord Pinkis is the perfect equity partner.

They have an unparalleled reputation for partnering, supporting management, and providing capital and skills with a focus on helping to scale businesses.

For many years, Warburg Pinkis has been a powerhouse in energy investing. And their investment, Montana Renewable, will be part of their growth-focused decarbonization investment platform.

Warburg was one of many equity investors that has shown great interest in our project. And while we believe they're the perfect equity partner, we also don't consider our Lazar equity process complete. We also don't consider our Lazar equity process complete.

Completing the equity deals of $350 million sale lease?????s in action with Stone Ireland Commercial Phen and

This money comes with roughly a 12.3% cost of capital and it completes the capital raise required to start up MRL with a comfortable balance sheet cushion.

Importantly, the transaction comes with a unique opportunity to repurchase $250 million of the assets immediately, which leaves room for the highly opportunistic yet time-intensive options.

like the Department of Energy or Municipal Financing.

Both of which appear to be meaningful opportunities for MRL.

We have an existing strong relationship with Stonebriar and they have time and again demonstrated that they are a flexible, creative, and collaborative partner.

Per the original plan and the contract, approximately $350 million of these new proceeds will be used to pay off the Oak Tree Bridge loan as we step from bridge to permanent financing.

There's been a lot of investor misunderstanding that more capital could be added without remaining elected.

The terms of the outtree investment were always that outtree would be refinanced with any meaningful injection of new capital. And it's nice when a plane attempts together. That investment is played out exactly as we all expect it. That investment is played out exactly as we all expect it.

With this refinancing complete, we now have the option to push any future monetization proceed to the parent for de-labriging, which we have not had until now.

Oak Tree was a supportive partner, and we thank them for their help in standing up in Marl for making the founding investment last September , and for being a truth-off partner, as we explored the right path for Montana and Oables.

Shortly put, MRL is now fully financed with first-class, trusted partners, and we look forward to renewable diesel production in the very near future.

On slide 13, I'll close with a summary of our strategic milestone and where we go from here.

First, Montana Nobles is fully funded.

The highest priority is ensuring this business gets off the ground successfully and the commercial plan, operational timeline and financing plan have come together.

Next, we have established a precommissioning market value for MRL.

This sets the base from which we'll evaluate future transactions.

Last, the course best lead business is performing it absolutely well.

With these three pillars in place, we believe we are equipped to turn toward strengthening our balance sheet.

We have a few levers to pull. We may take more equity off the table at MRL.

Also, we're generating meaningful cash loan especially business that can accelerate organic delivery. To make it work, we are starting to be feelings.

And last, MRL will be generating cash flow in the very near future that can be used for parent-delivering.

Our work is not complete, but we are pleased with the manner in which our plan is unfolding.

Before we turn to questions, I would like to welcome our two new independent board members who were appointed earlier this week, Jack Boss and Taryn Twitchell.

And we also think Bob's on who is retiring after many years exceptional service. And exceptional service.

Bob was one of the original board members of Calumat. He's made a meaningful impact and he'll be greatly missed.

With that, let's head to Q&A. Operator?

If you have a question at this time, please press star 11 on your touch tone telephone. Please stand by while we compile the Q&A roster.

And our first question comes from a line of Manaav Gupta with Credit Sweece. Your line is open. Please go ahead.

Hey guys, so the first question obviously a very impressive performance at SPS Help us understand how sustainable are these margins the price hex you're putting through how should we think about this business in the second half of this year.

Yeah, nope. This is a jawooden over my arps.

Let me answer a couple different veins. Overall, I'd say that we're cautiously optimistic because we look at the second half of the year. You know, we're aware of a lot of these.

global market indicators, killed to our down side risk, from an economic perspective, fuel craft of regress over the past couple months, et cetera. But with all that said, we're overall very competent in the business. We've been operating in a highly volatile environment the past couple of years, and the business has been performing well.

Todd mentioned during your call that we continue to leverage our highly integrated business model and the flexibility and optionality that that creates. And the flexibility and optionality that that creates.

