Calumet, Inc

Ladies and gentlemen, thank you for standing by. And welcome to the fourth quarter 2020 Calumet Specialty Products Partners Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the start and the one key on your touch-tone telephone. Please be advised that today's conference may be recorded. If you require operator assistance, please press start and zero. I would now like to hand the conference over to your speaker host. Joseph Cominiti, please go ahead.

Thank you, Lydia. Good morning, everyone, and thank you for joining us today for our fourth quarter earnings results call. With us on today's call are Steve Moore, CEO, Todd Borgen, CFO, Bruce Fleming, EVP of Montana Renewables and Corporate Development, Scott Overmeyer, EVP of Specialty Products and Solutions, and Mark Lawn, EVP of Performance Brands. 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 reflecting such forward-looking statements are reasonable, neither the partnership, its general partner, nor our management can provide any assurances 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 filing from 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 in 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 the website at countymetspecialty.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'll pass the call to Steve. Steve?

Thanks, Joe. Good morning, everyone, and thank you for joining us. 2020 was a year characterized by crisis. It was also a year characterized by how the Calumet team responded to that crisis. The market challenge handed to us by the pandemic was unprecedented in the combination of both its severity and its length. We're through the worst, but the average crisis lasts days or weeks, not more than a year. We used our crisis playbook to effectively manage through all the uncertainty and volatility and succeeded in generating positive cash flow, a significant result given the market conditions. I can't thank the Calumet team enough for how they rose to the challenge. At a time when execution and teamwork had to be impeccable, our employees excelled. A particular note is that most of our safety and environmental performance measures improved by an exceptional 30% to 40% year-on-year. To improve performance in this foundational area during a crisis is simply fantastic and further shows how committed our team is to driving excellence of all forms. The cards dealt us by the pandemic meant that our financial results inevitably would disappoint compared to a normal year. And on top of an economic crisis, there was confusion and inaction on renewable policy by the outgoing administration just to make the challenge even more complicated. If you look back to the price performance of both our debt securities and our common units in the spring of 2020, it's clear that the opinion of the financial markets was that this storm was going to overwhelm the industry, and with that, Calumet. The storm did hit. but it didn't materialize into the result that the markets broadly assumed, and we thank our unit holders and bondholders who have showed confidence in us. So far, those who believe in Calumet and our team have been rewarded with outperformance during the recovery. Additionally, with our recent strategic update, we believe we have a path forward to further enhancing unit holder value, and that's a sign that we believe we're really just getting started. Coming back to the pandemic and what it asked of our team, slide three details our three most imperative objectives to address the crisis. The first is that we needed to excel in specialties. We've spent the last couple of years turning our specialties business into something we believe we do really well. And we'll go into more detail later on what we truly mean when we say, quote, doing specialties really well, unquote. However, At the most fundamental level, it means delivering earnings and margin growth during a major economic shock. And our results across the year clearly show we succeeded. Some time back, you may recall, we communicated an aspirational goal of $40 a barrel gross profit margins for our specialties business across an entire year. And in 2020, this goal was met and exceeded. And we believe this performance level is sustainable and repeatable. A critical part of our success is our deliberate strategy to operate with a much more diversified customer base than most of our competitors. And the payoff from this strategy was foundational to our 2020 results and shows how actively managed diversification can help weather macroeconomic volatility. Second, in a crisis, we needed to take decisive and successful actions. A step change down in our cost structure is the longest lasting of our decisive actions. Having said that, our decisions to significantly pay back 2020 capital expenditures, diligently manage the volume margin envelopes in all our businesses, and aggressively hedge our Canadian crude supply show how Calumet can be focused and decisive in the pursuit of our objectives. It bears reminding that at the same time that we were able, as doing this, we were able to maintain focus on our key growth objectives, most particularly through investing in and capturing dramatic growth in our engineered fuels business. The third objective was capital discipline. So for 2020, cash flow positive was the rallying call of our team and our team delivered. Responsible business stewardship includes material planning for stress events, And at Calumet, that planning is a core business practice. You can see that first in how fast we've responded with controllable cost reductions, second in our ability to maintain access to ample liquidity through a very extended crisis, and third in how we creatively and effectively addressed our debt maturities. Executing on all these activities has given us the time and optionality to accomplish our strategic objectives without duress or pressure and allows us to remain focused on creating unit holder value. We executed effectively on our tactical 2020 pandemic objectives, but the new circumstances did indeed slow our progress towards our strategic objectives. It's not easy to de-lever into a market which is trading at cycle lows and incorrectly assumes that there may be blood in the water. So our strategic objectives haven't changed. And as we leave 2020, having preserved cash, having dealt with the maturities, and having proposed a best-in-class renewable diesel future in Montana, we are positioned to make value-creating steps for our unit holders as both our businesses and the economy accelerate. I'm going to hand over to Todd to talk about our results, and we'll then circle back to discuss our business segment changes. I'm really excited to present Calumet consistent with how we actually run Calumet. Simplicity, clarity, and focus are essential to winning, And I believe as you get to know these three distinct businesses better, you will see that each has a clear and winning strategy. Todd.

