Calumet, Inc. (CLMT) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Calumet Specialty Products preliminary third quarter 2017 earnings conference call. And at this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder today’s conference may be recorded. I would now like to introduce your host for today's conference, Mr. Joe Caminiti, Investor Relations. Sir, please go ahead.

Thank you, Liz. Good morning, everyone and thank you for joining us today for our preliminary third quarter earnings results call. With us on today's call are Tim Go, CEO; West Griffin, CFO; and Bruce Fleming, Executive Vice President of Strategy and Growth. Before we proceed, allow me 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 the 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, its general partner nor management can provide any assurance that these expectations will provide to be correct. Please refer to the partnership's press release that was issued this morning as well as the latest findings 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. Also we exposed a two PDF presentation that will accompany the remarks made on today's conference call, one covers our preliminary third quarter’s results discussion and second outlines the pro forma review of the company post the Superior divestiture. You may access these presentations in the Investor Relations section of our company’s website at calumetspecialty.com. Also, a webcast replay of this call will be available on our site within a few hours and you can contact Alpha IR Group for investor relations support at 312-445-2870. With that, I'd like to cast the call to Tim Go. Tim?

Thanks Joe. Good morning everyone and thank you for joining us today as we honor and pay tribute to our veterans today. As you see by now, we are delaying the reporting of your financial third quarter results due primarily to the implementation of our new ERP system. We have chosen to still host a call today as we want to give you a high level overview of what we believe is a strong quarter for us and we want to walk you through our pro forma financials post the Superior divestiture. The key takeaways for you today by that we believe we are moving closer to our vision as we execute our business plan this year and then we are pleased to see our transformation and momentum picking up steam. As Joe noted we have two presentations to talk you through. So let's start with the one focused on the third quarter review and please turn to slide 3. As many of you know, we have been in the process of implementing a new ERP system over the last year. We chose to delay the final stages of that implementation until we surpass the seasonal busy summer months and that's when we went live on September 1. As many of you have seen with other companies, this kind of significant change no matter how well you plan, always have some element of learning as you go. Further compounding the implementation with two onetime events as we simultaneously closed on the Superior refinery divestiture which officially closed this week, and we also navigated the multi-week impact of hurricane Harvey. While we are disappointed that the implementation of this system has delayed the formal filing of our third quarter results, we felt it was prudent to take extra care to complete our financials and allow our auditors time to complete the review. Our team has been working diligently with our implementation partner to ensure the accuracy of our reported results as quickly as possible. Let's take a step back and review the importance of this new system to our organization and its potential benefits. Before most of my team and I joined Calumet, the company's businesses operated and were run independently. So this new ERP system will change that as we bring all of your assets and various business processes onto a more efficient system. This new system will allow for real time reporting which will help us drive business improvements that were not available to us in the past. We have talked about the importance of our self-help program for nearly two years now. And this new tool will enable new categories of self-help as it will allow for opportunities to improve sales and products mix. Further, it will provide a platform to optimize two of our larger expense categories in transportation and procurement. We are looking forward to completing the first closing of system after which we believe we will [tepid] from implementation of the system to optimization. Slide 4 offers a high level review of our top-line and liquidity expectations for the third quarter. Big picture, we expect very solid performance during the period including another quarter of over $1 billion in revenue despite some of the obstacles that emerged relating to the storms and as a result of our ongoing ERP implementation. These strong results helped us increase our available liquidity to over $400 million, which does not take into account the $492 million we received from the close of this Superior divestiture two days ago. And our results are expected to include another $12 million in additional self-help that our teams identified and captured during the period as well. I will turn the call over to our CFO, West Griffin who will take us through a few more qualitative details on our expected third quarter performance across our segments. West?

