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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-02-25 · 271 added, 254 removed, 646 unchanged (45% of the section changed)

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Recent Events Affecting Comparability of Periods

In 2022, higher national gasoline prices and U.S.

inflation affected most Americans.

Following gasoline price highs of approximately $5 per gallon in summer 2022, prices at the pump fell from June through December, reaching a national average of $3.11 per gallon.

Even with these declines, the overall energy index was up 7.3% year over year as of December 2022.

Rising energy prices are, among other factors, indicators of inflation, and the U.S.

Federal Reserve (the “Fed”) has taken significant steps to curb inflation, increasing its benchmark interest rate six times throughout 2022, from near zero percent at the beginning of 2022 to a range of 4.25% to 4.5% in December 2022.

These actions by the Fed are intended to reverse rising U.S.

inflation rates, which have increased 6.5% year over year as of the December inflation report released in January 2023, by slowing economic and wage growth.

While inflation has increased relative to prior years, we do not believe that inflation has had a material effect on our business, financial condition or results of operations.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases, or price increases could lead to a decline in demand for our products, which could have a material effect on our business, financial condition or results of operations.

Please read Item 1A.

— Risk Factors for more information on the general macroeconomic environment and its potential impacts on our business.

COVID-19 Pandemic

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.

The ongoing spread of COVID-19, in conjunction with related government and other preventative measures taken to mitigate the spread of the virus, caused severe disruptions in the worldwide economy in 2020 and 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.

As of December 2022, the COVID-19 outlook in regions in which we operate has improved significantly and restrictions have been relaxed.

This, combined with widespread vaccine availability, has lessened the perceived severity of the pandemic, leading to higher risk tolerance for individuals and increased travel and public contact in the regions in which we operate.

However, a resurgence of the virus or another pandemic event could cause a return to severe restrictions, leading to a deterioration of macroeconomic conditions and our industry.

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.

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.

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 many of our employees are working from home.

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.

The results of operations for U.S.

Oil were included in our refining and logistics segments commencing January 11, 2019.

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

In connection with the consummation of the Washington Acquisition, we assumed the Washington Refinery Intermediation Agreement with MLC that provides a structured financing arrangement based on U.S.

Oil’s crude oil and refined products inventories and associated accounts receivable.

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

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.

The financial results contained in this Annual Report on Form 10-K reflect the rebounding demand driven by decreasing COVID-19 pandemic-related demand suppression experienced in the regions in which we operate.

However, even with the eased restrictions and increased risk tolerance of individuals, economic effects of the pandemic are ongoing and the impacts of the virus on people and businesses continue to evolve as of the date of this report.

The full magnitude of the impact of these and other events 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.

Please read Item 1A.

— Risk Factors for more information on the impact of the COVID-19 pandemic and its potential impacts on our business.

Russia-Ukraine conflict

In response to the Russian invasion of Ukraine in February 2022, the international community imposed economic sanctions and other limitations on Russian exports, which further decreased the global supply and drove up the price of crude

On March 3, 2022, we suspended purchases of Russian crude oil for our Hawaii refinery in response to the Russia-Ukraine conflict.

We have turned to other grades of crude oil to meet fuel production requirements.

In the third quarter, the global market for energy commodities experienced moderately declining prices driven by increased supply expectations after twelve months of rising prices.

In response, the Organization of the Petroleum Exporting Companies (“OPEC”) announced on October 5, 2022, that it would cut production by two million barrels a day (representing approximately 2% of global oil production) with the intention of raising global oil prices.

As of December 2022, OPEC and Russia reaffirmed this production cut, and the European Union has enacted an embargo on Russian oil, further tightening supply.

The European Union has also announced that it will implement a limited ban on the purchase of Russian refined and intermediate petroleum products effective February 2023.

The overall effect of the conflict and associated actions taken to limit the purchase of Russian petroleum products has been to raise the operating costs of many European and other refineries.

As a result, global product cracks have risen to high levels, generally benefiting refineries that are not purchasing Russian feedstocks or using natural gas as a heat source.

As of the date of this Annual Report on Form 10-K, the Russia-Ukraine conflict is ongoing and continues to impact the global economy.

We will continue to monitor the effects the conflict has on the global financial markets and our operations.

Please read Item 1A.

— Risk Factors for more information on the Russia-Ukraine conflict and its potential impacts on our business.

Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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.

Net Income (Loss).

Our financial results for the year ended December 31, 2022 improved from a net loss of $81.3 million for the year ended December 31, 2021 to net income of $364.2 million for the year ended December 31, 2022.

The improvement was primarily driven by widened product crack spreads across all of our refineries and a favorable change in the valuation of the embedded derivatives related to our inventory financing agreements driven by changes in commodity prices.

These improvements were partially offset by unfavorable purchased product and crude oil differentials, unfavorable first in, first-out (“FIFO”) adjustments, increased intermediation fees of $79.0 million, and a $54.7 million increase in RINs expenses.

