OREANDA-NEWS. Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) (the "Partnership," the "Company," "Calumet," "we," "our" or "us"), a leading independent producer of specialty hydrocarbon and fuel products, reported a net loss for the first quarter ended March 31, 2014 of USD 49.8 million, or USD 0.76 per diluted unit, compared to net income of USD 46.0 million, or USD 0.66 per diluted unit, in the first quarter 2013. Excluding the impact of USD 89.6 million in non-recurring debt extinguishment costs, Adjusted Net Income in the first quarter 2014 was USD 39.8 million, or USD 0.50 per diluted unit. First quarter 2014 results include USD 24.6 million in non-cash unrealized derivative gains, compared to USD 24.5 million in the prior year period.

Calumet generated Adjusted EBITDA (as defined below in the section of this press release titled "Non-GAAP Financial Measures") of USD 82.7 million during the first quarter 2014 versus USD 53.2 million during the fourth quarter 2013 and USD 80.0 million in the prior-year period.  Within the Specialty Products segment, gross profit increased nearly 16% during the first quarter 2014 versus the prior year period as increased sales of Calumet's packaged and synthetic products, a category inclusive of the Royal Purple®, Bel-Ray®, Quantum® and TruFuel® premium brands, contributed to an improved product mix. Within the Fuel Products segment, a significant year-over-year decline in benchmark refined product margins was partially offset by strong seasonal demand for gasoline and diesel at each of the Partnership's major fuels refineries, which operated at elevated rates during the first quarter 2014 compared to the prior year quarter.

Distributable Cash Flow ("DCF") (as defined below in the section of this press release titled "Non-GAAP Financial Measures") for the first quarter 2014 was USD 49.4 million, compared to USD 26.4 million in the prior year period. The year-over-year increase in DCF was driven primarily by an increase in Adjusted EBITDA, a decline in turnaround costs and a decline in replacement and environmental capital expenditures. We define the Distribution Coverage Ratio ("DCR"), a non-GAAP financial measure, for any period as DCF divided by distributions to partners. The DCR was 0.94x for the first quarter 2014, compared to 0.51x for the first quarter 2013.

Management Commentary

"Broad-based contributions from our Specialty Products segment resulted in record first quarter Adjusted EBITDA," stated Bill Grube, Vice Chairman and Chief Executive Officer. "Distributable cash flow nearly doubled on a year-over-year basis to nearly USD 50 million, while distribution coverage approached 1.0x during the first quarter 2014. Our current annualized cash distribution stands at USD 2.74 per unit, representing an attractive distribution yield of more than 9%, at our current unit price."

"In March, we completed our largest and most successful senior unsecured notes offering in Partnership history," continued Grube. "This heavily subscribed USD 900 million notes offering, which priced at a coupon of 6.50%, allowed us to redeem USD 500 million of higher interest bearing notes, funded an accretive specialty products acquisition and provided additional liquidity to support our ongoing slate of organic growth projects. As of March 31, 2014, we had USD 714 million in combined cash and availability under our revolving credit facility to help support the ongoing growth of the business."

"On March 31, 2014, we acquired Anchor Drilling Fluids, a leading independent supplier of specialty products to the oilfield services industry," continued Grube. "We paid approximately 7.5x estimated full-year 2013 EBITDA for Anchor - an attractive multiple for a business that grew EBITDA by more than an estimated 20% last year. Anchor's base of more than 250 blue chip E&P customers, coupled with its extensive network of logistics and distribution centers situated near each of the major, active domestic resource plays provides us with a unique opportunity to cross-sell our existing portfolio oilfield-focused products while also enabling the Partnership to expand its relationships with potential crude oil suppliers at the wellhead."

"During the first quarter 2014, we grew sales volumes and realized improved pricing on our packaged and synthetic products, when compared to the year-ago period," continued Grube. "Sales volumes of Royal Purple, Bel-Ray and TruFuel products all increased on a year-over-year basis during the first quarter. Early indications are that our introduction of Royal Purple products to the Wal-Mart store network has been very successful, with sales tracking ahead of our forecasts. Once the rollout is completed, at least 2,400 Wal-Mart Stores will be carrying our Royal Purple products, with select products planned for sale in more than 3,000 locations."

