Good day, ladies and gentlemen. And welcome to the First Quarter 2015 Calumet Specialty Products Partners LP 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, today’s program is being recorded. I would now like to introduce your host for today’s program Noel Ryan, Vice President of Investor Relations. Please go ahead.

Good afternoon everyone. And welcome to the Calumet Specialty Products Partners first quarter 2015 results conference call. We appreciate you joining us today. Joining 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 the expectations reflected in such forward-looking statements are reasonable neither the Partnership its 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 this morning. You may now access these slides in the Investor Relations section of our website at calumetspecialty.com. As we announced on March 26, 2015, the Partnership is named Bill Hatch as Interim-CEO of Calumet, following the promotion of Mr. Grube to Executive Vice Chairman. We are thankful for Bill Grube’s visionary leadership as Co-Founder and CEO for the last 25…

Thank you, Noel for that introduction. And good afternoon to each of you joining us today. It is my great privilege to join Calumet as I begin my new responsibilities as Interim-CEO. I appreciate the warm reception I’ve received during my time, as far as this organization. And I have been impressed with the many dedicated employees I’ve met so far. I believe Calumet is an organization poised for great things in the future. And I’m excited to be part of leading that future until a permanent CEO is named. I want to express my deepest thanks to Fred Fehsenfeld and Bill Grube and the entire Board of Directors for the opportunity to help lead this organization as we move closer to becoming a leading hydrocarbon and especially hydrocarbon enterprise in North America. My first month at Calumet has been very productive. I’ve visited most of our refineries and I’ve spoken with hundreds of employees including our plant and project managers and more than anything else, I’ve done a lot of listening and learning alongside my new colleagues. My first impression of Calumet is that it is an incredible organization with significant potential as it continues to evolve into a more mature fully integrated company. From a strategic perspective, our corporate vision has guided by a board remains clear. We are committed to becoming a leading producer of specialty hydrocarbon products in North America. However, from a tactical perspective, how we achieve this vision and where we acquire that, we continue to build systems and implement processes that assist us in making our business an informed, thoughtful and data centric manner. I’m looking to have this organization become increasingly efficient, accountable and conscious of the fact that we can and will be continuously improving. From my vantage point, our decision…

Thank you, Bill. And on behalf of the entire company, welcome aboard. 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. Adjusted EBITDA was $124.9 million in the first quarter of 2015 versus $82.7 million in the prior year period. As indicated in the slide, a significant year-over-year increase in fuel product segment gross profit accounted for more than 50% of the growth in adjusted EBITDA in the first quarter when compared to the prior year period. We encourage investors to review this 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. Turning to slide 10. As indicated in the top portion of this slide, fuels refining economics were on balance fairly static on a year-over-year basis as measured by the benchmark Gulf Coast 2/1/1 crack spread. Although the 2/1/1 crack spread averaged $19 in both the first quarters 2014 and 2015, our capture rate improved significantly on a year-over-year basis. Crude oil differentials did contract on a year-over-year basis as evidenced by more narrow discounts for WCS, Bow River and Bakken during the first quarter of 2015 versus the prior year period. As we enter the second quarter, refining economics have exhibited signs of improvement with the Gulf Coast 2/1/1 crack spread exceeding $20 per barrel in April as seasonal demand for refined product accelerate heading into the summer driving season. Each year the EPA may adjust the volume of renewable fuels mandated to be blended by refiners given certain circumstances. Based on…

[Operator Instructions]. Our first question comes from the line of Richard Roberts from Howard Weil. Your question please.

Hi, good afternoon guys. And congrats on the good quarter here.

Thanks Rich.

Maybe one for Bill to start just from a high-level perspective, and maybe it’s too soon. But you’ve been in the office for a little while here, got to take a look at the business and the assets. I’m just wondering if anything so far has jumped out at you that you would want to change in your term if you could, whether that’s holding the portfolio maybe assets that don’t fit within the rest of the portfolio, any areas you can cut cost just anything like that you could share with us?

I’ve actually only been here 30 days, so I have to couch my comments with that view in that perspective. But no, I was very pleasantly surprised by how professional, well equipped and how well run our facilities were, especially on the areas of safety and the way we manage the overall day-to-day operations as a plant. So it was really a pleasant surprise. And I don’t know what I had anticipated but whatever that was, was really, really good experience for me. Yes, there are using some of the models that I’m used to with respect to running refineries, I think there are some efficiencies that we can gain and hopefully I can bring something to the table over the next whatever period of time and capture some of those efficiencies. But again, my impression again has just been, very, very positive.

Okay, great. Thanks. Maybe one for Pat. Can you give us any idea how much asphalt contributed to gross profit in the quarter or even what kind of margins you were selling asphalt for in the first quarter?

Yes, we don’t break-out gross profit by product category. But as you know asphalt was a significant contributor, I mean, in addition to higher crack spread margins, we saw elevated asphalt margins given lower crude prices, strong both retail and on the wholesale side. It was certainly a significant contributor especially in our refineries in the North. We don’t break out gross profit by product category. But it was a significant factor.

I would add to that, Richard, this is Noel that we did about 22,000 barrels a day in Q1 of ‘15 and demand is going to be ramping as we transition into the summer driving paving season as well as the summer roofing season. We would anticipate there to be a very robust level of demand in the core markets where we operate recall that, we make asphalt at our Shreveport refinery, our Superior refinery and our Montana refinery. And a lot of the asphalt that we sell goes down into really three key areas, one would be a terminal in Tooele, Utah, another one would be in Muskogee, Oklahoma and the third would be through retail outlet that we have with all states back in the East Coast where they sell some of our asphalt at retail or this higher margin asphalt sold out there. So, overall, I would say that, as Pat indicated we don’t give for competitive reasons what our specific per barrel or per ton asphalt sales are but dramatic increase on a year-over-year basis in terms of gross profit in that area of the business.

Okay, thanks for that. And then maybe just one last one here. I guess, our impression, it seems like the way forward for growth beyond the organic projects that will be done here over the next call it nine months is going to be through third party acquisitions. And just wonder if you can update on the sort of how the market for specialties assets looks right now, is there a lot that you are looking at just any general commentary would be helpful? Thanks.

Richard, I would say that at this juncture, our main focus is on de-levering the balance sheet to sub four times as well as completing the organic growth projects. And I think where we’re at right now is that yes, there are opportunities out there but nothing imminent. I think most of the investors that we talk to would much rather have us focus on our core specialty products business and running that business effectively and consistently and that’s really what we’re focused on doing right now. I think as far as fuels refining assets are concerned, I know that one of our competitors recently maybe commented in this environment where fuels margins are as outsized as they are, there is very few quality fuels assets for sale. And I would concur with that but even more so I would say that if we were in a position to do acquisitions at this point, and I don’t see that as something that’s really a 2016 focus or 2015 focus excuse me, I would say that it would be more oriented towards our specialty products businesses.

Understood. Thanks very much guys.

All right.

Thank you. Our next question comes from the line of Ed Westlake from Credit Suisse. Your question please.

Hi, yes, good morning and welcome aboard. So, just on Shreveport obviously that Caddo Pipeline access will improve the cost of crude supply, I appreciate its early days. But any other observations on what you could do to perhaps improve Shreveport performance going forward?

Well, yes, there is a number of initiatives. And I’ll give you an example of one that John started at EMEA and I’ve had experience with that in my own refining days is the electrical supply from the local utility company. And working with them to increase the reliability of that, those projects that they can do that will help us and we can assist them in that. And we’re working together with them on that as we speak. So and that will significantly improve the reliability of the refinery. So, yes, and that’s just one and there is several of them there.

And I think, as we look at Shreveport and it’s increasing reliability over time and especially in the post turnaround mode of early last year, if that plant is certainly contributing in both the fuels and the specialty product segment, so now if it turns to matter of optimization that the plant is running very well and performing very well.

Okay. And then a follow-up just on Dakota Prairie obviously, sometime it takes time to refineries to get up to the optimum conditions obviously good that you started. When do you recon we’ll see that, third quarter in terms of profit contribution?

They’re currently ramping right now. We have some product that is being produced in the month of May so distill it. But I think as far as getting up to full speed in terms of the 20,000 barrel per day that’s going to take a couple of weeks. As far as total full quarter contribution, yes, I mean I think third quarter is going to be the first full quarter but you’re going to get some contribution we would expect in the second quarter.

Right, okay. And then, sorry.

This is Bill, hi. As it stands today, I mean, we’ve released with it today. We’ve got a few strengths that we’re working on and a couple of really minor issues that we’re tackling. But we’re very pleased with the overall start-up, we’ve got a very highly skilled qualified team up there working on it, night and day. So but you’re absolutely right, it does take a while to shake out all the cowboy out a few facility like that but so far, so good.

And then, I’m going, also going to ask an M&A question, but on oil field services, I mean, obviously that’s a tougher business for a lot of the folks involved there right now, clearly Shale is a lot of medium term potential so that creates a bit of an opportunity. But with the comment you made earlier still also reflect on the oil-field service site for some consolidation opportunities?

I think right now at this time, as we’ve said earlier in terms of our M&A focus and completion of the capital growth projects we already have in the portfolio as well as focusing on deleveraging and distribution coverage, I think that we’ve obviously been impacted in oil field services. We are seeing some stabilization in that business. We like that business but we’re not necessarily currently focused on any potential consolidation efforts in oil field services.

Okay, thank you.

Thanks Ed.

Thank you. Our next question comes from the line of Roger Read from Wells Fargo. Your question please.

Yes, good morning, or I guess good afternoon in this case.

Good morning.

Like the, the acquisition questions have been hit fairly well. But I’m a little curious in your guidance for the oil services sector, you indicated positive EBITDA for 2015. Given the Q1 result, what does that imply for the rest of the year? And how does gross profit as you report it differ from EBITDA?

Well, so, just looking ahead and considering where the first quarter is, we’re still seeing the benefits I guess coming through in some of the sizing issues in terms of sizing our employee workforce to the new level of rig-count. There was a one-time item in the first quarter and that gives us some indication of what the quarter would have been without that. And I think just looking ahead given where we think we are on sort of stabilization on rig count as well as sizing the business, that leaves us to the potential that it could be an EBITDA positive for the period, for the full year I guess. That’s the main driver. The difference between what we’ll be showing gross profit and what we’ll be showing as EBITDA are for some of that kind of one-time stuff which ended up being a pretty significant relative to their numbers in the selling expenses category that you see.

Okay. I guess, another question I had, you mentioned going to the ATM this quarter. Given that you did the transaction later in the quarter, maybe the ATM was in the January/February timeframe, but is that the case? And then secondarily, is the ATM still open? Is that still a path, given what you’ve done? Do you need to continue to sell units that way?

The ATM activity that we reported for the quarter was indeed focused more on the earlier portions of the quarter. We felt that it was important and we continue to believe it’s important to have showed up the funding for the remainder of the capital growth projects. I would say the ATM program does remain open to us. It is, it’s one tool in the toolbox as far as making sure we have ample liquidity which we certainly believe we have that currently based on our view of where the business is and what the projected CapEx spend is. But it remains an opportunistic tool first as you understand there, is some limit to how much you could potentially issue under an ATM, but we’re not entirely focused on that, the larger overnight offering of course, that provided us with the biggest uplift on the equity side of the capital structure.

Sure. And then Bill, welcome aboard, a question for you. You walked through some of these items at the beginning in terms of future CapEx, executing on the projects and all. With the time you’ve gotten in there so far, what’s your degree of confidence that the CapEx numbers should be the right numbers going forward? Part of the reason I ask this is, a lot of these projects did see relatively consistent increases in the budgets, delays and time, just if you could give us your impressions of that going forward?

Yes, sure. It’s a fair question. The reason I am fairly confident is that we’re still late in the project schedule. All of the equipment has been delivered. There’s very little change going on right now. It’s just really execution we got. Burning welding rods and painting tanks and all those kind of things are happening, a lot of the - for instance in Montana, most of the work being done right now is this OSBL type work. And so, yes, we could run into some of the unexpected issues. I’m certainly aware of that, but it is very far along in the project date and schedule. So I don’t anticipate any significant alterations to it, I just don’t. In San Antonio and Montana plants are really in the same timeframe, because we’re talking starting all this stuff up in the fourth quarter or early fall. So I’d say, to answer your question, a pretty high degree of confidence, not absolute, but a pretty high degree.

Yes, we are not asking for absolutes, but I appreciate the color. Thank you.

All right.

Thank you. Our next question comes from the line of John Ragozzino from RBC Capital Markets. Your question please.

Hi, congrats on another great quarter, guys. First off, I was just wondering if you could possibly expand upon the details provided on the Dakota Prairie refinery. I was wondering if you just basically quantified the contribution from at least the second quarter numbers. And then also as we think about the remainder of the year, is it fairly safe to assume that you’re going to see reasonably flat contribution quarter-on-quarter?

I think, Dakota Pierre is in a startup mode. We had discussed previously what there is a range of possible outcomes for the year. We’ve guided towards an estimated annualized EBITDA contribution of between $30 million and $35 million per year. And of course, that would represent our share. And it’s subject to market conditions, I mean, like I said, I mean, the first start-up phase here, we certainly will be in ramp-up mode during the second quarter. I think leads probably just to the third quarter before we’ll start to see where a more normalized, it’s running twenty-a-day type of a set-up, and then it will just be based on where the current refining economics are at that point in time. And it will represent also for us the point at which there are distributions back to the partnership from the joint venture and that’s when we’ll consider it to be distributable cash flow from our perspective.

