What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-03-08 · 284 added, 447 removed, 616 unchanged (54% of the section changed)

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— Business—Overview” of this Form 10-K.

Known Trends or Uncertainties

While the market indices presented below under “Item 7.

— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” are representative of the results of our refineries, each refinery’s realized gross margin on a per barrel basis will differ from the benchmark due to a variety of factors that affect the performance of the specific refinery.

These factors include, but are not limited to, the actual type and timing of crude oil throughput;

product yields;

transportation and storage costs;

product premiums or discounts;

inventory fluctuations;

feedstock and product purchases;

commodity price risk-management activities;

crude oil purchase financing activities;

and other factors not reflected in the benchmark refining margin.

We operate in logistically complex, niche markets and, as such, each of our refineries has unique cost advantages and disadvantages as compared to their respective relevant market indices.

Recent Events Affecting Comparability of Periods

COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) declared that the worldwide spread and severity of a new coronavirus, referred to as COVID-19, was severe enough to be characterized as a pandemic.

The spread of COVID-19, in conjunction with related government and other preventative measures taken to mitigate the spread of the virus, have caused severe disruptions in the worldwide economy, including the global demand for crude oil and refined products, the movement of people and goods in the United States, and the global supply chain for industrial and commercial production, all of which have in turn disrupted our businesses and operations.

We continue to actively respond to the impacts that these matters are having on our business.

We decreased throughput rates at our Hawaii and Wyoming refineries in response to reduced refined product demand, idled one of our Hawaii refineries, completed our turnaround in Hawaii later in 2020 than previously planned, and reduced the scope of our Washington turnaround scheduled in the first quarter of 2021.

In addition, we adjusted production of certain refined products to meet the changing local demand profile.

We continue to maintain an ample supply of refined products to meet the refined product needs in the regions in which we operate.

On May 5, 2020, we announced that 29 employees were furloughed in response to the previously announced decline in throughput rates at our refineries in Kapolei, Hawaii, and our President and Chief Executive Officer and the independent members of the Company’s Board of Directors reduced their cash salaries by 75% through October 2020.

In response to sustained decreased demand for refined products in Hawaii, we significantly reduced discretionary spending company-wide and, in early October 2020, we reduced headcount in our refining segment in Hawaii.

In November 2020, we announced that we were taking additional measures to reduce our operating expenses.

These measures include non-renewal of the leases of certain marine assets to more closely align our logistics capability with reduced demand.

As of December 31, 2020, the Par West refinery had been idle for more than nine months due to the reduction in demand resulting from the COVID-19 global pandemic.

Given the length of idle time and the high cost to restart the refinery and no current plans or timeline to do so, we recorded an impairment charge of $17.9 million to write off the corresponding assets and accumulated depreciation for all assets other than land that are not expected to be used as part of our ongoing refining operations in Hawaii.

We have undertaken additional liquidity-enhancing measures, including deferring or delaying certain capital expenditures originally planned for 2020 and early 2021 related to turnaround activities at three of our refineries and, in early June 2020, accessing the capital markets to issue $105 million aggregate principal amount of senior secured notes due 2026.

Interest rates associated with our inventory financing arrangements and borrowings under those inventory financing arrangements have also declined.

In addition, we closed a sale-leaseback transaction on February 23, 2021, in which we sold twenty-one (21) retail convenience store/fuel station properties located in Hawaii (the “Sale-Leaseback Properties”).

The ongoing spread of COVID-19, in conjunction with related government and other preventative measures taken to mitigate the spread of the virus, continued to cause severe disruptions in the worldwide economy in 2021, including the global demand for crude oil and refined products, the movement of people and goods in the United States, and the global supply chain for industrial and commercial production, all of which have in turn disrupted our businesses and operations.

During 2021, vaccine availability and acceptance and easing of government responses to the pandemic such as travel restrictions led to increased travel in the regions in which we operate.

The increase in travel has resulted in higher demand for refined products, an important driver in key aspects of our operations, including sales volumes and the prices of crude oil and refined products.

Full recovery to pre-pandemic levels of global demand remains uncertain, however, as additional variants may emerge that cause a resurgence of COVID-19 and travel restrictions continue to limit international travel.

For more information, please read “Item 1.

— Business — Markets” of this Form 10-K.

We have undertaken additional liquidity-enhancing measures in response to the COVID-19 pandemic, including deferring or delaying certain capital expenditures related to turnaround activities at our Washington refinery.

We closed sale-leaseback transactions (the “Sale-Leaseback Transactions”) in the first quarter of 2021, in which we sold twenty-two (22) retail convenience store/fuel station properties located in Hawaii (the “Sale-Leaseback Properties”) for $112.8 million, net of fees.

We also entered into a lease on the properties for fifteen (15) years, unless earlier terminated, with up to four 5-year renewal options.

We anticipate that during the first quarter there will be a separate closing for one additional property, as provided under the Purchase Agreement.

In total, the 22 properties are being sold for a gross purchase price of $116.1 million.

We believe the steps we have taken have strengthened our ability to operate through current conditions.

We also utilized some of the tax payment deferral opportunities and federal refund acceleration opportunities provided by the IRS, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and various state-specific provisions.

We continue to maintain existing processes and procedures including, but not limited to, processes and procedures around protection of our technology systems and proprietary data, even though a significant number of our employees are working from home.

During this time of uncertainty, the health and wellbeing of our employees and customers are our top priorities as we continue navigating the challenges presented by the COVID-19 pandemic.

The financial results contained in this Annual Report on Form 10-K reflect the reduced activity experienced in the second, third, and fourth quarters of 2020 in the regions in which we operate.

The COVID-19 pandemic is ongoing and the impacts of the virus on people and businesses continue to evolve as of the date of this report.

In Washington, for example, mandatory self-quarantine orders have been lifted and replaced by recommended self-quarantines for travelers arriving from areas of high COVID-19 activity.

Beginning October 15, 2020, U.S.

travelers to the state of Hawaii have an option to take a rapid COVID-19 test as an alternative to a 14-day quarantine if they test negative.

The State of Hawaii has also begun to allow

visitors from Japan to enter the state with a recent negative COVID-19 test, and certain airlines have resumed scheduled flights between Japan and Hawaii.

We continue to actively monitor the impact of the global situation on our people, operations, financial condition, liquidity, suppliers, customers, and industry.

On March 19, 2021, we sold 5.75 million shares of common stock in an underwritten public offering at a public offering price of $16.00 per share resulting in net proceeds to us of approximately $87.2 million, after deducting underwriting discounts and commissions and offering expenses.

We believe the steps we have taken strengthen our ability to operate through current conditions.

The health and well-being of our employees and customers are our top priorities as we continue navigating the challenges presented by the COVID-19 pandemic.

The financial results contained in this Annual Report on Form 10-K reflect the continued impacts on our business of the COVID-19 pandemic experienced during 2021 in the regions in which we operate.

The COVID-19 pandemic is ongoing and we continue to actively monitor the impacts of the virus on our people, operations, financial condition, liquidity, suppliers, customers, and industry.

Due to the rapid development and fluidity of the situation, the full magnitude of the COVID-19 impact on our financial condition, future results of operations, and future cash flows and liquidity is uncertain and has been and may continue to be material.

Washington Acquisition

On January 11, 2019, we completed the Washington Acquisition for total consideration of $326.5 million, including acquired working capital, consisting of cash consideration of $289.5 million and approximately 2.4 million shares of our common stock with a fair value of $37.0 million issued to the seller of U.S.

common stock with a fair value of $37.0 million issued to the seller of U.S.

The results of operations for U.S.

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Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Par West Acquisition

On December 19, 2018, we completed the Par West Acquisition for approximately $66.9 million, net of a $4.3 million receivable related to net working capital adjustments.

The purchase price consisted of $47.6 million in cash and approximately 1.1 million shares of our common stock with a fair value of $19.3 million.

The results of operations of the acquired assets are included in our refining segment commencing December 19, 2018.

In the first quarter of 2020, the Par West refinery was idled due to the reduction in demand resulting from the COVID-19 global pandemic’s effect on the economy.

Please read Note 4—Acquisitions to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Northwest Retail Acquisition

On March 23, 2018, we completed the Northwest Retail Acquisition for cash consideration of approximately $74.5 million.

As part of the Northwest Retail Acquisition, Par and CHS, Inc.

entered into a multi-year branded petroleum marketing agreement for the continued supply of Cenex®-branded refined products to the 33 acquired Cenex® Zip Trip retail outlets.

The results of operations of Northwest Retail are included in our retail segment commencing March 23, 2018.

Please read Note 4—Acquisitions to our consolidated financial statements under Item 8 of this Form 10-K for more information.

A rebranding of those sites to our proprietary “nomnom” brand began in December 2020 and the rebranding of four sites was completed as of December 31, 2020.

As these stores are rebranded, Par will begin self-supplying the fuel with equity barrels and/or unbranded fuels procured in the open market.

Amended and Restated J.

Aron Supply and Offtake Agreements

On June 27, 2018, we and J.

Aron amended the Supply and Offtake Agreements to increase the amount that we may defer under the deferred payment arrangement.

Prior to June 27, 2018, we had the right to defer payments owed to J.

Aron up to the lesser of $125 million or 85% of eligible accounts receivable and inventory.

Effective June 27, 2018, we have the right to defer payments owed to J.

Aron up to the lesser of $165 million or 85% of eligible accounts receivable and inventory.

On December 5, 2018, we amended and restated the Supply and Offtake Agreements to account for additional processing capacity provided through the Par West Acquisition.

Second Amended and Restated J.

Aron Supply and Offtake Agreement

Prior to July 1, 2021, under the first amended and restated supply and offtake agreement we had the right to defer payments owed to J.

Aron under a deferred payment arrangement up to the lesser of $165 million or 85% of eligible accounts receivable and inventory.

On June 1, 2021, we entered into the Second Amended and Restated Supply and Offtake Agreement (the “Supply and Offtake Agreement”), which provided for a discretionary draw facility to be available to PHR (the “Discretionary Draw Facility”) commencing as of July 1, 2021.

Under the Discretionary Draw Facility, J.

Aron agreed to make advances to PHR in an aggregate principal amount at any one time outstanding not to exceed the lesser of $165 million or the sum of the borrowing base, which is calculated as (x) 85% of the eligible accounts receivables, plus (y) the lesser of $82.5 million and 85% of eligible hydrocarbon inventory, minus (z) such reserves as established by J.

Aron in respect of eligible receivables and eligible hydrocarbon inventory.

Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Other Factors Affecting Comparability of Prior Periods

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) , as amended by other ASUs issued through February 2019 (“ASU 2016-02” or “ASC 842”), using the modified retrospective transition method.

Under this optional transition method, information presented prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period.

Results of Operations

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Our financial results for the year ended December 31, 2021 improved from a net loss of $409.1 million for the year ended December 31, 2020 to a net loss of $81.3 million for the year ended December 31, 2021.

The improvement was primarily driven by favorable refined product sales pricing and feedstock costs at our Hawaii refinery, partially offset by higher inventory financing costs at our Washington refinery related to rising inventory financing and product costs.

Other factors impacting our results period over period include a 2021 gain on sale of assets of $63.9 million primarily related to the Sale-Leaseback Transactions we closed in the first quarter of 2021, asset impairment charges of $1.8 million in 2021 as compared to our 2020 goodwill impairment of $67.9 million and asset impairment charges of $17.9 million, and an other-than-temporary impairment of $45.3 million related to our equity investment in Laramie Energy in 2020.

Adjusted EBITDA and Adjusted Net Loss.

For the year ended December 31, 2021, Adjusted EBITDA was $61.5 million compared to a loss of $86.7 million for the year ended December 31, 2020.

The improvement was primarily related to favorable realized refined product crack spreads at all our refineries, favorable feedstock, purchased product and derivative costs at our Hawaii refinery, and higher refined product sales volumes at our Wyoming refinery, partially offset by unfavorable inventory financing and environmental compliance costs and higher operating expenses.

For the year ended December 31, 2021, Adjusted Net Loss was $100.3 million compared to $249.8 million for the year ended December 31, 2020.

The change was primarily related to the same factors described above for the increase in Adjusted EBITDA.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net Income (Loss).

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For the year ended December 31, 2020, Adjusted EBITDA was a loss of $86.7 million compared to earnings of $258.8 million for the year ended December 31, 2019.

The change was primarily related to lower refining sales volumes and unfavorable crack spreads related to COVID-19 demand destruction, partially offset by lower operating expense and higher retail fuel margins.

The change was primarily

related to lower refining sales volumes and unfavorable crack spreads related to COVID-19 demand destruction, partially offset by lower operating expense and higher retail fuel margins.

For the year ended December 31, 2020, Adjusted Net Income (Loss) was a loss of $249.8 million compared to income of $90.2 million for the year ended December 31, 2019.