In addition, our customer base being extremely diversified across both consumer and industrial markets and our broad product line.

you know allow us to drive growth in the business and minimize pockets of risk and demand, lower demand. So I would say all that said we feel good about the business.

and the resiliency of our special east business.

I can help us understand a little bit on these new transactions which are announced. What drove the process? Are we at a state where we are now comfortable with all the financing in? Because at one point I think you are also looking at based other ways to monetize this business through SPAC and other stuff. So just walk us through these new transactions and what it means for this overall business. Thank you then, I will turn it over.

Hey, Manav, it's Bruce Fleming. Good morning.

So the, um,

You know, the capital markets transactions were...

part of the evolution that we designed, you know, actually 18 months ago. We did run into some headwinds with the architecturalisation of BurSinging oraz Maria Com.

global conditions, you know, this whole sequence of things.

And, you know, that's probably got us running a little bit slower than the original plan. But what the plan calls for is to take this step now. And as Todd said to continue with. Our large.

equity process which will as our continues to run.

So, you know, the details of the transactions, we literally finished at 7 o'clock this morning. So there's, there's not a lot of meat in this deck. We will get you a lot of additional insights and an 8 K filing, which details.

the linked transactions that we've concluded this morning.

Thank you for that guys and congrats on a good quarter. I'll turn it over.

Thanks, love.

Thank you. And our next question comes from the line of Roger Reed with Wells Fargo. Your line is open. Please go ahead.

Thanks. Yeah, thanks.

Thank you, Mr. Schloot.

Thanks, I look back in my notes from years ago and it looked like you were going to sell all the refineries. I think we had a estimated value of Montana at 300 million. So selling 14% of it for. Just a little bit less than that. It's pretty pretty solid.

What maybe you follow on with Monov's question there.

And obviously you're gonna put the 8K out. But what should we think about as the process going forward? Now that you've got two solid partners here, do you, would you expect to further monetize a portion of this going forward? How long do these two partners really want to stay?

you know, in the current condition of their investment, you know, when would they want to convert? Would they have a plan to make MRL a standalone business down the line?

Roger, thanks. This is Bruce. I'll start that. Todd may want to chime in.

One of the things you'll learn is we get our additional details pulled together and issued is that the Calium at still owes 100% of the common. The Calium at still owes 100% of the common.

That's why we're continuing the Lazard process. We envision, as we've said every quarter, that the largest and best...

Chairholder value creation is going to be to get MRL.

out into its own, you know, public company setting, but we've never had a fixed timeline for that. This may not be a great year to do that in the capital markets, for example. And so one of the things we like about our partner arrangement is that both of these entities, Stonebrier and Warrerburg Polyges, are a very patient capital.

And, you know, we're not attempting to accomplish a particular objective in a particular timeframe. It's about a trajectory to maximize value. It's about a trajectory to maximize value.

So that's why the Lizard process is going to continue to run. We're pleased, separately from the transactions this morning. We're pleased with the interest Lizard has garnered. And there's a good mix of strategics and for funds. And there's a good mix of strategics and for funds.

and some of the smarter money on the financial side. So we look forward to having that continue to play out. So we look forward to having that continue to play out.

That sounds great.

And I missed the big tour back in June , but is there a chance you could kind of give us an update on the actual finishing part of what you're doing and the turnaround this quarter and the commissioning phase is to, when you would expect to produce, let's call it a salable quality output versus a true commercial operation where we should expect the gear.

you know, delivering on a consistent basis, producing on a consistent basis. Now you bet. I'm happy to walk that. So the refiner is coming down as we speak. So the refiner is coming down as we speak.

And we have a sequence commissioning of 3 things. It's a small site. Those those that did join us for the tour will appreciate that visually. But there's a limit to what can be done the size of the construction workforce that can be marshaled, et cetera. So what we're doing, we're coming down now. The hydrocracker catalyst gets changed out. We button it up and we start back up and we are in business. Making spec renewables.

