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Edited Transcript of CLMT earnings conference call or presentation 24-Feb-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Calumet Specialty Products Partners LP Earnings Call

Indianapolis Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Calumet Specialty Products Partners LP earnings conference call or presentation Friday, February 24, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe Caminiti

Calumet Specialty Products Partners, L.P. - IR

* Timothy Go

Calumet Specialty Products Partners, L.P. - CEO

* West Griffin

Calumet Specialty Products Partners, L.P. - EVP & CFO

* Pat Murray

Calumet Specialty Products Partners, L.P. - VP & Chief Accounting Officer

* Bruce Fleming

Calumet Specialty Products Partners, L.P. - EVP, Strategy and Growth

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Conference Call Participants

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* Brad Heffern

RBC Capital Markets - Analyst

* Unidentified Participant

Wells Fargo Securities - Analyst

* Neil Mehta

Goldman Sachs - Analyst

* Johannes Van Der Tuin

Credit Suisse - Analyst

* Sean Sneeden

Oppenheimer & Co. - Analyst

* Michael Gaugler

Janney Capital Markets - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the fourth quarter 2016 Calumet Specialty Products Partners LP earnings conference call.

(Operator Instructions)

As a reminder, today's conference may be recorded. I would like to introduce your host for today's conference, Mr. Joe Caminiti. Sir, please go ahead.

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Joe Caminiti, Calumet Specialty Products Partners, L.P. - IR [2]

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Thank you, Michelle. Good morning, everyone and thank you for joining us today for our fourth quarter and year-end 2016 earnings results call. With us on today's call are Tim Go, CEO; West Griffin, CFO; Pat Murray, Chief Accounting Officer; Bill Anderson, Head of Specialty Product Sales; and Bruce Fleming who leads our strategy and growth functions.

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 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 information currently available to them.

Although our Management believes that these expectations reflected in such forward-looking statements are reasonable neither the partnership, it's general partner, nor our management can provide any assurances that the expectations will prove to be correct.

Please refer to the Partnership's press release that was issued this morning. As well as our latest filings with the Securities and Exchange Commission. For a list of factors that may affect are actual results, and could cause them to differ from our forward-looking statements made on this call.

As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today's conference call. As indicated in the press release the press release we issued earlier today. You may access these slides in the Investor Relations section of our website at Calumetspecialty.com. Also, the webcast replay of this call will also 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 pass the call to Tim. Tim?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [3]

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Thanks, Joe and thanks to all of you for joining us today. Before we get into our slide presentation let's talk big picture about FY16.

This morning were going to walk you through a balanced picture of the challenges we faced last year. As well as the key successes we accomplished. But the take way all of our investors today is the following. In 2016 we set the foundation for our recovery, and we believe we are turning the corner. A sales volumes are up and our inventory is down.

SG&A expense is down as we eliminated waste while simultaneously increasing our efficiencies in all facets of the business. We've changed our culture and significantly upgraded our leadership team. And the bottom line is our strategy is working, and we are ready to enter the second phase of our strategic plan. As we look to drive several new growth opportunities in 2017.

With that, let's start on Slide 4. Last year at this time I hosted my first conference call with you, and talk about number of critical changes we need to make as an organization. A year ago or industry was under intense pressure. Particularly on the fuel side of our business. And while we saw slight improvement as 2016 progressed, overall the environment remained and still remains fairly challenged.

While WTI crude oil prices fell below $30 per barrel in January, they maintain a steady and upward trajectory throughout the rest of 2016. Which impacted our margin capture, and the specialty products segment during the year. In addition well drilling rig counts. a primary driver of our oil-fields services segment, fell to those not seeing since the last recession and bottomed during the summer months.

As a result of this industry conditions our financial performance wasn't as strong as we would have liked. However, because we set a plan in motion at the beginning of 2016, which a included significant cost reduction and operational performance improvement -- or what we call self-help. We were able to mitigate a significant portion of the external market situation.

First, we began last year by refocusing on long-term vision on our core specialty products business. Then last April we took decisive action to boost our liquidity, and extend our debt obligations to our secured notes offering. That was a critical step in stabilizing our business. And it has provided us what both time and optionality to make sure we maximize the value of any and all of our strategic decisions over the next few years.

Additionally, we began the process of optimizing our asset base through this all of out of our Dakota Prairie joint venture, and by shedding some third party terminal arrangements. We operated well and we set numerous records across the organization. Based on both the hard work of our employees and the collective execution of all of our teams against our strategic plan.

Some of these records include record annual production, throughput and fuels products sales volumes. Driven primarily by the Great Falls refinery expansion that we completed in February of 2016. We had record sales volumes for diesel, asphalt, esters, lubricating oils, and branded and packaged products. We saw a record profit contribution from several of our specialty business lines. Like our branded and packaged products which saw strong growth throughout 2016.

One of the things I'm most proud of is our employees, and how they never lost hope and together we shifted our culture. When I joined late 2015 we had grown too fast, and hadn't had a chance to build the right kind of infrastructure and processes to support the business. We needed to get back to the basics, and we needed to find ways to work together and grow as an organization.

Through the creation of multiple integrated business teams. We attacked and eliminated waste, we drove efficiencies, we started the process of developing best practices across the organization, and most importantly we came together as a team. We still have ways to go on our journey to become high-performing organization, but we took significant steps last year.

For example, our out performance against our operations excellence targets, and our capital expenditure guidance -- which we will detail later on this call -- shows just how well the team performed. I'm also pleased to report that over the last 12 months we've added significant talent to our leadership team. I think it is important to take a minute to highlight the depth and experience of some of these new leaders.

They include Bruce Fleming with four decades of diverse energy experience, most recently with Tesoro. He joined us as EVP of Strategy and Growth.

Steve Pocsik, joined with over 30 years of it industry experience. Mostly with Total and took on the role as our VP of Specialties Operations.

Jake Hill who had 12 years of prior experience at HollyFrontier, took on the role as VP of Fuels Marketing. Tom Bertsch with 35 years of experience. Joined us from our general partner Heritage Group as VP of Asphalt Marketing.

Nick Blauweikle who has over 30 decades of diverse HR experience. Most recently at [ESCO] Corporation, became our VP of Human Resources. Mark Condon with over 25 years with Koch Industries. Joined us this month as our Fuels VP of Operations.

West Griffin with over 30 years of diverse energy background. Joined us just a few weeks ago as our new CFO.

And lastly we added multiple members to our leadership team at the plant level. Expanded the depth of our Board with the addition of Steve Mawer. His background includes supply and trading experience with Koch industries.

2017 is our year to execute. And I believe that we have set the foundation for our recovery with the right team in place to return the partnership to future growth and prosperity. Now, before we get into the specifics of our performance, I would like to take a moment to introduce our new CFO, West Griffin.

The addition of West was very opportunistic, and as you've seen his energy background is very diverse. He has helped a number of energy companies navigate challenging markets and cycles. While West has only been with us for a month and a half he has already hit the ground running. I would like to ask him to make a few quick comments about his past, and focus here at Calumet.

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West Griffin, Calumet Specialty Products Partners, L.P. - EVP & CFO [4]

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Thanks, Tim.

I've had a chance to speak a handful of you, but I'm I look for to getting more involved with all of our investors and analysts over the coming few quarters. I cannot tell you how happy I am to be here. I've been incredibly impressed by the high-quality team Tim has assembled to drive this business forward, and I'm excited to be on board.

Calumet has a tremendous products label. My son and I both like working on cars, and Calumet makes a tremendous amount of products that we've trusted and used. From Marvel Mystery Oil for my old MG TD, to Royal Purple for our modern performance cars.

On looking at the display case of all the products Calumet makes directly or provides key ingredients for. It's an incredible portfolio. From WD-40 to clear my shotguns, to TruFuel for my chainsaw, and Chapstick that are use on ski trips.

We spent as much of the first month I was here continuing Tim's effort to lower the cash burn rate, and improve the profitability profile. Everyone pitched in to identify areas for cost reductions. To eliminate duplicate efforts and streamline processes.

We have a very solid plan to build on or recent success and drive the recovery for rate. Everyone is working with great sense urgency to position Calumet for its recovery. Tim's leadership and the unique opportunity we all have here did not only turn Calumet around, but to grow this business into be the premier producer of petroleum-based specialty products in the market today -- are what drew me to this opportunity.

Before Tim got here Calumet was largely a roll up of independent businesses that was integrated for specialty products, production and sales. But not so integrated with respect to systems and other back-office functions. In the first few weeks I was here I quickly learned that Calumet is a target rich environment to reduce costs and improve efficiencies.

Even though it is of these items are small on their own. When done together they have a meaningful impact. My immediate focus is to integrate all the back office is systems. Working with Pat Murray to max integration of the operations that Bill Grube established.

In addition we are working to push down accountability and responsibility. And provide plant managers and others the quality information they need to further ring our cost. Including the ability to evaluate customers in terms of total profitability. So as to better focus our sales organization.

In the short-term we will continue to focus on low hanging fruit that requires little or no capital, and has paybacks of less than a year. As Tim mentioned the organization has made great strides in outperforming it's self help goals in 2016. But we can do better and we will do better. As we need to drive further efficiencies and eliminate more waste to get back to being consistently cash flow positive and the future.

Lastly, reducing our leverage and creating financial flexibility remains our number one goal. I have over three decades of experience of helping various energy organizations. Many of which had far fewer options than Calumet to turnaround operations, creatively de-lever, and the strengthen the balance sheets. Our liquidity is strong and again have multiple avenues to address our leverage profile.

We will at act with a sense of urgency but not haste, and I look forward to talking further about these options as the year progresses. Tim?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [5]

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Thanks West and again welcome to the team. Lets get more granular and talk to the specifics of our performance in 2016 and in the fourth quarter. Please move to Slide 6.

Calumet is moving to more efficient operations. While hitting record volumes and minimizing inventory. Head count is down nearly 6% year-over-year, and we've actually taken a few steps early in the first quarter to better align our resources even further.

SG&A was also down 21%. Driven in large part by our organization's commitment to our operations excellence mantra.

Inventory for a company like ours is also a critical balance sheet item to manage, and we took some great initial steps in 2016 to become more efficient here with an 8% reduction in our overall inventories. We did this at the same time as we post an 11% increase in the sales volumes during the year, but as West said we can do better in 2017. And we will do better as West and Pat provide us with tools and processes to help us manage this function even more effectively.

Looking at Slide 7 we believe that we started to turn the corner as an organization, and we are also cautiously optimistic that 2016 will be seen as a trough year for Calumet. Our trailing 12 month adjusted EBITDA turned up in the fourth quarter given our improved year-over-year performance.

Before I asked Pat to talk you through a few more specific details about our performance this last quarter. I want to take this opportunity to recognize Pat's contribution to this organization over the last 19 years. Pat has been a true friend and partner over the last year, and has been instrumental in onboarding not only me but all of the new leadership.

His legacy knowledge of all of our businesses will continue to be an asset to this Company. Throughout 2016 Pat and I had extensive talks about the steps we needed to take as an organization to implement best practices in our accounting operations, business processes, and control functions.

These include critical items that needed a much higher level of focus. Like our SAP project, auditing controls, improved balance sheet management, and further SG&A discipline. While our team did a great job last year and taking the first step to improve these functions. It became clear to both Pat and I that this was an area that needed dedicated executive focus.

Thus we created the new position of Chief Accounting Officer for which Pat was the obvious candidate. Pat remains a trusted member of our executive team, and I want to thank him again was commitment to this organization. With that, Pat, can you please walk us through a few or specifics about our financial performance for the fourth quarter and the year?

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Pat Murray, Calumet Specialty Products Partners, L.P. - VP & Chief Accounting Officer [6]

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Thanks, Tim. Good morning, everyone. Thank you for joining us today.

On Slide 9 you can see our longer-term adjusted EBITDA performance by segment. In terms of highlights during the fourth quarter, let's start with our specialty products business --who's performance was align with our expectations.

We delivered segment adjusted EBITDA of $28 million. Which was negatively impacted by roughly $8.9 million in net LIFO inventory liquidation, and lower of cost of market inventory adjustment impacts. Our sales volumes were up 9% year over year during the fourth quarter, and increased over 6% during 2016 compared to 2015.

Primarily driven by growth in our branded and packaged products line. Our segment gross profit declined for both the quarter and the year as higher crude oil feedstock prices outpaced adjustments we made in product pricing.

Moving to our field products segment. We delivered adjusted EBITDA of $3.2 million. Which included $7.4 million in unfavorable LIFO inventory liquidation and a lower cost to market inventory adjustment impacts.

Despite typical seasonal patterns. We did see improved gross profit and adjusted EBITDA performance during the fourth quarter compared to the 2015 quarter. Driven primarily by a 21% year over year increase in the benchmark Gulf Coast 2-1-1 crack spread. 14% increase in total fuel products sales volumes and lower RINs expense.

For the year, the Gulf Coast 2-1-1 crack spread averaged roughly $12 per barrel. Compared to an average of $18 per barrel in 2015, and $17 per barrel in 2014. As a result of fuel products segment annual growth profit and adjusted EBITDA were down significantly in 2016 compared to the prior-year.

We remain focused on continuing to run more heavy crude in our northern refineries. As WCS averaged $13 per barrel below NYMEX WTI in 2016.

Finally, let's talk about our oil-field services segment. This is simply a turnaround story in oil-field services sector nationwide. The key metric for Calumet is drilling rig count which bottomed nationwide in mid-2016, and has been steadily improving.

Specifically Anchor's rig count was up nearly 15% sequentially from quarter three to quarter four, and is more than doubled from the mid-2016 low. So the environment for oil-field services is clearly getting healthier, and energy industry projections for 2017 expect the trend to continue. Our strong cost controls allowed us to cut our fourth quarter adjusted EBITDA loss by over 50% year-over-year.

To sum up slide 9, while the number of positive controllable improvement in each of our segments were offset by a bottoming of the energy cycle. We expect to see more noticeable impact of our self-help initiatives as we move forward into 2017 and 2018. Tim will walk you through our self-help program again in a few minutes.

Slide 10 provides our adjusted EBITDA bridge for the fourth quarter year-over-year. We reported adjusted EBITDA of $27.7 million in the fourth quarter 2016. Versus a loss of $37.6 million in the fourth quarter 2015.

Fourth quarter 2016 reported adjusted EBITDA includes a favorable lower cost to market inventory adjustment of $9.6 million, and a $26.2 million loss related to the liquidation of LIFO inventory layers. Driven by our ongoing priority to better manage our inventories to lower levels.

The unfavorable hedging variance was driven primarily by more favorable realized gains on crack spread hedging in the 2015 quarter. We continue to hedge with an eye towards the next quarter to protect against any significant swing in quarterly crude oil pricing. And as you can see in our appendix to the presentation we have hedged a portion of our anticipated WCS crude oil purchases for 2017 at this time.

But the key take away from this slide is better operating cost controls, the benefit of our self-help initiatives, and the corrective sale of our Dakota Prairie joint venture collectively overcame most of the pressure on our fuel products and specialty products margins. And the led to stronger performance year over year in the fourth quarter. So as Tim said our plan is working.

Now please turn to Slide 11 for a review of every bridge of our annual adjusted EBITDA comparison. We reported annual adjusted EBITDA of $158.2 million in 2016, versus $257.7 million in 2015. While strong operating cost reduction, sales volume, and self-help initiatives where beneficial.

As well as a favorable lower cost or market inventory adjustment. They could not overcome a very weak first quarter in 2016, and general margin pressures on all three segments throughout the year.

Moving to Slide 12 let's talk to our sequential cash flow bridge detail. As you can see the largest positive driver of cash from the third quarter to the fourth quarter came in the form of better working capital management.

This is fairly typical for the fourth quarter. As our asphalt inventories declined significantly. But it is worth noting that we continue to look for opportunities to drive further improvement in working capital.

In terms of uses of cash I'd also like to point out that we repaid in full the remaining $19.6 million we had on our original $75 million note with the Heritage Group, a related party of our general partner. Using cash on hand and borrowings under our revolver. This was another great example of the support that the Heritage Group has offered when needed., and we appreciate their ongoing partnership.

Slide 13 shows our capital expenditures over the last few years. We've talked a lot about our shift away from the large capitally intensive projects of the past, and we are proud to come in below our prior guidance. With $122 million in total capital expenditures in 2016.

Some of you have been asking about our turnaround plan at our facilities. And I would like to mention that we now expect to spread these cost over the next three years, from 2017 to 2019. This year we will complete turnaround at both of our northern fuels refineries, Superior and Great Falls.

By spreading these cost out over the three years we don't expect to see any significant increase in our capital expenditures pace. As a result of turnarounds compared to what we are projecting for total capital expenditures in 2017.

In 2017 you will see that we are projecting capital expenditures to be in the range of $120 million to $140 million. This includes maintenance capital expenditures, the two turnaround I just mentioned, as well as a number of exciting growth initiatives that Tim will outline in a few minutes.

Looking at Slide 14 we ended the fourth quarter with $365 million of cash and availability under our revolver. Versus $239 million as of year-end 2015. It is critical to reinforce again that we believe the partnership will continue to have sufficient liquidity from cash on hand, cash flow from operations, borrowing capacity, and other means. By which to meet are financial commitments, debt service obligations, contingencies, and anticipated capital expenditures.

With that I'll hand the call back to Tim. Who will talk more about our strategic plan and focus in 2017. Tim

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [7]

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Thanks, Pat. Slide 15 outlines the original strategy we presented to you last year. And provides the road roadmap to support our vision to become the premier specialty petroleum products company in the world.

To get there we plan to leverage and build high return niche businesses through innovation, unmatched customer service, and Best-in-Class operations. To deliver quality products that meet the unique needs and specifications of our customers. And leveraging are strong brands including Royal Purple, Bel-Ray, Quantum and Penreco.

There are three components to our strategy. In 2016 we focused on the foundation of the pyramid. Which was our operations excellence program.

Where we focused to optimize the base business, improve our asset management and system integration, and build organizational efficiencies. In 2017 we will move firmly into the middle part of the pyramid as we drive opportunistic growth projects.

These will be internally driven growth projects capable of generating one to two year payouts. With low to moderate capital requirements. I will talk more about the specifics of these and in a few minutes.

The two foundation levels of the pyramid together make up our self-help initiatives. The top layer of our strategy is focused on strategic M&A. Where we can add to our leadership positions in high return niche specialty markets. Where we are competitively advantaged.

Bruce and his team remain focused on this long term opportunity. But now I would like to talk you through how we will execute the self-help categories of operations excellence, and opportunistic growth in 2017.

Let me begin with operations excellence. In 2016 we were engaged with settling our foundation for the recovery for our business. We focused intently on our operations excellence platform. Which generated a estimated $89 million of our annually adjusted EBITDA, and surpassed our 2016 goal of $60 million to $75 million.

There were three core components to operations excellence. Targeted cost reductions, raw material optimization, and margin enhancements. As shown on slide 16 targeted cost reductions delivered $54 million of self-help in 2016.

We are creating a culture of cost discipline. Our SG&A was down 21% in 2016, and we saw 70% reduction in our capital spending. As we completed previous growth projects and place them in service. In fact our capital spending was the lowest it's been since 2012.

As we look towards 2017 we remain wholly committed to eliminating further waste. Along those lines we have already implemented new initiatives earlier this year to further reduce head count and control cost. Which we expect will drive an additional $10 million to $20 million in annual SG&A savings by the end of 2017.

As shown on Slide 17 our heavy-up strategy contributed $20 million to our $89 million of self-help results for the year. In 2016 with processed a record 35,000 barrels a day of heavy Canadian based crude oil. Compared to 23,500 barrels a day in 2015, that's nearly a 50% increase year-over-year.

As you can see from the chart on the right. We lowered our cost of fuels crude versus WTI by almost $1.50 per barrel between 2015 and the 2016. There were periods during the year are we exceeded our 40,000 to 45,000 barrel a day short-term heavy crude capability. Such as of the summer months when asphalt sales are in peak season. However, during non-peak periods like now, we will tend to run a lighter base of crude oil, and economically manage our asphalt production in storage.

Moving to Slide 18 Calumet realized $15 million of our $89 million of self-help through a combination of supply chain efficiencies and product upgrades. In terms of our supply chain, we talked last quarter about the need for our organization to better leverage its scale to lower our transportation procurement and feedstock costs.

So we renegotiated all of our trucking lanes in the second half of 2016. We significantly reduced our [demerged] costs about both Superior and Shreveport, and we leveraged are global procurement strategy to lower our raw material costs. While these efforts have just begun. We achieved over $8 million in benefit in 2016, and we see additional capture opportunities in 2017.

In addition to supply chain efficiencies our teams identified a number of opportunities to upgrade a handful of lower margin fuels products into higher margin specialty products. I will outline three specific examples for you.

First, our Shreveport location as a heavy gas oil stream that comes off our lubes unit. Historically this was low valued but, our team figured out a process upgrade to use the stream at our Karns City facility. To produce more wide oils and petrolatum's, which are more highly valued.

Second, we took a low margin fuel stream out of our San Antonio facility. Started processing it at Shreveport, and now make much higher margin base oils and lubes.

And lastly, we expanded our de-asphalting unit at Shreveport during 2016. Which helped us improve yields and upgrade base stocks. The sum of this product upgrades efforts was over a $7 million in additional self-help in 2016, and again we see additional capture opportunities in 2017.

Moving to Slide 19, you can see that we exceeded our goals, and realized $89 million of self-help. This can be broken down into three categories. $54 million from SG&A, $20 million from raw material optimization, and $15 million from margin enhancement. This strong performance keeps us in line to achieve our original $150 million to $200 million self-help goal by the end of 2018.

We are now communicating in outlook of an additional $40 million to $60 million for 2017 from these efforts. So let's talk about how we're going to drive these new additions.

Please turn to Slide 20. This slide shows a progression in our in our approach for 2017 as we add targeted growth investments moving forward. Again it is important to understand that we're not talking about huge capital spending here.

We are targeting a select number of internal driven growth projects that will be capable of generating one to two year payouts, but still have fairly low capital investment requirements. In 2017 these growth opportunities are focused on three initiatives. Capturing full value from our BP packaging partnership, executing our new Superior flexibility project, and new product development and innovations.

Please turn to Slide 21 for a few more details on these growth opportunities. Last quarter we introduced you to a new packaging agreement we have entered into with BP. In which are facility in Shreveport will blend and package between 10 million to 50 million gallons per year of their branded lubricants each year.

We completed the expansion of the facility in December, and held a joint ceremony on December 5 to commence the new partnership. We have been ramping up production according to plan. This plan is now more optimized, has significantly increased its capacity, and most importantly serves as a conduit to continue to build and grow our partnership with BP.

Both sides are excited with the execution so far, and we will continue to look for new ways to expand our relationships as we move forward. Next I would like to introduce the new Superior flexibility project that we will be progressing in 2017. This will cost roughly $15 million to $20 million, and will be complete in the first half of 2018.

Roughly two-thirds of the capital will be spent in 2017 in engineering and long lead equipment. This upgrade is focused on optimizing our product yields, recovery, and overall performance at the refinery. We are projecting a return in excess of $10 million of EBITDA annually, beginning in the first half of 2018.

And lastly, I want to highlight our product development group that is focused on our in-house pipeline of new products. This team applies our innovation and know-how to identify and meet our customer's needs. We have a pipeline of new high-margin specialty products that we believe have the potential for meaningful financial contribution in 2018 and beyond.

As the year rolls out you we will see several product announcements from our innovation and marketing groups. And I'm looking forward to talking to you in the future about them in more detail after they have been launched. I'd like to end our prepared remarks today with a discussion around our outlook for the first quarter and our priorities for 2017.

Please turn to the last slide, 22. In terms of the first quarter we have already seen some of our markets improve year-over-year. Crack spreads our seasonally low, as is typical for this time of year, but they are better than the same period a year ago.

We also made adjustments to our pricing in January across most of our specialty products. And we expect to see some catch-up in specialty margins during the first quarter ended 2017 as they take hold. We also believe that we will see expanded volumes particularly in some of our higher-margin specialty areas -- like esters and branded and packaged products, and thus we look for specialty segment to see improved performance in 2017.

On the oil-field services side drilling rig count continues to trend well. Which is positive for the segment, and in fact industry rig count is up nearly 15% year to date. Anchor is outperforming that industry recovery with Anchor rigs of more than 30% since the start of 2017.

In terms of our strategy we will continue to remain highly focused on leveraging are new leadership culture to drive operations excellence throughout the organization, and to opportunistically implement our new growth initiatives. Again, we currently project that the self-help initiatives can drive an additional benefit of $40 million to $60 million in adjusted EBITDA in 2017.

With all that said, that may make a personal statement for employees, investors and stakeholders. I remain committed, our leaders remain committed, and our Board remains committed to restoring our financial health. We have a diverse portfolio of tools, and a strong leadership team to drive this.

I have told you about our positive results to date in the areas of reducing waste, increasing efficiencies, and driving low capital quick payback projects. Beyond that we have innovative new products in the pipeline. All of this will support the increased cash flows necessary to right size the balance sheet. The end result of right sizing the balance sheet will be a prudently levered, Calumet focused on its core strengths, and the specialties product business.

The specific multi year optimization strategies that we have developed for each one of our assets give us a strong sense of the hold value or keep value for these assets. We remain active in evaluating the best path forward with this organization, and we will remain strong stewards of the business with a clear focus on creating value for all of our stakeholders.

To conclude, we have a strong team and a well-thought-out strategy to build value and enter a new phase of our recovery in 2017. We are looking forward to reporting back to you throughout the year on our progress.

That concludes our prepared remarks. So Michelle, please go ahead and open the line for questions at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Brad Heffern, RBC Capital Markets.

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Brad Heffern, RBC Capital Markets - Analyst [2]

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Good morning, everyone.

Tim, you led me into my question with the last of your comments there, but a lot of positive commentary around the oil-field services business. It seems like things are really improving there. I think historically you've talked about it as being less core than a lot of the rest of the assets that Calumet has.

So are we nearing a point when you might want to market that business a little more heavily, and more broadly? How necessary do you think some sort of divestitures are at this point?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [3]

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Brad, thanks for your question.

I think we've talked before on previous calls that as we developed our hold strategies and hold values -- and as we've included our self-help and five-year outlook for those assets -- we have a good feel including Anchor of what that asset holds in our portfolio.

That is our base strategy. Our based strategy is to optimize and get full value out of our assets. The oil-field service has improved as you've noted, Brad, over the last three quarters. In fact if you look at the EBITDA contribution, after adjusting for LCM and LIFO impacts, we've shown improvement in each of those three quarters in our oil-field services results.

We continue to look at all of our assets, Brad. In fact I would tell you we get calls daily on just about every one of our assets. And Bruce is chuckling a little bit here because he is the one fielding those calls. We continue to talk to interested parties, and compare the value that they see in our assets in there portfolio to the value that we hold in our portfolio looking at the outlook of these assets.

If we see someone who has a portfolio like the Dakota Prairie refinery example that we talked a lot about last year, we will certainly entertain and talk through opportunities to realize the best value for that asset.

I think Anchor is part of that portfolio that we discussed, Brad. I wouldn't say it's got any priority over the other assets we have. I will tell we are looking at all options we have to delever the balance sheet.

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Brad Heffern, RBC Capital Markets - Analyst [4]

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Okay, thanks for that.

And then a question about new administration, and regulatory reform performance and so on. Any thoughts around the border tax, and potential impact on Calumet?

Then I was also wondered if we do see a big corporate tax reduction. Is there a potential that Calumet might think about going to being a C-Corp rather than MLP?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [5]

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Yes Brad, there's obviously a lot of chatter right now on the border tax. And really corporate tax reform in general.

Let me turn it over to Bruce Fleming, head of strategy and growth to give you some thoughts on that.

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Bruce Fleming, Calumet Specialty Products Partners, L.P. - EVP, Strategy and Growth [6]

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Hi, Brad. Interesting question since there's a lot of moving targets in that space.

We have a dedicated team that watches this, and mainly things about how competition plays out. I think that's the root interest. There's a lot of conjecture, but there's an emerging consensus I think that domestic E&P will benefit from the supporter adjustability.

That is good for us. More feed stock supplies, and particularly the qualities that come from the shale frac areas [pulling] our specialty products businesses. So that's helpful.

Deductibility of capital expenditures has been mentioned, that would be helpful. Partnership tax rate caps may come down so that's all good.

On the border adjustability, frankly if it is implemented in a way that it's a level playing field it's not going to matter. The proposed size of that quote tax is smaller than normal market volatility. It's smaller than existing taxes on petroleum products.

I think what isn't resting though, and you went to this may maybe with your C-Corp question. Calumet is an MLP is in a different position, and these are all passed through to our LP holders. We've done an analysis, and it is again, this is conjecture on proposed implementation rules, but we don't see that there's any material impact in net income, or distributable cash flow, or EBITDA. Or any of the metrics that we normally steward the business with.

With we think overall it is likely positive for our LP holders given all the other moving parts. So I think that we certainly have advocate a level playing field. We certainly want to see fair regulatory regime in all these respects, but right now we don't see a problem.

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Brad Heffern, RBC Capital Markets - Analyst [7]

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Okay. Thanks.

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Operator [8]

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(inaudible) with Wells Fargo.

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Unidentified Participant, Wells Fargo Securities - Analyst [9]

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Thank you. Good morning.

