Good day, ladies and gentlemen. And welcome to the Calumet Specialty Products Partners L.P. Second Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Vice President of Investor Relations, Noel Ryan. Please go ahead, sir.

Thank you, Mallory. Good afternoon and welcome everyone to the Calumet Specialty Products Partners' second quarter 2015 results conference call. We appreciate you joining us today. On today’s call are Bill Hatch, our Interim-CEO; Pat Murray, EVP and Chief Financial Officer; Bill Anderson, EVP of Sales and Ed Juno, EVP of Operations. 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 the Partnership's general partner, nor our management 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. 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 earlier today. You may now access these slides in the Investor Relations section of our website at calumetspecialty.com. So, with that, I'd like to introduce Bill Hatch to the call.

Thank you, Noel and good afternoon to each of you joining us today. Please turn your attention to Slide 3 of the slide deck, for a high level overview second quarter 2015 results. We are pleased to report that the Partnership had a very good quarter, as plant utilization, sales volume and refined product margins increased significantly on a year-over-year basis. We generated adjusted EBITDA of $95 million in the second quarter of 2015 versus $39.3 million in the prior year period, as gross profit within both Specialty Products and Fuel Product segments grew significantly when compared to the second quarter of 2014. While our oil field service business has seen its share of challenges along with the rest of the oil field service sector, following a material decline in domestic land rate counts during the past nine months, our refining operations fired on all cylinders during the second quarter. This resulted in improved trailing four quarter distribution coverage of 1.3 times and a lower trailing 12 months leverage ratio of 4.3 times. Excluding the impact of a $13.9 million LCM inventory change in our oil field services segment and an $8.3 million loss from unconsolidated affiliates primarily from our Dakota Prairie joint venture, adjusted EBITDA would have been more than $22 million higher than what we are reporting today, illustrating the continued strength of our core businesses. Specialty Products segment adjusted EBITDA increased to $59.1 million in the second quarter of '15 versus $34.3 million in the second quarter of '14. A combination of solid operational reliability at our specialty products facilities coupled with strong demand across most of our major specialty product categories contributed to the improved year-over-year performance in this segment. Margins on our packaged and synthetic specialty products were particularly strong this quarter as average prices…

Thank you, Bill. Good afternoon, everyone. Thank you for joining us today. Let's all turn our attention to Slide 11 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 was $95 million in the second quarter of 2015 versus $39.3 million in the prior year period. As indicated in this slide, a significant year-over-year increase in Fuel Products segment gross profit was the single most significant factor contributing to the year-over-year growth in adjusted EBITDA when compared to the prior year period, while lower oil field services segment contribution increased realized hedging losses served to partially offset this growth during the period. We encourage investors to review the section of our earnings press release found on our website entitled non-GAAP financial measures and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA and distributable cash flow financial measures and reconciliations of these non-GAAP measures to the comparable GAAP measures. Please turn to Slide 12. As indicated in the top portion of this slide, the fuels refining economics as expressed by the 2/1/1 Gulf Coast crack spread improved both on a quarter over quarter and year-over-year basis in the second quarter of 2015, driven mainly by strength in the gasoline crack spread which benefited from strong seasonal demand from motorists during the period. However as seen in the chart at the bottom of the slide, crude oil price differentials did contract meaningfully on a year-over-year basis as evidenced by more narrow discounts for WCS, Bow River and Bakken crude oils during the second quarter 2015 versus the prior year period. As we enter the third quarter refining economics have exhibited signs of improvement versus the second quarter of 2015. To that end the…

Our first question comes from the line of Richard Roberts with Howard Weil. Your line is open please go ahead.

Hi. Good afternoon folks. A couple for me today. I guess I will start with, now that you have had four quarters in a row here with distribution coverage at or above 1.3 times and pretty good line of sight here and to the organic projects coming to completion. I am wondering, what kind of goal posts you're looking for before you are going to feel comfortable with looking at a distribution increase?

