Q2 2023 Calumet Specialty Products Partners LP Earnings Call
Good day and welcome to the Calumet specialty products partners second quarter 2023 results conference call.
All participants will be in a listen only mode. You should eat any assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please also note that this event is being recorded today.
I would now like to turn the conference over to Brian Murray and Investor Relations. Please go ahead Sir.
Good morning.
Thank you for joining us today for our second quarter call.
On today's call are Todd Boardman CEO .
Argo CFO , Bruce Fleming, EVP of Montana, renewables, and corporate development, Scott Obermeier, EVP specialties, and Mark long EVP sustainable products and strategy.
You may now download the slides that accompany the remarks made on today's conference call 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.
Turning to the presentation on slide two you'll find our cautionary statements.
Like to remind everyone that during this call. We may provide various forward looking statements. Please refer to the partnerships press release that was issued this morning as well as our latest filings with the SEC for a list.
The factors that may affect our actual results and cause them to differ from expectations now pass the call to Todd Todd.
Thanks, Brad and welcome to Calumet second quarter 2023 earnings call.
This was a quarter of many strategic achievements most crucially all elements of Montana renewables. The Rd in the renewable hydrogen plant and a next generation free trader met or outperformed expectations.
Further our sustainable aviation fuel project came online catapulting us from nowhere to the largest SaaS producer in North America.
At the corporate level, we continued the process of improving our balance sheet by successfully issuing unsecured debt, which will eliminate our secured notes.
Our specialties business continued with excellent commercial execution, while asset operations overcame a series of tornadoes and extreme weather that limited production ultra.
Ultimately, we generated $67 $7 million of adjusted EBITDA for the quarter, which was a decrease of 10 million from the prior period.
Our northwest, Louisiana team spent much of the last quarter.
The last half of the quarter recovering from weather driven power disruptions, while doing so we elected to pull forward maintenance and at this point, we have no meaningful planned downtime for the remainder of 2023, and we entered the third quarter running our assets at full rates.
At the halfway point of our three year plan to fortify operations, our assets continue to demonstrate an improved ability to recover quickly when challenges arise and we're also adding redundancy. So further prevent or lessen the impacts of external events on our business.
Commercially we're executing across all our Calumet with a focus on the customer.
Montana renewables has pointed to half of our sales volume to Canada and seamlessly stepped into the SaaS market.
<unk> team continues to capture value from our unique and integrated value chain and our supply chain and planning teams spent the last half of the quarter and sharing customer needs were met as we navigate it around the weather and maintenance.
Further it's nice to see a return to a more normal environment performance brands as input costs have stabilized.
This is a business that we can grow and we're seeing strong signs of that in our industrial business.
Branded products are well positioned to meet the industry's growing demand for high performing and energy efficient solutions, whether it be Bel ray product servicing the global mining industry.
New biodegradable biomass products being utilized in the global marine market.
The second quarter also saw the completion and full startup of Montana renewables and the team settled into the new operation nicely.
As we stepped into this new business. It was essential that we could quickly proved out the core operating pillars, which we're ensuring the rd you in hydrogen plant ran at planned rates.
Proving our new and leading pretreated technology, demonstrating catalysts performance and meeting SaaS specifications.
We've demonstrated all of these core concepts.
As expected we encountered a few blips as the team quickly scaled the learning curve and are commencing experienced feels like minor teething problems relative to the.
<unk>.
Yeah, Mark Alles operations intricate, including our closed recycle in our net zero hydrogen production and serial number one of the next generation feedstock pretty tuner technology.
As our operators learned the intricacies of this new operation. They quickly got the plant running consistently at the planned 12000 barrels a day by quarter end, which was subsequently commissioned pre treater following the same upper trajectory.
We took our board of directors to visit the plant earlier this week and we were all once again impressed with the quality and knowledge of our local Montana team and leadership.
Naturally we are in a period of rapid learning as we dig deeper into the operation and understand the true ability of our units.
One quarter and we both developed some new understanding and confirmed a few of our core hypotheses.
First and most importantly, we've proven our technology works and our team can operate this facility unexpected levels.
We are making on spec product right out of the gate and even some of our customers were surprised at how quickly we came online.
We monitor our catalyst closely and it's performing as planned even as we introduced higher amounts of feed that we treated ourselves.
Further the capacity creep has already started.
You might remember, we don't know the maximum capacity of our Rd, Yale as we never felt the unit and thoughtful service. So its true capacity has not yet been tested.
Just a few months and our team has already demonstrated the Rd usability thrown over 13000 barrels a day.
Next we're pleased with the decision we made to install the free trader with AIA technology.
The amount of feedstock flexibility Thats unit opens is tremendous and we're capturing the yield advantage that we expected.
Yeah.
Over previous quarters, we spent a lot of time talking about the need for a free trader in this business and we're quickly seeing the field of renewable diesel producers naturally separated and to those that have free treatment ability and that was it down.
Last quarter, I mentioned that the difference between treated and untreated feed costs was 80 cents a gallon.
Right now the pre treater advantages roughly a dollar a gallon.
These levels the ability to process untreated feed is even more important than location for the time being.
Fundamentally the next generation technology allows us to lose 4% last feed than a standard trader.
At current feedstock prices, that's roughly a 20 cent a gallon advantage.
These data points, we expect the a or a technology will allow us to maintain our structural advantage even within the camp of competitors that do have free trade.
We also are learning how different feeds or handle they run.
Various speeds cause filter changes at different intervals and differ in the amount of time it takes to unload a railcar.
These are common items sort through which will allow us to optimize as we continue the process more on traded material.
We're optimizing the drawdown of our previous market purchases are treated feed and we continue to ramp up appreciate your rates as we gain comfort with the new technology.
Further we've confirmed that location is as important as we thought.
We think generic industry margins tightening recently, especially for the treated feed them at all.
This temporary dynamic has occurred before when markets rebalanced from a short term disruption.
While we fully expect it to normalize quickly are all.
Tip location advantage provides flexibility and allows us to pivot rapidly changing environment.
This is true on both the fee and product side of our business.
On the food side the location advantage is magnified by our next generation appreciated that we just discussed in fact, we just placed their first order for Camelina, which will arrive in the next couple of weeks.
Camelina is in its very early stages, but given its indigenous to Montana extremely low Ci and does not compete with food. This cover crop presents tremendous upside to Montana renewables.
On the product side, 50% of our existing R&D is now selling in Canada as we see our early theory, playing out that our product will migrate to the spot of optimal logistic advantage.
That's the largest single market, California is often a reference point for renewable fuels in our industry.
Canada is sharing a land border with Montana, we fully expect our products to all land in premium locations.
Next up the level of interest in staff is even bigger than we expected and industry themes to quickly be aligning that SAP is the best fastest and most practical path the airline de carbonization.
With the SaaS market currently being a fully voluntary market. It's been interesting to see the wide range of views that exists on how this material will price long term.
For us shell has been a great partner, so far and we're pleased with the value they bring to the table in these early days.
As Montana renewables looks forward to the Mac staff expansion, we continue to be enthusiastic.
We expect to be in a position to share some early numbers unexpected costs and EBITDA.
And we believe that with Mac staff, we can more than double our current EBITDA run rate in 2025.
The Max App project Leverages, our early mover advantage and we could sell all of the product, we could make into California, Oregon, Washington, Canada, and even Illinois, and Minnesota with the new states have credits.
And finally, we're already exploring opportunities to further integrate Montana renewables molecules into specialty applications as.
As we speak our development team is experimenting with renewable naphtha and diesel fractions for uses in our solvents business.
We've seen early successes with other sustainable product lines and adding another example of unique and advantaged integration to our specialty platform is exciting as we continue to look for ways to leverage our newly found renewables expertise across our enterprise.
With that I'll turn the call over to Beth to take us through the quarterly results Vince.
Thank you Todd.
And going forward, let's pause on slide four to take a closer look at two new brands. We recently added to our Sps portfolio.
Zero is a carbon neutral wax product and 10 clear its an all natural product develop to supplement our penrico beauty care lives.
Moving to slide five our STS business generated 61 million of adjusted EBITDA during the quarter. Our production volumes were roughly in line with the first quarter and as Todd mentioned in June our northwest, Louisiana plants were impacted by severe weather tornadoes and Hurricanes forest.
<unk> not the electrical grid offline on numerous occasions, which resulted in approximately 500000 barrels of lost production.
We estimate that the advanced cost approximately $20 million with profitability.
The unplanned downtime at both some turnaround work for further we successfully completed a planned turnaround at our cotton Valley facility.
I can say that as of July one we went back to full operations across the entire in northwest Louisiana region.
The margin environment continues to be constructive for both fuels and specialties here in the third quarter, while we have seen unexpected a reversion from all time highs. We experienced late last year margins are well above mid cycle averages and we expect that to remain.
Our material margin for the quarter averaged 77, and 30 cents per barrel for specialties and $10.21 per barrel for fuels.
We continue to be optimistic about the fundamentals of our Sps business and our expectations are constructive for the rest of the year.
Moving to slide seven our performance brands business had another solid quarter generating $12 2 million of adjusted EBITDA.
We continue to see price stability in the marketplace, our production volumes are up quarter over quarter.
There is significant demand in both the industrial line and from Choo Choo fuel MLS direct retail offering the.
The second quarter trends to be the the.
The second quarter tends to be the best demand quarter for true feel as though the spring weather and planting seasons coincide and we were pleased to see strong demand within that channel.
We have highlighted those are out.
Their products on our side as well, we have mentioned biomass before as a high performance bio degradable Maritime solution that is now also being applied across other industries. The line continues to show real promise in its early stages as more and more customers interact with it.
And our Belgrade brand, which I, particularly well now and for performance and mining applications.
Tremendous growth year over year, our industrial demand is that 35% year to date and this is a segment of the business that we expect big things from as the World Prioritizes high performance and power efficiency.
Especially in some of the leading megatrends like mining food and energy.
Moving to our Montana business.
You can see on slide nine we generated $12 6 million of adjusted EBITDA in the quarter.
For the legacy asphalt plant, we operated at full capacity at nearly 12000 barrels per day of production.
We entered this year asphalt paving paving season during the second quarter, which was our first opportunity to utilize the recently constructed power polymer modified asphalt or PMA plant.
This unique and highly high quality asphalt is being praised in the marketplace and we are very pleased with early sales.
The second quarter was also an important one for Montana renewal.
During the quarter, we bought our feedstock pretreat, our online shipped our first that volume and ramped up rates above our Rd and Patriot are average production for the quarter was a little over 7000 barrels per day as our team quickly learned the plant and with plant operations Derisked we were.
Able to end the quarter, producing 12000 barrels per day.
During the quarter, we also announced an exclusive agreement to sell 100% of our SaaS to shell.
Also one of our three renewable diesel customers.
We are excited at the SaaS opportunity that is ahead of US we are writing off the last of our treated renewable feedstocks and expect to rotate our slate is primarily untreated fee.
These are cheaper feedstocks that will allow us to capture the full earnings horsepower as Montana renewable.
That's our strategy for Montana in more detail I'll now turn the call back over to Todd.
Our priorities and next steps are clear.
We entered the third quarter operating well across the board.
Specialties, we have some inventory to rebuild but otherwise they're planning on a strong second half.
Montana renewables will continue to process, what's left about trade and safety stock and maximize penetrate throughput.
For the quarter, we've implemented a 1 million barrel challenge at the site for both our legacy and renewable businesses and.
And through the end of July we're tracking ahead on both.
Our plan and intention is to demonstrate in the third quarter. The Montana renewables sits atop a stack of competitively advantaged to renewable diesel and saft producers.
Looking forward a bit more internal process design work for Mac staff expansion has already started and we expect to make a final investment decision near the end of this year.
Zooming out our strategy remains unchanged.
We're committed to completing the deleveraging of Calumet unlocking value and increasing trading volume for unit holders.
Our department of energy loan process continues and we remain hopeful and confident that we will receive positive news that enables us to go forward with the mask south expansion that would take Montana renewables from North America's largest soft producer, it's one of the world's largest producers.
And last we continue to expect the potential monetization of Montana renewables to complete the deleveraging of Calumet.
For some time, we discussed the possibility of a Montana renewables IPO private monetization or even above.
Naturally this has created a flurry of interest in the adviser community and even potential investors and we continue to receive clear feedback the Montana renewables is a differentiated business with transformational value potential to Calumet well in excess of the entire company's current enterprise value.
As always we will continue to execute against our stated strategic plan and we'll also continue to actively explore all pass the best unlock the extreme unitholder value that we believe exists within Italian up.
With that I'll hand, the call back to the operator for questions.
Greater.
Okay.
We will now begin the question and answer session.
Again to ask a question you May Press Star then one on your Touchtone phone.
If 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 take our first question, which will come from Roger read with Wells Fargo. Please go ahead.
Yes, Thank you and good morning.
Yeah.
Lots of hit here, but I guess really let's let's dive into <unk>.
Our L Hurst.
Maybe a little more clarity on how some of the.
Advantage feedstocks have run through you mentioned.
Some learning curve issues with that is there one that's worked a little better or it's priced a little better has come up with a better yield just sort of curious any more you can offer there.
Hey, Roger it's Bruce good morning.
Yes. The couple a couple of things as you think about the optimization.
The feedstocks do have different yields, but that's mostly in the split between diesel and SaaS. The total distillate yields are substantially similar across fades.
No.
The pricing is interesting because.
Theres rotation among classes so you know.
Hello can get an advantage and then you know corn oil can come in on top of it for a while so we've got a pretty good supply and trading function trying to follow those rotations in.
We're able to do that more quickly than an average competitor because we're quite close to the sources. Most of our feeds are our days to maybe two weeks away and so we shift gears pretty quickly.
Yeah.
Yeah. That's helpful. And then the other question I have for you since we are all attuned to California, L CFS and and the other things that drive us to see R&D sales in the U S. What specifically do you see in Canada is set up that makes it competitive.
From either R&D or a SaaS standpoint.
Higher price.
That's an easy answer alright, well, that's my two questions al.
[laughter].
Thanks Roger.
Okay.
And our next question will come from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you and good morning, everyone.
Staying on the feedstock topic.
You mentioned Camelina could you give us any color on you know cost advantages.
Camelina presents for you guys.
Whether this is.
The seasonal feedstock option for you couldn't be available through the year.
I'm at the best way to think about that is that.
Commercial quantities of Camelina are actually not in the market. Yet. So this is experimentation we were fortunate to pick up opportunistically. Some camelina oil, we really like it it's in the low twenties.
Harper and intensity C I and are dramatically better than vegetable oils and it grows in our latitude. So what we imagine is going to happen is that now that this is a cash crop.
There'll be more and more of it there is some crushing activity now and that's simply going to speed up. So if you look at some of our public information.
We're forecasting commercial availability to us out in 2020 five 'twenty six that shows up in some of our charge.
The economics of it.
I wouldn't read too much into this because it is an experimentation phase but.
This is competitive with untreated feeds. So you know that's going to be quite a good margin, albeit a small volume.
Understood got it so just a little bit more of a longer term development for two days got it.
Yes.
Just to be clear, we're not doing the development there are four.
Uh huh.
Developers in Montana, now, they're backed by global major so I mean this is this is very visible and so it will happen. We're just speculating on how fast so as I said, we've we'd put commercial availability to us about two years out.
Okay. Thank you for that.
And then on the <unk>.
Because deleveraging do you think going into the second half of 'twenty three.
You could begin some deleveraging efforts this firm cash flows or will you wait for some sort of a monetization event.
Two.
Undertake sort of that part of the strategy.
Yes. It is.
Todd.
I think we're certainly going to generate positive cash flow in the second half of the year with Montana renewables now running fully construction over.
So far so it's absolutely there'll be we would expect cash flow to be available that being said I think the the major big Bang deleveraging you've had its still going to be tied to monetization.
There would certainly be the option to delever over time with operating cash flow, what tomorrow on and in our specialties business operating as well as it has over the past couple of years, we'd expect that to be an option, but I think we've been pretty clear that we want to.
Complete the deleveraging of Calumet as quickly as possible we've been talking about it for a while here we wanted to get back to growing the business and the most logical path as.
Minority monetization of Montana renewables.
Understood. Thank you guys that's all lines.
And our next question will come from Manav Gupta with UBS. Please go ahead.
Oh Good morning, guys. My question to you here is can you help us understand.
Our SaaS I E. How much are you producing right now once you do expand if you do then how much stock could you produce and then just a quick follow up is how much more do you actually expect to make on the EBIT per gallon basis in <unk> versus <unk>. So if you think you can make 140 in <unk>.
Can you make to 50 in SAP and I was trying to go after that thank you.
Hi, Manav, it's Bruce good morning.
If I take those in reverse order, we've got an undisclosed commercial premium above renewable diesel.
That is.
Very sufficient to Incent staff recovery. The volume part is we've contracted 30 million gallons per year. That's that's a percentage of our yield you know kind of 12% to 15%.
