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Calumet Specialty Products Partners (NASDAQ:CLMT)
Q1 2020 Earnings Call
May 07, 2020, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and gentlemen, thank you for standing by, and welcome to the Calumet Specialty Product Partners first-quarter earnings results conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Joseph Caminiti, investor relations. Thank you. You may begin.

Joe Caminiti -- Investor Relations

Thank you, Dorothy. Good morning, everyone, and thank you for joining us today for our first-quarter earnings results call. With us on today's call are Steve Mawer, CEO; Keith Jennings, CFO; Bruce Fleming, EVP of strategy and growth; and Scott Obermeiers, EVP of commercial. Before we proceed, allow me to remind everyone that during the course of this call, we may provide 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 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 management can provide any assurances that the 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. As a reminder, you may now download a PDF of the presentation slides that will accompany the remarks made on today's conference call as indicated in the press release we issued earlier today.

You may access these slides in the investor relations section of the website at calumetspecialty.com. Also, a webcast replay of this call will be available on our site within a few hours, and you can contact Alpha IR Group for Investor Relations support at (312) 445-2870. With that, I'll pass the call to Steve. Steve?

Steve Mawer -- Chief Executive Officer

Well, good morning, everyone, and thank you for joining us. As you know, our company transitioned the CEO role over to me earlier this year. And while this is my first time speaking to our unitholders and analysts as our chief executive, I'm not new to the Calumet team. I served Calumet as a director on our board for the last four years, advising the company on a wide range of matters.

Calumet accomplished a significant amount over the last few years. My predecessor, Tim Go, not only built a strong executive management team, but also stewarded a very substantial transformation of our business. This work significantly changed our business focus, strengthened our asset base, and helped us develop a culture of self-help and operations excellence, all of which fortified the strong foundation that we have today. This foundation is going to be critical to help us both navigate these uncertain times in the short term and win in our markets over the long term.

We are fortunate to have a strong team that I already know well. And while the world around us has gone through some significant change over the last few months, our vision for Calumet has not changed. We remain focused on completing the last steps on our path to becoming a premier specialty products company while deleveraging our balance sheet and driving improved long-term returns for our unitholders. So let's begin our presentation, starting on Slide 3.

Before we get into the specifics of the quarter, I'd like to update you on the swift and decisive actions we've taken to stay ahead of the ongoing COVID-19 pandemic. So our top priority has been and will continue to be the safety and health of our employees and our customers. When we realized that the pandemic would reach our shores, we activated our crisis teams and crisis plans. This included establishing new protocols at our facilities to further protect the health and safety of our workers.

Those staff members that have the ability have been working remotely since we activated our contingency plans. Those who work directly within our refining and manufacturing facilities are following guidance coming from federal and local health authorities. And our corporate EH&S leadership is monitoring and adapting best practice developments in real time. Fortunately, we've begun to observe the deceleration of new cases in many of our geographies, and our business continuity planning includes protocols around getting back to work.

We're actively assessing a host of scenarios in which we can begin, returning as many of our employees back to work as makes sense, of course, based on local circumstances. Outside of continuity planning and new safety measures, we also took swift action to fortify our business. We're actively managing our business to generate positive free cash flow and maintain healthy liquidity. This includes meaningful actions to control costs, strengthen our cash flows, and maintain that liquidity.

First, we curtailed our capital budget for the year, which we now expect to be in the range of $50 million to $60 million, down from our original guidance of $80 million to $90 million. And at this stage, our forecast is almost entirely focused on safety, environmental, and sustaining capex. Next, we accelerated $20 million of SG&A reductions that were previously announced as part of our 2020 self-help initiatives. This included reducing our use of professional services, some corporate staff reductions, and other facility fixed costs.

