Calumet announces strategic transactions in its renewable diesel business

Photo: Haldor Topsoe

Calumet Specialty Products Partners LP announced Nov. 19 a series of strategic transactions in connection with its renewable diesel business. The transactions establish Montana Renewables LLC as an unrestricted pure-play renewables subsidiary of Calumet. Montana Renewables has closed on a $300 million convertible debt investment from funds managed by Oaktree Capital Management LP. It has also closed on a $145 million preferred equity investment by Calumet. Calumet owns 100 percent of the equity of Montana Renewables.

Calumet’s operations in Montana now include two fully independent business lines: renewables through Montana Renewables and conventional Canadian crude refining through Calumet Montana Refining LLC.

Montana Renewables will complete its in-flight capital projects and, according to Calumet, is expected to become one of the most advantaged renewable diesel producers in North America. Montana Renewables’ existing hydrocracker metallurgy of 317L stainless steel is “well-suited for renewable feedstock processing,” the company stated. “Its unique renewable hydrogen project further lowers carbon intensity and maximizes renewable diesel production. And a new, state-of-the-art feedstock pretreater combined with proximity to temperate oilseeds and low-carbon product markets will provide Montana Renewables with significant sourcing and logistics advantages.”

Calumet Montana Refining will continue to own and operate the conventional Great Falls specialty refinery with a reconfigured processing capacity of 12,000 barrels per day of Canadian crude. The refinery is focused on the production of high-quality specialty asphalt, as well as satisfying local demand for conventional fuels. Calumet Montana Refining anticipates the refinery will generate 60 percent of historical (pre-conversion) adjusted EBITDA after the hydrocracker is separated. Calumet owns 100 percent of the equity of Calumet Montana Refining.

As a result of these transactions, Calumet received net cash proceeds of approximately $199 million and has begun to reduce outstanding debt by issuing a notice of redemption today for the $80 million outstanding principal amount of its 7.625 percent senior notes due 2022.

“We have a clear vision for Calumet, and we have been implementing it through the resegmentation of our businesses at the beginning of the year and now by standing up arguably the best renewable diesel conversion project in North America,” said Calumet CEO Steve Mawer. “2021 has been a year of tremendous value creation for our unitholders and we are very pleased to finish the year by forming this partnership at Montana Renewables with Oaktree. These transactions advance Calumet’s vision for Montana Renewables as a standalone, high-growth, pure-play renewable fuels business.”

Bruce Fleming, executive vice president of Montana Renewables, added, “We concluded that a financial partner would allow us the flexibility to separate out the renewable diesel business, as a first step to create maximum unitholder value. Once we decided that, the tremendous expertise and creativity of Oaktree made them a natural partner to set up this exciting venture for future options targeting ‘post-money’ alternatives for Montana Renewables.”

Jared Parker, managing director of Oaktree’s global-opportunities funds, said, “We are excited to partner with Calumet to support the development and expansion of its renewable diesel business. These Great Falls assets are well positioned for growth and this transaction establishes Calumet as an innovative player in the important shift toward sustainable energy. We’re proud to support Calumet’s efforts to further the energy transition.”

Transaction Details

• Montana Renewables has acquired Calumet’s existing high-metallurgy hydrocracker and related assets in Great Falls, Montana

• Montana Renewables has closed a three-year, $300 million senior secured convertible term loan issued by Oaktree

• Montana Renewables has closed a $145 million preferred equity investment by Calumet, comprised of $44 million for renewable diesel project capital expenditures to date and $101 million cash

• Montana Renewables designated as an unrestricted subsidiary of Calumet and will operate with its own board

• Montana Renewables has entered into a tolling agreement with Calumet Montana Refining, which is expected to net $30 million of cash in excess of cost of service on an annualized basis in return for operating its hydrocracker at Calumet’s direction prior to conversion to renewable production

• Montana Renewables has entered into management services, operating, and other agreements with Calumet to support the continued development and subsequent operation of the renewable diesel conversion project

• Montana Renewables signed a $50 million letter of intent with Stonebriar Commercial Finance to finance a renewable hydrogen plant to maximize renewable diesel production and further reduce carbon intensity of Montana Renewables’ products

• Montana Renewables signed a letter of intent with Macquarie for renewables inventory financing

Montana Renewables closed on the Oaktree term loan, Calumet preferred equity, and certain related transactions Nov. 18. The Stonebriar and Macquarie transactions are expected to close by the first quarter of next year.

Earlier this year, Calumet unveiled a three-part strategy for renewable diesel in Great Falls, Montana, starting with a production capacity of 77 million gallons per year (mgy) in 2022, building a renewable hydrogen unit to boost capacity to 153 mgy, and then adding a feedstock pretreatment unit.