OREANDA-NEWS. Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) (the "Partnership," "Calumet," "we," "our" or "us"), a leading independent producer of specialty hydrocarbon and fuel products, today reported  results for the quarter ended March 31, 2016, as follows:

 

Three Months Ended March 31,
 

2016

  

2015
 

(Dollars in millions, except per unit data)

Net income (loss)

$

(67.7)

  

$

23.8

Limited partners' interest basic and diluted net income (loss) per unit

$

(0.87)

  

$

0.27

Adjusted EBITDA

$

6.6

  

$

124.9

Distributable Cash Flow

$

(25.1)

  

$

98.6

The Partnership's results for the first quarter 2016 include one special item related to a favorable lower of cost or market ("LCM") inventory adjustment of $9.5 million. For a summary of results excluding the special item for all periods, please see the section of this release entitled "Summary Financial Results Excluding Special Item."

Management Commentary

"During the first quarter 2016, continued stability in our core specialty products segment was more than offset by a material year-over-year decline in our fuel products segment gross profit, due mainly to weaker refining economics in the regional markets we serve, resulting in a consolidated net loss in the period," stated Tim Go, CEO of Calumet.

"Looking ahead to the second quarter 2016, benchmark crack spreads in April improved versus first quarter levels, an early indication of improved market conditions in our fuel products segment," continued Go. "With asphalt paving and roofing season commencing in May, we expect to sell significant volumes of heavy residual products to our customers during the second and third quarters of 2016, thereby reducing existing inventories that built during the asphalt 'winter fill' season."

"Beginning in the second quarter 2016, the Partnership expects to realize incremental benefits resulting from our ongoing operations excellence and 'self-help' initiatives," continued Go. "These initiatives include ongoing efforts to further optimize our feedstock slate, reduce transportation costs, centralize corporate procurement, reduce discretionary spending, enhance product yields and improve asset optimization."

"Our Montana refinery is currently operating at project capacity, following the recent conclusion of a multi-year expansion project, and is expected to benefit from an advantaged feedstock slate that is comprised entirely of heavy Canadian crude oil, which currently trades at a more than $10 per barrel discount to West Texas Intermediate crude oil," noted Go.

"We have taken decisive action to reposition the Partnership for long-term growth," continued Go. "Since January 2016, we have completed a $400 million senior secured notes offering and our Board of Directors voted to suspend the quarterly cash distribution, which together bolster our liquidity and serve as part of a broader effort to strengthen our balance sheet during a challenging period in our fuels refining business. In addition, we have added senior energy industry executives to both our leadership team and Board of Directors, to help us navigate through these challenging times."

"We are committed to owning and operating a portfolio of assets and product lines that carry sustainable competitive advantages," stated Go. "We believe every asset in our portfolio must be financially self-reliant to remain part of this long-term portfolio. To that end, we have initiated a comprehensive review of our existing assets that will clearly identify the long-term opportunities, risks and anticipated returns associated with each of our assets, a process which will assist our leadership team in high-grading the portfolio to achieve consistent, profitable growth."

"As we look ahead to the remainder of the year, we expect to significantly improve free cash flow over the course of 2016, given expectations for a meaningful year-over-year decline in capital spending, favorable seasonal demand, contributions from our operations excellence initiatives and the suspension of the quarterly cash distribution," concluded Go.

Specialty Products Segment Results

 

Three Months Ended March 31,
 

2016

  

2015
 

(Dollars in millions, except per barrel data)

Specialty products segment gross profit

$

99.3

  

$

104.5

Specialty products segment gross profit, excluding special item

$

92.5

  

$

123.1

Specialty products segment Adjusted EBITDA

$

58.5

  

$

65.9

Specialty products segment Adjusted EBITDA, excluding special item

$

51.6

  

$

84.1
 

Specialty products segment gross profit per barrel

$

42.08

  

$

44.51

Specialty products segment gross profit per barrel, excluding special item

$

39.19

  

$

52.43

During the first quarter 2016, sales volume of lubricating oils, white oils and packaged and synthetic products all increased above year ago levels, while sales volumes of solvents and waxes both declined on a year-over-year basis in the period. On a product margin basis, we benefited from a year-over-year increase in white oils, waxes and packaged and synthetic products margins in the first quarter 2016, while lubricating oils and solvents margins declined on a year-over-year basis in the period.

