Calumet Specialty Products Partners, L.P (NASDAQ:CLMT)
Analyst Day Conference Call
August 11, 2014 1:30 PM ET
Noel Ryan – Vice President, Head of Investor
Jennifer G. Straumins – President and Chief Operating Officer
R. Patrick Murray – Chief Financial Officer, Senior Vice President, Secretary
Timothy R. Barnhart – Senior Vice President – Operations
Bryan Yourdon – Vice President
Roger D. Read – Wells Fargo Securities LLC
Steve Sherowski – Goldman Sachs & Co.
Good afternoon everybody. Welcome to the Calumet Specialty Products Partners’ 2014 Analyst and Investor Day. My name is Noel Ryan and the partnership slides present of investor media relations. I appreciate your attendance that is event today whether in person or on our streaming webcast. Everything available today is at calumetspecialty.com and at the conclusion of today’s presentation we’re going to have time to a lot of question to anybody in the live audience. As always elements of today’s presentation are forward-looking based in the world as we see them today, this world can change and those element can change as well, so please interpret them in that light.
A little bit over a year ago our management team made the strategic decision to invest in a full fledged investor relations function. The objective here was and is to build a world-class investor relations function and so in the first year of this program we've made considerable progress that has included increased investor activity in terms of our outreach that has included increased marketing to market we haven’t been to before as well as increased sell side analyst coverage.
Before I get into the meet of the presentation, we are just to give a brief introductory video.
Turning to Slide 5, in our first year, we’ve done quite a bit to educating and informing our investing community on our investment brand increase dialog and awareness with investors and really help to build a long-term credibility with our shareholders. The Calumet store is not a simple one, but we believe investment thesis remains highly compelling where neither pure-play fuels refiners nor we have AAA specialty products company were hybrid require some work to get to know and our team appreciates this fact and were as closely with rest of our management team in recent quarters to provide measurable goals that can be identified, hard targets have been investors can look to and determining the progress that we are making. So, we’ll discuss some of those goals and objectives today.
Turning to Slide 6, during the past year our IR teams sit the road with increase frequency we have done approximately 40 investor outreach invest – events on 25 metro areas, including more than 300 one-on-one meetings, this of course is not include 1000s of Paul that we feel from our more than 50,000 retail institutional investors.
Turning, briefly to Slide 7, one of the most significant achievements in the first year of our program involved increased analyst coverage, since 12 we’ve increased coverage from six to 14 analyst and we’re maintaining a strong balance of both MLP and refining analyst. We’re strong believers in building long-term relationships with our sell-side analyst days, and we’re looking forward to increasing coverage from current levels. Some of the additions to analyst coverage this year include Richard Roberts at Howard Weil, Ed Westlake at Credit Suisse, Steve Sherowski at Goldman Sachs, Roger Read at Wells Fargo, (indiscernible) Cowen as well as Rich Verdi, at Ladenburg Thalmann.
We are currently coverage in transition at Imperial, MLV and Deutsche Bank, but expect coverage will resume shortly. We want to thank these and our Rochester of existing analyst for being so supportive, for being ambassadors for the Calumet investment brand and, most importantly for riding researches that his honest and then buyers. And, so just briefly before we go into the meet of the presentations I would like to give a little bit on an overview, just what we’re going to cover today.
Jennifer Straumins, our President and COO, will discuss our growth strategy looking over the next several year. Pat Murray our CFO, will touch on our financial performance and liquidity exciting the second quarter. Tim Barnhart, he was our SVP of operations. We are followed and updated of organic growth projects first announced and is it that last year and, Bryan Yourdon our VP of Branded and Packaged products, who will discuss of progress with regard to some of the recent acquisitions we’ve completed in specialty product space.
For those of you’re here today, please don’t forget to pickup gift bags upon exiting. Thank you to our marketing department for doing a wonderful job in setting up everything here today, thank you Debby Neubauer, thank you Maggie as well for putting these together with a nice touch.
So again we welcome you here today, we are happy that you are with us, we look forward to sharing incremental information on our company and are very proud of what we've been able to achieve over the past decade and are very excited as to many of the organic growth projects and the integration of the strategic acquisitions we completed after the last 24-months and what they can contribute to EBITDA going forward.
So with that I’ll hand the call over to Jennifer.
Jennifer G. Straumins
Thank you and good afternoon, I'm glad that you are able to come and join us today for our third annual Investor Day here at NASDAQ and we want to thank NASDAQ for allowing us to host the event here. I was told earlier today that we are the only event to be hosted during the summer as they undergo their renovations and remodeling, so we really appreciate all the efforts that NASDAQ and Calumet has made to make this event happen today.
As you all know Calumet has had a really tough second quarter, I'm sure that most of you who listen to our investor call read the transcript and analyzed our earnings. This presentation is not going to look backwards, we had a tough second quarter, we are really excited about what's coming over the next quarter, the next three quarters, the next six quarters and that’s what this presentation today is going to focus on. It’s going to be very forward-looking, very driven by all the opportunities that we've been able to amass over the last two years as we've acquired many different businesses.
And I was actually talking to someone in the reception area prior to this so I said “lets acquaint this to a child or a Christmas you open all your presents, you through them all in a pile and you figure out what to do with them later” and that’s what Calumet has done during 2012 and 2013. we had the opportunity to make I think it was 12 accretive acquisition equating about $1.3 billion worth of acquisition and now we are just now at the point in time where we are figuring out what to do with those assets, integrating those assets ad putting the organic growth capital to those assets to make them accretive to until holder as we go forward.
Let’s talk for a minute about who we are. Calumet is a fixed distribution master limited partnership; Calumet was founded back in 1990 as many of you I mean I don’t know that there is a person in this room that I haven’t met, so we won’t talk a lot. It’s been a lot of time talking about past. The Calumet was founded by my father and (indiscernible) family back in 1990 with one little refinery in Northwest Louisiana that was going through some tough times. Between 2000 – I’m sorry between 1990 and 2006 we grew primarily at a cash flow from operations.
Since the company went public in 2006 as national limited partnership and since that point in time we’ve had wonderful access to the debt and equity markets, and we’ve been able to grow this company substantially both through organic growth projects, as well as through acquisition. And we are very proud that we are named a member of the Fortune 500 for the first time in 2013. We are name number 467 out of 500 with $5.4 billion in revenue.
And this was before, the Bel-Ray acquisition, before Anchor Drilling Fluids, before United Petroleum and acquisitions we are very confident as to what 2014, 2015 will bring, as we continue to grow in the Fortune 500 status. We currently have 13 production facilities located throughout the United States with more than 160,000 barrels a day of production capability. We produced 6,700 specialty products that we sell to more than 6,600 global customers. And we are a family-owned business, that two families are started Calumet continued to be very active in day-to-day management of the company, as well as controlling a 100% of the general partner and 26% of the limited partner units.
And turning to Slide 11, talking a little bit about the evolution of Calumet. Again these assets have been around for a long time. The majority of them are either owned by major oil companies or by family-owned business. And as I mentioned just a second ago, my father was passed with growing the business, strictly through cash flow from operations.
Before the IPO in 2006, we were lucky enough to acquire multiple refineries at a very discounted rates from some of the majors such as Penreco and Kerr-McGee. After the IPO we were given that excess to capital that allowed us to do accretive acquisitions and acquire not only public – business from major oil companies, but from family-owned businesses that allowed us grow the business. And you can see we’ve done multiple acquisitions since 2008 when we – Penreco was the first business that started acquisition growth and 2011 we acquired the Murphy Oil's refinery and Superior Wisconsin.
And moving on to 2012 and 2013, we saw – people started to joke with us. So it’s a new quarter, what kind of acquisitions are going to do this quarter? So we’ve been very lucky to have access to these transactions and access to the people that run them. Our strategy has become the most integrated, independent, specialty hydrocarbon business in North America with the most diverse line of specialty products.
And we talk about that rate to retail strategy and you can see that we’ve really been successful over the last several years of implementing that strategy. When we started out as especially a refining company and now straight with the IPO and we’ve integrated both downstream and upstream over the last several years. And we’ve grown our business through executing transactions with major oil companies as well as with family owned business we seeking the next strategy.
If you look at the upstream growth that we’ve had in the business, it’s built on the oil field services side of the business as well as crude gathering side of the business. A lot of our focus over the last six month or so has been on the upstream side with the acquisition of Anchor Drilling Fluids especially oil fields solution and we were able to do a acquisition from Murphy Oil late last year in the crude gathering side of the business as well as the organic growth project with TexStar in the Texas area serving our San Antonio refinery.
You will see a lot more of the boxes under the downstream side of the business this is where our management team tends to focus the majority of our time and efforts. As we will look at the business model that we have today. We are really trying to provide our specialty products solutions every single one of customers whether that be a synthetic product offerings or a mineral oil based product offering. Really we’ve got everything that our customers need and we continue to grow not only through distribution, but through retail outlets.
We told you last years at this investor day that we were proud to announce that we've signed a deal with Wal-Mart to have 10 of our SKUs launched in almost 2500 different Wal-Mart stations earlier this year. And that’s been a very successful launch for us and Bryan will talk more about that in a little while. But we also wanted to be and we wanted to further our specialty product focus, we've into Greece through the acquisition of Bel-Ray and United Petroleum and we've further our food grade process oil and our food grade and white oil business through Penreco brand as well Bel-Ray.