Lastly, we identified and have begun implementing new actions that we believe will drive an additional $20 million to $30 million of run rate savings for us by the -- by year-end 2020. The ability to more effectively control costs comes from the resilient business model we built following the divestitures of four noncore fuels-related assets over the last few years. It also comes from a culture built around commercial and operational excellence. So, despite the uncertainty that the pandemic has introduced to the global economy, there are a number of considerations that give us confidence in our ability to manage our business effectively as we move forward.

First, as I said earlier, federal and state authorities have deemed our business essential to the national economic infrastructure, and we've maintained our operations, serving our customers and stakeholders. Second, our specialty product formulations go into a vaster array of products, and that end market diversity provides inherently more stable performance, particularly when economic disruption is uneven across business sectors. And third, we increased our hedging activity earlier in the year to dampen the volatility of our fuels business. The hedge book contributes meaningfully to our plan to stabilize earnings.

And finally, we see signs of a recovery, which I'll talk about further at the end. Ultimately, though, new uncertainties have been introduced into our world, but we're confident that the Calumet of today is much better positioned to weather this black swan event in the near term. So on to the quarter, please turn to Slide 4, where we provide a snapshot of our results and first-quarter highlights. Calumet delivered another solid quarter of financial performance, driven by focused execution against our specialty products strategy.

During the first quarter, Calumet delivered $83.7 million of adjusted EBITDA, excluding noncash inventory adjustments. That consolidated result was comprised of $64.5 million in the adjusted EBITDA delivered by our core specialty segment and $39.2 million from the fuel segment, both of which were offset by $20 million of net costs in the corporate segment. These corporate segment results reflect a $15 million drop in SG&A versus last year's first quarter, including $5 million in self-help actions. During the quarter, we elected to close our Farmingdale, New Jersey blending facility, further consolidating our footprint as we bring the production of our Bel-Ray brand of lubricating products into other blending and packaging facilities.

Next, we were successful across a number of key points of emphasis of our strategy. On the balance sheet and financing side, we finished the quarter with over $326 million of available liquidity between our cash on hand and undrawn availability on our revolving credit facility. Our leverage metric, defined in our credit agreements as net debt to trailing 12-month adjusted EBITDA, declined by half a turn on a year-over-year basis. Operationally, we delivered strong capacity utilization, particularly at our Great Falls refinery.

Our fuels throughput results represented a 12% increase pro forma for portfolio divestitures. This strong throughput is reflective of the structural changes we have made to improve the competitiveness of our operations as well as the benefit of recent improvements at Shreveport in the fourth quarter. Regarding our portfolio, we continue to advance the review of strategic options for the Great Falls refinery, which we announced last quarter. We've had good interest in Great Falls given the high-quality of the asset and its consistent performance even in the face of these current uncertain conditions.

Another key highlight for the quarter was the margin performance in our core specialty business, which displayed solid growth across the quarter. The 19.7% adjusted EBITDA margin in our core specialty business increased 310 basis points versus last year's first quarter. And specialty segment adjusted gross profit was $41.32 per barrel, a figure that grew over 16% versus the prior year's quarter. These strong margin results reflect much of the commercial efforts we've undertaken in recent years.

It had the effect of improving the unit profitability in our core business, primarily through sales mix enrichment. Onto Slide 5, I'd like to take a moment to touch on some of the things that are giving us confidence in Calumet's ability to navigate this period of uncertainty. The resilience in our business is supported by the fact that we have a highly diversified core specialty business with a portfolio of products that touch an extremely wide range of end markets and industries. So as this slide highlights, this includes roughly 3,400 products, shifted 2,700 customers across 12,000 locations in more than 90 countries.

Many of the industries and businesses that we sell our formulations to have also been deemed essential to the nation's economic infrastructure, which has a stabilizing effect on demand for our products. Over the last two years, we've revamped our crude supply strategy to focus on developing the right mix of niche producer relationships while maintaining supply optionality. Understanding supply quality factor, the wellhead is important for a specialty producer, both in terms of maximizing margin and product quality, and this has yielded us material benefits. At the same time, we have enough connection to the broader markets to be able to capitalize on the discounts and pricing anomalies that we saw in March and on into the second quarter.

