Theresa Chen - Barclays Capital

Good day ladies and gentlemen and welcome to the third quarter 2013 Calumet Specialty Products Partners L.P earnings conference call. My name is Lisa and I will be your coordinator today. At this time all participants are in listen-only mode. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, Mr. Noel Ryan, Director of Investor Relations.

Thank you Lisa. Good afternoon and welcome to the Calumet Specialty Products Partners, third quarter 2013 results conference call. Thank you for joining us today. Leading today’s call is Jennifer Straumins, our President and COO who will provide an update on our business and the opportunities for growth as we look ahead to the remainder of the year and beyond. Next Pat Murray, our Chief Financial Officer will provide detail on our financial performance during the third quarter. At the conclusion of our prepared remarks, we will open the call for questions. Before we proceed, allow me to remind everyone that during the course of this call, we may provide various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well as assumptions made by them and in each case based on the information currently available to them. Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither in the partnership, its general partner nor our management team can provide any assurances that the expectations will prove to be correct. Please refer to the Partnership’s press release that was issued this morning, as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on this call. Just as a reminder, you may download a PDF of the presentation slides that will accompany the remarks made on today’s conference call as indicated in the press release we issued early today. You may now access these slides in the Investor Relations section of our website at Calumetspeciality.com. And with that, I’d like to hand the call over to Jennifer.

Thank you Noel and good afternoon to all of you joining us on today’s call. Lets begin by turning our attention to page four of the slide deck for a high level overview of our third quarter results. We reported a net loss for the third quarter 2013 of $34.8 million versus net income of $42.4 million in the prior year period. Adjusted EBITDA defined under our financing instruments declined to $38.3 million in the third quarter down from a $121.3 in the same quarter of 2012. Although this was a disappointing quarter from a profitability perspective, many of the headwinds that impacted the third quarter have abated early into the fourth quarter. We remain confident in the long-term potential of our business, as well as our ability to remain a source of consistent distributions for all our Limited Partners. As we indicated in the press release issued this morning, our third quarter results were adversely impacted by several factors, including a significant year-over-year decline in refined product margins within our fuel and specialties product segment, lower selling prices on lubricating oils and asphalt, which fail to keep pace with a rapid escalation in crude oil prices during the period and a 30-day planned wide turnaround at our 10,000 bpd Great Falls, Montana refinery, during which the refinery did not produce finished products. Fuel product margins declined significantly during the third quarter of 2013 as reflected in the marked year-over-year decline it the Gulf Cost 211 crack spread. The U.S. refining complex operated at elevated levels during the third quarter, which in turn put downward pressure on gasoline in difficult margins as product inventory levels increased in regional markets. The 2/1/1 crack spread declined by more than 50% to an average of $16.81 per barrel during the third quarter of…

Thanks Jennifer. Now lets all turn our attention to slide 14 for a discussion of adjusted EBITDA. We believe the non-GAAP measure of adjusted EBITDA is an important financial performance measure for the partnership. Adjusted EBITDA defined under debt instruments declined at $38.3 million in the third quarter 2013 down from $121.3 million in the same quarter of 2012. As illustrated in the chart on slide 14, the bulk of the year-over-year decline in adjusted EBITDA was due to a decline in gross profit margin, our fuel segment and to a far lesser degree in our specially products segment, although we benefited from a $48 million improvement in hedging activities during the third quarter of 2013 compared to the prior year period. We encourage investors to review the section of our earnings press release found on our press release found on our website entitled non-GAAP financial measures and that attached tables for a discussion and definitions of EBITDA, adjusted EBITDA and distributable cash flow financial measures and the reconciliations of these non-GAAP measures to the comparable GAAP measures. Now turning to slide 15, fuels refining economics are very challenging during the third quarter as Jennifer described. The benchmark Gulf Coast 211 crack spreads averaged $17 per barrel during the three months ended September 30, 2013 compared to $34 per barrel in the same period of last year. The sharp year-over-year decline in the 211-crack spread was driven primarily by a sharp drop in the gasoline crack and to a lesser degree at the diesel crack. Crude oil price differentials remain volatile throughout the quarter, a factor, which further impacted gross profit in the fuel segment. However as you can see from the bottom diagram, we still enjoyed significant discounts on many of the crude oils and our feedstocks play. Turning…

(Operator Instructions). Your first question comes from the line of TJ Schultz with RBC Capital Markets.

Good afternoon. Pat, maybe if we can stay on that last point on liquidity, you will have obviously built quite a bit of liquidity. Is there a level there you want to maintain as you kind of balance funding some of these organic projects and keeping some cushion for acquisitions and at the same time dealing with lower fuel margins this year. You gave comfort on the distribution given the liquidity picture now, but just trying to understand if there is some level of liquidity that you want to keep to remain comfortable with the distribution.

Sure. I mean and as we look ahead and certainly as we’re experiencing in the fourth quarter, I think Jennifer outlined the outlook and what we see is a lot of favorable momentum in the fourth quarter. We’ve announced a lot of capital growth over the next couple of years and we’re relying on this significant liquidity position we have for that, but we also see capital markets being available to us as we need to access them over time, but as we look ahead and look to ’14, we do see ’14 as a source of operating cash flows to help fund not only stability of distributions, but also the growth CapEx that we anticipate and there’s a fair amount of spending that’s coming at us in 2014. But that’s the reason the liquidity is important for all of these items that we’ve identified. We obviously need to maintain a certain level of liquidity just to continue to fund the working capital needs of the business, but we’re very optimistic about where we sit today, what we think the prospects are for additional sources from operating cash flows in 2014 and then as I said, we do believe that capital markets remain open. That we have a great story to tell and so we see all those as tools that are available to us as we push through in this period of we think exciting organic growth, as well as more favorable overall conditions in the sector.