Thank you, Steve. Let's turn to slide four, where we provide the fourth quarter and four-year highlights. Calumet reported adjusted EBITDA for the quarter of negative $8.6 million. Similar to the rest of 2020, the specialty segment performed exceptionally well, generating $61.4 million of adjusted EBITDA in the quarter. while the fuel segment lost $57.9 million of adjusted EBITDA. Of note, the largest driver of this fuel loss in the fourth quarter was $52.9 million of non-cash rent expense. For the full year, Calumet generated $141.5 million of adjusted EBITDA, including the Corporate Cost Center. The specialty segment delivered $238 million of adjusted EBITDA, which was up more than 14% from 2019, despite the challenges of the past year. As you know, back in the second quarter, we at Calumet shifted our entire focus to avoiding cash burn amidst the pandemic. In 2020, we generated $62.8 million of cash flow from operations and $18.8 million of free cash flow. We recently completed a $70 million sale leaseback financing transaction involving our fuels terminaling assets at our Shreveport plant, and proceeds will be used to pay down 2022 notes. Earlier in the year, we extended the maturity date on 200 million of 22 notes to 2024. These creative financing solutions allow us to manage our debt maturities comfortably, and we can remain focused on our more material strategic priorities as we are well-positioned to create value. To further quantify the key drivers of 2020, let's turn to slide five. I don't think anyone needs reminded of how challenging 2020 was to all fuels producers. Fuel margins were $93 million worse in 2020, and RINs costs were $117 million higher than in 2019. Remember, RINs have not historically been a cash expense for Calumet. These two non-controllable items accounted for $210 million of the decrease in adjusted EBITDA versus the prior year. Helping offset the fuels market was a $23 million improvement in specialty margins and transportation costs, as well as a $78 million improvement in our cost structure. It was these items that allowed us to generate cash this past year. We expect this more efficient cost structure to continue to provide an advantage going forward, and the proven resilience of our specialty business reinforces our strategy of focusing on specialties growth. On slide six, we detail a fuels product segment. The crack spread and rent headlines we just discussed really sum up the fuels year, and we controlled what we could to offset them. This segment lost $30.3 million of adjusted EBITDA in 2020, down $182.8 million from 2019. I mentioned that RIN's expense for the year was $117 million higher than 2019, and the RIN impact in the fourth quarter alone was $36 million worse than the third quarter of 2020. Again, these were non-cash expenses in both the fourth quarter and the full year. More positively, With supply across the country slowing down, our local rack sales reached record levels. Our strategy in this business has continued to grow in our local markets as spreads return. With vaccine levels increasing throughout the country and a large amount of global fuel capacity permanently offline, the markets are looking better. The average 2020 Gulf Coast 2-in-1 crack spread was down $8.61 a barrel from the 2019 average. This spread compression is largely what caused Calumet fields margins to worsen by 93 million in 2020. And looking forward, the 2021 strip is currently more than 60% better than that 2020 average. Let's move forward to slide seven and talk specialties. Specialties is what Calumet does best. And 2020 was a clear demonstration of that as we had our second straight year of double-digit adjusted EBITDA growth in this segment. Fourth quarter adjusted EBITDA was $61.4 million, which is 43% better than the fourth quarter of 2019 and 11% better than this year's third quarter. On the last earnings call, we mentioned that we had not yet seen the normal seasonal slowdown as the country continued to recover and restock, and this trend continued throughout the quarter. Growth in the consumer-facing businesses was tremendous throughout the year, particularly within our TruFuel and Penrico brands, and this held in the fourth quarter. Also in the quarter, our industrial products, largely solvents and lubricants, returned to 96% of 2019 average levels. Let's go to slide eight. Earlier I mentioned that we've had two straight years of double-digit specialty growth, and here you can see a positive quarterly trend from the fourth quarter of 2019 as well. We've talked before about the importance of effectively balancing margins and volume throughout the pandemic. In growth in specialty adjusted EBITDA margins, up 53% to last year's fourth quarter demonstrates the effectiveness of our margin management efforts. This was achieved while specialty volume was down over 9% on the year. Some of this volume was pandemic-related, but over half was intentional skew reduction in customer rationalizations. Calumet's market-leading customer and product diversity is what provides the ability to optimize our business for success in changing market conditions. This diversification in breadth is at the core of our advantage in this specialty business. Now I'll turn the call back to Steve. Thanks, Todd.

