Calumet Inc (CLMT) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2013 Calumet Specialty Products Partners LP earnings conference call. My name is Philip and I will be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Noel Ryan, Director of Investor Relations. Please proceed.

Thank you, Philip. Good afternoon and welcome to the Calumet Specialty Products Partners fourth-quarter and full-year 2013 results conference call. Thank you for joining us today.

Leading today's call is Jennifer Straumins, our President and COO, who will provide an update on our business during the fourth quarter and the opportunities for growth as we look ahead to 2014. Next, Pat Murray, our CFO, will provide detail on our financial performance during the fourth quarter. At the conclusion of our prepared remarks we'll open the call for 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.

As reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today's conference call, as indicated in the press release we issued earlier today. You can access these slides in the Investor Relations section of our website at www.CalumetSpecialty.com.

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

Thank you, Noel, and good afternoon to all of you joining us on today's call. If you are following along in the presentation, we will start on page four with a high-level overview of our fourth-quarter results.

We reported a net loss for the fourth quarter of 2013 of $15.5 million versus net income of $45.7 million in the prior-year period. Adjusted EBITDA, as defined under our financing instruments, declined to $53.2 million in the fourth quarter, down from $91.3 million in the same quarter of 2012. Net income for the fourth quarter of 2013 includes $14.6 million in one-time debt extinguishment costs related to the partial redemption of our 2019 notes with proceeds from the issuance of the 2022 notes offering during November of 2013.

As we indicated in the press release issued this morning, our fourth-quarter results were impacted by a significant year-over-year decline in gross profit contribution from both the Specialty Products and Fuel Products segments. Within the Specialty Products segment, gross profit margins returned to normalized levels when compared to the elevated margins achieved during the prior-year period.

Performance within the Fuel Products segment was impacted by a combination of factors including a year-over-year decline in benchmark refined product margins, partially offset by improvements on derivative instrument settlements; and, two, lower planned utilization at the Shreveport refinery; and third, a year-over-year increase in costs related to compliance with the US Renewable Fuel Standard.

During 2013, our full-year results were muted by several headwinds, including extended planned maintenance at several of our largest fuels refineries in addition to an escalation in RFS compliance costs versus the prior-year period. Despite these challenges, we still generated full-year adjusted EBITDA of $242 million, which equates to the second-highest level of adjusted EBITDA we've had in company history, behind the record year we had in 2012.

Despite some variability in our quarterly results during the past year, we stayed the course in our commitment to pay a robust quarterly cash distribution given our continued confidence in the long-term growth prospects of the business. In fact, during 2013 we paid more than $200 million in cash distribution to our unitholders, an increase of 52% from the prior year-end, and just recently paid our 32nd consecutive cash distribution to our limited partners.

The past year can best be described as transitional. In January we acquired a 14,500 barrels per day fuels refinery in San Antonio from NuStar in keeping with our strategy to own and operate inland refineries with direct access to cost-advantaged sources of crude oil, such as that in the Eagle Ford shale, where the refinery sources its feedstock. In March we broke ground on a 20,000 barrel per day refinery in North Dakota with our joint venture partner, MDU Resources. This refinery will help provide a local supply of diesel into a highly underserved regional market by the end of the year 2014.

In June we announced more than $500 million in high return organic growth projects slated for completion between now and the first quarter of 2016. Collectively, these projects have the potential to nearly double our full-year adjusted EBITDA from 2013 levels.

Further, during the second, third, and fourth quarters of 2013 we completed major turnarounds in Superior, Montana, and San Antonio, respectively. With these turnarounds behind us, each of these refineries should not require extended multi-week outages until 2018.

Overall, it was a year in which we built for the future. We invested more than $100 million in organic growth projects during 2013. And, importantly, the return on this investment didn't show in our 2013 financial results given the multi-year nature of the projects. However, during the next 12 to 36 months we expect to see considerable growth in our adjusted EBITDA as these projects reach completion.

Turning to slide five, in recent months we have made progress in several key areas. We took the opportunity to increase our hedging [book] during the fourth quarter so as to help mitigate the risk associated with commodity price fluctuations in our Fuel segment. This is a significant development that moves us closer to our goal of hedging between 50% and 75% of our forward fuels production.