Other factors impacting our results period over period include a 2021 gain on sale of assets of $63.9 million related to the Hawaii sale-leaseback transactions with no such gain in 2022 and a 14% increase in operating expenses compared to 2021.

Adjusted EBITDA and Adjusted Net Income.

For the year ended December 31, 2022, Adjusted EBITDA was $643.4 million compared to $125.6 million for the year ended December 31, 2021.

The improvement was primarily related to favorable realized refined product crack spreads at all our refineries, partially offset by unfavorable purchased product and crude oil differentials and unfavorable FIFO adjustments, unfavorable inventory financing and environmental compliance costs, and higher operating expenses compared to 2021.

For the year ended December 31, 2022, Adjusted Net Income was $474.7 million compared to an Adjusted Net Loss of $36.1 million for the year ended December 31, 2021.

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

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 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.

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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).

Our net income decreased from $40.8 million for the year ended December 31, 2019 to a net loss of $409.1 million for the year ended December 31, 2020.

The decrease in our net income (loss) was primarily driven by lower refining sales volumes and unfavorable crack spreads related to COVID-19 demand destruction, increased RINs expenses and derivative costs, goodwill and asset impairments of $85.8 million, and an unfavorable change in lower of cost and net realizable value adjustments, partially offset by cost reductions across our businesses in response to COVID-19 and higher retail fuel margins.

In addition, we incurred an other-than-temporary impairment of $45.3 million related to our equity investment in Laramie Energy in 2020, as compared to an other-than-temporary impairment of $83.2 million in 2019.

Other factors impacting our results period over period include a $49.0 million reduction in our income tax benefit and lower debt extinguishment and commitment costs.

Adjusted EBITDA and Adjusted Net Income (Loss).

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.

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.

The following table summarizes our consolidated results of operations for the years ended December 31, 2022, 2021, and 2020 (in thousands).

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Operating expense (excluding depreciation) 342,209 299,669 277,427

Depreciation, depletion, and amortization 94,241 90,036 86,121

Depreciation and amortization 99,769 94,241 90,036

Impairment expense — 1,838 85,806

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Total other expense, net (73,004) (72,657) (111,808)

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

Income (loss) before income taxes 364,899 (80,276) (429,806)

Income tax benefit (expense) (710) (1,021) 20,720

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Operating expense (excluding depreciation) 245,992 14,988 81,229 — 342,209

Depreciation, depletion, and amortization 58,258 22,044 10,880 3,059 94,241

Impairment expense 1,838 — — — 1,838

Depreciation and amortization 65,472 20,579 10,971 2,747 99,769

Loss (gain) on sale of assets, net 1 (253) 56 27 (169)

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Operating expense (excluding depreciation) 213,102 14,722 71,845 — 299,669

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

Depreciation and amortization 58,258 22,044 10,880 3,059 94,241

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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Operating expense (excluding depreciation) 199,738 13,581 64,108 — 277,427

Depreciation, depletion, and amortization 55,832 17,017 10,035 3,237 86,121

Depreciation 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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Refined product sales volume (Mbpd) 140.3 138.8 136.7

Hawaii Refineries

Combined Feedstocks Throughput (Mbpd) 82.0 72.7 109.0

Par East Throughput (Mbpd) 82.0 66.5 71.5

Par West Throughput (Mbpd) — 6.2 37.5

Hawaii Refinery

Feedstocks Throughput (Mbpd) 81.8 82.0 72.7

Yield (% of total throughput)

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Production costs per bbl ($/throughput bbl) (2) 4.86 3.98 4.03

DD&A per bbl ($/throughput bbl) 0.66 0.55 0.40

D&A per bbl ($/throughput bbl) 0.67 0.66 0.55

Washington Refinery

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Production costs per bbl ($/throughput bbl) (2) 4.01 3.86 3.50

DD&A per bbl ($/throughput bbl) 1.57 1.39 1.56

D&A per bbl ($/throughput bbl) 2.19 1.57 1.39

Year Ended December 31,

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Production costs per bbl ($/throughput bbl) (2) 7.32 6.22 8.69

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

D&A per bbl ($/throughput bbl) 2.85 2.86 4.34

Market Indices (average $ per barrel)

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________________________________________________________

(1) Feedstocks throughput and sales volumes per day for the Washington refinery for the year ended December 31, 2019 are calculated based on the 355-day period for which we owned the Washington refinery in 2019.

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.

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

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Adjusted Gross Margin for our other refineries is determined under the first-in, first-out (“FIFO”) inventory costing method.

The definition of Adjusted Gross Margin was modified beginning with the financial results reported for periods in fiscal year 2022.

We have recast Adjusted Gross Margin for prior periods when reported to conform to the modified presentation.

Please see discussion of Adjusted Gross Margin below.

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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.

(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 operations in Hawaii.

