PAR PACIFIC HOLDINGS, INC. 10-Q

Item 1. FINANCIAL STATEMENTS PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) March 31, 2022 December 31, 2021 ASSETS Current assets Cash and cash equivalents $ 140,874 $ 112,221 Restricted cash 4,000 4,000 Total cash, cash equivalents, and restricted cash 144,874 116,221 Trade accounts receivable, net of allowances of $ 0.3 million and $ 0.4 million at March 31, 2022 and December 31, 2021, respectively 235,286 195,108 Inventories 1,027,133 790,317 Prepaid and other current assets 56,466 28,525 Total current assets 1,463,759 1,130,171 Property, plant, and equipment Property, plant, and equipment 1,192,040 1,180,397 Less accumulated depreciation, depletion, and amortization ( 338,975 ) ( 323,892 ) Property, plant, and equipment, net 853,065 856,505 Long-term assets Operating lease right-of-use assets 377,745 383,824 Intangible assets, net 15,570 16,234 Goodwill 127,262 127,262 Other long-term assets 83,036 56,255 Total assets $ 2,920,437 $ 2,570,251 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current maturities of long-term debt $ 10,846 $ 10,841 Obligations under inventory financing agreements 981,412 737,704 Accounts payable 318,024 154,543 Accrued taxes 29,257 28,641 Operating lease liabilities 55,440 53,640 Other accrued liabilities 433,643 370,424 Total current liabilities 1,828,622 1,355,793 Long-term liabilities Long-term debt, net of current maturities 576,482 553,717 Finance lease liabilities 7,653 7,691 Operating lease liabilities 330,031 335,094 Other liabilities 51,732 52,256 Total liabilities 2,794,520 2,304,551 Commitments and contingencies (Note 13) Stockholders’ equity Preferred stock, $ 0.01 par value: 3,000,000 shares authorized, none issued — — Common stock, $ 0.01 par value; 500,000,000 shares authorized at March 31, 2022 and December 31, 2021, 60,111,642 shares and 60,161,955 shares issued at March 31, 2022 and December 31, 2021, respectively 601 602 Additional paid-in capital 823,937 821,713 Accumulated deficit ( 701,123 ) ( 559,117 ) Accumulated other comprehensive income 2,502 2,502 Total stockholders’ equity 125,917 265,700 Total liabilities and stockholders’ equity $ 2,920,437 $ 2,570,251 See accompanying notes to the condensed consolidated financial statements. 1 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts) Three Months Ended March 31, 2022 2021 Revenues $ 1,350,293 $ 888,680 Operating expenses Cost of revenues (excluding depreciation) 1,350,249 888,863 Operating expense (excluding depreciation) 81,404 74,188 Depreciation, depletion, and amortization 23,780 22,880 Loss (gain) on sale of assets, net — ( 64,912 ) General and administrative expense (excluding depreciation) 15,893 11,885 Acquisition and integration costs 63 438 Total operating expenses 1,471,389 933,342 Operating loss ( 121,096 ) ( 44,662 ) Other income (expense) Interest expense and financing costs, net ( 16,394 ) ( 18,151 ) Debt extinguishment and commitment costs — ( 1,507 ) Gain on curtailment of pension obligation — 2,032 Other income, net 2 61 Total other income (expense), net ( 16,392 ) ( 17,565 ) Loss before income taxes ( 137,488 ) ( 62,227 ) Income tax benefit 437 — Net loss $ ( 137,051 ) $ ( 62,227 ) Loss per share Basic $ ( 2.31 ) $ ( 1.15 ) Diluted $ ( 2.31 ) $ ( 1.15 ) Weighted-average number of shares outstanding Basic 59,413 54,280 Diluted 59,413 54,280 See accompanying notes to the condensed consolidated financial statements. 2 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Net loss $ ( 137,051 ) $ ( 62,227 ) Other comprehensive income (loss): Other post-retirement benefits income, net of tax — 3,996 Total other comprehensive income, net of tax — 3,996 Comprehensive loss $ ( 137,051 ) $ ( 58,231 ) See accompanying notes to the condensed consolidated financial statements. 3 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net Loss $ ( 137,051 ) $ ( 62,227 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation, depletion, and amortization 23,780 22,880 Debt extinguishment and commitment costs — 1,507 Non-cash interest expense 1,017 1,843 Non-cash lower of cost and net realizable value adjustment ( 463 ) ( 10,595 ) Gain on sale of assets, net — ( 64,912 ) Stock-based compensation 3,658 1,886 Unrealized (gain) loss on derivative contracts 15,452 ( 6,922 ) Net changes in operating assets and liabilities: Trade accounts receivable ( 40,262 ) ( 45,029 ) Prepaid and other assets ( 25,233 ) 2,867 Inventories ( 236,664 ) ( 139,143 ) Deferred turnaround expenditures ( 28,929 ) ( 5,602 ) Obligations under inventory financing agreements 201,996 124,393 Accounts payable, other accrued liabilities, and operating lease ROU assets and liabilities 215,014 148,317 Net cash used in operating activities ( 7,685 ) ( 30,737 ) Cash flows from investing activities: Capital expenditures ( 16,333 ) ( 8,178 ) Proceeds from sale of assets 60 102,856 Net cash provided by (used in) investing activities ( 16,273 ) 94,678 Cash flows from financing activities: Proceeds from sale of common stock, net of offering costs — 87,401 Proceeds from borrowings 88,163 39,409 Repayments of borrowings ( 70,059 ) ( 86,719 ) Net borrowings on deferred payment arrangements, discretionary draw facilities, and receivable advances 41,712 44,542 Purchase of common stock for retirement ( 6,388 ) ( 1,321 ) Payments for debt extinguishment and commitment costs — ( 887 ) Other financing activities, net ( 817 ) 58 Net cash provided by financing activities 52,611 82,483 Net increase in cash, cash equivalents, and restricted cash 28,653 146,424 Cash, cash equivalents, and restricted cash at beginning of period 116,221 70,309 Cash, cash equivalents, and restricted cash at end of period $ 144,874 $ 216,733 Supplemental cash flow information: Net cash received (paid) for: Interest $ ( 11,085 ) $ ( 17,373 ) Taxes — — Non-cash investing and financing activities: Accrued capital expenditures $ 6,169 $ 2,295 ROU assets obtained in exchange for new finance lease liabilities 594 1,072 ROU assets obtained in exchange for new operating lease liabilities 10,678 85,426 ROU assets terminated in exchange for release from operating lease liabilities 1,029 — See accompanying notes to the condensed consolidated financial statements. 4 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) (in thousands) Accumulated Additional Other Common Stock Paid-In Accumulated Comprehensive Total Shares Amount Capital Deficit Income Equity Balance, December 31, 2020 54,003 $ 540 $ 726,504 $ ( 477,028 ) $ ( 3,742 ) $ 246,274 Common stock offering, net of issuance costs 5,750 58 87,343 — — 87,401 Stock-based compensation 461 3 1,883 — — 1,886 Purchase of common stock for retirement ( 76 ) — ( 1,321 ) — — ( 1,321 ) Exercise of stock options 4 — 58 — — 58 Other comprehensive income — — — — 3,996 3,996 Net loss — — — ( 62,227 ) — ( 62,227 ) Balance, March 31, 2021 60,142 $ 601 $ 814,467 $ ( 539,255 ) $ 254 $ 276,067 Accumulated Additional Other Common Stock Paid-In Accumulated Comprehensive Total Shares Amount Capital Deficit Income Equity Balance, December 31, 2021 60,162 $ 602 $ 821,713 $ ( 559,117 ) $ 2,502 $ 265,700 Stock-based compensation 412 3 3,655 — — 3,658 Purchase of common stock for retirement ( 462 ) ( 4 ) ( 1,431 ) ( 4,955 ) — ( 6,390 ) Net loss — — — ( 137,051 ) — ( 137,051 ) Balance, March 31, 2022 60,112 $ 601 $ 823,937 $ ( 701,123 ) $ 2,502 $ 125,917 See accompanying notes to the condensed consolidated financial statements. 5 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Note 1 — Overview Par Pacific Holdings, Inc. and its wholly owned subsidiaries (“Par” or the “Company”) own and operate market-leading energy and infrastructure businesses. Our strategy is to acquire and develop businesses in logistically complex, niche markets. Currently, we operate in three primary business segments: 1) Refining - We own and operate three refineries with total operating throughput capacity of 154 Mbpd in Hawaii, Wyoming, and Washington. 2) Retail - Our retail outlets in Hawaii, Washington, and Idaho sell gasoline, diesel, and retail merchandise through Hele and “76” branded sites, “nomnom” branded company-operated convenience stores, 7-Eleven operated convenience stores, other sites operated by third parties, and unattended cardlock stations. 3) Logistics - We operate an extensive multi-modal logistics network spanning the Pacific, the Northwest, and the Rocky Mountain regions to transport and store our crude oil and refined products for our refineries and transport refined products to our retail sites or third-party purchasers. As of March 31, 2022, we owned a 46.0 % equity investment in Laramie Energy, LLC (“Laramie Energy”). Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco counties, Colorado. Our Corporate and Other reportable segment primarily includes general and administrative costs. Note 2— Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The condensed consolidated financial statements include the accounts of Par and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts previously reported in our condensed consolidated financial statements for prior periods have been reclassified to conform with the current presentation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The condensed consolidated financial statements contained in this report include all material adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the complete fiscal year or for any other period. The condensed consolidated balance sheet as of December 31, 2021 was derived from our audited consolidated financial statements as of that date. These condensed consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Use of Estimates The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures. Actual amounts could differ from these estimates. The continued worldwide spread and severity of the COVID-19 coronavirus, along with a number of recent global events including the conflict between Russia and Ukraine and certain developments in the global crude oil markets, have impacted our businesses, people, and operations. We are continuing to actively respond to these ongoing matters and many uncertainties remain. Due to the rapid development and fluidity of these ongoing matters, the full magnitude of these events’ impacts on our estimates and assumptions, financial condition, future results of operations, and future cash flows and liquidity is uncertain and has been and may continue to be material. Allowance for Credit Losses We are exposed to credit losses primarily through our sales of refined products. Credit limits and/or prepayment requirements are set based on such factors as the customer’s financial results, credit rating, payment history, and industry, and are reviewed annually for customers with material credit limits. Credit allowances are reviewed at least quarterly based on 6 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 changes in the customer’s creditworthiness due to economic conditions, liquidity, and business strategy as publicly reported and through discussions between the customer and the Company. We establish provisions for losses on trade receivables based on the estimated credit loss we expect to incur over the life of the receivable. We did not have a material change in our allowances on trade receivables during the three months ended March 31, 2022 or 2021. Cost Classifications Cost of revenues (excluding depreciation) includes 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 Renewable Identification Numbers (“RINs”) obligations, and certain hydrocarbon fees and taxes. Cost of revenues (excluding depreciation) also includes the unrealized gains (losses) on derivatives and inventory valuation adjustments. Certain direct operating expenses related to our logistics segment are also included in Cost of revenues (excluding depreciation). Operating expense (excluding depreciation) includes direct costs of labor, maintenance and services, energy and utility costs, property taxes, and environmental compliance costs, as well as chemicals and catalysts and other direct operating expenses. The following table summarizes depreciation and finance lease amortization expense excluded from each line item in our condensed consolidated statements of operations (in thousands): Three Months Ended March 31, 2022 2021 Cost of revenues $ 5,052 $ 5,219 Operating expense 12,897 12,802 General and administrative expense 648 880 Recent Accounting Pronouncements There have been no developments to recent accounting pronouncements, including the expected dates of adoption and estimated effects on our financial condition, results of operations, and cash flows, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. Note 3— Investment in Laramie Energy, LLC As of March 31, 2022, we had a 46.0 % ownership interest in Laramie Energy. Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco counties, Colorado. The balance of our investment in Laramie Energy was zero as of March 31, 2022 and December 31, 2021. Laramie Energy has a term loan agreement which provides a term loan secured by a lien on its natural gas and crude oil properties and related assets. As of March 31, 2022, the term loan had an outstanding balance of $ 126.4 million. Under the terms of the term loan, Laramie Energy is generally prohibited from making future cash distributions to its owners, including us, except for certain permitted tax distributions. Laramie Energy’s term loan matures on July 1, 2025. Summarized financial information for Laramie Energy is as follows (in thousands): March 31, 2022 December 31, 2021 Current assets $ 75,414 $ 68,779 Non-current assets 323,273 328,571 Current liabilities 67,239 107,976 Non-current liabilities 252,490 177,503 Three Months Ended March 31, 2022 2021 Natural gas and oil revenues $ 50,849 $ 82,348 Income from operations 24,114 47,209 Net income (loss) ( 32,900 ) 40,451 7 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Laramie Energy’s net income (loss) includes (in thousands): Three Months Ended March 31, 2022 2021 Depreciation, depletion, and amortization $ 5,709 $ 6,984 Unrealized (gain) loss on derivative instruments 42,655 ( 549 ) Note 4— Revenue Recognition As of March 31, 2022 and December 31, 2021, receivables from contracts with customers were $ 222.4 million and $ 189.9 million, respectively. Our refining segment recognizes deferred revenues when cash payments are received in advance of delivery of products to the customer. Deferred revenue was $ 18.2 million and $ 10.1 million as of March 31, 2022 and December 31, 2021, respectively. We have elected to apply a practical expedient not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected duration of less than one year and (ii) contracts where the variable consideration has been allocated entirely to our unsatisfied performance obligation. The following table provides information about disaggregated revenue by major product line and includes a reconciliation of the disaggregated revenues to total segment revenues (in thousands): Three Months Ended March 31, 2022 Refining Logistics Retail Product or service: Gasoline $ 401,109 $ — $ 89,775 Distillates (1) 588,083 — 8,510 Other refined products (2) 303,607 — — Merchandise — — 20,815 Transportation and terminalling services — 42,461 — Other revenue 6,424 — 809 Total segment revenues (3) $ 1,299,223 $ 42,461 $ 119,909 Three Months Ended March 31, 2021 Refining Logistics Retail Product or service: Gasoline $ 277,579 $ — $ 63,822 Distillates (1) 350,799 — 5,068 Other refined products (2) 209,780 — — Merchandise — — 21,286 Transportation and terminalling services — 41,309 — Other revenue 597 — 1,012 Total segment revenues (3) $ 838,755 $ 41,309 $ 91,188 _______________________________________________________ (1) Distillates primarily include diesel and jet fuel. (2) Other refined products include fuel oil, gas oil, asphalt, and naphtha. (3) Refer to Note 17—Segment Information for the reconciliation of segment revenues to total consolidated revenues. 