Feb 15, 2012
Executives
Bill Anderson - VP, Sales and Marketing Jennifer Straumins – President and COO Pat Murray – CFO
Analysts
Darren Horowitz – Raymond James Brian Zarahn – Barclays Kelly Krenger – Bank of America Merrill Lynch Eric Seeve – GoldenTree Peter Madsen - Drakkar Capital [Nick Coleridge - B2 Investments] Eric Udoff – Appaloosa
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Calumet Specialty Products Partners, L.P. Earnings Conference Call.
At this time, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session.
(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the call over to Bill Anderson.
You may proceed.
Bill Anderson
Thank you, operator. Good afternoon, and welcome to Calumet Specialty Products Partners investors call to discuss our fourth quarter 2011 financial results.
During this call, Calumet Specialty Products Partners, L.P. will be referred to as the Partnership or Calumet.
Also participating in this call will be Jennifer Straumins, our President and COO, and Pat Murray, our CFO. Following the presentation, we will hold the line open for a question-and-answer session.
During the course of this call, we will make 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 such 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.
I will now turn the call over to Jennifer Straumins.
Jennifer Straumins
Thank you, Bill. We are very pleased with our results for the fourth quarter of 2011.
On net income of $26.9 million, we have reported quarterly adjusted EBITDA of $65 million and quarterly distributable cash flow of $33.1 million. We continue our focus on our operations in order to meet demand for our specialty products and to better benefit from current fuel products crack spreads.
As a result of the Superior refinery successful integration and contribution to our results, we increased our quarterly distribution for the fourth quarter to $0.53 per unit, a $0.03 per unit increase from the third quarter. On January 3, 2012, we completed an acquisition of an aviation and refrigerant synthetic lubricants business from Hercules Incorporated, a subsidiary of Ashland, for an aggregate consideration of approximately $19.6 million, excluding certain customary post-closing purchase price adjustments.
The acquisition includes a manufacturing facility located in Louisiana, Missouri. On January 6, 2012, we completed the acquisition of all of the outstanding membership interests of TruSouth Oil, LLC, a specialty petroleum packaging and distribution company, located in Shreveport, Louisiana and a related party for an aggregate consideration of approximately $25.5 million.
On January 23, 2012, we declared a quarterly cash distribution of $0.53 per unit for the quarter ended December 31, 2011 on all outstanding units. The distribution was paid on February 14 to unitholders of record as of the close of business on February 3.
I will now turn the call over to Pat Murray for a review of our financial results.
Pat Murray
Thank you, Jennifer. Net income for the fourth quarter of 2011 was $26.9 million compared to $9.5 million for the same period in 2010.
These results include $13.5 million of non-cash unrealized derivative gains as compared to $2 million of non-cash unrealized derivative losses for the fourth quarter of 2010. We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the partnership.
EBITDA and adjusted EBITDA as defined in our debt instruments were $64.6 million and $65 million respectively for the fourth quarter of 2011, as compared to $33.6 million and $42.2 million respectively for the same quarter last year. The partnership’s distributable cash flow for the fourth quarter of 2011 was $33.1 million as compared to $31 million for the same period in 2010.
The increase in adjusted EBITDA quarter-over-quarter was due primarily to a $24.8 million increase in gross profit, partially offset by decreased realized derivative gains, a $2.7 million increase in transportation expense and a $3.4 million increase in selling, general and administrative expenses. We encourage investors to review the section of our earnings press release found on our website entitled non-GAAP financial measures and the attached tables for discussion and definitions for EBITDA, adjusted EBITDA, and distributable cash flow financial measures, and reconciliations of these non-GAAP measures to the comparable GAAP measures.
Gross profit by segment for the fourth quarter of 2011 for Specialty Products and Fuel Products was $64.7 million and $15.4 million respectively, compared to gross profit of $56.7 million and a loss of $1.4 million respectively for the same period in 2010. The increase in Specialty Products segment gross profit of $7.9 million quarter-over-quarter was due primarily to a 13.4% increase in the average selling price per barrel for specialty products, partially offset by a 20.8% increase in the average cost of crude oil per barrel and higher operating costs, primarily repairs and maintenance.
