Calumet Specialty Products Partners LP, which has struggled to make profits in recent years, is considering a sale of its finished lubricants business, Bloomberg reported on Oct. 1.
The company is working with an adviser to find a buyer for the unit, according to the Bloomberg article, which cited anonymous sources. A Calumet spokesperson told Lube Report the company would not comment on the report.
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Originally a small refiner in Louisiana, Calumet has followed a bold merger and acquisition strategy, making 12 acquisitions between 2000 and 2014 as it expanded its fuels and refining footprint across the Western and Southeastern United States. As a result it incurred significant debt, which led to much red ink in recent years. Financial performance improved the past few years as its net losses shrank from $329 million in 2016 to $43.6 million 2019. For the second quarter of this year, Calumet posted net income of $3.6 million, improving on a $16.8 million net loss for the same period of 2019.
The COVID-19 pandemic created new problems, though, as it has for companies throughout the industry. During the first six months of 2020, the company’s production volume of packaged and synthetic specialty products fell 24% year to year to 1,382 barrels per day. That represents production of finished lubricants and chemicals specialty products including the products from the Royal Purple, Bel-Ray and Calumet Packaging facilities.
In April the company announced it would close a lubricants plant in New Jersey and furlough manufacturing employees at a Missouri synthetic lubricants plant as part of its efforts to shore up its balance sheet. Those and other expected measures were expected to save $20 million to $30 million.
The company experienced turnover among some top executives this year. CEO Tim Go resigned effective June 1, and later joined HollyFrontier. H. Keith Jennings, who joined the company as executive vice president and chief financial officer in January this year, resigned effective Aug. 31 to pursue other interests closer to his family in Texas.
Suzan Jagger, vice president of IHS Markit Oil, Midstream, and Downstream Consulting, summed up Calumet’s journey the past two decades.
“With the goal of balancing the inherent margin volatility that comes with the fuels business, Calumet … diversified into the high-value specialties product business, which included USP White Oils, finished lubricants and base oils, and specialty drilling fluids and oil field services businesses,” she said.
“Over the past five years, management has made significant strides to improve operating efficiencies and reduce cost structure as it battles to improve cash flow from operations, and leverage down its significant debt levels resulting from these acquisitions. As of end-June 2020, the total debt was $1.34 Billion. Added to the pressures, we are in a period of weak fuels refining margins as we continue to recover from COVID-19.”
Pointing to Calumet’s 2020 acquisition of the Paralogics specialty wax business, Jagger speculated that the company may now be considering a focus on those products and engineered fuels, such as those used in small, high-speed two- and four-cycle engines. “We can only assume that the sale of Calumet’s lubricant portfolio might enable this growth and contribute to an overall stronger financial footing,” she said.
Bloomberg’s article said some equity firms have expressed interest in Calumet’s lubricant business. Jagger suggested the sale could pose an opportunity for a buyer, given that the business owns several recognized niche brands with distribution in the United States and overseas. Those brands include Royal Purple and Bel-Ray.