On the fuels refining side, our Great Falls refinery continues to benefit from healthy local economics as the Rockies region remains one of the best markets for fuels margins. Also of note is the Great Falls produces a particularly high-quality asphalt, which continues to attract demand from far beyond its local market and commands good pricing across the country. This asphalt production has the ability to serve a natural hedge to our economics when other fuels products see deteriorating margins. And finally, we stress test a host of scenarios in order to guide how we respond operationally and commercially to events that negatively impact demand.

And as of right now, the current environment we're observing remains within our stress testing and contingencies. So presently, we remain confident in our ability to not only weather the pandemic, but participate in any subsequent rebound. So with that, I'll now turn the call over to Keith, who will give a more detailed look at our financial results for the quarter. Keith?

Keith Jennings -- Chief Financial Officer

Thank you, Steve. Slide 6 reflects our headline consolidated results for the first quarter. As you may have garnered from our release, we have harmonized our adjusted EBITDA calculations to a single measure, which excludes LCM and LIFO impacts. For the quarter, revenue and adjusted EBITDA were $692.5 million and $83.7 million, respectively.

Revenue declined 19% versus the prior year. Specialty declined 7%, and fuels, 27%. This performance primarily reflected our actions to move away from less profitable volumes in the specialty segment. Impacts related to the divestiture of the San Antonio refinery and softening demand toward the end of the quarter.

Despite the declines in revenues, our adjusted EBITDA grew 40% year over year and 68% sequentially. Adjusted earnings per unit of $0.28 grew meaningfully versus the adjusted net loss of $0.07 in the prior year and $0.23 of adjusted net loss in the prior quarter. These results are not only representative of our strategic efforts to emphasize profitable growth through focusing on value over volume, as Steve mentioned earlier, but diligence in controlling our operating costs. On Slide 7, we provide a detailed bridge of our consolidated adjusted EBITDA results relative to the prior year.

The primary driver in the year-over-year increase was the improved margin performance across both our businesses. Our specialty segment margins grew by $38 million, and our fuels margins grew by $18.5 million compared to the prior year. Specialty margins were driven by base oils and finished lubricants. Fuels margins were driven primarily by the improved WCS differential.

This meaningful year-over-year margin tailwind in our businesses was partially offset by the $31.5 million of consolidated volume decrease. The $19 million year-over-year volume reduction in our fuels segment reflects the impact of our divestment of the San Antonio refinery as well as deterioration in the demand for gasoline and jet fuel toward the end of the quarter. The $12.5 million volume reduction in our specialty business captures primarily the impact from our mix rationalization efforts. We had $8.1 million -- we had an $8.1 million headwind of higher operating costs, which was primarily a function of the year-over-year impact from increased RINs prices.

This more than offset operating and transportation cost improvements which were marginally lower compared to the prior year. Finally, our SG&A results showed $7.1 million year-over-year benefit as we took actions to accelerate our SG&A reductions and better aligned our corporate operating costs with our reduced portfolio post the San Antonio divestiture. A fraction of the benefits were captured this year, but a majority of the cost savings will be captured across the rest of the year. The $83.7 million of adjusted EBITDA for the first quarter is a solid reflection of the quality and stability of our business and the efforts we have made to continually improve our financial performance.

Slide 8 highlights our core specialty segment operating results for the quarter. Our first-quarter EBITDA results of $64.5 million reflects growth of 10% compared to the prior year and 50.7% sequentially. Specialty-adjusted EBITDA margins of 19.7% were strong results on an absolute and relative basis. For the quarter, margins grew by 310 basis points compared to the results from the first quarter last year, and 510 basis points of margin growth relative to the seasonally weaker fourth quarter.