In December we acquired the Bel-Ray Company, a manufacturing and distributor of high-performance synthetic lubricants and greases. We really like the global presence enjoyed by Bel-Ray, a brand which is a nice complement to our Royal Purple brand of synthetic lubricants, albeit it a differentiated formulation with a diverse range of top-tier customers.

Also in December, we completed a 3,000 barrels per day crude unit expansion at the San Antonio refinery in addition to finishing the gas line blending project which had been ongoing through 2013. In January, this refinery ran at record rates following the completion of the crude unit expansion. Once TexStar completes the Karnes North Pipeline System later this year, San Antonio will enjoy a reduced transportation cost on the Eagle Ford crude that it receives from the field. We see a lot of potential upside in this refinery over time.

As you know, we make asphalt at Shreveport, Montana, and Superior. With the acquisition of Montana and Superior during the past three years, our asphalt production has increased as a percentage of our total mix. In an effort to improve net backs on our asphalt production, we've recently expanded our asphalt distribution to the East Coast as well as several Mid-Continent markets, which historically we've had no presence.

Late into the fourth quarter we have raised $350 million through a heavily-subscribed senior unsecured notes offering. The proceeds of this offering, net of the $111 million we used to redeem higher coupon debt, was used to finance the Bel-Ray acquisition in addition to forthcoming organic growth projects and general partnership purposes. Importantly, this transaction helped to establish a new reference debt security for us. The 7.625% coupon on the $350 million tranche was 200 basis points better than we were able to secure on our earlier bond issues, serving to lower our cost of capital and over time contributing positively to our DCF in future years.

Finally, we continued to make great progress in our North Dakota refinery construction and the Montana refinery expansion, both of which remain on schedule. I'll discuss these projects in more detail shortly.

Now turning to slide six, Calumet will regularly utilize derivative instruments to help mitigate commodity price risk. Historically, the Fuel Products segment has been subject to significant fluctuations in crude oil and refined product prices, while our Specialty Products segment has enjoyed higher, more stable gross profit margins. Given our commitment to the fixed distribution MLP model, we realized the importance of containing commodity price risk through the use of derivative instruments.

As we have stated in the past, Calumet will seek to hedge up to 75% of its forward fuel production as far as four years out. As of September 30, 2013, we had entered into hedges of approximately 6.5 million barrels for the full year 2014. During the fourth quarter we increased our forward gasoline hedges and as of December 31, 2013, we had approximately 11.8 million barrels of product hedged for full-year 2014, or just under half of our anticipated fuels production.

Turning to slide seven, in December we acquired the Bel-Ray Company, a privately held manufacturer of high-performance lubricants and greases. Over the years, the prior management team had done a fantastic job of growing into several high-growth verticals with their portfolio of lubricants including mining, power sports, and industrials.

Importantly, a significant amount of the business Bel-Ray conducts is in global markets. Our global sales network is impressive. When the prior owners indicated their interest of exiting the business last year, we acquired the business for cash using proceeds from a notes offering we completed in November.

Strategically, this acquisition gives us a foothold in several new end markets and geographies. It also provides us with a manufacturing facility in New Jersey, our first East Coast-based manufacturing plant with expert capability. Most of all, we are really excited by the cross-selling opportunities evident between our Royal Purple, Penreco, and Bel-Ray's lines of products, particularly overseas.

Now turning to slides eight and nine. Just going to take a moment to discuss our ongoing organic growth projects: the Montana refinery expansion, Dakota Prairie, and the Missouri Esters plant expansion. These projects all remain on track.

Later this year we expect the 20,000 barrels per day Dakota Prairie refinery to come on stream. Although this new refinery may provide modest EBITDA contribution when it comes into service during the fourth quarter, the recently completed crude unit expansion and gasoline blending projects at San Antonio refinery, together with the feedstock transfer cost savings expected with the TexStar pipeline project, should provide the bulk of the organic uplift of adjusted EBITDA in 2014.

Currently we estimate the growth projects completed between 2013 and 2016 will cost between $500 million and $550 million, in line with our prior guidance. During 2013 we spent approximately $100 million of this total gross project budget. Upon completion we anticipate these projects should yield approximately $200 million in annualized incremental adjusted EBITDA, based on our business -- based on our internal estimates.

