Calumet Specialty Products Partners LP
NASDAQ:CLMT
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Calumet Specialty Products Partners LP
Earnings Call Analysis
Q3-2023 Analysis
Calumet Specialty Products Partners LP
Calumet showcased its robust strategy this quarter by achieving significant milestones despite encountering operational challenges. The company started the quarter with strength, particularly at Montana Renewables, where they generated $75.5 million of adjusted EBITDA, validating their operational efficiency and strategic advantage derived from geographic positioning and discounted untreated feedstock. However, they faced transient issues at their Shreveport and Great Falls facilities, which included dealing with a cracked steam drum and operating at reduced rates, leading to a proportional pull-forward of scheduled maintenance activities .
Despite the setbacks, Calumet remained committed to its strategic plan, emphasizing the transformation of its core specialty business and the development of Montana Renewables. Strong progress in the Specialties segment was demonstrated through record results and commercial excellence. The operational and commercial leadership position was evidenced by the swift progress at Montana Renewables, a promising indicator for future growth potential and value for shareholders .
Montana Renewables (MRL) stands out with its strategic geographical location, which has allowed the company to flexibly tap into the Canadian market in response to logistics constraints experienced globally. MRL's performance in the renewable diesel and sustainable aviation fuel (SAF) sectors underpins its competitive edge, supported by advancements in operational capabilities and promising EBITDA generation, which Calumet expects to consistently demonstrate into 2024 .
Calumet's Specialty Products Segment (SPS) generated an adjusted EBITDA of $38.7 million, attributed to temporary operational issues and a strategic response to crude price increases. The Performance Brands division also had a solid quarter with $13.2 million in adjusted EBITDA, forecasting continued demand, especially in mining and marine applications. Legacy operations maintained stability, while excitement builds around demonstrating MRL's unique value in the coming months .
As Calumet navigates toward a potentially transformative moment, they have undergone a leadership transition with the announcement of a new CFO, which embeds a sense of renewed direction and expertise, particularly in the exploration of MRL's potential monetization. Looking ahead to 2024, the company aims to complete its C-Corp transition within a 9-month frame, which could attract more investors and move forward the timeline for MRL's monetization .
The market observers are aligning towards a bullish outlook on SAF, suggesting a premium of $1 to $1.50 per gallon over renewable diesel, a margin Calumet aspires to surpass. The company is in underwriting with the Department of Energy for loan approval related to expansion projects, and although they cannot forecast the timing, they express optimism about their relationship with the DOE and the straightforward process lying ahead for their transition and growth strategies .
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Good day, and welcome to the Calumet Specialty Products Third Quarter 2023 Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Brad McMurray, Head of Investor Relations. Please go ahead.
Thank you, Betsy. Good morning. Thank you all for joining us today for our third quarter 2023 earnings call. With me on today's call are Todd Borgmann, CEO; Vincent Donargo, CFO; Bruce Fleming, EVP Montana Renewables and Corporate Development; and Scott Obermeier, EVP Specialties. I'd also like to introduce David Luna, who recently joined the company as our incoming CFO, which will be effective January 1 upon Vincent's retirement from Calumet. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at www.calumet.com. Also, a webcast replay of this call will be available on our site within a few hours. Turning to the presentation on Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to the partnership's press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. I'll now pass the call to Todd. Todd?
