Thanks to a diet rich in acquisitions, Calumet Specialty Products Partners L.P. has grown into a significant player in specialty lubricants blending, distribution and packaging. Thats not by accident, and the independent refiner isnt done yet.
The business has specific criteria for what constitutes the right deal. And as its latest annual report shows, the targets often have been well-placed lubricant players.
In January 2012, TruSouth Oil and its specialty petroleum packaging and distribution facility in Shreveport, La., were bought for $26.9 million. They now operate as Calumet Packaging LLC.
That same month Calumet paid $19.6 million for Ashlands Hercules aviation and refrigeration lubricants business and its polyol esters plant in Louisiana, Mo.
In July 2012, Royal Purple, the Porter, Texas-based producer of commercial and synthetic lubricants, was added for $331.2 million.
December 2013 brought industrial specialty lubricants and grease manufacturer Bel-Ray, of Farmingdale, N.J., aboard for $53.6 million.
February 2014 saw the purchase of Gilbert, Ariz.-based United Petroleum (and its Quantum lubricants brand) for $10.4 million.
Still hungry, Calumet over the long term expects to continue being an active consolidator of niche, specialty products and brands. Currently weve got about $600 million in organic growth projects that were nearing completion on, Jennifer Straumins, executive vice president for strategy and development, told LubesnGreases during a mid-February visit to the companys Indianapolis headquarters. So our primary focus for right now is to successfully complete those expansion projects, which are expected to provide the companys base business with further cash flows.
We continue to evaluate potential deals that would broaden our exposure to the specialty space, broaden our exposure to the international space, Straumins added.
Acquisitions also have pumped up the fuels side. These include a 17,500 barrels per day refinery in Superior, Wis., acquired in 2011 from Murphy Oil Corp., and 2012s purchase of Montana Refining Co. and its 10,000 b/d refinery in Great Falls, Mont. Both are niche refineries, Straumins pointed out, enjoying the sorts of local market discounts on crude pricing, and local market premiums on finished products, that they wouldnt get if they were on the Gulf Coast. Its helped to expand our footprint geographically, and to have good assets in the portfolio to give us economies of scale, Straumins added.
Another recent diversification was into oilfield services, as Calumet also bolted on Anchor Drilling Fluids of Tulsa, Okla., for $223.6 million in March 2014. Next, the Houston-based drilling fluids company Specialty Oilfield Solutions was added to the stable for $29.6 million.
The company operates now in three main segments: specialty products, which include base oils and white oils, solvents, waxes, esters and finished lubricants and greases; fuel products; and oilfield services. Of these, specialties are the major contributor to the companys balance sheet, accounting for 29.9 percent of sales yet 70.5 percent of its gross profit. Calumets total sales were $5.8 billion in 2014 (versus $3.1 billion three years earlier, prior to the latest growth spurt), and gross profits jumped to $529.7 million. However, the company posted a net loss for the year of $112 million after interest expense and debt.
Strauminss father, F. William Grube, was one of the founders of Calumet, which launched as a private firm in 1990. The company became known for picking up cast-off refining assets and shrewdly tucking them into its own portfolio. These included a naphthenic base oil refinery from its predecessor company in Princeton, La.; a solvent and specialties plant in Cotton Valley, La., divested by Kerr-McGee; a former Pennzoil-Quaker State API Group I paraffinic base oil refinery in Shreveport, La.
Since going public in 2006, the company has continued to expand while keeping a hands-on stance towards managing its business. Its all about the relationships within our business, Straumins said. If you look at the spaces that were in – naphthenic, paraffinic, solvents, esters – theyre all very well balanced from a supply and demand standpoint. So when we look at growing the business, you have to explore growth through vertical integration as an alternative.
Calumets actually got into finished lubricants in a smaller way more than 10 years ago when it started the SuperCal brand. Then, prior to becoming a publicly traded company, the owners of Calumets general partner teamed up with L. David Myatt to build TruSouth Oil, based in Shreveport. The president of Westland Oil from 1977 until its 1994 sale to Quaker State, Myatt had become an officer and director first of Quaker State and then Pennzoil-Quaker State until it in turn was acquired by Shell.
The genesis of TruSouth was to have an outlet for the base oil we produced out of Shreveport; we wanted something locally, Straumins remarked. At that time we made all-Group I at that refinery. As quality requirements were getting stronger and stronger, we became a bit worried about having an outlet for those products, though ultimately we did end up upgrading the refinery to make Group II base oil.
Having close ties with Myatt made it exciting to work with TruSouth and ultimately bring it into Calumets fold in 2012, she said.
That same year, the company acquired the synthetic aviation and refrigerant lubricants business of Ashlands Hercules subsidiary, marking a first step into synthetic products. The customer base and the applications were very similar to what we were doing out of the naphthenic line out of Princeton [home of the companys 6,900 barrel per day pale oil refinery in Louisiana]. Going into the low-temperature aviation fluids as well as refrigeration industry, these were industries we already knew.
As for Royal Purple and Bel-Ray, Straumins said, both had been customers of Calumet for years. So we knew them and spent time building relationships with the management teams, she added.
These companies had a hard time competing against the oil majors because they didnt have a full-range finished lubricant products portfolio; together, they can thrive. What Calumets been able to do over the last three years is build them up, straumins said. While Calumets finished lubricants lineup may not yet rival that of a large oil major, were certainly stronger together than as individual pieces.
Manufacturing is a clear example: Now that weve got three packaging plants – one in New Jersey, one in Shreveport and one in Houston – we can package all the different brand names that we have at each of those plants, Straumins pointed out. That opens up new markets to us that we werent able to reach before from a logistics standpoint.
Another gain is that Calumet can source much of the materials for branded products – whether Quantum, Royal Purple, Bel-Ray or another – from its own plants, or it can buy on the open market. We feel it gives us the utmost flexibility, she said.
The Hercules esters business, Royal Purple and Bel-Ray all opened doors for Calumet, because you look at how the industry is growing: Synthetics are growing faster than any other thing out there. And theyre global in nature. To feed this segment, which is growing at higher than gross domestic product levels, it is spending more than $40 million to double capacity of the Missouri esters plant.
Our founders philosophy has always been to get closer and closer to the consumer, and closer and closer to the producer, said Straumins. William Grube, she recounted, has been known to say, I want to go from selling product by the barrel to by the gallon, to by the pound, to by the ounce. So as you get smaller and smaller units of measure, the value youre providing the consumer goes up, and youre making a higher margin.
White oil, solvents and sulfonates supplier Penreco, acquired for $269 million from ConocoPhillips and M.E. Zuckerman in 2008, is a good illustration of this, she added. With production facilities in Karns City, Pa., and Dickinson, Texas, Penreco was once half-owned by Pennzoil, which also had owned the Shreveport, La., refinery that Calumet bought in 2001.
The two businesses fit very nicely together, and we really felt like we were putting two parts of a puzzle back together again when we acquired Penreco – thats been very successful for us, Straumins noted.
The purchase of Arizona-based United Petroleum, which develops and markets the Quantum line of automotive and industrial lubricants, also grew from a prior relationship. We were one of their largest contract packagers, Straumins pointed out. We really liked their sales team, and felt that by bringing them into the Calumet family we would be able to grow Calumet Packaging and Royal Purple a lot faster than we could without them.
United Petroleum had really taken that Quantum name and grown it tremendously over the three years they had been in business, so we thought that would be a nice addition to our portfolio brands, she added.
Straumins recognizes that lubricants is a close-knit and competitive industry. In this space, our competitors are our customers, and they are our suppliers. So we spend a lot of time working on 360-degree relationships with people.
The partnership wants to grow its international business as well. International sales growth is an area our organization has been extremely focused on in recent years, Straumins said. One of the benefits of the Bel-Ray acquisition is a significant portion of their revenue is outside the U.S., so they had an established distribution base that we could then leverage for other product lines. Weve been doing that over the last year that weve owned Bel-Ray. And its just now starting to get some traction.