Let's turn to slide nine. Several weeks ago, as part of our strategic update, we announced that we were planning to resegment our financials going forward. Since selling the San Antonio refinery in 2019, the reality of Calumet has been that we have operated three distinct businesses that we will clearly portray in our financials starting in the first quarter of 2021. We will also follow up with an undertaking to make these businesses more understandable and transparent. In our humble opinion, each of these three businesses is a competitively advantaged gem with clear growth and development opportunities. Currently, our financials are grounded in a business model, philosophy, and strategy dating back some years. Simply put, not amending the reporting structure in a way that keeps up with our business model and strategic changes is both confusing and wasteful. We don't like to confuse investors, and based on feedback, we have. Furthermore, as you can see from the cost reductions implemented this year, we aren't big fans of waste either. Aligning the financials with our actual distinct businesses is something that, as a management team, we think is a common-sense activity that enhances focus. I'm just going to talk briefly about one slide each for the three businesses, and then the leaders of each business are on the call to answer questions in the Q&A. Bruce Fleming is EVP of Montana Renewables and Corporate Development. Scott Obermeyer is EVP of Specialty Products and Solutions. And Mark Long, EVP of Performance Brands. So next on slide 10. Let me just spend a few moments updating you on our plans for Montana. Calumet's been very pleased with our position here in Pad 4, and although we are one of the smaller refineries in the country, we've also been one of the safest and most innovative. Today, that innovation takes the form of an exceptional energy transition project. Our strategic review of alternatives for Great Falls considered selling it, considered expanding it, and considered renewable feedstocks. We have the very rare opportunity to do all of the above. By introducing an equity investor and expanding the small legacy refinery that remains after converting the hydrocracker to renewables, we have elements of a sale, elements of an expansion, and elements of renewable diesel conversion at the same time. This is an exceptionally good energy transition project, which we believe will execute fast. Renewable supplies are needed for Canada and the U.S. West Coast, where we already sell products given our In addition, our specialty asphalt plus essential fuel supplies for Montana will remain available. Physical infrastructure is in place. We're already especially experienced at managing a large rail fleet at this location. But let me talk about the oversized hydrocracker, which is at the core of the project. We opportunistically purchased this brand-new unit after it had been designed and fabricated for planned installation at another U.S. refinery. It was larger than what we needed, but gave us a compelling business opportunity. The reason we call it oversized is because the hydrocracker nameplate capacity is equal to the size of our crude processing. We estimate that it will process 10,000 to 12,000 barrels a day of renewable feedstock after increases from minor debottlenecking and decreases from the chemistry of renewable feeds. In summary, our proposed dual-train operation leaves us a clear line of sight to 220 to 260 million annual EBITDA based on the average of the last five years' prices. Each of the two trains, the renewable and the fossil, will be about the same capacity. Finally, a word on what this implies for Calumet's capital structure. We intend to partner with an equity investor in the renewable conversion project and potentially the entire dual-train energy transition opportunity. We see three very compelling reasons for admitting a partner. First, the renewable diesel project depends on government-regulated markets and therefore carries a higher uncertainty than other projects available to the company. A strategic partner who is already pursuing renewable diesel supply would be prepared to manage that risk. We, on the other hand, want to focus our capital investment on special needs businesses. Second, a partner who is already pursuing renewable diesel supply will see our Montana project the same way we do. It's the lowest capital cost per barrel of any industry announcement to date, in our opinion. And third, the renewable diesel business is in an up cycle, while refining in 2020 is arguably bottom of cycle. It's the right time for the pivot, especially because we can straddle the energy transition with our dual train moving fast given the infrastructure in place. Turning to slide 11, in our specialty products and solutions business, three unique factors come together to create a competitively advantaged business. First, we're grateful to have tremendous customers. We've deliberately pursued a strategy of having the most diversified customer base and widest range of brands and products in our space. Many of these customers are linked with us through long-term relationships and contracts. This allows us to navigate volatility in both the economy as a whole or in specific sectors and was a key enabler for our strong 2020 specialties results. Second, we operate our facilities in northwest Louisiana, that's Shreveport, Cotton Valley, and Princeton, as a single integrated complex. Putting these facilities together creates a unique asset base focused on custom distillation, hydrotreating, and extraction. We believe that this complex puts us at the sweet spot of both customization and scale for the core products we make. Further, it allows us to provide this service cost efficiently. Our fundamental specialties assets process intermediates into specialty products. However, our integrated complex also provides the flexibility to process crude