Some of the driver to our corporate strategy, we want to deliver stable and growing returns to our unit holders. I mean honestly that’s why we are all here. And there are many ways that we go about doing that some of which we talk openly about publically and others which are really done behind the scene as we run the day-to-day business at Calumet, really it goes without saying that we want to be a safe and reliable operator of asset, we want to meet all regulatory requirement given to our refineries.
We want to focus on recruiting and developing and retaining key talent, really people are what makes us successful. I could have the best assets in the world and if I don’t have the people to run those assets or market the products, manufacture those assets, Calumet wont to be successful and luckily that’s something that our board recognizes and really strives to succeed on its developing and retaining key employees.
We have got 500 million of growth projects that we’ve announced in the middle of executing so successful execution of organic growth projects as the key driver to our success and then it really been that full service provider to our customer we focused on it 360 degree relationship with our customers we’ve talked a lot about how in touch with this businesses is rather we are a competitor a vendor or a supplier to a same company. And it’s tricky to manage but I think that we have done a really nice job of being everything that we can be to everyone.
Turning to Slide 15, lets talk about the decade of transformation we’ve now have 10-years of publicly available information to you guys as that’s just amazing how this company has grown over the last 10 years and you will see 10 times growth in many of these categories whether the our revenues has grown from $514 million in 2004 to $5.4 billion in 2014.
Our adjusted EBITDA has grown from $35 million end of $242 million in 2013 and that’s down from $400 million in 2012. Our asset base is going from $300 million to $2.5 billion and – most like to really important is to as our customers and our products and our employees – and our employees grown from 350 to 18,000 and that s before the SOS acquisition our customer are going from 800 to 6600 and our products that we offer these customers 250 to almost 7000. It just phenomenal to just part of this growth and to help drive this growth and we will see in a few slides here besides.
Turning to Slide 16, you see in 2004 we are this niche specially products company with three little refinery in Northwest Louisiana and our terminal in Burnham, as well as our head quarters in Indianapolis, you move forward currently we have 10 specially product location is located throughout the United States. Four fuel refineries and there were 12.7 million barrels of storage. And then you got little white dots on Slide 17 are all the Anchor Drilling Fluids location.
Anchor is got more than seven mud plant and 30 inventory locations if they used to serve their customers throughout the United States. So we again we had a very transformational growth over the last decade. We have also grown internationally if you stood here two year ago I told you guys that international growth was a key areas focus remain and we have grown from at that point in time selling a few customers on the international basis and the probably we sell to this customers are really what for incremental barrels to aside of our exiting facilities.
We’ve made a real focused effort to have on-purpose sales on an international basis. And, as we move forward with procuring more OEM approvals and building relationship with multinational personal care companies, it’s important that we have capabilities throughout the world to serve these customers. We’ve grown our international business to about $329 million of revenue in 2013; I mean that’s not even 10% of our revenue. So you guys can see from there the drive dry powders still exist for us as we focus on international growth.
The Blue countries on this map are the countries where we currently have sales. And, as we’ve acquired Bel-Ray, we started to do the job of educating them and Calumet products for approval products, (indiscernible) products so that they can go to their customers and offer them expanded solutions to their customer needs.
Right now on Slide 19, to talk a little bit about the value proposition to our investors. Again, our goal is to right stable and growing cash flow and distributable cash flows to our investors. I mean we are all here, because we want to raise the distribution we want to provide a higher rate of return to everyone that’s going to investing the Calumet unit.
And we’ve got many raised that we can do this. We’ve got a lot of organic growth projects; I think that we’ve invested organic CapEx in every single assets that we’ve acquired over the last several years. We also look at the asset base that we have and figure out how to maximize inter company synergies between those assets.
And then, we move towards the diversified asset base. Geographic diversification has been to key goal of ours, our goal is to have an asset in every shale gas play in the United States, I believe that we've achieved that goal. And, now we need to grow those assets and integrate those assets into the Calumet corporate structure.
And if we look at margin expansion, we’ve got a whole portfolio of almost 7,000 specialty product solutions that we offer to our customers. We’re focusing on growing the branded and packaged part of our business, which provides a higher margin to Calumet overall than some of the commodity business lines that we’ve been in historically.
We've talked over the last 18-months about optimizing our asphalt distribution capabilities, and over the last year we’ve entered into joint venture relationship with all state materials groups, we’ve entered into multiple asphalt terminal agreement, so that we can move barrels out of our local markets where we produced them and to markets that are short of these products or they how longer paving period than what our refineries have, and that will help grow the margins for the Calumet unit holder.
We've talked about international growth that remains the key focus for us, and then finally maintain control over operating costs, everyday sets the key to Calumet no matter how much margins we’re making overall? And the capital allocation as we execute all these strategies and as we are able to realize the growth and distributions that comes from executing these strategies our goal is that our – we have a lower cost capital which will allow us to participate in even more accretive acquisitions.
With that I will turn the presentation over to Pat Murray.
R. Patrick Murray
Thanks Jennifer. And as Jennifer mentioned the focus of our presentation today is primarily on our vision going forward, I did want to take just a moment to provide some context to our current situation from a financial perspective. And as Jennifer start where the last week reported quarter two result that were below still expectations and the primary driver there was longer than expected, extended turnaround activities that are Shreveport refinery.
We have always spoken about 2014 as a transition year between the time that we are making significant investments not only in acquisitions but also in organic growth projects, but that we had goals and we do still have goals related to leveraging some of these key metrics we haven’t made as much progress as we would have hoped in terms of LTM adjusted EBIDTA our leverage metrics and then distribution coverage.
But I will show you we remain very focused in the second half of this year to make progress on this key metrics focus areas include course reliability of our operations continuing an increasing LTM contributions from our acquisitions. Controlling costs as Jennifer mentioned and also as focusing on working capital reduction throughout the reminder of the year. Some of which were driven by our extended turnaround activity but there is a real focus on the balance sheet.
And then of course looking ahead we are pleased to report Shreveport is having much better quarter and quarter three in terms of throughput rates post turnaround and we had lot of turnaround activity over the last 18-months we had turnaround activity at all our major refineries. We think that turnaround activity for the reminder of 2014 or at the minims and we shouldn’t have another turnaround period as we have had until the next cycle in 2018.
Relative to quarter two crude oil price stabilization generally below $100 barrels should have margin benefits for our residual products and all sorts of specialty products. And as we look forward into quarter three and quarter four we are cycling out some historically weak performing quarters and that should assist us making progress on an LTM basis toward our goals.
Now let’s turn our attention to Slide 21, we are going to go over some of the key initiatives we have undertaken from a financial perspective this year in the capital markets we would consider all these to be wins for us. In July we completed an amendment restatement of our revolving credit facility, this is very successful opportunistic transaction where we increased the size of our revolver from $850 million in commitments to $1 billion in commitments. The facility also includes a $500 million uncommitted accordion which should allow us to grow in the future, should needs dictate either from a commodity price environment or also through additional growth initiatives.
We lowered our borrowing costs significantly; a price in graded on the revolver was lowered by 75 basis points across the board, which certainly has a benefit to us from a distributable cash flow perspective. And we extended the term out from 2016 to 2019. The existing facility was put into place, the last facility right before we brought the Superior Refinery and obviously as we and talking about so far the business has changed dramatically.
And while the revolver works for us, it’s obviously not been as flexible ultimately in terms of some of the covenants and just sort of the acknowledgement of size of the partnership. So we spent a lot of time looking at the baskets and alike and also looking to our senior notes and their indentures in terms of gaining additional flexibility there and we are very successful in putting together think a revolver that works for the partnership going forward. It does provide increased liquidity, through redefinition of the borrowing base and current market terms; we’re able to add more than $100 million of liquidity to the same set of working capital assets pre agreement and post agreement.
In March we announced an ATM equity issuance program, it’s $300 million ATM program, we continue to remain opportunistic with this program, we do see it as an important part of our ability to raise capital in a cost efficient way, we’ve not yet tapped the program through the second quarter, but it does remain available to us, it’s a very standard capital raising feature of most master limited partnership. So we want to continue to highlight that that program remains available to us as we need it.
And then in March we had a very successful senior notes offering $900 million upsized offering highly subscribed, the coupon was 6.5% notes due April of 2021. This is an important transaction for us, it took advantage of current market conditions, but it also allowed us to refinance some debts that were higher coupon by more than 300 basis points. So we took out the remaining $500 million of nine and three-eight senior notes and we also helped to fund the Anchor Drilling Fluids acquisition and then it also left us some extra money on the balance sheet which we've been using for organic growth project funding.
Then turning our attention to Slide 22 ,as Jennifer mentioned we've been very successful in that capital markets in terms of raising capital as we needed to grow the business and I think our general conclusion is we've become more successful overtime in raising capital, on the equity side we've seen the ability to raise capital when we needed in a way that continues to balance our capital structure. We do remain committed to a balance structure and so historically we've used a combination of debt and equity to fund acquisition and growth.
You can see a series of transactions that are usually related to acquisition, but also some opportunistic transactions as well. Now I would like to point out on the debt raises, we've made a lot of progress in this area, we moved into the senior note structure in 2011 by taking out a more restricted term loan and added some fair high coupon debt, but certainly that’s where the market was at the time, but also for us it took out some important or added some important flexibilities to be able to run and grow the business.
And really see a progression here of continuing to lower that coupon as – become more familiar with our story and become more comfortable with our story overtime and its allowed us to reduce our cost of capital. You can see the progression in just fairly two years, we lowered our coupon on new debt from 9 and 5.8 down to 6.5, so we are very pleased with that and very proud of that.
Okay that’s a brief financial summary and I would like to turn the presentation over to Tim Barnhart to talk about organic growth.
Timothy R. Barnhart
Thank you Particularly. Good afternoon everyone, I'm going to spend a little bit of time this afternoon talking about – well we are going to watch a movie first.
Okay so specifically we are going to talk about the Montana refinery expansion, the DPR construction and the Louisiana Missouri Esters plan. If you noticed in the video we also talk about fourth projects, fourth project was San Antonio crude unit expansion and gasoline production project, that project was completed very late in 2013, brought online right around Christmas.
We've had some I would call normal startup issues, commissioning issues, lining out issues, but I am really happy report that the plants proven out at 19,000 barrels a day for short periods, so we fully got our 17.5 that we permitted for and we've been very successful making gasoline on a regular basis in diesel fuel.
It’s a real boon financially to that site and I’ll also report that we've talked different times in scenarios about the crude gathering systems at TexStar pipeline expansion, for San Antonio that pipeline was commissioned last week and we are starting to receive crude via pipeline at a very nice transportation discount into San Antonio effective this week.
First we will talk about Montana, to refresh everybody’s memory the Montana projects is an expansion from 10,000 barrels a day to 20,000 barrels a day. It’s also the installation of mild-hydrocracker for high conversion facility in Montana and quite a bit of ancillary offsite work in utility work to support these two units.
A little bit of history we acquired Montana in 2012 from Connacher, it is currently 10,000 barrels a day refinery, the expansion is on the order of magnitude of $400 million, it will double capacity and we calculated an incremental EBITDA contribution of between $130 million and $140 million upon completion, which is scheduled for the first quarter of 2016, we will continue to run primarily Bow River we did metal of that crude units of that we do have some crude options and that we looking forward into future, but really right now we anticipate running primarily 100% Bow River crew and production will not really change we will make diesel, gasoline as far and we will be selling some dwelling into the Canadian market.
As far as the project itself goes site prep for the modular hydrocracker in the crude units were completed and turned over to general contractor on schedule. All the process unit work has been awarded to two various general contractors under a 6 bpd basis so as long as we manage our change orders we should be very accurate in our estimated cost of completion.
The modular hydrocrackers currently in transit and we do expect it on time this month that is the critical path for this project is getting that reactor which is currently in three pieces through the site getting it staged and getting it well red office, this reactor is 106-feet tangent to tangent 15-feet in diameter and 9-inch of fix we have done a off a lot of welding to do fill of 9-inch of metal between now and the data to be set.
We continue to develop plans on selling diesel gasoline and asphalt both to our exiting customer base which has been very excited about this potential expansion and to our new customer they are the part of the region around that refinery that for various reasons we don’t service to a large degree and this is going to give us an opportunity to expand our service footprint we believe.
One of the investment thesis when we bought to refinery from Connacher just like every asset excuse me I am very regressing to my childhood, every asset that Calumet attempts to buy we are looking for new chances and have some cost advantage and clearly this chart show the Bow River is a very nice crude for that plant for running and its cost advantage crude for that plant were on.
The Dakota Prairie the history in rational I think its pretty well know we have talk and half a lot about Dakota Prairie this is hydroskimming refinery not a fully integrated refinery 50/50 joint venture with MDU resources it will be 20,000 barrel a day plant we will make you LSD we will market dwelling into the Canadian market and we will be marketing ATB these are first choices to ourselves, we’ve got some capacity on the Mild Hydrocracker in Montana, the plan will be try to consume all that ATB in Mild Hydrocracker and Montana or we’ll market at the third parties.
The total project cost the estimate is currently a $350 million, slightly higher than our initial estimates, but inline with most within reason what’s been estimated into the past. The plant will run 100% locally sourced crude, I was talking to the DPR plant manager a little bit ago, and he informed that 20,000 barrels a day for this DPR refinery will be chuck less than 40 miles from the wellhead to the refinery side. So I’m kind of look at forward to seeing the transportation numbers, because they’re going to be brings speculator compared to the average refinery.
At the end of the day approximately 40% of that Bakken barrel will fill up his diesel, 30% at referred Atmospheric Tower Bottoms ATB and 30% will again market into the Canadian market. The critical path for the DPR is currently the installation to the diesel hydro, nuclear reactor, the reactor was manufactured in Spain and it’s currently in transit. We can see this status highly successful construction activity from an EHNS standpoint that’s a lot of man hours in a lot of really probably not the most ideal working conditions when you’re going to Greenfield construction to accomplish without a last time injury that’s very good.
We continue again talking to the DPR plant manager just a little bit ago. We are basically, while we are basically fully stopped on the operation side, we’re currently doing all of our operations trading, we’re currently generating our operating manuals, our operating procedures and training our operators on them. So, these guys ready to take over and commissioned the unit is, the unit gets turned over from the constructors to them.
With a lot more on this side you can see the cost estimate has increased slightly site prep work, additional concrete and steel, some refinery layout issues, fireproofing was a relatively large adder that was missed early on with additional installation of painting, where the primary contributors to the increase. I took the last payment as a cautionary statement about the weather in North Dakota in general we are planning or completing this project in the fourth quarter of this year. Completion efficiencies the ability to commission equipment is somewhat weather dependent certainly manpower efficiencies go down as the weather deteriorates. So we all want to hope really mount fall and mount early wonder in North Dakota to help us out. It really bad set of weather could impact our potential start update.
Again a very consistent Calumet investment thesis is trying to find some advantage feedstocks and advantage locations and so early to the Montana expansion you can see that that there is going to be some price efficiencies at least on the crude side. The Missouri Esters plant expansion, we acquired the Missouri Esters plant from isoalkane in 2012. The expansion is to basically double the plants and size. We have selected west. We have selected West Com as our engineering construction partner to complete this project.
West con have been doing of the off side package piping loaded facilities and we’ve extended that contract with them to build the physical batch processing units, but our associated with the esterification. You can see on here that the new warehouse and tank farm complete and are in a process of being commissioned. This house allowed us to work with our sales group to use some our incremental capacity that we had on the existing plan to offer some new products, you can also see that we’ve done some investment nor de-capability we’ve invested in two small pilot plans (indiscernible) batch esterification process. So that we have ability to go out and make small scale batches material to sample our customers and expand a product line around this Missouri’s esters plant.
And with that I will turn this over to Bryan, thank you.
In addition to the key focus that Calumet has prioritized within our refining assets and growing them organically. We also put a primary focus on growing our branded and package products business. To start is just to go over the most recent acquisitions that all kind kicked off from a branded and package standpoint as Jenifer mentioned with the Penreco asset, and then jumped forward to the TruSouth asset in 2004.
One of the points that we want to make sure is very clear, as these assets were purchased what became incredibly obvious, as we bolted on or even going through the diligence process without similar to culture, the family, the entrepreneurial activity was in each of those firms. Royal Purple, Bel-Ray, Quantum, Anchor and even SOS to some extent all were multi-generational family organizations, they are entrepreneurial company, they identified a problem, they were customer centric, and it provide a key solutions in order to achieve mostly longer than normal gross margins.
Royal Purple was primarily focused on 100% Synthetic Lubricants, ideally sold to the industrial or automotive space. And then when you look at Bel-Ray, Bel-Ray started at early on to see as a competitor there would be some market degradation due to competition between the two brands or that simply not the case to keep products for Bel-Ray are in the mining space, the space that will Royal Purple have previously not existed.
And on the consumer product side, it was primarily Powersports, Marine. Once again areas that Royal Purple was not strong end. And so as we started to see these acquisitions land top of one another what we started to create with this web of organizations that filled gaps and through existing markets.
So, Quantum came along and we had an opportunity to expand our customer base by adding over 50 distributors and a great sales team. And even more so our product line is still than that gap of second tier products when commodities renewed. So we could always exist at the high end and we give the example of Bel-Ray and mining. Bel-Ray is world renowned for their open gear lubricant for electric dragline shovels ask mining guy, I will tell you the best product on the market as Bel-Ray and we charge for it.
The high margin, high price product because Bel-Ray was so specialized we didn’t have that kind of production assets needed or even buying power to purchasing compete with the shovels and mobiles of the world they couldn’t come a long side and offer a complete solution being able to filling those gear oils rolling stock heavy duty engine oils with products from Quantum and Royal Purple. I look forward to see opportunity to be exposed to opportunity that we never have the ability to execute on previously.
Anchor was another one of those firms two generations ideally in a marketplace that we’re severally commoditized however they were able to meet customer needs at an elevated margin, by providing services and expertise that the other competition didn’t have great fit in with the Royal Purple who is primary industrial products where geared towards well completion company not competitive different product lines similar product similar customers.
