Calumet Specialty Products Partners LP
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Calumet Specialty Products Partners LP
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Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2020 Calumet Specialty Products Partners Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker host, Joseph Caminiti. Please go ahead.
Thank you, Olivia. Good morning, everyone and thank you for joining us today for our fourth quarter earnings results call. With us on today’s call are Steve Mawer, CEO; Todd Borgmann, CFO; Bruce Fleming, EVP of Montana Renewables and Corporate Development; Scott Obermeier, EVP of Specialty Products and Solutions; and Mark [indiscernible], EVP of Performance Brands.
Before we proceed, allow me to remind everyone that during the course of this call, we may provide various forward-looking statements within the meaning of Section 21E on the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management as well as assumptions made by them and in each case based on the information currently available to them. Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the partnership, its general partner nor management can provide any assurances the expectations will prove to be correct. Please refer to the partnership’s press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made in this call. As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today’s conference call as indicated in the press release we issued earlier today. You may access these slides in the Investor Relations section of the website at calumetspecialty.com. Also, a webcast replay of this call will be available on our site within a few hours, and you can contact alpha IR Group for Investor Relations support at 312-445-2870.
With that, I’ll pass the call to Steve. Steve?
Thanks, Joe. Good morning, everyone and thank you for joining us. 2020 was a year characterized by crisis. It was also a year characterized by how the Calumet team responded to that crisis. The market challenge handed to us by the pandemic was unprecedented in the combination of both its severity and its length. We’re through the worst for the average crisis last days or weeks, not more than a year. We used our crisis playbook to effectively manage through all the uncertainty and volatility and succeeded in generating positive cash flow, a significant result given the market conditions.
I can’t thank the Calumet team enough for how they rose to the challenge. At a time when execution and Timok had to be impactable, our employees excel. A particular note is that most of our safety and environmental performance measures improved by an exceptional 30% to 40% year-on-year. To improve performance in this foundational area, during a crisis is simply fantastic and further shows how committed our team is for driving excellence of all forms. The cards dealt us by the pandemic meant that our financial results inevitably would disappoint compared to a normal year. And on top of an economic crisis, there was confusion and inaction on renewable policy by the algo administration just to make the challenge even more complicated. If you look back to the price performance of both our debt securities and our common units in the spring of 2020, it’s clear that the opinion of the financial markets was that this storm was going to overwhelm the industry and with that Calumet. The storm did hit, but it didn’t materialize into the result that the markets broadly assumed. And we thank our unitholders and bondholders who have showed confidence in us. So far, those who believed in Calumet and our team have been rewarded with outperformance during the recovery.
Additionally, with our recent strategic update, we believe we have a path forward to further enhancing unitholder value. And that’s a sign that we believe we’re really just getting started. Coming back to the pandemic and what it asked of our team, Slide 3 details our three most imperative objectives to address the crisis. The first is that we needed to excel in specialties. We spent the last couple of years tuning our specialties business into something we believe we do really well. And we’ll go into more detail later on what we truly mean when we say doing federally is really well. However, at the most fundamental level, it means delivering earnings and margin growth during a major economic shock, and our results across the year clearly show we succeeded. Sometime back, you may recall, we communicated an aspirational goal of $40 a barrel gross profit margins for our specialties business across an entire year. And in 2020, this goal was met and exceeded and we believe this performance level is sustainable and repeatable. A critical part of our success is our deliberate strategy to operate with a much more diversified customer base than most of our competitors. And the payoff from this strategy was foundational to our 2020 results and shows how actively managed diversification can help weather macroeconomic volatility.
Second, in a crisis, we needed to take decisive and successful actions. A step change down in our cost structure is the longest lasting of our decisive actions. Having said that, our decisions to significantly pay back 2020 capital expenditures, diligently manage the volume margin envelopes in all our businesses and aggressively hedge Canadian crude supply, show how Calumet can be focused and decisive in the pursuit of our objectives. It is reminding that at the same time that we were able – as doing this, we were able to maintain focus on our key growth objectives, most particularly through investing in and capturing dramatic growth in our Engineered Fuels business. The third objective was capital discipline. So for 2020, cash flow positive was the rallying call of our team and our team delivered.