oil to generate our own intermediates as specialty feedstocks, and this provides superior cost and quality control. So, for example, we maintain a crude quality database covering hundreds of individual wells, allowing us to create the optimal feed mix for any production run. Processing crude oil has been the economic path for much of recent history. However, our integrated complex has the flexibility to operate using intermediates should that be a more profitable option. Third, we have formulation capability through our additional facilities in Louisiana, Texas, Pennsylvania, Illinois, and Indiana that are fed by the Northwest Louisiana complex. Our formulations in waxes, petrol atoms, gels, and specialty oils are very customer sticky, higher margin businesses that just powered through the pandemic. Selling more of our formulated products into these resilient, customer-focused markets is a key growth priority. If you put these three factors together, the unique customer offering, an integrated manufacturing hub, and value-add formulation spokes that build the business out, we believe we have something pretty special here. And our third business moving to slide 12 is performance brands. Our performance brand segment consists of three well-established, very well-established, instantly and internationally recognizable brands. Each of these brands stands out in its market due to unique outperformance characteristics. This approach creates high-margin brands with tremendous consumer loyalty. That customer loyalty translates into growth dynamics well above the sector average. Three years ago, the performance brands team began a project to turn around this business. We focused on what we do well, fulfilling customer, application, and industry needs. And the result is that we've doubled EBITDA over that three-year period. And in 2021, we anticipate that the segment should generate results above $60 million EBITDA. It also doesn't hurt that this business is a tremendous cash generator. Royal Purple is the number one independent premium synthetic oil in the U.S., and number two in the U.S. overall as a premium synthetic. It provides ultra-high-performance lubricating products to both consumers and industry. Belray occupies several performance niches, including food-grade lubricants and mission-critical industrial machinery. TruFuel may be the brand you're most familiar with, given its commanding position as the number one engineered fuel in North America, and the growth of TruFuel continues to accelerate with year-on-year volume increases of greater than 30% during 2020. So let's move on to slide 13 and our 2021 outlook. At least for now, there seems to be a consensus that the economy is running strongly, and we would share that opinion for right now. This brings benefits and challenges to Calumet. Supply chains are really tight. I think you're all aware of just how expensive container freight from Asia is, how clogged the U.S. ports are, and that there's a nationwide shortage of truck drivers. So at Calumet, we've really ramped up our focus on ensuring supply chain resilience, adding to our logistics capability, and being super vigilant on sourcing key inputs. We've also automated much of our pricing systems to a degree where price increases can be proactively implemented swiftly and consistently, reducing the effect of price volatilities. Having talked about the hot economy, Calumet remains in what has been termed austerity mode for now. Our CapEx budget for 2021 is currently estimated at $65 million, a figure that is composed of sustaining, regulatory, and turnaround expenditures, plus small investments in very high return growth projects. As we return to being a cash flow generator, we will consider selective addition of further growth spending. Our capex budget will be weighted to the first half of the year, primarily due to a major turnaround at Shreveport. Speaking of Shreveport in February, the polar storm was a challenge for most of the industry, including Calumet. In Montana, we experienced severe Arctic conditions with a low of minus 32 Fahrenheit. This is a highly winterized plant, and disruption was minimal. At our southern plants, conditions were more disruptive. We had a continuous freeze for over a week in northwest Louisiana and two major ice storm events. External consequences were closed roads with no truck movements for more than a week and the loss of municipal water supplies, all of which hampered production. Shreveport was in a full plant turnaround in February and was approaching an on-time, on-budget completion when the weather event unfolded. For the safety of our employees, we had to stop all work, and now we're in the middle of our delayed restart. So clearly lost production will have an effect, although we did not have to force majeure any of our customers, which I think a lot of other people did. It is, however, unclear as of today how much of that lost production effect will be reduced by order backlog catch-up, and we continue to see improving market structure both in fuels and specialties, which will further alleviate the economic effect of lost production. Again here, I'd like to thank our team for how they responded to what Mother Nature threw at them. On the refining side, it's clear we're well off the bottom of the cycle with cracks on an uptrend. The strong demand for transportation fuels at our racks would only appear to confirm that we have a hot economy on our hands. And finally, as we've touched on before, I believe the timing to make strategic progress on Calumet's journey is much more favorable now, both in terms of where we sit in the economic cycle, the pivot to renewable diesel in Montana, and our ability to demonstrate to the world that we are resilient and able to protect and enhance unit holder value. With that, I'd like to turn the call over to the operator to open up the line for Q&A. Operator? Operator?