So that'll happen in September . At that point, we're up, we're running, railcars of product are going out to our Blue Chip customers. The next thing that happens...

sequence right after that is we get the renewable hydrogen plant online. That's going to be plus or minus November at this point and that is going to unlock full run rate.

So we've asked spec product at a part rate followed by a full run rate when the hydrogen balance is addressed.

And then what we sequence third is the feedstock pre-treater that opens the universe of any feedstock from anywhere. So all of that is...

In our financial model, we've generously given ourselves six months to learn how to walk up that curve, certainly expect and hope that we'll do that quicker, but that is the short-term vision. So we're there. And the fact that we've got an excellent partner in Warburg, Pankus, and in Stonebrier, that we're willing to underwrite a two and a quarter billion pre-commissioning value, you know, tells you a lot about what the market expects from us.

Yeah, absolutely agree with that. If I could just ask one clarifying thing on you mentioned the IRA bill, you know, potentially being a favorable event for you. Is there.

anything in the negotiation that occurred with the two partners that envisioned that or should we think of that as upside from here in terms of like the value of the project.

That will all be upside Roger. The bill has to become law and may or may not take its current form. But the support, the policy support. The bill has to be the law and may not take its current form. That will all be upside Roger. Thank you.

and on a four.

driving the energy transition economy has been rock solid or anything is accelerating and strengthening. We're reading that, we're mapping that over to our particulars. There's definitely support in it for us if it was to pass in its current form. We've got a very substantive upside in our staff capability, for example. So, you know, it's definitely top of mind.

And, you know, none of it is in the base underwriting model. So, all upside.

Great, thank you.

Thank you on our next question comes from the line of Amit D'Arl with HCW Your Line of Open. Please go ahead.

Thank you. Good morning, everyone. Congrats on the execution.

Could you guys talk a little bit about the flexibility you have between the SAS production and RD production relative to off-take agreements for each of these product lines? The SAS production and RD production relative to off-take agreements for each of these product lines?

Sure, happy to. We've actually got a slide in our public material, probably from the Calon Conference in June . Thank you.

That shows you the breakdown. So initially. We can recover out of the renewable diesel stream. An estimated 2000 barrels a day of staff, and that'd be the 100% renewable. So, in into wing that'll get multiplied as they blend with fossil. For specification, but 2000 barrels a day initially recoverable from our. Around 2000.

12,000 barrel a day full run rate. We can turn that up if there is an economic signal. Roger asked about.

the proposed legislation, you know, if that was the pass on that form, it's probably economic for us to recover 4,000 barrels today. And we are at the start line now with this capitalization that you heard about this morning of designing our expansion. We can probably take the site to 15,000 barrels a day of staff within a couple of years.

Oh, interesting. With respect to the transactions today and Warburg's investment, is the probability of moving towards an IPO now higher for the MRL segment?

Well, I'll remind you that we already carved Montana renewables away from the parent. That was the importance of the unrestricted sub and oak tree support last year. So it's a matter of degree, right? So we can sell 0 to 100% of the common.

We think the sweet spot is going to be to remain in a partner structure. We imagine that this is going to be of considerable interest to a lot of investors.

So if somebody came in and said we'd like to partner with you, but we have to have control, that's fine. You know that's in the cards if it's a higher value to take it to the public markets.

we'll control that.

So, we've got a lot of roads open to us. I think the success of the base business is really the key enabler here. We might have felt like we needed to run a faster timeline with MRL. with MRL.

If we were under the gun, now we're going to run an optimal timeline.

Understood. Thank you for that. That's no lie, guys. Appreciate it.

No, thank you for the question.

And our next question comes from the line of Carly Davenport with Goldman Sachs. Your line is open. Please go ahead. Hey, good morning. Thanks for taking the questions. I wanted to just start out on the quarter on performance brands. Can you just talk a little bit about how you see the supply chain constraints and the price lag impacts evolving here through the rest of the year? And then if your views have changed at all in terms of what the normalized earnings power of that business would be over time?