Now turning to slides 10 through 13, asphalt and other products represented approximately 19% of our total production in 2013. In recent years, our asphalt production has increased following the acquisition of Superior and Montana refineries in 2011 and 2012. Given the increased asphalt production within our system, we have been very active in our efforts to expand the number of geographies where we sell asphalt. We believe these and future efforts will provide us more optionality with regard to where we sell product, allowing us to maximize our net backs on barrels sold.

In January, we announced a multi-year asphalt supply and marketing agreement with All-States Asphalt. We believe this agreement represents a significant opportunity to expand the distribution of our premium asphalt products into New York State and surrounding markets through a third-party terminal based in Albany, New York. Historically, asphalt sales from our northern refiners have been routed to customers in Mid-Continent and Western markets.

Separately, in February we announced a multi-year agreement with Frontier terminals to lease a 348,000-barrel liquid asphalt distribution terminal in Muskogee, Oklahoma. Under this agreement, Calumet will supply and market a wide range of premium asphalt products produced by its northern refining system through the Muskogee terminal. During the first quarter 2014, Calumet will begin marketing its asphalt products to customers in Arkansas, Missouri, Kansas, and Oklahoma.

Further, as we indicated in our press release issued this morning, we are currently evaluating potential locations in Idaho and the surrounding regions where we could potentially build one or more asphalt distribution terminals that beginning in the first quarter 2016 would be used to sell incremental asphalt production resulting from our Montana refinery expansion project. Collectively we believe these efforts signal good progress as we seek to maximize residual product margins across the geographies in which we sell asphalt.

Certainly a decline in crude oil prices between the third and fourth quarter of this year also helped support asphalt margins exiting the year versus what we anticipated in early fall.

Now turning to slide 14. During the fourth quarter of 2013, the partnership reclassified the reporting of asphalt sold from its Shreveport, Superior, and Montana refineries from its Specialty Products segment to its Fuel Products segment. This reporting change does not impact the Company's consolidated financial results from prior periods.

Historically, prior to this reclassification, Specialty Products gross profit per barrel was generally in the $18 to $22 per barrel range on a normalized basis. As illustrated by this slide, you can see that, excluding asphalt, Specialty Products gross profit per barrel is significantly higher.

Equally important, we believe this representation of the data illustrates the relative consistency of Specialty Products margins, an observation that previously would've been difficult to make given the periodic volatility of the asphalt business.

On slide 15, we remain committed to maintaining the distribution policy that provides for consistent distributions to our unitholders. In January we announced a quarterly cash distribution of $0.685 per unit, or $2.74 per unit on an annualized basis, for the quarter ended December 31, 2013, on all of our outstanding limited partner units, our 32nd consecutive quarter-on-quarter of cash distribution.

Through year-end 2013, Calumet's annualized distribution has grown at a five-year compound annual rate of nearly 9%. Once some of our larger organic growth projects come online during the next 24 months, we anticipate a corresponding step change in our adjusted EBITDA. Although the decision to increase or maintain or decrease distribution is a discrete decision made by our Board of Directors on a quarterly basis, we believe the anticipated increase in our adjusted EBITDA stemming from these growth projects could provide a strong base upon which to resume growth and distribution.

Turning to slide 16, here we see some of the significant factors that impacted distributable cash flow between 2012 and 2013. The most significant cause for the variance was lower adjusted EBITDA stemming from a year-over-year decline in market crack spreads coupled with the opportunity costs of having three of our larger fuel refineries offline at various points between the second and fourth quarters of 2013.

Replacement CapEx, cash interest expense, and turnaround costs were all up year over year. On the plus side, we anticipate turnaround-related capital spending to decline by more than 70% in 2014 from 2013 levels.

Looking ahead, we think 2014 is shaping up to be a better year financially for Calumet. Operational execution and effective project management are as important to our continued success as they have ever been. We continue to make progress in several large multi-year capital projects that provide very attractive returns for us upon their completion.

The single most impactful project slated for completion this year will be the startup of Dakota Prairie refinery during the fourth quarter of 2014. During the middle of 2015, we will complete the Missouri Esters plant expansion and soon thereafter we will complete the Montana refinery expansion during the first quarter of 2016.

Collectively, these organic growth projects have the potential to provide a meaningful step change in our adjusted EBITDA. We continue to manage each of these projects to ensure that we stay on schedule and within our stated cost estimates.