(3) We believe 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)) is the most representative market indicator for our operations in Hawaii.

(4) 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 (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.

(5) The profitability of our Wyoming refinery is heavily influenced by crack spreads in nearby markets.

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Management uses certain financial measures to evaluate our operating performance that are considered non-GAAP financial measures.

These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP and our calculations thereof may not be comparable to similarly titled measures reported by other companies.

These measures should not be considered in isolation or as substitutes or alternatives to their most directly comparable GAAP financial measures or any other measure of financial performance or liquidity presented in accordance with GAAP.

These non-GAAP measures may not be comparable to similarly titled measures used by other companies since each company may define these terms differently.

We believe Adjusted Gross Margin (as defined below) 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 and amortization.

Management uses Adjusted Gross Margin per barrel to evaluate operating performance and compare profitability to other companies in the industry and to industry benchmarks.

We believe Adjusted Net Income (Loss) and Adjusted EBITDA (as defined below) are useful supplemental financial measures that allow investors to assess the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis, the ability of our assets to generate cash to pay interest on our indebtedness, and our operating performance and return on invested capital as compared to other companies without regard to financing methods and capital structure.

Beginning with financial results reported for periods in fiscal year 2022, the inventory valuation adjustment was modified to include the first-in, first-out (“FIFO”) inventory gains (losses) associated with our titled manufactured inventory in Hawaii.

This modification was made to better align Adjusted Net Income (Loss) and Adjusted EBITDA with the cash flow of the Hawaii refining business.

Prior to 2022, the impacts of FIFO inventory gains (losses) associated with Hawaii titled manufactured inventory were eliminated through the inventory valuation adjustment.

Beginning with financial results reported for the second quarter of 2022, Adjusted Gross Margin, Adjusted Net Income (Loss), and Adjusted EBITDA also exclude the mark-to-market losses (gains) associated with our net RINs liability.

This modification was made to better reflect our operating performance and to improve comparability between periods.

We have recast Adjusted Gross Margin, Adjusted Net Income (Loss), and Adjusted EBITDA for prior periods when reported to conform to the modified presentation.

Adjusted Gross Margin.

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

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

Adjusted Gross Margin is defined as operating income (loss) excluding:

• operating expense (excluding depreciation);

• depreciation and amortization (“D&A”);

• impairment expense;

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• 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.

Cost of revenues (excluding depreciation) also includes the unrealized gain (loss) on derivatives and the inventory valuation adjustment that we exclude from Adjusted Gross Margin.

Beginning in 2020, Adjusted Gross Margin 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 Gross Margin (as part of the inventory valuation adjustment).

This change to our non-GAAP information was made to reflect the favorable or unfavorable impact of the market structure on the profitability of our Washington refinery consistent with the presentation of such impacts on our other refineries.

Also beginning in 2020, Adjusted Gross Margin excludes the LIFO layer liquidation impacts associated with our Washington inventory.

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.

• Renewable Identification Numbers (“RINs”) mark-to-market adjustments (which represents the income statement effect of reflecting our RINs liability on a net basis;

this adjustment also includes the mark-to-market losses (gains) associated with our net RINs liability);

• unrealized loss (gain) on derivatives.

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):

Year ended December 31, 2022 Refining Logistics Retail

Operating income (loss) $ (88,799) $ 51,159 $ 81,249

Operating income $ 401,901 $ 54,049 $ 49,238

Operating expense (excluding depreciation) 245,992 14,988 81,229

Depreciation, depletion, and amortization 58,258 22,044 10,880

Impairment expense 1,838 — —

Depreciation and amortization 65,472 20,579 10,971

Loss (gain) on sale of assets, net 1 (253) 56

Inventory valuation adjustment (15,712) — —

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

RINs mark-to-market adjustments 105,760 — —

Unrealized loss on derivatives 9,336 — —

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Operating expense (excluding depreciation) 213,102 14,722 71,845

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

Depreciation and amortization 58,258 22,044 10,880

Impairment expense 1,838 — —

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

Inventory valuation adjustment 31,841 — —

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

Unrealized gain on derivatives (4,804) — —

RINs mark-to-market adjustments 66,350 — —

Unrealized loss on derivatives 1,517 — —

Adjusted Gross Margin (1) $ 264,448 $ 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 55,832 17,017 10,035

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

Impairment expense 55,989 — 29,817

Inventory valuation adjustment 9,994 — —

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

Unrealized loss on derivatives 8,988 — —

RINs mark-to-market adjustments 81,709 — —

Unrealized gain on derivatives (4,804) — —

Adjusted Gross Margin (1) $ 64,730 $ 70,524 $ 128,828

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(1) For the years ended December 31, 2022, 2021 and 2020, there was no LIFO liquidation adjustment.

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

For the year ended December 31, 2022, there was no impairment expense.

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

Adjusted Net Income (Loss) and Adjusted EBITDA.

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).