Responsible business stewardship includes material planning for stress events. And at Calumet, that planning is a core business practice. You can see that first in how fast we responded with controllable cost reductions; second, in our ability to maintain access to ample liquidity through a very extended crisis; and third, in how we creatively and effectively address our debt maturities. Executing on all these activities has given us the time and optionality to accomplish our strategic objectives without [indiscernible] or pressure and allows us to remain focused on creating unitholder value. We executed effectively on our tactical 2020 pandemic objectives, but the new circumstances did indeed slow our progress towards our strategic objectives. It’s not easy to delever into a market which is trading at cycle lows and incorrectly assumes that there may be blood in the water. So our strategic objective hasn’t changed. And as we leave 2020, having preserved cash, having dealt with the maturities and having proposed a best-in-class renewable diesel future in Montana, we are positioned to make value-creating steps for our unitholders as both our businesses and the economy accelerates. I’m going to hand over to Todd to talk about our results, and we’ll then circle back to discuss our business segment changes. I’m really excited to present Calumet consistent with how we actually run Calumet. Simplicity, clarity and focus are essential to winning. And I believe, as you get to know these three distinct businesses better, you will see that each has a clear and winning strategy. Todd?
Thank you, Steve. Let’s turn to Slide 4, where we provide the fourth quarter and full year highlights. Calumet reported adjusted EBITDA for the quarter of negative $8.6 million. Similar to the rest of 2020, the specialty segment performed exceptionally well, generating $61.4 million of adjusted EBITDA in the quarter, while the field segment lost $57.9 million of adjusted EBITDA. Of note, the largest driver of this field loss in the fourth quarter was $52.9 million of non-cash rent expense.
For the full year, Calumet generated $141.5 million of adjusted EBITDA, including the corporate cost center. The specialty segment delivered $238 million of adjusted EBITDA, which was up more than 14% from 2019 despite the challenges of the past year. As you know, back in the second quarter, we, at Calumet, shifted our entire focus to avoiding cash burn amidst the pandemic. In 2020, we generated $62.8 million of cash flow from operations and $18.8 million of free cash flow. We recently completed a $70 million sale-leaseback financing transaction involving our field [indiscernible] assets at our Shreveport plant and proceeds will be used to pay down 2022 notes. Earlier in the year, we extended the maturity date on 200 million of ‘22 notes to 2024. These creative financing solutions allow us to manage our debt maturities comfortably, and we remain focused on our more material strategic priorities as we are well positioned to create value.
To further quantify the key drivers of 2020, let’s turn to Slide 5. I don’t think anyone means reminded of how challenging 2020 was to all fuels producers. Fuels margins were $93 million worse in 2020 and RINs costs were $117 million higher than in 2019. Remember, RINs have not historically been a cash expense for Calumet. These two noncontrollable items accounted for $210 million of the decrease in adjusted EBITDA versus the prior year. Helping offset the fuels market was a $23 million improvement in specialty margins and transportation costs as well as a $78 million improvement in our cost structure. It was these items that allowed us to generate cash this past year. We expect this more efficient cost structure to continue to provide advantage going forward and the proven resilience of our specialty business reinforces our strategy of focusing on specialties growth.
On Slide 6, we detail the fuels product segment. The crack spread and rent headlines we just discussed really sum up the fields here, and we controlled what we could to offset them. This segment lost $30.3 million of adjusted EBITDA in 2020, down $182.8 million from 2019. I mentioned that RINs expense for the year was $117 million higher than 2019 and the rent impact in the fourth quarter alone was $36 million worse than the third quarter of 2020. Again, these were non-cash expenses in both the fourth quarter and the full year. More positively, with supply across the country slowing down, our local rack sales reached record levels. Our strategy in this business has continued to grow in our local markets as spreads return.