8 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Note 5— Inventories Inventories at March 31, 2022 and December 31, 2021 consisted of the following (in thousands): Titled Inventory Supply and Offtake Agreement (1) Total March 31, 2022 Crude oil and feedstocks $ 291,932 $ 196,035 $ 487,967 Refined products and blendstock 175,942 180,618 356,560 Warehouse stock and other (2) 182,606 — 182,606 Total $ 650,480 $ 376,653 $ 1,027,133 December 31, 2021 Crude oil and feedstocks $ 102,085 $ 199,282 $ 301,367 Refined products and blendstock 179,737 142,872 322,609 Warehouse stock and other (2) 166,341 — 166,341 Total $ 448,163 $ 342,154 $ 790,317 ________________________________________________________ (1) Please read Note 7—Inventory Financing Agreements for further information. (2) Includes $ 134.8 million and $ 120.1 million of RINs and environmental credits, reported at the lower of cost or net realizable value, as of March 31, 2022 and December 31, 2021, respectively. RINs and environmental obligations of $ 346.0 million and $ 311.0 million, reported at market value, are included in Other accrued liabilities on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, we had no reserve for the lower of cost or net realizable value of inventory. As of December 31, 2021, there was a $ 0.5 million reserve for the lower of cost or net realizable value of inventory. As of March 31, 2022 and December 31, 2021, the excess of current replacement cost over the last-in, first-out (“LIFO”) inventory carrying value at the Washington refinery was approximately $ 77.9 million and $ 46.0 million, respectively. Note 6— Prepaid and Other Current Assets Prepaid and other current assets at March 31, 2022 and December 31, 2021 consisted of the following (in thousands): March 31, 2022 December 31, 2021 Collateral posted with broker for derivative instruments (1) $ 32,413 $ 6,053 Prepaid insurance 9,511 14,110 Prepaid taxes 1,562 — Derivative assets 6,407 1,260 Deferred inventory financing charges 1,585 4,073 Other 4,988 3,029 Total $ 56,466 $ 28,525 _________________________________________________________ (1) Our cash margin that is required as collateral deposits on our commodity derivatives cannot be offset against the fair value of open contracts except in the event of default. Please read Note 10—Derivatives for further information. Note 7— Inventory Financing Agreements The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands): March 31, 2022 December 31, 2021 Supply and Offtake Agreement $ 750,474 $ 569,158 Washington Refinery Intermediation Agreement 230,938 168,546 Obligations under inventory financing agreements $ 981,412 $ 737,704 9 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Supply and Offtake Agreement Under the Second Amended and Restated Supply and Offtake Agreement (as amended, the “Supply and Offtake Agreement”), J. Aron & Company LLC (“J. Aron”) finances the majority of the crude oil utilized at the Hawaii refinery, holds legal title to the crude oil stored in our storage tanks before processing until title passes to us at the tank outlet, and buys refined products produced at our Hawaii refinery, after which we repurchase the refined products prior to selling them to our retail locations or third parties. Under the Supply and Offtake Agreement, J. Aron may enter into agreements with third parties whereby J. Aron remits payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. As of March 31, 2022, we had no obligations due to J. Aron under this contractual undertakings agreement. The Supply and Offtake Agreement expires May 31, 2024 (as extended, the “Expiration Date”), subject to a one-year extension at the mutual agreement of the parties at least 120 days prior to the Expiration Date. The Supply and Offtake Agreement also makes available a discretionary draw facility (the “Discretionary Draw Facility”) to Par Hawaii Refining, LLC (“PHR”). As of March 31, 2022, and December 31, 2021, our outstanding balance under the Discretionary Draw Facility was equal to our borrowing base of $ 165.0 million and $ 126.2 million, respectively. On April 25, 2022, we entered into an amendment to the Supply and Offtake Agreement pursuant to which, among other things, the capacity under the Discretionary Draw Facility was increased from $ 165 million to $ 215 million. Please read Note 19—Subsequent Events for further information about the amendment. Under the Supply and Offtake Agreement, we pay or receive certain fees from J. Aron based on changes in market prices over time. In 2021, we entered into multiple contracts to fix certain market fees for the period from May 2021 through May 2022 for $ 18.2 million. In 2022, we entered into additional contracts to fix certain fees for the month of March 2022 for $ 4.5 million. The amount due to or from J. Aron is recorded as an adjustment to our Obligations under inventory financing agreements as allowed under the Supply and Offtake Agreement. As of March 31, 2022, and December 31, 2021, we had payables of $ 7.0 million and $ 6.2 million, respectively. Washington Refinery Intermediation Agreement The Washington Refinery Intermediation Agreement with MLC provides a structured financing arrangement based on U.S. Oil’s crude oil and refined products inventories and associated accounts receivable. On March 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to advance the term expiry date from December 21, 2022 to March 31, 2023. As of March 31, 2022, and December 31, 2021, our outstanding balance under the MLC receivable advances was equal to our borrowing base of $ 57.5 million and $ 54.5 million, respectively. Additionally, as of March 31, 2022, and December 31, 2021, we had approximately $ 211.2 million and $ 167.0 million in letters of credit outstanding through MLC’s credit support, respectively. The following table summarizes the inventory intermediation fees, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations, and Interest expense and financing costs, net related to the intermediation agreements (in thousands): Three Months Ended March 31, 2022 2021 Net fees and expenses: Supply and Offtake Agreement Inventory intermediation fees $ 10,923 $ 3,770 Interest expense and financing costs, net 1,244 846 Washington Refinery Intermediation Agreement Inventory intermediation fees $ 750 $ 971 Interest expense and financing costs, net 1,954 977 The Supply and Offtake Agreement and the Washington Refinery Intermediation Agreement also provide us with the ability to economically hedge price risk on our inventories and crude oil purchases. Please read Note 10—Derivatives for further information. 10 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Note 8— Other Accrued Liabilities Other accrued liabilities at March 31, 2022 and December 31, 2021 consisted of the following (in thousands): March 31, 2022 December 31, 2021 Accrued payroll and other employee benefits $ 13,168 $ 19,710 Derivative liabilities 28,311 1,431 Gross environmental credit obligations (1) 346,034 311,014 Other 46,130 38,269 Total $ 433,643 $ 370,424 ___________________________________________________ (1) Gross environmental credit obligations are stated at market as of March 31, 2022 and December 31, 2021. Please read Note 11—Fair Value Measurements for further information. A portion of these obligations are expected to be settled with our RINs assets and other environmental credits, which are presented as Inventories on our condensed consolidated balance sheet and are stated at the lower of cost and net realizable value. The carrying costs of these assets were $ 134.8 million and $ 120.1 million as of March 31, 2022 and December 31, 2021, respectively. Note 9— Debt The following table summarizes our outstanding debt (in thousands): March 31, 2022 December 31, 2021 ABL Credit Facility due 2025 $ 24,995 $ — 7.75 % Senior Secured Notes due 2025 296,000 296,000 Term Loan B due 2026 212,500 215,625 12.875 % Senior Secured Notes due 2026 68,250 68,250 Principal amount of long-term debt 601,745 579,875 Less: unamortized discount and deferred financing costs ( 14,417 ) ( 15,317 ) Total debt, net of unamortized discount and deferred financing costs 587,328 564,558 Less: current maturities, net of unamortized discount and deferred financing costs ( 10,846 ) ( 10,841 ) Long-term debt, net of current maturities $ 576,482 $ 553,717 As of March 31, 2022 and December 31, 2021, we had $ 31.6 million and $ 18.5 million, respectively, in letters of credit outstanding under the loan and security agreements with certain lenders and Bank of America, N.A., as administrative agent and collateral agent (the “ABL Credit Facility”). We had $ 5.9 million in cash-collateralized letters of credit and surety bonds outstanding as of March 31, 2022 and December 31, 2021 under agreements with MLC and under certain other facilities. Under the ABL Credit Facility, the indentures governing the 7.75 % Senior Secured Notes and 12.875 % Senior Secured Notes, and the term loan facility with Goldman Sachs Bank USA (the “Term Loan B Facility”), our subsidiaries are restricted from paying dividends or making other equity distributions, subject to certain exceptions. ABL Credit Facility Under the ABL Credit Facility, we have a revolving credit facility that provides for revolving loans and for the issuance of letters of credit (the “ABL Revolver”). On February 2, 2022, Par Petroleum, LLC, Par Hawaii, LLC (“PHL”, formerly known as Par Hawaii, Inc. and includes the assets of the dissolved entity formerly known as Mid Pac Petroleum, LLC), Hermes Consolidated, LLC, and Wyoming Pipeline Company, LLC (collectively, the “ABL Borrowers”), entered into the Amended and Restated Loan and Security Agreement (as amended from time to time, the “ABL Loan Agreement”) dated as of February 2, 2022, with certain lenders and Bank of America, N.A., as administrative agent and collateral agent, which amended and restated the Loan and Security Agreement dated as of December 21, 2017, in its entirety. The ABL Loan Agreement increased the maximum principal amount of the ABL Revolver at any time outstanding from $ 85 million to $ 105 million, subject to a borrowing base, including a sublimit of $ 15 million for swingline loans and a sublimit of $ 65 million for the issuance of standby or commercial letters of credit, extended the maturity date of the ABL Revolver to February 2, 2025, and modified the ABL Revolver interest rate definitions to be based on the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York, among other modifications. The ABL Loan Agreement also included 11 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 an accordion feature that would allow the ABL Borrowers to increase the size of the facility by up to $ 50 million in the aggregate, subject to certain limitations and conditions. On March 30, 2022, the parties to the ABL Loan Agreement and the incremental lender party thereto amended the ABL Loan Agreement to exercise the accordion feature of the ABL Loan Agreement. Under the amendment, the aggregate revolving commitments under the ABL Loan Agreement increased from $ 105 million to $ 142.5 million and the available increase under the accordion feature decreased to $ 12.5 million, subject to certain limitations and conditions. As of March 31, 2022, the ABL Revolver had $ 25.0 million in outstanding revolving loans, $ 31.6 million in letters of credit outstanding, and a borrowing base of approximately $ 127.8 million. Cross Default Provisions Included within each of our debt agreements are affirmative and negative covenants, and customary cross default provisions, that require the repayment of amounts outstanding on demand unless the triggering payment default or acceleration is remedied, rescinded, or waived. As of March 31, 2022, we were in compliance with all of our debt instruments. Guarantors In connection with our shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission (“SEC”) and became automatically effective on February 14, 2022 (“Registration Statement”), we may sell non-convertible debt securities and other securities in one or more offerings with an aggregate initial offering price of up to $ 750.0 million. Any non-convertible debt securities issued under the Registration Statement may be fully and unconditionally guaranteed (except for customary release provisions), on a joint and several basis, by some or all of our subsidiaries, other than subsidiaries that are “minor” within the meaning of Rule 3-10 of Regulation S-X (the “Guarantor Subsidiaries”). We have no “independent assets or operations” within the meaning of Rule 3-10 of Regulation S-X and certain of the Guarantor Subsidiaries may be subject to restrictions on their ability to distribute funds to us, whether by cash dividends, loans, or advances. Note 10— Derivatives Commodity Derivatives Our condensed consolidated balance sheets present derivative assets and liabilities on a net basis. Please read Note 11—Fair Value Measurements for the gross fair value and net carrying value of our derivative instruments. Our cash margin that is required as collateral deposits cannot be offset against the fair value of open contracts except in the event of default. Our open futures and over-the-counter (“OTC”) swaps at March 31, 2022, will settle by March 2023. At March 31, 2022, our open commodity derivative contracts represented (in thousands of barrels): Contract type Purchases Sales Net Futures 9,025 ( 10,803 ) ( 1,778 ) Swaps 500 ( 2,210 ) ( 1,710 ) Total 9,525 ( 13,013 ) ( 3,488 ) At March 31, 2022, we also had option collars that economically hedge a portion of our internally consumed fuel at our refineries. The following table provides information on these option collars at our refineries as of March 31, 2022: March 31, 2022 Average barrels per month 75,000 Weighted-average strike price - floor (in dollars) $ 59.36 Weighted-average strike price - ceiling (in dollars) $ 75.21 Earliest commencement date April 2022 Furthest expiry date December 2022 12 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Interest Rate Derivatives We are exposed to interest rate volatility in our ABL Revolver, Term Loan B Facility, Supply and Offtake Agreement, and Washington Refinery Intermediation Agreement. We may utilize interest rate swaps to manage our interest rate risk. In May 2019, we entered into an interest rate swap at an average fixed rate of 3.91 % in exchange for the floating interest rate on the notional amounts due under the Retail Property Term Loan. This swap was set to expire on April 1, 2024, the maturity date of the Retail Property Term Loan. On February 23, 2021, we terminated and repaid all amounts outstanding under the Retail Property Term Loan and the related interest rate swap. At March 31, 2022, and December 31, 2021, we did not hold any interest rate derivative instruments. The following table provides information on the fair value amounts (in thousands) of these derivatives as of March 31, 2022, and December 31, 2021, and their placement within our condensed consolidated balance sheets. Balance Sheet Location March 31, 2022 December 31, 2021 Asset (Liability) Commodity derivatives (1) Prepaid and other current assets $ 6,407 $ 1,260 Commodity derivatives Other accrued liabilities ( 28,311 ) ( 1,431 ) J. Aron repurchase obligation derivative Obligations under inventory financing agreements ( 58,420 ) ( 15,151 ) MLC terminal obligation derivative Obligations under inventory financing agreements 5,742 ( 22,170 ) _________________________________________________________ (1) Does not include cash collateral of $ 32.4 million and $ 6.1 million recorded in Prepaid and other current assets as of March 31, 2022, and December 31, 2021, respectively, and $ 9.5 million in Other long-term assets as of both March 31, 2022, and December 31, 2021. The following table summarizes the pre-tax gains (losses) recognized in Net income (loss) on our condensed consolidated statements of operations resulting from changes in fair value of derivative instruments not designated as hedges charged directly to earnings (in thousands): Three Months Ended March 31, Statement of Operations Location 2022 2021 Commodity derivatives Cost of revenues (excluding depreciation) $ ( 18,454 ) $ 631 J. Aron repurchase obligation derivative Cost of revenues (excluding depreciation) ( 43,269 ) ( 775 ) MLC terminal obligation derivative Cost of revenues (excluding depreciation) ( 64,396 ) ( 24,372 ) Interest rate derivatives Interest expense and financing costs, net — 104 Note 11— Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Derivative Instruments We utilize commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and cost of crude oil consumed in the refining process. We may utilize interest rate swaps to manage our interest rate risk. We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The valuation of the embedded derivatives related to our J. Aron repurchase and MLC terminal obligations is based on estimates of the prices and differentials assuming settlement at the end of the reporting period. Estimates of the J. Aron and MLC settlement prices are based on observable inputs, such as 13 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Brent and West Texas Intermediate Crude Oil (“WTI”) indices, and unobservable inputs, such as contractual price differentials as defined in the Supply and Offtake Agreement and Washington Refinery Intermediation Agreement. Such contractual differentials vary by location and by the type of product and range from a discount of $ 16.40 per barrel to a premium of $ 57.86 per barrel as of March 31, 2022. Contractual price differentials are considered unobservable inputs; therefore, these embedded derivatives are classified as Level 3 instruments. We did not have other commodity derivatives classified as Level 3 at March 31, 2022, or December 31, 2021. Please read Note 10—Derivatives for further information on derivatives. Gross Environmental credit obligations Estimates of our gross environmental credit obligations are based on the amount of RINs or other environmental credits required to comply with U.S. Environmental Protection Agency (“EPA”) regulations and the market prices of those RINs or other environmental credits as of the end of the reporting period. The gross environmental credit obligations are classified as Level 2 instruments as we obtain the pricing inputs for our RINs and other environmental credits from brokers based on market quotes on similar instruments. Please read Note 13—Commitments and Contingencies for further information on the EPA regulations related to greenhouse gases. Financial Statement Impact Fair value amounts by hierarchy level as of March 31, 2022, and December 31, 2021, are presented gross in the tables below (in thousands): March 31, 2022 Level 1 Level 2 Level 3 Gross Fair Value Effect of Counter-Party Netting Net Carrying Value on Balance Sheet (1) Assets Commodity derivatives $ 56,422 $ 17,936 $ — $ 74,358 $ ( 67,951 ) $ 6,407 Liabilities Commodity derivatives $ ( 77,116 ) $ ( 19,146 ) $ — $ ( 96,262 ) $ 67,951 $ ( 28,311 ) J. Aron repurchase obligation derivative — — ( 58,420 ) ( 58,420 ) — ( 58,420 ) MLC terminal obligation derivative — — 5,742 5,742 — 5,742 Gross environmental credit obligations (2) — ( 346,034 ) — ( 346,034 ) — ( 346,034 ) Total Liabilities $ ( 77,116 ) $ ( 365,180 ) $ ( 52,678 ) $ ( 494,974 ) $ 67,951 $ ( 427,023 ) 14 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 December 31, 2021 Level 1 Level 2 Level 3 Gross Fair Value Effect of Counter-Party Netting Net Carrying Value on Balance Sheet (1) Assets Commodity derivatives $ 4,283 $ 4,513 $ — $ 8,796 $ ( 7,536 ) $ 1,260 Liabilities Commodity derivatives $ ( 3,964 ) $ ( 5,003 ) $ — $ ( 8,967 ) $ 7,536 $ ( 1,431 ) J. Aron repurchase obligation derivative — — ( 15,151 ) ( 15,151 ) — ( 15,151 ) MLC terminal obligation derivative — — ( 22,170 ) ( 22,170 ) — ( 22,170 ) Gross environmental credit obligations (2) — ( 311,014 ) — ( 311,014 ) — ( 311,014 ) Total Liabilities $ ( 3,964 ) $ ( 316,017 ) $ ( 37,321 ) $ ( 357,302 ) $ 7,536 $ ( 349,766 ) _________________________________________________________ (1) Does not include cash collateral of $ 41.9 million and $ 15.6 million as of March 31, 2022, and December 31, 2021, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets. (2) Does not include RINs assets and other environmental credits of $ 134.8 million and $ 120.1 million presented as Inventories on our condensed consolidated balance sheet and stated at the lower of cost and net realizable value as of March 31, 2022, and December 31, 2021, respectively. A roll forward of Level 3 derivative instruments measured at fair value on a recurring basis is as follows (in thousands): Three Months Ended March 31, 2022 2021 Balance, at beginning of period $ ( 37,321 ) $ ( 30,958 ) Settlements 92,308 34,943 Acquired — — Total gains (losses) included in earnings ( 107,665 ) ( 25,147 ) Balance, at end of period $ ( 52,678 ) $ ( 21,162 ) The carrying value and fair value of long-term debt and other financial instruments as of March 31, 2022 and December 31, 2021 are as follows (in thousands): March 31, 2022 Carrying Value Fair Value ABL Credit Facility due 2025 (2) $ 24,995 $ 24,995 7.75 % Senior Secured Notes due 2025 (1) 290,946 293,602 Term Loan B Facility due 2026 (1) 206,204 211,438 12.875 % Senior Secured Notes due 2026 (1) 65,183 74,051 15 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 December 31, 2021 Carrying Value Fair Value ABL Credit Facility due 2025 (2) $ — $ — 7.75 % Senior Secured Notes due 2025 (1) 290,621 299,700 Term Loan B Facility due 2026 (1) 208,903 214,827 12.875 % Senior Secured Notes due 2026 (1) 65,034 75,758 _________________________________________________________ (1) The fair value measurements of the 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes are considered Level 2 measurements in the fair value hierarchy as discussed below. (2) The fair value measurement of the ABL Credit Facility is considered a Level 3 measurement in the fair value hierarchy. The fair value of the 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes were determined using a market approach based on quoted prices. The inputs used to measure the fair value are classified as Level 2 inputs within the fair value hierarchy because the 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes may not be actively traded. The carrying value of our ABL Credit Facility was determined to approximate fair value as of March 31, 2022. The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature. Note 12— Leases We have cancellable and non-cancellable finance and operating lease liabilities for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material lease arrangements where we are the lessor and no material residual value guarantees associated with any of our leases. The following table provides information on the amounts (in thousands) of our right-of-use assets (“ROU assets”) and liabilities as of March 31, 2022 and December 31, 2021 and their placement within our condensed consolidated balance sheets: Lease type Balance Sheet Location March 31, 2022 December 31, 2021 Assets Finance Property, plant, and equipment $ 21,150 $ 20,556 Finance Accumulated amortization ( 8,880 ) ( 8,397 ) Finance Property, plant, and equipment, net $ 12,270 $ 12,159 Operating Operating lease right-of-use assets 377,745 383,824 Total right-of-use assets $ 390,015 $ 395,983 Liabilities Current Finance Other accrued liabilities $ 1,685 $ 1,540 Operating Operating lease liabilities 55,440 53,640 Long-term Finance Finance lease liabilities 7,653 7,691 Operating Operating lease liabilities 330,031 335,094 Total lease liabilities $ 394,809 $ 397,965 16 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 The following table summarizes the weighted-average lease terms and discount rates of our leases as of March 31, 2022 and December 31, 2021: March 31, 2022 December 31, 2021 Weighted-average remaining lease term (in years) Finance 6.07 6.29 Operating 11.11 11.28 Weighted-average discount rate Finance 7.31 % 7.46 % Operating 6.68 % 6.70 % The following table summarizes the lease costs recognized in our condensed consolidated statements of operations (in thousands): Three Months Ended March 31, Lease cost type 2022 2021 Finance lease cost Amortization of finance lease ROU assets $ 484 $ 490 Interest on lease liabilities 161 174 Operating lease cost 22,254 22,377 Variable lease cost 1,246 1,772 Short-term lease cost 986 29 Net lease cost $ 25,131 $ 24,842 The following table summarizes the supplemental cash flow information related to leases as follows (in thousands): Three Months Ended March 31, Lease type 2022 2021 Cash paid for amounts included in the measurement of liabilities Financing cash flows from finance leases $ 482 $ 1,539 Operating cash flows from finance leases 161 176 Operating cash flows from operating leases 19,394 19,704 Non-cash supplemental amounts ROU assets obtained in exchange for new finance lease liabilities 594 1,072 ROU assets obtained in exchange for new operating lease liabilities 10,678 85,426 ROU assets terminated in exchange for release from operating lease liabilities 1,029 — 17 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 The table below includes the estimated future undiscounted cash flows for finance and operating leases as of March 31, 2022 (in thousands): For the year ending December 31, Finance leases Operating leases Total 2022 (1) $ 1,700 $ 62,261 $ 63,961 2023 2,286 63,617 65,903 2024 1,955 55,588 57,543 2025 1,794 51,354 53,148 2026 1,327 46,756 48,083 2027 1,097 44,848 45,945 Thereafter 1,582 191,789 193,371 Total lease payments 11,741 516,213 527,954 Less amount representing interest ( 2,403 ) ( 130,742 ) ( 133,145 ) Present value of lease liabilities $ 9,338 $ 385,471 $ 394,809 _________________________________________________________ (1) Represents the period from April 1, 2022 to December 31, 2022. Additionally, we have $ 3.8 million and $ 6.1 million in future undiscounted cash flows for finance and operating leases that have not yet commenced, respectively. These leases are expected to commence when the lessor has made the equipment or location available to us to operate or begin construction, respectively. Sale-Leaseback Transaction In February and March 2021, PHL and Par Hawaii Property Company, LLC (collectively, the “Sellers”), both our wholly owned subsidiaries, and MDC Coast HI 1, LLC, a subsidiary of Realty Income Corporation (the “Buyer”), entered into sale-leaseback transactions with respect to twenty-two ( 22 ) retail convenience store/fuel station properties located in Hawaii. We recognized a gain of $ 63.9 million as a result of these transactions, which is included in Loss (gain) on sale of assets, net on our condensed consolidated statements of operations for the three months ended March 31, 2021. Note 13— Commitments and Contingencies In the ordinary course of business, we are a party to various lawsuits and other contingent matters. We establish accruals for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on our financial condition, results of operations, or cash flows. Tax and Related Matters We are also party to various other legal proceedings, claims, and regulatory, tax or government audits, inquiries and investigations that arise in the ordinary course of business. For example, during the first quarter of 2022 we received a tax assessment in the amount of $ 1.4 million from the Washington Department of Revenue related to its audit of certain taxes allegedly payable on certain sales of raw vacuum gas oil that occurred between 2014 and 2016. We believe the Department of Revenue’s interpretation is in conflict with its prior guidance and we intend to appeal. By opinion dated September 22, 2021, the Hawaii Attorney General reversed a prior 1964 opinion exempting various business transactions conducted in Hawaii free trade zones from certain state taxes. We understand that we and other similarly situated state taxpayers who had previously claimed such exemptions may anticipate an audit of their state tax returns filed for such prior tax periods. Similarly, on September 30, 2021, we received notice of a complaint filed on May 17, 2021, on camera and under seal in the first circuit court of the state of Hawaii alleging that Par Hawaii Refining, LLC, Par Pacific Holdings, Inc. and certain unnamed defendants made false claims and statements in connection with various state tax returns related to our business conducted within the Hawaii free trade zones, and seeking unspecified damages, penalties, interest and injunctive relief. We dispute the allegations in the complaint and intend to vigorously defend ourselves in such proceeding. We believe the likelihood of an unfavorable outcome in these matters to be neither probable nor reasonably estimable. Environmental Matters Like other petroleum refiners, our operations 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 18 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 management activities. Many of these regulations are becoming increasingly stringent and the cost of compliance can be expected to increase over time. 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. 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. Wyoming Refinery 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. The largest cost component arising from these various decrees relates to the investigation, monitoring, and remediation of soil, groundwater, surface water, and sediment contamination associated with the facility’s historic operations. Investigative work by Wyoming Refining and negotiations with the relevant agencies as to remedial approaches remain ongoing on a number of aspects of the contamination, meaning that investigation, monitoring, and remediation costs are not reasonably estimable for some elements of these efforts. As of March 31, 2022, we have accrued $ 15.4 million for the well-understood components of these efforts based on current information, approximately one-third of which we expect to incur in the next five years and the remainder to be incurred over approximately 30 years. Additionally, we believe the Wyoming refinery will need to modify or close a series of wastewater impoundments in the next several years and replace those impoundments with a new wastewater treatment system. Based on current information, reasonable estimates we have received suggest costs of approximately $ 11.6 million to design and construct a new wastewater treatment system. Finally, among the various historic consent decrees, orders, and settlement agreements into which Wyoming Refining has entered, there are several penalty orders associated with exceedances of permitted limits by the Wyoming refinery’s wastewater discharges. Although the frequency of these exceedances has declined over time, Wyoming Refining may become subject to new penalty enforcement action in the next several years, which could involve penalties in excess of $ 300,000 . Regulation of Greenhouse Gases The EPA regulates greenhouse gases (“GHG”) under the federal Clean Air Act (“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 is currently developing refinery-specific GHG regulations and performance standards that are expected to impose GHG emission limits and/or technology requirements. 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 the cost of the products we produce, which could have a material adverse effect on our financial condition, 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. Several states have also passed legislation related to GHGs. For example, in 2021, the State of Washington passed climate legislation requiring fuel suppliers to gradually reduce the carbon intensity of transportation fuels to 20 percent below 2017 levels by 2038 and subjecting entities that emit significant amounts of carbon dioxide, such as fuel suppliers, to a cap-and-trade system for reducing GHG emissions beginning January 1, 2023. 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 Hawaii Department of Health (“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 refinery’s 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. The regulation allows for “partnering” with other facilities (principally power plants) that have already dramatically reduced greenhouse emissions or are on schedule to reduce CO 2 emissions in order to comply independently with the state’s Renewable Portfolio Standards. Accordingly, our Hawaii 19 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 refinery submitted a GHG reduction plan that incorporates the partnering provisions and demonstrates that additional reductions are not cost-effective or necessary because of the Hawaii refinery’s baseline allocation and because the State of Hawaii has already reached the 1990 levels according to a report prepared by the DOH in January 2019. Compliance with federal and state GHG regulations could result in material increased compliance costs and an increase in the cost of our products. In 2007, the U.S. Congress passed the Energy Independence and Security Act (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 Renewable Fuel Standard (the “RFS”). In August 2012, the EPA and National Highway Traffic Safety Administration (“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 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 renewable credits, referred to as RINs, to maintain compliance. 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. As of March 31, 2022, our estimate of the renewable volume obligation (“RVO”) liability for the 2021 and 2022 compliance years is based on the RFS proposed volumetric requirements released by the EPA on December 7, 2021. Additionally, the RFS enables the EPA to exempt certain small refineries from the renewable fuels blending requirements in the event such requirements would cause disproportionate economic hardship to that refinery. We petitioned the EPA for a small refinery waiver for certain of our refineries for 2019-2020, but in January 2021, the EPA announced it would cease granting hardship exemptions to small refineries that had not received continuous exemptions since 2011. In HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, the United States Supreme Court recently held that the CAA authorizes the EPA to exempt a small refinery from compliance with the renewable fuel standards program even if the small refinery had not received an exemption in each year since the program began in 2011. It is uncertain whether the EPA will begin granting hardship exemptions again in light of the Court’s decision or withhold approval of pending hardship exemption requests on other grounds. 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% (“E10”) to 15% (“E15”) for 2007 and newer light duty motor vehicles. In 2019, the EPA approved year-round sales of E15. However, on July 2, 2021, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit vacated the EPA’s approval of year-round E15 sales. There are numerous issues, including state and federal regulatory issues, that 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 parts per million (“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 20 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 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) were lowered from 10,000 ppm (1%) to 1,000 ppm (0.1%). The sulfur standards began at the Hawaii refinery and were phased in so that by January 1, 2015, they were to be fully aligned with the International Marine Organization (“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 Emission Control Area (“ECA”). Beyond the 200 mile ECA, large ocean vessels are still allowed to burn marine fuel with up to 3.5% sulfur. Our Hawaii refinery is capable of producing the 1% sulfur residual fuel oil that was previously required within the ECA. Although our Hawaii refinery remains 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 (“IMO 2020”). Environmental Agreement On September 25, 2013, Par Petroleum, LLC (formerly Hawaii Pacific Energy, a wholly owned subsidiary of Par created for purposes of the acquisition of PHR), Tesoro Corporation (“Tesoro”), and PHR entered into an Environmental Agreement (“Environmental Agreement”) that allocated responsibility for known and contingent environmental liabilities related to the acquisition of PHR, including a consent decree. Indemnification In addition to its obligation to reimburse us for capital expenditures incurred pursuant to a consent decree, Tesoro agreed to indemnify us for claims and losses arising out of related breaches of Tesoro’s representations, warranties, and covenants in the Environmental Agreement, certain defined “corrective actions” relating to pre-existing environmental conditions, third-party claims arising under environmental laws for personal injury or property damage arising out of or relating to releases of hazardous materials that occurred prior to the date of the closing of the PHR acquisition, any fine, penalty, or other cost assessed by a governmental authority in connection with violations of environmental laws by PHR prior to the date of the closing of the PHR acquisition, certain groundwater remediation work, fines, or penalties imposed on PHR by a consent decree related to acts or omissions of Tesoro prior to the date of the closing of the PHR acquisition, and claims and losses related to the Pearl City Superfund Site. Tesoro’s indemnification obligations are subject to certain limitations as set forth in the Environmental Agreement. These limitations include a deductible of $ 1 million and a cap of $ 15 million for certain of Tesoro’s indemnification obligations related to certain pre-existing conditions, as well as certain restrictions regarding the time limits for submitting notice and supporting documentation for remediation actions. Recovery Trusts We emerged from the reorganization of Delta Petroleum Corporation (“Delta”) on August 31, 2012 (“Emergence Date”), when the plan of reorganization (“Plan”) was consummated. On the Emergence Date, we formed the Delta Petroleum General Recovery Trust (“General Trust”). The General Trust was formed to pursue certain litigation against third parties, including preference actions, fraudulent transfer and conveyance actions, rights of setoff and other claims, or causes of action under the U.S. Bankruptcy Code and other claims and potential claims that Delta and its subsidiaries (collectively, “Debtors”) hold against third parties. On February 27, 2018, the Bankruptcy Court entered its final decree closing the Chapter 11 bankruptcy cases of Delta and the other Debtors, discharging the trustee for the General Trust, and finding that all assets of the General Trust were resolved, abandoned, or liquidated and have been distributed in accordance with the requirements of the Plan. In addition, the final decree required the Company or the General Trust, as applicable, to maintain the current accruals owed on account of the remaining claims of the U.S. Government and Noble Energy, Inc. As of March 31, 2022, two related claims totaling approximately $ 22.4 million remained to be resolved and we have accrued approximately $ 0.5 million representing the estimated value of claims remaining to be settled which are deemed probable and estimable at period end. One of the two remaining claims was filed by the U.S. Government for approximately $ 22.4 million relating to ongoing litigation concerning a plugging and abandonment obligation in Pacific Outer Continental Shelf Lease OCS-P 0320, comprising part of the Sword Unit in the Santa Barbara Channel, California. The second unliquidated claim, which is related to the same plugging and abandonment obligation, was filed by Noble Energy Inc., the operator and majority interest owner of the 21 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Sword Unit. We believe the probability of issuing stock to satisfy the full claim amount is remote, as the obligations upon which such proof of claim is asserted are joint and several among all working interest owners and Delta, our predecessor, only owned an approximate 3.4 % aggregate working interest in the unit. The settlement of claims is subject to ongoing litigation and we are unable to predict with certainty how many shares will be required to satisfy all claims. Pursuant to the Plan, allowed claims are settled at a ratio of 54.4 shares per $1,000 of claim. Note 14— Stockholders’ Equity Share Repurchase Program On November 10, 2021, the Board authorized and approved a share repurchase program for up to $ 50 million of the outstanding shares of the Company’s common stock, with no specified end date. During the three months ended March 31, 2022, we repurchased 362,130 shares under this share repurchase program for a total of $ 5.0 million. Incentive Plans The following table summarizes our compensation costs recognized in General and administrative expense (excluding depreciation) and Operating expense (excluding depreciation) under the Amended and Restated Par Pacific Holdings, Inc. 2012 Long-term Incentive Plan and Stock Purchase Plan (in thousands): Three Months Ended March 31, 2022 2021 Restricted Stock Awards $ 1,749 $ 1,112 Restricted Stock Units 673 327 Stock Option Awards 1,236 447 During the three months ended March 31, 2022, we granted 361 thousand shares of restricted stock and restricted stock units with a fair value of approximately $ 5.4 million. As of March 31, 2022, there were approximately $ 12.2 million of total unrecognized compensation costs related to restricted stock awards and restricted stock units, which are expected to be recognized on a straight-line basis over a weighted-average period of 2.0 years. During the three months ended March 31, 2022, we granted 449 thousand stock option awards with a weighted-average exercise price of $ 14.91 per share. As of March 31, 2022, there were approximately $ 5.9 million of total unrecognized compensation costs related to stock option awards, which are expected to be recognized on a straight-line basis over a weighted-average period of 2.1 years. During the three months ended March 31, 2022, we granted 50 thousand performance restricted stock units to executive officers. These performance restricted stock units had a fair value of approximately $ 0.7 million and are subject to certain annual performance targets based on three-year -performance periods as defined by our Board of Directors. As of March 31, 2022, there were approximately $ 1.5 million of total unrecognized compensation costs related to the performance restricted stock units, which are expected to be recognized on a straight-line basis over a weighted-average period of 2.2 years. 22 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Note 15— Income (Loss) per Share The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts): Three Months Ended March 31, 2022 2021 Net loss $ ( 137,051 ) $ ( 62,227 ) Less: Undistributed income allocated to participating securities — — Net loss attributable to common stockholders ( 137,051 ) ( 62,227 ) Plus: Net income effect of convertible securities — — Numerator for diluted loss per common share $ ( 137,051 ) $ ( 62,227 ) Basic weighted-average common stock shares outstanding 59,413 54,280 Plus: dilutive effects of common stock equivalents (1) — — Diluted weighted-average common stock shares outstanding 59,413 54,280 Basic loss per common share $ ( 2.31 ) $ ( 1.15 ) Diluted loss per common share $ ( 2.31 ) $ ( 1.15 ) Diluted income (loss) per common share excludes the following equity instruments because their effect would be anti-dilutive: Shares of unvested restricted stock 942 674 Shares of stock options 2,405 2,086 Common stock equivalents using the if-converted method of settling the 5.00 % Convertible Senior Notes (2) — 2,704 _________________________________________________________ (1) Entities with a net loss from continuing operations are prohibited from including potential common shares in the computation of diluted per share amounts. We have utilized the basic shares outstanding to calculate both basic and diluted Net Loss per common share for the three months ended March 31, 2022 and 2021. (2) We had no 5.00 % Convertible Senior Notes outstanding for the three months ended March 31, 2022. Note 16— Income Taxes 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 those temporary differences become deductible. Management continues to conclude that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets on the remaining amounts and a valuation allowance has been recorded for substantially all of our net deferred tax assets at March 31, 2022 and December 31, 2021. We believe that any adjustment to our uncertain tax positions would no t have a material impact on our financial statements given the Company’s deferred tax and corresponding valuation allowance position as of March 31, 2022 and December 31, 2021. As of December 31, 2021, we had approximately $ 1.6 billion in net operating loss carryforwards (“NOL carryforwards”); however, we currently have a valuation allowance against this and substantially all of our other deferred taxed assets. Our net taxable income must be apportioned to various states based upon the income tax laws of the states in which we derive our revenue. Our NOL carryforwards will not always be available to offset taxable income apportioned to the various states. The states from which our refining, retail, and logistics revenues are derived are not the same states in which our NOLs were incurred; therefore, we expect to incur state tax liabilities in connection with our refining, retail, and logistics operations. 23 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Note 17— Segment Information We report the results for the following four reportable segments: (i) Refining, (ii) Retail, (iii) Logistics, and (iv) Corporate and Other. Summarized financial information concerning reportable segments consists of the following (in thousands): Three Months Ended March 31, 2022 Refining Logistics Retail Corporate, Eliminations and Other (1) Total Revenues $ 1,299,223 $ 42,461 $ 119,909 $ ( 111,300 ) $ 1,350,293 Cost of revenues (excluding depreciation) 1,343,915 23,749 93,842 ( 111,257 ) 1,350,249 Operating expense (excluding depreciation) 58,300 3,773 19,331 — 81,404 Depreciation, depletion, and amortization 15,333 5,087 2,691 669 23,780 General and administrative expense (excluding depreciation) — — — 15,893 15,893 Acquisition and integration costs — — — 63 63 Operating income (loss) $ ( 118,325 ) $ 9,852 $ 4,045 $ ( 16,668 ) $ ( 121,096 ) Interest expense and financing costs, net ( 16,394 ) Other income, net 2 Loss before income taxes ( 137,488 ) Income tax benefit 437 Net loss $ ( 137,051 ) Capital expenditures $ 12,829 $ 1,733 $ 1,581 $ 190 $ 16,333 Three Months Ended March 31, 2021 Refining Logistics Retail Corporate, Eliminations and Other (1) Total Revenues $ 838,755 $ 41,309 $ 91,188 $ ( 82,572 ) $ 888,680 Cost of revenues (excluding depreciation) 883,477 22,082 65,872 ( 82,568 ) 888,863 Operating expense (excluding depreciation) 53,338 3,896 16,954 — 74,188 Depreciation, depletion, and amortization 14,064 5,254 2,660 902 22,880 Loss (gain) on sale of assets, net ( 21,259 ) — ( 43,653 ) — ( 64,912 ) General and administrative expense (excluding depreciation) — — — 11,885 11,885 Acquisition and integration costs — — — 438 438 Operating income (loss) $ ( 90,865 ) $ 10,077 $ 49,355 $ ( 13,229 ) $ ( 44,662 ) Interest expense and financing costs, net ( 18,151 ) Debt extinguishment and commitment costs ( 1,507 ) Gain on curtailment of pension obligation 2,032 Other income, net 61 Loss before income taxes ( 62,227 ) Income tax expense — Net loss $ ( 62,227 ) Capital expenditures $ 4,575 $ 2,851 $ 592 $ 160 $ 8,178 ________________________________________________________ (1) Includes eliminations of intersegment revenues and cost of revenues of $ 111.3 million and $ 82.6 million for the three months ended March 31, 2022 and 2021, respectively. 24 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended March 31, 2022 and 2021 Note 18— Related Party Transactions Equity Group Investments (“EGI”) - Service Agreement On September 17, 2013, we entered into a letter agreement (“Services Agreement”) with Equity Group Investments (“EGI”), an affiliate of Zell Credit Opportunities Fund, LP (“ZCOF”), which owns 10 % or more of our common stock directly or through affiliates. Pursuant to the Services Agreement, EGI agreed to provide us with ongoing strategic, advisory, and consulting services that may include (i) advice on financing structures and our relationship with lenders and bankers, (ii) advice regarding public and private offerings of debt and equity securities, (iii) advice regarding asset dispositions, acquisitions, or other asset management strategies, (iv) advice regarding potential business acquisitions, dispositions, or combinations involving us or our affiliates, or (v) such other advice directly related or ancillary to the above strategic, advisory, and consulting services as may be reasonably requested by us. EGI does not receive a fee for the provision of the strategic, advisory, or consulting services set forth in the Services Agreement, but may be periodically reimbursed by us, upon request, for (i) travel and out-of-pocket expenses, provided that, in the event that such expenses exceed $ 50 thousand in the aggregate with respect to any single proposed matter, EGI will obtain our consent prior to incurring additional costs, and (ii) provided that we provide prior consent to their engagement with respect to any particular proposed matter, all reasonable fees and disbursements of counsel, accountants, and other professionals incurred in connection with EGI’s services under the Services Agreement. In consideration of the services provided by EGI under the Services Agreement, we agreed to indemnify EGI for certain losses relating to or arising out of the Services Agreement or the services provided thereunder. The Services Agreement has a term of one year and will be automatically extended for successive one-year periods unless terminated by either party at least 60 days prior to any extension date. There were no costs incurred related to this agreement during the three months ended March 31, 2022 or 2021. Note 19— Subsequent Events On April 25, 2022, PHR and Par Petroleum, LLC, entered into an Amendment (the “Amendment”) to the Second Amended and Restated Supply and Offtake Agreement with J. Aron & Company, LLC (“J. Aron”). The Amendment, among other things, amended the maximum commitment amount under the discretionary draw facility available to PHR (the “Discretionary Draw Facility”), from $ 165 million to $ 215 million. The Amendment further increased the limit in the borrowing base for eligible hydrocarbon inventory from $ 82.5 million to $ 107.5 million. Under the Discretionary Draw Facility as amended by the Amendment, J. Aron agrees to make advances to PHR from time to time at the request of PHR, subject to the satisfaction of certain conditions precedent, in an aggregate principal amount at any one time outstanding not to exceed the lesser of (i) $ 215 million; and (ii) the borrowing base, which is calculated as (x) 85 % of eligible receivables, plus (y) the lesser of $ 107.5 million and 85 % of the value of eligible hydrocarbon inventory, minus (z) such reserves as established by J. Aron in respect of eligible receivables and eligible hydrocarbon inventory. The Amendment further requires a $ 5.0 million reserve against the borrowing base at any time more than $ 165 million is outstanding in discretionary draw advances made to PHR, which reserve may be reduced by the posting of cash collateral by PHR in accordance with the terms of the Amendment. In addition, the Amendment modified the calculation “DD Make-Whole” by increasing the assumed aggregate principal amount outstanding used in such calculation from $ 41.3 million to $ 53.8 million. 25