Thank you. Ladies and gentlemen, as a reminder, to ask a question, you will need to press the Start and the 1 key on your touch-tone telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question coming from the line of Neil Mehta with Goldman Sachs. Your line is open.

Hi. Good morning. This is Nicolette Sluster on for Neil Mehta. Thanks for taking my question. So you pointed to higher RINs cost weighing on refining profitability during the quarter. Can you just talk a little bit more about how you see RINs cost for Calumet tracking in 2021? And then was that RINs volatility a driver in your decision to explore renewable diesel at Great Falls as an offset? Thank you.

Hi, Nicolette. It's Bruce. Good morning. So the EPA is a pretty difficult position to play, and I think As you look back over a couple of years, they've done a pretty good job picking their way through all of the details of administering under the Clean Air Act. Last year, there were a lot of political influences, and as Steve mentioned, it caused inaction on a couple of key things. Basically, right now, everybody's suing everybody. We're tracking 29 lawsuits, and I think until that settles, the picture's going to remain unclear. As Todd said, historically, this is a non-cash accounting entry for us. And as such, it actually doesn't drive strategic decision-making.

Okay, thank you. Appreciate that. Very helpful. And then, just as a follow-up, I would just be around feedstock availability for renewable diesel and how Calumet's thinking about securing that feedstock for Great Falls.

