Good day, ladies and gentlemen. And welcome to the Calumet Specialty Products Partners L.P. Q3 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to introduce your host for today’s conference cal Mr. Noel Ryan, the VP of Investor Relations. You may begin sir.

Thank you, Kevin. Good afternoon and welcome everyone to the Calumet Specialty Products Partners’ third quarter 2015 results conference call. Thank you all for 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. Also joining us today is Tim Go, who recently joined Calumet and will become CEO, effective January 1, 2016. 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 now 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 access these slides in the Investor Relations section of our website at calumetspecialty.com. 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 of our third quarter 2015 results. We are pleased to report that the Partnership had a record third quarter results driven by a combination of strong operational reliability across our refining system and significant gross profit expansion within the fuels product segment, coupled with another solid performance from our speciality product segment. Excluding the $56.3 million non-cash related to a lower cost or market adjustment, the partnership generated adjusted EBITDA of $131.7 million in the third quarter of 2015 versus $110.7 million in the prior year period. The strength of our third quarter results was mainly attributable to robust fuel refining margins at our niche superior and Montana refineries, which benefited from the combination of regionally sourced discounted crude oil together with premium mid-continent product prices that well exceeded the Gulf Coast benchmark during the period. On a per barrel basis, the discount of WCS to WTR widened sequentially versus the second quarter of 2015, averaging approximately $14 per barrel below WTI in the period. Meanwhile, the rack price of gasoline at our Montana refinery for example averaged nearly 20% higher than the U.S. Gulf Coast 87 octane gasoline during the third quarter, further emphasizing the value of inland niche markets we serve. Our specialty products segment contributed stable EBITDA during the period consistent with historical seasonal trends seen in prior years. Sales volumes of our packaged and synthetic specialty products increased nearly 7% in the third quarter versus the prior year period given increased market demand and customer penetration. While this sub segment represents a small overall portion of our total volume sold, products sold in this segment such as…

Thank you Bill for the warm welcome, and good afternoon to those joining us on the conference call today. If you turn to Slide seven, since joining Calumet just a few short weeks ago, I had the opportunity to tour some of our facilities, meet with all of my direct reports, all well digging deeper into our overall business. I visited one-on-one with each of our board members which has helped me gather some helpful perspectives on the history of the organization as well as the many opportunities still ahead of us. My early impressions of Calumet are distinctly positive. We own geographically advanced niche specialty and fuels refining assets. We have a deep operational bench and talented technical sales force. We have a stable balance sheet that supports consistent cash distribution and we have a general partner who is committed to create value through sustained investments and growth. On January 01, I will become only the third CEO following Bill Grube and Bill Hatch to manage Calumet since its founded 25 years ago. But more notably, I will the first not named Bill, which for all of you who have followed Calumet over the years may take some time getting used to. Sufficed to say I’m humbled by the opportunity to lead our company at this existing time in our history and I’m grateful to our board of directors for their support. Although it would be premature for me to frame my long term vision for Calumet on today’s call, I do want to share some general thoughts with regard to how we intend to position ourselves to consistently win in the markets we serve and the years ahead. My primary focus will be on helping Calumet develop a culture that is deeply committed to profitable growth. Practically speaking,…

Thank you, Tim. Good afternoon everyone. Thank you for joining us today. Let’s all turn our attention to Slide 9 for a discussion of adjusted EBITDA. We believe the non-GAAP measure of adjusted EBITDA is an important financial performance measure for the partnership. Including the impact of an unfavorable non-cash $56.3 million LCM inventory adjustment, adjusted EBITDA was $75.4 in the third quarter of 2015 versus a $107.5 million in the prior year period. As indicated in this slide, a significant year-over-year in fuel product segment gross profit was the single most significant factor contributing to the year-over-year growth in adjusted EBITDA during the third quarter 2015 when compared to the prior year 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. And now turning to Slide 10, distributable cash flow was $44.9 million in the third quarter 2015 which includes an unfavorable non-cash LCM inventory adjustment of $56.3 million, down from DCF of $72.3 million in the prior year period. The year-over-year decrease was primarily driven by lower reported gross profit and higher replacement environmental and turnaround expenditures. As illustrated in the bottom chart, our trailing four quarter distribution coverage ratio of 1.1 times continues to reside within proximity of our long term target range of 1.2 times to 1.5 times. Our third quarter distribution coverage of 0.8 times was impacted by the inclusion of the aforementioned LCM inventory adjustment that is included in reported adjusted EBITDA. And now turning to Slide 11, as indicated in the top portion of the slide, fuels refining economics as expressed by…

[Operator Instructions] Our first question comes from Richard Roberts with Howard Weil.