Hi, yes, excuse me, yes, it's a mark long here. So in terms of that, you've seen the uncertainties of the year, as we're seeing them in Scott reference, sort of the volatility in the marketplace. At the moment, we're seeing supply chain have been improving, and we expect that to continue through the balance of the year. The teams have been very, very strong in terms of their progression around the price increases, as we mentioned, we're moving as fast as we can on that.

and we expect ourselves to catch up as soon as the marketplace starts to normalize again. And then coming back to your question around the normalized runway of EBITDA, we haven't changed our view of that at all. These are exceptional circumstances that we've been working through in the marketplace at the moment, but when we look at the underlying trends, if we sort of model effectively freezing the marketplace, we see that underlying business looking the same as we've seen in the past.

Sheriff Carley, it's Bruce again. Yes, it's fully funded. Everything is fully funded across the board. And we've left dry powder inside of MRL. When we set this up with Oak Tree last year, we did withdraw $300 million up to the parent. We elected not to do that. We're very excited about getting going on our expansion, which is in the business plan for late 2024.

In terms of the immediate sequence of the three projects that I mentioned to Roger.

the immediate sequence of the three projects that I mentioned are easier. The pre-creator is...

is on its own fast track, each of the projects was scheduled driven, which means...

You know, we're taking the uncertainty by trying to go as fast as possible. That's being refined. We've got our onsite construction contractor and it's being stood up now. It's being stood up now.

If you accept a little bit of range because the contractor is refining the estimate, it's gonna be.

basically right after the first of the year and I can get you a more exact figure within the next couple of weeks.

Thanks so much for the color.

And our next question comes from the line of Greg Brody with Bank of America. Your line is open. Please go ahead. If the audience is trying to hacker our private programs, or number anti privacy

Good morning guys and congrats Todd Nice 18 reference there. I appreciate that.

Just a couple things first of the transaction obviously bringing in the money today, so you left the sleeves You said the sleep some dry powder How much this remind us how much fun how much how much dry powders are left after this transaction? And have your costs changed at all To complete the facility to get through it yeah, December

Hey Greg, it's Bruce again. So let me.

Let me leave you this framework. We put in the press release 300 million of liquidity today. I probably should have called that availability because...

some of the character of the Stonebriar instruments are that we that is pay as we go in the field. You know as you're aware, we've never disclosed a capital cost. We do like the dollar per capacity barrel framework. And you know look the best the best way for us to deliver on budget is to deliver on schedule. So, you know the field work is moving fast. It's tightly choreographed, but it's an intensely

congested sites. So we'll see. I'd hate to speculate. What I can tell you is that by jumping the long lead equipment more than a year ago at this point, we at least partially, if not substantially, insulated ourselves from all the supply chain disruption and inflation. So if we do have something happen, it's going to have to be in field labor costs and productivity. We're pretty well baked on everything else.

Thank you and our last question comes from the line of Jason Gableman with Cal and your line is open please go ahead

Hey guys, congrats on the transaction. I want to ask a couple on it. First, on the Warwick PINKIS preferred equity, do they have any option? There's a mention of, I guess, minimum return rates. Do they have an option to take out cash to get those returns as the project ramps up?

No.

But if I give you a little bit longer answer, so that the minimum return is a very, very attractive one.

Warburg is betting on the capital appreciation. We've got a pre-commission in...

Value was established now. It was locked in at two and a quarter billion. I'll remind everybody that the energy transition publicly traded companies are all in the teens on ebit.com multiples and we've given guidance.

our EBITDA potential. So you know there's a potential home run to be had here for getting in this early. We don't have to service with cash. There is a MOEC and a IRR dual gate.

And the AK is going to give you a lot more color on that.

Okay, I'll wait for that. Maybe I'll ask my others just in succession here.

It's the, I guess the first one is...