The change was primarily related to the same factors described above for the decrease in Adjusted EBITDA and higher depreciation, depletion, and amortization (“DD&A”) due to recently completed capital projects, including turnaround projects, partially offset by a $4.6 million decrease in interest expense and financing costs and a $5.8 million decrease in our Equity losses from Laramie Energy, excluding our share of unrealized gains or losses on derivatives and excluding impairment changes associated with our investment in Laramie Energy.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Our net income increased from $39.4 million for the year ended December 31, 2018 to $40.8 million for the year ended December 31, 2019.

The increase in our net income was primarily driven by the impact of the Washington Acquisition and a $69.7 million income tax benefit primarily associated with a partial release of our valuation allowance in connection with the Washington Acquisition.

These increases were partially offset by non-cash impairment charges of $83.2 million related to our equity investment in Laramie Energy and our share of Laramie Energy’s asset impairment losses in excess of our basis difference and higher interest expense due primarily to increases in our outstanding indebtedness.

Other factors impacting our results period over period include higher debt extinguishment and commitment costs associated with the Washington Acquisition and exchange of a portion of our outstanding 5.00% Convertible Senior Notes, partially offset by a $10.5 million charge related to the Tesoro earn-out settlement in 2018 that did not recur in 2019.

Adjusted EBITDA and Adjusted Net Income.

For the year ended December 31, 2019, Adjusted EBITDA was $258.8 million compared to $132.1 million for the year ended December 31, 2018.

The change was primarily related to contributions provided by the Washington Acquisition, increased sales volumes at our Hawaii refineries, increased sales volume and favorable crude oil differentials and feedstock costs at our Wyoming refinery, and improved fuel margins in our Retail operations.

These increases were partially offset by higher feedstock costs and unplanned maintenance at our Hawaii refineries.

For the year ended December 31, 2019, Adjusted Net Income was approximately $90.2 million compared to income of $49.3 million for the year ended December 31, 2018.

The change was primarily related to the same factors described above for the increase in Adjusted EBITDA as well as a $19.2 million decrease in our Equity earnings from Laramie Energy, excluding our share of unrealized gains or losses on derivatives and excluding impairment changes associated with our investment in Laramie Energy, an increase in DD&A primarily associated with assets acquired in connection with the Washington Acquisition, and increased interest expense and financing costs primarily related to the new Term Loan B Facility, the Washington Refinery Intermediation Agreement, and the Retail Property Term Loan.

These increases were partially offset by a decrease in interest expense and financing costs due to the exchange of a portion of our outstanding 5.00% Convertible Senior Notes during 2019.

The following table summarizes our consolidated results of operations for the years ended December 31, 2021, 2020, and 2019 (in thousands).

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Impairment expense 1,838 85,806 —

Gain on sale of assets, net (64,697) — —

General and administrative expense (excluding depreciation) 48,096 41,288 46,223

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Debt extinguishment and commitment costs (8,144) — (11,587)

Other income, net 1,049 2,516 1,046

Gain on curtailment of pension obligation 2,032 — —

Other income (expense), net (52) 1,049 2,516

Change in value of common stock warrants — 4,270 (3,199)

Change in value of contingent consideration — — (10,500)

Equity earnings (losses) from Laramie Energy, LLC — (46,905) (89,751)

Total other expense, net (72,657) (111,808) (176,860)

Income (loss) before income taxes (429,806) (28,880) 39,760

Loss before income taxes (80,276) (429,806) (28,880)

Income tax benefit (expense) (1,021) 20,720 69,689

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Impairment expense 1,838 — — — 1,838

Loss (gain) on sale of assets, net (19,659) (19) (45,034) 15 (64,697)

General and administrative expense (excluding depreciation) — — — 48,096 48,096

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Depreciation, depletion, and amortization 53,930 21,899 10,692 3,515 90,036

Impairment expense 55,989 — 29,817 — 85,806

General and administrative expense (excluding depreciation) — — — 41,288 41,288

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DD&A per bbl ($/throughput bbl) 2.86 4.34 2.93

Market Indices ($ per barrel)

Market Indices (average $ per barrel)

3-1-2 Singapore Crack Spread (4) $ 6.22 $ 3.15 $ 10.80

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Wyoming 3-2-1 Index (6) 29.00 17.80 24.90

Crude Oil Prices ($ per barrel)

Crude Oil Prices (average $ per barrel)

Brent $ 70.95 $ 43.21 $ 64.19

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The amounts for the total refining segment represent the sum of the Hawaii, Washington, and Wyoming refineries’ throughput or sales volumes averaged over the years ended December 31, 2021, 2020, and 2019.

(2) Feedstocks throughput and sales volumes per day for each of the Hawaii refineries for the year ended December 31, 2018 are calculated based on the 365-day period we owned the Par East refinery and the 13-day period for which we owned the Par West refinery.

The amounts for the combined Hawaii refineries for the years ended December 31, 2020, 2019, and 2018 represent the sum of the Par East and Par West refineries’ throughput averaged over the respective years.

(2) We calculate Adjusted Gross Margin per barrel by dividing Adjusted Gross Margin by total refining throughput.

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Our production costs are included in Operating expense (excluding depreciation) on our consolidated statement of operations, which also includes costs related to our bulk marketing operations.

(5) After completing the acquisition of Par West in December 2018, we began shifting our Hawaii production profile to supply the local utilities with low sulfur fuel oil and significantly reduced our high sulfur fuel oil yield.

(4) In 2020, following the implementation of IMO 2020, we established the 3-1-2 Singapore Crack Spread (or three barrels of Brent crude oil converted into one barrel of gasoline and two barrels of distillates (diesel and jet fuel)) as a new benchmark for our Hawaii operations.

By removing the high sulfur fuel oil reference in the index, we believe the 3-1-2 Singapore Crack Spread is the most representative market indicator for our current operations in Hawaii.

By removing the high sulfur fuel oil reference in the index, we believe the 3-1-2 Singapore Crack Spread is the most representative market indicator for our operations in Hawaii.

(5) We believe the Pacific Northwest 5-2-2-1 Index is the most representative market indicator for our operations in Tacoma, Washington.

The Pacific Northwest 5-2-2-1 Index is computed by taking two parts gasoline (sub-octane), two parts middle distillates (ULSD and jet fuel), and one part fuel oil as created from five barrels of Alaskan North Slope (“ANS”) crude oil.

The Pacific Northwest 5-2-2-1 Index is computed by taking two parts gasoline (sub-octane), two parts middle distillates (ultra-low sulfur diesel (“ULSD”) and jet fuel), and one part fuel oil as created from five barrels of Alaskan North Slope (“ANS”) crude oil.

The 2019 prices for the year ended December 31, 2019 represent the price averaged over the period from January 11, 2019 to December 31, 2019.

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Retail sales volumes (thousands of gallons) 109,150 102,798 125,313

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(1) Retail sales volumes for the year ended December 31, 2018, include 284 days of retail sales volumes from Northwest Retail since its acquisition on March 23, 2018.

The 2020 and 2019 amounts represents the sum of the Hawaii and Northwest Retail sales volumes for the years ended December 31, 2020 and 2019.

Non-GAAP Performance Measures

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Adjusted Gross Margin.

Adjusted Gross Margin is defined as (i) operating income (loss) plus operating expense (excluding depreciation), impairment expense, inventory valuation adjustment (which adjusts for timing differences to reflect the economics of our inventory financing agreements, including lower of cost or net realizable value adjustments, the impact of the embedded derivative repurchase or terminal obligations, and purchase price allocation adjustments), depreciation, depletion, and amortization (“DD&A”);

Renewable Identification Numbers (“RINs”) loss (gain) in excess of net obligation (which represents the income statement effect of reflecting our RINs liability on a net basis), and unrealized loss (gain) on derivatives or (ii) revenues less cost of revenues (excluding depreciation) plus inventory valuation adjustment, unrealized loss (gain) on derivatives, and RINs loss (gain) in excess of net obligation.

Adjusted Gross Margin is defined as (i) operating income (loss) adjusted for operating expense (excluding depreciation);

depreciation, depletion, and amortization (“DD&A”);

impairment expense;

loss (gain) on sale of assets, net;

inventory valuation adjustment (which adjusts for timing differences to reflect the economics of our inventory financing agreements, including lower of cost or net realizable value adjustments, the impact of the embedded derivative repurchase or terminal obligations, contango (gains) and backwardation losses associated with our Washington inventory and intermediation obligation, and purchase price allocation adjustments);

LIFO layer liquidation impacts associated with our Washington inventory;

Renewable Identification Numbers (“RINs”) loss (gain) in excess of net obligation (which represents the income statement effect of reflecting our RINs liability on a net basis);

and unrealized loss (gain) on derivatives or (ii) revenues less cost of revenues (excluding depreciation) plus inventory valuation adjustment, unrealized loss (gain) on derivatives, LIFO layer liquidation impacts associated with our Washington inventory, and RINs loss (gain) in excess of net obligation.

We define cost of revenues (excluding depreciation) as the hydrocarbon-related costs of inventory sold, transportation costs of delivering product to customers, crude oil consumed in the refining process, costs to satisfy our RINs and environmental credit obligations, and certain hydrocarbon fees and taxes.

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We have recast the non-GAAP information for the year ended December 31, 2019 to conform to the current period presentation.

Management believes Adjusted Gross Margin is an important measure of operating performance and uses Adjusted Gross Margin per barrel to evaluate operating performance and compare profitability to other companies in the industry and to

industry benchmarks.

Management believes Adjusted Gross Margin provides useful information to investors because it eliminates the gross impact of volatile commodity prices and adjusts for certain non-cash items and timing differences created by our inventory financing agreements and lower of cost and net realizable value adjustments to demonstrate the earnings potential of the business before other fixed and variable costs, which are reported separately in Operating expense (excluding depreciation) and Depreciation, depletion, and amortization.

Adjusted Gross Margin should not be considered an alternative to operating income (loss), cash flows from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP.

Adjusted Gross Margin presented by other companies may not be comparable to our presentation since each company may define this term differently as they may include other manufacturing costs and depreciation expense in cost of revenues.

Adjusted Gross

Margin presented by other companies may not be comparable to our presentation since each company may define this term differently as they may include other manufacturing costs and depreciation expense in cost of revenues.

The following tables present a reconciliation of Adjusted Gross Margin to the most directly comparable GAAP financial measure, operating income (loss), on a historical basis, for selected segments, for the periods indicated (in thousands):

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Impairment expense 1,838 — —

Loss (gain) on sale of assets, net (19,659) (19) (45,034)

Inventory valuation adjustment 17,089 — —

RINs loss in excess of net obligation 16,967 — —

Unrealized gain on derivatives (4,804) — —

Unrealized loss on derivatives 1,517 — —

Adjusted Gross Margin (1) $ 200,313 $ 87,906 $ 118,940

Year ended December 31, 2020 Refining Logistics Retail

Operating income $ 93,781 $ 59,075 $ 49,245

Operating income (loss) $ (331,826) $ 35,044 $ 24,211

Operating expense (excluding depreciation) 199,738 13,581 64,108

Depreciation, depletion, and amortization 53,930 21,899 10,692

Impairment expense 55,989 — 29,817

Inventory valuation adjustment 14,046 — —

RINs gain in excess of net obligation (3,398) — —

Unrealized loss on derivatives 8,988 — —

RINs loss in excess of net obligation 44,071 — —

Unrealized gain on derivatives (4,804) — —

Adjusted Gross Margin (1) $ 31,144 $ 70,524 $ 128,828

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Inventory valuation adjustment 11,938 — —

RINs loss in excess of net obligation 4,544 — —

Unrealized gain on derivatives (1,497) — —

RINs gain in excess of net obligation (3,398) — —

Unrealized loss on derivatives 8,988 — —

Adjusted Gross Margin (1) $ 401,723 $ 87,102 $ 126,587

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(1) For the years ended December 31, 2021, 2020 and 2019, there was no LIFO liquidation adjustment.

For the years ended December 31, 2019 and 2018, there was no impairment expense.

For the years ended December 31, 2020 and 2019, there was no loss (gain) on sale of assets.

For the year ended December 31, 2019, there was no impairment expense.

Adjusted Net Income (Loss) and Adjusted EBITDA.

Adjusted Net Income (Loss) is defined as Net income (loss) excluding changes in the value of contingent consideration and common stock warrants, acquisition and integration costs, unrealized (gain) loss on derivatives, debt extinguishment and commitment costs, increase in (release of) tax valuation allowance and other deferred tax items, inventory valuation adjustment, severance costs, impairment expense, (gain) loss on sale of assets, Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives, RINs loss (gain) in excess of net obligation, and impairment expense associated with our investment in Laramie Energy and our share of Laramie Energy’s asset impairment losses in excess of our basis difference.

Beginning in 2020, Adjusted Net Income (Loss) also includes the contango

gains and backwardation losses associated with our Washington inventory and intermediation obligation.