Within our Specialty Products segment, the coming year will provide us an opportunity to push forward with an aggressive campaign to drive international sales growth. We are currently in the process of evaluating countries where we might consider investing in sales offices.

On the domestic front, we expect a solid year out of our packaged and synthetic products as we begin selling Royal Purple, our brand of high-performance synthetic lubricants, into more than 2,400 Walmart locations during the second quarter of 2014.

Early into 2014 market conditions have been favorable as the first-quarter fuels refining economics have improved versus fourth-quarter levels with the Gulf Coast [2:1:1] crack spread averaging nearly $20 a barrel through mid-February. With several large Gulf Coast refineries currently in planned maintenance, fuels margins are holding up.

Serving to offset these tailwinds are higher RINs prices coupled with a narrowing of crude oil differentials. Assuming more normalized crude oil differentials, a decent crack spread, and no planned major maintenance at our fuel refiners, Calumet is well positioned for profitable growth in the year ahead.

With that, I will hand the call over Pat Murray, our CFO.

Thank you, Jennifer. Let's all turn our attention to slide 18 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 financing instruments, declined to $53.2 million in the fourth quarter of 2013, down from $91.3 million in the same quarter of 2012. As illustrated in the chart on slide 18, the bulk of the year-over-year decline in adjusted EBITDA was due primarily to higher operating expenses, driven in part by higher RFS compliance costs, transportation, and SG&A expense, coupled with lower contributions from our Specialty Products segments and the impact of acquisitions.

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 measures, and reconciliation of these non-GAAP measure to the comparable GAAP measures.

Now turning to slide 19, fuels refining economics declined significantly on a year-over-year basis during the fourth quarter. The benchmark Gulf Coast 2:1:1 crack spread averaged $16 per barrel during the three months ended December 31, 2013, compared to $30 a barrel in the same period of 2012. The year-over-year decline in the 2:1:1 crack spread was driven primarily by a sharp drop in the gasoline crack and, to a lesser degree, the diesel crack.

Crude oil price differentials remained volatile throughout the quarter, a factor which further impacted gross profit in the Fuel segment.

Now turning to slide 20, during the fourth quarter we realized RINs expense of $7.5 million. For the full year 2013, our net RINs expense was approximately $30 million. Although RINs prices have largely been manageable during the fourth quarter in the $0.30 range, we witnessed recently an upward spike in RINs to above $0.50 during February. Currently, there is a very illiquid futures market for RINs so our focus is primarily on buying RINs in the open market and on blending away our RFS obligations wherever possible.

The partnership currently expects its gross estimated annual RINs obligation, which includes RINs that are required to be secured through either blending or through the purchase of RINs in the open market, to be in the range of 90 million to 95 million RINs for the full year 2014. The Partnership records its outstanding RINs obligation as a balance sheet liability. This liability is marked to market on a quarterly basis to reflect the market price of RINs on the last day of each quarter.

Turning to slide 21, distributable cash flow for the fourth quarter of 2013 was $10.6 million compared to $54.5 million in the same period last year. We calculate distributable cash flow as adjusted EBITDA less replacement and environment capital expenditures, turnaround costs, cash interest expense, which is defined as consolidated interest expense less non-cash interest expense, and income tax expense.

Our fourth-quarter DCF was negatively impacted by a decline in gross profit of $29.2 million; an increase of $4.9 million in turnaround costs, primarily related to a planned turn around at the San Antonio refinery; and higher replacement capital expenses of $2.6 million.

Now turning to slides 22 and 23, exiting the year we remain very well capitalized with overall leverage, although elevated, remains at manageable levels. Including both cash and availability under the revolver as of 12/31/13, we had $594 million in available liquidity, up from $387 million at 12/31/12.

And, finally, turning to slide 24, we project that replacement-, environmental-, turnaround- and growth-related capital spending will be in a range of $340 million to $385 million in 2014 compared with $243 million in 2013. The bulk of the year-over-year increase in CapEx is attributable to work related to the North Dakota refinery construction and the Montana refinery expansion projects.

Outside of our growth CapEx, which remains discretionary, we anticipate a 35% to 45% decline in replacement, environmental, and turnaround capital expenditures in 2014 versus the prior year. With a heavy turnaround year now behind us, annualized turnaround CapEx is expected to be in the $20 million to $30 million range until our next major turnaround cycle in 2018.