Fuel Products Segment Results

 

Three Months Ended March 31,
 

2016

  

2015
 

(Dollars in millions, except per barrel data)

Fuel products segment gross profit (loss)

$

(19.0)

  

$

63.9

Fuel products segment gross profit (loss), excluding special item

$

(19.9)

  

$

58.5

Fuel products segment Adjusted EBITDA

$

(46.0)

  

$

63.1

Fuel products segment Adjusted EBITDA, excluding special item

$

(48.2)

  

$

53.0
 

Fuel products segment gross profit (loss) per barrel (including hedging activities)

$

(2.12)

  

$

7.45

Fuel products segment gross profit (loss) per barrel (excluding hedging activities)

$

(2.43)

  

$

7.60

Fuel products segment gross profit (loss) per barrel (including hedging activities),
 excluding special item

$

(2.22)

  

$

6.82

Fuel products segment gross profit (loss) per barrel (excluding hedging activities),
 excluding special item

$

(2.53)

  

$

6.97

During the first quarter 2016, a more than 45% quarter-over-quarter decline in the benchmark Gulf Coast 2/1/1 crack spread, less favorable realized product margins on motor fuels product sold in local markets, a narrowing in crude oil price differentials, and higher Renewable Fuel Standard ("RFS") compliance costs all contributed to lower results within the fuel products segment, when compared to the prior year period. Sales volumes of gasoline, diesel and jet fuel all declined in the first quarter 2016, when compared to the prior year period. Asphalt production increased to 17,798 barrels per day ("bpd") in the first quarter 2016, an increase from 14,812 bpd in the first quarter 2015, as we increased overall feedstock runs across our refining system.

Oilfield Services Segment Results

 

Three Months Ended March 31,
 

2016

  

2015
 

(Dollars in millions)

Oilfield services segment gross profit

$

5.9

  

$

26.8

Oilfield services segment gross profit, excluding special item

$

5.5

  

$

26.8

Oilfield services segment Adjusted EBITDA

$

(5.9)

  

$

(4.1)

Oilfield services segment Adjusted EBITDA, excluding special item

$

(6.3)

  

$

(4.1)

The average price of NYMEX West Texas Intermediate crude oil declined by more than 30% in the first quarter 2016 when compared to the first quarter 2015. In response to lower crude oil prices, domestic oilfield services activity declined sharply during the past year, as the U.S. land rig count declined more than 60% on a year-over-year basis. The decline in drilling and completion activity had a material adverse impact on our oilfield services segment throughout 2015, a trend which continued into the first quarter 2016.

In response to these market conditions, we took steps to significantly reduce costs in the segment during the first quarter 2016, efforts that included capturing increased supply chain efficiencies in addition to a series of targeted workforce reductions that better position the segment relative to the needs of existing customers. While the oilfield services segment remains challenged in a lower commodity price environment, we continue to position the business for cash flow neutrality, given the current challenges evident in the sector.

Partnership Liquidity

On a pro forma basis as of March 31, 2016, giving effect to the net proceeds from the recently completed $400 million offering of senior secured notes due 2021, the Partnership had availability under its revolving credit facility of $396.2 million, based on a $459.7 million borrowing base, $63.5 million in outstanding standby letters of credit and no outstanding borrowings. In addition, the Partnership would have had $95.6 million of cash on hand as of March 31, 2016, on a pro forma basis. The Partnership believes it will continue to have sufficient liquidity from cash on hand, cash flow from operations, borrowing capacity and other means by which to meet its financial commitments, debt service obligations, contingencies and anticipated capital expenditures.

Financial Guidance

Full-year 2016 Capital Spending Forecast. For the full year 2016, the Partnership anticipates total capital expenditures between $125.0 million and $150.0 million. Anticipated 2016 capital spending include (1) $60.0 million to $70.0 million for capital improvement expenditures; (2) $50.0 million to $60.0 million for replacement and environmental expenditures; (3) $5.0 million to $10.0 million for turnaround related expenditures and (4) $10.0 million for joint venture contributions. During the first quarter 2016, total capital spending was $46.9 million, versus $110.4 million in the first quarter 2015.

Full-Year 2016 RFS Compliance Impact Forecast. In conjunction with the Partnership's ongoing compliance with the RFS, Calumet expects to purchase blending credits referred to as Renewable Identification Numbers ("RINs"). The Partnership records its outstanding RINs obligation as a balance sheet liability. This liability is marked-to-market on a quarterly basis to reflect the market price of RINs on the last day of each quarter. The Partnership expects its gross estimated annual RINs obligation, which includes RINs that are required to be secured through either blending or through the purchase of RINs in the open market, will be up to 120 million RINs for the full-year 2016, excluding the potential for any subsequent hardship waivers that may or may not be granted by the U.S. Environmental Protection Agency ("EPA") to any of the Partnership's fuel refineries at a later time.

Strategic Update

Feedstock Optimization. During the first quarter 2016, the Partnership processed an average of approximately 31,900 bpd of heavy Canadian crude oil, versus 22,300 bpd in the fourth quarter 2015. Calumet continues to believe a structurally wide Western Canadian Select ("WCS")-WTI crude oil price differential remains a significant competitive advantage to the overall performance of its fuel products segment, given current market conditions. During 2016, the Partnership intends to significantly increase the volumes of WCS price-linked crude oil processed at its fuels refineries to further capitalize on this advantage.

Liquidity Enhancement. On April 20, 2016, the Partnership closed on a private placement offering of $400 million in aggregate principal amount of 11.5% senior secured notes due 2021. The Partnership used a significant portion of the net proceeds from this private placement to repay borrowings outstanding under its revolving credit facility and intends to use the remainder for general partnership purposes.