I think that as we mentioned in the press release and as we mentioned many times on these calls we are looking for a combination of several factors to come together at which time we will feel comfortable recommending -- restarting the increase in the distribution. We're making great progress and as you know we have made continued progress in leverage, in distribution coverage, we think those are very important factors to consider as we think about increasing the distribution again. And also line of sight as to the completion of these very important organic growth projects. With each passing quarter we have gotten much closer to the end of that spending cycle. So I think over the short term here we are looking for the continuation of progress in those areas as well as completion of the organic growth capital campaign and at that time we time to start to think about increasing the distribution again and looking at where current market conditions are. But I think we are -- a lot of the factors that we think about every quarter in making that discrete decision and making that recommendation to our Board of Directors we have been checking a lot of boxes along the way. So we certainly are making progress to that end. I wouldn't necessarily commit to a specific timeline, although as you know we have been tracking very well on these important issues

Thank Pat for that. Maybe a strategic question and maybe it's too soon to talk about [2016] CapEx. But at this point should we be thinking about spending levels next year pretty much in line with your turnaround and replacement environmental spending levels are -- or are there some organic projects maybe you have identified but haven't necessarily announced yet?

This is Bill Hatch. I think what you are asking me is if we have any planned large capital expenditures similar of the organic growth projects that we just went through. And the answer to that is no. I am sure we will have smaller opportunistic kind of capital projects next year. So we would implement those but they would be smaller and they would have very quick payouts. That's kind of what our thinking is right now, besides the normal turnaround and the environmental projects that we always have with the refineries.

And for which we don't anticipate major shifts in those cost levels or projected levels as we look forward. But as we do at the beginning of each fiscal year we will provide guidance on those levels at that time.

Got it and maybe just one. In the press release you mentioned some challenge to economics in the local market at Dakota Prairie is. I wonder maybe if you can just provide a little bit more color there on how the market was challenged in 2Q and maybe how it is shaping up today and your outlook for the rest of the year?

Again this is Bill Hatch. When we first brought the plan up as -- you could go back and look up the history on the pricing of diesel in that market, it was really tough, very little margin. It has expanded and gotten better over time. Today diesel prices are $20 to $25 over WTI and Gulf Coast prices for WTI. I cannot really tell you if it's going to go up or any significantly more. We would hope that it would. History says that the diesel price will move higher. We are anticipating that. We are hoping for that. The other thing that's helping Dakota Prairie is when we first started the plant up, Bakken crude was almost flat with WTI in that locale and that since has moved down to about $3 to $3.50 under WTI at that locale. So that's been a big help. And the other thing is the plant is getting some of the startup kinks out of itself and some of the one-time costs associated with starting up a brand new plant like that were sort of putting in the rear view mirror and hopefully things are going to get better as we go forward.

Our next question comes from the line of Roger Read with Wells Fargo. Your line is now open.

Thank you and good afternoon. Congrats on the quarter. I guess maybe let's since you have covered so well the major projects coming to an end and maybe following up with a CapEx question on the last call. What looks like the most attractive future growth opportunities? Is it acquisitions within your kind of existing products suite, something outside of that or is there specially another wave of growth projects we should expect on the somewhat more organic front?

Well the answer is yes. We always are looking for acquisitions that complement our business and when those opportunities avail of themselves then we will certainly take a hard look at them. I can tell you right now I don't have any specific ones in mind for that. Organic growth projects is there's opportunities there for investment and growth. Again I don't have one specific project that are the size of the ones that we just finished. There are several that are on our plate that are smaller capital that could look though -- that do look actually very attractive. But we have got a lot of engineering to do and a lot more build out on their potential. Again we are always looking for opportunities both internally and externally because the Board of Directors wants to continue to grow the company but we are going to do it in a very measured way.

Sure. Well let me ask you a question slightly differently. If we look at the large integrated oil companies, a group that is historically shed some of the specialty product lines, they are definitely under pressure even if they aren't necessarily marketing something. I think they would be approachable at this point. Is that something you are proactively moving on? It's a little too early or anything else you can offer along those lines.