Also beginning in 2020, Adjusted Net Income (Loss) excludes the LIFO layer liquidation impacts associated with our Washington inventory.

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 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:

• The financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;

• The ability of our assets to generate cash to pay interest on our indebtedness;

• Our operating performance and return on invested capital as compared to other companies without regard to financing methods and capital structure.

Adjusted Net Income (Loss) and Adjusted EBITDA should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing, and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.

Adjusted Net Income (Loss) and Adjusted EBITDA presented by other companies may not be comparable to our presentation as other companies may define these terms differently.

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 mark-to-market adjustments (which represents the income statement effect of reflecting our RINs liability on a net basis;

this adjustment also includes the mark-to-market losses (gains) associated with our net RINs liability);

• 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;

• Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives.

Adjusted EBITDA is defined as Adjusted Net Income (Loss) excluding:

• 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;

• income tax expense (benefit) excluding the increase in (release of) tax valuation allowance.

The following table presents a reconciliation of Adjusted Net Income (Loss) and Adjusted EBITDA to the most directly comparable GAAP financial measure, net income (loss), on a historical basis for the periods indicated (in thousands):

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Inventory valuation adjustment (15,712) 31,841 9,994

RINs loss (gain) in excess of net obligation 16,967 44,071 (3,398)

RINs mark-to-market adjustments 105,760 66,350 81,709

Unrealized loss (gain) on derivatives 9,336 1,517 (4,804)

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Impairment of Investment in Laramie Energy, LLC (2) — — 45,294

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

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

Gain on sale of assets (169) (64,697) —

Adjusted Net Income (Loss) (3) 474,668 (36,133) (216,237)

Depreciation, depletion, and amortization 94,241 90,036 86,121

Depreciation and amortization 99,769 94,241 90,036

Interest expense and financing costs, net 68,288 66,493 70,222

Equity losses (earnings) from Laramie Energy, LLC, excluding Par’s share of unrealized loss (gain) on derivatives and impairment losses — 2,721 8,568

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

Income tax expense (benefit) 710 1,021 176

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Operating income for our refining segment was $401.9 million for the year ended December 31, 2022, an improvement of $490.7 million compared to an operating loss of $88.8 million for the year ended December 31, 2021.

The increase in profitability was primarily driven by widening product crack spreads across all our refineries, and a favorable change in the valuation of the embedded derivatives related to our intermediation agreements driven by changes in commodity prices, partially offset by unfavorable purchased product and crude differentials, unfavorable FIFO adjustments, higher inventory financing costs of $79.0 million, increased fuel burn costs related to higher crude oil costs as discussed below, increased RINs costs of $54.7 million, and unfavorable derivative costs.

Other factors impacting our results period over period include 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 and a 15% increase in operating expenses in 2022, primarily driven by increased utilities, maintenance, and employee costs.

Operating income for our logistics segment was $54.0 million for the year ended December 31, 2022, an increase of $2.8 million compared to operating income of $51.2 million for the year ended December 31, 2021.

The increase is primarily due to higher third party revenues partially offset by net 2% and 4% decreased throughput across our Hawaii and Wyoming logistics assets, respectively.

Operating income for our retail segment was $49.2 million for the year ended December 31, 2022, a decrease of $32.0 million compared to operating income of $81.2 million for the year ended December 31, 2021.

The decrease in profitability was primarily due to a gain on sale of assets of $45.0 million primarily related to the 2021 Hawaii sale-leaseback transactions we closed in the first quarter of 2021 with no such gain in 2022 and a 13% increase in operating expenses in the year ended December 31, 2022 primarily related to increased employee costs, higher credit card processing fees due to increased gasoline prices, rebranding fees in Hawaii, and higher rent expense related to the additional leases from our 2021 Hawaii sale-leaseback transactions, partially offset by a 31% increase in fuel margin.

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.

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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.

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.

The decrease in profitability was primarily driven by lower refining sales volumes at our Hawaii and Wyoming refineries related to COVID-19 demand destruction and turnarounds in both locations, unfavorable crude oil differentials and crack spreads, increased RINs expenses and derivative costs, goodwill impairment charges of $38.1 million, asset impairment charges of $17.9 million, and unfavorable lower of cost and net realizable value adjustments of $10.6 million, partially offset by improved energy-related cost of sales and operating expense reductions across our refineries in response to COVID-19.

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.

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.

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.

Discussion of Adjusted Gross Margin by Segment

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For the year ended December 31, 2022, our refining Adjusted Gross Margin was approximately $812.8 million, an increase of $548.4 million compared to $264.4 million for the year ended December 31, 2021.

The increase in profitability was primarily driven by favorable realized product crack spreads across all our refineries partially offset by unfavorable purchased product costs, unfavorable FIFO adjustments, increased inventory financing costs of $79.0 million in Hawaii, unfavorable derivative costs, and increased costs related to fuel burn related to higher crude oil costs as discussed below.

Adjusted Gross Margin for the Hawaii refinery improved from $4.56 per barrel in 2021 to $13.99 per barrel in 2022 primarily due to favorable product crack spreads, and a 1.7% increase in refined product sales volumes, partially offset by unfavorable purchased product and crude oil costs, unfavorable FIFO adjustments, a $78.8 million increase in intermediation fees driven primarily by $59.4 million higher market structure fees under the Supply and Offtake Agreement, increased fuel burn costs related to higher crude oil costs as discussed below, and unfavorable derivatives.

Adjusted Gross Margin for the Washington refinery increased by $15.02 per barrel primarily due to favorable product crack spreads, partially offset by unfavorable feedstock costs and increased costs related to fuel burn.

Adjusted Gross Margin for the Wyoming refinery increased by $12.03 per barrel primarily due to favorable product crack spreads, partially offset by unfavorable feedstock costs and increased RINs costs.

For the year ended December 31, 2022, our logistics Adjusted Gross Margin was approximately $89.4 million, an increase of $1.5 million compared to $87.9 million for the year ended December 31, 2021.

The increase was primarily driven by higher third party revenues partially offset by net 2% and 4% decreased throughput across our Hawaii and Wyoming logistics assets, respectively.

For the year ended December 31, 2022, our retail Adjusted Gross Margin was approximately $141.5 million, an increase of $22.6 million compared to $118.9 million for the year ended December 31, 2021.

The increase was primarily due to a 31% increase in fuel margins partially offset by a 3% decline in sales volumes.

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 $264.4 million, an increase of $199.7 million compared to a loss of $64.7 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.

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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.

The increase was primarily driven by a net 12% and 32% increase in 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 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.

The decline in refining sales volumes in Hawaii and Wyoming was driven by COVID-19 demand destruction and turnarounds in both locations.

Adjusted gross margin for the Washington refinery decreased $7.38 per barrel primarily due to unfavorable crack spreads and higher RINs expenses, partially offset by favorable derivative costs.

For the year ended December 31, 2020, our logistics Adjusted Gross Margin was approximately $70.5 million, a decrease of $16.6 million compared to $87.1 million for the year ended December 31, 2019.

The decrease was primarily driven by 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 and major turnarounds at both locations, partially offset by a net 9% increase in throughput across our Washington logistics assets.

For the year ended December 31, 2020, our retail Adjusted Gross Margin was approximately $128.8 million, an increase of $2.2 million compared to $126.6 million for the year ended December 31, 2019.

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.

Discussion of Consolidated Results

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The increase was primarily the result of an increase of $2.5 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 rose to $99.04 per barrel for the year ended December 31, 2022 compared to $70.95 per barrel for the year ended December 31, 2021, and WTI crude oil prices averaged $94.33 per barrel during the year ended December 31, 2022 compared to $68.11 per barrel in the year ended December 31, 2021.

Other factors contributing to the increase in revenues at our refining segment include improved realized product crack spreads across all our refineries.

Revenues at our retail segment increased $113.8 million primarily due to a 36% increase in fuel prices slightly offset by a 3% decline in sales volume.

Cost of Revenues (Excluding Depreciation).

For the year ended December 31, 2022, cost of revenues (excluding depreciation) was $6.4 billion, a $2.1 billion increase compared to $4.3 billion for the year ended December 31, 2021.

The increase was primarily due to increases in Brent and WTI crude oil prices as discussed above, unfavorable purchased products, higher feedstock costs, and higher inventory financing costs.

These increases were partially offset by a favorable change in the valuation of the embedded derivatives related to our inventory financing agreements driven by changes in commodity prices.

Operating Expense (Excluding Depreciation).

For the year ended December 31, 2022, operating expense (excluding depreciation) was approximately $342.2 million, an increase of $42.5 million compared to $299.7 million for the year ended December 31, 2021.

The increase was primarily due to higher utilities expenses, maintenance expenses at our Hawaii refinery and increased employee costs.

Other factors contributing to the increase include higher outside services expenses.

Depreciation and Amortization .

For the year ended December 31, 2022, D&A expense was approximately $99.8 million, an increase of $5.6 million compared to $94.2 million for the year ended December 31, 2021.

The increase was primarily due to amortization of our Washington Refinery turnaround completed in 2022.

Impairment Expense.

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

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 discussion on our 2021 asset impairment charges.

There were no impairment charges during the year ended December 31, 2022.

Gain on Sale of Assets, Net.

For the year ended December 31, 2022, there was a $0.2 million gain on sale of assets, net, which resulted primarily from the sale of equipment.

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 in the first quarter of 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.

General and Administrative Expense (Excluding Depreciation).

For the year ended December 31, 2022, general and administrative expense (excluding depreciation) was approximately $62.4 million, an increase of $14.3 million compared to $48.1 million for the year ended December 31, 2021.

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

Acquisition and Integration Costs.

For the year ended December 31, 2022, we incurred approximately $3.7 million of expenses primarily related to costs incurred for the pending Billings Acquisition.

For the year ended December 31, 2021, we incurred an immaterial amount of acquisition and integration costs.

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, 2022, our interest expense and financing costs were approximately $68.3 million, an increase of $1.8 million compared to $66.5 million for the year ended December 31, 2021.

The increase was primarily due to an increase of $7.4 million related to increased borrowings under our inventory financing agreements and increased rates on our Term Loan B Facility.

These increases were partially offset by 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 reduced interest on our 12.875% Senior Secured Notes driven by early repayment of these notes.

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.

Debt extinguishment and commitment costs.

For the year ended December 31, 2022, our debt extinguishment and commitment costs were approximately $5.3 million and primarily represented extinguishment costs associated with the repurchase and cancellation of an additional $36.9 million of 12.875% Senior Secured Notes in the second quarter of 2022.

For the year ended December 31, 2021, our debt extinguishment and commitment costs were approximately primarily $8.1 million and primarily represented $6.6 million in extinguishment costs associated with the redemption of $36.8 million of 12.875% Senior Secured Notes in June 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.

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, 2022.

Income Taxes.

For the year ended December 31, 2022, we recorded an income tax expense of $0.7 million primarily driven by an increase in state taxable income.

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

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.

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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.

Depreciation and Amortization .

For the year ended December 31, 2021, D&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.

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Gain on Sale of Assets, Net.

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.

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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.

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.

Revenues in our retail segment decreased $95.2 million primarily due to 18% declines in both sales volumes and fuel prices.

Cost of Revenues (Excluding Depreciation).

For the year ended December 31, 2020, cost of revenues (excluding depreciation), was $2.9 billion, a $1.9 billion decrease compared to $4.8 billion for the year ended December 31, 2019.

The decrease was primarily due to the decreases in Brent and WTI crude oil prices and lower refining sales volumes discussed above.

These decreases were partially offset by unfavorable crude oil differentials, higher RINs expenses, increased derivative costs, and an unfavorable lower of cost and net realizable value adjustment of $10.6 million.

Cost of revenues at our retail segment decreased $97.4 million primarily due to lower fuel costs and an 18% decline in sales volumes.

Operating Expense (Excluding Depreciation).

For the year ended December 31, 2020, operating expense (excluding depreciation) was approximately $277.4 million, a decrease of $35.5 million compared to $312.9 million for the year ended December 31, 2019.

The decrease was primarily due to lower utilities and repairs and maintenance expenses and COVID-19- related reductions in travel, employee costs, and the use of outside services.

Depreciation, Depletion, and Amortization .

For the year ended December 31, 2020, DD&A expense was approximately $90.0 million, an increase of $3.9 million compared to $86.1 million for the year ended December 31, 2019.

The increase was primarily due to recently completed capital projects, including three turnarounds during 2019 and 2020 and our Washington renewables logistics project.

Impairment Expense.

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 the goodwill impairment of $67.9 million and asset impairment of $17.9 million, respectively.

There was no impairment expense for the year ended December 31, 2019.

General and Administrative Expense (Excluding Depreciation).

For the year ended December 31, 2020, general and administrative expense (excluding depreciation) was approximately $41.3 million, a decrease of $4.9 million compared to $46.2 million for the year ended December 31, 2019.

The decrease was primarily due to COVID-19-related reductions in travel and employee costs and a reduction in the use of outside services.

Acquisition and Integration Costs.

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.

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, 2020, our interest expense and financing costs were approximately $70.2 million, a decrease of $4.6 million compared to $74.8 million for the year ended December 31, 2019.

The decrease was primarily due to a $4.0 million decrease in due to the exchange of a portion of our outstanding 5.00% Convertible Senior Notes during 2019, a decrease of $4.7 million due to reduced borrowings under our inventory financing agreements, and a decrease of $4.3 million due to the reduced principal and lower variable interest rates on our Term Loan B Facility.

These decreases were partially offset by interest expense of $8.1 million related to the 12.875% Senior Secured Notes issued in June 2020.

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 approximately $4.3 million, a change of $7.5 million compared to a loss of $3.2 million for the year ended December 31, 2019.

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

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.

There were no debt extinguishment and commitment costs 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, a difference of $42.9 million compared to equity losses of $89.8 million for the year ended December 31, 2019.

During the years ended December 31, 2020 and 2019, we recorded other-than-temporary impairment charges of $45.3 million and $81.5 million related to our investment in Laramie Energy, respectively.

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 more information.

Income Taxes.

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.

Condensed Consolidating Financial Information

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(together with the Issuer, the “Issuers”), which has no independent assets or operations.

The 7.75% Senior Secured Notes, Term Loan B, and 12.875% Senior Secured Notes are guaranteed on a senior unsecured basis only as to payment of principal and interest by Par Pacific Holdings, Inc.

The 7.75% Senior Secured Notes, Term Loan B, and 12.875% Senior Secured Notes are guaranteed on a senior unsecured basis only as to payment of principal and

interest by Par Pacific Holdings, Inc.

(the “Parent”) and are guaranteed on a senior secured basis by all of the subsidiaries of Par Petroleum, LLC (other than Par Petroleum Finance Corp.).

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Property, plant, and equipment 19,865 1,200,747 3,955 1,224,567

Less accumulated depreciation, depletion, and amortization (13,869) (307,091) (2,932) (323,892)

Less accumulated depreciation and amortization (14,967) (370,643) (3,123) (388,733)

Property, plant, and equipment, net 4,898 830,104 832 835,834

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Property, plant, and equipment 19,535 1,156,906 3,956 1,180,397

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

Less accumulated depreciation and amortization (13,869) (307,091) (2,932) (323,892)

Property, plant, and equipment, net 5,666 849,815 1,024 856,505

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Operating expense (excluding depreciation) — 342,209 — 342,209

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

Impairment expense — 1,838 — 1,838

Depreciation and amortization 2,131 97,448 190 99,769

Loss (gain) on sale of assets, net 27 (196) — (169)

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Debt extinguishment and commitment costs — (5,329) — (5,329)

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

Other income (expense), net (20) 634 (1) 613

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Operating expense (excluding depreciation) — 300,386 (717) 299,669

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

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

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 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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Operating expense (excluding depreciation) — 282,159 (4,732) 277,427

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

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

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

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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Inventory valuation adjustment — (15,712) — (15,712)

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

RINs mark-to-market adjustments — 105,760 — 105,760

Unrealized loss on derivatives — 9,336 — 9,336

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Debt extinguishment and commitment costs — 5,329 — 5,329

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

Change in value of common stock warrants — — — —

Severance costs 351 1,921 — 2,272

Impairment expense — — — —

Impairments of Investments in Laramie Energy, LLC (2) — — — —

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

Loss (gain) on sale of assets, net 27 (196) — (169)

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

Depreciation and amortization 2,131 97,448 190 99,769

Interest expense and financing costs, net 1 68,655 (368) 68,288

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

Equity losses (income) from subsidiaries (388,008) — 388,008 —

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Inventory valuation adjustment — 31,841 — 31,841

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

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

RINs mark-to-market adjustments — 66,350 — 66,350

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

Acquisition and integration costs 87 — — 87

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

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

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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)

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

Impairments of Investment in Laramie Energy, LLC (2) — — — —

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

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

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

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

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Inventory valuation adjustment — 9,994 — 9,994

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

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

RINs mark-to-market adjustments — 81,709 — 81,709

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

Acquisition and integration costs — 614 — 614

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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

Impairment of Investment in Laramie Energy, LLC (2) — — 45,294 45,294

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

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

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

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

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

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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 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.

(3) There was no LIFO liquidation adjustment or change in value of contingent consideration for the years ended December 31, 2022, 2021, and 2020.

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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, 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.

Our liquidity position as of December 31, 2022 was $577.2 million and consisted of $574.6 million at Par Petroleum, LLC and subsidiaries, $2.5 million at Par Pacific Holdings, and $0.1 million at all our other subsidiaries.

As of December 31, 2022, we had access to the J.

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We believe our cash flows from operations and available capital resources will be sufficient to meet our current capital and turnaround expenditures, working capital, and debt service requirements for the next 12 months.

We may seek to raise additional debt or equity capital to fund any other significant changes to our business or to refinance existing debt.

We may seek to raise additional debt or equity capital to fund acquisitions and any other significant changes to our business or to refinance existing debt.

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

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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.

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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.

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

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).

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Net cash provided by (used in) financing activities 13,407 (1,094) 42,559

Cash flows for the year ended December 31, 2022

Net cash provided by operating activities for the year ended December 31, 2022 was driven primarily by net income of $364.2 million, non-cash charges to operations of approximately $127.6 million, and net cash used for changes in operating assets and liabilities of approximately $39.2 million.

Non-cash charges to operations consisted primarily of the following adjustments:

• depreciation and amortization expenses of $99.8 million;

• stock based compensation costs of $9.4 million;

• unrealized loss on derivatives contracts of $9.3 million;

• debt commitment and extinguishment costs of $5.3 million.

Net cash used for changes in operating assets and liabilities resulted primarily from:

• net increases in our Supply and Offtake Agreement and Washington Refinery Intermediation Agreement obligations and accounts payable;

• an increase in gross environmental credit obligations primarily related to current period production volumes and increases in RINs prices;

partially offset by

• net increases in our inventories and accounts receivable resulting from higher crude oil and refined product prices and higher inventory volumes at our Hawaii refinery;

• increase in prepaid and other primarily driven by a $34.7 million increase in Collateral posted with broker for derivative instruments.

Net cash used in investing activities for the year ended December 31, 2022 consisted primarily of:

• $53.0 million in additions to property, plant, and equipment driven by profit improvement and turnaround projects including crude recovery and debottlenecking projects at our Tacoma refinery, maintenance and tank replacement projects at our Wyoming refinery, and co-generation engine and tank conversion projects at our Hawaii refinery;

• $35.5 million related to acquisitions, primarily comprised of a $30.0 million deposit on the Billings Acquisition and $5.5 million for a three-store expansion of our Washington retail footprint.

Net cash provided by financing activities was approximately $13.4 million for the year ended December 31, 2022 and consisted primarily of the following activities:

• net borrowings under the J.

Aron Discretionary Draw Facility and MLC receivable advances of $80.7 million;

partially offset by

• net repayments of debt of $62.0 million primarily driven by the partial repurchase and cancellation of our 7.75% Senior Secured Notes and 12.875% Senior Secured Notes;

• repurchases of common stock of $7.8 million.

Cash flows for the year ended December 31, 2021

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, 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 provided by investing activities was approximately $74.6 million for the year ended December 31, 2021 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 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 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.

Cash flows for the year ended December 31, 2020

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.

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.

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.

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.

Net cash provided by financing activities for the year ended December 31, 2019 of approximately $300.2 million consisted primarily of proceeds from net borrowings on our debt agreements, J.

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.

Cash Requirements

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Our deferred turnaround costs and capital expenditures, excluding acquisitions, for the year ended December 31, 2022, totaled approximately $82.6 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.

Our capital expenditures and deferred turnaround costs budget for 2023 ranges from $85 to $95 million and primarily relates to 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 over the next five years.

Operating Lease Liabilities.

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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 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.

Aron entered into the second amended and restated supply and offtake agreement which expires on May 31, 2024, with a one-year extension option.

Aron entered into amendments to the Supply and Offtake Agreement on April 25, 2022, and May 17, 2022, which, among other things, increased the capacity under the Discretionary Draw Facility.

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

Washington Refinery Intermediation Agreement .

In connection with the consummation of the Washington Acquisition on January 11, 2019, we assumed the Washington Refinery Intermediation Agreement with MLC to support the operations of our Washington refinery.

On November 1, 2019, we 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.

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.

We and MLC entered into amendments to the Washington Refinery Intermediation Agreement on February 11, 2021, December 17, 2021, March 9, 2022, May 9, 2022, August 11, 2022, and November 2, 2022, which, among other things, increased the maximum borrowing capacity under the MLC receivable advances.

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

Billings Acquisition.

On October 20, 2022, we entered into a purchase agreement with Exxon Mobil Corporation, ExxonMobil Oil Corporation and ExxonMobil Pipeline Company LLC (collectively, the “Sellers”) to acquire (i) the high-conversion, complex refinery located in Billings, Montana, and certain associated distribution and logistics assets, and (ii) 100% of the issued and outstanding equity interests in Exxon Billings Cogeneration, Inc.

and in Yellowstone Logistics Holding Company.

Upon a successful closing of the transactions contemplated by the purchase agreement, we would pay a purchase price of $310 million plus the value of hydrocarbon inventory and adjusted working capital to the Sellers.

The purchase price is also subject to other purchase price adjustments.

We have not recorded a related contingency during the fiscal year ended December 31, 2022, as this transaction is subject to customary closing conditions and is expected to close in the second quarter

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

Environmental Matters.

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The preparation of these consolidated financial statements required us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses.

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.

Our significant accounting policies are described in our audited consolidated financial statements under Item 8 of this Form 10-K.

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.

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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.

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

We are a party to the Washington Refinery Intermediation Agreement with MLC.

Under this arrangement, U.S.

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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.

In estimating fair value, we use discounted cash flow projections, recent comparable market transactions, if available, or quoted prices.

In estimating fair value, we use discounted cash flow projections, recent comparable market transactions, if available, or quoted

We consider assumptions that third parties would make in estimating fair value, including the highest and best use of the asset.

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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.

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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

We evaluate our investment in Laramie Energy for impairment when factors indicate that a decrease in the value of our investment has occurred and the carrying amount of our investment may not be recoverable.

The fair value of our investment in Laramie Energy is determined using the income approach and/or the market approach.

Under the income approach, we estimate the present value of expected future cash flows using a market participant discount rate.

Other significant inputs used in the income approach include proved and unproved reserves information and forecasts of operating expenditures obtained from Laramie Energy's management.

Under the market approach, we estimate fair value using observable multiples for comparable companies within our industry.

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.

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.

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

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

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.

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.

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

Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss (“NOL”) and tax credit carry forwards.

The realizability of deferred tax assets is evaluated quarterly based on a “more likely than not” standard and, to the extent this threshold is not met, a valuation allowance is recorded.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis