Calumet Inc (CLMT) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2013 Calumet Specialty Products Partners earnings conference call. My name is Jackie and I will be your coordinator today.

At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to Mr. Noel Ryan, Director, Investor Relations. Please proceed.

Thank you, Jackie. Good afternoon and welcome to the Calumet Specialty Products Partners second-quarter 2013 results conference call. We appreciate you all joining us today.

Leading today's call is Jennifer Straumins, our President and COO, that will provide an update on our business and the opportunities for growth as we look ahead to the remainder of the year and beyond. Next we'll have Pat Murray, our Chief Financial Officer, provide details on our financial performance during the second quarter. At the conclusion of our prepared remarks, we will open the call to questions.

Before we proceed, allow me to remind everyone that during the course of this call we may provide various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management as well as assumptions made by them and in each case based on the information currently available to them. Although our management believes that the expectations reflected in such forward-looking statements are reasonable, neither the Partnership, its General Partner nor our management can provide any assurances that the expectations will prove to be correct.

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

Important to note is beginning this quarter and on a go-forward basis, Calumet intends to provide presentation slides that will accompany the remarks made on this and future quarterly conference calls as indicated in the press release we issued earlier today. You may now access these slides in the Investor Relations section of our website at calumetspecialty.com.

With that, I'd like to hand the call over to Jennifer.

Thank you, Noel. And thank you for joining us on the call this afternoon.

As we look through the slide deck, will start on page 4 and if you don't have it in front of you, I think our comments are going to be inclusive enough that you won't really be missing anything.

Our net income for the second quarter of 2013 was $7.8 million, a decline of $65.7 million in the prior-year period. Adjusted EBITDA as defined under our debt instruments declined to $70 million in the second quarter of 2013, down from $122.3 million in the same quarter of 2012.

As we indicated in the press release issued this morning, our second-quarter performance was adversely impacted by several factors including a planned 45-day turnaround at our Superior, Wisconsin refinery, a decline in fuel product margins compared to the prior-year period and narrowing in the discount between WTI crude oil and other feedstocks, higher costs to purchase renewable identification numbers required for compliance with the US renewable fuel standards, as well as some pressure on our Specialty Products margin.

As many of you are aware, plant turnarounds are a normal part of doing business as a refiner. While the Superior turnaround was successfully completed on time and on budget during the second quarter, the fact that our second largest fuels refinery was off-line to what amounted to half of the second quarter impacted our product sales and overall profitability for the period.

Fortunately with the turnaround now completed, Superior isn't scheduled for another turnaround until 2017, which puts us in great shape as we look to take advantage of market opportunities to increase fuel sales throughout the Great Lakes region.

Refined product margins declined during the second quarter of 2013 as measured by the 2/1/1 crack spread but still remained well above historical levels. The 2/1/1 crack spread averaged nearly $26 per barrel on the second quarter, slightly below the prior-year period of $29 per barrel.

More notable however, was the significant narrowing we saw in crude differentials throughout the quarter as the price variance between a barrel of WTI crude and LLS was cut in half from about $20 a barrel to about $10 a barrel.

Although we are certainly not completely immune from a narrowing in crude differentials, Calumet has continued to enhance its crude slate flexibility in recent years as we've acquired refineries in virtually every major shale play while developing relationships with multiple third-party crude marketers in addition to local producers to ensure that we have access to cost-advantaged crude.

Our refining system continues to process a steady slate of Bakken WCS and Bow River crude among others, which are all currently trading at or below WTI. LLS continues to and remains an incremental barrel for us at our Shreveport refinery.

While our Specialty Product segment had a good quarter, we did see pressure on base oil prices during the period. As competing producers came out of the turnarounds and we saw an abundant supply to the markets, it was really the first time in about a year and a half that all paraffinic base oil producers were running at capacity.

We also saw crude prices increase during the second quarter and as you know, as we increase our Specialty Products prices, there is a lag from when our commodity prices go up. So we have implemented price increases across the majority of all of our Specialty Products segment. And we'll see these impacts reflected in our third-quarter results.

Our distributable cash flow took a hit in the second quarter, largely as a result of the turnaround expense incurred at Superior. Total turnaround expense increased by nearly $27 million in the second quarter versus the prior-year period. Excluding the impact of the Superior turnaround, our distributable cash flow would've been approximately $26 million. And that doesn't even take into account the lost revenue that we had for being down from 45 days.

Longer term, we continue to make -- we plan to continue to maintain a distribution coverage ratio target within the range of 1.3 to 1.5 times on an LTM basis.

We've made progress in a number of areas since our last conference call. We've managed to grow distribution for the 12th consecutive quarter to what amounts to an 8.5% yield at yesterday's closing price. We continue to hedge a considerable portion of our fuels production through 2016 and we've made progress on our basket of high-return organic growth projects.

We increased our available liquidity by a significant order of magnitude and we continue to conduct diligence on a wide range of potential acquisition targets in the specialty and fuel markets.

Let's talk a little bit more about each of these areas. For those of you that are following the slide deck, we will turn to slide six at this point. On July 22, we announced an increase in our quarterly cash distribution to $0.685 per unit or $2.74 per unit on an annualized basis for the quarter ended June 30, 2013 on all outstanding limited partner units.

Although the pace of distribution growth is less than what we have paid in recent quarters, we believe it's important to maintain sufficient liquidity to help fund organic growth and acquisition-related ventures, two areas that remain a top area of focus for us.

Nevertheless at a yield exceeding 9%, Calumet remains one of the most attractive income value vehicles in the independent refining sector.

We have witnessed enough cycles in the refining industry to know that elevated crack spreads and wide crude differentials aren't a long-term certainty and we've been talking about this for the last several years that we've been in a really high-growth period. We've had much larger margins than we anticipated or planned for so as you all know, we've taken that opportunity to fund organic growth projects and fund acquisitions and also have a very high coverage ratio. I think we're seeing -- beginning to see the return to normality at this point.

And as part of our risk strategy, we continue to use derivative instruments to reduce our exposure to price fluctuations and the price of crude oil and refined fuel products and natural gas. Our stated goal continues to be to hedge between 50% and 70% of our overall fuel production and as of June 30, 2013, we've hedged approximately 15 million barrels of production through the end of the year 2016 at an average crack spread of $27.48 per barrel.

In addition we've hedged $7.8 million MMBtu of natural gas at an average of $4.31 per MMBtu. And we intend to take additional positions on a ratable basis as old positions roll off. Very much like we have in the past.

On slides eight and nine let's talk a little bit about the organic growth projects that we introduced at our Investor Day back in June. We've made considerable progress on the $420 million in organic growth projects and, collectively, we anticipate these projects will generate in excess of $200 million in incremental adjusted EBITDA on an annualized basis upon completion.

Importantly, it is worth noting that these projects are not entirely reliant on wide crude differentials to be economically viable.

Rather, we've made an effort to pursue projects in markets where there is both high demand for refined products and limited local supply and/or production capability as is the case with our Montana crude unit expansion, the construction of the greenfield refinery in North Dakota, as well as in the case of our Esters Plant expansion in Missouri. These are the three most significant projects we are working on at this point in time.

Our Montana refinery expansion remains on schedule with the completion expected in the third quarter of 2015. Our Dakota Prairie refinery is moving along nicely as well. We recently have hired a refinery manager for the facility and are hiring support staff at this point in time. We are still on target to be operational at Dakota Prairie late in the fourth quarter of 2014.

Mechanical completion of our Missouri Esters facility is scheduled for the second quarter of 2014 with full start-up in the third quarter of that year.

We continue to work on our Superior crude loading dock. We are continuing to negotiate and meet with potential partners and customers as we continue to evaluate the viability of the economics of that project. And we're continuing to work with the Wisconsin D&R to secure the necessary permits.

Before I turn the call over to Pat, I want to make a few comments with regard to our general market outlook as we head into the remainder of 2013, first with regard to crude differentials moving directionally. Like many of you, we look at the WTI Brent forward curve and see that spreads are expected to widen back out to the $6.00 to $8.00 range during the next three years. And as we've stated many times, that's really where Calumet feels like they should be and where we are most really comfortable operating.

That said, we're not depending on widespreads to generate profitable growth. We are taking steps to get closer to crude producers in a way that lessens our reliance on third-party crude suppliers. Given the geographic proximity of our refineries to many of the producers in shale play, this is not as hard as it may sound. And although our third-party crude suppliers remain important partners longer term, we do see opportunities to get closer to the wellhead in several of our markets.

Furthermore, for those newer to the story, remember that first and foremost we are a specialty products company that doesn't rely on the rise and fall of crude differentials. Our Specialty Product segment has continued to generate steady GDP type growth in recent years, excluding any of the accretive acquisitions that we've done.

And with regard to crack spreads, we do not anticipate crack spreads will hold in the $20 to $30 barrel range into perpetuity, which is why we are looking to hedge an increased volume of our fuel barrels going forward.

Currently we're looking into 2014, 2015, and 2016 for good opportunities to hedge. And Pat will discuss this in more detail.

And with regard to the renewable fuel standards and the rising cost of rents, this has been very active in the press lately. AFPM has done a great job supporting the refiners and realize that the topic has been discussed greatly by our peers and so we really don't want to rehash a lot of prior statements this time.

The [sunrise] in RIN costs evidenced in recent months, Calumet continues to identify ways to manage this increasing cost of doing business. Although we will be able to offset some of this obligation through ethanol blending and biodiesel production at our Dickinson Facility, we have and will continue to purchase credits in the market.

For the full year 2013, the Partnership anticipates the cost to comply with the RFS will be in the range of $65 million to $75 million, which is substantially higher than we said earlier and that's just due to the rising cost of the credits. Although over the last two days we've seen those prices fall, given the statements by the EPA yesterday.

As many of you know, yesterday the EPA did [purchase] a release acknowledging that there are constraints in the market's ability to consume renewable fuels at volumes specified in the Clean Air Act in future years and that the Agency anticipates proposing adjustments to the 2014 volume requirements in the 2014 rule to address these constraints.

Although it would be premature to speculate as to the extent of the proposed adjustments from a volumetric perspective, should we see significant downward adjustments to the volume requirements, we would expect to see downward pressure on RINs prices as well.

And looking ahead, demand for fuel from specialty products remains stable. Crude differentials are showing signs of widening and our Specialty Product price increases have gone into effect, helping to offset the pressure of higher crude oil prices. We are seeing some progress on the regulatory side with getting the cost of RFS compliance under control and our organic growth projects are on track while our ability to fund these projects as well as any number of potential strategic acquisitions is well supported by the ample liquidity we reported at quarter end.

Overall, we've got a lot of momentum heading into the remainder of the year and we continue to be very, very excited about the opportunities available to us.

And with that, I'll hand the call over to Pat.

Thank you, Jennifer. Let's turn our attention to slide 12 for a discussion of adjusted EBITDA. We believe the non-GAAP measure of adjusted EBITDA is an important financial performance measure for the Partnership. Adjusted EBITDA as defined under our debt instruments declined to $70 million in the second quarter of 2013 down from $122 million in the same quarter 2012. As illustrated in the chart on slide 12, the bulk of the year-over-year decline in adjusted EBITDA was due to a decline in gross profit in our Fuel segment and to a lesser degree in our Specialty Product segment.

Operating cost increased on a year-over-year basis due to an increase in SG&A and transportation expense.

Selling expense increased due primarily to increased amortization expense related to the recording of intangible assets associated with the Royal Purple acquisition, as well as additional employee compensation costs from the Royal Purple, Montana and San Antonio refinery acquisitions.

General and administrative expenses increased due primarily to increased professional fees and additional employee compensation costs from the aforementioned acquisitions.

Transportation expense increased due primarily to incremental transportation expenses related to the incremental sales from the Royal Purple, Montana and San Antonio acquisitions and crude sales to third parties.

We encourage our investors to review the section of our earnings press release found in our website entitled non-GAAP Financial Measures and the attached tables for discussion and definitions of EBITDA, adjusted EBITDA and distributable cash flow financial measures and reconciliations of these non-GAAP measures to the comparable GAAP measures.

Now turning to slide 13. In order to fully understand the volatility in refined product margins in recent months, it's worth noting the extent to which the 2/1/1 crack spreads declined between the first and second quarters of this year. This decline in the benchmark crack spread coupled with a sharp narrowing in crude differentials certainly had an impact on our Fuel Products segment gross profit during the second quarter.

On a related note, as you can see from the bottom diagram, we still enjoyed significant discounts on many of the crude oils in our feedstock slate, although not to the level exhibited in the first quarter and during most of 2012.

Then moving to slide number 14 for further discussion on RINs. During the second quarter, the price of RINs increased dramatically. Our total RINs expense was $15 million in the second quarter compared to $0.2 million in the prior-year period as the price of a D6 ethanol RIN increased from $0.02 per RIN to $0.83 per RIN.

While market prices during July for RINs averaged around $1.17 per RIN, current market prices have leveled off to less than $1.00. As Jennifer indicated, we are evaluating and continue to implement a wide range of options to offset our obligation under RFS including ethanol blending or biodiesel production at several of our facilities.

Turning to slide 15, distributable cash flow for the second quarter was negative $2.5 million compared to $94.9 million in the prior-year period. We calculate distributable cash flows adjusted EBITDA less replacement CapEx, turnaround costs, cash interest expense, which we define as consolidated net interest expense less non-cash interest expense and income tax expense.

During the second quarter, DCF was negatively impacted by an increase of $26.9 million in turnaround costs, primarily related to the planned turnaround at the Superior refinery, higher replacement CapEx of $12.4 million, and lower gross profit of $27.8 million, including the impact of higher RINs expense.

Turning to slide 16 and 17, exiting the second quarter we remain very well-capitalized. While leverage ratios remain certainly at manageable levels, including both cash and availability under our revolver as of June 30, we had $659 million in available liquidity, up from $387 million at the beginning of this year. As you'll recall on April 1, we completed a public offering of common units in which we raised net proceeds of $217.3 million, which contributed to our elevated cash position reported at the end of the quarter.

On an LTM basis through June 30, our total debt to adjusted EBITDA or our leverage ratio was 2.4 times, well below the high end of our comfort range of 3.5 times. Exiting the second quarter, we're pleased to the liquidity cushion available to us for opportunistic investments as they arise.

And finally turning to slide 18 in the deck, we project that turnaround replacement environmental capital spending will be $122 million in 2013. During the first half of the year, the six months ended June 30, we have spent approximately $47 million primarily related to scheduled turnarounds at our Shreveport refinery in the first quarter and at our Superior refinery in the second quarter.

Looking to the second half of the year, we anticipate turnaround spending requirements will be approximately $22 million, primarily related to scheduled turnarounds at both our Montana and San Antonio refineries.

Our Montana refinery is expected to begin 30 days of maintenance in early September. We'll make some product at Montana during the maintenance period due to the staged nature of the unit shutdowns and startups. Overall, we expect the Montana turnaround will cost an estimated $10 million during the third quarter of 2013 in terms of spending.

For a point of comparison, this turnaround is much more -- I'm sorry, much less than what we recently undertook at Superior both in terms of scope and cost.

And with that, I'll turn the call back over to the operator so that we can begin the question-and-answer session. Operator?

(Operator Instructions). Theresa Chen, Barclays Capital.

I just wanted to ask about the price increases announced and implemented. Do you have to think about in terms of magnitude and also what has the initial customer respond spend? Have you gotten any pushback?

Well, you'll always receive some pushback. As far as what the price increases were, about half of our base, we've raised naphthenic base oil prices $0.15 a gallon, solvents $0.20 a gallon and our asphalt pricing has also gone up although that's a little bit different across the board. So there is not really a good blended number to say because there are so many different grades of asphalt that we produce.

Some of the paraffinic base oil producers have announced price increases and we would anticipate we would follow in their footsteps here in the next couple of days.

Great. And then on the RINs, so you had said that you would probably offset some of the cost increases through ethanol blending capabilities. Is that accounted for in the $20 million to $25 million guidance?

No, that is not part of that number.

Can you help us think about how much that would contribute then?

Well, the 20 to 25 number is the cash that we would spend to buy the credits.

Right, but how much would ethanol blending offset that possibly?

It wouldn't offset it. We've already accounted for that.

Our number that we estimate is net of what we expect we'll be able to blend.

Got it. And then, can you just help us think about volumetrically how much of the products are subject to the RINs expense?

Well, all of our fuels production would be approximately 50,000 barrels a day.

All the gasoline and diesel that we make.

Okay and on the organic project, so you've given some EBITDA contribution guidance and I was just wondering when the projects are completed, are they expected to realize the full guidance within the first year or will there be some sort of ramp-up period for them?

They should realize the total contribution in the first year. The majority of these projects are fuels projects which are totally fungible products that would be sold out immediately. And in the EBITDA target that we gave for the Esters plant, we assume a ramp up in sales there. So it would have a higher potential two or three years out. So that number would be a first year. The number we indicated would be a first-year number.

Great, thank you very much.

TJ Schultz, RBC Capital Markets.

Just back to the RIN, on the cost assumption. I assume it's safe to guess that the estimate is based on a price higher than what we've seen here recently following some of the EPA disclosures -- (multiple speakers).

Yes, it's more like $1.30 a gallon is what that price is based off of. $1.20 a gallon.

Okay, so I think the previous guidance is $8 million to $10 million quarter that was kind of assuming about a $1.00 a gallon price?

No, that was probably more like $0.80. We gave that guidance last -- (multiple speakers)

Okay.

Earlier this winter when prices spiked up to about $0.80.

Okay, can the turnaround costs in the back half of the year, you gave some color on the Montana turnaround, can you just give a little bit more color on the San Antonio turnaround just on cost and timing?

The San Antonio turnaround, it will cost about $10 million. We are also doing some growth project tie-ins with that project as well. We've been spending ongoing there. We're working on a $10 million expansion and also about a $4 million gasoline blending project. But those -- that $13 million that has been being spent really since the beginning of the year when we acquired the site. So the turnaround itself will be about $10 million (technical difficulty).

Okay. The comment on, I guess, more midstream opportunities looking to get closer to the wellhead and less reliance on third-party suppliers. Just any more color on some of the potential Mid-Stream development opportunities, kind of what areas would make sense first and when could we expect any more traction on that front.

Sure, to start we want to focus on areas around our existing facilities. We are seeing a tremendous amount of opportunity in the Bakken and also in the Eagle Ford and looking at both organic growth opportunities and acquisition opportunities, which I'll be more comfortable talking about in about two months.

Okay, just lastly on the acquisition market and specialty products. I know this is something you guys have talked quite a bit about. Just any more color there, any traction you got from the roadshow you guys did earlier this year.

Yes, we are actively working between six and nine acquisitions at this point in time, ranging in size from $80 million to $1 billion. So, we will see. Some of these are auction process, some of these are negotiated deals so we'll just -- you can't guarantee anything but I feel very optimistic about several of them.

Okay. Thanks, Jennifer.

Cory Garcia, Raymond James.

I just had actually one housekeeping item, I guess. Would you be able to provide any updated throughput level across your Superior rail terminal? I believe at the time of your Analyst Day a couple of months back you said it was running anywhere from 8,000 to 10,000 barrels a day. Given what we've seen in spreads and clearly you guys have been -- Shreveport is now out of turnaround for a full quarter. Any update on how much throughput at that terminal and then also possibly any mix between Shreveport and your third-party customers?

We won't share mix between Shreveport and our third parties. We've been doing about between 6,000 and 8,000 here over the last two months.

Okay, appreciate it, thank you.

Ron [Bippin], Wells Fargo Advisors.

Yes, hi Jennifer, thank you for everything you've done the last few years.

Two questions. Being that the short -- for this quarter and the fact that you are able to maintain and raise the distribution by $0.05, are you giving any guidance on the distribution for the rest of the year and going into next year?

And second question, you filed an additional shelf filing. Seemingly you have enough financing to continue to help the new plant in North Dakota. So that shelf filing is still out there. Are there any plans on actually issuing new shares and that might be for some acquisition down the road?

We -- our old shelf, we had used up that availability and it had expired. So we always want to have a shelf available so that we can move quickly when we need to. We don't have any plans to raise equity at this point in time.

Obviously if we are successful with a few of the larger acquisitions we are looking at, we would go back to the equity markets but we do have enough availability at this point in time to fund our organic growth projects, certainly through the rest of this year and well into next year. So we don't anticipate any financing activities at this point in time.

And then the first question had to do with the distribution. With the short forms for this quarter, I'm in retail, we own -- my clients care about the distribution.

Sure.

Are you giving guidance as to maintaining that in spite of the shortfall?

Well, we don't give guidance as far as where we think distributions are going. We remain committed to raising distributions but also being prudent as we do so, which is -- this was a much smaller increased than what we've done in some prior quarters. A lot of the spending that we're doing right now, we won't see the cash flow until late next year so we want to take that into account.

But I think the fact that we raised that it at all speaks to the fact that we're very positive on this business and excited about the opportunities that are still coming our way.

Yes, we appreciate that. Thank you for the work that you've done.

Thank you.

Michael Peterson, MLV & Co.

Got a couple of questions. Let me start within the release you noted lower per unit prices for your Specialty Products segment. Would you be willing to share what portion of that might have been attributable to the asphalt production?

Well, given with the Montana acquisition, you know, asphalt is a bigger part of our Specialty Product mix. Really we don't disclose that level of detail as far as which sales segment was driving the decline in the margin.

Okay, okay no problem. With the guidance that you shared with us with regard to the RINs expense, would it -- of course, this is a volatile pricing market right now. Would it be fair, based on your assessment of that market to assume that $20 million to $25 million quarterly run rate would also apply to 2014 or at least scale up accordingly, based on increases in output from the Fuel Products segment but about that same run rate on a term basis?

You know, I think that is a decision for everyone to make on their own. You look at what our fuels production is and you know what the published requirements are and you can make your own judgment as to where you think the pricing is going.

If you'd asked me that question four or five days ago I probably would've been a little more confident in an answer. But seeing that we've seen those prices fall here over the last few days, I'm not sure anyone knows what's going to happen in 2014.

Agreed, it's certainly a very volatile product. No doubt. Within your release there was a meaningful growth in the Packaged and Synthetic Products segment. Can you share for us how much of that was due to Royal Purple? And do you have any color you can share on your entrance into the Wal-Mart distribution system?

Sure, we're continuing to work to the process of becoming an approved vendor for Wal-Mart. That's something that is very high priority for Royal Purple and for Calumet packaging.

And Royal Purple has been a great acquisition for us. We've continued to see huge amount of growth in the sales coming out of that segment. In addition to the success of Royal Purple, our Tru fuel product, which is a non-ethanol engineered fuel for specialty fuel for small engines that product continues to exhibit three digit percentage growth year over year as we continue to market that and package for other people.

So both of those areas have been very successful for us.

Thank you for that, Jennifer. If I could get one last one and then I'll turn the call over. Slide eight, you detailed your 24-month outlook for capital spending. What crack spread for the fuel products component did you assume for those projections of EBITDA?

We use the forward strip when we look at those. So those would have been based -- those analysis were put together back in June so whatever the forward strip was at that point in time and I don't have those numbers here in front of me. If you want to call back we'd be happy to talk to that a little bit more with you. There's more probably in the slide deck from the Investor Day.

Perfect, I'll do that. I appreciate your insights, Jennifer. Thank you.

Ann Kohler, Imperial Capital.

First, do you have sort of the opportunity or missed opportunity of having the Superior refinery down during the quarter?

Well, given that we don't disclose refinery by refinery economics, can't really disclose what that number is but given that Superior is about a 38,000 barrel a day refinery, makes about a third gasoline, a third diesel, and a third asphalt, you can take some pricing assumptions and get to a pretty close number.

Great, thank you. And then just in regards to the Specialty Products in the margins there. Kind of looking forward certainly there is additional lube capacity coming on. How should we think of those Specialty margins or Specialty profit margins going for the balance of this year and certainly into next year? I mean, I certainly understand here that you're looking to be able to capture the price increases you have put out here for the third quarter but would appreciate any sort of guidance on that.

Sure, what everyone needs to realize as you look at our Specialty Products segment, the part of our business that will be in direct competition with the lube plant coming up in Pascagoula at the Chevron facility, it's a very small percentage of our total Specialty Products segment.

You know you take base oils, you take lube oils, inside lube oils you've got white oils you've got naphthenics and you get paraffinics. And so we'd only be looking at the paraffinic part. And inside paraffinics, you've got both group 1 and group 2 products. And about half a little more than half of our paraffinic make is group 1 which would not be in competition with the Pascagoula material and so then you're really just looking at 2 million gallons a month of product that would be in direct competition with Pascagoula.

And as we look at our Calumet packaging business and our Royal Purple business, and our Penreco White Oil business, we are actually buyers from third party of those same types of products because we choose to buy from competitors rather than use our own internal feed.

So, I think Calumet could have the opportunity to benefit more than will be hurt by lower base oil prices in the market because this is such a small part of where we compete.

Great, thank you very much.

John Edwards, Credit Suisse.

Hi, good morning, everybody. Just could you comment a little further. You were talking about price increases passing through with crude going up. I mean, is there -- I mean, to what extent can you pass through some of these extra RIN costs?

Well, obviously the RIN costs are only on our fuels part of the business. And at some point in time, we'd like to think that that's going to be built into the crack spread. We're not seeing it there at this point but as you look at Specialty Products, there are no -- there's no RIN exposure on our Specialty Products segment and we are market leaders in the majority of the Specialty Products segments that we participate in and we have demonstrated time and time again since we've got 10 years of public data out there that, as crude prices go up, we can pass it on to our customers. And when crude prices go down there's an even bigger lag to lower prices. So with each crude cycle we have shown an ability to expand our gross margins.

Okay great, that's helpful. And then just in the -- this is kind of a housekeeping item just on the press release I saw we saw the total sales figure for Fuels and Specialty combined, just didn't see the breakout of that. If you could provide the breakout on that?

It will be in the Q. And it will be released on Friday.

Thank you. All right, thank you that's all I had.

With no further questions, I would like to turn the presentation over to Ms. Jennifer Straumins for closing remarks. You may proceed.

Thank you. We'd like to thank everyone for joining us today and as you have additional questions or need additional clarification, please feel free to contact us at 317-328-5660. You can ask for Noel Ryan, our Director of IR or I'd be happy to answer any questions you have as well. Thanks and have a great afternoon.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.