I will let Bill Anderson answer that for you. He hasn't spoken yet.

Sure. This is Bill. We are watching our markets that we participate in. We don’t really see a whole lot of opportunities currently. There are some closures that some group one [baseball] facilities happening later this year in Europe, but we still see some capacity getting place from Chevron's addition to the market about a year ago. So we are watching these markets and if we feel like we see somebody that might have some interest in talking to us we are certainly keeping our eyes open.

Well maybe they are listening to this call. The other question, Bill you have been wearing the Interim tag here and unless I missed it there was no particular comment about the CEO search. I was wondering if you could kind of fill us in on the thoughts of where we are maybe with candidates timing et cetera.

I really can't. There's just no news that I have regarding that. I am sure that process is still going on but I don't think they found just the right person yet. When it happens then let's find a good -- I will then support that. The Board will make that decision. I am sure I will get to interview that individual when that person comes along. But I am committed to staying here for as long as the Board needs me and desires me to run the company. So I enjoy it here. It's a great company. They have great people. I like our product. I like our business model. So I'm really enthusiastic about it. So when that day comes I will be very supportive of the Board. I will make sure that there is a seamless transition on my job. But at this point of time I just don't have any further information Roger.

Okay. Great. Thank you.

The next question comes from the line of John Ragozzino with RBC Capital Markets. Your line is now open please go ahead.

Good afternoon gentlemen.

Afternoon John.

Bill, first I appreciate the enthusiasm for the new role. We talked a little bit about this at the analyst day, but can you perhaps give us a little bit more color on some of the internal initiatives and maybe cost savings opportunities that you see or you just think about the near-term ability to streamline the operation?

Well you know Calumet over the last several years has gone through -- as you all know that follow the company had many acquisitions and so with acquisitions come the opportunities to integrate them into your business portfolio and they will generate -- for me obvious synergies. Some of them might be just in the area of purchasing where you can use some of your leverage or you might buy a lot of pipes, valves and fittings for your refineries and your plants. And if you have a one national contract versus having 14 different contracts for your each individual plant you can garner in and the effects on the economies of scale for your size. That's the kind of things that we don't have in place now that we will. We are working on those things. This is just a minor example. We've had -- we have a crude acquisition group, we are kind of spread regionally around the country. I think bringing those into one area and one facility and working with the economics and planning kind of help people. I think that that's another area that -- this is real obvious to me that I think we can do better on our crude selection both not only in price but in yields and more fitting our kind of facility that way. But that's just a couple of examples. There's probably hundreds of them across the company and that's the kind of things I'm looking for and trying to implement here right now.

That's helpful. And then keeping in line with the train of thought on the acquisition and integration front, you kind of walked into a poor timing when it comes to the oilfield service businesses. In the current market environment do you think that there's sufficient demand or would you consider monetizing it if you -- when you consider what the expected possible monetization value might look like or is there something that you probably prefer to wait for a bit of uptick in the U.S. activity before you would consider divesting that?

Well, we are -- like I said in the call we are very committed to the oilfield services group at Anchor. Yes. Sure we are disappointed with the results and our timing. As I went through in the call that our timing was bad but we haven't given up on it. I guess that's the roundabout way you are asking me. No we have not giving up on it and we want to see it improve. We are going to go through this difficult period with people I have talked to in our Anchor. They have been through these kind of up and down periods before. They know how to weather the storm. They are good at it and we have got the company or at least an Anchor company in a position to weather it. So I am committed to the folks in Anchor and in the team that we have running it and the business itself. So we are going to make it better. We are going to make through this and when it's all over we will be a survivor and we will be glad we are one. So that's the best that I could.

Just a last one for me. You guys have provided a clear line of sight towards the ramp at the Montana refinery to the 25,000 barrel a day utilization and the other Bill in the room continues to get after it so to speak. So you see any further upside if he finds a home for additional fuels in the local markets to ramp that meaningfully higher because I think at that time they would know about the excess capacity at that facility that is underutilized at a 25,000 barrel a day level?