With that, I'll turn the call over to the operator so that we can begin our Q&A session. Operator?

(Operator Instructions) Theresa Chen, Barclays Capital.

Good afternoon. I just had a question about the Bel-Ray acquisition. I know you didn't provide financial guidance, but can you just broadly talk about if you think this will move the needle in the near term? What kind of turns do you look for in acquisitions like these?

And more generally, in the market how many more opportunities are there out there currently and what is the M&A environment for specialty products looks like?

Sure. We did not -- the transaction was not large enough that we had to disclose the price, so that gives you some feeling. It was a smaller acquisition for Calumet. From a financing perspective, it was not material.

As far as multiples go, for something like this we would look at a 7 to 9 times multiple from a valuation standpoint. As far as the multiple goes, we paid less for Bel-Ray from a multiple standpoint than we did for Royal Purple so that's positive.

I think over time this acquisition, coupled with everything else we are doing in our branded and packaged division, will certainly move the needle for Calumet. It may not be this year, but it will certainly be within the next -- between now and the next 24 months.

As we look forward to other Specialty Products acquisitions, we've got several that we're in the middle of pursuing right now. The M&A market remains very robust for us, and with 7,000 customers currently on our books, certainly have the opportunity to build relationships with family-owned businesses and pursue those acquisitions as the timing is right. Bel-Ray has been a customer of Calumet's in the past, just like Royal Purple was.

Thank you. Then on asphalt marketing, would you mind talking about if there are other regions that you currently don't serve that you might be looking to expand towards?

Asphalt is a very regional type of marketing opportunity. A lot of our northern barrels -- it's a very short paving season in Wisconsin and Minnesota so that's why you see us looking to broaden our geographic horizons. I think you will continue to see us look towards the south. I have always wanted a terminal in the Dallas area, so we continue to pursue multiple opportunities.

Got it. Then lastly, on the higher operating costs, can you just give some color on that for the Specialty segment and if you expect that to persist?

We don't expect that to persist. It was some year-end maintenance type of expenditures.

Thank you very much.

T.J. Schultz, RBC Capital Markets.

Maybe, Pat, if you could discuss funding for 2014 and 2015. Given you have a pretty good line of sight on cash flow growth as the refinery projects ramp, what type of leverage maybe you are comfortable with this year during the funding part of the cycle?

Right. We certainly -- our leverage level at 12/31 is elevated compared to where we have been. We do certainly expect, as we have described on this call, the earnings potential for 2014 is much better. We are talking about taking very little turnaround time, what was certainly a headline for us in 2013.

So our expectation is that the leverage improves over the course of the year. We do have -- we built up a significant amount of liquidity. We were opportunistic in our notes issuance in November. We have quite a bit of cash on the balance sheet at the end of the year.

And so as we look ahead to funding requirements over the next 24 months or so, and they are fairly ratable, we will rely on existing liquidity that we have. We can also remain opportunistic in terms of capital markets activities. But I think it's a combination of those items and a relatively lengthy period here of CapEx that we can try to time those things opportunistically and handle those costs going forward.

Okay, thanks. The growth projects, obviously the biggest needle movers are Dakota Prairie and the Montana expansion, about $170 million, $180 million of EBITDA. If you could just kind of touch on the comfort level there on timing and cost for those projects. When they will be online, how quickly you think cash flows can get to those run rates for EBITDA, and maybe just touch on some of the underlying assumptions behind that cash flow range from a commodity price perspective.

Sure, touch on the last part of that first. Certainly we are comfortable with the forecast that we have put out from an EBITDA contribution standpoint and that is very easy to model based on forward crack spreads, forward crude prices, and differentials.

As far as timing and budget, we remain comfortable with the timing that we have outlined to the public as well as budgets that we've outlined to the public. These are -- certainly Montana is a very long-term project. We've got two years left in that project, so as of today everything is on time and on budget.

We are moving -- in the process of relocating the hydrocrackers that we bought from Alon from Bakersfield, California, to Great Falls. And we are in the process of negotiating with vendors and subcontractors for that project, and everything is going according to plan at this point in time.

Dakota Prairie, that work is continuing to progress as well. We've got equipment arriving at the sites. The tank farm is almost complete. All the engineering work is done. We are making great strides in hiring a management team there.

As far as -- my level of priority, finding the right operators and the right management team has been key to that since it is a grassroots facility. We have got our first round of operators going through operator training today during this period of time and we have got the whole senior management team hired. So I feel very good about that.

As of right now, it was a tough winter out there but we remain on schedule for a late 2014 startup. Does that hit all your points?

Yes, it did; sorry it was a long question. The annual EBITDA guidance you gave, is there a ramp period to get to those numbers, the [130]?

I'm sorry; that was the rest of your question. No, that's a turn the switch and you are, more or less, on.

Okay, thanks. Just on the fourth quarter, the asphalt, as reclassified, what was the impact on the Fuel segment during fourth quarter from asphalt?

It was in the range of probably $15 million or so.

Okay. Lastly, is it possible to quantify the cash flow impact from the Walmart Royal Purple opportunity?

We've got some internal estimates, but I'm not willing to share those publicly at this point in time.

Okay, thanks.

Ann Kohler, Imperial Capital.

First, a follow-up on that question regarding Walmart. If I heard correctly, you said that you are looking for a rollout there in the second quarter. What is the planned timing on the rollout and will it be -- in terms of getting into all 2,400 sites?

We are shipping product to Walmart distribution centers as we speak. We are -- we will be selling up to 10 products in 2,400 Walmarts starting in late March.

Great, thank you. Then in regards to the asphalt opportunity, is there any way that you can qualify or quantify in terms of the asphalt production that you have, what percentage you would like to -- you have the ability to place into the two avenues that you announced agreements with? And what your ultimate goal would be in terms of the amount of your asphalt production you would like to see in these other markets, three years out or five years out?

Sure. If you look at the asphalt make out of our Superior, Wisconsin, refinery, it's about 15,000 barrels a day. 2012 it was about 65% sold to the retail market and 35% wholesale. And those numbers really flip-flopped during 2013 as state budgets continued to face pressure for funding projects and we saw a lot of competition from some of the other Midwestern refiners in the asphalt space in 2013.

So we've got 15,000 barrels a day to work with. Depending on the profitability of the region, having these -- having Muskogee and the facility in Albany, New York, gives us flexibility to move barrels around and maximize the profitability of the asphalt barrels made out of Superior.

Great. Then just a follow-up in regards to the All-States Asphalt. That seems like a relatively large organization. Is there additional opportunity within that corporation or does the agreement that you signed basically cover whatever opportunities that they would have?

No, I would like to think that there's more opportunities for us to work with All-States. Their ownership and management team is very entrepreneurial and dynamic and fit in very well with the management team at Calumet, so I've got hope for expanded opportunities with that company.

Great, thank you very much. I appreciate it.

Cory Garcia, Raymond James.

Thanks for the line. Do you guys have any specific color surrounding some of the timing on the startup of that Karnes Pipeline System? I realize it's a little bit out of you guys' hands, but just curious as to how you guys are seeing or how we should we really thinking about those volumes reaching the San Antonio gates as we move through the year.

It will be in the second half of 2014, early in the second half of 2014.

And it will be sort of a flip-the-switch type of run rate or is it going to be a gradual ramp to your sort of 10,000 barrel per day number?

I think will be more of a flip the switch. We are in the middle of negotiating with some crude suppliers at this point in time, so I'm not really at liberty to give very much information at all today.

Okay. No, that's perfect. And I guess sort of as a follow-on to that, I guess maybe discuss how you guys are thinking about maybe your appetite to travel further towards the wellhead. I know you guys have discussed in prior calls, but given the amount of organic spending that you have sort of in place right now, how should we be thinking about your ability to sort of broaden your scope down towards the crude gathering element?

We bought the Murphy Oil crude gathering assets in North Dakota and Montana in August of 2013 and we kind of coined a phrase around Calumet -- at Calumet we want to be from the wellhead to Walmart. So I think you are going to continue to see us pursue the right opportunity in each of these areas. I don't have anything imminent, but I certainly wouldn't be opposed to pursuing gathering opportunities.

No, that's perfect. Thanks for the color.

Ladies and gentlemen, that concludes the question-and-answer portion of today's call. I would now like to turn the call back over to Jennifer Straumins for closing remarks.

Thank you and thank you all for joining us on today's call. Should you have any questions, please feel free to contact our Director of Investor Relations, Noel Ryan. This now concludes our call.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may all now disconnect. Have a wonderful day.