Hi. Good afternoon, folks, and welcome, Tim. Look forward to working with you. Couple of questions this morning or this afternoon. Can we get an update on the Dakota Prairie just maybe operationally how the assets running, and then what the market looks like for the various products coming onto facility right now?

Yes. This is Bill Hatch. Dakota Prairie was of course, up and up and running since April. And I would say, it’s still aligning itself, we’re still getting used to the operation of the facility and some one-time costs are still coming in from the startup type operation. But more importantly, the market just has not responded like we had hoped it would. Diesel prices are still under pressure. We had anticipated a very and more of it was previously or historically with the higher crude costs and higher rig count with – in the North Dakota area, diesel consumption was quite – a lot stronger than it is today. So we are experiencing a narrower margin than we had originally anticipated. We’re still hoping that will come back, but it will probably take an increase in rig count for that demand to come back to the level, at least, to the level it was. So somewhat disappointing for us that has taken just long for the market to recover.

I would also offer, Richard, and this is Noel Ryan. In the guidance that we gave, as it pertains to the project – the organic growth projects, that $100 million of incremental EBITDA that we anticipate coming from those projects includes no contribution from DPR. So at this point that $100 million or more would be representative contributions from San Antonio solvents esters and the Montana expansion.

Got it. Okay. And maybe to ducktail on that one. So I know part of the plan for Dakota Prairie was that the bottoms that were produced were going to be shipped over to Montana to run through the spare capacity in the new hydrocracker. Are the economic associated with that included with the projections you’ve laid out for Montana, or would that potentially be something incremental?

Yes. Again, this is Bill Hatch. Yes, we had included that into our original economics for the Montana plan, yes.

Okay. Got it. Thanks. And then maybe just one more. So there has been some discussion around costs savings through optimizing some processes across the system and whatnot? I was just wondering if you could quantify for us what kind of opportunity that is? And if there’s any capital that would be required to get there, and then maybe the timing of when we could see some of the impacts from these costs initiatives?

Well, again, this is Bill Hatch. No we have not put a number on that efficiency gain that we believe that is there. And I think by the end of this year, maybe early next year, we’ll have a better handle on what we can anticipate in that. We’re working on that. I do think though that going to a more centralized type organization with respect to services whether it would be engineering or purchasing or the way we buy our crews and sell our feedstocks will add value to the company. But I haven’t put an exact number on that. Tim and I’ll be working on that rest of this year and hopefully into – hopefully, we can share that with you sometime early next year…

Got it. Thanks for the time, guys. I appreciate it.

Thanks, Rich.

Our next question comes from Johannes Van Der Tuin with Credit Suisse.

Hi, thanks for taking my call. So, Bill, we’ll be sad to see you go, but I’m looking forward to getting more work from Tim, and I’m hoping to see if everything goes well with you.

Thank you very much. I appreciate that.

Couple of quick questions here. First, on the leverage ratio. As you noted, it went up this quarter after having previously declined and even though you said that you’re still targeting a four times ratio over time. I was wondering if you could kind of put a timeline on that, what’s a realistic timeframe for achieving that four times ratio, or so four times ratio in your minds?