You are right. We anticipate that Montana is -- or at least we hope Montana is going to be able to operate at a higher level than we have advertised and we are planning for that and working our crude supply and our products. I don’t think the incremental barrel, the incremental production would be in that market though. I think we are going to have to move it out into other markets and so that that's a challenge that we have facing us right now. So first thing is we have got to get the plant up -- finish the plant and get it up and running safely and line it all out and then hopefully ramp the production up on that plant to some capacity limit. We were impressed with the Montana facility, it's just got a lot of bells and whistles and the hydrocracker there is just -- for an old refiner like myself it's somewhat of like magnificent sight to see it. So I am very excited about it and I'm hopeful that we can squeeze a lot more production out of that plant. But the local markets are pretty well -- they are pretty well full and so that incremental barrel beyond what I am talking about here will end up going somewhere else. And we are working on that. And you are right, Mr. Bill Anderson can -- if anybody can get it moved out he can do that. So I have all the confidence in the world that we will be able to do that and make some attractive returns on it.

Great. That's all I have got. Congrats on the quarter guys. Thanks a lot.

The next question comes from the line of Richard Verdi with Ladenburg. Your line is open please go ahead.

Good afternoon guys, great quarter and thanks for taking my call. Just a quick housekeeping question first, and Pat maybe you could help me with it. What was RINs expense for the quarter? I can't -- I maybe I overlooked it, can you just share it with me please?

Yes. We actually wouldn't have had an expense for -- we would have had a benefit in the quarter about $13 million -- $13.9 million favorable adjustment for RINs for the mark to market liability in the quarter compared to the second quarter of '14.

And then with the first half of the year in the rearview mirror, as we move forward into the back half of the year and in the first half of '16, where do we see the most potential for strength for Calumet, from a product standpoint and also from the facility strength standpoint?

Well that's a really good question. We reconsider ourselves and our core business strength to be our Specialty Products and I would surmise that second half of the year the Specialty Products will continue to carry the bulk of the load, especially there is a fall in crude prices. So we are excited about the Specialty Products area in the second half. Bill you want to comment on that one.

We have got real good balance right now. We don’t typically have such a nice balance between performance from our fuels and our specialty side. So we are very optimistic going forward the rest of the year.

As far as your question about facilities I would just -- I am not stepping out here but I would guess that Superior will be our most profitable facility. I had like to see all the other ones get to that level too. So yes.

Yes. Just to add on to that Rich, basically you are looking at a widening in the WCS there over the past several weeks relative to Q2 levels which should help Superior. You are also seeing a widening in the Bakken dip which has helped DPR. We are looking right now at a situation where there is about 1.3 million barrels to 1.4 million barrels of pad 2, pad 3 fuels of running capacity coming off line between October and December, which should help to assist coming out of a seasonally strong period of the year, assist fuels' refining margins. Looking to the remainder of the year really the only maintenance that we have planned at our facilities in Q3 we've got basically a lubes unit that's going down at Shreveport and we have also got 10 days of maintenance at San Antonio. So from an operational reliability perspective, after getting through '13 and the first half of '14, we have made the investments in the facilities and you have really seen it in strong operational reliability and strong production levels. So we are very optimistic going into next year.

That's excellent color, thank you guys. That's great. And just one last question and I know it's probably going to be somewhat difficult to answer. But I just figured I would try. The first caller his inquiry was into the distribution picture. We have spoken about the distribution picture a number of times. But when were these finally implemented? Once you start you can't stop. So I am trying to get a feel of what type of levels, the increases we might -- maybe we should expect? Could we see maybe a half penny, a penny, just some sort of growth rate? Just some -- [mix] sort of color will be really helpful.

Rich, I think that the question you asked -- I mean it’s a fair question. I think as we look at it going forward, I completely agree that once we start giving -- we have held the distribution steady now for multiple quarters. It will be an important sort of line when we cross and we begin the increase again. I think what you can expect from us are measured increases over time that that might be more consistent versus maybe a prior track record of having sort of variation in quarterly distributions. I think that as we have discussed this, one area where we would like to be is just someone who's consistently growing the distribution at a sustained and sustainable level over time and I think that leads to something that that would be a bit more measured and paced versus increasing it $0.03 a quarter and then pulling it back to back to half penny and then going up to $0.02. It's just as a frame of reference or kind of example. But we do see it as a very important step when we do begin to increase the distribution again that we are going to want to keep together a very consistent pattern, because ultimately I think that's what investors are looking for and we certainly are wanting to be able to provide that type of growth consistently over time.

That's great. Thank you guys and great quarter. I appreciate the time today.

Thanks, Rich.

The next question comes from the line of Sean Sneeden with Oppenheimer. Your line is now open.

Good afternoon and thank you for taking questions. Pat maybe for you. Obviously your fuels margins were pretty solid during the quarter, but I was kind of curious if you could quantify or give us any directional guidance as to how much Dakota Prairie contributed to that if at all?

So it didn't contribute to that at all in the quarter. We recorded an $8.3 million loss from unconsolidated affiliates on our income statement and that's primarily related to the impact of Dakota Prairie. So that you can see that, that those results are going to be quantified in that line item going forward.

Just as a general comment Sean, I want to highlight the fact that excluding the impact of about $40 million LCM inventory charge in the oilfield services segment and the $8.3 million loss that Pat just mentioned from unconsolidated affiliates, adjusted EBITDA would have been about $22 million higher. So we did $95 million in the quarter add $22 million that's $117 million of EBITDA. So basically DPR and oilfield services were the principal reasons that we didn't have an even better quarter and that's just something to think about for your modeling purposes.

That's very helpful. The follow-up was going to be just kind of [digging] out the impact going forward, but it sounds as though from the third quarter going on we should see a rebound at least on the DPR side, is that right?

Well it's going to rebound some, because I mean starting out the third quarter is certainly better than it was at beginning of the second quarter. So unless things materially change between now and then, yes, I would say we are going to improve.

That's helpful. Then maybe Bill for you, a couple of folks have been pinging you about kind of strategy going forward and it sounds like the plan is to kind of fully integrate a lot of the organic growth projects before expanding any further at least from the acquisitions. From your standpoint how are you thinking about I mean kind of geographical expansion? Obviously you guys have a pretty big concentration in pad 2 and 3, how are you -- how would you view given to some other part of the world?

I mean I had say from the specialty side of our business. This is Bill Anderson. We do have a conscious program going on where we are consciously growing some export business but we are doing it in a way that we are promoting some of our more unique and higher value Specialty Products to some of these other markets. We opened up a Mexican office this year and had a grand opening last week and we are moving up -- channeling some business to that operation. So we are kind of getting our feet wet and getting in some markets and getting to know some people and getting some feet on the ground which could lead to something down the road. But obviously being an MLP we have some kind of measured when we look at things out of the U.S.

That's helpful. Thank you.

The next question comes from the line of Johannes Van Der Tuin from Credit Suisse. Your line is now open.

Thanks for taking my call. I think a lot of the material that I was [traversing] covered but I do have one follow-up on the Dakota Prairie specifically and that's to the extent that the diesel prices that you had mentioned are weak, have been so. I'm kind of curious as to whether or not you think that's intended to reduce drilling activity around the Bakken and as a consequence reduce diesel demand? What impacts or sort of activity has had on on-demand in the region for you all?

Yes. I am sure it has. Yes. The weak drilling activities certainly has affected the diesel consumption. At the same time I feel like there is still a lot of supply that's coming into North Dakota from external sources and I think that rationalization of those supplies has not been fully completed and when it does it will certainly put a floor under and support higher diesel prices. But it just hasn't happened yet and I would expect there is probably a lot of reasons why it hasn’t happened, contracts and commitments and other things like that. But I really have to feel like it will. It's got to be expensive for our people to bring -- or other companies to bring diesel into that area from an external source. So it will take the time. I was very hopeful that it would happen faster than it has but it hasn’t. Again like I said the drilling activity being down there has definitely hurt the price some.