With vaccine levels increasing throughout the country and a large amount of global fuel capacity permanently offline, the markets are looking better. The average 2020 Golf Coast 2 on 1 crack spread was down $8.61 a barrel from the 2019 average. This spread compression is largely what caused Calumet fuels margins to worsen by $93 million in 2020. And looking forward, the 2021 strip is currently more than 60% better than that 2020 average.
Let’s move forward to Slide 7 and talk specialties. Specialties, is what Calumet does best. And 2020 was a clear demonstration of that as we had our second straight year of double-digit adjusted EBITDA growth in this segment. Fourth quarter adjusted EBITDA was $61.4 million, which is 43% better than the fourth quarter of 2019 and 11% better than this year’s third quarter. On the last earnings call, we mentioned that we had not yet seen the normal seasonal slowdown as the country continued to recover and restock, and this trend continued throughout the quarter. Growth in the consumer-facing businesses was tremendous throughout the year, particularly within our TruFuel in Puerto Rico brands, and this held in the fourth quarter. Also in the quarter, our industrial products, largely solvents and lubricants, returned to 96% of 2019 average levels.
Let’s go to Slide 8. Earlier, I mentioned that we’ve had 2 straight years of double-digit specialty growth. And here, you can see a positive quarterly trend from the fourth quarter of 2019 as well. We’ve talked before about the importance of effectively balancing margins and volume throughout the pandemic and growth in specialty adjusted EBITDA margins, up 53% to last year’s fourth quarter demonstrates the effectiveness of our margin management efforts. This was achieved while specialty volume was down over 9% on the year. Some of this volume was pandemic related, but over half was intentional SKU reduction in customer rationalization. Calumet’s market-leading customer and product diversity is what provides the ability to optimize our business for success in changing market conditions. This diversification and breadth is at the core of our advantage in the specialties business.
Now, I will turn the call back to Steve.
Thanks, Todd. Let’s turn to Slide 9. Several weeks ago, as part of our strategic update, we announced that we were planning to resegment our financials going forward. Since selling the San Antonio refinery in 2019, the reality of Calumet has been that we have operated 3 distinct businesses that we will clearly portray in our financials starting in the first quarter of 2021. We will also follow-up with an undertaking to make these businesses more understandable and transparent. In our humble opinion, each of these 3 businesses is a competitively advantaged gem with clear growth and development opportunities.
Currently, our financials are grounded in a business model, philosophy and strategy dating back some years. Simply put, not amending the reporting structure in a way that keeps up with our business model and strategic changes is both confusing and wasteful. We don’t like to confuse investors and based on feedback we have furthermore, as you can see from the cost reductions implemented this year, we aren’t big fans of waste either. Aligned with financials with our actual distinct businesses is something that, as a management team, we think, is a common sense activity that enhances focus. I’m just going to talk briefly about one slide each for the 3 businesses, and then the leaders of each business are on the call to answer questions in the Q&A. Bruce Fleming is EVP of Montana Renewables and Corporate Development; Scott Obermeier is EVP of Specialty Products and Solutions; and Mark [indiscernible] EVP of Performance Brands.
So, next on Slide 10, let me just spend a few moments updating you on our plan for Montana. Calumet’s been very pleased with our position here in PADD4. And although we are 1 of the smaller refineries in the country, we’ve also been one of the safest and most innovative. Today, that innovation takes the form of an exceptional energy transition project. Strategic review of alternatives for [indiscernible] consider selling it, consider expanding it and consider renewable feedstocks. We have the very rare opportunity to do all of the above.
By introducing an equity investor and expanding the small legacy refinery that remains after converting the high for cracker to renewables, we have elements of the sale, elements of an expansion and elements of renewable diesel conversion at the same time. This is an exceptionally good energy transition project, which we believe will execute fast. Renewable supplies are needed for Canada and the U.S. West Coast, where we already sell products given our location. In addition on specialty asphalt plus essential fuel supplies for Montana will remain available. Physical infrastructure is in place. We’re already a specially experienced at managing a large rail fleet at this location. Now let me talk about the oversize hydrocracker, which is at the core of the project. We opportunistically purchased this brand-new unit after it are being designed and fabricated for planned installation at another U.S. refinery. It was larger than what we needed, but gave us a compelling business opportunity. The reason we call it oversized is because the hydrocracker name plate capacity is equal to the size of our crew processing. We estimate that it will process 10,000 to 12,000 barrels a day of renewable feedstock after increases from minor debottlenecking and decreases from the chemistry of Renewable fees.