I think and again that to be clear the 4.7 it increased slightly from where were at the end of last quarter. It does include the impact of the unfavorable LCM inventory adjustment. That aside, I think, we’ll make significant progress next year based on our estimate that we mentioned of adding a $100 million of EBITDA contribution from the organic growth projects. So we expect and just looking through to that math, we think we’ll make significant progress toward that over the course of next year, and think that we’ll be within those targets certainly by the end of next year. I would – I’d just like to highlight that the dramatic progress we’ve made over the last several quarters in that area, we were very focused on it. It’s very important to us. We’ve really been focusing. So, I think, the benefits of that of any other operational efficiencies and cost savings opportunities aren’t included in that $100 million. So we think we’re going to continue to make significant progress over the course of the upcoming several quarters.

Sure. And just as a follow-up to that, as you’re coming out of this CapEx cycle and just trying to generate a lot more free cash flow. How should we think about the uses of cash going forward from your perspective, whether that’s paying down debt, or returning in terms of DCF, or anything else?

I think it’s a hybridized approach. We have a lot of strategic long-term goals, as we increased our operating cash flow or free operating cash flow. Certainly, a sustainable distribution growth plan is something we’ve been talking a lot about. We also would like to continue to see increased flexibility that I think we would expect to see some revolver pay down as part of the use of a free operating cash flow, as well as to fund some of these more moderately sized optimization projects. So we have several different items to which we could dedicate the operating cash flow. I think, it’s a mix of those things, all with a focus of still maintaining flexibility, but also being mindful of our targets around distribution coverage and optimal leverage for the partnership, which as I mentioned before is scheduled to be less than four times and that’s our long-term goal. So it’s a combination of all of those things.

Okay. Switching over to services business just for a second. How are you all thinking about that business at this point, and not just as a business, but how it fits into the strategy of carrying that as a whole. I know it was mentioned previously, Tim says, he wants to focus on projects in which Calumet has a distinct advantage. Could you kind of go into where that services business sits in the markets versus kind of the large cap names and the publicly traded names that people might cover? What are the advantages and disadvantages and how it fits into your overall strategy?

This is Noel Ryan. With regard to our strategy on Anchor, we need that investment at a time when crude oil prices were significantly elevated from where they are today. Going forward, we’re going to have a lot more focused investment, targeted investment, and high return immediately accretive acquisitions within the specialty products market, our heritage without question is in that market. And without going into detail on the oilfield services business, we remain very supportive of the management team there. We have cut costs dramatically, as you can see within the G&A. We’ve also taken share in many of the basins, where we operate. We’ve got tremendous customer service by the folks at Anchor and ester west and they’ve been very successful and even a declining rig environment to be self-sustaining in the cash flow that we generate. So that would basically be our position at this time.

Okay. Thank you very much.

Our next question comes from Michael Gyure of Janney.

Hi, good afternoon, guys. Quick question on the availability under the revolving credit facility. It looks like the following days, it’s about $500 million down from obviously the second quarter, I’m assuming a because of the pricing and the volumes of inventory things like that. Can you tell me, I guess, what you’re thinking about as far as availability needs as you move into sort of, let’s say, in the first-half of next year what the capital programs and sort of any other, I guess, long-term spending that you guys were thinking about?

Right. So at the end of the – you’re correct in your assumptions, the decline in the borrowing base is generally due to lower commodity prices across the system and in cases where we’ve been targeting and making sure that we optimize the level of inventories we have on hand, that that ultimately reduces the borrowing base as well. We think we have ample liquidity under the revolver today. Looking ahead, we would see the – but we’re also – we’ve been in a – as everyone understands the capital spending mode here on the growth projects. So we’ve been continuing to use our revolver in terms of a portion of that funding. I think as we look ahead to needs next year as we mentioned on the call, at this point in time, we do not see any large growth CapEx on the horizon. So we see, as we begin to harvest the earnings from the organic growth projects, we do see that as an opportunity to ultimately increase the liquidity. And we – as we mentioned, we’ll go ahead and share probably on the next call, our capital spending view for 2016. But as we’ve said in many different forms, the CapEx itself is outside of the growth is fairly consistent from period to period. So, I think, we would see the on-boarding of additional earnings as supportive of higher levels of liquidity, but we feel comfortable with what we have now and where we sit today even in this lower commodity price environment.

Great. Thanks.

[Operator Instructions] Our next question comes from Sean Sneeden with Oppenheimer.