Thanks Tim. Let’s provide some further color on our third quarter segment expectations. As a reminder the second quarter fundamentals were strong with a number of our specialty products, categories experiencing some general tightness in supply driven by industry outages. That tightness continued through the first two months of the third period and as a result we do expect to see improved year-over-year performance when we finalize our segment performance. However, as you all know, a large portion of the petrochemicals supply chain runs through Houston and hurricane Harvey caused significant disruption to the supply chain throughout the month of September. While our specialty facilities didn't have any damage as a result of the storm we did have properly one week of downtime at both our Dickenson and Royal Purple plants as our employees attended some of their personal needs and the Dickenson team worked tirelessly to protect it from water damage. I especially want to recognize the dedication and commitment of our staff at our Dickenson facility, who stayed at the plant to protect it from flooding in spite a wide spread flooding in the town of Dickenson and in the case of three employees the flooding of their homes. Further, some shipments were delayed as a result of this flight change disruptions in our EPR implementation. The good news is that we got back to normal shipping rates by October. And we are currently working off the backlog that resulted. In terms of our product developments, we received final certification for all group three formulations initiated first sales during the third quarter. Additionally, we completed our final formulations on our new transform oil that's focused on the international market and it will began to ship in the fourth quarter. As it relates to new product, our caution at volumes will traditionally start out low and build overtime. We remain encouraged by the feedback of our sales and marketing team that are providing us and we expect all of them to be meaningful contributors to our future financial performance as they begin to scale throughout the next few years. Lastly, we made solid progress on our expansion plans for both Royal Purple and TruFuel and expect those to come online during the fourth quarter to meet our strong demand. Slide 6 provides an overview of what was a very strong performance in our fuel product segment. Higher cracks spread and ongoing improvements in our operations should lead to a significant year-over-year improvement. This was supported by 32% increase in our two long run gulf coast benchmark. We spiked in September with the storms that hit the gulf coast region. Our refineries ran well and experienced minimal downtime. At San Antonio specifically, we took a short two day precautionary outage during the storms but headed back online quickly. As a result both Shreveport and San Antonio were very active and help support some of the gasoline shortages throughout the Texas. We also exported diesel for the first time in our history to Mexico and had our second quarter in a row of record premium gasoline sales. Our asphalt sales came in line with our expectations and we grew seasonal inventories as planned an increased liquidity as a result. Lastly, we completed the sales of the Superior refinery and we will talk more about that later in the call. Slide 7 provides the summary of the performance of our oilfield services segment which we believe delivered one of the strongest quarterly performances in almost three years. These results were supported by much healthier environment and ongoing improvements in breakouts which were up 97% year-over-year and 6% on average sequentially. We expect that this will be the second quarter in a row that oilfield service will deliver positive adjusted EBITDA which demonstrates that the hard work that our team did to increase our efficiencies and reduce our cost structure. Slide 8 provides an update on our self-help program. We began this program in the early 2016 and then focuses on driving operational excellence throughout our business in complementing that with our organic growth opportunities. As Tim mentioned, we grew an additional $12 million in incremental EBITDA through the program during the third quarter primarily through numerous margin enhancement programs. Year-to-date, our self-help efforts have resulted in roughly $44 million of incremental EBITDA and we remain on pace to achieve 2017's goal of $50 million to $60 million. Slide 9, provides an update on our capital spending plans for 2017 and offers some initial guidance on our 2018 expectations. We've lowered and narrowed our 2017 CapEx forecast from an original plan of $110 million to a $130 million to $85 million to $95 million. And despite having some plan turnaround in maintenance activity in 2018, we expect to keep our capital spending fairly flat to down year-over-year. And faster providing and outlook of $80 million to $90 million in CapEx for fiscal 2018. These reductions reflect the sale is Superior which had significant CapEx planned during the fourth quarter and in 2018 as well as other cost containment initiatives. Now, with that I'll turn it back to Tim to talk us through a few fourth quarter talks. Tim?

Thanks, West. Please turn to Slide 10 for our fourth quarter outlook. And as a reminder, the fourth quarter is usually a seasonally slower one for all of our businesses. In terms of the specialty products business, base oil supply remains somewhat tight and we are continuing to work through the backlog that West discussed. In response to higher crude prices, we also have taken price adjustments in the fourth quarter across a number of our product categories such as solvents, base oils and our branded and packaged products. Additionally, our new products have start to have some modest contribution in the fourth quarter and will continue to implement our self-help initiatives all of which should help offset some of the typically seasonally weakness we usually see this time of the year. As a result, we also see year-over-year growth in the specialty's business. On the fuels front, we typically see lower volumes and lower local market premium this time of the year. The crack spreads have held up reasonably well through the October month. So, we'd expect a fairly solid fuels environment but we do have some smaller maintenance activity in the fourth quarter. Three fourths work was completed in October while San Antonio has work in process right now. Market conditions for all our Oilfield Services segment remain positive and thus we expect to see continued solid performance and improvement from the group year-over-year. At the corporate level, we will be finalizing the last of the ERP implementation and thus will have higher cost during the fourth quarter. And lastly, we will continue to execute our plans to de-risk the business, enhance our liquidity and lower our debt profile over the long term. That concludes our third quarter remarks. So, I'd like to be following along to open up the second presentation we have provided on our website and will walk you through our review of the go forward Cayman post the divestiture or the Superior refinery. First, let me remind you of the facts and figures on Slide 3 of the transaction. The Superior divestiture closed Wednesday and we received a total consideration of $492 million. That included $435 million for the refinery and its associated storage, terminals and pipeline assets plus an additional $57 million for the plants inventories, networking capital and reimbursement of certain capital spending. I'm pleased to report that Husky agreed to take all the refineries roughly 180 employees. I want to again thank the employees on the Superior refinery for their hardworking commitment to make the refinery a success over the past six years. Slide 4 outlines the five key benefits of the transaction to Cayman. First, the sales Superior is accretive to both this year and next year's cash flows. Note that we were budgeting over $100 million of capital spending at the plant next year and by selling at this time we are able to redeploy that capital into our other businesses. Next, we have a stated goal to reduce our leverage profile and obviously this was a transaction that helped us take a very large step towards that goal. In fact, our net debt to total capitalization falls immediately from 90% to 76%. This deal also decreases our volatility in earnings by shifting our portfolio away from the higher bade of fuels products commodity markets. Our capital intensity decreases because our specialty facilities do not require the same level of turn around and maintenance as do our fuels refineries. We've lowered our 2017 capital spending projection significantly from a $110 million to a $130 million, down to $85 million to $95 million and we've also introduced a 2018 projection that we expect will fall between 2017's will fall below 2017's level despite some expected turnaround activity that I mentioned earlier. Lastly, the sale of Superior decreases our rents exposures by roughly 1/3rd. Cayman's 2017 system wide obligation of a 128 million rents will now fall to approximately 85 million rents in 2018, prior to any mitigation strategies such as blending. We estimate that ethanol and biodiesel blending will still allow us to offset roughly half of the 85 million rents obligation. To sum up, this was a strategic deal and this transaction moves us closer to our vision. Slide 5, provides a reminder of the vision that been referencing all year, which has focused on becoming the premier specialty petroleum products company. Our vision is supported by three fundamental strategies represented as layers in the pyramid. The first layer, operations excellence forms the foundation of our approach and has been a quarter wide mission to reduce unnecessary costs, optimize raw materials and enhance margins across the portfolio. We've already discussed the success of these efforts represented by the self-help report card we showed you earlier. But I think it's critical to understand there our self-help program will not just be a three year exercise, it will be a part of our culture as we look to drive continuous improvement in all of our businesses. The second layer of the pyramid is opportunistic growth projects. This has been a primary focus in 2017 as we look to capture opportunities with one to two year payouts with low capital investment requirements. For example, as we talked about earlier, we leveraged our proprietary technology to introduce our new group three lubricant product as well as our new transformer oil. In our expansion projects for our high margin, Royal Purple and TruFuel brands should contribute significantly to future growth. Lastly, the sale of Superior, has now moved us into the top of the pyramid where we undertake strategic M&A to optimize our portfolio. I'm going to pass the call onto Bruce Fleming who heads our strategic and growth group to talk a little bit more about this third level of Calumet strategy. Bruce?

Yes thanks, Tim. And good morning everyone. For those of you haven’t met personally, I'm Bruce Fleming, I'm Calumet's head of strategy and growth where my team is accountable for strategic M&A. as it appears on the slide, that's intended to focus the portfolio and higher returns mid to specialty markets where we are competitively advantaged. That's the milestone. Let's talk about what that means and why you should care. And move to Slide 6, which provides a broad sense of our product profile and our various product margin premiums against WTI crude price. The sale of the Superior refinery reduces Calumet's exposure to the lower left quadrant where you see the low margin commoditized products like asphalt, gasoline, and jet fuel. These commoditized products are low margin because customer behavior is price driven leading the industry competition based on cost. Reducing our exposure here means of course that our remaining portfolio is more heavily weighted up the value stream to higher margin. As we move up the value stream, industry competition changes from price driven competition to quality driven and finally the brand driven competition. At each step, our margin potential increases. So, the sale of Superior, allowed us to make a significant change in portfolio weighting to a higher returns specialty markets. Next slide measures the impact of this set change. On Slide 7, the two pie charts show that on the basis of gross margin, our specialty products contribution increases. It was 57% of our former business and jumps to 69% of our go forward business. This shift to the higher margin products also brings an important improvement to earnings volatility. The lower figure is a normal distribution curve showing historical Calumet's EBITDA volatility. The specialty products volatility shown as the blue line and it's much less volatile than our fuels refining business shown as the yellow line. So, in summary, the Superior sale should serve for approval towards specialty products earnings that are less volatile as well as being higher margin. So, what does that set Calumet up for? Slide 8, provides the strategic M&A principles for Calumet. Want to spend a minute on what this means so that what to expect from us going forward. We already covered the first point which is stability, stable cash flows are more highly valued. And so, our actions will include rotating portfolio holdings to improve quality of earnings. Second point addresses the sustainability of cash flows. Sustainability means making sure that our individual assets are competitive over the long term. For each individual asset, we create and maintain disciplines competitive strategies including industry structure and outlook. We review strategies with our board of directors as part of allocating capital budget resources and recommending portfolio adjustments. Third, as Tim mentioned reducing capital requirements reduces the drag on stockholders equity. We explain how this works using the example of our Superior divestment and moving our portfolio toward lower capital intensity. Separately though and on the same point of capital, we have also instituted the Calumet's classical stage and engage approval process for internal capital projects. This discipline has contributed historically lower levels of organic CapEx with better returns in those investments. And last, on Slide 8, perhaps to achieve we've all been waiting for, let's talk about standalone growth for M&A. and including what it is and what it is not. The purpose of Calumet's merger and acquisition activities is to drive unit holder value starting with our existing portfolio of businesses. Growth can take to foremost small acquisitions that provide simple tactical fill-ins along our existing value chains. This could be very attractive in generating this proportionate synergy value and we will look favorably on this type of acquisition. More conventional M&A activity involves the search for new platforms capable of sustaining our individual businesses for the long run. This becomes a possibility as we continue the resets of our capital structure and especially our leverage profile. So, let me leave you with the footer on this slide which is the divestment and actually facilitate growth in stockholders’ equity. The right investment executed at the right time and at the right value can provide portfolio reweighting which grows equity value consistent with Calumet's long term vision. And let's continue to use the sale of Superior to prove the point. The next slide, Slide 9, shows how our leverage profile has changed as a result of closing this transaction. As you can see on the far right, our net debt to total capital makes a step change improvement to levels we haven’t seen since late 2015. This is a much more comfortable position for Calumet's capital structure. With that, I'd like to ask our CFO, West Griffin, to take you through the proforma benefits of the Superior divestment in more detail. West?

Thanks, Bruce. Slide 10, shows our debt maturity schedule and as you can see we retain significant flexibility as all of our debt has three plus years until maturity. The great part about the Superior transaction is that's going to allow us to eliminate our secured notes. They carry the highest interest rates that near strong maturity and have the most restrictive financial covenants. We should be in a position to call these notes after the falling of our 10Q. Slide 11, shows the specific impact of removing Superior from our first half 2017 results. It's worth noting the SG&A savings from the divestiture are roughly 1.6 million. But these are only the immediate cost reduction we realize from the sale, while we are still providing transition services to the buyer. Whilst the services are completed, we should be able to realize further SG&A reductions. In looking at the balance sheet highlights as Tim and Bruce both talked about, the divestiture lower is the capital intensity of the business and thus you see the sizeable reduction in our inventories in property plan equipment. Lastly, you can see that the operating income is reduced by $64 million through the first half of the year. It's been our historical policy to not talk about the financial performance of our individual assets. But we understand that this is the unique situation. So to guide you on how you can better reconcile that operating income charge against our historical adjusted EBITDA, you need to make two adjustments. First, as the footnote indicates the $64 million operating income for Superior includes a 37 million rent credit for the Superior facility that was included in the second quarter. Remember that is 37 million rents not dollars. So you need to make an assumption to reconcile that to dollars and then subtract that from the total. Then you can estimate the go-forward depreciation add-back by assuming a 20-year straight line depreciation on a property plant equipment. Slide 12 summarizes the few historical metrics that we have guided on in the past and offers a new outlook on each of them going forward. Tim already talked about the reduction in both our rent obligation and in our capital spending forecast that results from the exclusion of Superior from our portfolio. Historically, we provide a short term 40,000 to 45,000 barrel a day target for our use at heavy Canadian crew. The next elements of that advantage crew strategy we are primarily focused on Superior and thus our go-forward target has been reduced to 25,000 barrels per day which is what our Great Falls Montana refinery can run when conditions are optimal. Lastly, in terms of our self-help program, Superior had only contributed roughly $3 million to your cumulative total of $133 million in self-help achieved since the start of 2016. Thus we are maintaining our guidance of 50 million to 60 million in self-help for all of 2017. Looking forward Superior was a component with the total 150 million to 200 million three year goal but we are still maintaining that goal as we believe we can make up our losses to Superior with new self-help programs. Over the fourth quarter we plan to analyze our 2018 expectations in more detail and will provide our formal update on those in our fourth quarter earnings call. With that I will hand the call back to Tim for his closing remarks. Tim?

Thanks West and thanks Bruce. I’ll end on slide 13, I’d like to close simply by saying that we are excited about our future. We are still in the middle of our transformation but we are starting to move out of the first and second inning through this very important step of divesting Superior. Our team remains energized to continue to evolve and grow our businesses. The steps we have taken to fortify the foundation of the business and the patience that we have shown to make the right value creating decisions have provided us with the optionality we needed to make real long lasting change. The new Calumet is starting to come into view as we continue to build and enhance our focus around becoming the premier specialty company in the world. We look forward to the next steps on journey and we want to thank all of you for your support through this process. With that operator we will open the lines for questions.

Thank you. [Operator Instruction] Our first question comes from the line of Sean Sneeden with Guggenheim Partners. Your line is now open.

Hi, thanks for taking the questions. I guess Tim, maybe for you just kind of bigger picture you first kind of talked a little bit about this in prepared comments but just when you look at I guess strategically where you are going and you kind of highlight a lof of it, the rationale behind the Superior sale, should we really be thinking about a lot of those comments applying generally speaking to the rest of the refinery business as you kind of highlight, but stability of cash flow and which is more tied to your specialty business?

Yes Sean, this is Tim. Let me try to answer that and then Bruce wants to chime in and give him an opportunity as well. We have talked about this over the last really two years and nothing has changed from the way we are approaching this business. We do want to be the premier specialty controlling this product company in the world. We do want to stabilize the cash flows. We do have a plan and as I mentioned earlier to get to that position but we don't put a timeframe on ourselves to say we have to do this in a certain time period. And that's the patience and the discipline that we talked about it little bit a few minutes ago because again our process has been to develop our five year plans for all of our facilities. We are very excited about the plans that the rest of our fuel refineries are put together and we see some real opportunities then we can go after and we see some real value that makes up our overall five year plan. So by no means do we feel like our fuels and our oil services businesses aren't contributing to bottom-line and we are very excited about the future that it holds. But Superior is the best example of what will happen. We had great plans for Superior with the flexibility project, with the idea that continue to have the up at that site and continue to grow the profitability. But in this case Husky had portfolio that valued even more than we did and so we were able to make a transaction that benefited both of us and allowed us to move closer to our vision and I presume Husky closer to theirs. So those are the kind of things that we are going to be looking for Sean. I wouldn't say we have got a timetable or specific time line that we are trying to meet. We are going to continue to drive our base business. And then, as we continue to talk to other interested parties, and believe me Bruce continues to be very active in that area. We will see if we can find a partner like we did with Superior and really like we did with the Dakota Prairie Refining a year ago.

I appreciate those comments. I think that's helpful Tim. Maybe just couple on maybe for West on the Superior sale, I just want to make sure that I am kind of understanding what the cash EBITDA impact is. So you highlighted your $64 million of operating income in the first half and if you adjust that for RINs, you probably get context of rough kind of like a 45 million of EBITDA. Can you give us a sense of what I guess second half of 16 would look like from that facility just so we kind of get a true apples-to-apples comparison in a kind of go-forward plan of how we should think about it?

So let me kind of give you what the math for you in little more detail. You start off with about 64 million of operating income for the first half 2017, you got a back of mouth for the $37 million rents, so make your own assumptions on that but call it $30ish million. So you end up with 34 and then you have to annualized that maybe just multiply by two or some, make your own assumptions on it 68 and then you back off assuming 20 year life of PP&E of roughly 200 million so you come with 10nish so that gives you about 78. You do similar sort of math on the full year 2016, you start off with 53 within the avenue rents exemptions that year, so you just add your assumption of DDNA call it 10nish so the similar around 63ish. But you need to make your own assumptions on that but that kind of gives you sense of Calumet does of kind of how you get there.

Okay. That is helpful and I guess when you look at that versus kind of the rest of the fuels EBITDA is reported, I think was roughly call it 70 million in the first half. Does that kind of imply that the Montana and San Antonio are substantially less than kind of the math you outlined there and how should we kind of think about like the EBITDA contribution from those facilities?

Yes, one of the things that you are not picking up there is obviously there is a fair bit of SG&A so we are not -- as we highlighted in the during the call we have just $1.5 million of SG&A that immediately goes away and then we’re going to have significantly more that will go away once we finish the transition services at Husky. So you are kind of combining that – you are kind of looking at apples to oranges there when you compare the total fuels to what just happened at that level.

Yes Sean, let me add in Sean I think West is right to make sure you consider the overhead allocation but have to go across that as well. But let me also remind you this pro forma is based on the first half of 2017 and if you look back at the cracks during the first half of the year, they were significantly lower than they are today. The other thing that I would point to is remember that WCF, WTI spread narrowed significantly in the first half of the year with this improved problems and so that contributed quite a bit to lower margins at say the Montana refinery. So I think when you look at today's environment where cracks are much stronger and WCF, WTI differentials are back to where we would consider to be more normal ranges. I think you will see a stronger sales performance.

Okay that’s helpful and I appreciate those comments. Maybe just two quick ones if you can, just on the, I know you guys are kind of working through like the ERP issues but West, I just want to clarify on specialty performance in the third quarter. Should we be thinking, I know you think kind of year-over-year improvement but should we think about kind of gross profit per barrels kind of similar in nature to what you saw in Q2 or how should we kind of think about that?

Yes, I can jump in Sean. We saw a nice improvement in our specialty margin in the second quarter. We talked about that last call. Since then crude prices have risen call it five bucks or so versus what we had in the second quarter. So I think you can kind of assume that that's going to eat into your specialty margins. Otherwise we continue to see tightness in the base all market in fact we think that with some of the outages that occurred during the hurricane Harvey event that continue to keep the base all market tighter than what folks were forecasting for the second half of the year. So we feel pretty good about specialty margins going forward and as I mentioned earlier with the price of crude increasing we have actually push through some price adjustments as well in our business. So we feel pretty good about that.

Okay. That's helpful. And then just West, I know you said that you are planning to call the 11.5 post file of the 10(NYSE:K) I just want to be clear are you guys using makeover redemption just because the I think bonds are called bond until April next year?

Yes. No that's a great question. We have looked at it very carefully in the bonds where the trend today is, they are wide at sort of the makeover call rise so that's correct and we are kind of looking at it and we have looked run of bunch of different scenarios on it but basically where the trading you might as well call it the makeover price. The savings calling today versus calling on in April is almost, it really is almost negligible especially since we have got the proceeds investments and treasuries right now ending the call. Right now as we are really focused on getting the 10(Q) filed and getting that done and so that's our primary focus right now but once it's done we will start focusing on the secured notes.

Yes and Sean, I will just chime into I mean, West and his team have been looking at all the options of what we should do with the proceeds. They have been talking to many experts and trying to get different opinions on different things and when we have concluded is the best thing for Calumet the best thing for our shareholders is just to go ahead and in call at the make hold price. It's about the same as waiting for the April 15 call and so that's what we are going to do.

Our next question comes from the line of Michael Gyure with Janney Montgomery Scott. Your line is now open.

Yes. On the forward capital guidance that you gave for 2018 is I guess what's the assumption there in the specialty business versus U.S. field services versus kind of where is most of the capital being allocated for next year?

Mike, this is West, the spending on maintenance and turnarounds in the plans tends to yield about half or 60% of the growth we have got that tilt it towards specialties.

Okay. And then on the –

Hey Mike I would just tell you we are probably 60-30 specialties.

Okay and up into oilfield services?

That's right. That tends to be cash on cash business as opposed to capital.

Okay. And then on the divestiture transaction, I assume there is no tax ramification for this transaction?

That's right and we have looked at whole range of different scenarios and looking at it from the standpoint of all our unit holders and we believe there is always uncertainties associated with it but we believe that we can manage the tax liabilities such that there should be relatively minimal of heavy taxes by any of the unit holders.

Great. Thanks very much.

And we have time for one more question. Last question comes from the line of Greg Brody with Bank of America Merrill Lynch. Your line is now open.

Okay guys. Thanks for the comprehensive updates. It's very helpful. I have two question sort of bigger picture. The first one being in terms of reinstating distribution there and within that remaining in NLT versus, how are you thinking about that today and then the second question is given the outcome of the finance sale of the Superior which is obviously very good is that a new way of thinking how you are thinking about oilfield services business just and what I mean by that is in the past you have said that something you might considered divesting. I am curious how strategic that is too?

Yes. Let me take a shot at that and then Bruce and West can chime in. let me take your first question on distributions. When I was on the call two years ago and cut the distribution, I said that I was committed and Calumet is still committed to restoring the distribution. I will tell you though that I am even more committed to fixing our balance sheet and getting our leverage back into a reasonable target range. And so, I would tell you at this point our leverage is still too high and we are focused on getting our leverage down. Couple of years ago, we originally said hey 4.0 was a good leverage target and we thought it fit our portfolio. I think when we look that now we probably say that was probably too high given the volatility in our fuels and oilfield services segment. I would say going forward we haven't put out yet what our new number targets would be, but I can tell you it's going to be less than 4.0. And so as we continue to work through that that becomes a higher priority for us to get to before we resume the distribution. But I would also tell you that the removal of the secured notes is the first and the covenants associated with it is the first step towards getting back into position where we can restore the distribution. In terms of asset divestitures I will let Bruce chime in.

Greg, I guess I will give our stock answer we are going to be good stewards of unit holders capital. We are going to be very disciplined in having outlook for each of our asset values and whenever we come across the counter party it replaces a higher value. We are neutral, we’re not going to point to something and say we would never do this. We would never do that. So the question on oilfield services and whether it's strategic is at a portfolio level we will be value conscious and if there is an opportunity we will be appropriately responsive to that.

If I ask the follow-up to that I guess as you think about the synergy target that you have this year and the larger one how important is reducing cost at oilfield services to hitting that target?

Yes, I would tell you that it's not critical in that self-help target Greg, as there are also services we have talked about they have their first positive EBITDA quarter last quarter probably in whatever was 10 months or so. And this quarter we said earlier that they are going to have another positive quarter and that can be their best quarter in almost three years. As they continue to recover they are going to continue to be their activity in order to continue to grow their EBITDA. So their cost are going to go up in line with their revenue and their growth and so we are not looking to cut cost anymore in that sector instead we are looking to grow that sector. So they are not going to be contributing to that overall self-help goal that we have been talking about.

And this is just in terms of how the business turning this quarter, some of the comments we are hearing from other oilfield service providers is that fourth quarter is holding up well that doesn't necessarily accelerating most folks are looking towards next year for that fair field position?

I think that's fair Greg, I mean fourth quarter has always been the slowest quarter in oilfield services sector. I don't think anyone anticipating anything different. I will say October looked fairly strong like you pointed out and I think folks are seeing some good activity continuing especially as crude prices are continuing to decline. And so the outlook for this quarter is reasonably optimistic given the fact that it's typically a slow quarter.

Great. Thank you for the time guys.

And that concludes today's question-and-answer session. I would like to turn the call back to Tim Go for any closing remark.

Well thank you again guys for your time today and your continued support. We look forward to reporting the third quarter results as soon as possible and we will continue to execute against our plans with a strong sense of urgency and purpose. Have a great day.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.