Yeah, that's an interesting one. I'll give you a couple broad strokes. But I think to start with, The complementary interests of whoever is our final selection as a strategic partner are going to be important in the determination there. So, for example, if it's a partner that brings the strength of gathering the feedstocks themselves, we would want to accommodate that in the project. Broadly speaking, so with the obvious point made, broadly speaking, the You know, the fork in the road is plant or animal feeds, and the long-term availability of plant-based feeds I don't think is in doubt. There are a lot of tactical folks projecting various assumptions into some kind of a pinch point. That's really hard to imagine. The total amount of announced renewable diesel projects is a whopping 5% of the U.S. diesel demand, so we really don't see a feedstock problem on the plant side. The animal side is very different. It's a lot harder to parse. It would also require investment in treating facilities. So for all these reasons, you know, the strategic partner that we eventually take on is going to have a strong voice in what's determined.

Okay, great. Very helpful. Thank you.

Our next question coming from the line of Greg Boddy with Bank of America. Your line is open.

Good morning, guys. Just to maybe stay on the theme of the renewable facility, could you talk a little bit about maybe the timing around realizing the third-party investment, when you think you'll have the project online, and then could you talk a little bit about perhaps you gave us some normalized numbers for this project, Can you give us a sense of what normalized numbers were prior to this and potentially what normalized numbers are for the rest of the businesses as you've started to break them out?

Yeah, Greg, if I take the last one first, we will produce all of that, and that will include a restatement looking backwards. And so you're about to get all of that from Todd in the relatively near future. So I'm going to wait for the actuals, if you don't mind. But I will say that a lot of the industry-announced projects are finding ways to repurpose refineries that weren't that good. Ours isn't in that condition. Ours is quite a good refinery. It's just small. But it happens to offer a top decile candidate because of the oversized hydrocracker. So we've got a confluence of unique circumstances. that I think point to trying to find a way to put the renewables in without taking the crude out, and this is what we've come up with. In terms of the timing, again, that's going to have a lot to do with the appetite of a strategic partner to go in a particular direction, and I'll use the same example that I just did. If for some reason we find ourselves partnering with an entity that is on the animal feedstock side, We're going to have to design and incorporate some treating facilities that right now are not in the vision. So there's a bit of an interaction there. I'll tell you, though, our intent is to sort this quickly so that, you know, ultimately we create a partial deleveraging event in 2021 based on the equity injection from the partner. And then, of course, we'll have the ongoing participation in cash flow as we build up the value chain.

And once you get the investment, how long would it take to convert the facility?

There is a sequence of engineering activities. If I jump over it, we will have feed in by early next year. We'll have full capability no worse than 12 months after that.

Twelve months. Maybe you touched on partial deleveraging. What are you hoping to achieve here when you say that?

Joint venture.

But the deleveraging is there. The capital you're talking about raising, how much could you deleverage?

Well, you're basically asking what the plant will sell for. We'll find out.

Got it. So the JV is ideally a 50-50 JV. I guess it depends on what it comes down to.

Yeah, I think, again, we're fairly flexible on structuring. You know, I'm hoping to convey the idea that there are a lot of different ways to put all the Lego blocks together if we do or don't have feedstock pretreatment for some reason. Hydrocracker itself is capable of a series of pipe stretching expansions to a higher capability. On the product side, whether we go to Canada and therefore tune the operation for more Arctic spec diesel or whether we're sending it all down to L.A. where it's nice and warm are all material considerations. And so the partner is going to have a point of view and a voice on these things. And then financially, you know, we're certainly open to an appropriate sharing of the new created revenue. Yeah, great.

This is Steve. I mean, I would just add that as we work through this process, and it's an exciting process, it's all about creating unit holder value. And so I think just kind of starting by the management team of Calumet saying, gee, we'd like to be in a 50-50 JV or a 49-51 or a 51-49 or whatever, and then back engineering isn't the right way to create unit holder value. We need to be aligned with the right partner and create the right deal for our unit holders.

