Calumet Specialty Products Partners, L.P. reported net income for the quarter ended 31 March 2015 of US$23.8 million, or US0.27 per diluted unit, compared to a net loss of US$49.8 million, or US$(0.76) per diluted unit for the same quarter in 2014.
Excluding special items, Calumet reported adjusted net income of US$58.1 million, or US$0.74 per diluted unit, for the first quarter 2015, versus an adjusted net loss of US$75.7 million, or US$(1.12) per diluted unit, for the first quarter of 2014. First quarter 2015 adjusted net income excludes three special items: (1) a charge related to a lower of cost or market (LCM) inventory adjustment of US$13.2 million; (2) a US$6.8 million gain on the early settlement of select 2015 crack spread derivative contracts; and (3) US$27.9 million of unrealised derivative losses.
Calumet reported adjusted EBITDA of US$124.9 million for the first quarter of 2015, versus US$82.7 million for the prior year period. Balanced contributions from the Partnership's specialty and fuels products segments contributed to record first quarter adjusted EBITDA, primarily due to a combination of strong operational reliability throughout its refining system, increased sales volumes of both fuels and specialty products and seasonally strong refining economics.
Distributable cash flow (DCF) for the first quarter of 2015 was $94.1 million, compared to US$49.4 million in the prior year US period. The year over year improvement was primarily driven by higher gross profit in the fuels product segment.
Shreveport refinery crude oil transportation cost reduction initiative
Calumet has entered into a 10 year, 20 000 bpd pipeline agreement with Plains to increase its sourcing of cost advantaged crude oil from the Midland, Texas, and/or Cushing, Oklahoma, markets by the first quarter 2017. Under a 10 year pipeline transportation agreement with Plains, Calumet will have the option of shipping up to 20 000 bpd of either (1) Midland priced crude oil from Midland, Texas, to Longview, Texas; or (2) Cushing priced crude oil from Cushing, Oklahoma to Longview, Texas. From the Longview, Texas, hub, the crude oil will be shipped to Calumet's Shreveport refinery on the Caddo Pipeline, an 80 000 bpd pipeline owned by Plains and Delek Logistics Partners, L.P., expected to reach completion by mid 2016. Calumet believes increased feedstock optionality provided by this agreement could provide approximately US$7.0 million to US$8.0 million in annualised crude oil transportation cost savings at the Shreveport refinery beginning in 2017, subject to market conditions.
Recently completed capital markets activities
Completed offering of 6 million common units; equity funding assists with completion of organic growth projects. On 13 March 2015, Calumet closed an underwritten public offering of 6 million common units at a price to the public of US$26.75 per unit. Calumet used the net proceeds of approximately US$157.3 million from this common unit offering, including a proportionate capital contribution from its general partner, to fund the redemption of a portion of its outstanding US$275.0 million aggregate principal amount of 9.625% senior unsecured notes due 2020 (2020 Notes), to repay borrowings outstanding under its revolving credit facility and for general partnership purposes, including capital expenditures and working capital.
Completed US$325 million private placement of 7.75% Senior Notes due 2023; funding assisted primarily with redemption of higher coupon notes. On 27 March 2015, Calumet closed on a private placement of US$325.0 million in aggregate principal amount of 7.75% Senior Notes due 2023 (2023 Notes). The 2023 Notes mature on 15 April 2023 and were issued at 99.257% of par. Calumet used a portion of the net proceeds from the private placement to fund the redemption of the remaining 2020 Notes. The remainder of the net proceeds from this private placement were allocated to repay borrowings outstanding under its revolving credit facility and for general partnership purposes, including capital expenditures and working capital. This transaction was net positive for distributable cash flow through the reduction of interest expense.
Organic growth projects update
The Partnership is engaged in a multi year capital spending campaign that includes four high return organic growth projects. These projects have forecasted annualised rates of return of 20% to 30% and stand to provide significant incremental EBITDA growth for the Partnership during the next 24 months.
The Partnership currently anticipates that the total projected cost for the organic growth projects campaign will be in the range of approximately US$640.0 million to US$665.0 million, consistent with the prior forecast. As of 31 March 2015, Calumet had invested approximately US$530.0 million in the organic growth projects campaign. During April 2015, the 20 000 bpd Dakota Prairie refinery (DPR) reached mechanical completion and was commissioned. Following the completion of DPR, the Partnership has three remaining organic growth projects in process, including the following:
- Great Falls, Montana Refinery Expansion Project: Calumet is engaged in a project to increase production capacity at its Great Falls, Montana refinery from 10 000 bpd to 25 000 bpd. This project will allow the Partnership to capitalise on access to local, cost advantaged Bow River crude oil, while producing additional fuels and refined products for delivery into the regional market. The scope of this project includes the installation of a new crude unit that will process 25 000 bpd of crude oil and other feedstocks and a new 25 000 bpd hydrocracker. The company estimates that this project will be completed during the first quarter of 2016. The total estimated annual EBITDA contribution from this project is US$70.0 million to US$90.0 million, subject to market conditions. Estimated annual EBITDA contribution assumes a per barrel discount of US$10 on Bow River crude oil, when compared to the price of West Texas Intermediate (WTI).
- San Antonio, Texas Refinery Solvents Project: Calumet is progressing with a project that will take a portion of its San Antonio refinery's ultra low sulphur diesel and jet fuel production and convert it into approximately 3000 bpd of higher margin solvents that will meet customer requirements for low aromatic content. Solvents production will supplement the refinery's current fuels production slate and will be targeted toward the various specialty products markets. This project is expected to be completed during the fourth quarter of 2015. The total estimated annual EBITDA contribution from this project is estimated to be approximately US$20.0 million, subject to market conditions.
- Missouri Esters Plant Expansion Project: Calumet continues to make progress on a project designed to more than double the production capacity of its Louisiana, Missouri esters plant from 35 million pounds per year to an estimated 75 million pounds per year. The company expects this project to be completed during the third quarter of 2015. Esters are a key base stock used in the aviation, refrigerant and automotive lubricants markets. The total estimated annual EBITDA contribution from this project is estimated to be US$8.0 million to US$12.0 million, subject to market conditions.
- Reiterate 2015 capital spending forecast: For the full year 2015, the Partnership anticipates total capital expenditures of US$285.0 million to US$335.0 million. Approximately US$210.0 million to US$245.0 million of the total 2015 capital spending plan is allocated toward organic growth projects. The 2015 capital spending plan also includes an estimated US$60.0 million to US$70.0 million in replacement and environmental capital expenditures and approximately US$15.0 million to US$20.0 million allocated to turnaround costs.
- Reiterate 2015 RFS Compliance Guidance: In conjunction with the Partnership's ongoing compliance with the US Renewable Fuels Standard (RFS), Calumet expects to purchase blending credits referred to as Renewable Identifications Numbers (RINs). The Partnership records its outstanding RINs obligation as a balance sheet liability. This liability is marked to market on a quarterly basis to reflect the market price of RINs on the last day of each quarter. The Partnership expects its gross estimated annual RINs obligation, which includes RINs that are required to be secured through either blending or through the purchase of RINs in the open market, will be in the range of 90 million to 100 million RINs for the full year 2015, excluding the provision for any hardship waivers that may or may not be granted by the US Environmental Protection Agency to any of the Partnership's fuel refineries.
Adapted from press release by Rosalie Starling
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