Calumet, Inc. (CLMT) Q3 2015 Earnings Report, Transcript and Summary

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 Royal Purple and TruFuel is among others carry some of the highest margins in our specialty products portfolio. Following several quarters of targeted cost reduction, our oilfields services segment was nearly cash flow breakeven during the third quarter, which given the documented challenges facing that sector is an achievement onto itself. We continue to closely monitor this business in the current environment with the primary objective of ensuring this segment generates self-sustaining cash flow until commodity prices shows signs of a recovery. In the interim, we continue to evaluate a number of operational strategies to help ensure cost remain properly managed, given a low crude oil with price environment. On a trailing four quarter basis, distribution coverage was 1.1 times, including the unfavorable LCM inventory adjustment. Within proximity to our long term of 1.2 to 1.45 times our total debt to trailing four quarter adjusted EBITDA also including the unfavorable LCM inventory adjustment fell to 4.7 times in the third quarter of 2015 versus 6.0 times in the prior year period. We view the overall improvement in our balance sheet metrics during the past year as a significant success story as it provides us with increased financial flexibility with which to grow the partnership over time. Please turn to Slide four. Calumet has generated approximately hundred million or more in adjusted EBITDA, excluding special items for five consecutive quarters as of the third quarter of 2015. Much of this growth in adjusted EBITDA can be linked to the safe reliable operation of our refineries. To that end, I want to thank our employees whose continued commitment towards improving our operational performance this year has translated into another consecutive quarter of strong results for the partnership. Calumet’s rate reputation as a stable operator cannot be overestimated in its importance. With thousands of customers, including many blue-chip multi-international brands counting on our base stocks to run their business. We are committed to ensuring that our customers can count on us for reliable, quality, supplies of product. We will continue to focus on operational excellence and plan optimization as one of several strategic pillars that remain critical to our long-term profitable growth. Please turn to Slide five. As in recent quarters Calumet remains one of the few MLPs was whose business tends to outperform in the following crude price market. As illustrated in the top chart of this slide, specialty product prices have continued to well outpace crude oil prices, while our non-specialty more commoditized fuel products have as expected closely tracked the WTI benchmark. To put this in perspective, note that while the average price of crude oil has fallen in excess of 50% between the third quarter of 2014 and the third quarter of 2015, the average price selling per barrel of specialty products has fallen less than 25% during the same period, contributing to margin pension within our specialty product segment. In the bottom chart of this slide, we have adjusted gross profit per barrel to exclude the unfavorable non-cash impact of the aforementioned LCM inventory adjustment by segment. As you can see from this chart, specialty products gross profit margin per barrel increased marginally on a year-over-year basis, yet on balance remained characteristically stable, while in fuel product segment gross profit per barrel increased nearly three-fold, primarily driven by strong fundamental in our northern fuels refinery markets. Please turn to Slide six. We are nearing completion on our three remaining organic growth projects first announced in 2013. These projects include the expansion of our Great Falls Montana refinery from a throughput capacity of 10,000 barrels per day to 25,000 barrels per day. The doubling of production capacity at our Missouri esters plant to £75 million per year and the conversion of a portion of our ultra-low sulfur diesel production at our San Antonio refinery to 3000 barrels a day of higher valued solvents. The Montana refinery expansion is scheduled to reach mechanical completion by December 2015. We currently anticipate that the refinery will begin producing at increasing rates throughout the first quarter of 2016 with the intent to increase production to full rates by March 2016. The partnership anticipates that the Missouri esters plant expansion will be completed during the fourth quarter of 2015, at which time Calumet intends to ramp up sales volumes to customers. The San Antonio solvents expansion project has entered into the commissioning phase and is slated to begin the sale of low aromatic solvents to both domestic and international markets during the fourth quarter of 2015. We currently estimate the combined incremental adjusted EBITDA contribution from these three projects remains in excess of $100 million on an annualized basis subject to market conditions. Looking ahead to the fourth quarter of 2015, crude oil prices remain range bounded in the $45 to $50 per barrel range, while specialty product prices and margins remain resilient. On the fuel products side of our business, fuel product cracks have narrowed materially as typical during the seasonally slower fourth quarter. However, the WCS, WTR differential remains wide at approximately $14 per barrel below WTI, consistent with what we saw in the third quarter of 2015, which has benefited our northern fuels refineries. Typically, fourth quarter sales volumes and our fuel products segments declined versus second and third quarter levels as asphalt paving and roofing season comes to a close. A tend we would expect to continue this year. Specialty products demand is expected to remain stable during the fourth quarter. Before I hand the call of over to Tim, I want to thank the Board of Directors for the opportunity to serve as interim-CEO of Calumet during this past year. Beginning in January 2016, I look forward to continuing to serve in my new role as Executive Advisor to the partnership where I will be focused on optimizing our organizational systems and processes. Together with our Board, I am very confident that Tim is an excellent selection to lead Calumet into its next phase of growth. Tim’s decades of experience at ExxonMobil and more recently at Koch Industries have prepared him well for the role ahead, as Calumet seeks to become the premier producer of petroleum-based specialty products. With that I’ll hand the call over to Tim for a few remarks.