The increase in Fuel Products segment gross profit of $16.8 million quarter-over-quarter was due primarily to a 106.8% increase in sales volume, primarily due to incremental fuel products sales volumes from the Superior acquisition, a 21.6% increase in the average selling price per barrel, excluding the impact of realized hedging losses reflected in our sales, partially offset by a 16% increase in the average cost of crude oil per barrel, increased realized losses on derivatives at $23.3 million in our fuel products hedging program and higher operating costs, primarily repairs and maintenance. Selling, general and administrative expenses increased $3.4 million quarter-over-quarter to $15.7 million.
This increase is due primarily to increased overall salaries and wages of $1.3 million driven by the Superior acquisition and increased advertising costs of $0.8 million in 2011 compared to 2010. Interest expense increased $10.2 million quarter-over-quarter to $18.1 million, due primarily to higher interest rates associated with our 2019 senior unsecured notes as compared to our term loan that was repaid in full in April 2011 and extinguished in connection with the issuance of our 2019 senior unsecured notes, as well as additional outstanding long-term debt in the form of 2019 senior unsecured notes issued to partially fund our Superior acquisition.
As of December 31, 2011, total capitalization consisted of partners’ capital in the amount of $728.9 million and outstanding debt of $587.1 million, comprised primarily of $586.3 million of 9 3/8% senior notes due 2019, which is net of discount of $13.7 million. The $330.6 million increase in partners’ capital from December 31st 2010 was due primarily to $301 million of net proceeds from our March 2011 and September 2011 public offerings of common units and $109.5 million in other comprehensive income partially offset by $82.7 million in distributions to our unitholders.
On December 31, 2011, Calumet had availability of $340.8 million under our $850 million revolving credit facility based on a $570.8 million borrowing base, $230 million in outstanding standby letters of credit and no outstanding borrowings under our revolver. We believe we’ll continue to have sufficient cash flow from operations and borrowing availability under our revolver to meet our financial commitments, minimum quarterly distributions to our unitholders, debt service obligations, contingencies, and anticipated capital expenditures.
And now I’ll turn the call back over to Jennifer Straumins.
Jennifer Straumins
Thank you, Pat. This concludes our remarks.
And we’ll now be happy to answer any questions you may have. Operator, can you please confirm if there are any questions?
Operator
(Operator Instructions) Our first question is from the line of Darren Horowitz from Raymond James. You may proceed.
Darren Horowitz – Raymond James
Jennifer, can you give us a little bit more detail on the run rate synergies from the integration of Superior now that you’ve got couple of months under your belt now? I am also curious as to how you are thinking about the feedstock shipped given on a relative basis what’s happened to the Bakken barrels and the heavier barrels.
Jennifer Straumins
Our Superior has been running very well for us. They are running at higher rates during this winter than they have in any other winter.
We don’t really disclose – it will be on our filings what those run rates were. We’ve not yet disclosed that.
But the plant’s running very well. We had some minimal downtime in the fourth quarter due to a power outage on a unit, but the plant is running very well at this point in time.
And we continue everyday to analyze the economics of the Canadian crude and the Bakken barrels. And at this point in time, we’ve not shifted any production towards one or the other.
We are still running about 50% Canadian and 50% North Dakota sweet.
Darren Horowitz – Raymond James
Okay. Does that thought process change -- I mean, as you’re kind of at this seasonally soft period for gasoline demand, wouldn’t you want to run more heavy barrels like possibly shipped 60:40 heavy light?
Jennifer Straumins
Again, that’s something we look at every day. We’ve developed a new LP model at the plant to be able to give us real-time information on what we want to run.
And those margins blew out last week and just contracted again yesterday. So it’s something we can’t really say what we are going to do this spring based on information available to us right now.
But we do have a lot of flexibility.
Darren Horowitz – Raymond James
Sure. I appreciate that.
Second question as it relates to the two acquisitions you discussed, both the aviation and lub business in TruSouth. Can you just give us an idea for the incremental annual EBITDA or cash flow expectation and possibly how on an aggregate basis, that changes your business mix going forward?
Jennifer Straumins
It’s not really changing our business mix. Again, these were small niche acquisitions, don’t really anticipate them swing our EBITDA numbers dramatically one way or the other.