Can we talk a little bit about the margins in the specialty products segment. Recognized seasonality; also recognize oil prices went up at the end of the quarter. You mentioned in your opening comments raising prices here.

But what is the right way to think about the margins in this business for 2017? And what that might do to either offset or enhance the self-help target this year, $40 million to $60 million of EBITDA?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [10]

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Yes Rodger, thanks for the question.

We are still very bullish on our specialties business. As you noted, specialty margins tend to lag rising crude prices. Especially the significant price in increase we saw in December. Which I think was up whatever $6 to $8 a barrel just within 30 days.

When you see rapid increases like that it does squeeze specialty margins short-term. Until we can adjust product rising accordingly. You can see with without rapid increase in the loops and rolls publications that many companies adjusted their pricing like we did.

That took effect primarily in January, and really by the end of the first quarter we should see the effects of those price adjustments. But that type of increase was rapid enough, and was high enough, that really we passed on some adjustments. And basically every one of our specialty product categories.

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Unidentified Participant, Wells Fargo Securities - Analyst [11]

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So was the right way I guess to think about the margins? Is it a -- Q1 looks a lot like Q4 -- and then we see maybe a normalization back to the first three quarters of 2016?

All this probably, obviously, presumes oil prices stabilize at whatever the right rice is here. Or is there anything else we should be thinking about?

Has there been any changes in the competitive nature of this business that would affect these margins?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [12]

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Yes, okay, Rodger, let me share a little bit more.

I think Q4 historically is a seasonally weak quarter. We do think Q1 will be a little bit better volume wise. We expect to see some higher volumes.

We are also seeing some global turnaround activity in the lubes industry that is affecting the lubes and specialties balances here in the first quarter. So we expect probably a better first quarter margin result in the specialties business than we did in the fourth quarter for those reasons.

By would tell you that these pricing adjustments do take time to go through all the pricing mechanisms that we have with all of our customers. So by the end of the first quarter we would expect to be fully caught up from a crude price standpoint.

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Unidentified Participant, Wells Fargo Securities - Analyst [13]

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Okay, appreciate that.

Then maybe follow-up to Brad's question on the oil-field services business, but a little more on the operational front. Obviously everybody had to cut cost aggressively in that sector; I'm sure you did the same.

What is your ability to ramp back up consistent with what you see as the improvement in rig count for you?

You mentioned 30% versus 15% realized nationwide count. But from a capacity standpoint, a hiring of headcount back into the business standpoint. Can we see this business on a comparable rig count level getting back to the performance that it had before the downturn?

Or have you structurally reduced it so much that maybe that's a little bit optimistic on our part?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [14]

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Roger, we've historically if you look back at Anchor performance through previous downtimes. Has a track record of being first responder as the market has improved.

We've had the ability. Our management knows how to position themselves to be able to respond quickly as the market returns. That's really the basis for the stat I just mentioned to you. While industry rig count is up about 15% year to date -- and you can even look at 2016 and a look at similar stats, our Anchor business is actually up 30%. That's because our management has positioned themselves to respond well to this up tick.

It will -- we have taken some very significant cuts Roger. So I don't want to underestimate that. I think the employees at Anchor have done a fantastic job of managing the cost pressures of this downturn. I think they are all poised and ready to come back as the activity starts to increase. Particularly in the Permian Basin, which is one of our core strengths. Where we have most of our capability.

From that standpoint I would say we have got our employees focused in the basins that we think are going to recover the fastest, and really in the process of recovering now. We feel like we're going to be able to manage that growth better than our competition.

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Unidentified Participant, Wells Fargo Securities - Analyst [15]

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Let me just fine tune my question, and I will turn it over to somebody else.

Given your CapEx guidance you obvious focus on generating free cash. Is there going to be any restriction on oil-field services? Or maybe potentially in specialty business on access to capital that might otherwise -- in a less constrained environment would have been an easier decision?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [16]

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No, we've had discussions with our management at Anchor, and they believe that they are in good position to respond to the increased demand, Roger.

We've got some additional hiring that's going on. Mostly in the contractor ranks right now as we they are still early in the recovery. At this point they do not anticipate needing any cash from us nor any capital. They're going to be able to sell fund, and we are excited to watch and support them as they grow in this recovery phase here in 2017.

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Unidentified Participant, Wells Fargo Securities - Analyst [17]

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Okay, great, thank you.

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Operator [18]

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Neil Mehta, Goldman Sachs.

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Neil Mehta, Goldman Sachs - Analyst [19]

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Good morning. I would like to follow-up on the leverage question.

Tim is there an absolute debt level that you have in mind at this point of where you want to target the Company getting to? In terms of absolute debt or leverage metrics?

You need to do asset dispositions in order to get to that target? Or do you think you can get there organically in a p50 case for margins?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [20]

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Neil, as I mentioned earlier we are committed to restoring the balance in our balance sheet. Getting our leverage down.

Long-term that debt is significantly lower than where it is today. So long term I would say we're looking at either an asset sale or long-term growth, but that's going to help us get our debt level significantly lower than where we are today.

Short term, we're focused solely on our self-help initiatives to drive improved cash flow, and to help us drive debt down. Short-term we don't have to sell assets, Neil. As we consider to talk to interested parties. As we continue to compare what are whole values are versus what their values and their portfolios are, we are actively looking for those unique partners that have a portfolio where it makes sense to sell those assets.

I know people a very interested in this. I can tell you we are very active in this space, but I can also tell you that we don't feel like we have to sell any asset short-term. We won't feel like we have a gun to our head. Basically the approach we take it management here, is we will sell the right asset at the right time at the right price.

I will turn it over to Bruce our strategy and growth leader to provide some more color on that.

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Bruce Fleming, Calumet Specialty Products Partners, L.P. - EVP, Strategy and Growth [21]

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Hi, Neil. Not much more color.

I just want to comment. Tim answered your question on leverage. Our mantra is going to be maximizing stockholder value, maximizing the value of our LP units. If a particular tax rate for debt reduction services that end it will be chosen.

But I think we've got a balanced approach. We've got the organic growth. We've got the possibility of finding an uplift if our businesses are worth more to others than our keep value, and of course Tim's touched on some of the partnering initiative such as BP. All of these are designed for value enhancement for the stockholders, and simply focus in on leverages is probably a little bit narrower than our actual strategy.

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Neil Mehta, Goldman Sachs - Analyst [22]

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Appreciate that. Then the follow-up is capital spending.

Is this less a 2017 question, but more thinking about the business on a run rate 2018 plus basis? How do you think about what normal is? From both the maintenance perspective, and a growth perspective that we should be dialing into our cash flow models?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [23]

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Neil, we forecast again in this $120 millions to $140 millions range here. Explained that as some of the growth capital from -- for example oUr SAP project from 2016 rolls off. We've got turnaround capital from our next wave of turnaround efforts ruling in.

I think the run rates that we are looking at right now are probably fairly consistent with what we are going to see going forward. In 2018 we do see a little bit of a higher turnaround load that's going to hit our books. We have leveled our turnaround between 2017, 2018, and 2019 a little bit more so that we can not concentrate it all in one year. At the same time it will still peak in 2018.

That being said, we have quite a bit of a allocated for growth projects in 2017, of which I outlined a few of those items. We don't necessarily want to say that growth capital spending will be at that level every year.

So in 2018 I anticipate turnaround spending to be a little higher. I would guess that growth spending might be a little bit lower. I think it is going to be in the same range that we are talking about.

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Neil Mehta, Goldman Sachs - Analyst [24]

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Last question for me is related to rigs. Rigs tax price come off quiet a bit. They are down $0.50 on a D6 basis.

Do you see that as a accreting to your bottom line,? Or do you think that just comes off the crack in a corresponding way?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [25]

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No, I think the adjustment in RINs pricing has happened pretty quickly here over the last several weeks Neil as you point out.

I think it does show how volatile the RINs market is, and I don't the market has fully caught up with the price drop that's happened in RINs. I think overall it goes back to product pricing. The markets will balance and we are still waiting to see how all that will shake out.

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Neil Mehta, Goldman Sachs - Analyst [26]

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All right, great, thanks so much Tim and everyone.

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Operator [27]

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Ed Westlake, Credit Suisse.

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Johannes Van Der Tuin, Credit Suisse - Analyst [28]

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Thanks for taking my call. It's Johannes here. I want to welcome West Griffin. I had a question about something he mentioned, and for the team as a whole.

It was said that there's a desire to make Calumet consistently cash flow positive. The refining business, as everybody knows, has history of volatile earnings. It is cyclical business.

So does that imply a specific sort of balance between the fuels business, and the specialties products business in your portfolio? On a midcycle EBITDA basis in the long run? How do you think about that?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [29]

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Yes, West, why don't you jump in.

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West Griffin, Calumet Specialty Products Partners, L.P. - EVP & CFO [30]

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Sure. Thanks for the question, it is a great question.

As Tim has mentioned repeatedly the core of our business long-term is our specialty products business. So that's what we are driving towards.

The assets that are not core or part of the deep core of the business are all things that at some stage we may consider doing something with. To the extent as Tim said, some one values that more than what we value those assets for.

I think very directly to your question one of the things that we want to do is focus our portfolio of businesses down to long-term. To focus more on our specialties business, because that provides very, very level and steady cash flow that is fairly predictable, et cetera.

So that is where we are going long-term. Is to more steady cash flow, and higher predictability, and positive cash flow.

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [31]

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Johannes I would jump in and say -- a couple years ago we looked at the portfolio and at the maybe this is what you are referencing.

As specialties contributing 50%, and fuels contributing 50% of the adjusted EBITDA. Going forward as I continue to focus this organization on our core specialties business we see most of our growth, and we are focusing most of our attention, in growing our specialties EBITDA.

We like the stability of that cash flow stream as you mentioned. With we think our strengths in our competitive advantage is in the specialties area. We are going to continue to focus in that specialties business as we continue to grow Calumet.

Having said that, we are not going to ignore our fuels business. A lot of the Superior flexibility project -- that I just mentioned to you -- is specifically focused on improving our fuels cash flows as well. We've got similar improvement efforts focused at our other fuels refineries.

So without saying we're going to continue to improve in fuels, but we anticipate most of our focus to be on growing our specialties business.

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Johannes Van Der Tuin, Credit Suisse - Analyst [32]

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Is there an optimal mix that you have in your mind at this point? You mentioned 50/50 that had been talked about a few years back, but going forward just what do you think the true balance in the long run should be?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [33]

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No. Johannes I don't think there's an optimal mix right now. We are looking for value.

So as these ideas are being generated by our business teams. We are doing that equally rigorous at our specialties business teams, as well as our fuels business teams. We are looking for the best ideas that will generate the most stockholder value, and those are the ones that we are going to be driving for here in the near-term.

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Johannes Van Der Tuin, Credit Suisse - Analyst [34]

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Okay, and then just as a second question. This goes to the balance sheet leverage.

It was mentioned that there are options to creatively to delever. Aside from the traditionally things that everybody talks about or thinks about, which is increasing underlying growth and cash flow, and delivering organically, or selling assets over time. Whether they be improved or not. Depending on how strategically best to do that.

Are there other options that people are just not thinking about? That would be viable for a Company like Calumet as time goes on?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [35]

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To me ask West to jump in again.

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West Griffin, Calumet Specialty Products Partners, L.P. - EVP & CFO [36]

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No. Absolutely. Great question.

Right now we are looking at a wide range of different things. We don't, as you might imagine, looking at all the various options to delever. There are a number of additional options to delever that we haven't really publicly talked about. And really not prepared to talk about that right now.

But we are looking at -- if you can imagine it -- we're probably looking at it. Is what I would say.

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Johannes Van Der Tuin, Credit Suisse - Analyst [37]

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Okay, thank you very much for taking my questions.

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Operator [38]

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Sean Sneeden, Oppenheimer.

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Sean Sneeden, Oppenheimer & Co. - Analyst [39]

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Hi, good morning. Thank you for taking questions. Tim or Pat, maybe just to start off on turnaround.

Can you give us a breakdown of how much of that is maintenance versus how much you are spending at Superior and Great Falls turnaround? How much is for growth?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [40]

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Yes, Sean, when we give the CapEx guidance for 2017 we're not providing that detail at this time. We will be reporting historically the quarter -- quarterly levels into those categories. But we are not providing that type of detail at this time.

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Sean Sneeden, Oppenheimer & Co. - Analyst [41]

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Okay. I guess maybe just thinking about it from a big picture perspective. I think Tim you touched on this in your prepared remarks. Conceptually is the plan to fund your program this year within cash flow? Or are you anticipating to use any of the revolver to fund any outspend?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [42]

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Yes, Sean, we spent a long and rigorous process this year in our 2017 budgeting process. As well as in our three-year outlook. Our management teams have been very engaged. Really we are driving cash flow as our key metric that we are watching.

So we believe 2017 will be a better year than 2016, and right now our target is to be, is not to be cash flow negative.

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Sean Sneeden, Oppenheimer & Co. - Analyst [43]

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Okay. That's helpful.

When you think about strategic M& A -- which I think is something you mentioned Tim, I guess one, are there opportunities that you are looking at now?

And two, just given the current shape of the balance sheet. How would you think about funding it -- how would you conceptually think about size of those opportunities?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [44]

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Yes, it is an interesting question, Sean.

As you see from the pyramid that I talked about earlier in the session. M&A continues to be part of our plan, and I mentioned that Bruce and his group continue to focus on that. We are involved in the deal flows, and we continue to look at opportunities. We think we can play in that market, and I will turn it over to Bruce to see what you would like to say on that topic.

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Bruce Fleming, Calumet Specialty Products Partners, L.P. - EVP, Strategy and Growth [45]

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The manner that we pay for is going to be customized. I wouldn't actually want to speculate, but we've got on a larger opportunity we are going to have to go nontraditional route. Where obviously not going to go to the debt markets for that.

Depending upon the nature, we've had a history at Calumet of finding private companies. And they may want to be folded into our larger business in a different manner than simply being acquired for cash. So we have a lot f of creative ideas on how to source the funds necessary.

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Sean Sneeden, Oppenheimer & Co. - Analyst [46]

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Presumably it could be -- for instance in partnership with the Heritage group among others -- is that part of the conversation?

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Bruce Fleming, Calumet Specialty Products Partners, L.P. - EVP, Strategy and Growth [47]

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I wouldn't say has to be a related party. I would say we've talked with plenty of investors that would like to partner with us on various joint ventures.

We have a lot of capability of and a lot of know how in this space. There are a lot of folks that are interested in partnering with us.

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Sean Sneeden, Oppenheimer & Co. - Analyst [48]

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Okay. That's helpful. Just on asset sells, try perhaps from a different angle.

You mentioned a couple times that you've gotten almost on a daily basis proposals for different assets. Qualitatively can you talk about evaluations that you guys are being shown.

I think perhaps more importantly can you talk about the trajectory, the differential, what people are showing you? What you think internally those assets are worth in particular is that evaluation gap shrinking?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [49]

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I think as you see the market recovering, Sean. Certainly in things like well oilfiend services, as well as the fuels market. There may or may not be closing of the gap.

Quite honestly it's really a difference in how we view the future versus how some else views the future. And what our portfolio in the synergies associated with our portfolio offer, as well as what it potential buyers portfolio may offer.

I'm not sure if it's as dependent on the time to difference like you are saying there. As it is just finding the right partners with the right portfolios. But again I'm return it over to Bruce and let him comment on that.

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Bruce Fleming, Calumet Specialty Products Partners, L.P. - EVP, Strategy and Growth [50]

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Tim, I think that is the answer. What I would probably add to do though -- the bid/ask spread a year ago was pretty wide. That was I think more indicative of the industry conditions.

There was just a free fall in the crude price. The MLPs were all losing their growth prospects as an industry sector. The bid/ask spreads, I think, have come in are much more reasonably in line with future sector performance expectations.

So we, broadly speaking, if I gave guidance I'd tell you our fuels refinery are worth refining multiple. Especially these plants are worth the specialty multiple which is, as you are you are aware, are considerably higher. So I think the value proposition is going to turn on someone who can now out bid are keep value. Pretty simple.

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Sean Sneeden, Oppenheimer & Co. - Analyst [51]

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Okay. That's helpful. Perhaps lastly should we read anything into your choice of having Superior and Great Falls go through the turnaround first? In terms of strategically how you are thinking about quality of your assets and what have you?

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [52]

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No, Sean. I can tell you should not read anything into that at all. This is just purely unit conditions, and when we have to take a turnaround from an operations standpoint. This has nothing to do with portfolio management.

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Sean Sneeden, Oppenheimer & Co. - Analyst [53]

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Great, I appreciate the color. Thank you, guys.

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Operator [54]

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Thank you. Mike Gaugler, Janneys.

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Michael Gaugler, Janney Capital Markets - Analyst [55]

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On the turnaround timing may be for this year and then maybe specifically on Superior? How the turnaround impacts or doesn't impact the superior flexibility project? (technical difficulties) on going today, and the turnarounds later? Maybe you could talk us through that.

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [56]

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Mike, the turnarounds that we have scheduled for 2017, Superior's is going to be sometime in the first half of the year. Great Falls will be sometime in a second half.

What I would tell you is in 2018 the timing of that will probably be in the first half of the year for 2018 for Superior.

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Michael Gaugler, Janney Capital Markets - Analyst [57]

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Great, thank you.

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Operator [58]

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Thank you. I'm showing no further questions, and I would like to turn the conference back over to Mr. Tim Go for any further remarks.

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Timothy Go, Calumet Specialty Products Partners, L.P. - CEO [59]

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Thanks again for your time today guys. We appreciate your continued support. Have a great day.

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Operator [60]

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Ladies and gentlemen, thank you for participating in today's conference call this does conclude the program and you may all disconnect. Everyone have a great day.