Thanks, Brad, and welcome to Calumet's Third Quarter 2023 Earnings Call. We sure many of you saw that Calumet issued 2 press releases this morning. One was our traditional earnings release and the other was an announcement that after a thorough and productive negotiation, our general partner and conflicts committee reached agreement that Calumet will be transitioning to a C-corp. I'm going to start with the quarterly report, and we'll transition to the conversion shortly thereafter. To do that, let's turn to Slide 3. During the quarter, Calumet generated $75.5 million of adjusted EBITDA in what was, in many ways, a tale of 2 halves. The period started strong with the July that directionally represented what we expect out of Montana Renewables now that all units within the operation have been proven. However, the second half of the quarter was driven by 2 specific transient operational issues at our largest plants in Shreveport and Great Falls. Our Shreveport plant is fully repaired and the great Polisen replacement is on track to be complete in the week in the next week. Let me begin with more detail on the progress of Montana Renewables. First, in July, we demonstrated a financial representative result consistent with guidance. That was an important milestone as it marked the first full month that a majority of Montana Renewables feed was untreated. Specifically, 70% of our July throughput was local discounted untreated feedstock and MRL generated $14.2 million of adjusted EBITDA in the month. As mentioned, these results fell within our previous guidance of $1.25 to $1.45 per gallon on untreated feed and demonstrated the location and feedstock advantage that underpins Montana Renewables lasting competitive positioning. Second, and unfortunately, as our August press release highlighted, we also found a crack in a steam drum that is a component of our renewable hydrogen plant. Our team developed a plan to repair the drum quickly on site. However, after removing 469 tubes and getting a closer look, we made the decision to replace the steam drum. This replacement is now installed and will be mechanically complete in the next few days. We've included in the appendix a few pictures of the steam drum repair that might help put the event in perspective. Third, we demonstrated the sites tighten redundancy as we ran at reduced rates while the steam system was under repair. Given we are at reduced rates, we also took the opportunity to pull forward the catalyst change that was otherwise scheduled for April of next year. We're taking that catalyst change now. It's worth noting that our next-generation catalyst has performed well and nearly change is simply an economic optimization. We'd rather take a few extra days to complete the turnaround when we're already cut back than taking a full multi-week shutdown this spring. This also sets us up to enter a strategically important first half of 2024 with a clean slate and no planned turnarounds. Turning to Shreveport. We also announced a few weeks ago that we had an operational issue that cost us roughly 300,000 barrels of specialty production during the quarter. The volume was limited primarily because of a plug heater tube in our CDW unit. The plugging has been repaired and our Shreveport plant has been operating well for about a month now. Because of the operational circumstances, the third quarter certainly resulted in lower capture of market opportunity. With Shreveport fully up, Montana completing its steam drum next week and its catalyst change by the end of this month, I have full faith that we'll learn from this and reclaim the trajectory that we've come to expect. While the quarter was a setback, our strategy is robust and remains unchanged. I'll take a few minutes to remind listeners of the strategic path we're on as we're deep into the plan. Our strategic transformation began 3 years ago in the depths of COVID. At that time, we determined that 3 things would be required to put our company on to a different financial trajectory, transform the business and ultimately unlock value for our shareholders. First, we needed to transform our core specialty business. Second, we needed to fund, construct and operate Montana Renewables. And third, we'd consider the structure of Calumet when the other 2 are behind us. In Specialties, we made exceptional progress as highlighted by last year's record result, continued demonstration of commercial excellence and despite a couple of quarters of operational setbacks in Shreveport, marked improvement in the operations of this business. At Montana Renewables, in 3 years, we've turned an idea on a piece of paper into a leading business in renewable diesel and sustainable aviation fuel. MRL has been funded and constructed, fully demonstrated its operational and commercial leadership position and has shown a glimpse of its economic potential. Over time, our thesis at Montana Renewables is at or near the top of the renewable fuels competitive stack is based on 5 key pillars, which we believe are largely proven. First is the geographic advantage and flexibility the business has in product marketing. From the beginning, our offering was oversubscribed. And through the first few months of operations, we've demonstrated the ability to partner with leading companies to flexibly find the best markets. Most recently, we've seen this with over 60% of our products finding its way to Canada, which is fitting with our location less than 2 hours south of the Canadian border by truck. As we see reports of backups in the Panama canal, extending supply chains in all industries, we're reminded how fortunate we are at Montana Renewables to be situated with direct rail access to critical markets. I think we're seeing how a steady margin theory applies to the industry as a whole. The volatility can be driven by length of supply chain. In a declining feedstock price environment, margins in our industry will be higher for those with short supply chains. Over time, the industry's volatility should balance out, and we simply would expect those with shorter supply chains to be more steady. Second is our feedstock advantage, which is underpinned by our geography and pretreatment capability. Montana Renewables is the nearest demand point for feedstock suppliers who collectively represent more than 10x our capacity and our ability to competitively procure