It seems like the intention is for MRL to have essentially zero net debt at startup. Is that right? And then

With the pre-dreaming unit starting up in the first of the year, I would imagine it's safe to assume limited EBITDA contribution from the renewable diesel plant until that's up and running. So can you confirm that? And then thirdly, can you just remind us, you mentioned the expansion opportunity. Can you remind us what that expansion opportunity is and how quickly you can plan to move forward with that and if you need to monetize?

MRL more fully before advancing that expansion. Thank you.

You bet, Jason, it's Bruce, so I'll stay with it here. The, yeah, then there is no debt.

The net debt is zero. That's remains an opportunity for us. And I believe Todd mentioned that we are working on municipal bond financing, which is a longer term track cascade county, where we operate past a resolution to enable that. We are very advanced with the department of energy. These are not controllable in terms of timing exactly, but...

That would be the preferred dead instrument. The DVD...

in terms of calendar 2022 financial results. Yeah, I think it. Yeah, I think it. Yeah, I think it. Yeah, I think it. Yeah, I think it.

Because of the commissioning and the walk-up that we've talked about the sequential installation projects over a...

a number of months through the fourth quarter. As a practical matter and the grand scheme of things I'd call it a flat year, our model show a positive, but nothing like what we're gonna get after all the gear is commissioned. And then in terms of the forward thinking, you know, and this is this public, I would direct everybody to the information that's up on the IR website, for the last couple of months. But, you know, we have never found enough feedstock to fill this hydrocrack.

We established that, which we'll do over the first six months. We will know where to lever, the hardware, and we've estimated the forward case is 18,000 barrels a day, which is up a lot from what we're advertising presently at 12.

Now, that's part one, part two of the answer, which will give a lot more simply is and

If we get the economic signal to do it, we can pivot this thing to about a 90% staff year and pivot it away from our D entirely.

We've got two very strong technology providers looking at that with us.

And so we've notionally penciled in 24, get that all figured out and get that shut up. And so we've got to get that all figured out and get that shut up.

So point one, hydraulic expansion, point two, pivot the high staff, if we get the economic signal to make that additional investment. One, I'll give you a few questions. additional investment.

Got it, and...

I think I'll make that additional investment.

Got it. And just clarifying in terms of funding that, neither one of those are dependent on monetizing and MRL more fully. Is that right?

The current estimates which are very early FEL estimates.

and frankly would be notional, but they're well within MRL's ability to sell fund through cash flow from operations. International Development

Great. Thanks for the answers.

No, you bet. Thank you for asking.

And we do have a follow up question from the line of Greg Brody with Bank of America. Your line is open. Please go ahead.

Hey guys, I'll put myself on mute there and they took me off. So Jason answered a bunch of questions that I wanted to ask on the RD facility. Just one element there. Can you actually take cash out next year of MRL through distributions that can go up the CaliMet or other restrictions to doing that?

There are not restrictions. You know, the Montana Renewables Board of Directors, which will include the Warburg member. The

Well, we'll look at

Cash generation from OPS, they will look at the capital allocations for the project, which I mentioned.

And, you know, a bit of prudent rainy day, probably, to be held in the treasury. We expect to exceed all of that. So we do envision distributions.

and a bit of prudent rainy day, probably to be held in the treasury. We expect to exceed all of that, so we do envision distributions. We expect to exceed all of that, so we do envision distributions.

And, you know, that's part of how Warburg will get their floor return that you'll learn about as we.

You know, resuscitate the deal team from overnight and get the 8Ks out the door. But yeah, you know, this is a strong cash flow generator. You know, this is a strong cash flow generator.

So as you, that's one of the comment she has made early on. So there's been a goal to reduce that at Calumet. And clearly now it seems like you're in a position that you can do that. Just talk about the approach how you're thinking about it today. Yeah, so I'll give you the MRL piece in order to bridge back to pod. But we've historically.

you know, been a more modest cash flow and the base business is doing great as Vince and Todd covered. That opens up a...

and organic delivering opportunity. And then as we get Montana Renoval stood up, it's order of magnitude equal and half to our base business, which opens up to second, organic delivery. And then of course, the Lazard process may in fact give us an inorganic delivering opportunity. But let me get Todd to frame that a bit more. But let me get Todd to frame that a bit more.

organic delivering opportunity and then as we get Montana Renewable stood up, it's order of magnitude equal and have to our base business which opens up the second organic delivery and then of course the Lazard process may in fact give us an inorganic delivering opportunity but let me let me get Todd to frame that a bit more strategically for you.