In summary, our proposed dual train operation leaves us a clear line of sight to $220 million to $260 million annual EBITDA based on the average of the last 5 years prices. Each of the 2 trains, the renewable and the fossil, will be about the same capacity. Finally, a word on what this implies for Calumet’s capital structure. We intend to partner with an equity investor in the renewable conversion project and potentially the entire dual train energy transition opportunity. We see three very compelling reasons for admitting a partner: First, the renewable diesel project depends on government regulated markets and therefore, carries a higher uncertainty than other projects available to the company. A strategic partner who is already pursuing renewable diesel supply would be prepared to manage that risk. We, on the other hand, want to focus our capital investment on specialties businesses. Second, a partner who was already pursuing renewable diesel supply, we will see our Montana project the same way we do. It’s the lowest capital cost per barrel of any industry announcement to date in our opinion. And third, the renewable diesel business is in an up cycle, while refining in 2020 is arguably bottom of cycle. It’s the right time for the pivot, especially because we can straddle the energy transition with our dual train moving faster given the infrastructure in place.
Turning to Slide 11, in our specialty products and solutions business, three unique factors come together to create a competitively advantaged business: First, we’re grateful to have tremendous customers. We’ve deliberately pursued a strategy of having the most diversified customer base and widest range of brands and products in our space. Many of these customers are linked with us through long-term relationships and contracts. This allows us to navigate volatility in both the economy as a whole or in specific sectors and was a key enabler for our strong 2020 specialties results. Second, we operate our facilities in Northwest Louisiana that Schwab, Cotton Valley and Princeton, as a single integrated complex. Putting these facilities together creates a unique asset base, focused on custom distillation, hydrotreating and extraction. And we believe that this complex puts us at the sweet spot of both customization and scale for the core products we make.
Further, it allows us to provide this service cost efficiently. Our fundamental specialties assets process intermediates into specialty products. However, our integrated complex also provides the flexibility to process crude oil to generate our own intermediates as specialty feedstocks, and this provides superior cost and quality control. So for example, we maintain a crude quality database covering hundreds of individual wells, allowing us to create the optimal feed mix for any production right. Processing crude oil has been the economic path for much of recent history. However, our integrated complex has the flexibility to operate using intermediates, should that be a more profitable option.
Third, we have formulation capability through our additional facilities in Louisiana, Texas, Pennsylvania, Illinois and Indiana that are fed by the Northwest Louisiana complex. Our formulations in waxes, petrol items, gels and specialty oils are very customer sticky, higher-margin businesses that just power through the pandemic. Selling more of our formulated products into these resilient customer-focused markets is a key growth priority. If you put these three factors together, the unique customer offering, an integrated manufacturing hub, and value-add formulation spokes that build the business out, we believe we have something pretty special here.
And our third business, moving to Slide 12, is Performance Brands. Our Performance Brands segment consists of three well established – very well-established instantly and internationally recognizable brands. Each of these brands stands out in its market due to unique outperformance characteristics. This approach creates high-margin brands with tremendous consumer loyalty. That customer loyalty translates into growth dynamics well above the sector average. Three years ago, the Performance Brands team began a project to turn around this business. We focused on what we do well, fulfilling customer application and industry needs. And the result is that we’ve doubled EBITDA over that 3-year period. And in 2021, we anticipate that the segment should generate results above $60 million of EBITDA. It also doesn’t hurt that this business is a tremendous cash generator. Royal Purple is the number one independent premium synthetic oil in the U.S. and number two in the U.S. overall as a premium synthetic, provides ultra high-performance lubricating products to both consumers and industry. [indiscernible] occupies several performance niches, including food-grade lubricants and mission-critical industrial machinery. TruFuel may be the brand you’re most familiar with, given its commanding position as the number one engineered fuel in North America, and the growth of TruFuel continues to accelerate with year-on-year volume increases of greater than 30% during 2020.
So let’s move on to Slide 13 and our 2021 outlook. At least for now, there seems to be a consensus that the economy is running strongly, and we would share that opinion for right now. This brings benefits and challenges to Calumet. Supply chains are really tight. I think you’re all aware of just how expensive container freight from Asia is, how [indiscernible] the U.S. ports are and that there’s a nationwide shortage of truck drivers. So Calumet, we’ve really ramped up our focus on ensuring supply chain resilience, adding to our logistics capability and being super vigilant on sourcing key inputs. We’ve also automated much of our pricing systems to a degree where price increases can be proactively implemented swiftly and consistently reducing the effect of price volatility..
Having talked about the whole economy, Calumet remains in what has been termed austerity mode for now. Our CapEx budget for 2021 is currently estimated at $65 million, a big event is composed of sustaining, regulatory and turnaround expenditures, plus small investments in very high-return growth projects. As we return to being a cash flow generator, we will consider selective additional further growth spending. CapEx budget will be weighted to the first half of the year, primarily due to a major turnaround at Shreveport. Speaking of Shreveport in February, the [indiscernible] a challenge for most of the industry, including Calumet, in Montana, we experienced severe Arctic conditions with a low of minus 32 Fahrenheit. This is a highly winterized plan and disruption was minimal. At our southern plants, conditions were more disruptive. We had a continuous freeze for over a week in Northwest Louisiana and two major ice storm events. External consequences were closed grows with no truck movements for more than a week and the loss of municipal water supplies, all of which hampered production. Shreveport was in a full plant turnaround in February and was approaching an on-time, on-budget completion when the weather event unfolded. For the safety of our employees, we have to stop all work. And now we are in the middle of our delayed restart. So clearly, lost production will have an effect, although we did not have to force a [indiscernible] any of our customers, which I think a lot of other people did. It is, however, unclear as of today, how much of that lost production effect will be reduced by order backlog catch up, and we continue to see improving market structure both in fuels and specialties, which will further alleviate the economic effect of loss production. Again, here, I’d like to thank our team for how they responded to what mother nature threw at them.
On the refining side, it’s clear we’re well off the bottom of the cycle with cracks on an uptrend. The strong demand for transportation fuels at our racks would only appear to confirm that we have a hot economy on our hands. And finally, as we touched on before, I believe the timing to make strategic progress on Calumet’s journey is much more favorable now, both in terms of where we sit in the economic cycle, the pivot to renewable diesel in Montana, and our ability to demonstrate to the world that we are resilient and able to protect and enhance unitholder value.
With that, I’d like to turn the call over to the operator to open up the line for Q&A. Operator?
Thank you. [Operator Instructions] And our first question coming from the line of Neil Mehta with Goldman Sachs. Your line is open.
Hi, good morning. This is [indiscernible] on for Neil Mehta. Thanks for taking my question. So you pointed to higher RINs cost wing on refining profitability during the quarter. Can you just talk a little bit more about how you see RINs costs for Calumet tracking in 2021 and then what’s that range volatility driver in your decision to explore renewable diesel like grace falls as an offset? Thanks you.
Hi, [indiscernible]. It’s Bruce. Good morning. So the EPA is a pretty difficult position to play. And I think as you look back over a couple of years, they have done a pretty good job picking their way through all of the details of administering under the Clean Air Act. Last year, there were a lot of political influences. And as Steve mentioned, it costs in action on a couple of key things. So basically, right now, everybody is suing everybody. We’re tracking 29 lawsuits. And I think until that settles, the picture is going to remain unclear. As Todd said, historically, this is a non-cash accounting entry for us. And as such, it actually doesn’t drive strategic decision-making.
Okay, thank you. Appreciate that. Very helpful. And then just as a follow-up, would just be around feedstock availability for renewable diesel and how Calumet thinking about securing that feedstock for great fold?
Yes. That’s an interesting one. I’ll give you a couple of broad strokes. But I think to start with, the complementary interest of whoever is our final selection as a strategic partner that will be important in the determination there. So for example, if it’s a partner that brings the strength of gathering the feedstocks themselves, we would want to accommodate that on the project. Broadly speaking – so with the obvious point made. Broadly speaking, the fork in the road is plants or animal feeds. And the long-term availability of plant-based feed, I don’t think, is in doubt. There are a lot of tactical folks projecting various assumptions into some kind of a pinch point. That’s really hard to imagine. The total amount of announced renewable diesel projects is a whopping 5% of the U.S. diesel demand. So we really don’t see a feedstock problem on the plant side. The animal side is very different. It’s a lot harder to parse. It would also require investment in treating facilities. So for all these reasons, the strategic partner that we eventually take on is going to have a strong voice in what’s determined.
Okay, great. Very helpful. Thank you.
Your next question coming from the line of Gregg Brody with Bank of America. Your line is open
Good morning, guys. Just to maybe stay on the theme of the renewable facility. Could you talk a little bit about maybe the timing around realizing the third party investment, when you think you’ll have the project online? And then could you talk a little bit about perhaps you gave us some normalized numbers for this project. Can you give us a sense of what normalized numbers were prior to this? And potentially what normalized numbers are for the rest of the businesses, as you’ve started to break them out?
Yes. Gregg, if I take the last one first, we will. Produce all of that. And that will include a restatement looking backwards and so you are about to get all of that from Todd in the relatively near future. So I’m going to wait for the actuals, if you don’t mind. But I will say that a lot of the industry announced projects are finding ways to repurpose refineries that weren’t that good. Ours isn’t in that condition. Ours is quite a good refinery. It’s just small, but happens to offer a top decile candidate because of the oversized hydrocrackers. So we’ve had a confluence of unique circumstances. That I think point to trying to find a way to put the renewables in without taking the crude out, and this is what we’ve come up with. In terms of the timing, again, that’s going to have a lot to do with the appetite of a strategic partner to go in a particular direction, and I’ll use the same example that I just did. If for some reason, we find ourselves partnering with an entity that is on the animal feedstock side, we’re going to have to design and incorporate some treating facilities that right now are not in the vision. So there is a bit of an interaction there. I’ll tell you though, our intent is to sort this quickly so that, ultimately, we create a partial deleveraging events in 2021 based on the equity injection from the partner. And then, of course, we’ll have the ongoing participation in cash flow as we build up the value chain.
And the – once you get the investment, how long would it take to convert the facility?
There is a sequence of engineering activities. If I jump over it, we’ll be – we will have feed in by early next year. We’ll have full capability no worse than 12 months after that.
12 months. Maybe it’s – you touched on partial deleveraging, what are you hoping to achieve here when you say that?
Joint venture.
But the deleveraging is there the capital you’re talking about raising? How much could you deleverage?
Well, you’re basically asking what the plant will sell for? We’ll find out.
Got it. So the JV is ideally a 50-50 JV, I guess it depends on what it comes down to?
Yes. I think, again, we’re fairly flexible on structuring. There are – I’m hoping to convey the idea that there are a lot of different ways to put all the Lego blocks together. If we do or don’t have feedstock retreatment for some reason, the hydrocracker itself is capable of a series of pipe stretching expansions to a higher capability. On the product side, whether we go to Canada and therefore, tune the operation for more arctic spec diesel or whether we’re sending it all down to L.A., where it’s nice and warm, are all material considerations. And so the partner is going to have a point of view and a voice on these things. And then financially, we’re certainly open to an appropriate sharing of the new created revenue.
Yes, Gregg, this is Steve. I mean I would just add as we look through this process, and it’s an exciting process. And it’s all about creating unitholder value. And so I think just kind of starting by the management team at Calumet, gee, we’d like to be in a 50-50 JV or 49-51 or 51-49 or whatever. And then back engineering isn’t the right way to create unitholder value. We need to be aligned with the right partner and create the right deal for our unitholders.
Is it conceivable that you would still consider selling the facility?
All facilities – everything we have, we have whole values on. It’s – I think that’s prudent management.
Got it. And one more here for you, and I’ll jump back in the queue. How does this facility address the RINs headwind that you have? And maybe you could talk a little bit about just some general RINs – your RINs [indiscernible] this year?
It’s a – we – so compliance is accomplished by giving the EPA a quantity of RINs. Everybody loves to price that as if it was a financial instrument, but it’s not. This is an opaque market. This is a complicated market. And all I can tell you is we have not had to settle by sending anybody any cash historically.
Does this facility, I presume relate this facility helps you in the biodiesel facility would help you address any rent issues. Can you quantify how much of that would reduce your obligation?
So the production of D4 or D5 RINs, depending on how we settle the technology, is a RIN per gallon, and this is a lot of gallons. It’s way more than what Calumet requires. So it makes us RIN long.
That’s helpful. I will jump back in the queue.
I tell you that.
Alright. I have got few more here. So on the you…
Did we lose, Gregg?
We may have lost the [indiscernible].
[Operator Instructions]
Yes. Gregg, we can hear you, and you’ve been near us. Gregg, I just want to reiterate we didn’t hang up on you, Gregg. Just want to say that.
I can hear you all along. I was talking to a phone. You got sound great. Maybe just coming back to some of the things I noticed. So your SG&A went down fourth quarter quite a bit. Is that a run rate number we should think about? Or is it – or how should we think about that in 2021?
Yes. For the year, Gregg, like you said, the corporate SG&A was around $65 million for the year. We’d expect about $20 million of that to come back, so kind of as it stands today, I’d look – think about kind of an $85 million type run rate. So in other words, about $30 million of the savings will stick.
Got it. And then you – are there any other cost increases we should think about?
No, I don’t think so. We can see some variable cost increases come back obviously as refinery throughput increases, but I think that would already be built into your normal variable cost model.
And I noticed the – I don’t know if I missed it, but did you provide a capital number for this year, CapEx number?
We did today, $65 million as it stands today. And that’s the sustaining environmental CapEx with a small amount of growth. We do have some kind of a less of [indiscernible] exciting smaller strategic growth projects that we’d love to get to. But we’re going to stay conservative, make sure that things out the economy really have recovered and that we’re comfortable before we approach those.
Now do you expect to be free cash flow positive this year? How are you – what’s your expectations?
Yes, I would think so. I mean, we were free cash flow positive in 2020. And the outlook for 2021 is clearly better. So I take it from there.
And then you mentioned the impact from the storm – or the freeze. Is – you mentioned a lot of some negative impact and then specialty potentially offsetting that. As of right now, you – it sounds like you’re not expecting a significant impact from the storm. Is that – did I hear that right?
I think we lost about a week in Northwest Louisiana from the storm is the way we think about it. Remember, we also had the Shreveport plan turnaround. So we did lose a month at Shreveport, but that was already in your model, I’m assuming. So the incremental loss from the storm would be about a week of production in Northwest Louisiana.
Got it.
And I think, I was just – go.
No, [indiscernible] more to add.
I was just going to add to Todd. I mean we’re still triangulating that right now across multiple of our businesses. Now the roads are viable and everything. We’ve been saying shipping records in the last day or 2. So it’s difficult to triangulate kind of how it will come through, how we catch up. We feel really good that we didn’t have to force a majority of our customers, which some of our competitors did and some of our suppliers did to us. So we – it’s still a little early to see if we’re going to kind of catch that order book back up or not. And then there is that extra dimension of the fact that margins for all these businesses are pretty good right now. So, how you put all that together, it’s difficult to say.
Got it. And you mentioned the margins have been good. Is there – it’s – you’ve been able to pass-through the increase in crude oil prices pretty seamlessly?
Greg, Scott here. I think it is reflected in the numbers, in a highly volatile year last year and really the final three quarters of the year with crude continuing to march up. I think you could see that Steve mentioned on the cruise profit per barrel, well above $40. You can see the continued march up, and that’s been really a pattern in the past couple of years as we’ve really driven a lot of our pricing programs and overall commercial excellence programs within Calumet specialties.
And you think – so it’s so that you can keep your margin. Is it – we should think about you growing with GDP? Is that a good number? To focus on, plus or minus some since fallen out [indiscernible]?
Well, of course, the GDP number is going to be pretty weird. So in a normal year, we’d probably say, yes, but I don’t know what we could debate the accuracy of the GDP print currently.
Got it. I think I can give you a GDP number. But the general idea is that we’re expecting a lot of growth, I think Bank of America, I think 6.5% this year. They seem to be.
I mean at the highest level, Gregg, we can sell everything we can make right now.
Got it. And just my last question for you. You said you’re going to use the proceeds from the from those sales leaseback to pay down ‘22 notes. Is there a reason why you’re waiting to do that? I think it’s closed, so is – or should we expect to pay it down any day?
No, we’d expect to pay it down here very shortly. We just got the proceeds in last week, making our way through the [indiscernible] store but start-ups, and we’d expect to be moving forward on that shortly.
Does it make sense to use your excess cash to pay down the rest of the 22s or is that – or you’ll wait until potentially you perform this JV?
We probably wait. We could. We could. So the most important thing to us is that we have the ability to do so. As long as we have the ability to do so, and we’re very comfortable with that position going forward. Than when we do it is just a tactic that will optimize kind of, like you said, as we get more certainty and clarity around timing on the JV.
Got it. And I’ll just go with one last one here. Just – definitely last one. So RINs, if I look, I’m guessing you – what is the liability that you’re showing right now on the balance sheet? I know that will come out today. And just what is – what’s the time that you use? What point in time are you using prices to estimate that?
The quantity – the run rate quantity of a gross obligation is about $80 million across all the classes annually. Where the EPA is backed up on compliance, includes the 2019 and 2020 deadlines have not yet occurred. They pushed them back or propose to push them back. So basically, we have a gross obligation of 2 years’ worth. That’s offset by a lot of ethanol blending that we’ve done. We like ethanol blending. We’d like to be able to do more of it, especially at great falls. So there is a net on the balance sheet that we price we mark-to-market at the end of each quarter. And Todd may have a financial figure for that, but I think the key is that’s a placeholder that’s reversed upon small refinery exemption.
Yes, I think that’s right. And the financial placeholder. So we said a $53 million of RINs expense in the fourth quarter, which would be the obligation we generated plus just the mark-to-market of the obligation. So the numbers that make that up would be the year-end, the 12/31 RIN price, which was $0.70 something around?
And just a follow-up, I guess, you – the small refinery exception. Where does the process can an efforts [indiscernible] in your – from your perspective?
It’s in half a dozen different courts in various manifestations. We – our crystal ball is not good enough to know if we’re going to relegislate this through a series of court actions or whether Congress will deal with it or in a preferred mode, whether the EPA will simply use some administrative tools that are available to them now. I wouldn’t care to speculate.
Do you have any indications from the EPA that they would use their tools now?
I think that the conventional – the center of massive, the conventional wisdom is everybody is waiting for the Supreme Court to have an opinion expected sometime this summer on one particular matter and that, that may be foundational. We’ll see.
Got it. Okay, thank you again for the time. Much appreciate it.
Thanks, Gregg.
Thanks, Gregg.
And that’s all the time we have for questions today. I would now like to turn the call back to Steve Mawer for closing remarks.
Well, again, thanks, everybody, for your interest in Calumet. The team really executed at a high level in 2020, even if the fact we had a lot on their plate, but they did a super job. I’m really appreciative. We’ve taken proactive actions to both protect the business and to reposition it for long-term success, so looking forward to 2021. Thanks for your time today. Have a great day. Bye now.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.