Adjusted Net Income (Loss) is defined as Net income (loss) excluding inventory valuation adjustment (which adjusts for timing differences to reflect the economics of our inventory financing agreements, including lower of cost or net realizable value adjustments, the impact of the embedded derivative repurchase or terminal obligations, contango (gains) and backwardation losses associated with our Washington inventory and intermediation obligation, and purchase price allocation adjustments), the LIFO layer liquidation impacts associated with our Washington inventory, RINs loss (gain) in excess of net obligation, unrealized (gain) loss on derivatives, acquisition and integration costs, debt extinguishment and commitment costs, increase in (release of) tax valuation allowance and other deferred tax items, changes in the value of contingent consideration and common stock warrants, severance costs, (gain) loss on sale of assets, impairment expense, impairment expense associated with our investment in Laramie Energy and our share of Laramie Energy’s asset impairment losses in excess of our basis difference, and Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives.

Beginning in 2020, Adjusted Net Income (Loss) also includes the contango gains and backwardation

losses associated with our Washington inventory and intermediation obligation.

Prior to 2020, contango gains, and backwardation (losses) captured by our Washington intermediation agreement were excluded from Adjusted Net Income (Loss) (as part of the inventory valuation adjustment).

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We have recast the non-GAAP information for the year ended December 31, 2019 to conform to the current period presentation.

Adjusted EBITDA is Adjusted Net Income (Loss) excluding interest expense and financing costs, income taxes, DD&A, and equity losses (earnings) from Laramie Energy, excluding Par’s share of unrealized loss (gain) on derivatives, impairment of Par’s investment, and our share of Laramie Energy’s asset impairment losses in excess of our basis difference.

Adjusted EBITDA is Adjusted Net Income (Loss) excluding DD&A, interest expense and financing costs, equity losses (earnings) from Laramie Energy excluding Par’s share of unrealized loss (gain) on derivatives, impairment of Par’s investment, and our share of Laramie Energy’s asset impairment losses in excess of our basis difference, and income tax expense (benefit).

We believe Adjusted Net Income (Loss) and Adjusted EBITDA are useful supplemental financial measures that allow investors to assess:

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Change in value of common stock warrants — (4,270) 3,199

Change in value of contingent consideration — — 10,500

Severance costs 84 512 —

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Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives (2) — (1,110) (1,969)

Gain on sale of assets (64,697) — —

Adjusted Net Income (Loss) (3) (100,268) (249,823) 90,218

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________________________________________________________

(1) Includes increases in (releases of) our valuation allowance associated with business combinations and changes in deferred tax assets and liabilities that are not offset by a change in the valuation allowance.

These tax expenses (benefits) are included in Income tax expense (benefit) on our consolidated statements of operations.

(1) Includes releases of our valuation allowance associated with business combinations and changes in deferred tax assets and liabilities that are not offset by a change in the valuation allowance.

These tax benefits are included in Income tax expense (benefit) on our consolidated statements of operations.

(2) Includes our share of Laramie Energy’s unrealized loss (gain) on derivatives, impairment losses on our investment in Laramie Energy, and our share of Laramie Energy’s asset impairment losses in excess of our basis difference.

These impairment losses and our share of Laramie Energy’s unrealized loss (gain) on derivatives are included in Equity earnings (losses) from Laramie Energy, LLC on our consolidated statements of operations.

(3) For the years ended December 31, 2020, 2019, and 2018, there was no (gain) loss on sale of assets or LIFO liquidation adjustment.

(3) For the years ended December 31, 2021, 2020, and 2019, there was no LIFO liquidation adjustment or change in value of contingent consideration.

Discussion of Operating Income (Loss) by Segment

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Operating loss for our refining segment was $88.8 million for the year ended December 31, 2021, an improvement of $243.0 million compared to operating loss of $331.8 million for the year ended December 31, 2020.

The increase in profitability was primarily driven by favorable realized product crack spreads across all our refineries, favorable purchased product and feedstock costs at our Hawaii refinery, favorable derivative costs, and a 28% increase in refining sales volume at our Wyoming refinery, partially offset by higher inventory financing costs related to the rising cost of crude oil.

Other factors impacting our results period over period include asset impairment charges of $1.8 million in 2021 from discontinued capital projects as compared to our 2020 goodwill impairment of $38.1 million and asset impairment charges of $17.9 million, and a 2021 gain on sale of assets of $19.7 million primarily related to the Sale-Leaseback Transactions we closed in the first quarter of 2021.

Operating income for our logistics segment was $51.2 million for the year ended December 31, 2021, an increase of $16.2 million compared to operating income of $35.0 million for the year ended December 31, 2020.

The increase is

primarily due to net 12% and 32% higher throughput across our Hawaii and Wyoming logistics assets, respectively, related to increased demand as a result of reduced COVID-19-related travel restrictions and lower lease costs on barges in Hawaii.

Operating income for our retail segment was $81.2 million for the year ended December 31, 2021, an increase of $57.0 million compared to operating income of $24.2 million for the year ended December 31, 2020.

The increase in profitability was primarily due to a gain on sale of assets of $45.0 million primarily related to the Sale-Leaseback Transactions we closed in the first quarter of 2021, a 2020 goodwill impairment of $29.8 million with no corresponding impairment in 2021, and an increase in sales volumes of 6%, partially offset by a decrease in fuel margins of 17% related to rising fuel costs and market-driven margin compression and additional rent expense related to the Sale-Leaseback Transactions that we closed in the first quarter of 2021.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Operating loss for our refining segment was $331.8 million for the year ended December 31, 2020, a decrease of $425.6 million compared to operating income of $93.8 million for the year ended December 31, 2019.

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Operating income for our logistics segment was $35.0 million for the year ended December 31, 2020, a decrease of $24.1 million compared to operating income of $59.1 million for the year ended December 31, 2019.

The decrease is primarily due to a net 30% and 25% lower throughput across our Hawaii and Wyoming logistics assets, respectively, and

lower neighbor island sales in Hawaii related to COVID-19 demand destruction, major turnarounds in both locations, and higher DD&A, partially offset by a net 9% increase in throughput across our Washington logistics assets.

The decrease is primarily due to a net 30% and 25% lower throughput across our Hawaii and Wyoming logistics assets, respectively, and lower neighbor island sales in Hawaii related to COVID-19 demand destruction, major turnarounds in both locations, and higher DD&A, partially offset by a net 9% increase in throughput across our Washington logistics assets.

Operating income for our retail segment was $24.2 million for the year ended December 31, 2020, a decrease of $25.0 million compared to operating income of $49.2 million for the year ended December 31, 2019.

The decrease in profitability was primarily due to goodwill impairment charges of $29.8 million and an 18% decline in sales volumes, partially offset by an increase in fuel margins of 25% and operating expense reductions in response to the economic impacts of COVID-19 on our businesses.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Operating income for our refining segment was $93.8 million for the year ended December 31, 2019, an increase of $20.5 million compared to operating income of $73.3 million for the year ended December 31, 2018.

The increase in profitability was primarily driven by the contribution of the Washington Acquisition and favorable crude oil differentials and feedstock costs at our Wyoming refinery.

The Washington refinery assets contributed operating income of approximately $53.3 million to the refining segment for the period from January 11, 2019 to December 31, 2019.

The Wyoming 3-2-1 Index increased 10% from $22.69 per barrel for the year ended December 31, 2018 to $24.90 per barrel for the year ended December 31, 2019.

These contributions were partially offset by unfavorable crude oil differentials, unplanned maintenance, and an increase in feedstock costs at our Hawaii refineries.

The unplanned maintenance in Hawaii resulted in an increase of $2.6 million in operating expenses and approximately 11 lost throughput days within certain units at our Par East Hawaii refinery.

Operating income for our logistics segment was $59.1 million for the year ended December 31, 2019, an increase of $25.7 million compared to operating income of $33.4 million for the year ended December 31, 2018.

The increase was primarily due to a contribution of $18.8 million from the logistics assets acquired in connection with the Washington Acquisition for the period from January 11, 2019 to December 31, 2019 and additional on-island sales through our logistics network.

Operating income for our retail segment was $49.2 million for the year ended December 31, 2019, an increase of $12.0 million compared to operating income of $37.2 million for the year ended December 31, 2018.

The increase in profitability was primarily due to an increase in fuel margins of 10% and an increase in sales volumes of 7%.

Discussion of Adjusted Gross Margin by Segment

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

For the year ended December 31, 2021, our refining Adjusted Gross Margin was approximately $200.3 million, an increase of $169.2 million compared to $31.1 million for the year ended December 31, 2020.

The increase in profitability was primarily driven by favorable realized product crack spreads across all our refineries and favorable feedstock and purchased product costs in Hawaii, partially offset by unfavorable feedstock and inventory financing costs in Washington.

Adjusted gross margin for the Hawaii refinery improved from $(1.63) per barrel in 2020 to $3.24 per barrel in 2021 primarily due to favorable product crack spreads and feedstock, purchased product, and derivative costs.

Adjusted gross margin for the Wyoming refinery increased by $8.72 per barrel primarily due to favorable product crack spreads and a 28% increase in sales volumes.

Adjusted gross margin for the Washington refinery decreased by $1.92 per barrel primarily due to higher inventory financing and feedstock costs, partially offset by favorable realized product crack spreads and lower logistics costs.

For the year ended December 31, 2021, our logistics Adjusted Gross Margin was approximately $87.9 million, an increase of $17.4 million compared to $70.5 million for the year ended December 31, 2020.

The increase was primarily driven by net 12% and 32% higher throughput across our Hawaii and Wyoming logistics assets, respectively, due to increased sales volumes in both regions driven by reduced COVID-19-related travel restrictions, and lower lease costs on barges in Hawaii.

For the year ended December 31, 2021, our retail Adjusted Gross Margin was approximately $118.9 million, a decrease of $9.9 million compared to $128.8 million for the year ended December 31, 2020.

The decrease was primarily due to a 17% decrease in fuel margins due to rising fuel costs and market-driven margin compression, partially offset by a 6% increase in sales volumes.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For the year ended December 31, 2020, our refining Adjusted Gross Margin was approximately $31.1 million, a decrease of $370.6 million compared to $401.7 million for the year ended December 31, 2019.

The decrease in profitability was primarily driven by a 23% decline in sales volumes and declines in crack spreads.

Adjusted gross margin for the Hawaii refineries decreased from $3.30 per barrel in 2019 to $(1.63) per barrel in 2020 primarily due to 30% lower sales volumes, an increase in RINs expenses, and unfavorable crude oil differentials.

Adjusted gross margin for the Hawaii refinery decreased from $3.30 per barrel in 2019 to $(1.63) per barrel in 2020 primarily due to 30% lower sales volumes, an increase in RINs expenses, and unfavorable crude oil differentials.

Adjusted gross margin for the Wyoming refinery decreased $14.88 per barrel primarily due to a 24% decline in sales volumes, an increase in RINs expenses, and a decrease in crack spreads.

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The increase was primarily due to a 25% increase in fuel margins, partially offset by a decline in sales volumes of 18% due to COVID-19 demand destruction.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

For the year ended December 31, 2019, our refining Adjusted Gross Margin was approximately $401.7 million, an increase of $163.5 million compared to $238.2 million for the year ended December 31, 2018.

The increase in

profitability was primarily driven by the Washington refinery, which contributed Adjusted Gross Margin of $155.5 million to the refining segment for the period from January 11, 2019 to December 31, 2019.

Other factors included increased sales volumes and favorable crude oil differentials and feedstock costs at our Wyoming refinery.

The Wyoming 3-2-1 Index increased 10% from $22.69 per barrel for the year ended December 31, 2018 to $24.90 per barrel for the year ended December 31, 2019.

These increases were partially offset by higher feedstock costs at our Hawaii refineries and unplanned maintenance at our Par East Hawaii refinery that resulted in approximately 11 lost throughput days within certain units.

For the year ended December 31, 2019, our logistics Adjusted Gross Margin was approximately $87.1 million, an increase of $39.1 million compared to $48.0 million for the year ended December 31, 2018.

The increase was primarily driven by the contribution of the Washington assets and higher throughput in Hawaii due to the additional on-island sales through our logistics network.

The Washington assets contributed Adjusted Gross Margin of $28.1 million to the logistics segment for the period from January 11, 2019 to December 31, 2019.

For the year ended December 31, 2019, our retail Adjusted Gross Margin was approximately $126.6 million, an increase of $19.2 million compared to $107.4 million for the year ended December 31, 2018.

The increase was primarily due to a 10% increase in fuel margins and higher sales volumes of 7%.

Discussion of Consolidated Results

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

For the year ended December 31, 2021, revenues were $4.7 billion, a $1.6 billion increase compared to $3.1 billion for the year ended December 31, 2020.