They were strategic acquisitions that allow us to grow in the future. So we’re not giving EBITDA targets for those.
Darren Horowitz – Raymond James
Okay. Last question from me.
Just from a bigger picture perspective, now you’ve got, as mentioned a couple of months of Superior running and you are looking for as it relates to the expected crack spreads and how specifically that asset is going to do. Is the target still somewhere around $70 million or $80 million on a 12 month basis for adjusted EBITDA out of Superior?
Jennifer Straumins
Yes, it is. There’s not a little bit higher than that.
Operator
Your next question is from the line of Brian Zarahn from Barclays. You may proceed.
Brian Zarahn – Barclays
In the quarter, was the majority of the fuel products volume increase from Superior?
Jennifer Straumins
It was all from Superior.
Brian Zarahn – Barclays
All from Superior, okay. And looking at 2012, what are your expectations for maintenance CapEx and interest expense?
Jennifer Straumins
Our maintenance and environmental CapEx continues to be in that $25 million range. And our interest expense is about $60 million a year.
Brian Zarahn – Barclays
And then given sort of the industry capacity reductions from the East Coast and Caribbean, what impact does that have on your business? Does that have any impact on your specialty business?
Jennifer Straumins
It does not have any impact on our specialty business.
Brian Zarahn – Barclays
On the fuel products side, is there any impact or those volumes will be replaced by imports and not really impacting your –
Jennifer Straumins
It will only impact us if it increases the Gulf Coast crack spread.
Brian Zarahn – Barclays
And I guess finally on your acquisitions you made in January, are you looking for additional bolt-on acquisitions, reasonable to assume or you think you may be done for the year?
Jennifer Straumins
Yes, we are always looking.
Operator
Your next question is from the line of Kelly Krenger from Bank of America Merrill Lynch. You may proceed.
Kelly Krenger – Bank of America Merrill Lynch
Just a few questions on – starting on the specialty products on the volumes for the quarter of roughly 33,000 barrels a day. Did that – did you ship any volumes at Superior into that category or is that all just from your existing specialty business?
Jennifer Straumins
The Superior asphalt is in the specialty category. We do have some projects that we’re evaluating right now for other types of specialty products out of Superior.
But for the fourth quarter 2011, only the asphalt from Superior is the special products.
Kelly Krenger – Bank of America Merrill Lynch
And how much was that?
Jennifer Straumins
We’re not disclosing that at this point.
Kelly Krenger – Bank of America Merrill Lynch
And it sounded like in your prepared remarks that you said you’re still trying to kind of keep up with demand on the specialty side. But can you give us a little better sense of what you’re seeing on this from a demand or margin standpoint on the specialty products business?
Jennifer Straumins
Sure. Our specialty products business finished the year out very well.
We have seen some weakness on the export side of the business due to the strong dollar. But the majority of our sales are domestic and those continue to be strong.
There are some major turnarounds on the paraffinic side of the business where some of our competitors will be coming down. So we expect supply to remain tight through the next several months in that market.
And then on the solvent side of our business, we’ve seen larger Gulf Coast crack spreads for gasoline have really helped increase our solvents margins because that’s an alternate disposition for that type of stream. And we’ve had very good demand for our products and very strong margins.
Kelly Krenger – Bank of America Merrill Lynch
Okay. Should we assume kind of comparable volumes going forward that you have been running last couple of quarters or so?
Jennifer Straumins
Yes.
Kelly Krenger – Bank of America Merrill Lynch
Okay. And then are you going to – or can you give us a Superior EBITDA for the fourth quarter?
Jennifer Straumins
We cannot.
Kelly Krenger – Bank of America Merrill Lynch
Is that – will that be broken out in the public filings?
Jennifer Straumins
We will not be. No, as I mentioned, I believe it was Darren, that $70 million to $90 million range is what we have been seeing.
Kelly Krenger – Bank of America Merrill Lynch
And with regard to hedging, it looks like you at least relative to your third quarter press release said added some hedges for, let’s say, for 2012, it looks like –
Jennifer Straumins
We have been hedging, yes.
Kelly Krenger – Bank of America Merrill Lynch
And I was just curious kind of where do you stand on that from a standpoint of volumes for 2012 and then how much – it didn’t look like you’d done much incremental in ’13 but if you can just kind of comment on how you are staging your hedging at this point?
Jennifer Straumins
Sure. We have been – immediately upon the closure of the Superior acquisition, we placed a lot of 2012 hedges on so that we could have that refinery – a good portion of that refinery hedge from the fuel production side.
And we’ve seen some very strong crack spread quotes here in the recent weeks. And we are actively hedging in the market today.
Kelly Krenger – Bank of America Merrill Lynch
Okay. So will the – and I think these were as of December 31.
Jennifer Straumins
Yes.
Kelly Krenger – Bank of America Merrill Lynch
Will the Q have these kind of updated numbers?
Jennifer Straumins
No, we only disclose those numbers quarterly. I mean, the values that we have been able to get right now are in the mid to high 20s for both gasoline and diesel.
So it’s a very, very strong environment.
Pat Murray
We’re continuing to execute the program opportunistically as we see opportunities in the market. So we are adding positions currently.
Kelly Krenger – Bank of America Merrill Lynch
And what’s kind of the target for ’12 and ’13 or kind of given that you’ve added Superior to the mix, kind of what’s the current hedging, I guess, plan or strategy?
Jennifer Straumins
A lot of that can be driven on the value of the hedges that we can place. If you want to model something, I’d model about 50% of plant’s fuel production.
Kelly Krenger – Bank of America Merrill Lynch
Okay. Kind of on a rolling 12 or 18 month basis?
Jennifer Straumins
Yes.
Kelly Krenger – Bank of America Merrill Lynch
Okay. And then I noticed a turnaround cost of little over $5 million in the fourth quarter.
What was that for or what plant was?
Jennifer Straumins
We had a turnaround at our Shreveport refinery.
Kelly Krenger – Bank of America Merrill Lynch
Did that do anything to volumes there?
Jennifer Straumins
It did not. No, it was just a regulatory scheduled turnaround.
We were down for a couple of weeks but have enough make-up capacity there that rates weren’t really impacted.
Kelly Krenger – Bank of America Merrill Lynch
Okay. And then what about for 2012 in terms of any turnaround schedule?
Jennifer Straumins
We’ll do something just about every quarter and amounts will be about the same as last year.
Kelly Krenger – Bank of America Merrill Lynch
Okay. And then how about on growth CapEx for 2012?
Jennifer Straumins
We’ve got a lot of projects that we are evaluating. And our policy, as always have been, if we got the free cash flow available to do those projects, we will do them.
We are looking at things with about a 50% return or higher to be considered at this point in time due to the number of potential projects that we have.
Kelly Krenger – Bank of America Merrill Lynch
So should we – I mean, is that few tens of millions of dollars that we should be thinking of or I guess, last year it was –
Jennifer Straumins
Last year, we spent about $25 million. I’d say we’re going to spend – ballpark is now little bit more this year by the time we are done.
It depends on how some of these Superior projects, what we figure out we’re going to do those or not.
Kelly Krenger – Bank of America Merrill Lynch
Okay. And I know you don’t want to give cash flow guidance on the two acquisitions you made.
But are they – can we assume that those are accretive from a credit standpoint?
Jennifer Straumins
Yes, they are.
Operator
(Operator Instructions) And your next question is from the line of Eric Seeve from GoldenTree. You may proceed.
Eric Seeve - GoldenTree
Hi, a couple of questions. Firstly, it seems based on the differentials that you guys – that we are seeing in crude oil from the Bakken and some of the crudes that you guys can buy in Western Canada.
It seems like you could be entering a really good margin environment certainly for the Superior asset and just for some of your other assets as well. Philosophically, to the extent that you have excess free cash flow beyond the growth CapEx, beyond any other acquisitions you made, can you just talk a little bit about your philosophy about whether or not you include that in distributions, or do you to pay down I guess the – now that you have (indiscernible) you made with acquisitions?
Jennifer Straumins
Our policy is that when we look at distribution increases, we look at mid cycle type of EBITDA for the company. And we had a very, very strong third quarter, the strongest quarter we’ve really ever had.
And you are right. With these – with the spreads where they are at right now, Superior is lined up to be – to have a phenomenal first and second quarter.
But I think you will see us be modest distribution increases and go from there. If we think it’s sustainable, we will do a larger distribution increase but if we think that this is a shorter cycle, we’ll just use those capital for, as you said, to pay down the revolver or do other projects.
Eric Seeve - GoldenTree
Okay. So another question, working capital now much bigger than it’s been historically, I guess, I make sense is you’ve got a bigger footprint now.
But is the level that you ended the year with, can you talk a little bit about how that compares with what you expect going forward? Do you expect – do you think it might be some opportunity to derive some capital out of working capital, or will you need to invest more on working capital, what should we expect going forward?
Jennifer Straumins
Well, with Superior now and their alphalt business, our working capital is going to be more seasonal than it has been historically. And what you will see is, as we do winter fill asphalt, you will see higher working capital levels in the fourth and first quarters as we are building that inventory, and then lower levels in the second and third quarters.
So I would anticipate holding crude prices and selling prices even with where they are at today that we would see higher levels of inventory at the end of the first quarter than what you saw at the end of the year, as we continue to do winter fill asphalt.
Eric Seeve - GoldenTree
So inventories peak in Q1 and then decline as you work that off over the paving seasons in Q2 and Q3 –
Jennifer Straumins
That’s right. And then starting in November, we start to build that asphalt inventory back up again and you start to see those working capital numbers increase.
Eric Seeve - GoldenTree
And just last question is regarding the acquisitions. Can you just talk a little bit about what qualitatively each of them brings to Calumet?
And I think it will be helpful to investors to understand the business better just to think about qualitatively how you thought about each one and how it sort of fits within your business model and how it can help you going forward?
Jennifer Straumins
Sure. The business that we bought from Hercules is a synthetic lubricants business.
They participate in 30 million pound a year plant. They participate in the refrigeration and aviation fluid markets.
And we participate in those markets as well with our specialty naphthenic oils out of our Princeton refinery. And what we saw there was an asset owned – had been acquired by Ashland from Hercules, and it was ignored and underutilized.
And we felt like we could really take that business and grow it and develop synergies with our own – with the products that we produce out of our Louisiana refinery. And we plan on expanding the facility there and growing production.
So we’re very excited about what the next year is going to hold for that plant. And the packaging plant is located just a few miles from our Shreveport refinery, and as we are kicking off a brand in motor oil, and as the acquisition of TruSouth facility gave us the ability to package for ourselves.
And again, it was an underutilized asset. They needed they’re privately held and needed some capital, and so by Calumet stepping in and acquiring them, we can give them the capital they need to grow and expand their business.
Eric Seeve – GoldenTree
And so maybe again motor oil packaging, is it other products as well, or is that really –
Jennifer Straumins
It’s the full scope of motor oil type of products, hydraulic fluids. They’ve got a really interesting unique product that we are going to be doing a lot of advertising on called TruFuel.
And it’s a pre-mixed fuel for your wheat eaters and mowers and things like that. So that you don’t – so that the consumer doesn’t have to mix the oil and the gas themselves.
And that product is going to be distributed – has been distributed throughout Walmart, Lowe’s, Home Depot, those types of stores.
Eric Seeve – GoldenTree
Great, thank you. And just lastly I know you don’t want to quantify this.
But the question was asked about what EBITDA multiple you acquired that – in a follow-up question someone asked, if it would be accretive to the credit and I think you answered yes. But I presume that thought process was it will be accretive but accretive to the credit would be when you had to acquire for some two times whatever you levered.
So I presume that you meant it was accretive but not credit accretive. Did I get that right?
Pat Murray
The guidance you’ve defined is there, I mean overall we think it will be accretive. I guess it will be a contributor to adjusted EBITDA and the cash flow measurement that we use.
But again, these are smaller acquisitions and more of start-up and lot of work to do. But we’re very excited about both of them.
Operator
Your next question comes from the line of Peter Madsen with Drakkar Capital. You may proceed.
Peter Madsen - Drakkar Capital
I have just three kind of different questions. One is just clarifying earlier Q&A on the hedging program, which – as I look at the numbers, it appears like you didn’t actually do much hedging throughout the fourth quarter when spreads were kind of coming in pretty aggressively.
And now you’ve mentioned that they are backed out at kind of attractive levels and are actively hedging now. In that, because I look at the end of the third quarter, if I look at 2012, it looks like you had about 15,000 barrels per day for your legacy assets.
And then you put on at good spreads about 15,000 barrels a day for 2012 to start hedging the Superior acquisition. Those two numbers look like they rolled into just one now number for the whole firm at around 30,000 barrels a day.
So I guess, is it fair to say you actually were not that active during the fourth quarter and may be active now, now that spreads are at much more advantageous levels?
Jennifer Straumins
That’s correct. The hedges that we put on for Superior were done very early in the fourth quarter and more of a big block rather than – our typical pattern is to do – to spread it out over time.
Peter Madsen - Drakkar Capital
And when you mentioned that you generally want to have about 50% hedged, is roughly the 30,000 barrel per day that you have for 2012 now across all your assets? Is that kind of consistent with that 50% number?
Jennifer Straumins
For our fuel products segment, yes. We are not doing any specialty hedging at this point in time.
Peter Madsen - Drakkar Capital
So presumably, now hedges that you are putting on are for the out-years of ’13 and ’14; is that about right?
Jennifer Straumins
We are doing some 2012 hedges too right now. We can go higher than 50% if we think that the values are good.
Peter Madsen - Drakkar Capital
Right. Okay.
It’s a combination of locking in good spreads for this year and then presumably more in the out-years as well?
Jennifer Straumins
That’s right.
Peter Madsen - Drakkar Capital
I know that you are not really – roughly in that the Superior refinery is around 45,000 barrels a day kind of rate of capacity. Of what roughly capacity utilization are you running at on that thing given the winter months?
Jennifer Straumins
As I’ve mentioned, we are running more of there than they – than Murphy ever did during the winter. We are running historically average rates.
Peter Madsen - Drakkar Capital
Okay. And then if you could just give me a sense in terms of, fourth quarter your profits per barrel in the specialty went from kind of 30 in the third from your record quarter, down to 21 unchanged in the fourth quarter.
Obviously crude had a pretty good run in the fourth quarter. Is there an aspect of timing to that in your – I am a little – my memory isn’t perfect now and kind of exactly how lot of your specialty contracts are.
So is that just kind of a delta to the overall move in crack spreads or is that more of a timing issue in that you had a pretty rapid run-up in crude and that you kind of don’t reset your selling prices as quickly as your inputs?
Jennifer Straumins
No, I think that our third quarter was very, very good. Our history has been when crude prices go up, there is a lag in raising prices.
And when crude prices go down, there is a lag in lowering prices. And that was what you saw in that third quarter.
You saw crude drop and our pricing remained stable throughout the quarter. There were some announced industry price decreases throughout the fourth quarter due to some of the export weakness that I mentioned a little earlier, and also due to crude prices.
And so while our crude prices were up on average, a few dollars versus the third quarter, we actually saw some price decreases as our base margin level got caught up to a historical average.
Peter Madsen - Drakkar Capital
Okay. And how does that kind of look now, now kind of – now that we’ve kind of stabilized it at this kind of crude level.
I mean, are they kind of –
Jennifer Straumins
It’s very stable. We are not anticipating any price movement in any of our segments at this point in time.
Peter Madsen - Drakkar Capital
Maybe one more just so, I mean, obviously everyone expects or people are starting to expect some form of action – military action in the Middle East against Iran. I mean, how does that kind of factor into the hedge thoughts and how can that possibly impact the margin as we have an event that takes oil up $30, $40, $50 a barrel even if it’s for a month or two?
Jennifer Straumins
We’ll just have to be ready and raise prices accordingly. It’s really all we can do.
Operator
Your next question is from the line of Nick Coleridge from B2 Investments. You may proceed.
Unidentified Analyst
I had a question related to the Superior acquisition. I was just look at your fourth quarter press release.
I am new to following the company but looking at your year-end 2010 results, your sales volume was 53% specialty, 47% fuel products. And now with the larger Superior acquisition, it’s 37% specialty, 63% fuel.