tallow, distillers corn oil, canola and even Camelina is well known. Our third competitive pillar is our SAF advantage. Sustainable aviation fuel is arguably the fastest-growing area in energy, and Montana Renewables is the first mover here is the largest SAF producer in North America. A great majority of the headlines we see of airlines buying SAF are originated in Great Falls, Montana. As most of you know by now, we believe that SAF represents our next transformational opportunity as we look ahead to our max SAF expansion. Through these first 3 pillars, I'd characterize Montana Renewables is fully proven, and the last 2 aren't far behind. The fourth pillar is operational capability. We started renewable operations in Great Falls at about this time last year. The sequential commissioning of 4 major process operations over a 6-month period was success, starting with our renewable diesel unit last winter and a catalyst that has proven to be robust. Then renewable hydrogen plant in the first quarter and last our SAF unit and our pre-shoot in the second quarter. We learned a lot over the first few months of operations, including some expected early teething pains, and we have proven each of our units and the technology works as expected. The last proof point is routine EBITDA generation, which is ultimately an outcome of the previous 4 items. We saw a glimpse of this at Montana Renewables generated over $14 million of adjusted EBITDA in July on only 70% on traded feed, but the crack in our steam gem has set us back a few months. We fully expect to resume demonstrating this final proof point in December and into 2024. Turning to potential monetization. We expect some duration of audited financials at steady state operating levels as an enabler to receive a proper valuation for this business. We've said before that our goal is not to over optimize and play for the last dollar, but the difference between marketing a 100% proven business and a 90% proven business is enough to warrant pushing the expected time line for a potential monetization back a quarter. And midfield -- midyear feels like a reasonable time line for a potential next step. In parallel with taking this last step to complete the ultimate deleveraging of Calumet, we continue to be optimistic about the DOE process. We're in the final stage of the process. And while we can't say with certainty that we'll be successful or on what time line, our optimism continues to increase as time progresses that Monatana Renewables with its unique renewable hydrogen system and first mover advantage in SAF is right down the fairway for the type of project the Department of Energy is looking for. And last, we continue to progress engineering around our MaxSAF project. We've narrowed the field to a short finalist list of technology providers and general contractors, and we expect to be in a position to fully launch this project as soon as we hear from the DOE that were cleared for financing. All signs continue to point towards this project being one that can more than double the steady-state EBITDA potential of Montana Renewables. We've discussed the specialty transformation and standing up Montana Renewables. I mentioned earlier that the third leg to deliver the shareholder value that we ultimately expect was to evaluate the structure of Calumet. This topic has received a lot of attention over the past few years, and we believe it was critical to address the fundamental business first. We all were reminded of the unintended consequences of being a very thinly traded MLP recently when a block sale of only 1.5% of our units had an outsized impact on our shareholders. We don't believe that was a reflection on the fundamentals of the business. It was rather the reality that without a broad institutional investor base, most of whom can't invest in MLPs, we can have wild swings in our equity price. While this event served as a reminder, our general partner and Conflicts Committee were well into negotiations on the ultimate conversion of Calumet's MLP into a C-corp when it occurred. Calumet's general partner comprised of our founders and their families has been an ardent supporter of Calumet since the beginning. If we back up a few years when Calumet was fighting for its survival, the general partner didn't waver. With this transaction, the general partner will absorb a meaningful tax bill. And as Amy mentioned in this morning's press release, they're willing to lean in as their believers in Calumet's growth vision and see the significant value available to all unitholders. There is no group more committed or financially aligned with the Calumet value unlock than our general partner and on behalf of management and our unitholders, I thank the Heritage Group, Grube family and our Conflicts Committee for negotiating a transaction that is exceptional for all parties. I truly believe this is a foundational launching pad for the future of our company. Let's flip to Slide 4 for more details on the transaction. We're going to go over some detail here, and we likely won't be getting into any more detail in Q&A as this approval is hot off the press. First, the corporate conversion will close within the next 9 months. We'll begin to prepare the necessary documents for the filing process soon. From there, we'll file a Form S-4, hold a unit holder vote and prepare for the ultimate closing. Upon closing, the general partner will exchange its existing IDRs and 2% general partner interest, which is approximately 1.6 million units for 5.5 million shares of common stock and 2 million warrants. These warrants will have a strike price of $20 a share and will expire 3 years from the date of issuance. This represents a dilution of 4.5% to our current shareholders, which is illustrated in the appendix on Slide 14. This slide also highlights a few governance features, including a staggered board, which will be made up of a majority of independent members. It's worth highlighting that upon conversion, there will be a single class of voting shares with economic interest fully aligned. As a management team, we look forward to getting out quickly to explain Calumet's growth strategy and immense value proposition to a new group of institutional investors that until now have not been able to invest in the company. With that, I'm going to turn the call over to Vince to review the quarter. Vince?