Hi. Thank you for taking the questions.

Hi, Sean.

Maybe as a follow-up to that last question there. Your comments were that CapEx would be down significantly year-over-year. I think in the past and I think you said as much that it would be more of a maintenance level program. And I guess, that’s kind of like a $80 million plus or minus number. And I think you also mentioned a – potential for some optimization projects. I guess, number one, what is that really entail for next year, or how should we kind of think about that in broad strokes?

I think those projects are in development. So I don’t think I’m in a position to necessarily comment on those. But I do think it will be important to note that, we expect things that would happen next year, well, first of all, projects have to be engineered and designed. But I think anything that we’re looking at would be in quick return in terms of view of things that would happen next year. But I think overall your comments around the maintenance CapEx and we just – in non-turnaround heavy years, which we certainly would view 2016, as such a year, that type of CapEx spend seems to be very, very consistent. I think you could be – feel comfortable that any investments that we make on optimization, we would see as quick return projects. But those are – there are projects that are potentially on the table, but we’re really – those are in development right now. Were not in a position really to comment.

And, Sean, just to build on that, we’ve given guidance of $370 million to $380 million of total CapEx this year. Of that, call it, $375 million take a midpoint of that guidance, about $85 million of that – $80 million to $85 million is maintenance stay in business CapEx to your earlier point. So, again, our next turnaround cycle doesn’t begin until 2018, and we intend to stagger that turnaround cycle over a multi-year period. So we don’t have the disruption distributable cash flow that we did back in the 2013 timeframe. So with regard to order of magnitude, past couple of years two-thirds of total CapEx has been growth and those growth projects that we’ve alluded to that are moderately sized are going to be engineered in 2016 and more than likely in way 2016 and 2017 will begin looking at the actual spend.

Okay. Now, I think that makes sense and so I think the projects that we are talking about conceptually are probably relatively small with quick paybacks as you kind of put it, is that sort of the right way to think about order of magnitude?

Yeah. This is Tim. When I mentioned we’ll moderately cause organic growth projects, that is what I am talking about Shaun where we believe there is some additional volume put out there that we want to go after. As Pat mentioned, we haven’t fully identified and fully evaded out exactly what the designs of those look like yet but when we do, we’ll let you know but there are going to be quick hits lower cost projects.

Okay. That’s helpful. And then maybe just lastly a housekeeping question here. I think your slide 5 is pretty helpful but I guess maybe try to think about Q4 maybe even next year to a certain degree with the event of some of your specialty products come online, how should we think about I guess the specialty product margin progressing? I guess kind of what I am asking is, how do these projects really impact that margin in the $45, $50 oil price environment?

The project is coming online right now. We are really going to in a ramping up period here in this both quarter. In regard to the ester project, we are building in a slow growth to move that volume from the fourth quarter starting all through next year. So it’s going to be a phase in of giving those products placed in the marketing customers. And frankly we’re looking at a similar type of ramp up with the solvent production coming out of San Antonio. So it will be a quick hit, but it will ramp up overtime and we’re looking at margins that are consistent with what we do at our Cotton Valley and with our Conoco products that are currently being sold.

Okay, that’s helpful. Thank you.

[Operator Instructions] Our next question comes from Richard Verdi with Ladenburg.

Good afternoon and thank you for taking my call. And Tim, congrats on the new position and I look forward to working with you. Bill, I wish you all the best in your future buddy.

Thanks, Richard.

Thank you very much. Thank you very much.

Sure, my pleasure. Quick question really on business so far this quarter. There is a solid chuck of capacity coming offline or has come offline from between about a month ago and year end, a good portion of that is in Type 2. So I was wondering if the superior plan, is that – if you can comment on that, is that seeing increased business activities due to that competing capacity coming offline?

This is Bill. Absolutely, yes, the turnaround in capacity help margins at our Montana and Superior refineries both over this past quarter, yes. We really saw significant premium over the Gulf Coast and very helpful for us yes.

Okay, good.