I had a follow-up question then on Dakota Prairie is well my understanding is that the plan has been to take some of the other products through an off by the refinery like atmospheric bottoms and move them over to Montana. Is that something that's actively able to be done or is that something that's going to have to be ramped up once the Montana expansion has finished and if so how quickly can it be done?

I will now let Ed, yes he hasn't spoken yet, Ed Juno so I will let him answer that question.

This is Ed June, EVP of Operations. Yes, we anticipate once we have the hydrocracker complete and up and running that the ATB will then be officed there in Montana. So at this time since we have the hydrocracker still under construction that is not an option for us at this point.

I guess my question is are the logistics assets in place to do that on kind of a rapid basis or is it something that's going to pick some limited growing pains here and there?

No. Those logistics are in place to take advantage of that opportunity.

Thank you very much. That's it.

Our next question comes from the line of Gregg Brody with Bank of America. Your line is now open.

Just on your hedging strategy, I know you have been doing hedges during the quarter but the strength in the cracks you saw in July what's stopping you from adding more for this year and next year?

Well I don't think there is anything that's necessarily stopping us from hedging more into this year and next year. We never hedge everything and we have got a fair number of gasoline hedges on for Q3 and in Q4 as we noted earlier in the call. I think the outright price of diesel while fairly attractive has not been overly attractive in our view. We still like to have lots of market share but beyond '17 it does become rather a liquidity issue in the ability to secure trades out that far. So I had say nothing keeps us from hedging additionally. I mean we are -- this is part of our strategy and even though we had marginal hedging losses in the second quarter compared to year ago period, the program is doing what we wanted to do which is to stabilize cash flows over time in the field products segment. So structurally we will never hedge all of it. We like to have some exposure to the market crack spreads. We are glad that we are achieving gasoline margins on a significant portion of the production at those elevated levels. But we do kind of look at where we are from a credit metric standpoint and where we are from a budget standpoint and we can remain committed to continuing the lock-in trades that are supportive of our goals.

Then these -- on page 12 of your presentation you have provided a change in the different price result of WTI, are those your numbers or is that some benchmarks you are looking at that refers to what's in your refining system?

Well those are benchmarks but our refineries do run these types of crude like for example the Bow River is exclusively what's running Montana, we run Bakken and WCS here at our Superior refinery. So these are indicative of the types of spreads and the patterns that we would see in our crude oil procurement across our own system. We run Eagle Ford at our San Antonio refinery. So these are relevant to our operations.

Got it and I understand that. I guess the question is on the Bakken. When we look at -- when I look I know there is more than one price line out there and obviously I can't see it all if I am looking at Bloomberg which is kind of the information I have. I am just curious if there is any dynamics that are specific to your region that are just worth to hear about right now?

Well that's a Bakken Clearbrook quote, Gregg. So our realized price is going to be better. We are going to realize a higher discount than what you are seeing on the screen. The reason I put a Bakken Clearbrook in there is because you can look at it directionally, and source that off of Bloomberg and it will help you directionally from a modeling perspective, but our laid in costs there is lower because we are sourcing local crude in the Bakken in Dickinson and processing it out of a refinery that is local and selling it to customers that are for the most part local. So we try to keep everything sort of in the local area.

What is that? Can you estimate what the ballpark is for your local -- through the local advantage you have since you don’t have to transport it?

So you are asking what the transportation costs between Clearbrook and Dickinson would be from a barrel perspective?

Maybe more if I look at Clearbrook, what should I think about? You realizing a better price, how should I think about that for you? Is there an average number I should think about or is it the transport?

This is probably $2 to $3 benefit.

Thank you guys.

Thank you.

Thank you. I am showing no further questions at this time. I would now like to turn the call back to the CEO, Bill Hatch for any further remarks.

Well I just like to thank you all for listening in and your good questions that you asked today and since you have any more questions, please contact our Vice President of Investor Relations, Noel Ryan and thanks again for the participation today. We will see you next quarter. Bye.