Thanks, Todd. Before I comment on our business segment, I would like to turn your attention to the RIN slides in the appendix. Our net income included a noncash gain of $173 million related to our RINs mark-to-market adjustment. We do not view these mark-to-market gains or losses as meaningful with respect to our business performance and our strategy regarding RINs remains unchanged. So let's turn back to Slide 6. Our SPS business generated $38.7 million of adjusted EBITDA during the quarter. As Todd mentioned, we had a temporary operational issue at Shreveport that resulted in a loss of roughly 3,000 barrels of specialty product production. We purchased some third-party material where we could to ensure our long-term customers were kept whole, while the operations team at the facility brought the affected units back to normal production levels, which has occurred. The other notable item that impacted the quarter was a $19 per barrel increase in crude prices. Our commercial team implemented price increases that largely took effect on October 1, so we are seeing the benefit of the price increases this quarter as crude has stabilized. We continue to be constructive on the margin environment going forward, although we'd expect normal seasonality late in the year. On the fuel side, both volumes and margins improved quarter-over-quarter. And while the winter is typically weaker seasonally, especially for gasoline, we continue to see strong distillate margins. Not only do we produce more diesel than gasoline but our specialty business tends to benefit from higher diesel prices as it's an alternative for solvents and light blue. With product inventories at or below their historical averages, the fundamentals continue to point to healthy margins in the near to medium term. Moving to Slide 8. Our Performance Brands business had another solid quarter, generating $13.2 million of adjusted EBITDA. This was up $1 million from the previous quarter. We typically see some seasonality in this business as big box retailers manage year-end inventory levels. Our Performance Brands team is focused on continuing to manage our costs, deliver high-quality products to our customers and optimize our product mix to find the highest netback channels across our branded products, and we're excited about the opportunities ahead to continue to improve this business as we have during the year. Industrial demand that we have mentioned before, continues to be strong, especially in mining and marine applications, and we think these end users will continue to be tailwinds for this business. Moving to our Montana business. You can see on Slide 10 that we generated $38.2 million of adjusted EBITDA in the quarter. Operations at our legacy asphalt plant were excellent, and we have seen heavy Canadian crude differentials widen near the end of the quarter and into the fourth quarter. We operated the plant at nearly 12,000 barrels per day of production, which has been fairly consistent after the large turnaround last year that separated our renewables business and legacy specialty asphalt business. At Montana Renewables, Todd spent a lot of time on the previously disclosed steam system, and I will briefly touch on that again. We have 4 hydrogen plants at the Great Fall site that supply hydrogen to both the legacy plant and the renewable diesel plant. 3 of those were preexisting and we constructed the fourth as part of the MRL construction and conversion. This redundancy has been important as we've been at least been able to run at reduced rates while the fourth plant has been down. With the steam drum replacement now mechanically complete, we expect to begin bringing that hydrogen plant back into service at about 1 week from now. And we're also on track to complete the turnaround that was pulled forward, and we're excited to pick up where we left off in July and fully demonstrating the uniqueness of Montana Renewables as we expect to run at full 12,000 barrels per day through December and going forward with most of that being untreated feed. We'll start with the untreated feed that was on the books for the past couple of months, and we expect to be back in the market in the new year, adding new regionally available supply. With that, I'll turn it back to Todd for closing comments.