Yeah, no, I think Bruce Hiddett, you know, really kind of the boil it down. We think of it. There's three options. You know, there's base cash flow out of our specially business, which. You know, there's base cash flow out of our specially business, which.

which look to be strong for the, you know, as far as we can see, there's MRL cash flow that you already hit on Greg, and then there's sell more of MRL potentially, you know, down the road. So I think any of those, and obviously none of those are mutually exclusive. So any or all of those could add to...

You know, the future kind might be leveraging plans. And the numbers still target to reduce that between the four and four and five and five and five. That's the solution about it. That's right.

And maybe just moving on to the business. WCSWTI will allow. What's your view on the ability for the margins to stay here? What's your view on the ability for the margins to stay here?

And just in general, there's a comment that you made in your slide. I don't know if you said it out loud, but. She said that post conversion, the recruit operations would be about 40 to 50M dollars. And you say in a similar price environment, is that in today's price environment that's been particularly strong or is that or is that normalized?

Yeah, let me head on that one first. The, so the 40 to 50 million dollar comment is year to date in today's environment. So if we, if we simulated everything that's happened this year and then, you know, assuming that we had the future refinery, you know, the specialty asphalt refinery, 12,000 barrels a day, we would have made 40 to 50 million dollars a year to date. Wow.

That's a bit confusing because historically we've said, you know, it's about a $50 million, you know, we expect that smaller business to be about a $50 million run rate business. There's the local market kind of focuses on more specialty asphalt. So just purely coincidental that those numbers overlap. So basically run rate this year, annualize this year today, the fallery final would be looking at $8,000,000,000 a year.

versus kind of the 50 normal cycle.

Thanks for hiring, Scott. And then just a little insight on the WCS ball out there. I think a lot better in the last month than it was in the quarter. So how long have you been doing? Yeah, and I mean, WCSWTI kind of weekend, you know, a little bit at the end of the quarter and continues to stay favorable for us. You know, we don't think about it as a major blowout. When you look at what's happening to a sweet power just in the golf, you know, you look at.

kind of the transportation cost, increase drilling, that type of the expectation of a portion. You know, there was a lot of production offline in Canada earlier this summer for turnaround and improvements and a lot of that's coming back on. So I think we're just looking at expectations of continuing the portionment returning and the typical sweet sourdiff that we're seeing on the Gulf Coast. So we're seeing on the Gulf Coast.

Great, and just one last big or bigger picture question. You know, you obviously diversified if you have to consumer and industrial customer base. What, are there any new options to what's going on out there that are worth highlighting today that you think to our trends that can impact the business positively or negatively? Bye.

So I don't think anything on the consumer side. Yeah, obviously prices are increasing in a hurry and we'll see how the consumer responds. You know, so far so good. We've seen demand stay stable.

you know, and we're watching it pretty closely, but I think you hit the nail on the head, you know, it's an integrated business and obviously the larger volumes are coming from some of the fuels byproducts and the higher volumes, especially solvent, salue boils that really are benefiting from kind of high commodity margins and it looks like it's going to be that way for the foreseeable future.

Great guys, and perhaps I'm getting everything done. I appreciate the time.

Thanks, Rick. Appreciate it.

Thank you, and this does conclude our question and answer session, and I'd like to turn the conference back over to Brad McMurray for any further remarks.

Yeah, thanks everybody for your time and your interest. On behalf of the management team here in the room and really all of Caliumat, we appreciate your ongoing interest in the company. So thanks again and have a great weekend.

That concludes today's Complace call. Thank you for participating. You may now disconnect. Everyone have a great day.

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