Okay, fair enough. And then just staying on the specialty product segment, if you could just provide a little bit more granularity on the kind of sequential or year-over-year decline. Kind of what part of that is specific to asphalt and lube oil pricing. I know you had a page in the presentation on asphalt, but just kind of how you see that trending into the fourth quarter and into 2014?

The majority of the impact of the specialty products segment was driven by the asphalt margins with the BP coker project that they are whiting the Indiana refinery. We believe that they’ve been running a lot of incremental bakken crude, which has created a lot of additional Asphalt in that markets that our Superior refinery Asphalt competes in and we’ve seen our compressed margins. We would like to think that once that coker does come online, that we would see a reduction in Asphalt production in that particular geographic region.

Okay, thanks. Just lastly, the costs on the Montana expansion, correct me if I’m wrong, but I think it’s increased a little bit since the last update. Just any color on kind of what’s driving that and updated timing on that project?

Sure. When we last gave an update back in June, we were in earlier engineering stages than what we’re in now. Our cost estimates now are about plus or minus 15% versus a plus or minus 30% plus back in June.

Thanks.

Your next question comes from the line of Anna Kohler with Imperial Capital. Please proceed.

Great. Good afternoon. Just a follow up on that question in regards to the timing. The project is basically being diluted. The start up is being delayed from the third quarter of ’15 into the first quarter. What is that attributable to?

Just more detailed planning. We were giving estimates before and our team in Montana has done a substantial amount of work over the last four or five months putting together a concrete plan and we hope to beat that timeline, but we want to put out a timeline to the public that we feel like we can certainly hit.

Great. And then my follow up question is, in regards to the turnaround schedule, as you indicated earlier that the bulk of that now is going to – the next cycle is in 2018. Given the timing of the acquisition you had a very heavy maintenance or heavy turnaround this year. Is there any way that you could time those out better, so that they don’t all hit within the same year?

We will certainly try and do that. Our Montana and our Superior plants are our two plants that we do the whole refinery turnaround once every five years and just unfortunately they both happen to be on the same five-year cycle. Our specialty plants we bring down once and twice a year to do turnaround activity on different parts of the refinery.

Great, thank you so much.

Thank you ma’am.

Your next question comes from the line of Cory Garcia with Raymond James; please proceed.

All right, I appreciate the line guys. It definitely seems like you are making some impressive strides at San Antonio and given a bit of a facelift and recognizing that we are still probably a year or so off from the startup of this new project. Any color on the degree of cost-benefit from moving these barrels off of truck onto the TexStar pipe? I mean it’s a serious, meaningful cost benefit? I was hoping you guys can quantify that a little bit better for us.

We’ll quantify it more in the future. I’m not prepared to quantify it right now.

Okay, and shifting focus to sort of the crude by rail initiative down to Shreveport, will you guys provide any color on how many barrels you actually moved down to Shreveport this past quarter, recognizing that the margins were pretty volatile up in the Bakken and then any updated timing on the Superior dock would be appreciated.

Sure. We don’t disclose how many barrels we’re moving out of Superior. We’re moving barrels out of Superior to both our own internal facility as well as third party and especially the barrels going to the third party, we’re committed to the business strategy and so even though the barrels were not highly profitable during the third quarter we did continue shipping where it made sense, just to maintain the relationship with our customers. And as far as the dock project goes, we’re continuing to move forward for the permitting process. This is a lengthy permitting process and we are still looking for viable partners in this project.

Okay, that’s helpful. I appreciate it.

Thank you.

(Operator Instructions). Your next question comes from the line of Theresa Chen with Barclays Capital. Please proceed.

Hi. Would you mind giving some color on the year-on-year volume declines for lubricating oils and solvents, and what do you think needs to happen for these volumes to recover?

Part of the issue with the volume decline in the lubricating oils and solvents were our crude mix changed out of our Shreveport refinery somewhat and that impacted it. We have changed up our crude fleet there again. What we’re seeing is a lot of the lighted barrels that we’re running have less lube percentage in them and a higher gasoline percentage, so we continue to evaluate crude change based on profitability to the overall company. The other thing that has impacted our lubricating oil mix is the production quality coming out of our lines, our relationship. They experience similar issues with crude quality that we have in our own refineries and we continue to work together with them to try and find profitable barrels to process.

Okay. And then on turnarounds, are you still expecting to have a turnaround at the San Antonio refinery this year, and I guess given the $67 million guidance, is that expected to be lower than the previous $10 million guidance?

We will be doing a crude unit turnaround out of San Antonio refinery at the end of this year.

Okay. And then finally on RINs, the previous guidance of $65 million to $75 million versus the updated guidance of $85 million to $95 million, is that just a matter of net versus gross?

Theresa, this is Noel Ryan. That’s incorrect. We has said $20 million to $25 million a quarter in RIN, potential RIN obligation expense and we discontinued that guidance of $20 million to $25 million a quarter. So what we’re doing now is we’re giving you the annualized RIN obligation in terms of the RINs that have to be purchased or blended and essentially we’re talking about $85 million to $95 million RINs for the full year ’13. So effectively take that number and multiply it by whatever the floating RIN number is on a daily or quarterly basis, depending on how you want to model it out.

Okay. But previously that number, the annual number was $65 million to $75 million, no?

No, that’s not correct.

Okay, thank you.

I would now like to turn the presentation back over to Ms. Jennifer Straumins for closing remarks.

I’d like to thank everyone for joining us on today’s call. Should you have any questions please contact our Director of Investor Relations, Noel Ryan at 317-328-5660. Thank you.