First-quarter gross profit per barrel results of $41.32 per barrel marked a milestone improvement, growing by 15.6% year over year, and by 33.5% compared to Q4. This improved profitability across our core specialty business was driven by a number of factors, including: continued realization of our sales mix rationalization efforts; margin captured from declining raw material costs; fixed cost leverage from sales volume growth in solvents and waxes; and cost reduction from crude sourcing optimization efforts, which drove margin performance across all product categories.Turning to Slide 9. We bridge our first-quarter specialty products adjusted EBITDA to the prior year. Specialty margin growth contributed $18.5 million in EBITDA growth and more than offset a $12.5 million headwind from lower volumes.

Our operating costs across the business increased slightly year over year. These slightly higher operating expenses were offset by $1.3 million combined improvement from targeted cost reductions in transportation and SG&A expenses, bringing our first-quarter adjusted EBITDA total to $64.5 million. Improving the margin performance of our core specialty business has been a key focal point of our transformation strategy. The result of this focus has been apparent in our performance for the last few quarters.

Slide 10 highlights our fuel segment results for the quarter. Adjusted EBITDA results of $39.2 million increased compared to both historical periods, growing 51.4% and 36.6%, respectively, compared to the prior year and the sequential quarters. Production volume averaged 64,700 barrels per day of throughput, which was a decline of 16% and 5.5% compared to the prior year and the sequential quarter, respectively. This decline in production volumes is largely a function of the divestment of our San Antonio refinery, which was sold at the end of October in the prior quarter.

However, it is worth noting that the negative volume impacts of removing San Antonio from the portfolio was partially offset by improved throughput at Shreveport after its fourth-quarter turnaround activity combines a record quarterly throughput at Great Falls. This production volume increase at Shreveport and Great Falls reflects our investments to improve throughput and utilization across these assets. These -- though muted this quarter by the divestiture of San Antonio, these are valuable improvements of our ongoing capabilities. Gross profit per barrel results of $4.63 per barrel for the first quarter reflected a meaningful margin expansion we delivered in the quarter, improving 215% and 32.3% compared to the prior year and the sequential quarters, respectively.

Our improved fuels adjusted EBITDA results was a beneficiary of widening crude differentials. At the WCS/WTI differential widened by over $7 compared to the prior year. This, combined with the improved throughput performance growth, driving fixed cost leverage. Gross margin growth on a per barrel basis also benefited from the widening WCS differential and better product mix at the Shreveport refinery.

On Slide 11, we bridged the fuels adjusted EBITDA performance to the prior year. The most significant driver of our performance was the $38 million improvement in fuels product margins, driven primarily by the wider WCS differential. This improved margin performance was partially offset by lower fuel volumes, driven largely by the divestment of the San Antonio refinery. The $4.4 million headwind of higher operating costs primarily reflects the increase in RINs cost compared to last year and slightly higher maintenance costs.

These were partially offset by a $2.5 million improvement in transportation expenses. And finally, continued improvement in SG&A for the segment rounds out our total adjusted EBITDA result of $39 million for the quarter. These are strong results for the business given the fluctuation in crude prices, fall in demand for transportation fuels, and the deterioration in fuel crack spreads we observed during the quarter. Slide 12.

Here, we reconciled the resources and uses of cash across the quarter. As those of you who have been following our journey now, since 2016, we have emphasized cash flow performance to measure the results of our strategic initiatives and improvements across our business. We opened 2020 with $19 million of cash on hand. We generated $73.8 million from cash operating earnings, which was offset by changes in net working capital, which presented a headwind of $76.1 million, due mostly to the significant volatility in crude prices we saw across the quarter and its impact on our payables and inventory values.

Capital expenditures for the quarter were $24.5 million, and we used $10.2 million of cash for assessing the working capital true-up on the San Antonio divestiture and acquiring Paralogics. In order to ensure we maintain a healthy balance of liquid capital on our balance sheet to deploy at our discretion, we incurred $122 million of net debt by accumulating cash, leaving our quarter-end cash balance at almost $104 million. After the close of the quarter, we received $31 million in funds on April 30 from five applications of Small Business Administration's Payroll Protection Program. Slide 13.

This provides a snapshot for key credit metrics, which continue to show improvement. Maintaining adequate liquidity is a key focal point for our company as we navigate the current environment. And at the quarter end, we had roughly $326 million of liquidity between the approximately $104 million of cash on hand and $222 million of available capacity on our revolving credit facility. Given the uncertainty that the COVID-19 pandemic has introduced to the global economy, and to reinforce the pursuit of our management's intent to deliver positive free cash flow in 2020, we revised our capital investment forecast for the year.

After deferring several growth-oriented projects to a later date, our capital investment forecast is now expected to range between $50 million to $60 million, down from our original forecast of $80 million to $90 million. We have also taken urgent actions on the cost side in order to maintain solid financial health, including the acceleration of our SG&A reduction efforts and implementing actions to capture a further $20 million to $30 million of cost reductions, bringing our cost opportunities to $40 million to $50 million. Our leverage ratio of 4.4 times debt to trailing 12-month adjusted EBITDA decreased sequentially and year over year. Our 4.4 times leverage level represents half-a-turn improvement from the 4.9 level we saw in the year ago period.

Our fixed charge coverage ratio improved to 2.1 times, up 0.1 turn from the 2 times ratio a year ago and has consistently been above 2 times dating back to last year indicative of our efforts to improve our cash flows relative to our fixed costs. While our overall level of liquidity is down year over year, please keep in mind that our asset base has been shrunk significantly through multiple noncore divestitures. This included two fuel refineries that required higher levels of liquidity. Subsequent to the end of the quarter, we applied for and received $31 million of SBA loans as part of the Paycheck Protection Program.

At April 30, our liquidity was roughly $240 million. This step-down in liquidity at the end of April, which is the traditional low point in our annual liquidity model, reflecting the borrowing base redetermination reduction of approximately $70 million, the April interest payments and significant accrued settlements on April 20. Our stress testing of our required liquidity in an extreme event has us operating our business with a target minimum liquidity level of $250 million. This pandemic is an extreme stress event, and we believe our operating profile will be well-supported by our available liquidity and cash flows.

With that, I will turn the call back over to Steve. Steve?

Steve Mawer -- Chief Executive Officer

Thanks, Keith. I think it's important to help our investors understand where we are today, given the challenges of the pandemic. We've talked about the resilience of our business model and the diverse end markets and customer base that supports that. So, on Slide 14, we've provided a summary view of what we've been observing as we enter the second quarter across a snapshot of end markets that we serve.

We've listed 20 end markets here and our current perspective on how they're performing, attempting to use GDP as a reference benchmark based on today's conditions. The reality is that these 20 markets likely have another 20-plus subsegments within them based on the bespoke nature of many of our products. So again, this is just a high-level overview and an attempt to inform investors on how we're looking at our business. We understand that this forecast is inexact and even the reference point of GDP contraction is very imprecise.

However, we hope that this will give you a directional feel for our experience. As you can see on this graphic, as we attempt to align with economic activity, there are no real surprises. We have a mix of demand patterns aligned with what has been deemed essential versus what has been slowed or stopped. We expect the stronger-performing markets will hold their demand, but pricing may feel some pressure moving forward.

We do have examples of strong growth, whether it'd be agricultural Orchex spray oils that are used to protect health and safety of fruit and vegetable crops; Penreco Petrolatums, used in pharmaceuticals and personal care; or our TruFuel products, used in landscape equipment and people have been a home a lot during the pandemic. So there's been good demand there. Our sheltering policies are reduced. We expect varying degrees of recovery patterns.

Some will have fairly quick rebounds. And others will take longer to return to a more normal state of demand. We'll continue to actively monitor this new and evolving landscape across our business and will respond as appropriate. We have a solid baseline of demand from customers that have been deemed essential.

And our position in their supply chain is to provide critical formulations and components necessary for them to continue making products and serving their respective customers. Consequentially, we feel cautiously optimistic about our base level of utilizations across most of our businesses. Turning to Slide 16, where we've outlined our updated outlook for the rest of the year. In our core specialty business, we expect that our performance and growth will generally be in alignment with our end markets.

While we expect to face headwinds in the second quarter, some of this downside volatility will be mitigated by the underlying diversity of our product mix and the wide collection of end markets that we serve. And finally, we will continue to diligently manage the commercial and operational sides of the business with the purpose of maintaining cash-flow-positive throughout the remainder of the year. In our fuels business, we note that our performance will benefit from some of our hedging activity, which has allowed us to lock in WCS differentials at levels that are substantially better than what is currently implied by commodity strip pricing. Notably, the Rockies PADD 4 region continues to be a strong niche refining market with good economics, and we plan to run our Great Falls refinery at high utilization rates.

Finally, at Three Forks, the commercial execution of both the crude supply team and ForEx marketing has given us the flexibility to run the facility at high rates. I'll close our prepared remarks on Slide 17, which gives us a brief look of Calumet's last 100 years. It's a timeline that really illustrates the pedigree we've built in this business over the last century. We have spent the last four to five years getting back to our true roots As a specialty products company, and there's a reason why we've been in this business for such a long time.

Although our markets face an element of uncertainty in the near term, Calumet's business has weathered storms like this in the past and overcome periods in our markets and our economies that were as uncertain as what we face today. We not only have the people, practices, and business in place to weather the global pandemic, but we have 100 years of learning and tribal knowledge under our belt. We will emerge from the other side -- we will emerge on the other side from a position of strength ready to restart our specialty growth. With that, I'd like to turn the call over to the operator to open up the line for Q&A.


Questions & Answers:


[Operator instructions] Your first question comes from the line of Gregg Brody with Bank of America.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Can you hear me OK?

Keith Jennings -- Chief Financial Officer

We hear you. Good morning, Gregg.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Welcome to your first call as CEO. Just a few here for you. You touched on the liquidity. So just the first question, is the PPP loans, is that secured on a first lien basis? When is that? And then I think you said that $250 million is what you're targeting for liquidity.

Do you expect any further adjustments in the borrowing base from here or downwards? Or do you think it's fully marked to the market?

Keith Jennings -- Chief Financial Officer

So, let me answer the first question. The PPP loan is an unsecured loan. So, it's through the Small Business Administration program under the CARES Act. In terms of the borrowing base, I think we are marked to a level that we should not fall significantly below going forward.

And the reason for that is as follows: We move most of our crude supply through the supply and offtake agreement. What's in the borrowing base is primarily finished goods and accounts receivables for the specialty business. And so, as we see that there are still some crude moving through the ABL, but look at where crude is today, I think that structural markdown isn't going to be a big problem for us going forward. So, I think that $70 million, while it hurt, we are moving most of our crude going forward through this plan offtake agreement.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Got it. And you -- if you think about intra-quarter, you -- I think you said you wanted a $250 million of liquidity. Is that the swings in working capital that you see during a month? How are you coming up with that number?

Keith Jennings -- Chief Financial Officer

So, the $250 million is really a measure of cash on hand and available liquidity through the ABL. That's how we measure that number. And so, you know, that number was developed through a lot of good, you know, work back in 2015, 2016 during our, you know, worst times and outlooks. And so that's a stress number.

And I believe that we are in a stress event. So, we are testing that theory, and we are holding. So the way to think of the $250 million in terms of how we -- ensuring we are there is, a, we are holding cash on hand, and we're maintaining about a $100 million that's to make sure that we have full discretion over what needs to be paid and so forth. If you look at the availability under the ABL, we have, you know, a piece of the ABL that is tied to the Great Falls facility, a pledge of about a $100 million.

So that piece is fairly fixed, and that won't fluctuate with crude. And so, the moving components then come down to the finished goods inventory, a little bit of crude we moved through the ABL and the accounts receivable for the specialty products. So, I think that, you know, the $250 million is a good target. We're seeing that it reflects the size of the business we have and the type of business we have.

And we've adjusted how we manage our resources so that we can be in a good stance. And so that's how I think about [Inaudible].

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Got it. And you provided the current markers observation, which was very helpful. I think if you were to try to weighted average that that number which you have there for products, is it your belief that you'll -- where do you fall in sort of relative to GDP in terms of how you think you'll perform this year?

Keith Jennings -- Chief Financial Officer

You know, we tend not to overly try to, you know, say where we will fall, right? I think the power of the slide was to show that we have diverse end markets. The power of this slide is to share with you some of the observations that we are seeing in the demand for our products. We're not -- I can't tell you where we're going to come out, you know, this year. Like most companies, we're fighting what's in front of us.

And so, what you see on that slide primarily is really the demand patterns that we are observing in April and May for our products. And so how those end markets would behave overall is a far more complex thing. And I wouldn't even garner to say how we will perform across the full year.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Maybe -- you would expect to benefit -- are you -- do you expect to benefit from the drop in crude in your margins this quarter? And when you -- how quickly will you adjust your pricing to eliminate that benefit?

Steve Mawer -- Chief Executive Officer

So, I think the drop in crude has delivered good margins in Q1 because it was quick and sharp. And that's -- margin is behaving as expected. I will let Scott address how he is defending our margins in Q2.

Scott Obermeier -- Executive Vice President, Commercial

Thanks, Gregg, for the question. Scott Obermeier here. Just maybe to build on what Keith was touching on. We certainly received some additional margin lift in March as the crude dropped, especially some of our specialty products, a little bit closer to the barrel.

And there's a lag effect, if you will, on some of the prices. Now. the commercial team and the sales team record every day, obviously, to get the full value out of our specialty products, right? And we pay a close attention to the pricing. But just in general, Gregg, we're seeing, you know, some volume fall and we're seeing in Q2 overall pricing fall as well.

But we certainly don't expect to get back all the pricing down to the current crude levels.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

So, I think your number was about $40 per barrel, is getting back to $35 sort of a good way to think about it? Or do you think you're holding some of that?

Keith Jennings -- Chief Financial Officer

I think it depends on the mix, Gregg. We're seeing good, continued volumes in our products that are closer to the branded side. So, you know, engineered fuels, true fuels, those things have been very sticky. And remember that, you know, on our base oils and solvents business, we are backward-integrated to crude.

So different -- so while crude moves, it may affect the margins different for different players in this industry, you know, we may come out differently, so it comes down to the mix. So...

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Got it. I jumped away from the question on liquidity. I believe you have another $50 million of secured capacity that you could raise. Am I incorrect in that assumption? Would you actually consider potentially raising more liquidity?

Keith Jennings -- Chief Financial Officer

So, I think when it comes to liquidity, we think we have ample. We're defending what we have and working well with it. We do have that $50 million of secured capacity under the indentures, and another $50 million under the general liens basket under the indentures, which is probably $100 million. I think we think about that more along the lines of probably a tool to defend against the coming, you know, maturity in 2022.

So, if capital markets do not reopen, we have to think about that going current, the complexities of that, or how we, you know, think to refinance that. So that's an arrow in the quiver that I don't think we need to pull here for liquidity because I think we are running the business operationally well, but we also have to keep some of our, you know, opportunities and levers for other things related to the capital structure.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

OK. I'm going to ask this question only because I did this last time. I'm going to jump back into queue and let other ask questions. The last time I did that, there wasn't someone behind me.

So, should I jump into queue? Or do you say I keep going?

Steve Mawer -- Chief Executive Officer

Gregg, you can go ahead. You can keep going.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Yeah. It's a busy day today, so a lot of earnings. So just on the asset sales, you said, you think, things are progressing there. Can you help us understand those dynamics, like who are the type of buyers? You said the margins are much better in Montana in that market.

Can you just kind of give us some -- following cracks has been very difficult the last couple of weeks, and maybe you can give us a sense of where that is today? And what's driving the better market?

Bruce Fleming -- Executive Vice President of Strategy and Growth

Hi, Gregg. This is Bruce. Yeah, I think that was about three questions, so I'll try to take all of them off. The process is on track.

Nobody's withdrawn. And, you know, what's been interesting to us is as people get in and understand the dynamics of these markets, they get really excited about this asset. PADD 4 is a good market. You can pull the government stats on that.

You can pull state level stats in Montana. And, you know, in Great Falls, we've got an island in the middle of a sea storms under the current market conditions. We ran a record throughput. We ran 27,000 barrels a day in the first quarter.

We're running 28,000 right now as I speak to you, which will be another record. And this demonstrates the value of the position, and the strategic buyers are going to see that value. So, the second part of your question was, where does that come from? The -- I would guide you to the EIA stats. You know, they're pretty useful and you'll see that PADD 4 did not get knocked down as far as the national average is.

And the second thing you'll see, if you look for it, is that that's not a three-to-one [inaudible] spread market. That's -- the market demand is just about balance between diesel and gasoline. And all the headlines are talking about the collapse in gasoline, but you need to take a look at diesel. It didn't fall.

And it didn't fall in the intermountain region. And we've built a diesel machine. It's basically the newest refinery in the country. We built a 30,000-barrel-a-day train there four years ago.

And it's – you know, we make two barrels of diesel for every barrel of gasoline. So PADD 4 is insulated from the national dynamics, and Great Falls is insulated from PADD 4. It's a really compelling story. And then finally, as both Steve and Keith referred to earlier, we've gone ahead and secured that through the end of the year by hedging it.

So, we're super excited about our position out there.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Got it. And then the debts have come down a little bit or have tightened a bit with WCS. What do you -- I would think that would probably continue, but I -- I'm curious what you think about that.

Steve Mawer -- Chief Executive Officer

Well, I'll tell you I've been watching that debt for most of my career. And it's volatile, but it's parked on $17 a barrel trend line, and it doesn't move. It's not going up. It's not going down.

But everybody says it's about to change, and here's all the reasons, and nobody's been right yet. So, you know, we certainly like the Canadian crude position. The other thing to keep in mind is that we're inside any circle of a portion or curtailment, we're the first stop, literally the first stop on the pipeline. So, we don't see any issues with crude supply.

Pricing sorts itself out with some short-term volatility. But as I said, we've hedged that through the end of the year.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

All right, guys. That is it for me. Thank you for your time.

Steve Mawer -- Chief Executive Officer

Thank you.


[Operator instructions] And there are no further questions at this time.

Steve Mawer -- Chief Executive Officer

OK. Thank you. So, this is Steve Mawer again. So, I'd like to close by, again, thanking our employees for the truly impressive job they did in the first quarter.

We all know how much personal uncertainty, family challenges, lifestyle changes, and simple fear we've all had to deal with in these last months. So, for our employees to be able to cope with all that and yet perform their jobs at the highest level is humbling to see. In the first quarter, our safety performance was among our best ever and well below industry averages. If nothing else shows how the team didn't miss a beat and took it to the next level, it's that key data point.

At the same time, as a new full-time member of the team myself, watching this crisis unfold, I was deeply impressed how we responded. Trucks kept running, inventories were managed, plants set new records, and we capitalized on the volatility in the markets. So, if you want to understand the resilience of our business, look no further than our team and what they accomplished in the first quarter. Thank you for your time.


[Operator signoff]

Duration: 46 minutes

Call participants:

Joe Caminiti -- Investor Relations

Steve Mawer -- Chief Executive Officer

Keith Jennings -- Chief Financial Officer

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Scott Obermeier -- Executive Vice President, Commercial

Bruce Fleming -- Executive Vice President of Strategy and Growth

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