The increase was primarily the result of an increase of $1.5 billion in third-party revenues at our refining segment primarily as a result of increases in Brent and WTI crude oil prices.

Brent crude oil prices recovered from COVID-19-related lows, averaging $70.95 per barrel for the year ended December 31, 2021 compared to $43.21 per barrel for the year ended December 31, 2020, and WTI crude oil prices averaged $68.11 per barrel during the year ended December 31, 2021 compared to $39.65 in the year ended December 31, 2020.

Other factors contributing to the increase in revenues at our refining segment include a 28% increase in refining sales volume at our Wyoming refinery and improved realized product crack spreads across all our refineries.

Revenues in our retail segment increased $92.7 million primarily due to a 23% increase in fuel prices and a 6% increase in sales volume.

Cost of Revenues (Excluding Depreciation).

For the year ended December 31, 2021, cost of revenues (excluding depreciation) was $4.3 billion, a $1.4 billion increase compared to $2.9 billion for the year ended December 31, 2020.

The increase was primarily due to increases in Brent and WTI crude oil prices and refining sales volumes at our Wyoming refinery as discussed above, higher inventory financing costs, and 6% higher sales volumes at our Retail segment, partially offset by favorable purchased product and feedstock costs at our Hawaii refinery and favorable derivative costs.

Operating Expense (Excluding Depreciation).

For the year ended December 31, 2021, operating expense (excluding depreciation) was approximately $299.7 million, an increase of $22.3 million compared to $277.4 million for the year ended December 31, 2020.

The increase was primarily due to higher utilities and maintenance expenses at our Hawaii refinery and increased rent expenses driven by new leases from the Sale-Leaseback Transactions we completed in the first quarter of 2021.

Depreciation, Depletion, and Amortization .

For the year ended December 31, 2021, DD&A expense was approximately $94.2 million, an increase of $4.2 million compared to $90.0 million for the year ended December 31, 2020.

The increase was primarily due to amortization of our Hawaii refinery turnaround completed in 2020.

Impairment Expense.

During the year ended December 31, 2021, we recorded asset impairment charges of $1.8 million primarily related to discontinued capital projects.

During the year ended December 31, 2020, we recorded goodwill and asset impairment charges totaling $85.8 million related to our Refining and Retail segments.

Please read Note 10—Goodwill and Intangible Assets and Note 8—Property, Plant, and Equipment and Impairment of Long-Lived Assets to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on our 2020 goodwill impairment and our 2021 and 2020 asset impairment charges, respectively.

Gain on Sale of Assets, Net.

For the year ended December 31, 2021, the gain on sale of assets, net was approximately $64.7 million and primarily related to the gain recognized as a result of the Sale-Leaseback Transactions we closed on

February 23 and March 12, 2021.

Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on the Sale-Leaseback Transactions.

No such transaction occurred during the year ended December 31, 2020.

General and Administrative Expense (Excluding Depreciation).

For the year ended December 31, 2021, general and administrative expense (excluding depreciation) was approximately $48.1 million, an increase of $6.8 million compared to $41.3 million for the year ended December 31, 2020.

The increase was primarily due to higher employee costs, an increase in the use of outside services, and higher information technology infrastructure costs.

Interest Expense and Financing Costs, Net .

For the year ended December 31, 2021, our interest expense and financing costs were approximately $66.5 million, a decrease of $3.7 million compared to $70.2 million for the year ended December 31, 2020.

The decrease was primarily due to lower outstanding debt balances driven by the maturity of our outstanding 5.00% Convertible Senior Notes in June 2021, the repayment of the PHL, Mid Pac, and Retail Property Term Loans and interest rate swap related to the Retail Property Term Loan in the first quarter of 2021, and quarterly principal payments on our Term Loan B Facility.

These decreases were partially offset by higher interest expense related to the 12.875% Senior Secured Notes issued in June 2020 and an increase of $1.1 million related to increased borrowings under our inventory financing agreements.

Please read Note 11—Inventory Financing Agreements and Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on our inventory financing and indebtedness, respectively.

Change in Value of Common Stock Warrants .

For the year ended December 31, 2020, the change in value of common stock warrants resulted in a gain of $4.3 million.

During January and March 2020, one of our stockholders and its affiliates exercised the remaining 354,350 common stock warrants in exchange for 350,542 shares of common stock.

We estimated the fair value of our outstanding common stock warrants and the income recognized upon exercise using the difference between the strike price of the warrant and the market price of our common stock.

During the three months ended March 31, 2020, our stock price decreased from $23.24 per share on December 31, 2019 to $7.10 per share on March 31, 2020.

During the year ended December 31, 2021, there were no common stock warrants outstanding.

Debt extinguishment and commitment costs.

For the year ended December 31, 2021, our debt extinguishment and commitment costs were approximately $8.1 million and primarily represent $6.6 million in extinguishment costs associated with the early repayment of a portion of the outstanding 12.875% Senior Secured Notes on June 14, 2021 and $1.4 million in extinguishment costs associated with the early repayment of the Retail Property Term Loan on February 23, 2021.

Please read Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion.

There were no debt extinguishment and commitment costs for the year ended December 31, 2020.

Gain on curtailment of pension obligation.

During the year ended December 31, 2021, we recorded a gain on curtailment of pension obligation of $2.0 million related to the amendment to the Wyoming Refining defined benefit plan.

Please read Note 19—Benefit Plans to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on the gain on curtailment of pension obligation.

There was no gain on curtailment of pension obligation for the year ended December 31, 2020.

Equity Earnings (Losses) from Laramie Energy, LLC .

For the year ended December 31, 2020, equity losses from Laramie Energy were approximately $46.9 million.

During the year ended December 31, 2020, we recorded an other-than-temporary impairment charge of $45.3 million related to our investment in Laramie Energy.

As of June 30, 2020, we discontinued the application of the equity method of accounting for our investment in Laramie Energy because the book value of such investment has been reduced to zero.

As such, there were no earnings or losses from Laramie Energy recorded during the year ended December 31, 2021.

Please read Note 3—Investment in Laramie Energy, LLC to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Income Taxes.

For the year ended December 31, 2021, we recorded an income tax expense of $1.0 million primarily driven by foreign withholding taxes.

For the year ended December 31, 2020, we recorded an income tax benefit of $20.7 million primarily driven by an increase in our net operating loss carryforwards that do not expire and the change in our indefinitely-lived goodwill due to the impairments.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For the year ended December 31, 2020, revenues were $3.1 billion, a $2.3 billion decrease compared to $5.4 billion for the year ended December 31, 2019.

The decrease was primarily the result of a decrease of $2.2 billion in third-party revenues at our refining segment primarily as a result of decreases in Brent and WTI crude oil prices and lower sales volumes related to COVID-19 demand destruction.

Refined product sales volumes decreased 23% from 176.8 Mbpd in the year ended December 31, 2019 to 136.7 Mbpd in the year ended December 31, 2020.

Refined product sales volumes decreased 23% from 176.8 Mbpd in the year

ended December 31, 2019 to 136.7 Mbpd in the year ended December 31, 2020.

Brent crude oil prices averaged $43.21 per barrel for the year ended December 31, 2020 compared to $64.19 per barrel for the year ended December 31, 2019, with similar decreases experienced for WTI crude oil prices.

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For the year ended December 31, 2020, we incurred approximately $0.6 million of expenses primarily related to integration costs for the Washington Acquisition.

For the year ended December 31, 2019, we

incurred approximately $4.7 million of expenses primarily related to acquisition and integration costs for the Washington and Par West Acquisitions.

For the year ended December 31, 2019, we incurred approximately $4.7 million of expenses primarily related to acquisition and integration costs for the Washington and Par West Acquisitions.

Please read Note 4—Acquisitions to our consolidated financial statements under Item 8 of this Form 10-K for more information.

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Debt extinguishment and commitment costs.

For the year ended December 31, 2019, our debt extinguishment and commitment costs were approximately $11.6 million and represent the commitment and other fees associated with the financing of the Washington Acquisition and the extinguishment costs associated with the exchange of a portion of our outstanding 5.00% Convertible Senior Notes.

For the year ended December 31, 2019, our debt extinguishment and commitment costs were approximately $11.6 million and represent the commitment and other fees associated with the financing

of the Washington Acquisition and the extinguishment costs associated with the exchange of a portion of our outstanding 5.00% Convertible Senior Notes.

There were no debt extinguishment and commitment costs for the year ended December 31, 2020.

Equity Losses from Laramie Energy, LLC .

Equity Earnings (Losses) from Laramie Energy, LLC .

For the year ended December 31, 2020, equity losses from Laramie Energy were approximately $46.9 million, a difference of $42.9 million compared to equity losses of $89.8 million for the year ended December 31, 2019.

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For the year ended December 31, 2019, we recorded an income tax benefit of $69.7 million primarily driven by a $64.2 million benefit associated with a partial release of our valuation allowance in connection with the Washington Acquisition.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

For the year ended December 31, 2019, revenues were $5.4 billion, a $2.0 billion increase compared to $3.4 billion for the year ended December 31, 2018.

The increase was primarily the result of the Washington Acquisition and increased sales volumes in Hawaii primarily related to the Par West Acquisition.

The Washington Acquisition contributed third-party revenues of $1.2 billion for the period from January 11, 2019 to December 31, 2019.

Refined product sales volumes in Hawaii increased 43% from 83.6 Mbpd in the year ended December 31, 2018 to 119.8 Mbpd in the year ended December 31, 2019 primarily due to the Par West Acquisition.

These increases were partially offset by a decrease in Brent crude oil prices.

Brent crude oil prices averaged $64.19 per barrel in the year ended December 31, 2019 compared to $71.55 per barrel in the year ended December 31, 2018, with similar decreases experienced for WTI crude oil prices.

Revenues in our retail segment increased $17.9 million primarily due to higher sales volumes of 7%.

Cost of Revenues (Excluding Depreciation).

For the year ended December 31, 2019, cost of revenues (excluding depreciation), was $4.8 billion, a $1.8 billion increase compared to $3.0 billion for the year ended December 31, 2018.

The increase was primarily due to the Washington Acquisition and a 43% increase in refined product sales volumes in Hawaii primarily due to the Par West Acquisition.

The Washington Acquisition contributed cost of revenues of approximately

$1.0 billion for the period from January 11, 2019 to December 31, 2019.

These increases were partially offset by the decrease in Brent crude oil prices as discussed above.

Operating Expense (Excluding Depreciation).

For the year ended December 31, 2019, operating expense (excluding depreciation) was approximately $312.9 million, an increase of $97.6 million compared to $215.3 million for the year ended December 31, 2018.

The increase was primarily due to operating expenses related to the Washington Acquisition, Par West Acquisition, and Northwest Retail Acquisition.

The Washington Acquisition contributed operating expenses of $62.3 million for the period from January 11, 2019 to December 31, 2019.

The Par West Acquisition contributed operating expenses of $26.1 million for the year ended December 31, 2019.

Northwest Retail contributed operating expenses of $20.0 million for the full year ended December 31, 2019, as compared to $15.0 million for the 284-day period of ownership from March 23, 2018 to December 31, 2018.

The increase was also due to $2.6 million expenditures incurred in connection with unplanned maintenance at our Par East Hawaii refinery.

Depreciation, Depletion, and Amortization .

For the year ended December 31, 2019, DD&A expense was approximately $86.1 million, an increase of $33.5 million compared to $52.6 million for the year ended December 31, 2018.

The increase was primarily due to DD&A on assets acquired as part of the Washington Acquisition and the accelerated depreciation of assets to be replaced during the 2020 Wyoming refinery turnaround.

General and Administrative Expense (Excluding Depreciation).

For the year ended December 31, 2019, general and administrative expense (excluding depreciation) was approximately $46.2 million, which is relatively consistent with expense of $47.4 million for the year ended December 31, 2018.

Acquisition and Integration Costs.

For the year ended December 31, 2019, we incurred approximately $4.7 million of expenses primarily related to acquisition and integration costs for the Washington Acquisition and the Par West Acquisition.

For the year ended December 31, 2018, we incurred approximately $10.3 million of expenses primarily related to acquisition and integration costs for the Northwest Retail Acquisition, the Par West Acquisition, and the Washington Acquisition.

Please read Note 4—Acquisitions to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Interest Expense and Financing Costs, Net .

For the year ended December 31, 2019, our interest expense and financing costs were approximately $74.8 million, an increase of $35.0 million compared to $39.8 million for the year ended December 31, 2018.

The increase was primarily due to interest expense and financing costs of $24.4 million related to the new Term Loan B Facility entered into on January 11, 2019, interest expense of $6.3 million on the Washington Refinery Intermediation Agreement, a net increase in our loss on interest rate derivatives of $2.8 million, and interest expense and financing costs of $2.5 million related to the Par Pacific Term Loan entered into on January 9, 2019 and replaced by the Retail Property Term Loan entered into on March 29, 2019.

These increases were partially offset by a decrease in interest expense and financing costs of $1.7 million due to the exchange of a portion of our outstanding 5.00% Convertible Senior Notes during 2019.

Please read Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on our indebtedness.

Change in Value of Common Stock Warrants .

For the year ended December 31, 2019, the change in value of common stock warrants resulted in a loss of approximately $3.2 million, a change of $5.0 million compared to a gain of $1.8 million for the year ended December 31, 2018.

For the year ended December 31, 2019, our stock price increased from $14.18 per share as of December 31, 2018 to $23.24 per share as of December 31, 2019, which resulted in an increase in the fair value of the common stock warrants.

During the year ended December 31, 2018, our stock price decreased from $19.28 per share on December 31, 2017 to $14.18 per share on December 31, 2018, which resulted in a decrease in the value of the common stock warrants.

Change in Value of Contingent Consideration .

For the year ended December 31, 2018, the change in value of our contingent consideration liability resulted in a loss of $10.5 million as a result of the settlement agreement reached with Tesoro.

For the year ended December 31, 2019, there were no such changes.

Please read Note 17—Commitments and Contingencies to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Debt extinguishment and commitment costs.

For the year ended December 31, 2018, our debt extinguishment and commitment costs were approximately $4.2 million and represent the commitment and other fees associated with the financing of the Washington Acquisition.

Equity Earnings (Losses) from Laramie Energy, LLC .

For the year ended December 31, 2019, equity losses from Laramie Energy were approximately $89.8 million, a change of $99.3 million compared to equity earnings of $9.5 million for the year ended December 31, 2018.

During the year ended December 31, 2019, we recorded an impairment charge of $81.5 million due to the significant decline in natural gas prices during the second quarter of 2019 and continued deterioration of prices in the third quarter of 2019.

The remaining decrease was primarily due to Laramie Energy’s net loss associated with lower realized prices.

Please read Note 3—Investment in Laramie Energy, LLC to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Income Taxes.

For the year ended December 31, 2018, we recorded an income tax expense of $0.3 million, primarily due to deferred tax expense of $0.7 million, partially offset by current federal income tax benefit of $0.3 million.

Deferred tax expense for the year ended December 31, 2018 included a benefit of $0.7 million related to the release of valuation allowance due to the impact of the U.S.

tax reform legislation on the interest deduction limitation.

Consolidating Condensed Financial Information

Condensed Consolidating Financial Information

On December 21, 2017, Par Petroleum, LLC (the “Issuer”) issued its 7.75% Senior Secured Notes due 2025 in a private offering under Rule 144A and Regulation S of the Securities Act.

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Operating lease right-of-use (“ROU”) assets 3,280 380,544 — 383,824

Investment in Laramie Energy, LLC — — — —

Investment in subsidiaries 207,483 — (207,483) —

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Accounts payable 1,386 151,676 1,481 154,543

Deferred revenue — 4,083 — 4,083

Accrued taxes 48 28,593 — 28,641

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Long-term debt, net of current maturities — 553,717 — 553,717

Common stock warrants — — — —

Finance lease liabilities 17 12,192 (4,518) 7,691

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Property, plant, and equipment 21,477 1,124,587 37,814 1,183,878

Less accumulated depreciation and depletion (12,117) (170,607) (2,316) (185,040)

Less accumulated depreciation, depletion, and amortization (14,368) (233,927) (2,818) (251,113)

Property, plant, and equipment, net 7,109 890,660 34,996 932,765

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Operating lease right-of-use (“ROU”) assets 3,714 367,850 (14,398) 357,166

Investment in Laramie Energy, LLC — — 46,905 46,905

Investment in subsidiaries 209,010 — (209,010) —

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Accounts payable 2,401 103,067 1,477 106,945

Deferred revenue — 7,905 — 7,905

Accrued taxes 49 27,371 20 27,440

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Long-term debt, net of current maturities — 608,353 40,307 648,660

Common stock warrants 8,206 — — 8,206

Finance lease liabilities 77 7,848 — 7,925

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Impairment expense — 1,838 — 1,838

Loss (gain) on sale of assets, net 15 (10,949) (53,763) (64,697)

General and administrative expense (excluding depreciation) 12,435 35,661 — 48,096

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Interest expense and financing costs, net (2,600) (64,209) 316 (66,493)

Debt extinguishment and commitment costs — (6,728) (1,416) (8,144)

Gain on curtailment of pension obligation — 2,032 — 2,032

Other income (expense), net (33) (19) — (52)

Change in value of common stock warrants 4,270 — — 4,270

Equity earnings (losses) from subsidiaries (63,649) — 63,649 —

Equity earnings (losses) from Laramie Energy, LLC — — (46,905) (46,905)

Total other income (expense), net (66,282) (68,924) 62,549 (72,657)

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Adjusted EBITDA $ (12,468) $ 73,188 $ 767 $ 61,487

________________________________________________________

(1) The income tax benefit (expense) of the Parent Guarantor and Issuer and Subsidiaries is determined using the separate return method.

The Non-Guarantor Subsidiaries and Eliminations column includes tax benefits recognized at the Par consolidated level that are primarily associated with changes to the consolidated valuation allowance and other deferred tax balances.

Year Ended December 31, 2020

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Depreciation, depletion, and amortization 2,900 86,622 514 90,036

Loss (gain) on sale of assets, net — (37,382) 37,382 —

Impairment expense — 85,806 — 85,806

General and administrative expense (excluding depreciation) 11,097 30,191 — 41,288

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Interest expense and financing costs, net (4,982) (61,856) (3,384) (70,222)

Debt extinguishment and commitment costs (6,091) (5,354) (142) (11,587)

Other income (expense), net (3) 1,052 — 1,049

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Equity earnings (losses) from subsidiaries (394,197) — 394,197 —

Equity earnings (losses) from Laramie Energy, LLC — — (89,751) (89,751)

Equity losses from Laramie Energy, LLC — — (46,905) (46,905)

Total other income (expense), net (394,912) (60,804) 343,908 (111,808)

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Adjusted EBITDA $ (10,943) $ (80,457) $ 4,732 $ (86,668)

________________________________________________________

(1) The income tax benefit (expense) of the Parent Guarantor and Issuer and Subsidiaries is determined using the separate return method.

Year Ended December 31, 2019

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Depreciation, depletion, and amortization 2,969 82,843 309 86,121

Loss (gain) on sale of assets, net — (37,382) 37,382 —

General and administrative expense (excluding depreciation) 20,017 26,007 199 46,223

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Change in value of common stock warrants (3,199) — — (3,199)

Change in value of contingent consideration — (10,500) — (10,500)

Equity earnings (losses) from subsidiaries 81,097 — (81,097) —

Equity earnings (losses) from Laramie Energy, LLC — — 9,464 9,464

Equity losses from Laramie Energy, LLC — — (89,751) (89,751)

Total other income (expense), net 64,158 (67,239) (173,779) (176,860)

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RINs loss in excess of net obligation — 16,967 — 16,967

Unrealized loss (gain) on derivatives — (4,804) — (4,804)

Unrealized loss on derivatives — 1,517 — 1,517

Acquisition and integration costs 87 — — 87

Changes in valuation allowance and other deferred tax items (1) — — (20,896) (20,896)

Change in value of common stock warrants (4,270) — — (4,270)

Debt extinguishment and commitment costs — 6,728 1,416 8,144

Severance costs — 84 — 84

Impairment expense — 1,838 — 1,838

Impairments of Laramie Energy, LLC (2) — — 45,294 45,294

Par’s share of Laramie Energy’s unrealized gain on derivatives (2) — — (1,110) (1,110)

Loss (gain) on sale of assets, net 15 (10,949) (53,763) (64,697)

Depreciation, depletion, and amortization 2,452 91,550 239 94,241

Interest expense and financing costs, net 2,600 64,209 (316) 66,493

Equity losses from Laramie Energy, LLC, excluding Par’s share of unrealized gain on derivatives and impairment losses — — 2,721 2,721

Equity losses (income) from subsidiaries 63,649 — (63,649) —

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Adjusted EBITDA (3) $ (12,468) $ 73,188 $ 767 $ 61,487

________________________________________________________

These tax expenses (benefits) are included in Income tax expense (benefit) on our consolidated statements of operations.

(2) Includes impairment losses on our investment in Laramie Energy and our share of Laramie Energy’s asset impairment losses in excess of our basis difference.

Year Ended December 31, 2020

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Inventory valuation adjustment — 14,046 — 14,046

RINs gain in excess of net obligation — (3,398) — (3,398)

Unrealized loss on derivatives — 8,988 — 8,988

RINs loss in excess of net obligation — 44,071 — 44,071

Unrealized gain on derivatives — (4,804) — (4,804)

Acquisition and integration costs — 614 — 614

Debt extinguishment and commitment costs 6,091 5,354 142 11,587

Changes in valuation allowance and other deferred tax items (1) — — (20,896) (20,896)

Change in value of common stock warrants (4,270) — — (4,270)

Loss (gain) on sale of assets, net — (37,382) 37,382 —

Severance costs 157 355 — 512

Impairment expense — 85,806 — 85,806

Impairments of Laramie Energy, LLC (2) — — 45,294 45,294

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Adjusted EBITDA (3) $ (10,943) $ (80,457) $ 4,732 $ (86,668)

________________________________________________________

These tax expenses (benefits) are included in Income tax expense (benefit) on our consolidated statements of operations.

(2) Includes impairment losses on our investment in Laramie Energy and our share of Laramie Energy’s asset impairment losses in excess of our basis difference.

Year Ended December 31, 2019

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Inventory valuation adjustment — 11,938 — 11,938

RINs loss in excess of net obligation — 4,544 — 4,544

Unrealized loss (gain) on derivatives — (1,497) — (1,497)

RINs gain in excess of net obligation — (3,398) — (3,398)

Unrealized loss on derivatives — 8,988 — 8,988

Acquisition and integration costs 28 4,676 — 4,704

Debt extinguishment and commitment costs 6,091 5,354 142 11,587

Increase in (release of) tax valuation allowance (1) — — (660) (660)

Changes in valuation allowance and other deferred tax items (1) — — (68,792) (68,792)

Change in value of common stock warrants 3,199 — — 3,199

Change in value of contingent consideration — 10,500 — 10,500

Par’s share of Laramie Energy’s unrealized loss on derivatives (2) — — 1,158 1,158

Loss (gain) on sale of assets, net — (37,382) 37,382 —

Impairment of Investment in Laramie Energy, LLC (2) — — 83,152 83,152

Par’s share of Laramie Energy’s unrealized gain on derivatives (2) — — (1,969) (1,969)

Depreciation, depletion, and amortization 2,969 82,843 309 86,121

Interest expense and financing costs, net 9,952 62,098 2,789 74,839

Equity earnings from Laramie Energy, LLC, excluding Par’s share of unrealized loss (gain) on derivatives — — (10,622) (10,622)

Equity losses from Laramie Energy, LLC, excluding Par’s share of unrealized gain on derivatives and impairment losses — — 8,568 8,568

Equity losses (income) from subsidiaries (81,097) — 81,097 —

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(3) For the year ended December 31, 2021, there were no changes in valuation allowance and other deferred tax items, changes in value of common stock warrants, or equity losses from Laramie Energy, including impairment losses and our share of Laramie Energy’s unrealized losses (gains) on derivatives.

For the year ended December 31, 2020, there were no debt extinguishment and commitment costs or losses (gains) on sale of assets.

For the year ended December 31, 2019, there was no impairment expense or severance costs.

There was no LIFO liquidation adjustment or change in value of contingent consideration for the years ended December 31, 2021, 2020, and 2019.

Liquidity and Capital Resources

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Our primary sources of liquidity are cash flows from operations, cash on hand, amounts available under our credit agreements, and access to capital markets.

Our liquidity position as of December 31, 2020 was $107.9 million and consisted of $106.7 million at Par Petroleum, LLC and subsidiaries, $0.5 million at Par Pacific Holdings, and $0.7 million at all our other subsidiaries.

Our liquidity position as of December 31, 2021 was $178.7 million and consisted of $174.6 million at Par Petroleum, LLC and subsidiaries, $4.1 million at Par Pacific Holdings, and an immaterial amount at all our other subsidiaries.

As of December 31, 2021, we had access to the J.

Aron Deferred Payment Arrangement, the ABL Credit Facility, the MLC receivable advances, and cash on hand of $68.3 million.

In addition, we have the Supply and Offtake Agreements with J.

Aron Discretionary Draw Facility, the ABL Credit Facility, the MLC receivable advances, and cash on hand of $112.2 million.

In addition, we have the Supply and Offtake Agreement with J.

Aron and the Washington Refinery Intermediation Agreement, which are used to finance the majority of the inventory at our Hawaii and Washington refineries, respectively.

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We cannot offer any assurances that such capital will be available in sufficient amounts or at an acceptable cost.

On February 23, 2021, we closed on the sale and leaseback of twenty-one (21) of our retail properties in Hawaii for an aggregate cash purchase price of approximately $109.4 million (the “Sale-Leaseback Transaction”).

We used approximately $51.7 million of the net cash proceeds to repay the certain financing arrangements which were related to certain of the retail properties and expect to use the remainder for general corporate purposes.

Please read Note 24—Subsequent Events to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the Sale-Leaseback Transaction.

We may from time to time seek to retire or purchase our outstanding 5.00% Convertible Senior Notes, our 7.75% Senior Secured Notes, our 12.875% Senior Secured Notes, or our common stock through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, or otherwise.

In the first quarter of 2021, we closed on the sale and leaseback of twenty-two (22) of our retail properties in Hawaii for an aggregate cash purchase price of approximately $112.8 million net of transaction fees (the “Sale-Leaseback Transactions”).

We used approximately $53.1 million of the net cash proceeds to repay the certain financing arrangements which were related to certain of the retail properties and the remainder for general corporate purposes.

Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the Sale-Leaseback Transactions.

On March 19, 2021, we sold 5.75 million shares of common stock in an underwritten public offering at a public offering price of $16.00 per share, resulting in net proceeds of approximately $87.2 million (the “Equity Offering”), after deducting underwriting discounts and commissions and offering expenses.

We used the net proceeds from the Equity Offering to repay the remaining $48.7 million in aggregate principal amount of 5.00% Convertible Senior Notes at maturity in June 2021 and $36.8 million in aggregate principal amount of 12.875% Senior Secured Notes, and the remainder for other general corporate purposes, including capital expenditures, and funding working capital.

Please read Note 18—Stockholders’ Equity to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the Equity Offering.

During the years ended December 31, 2021, 2020, and 2019, we had significant activity related to our inventory financing and debt agreements.

Please read Note 11—Inventory Financing Agreements and Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion of significant activity related to our inventory financing and debt agreements, respectively.

We may from time to time seek to retire or purchase our 7.75% Senior Secured Notes, our 12.875% Senior Secured Notes, or our common stock through cash purchases and/or exchanges for equity securities, in open market purchases, privately

negotiated transactions, or otherwise.

Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors.

The amounts involved may be material.

Debt Activity

We had the following significant debt issuances and amendments during the years ended December 31, 2020, 2019, and 2018:

• On June 5, 2020, Par Petroleum, LLC and Par Petroleum Finance Corp., both our wholly owned subsidiaries, completed the issuance and sale of $105 million in aggregate principal amount of 12.875% Senior Secured Notes in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended.

The net proceeds of $98.8 million from the sale were used for general corporate purposes.

• On April 13, 2020, Par Hawaii, LLC (“PHL”), our wholly owned subsidiary, entered into a Term Loan Agreement (“PHL Term Loan”) with American Savings Bank F.S.B., which provided a term loan in the principal amount of approximately $6.0 million.

The proceeds from the PHL Term Loan were used to finance PHL’s equity in certain real property.

On February 23, 2021, we terminated and repaid all amounts outstanding under the PHL Term Loan.

Please read Note 24—Subsequent Events to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the repayment.

• On November 1, 2019, we and MLC amended the Washington Refinery Intermediation Agreement and extended the term through June 30, 2021.

We further amended the Washington Refinery Intermediation Agreement on February 11, 2021 and extended the term through March 31, 2022.

Please read Note 24—Subsequent Events to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the February 11, 2021 amendment.

• During May, June, and December 2019, we entered into privately negotiated exchange agreements with a limited number of holders (the “Noteholders”) to repurchase $66.3 million in aggregate principal amount of the 5.00% Convertible Senior Notes held by the Noteholders for an aggregate of $18.6 million in cash and approximately 3.2 million shares of our common stock with a fair value of $74.3 million.

As of December 31, 2020, the remaining outstanding principal amount of the 5.00% Convertible Senior Notes was $48.7 million, the unamortized discount and deferred financing cost was $1.4 million, and the carrying amount of the liability component was $47.3 million.

• On March 29, 2019, Par Pacific Hawaii Property Company, LLC (“Par Property LLC”), our wholly owned subsidiary, entered into the Retail Property Term Loan with the Bank of Hawaii (“BOH”), which provided a term loan in the principal amount of $45.0 million.

The proceeds from the Retail Property Term Loan were used to repay and terminate the Par Pacific Term Loan Agreement (as defined below).

As of December 31, 2020, the outstanding principal on the Retail Property Term Loan was $42.5 million.

On February 23, 2021, we terminated and repaid all amounts outstanding under the Retail Property Term Loan.

Please read Note 24—Subsequent Events to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the repayment.

• On January 11, 2019, Par Petroleum, LLC and Par Petroleum Finance Corp., entered into the Term Loan B Facility with Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto from time to time.

Pursuant to the Term Loan B Facility, the lenders made a term loan to the borrowers in the amount of $250.0 million (“Term Loan B”).

We are required to make quarterly principal payments of $3.1 million.

The proceeds from the Term Loan B were used to fund the Washington Acquisition.

As of December 31, 2020, the outstanding principal on the Term Loan B was $228.1 million.

• On January 9, 2019, we entered into the Par Pacific Term Loan Agreement with BOH.

Pursuant to the Par Pacific Term Loan Agreement, BOH made a loan to the Company in the amount of $45.0 million (the “Par Pacific Term Loan”).

The proceeds from the Par Pacific Term Loan Agreement were used to fund the Washington Acquisition.

March 29, 2019, we terminated and repaid all amounts outstanding under the Par Pacific Term Loan Agreement using the proceeds of the Retail Property Term Loan.

• On December 5, 2018, we amended the Supply and Offtake Agreements to account for additional processing capacity expected to be provided through the Par West Acquisition.

The December 5, 2018 amendment to the Supply and Offtake Agreements also (i) required us to increase our margin requirements by an aggregate $2.5 million by making certain additional margin payments on December 19, 2018, March 1, 2019, and June 3, 2019, and (ii) only allows dividends, payments, or other distributions with respect to any equity interests in PHR in limited and restricted circumstances.

• On September 27, 2018, PHL (which includes the assets of the dissolved entity formerly known as Mid Pac Petroleum, LLC), entered into the Mid Pac Term Loan with American Savings Bank, F.S.B., which provided a term loan of up to approximately $1.5 million.

We received the proceeds on October 18, 2018, which we used to purchase certain retail property.

• On July 24, 2018, we amended the ABL Credit Facility dated as of December 21, 2017 to increase the maximum principal amount at any time outstanding of the ABL Revolver by $10 million to $85 million, subject to a borrowing base.

The ABL Revolver had no outstanding balance and a borrowing base of approximately $39.8 million at December 31, 2020.

Please read Note 11—Inventory Financing Agreements, Note 13—Debt, and Note 24—Subsequent Events to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on our inventory financing and debt agreements, respectively.

On November 10, 2021, the Board authorized and approved a share repurchase program for up to $50 million of the currently outstanding shares of our common stock, with no specified end date.

Please read Note 18—Stockholders’ Equity for further information.

The Term Loan B Facility may also require annual prepayments of principal with a variable percentage of our excess cash flow, 50% or 25% depending on our consolidated year end secured leverage ratio (as defined in the Term Loan B Facility agreement).

The following table summarizes cash activities for the years ended December 31, 2021, 2020, and 2019 (in thousands):

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Net cash provided by (used in) operating activities $ (27,622) $ (37,214) $ 105,630

Net cash used in investing activities (63,464) (353,229) (175,821)

Net cash provided by financing activities 42,559 300,208 41,943

Net cash provided by (used in) investing activities 74,628 (63,464) (353,229)

Net cash provided by (used in) financing activities (1,094) 42,559 300,208

Net cash used in operating activities was approximately $27.6 million for the year ended December 31, 2021, which resulted from a net loss of approximately $81.3 million, partially offset by non-cash charges to operations of approximately $41.6 million and net cash provided by changes in operating assets and liabilities of approximately $12.1 million.

The change in our operating assets and liabilities for the year ended December 31, 2020 was primarily due to a decrease in our trade receivables of $117.8 million, a decrease in inventories of $171.9 million, and an increase in our environmental credit obligations of $127.7 million, partially offset by a net decrease in our Supply and Offtake Agreements and Washington Refinery Intermediation Agreement obligations of $190.8 million.

Net cash provided by changes in operating assets and liabilities also includes an increase of $49.8 million in deferred turnaround costs associated with the Hawaii and Wyoming turnarounds.

These decreases in accounts receivable, inventory, and Supply and Offtake Agreements were primarily driven by the decline in crude oil prices in 2020 and overall decline in sales and inventory volumes resulting from COVID-19 demand destruction.

The increase in our environmental credit obligations was primarily driven by the increase in the market prices of RINs.

Net cash provided by operating activities was approximately $105.6 million for the year ended December 31, 2019, which resulted from net income of approximately $40.8 million and non-cash charges to operations of approximately $144.9 million, partially offset by net cash used for changes in operating assets and liabilities of approximately $80.1 million.

The change in our operating assets and liabilities for the year ended December 31, 2021 was primarily due to a net increase in our Supply and Offtake Agreement and Washington Refinery Intermediation Agreement obligations of $252.9 million, an increase in our environmental credit obligations of $160.5 million, and increases in accounts payable and other current liabilities of $49.0 million, partially offset by an increase in inventories of $350.7 million, an increase in our trade receivables of $84.0 million, and $9.5 million in deferred turnaround costs associated with the Hawaii and Wyoming turnarounds.

The increases in accounts receivable, inventory, Supply and Offtake Agreement, and accounts payable and other current liabilities were primarily driven by the increases in crude oil prices in 2021 and an overall increase in sales, purchases, and inventory volumes.

The increase in our environmental credit obligations was primarily driven by current year production and increases in RINs prices.

Net cash used in operating activities was approximately $37.2 million for the year ended December 31, 2020, which resulted from a net loss of approximately $409.1 million, partially offset by non-cash charges to operations of approximately $219.1 million and net cash provided by changes in operating assets and liabilities of approximately $152.8 million.

For the year ended December 31, 2020, net cash used in investing activities was approximately $63.5 million and primarily related to additions to property, plant, and equipment totaling approximately $63.5 million.

For the year ended December 31, 2021, net cash provided by investing activities was approximately $74.6 million and primarily related to proceeds received from the Sale-Leaseback Transactions partially offset by additions to property, plant, and equipment totaling approximately $29.5 million.

Net cash used in investing activities was approximately $63.5 million for the year ended December 31, 2020 and was primarily related to additions to property, plant, and equipment totaling approximately $63.5 million.

Net cash used in investing activities was approximately $353.2 million for the year ended December 31, 2019 and was primarily related to $273.4 million for the Washington Acquisition and additions to property, plant, and equipment totaling approximately $83.9 million.

Net cash used in investing activities was approximately $175.8 million for the year ended December 31, 2018 and was primarily related

to $74.3 million for the Northwest Retail Acquisition, $53.9 million for the Par West Acquisition, and additions to property, plant, and equipment totaling approximately $48.4 million.

Net cash provided by financing activities for the year ended December 31, 2020 was approximately $42.6 million and consisted primarily of proceeds from net borrowings on our debt agreements, J.

Net cash used in financing activities for the year ended December 31, 2021 was approximately $1.1 million and consisted primarily of proceeds of $87.2 million from our March 2021 equity offering of common stock partially offset by net repayments on our debt agreements, J.

Aron deferred payment arrangement and Discretionary Draw Facility, and MLC receivable advances of $81.4 million and $5.6 million in extinguishment costs related to the repayment of the Retail Property Term Loan and a portion of the 12.875% Senior Secured Notes.

Net cash provided by financing activities for the year ended December 31, 2020 of approximately $42.6 million consisted primarily of proceeds from net borrowings on our debt agreements, J.

Aron deferred payment arrangement, and MLC receivable advances of $49.3 million, partially offset by deferred loan costs of $6.3 million related to the issuance of the 12.875% Senior Secured Notes.

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Aron deferred payment arrangement, and MLC receivable advances of $313.0 million and the exercise of employee stock options of $8.2 million, partially offset by deferred loan costs of $13.5 million and payments of $8.1 million in commitment and other fees related to the funding for the Washington Acquisition and the financing costs related to the repurchase and cancellation of a portion of our 5.00% Convertible Senior Notes.

Net cash provided by financing activities for the year ended December 31, 2018 of approximately $41.9 million consisted primarily of proceeds from net repayments of borrowings and net borrowings on our deferred payment arrangement of $27.3 million and the issuance of common stock totaling approximately $19.3 million, partially offset by the payment of $3.4 million in commitment and other fees related to the funding for the Washington Acquisition.

Capital Expenditures and Turnaround Costs

Our deferred turnaround costs and capital expenditures, excluding acquisitions, for the year ended December 31, 2020, totaled approximately $113.3 million and were primarily related to equipment purchases and engineering work for the 2020 turnarounds at our Par East Hawaii and Wyoming refineries, the second phase of a Washington renewables logistics project, tank compliance construction and repairs within our Wyoming logistics network, and scheduled maintenance.

Our capital expenditures and deferred turnaround costs budget for 2021 ranges from $35 to $45 million and primarily relates to a partial turnaround at our Washington refinery, scheduled maintenance, and other capital projects related to regulatory and safety compliance.

We also continue to seek strategic investments in business opportunities, but the amount and timing of those investments are not predictable.

Contractual Obligations

We have various contractual obligations and financial commitments in the normal course of our operations and financing activities.

Cash Requirements

We have various cash requirements stemming from investment strategies, contractual obligations, and financial commitments in the normal course of our operations and financing activities.

Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements.

These obligations may result from both general financing activities and from commercial arrangements that are directly related to our operating activities.

The following table summarizes our contractual obligations as of December 31, 2020.

Cash obligations reflected in the table below are not discounted.

Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years

(in thousands)

Long-term debt (including current portion) $ 731,523 $ 62,950 $ 28,792 $ 363,016 $ 276,765

Interest payments on debt 252,357 54,353 94,934 91,467 11,603

Operating leases (1) 495,456 82,212 123,212 88,066 201,966

Finance leases (1) 12,484 2,143 3,877 3,007 3,457

Purchase commitments 670,065 518,700 150,751 585 29

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(1) Additionally, we have $6.6 million and $4.9 million in future undiscounted cash flows for operating leases and finance leases, respectively, that have not yet commenced.

These leases are expected to commence when the lessor has made the equipment or location available to the Company to operate or begin construction, respectively.

Long-Term Debt (including Current Portion).

Long-term debt includes the scheduled principal payments related to our outstanding debt obligations and letters of credit.

Please read Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion.

Interest Payments on Debt.

Interest payments on debt represent estimated periodic interest payment obligations associated with our outstanding debt obligations using interest rates in effect as of December 31, 2020.

These cash requirements and obligations may result from both general financing activities and from commercial arrangements that are directly related to our operating activities.

We also continue to seek strategic investments in business opportunities, however the amount and timing of those investments are not predictable.

Our material cash requirements as of December 31, 2021 include:

Debt and Interest Payments.

Current and long-term debt includes the scheduled principal payments related to our outstanding debt obligations and letters of credit.

Our estimated interest payments due for 2022 are $46.6 million and our total estimated undiscounted future interest payments will be $194.0 million on the debt obligations held as of December 31, 2021 and using interest rates in effect as of December 31, 2021.

Please read Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion.

Operating Leases.

Operating leases primarily include obligations associated with the lease of land, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products.

Capital Expenditures and Turnaround Costs.

Our deferred turnaround costs and capital expenditures, excluding acquisitions, for the year ended December 31, 2021, totaled approximately $39.0 million and were primarily related to the 2021 turnaround and related scheduled maintenance work at our Washington refinery, capital projects at our Hawaii refinery, and underground tank replacements, rebranding, and point of sale and other equipment upgrades at our Retail segment.

Our capital expenditures and deferred turnaround costs budget for 2022 ranges from $70 to $80 million and primarily relates to the 2022 turnaround at our Washington refinery, scheduled maintenance, and other capital projects related to regulatory compliance, information technology, and growth.

We expect to spend approximately $35 to $45 million annually on maintenance and sustaining capital projects and approximately $80 to $90 million on planned turnaround expenditures over the next five years.

Operating Lease Liabilities.

Operating lease liabilities primarily include obligations associated with the lease of land, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products.

Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for further discussion.

Finance Leases.

Finance leases primarily include obligations associated with the lease of retail facilities and vehicles.

Finance Lease Liabilities.

Finance lease liabilities primarily include obligations associated with the lease of retail facilities and vehicles.

Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for further discussion.

Purchase Commitments.

Purchase commitments primarily consist of contracts executed as of December 31, 2020 for the purchase of crude oil for use at our refineries that are scheduled for delivery in 2021 and 2022.

Commitments and Contingencies

Supply and Offtake Agreements.

On June 1, 2015, we entered into several agreements with J.

Aron to support the operations of our Hawaii refineries (the “Supply and Offtake Agreements”).

On May 8, 2017, we and J.

Aron amended the Supply and Offtake Agreements and extended the term through May 31, 2021 with a one-year extension option upon mutual agreement of the parties.

Purchase commitments primarily consist of contracts executed as of December 31, 2021 for the purchase of crude oil for use at our refineries that are scheduled for delivery in 2022.

As of December 31, 2021, we have material purchase commitments of $1.2 billion, with required cash outlays primarily expected in the next twelve months.

Supply and Offtake Agreement.

We have a supply and offtake agreement with J.

Aron to support the operations of our Hawaii refinery.

On June 1, 2021, we and J.

Aron amended the Supply and Offtake Agreements to increase the amount that we may defer under the deferred payment arrangement.

On December 5, 2018, we amended the Supply and Offtake Agreements to account for additional processing capacity expected to be provided through the Par West Acquisition.

We are evaluating options to extend or replace the Supply and Offtake Agreements.

Aron entered into a Second Amended and Restated Supply and Offtake Agreement (the “Supply and Offtake Agreement”) which expires on May 31, 2024 with a one-year extension option.

Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for more information.

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We further amended the Washington Refinery Intermediation Agreement on February 11, 2021 and extended the term through March 31, 2022.

Please read Note 11—Inventory Financing Agreements and Note 24—Subsequent Events to our consolidated financial statements under Item 8 of this Form 10-K for more information.

On December 17, 2021, we and MLC amended the Washington Refinery Intermediation Agreement to further extend the term through December 21, 2022 with an automatic extension to March 31, 2023 upon an ABL extension event and revises certain other terms and conditions in the Washington Refinery Intermediation Agreement.

Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Environmental Matters.

Our operations and Laramie Energy’s oil and gas exploration and production operations in which we have a working interest are subject to extensive and periodically-changing federal, state, and local environmental laws and regulations governing air emissions, wastewater discharges, and solid and hazardous waste management activities.

Many of these laws and regulations are becoming increasingly stringent and the cost of compliance can be expected to increase over time.

Our policy is to accrue environmental and clean-up related costs of a non-capital nature when it is probable that a liability has been incurred and the amount can be reasonably estimated.

Such estimates may be subject to revision in the future as regulations and other conditions change.

Periodically, we receive communications from various federal, state, and local governmental authorities asserting violations of environmental laws and/or regulations.

These governmental entities may also propose or assess fines or require corrective actions for these asserted violations.

We intend to respond in a timely manner to all such communications and to take appropriate corrective action.

Except as disclosed below, we do not anticipate that any such matters currently asserted will have a material impact on our financial condition, results of operations, or cash flows.

Regulation of Greenhouse Gases

The EPA regulates GHG under the CAA.

New construction or material expansions that meet certain GHG emissions thresholds will likely require that, among other things, a GHG permit be issued in accordance with the federal CAA regulations and we will be required, in connection with such permitting, to undertake a technology review to determine appropriate controls to be implemented with the project in order to reduce GHG emissions.

Furthermore, the EPA has in the past begun developing refinery-specific GHG regulations and performance standards that are expected to impose GHG emission limits and/or technology requirements.

If adopted, these control requirements may affect a wide range of refinery operations.

Any such controls could result in material increased compliance costs, additional operating restrictions for our business, and an increase in cost of the products we produce, which could have a material adverse effect on our financial position, results of operations, or cash flows.

Additionally, the EPA's final rule updating standards that control toxic air emissions from petroleum refineries imposed additional controls and monitoring requirements on flaring operations, storage tanks, sulfur recovery units, delayed coking units, and required fenceline monitoring.

Compliance with this rule has not had a material impact on our financial condition, results of operations, or cash flows to date.

In 2007, the State of Hawaii passed Act 234, which required that GHG emissions be rolled back on a statewide basis to 1990 levels by the year 2020.

In June of 2014, the DOH adopted regulations that require each major facility to reduce CO 2 emissions by 16% by 2020 relative to a calendar year 2010 baseline (the first year in which GHG emissions were reported to the EPA under 40 CFR Part 98).

The Hawaii refineries’ capacity to materially reduce fuel use and GHG emissions is limited because most energy conservation measures have already been implemented over the past 20 years.

Hawaii's regulation allows for “partnering” with other facilities (principally power plants) that have already dramatically reduced GHG emissions or are on schedule to reduce CO 2 emissions in order to comply with the state’s Renewable Portfolio Standards.

Accordingly, our Hawaii refineries submitted a GHG reduction plan that incorporates the partnering provisions and demonstrates that additional reductions are not cost-effective or necessary because the State of Hawaii has already reached the 1990 levels according to a report prepared by the DOH in January 2019.

Fuel Standards

In 2007, the U.S.

Congress passed the EISA which, among other things, set a target fuel economy standard of 35 miles per gallon for the combined fleet of cars and light trucks in the U.S.

by model year 2020 and contained an expanded RFS.

In August 2012, the EPA and NHTSA jointly adopted regulations that establish vehicle carbon dioxide emissions standards and an average industry fuel economy of 54.5 miles per gallon by model year 2025.

On August 8, 2018, the EPA and NHTSA jointly proposed to revise existing fuel economy standards for model years 2021-2025 and to set standards for 2026 for the first time.

On March 31, 2020, the agencies released updated fuel economy and vehicle emissions standards, which provide for an increase in stringency by 1.5% each year through model year 2026, as compared with the standards issued in 2012 that required 5% annual increases.

Higher fuel economy standards have the potential to reduce demand for our refined transportation fuel products.

Under EISA, the RFS requires an increasing amount of renewable fuel to be blended into the nation’s transportation fuel supply, up to 36.0 billion gallons by 2022.

Over time, higher annual RFS requirements have the potential to reduce demand for our refined transportation fuel products.

In the near term, the RFS will be satisfied primarily with fuel ethanol blended into gasoline.

We, and other refiners subject to the RFS, may meet the RFS requirements by blending the necessary volumes of renewable fuels produced by us or purchased from third parties.

To the extent that refiners will not or cannot blend renewable fuels into the products they produce in the quantities required to satisfy their obligations under the RFS program, those refiners must purchase RINs to maintain compliance.

The EPA has not yet set volumetric requirements for 2021, which makes it difficult to estimate our obligations.

To the extent that we exceed the minimum volumetric requirements for blending of renewable fuels, we have the option of retaining these RINs for current or future RFS compliance or selling those RINs on the open market.

The RFS may present production and logistics challenges for both the renewable fuels and petroleum refining and marketing industries in that we may have to enter into arrangements with other parties or purchase D3 waivers from the EPA to meet our obligations to use advanced biofuels, including biomass-based diesel and cellulosic biofuel, with potentially uncertain supplies of these new fuels.

In October 2010, the EPA issued a partial waiver decision under the federal CAA to allow for an increase in the amount of ethanol permitted to be blended into gasoline from 10% to 15% for 2007 and newer light duty motor vehicles.

In January 2011, the EPA issued a second waiver for the use of E15 in vehicles model years 2001-2006.

In 2019, the EPA approved year-round sales of E15.

There are numerous issues, including state and federal regulatory issues, which need to be addressed before E15 can be marketed on a large scale for use in traditional gasoline engines;

however, increased renewable fuel in the nation’s transportation fuel supply could reduce demand for our refined products.

In March 2014, the EPA published a final Tier 3 gasoline standard that requires, among other things, that gasoline contain no more than 10 ppm sulfur on an annual average basis and no more than 80 ppm sulfur on a per-gallon basis.

The standard also lowers the allowable benzene, aromatics, and olefins content of gasoline.

The effective date for the new standard was January 1, 2017, however, approved small volume refineries had until January 1, 2020 to meet the standard.

The Par East Hawaii refinery was required to comply with Tier 3 gasoline standards within 30 months of June 21, 2016, the date it was disqualified from small volume refinery status.

On March 19, 2015, the EPA confirmed the small refinery status of our Wyoming refinery.

The Par East Hawaii refinery, our Wyoming refinery, and our Washington refinery, acquired in January 2019, were all granted small refinery status by the EPA for 2018.

All of our refineries are compliant with the final Tier 3 gasoline standard.

Beginning on June 30, 2014, new sulfur standards for fuel oil used by marine vessels operating within 200 miles of the U.S.

coastline (which includes the entire Hawaiian Island chain) was lowered from 10,000 ppm (1%) to 1,000 ppm (0.1%).

The sulfur standards began at the Hawaii refineries and were phased in so that by January 1, 2015, they were to be fully aligned with IMO standards and deadline.

The more stringent standards apply universally to both U.S.

and foreign-flagged ships.

Although the marine fuel regulations provided vessel operators with a few compliance options such as installation of on-board pollution controls and demonstration unavailability, many vessel operators will be forced to switch to a distillate fuel while operating within the ECA.

Beyond the 200 mile ECA, large ocean vessels are still allowed to burn marine fuel with up to 3.5% sulfur.

Our Hawaii refineries are capable of producing the 1% sulfur residual fuel oil that was previously required within the ECA.

Although our Hawaii refineries remain in a position to supply vessels traveling to and through Hawaii, the market for 0.1% sulfur distillate fuel and 3.5% sulfur residual fuel is much more competitive.

In addition to U.S.

fuels requirements, the IMO has also adopted newer standards that further reduce the global limit on sulfur content in maritime fuels to 0.5% beginning in 2020.

There will be compliance costs and uncertainties regarding how we will comply with the various requirements contained in the EISA, RFS, IMO 2020, and other fuel-related regulations.

We may experience a decrease in demand for refined petroleum products due to an increase in combined fleet mileage or due to refined petroleum products being replaced by renewable fuels.

Wyoming Refinery and Recent Acquisitions

Our Wyoming refinery is subject to a number of consent decrees, orders, and settlement agreements involving the EPA and/or the Wyoming Department of Environmental Quality, some of which date back to the late 1970s and several of which remain in effect, requiring further actions at the Wyoming refinery.

Our recent acquisition of the Par West Hawaii refinery and the Washington Acquisition also subject us to additional environmental compliance costs.

Please read Note 17—Commitments and Contingencies to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Environmental Agreement

On September 25, 2013, Par Petroleum, LLC, Tesoro, and PHR entered into an Environmental Agreement (“Environmental Agreement”), which allocated responsibility for known and contingent environmental liabilities related to the acquisition of PHR, including a consent decree.

Please read Note 17—Commitments and Contingencies to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Off-Balance Sheet Arrangements

We are guarantors of Laramie Energy’s credit facility, with recourse limited to the pledge of our equity interest in our wholly owned subsidiary, Par Piceance Energy Equity, LLC.

As of June 30, 2020, we have discontinued the application of the equity method of accounting for our investment in Laramie Energy because the book value of such investment has been reduced to zero.

Please read Note 3—Investment in Laramie Energy, LLC to our consolidated financial statements under Item 8 of this Form 10-K for further information.

Other than this guarantee and the purchase commitments described in the Contractual Obligations section above, we have no material off-balance sheet arrangements as of December 31, 2020 that are reasonably likely to have a current or future material effect on our financial condition, results of operations, or cash flows.

Critical Accounting Policies and Estimates

Our operations are subject to extensive and periodically-changing federal, state, and local environmental laws and regulations including but not limited to air emissions, wastewater discharges, and solid and hazardous waste management activities.

Additionally, we have asset retirement obligations in the period in which we have a legal obligation, whether by government or regulatory action or contractual arrangement, to incur these costs and can make a reasonable estimate of the fair value of the liability.

Please read Note 9—Asset Retirement Obligations and Note 17—Commitments and Contingencies to our consolidated financial statements under Item 8 of this Form 10-K for more information.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations were based on the consolidated financial statements, which have been prepared in accordance with U.S.

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Our significant accounting policies are described in Note 2—Summary of Significant Accounting Policies to our audited consolidated financial statements under Item 8 of this Form 10-K.

We have identified certain policies as being of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management.

We have identified certain estimates as being of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management.

We analyze our estimates on a periodic basis, including those related to fair value, impairments, natural gas and crude oil reserves, bad debts, natural gas and oil properties, income taxes, derivatives, contingencies, and litigation and base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Inventory and Obligations Under Inventory Financing Agreements

Commodity inventories, excluding commodity inventories at the Washington refinery, are stated at the lower of cost and net realizable value using the FIFO accounting method.

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Please read Note 6—Inventories to our consolidated financial statements under Item 8 of this Form 10-K for additional information.

All of the crude oil utilized at the Hawaii refineries is financed by J.

All of the crude oil utilized at the Hawaii refinery is financed by J.

Aron under procurement contracts.

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The valuation of our repurchase obligation requires that we make estimates of the prices and differentials assuming settlement occurs at the end of the reporting period.

Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for additional information.

In connection with the consummation of the Washington Acquisition, we became a party to the Washington Refinery Intermediation Agreement with MLC.

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Oil purchases crude oil supplied from third-party suppliers and MLC provides credit support for certain of these purchases.

MLC’s credit support can consist of providing a payment guaranty, procuring the issuance of a letter of credit from a third party issuing bank, or purchasing crude oil directly from third parties on our behalf.

Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of same, exclusively to MLC.

Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of these inventories, exclusively to MLC.

The valuation of our terminal obligation requires that we make estimates of the prices and differentials for our then monthly forward purchase obligations.

Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for additional information.

Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for additional information regarding both our Hawaii and Washington inventory financing agreements.

Fair Value Measurements

We measure certain assets and liabilities at their fair market value.

Assets and liabilities measured at fair value on a recurring basis include derivative instruments and environmental credit obligations.

We also measure certain assets and liabilities at fair value on a nonrecurring basis when specific triggering events occur, such as business combinations and events which indicate that a reporting unit’s carrying value exceeds its estimated fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

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Please read Note 15—Fair Value Measurements to our consolidated financial statements under Item 8 of this Form 10-K for additional information.

We recognize assets acquired and liabilities assumed in business combinations at their estimated fair values as of the date of acquisition.

Business Combinations

We recognize assets acquired and liabilities assumed in business combinations separately from goodwill at their estimated fair values as of the date of acquisition.

Significant judgment is required in estimating the fair value of assets acquired.

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Changes in these estimates and assumptions would result in different amounts allocated to the related assets and liabilities.

The measurement period may be up to one year from the acquisition date;

we may record adjustments to the preliminary purchase price allocation during this time, concluding at the end of the one year period or final determination of the values of consideration transferred and asses and liabilities assumed, whichever comes first.

Subsequent adjustments, if any, are recorded to the consolidated statement of operations.

Please read Note 4—Acquisitions and Note 15—Fair Value Measurements to our consolidated financial statements under Item 8 of this Form 10-K for further information.

Impairment of Goodwill and Long-lived Assets

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If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.

Under the quantitative test, we compare the

carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit.

Under the quantitative test, we compare the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit.

If the carrying value exceeds the estimated fair value of the reporting unit, an impairment loss is recorded.

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These valuation methods require us to make significant estimates and assumptions regarding future cash flows, capital projects, commodity prices, long-term growth rates, and discount rates.

Please read Note 10—Goodwill and Intangible Assets to our consolidated financial statements under Item 8 of this Form 10-K for further information, including the goodwill impairment we recorded in the first quarter of 2020.

We review property, plant, and equipment, operating leases, and other long-lived assets whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable.

We use a cash flows model to estimate value because there is usually a lack of quoted market prices for long-lived assets.

Future cash flows estimates used for impairment reviews are based on assessments requiring judgment, including future production volumes, commodity prices, operating costs, margins, discount rates, expected capital expenditures, and other factors based on all available information available as of the date of the review.

Impairment is indicated when the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying value.

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The fair value of long-lived assets is determined using the income approach.

Please read Note 8—Property, Plant, and Equipment and Impairment of Long-Lived Assets to our consolidated financial statements under Item 8 of this Form 10-K for further information, including the asset impairment we recorded in the first quarter of 2020.

Impairment of our Investment in Laramie Energy

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An impairment loss, based on the difference between the carrying value and the estimated fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary.

Derivatives and Other Financial instruments

We are exposed to commodity price risk related to crude oil and refined products.

We manage this exposure through the use of various derivative commodity instruments.

These instruments include exchange traded futures and over-the-counter swaps, forwards, and options.

For our forward contracts that are derivatives, we have elected the normal purchase normal sale exclusion, as it is our policy to fulfill or accept the physical delivery of the product and not net settle.

Therefore, we did not recognize the unrealized gains or losses related to these contracts in our consolidated financial statements.

We apply the accrual method of accounting to contracts qualifying for the normal purchase and sale exemption.

All derivative instruments not designated as normal purchases or sales are recorded in the balance sheet as either assets or liabilities measured at their fair values.

Changes in the fair value of these derivative instruments are recognized currently in earnings.

We have not designated any derivative instruments as cash flow or fair value hedges and, therefore, do not apply hedge accounting treatment.

In addition, we may have other financial instruments, such as warrants or embedded debt features, that may be classified as liabilities when either (a) the holders possess rights to net cash settlement, (b) physical or net equity settlement is not in our control, or (c) the instruments contain other provisions that cause us to conclude that they are not indexed to our equity.

We have accounted for our obligation to repurchase crude oil and refined products from J.Aron at the termination of the Supply and Offtake Agreements and to repay MLC for monthly crude oil and refined products’ financing under the Washington Refinery Intermediation Agreement as embedded derivatives.

Additionally, we have determined that the redemption option and the related make-whole premium on our 5.00% Convertible Senior Notes represent an embedded derivative.

These liabilities were initially recorded at fair value and subsequently adjusted to fair value at the end of each reporting period through earnings.

Asset Retirement Obligations

Please read Note 3—Investment in Laramie Energy, LLC to our consolidated financial statements under Item 8 of this Form 10-K for further information.

Environmental Matters and Asset Retirement Obligations

We record liabilities when environmental assessments and/or remedial efforts are probable and can be reasonably

Cost estimates are based on the expected timing and extent of remedial actions required by governing agencies, experience gained from similar sites for which environmental assessments or remediation have been completed, and the amount of our anticipated liability considering the proportional liability and financial abilities of other responsible parties.

Usually, the timing of these accruals coincides with the completion of a feasibility study or our commitment to a formal plan of action.

Please read Note 17—Commitments and Contingencies to our consolidated financial statements under Item 8 of this Form 10-K for further information about our environmental liabilities and assessments.

We record asset retirement obligations (“AROs”) at fair value in the period in which we have a legal obligation, whether by government action or contractual arrangement, to incur these costs and can make a reasonable estimate of the fair value of the liability.

Our AROs arise from our refining, logistics, and retail operations.

AROs are calculated based on the present value of the estimated removal and other closure costs using our credit-adjusted risk-free rate.

When the liability is initially recorded, we capitalize the cost by increasing the book value of the related long-lived tangible asset.

The liability is accreted to its estimated settlement value and the related capitalized cost is depreciated over the asset’s useful life.

expenses are recorded in Depreciation, depletion, and amortization in the consolidated statements of operations.

The difference between the settlement amount and the recorded liability is recorded as a gain or loss on asset disposals in our consolidated statements of operations.

We estimate settlement dates by considering our past practice, industry practice, management’s intent, and estimated economic lives.

We cannot currently estimate the fair value for certain AROs primarily because we cannot estimate settlement dates (or ranges of dates) associated with these assets.

These AROs include disposal of hazardous materials (such as petroleum manufacturing by-products, chemical catalysts, and sealed insulation material containing asbestos) and removal or dismantlement requirements associated with the closure of our refining facilities, terminal facilities, or pipelines, including the demolition or removal of certain major processing units, buildings, tanks, pipelines, or other equipment.

Estimating the cost and timing of future remedial efforts is difficult and related technologies, costs, regulatory and other compliance considerations, timing, discount rates, and other inputs into the valuations are subject to change.

Please read Note 2—Summary of Significant Accounting Policies, “Asset Retirement Obligations,” to our consolidated financial statements under Item 8 of this Form 10-K for further information.

We use the asset and liability method of accounting for income taxes.

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In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible.

These liabilities are recorded based on our assessment of existing tax laws and regulations.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible and may vary from our estimates for a number of reasons, including different interpretations of tax laws and regulations.

New tax laws and regulations, and changes to existing tax laws and regulations, are proposed and promulgated continuously.

The implementation of future tax laws and regulatory initiatives, as well as future interpretations on historical tax laws and regulations, could result in increased tax liabilities that cannot be predicted at this time.

Please read Note 2—Summary of Significant Accounting Policies, “Income Taxes,” to our consolidated financial statements under Item 8 of this Form 10-K for further information.

Based upon the level of historical taxable income and projections for future results of operations over the periods in which the deferred tax assets are deductible, among other factors, management concluded that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets and therefore, a valuation allowance has been recorded for substantially all of our net deferred tax assets at December 31, 2021 and 2020.

Environmental Matters

We capitalize environmental expenditures that extend the life or increase the capacity of facilities as well as expenditures that prevent environmental contamination.

We expense costs that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation.

We record liabilities when environmental assessments and/or remedial efforts are probable and can be reasonably estimated.

Usually, the timing of these accruals coincides with the completion of a feasibility study or our commitment to a formal plan of action.

Estimated liabilities are not discounted to present value and are presented within Other liabilities on our consolidated balance sheets.

Environmental expenses are recorded in Operating expense (excluding depreciation) on our consolidated statements of operations.

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What changed 10-K

Item 7. Management’s Discussion and Analysis