The expansion case.
The Licensors tell us we can go to full conversion, 100% SaaS.
We think there'll be an optimization short of that so we are tentatively advertising 230 million gallons of staff capacity post.
Post installation of our yield flexibility project.
Thank you.
Again, if you have a question you May press Star then one to join the queue.
Our next question here will come from Jason <unk> with TD Cowen. Please go ahead.
Hey, good morning, Thanks for taking my question.
Wanted to ask about the monetization strategy and efforts going on and specifically you know Todd mentioned, a couple of things at the end that you're receiving.
Indications that the value of MRO is.
Higher than the value of the current enterprise value of the company.
So I was wondering if you could elaborate on that a bit how do you how do you translate that into actual value for shareholders.
What does that process look like over the next few months and then tied to that can considerations for converting to a C Corp. Do you see that as a necessary step in unlocking the value.
But let's have Bruce start with kind.
Kind of MRO valuation and then and then I'll pile on if that's all right with that.
The last question.
Sure Good morning, Jason It's Bruce.
Yeah morale valuations reasonably clear you know the energy transition companies the public peer companies are trading in our enterprise value to EBITDA multiple that's visible we expect to lay in with that at a minimum if not get a premium for the competitive advantages that we've got.
Due to location due to the advanced pretty trader technology and due to the fact that we're now north America's largest staff producer. So when you put all that together.
That's the public valuations signal that we would expect the target I'll tell you that the bulge bracket banks, we're talking to have no concern about.
Some kind of an overhang from the parent.
Which I think is part of what you were getting that and so we're simply going to stand it up.
And it looks like it's going to be a pretty straightforward process.
How long that takes and the condition of the capital markets will I believe obviously give us a shot at <unk>.
Positioning our timing but from here.
Our early August were resolved.
Presumably targeting you know first part of next year for closing in the funds.
Sure.
Yeah, and I think.
Just to pile on a little bit we know theres intrinsic value in Calumet right. Bruce just talked about some of the value that we would expect we can we can look at comps in the marketplace. We can look at a number of.
Points to triangulate into what Montana renewables is worth and we've talked about unlocking that through IPL. Our monetization you know primarily we think we think MRO it'd be very liquid.
As a publicly traded company and that would certainly help Calumet. We've also said we're exploring optimal path like we always do a natural time for all stakeholders I guess, Jason is to look at the full strategy would be when we're talking about selling or spinning some of it to create a new entity. So could something with the structure would be one of those options.
I mean, I guess everything's in ops and everyone involved is rational economic creatures and we all want what's best for Calumet. So I guess I'd just say the entire strategy is complex it takes time.
And what we do from here with with this large amount of value sitting in Montana renewables is arguably the most important decision in the history of Calumet itself, giving that step right.
The most important thing and we're going to prioritize that over rushing down a particular path will be talking with the market will be seeking input and at the end of the day, there's a heck of a lot of value here. So so we're focused on unlocking that in.
We will go from that.
Got it.
Thanks I appreciate the comments and then my follow up just on the margin outlook and specifically related to RIN prices are following the epa's decision on the renewable volume obligations for 23 to 25, I think there's a decent amount of concern that RIN prices are gonna be volatile next year as the.
<unk> brings on new renewable diesel capacity I know you. The Calumet has a view of kind of a stable margin for renewable diesel over the medium term, but do you.
Dissipate some elevated.
Volatility in the renewable diesel margin next year due to a potential rent oversupply and and how do you think the market kind of evolved through that thanks.
Sure Jason It's Bruce again.
The individual components of the industry margin index that we use.
Our independently volatile and rens is getting a lot of attention a couple of things that that.
<unk> talked about less California.
California is clearly going to accelerate their L. CFS reduction profile. So that's that goes on the credit side.
And.
The the more SaaS, we pull out of the renewable diesel pool. The shorter. It is so there was an interaction there and then the final comment I don't see a lot of analytics that recognize that Canada is part of our trading market, but it is and.
And not to be flip, but I'm not sure I care, where California goes because we're not going there.
Yes.
To elaborate on that last point could you sell 100% of your product into Canada, a lot of kind of sustaining the.
Current margin profile.
We could that would potentially not be optimal distribution.
But.
I'm on record for the last two years, let's say in our physicals Shouldnt fall more than a 100 miles from Puget sound. When you look that up that means we had Oregon, Oregon, Washington, and British Columbia, and now all of a federal Canada. So you know we're pretty excited about the fact that there are small rule difference.
As normal seasonal patterns.
Lot of trading volatility that was a west coast operator for 12 years before I came to Calumet Theres, a lot going on out there and because of our geographic.
Proximity we're close in in time, and we can take advantage of that so you know I think the fact that federal Canada broaden addressable diesel market equal to the pad five volumes.
Probably ought to get more attention.
Yeah.
Understood.
The color guys.
Thanks, Jason.
And our next question will be a follow up from Roger read with Wells Fargo. Please go ahead.
Yes. Thanks, Good morning, again, and maybe just turn off with MRO, a little bit here and talk about the core parts of the business. Obviously, the weather issues that would impact Q2, it sounds like that's pretty well worked out of the system by the time, we get to Q3 I was just curious as you.
Look at the overall sort of supply demand its been in here you know we've had a lot of.
Supply chain issues throughout the industry, just how things are shaking out and how should we think about a normal market because it's been what three years since we've seen a normal market I think.
Yeah.
So Roger this is Scott.
I think a few a few comments here I think you hit the nail on the head when he said it feels like we're more of a normal market now after a couple of highly volatile years, and we agree with that assessment, we feel like our business right. Now is about is normalized is what it's been over the past few years as we look at sort of what I would say.
Roger as additional context here sort of the headline summary of our view of the market right now we do see some moderating demand and some of the normalizing margins going on at that macro level.
But we remain bullish overall with what our business. We've got as you know Roger a diverse portfolio of specialty products, a great base of customers and our unique integrated business model that continues to be strengthened.
Just some final color commentary Roger as we look at the business through I'll say three lines as our performance brands business.
Our Sps fuels business and the Sps specialties business and our performance brands.
We've been commenting for the past couple of years.
Where we felt like a normal market would be for the business and we're in it now.
On the retail side is a little soft.
But as mentioned in the call our industrial business is very strong right now.
Margins are I'll say normalized within the business and so so we've got a pretty good outlook going forward on the performance brands piece.
On the fuels piece Roger overall.
Tough second quarter fuel cracks the 211 came down $9.
Although less that spike back up here as we start Q3.
But overall I think the inventories relatively short and we've got a constructive outlook within the fuels business moving forward.
And the last piece I would just say on the specialty Sps. This.
Business, which we see continuing to perform very well we've done a lot of work over the past few years to really strengthen our foundation and optimize the business and so we feel really good about where we're at.
Yes, the margins are normalizing a little bit, but we're still talking 75 to $80 a barrel type of margins when I think three or four or five years ago that number was more in the thirties.
So feel really good about where we're at within our specialty business.
Okay. Thanks for that I guess I was a little surprised to hear industrial demand is strong and retail demand soft it seems like all the other data points, we see the macro level would imply the opposite but good to hear one other question to follow up on.
The base oil markets were pretty oversupplied, roughly you know call. It 2015 to at least 2020 that seems to have improved they're just curious as you think about.
Group, one two and three on the base oil front have we seen demand increase or are we seeing supply go down just kind of whats helped out on on that side of the ledger.
Yeah, Roger Scott Scott again.
Let me start with a comment on the retail and industrial this just to comment on that.
Retail market I think consistent with what's going on out there there was a lot of I'll call. It derisking by the big box retailers. The consumer market has been strong enough service front on the retail front I think a lot of the retail market has been derisking inventory, it's led to some choppy demand on the retail side.
The industrial side for our performance brands and on the question around how we've seen a strong I think Todd or Vince alluded to in the end in the end.
Earning statements for.
For the call.
A lot of our products are put in the high value markets. So we've got a great brand and great products that go into it in mining as an example that go into environmentally friendly marine lubricants that go into the energy transition market our high value products are experiencing great demand great growth because of.
The uniqueness of <unk>.
Or is this just more of a commoditize industrial play.
Now Roger and just last question on the base oils.
A few thoughts it's mostly on the production.
Production side, so I'll call it less supply on the group won over the past five years than what there was.
We like our group ones is that niche product.
We try to stay out of that commoditize, PC MMO markets and focus more on the high value applications group, one group too so less less supply there and theres been some global trade disconnects past couple of years on the group three as well.
I appreciate the clarifications. Thank you.
Thank you.
And our next question will be a follow up from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you just following up on your comments about the Mcdonough.
The IPO did.
Did you say you were targeting early next year as a potential window to undertake this I just wanted to see if that is sort of.
The timeline, we should be thinking about.
Yes.
We've said that in the past and continue to think that that's the that's reasonable.
Obviously no commitments.
We've got to get through the process.
Get the feedback.
And kind of make a final decision, but what.
What we want to do is be ready a lot of this is gonna be driven by the market and.
We want to be there when the market's open and if that's early next year, then then great.
And if it takes longer than that then so be it but we want to be there to kind of be opportunistically ready.
When the opportunity presents itself.
So should we think about <unk> is a very sort of important quarter for the renewables business, where you wanted to demonstrate the full capability of this operation.
Yes.
You bet I think our focus has been on a third quarter for Awhile. You know we've had a number of milestones at Montana renewables first we had to finance it and we have to construct it and then we had to prove that that it all works Derisked. The technology proves the operations I think we've done all of that in the very last milestone is prove it through upset about it.
Financials, which we've been saying for a while.
We think that will do in the third quarter and it continues to be our intention.
Okay. Thank you so much I appreciate it.
Yeah.
Thank you.
And our next question will be follow up from Jason <unk> with TD Cowen. Please go ahead.
Yeah, Hey, just following up on MRO are you planning on on splitting out results for MRO for <unk>, just given it's an important quarter and it sounds like you want to provide more transparency to the market and then just a couple of other operational.
Questions on MRO are you running all untreated feed at this point and do you expect to be accused of being that.
EBITDA guidance range that you previously provided.
Yeah I'll take the.
I'll start us off here Super it's wants to jump in but yes, that's been our intention to split out.
Montana renewables wouldn't leverage when we reach steady state and like we said, we expect that to be Q3.
As far as all all untreated feed I don't think we're at a 100% untreated feed we're certainly ramping up are very comfortable with where we've been the guidance that we've given.
About 25 to about 45 per gallon obviously is on.
Untreated feed so so as we ramp up and worked through.
The safety stock that we bought in prior periods are treated feed the blended the blended average EBITDA won't quite be that high but we're focused on long term about 25 to about 45.
And we're seeing that pretty much now when we look at when we look at it on a on a non traded basis right Chris Yes.
Yes.
We remain comfortable with our guidance remember that these california indicators that everybody likes to focus on are are not that good a capture of our better position. So.
Between the Amish question, a second ago in yours.
We're committed to proving this in the third quarter and.
Whether or not we're ready to carve out the audited financials, yeah, that's up to Vince, but will absolutely be doing a special look so youll get a you'll get a clear.
Transparent sense of how that works for us.
Great. Thanks.
Again, if you have a question you May press Star then one can join the queue.
Our next question will come from Gregg Brody with Bank of America. Please go ahead.
Hey, good morning, guys.
Hey, Greg Congrats congrats on getting the facility.
Renewable facility running as you have.
My question is is more about your optionality here.
In terms of potential limitations, which MLP status so.
It.
Is there some limitations to how does.
Does this impact the way you're thinking about monetizing MRO because Sharon MLP.
Is there some limit to how much cash we can take care of and maybe you could give us a little sense of that and then also.
Is there any update on timing specifically around the IPO that cause that we should be thinking about.
Yes, I think.
The limitation you may be thinking about is around qualifying income so the sale of.
Montana renewables, you know through an IPO or otherwise.
It could be qualifying income I think there are different points of views on that so that's where you're going that's a possibility.
Certainly the.
The plan always has been to make Montana renewables at corpus at a certain point in time, the right point in time, so that's a step in the process.
So be it.
Like I said earlier I think we have a number of options there as far as sequencing and in how we go about that but we don't see any.
Any major major road stops and monetizing Montana renewables from from our current position.
Too much because there's tax consequences for unit holders.
Correct.
And then maybe just timing on on the IPO as part of that question.
Yes, I think that's.
What we're trying to hit on earlier.
We've said around Q1, we'd like to be ready.
We could probably be ready later this year, but unlikely that you know.
The best market is going to be over the holiday season. So.
Our plan right now is to get ready and see what opportunity the market provides us enough and if it's early in the year. Then then we'd be we'd develop we'll take take advantage of that opportunity.
And then just moving on to the Mac staff opportunity you said, you're going to make a decision by the end of the year.
Help us think about the capital requirements for that how you fund it.
How does the Doe funding potentially fit into that and maybe you can provide an update there as to what's happening with that.
Sure Greg This is Bruce I'll take that.
The.
Ultimate throughput potential of our hardware is the first thing to hold in mind and we're not sure what the upper bound is because in fossil service, we never felt that unit.
We're already <unk>.
Substantially above its initial engineering design.
From when we put it up so we will find the.
The engineering basis, and then we will stretch it our estimates here Thats, where we get the 18000 barrel a day throughput number that you've heard us talk about.
Optionally, we can install yield flexibility so that that 18000 barrels a day could have a mix like the current mix or rotate to all the way or almost all the way south field.
And.
That's an incremental capital incremental return decision.
We would.
Expect to execute in the field at the same time, so there's two decisions, but we'd like to just do one project and have one outage to tie it in that's what's being sorted this year and by the end of the year. We expect to have that clarified capital is obviously contingent on whether or not we add.
Flexibility so.
We've quoted some super.
Ocean all ranges in a couple of hundred million dollars.
Source of funds for that.
Very interested.
Cash flow from operations is also sufficient but if we can fund it that way, we're interacting with the corporate strategy that Todd covered earlier.
No.
By the end of this year in summary.
Our capital pin down we'll have our investment basis.
Agreed and we'll have the OA as a source of funds as the mainline.
<unk>.
Julie.
Okay.
And our next question will come from Justin Jenkins with Raymond James. Please go ahead.
Great. Thanks, sorry, guys I have just got a couple of modeling questions here I think over the past few quarters, we've seen a pretty big working capital build I assume a lot of that is just related to the Montana renewable inventory, but if the progression here maybe going forward on on how that.
Unwind or it doesn't.
Yeah, I think you're right.
We've ramped up in Montana renewables, obviously, we've.
We built inventory, we would expect that to normalize.
Overtime. This is this is expensive feedstock.
And product so so it adds up to her in a hurry.
On the working capital front and as we've been building.
The front end of that supply chain.
Naturally we see that and then over time as as revenues come in to offset that we'll see we'll see normalization.
Perfect. Thanks, and I guess second question is on on maybe managing the rent liability here and in the context of.
A recent EPA decisions and obviously in the context of that.
Producing a lot more rents here with with RT production.
We should think about that liability going forward.
This is Bruce Justin Good morning, I think the.
The key is that the obligated parties, which are the downsize.
Calumet, Montana refinery, which we're referring to is the specialty asphalt refinery now has got a much much smaller red liability footprint Shreveport remains about the same but work or simply not very prominent.
On the Rins landscape.
The entire.
Activity around <unk>.
About 29 legal challenges is going to give you the answer and you know you're going to find out at the same time, we do as the court to rule on these things so I think I'll leave it at that.
Understood. Thanks, guys.
Thanks, Jason.
And our next question will be a follow up from Gregg Brody with Bank of America. Please go ahead.
Hey, guys I got cut off there just is there a timing on that.
And until that that we should expect in terms of having an answer but maybe you talk a little bit about how that process is going.
Greg its Chris.
<unk> is going to be up to them, but I'll tell you that we announced we were admitted into the second part of their application process.
Diligence is going well, we have a weekly stand a meeting.
And.
The step in front of us would be the conditional loan commitment that could really come at any time.
Again.
That's their business and their workload.
But we're optimistic that.
We will.
Have that.
Cornerstone.
Of our strategic plan.
Alex sheet planning in place this year.
And that's helpful. And then just my last one.
When you you raised a bond deal in June you talked about tendering for Pas and actually redeeming the rest of the 20 fours at some point.
Curious, how youre thinking about that.
Something we should expect new near term or you are you preserving.
Some optionality there as you think about.
Cash for other uses right now.
Yes, we were actually surprised more didn't come through.
During the tender and.
We'll go ahead and move forward like like we said and call those bonds here in the near future.
That's fully the plan.
Alright, that's it for me thanks for the time.
Thank you.
And this will conclude our question and answer session I would like to turn the conference back over to Brad Mcmurtry for any closing remarks.
Yeah. Thanks, Joe on behalf of the management team here in the room and all of US here at Calumet.
I appreciate your time and interest in joining the call. This morning.
Thank you for your ongoing interest in Calumet and with that have a great weekend everybody.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.