And, in the prepared remarks you mentioned the structural shortages in the wax market and incremental expansion on your capacity by about 30%. Can you remind me what total capacity is now and then perhaps give us a feel for where per barrel margins are currently driving?

Well, we’ve been fairly consistent in our wax production. A lot of the increase this year was that we’re not only selling our own wax, but we are bringing in some outside production and doing some blending to fill some voids in the market where Exxon stepped out of some lower melt wax being produced in the fourth quarter. So we are running the plant pretty much as hard as we can. We’re maximizing on our lower melt paraffins that go into products like crayons and candles. And we see margins holding very steady in the strongest side of our specialty group.

And then just one more, I noticed the Missouri Esters project, it looks to have slipped back a bit on the estimated time of completion to the third quarter. The remaining contribution to EBITDA looks the same as if there’s also a reduction in the estimate for total project returns. Is it fair to assume that there’s a bit of a cost overrun and timing delay of that project? And can you talk a little bit more about that?

Yes, there is been a slight overrun there. I mean, it’s been pushed into early Q3, but again this is a project that’s generating between $8 million and $12 million a year in EBITDA. So it’s the smallest of the four projects by far. And frankly, lot of the decisions on the timing of, say for example, the solvents project as well as the esters plant expansion were more a capital prioritization issue of us, wanting to basically shift in prioritize Montana ahead of these other two projects, which were smaller. So the so-called slippage, if you will, that you’ve seen were in some cases intentional and self-help initiatives. In terms of managing our balance sheet in a prudent manner.

Great. And then just one more kind of housekeeping item. Would you expect to see a similar type of level of ATM issuances over the upcoming quarters?

Like, I said earlier, we look at the ATM as opportunistic. I mean, I think the key for us was getting the overnight offering done, and as I spoke earlier that provided us with, we feel of the long-term funding needed for the growth projects. So we are not necessarily focused on the ATM program at this point in time, in terms of needing to issue, we continue to post very solid quarters as we proceed here. And we should see improvements there, and that would make us think about it opportunistically, as we think about where our yield sits, but we don’t feel compelled to issue units under that program today.

All right, great. Thanks very much. Welcome aboard, Bill.

Thank you very much. I appreciate it.

Thank you. Our next question comes from the line of Cory Garcia from Raymond James. Your question, please.

Good afternoon, fellas. Turning back I guess to Shreveport, is it safe to assume that the 20,000 barrel a day commitment on that line is the full light oil appetite at the refinery, recognizing sort of the specialty yield component of it?

This is Ed Juno. The 20,000 barrel capacity is not the limit of the light oils production at Shreveport, so we’ve been running typically the last quarter at 45,000 barrels a day. And so, it just gives us more options to be able to bring in lower feedstock costs into a facility that we can still keep the same yield structure that we’re developing today.

Okay, great. I guess if we kind of pull back a little bit further and then sort of look strategically, while reliability there is, obviously, still a key focus and the tone appears to be, obviously more set on specialty product type of growth beyond just sort of this next leg of organic growth. I’m trying to understand here what desire, if any, there is to sort of expand light fuel product yields, if you will, within some of your fuels refineries? Maybe what the economics or returns would need to be for you to sort of undertake some of these other potential projects over the next several years, say?

Good question. Thank you. Well, I think your statement is basically correct. I think our bias is towards the specialty products area. However, if a growth project with an opportunity defines itself in the fuel segment that has an attractive return. And as we discuss, we look at like 30% to 40% kind of return, especially on the fuel side, as fairly attractive, then yes, I’m saying that we might pursue something like that. Again, our bias has been more to the specialty side for sure. It’s a good observation, yes.

Okay. That helps better frame it. Welcome aboard.

Okay. Thank you.

Thank you our next question comes from the line of Sean Sneeden from Oppenheimer. Your question please.

Hi, Sean.

Hi, thanks for taking the question. Maybe, Pat, can you just remind us what the planned product slate is for Dakota Prairie, and what the overall complexity of that facility is?

The planned yield from the plan is, it’s 20,000 a day, and it’s allocated in thirds between atmospheric tower bottoms, which Calumet will take on ultimately for processing at other facilities as we ramp up. And then, a third is diesel and a third is naphtha that we go into diluent markets. That’s the yield the refinery itself is not very complex, I mean, it’s actually pretty simple it’s a crude unit and a diesel hydrotreater. So there is very little complexity in the processing. Based on running all of the Bakken, it’s a pretty easy refinery in terms of complexity.

One of the things I would offer on this refinery that I think is worth mentioning is that when you look at your Bloomberg screens, you’re looking at Bakken price to Clearbrook. And when we’re actually purchasing crude oil, we’re purchasing it locally. So that transportation diff between Bakken and Clearbrook and where we’re purchasing it locally is a couple of dollars a barrel depending. So, certainly I think there is going to be some sort of local market benefit that’s accounted for within the margin environment for that refinery longer term.

And when did you discount is versus Clearbrook or WTI?

Well, Bakken Clearbrook compared to WTI, the diff between the two. So, when you look at that diff, we’re getting a better diff than you would see on your screen potentially.

Okay, got it. Maybe one big picture question, Bill, or maybe Pat, you guys talked about generating a significant amount of free cash flow next year. Did I understand the relative priority there in terms of number one, paying down debt, and number two would be potentially looking for what, we’ll call, additional specialty product acquisitions, if we’re thinking about the uses of cash for next year?

Right. And I think that you’ve hit on a lot of the priority areas. I think that for us getting to appoint where our distribution coverage is within our target ranges so that we can be comfortable with consideration of modest increases in the distribution that is the factor that we think about, making sure that we have ample liquidity for future opportunities, paying down, in terms of paying down our revolver debt is probably a way to be thinking about it versus some kind of take-out on our long-term debt. We need to put ourselves in a position where we can grow again and grow from a good starting platform of a solid balance sheet. So, as we think about opportunities, it’s going to be, you’re putting yourselves in a position with whatever the sizing of the opportunities are, we feel like that we can access the capital markets or use internally generated cash in a pretty efficient manner. And that’s what guides us towards, you’re thinking about, especially as all of these growth projects come on, presuming that they come on at levels that where we expect them to that we see that as a higher quality problem to be dealt with as we look into next year. That’s really the focus right now is putting ourselves in the best position we can to further grow the partnership.

That definitely makes sense. Maybe just very last one, would there be any potential impact, and I’m sure you guys filed the IRS new proposed rules for the MLP, for you guys on recurring operations or any of your potential plans, including potential spin-off of any of your business lines?

Right. So, and these are the latest, the proposed, I think it’s important to clarify these are proposed new regulations regarding publicly traded partnerships and qualifying income. We’re assessing that today. When we take a quick look at our assets and what we already have that we think clearly continues to qualify in the interpretation of the new proposed regulations. We don’t see this as having a material impact on the partnership. Some asset that for which we didn’t have a private letter ruling such as anchor, we’re currently holding corporate anyway. Although it would appear that that type of activity would be qualifying in the new proposed regulation. So we’re watching it closely, we don’t see it as having a material impact today. There will be a common period here and we’ll be engaged in that along with our other colleagues in the trade groups that represent our interests. But on the first look, we think we’re in a pretty decent shape. And there is, I think it’s important to understand there is a proposed tenure phasing period on some things that either where someone already had a private letter ruling, so there is some time to deal with these issues either structurally or otherwise.

Perfect. That’s very helpful. Thank you.

Thank you. Your next question comes from the line of Jeremy Tonet from JPMorgan. Your question please.

This is Neil on for Jeremy. I just had a quick question on the oil services business. You’re aiming for positive EBITDA margin this year, but looking past, what’s the long-term trajectory for that business and like what are you looking to do with it?

I think as many would know from looking at our results for last year, I mean, this business is certainly one that it has been, was growing and was poised for growth. We have a very engaged and very experienced management team there. Obviously everyone has been impacted by the reduction rig-count. We have a team that’s been in place throughout various cycles. We would hope to see as crude oil drilling activities and natural gas drilling activities would resume or come up with higher levels that we would be well positioned to continue to grow again. So the focus now is making sure that the business is sized appropriately given the level of rig counts that we have. I mentioned earlier that we are seeing some stabilization in the amount of the rig count. And we like that business going forward. So, I think we need to see where we go and how, when drilling activity resumes we should be well poised to continue to grow.

Thank you. Yes, we’re very impressed with the share gains in that business for sure.

Yes, I mean, and they’ve certainly maintained share during this period.

Thank you.

Thank you.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back over to Bill Hatch, CEO. Please go ahead.

Thank you for joining us on today’s conference call. Since you have any questions please contact our Vice President of Investor Relations, Noel Ryan. Thanks again. Bye.