And my understanding is over a period of the years, you want to undertake a significant capital program at Superior to, I guess, reverse the overall mix of the company more toward the 50% specialty, 50% fuels. So I guess, is that an accurate assessment or a goal over a three to five year period?
Jennifer Straumins
No, I don’t think Superior it will ever be 50:50 fuels and specialty products. We are looking at doing some specialty products out of there, not a huge amount.
We’ve been also identifying other feedstock synergies between Superior and our Louisiana refinery. So I don’t anticipate the overall product mix changing dramatically at Superior.
It’s certainly not for the next year or so.
Unidentified Analyst
Okay. But if you look out three to five years, I mean, how much do you think out of Superior, you could get and more specialty product –
Jennifer Straumins
Couple of thousand barrels a day.
Unidentified Analyst
So 2000 or 3000?
Jennifer Straumins
Yes.
Unidentified Analyst
And how much capital do you think, I guess, capital –
Jennifer Straumins
We don’t have any idea at this point in time what that capital number would be. We are working all those numbers.
Unidentified Analyst
You are. And do you have a timeframe of what you will communicate that to investors?
Jennifer Straumins
When we know we will communicate it. Some of these projects we may decide not to do because the returns are high enough.
So it wouldn’t be fair for me, I don’t think, to throw out some numbers and then have us not to sustain the capital or not have the capital available for whatever reason. So – but we are actively doing engineering work at Superior and looking at a wide variety of opportunities.
Unidentified Analyst
And the hurdle rate is 50% return on investment for those types of projects?
Jennifer Straumins
No necessarily. Some of the projects at Superior that we will do, will be little bit lower hurdle rate than that.
But we have told our other refineries that they need to be 50% or better because Superior is going to be getting a lot of our attention this year.
Operator
Your next question is from the line of Eric Udoff from Appaloosa. You may proceed.
Eric Udoff - Appaloosa
I just wanted to clarify if you could maybe walk as to what EBITDA would have been if there was no hedging done in the quarter?
Pat Murray
Yeah, the realized losses running through cost of sales in the third quarter would have been about $33 million, I believe.
Eric Udoff - Appaloosa
So can you just walk me through, does that mean I would take the company adjusted $65 million –
Pat Murray
Right, that means our gross profit effectively would have been higher by an amount in that range without the impact for the hedging for the fuel products.
Eric Udoff - Appaloosa
Okay. That’s a pretty significant number.
Another topic that you guys had addressed a bit, I was just curious of your thoughts on what the cause of these discounts in Bakken, Canada and other physical crudes is to WTI right now?
Jennifer Straumins
I think we wish we thought we knew. I think everything you read there is a different reason, everything from refinery outages to weather to pipeline, reversal announcements to delays of pipeline reversal announcement.
So I think what it is lot of it is driven by the traders and I think that there is a lot of barrels coming on both the North Dakota and Canada that they have no takeaway capacity right now. And for every announced project, the spread narrows and for every announced delay, the spreads widens.
But nothing has changed physically at this point in time.
Eric Udoff - Appaloosa
Have you been looking at, I don’t know, all the different crudes discounts that might be available, not just in Superior but at your other refineries, have you been looking at procuring other crudes that are now trading at significant discounts (indiscernible) that might not have been in the past?
Jennifer Straumins
We look at that every day.
Eric Udoff - Appaloosa
And has there been any –
Jennifer Straumins
We’ve got a couple of things that we are working on. For example, last year we did a project at Shreveport to be able to bring in straight WTI crude that was a barrel we were never able to bring in, in the past, and just we’re able to do that and realize those – that benefit.
And we continue to look for strainer barrels and for good barrels.
Operator
At this time, there are no other questions in the queue. I’d like to turn the call over to Mr.
Bill Anderson for closing remarks.
Bill Anderson
Okay. Thank you.
This concludes the Calumet Specialty Products Partners’ earnings conference call covering the company’s fourth quarter 2011 results. Thank you very much for your participation in the teleconference.
Please note that this teleconference will be available for replay using the instructions contained in our press release.
Operator
And ladies and gentlemen, that concludes your presentation. You may now disconnect and have a great day.