And so to be able to bring all of these products on we were adding we’re filling out a portfolio to where we could honestly meet the needs of all of our customers. As well as the most recent acquisition so the very first need that Anchor had identified during the due diligence process we’re looking for somebody who’s got a level of expertise for handling, castings and so this was the opportunity that we did to expand our capabilities in the drilling market.
So as you can see we’ve done across the $650 million in acquisitions over the last two years and our sales went from zero to 274 TTM this year. This is an area of growth – sales growth that is key focus of our group moving forward. So these are some of the investments that we had over the last close to the last year a year ago when we met we had announced that we were launching new products more new products from Royal Purple in this slight next years and they had in the previous five years where we kind of over achieved and once not only new products and new product lines.
Product lines that we had that Royal Purple had never been able to contemplate because of the lack of resources that we are able to bring a long side with our new branded impact this business. So we launched our first new consumer product line in more than five years it’s a heavy duty engine oil product line called Duralec and we’ll speak to that a little bit later something very necessary as we look at the growth in industrial and consumer in heavy duty markets primarily synthetics.
Bel-Ray has an acquisition not only provided market opportunity by getting us into mining, Powersports and Marine in a way that we hadn’t been previously, but also provide us production capability that we didn’t have. Royal Purple had a very good grease product, Quantum very good grease product, but all of those were outsourced production. Bel-Ray great, not only grease production technology, but expertise on the technical field, brining one more white court, one more Ph.D. Chemistry is grease focused and able to bring even greater quality of the products that were already in the marketplace. But what it further does is, decrease our operating cost, decrease our cost of production and continue to drive margins up.
Jennifer had mentioned selling into Wal-Mart that’s ten products up to ten products and up to 2,500 stores. Currently, we are exceeding both Wal-Mart and our own internal forecast from a sales standpoint, we had not a flawless rollout, but one that’s having gone through all with Wal-Mart before, I would put up against anyone. Right now, we’re continuing to see the benefits of that growth from that market and most importantly, we have not cannibalized any business from our other vendors who sell similar products. So, everyone is happy, especially us, because we’re actually growing sales to the addition of new markets.
Now, further to the Wal-Mart strategy to the access that it provides us to their private label and other products, that’s the key. Our desire is to grow the relationships we have with our existing customers by providing additional products, whether they be our own, or someone else. We have packaging assets. We have a vertically integrative platform. We want to leverage all of those assets to push more products out at a high margin. So, by delivering to Wal-Mart it is afford to us the opportunity to execute and to gain additional opportunity in the marketplace to other products.
Once again and this is beyond grease well triple transitioning from contract packing to internal packaging. A large majority of some of their products were actually outsourced, brining that in-house, especially of the products that have been growing significantly have saved us significant amounts of money and decreased our overall cost of operations by improving our buying power, as well as our operational efficiency at the production facility.
A new distribution facility in Shreveport versus TruSouth it provides us with a great cost savings from a logistic standpoint primarily because it opens up some space, because our sales have been growing so significantly. But, more importantly is it provides us with an opportunity to expand our service capabilities.
Currently, we are not able to deliver a lot of the products in a way that potential customers would like to see. We just don’t have the resources or space. This new warehouse which we move into right at the 1 of September, affords us the opportunity to do new shipping technologies and new types of ways that we’re shipping products out to customers. That afford us more opportunity for increased business for both existing customers and new ones, as well.
Now all of these hexagons on the right are focused primarily on Calumet Packaging, this was actually our largest packaging facility and it’s one that we’ve taken a lot of efforts to improve our overall operating cost. And that’s been seen in our cost per gallon decreasing significantly on a production basis over the last 16 to 18 months. So the first, and third and last were all new packaging lines. And I’ll speak to the first two and in one clear sentence, we’re able to do more products faster and in more flexible way. That affords us obviously decreased operating cost.
The second the new VI operation, that 1.8 million gallons is the majority of our internal production. So we’re able to decrease out internal cost, but beyond that our total capacity for that facility is six million gallons. So now it gives us another product that we can sell in the marketplace, even to customers or competitors who are very close to that facility. So we’re adding incremental margin on the product that previously we didn’t have access to.
The six new 65 gallons storage tanks, are the result of growth. This just gets us to point where we can operate more efficiency because our packaging volumes have increased so much. And so that last hexagon something we’re really excited about is expanding our production capacity with the pouch filler. Most of you are either investors, refinery guys from facilities. People don’t get excited about packaging. I get really excited about packaging. Europe, South America, primary leaders in pouch technology, this is where a lot of packaging is moving forward, especially in single use applications.
Now when we look at part of our brand portfolio, our fastest growing brand is TruFuel, 75% year-on-year one of the fastest growing products that Lowes and Home Depot, whether it’s ours or one of our OEM partners. We provide that same product to (indiscernible) steel, craftsmen and a host of others. Significant market share fast growth, we created a category of engineered fuel for small engines.
We met the need that the OEMs have because of their continuing increase in issues and customer complaints associated with ethanol based fuel. So we came with a solution. Now we’re one of their favorite guys, right because we’re helping them decrease their overall cost of problems and we gave them incremental margin that didn’t previously exist. Because you can make a little bit of money selling a core of gas and oil mix for seven, eight bucks at retail.
Now what we’re able to do with this Household is, take the new technology to the same customers, leverage our ability to purchase base oil, finished lubricants and package them in a unique way to get access to the balance of their oil portfolio (indiscernible) Steel, ACCO all of them have large oil portfolios and other product portfolios that we’re not currently packaging for them that’s part of our strategy we’ve earned the right to be heard, we’ve earned the right to look at these opportunities its no different than our relationship with Wal-Mart or any of other retailers or frankly any of our other customers and that kind of get us into however expanding our channel opportunities.
We had identified as we talked earlier the acquisitions all of those were branded acquisitions you had Anchor people, you had Quantum people, you had Bel-Ray people we have to change the mentality and we’re in the process of changing the mentality of all of our sales teams.
We’re customer focused one of the unifying factors of all of those acquisitions very customer centric, every single one of them provide not only a skill but also a product and a service that was unique in the marketplace they had to all of them are fighting bigger competitors guys you had more money guys you could do it cheaper they had justified charging a higher price and standing a higher margin and they did by being customer focused and customer center so when we reestablished our channels we based them on how we looked at each of those customers which will end distribution, industrial mining, professional and consumer or retail business, OEM private label all of our service channels now have a customer focused where they know what’s best for their customer and now have a portfolio a tool box of products that they can go grab the specific solution they need whether its an open gear lubricant for an electric dragline shovel that’s great I’ve got that product it’s a Bel-Ray brand there is no one better in the industry. About a gear oil you want the best gear oil in the industry no one is going to second guess the decision if you purchase Royal Purple I’ve got that too.
Heavy duty engine oil for your rolling stock we can do Quantum, we can do Royal Purple and frankly from our view we are brand agnostic we don’t care what label you put on the package if you wants to put your label on the package as an OEM fantastic we have those services what we want to do is continue to take advantage of an ever growing pie in the synthetic lubricant market and in the chemical market by getting an ever growing piece of that pie. So we changed our channel opportunities expanding our international footprint is a huge focus for us Bel-Ray was the first business that we had acquired that had significant sales outside the U.S. but also had resources outside the U.S. and skill set we’re happy as we started to expand and had our first victory less than 45 days ago.
We have Bel-Ray Chile, which is one of the mining distributors in our organization they sell products into all of the mines in Chile, purchase two container loads of Royal Purple. Additionally, they purchased two and recently upgraded to three (indiscernible) machines which is our sales demo product. So we’re cross selling, we’re getting people who had previously been myopic in their focus, realizing that I can only order Bel-Ray products, to now purchase Royal Purple product, purchase Quantum product, because we’ve got all of the OEMs, we’ve got all of the approvals that we need from API to sell those products in which a need that was previously unaddressed.
Expanding our international footprint is going to be a key focus. As Jennifer mentioned, we’re less than 10% sales across our entire organization, we have a significant goal to grow those and frankly have lots of opportunities to do that. We right now in our pipeline have over $20 million gallons worth of international business, that is at various stage of closing. Building a world-class technical sales force, that can’t change, that too we are – we got lots of sales people and technical support with lots of letters out their names, whether it’s Ph.D. or a CLS or Certified Lubrication Specialist, we’ve got guys who understand their business, they have to, because they have to have a knowledge that’s equal to that, or certainly helpful to their customer in order to be successful.
And then optimizing our geographic footprint, that goes in not only to production synergies that we are leveraging across all of the businesses, but also recognizing how we can leverage formulas, formulization, leverage our ability to purchase significant products in both, where as previously the purchasing power for a Bel-Ray Royal Purple anchor independently couldn’t be leveraged, we’re able to do that as an entire organization.
So these are the brands, that we talked about Royal Purple, obviously 100% synthetic premium products primarily focused on industrial and in the industrial space it was primarily energy and power, well completion and automotive and racing applications. And this is something that we focused on elevating the awareness of that particular brand. Bel-Ray played right on top of Royal Purple, their industrial products were focused on food grade, greases and mining, they were very complimentary to our existing product line.
And frankly because the skill set of the sales team was very much aligned with the kind of products we’re selling, very easy to get up the speed quickly. Quantum, great access to distributors, very knowledgeable sales force and providing a series of products that not only have the right OEM and API certifications, but we knew we’re high quality because we were providing Quantum with 25%, 30% of their existing capacity from the beginning, packaging at The Shreveport facility
Anchor Drilling Fluids has been a great acquisition. As far as culture we’re feeling very comfortable with the leadership team that we’re able to bring on. And once again family oriented focused on delivering above and beyond further customers in a marketplace that they are continuing to grow share.
TruFuel was the fastest growing product in our brand, we have talked about that previously as started and part of the acquisition from TruSouth in 2011, 2012 that product affords us the opportunity to get more and more into the smaller engine market. And right now as transformed the category and learning good. One of our greatest successes was being able to go to lows and actually see on one of their show that they have a fuel area. It’s an engineered fuel station and it’s got four or five products, it’s got (indiscernible) and these part of out it is we produced all of us.
So being able to transform that market is something that is very important. And all of those products along with the top house have a consumer or end use singularly act customer. And then the once accept for Anchor, and then the once on the bottom starting with Penreco, it’s our special items or waxes the first acquisition that we had in this space are white oils primarily and gets sold into the cosmetic personal care, channels, ORCHEX is our Agricultural Spray Oils internationally sold as Dedusting oils, potentially oil field solutions, the solid controls is fit so well with Anchor has been talked before. And then Calumet, our branded wholesale fuel supply entity that has up to a 100 or right around 100 Calumet branded fuel locations now.
But we talked before about rig to retail, and this is where we get to go from Penreco, Vaseline, Calumet, Gasoline. So we get to go rig to retail Vaseline to gasoline. That’s the kind of debt in product line and debt of vertical integration that we’re talking about as we grow our business. These are existing production facilities, our Farmingdale was brought up as the component of the Bel-Ray acquisition it affords us the opportunity to do greases, which was new also provides us with packaging lines to do both core all the way up to full tanker loads or blended engine oil or just blended lubricants, whether it’s biodegradable food grade heat transfer fluids all of those products that we can do, again in Farmingdale have 32 acre facility, solid tankers and something that we would look to continue to expand.
Three fourth our largest facility produces more gallons per year than any of the other two it’s our high speed for both course to where put the packets and the pouch filler it also does all of our flammable combustibles. And we’re very few packaging facilities in the United States that are able to do the share volume of flammable and combustible material that we push through and we’ve got a really great advantage, because we’re still close to our Cotton Valley facility, which produces a lot of the flammable and combustible solvents. We do a lot of coat [ph], five coat [ph] gallon all of our true fields based out of the Shreveport facility. It’s also, our largest bulk loading facility within the packaging and branded products division, so we do a lot of railcars, and multi-load tankers that ship out to distribution centers around the United States.
Porter, Texas is the former side of Royal Purple, it’s all of our synthetic oil when you look at the capability from Porter standpoint what’s amazing is the level of which they actually created the plant, there are it’s all dedicated piping put together very well high end – my favorite part of the tour, I do is walking up to one of our blending tapes and putting my finger on it and watching the computer calculate the changes that are needed for the different components to ensure that we have first half success on all our blends.
These are some of the new products that were launching have launched or launching in the next month is the oldest one, So, Max Payne is the six one diesel fuel this goes along side our Duralec product, Duralec is our brand of Royal Purple heavy duty engine oils and associated products Max Payne is a diesel engine additive products. So we can piece of like of Lucas power service house lubricator. Now, what’s unique about Max Payne it’s the all in one, it goes head to head with five different products for Lucas and you put them all together and we still win.
And the emphasize for this project actually came from our relationship with Wal-Mart, we’ve got into discussion we sort of talking about the increase in passenger cars with diesel engine. And the problems that they’re going to have with HPCR injectors. So, one of the reasons that we started with Max Payne was we’ve decided to go after the PCMO market to begin with. And, so this product in smaller sizes, is specifically geared towards the passenger car, however, now we can leverage that technology and put it into larger heavy duty engines, even using parts of this technology to those entire fuel bins and depots Max Luz and Max atomizer where the results of looking at specific data where we had identified opportunities in the marketplace, where we can leverage brand and technology to get significant push through.
All three of those are best-in-class and because of that it affords us the opportunity also to come in with the secondary tier under a different brand or utilized similar technology for OEMs.
Early like we talked about, Bel-Ray had a new product line for all of their Powersports and Marine since the first significant launch that they had in the last five years of their organization and it came out with new products and the mean part about it is we are able to comment since the acquisition and start migrating some of that production to our facility in Shreveport and save upwards of 25% on each of the products that we have migrated.
TruFuel was the first add-on to the TruFuel product. This was right one of ancillary benefits of increasing awareness in the marketplace of the harmful aspect of ethanol and gasoline was that additive to for small engines, as a category continue to grow. For the problem was we didn’t have a product for that and so because we were able to leverage some of the technology that we had used in Max-Clean from Royal Purple. We had an opportunity to create product specifically geared, minor changes and formulation to the small engine market. Once again this is another product that affords us the opportunity to expand relationships with existing OEMs.
This was the reason that we do it, we want a larger piece of ever growing pie and we know that synthetic and lubricant is growing at a rate faster than mineral. The big opportunity is that we see here internationally. Frankly, we had just in the last three weeks increased from South America, where we had significant expansion from Bel-Ray and even Africa and the middle east on both the automotive and heavy duty engine oil as well as mining, where we have been able to expand once again at high margins into those markets that are rates that we hadn’t previously had access to.
We talk about global demand, this is the reason why its primarily we want to go industrial first each one of the organizations that we have brought into Calumet gold for industrial first company, most of the marketing here tie the consumer and that’s not intended, the marketing that we do and our focus is 100% on industrial so largest portion of all our business and frankly the one that we see is the most important. These are the early adapters.
These are the ones that you can spend time with who they will understand your value proposition. When our sales team is go out and start to talk about reduced energy cost, expanded drilling inter holes, when we show them case study our products save them money over the long term, even when they pay us the 20% to 30% premium over what they are buying now. Those are kinds of customers that we can get bought in and we know we can because that’s the history of organization that we purchased, whether it was Bel-Ray or Royal Purple now we just simply given them more products to them.
Within the consumer automatic market, once again its big push for us as well on those Royal Purple, Bel-Ray and all our branded products. So we talk about the results of this focuses and this is just one – and this is not encompassing by any stretch or consumer product sales. The business actually MPD data did that came and talk and shows the difference TMM from June over December 13, and the market share that we’ve been able to increase.
Now once again a lot of this could be tied back to Wal-Mart. The problem is that what we’ve been able to identify which is very encouraging as we’re not cannibalizing our business all of our retail customers are growing. Once again we talked last year about the need to expand our sales force and that is just simply what’ve been able do in last two years through acquisition. What this doesn’t speak to or the additional personal that we’ve hired on, nor the support staff nor the account manager. This is just simply the team that we now haven’t place that can focus with a larger tool to go out after existing customers.
One of the areas that we had wanted to make sure that we’re spending the right and appropriate amount of both dollars and focuses on the marketing budget. And so what we wanted to make sure we communicated here was the targeted nature by nature by which we spent marketing dollars. Because all of the brands that we purchased were primarily niche brands that had strong regional or even customer centric, strength but very little broad based strength, we newly had to increase and change the way that we presented the brands to the market.
So in addition to your traditional ROIs or even the marketing metrics that we look at relative to reach and frequency and most importantly sales, the other ways that we justify marketing investment is finding a couple of key aspects on how they grow the rest of out business. Because they are competing in a space with much larger players, the areas that we invest and have to be ones that we own. We have to able that when somebody – if we can’t go to NASCAR, Royal Purple can't invest in NASCAR Bel-Ray can invest in places that Moto GP we simply can’t compete, we’re not willing to spend the amount of dollars that are already being spend by the majors in those areas. But we can do is identify the markets that are the (indiscernible) across the fastest growing automotives for in the United States. And actually own that series. What we are the primary oil that’s exactly what you see every time you turned it on.
Now additionally in the reason why GRC was a primary focus for us is we believe I certainly believe that based on CAP A standards but the direction of engines being built by OEMs are going to wind really well with the same kind of racing engines that are being putting global aircraft, 4-cylinder, high horsepower engines. They have to deal with the lot of key they have to deal with the lot of compression. And so that have our products tested in that market buy OEM like for (indiscernible) and to win those battles. Those are exactly the kinds of relationships we want.
We’re proving our product the four other technology hits to market. Indianapolis 500, the two sports cars, this is another example of working with OEM primarily Aston Martin and Ferrari. Moto GP, Gaúcho these are ones that we own specific aspects of those assets.
The Royal Purple last year was really big success, we actually rank 12 as far as quality of ball games. And I can tell you that the Royal Purple, Las Vegas win purchase with not near ranked 12 then so, we didn’t have to be a 12 rank marketing budget for the Royal Purple Las Vegas firm. Trailer programs and something that we really are utilizing to get that grass roots interaction with the market. And one thing that we did really uniquely this year that we’re really proud of is the disaster relief program that we put together with TruFuel.
We actually have a TruFeul truck and trailer jacked up to goes everywhere there is a disaster to hand out and hell. We hand out TruFuel to help recovery things going with change pass clear out firstly we went to Oklahoma this year, first Tornado and Arkansas. And so this is something that it’s not something that we’re generating sales, but we certainly generating revenue and future sales. And that’s with our focuses.
Moving and web, took me couple of months to come around to, I’m 100% on board. When you talk about that assets that we owned Royal Purple was in 20 movies over the last 12 months with product placement, whether it would be a significant as what we haven’t Transformers 4, but you actually had a Royal Purple car driving away from the bad guys, which is really important that it won the race or something else as simple have, a guy wearing a Royal Purple T-shirt asking to girl have on a date.
So, all of those product placements continue to elevate awareness and we’re going to do that it is very discounting rate. And then finally web and social media, this is something that was a focused before we had come on and our brands right now we’re really latching hold of that and having tremendous success. As an example with this take Facebook from Royal Purple, if number of Facebook followers for Royal Purple is 2.5 times to 3 times and not of its closet competitor, which is Castrol. So we’re continuing to drive interaction with all of our customers.
So, with that I’m going to turn it back over to Jennifer.
Jennifer G. Straumins
Right now, we are just take a few minutes to talk about how we’ve been successful in our vertical integration strategy and where we go from here? Again when we’re sitting in front of you few years ago, we talked about refining assets that we had as part of the Calumet portfolio and where we wanted to go if we transform this company to a company that would be successful for years to come, and given the product lines that we’re in at that time whether that be, not been specialty product pertinently we can’t solve in access.
We really controlled a large percentage of the market share in each of those spaces, so you don’t grow by expanding capacity and over flooding the market, you don’t expand by continuing to acquire competitors in the spaces where you control more than 50% market share. So if we looked at where we wanted to go, vertical integration seems to be the best strategy available to us. And we’ve been able to accomplish that not only to the niche refinery assets that we’ve required in each of the shale gas plays throughout the United States, but also in the specialty products areas that we focus on. And again that will have to retail rig to Wal-Mart type of strategy.
Anchor Drilling Fluids has allowed us to expand our customer supplier relationship at the well head. The North Dakota crude oil gathering acquisition has lowered our cost of crude into San Antonio and set us up nicely to be the supplier to Dakota Prairie refining.
The San Antonio crude gathering system as Tim mentioned, we filled that pipeline two days ago and that has set up to lower our cost to the acquisition for crude in the San Antonio by at least $2 a barrel. And we’ve talk to you a lot about GTL and how we want to play the gas to liquids technology. We decided earlier this summer to invest as an equity investor in the Juniper GTL project and we’ll talk more about that in just a second.
And then finally, our most recent acquisition specialty oil field solutions, after we acquired Anchor we assume how would you guys like to grow. One other thing we’d like ask with acquisitions is tracking per day, where do you go from here. Solids control was something that – talk to us about as well as expanding our geographic footprint in specialty oil field solutions satisfies both of these categories, and this was a business that Anchor knew well and so when we had the opportunity presented to us a few months ago just step in as an acquire these asset they were on board hazardously.
The Anchor Drilling Fluids was an acquisition that came to our attention last summer just about this time and we worked on it for several months and try to decide that this was something that we really, again we’re competing with some customers and we thought longer hard about if this was something that we wanted to do and decided that based on the overall success of Calumet that this would be a very accretive and timely acquisition for us.
We closed down this acquisition at the end of March, the $224 million acquisitions for us, very high growth business, they’ve been growing at 20% plus year-on-year growth for the last several years, and annualized basis for 2013 our EBITDA was $32 million. Anchor has an established base of customers in each of the major shale gas play throughout the United States and some of rationale through acquisitions was again it allows us to drove our exposure to the rapidly growing drilling fluid services space. The sustained EBITDA growth was very important to us again, like Royal Purple, like Bel-Ray 20% plus year-on-year EBITDA growth.
The customer base consist of 250 different drilling fluids – drilling companies that some of which Calumet had relationship with, but even more so, we don’t have existing relationships, but that allows us a nice platform to introduce other of our products to Anchor’s existing customers and that’s speaks to the cross selling opportunities. I didn’t have the opportunity to attend some of these conferences, but our Royal Purple team along with our Anchor team have attended several drilling fluid conferences in Oklahoma and Montana over the last several months and it’s been very, very successful to cross market, our whole host of drilling fluid solutions to the market.
And finally, across our relationships with oil producers. An early wins for us as Anchor set, we’ve been really trying to get into this one particular producer, and so what we buy and sell their production let us make a phone call. And it goes both ways. And that’s one of the nice things about vertical integration charges were concerned. Anchor again, very small market share in each of the areas that they participate in, you can see from the map on slide 53 that they’ve got between 10% and 15% of the market and all the shale gas plays. And as we talk about growing the Anchor business, we talk about what resources did that team need to grow that market share from 10% to 20% to 30%.
And most recently, we completed the new mud plant in Midland and that should allow us the capacity to continue to serve the markets in that area. Our Specialty Oilfield Solutions was the small acquisition of Calumet; we considered a bolt-on acquisition to our Anchor Drilling Fluids platform. Specialty Oilfield Solutions has found in 2005 and they are based at Houston. And this was the $30 million acquisition for us and they operate in two major divisions, drilling fluids and solid control.
And again, one of the things we talked about with Anchor when we acquired them was where do you go from here. And solid control was pretty high upon that list of priorities. And so we talked a lot about do you do that organically or do you do that through acquisition. And we weren’t necessarily looking for an acquisition that when this one came and was readily available to us, it seems like the easy thing to do to grow into that space very quickly and very inexpensively. And again, there are significant cross-selling opportunities between Anchor, and SOS, and Royal Purple.
And moving now to talk about crude gathering, again, always trying to get closer to the producer and closer to the consumer. If you remember when we acquired the superior refinery from Murphy Oil back in 2011, we were unable at that point in time to acquire their space on the enriched pipeline for many reasons. So we’ve entered into a long-term agreement with Murphy Oil for them to supply us crude oil as the Superior refinery.
Obviously, this was a non-core activity for them and while we have great relationship with Murphy, this is just that something that they were focused on doing well for Calumet. And when the rules of the game changed, and we were able to acquire these assets and the space on the enriched pipeline, we jumped at the opportunity last August, very inexpensively; we are able to take over the frac units in Montana and North Dakota, as well as our space on the enriched pipeline going into Superior.
So not only, have these assets allowed us to leverage our own crude oil capabilities, but it’s also enabled us to expand our crude by rail function. If you remember last year, we talked a lot about the investment that Murphy had made and the Calumet had continued on to invest heavily in the rail capabilities out the Superior refinery to serve not only other Calumet refinery, but third parties as well.
And so we’ve been able to take the crude that we’ve acquired from these assets in Montana and North Dakota, and bring them into Superior and then redirect them to other Calumet facilities, or to third parties and at the end of the day, enhancing the cash flow for all overall Calumet.
And looking at San Antonio, when NuStar bought the San Antonio refinery, it was – it needed a lot of work, and NuStar has spent about 18 months and tenths of millions of dollars of capital, improving not only the facility, but also the logistics going into the facility. They have built them the pipeline going from the Elmendorf terminal to the refinery, so that you could cut down one of our 80 trucks a day at crude oil being delivered in the refinery.
And what we’ve done as we’ve taken that one step further. We’ve entered into an agreement with TexStar Midstream Logistics for them to build a pipeline going from the Eagle Ford crude fields into the Elmendorf terminal, so that we can cut back on the trucks and the costs of the trucks going into Elmendorf and we can have pipeline type of economics going into San Antonio.
So again, we estimate on the 20,000 or so barrels a day crude that we run in San Antonio that we’ll have about $2 a barrel savings, as this pipeline gets up in running. And then gas and liquids is another area that we’ve been focused on, really this has been a passion of my dad for about the last 20 years. He has been a big believer in gas-to-liquids. And over the last three years, we’ve looked at multiple GTL opportunities and settled on a minority investment in Juniper. The Juniper GTL technology is proven technology, and the people controlling that venture come from a shale background that they’ve got the decades of experience in GTL technology.
We wanted – some of the reasons we wanted to be involved and this is not only as a cutting-edge technology. but again, there is access to niche treasury products whether that infrastructure of waxes, or natural gas drive lubricant scroll for our branded and packaged business, I’m sure you all have seen the petrolatums talking about that they’ve got natural gas, derived fluids inside their PCMO.
Now, we can say, we’ve got natural gas drive fluids drive from the United States inside our PCMO set in Walmart shelf. So that’s something we’re very excited about coming to 15, 20 when this facility is operational. It’s 1,100 barrel a day facility. They’ve got plans to build larger facility located also in the United States, once we prevent the technology and the economics of this plant, $135 million total investment of which we are contributing $25 million and it should be operational in mid-2015. So we’ll be talking a lot more about this I’m sure in the upcoming quarters.
So we’ve talked about a lot of projects and a lot of future opportunities, really over the last 12 months to 18 months with you guys. If you look at the organic growth opportunities, we’ve got above $600 million in organic growth projects, we’re becoming online between now and the first quarter of 2016 and based on the models available to it today should deliver us between $200 million to $220 million of incremental EBITDA.
We approximately $300 million of acquisitions that we’ve done this year alone should provide at $48 million of incremental EBITDA. So again, looking back at the tough second quarter that we’ve had, the tough 2013 that we’ve had everything has been focused on how we are transforming this company from where we were in 2012 to where we want to be in 2016 and the steps that we’ve taken to get there. I think everyone on this management is how the opportunity to visit after the meeting, or to answer questions, post our prepared comments. you will see that we are all very encouraged and excited about what’s to come.
So looking forward, where do we go from here? We’ve got some, we’ll talk a little bit more in detail about these, as we go in the next few minutes, but there are a lot of things still to come, not a day goes by that we don’t need with our senior management team and talking about hey, where do we go from here, how do we enhance that we have available to us today, where do we go next? As we look at the San Antonio refinery, when we acquired that refinery in 2013, we knew that we wanted to make specialty solvents out of this plant. We knew that Calumet was really the only one well positioned to be successful in that as a potential acquirer of that refinery. And so we’re really happy and excited to announce today that we have moved forward with this project.
To the $40 million project, we have acquired all of the critical equipment necessary for the project, and what we will be doing, we will be taking up to about 3,000 barrels a day of also specialty diesel fuel and jet fuel, and upgrading it to high quality, low aeronautic solvents. And these solvents are very similar in quality that to what we would produce out of our Cotton Valley facilities today. We are still getting the same market for serving the same customer base.
And these are products that we’ve been showing on, coming out of Cotton Valley. So we are very excited to be able to give our solid sales team, the access to these barrels together with our customers and grow our market share in the space. The $40 million project is due to come online in the second quarter of next year and our current financial projections show that we expected our $25 million of annualized EBITDA contribution coming out of this facility. So basically two years after acquiring this facility, facility that was losing tens of millions of dollars a year.
We will turn it around invested the capital necessary, expanded the product line and created what is arguably one of the nicest newest net refineries in the Untied States. And looking from San Antonio to Shreveport, as with me and cock daily we could monthly abut how do we grow this business. We also look at what assets do we have that are under performing and how do we turn them around. How we do we –what capital do we invest, what changes do we need to make, to make these assets do what we expect them to do, or how do we look at moving in a direction, so that Calumet unitholders are better off from a cash flow perspective at the end of the day.
We acquired the Shreveport refinery in 2001 from Pennzoil. At that point in time, Pennzoil had made the decision to divest follow the value of their hard assets and moved to an asset wide, moved towards a branded approach and really readied themselves for an acquisition by shell. They were focused on their Pennzoil brand of lubricant and not interested in the refining assets any longer.
We were able to acquire the refinery in Shreveport in 2001. And since that point in time, and we’ve invested hundreds of millions of dollars in this facility through multiple upgrade projects. In 2004, we invested money to restart the field units that Pennzoil had shut down. Between 2006 and 2008, we invested every $300 million in this facility to do basically, three projects.
We upgraded their low sulfur diesel product to an ultra low sulfur diesel stream. We added the capability to run a high sulfur crude through the addition of the second crude unit stream, increasing the capacity from 40,000 barrels a day to 60,000 barrels a day. and finally, we upgraded our lub oil product quality from a group 1 to group 2 through the addition of some catalytic dewaxing technology.
And as we continue to look forward to this facility, we continue to evaluate new crudes and a change in feedstock slate that would make this refinery more profitable. We are looking at some capital projects to upgrade the quality of the current lubricants that we produced out of this facility. and then finally, I mean, we always have to look at the sale of an asset, if we feel that will be more accretive to someone else than it is to ourselves in our unitholders.
Again, we look at it; we ask ourselves these questions about every asset that we own everyday, but given how Shreveport weighed on our results for the first half of the year. we wanted to talk few minutes and address this particular asset individually to t16his presentation. And again, we talked about how we’ve been rapidly able to acquire assets over the last two years.
Turning to slide 61, our organic product development; we’ve got a lot of assets and we’ve got a lot of brands with which to build out our product offering under those brands. So as we look at how do we take Royal-Purple tolerate Quantum, TruFuel and expand those not only fro an industrial standpoint, but fro a retail standpoint. We’ve listed several potions here.
We are working on the next generation (indiscernible) lubricant for the mining ministry. and again, this product meets all of our competitors in head-to-head testing; we’re rolling that out as we speak. We continue to expand the line of chemicals that we offered to the marketplace under both Royal-Purple and Bel-Ray. We’re working on a line of automotive aftermarket appearance products, and then also working on industrial products for power generation and food processing, and that new product lines are also the expanding of our railroad product offering and our marine product offerings, and these products would be offered out of our Dickinson facility and Dickinson, Texas. and again we’re looking at how can we change, and alter and make more profitable assets that we already have in our portfolio.
And then finally, looking at a line of raising fuel on lubricants that we haven’t had historically, also focusing on our grade oil – food grade oil and Petrolatum products, we’ve had a renewed focus on being able to offer products on the global basis to all the multinational companies that we serve recognizing that they need us to come to them with R&D solutions new product offerings and so we’ve really made an effort to expand R&D capabilities, out of Karns City, they’re concerned to be able to serve them our multinational customers would know it and better product offering than we ever have before. At some of our food grade industrial compressor lubricants fall into that category again, trying to create the best in market products that we can go to market with.
And finally, our polyolester product line, we’ve done an extensive amount of product definition, and introduction into the space. We are doing the expansion project in Louisiana, Missouri, and prior to this expansion, really we serve two customers with a handful of products, and we’ve really been able to expand the product offerings out of this facility and expand the industry that we’ve been able to serve. so I really feel like our sales and marketing team is in a great place as this new production comes on stream in 2015.
And we talked to you guys a lot about refinery optimization product – project turning to Slide 63. Okay, our refinery managers are continually looking for ways to debottleneck make their assets to increase energy utilization and to improve the yield, the economic justification of the bottom of the barrel and we’ve got a lot of byproducts that everybody wishes we’re a barrel of crude, but we are crude refiners, you don’t always get to choose what you make.
So, a lot of work we spent our time on, and how do we upgrade the bottom of the barrel, how do we optimize all the byproducts that come with the facilities that we own and operate, and then finally, reliability improvement projects. and this is the huge story for Shreveport. Having a new Refinery Manager there, we’ve been able to focus on reliability, crude rates, yield enhancement and again, these are the things that we do everyday, there is not huge capital costs associated with any of them, but it’s – what’s going to help us be successful at the end of the day.
And then finally, if we look to how does Calumet go through acquisitions from here. We’re continually looking for accretive acquisitions, that’s part of would be an MLP is all about. How do you provide increased distributions to the unitholders and oftentimes that comes through acquisition, look way for calumet methods come in hand-in-hand with we’ve done the acquisition and we’ve put the organic growth capital in place side-by-side to grow what we’ve required, but we continue to look for nice specialty product lines in areas that we’re not already servicing.
And again, a lot of this is focused on international product growth and international asset growth. We will – well, the majority of our focus is on executing the organic growth projects that we have undergoing today and returning our base business to the core profitability. We do feel that it’s very important to continue to look accretive acquisitions as we move forward.
And then finally, for the last couple of quarters, we talked about, as you move forward through raising capital for organic growth through acquisition growth that caused the capital as paramount to our success.
And we’ve watched several of our competitors to drop down MLPs throughout their existing structure and realize that lower cost of capital and we’ve looked at several things, everything from a logistics MLP spinoff to a variable distribution field spinoff to fixed distribution specialty MLP spinoff. and thanks a lot for Calumet, we’ve got great relationships with, more than a handful of banking partners out there, all of which have been very helpful and helping us evaluate and put together game plan for where do we go from here as we look at these opportunities, and we continue over the next few months to work with our banking partners to put together our plan that works that only for private management employees, but also for the unitholders. So that we can create value – the most value for everybody involved.
So that will be a lot more to come on that. We are putting together, currently putting at the list of assets, so we think we have dropped out nicely until logistics MLP, and we’ll be working on how do we determine the inner company transfer pricing, and all that comes about significant part of the next several months.
And with that, I know all of our teams, and myself certainly will be happy to answer any questions that the audience might have.
Unidentified Company Representative
I don’t know. No one concerned with the microphone.
Unidentified Company Representative
Unidentified Company Representative
No, I’m good.
Unidentified Company Representative
I didn’t get one of those (indiscernible)?
Unidentified Company Representative
On microphone first now.
Here we go?
Unidentified Company Representative
Yeah. any questions, just 10 minutes time for the first question.
Hi, would you please review your bank loan agreement, and I asked it the context that over the last six quarters, the capital that should have generated for payments and distributions is average to about $10 million a quarter, I know it’s been higher and lower but on average is $10 million. Yet, you’re paying out $50 million, so there is about a $40 million differential. Which I guess that money has becoming from the bank agreements. So, at what point to the bank, say you have to cut your dividend or reduce your dividend or whatever because you’re clearly not covering your dividend.
Jennifer G. Straumins
So I’ll speak to the beginning of that and then I’ll pass, speak to the new answers of that, you guys back in 2012, our coverage ratio was in excess of two times and we’re able to put a lot of that excess cash flow back towards our operating surplus, which really gives us a pool of money to borrow from as we implement these growth projects and continue to pay distributions at current levels, as we put the capital that we’ve raised to work to fund that gap between the rising of capital and the cash flow from the capital that we’ve invested.