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, we expect this profitable growth and by association, distribution growth will be driven by a combination of: one, a long term commitment to operational excellence; two, sustained investments in high return moderately sized organic growth campaigns; and three, targeted investments in niche businesses where Calumet has a distinct competitive advantage. Developing a corporate culture where operational excellence is the defective standard is no easy task. But I have been fortunate enough to lead similar initiatives that Exxon Mobil and Koch during my career which is one of the reasons I was brought on board to Calumet. Moving forward, our commitment to operational excellence will affect every employee and every layer of our organization. In application, this commitment will be improving our safety and better optimizing our assets with a focus on reliability chaptering increased cost efficiencies, becoming better project managers and ultimately being held at carnival when it comes to individual and corporate performance. As the old saying goes, you can only manage which you can measure. And with this in mind, we will seek to achieve operational excellence at Calumet to a relentless focus on performance measurement. You engaged to help us make informed decision at each layer of the organization. Collectively, each of these efforts from improved operational excellence to investments in organic growth and strategic acquisitions are intended to position Calumet as the premier specialty petroleum products company. And while we are in the early stages of this next chapter, I am excited to have this opportunity and look forward to what the future holds. Finally, I want to thank Bill Hatch for his support of me as well as his leadership of the organization here in the past several months, and look forward to continuing to have him on board as a trusted advisor to the team. Bill has brought a wealth of knowledge and experience to our organization and we appreciate his many efforts on our behalf. With that, I’ll turn the call over to Pat for a discussion of our third quarter financial results.

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 the 2/1/1 Gulf Coast crack spread improved on a year-over-year basis in the third quarter 2015, driven mainly by strength in the gasoline crack spread which benefited from strong seasonal demand from motorists during the period, partially offset by year-over-year decline in the diesel crack. 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 and Bakken Light sweet crude oil during the third quarter 2015 compared to the prior year period. However, as Bill indicated earlier, the relative discount on WCS to WTI which significantly affects profitability are superior in Montana refineries remains at a very healthy $14 below WTI per barrel during the fourth quarter even as the gasoline and diesel crack had declined from the third quarter levels. Turning to Slides 12 and 13, in bridging cash for the third quarter, the combination of lower working capital increased operating cash flow and higher net borrowings on our revolver was offset by higher capital expenditures and the quarterly cash distribution As indicated on Slide 14, our combined cash position and availability under our $1 billion revolver maturing in July 2019 totaled $317 million as of September 30, 2015 consistent with where we were as of December 31, 2014. From the total liquidity perspective, our revolving credit facility remains our primary vehicle that assists us in funding the ongoing business of the Partnership. We believe we will continue to have ample liquidity from cash flow from operations and borrowing capacity under our revolving credit facility to meet our financial commitments, minimum quarterly distributions to unit holders, debt service obligations, contingencies and anticipated capital expenditures. Turning to Slide 14, at the end of the third quarter 2015, our total debt to LTM EBITDA ratio was 4.7 times versus 6.0 times at the end of the third quarter 2014. Looking ahead, we expect solid operational reliability at our refineries, together with contributions from our organic growth projects coming online during the next three months should allow us to better support a leverage ratio that will trend progressively lower with the long term target remaining at or below 4.0 times. Now turning to Slide 15, we have in place a multiyear hedging program designed to mitigate commodity risk within our Field Products segment. Using fixed crack spread hedges we have locked-in 0.8 million barrels of anticipated fourth quarter 2015 gasoline production at an implied average gasoline crack spread of $8.06 per barrel as well as $0.1 million of anticipated fourth quarter 2015 diesel production barrels at 32.5% of WTI. Looking to 2016 and 2017, we have hedged an additional 6.8 million barrels of anticipated diesel production at what we believe are a favorable implied crack spreads as indicated in the slide. We will continue to add to our hedging positions much as we have in the past should the opportunity present itself. And now turning to Slide 16, as indicated in the press release issued this morning, the Partnership anticipates total capital expenditures of approximately $370 million to $380 million in 2015, an increase from the prior guidance of $320 million to $335 million. The anticipated increase in full year capital expenditures is primarily attributable to increased cost incurred at each of the remaining organic growth projects, all of which will reach completion in the fourth quarter of 2015, together with higher turnaround CapEx that were partially offset by lower replacement and environmental expenditures. During the nine months ended September 30, 2015, consolidated capital expenditures totaled $341 million, including $242 million of which were related to capital improvement expenditures, such as the organic growth projects. Although, we intend to publish a more formal capital spending forecast for 2016 on our quarterly call in early February of 2016, preliminary indications are that total capital spending will decline significantly next year compared to this year. And with that I’ll turn the call over to the operator, so that we can begin the Q&A session. Operator?

[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.