Suspension of Distribution. On April 15, 2016, the Partnership announced that its board of directors had voted to suspend the quarterly cash distribution to unitholders for the quarter ended March 31, 2016.  The Partnership's board of directors and management believe the suspension to be in the best long-term interest of all stakeholders.  The board of directors will continue to evaluate the Partnership's ability to reinstate the distribution in due course, taking into account a number of factors, including our liquidity requirements, the relative health of cash flows from operations, balance sheet leverage, broader market conditions and the overall performance of our business.

Operations Excellence. The Partnership continues to make progress on a series of "self-help" initiatives, including those that seek to significantly reduce transportation and logistics expenses, reduce procurement costs and discretionary expenses throughout the organization.

Operations Summary

The following table sets forth information about our combined operations, excluding the results of the oilfield services segment. Facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks such as ethanol and biodiesel and the resale of crude oil in our fuel products segment.

 

Three Months Ended March 31,
 

2016

  

2015
 

(bpd)

Total sales volume (1)

124,440

  

121,444

Total feedstock runs (2)

128,385

  

120,861

Facility production: (3)

  

Specialty products:

  

Lubricating oils

13,854

  

12,090

Solvents

7,352

  

9,879

Waxes

1,335

  

1,707

Packaged and synthetic specialty products (4)

2,125

  

1,491

Other

908

  

912

Total

25,574

  

26,079
   

Fuel products:

  

Gasoline

38,043

  

37,688

Diesel

30,347

  

30,223

Jet fuel

5,676

  

5,052

Asphalt, heavy fuel oils and other

28,240

  

21,978

Total

102,306

  

94,941

Total facility production (3)

127,880

  

121,020
       
         
 

(1) Total sales volume includes sales from the production at our facilities and certain third-party facilities pursuant to supply and/or
      processing agreements, sales of inventories and the resale of crude oil to third party customers. Total sales volume includes the sale
      of purchased fuel product blendstocks, such as ethanol and biodiesel, as components of finished fuel products in our fuel products
      segment sales.
 

      The increase in total sales volume for the three months ended March 31, 2016, compared to the same period in 2015 is due primarily
      to increased sales volume of lubricating oils and asphalt and other fuel products, partially offset by decreased sales of solvents,
      waxes, gasoline and diesel as a result of market conditions.
 

(2) Total feedstock runs represent the bpd of crude oil and other feedstocks processed at our facilities and at certain third-party facilities
      pursuant to supply and/or processing agreements.
 

     The increase in total feedstock runs for the three months ended March 31, 2016, compared to the same period in 2015 is due
     primarily to increased feedstock runs at the Montana refinery as a result of the expansion project completed in 2016 and improved
     operational reliability, partially offset by decreased feedstock runs related to the production of solvents and waxes as a result of
     market conditions.
 

(3) Total facility production represents the bpd of specialty products and fuel products yielded from processing crude oil and other
      feedstocks at our facilities and at certain third-party facilities pursuant to supply and/or processing agreements. The difference
      between total facility production and total feedstock runs is primarily a result of the time lag between the input of feedstocks and
      production of finished products and volume loss.

 

      The change in total facility production for the three months ended March 31, 2016, compared to the same period in 2015 is due
      primarily to the operational items discussed above in footnote 2 of this table.
 

(4) Represents production of packaged and synthetic specialty products, including the Royal Purple, Bel-Ray, Calumet Packaging and
      Missouri facilities.

Derivatives Summary

The following table summarizes the derivative activity reflected in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2016 and 2015:

 

Three Months Ended March 31,
 

2016

  

2015
 

(In millions)

Derivative gain reflected in sales

$

16.0

  

$

20.2

Derivative loss reflected in cost of sales

(13.9)

  

(21.9)

Derivative gain (loss) reflected in gross profit

$

2.1

  

$

(1.7)
   

Realized gain (loss) on derivative instruments

$

(12.3)

  

$

8.9

Unrealized gain (loss) on derivative instruments

4.6

  

(27.9)

Derivative gain reflected in interest expense

0.1

  

0.2

Total derivative loss reflected in the unaudited condensed consolidated statements of operations

$

(5.5)

  

$

(20.5)

Total gain (loss) on commodity derivative settlements

(12.3)

  

$

13.3

About the Partnership

Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) is a master limited partnership and a leading independent producer of high-quality, specialty hydrocarbon products in North America. Calumet processes crude oil and other feedstocks into customized lubricating oils, solvents and waxes used in consumer, industrial and automotive products; produces fuel products including gasoline, diesel and jet fuel; and provides oilfield services and products to customers throughout the United States. Calumet is based in Indianapolis, Indiana, and has fourteen manufacturing facilities located in northwest Louisiana, northwest Wisconsin, northern Montana, western Pennsylvania, Texas, New Jersey, Oklahoma, eastern Missouri and North Dakota.