"The San Antonio refinery operated at record production rates during the first quarter 2014," continued Grube. "With the completion of the crude oil unit expansion in December 2013, increased finished gasoline blending capabilities and the pending completion of the TexStar Midstream pipeline by mid-year 2014, we anticipate San Antonio has the potential to contribute meaningful Adjusted EBITDA to our overall business in future periods."

"Our slate of multi-year organic growth projects remain on schedule," continued Grube. "The 20,000 bpd Dakota Prairie refinery is scheduled to begin start-up during the fourth quarter of 2014. Our engineering partner, Ventech, has constructed the refinery in modular phases which are being delivered to the construction site in Dickinson, North Dakota. The Missouri esters plant expansion is scheduled for completion during the second quarter of 2015, while the Montana refinery expansion project remains set for completion by the first quarter of 2016."

"We remain committed to maintaining a distribution policy that provides for consistent cash distributions to our unitholders," stated Grube. "In April, we announced a quarterly cash distribution of USD 0.685 per unit for the quarter ended March 31, 2014 on all of our outstanding limited partner units."

Recent Performance Highlights

Completed a USD 900 million offering of 6.50% senior unsecured notes due April 2021. On March 26, 2014, Calumet priced USD 900 million of 6.50% senior notes due 2021. The Partnership used a portion of the net proceeds from the private placement to fund the approximately USD 237 million purchase price of its previously announced acquisition of ADF Holdings, Inc., the parent company of Anchor Drilling Fluids USA, Inc., related transaction expenses and the redemption of all USD 500 million aggregate principal amount outstanding of its 9.375% senior unsecured notes due 2019. Remaining funds will be used for general partnership purposes, including planned capital expenditures.
Acquired Anchor Drilling Fluids USA, Inc. On March 31, 2014, Calumet completed the acquisition of Anchor Drilling Fluids USA, Inc. on a debt-free basis for total cash consideration of approximately USD 237 million. Anchor develops custom formulations and innovative solutions based on unique customer and well specifications. Through its extensive line of drilling and completion fluids, Anchor delivers solutions that reduce drilling and completion time, help to control reservoir formation pressures and maximize oil and gas production, contributing to improved well economics for end-users. This transaction positions Calumet as one of the leading suppliers of drilling fluids to the domestic E&P industry, a sector that continues to enjoy rapid growth due to advances in drilling technology and increased exploration activity in identified and emerging unconventional resource plays. The addition of Anchor to Calumet's asset portfolio will also serve to increase the Partnership's specialty products sales with a business that has historically generated consistent cash flow with limited ongoing capital investment. For the year ended December 31, 2012, Anchor generated EBITDA of approximately USD 26.3 million. The Partnership currently anticipates that Anchor will report a year-over-year increase in EBITDA of approximately 20% for the full-year 2013.
Launched Royal Purple branded products into Wal-Mart Stores. Beginning in April 2014, Calumet began the launch of Royal Purple branded products to the Wal-Mart store network. Initial feedback on the launch has been very positive, with certain Royal Purple products selling into more than 3,000 Wal-Mart locations.
Operated the San Antonio Refinery at record production rates during the first quarter 2014. The San Antonio refinery reported record throughputs during the first quarter 2014, following the completion of a crude unit expansion project in December 2013. Total production volumes from the refinery increased more than 10% during the first quarter when compared to the prior-year period.
Organic Growth Projects Update

Beginning in 2013, the Partnership initiated a series of organic growth projects, the last of which is expected to be completed by the first quarter 2016. Collectively, these projects are estimated to cost approximately USD 500 to USD 550 million and are expected to return approximately USD 200 million in annualized Adjusted EBITDA upon completion. Below is a current list of the remaining growth projects slated for completion during the next three years:

