Calumet reportedly seeking to sell its lubricants business

Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT), a master limited partnership  based in Indianapolis, Indiana, U.S.A., is reportedly seeking to sell its lubricants business for USD500 million. The company processes crude oil and other feedstocks into lubricating oils, solvents and waxes used in consumer, industrial and automotive products. It also produces fuel products including gasoline, diesel fuel and jet fuel. Calumet operates 10 manufacturing facilities located in northwest Louisiana, northern Montana, western Pennsylvania, Texas, New Jersey and eastern Missouri.

Calumet has received interest from private equity firms, Bloomberg reported. Calumet did not confirm the report.

The lubricants arm produces finished lubricants and greases under the Royal Purple and Bel-Ray brands, as well as base oils, solvents and waxes. In 2019, Calumet produced 23,651 barrels per day (bpd) of lubricating oils, solvents, waxes and other specialty products, down 6% from 2018 of 25,101 bpd. However, its fuels production rose from 70,197 bpd to 76,378 bpd, up 8%. In terms of profitability however, the  Fuels Products segment lost money in 2019.

For the full year of 2019, Calumet reported a net loss of USD43.6 million. Gross profit from its Specialty Products segment, which includes its lubricants business, was USD324.8 million in 2019, up 18% from 2018. In contrast, gross profit from its Fuel Products segment declined by 21% in 2019, from USD162.1 million in 2018 to USD126.9 million in 2019,  due primarily to weaker crude differentials.  These headwinds were partially offset by strong throughput volumes across the fuels business, which grew nearly 17% in the fourth quarter of 2019, from the same period a year ago, despite downtime at the Shreveport refinery in the fourth quarter.

At the end of 2019, Calumet announced that it had reduced total long-term debt by more than USD390 million and lowered its interest expenses by roughly USD21 million.

 It also has about USD1.4 billion in debt, according to data compiled by Bloomberg.

Former Calumet CEO Tim Go said at that time that, “Looking ahead to 2020, Calumet remains firmly committed to our transformation, carrying the momentum of our improved profitability and strengthened balance sheet to drive top- and bottom-line growth in our core specialties business.  We have taken the next step in our portfolio transformation and started the process of reviewing strategic options for our remaining fuels refinery in Great Falls, Montana, and expect to execute upon an option, which could occur as early as this year. In addition, I am pleased to announce that Calumet completed the strategic acquisition of Paralogics, LLC during the first quarter, which expands our presence in the wax blending and packaging market. In conclusion, we remain focused on executing against our 2020 Self-Help efforts, which we expect to deliver USD40 million in incremental adjusted EBITDA. When combined with our other strategic priorities, we believe these efforts should help us expand our Specialty Products gross profit to over USD40 per barrel and our adjusted EBITDA margins over 15%.”

In the second quarter of 2020, in the midst of the Covid-19 pandemic and lower product demand, Calumet reported net income of USD3.6 million compared with a net loss of USD16.8 million during the same period a year ago.

In July 2020, Calumet provided an update on the partnership’s liquidity position, which projected that cash flow from operating activities for the second quarter will exceed USD60 million. As of the close of the second quarter, Calumet had approximately USD245 million of liquidity, consisting of approximately USD105 million of cash and cash equivalents, and approximately USD140 million of undrawn capacity on the partnership’s revolving credit facility.