Thanks, Vince. Earlier this quarter, we announced that after a thorough search, Vince and I found his successor as CFO, and I'll introduce David momentarily. But before that, I want to thank Vince for everything that he's done over the past few years at Calumet. And by the time of our next call, David will be in the seat. Vince joined Calumet in August of 2020. Our stock was around $2.50. We had a material weakness in our financial reporting, and we are only shortly removed from a troubling SAP implementation. Vince is encouraged tenacity and leadership, we're Paramount and fixing all of the above, and he also led us through a resegmentation, which brought transparency to Calumet by aligning the way we report the business with the way we run it. Vince and I [Audio Gap] day 1. He brings 20 years of experience advising companies on corporate financial matters, including M&A and capital markets transactions in relevant industries. David was most recently with Goldman Sachs, and he has hit the ground running as he leads the exploration of potential MRL monetization, and Braley prepares to step in fully as CFO on January 1. Vince, congratulations and thank you. And David, welcome to Calumet. With today's news and game-changing opportunities ahead of us, it's an incredibly exciting time to be joining this company. With that, I'll hand the call back to the operator for questions. Operator?
[Operator Instructions] The first question today comes from Roger Read with Wells Fargo.
Yes. Congratulations on the announcement of the conversion to the C-corp. I think that it will be something that's been looked for hope for and will be well warmly received. On the operational side, the specialty margins, you discussed them in the presentation. And if you look at the chart, are we essentially seeing specialty margins normalize here? Is that the right way to think about it at plus or minus $60? Or should we read into further strength based on the crude price moves and the comment about October price increases?
Roger, this is Scott. I would answer it with 2 parts. I think overarching, we've seen some tapering and normalization of specialty margins that have come off all-time records, right, over the past year. So there is some tapering down of specialty margins. I think what occurred though, in Q3 was a little bit magnified on some margin compression as crude spiked up and a lot of our operational issues created some additional headwind. So as we think about this quarter here in Q4, we've got a lot of our increases through depending on how crude shakes out, but we should see some improvement in fourth quarter to more normalized margins above Q3 results.
Okay. And then on the MRL, the kind of what happened in the third quarter, the drum issue and all. I was wondering if we could get a little more clarity on the period at which you did achieve the $1.25 to $1.45 margin. Sort of like what did you see in there? How well did the unit run? And is there upside from there if you're running really well, find the right markets, as you mentioned, whether it's Canada or somewhere else? Just trying to help understand like the real performance of the business when it isn't dealing with start-up issues.
Roger, it's Bruce. I think the July performance was representative in terms of most of the things we look for and we ran well. We didn't run all the way full in July. So actually, as we get span up again, you're going to see that margin improve because we're going to spread the fixed costs on a unit basis, you'll see the margin improved. And then in terms of the implied optimization, the way we've got our product supply agreements set, we've got a distribution optimization that the customers benefit from. In return, we've got a very fully priced product. So that's kind of a synergistic partnership with them.
The next question comes from Neil Mehta with Goldman Sachs.
And Vince, congratulations. David, welcome, and congrats on the news about the conversion. I think liquidity has been long been a focus area for investors around the stock. The first question is just building on the lost opportunity profit in the quarter. As you think about the downtime and if you were to build back some of these issues, do you have a sense of how much EBITDA would have been higher in the absence of those issues?
Yes. We said about a little more than $50 million is what we think we lost in the third quarter, Neil. This is Todd, by the way. Thanks for the question. The 2 events, 300,000 barrels in specialty, if you look at our margins, routine margins in specialty, that's probably a little over $20 million of lost opportunity, and then the same thing for MRL, right, 2 months of cutback. So if we look at July and say that we should have had July going forward at a minimum, that's where we get the other 30 plus. So in total, $50 million of lost opportunity for the quarter, which is disappointing but also reminds us of the potential that we have ahead of us.
I know it's tricky to talk about the transaction. So Todd to pass on this one. But I was just curious on tax implications to the extent you are a Calumet older and you own MLP. It sounds like the way this is designed, there won't be a meaningful tax impact, but can you confirm that? And then as we think about you as a cash taxpayer, I would imagine the NOL will carry with this transaction, and therefore, I wouldn't imagine you'd be paying cash taxes for a while. But any thoughts on the tax side would be great that you can understood.