Great Falls, Montana Refinery Expansion Project. Calumet continues to make progress on a project designed to double production capacity at its Montana refinery by 10,000 to 20,000 bpd. As part of the project, the Partnership will install a new 20,000 bpd crude unit and a 25,000 bpd hydrocracker. The Partnership continues to estimate this project will be completed during the first quarter of 2016. The estimated total cost of the expansion project is approximately USD 400 million. The Partnership estimates the annualized incremental Adjusted EBITDA resulting from this project will be in the range of approximately USD 130 to USD 140 million.
Dakota Prairie (North Dakota) Refinery Project. Calumet, together with its 50/50 joint venture partner, MDU Resources, Inc.("MDU"), continues to make steady progress on the construction of a 20,000 bpd diesel refinery located in Dickinson, North Dakota. The refinery, which is expected to be completely supplied with locally sourced Bakken crude oil, is expected to commence operations during the fourth quarter 2014. The Partnership estimates that the annualized incremental Adjusted EBITDA resulting from this project will be approximately USD 35 million to USD 45 million.
Missouri Esters Plant Expansion Project. Calumet continues to make progress on a project that is expected to double esters production capacity at its Missouri esters plant from 35 to 75 million pounds per year. Esters are a key base stock used in the aviation, refrigeration and automotive lubricants markets. The Partnership anticipates completion of the project during the second quarter 2015. The estimated total cost of the expansion project is approximately USD 40 million. The Partnership estimates that the annualized incremental Adjusted EBITDA resulting from this project will be approximately USD 10 million.
Financial and Operational Guidance

2014 capital spending forecast. For the full year 2014, the Partnership anticipates total capital expenditures of USD 340 to USD 385 million. Approximately USD 270 to USD 300 million of the total 2014 capital spending plan is allocated toward organic growth projects. The 2014 capital spending plan also includes an estimated USD 50 to USD 60 million in replacement and environmental capital expenditures and approximately USD 20 to USD 25 million in turnaround costs.
Estimated 2014 RFS compliance ("RINs") impact. In conjunction with the Partnership's ongoing compliance with the U.S. Renewable Fuels Standard ("RFS"), Calumet will 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, to be in the range of 90 to 95 million RINs for the full year 2014. During the first quarter 2014, Calumet incurred RFS compliance costs of USD 7.9 million, compared to USD 11.8 million in the first quarter 2013.
TexStar Midstream pipeline update. In November 2013, Calumet entered into a definitive agreement with TexStar Midstream Logistics, L.P. under which TexStar will construct, own and operate a 30,000 barrel per day crude oil pipeline system that will supply significant volumes of Eagle Ford crude oil to Calumet's San Antonio, Texas refinery. Under the terms of the 15-year agreement, TexStar has committed to install and operate the Karnes North Pipeline System ("KNPS"), an 8-inch, 50-mile pipeline that will transport crude oil from Karnes City, Texas - a major center of oil production in the Eagle Ford shale formation - to Calumet's Elmendorf, Texas terminal, a key supply hub for Calumet's San Antonio refinery. The San Antonio refinery expects to receive deliveries of at least 10,000 bpd of crude oil through the KNPS-Elmendorf terminal supply route once the line comes into service. Construction of the KNPS is slated for completion by June 2014.
Upcoming scheduled maintenance. The Shreveport refinery began approximately two weeks of planned maintenance beginning on April 28, 2014. The primary focus of the scheduled maintenance involves completion of upgrades to the flare system, inspection work on select units and a change of catalyst on the lube oil hydrotreater.
Partnership Liquidity

On March 31, 2014, Calumet had availability under its revolving credit facility of approximately USD 533 million, based on a USD 705 million borrowing base, USD 172 million in outstanding standby letters of credit and no outstanding borrowings. In addition, Calumet had approximately USD 180 million of cash on hand as of March 31, 2014. Calumet believes it will continue to have ample liquidity from cash on hand, cash flow from operations and borrowing capacity to meet its financial commitments, minimum quarterly distributions to unitholders, debt service obligations, contingencies and anticipated capital expenditures.

Gross Profit Comparison of Quarters Ended March 31, 2014 and 2013

The Partnership reclassified the reporting of asphalt sold from its Shreveport, Superior and Montana refineries from its Specialty Products segment to its Fuel Products segment. This reporting change does not impact the Company's consolidated financial results from prior periods. Segment gross profit for the prior period has been restated and is consistent with the current year presentation.