Commitments and Contingencies | Commitments and Contingencies From time to time, the Company is a party to certain claims and litigation incidental to its business, including claims made by various taxation and regulatory authorities, such as the Internal Revenue Service, the EPA and the U.S. Occupational Safety and Health Administration (“OSHA”), as well as various state environmental regulatory bodies and state and local departments of revenue, as the result of audits or reviews of the Company’s business. In addition, the Company has property, business interruption, general liability and various other insurance policies that may result in certain losses or expenditures being reimbursed to the Company. Environmental The Company conducts specialty refining, blending and terminal operations and such activities are subject to stringent federal, regional, state and local laws and regulations governing worker health and safety, the discharge of materials into the environment and environmental protection. These laws and regulations impose obligations that are applicable to the Company’s operations, such as requiring the acquisition of permits to conduct regulated activities, restricting the manner in which the Company may release materials into the environment, requiring remedial activities or capital expenditures to mitigate pollution from former or current operations, requiring the application of specific health and safety criteria addressing worker protection and imposing substantial liabilities for pollution resulting from its operations. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations or the incurrence of capital expenditures; the occurrence of delays in the permitting, development or expansion of projects and the issuance of injunctive relief limiting or prohibiting Company activities. Moreover, certain of these laws impose joint and several, strict liability for costs required to remediate and restore sites where petroleum hydrocarbons, wastes or other materials have been released or disposed. In addition, new laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement or other developments, some of which legal requirements are discussed below, could significantly increase the Company’s operational or compliance expenditures. Remediation of subsurface contamination is in process at certain of the Company’s refinery sites and is being overseen by the appropriate state agencies. Based on current investigative and remedial activities, the Company believes that the soil and groundwater contamination at these refineries can be controlled or remediated without having a material adverse effect on the Company’s financial condition. However, such costs are often unpredictable and, therefore, there can be no assurance that the future costs will not become material. Renewable Identification Numbers Obligation The RFS allows small refineries to apply at any time for a Small Refinery Exemption (“SRE”) from the renewable volume blending requirements, and Calumet applied for SREs for 2019 and 2020 compliance years. On January 19, 2021, the Company filed lawsuits against the EPA in federal court in the Western District of Louisiana and in the District of Montana seeking an order that the EPA cannot enforce the RINs compliance deadline until the EPA has taken action on the Company’s hardship exemption applications. Both cases were stayed through June 30, 2022. The Company intends to file a second amended and supplemental complaint in both cases. Subsequent to the Company filing those lawsuits, EPA extended the deadlines for 2019 RFS compliance on several occasions, most recently January 27, 2022. The current deadlines are as follows: Compliance Year Annual Compliance Report Due Date RINs Retirement Due Date Third Party Certification Due Date 2019 September 1, 2022 December 1, 2022 June 1, 2023 2020 December 1, 2022 February 1, 2023 June 1, 2023 2021 March 31, 2023 June 30, 2023 June 1, 2023 2022 Next quarterly reporting deadline after either the effective date of the 2023 standards or June 1, 2023, whichever is later t + 90 days Next June 1 annual attest engagement reporting deadline after the 2022 compliance reporting deadline These deadlines may change through further regulatory action by EPA, including if EPA finalizes the proposed alternate compliance approach for small refineries, described below. In April 2022, EPA issued new decisions denying 36 petitions from small refineries seeking SREs for program year 2018 that had been remanded by the U.S. Court of Appeals for the District of Columbia Circuit to EPA for reconsideration. EPA had previously granted 31 of these 36 petitions in August 2019, including petitions from the Company. Concurrent with the denial action, EPA provided an alternate compliance approach to allow these 31 small refineries to meet their 2018 compliance obligations without purchasing or redeeming additional RFS credits. In April 2022, the Company filed a petition for review of EPA’s denial of the 2018 SRE petition for the Shreveport refinery in the U.S. Court of Appeals for the Fifth Circuit. In June 2022, the Company filed a petition for review of EPA’s denial of the 2018 SRE petition for the Montana refinery in the U.S. Court of Appeals for the Ninth Circuit and filed a petition for review in the U.S. Court of Appeals for the D.C. Circuit challenging both of the EPA’s denials. In June 2022, Growth Energy filed an appeal in the U.S. Court of Appeals for the D.C. Circuit challenging the EPA’s decision to provide the alternate compliance approach to allow the 31 small refineries to meet their 2018 compliance obligations. The Company, along with other small refineries, has intervened in the Growth Energy appeal. In June 2022, EPA issued final decisions denying all other pending petitions from small refineries seeking SREs, including petitions submitted by the Company seeking exemptions for program years 2019 and 2020, based on an across the board determination that no refinery suffers disproportionate hardship from the RFS program. Concurrent with the denial action, EPA proposed an alternate compliance approach for small refineries that, if finalized, would provide the small refineries more time to comply with their 2020 RFS obligations, including any RIN deficits from 2019 that are carried forward to the 2020 compliance year. Public comments on this proposal were due by July 28, 2022. The Company continues to anticipate that RFS compliance may continue to result in a significant expense for the Specialty Products and Solutions and Montana/Renewables segments. If legal or regulatory changes occur that have the effect of increasing the RINs Obligation, increasing the market price of RINs, or eliminating or narrowing the availability of SRE, the Company could be required to purchase additional RINs in the open market, which may materially increase the costs related to RFS compliance and could have a material adverse effect on the results of operations and liquidity. As of June 30, 2022 and December 31, 2021, the Company had a RINs Obligation recorded on the condensed consolidated balance sheets of $392.9 million and $278.9 million, respectively. Please read Note 2 - “Summary of Significant Accounting Policies” for additional information. Occupational Health and Safety The Company is subject to various laws and regulations relating to occupational health and safety, including the federal Occupational Safety and Health Act, as amended, and comparable state laws. These laws and regulations strictly govern the protection of the health and safety of employees. In addition, OSHA’s hazard communication standard, the EPA’s community right-to-know regulations under Title III of the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, and similar state statutes require the Company to maintain information about hazardous materials used or produced in the Company’s operations and provide this information to employees, contractors, state and local government authorities and customers. The Company maintains safety and training programs as part of its ongoing efforts to promote compliance with applicable laws and regulations. The Company conducts periodic audits of process safety management systems at each of its locations subject to this standard. The Company’s compliance with applicable health and safety laws and regulations has required, and continues to require, substantial expenditures. Changes in occupational safety and health laws and regulations or a finding of non-compliance with current laws and regulations could result in additional capital expenditures or operating expenses, as well as civil penalties and, in the event of a serious injury or fatality, criminal charges. Other Matters, Claims and Legal Proceedings The Company is subject to matters, claims and litigation incidental to its business. The Company has recorded accruals with respect to certain of its matters, claims and litigation where appropriate, that are reflected in the unaudited condensed consolidated financial statements but are not individually considered material. For other matters, claims and litigation, the Company has not recorded accruals because it has not yet determined that a loss is probable or because the amount of loss cannot be reasonably estimated. While the ultimate outcome of matters, claims and litigation currently pending cannot be determined, the Company currently does not expect these outcomes, individually or in the aggregate (including matters for which the Company has recorded accruals), to have a material adverse effect on its financial position, results of operations or cash flows. The outcome of any matter, claim or litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on its financial position, results of operations or cash flows. Standby Letters of Credit The Company has agreements with various financial institutions for standby letters of credit, which have been issued primarily to vendors. As of June 30, 2022 and December 31, 2021, the Company had outstanding standby letters of credit of $43.9 million and $32.7 million, respectively, under its senior secured revolving credit facility (the “revolving credit facility”). Please read Note 8 - “Long-Term Debt” for additional information regarding the Company’s revolving credit facility. At June 30, 2022 and December 31, 2021, the maximum amount of letters of credit the Company could issue under its revolving credit facility was subject to borrowing base limitations, with a maximum letter of credit sublimit equal to $255.0 million and $300.0 million, respectively, which may be increased with the consent of the Agent (as defined in the Credit Agreement) to 90% of revolver commitments then in effect ($500.0 million at June 30, 2022 and $600.0 million at December 31, 2021). Throughput Contract Prior to 2020, the Company entered into a long-term agreement to transport crude oil at a minimum of 5,000 bpd through a pipeline, which commenced service in the second quarter of 2020. The agreement also contains a capital recovery charge that increases 2% per annum. This agreement is for seven years. As of June 30, 2022, the estimated minimum unconditional purchase commitments, including the capital recovery charge, under the agreement were as follows (in millions): Year Commitment 2022 $ 2.0 2023 3.9 2024 4.0 2025 4.0 2026 4.0 Thereafter 2.4 Total (1) $ 20.3 (1) As of June 30, 2022, the estimated minimum payments for the unconditional purchase commitments have been accrued and are included in other current liabilities and other long-term liabilities in the condensed consolidated balance sheets. This liability was accrued due to the fact that the contract was entered into to supply crude to a divested facility. |