No, I'll comment on it a little bit. I'll be careful. Like normal, you're all over the topic, and I think you hit on a couple of the big ones. So on the call, I mentioned the GP will make a meaningful tax cash payment that depreciable basis step-up actually gets shared across to all shareholders. There's some tax arbitrage things like passive loss carryforwards, like you mentioned, will flow into investor bases at conversion and be taxed to capital gains rates rather than ordinary income. The other tax impact that it's hard to quantify, but could be meaningful is the increase in price between now and conversion as new investors enter will also result in a step-up in depreciable tax basis. It will be helpful to all investors. So I'll probably stop there, but I think you're right, as a whole to say, for most, this should not be a negative tax event. In fact, it should be very, very positive tax event for the great majority of our unitholders.
Next question comes from Manav Gupta with UBS.
Help us understand a little bit about the restart process here. Looks like you're firmly on course to get the operations fixed at Montana. Should we assume that 1Q '24, you run all out, and that kind of gives us that $1.30 or $1.40 EBITDA per gallon margin, should we be watching that as the quarter where everything comes together for you in terms of RD.
Mana, it's Bruce. We're going to plan to be running full from, let's just say, December 1, so that you get a solid month, another proof point, and then we'll stay full. What we've got to do, though, the steam system repair work was an unplanned slowdown. So we've got a certain quantity of clean feed still backed up in inventory that we're going to have to pull through. So the $1.25 to $1.45 guidance is for dirty feed. And we've got a blended situation for a little while.
Perfect. Quick follow-up. Yes, please go on.
Well, I was going to say, so if you look at July, we had about 70% dirty, 30% clean. The actual performance, if I recall correctly, it was $1.23 on a blended basis. So right at the kind of low end of the range. What you should look for is the spread between perhaps RBD, veg oil and crude veg oil in the market as a proxy for what happens when we blend.
Perfect. A quick follow-up is you already have a SaaS transition strategy in place and expansion. I understand you're waiting for the full confirmation of the DOE loan, but help us walk through this SaaS transition strategy. And when it's all over, how much SaaS could you be looking to produce in your system?
We're advertising, and we have been for a couple of years, 230 million gallons a year set at the moment based upon the engineering progress that's looking conservative. There's a high case at 300 million gallons that we think is probably reasonably achievable. This is something that we'll be reporting back to you on as we go forward.
Next question comes from Amit Dayal with HC Wainwright.
My other questions have been asked. Just on the time line for the monetization. With respect to this going to C-Corp, how does that impact, you're saying 2Q '24 for the monetization within 9 months to complete the C-Corp transition. So do these have bearing on each other in terms of how we can move forward on the monetization?
Amit, it's Todd. It's a good question. They could. I think a lot of that's driven by what type of market we're seeing at that point in time, right? The 9 months on conversions and outside date, it could be faster than that. If you think about what needs to get done, I guess, starting now or very shortly, we start doing the documentation. We're getting ready. We're signing the official document that then transitions us into filing the proxy, the S-4 and receiving a shareholder vote. So it could be faster than 9 months. 9 months is the outside date. I think the committee and the GP agreed to have a firm date so that there was certainty that the conversion would happen by a certain point in time, but it certainly can be pulled up. So I think we'll get a better view of that process once we're in it in that timing. Obviously, Q1 is going to tell us a lot at Montana Renewables too, and we're pretty confident about that, excited about that quarter. And then we're going to assess how the market looks. And I think it will be a combination of those 3 things that really drives ultimate timing. But at this point, we don't see any time -- any reason to change anything. We think these are all additive. We think that adding more investors that potentially would have had to hold out for an MRL spin-off can now invest in Calumet and start to get inside the company and learn more about us. I know there's a lot of people out there who are very interested and excited in MRL itself. There's been a lot of interest in that as a stand-alone public company. So I think as we look forward, that continues to be the planning base. And hopefully, we'll get some of those investors to come in and take a look at us sooner than they otherwise would have.
Understood, Todd. And just in relation to that, are there any unknowns in this transition process that could maybe delay the process or cause any sort of challenges, I guess?
