Refinery purchases bring big gains to Calumet

November 10, 2012

calumet-chart.gifBetter profitability in crude-oil refining has prodded Calumet Specialty Products Partners LP into a $1 billion flurry of acquisitions over the past year.

The expansions have paid off so far for the Indianapolis-based producer of gasoline, jet fuel, lubricants, asphalt and other petroleum products.

Calumet’s third-quarter profit more than doubled, to $42.4 million, the company reported Oct. 31. Sales rose 52 percent, to almost $1.2 billion during the quarter.

Despite the growth, Calumet remains a small operation locally. Fewer than 100 people work at corporate headquarters on Waterfront Parkway Drive in Indianapolis.

Refining and manufacturing is done in Louisiana, Texas, Missouri, Pennsylvania and Wisconsin. The company also has a distribution center in Illinois.

Calumet on Oct. 1 completed the $201 million purchase of a refinery in Great Falls, Mont., the last of five acquisitions since October 2011.

The company previously bought a Superior, Wis., refinery for $442 million; synthetic oil maker Royal Purple Inc. in Porter, Texas, for $333 million; and a synthetic lubricant operation in Louisiana, Mo., from Hercules Inc. for an undisclosed amount.

online-calumet-facts.gifCalumet, which had 920 employees as of February, also acquired Shreveport, La.-based TruSouth Oil for an undisclosed amount from Fred Fehsenfeld and William Grube, the chairman and vice chairman, respectively, of Calumet’s board.

During an Oct. 31 teleconference with analysts, Chief Operating Officer Jennifer Straumins deflected investors’ questions about whether other acquisitions await in 2013.

“We’re always looking because there’s always good opportunities,” she said. “Our acquisition strategy’s no different than it’s been through all of 2012.”

Straumins did not respond to IBJ’s voice mails seeking further comment.

Buying more than $600 million in oil refineries has shifted Calumet’s production focus to the fuel side of the business.

Previously, the company produced 30,000 to 35,000 barrels a day of specialty products, which include lubricants, waxes, solvents and asphalt.

Meanwhile, fuel products—gasoline, diesel, jet fuel and their byproducts—totaled 25,000 to 30,000 daily barrels.

Specialty products have increased to about 40,000 barrels a day.

But their growth has been modest compared with the fuel-products side of the business, which is now pumping out 50,000 barrels a day.

The Wisconsin and Montana refineries have given Calumet access to cheaper crude oil sources in the northern United States and Canada.

The company also started a rail line connecting its Superior, Wis., facility to the one in Shreveport, La., furthering the distribution of the lower-cost—thus more profitable—crude.

Payouts to Calumet’s investors have risen this year as margins widened.

Compared with a year earlier, cash distributions increased 24 percent, to 62 cents per unit, or $2.48 for the year.

Darren Horowitz, an analyst for Raymond James, wrote in an Oct. 31 note to investors that the new refineries have strengthened Calumet’s position in its markets.

“The startup of its crude railing project will facilitate the ability to bring distressed inland crudes down to the Shreveport refinery,” Horowitz wrote.

Calumet’s acquisitions have been an anomaly in the oil refining industry, said Chirag Rathi, a senior consultant at Frost & Sullivan.

“Growth stories, if you like, are more or less over,” he said.•


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