Is it conceivable that you would still consider selling the facility?

All facilities, everything we have, we have whole values on it. I think that's proven management.

Got it. And, you know, one more here for you, and I'll jump back in the queue. How does this facility address the RINs that you have? And maybe you could talk a little bit about just in general RINs, your RINs, how you're thinking about RINs this year.

So compliance is accomplished by giving the EPA a quantity of RINs. Everybody loves to price that as if it was a financial instrument, but it's not. This is an opaque market. This is a complicated market. And all I can tell you is we have not had to settle by sending anybody any cash historically.

Does this facility, presumably this facility helps you, the biodiesel facility, would help you address any rent issues? Can you quantify how much that would reduce your obligations?

So the production of D4 or D5 RINs, depending on how we settle the technology, is a RIN per gallon, and this is a lot of gallons. It's way more than what Calumet requires, so it makes us RIN long.

That's helpful. I'll jump back in the queue. It's all you guys. Go for it. All right, I've got a few more here. So you... Uh-oh.

Did we lose Greg? We may have lost our whole kid here.

Greg, please press star one again. Testing.

Testing. Greg, we can hear you if you can hear us.

Hey, Greg, I just want to reiterate, we didn't hang up on you, Greg. Just want to say that.

I could hear you all along. I was talking into a phone. You guys sound great. Maybe just coming back to some of the things that I noticed. So your SG&A went down fourth quarter quite a bit. Is Is that a run rate number we should think about, or how should we think about that in 2021?

Yeah, for the year, Greg, like you said, the corporate SG&A was around $65 million for the year. We'd expect about 20 of that to come back. So kind of as it stands today, I'd think about kind of an $85 million type run rate. So in other words, about $30 million of the savings will stick. Okay.

Got it. And then you – are there any other cost increases we should think about?

No, I don't think so. You know, we can see some variable cost increases come back, obviously, as refinery throughput increases. But, you know, I think that would already be built into your normal variable cost model.

And I noticed the – I don't know if I missed it, but did you provide a capital number for this year, a CapEx number?

We did today, $65 million, as it stands today. And, you know, that's the sustaining environmental CapEx with a small amount of growth. You know, we do have some kind of a list of pretty interesting, exciting, smaller strategic growth projects that we'd love to get to. But we're going to stay conservative, you know, make sure that things out in the economy really have recovered and that we're comfortable before we would approach those.

Now, do you expect to be free cash flow positive this year? What's your expectations?

Yeah, I would think so. I mean, you know, we were pretty cash flow positive in 2020. In the outlook for 2021, it's clearly better. So I take it from there.

And then, you know, you mentioned the impact from the storm or the freeze. You mentioned a lot of some negative impact and then specialty potentially offsetting that. As of right now, it sounds like you're not expecting a significant impact from the storm. Did I hear that right?

I think we lost about a week in northwest Louisiana from the storm is the way we would think about it. You know, remember we also had the Shreveport plant turnaround, so we did lose a month at Shreveport. But that was already in your model, I'm assuming. So, you know, the incremental loss from the storm would be about a week of production in northwest Louisiana.

Got it.

Go ahead, Greg.

Sorry. Keep going.

No, please finish the thought if you had more to add.

Yeah. I was just going to add to Todd. I mean, you know, we're still triangulating that right now, you know, across multiple of our businesses. You know, now the roads are viable and everything. We've been setting shipping records in the last day or two. So it's difficult to triangulate kind of how it all comes through, how we catch up. We feel really good that we didn't have to force-measure any of our customers, which some of our competitors did and some of our suppliers did to us. So it's still a little early to see, you know, if we're going to kind of catch that order book back up or not. And then there's that extra dimension of the fact that, you know, margins for all these businesses are pretty good right now. So how you put all that together is difficult to say.

Got it. And you mentioned the margins being good. Is there – it's You've been able to pass through the increase in crude oil prices pretty seamlessly?