And Pat maybe you can speak towards the new launches of the credit agreement.
R. Patrick Murray
Our partnership agreement calculates operating surplus and our operating surplus continues to remain positive. We are clearly focused on returning to one times coverage and beyond at this point in time, we continue to stay on the current track of distributions. Understandably, coverage needs to get better over time and I think we’ve laid out some reasons probably in the second part of year, we think that we’re going to make a lot of progress on that. We didn’t expect that we would get to well over one times coverage in 2014, but we do as we’ve outlined several organic growth projects I think over the next several quarters, we’ll continue to make progress as we go forward.
But from a partnership agreement standpoint, there is operating surplus available, there is also other new launches within the agreements allow us to continue to maintain distribution, but we certainly take your points that need to have your long-term coverage of that one for our business as we’ve stated. And that’s what we remain focused on doing that’s why we’re focused on things like reducing working capital, increases operating surplus, obviously earnings, increase operating surplus, being smart, and prudent on our CapEx in terms of maintenance environmental. All those things remain on tract to where we thought that would be, so with continued operational reliability, I think we’ve got a good chance over the course of the next couple of quarters to make progress in these areas, but we’ve still got work to do.
But there are specific elements in the (indiscernible) EBITDA ratio.
R. Patrick Murray
Yes. Well, I mean if you are speaking about the indentures there are rules around that, but really if you are maintaining fixed charge coverage above a certain level. There is a concept of incremental funds with every equity rates that we have and that increases those incremental funds that are available. The revolving credit facility requires that should be able to demonstrate pro forma availability of around $75 million after weeks pay the distribution and at the end of June, our availability under the revolver is $700 million, so there is certainly an order of magnitude difference there. But we do understand and appreciate that long-term we’ve got to get this things back to one time coverage at least.
Jennifer, or maybe Brian, I was wondering where you could put some numbers around what you’re working towards in the blending and packaging side, I guess either on operating cost reductions, revenue growth are just anyway, you can sort of quantify what you’re trying to do there?
Jennifer G. Straumins
Sure. Blending and packaging story is really all about revenue growth. That being said, the one thing that Brian did talk about in the presentation was bringing in-house some third-party packaging that we’d have done and the savings for that several million dollars a year, but that tells in the comparison to the revenue growth and therefore the adjusted EBITDA growth that we expect out of this group.
And if we talk about a 20% year-on-year growth from a revenue standpoint, you’re talking about $25 million, $30 million in the revenue growth at about – between 40% and 60% margin. So we’re talking about tenths of millions of dollars on an annual basis coming from this group.
Okay, great. Thanks. And then one, probably we’ll get an answer on, but just wondering as you’ve gone through the process, if you’ve gotten any better sense of the range of EBITDA for logistics, MLP that could go in there?
Jennifer G. Straumins
Nothing, that we haven’t already disclosed that $50 million to $75 million day one with a substantial amount of drop down capability.
Roger D. Read – Wells Fargo Securities LLC
Hi, Roger Read, Wells Fargo, I guess more the branded package presentation, which was really pretty informative. You talked about the cross-selling, you talked about market penetration, all these things post-acquisition, but there have been so many acquisitions, there hasn’t been a baseline for us to understand, or really nail down, I was wondering can you give us an idea of what some of those cost savings have been quantifying in some ways, so we get an idea of either the cost savings, improving the margin, or the cross-selling improving the margin or both?
R. Patrick Murray
And I can just kind of expand on that, Jennifer had just mentioned, where we’ve been –we can use anecdotal information, just because that’s what I have available. If you look at some of the packaged products and migrating it from an external source internally at Shreveport, we’ve got order of magnitude on TTM volumes of about $400,000 a month of improvement. Now what’s really interesting is each one of those are tracking from a volume standpoint, north of 20% improvement year-on-year growth.
So anecdotally, as Jennifer had mentioned, millions of dollars from a cost savings perspective, but the focus is truly on garnering even greater increases by increasing the top line at a rate faster than what we are in the bottom line.
Jennifer G. Straumins
If you look at all the blended and packaged acquisitions put together, you’re talking about $50 million a year of EBITDA and again, growing at about 20% year-on-year growth without synergies and again that’s excluding Anchor, that’s just Quantum, TruSouth, Bel-Ray and Royal Purple.
Hey, quick question Bryan or Jennifer, I didn’t find your presentation talk about being distributed for like other products or not Calumet’s, is that like an opportunity or how does that currently – how does that related to the Calumet product themselves?
Are you talking about working with distributors?
Jennifer G. Straumins
On private level.
On private level. Okay, so much of the business that we see as opportunistic moving forward is working with existing OEMs or brands that are not came at, but actually providing them with packaging services, blending and other capabilities. And the story that we gave at WD-40 as best as anything, WD-40 started off as very small customer of Cotton Valley. Cotton Valley was able to work with WD-40 to put together a product that we are now a sole provider of over 65%, 70% of the total raw materials that go into WD-40.
Now we are able to provide additional services by actually blending that for them in our Shreveport facility and distributing it to their Aerosol packagers around the United States. Further what we’ve been able to do because we’ve done such a good job at the first of managing the raw materials, second blending for them and distributing those products, and third actually being their primary packager for all of their gallon products. So other non-aerosol gallons, five gallons and drums we produced out of our Shreveport Refinery.
We use this as an example of the kind of opportunities that we have with other OEMs or other branded companies to leverage the strengths that we have in raw materials and packaging. So when you look at a Husqvarna as an example. We package all of the Husqvarna 50 and Husqvarna 40 field. So our goal for that kind of relationship is to go to them and distribute additional – so that’s to share additional products from their lubricant product as well. And we would go and provide those product and services to them. Is that make sense?
Another question, in terms like you mentioned the Anchor Drilling, you are at these market and trying to get market share, most strategies have been attractive in terms of increasing the share and strategies where like the competitors have like compensated and made it more difficult when it’s actually you are not getting what you accomplished or you not…
Certainly, refer to Jennifer, but I think first and far most we are listening to the Anchor sales team who are already here and we talk about bring them on and acquiring capital much as they are requiring asset, there has been no better story than Anchor, their sales team, their leadership or leaders in that industry. And so, whey they tell us we’ll provide them with – to help them go do what they know they need to do and that’s how we’re winning. And so, I’m not explaining to couple of them here, but certainly that’s our best, we are in our best when we’re supporting those who do best from that standpoint and that’s certainly the case we mentioned.
Jennifer G. Straumins
At the end of the day it’s customer service and providing the best product with the best level of customer service that you can. That’s how we when – that’s how small people at Calumet win.
Steve Sherowski – Goldman Sachs & Co.
Hi, this is Steve Sherowski, Goldman Sachs. You mentioned that strategic option you are currently looking out for three quarter and potential sales of the refinery. I’m just curious how that maybe structured given that to mix up such a large base of your overall production?
Jennifer G. Straumins
Again it comes down the cash flow and return to the unit holders. It’s a large percentage of our overall production, but it’s not a large contributor to the EBITDA of Calumet in general. Well people need to understand as EBITDA per barrel type of a number and at the end of the day Calumet is going to be as strong or stronger without 345 are being part of their portfolio. But again, our number one priority is to fix report, it’s to we’ve replaced a lot of their senior management team at the refinery; we’ve done a lot of things to increase their reliability of the asset and increase the product offering out of the asset. I’ve not seen anymore hands. So I just hope we’ve got one more.
Steve Sherowski – Goldman Sachs & Co.
Hi, given the recent developments with our friends at Kinder Morgan and your stated goal to lower your cost of capital would that make sense to eliminate the IDR situation and thereby lower your cost of capital and have everybody operating with the same class of securities rather than they are being two classes of securities.
Jennifer G. Straumins
I think that it’s not clever for me to say because everyone knows in this room I’m the GP of Calumet, but you know that when you are investing Calumet, you’ve got IDRs, you’ve got unfair distribution of incremental income to the GP, but that’s what incentivise us to grow the company and be successful for every unit holder. So we continually look at things if we ever have that transformational acquisition that $800 million – $800 billion acquisition where we need to look at our IDRs. We are certainly open and willing to do so, but at this point in time there are no changes contemplated.
Steve Sherowski – Goldman Sachs & Co.
With regard to gas liquids and that $25 million investment I think you indicated that you’d made and what’s ultimately the payout expected to be and will that be the kind of stable visible cash flows that MLP investors might wish to see?
Jennifer G. Straumins
Sure. We’ll be very visible and what the cash flows from this opportunity are and it’s not only the cash flows from the equity investments, but it’s the potential to have the marketing uptick that comes from this facility and the opportunity to participate in a second or third facility located elsewhere in the United States. That was the big part of the reason why we chose investing this. And we anticipate this was about a 10% accretive project for us. I guess certainly not the most accretive thing that we’ve ever done, but we are also looking forward to step two, three and four as we evaluate our participation in this project.
We’d like to thank everyone for participating today. I don’t see any other hands out there right now. Management will be circulating with the Group, so we’d be happy to answer any questions one on one.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!