Richard, if you just look at NTI, Northern Tier reported the results today I believe and they put up a $25 gross profit per margin per barrel and that’s the St. Paul Park Refinery and St. Paul Park Refineries within the same proximate areas are Superior refinery. That gives you a good indication just how strong the margins in that market were.

Okay, great. Thank you, Juno.

I’d like to say two, our plans both at Montana and Superior ran very excellent and we had outstanding utilization and running time, employees there did a great job. I’ll say we have an old saying that, make hay while the sun shining and so they did that. So I feel happy about their performance.

That’s excellent color. Thank you, Bill. And with the line of sight you kind of have here now for the rest of the year or the beginning of the next, looking at what happened in PAD 2 here this Q4, are you thinking that more refiners probably coming offline in Q1 that it might widen this and bode well for some of the other plans with these kind of still competing customers look to have orders soon?

I am hopeful for that but the fourth quarter seasonally is tough and in early October we saw margins narrow quite a bit. They’ve come back recently and so I’m still hopeful that what he just described will occur a bit, but keep in the back of your mind fourth quarter is a seasonally difficult and – for refiners and firstly we have to see how it goes.

This is Bill. Just to build on that Richard, I would say that you’ve seen the two in one Gulf Coast crack spreads really have from third quarter levels in the past couple of weeks lower by a weaker gasoline crack. Asphalt which has been a big part of the story this year typically, you’re not paving or roofing in the middle of snow, so typically Q4 is going to be slower for asphalt which is 20,000 barrels a day of our production. On the specialty side, we anticipate stability in specialty margins in Q4. You will see some seasonal weakness in sales volumes but wide oils and wax is very, very strong and so we are encouraged by that.

Okay, thanks. And last question here for me and it’s actually for Pat. Pat, you’ve been at Calumet for a long while now, so it’s clearly not going to be your first rodeo [ph] if there is an economic downturn and we are unfavorable with stock market. So with the current bull market long in two, if we are not a bear market, can you maybe talk a little bit about how you might manage the financial aspect of the company through something like giving the past experience at Calumet and maybe what you might do differently this time around or recommendations you might make to Tim.

I think I have been here a long time and I think we’ve been around through various cycles for the company and I think what we have found overtime is that, that our business is pretty resilient to up and down especially the specialty product segment. There is no question that our business can be impacted by overall trends in demand, but what we’re seeing that because of the very low concentration we have among either products or customers in the specialty product segment, generally has served us very well to be able to show relative stability to inventory periods where it’s more challenging on the demand side. I mean the businesses that we serve in specialty products are fairly mature, that’s why we have talked a lot about the consistency and stability of those margins overtime. I think that the other thing that we think about are a robust hedging program that allows us to look out for some future period and try to lock down as much of the Field Products opportunity as we can. That provides another source of stability to derisk volatility. But I think as we enter this new period, I’m very, very encouraged by our focus on all of these businesses that we’ve acquired over the last several years and the growth that we’ve experienced. I think we are now entering a period where we are going to try to optimize all that and leverage on all of the things that we’ve learned. I think that we just have to remain opportunistic in terms of the financial needs of the company. I think we’ve developed a pretty good following among institutional investors and retail investors alike. I think a lot of people are waiting to see the impacts of the growth projects, but we try to remain opportunistic. We understand that we are focused on a balanced capital structure that requires us to utilize both debt and equity financing. So I don’t think our course of actions really change there. We just need to find the best opportunities and tell the best story and continue to develop a very good track record of delivering results and we like to think that with a solid management team in place we’re excited and looking forward and under Tim’s leadership and indifference to Bill helping to put us on track, I think we’ve got – we see the future with a lot of opportunity. But having been here a long time, we’ve got a lot of work to do but a lot of good opportunities ahead for us.

That’s great. Thank you, Pat, and I definitely echo that. Okay, great. Thanks guys and again Bill, I wish you all the best.

Thank you, sir. Appreciate it.

And I’m not showing any further question at this time. I’d like to turn the call back over to Noel.

Thank you everyone for joining us on today’s conference call. So if you have any questions, please contact our Investor Relations department and we will assist you. Looking forward to seeing you on the road. This now concludes our conference call.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.