I don't think so. I say that we will head just because we haven't done it before. But we've got a lot of advisers and legal counsel that has, and I think there's a pretty clear path for these types of things. So as I look at the plan, it appears pretty straightforward. There's a lot to do, certainly. But I don't see a specific event or a turning point or anything like that, that would leave us questioning the ultimate outcome.
The next question comes from Jason Gabelman with TD Talens.
I wanted to first ask on the MAX a expansion project. I think previously, you had discussed that the growth CapEx was not tied to the DOE loan. It sounds now like they are kind of tied. So if that's changed, you discussed -- can you discuss why that's changed? And then additionally, as you've been going out to customers to contract the staff available in the expansion case, are you confident or do you have enough confidence to provide some sort of earnings outlook on that project?
Let me start off, Jason, it's Todd. And then [indiscernible] plan to add on. On the DOE question, what we've said consistently is we don't want to take on additional debt to do MAX s, and that continues to be the case. What I made a comment in the earnings call around we'll be ready to go when DOE approves financing. What we're doing there is we're assuming that that's going to be the next opportunity for financing. There's certainly other opportunities for financing. I think you're probably referencing in the past where we've said, hey, as part of a monetization proceeds could be used for MaxAtexpansion, those types of things. So all we're doing here is simply suggesting that DOE, we would predict that DOE is sooner on the time line, although, obviously, we can't guarantee that, don't know that. But sitting on a time line than ultimate monetization. I think the bigger point is we don't want to take on additional debt to do Maxs. We made that commitment when we went and did the 28, and we're going to hold to that.
Got it. And I don't know if Bruce wants to.
Yes. The second part of your question revolved around product placement. I'll give you 3 thoughts. And first, we read this sort of steady stream of announcements of people signing up for billions and millions of gallons of staff, which may or may not ever be available in the market. That's a backdrop. The situation for us is we're the largest of the only 2 producers on this side of the world. And we could sell all of the staff to 12 different people tomorrow at the drop of a hat. So you're in the very early stages of what's going to be practically a vertical evolution for this new industry. So the third thought is we're the low-cost provider. No matter what happens, we're going to stand at the top of the competitive rankings on this. We had the lucky accident of having the hardware to recover the staff at a relatively low capital cost. Everybody else is going to have to build that. So we're there already. We're not first. World Energy was first. We're second, we're advantaged, and we're planning to stay advantaged.
Got it. And maybe 2 quick clarifications on those comments. First, timing around the DOE loan. I know it continues to shift down, and it's always tough to guess when the government is going to move forward on something. And then on the SAP economics, where you're seeing those price premiums come in relative to renewable diesel. And I'll leave it there.
The industry watchers seem to be centering on about $1 to $1.50 gallon premium to RD. That's substantially a European circumstance right now. But I think we could broadly suggest that it's going to be similar in North America. Anybody with an R&D platform should be able to fish out about 15% or 20% of it as SAF. So those in our mind are together, they're going to have to are together through the nest of regulatory support mechanisms, including the new SaaS blenders tax credit. And we think that's an appropriate spread, which is going to reflect an industry average player. I'm going to emphasize that we're doing better than that. The way the trade flow is set up is also probably going to contribute because there are feedstock yield differences. There are catalyst field differences. There's operational severity. And so if you think about refinery complexity and LP, multivariable decision-making, you'll be thinking the right way about Saas made from hydro process they like us. I'll contrast that with something that's very, very linear. If your model is you buy ethanol, you convert almost all of it into SaaS, you don't have all of that optimization flexibility. So our dependence on any premium in the market is different to a new entrant that lacks flexibility.
Got it. And then on the DOE loan timing?
That's up to the DOE. We're very pleased with the relationship that we've established over the last 1.5 years. It is actively engaged. We are in underwriting, but I'm not going to forecast their eventual decision or their timing.
This concludes our question-and-answer session. I would like to turn the conference back over to Brad McMurray for any closing remarks.
Thanks. On behalf of the management team here in the room and really on behalf of all of Calumet, we'd like to thank you for your time and your interest this morning. Have a great end of the week and this concludes the call. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.