Greg Scott here. I think it is reflected in the numbers in a highly volatile year last year and really the final three quarters of the year with crude continuing to march up. I think you can see that Steve mentioned on the gross profit per barrel. Well above 40, you can see it continue to march up, and that's been really a pattern the past couple of years as we've really driven a lot of our pricing programs and overall commercial excellence programs within Calumet Specialties.

And you think so it's something you can keep your margin. We should think about you growing with GDP. Is that a good number to focus on, plus or minus some small amounts?

Well, of course, the GDP number is going to be pretty weird. So in a normal year, we'd probably say, yeah, but I don't know. We could debate the accuracy of the GDP print currently.

I think I'd give you a GDP number. But the general idea is that we're expecting a lot of growth. I think for Bank of America, I think it's 6.5% this year. Yeah. It's going to be.

I mean, at the highest level, Greg, we can sell everything we can make right now.

Good. And just my last question for you. You said you were going to use the proceeds from the sales leaseback to pay down 22 notes. Is there a reason why you're waiting to do that? I think it's closed. Or should we expect you to pay it down any day?

No, we'd expect to pay it down here very shortly. We just got the proceeds in last week, making our way through the Polar Storm and startups, and we'd expect to be moving forward on that shortly.

Does it make sense to use your excess cash to pay down the rest of the 282s, or you'll wait until potentially you form this JV? Okay.

We probably wait. You know, we could. We could. So the most important thing to us is that we have the ability to do so. You know, as long as we have the ability to do so and we're very comfortable with that position going forward, then when we do it is just a tactic that will optimize kind of, like you said, as we get more certainty and clarity around timing on a JV.

Got it. And I'll just go with one last one here. Just as Definitely my last one. So, Renz, if I look, I'm guessing you, what is the liability that you're showing right now on the balance sheet? I know that will come out today. And just what is, what's the time that you use, what point in time are you using prices to estimate that?

The quantity, the run rate quantity of a gross obligation is about $80 million. across all the classes annually. Where the EPA is backed up on compliance includes the 2019 and 2020 deadlines have not yet occurred. They've proposed to push them back. So basically we have a gross obligation of two years' worth that's offset by a lot of ethanol blending that we've done. We like ethanol blending. We'd like to be able to do more of it, especially at Great Falls. So, you know, there is a net on the balance sheet that we price. We mark the market at the end of each quarter, and Todd may have a financial figure for that. But I think the key is that's a placeholder that's reversed upon small refinery exemption.

Yeah, I think that's right. And, you know, the financial placeholder, so we said – you know, 53 million of RIN's expense in the fourth quarter, which would be the obligation we generated plus just the mark-to-market of the obligation. So, you know, the numbers that make that up would be the year-end, the 1231 RIN price, which was 70-something cents a RIN.

And just to follow up, I guess, the small refinery exception, where does the process stand in the courts from your perspective?

It's in half a dozen different courts in various manifestations. Our crystal ball is not good enough to know if we're going to re-legislate this through a series of court actions or whether Congress will deal with it or in a preferred mode, whether the EPA will simply use some administrative tools that are available to them now. I wouldn't care to speculate.

Do you have any indications from the EPA that they would use their tools now?

I think that the conventional, the center of mass of the conventional wisdom is everybody's waiting for the Supreme Court to have an opinion expected sometime this summer on one particular matter and that that may be foundational. We'll see.

All right, guys. Thank you again for the time. Much appreciated.

Thanks, Greg. Thanks, Gary.

And that's all the time we have for questions today. I would now like to turn the call back to Steve Moore for closing remarks.

Well, again, thanks, everybody, for your interesting count you met. The team really executed at a high level in 2020. Even the fact they had a lot on that plate, but they did a super job. I'm really appreciative. We've taken proactive actions to both protect the business and to reposition it for long-term success. So I'm looking forward to 2021. Thanks for your time today. Have a great day. Bye now.

Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect.